Sinking Industrial estate

Sinking industrial estate

By Tahir Ali

 http://dawn.com/2013/01/21/sinking-industrial-estate/

When Gadoon Amazai Industrial Estate was established in a remote area, there was no raw material and market available for industries to be set up there. To compensate for high transportation cost on raw material and finished goods and to make , manufacturing viable, a fiscal incentive package was provided by the federal government.

The package announced in 1989 attracted huge investment and no less than 270 factories were set up. When the incentives were withdrawn in 1991, bulk of the small enterprises gradually went out of business.

Zahid Shinwari, the ex- president of the Gadoon Chamber of Commerce and Industry and current vice president of the KP Chamber of Commerce and Industry said the cost differential of about 25 per cent because of remote location was compensated by incentives. But when these incentives were withdrawn, industries went into losses and many closed down. At the peak of industrial production, around 80,000 were employed but their number is around 16,000 these days.

Rangeen Shah, former secretary of the Gadoon Chamber says the estate has ceased to attract fresh investment since the incentives were withdrawn in 1991. Out of 270 units in operation then, around 120 are now running round the clock or in one or two shifts. However, it were small industries that were closed and the bigger ones have even expanded.

He added that industries whose raw material is abundantly available in KP like processing of agriculture produce, packaging and paper board, furniture, cigarette etc., are nowhere in sight here.

The industrial package announced by PM Yousaf Gilani in 2009 somewhat shored up industrial production. Under the war on terror package, industries in KP were given varying rates of exemption from sales tax, income tax and excise duty for three years. “These expired in June 2012 and need to be extended for another two to three years,” says another factory owner.

GAIE was set up to provide jobs and livelihood to the locals to discourage them from poppy cultivation. However, no homework was done to impart skills to locals. A technical college promised for training of locals and developing manpower for the estate is yet to be built. Locals were employed as watchmen and for other menial jobs while technicians were brought from Punjab and Sindh.

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

The Rs10 billion GAIE project, spread over 1116 acres, situated about 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.
The estate has spacious roads, drainage and water supply system, communication, power and gas facilities and standard schooling and medical facilities at Tarbela, lying close to it, and Peshawar.

In 2003 the estate was proposed to be 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 a technocrat Mumtazuddin, the estate can be revived by improving security situation and announcing a comprehensive incentive package for investors. “First of all, the government should announce that whosoever intends to establish industries will not be asked about his source of income. Then the investor should get soft loans without collateral and with a long grace period for debt repayment. The incentives should also include subsidies on loans, power/gas tariff and industrial plots, reduced rates of sales/ income taxes, and rebate in custom/excise duties on import of raw material and machinery.”

“For 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 will help clear stuck-up bank loans ,” says Shinwari.

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ORIGINAL TEXT OF THE ARTICLE AS IT WAS SENT TO DAWN.

Gadoon Amazai Industrial Estate: first lavishly bestowed, then neglected   

By Tahir Ali

It was strange the Gadoon Amazai industrial Estate (GAIE) was at first established in a distant area such as Gadoon as there were no raw materials and market available for industries there. High transportation cost on getting raw material from, and sending finished goods to, other provinces made its products less competitive.

But when once established and incentives were announced for attracting investment in it, these should not have been withdrawn prematurely.

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 Rangeen Shah, former secretary of the Gadoon Chamber, Gadoon ceased to attract fresh investment and the factories already there mostly closed down or began minimal production as incentives were withdrawn in 1991. 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.

The industries whose raw material was abundantly available here –like the agriculture processing, packaging and paper board, furniture, cigarette and its allied industries –are nowhere in sight here.

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.

According to another industrialist, the industrial package announced by PM Yousaf Gilani in 2009 has somewhat decreased the closure of industries of late. “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.

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 and other menial jobs while technicians were hired from Punjab and Sindh.

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.

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.

According to a blogger on Swabi online, 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 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 Benazir Bhutto announced some incentives for the province-wide industries that 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.

However in May 1991, the Nawaz Sharif government withdrew these incentives given to the GAIE under pressure from industrialists of other provinces and the IMF.

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.

What needs to be done?

According to Mumtazuddin, an expert, the estate can be revived 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.    

“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 will help clear stuck up bank loans in the long run,” Shinwari adds.

Experts suggest that incentives and industrialisation go hand in hand. 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.

 

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

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