Locations selected for construction and operation of SEZ in Nepal not appropriate, says report
KATHMANDU, JULY 10
While the concept of Special Economic Zones (SEZs) in Nepal started with the initiation of the Bhairahawa SEZ over two decades ago, the pace of SEZ development and operation has been very disappointing.
According to a report published by the Policy Research Institute (PRI), it has been found that the policy harmonisation between the country's overall economic policies and the sectoral policies that should promote and facilitate the SEZs and the industries operating in such zones has remained very weak. Due to the unnoticeable differences in treatment between the industries operating within and out of SEZs in Nepal along with the unavailability of the 'single-window service' feature as seen around the world, investors are unwilling to invest in the special economic zones of Nepal, the report states.
Moreover, the SEZ Authority of Nepal has spent only 47 percent of the allocated budget of Rs 6.39 billion between July 2008 and June 2021. Overall, only 50 per cent of the total allocated budget has been spent including both current and capital expenditure of Rs 220.7 million invested in the development of the SEZ and its infrastructure up to June 2008, which raises questions on the performance of the SEZ Authority, shows weakness in the long public procurement process, the capacity of administrative leadership, and the ability of the SEZ Authority to implement the work plan.
As a result, the lack of infrastructural development within the SEZ has also affected industrial development, the report states.
Although Bhairahawa SEZ is established at an accessible location, its operation has not been that effective as there is no significant difference in the facilities enjoyed by industries in other places of the countries and the industries operating within the SEZ. The report also states that while Nepal has made various efforts to develop industrial districts andSEZs in various locations of the country to promote industrial development in Nepal through improving policy regimes related to the SEZ gradually taking account of tax and other duty exemptions and other non-monetary facilities, the pace of SEZ development and operation has remained very weak.As of 2022, a total of 14 locations across the country are identified for SEZ following the completion of feasibility studies including in Bhairahawa, Simara, Panchkhal, Nuwakot, Biratnagar, Rautahat, Nepalgunj, Gorkha, Talban, Siraha, Dhangadi, Dhanusa, Jhapa and Jumla. The reportalso argues that the locations selected for the construction and operation of SEZ in Nepal are not appropriate, compared to the international practice, despite the importance of locational advantage being one of the major factors that make a special economic zone successful.
According to the report, al-though the operational Bhairahawa SEZ and the Simara SEZ, set to come into operation soon, are both very close to the border of India, they are yet to be connected to the railway network. Similarly, the under-construction SEZ at Panchkhal and the proposed SEZs at Jumla, Gorkha, andNuwakot are also observed to be in an unsuitable location considering the locational advantage for export promotion.
The PRI has suggested that the Special Economic Zone Authority and the Ministry of Industry, Commerce and Supply study and analyse the basic aspects like a comparative advantage in Nepal's export business and assessment of the country's opportunities while choosing the location of the SEZ and investing in the required infrastructure, as even the SEZs in accessible locations like Bhairahawa have not been able to operate at full capacity.
It has also been suggested to include the industries operating within the SEZs in economic policies related to finance and monetary aspects; exchange policies; special programmes aimed at economic recovery in the event of epidemics or unforeseen events; concessional loans and the extension of the loan repayment period; loan restructuring and rescheduling; foreign exchange management and payment systems.
In addition, the report has suggested motivating private sector to invest in SEZs by introducing an exemplary model that can motivate investors, establishing a SEZ in each province within the next five years and looking for comparative advantages to establish a product-specific economic zone to accelerate production and export of such products, assisting in facilitating the delivery of raw materials and manufactured goods required for industries, and building or permitting the construction of essential infrastructures.
Similarly, it has been suggested to emphasise on government-to-government cooperation, which should be used in the development and operation of special economic zones while also utilising the cooperation of donor countries willing to invest in physical infrastructure.
Likewise, the PRI has suggested inviting the private sector to operate SZEs that have not been able to come into full operation, among other recommendations.
A version of this article appears in the print on July 11, 2023, of The Himalayan Times.