The rise and fall of Gadoon Industries

Policy

The rise and fall of Gadoon Industries
Initially the Gadoon Amazai Industrial Estate was lavishly granted incentives, but then neglected and left to ruin. However, a comprehensive package for investors can save the dying industries
By Tahir Ali

http://jang.com.pk/thenews/Dec2012-weekly/nos-30-12-2012/pol1.htm#1

If the establishment of the Gadoon Amazai Industrial Estate (GAIE) in an area located far away from the sea-port with no raw material was wrong, the abrupt withdrawal of incentives announced earlier for attracting investment in it was even more appalling. The Sarhad Development Authority gives advice on the technical, operational and commercial feasibilities of industrial projects, but it could not be ascertained whether it had recommended the GAIE or not.

“The industries whose raw material was abundantly available here — the agriculture processing, packaging and paper board, furniture, cigarette and its allied industries — were neglected,” according to Mumtazuddin, an economist and industrialist.

According to Rangeen Shah, former secretary of the Gadoon Chamber of Commerce and Industry (GCCI), no industrial estate should have been established at first at such a distant place as Gadoon. “There were no raw materials and market available for industries here. High transportation cost on getting raw material from, and sending finished goods to, other provinces made the GAIE products less competitive. But when incentives were announced once, these should not have been withdrawn on the pressure of industrialists from other areas,” he said.

He said Gadoon had been harmed by policy makers, not industrialists. “With incentives withdrawn in 1991, Gadoon ceased to attract fresh investment and the factories already there mostly closed down or began minimal production. Out of 270 units in operation then, around 120 are running round the clock or in one or two shifts. However, it were the small industries that were closed and the bigger ones who had built huge infrastructure were constrained to be retained and even expanded,” he added.

Zahid Shinwari, ex-president of the GCCI and the vice-president of the KP Chamber of Commerce and Industries, said the factories here already faced cost differential of about 25 per cent and the incentives had brought them at par with their other counterparts. “But when these incentives were withdrawn, industries went into losses. At its peak, there were around 80,000 employees in the estate but their number is around 16,000 these days. Out of 270 factories, only 73 are fully operational of late. No new factory has been established since then.”

According to an industrialist, Ghulam Mohiuddin, while around 75 per cent industries had been closed down following the withdrawal of incentives, the situation had improved due to the industrial package announced by former prime minister Yousaf Raza Gilani in 2009. “Under the war of terror package, industries in the KP were given exemptions from sales tax, income tax and excise duty on different ratios for three years. These expired in June 2012 and need to be extended for another two to three years,” he suggested.

Continuous loadshedding of electricity and gas has forced many of the industries to work in one or two shifts. Units closed or working in one or two shifts could not sustain for long. The problem has been multiplied by the fact that most of the technical employees belong to Punjab and once they leave, they cannot be available again easily.

 

The estate and the incentives:

The Rs10 billion GAIE project, spread over 1116 acres, situated over 100km to the East of Peshawar, was created after seven poppy growers were killed in anti-poppy operation in the area in 1987. The GAIE was initially planned to have 600 factories. Predominant industries include textile, chemicals, steel, and PVCs and plastic industries.

The estate has spacious roads, drainage and water supply system, communication system, power and gas facilities and standard schooling and medical facilities at Tarbela, lying close to it, and Peshawar.

In 1989, the government of late Benazir Bhutto announced several incentives for the industries in the province and the GAIE.

The incentives for the province-wide industries included an income tax holiday for 8 years, exemption from sales tax for 5 years and exemption from custom duty on imported machinery. For the GAIE, additional incentives were announced that included duty free import of raw materials, 50 per cent concession in power tariff and provision of loans at 3 per cent mark up.

In May 1991, the Nawaz Sharif government withdrew these incentives given to the GAIE under pressure from the Punjab industrialists and the International Monetary Fund (IMF) and the US because such incentives had not been given to other industrial estates.

Since the withdrawal of incentives, the shifting of machinery from the GAIE was banned but it continued stealthily. However, in May 2012, the industrialists and the Khyber-Pakhtunkhwa government have agreed to lift the ban. This caused the departure of more industries from the estate.

In 2003, the estate was converted to an Export Processing Zone by Syed Iftikhar Hussain Shah, the then provincial governor. But the plan seems to have been shelved. According to Shinwari, the concerned authority had expressed reservations over the decision and the file is still lying there.

In 2007, representatives of the US government visited the GAIE and vowed to revive some industries under the Reconstruction Opportunity Zone programme, under which goods from the Gadoon estate were to be exported to the US duty-free. But the idea could not materialise because the US Congress rejected the bill.

Experts suggest that incentives and industrialisation go hand in hand. Both are interlinked. For example, when the package for the GAIE was announced, over 200 industries were established within no time there. But when they were withdrawn, the pace of industrialisation slowed down, rather reverted.

 

What needs to be done?

According to Mumtazuddin, the estate can be revived as and when the government creates a conducive environment for investment by improving security situation and announcing a comprehensive package for the investors. “First of all, the government should announce that whosoever intends to establish industries will not be asked about his sources of income. Then it should give soft loans without requiring collateral and with prolonged grace period. Interest on industrial loans should in no way exceed 12-15 per cent. Subsidies on loans, power/gas tariff, industrial plots and sales and income taxes and rebate in custom and excise duty on import of raw material and machinery should be announced,” he proposed.

“Sales and income tax rebate for five years be announced for the GAIE. Gas and power loadshedding be minimised if not eliminated altogether. Any possible reduction in gas and power tariff will be welcome,” Rangeen Shah pleads.

“To give it a level playing field, the estate deserves a permanent reduction of 25 per cent in sales/income tax and power/gas tariff. This will not only revive the sick industries but also encourage fresh investment. This rebate in taxes, as suggested by the Federal Board of Revenue, will revive industries which will lead to paying more taxes and clearance of stuck up bank loans on their part,” Shinwari concluded.

 

No benefits for the locals

The establishment of the GAIE was pushed by a desire to provide jobs and livelihood to the locals to stop them from poppy cultivation. However, no homework was done on the skill development of the locals. A technical college promised for training of local children and developing manpower for the estate is yet to be built.

The result was that the locals were kept only as watchmen or labourers while technicians were hired from Punjab and Sindh.

This partly explains why poppy cultivation started in some parts of Gadoon again. In April 2012, the government had to conduct operation to destroy poppy crop grown over 34 kanals in some remote Gadoon villages.

Shinwari said had there been a technical college that had trained the locals, they would have been employed at the GAIE. “Non-availability of technicians locally forced the industrialists to hire them from Punjab and elsewhere. However over 80 per cent of the non-technical staff are locals,” he informed.

According to a blogger on Swabi online, GAIE once had 580 industries and mills but due to improper planning, it is losing its charm. “Labourers worked for 12 hours and no week-end leave, no casual leave and no medical leave were allowed to them. So when the GAIE incentives were withdrawn, the locals and labour leaders remained indifferent,” the blogger says.

But Zahid Shinwari said though there may be labour rights violations in the estate by some factories and individual entrepreneurs, the labour laws are overall followed. The concerned departments routinely check the implementation of these rules.

…………………..

Original text of the article as it was sent to The News.

Gadoon Amazai Industrial Estate: first lavishly bestowed, then neglected

By Tahir Ali

If the establishment of the Gadoon Amazai industrial Estate (GAIE) in an area located far away from the sea-port with no raw material was wrong, the abrupt withdrawal of incentives announced earlier for attracting investment in it was even more appalling.

The Sarhad Development Authority gives advice on the technical, operational and commercial feasibilities of industrial projects but it could not be ascertained whether it had recommended the GAIE or not.

“The industries whose raw material was abundantly available here –like the agriculture processing, packaging and paper board, furniture, cigarette and its allied industries –were neglected,” according to Mumtazuddin, a historian and industrialist.

According to a Rangeen Shah, former secretary of the Gadoon Chamber of Commerce and Industry (GCCI), no industrial estate should have been established at first at such a distant place as Gadoon. “There were no raw materials and market available for industries here. High transportation cost on getting raw material from, and sending finished goods to, other provinces made the GAIE products less competitive. But when incentives were announced once, these should not have been withdrawn on the pressure of industrialists from other areas?” he said.

He said Gadoon had been harmed by policy makers, not industrialists. “With incentives withdrawn in 1991, Gadoon ceased to attract fresh investment and the factories already there mostly closed down or began minimal production. Out of 270 units in operation then, around 120 are running round the clock or in one or two shifts.  However, it were the small industries that were closed and the bigger ones who had built huge infrastructure were constrained to be retained and even expanded,” he added.

Zahid Shinwari, the ex president of the GCCI and the vice president of the KP chamber of commerce and industries, said the factories here already faced cost differential of about 25 per cent and the incentives had brought them at par with their other counterparts. But when these were withdrawn, industries went into losses. At its peak, there were around 80000 employees in the estate but their number is around 16000 these days. Out of 270 factories, only 73 are fully operational of late. No new factories have been established since then,” he said.

According to an industrialist Ghulam Mohiuddin, while around 75 per cent industries had been closed down following the withdrawal of incentives, the situation had improved for the industrial package announced by PM Yousaf Gilani in 2009. “Under the war of terror package, industries in KP were given exemptions from sales tax, income tax and excise duty on different ratios for 3 years. These expired in June 2012 and need to be extended for another two to three years,” he said.

Continuous load-shedding of electricity and gas has forced many of the industries to work in one or two shifts. Units closed or working in one or two shifts cannot sustain for long. The problem has been multiplied by the fact that most of the technical employees belong to the Punjab and once they leave, they cannot be available again easily.

Locals could not benefit

The establishment of the GAIE was pushed by a desire to provide jobs and livelihood means to the locals to stop them from poppy cultivation in future. However, no homework was done on the skill development of the locals. A technical college promised for training of local children and developing manpower for the estate is yet to be built.

The result was that the locals were kept only as watchmen or chaprasis while technicians were hired from Punjab and Sindh.

This partly explains why poppy cultivation started in some parts of Gadoon again. In April 2012, the government had to conduct operation to destroy poppy crop grown over 34 kanals in some remote Gadoon villages.

Shinwari said had there been a technical college that had trained the locals, they would have been employed at the GAIE. “Non-availability of technicians locally forced the industrialists to hire them from Punjab and elsewhere. However over 80 per cent of the non-technical staff are locals,” he informed.

According to a blogger on Swabi online, GAIE once had 580 industries and mills but due to improper planning, it is losing its charm. “The biggest of reasons was that labourers worked for 12 hours and no week-end leave, no casual leave and no medical leave were allowed to them. So when the GAIE incentives were withdrawn, the locals and labour leaders remained indifferent,” he says.

But Zahid Shinwari said there may be labour rights violations in the estate by some factories and individual entrepreneurs but labour laws are overall followed. The concerned departments routinely check the implementation of these rules.

The estate and the incentives

The Rs10 billion GAIE project, spread over 1116 acres, situated over 100km to the East of Peshawar, was created after seven poppy growers were killed in anti-poppy operation in the area in 1987. The GAIE was initially planned to have 600 factories. Predominant industries are Textile, Chemicals, Steel, and PVCs and plastic industries.

The estate has spacious roads, drainage and water supply system, communication system, power and gas facilities and standard schooling and medical facilities at Tarbela, lying close to it, and Peshawar.

In 1989, the government of prime minister late Benazir Bhutto announced several incentives for the industries in the province and the GAIE.

The incentives for the province-wide industries included an income tax holiday for 8 years, exemption from sales tax for 5 years and exemption from custom duty on imported machinery. For GAIE additional incentives were announced that included duty free import of raw materials, 50 per cent concession in power tariff and provision of loans at 3 per cent mark up.

In May 1991, the Nawaz Sharif government withdrew these incentives given to the GAIE under pressure from Punjab industrialists and the International Monetary Fund (IMF) and the US because such incentives had not been given to other industrial estates.

Since the withdrawal of incentives, the shifting of the machinery from the GAIE was banned but it continued stealthily. However in May 2012, the industrialists and Khyber Pakhtunkhwa government have agreed to lift ban. This is feared to cause the departure of more industries from the estate.

In 2003 the estate was converted to an Export Processing Zone by Syed Iftikhar Hussain Shah, the then provincial governor. But the plan seems to have been shelved. According to Shinwari, the concerned authority had expressed reservations over the decision and the file is still lying there.

In 2007, representatives of the US government visited the GAIE and vowed to revive some industries under the Reconstruction Opportunity Zone programme, under which goods from the Gadoon estate were to be exported to the US duty-free. But the idea could not materialise because the US congress rejected the bill.

Experts suggest that incentives and industrialisation go hand in hand. Both are interlinked. For example, when the package for GAIE was announced, over 200 industries were established within no time there. But when they were withdrawn, the pace of industrialisation slowed down, rather reverted.

What needs to be done?

According to Mumtazuddin, the estate can be revived as and when the government creates a conducive environment for investment by improving security situation and announcing a comprehensive package for the investors. “First of all, the government should announce that whosoever intends to establish industries will not be asked about his sources of income. Then it should give soft loans without requiring collateral and with prolonged grace period. Interest on industrial loans should in no way exceed 12-15 per cent. Subsidies on loans, power/gas tariff, industrial plots and sales and income taxes and rebate in custom and excise duty on import of raw material and machinery should be announced,” he adds.

“Sales and income tax rebate for five years be announced for the GAIE. Gas and power loadshedding be minimised if not eliminated altogether. Any possible reduction in gas and power tariff will be welcome,” Shah pleads.

“To give it level playing field, the estate deserves a permanent reduction of 25 per cent in sales/income tax and power/gas tariff. This will not only revive the sick industries but also encourage fresh investment. This rebate in taxes, as suggested by the federal board of revenue, will revive industries which will lead to paying more taxes and clearance of stuck up bank loans on their part,” Shinwari adds.

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About Tahir Ali Khan
I am an academic, freelance columnist, writer and a social worker.

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