Newsletter No. 1366
News-Analysis
May 28, 2009

 

The following Newsletter has been contributed by Alex Calvo (Shingetsu Member No. 127), who currently serves as Professor of International Relations and International Law, European University in Barcelona (Spain); and Research and Teaching Fellow, OSCE Academy in Bishkek (Kyrgyz Republic).

SPECIAL ECONOMIC ZONE IN KARACHI FOR JAPANESE ENTERPRISES

Karachi is one of Pakistan’s most important cities as well as its main port, serving Afghanistan as well, both its civilian economy and allied forces deployed in the country. Although it faces competition from both the Iranian port of Chabahar and Pakistan’s Gwadar, promoted by China, it is still the major link between Pakistan and its inland neighbor on the one hand and the sea on the other. A second port, Port Qasim, located 50 kilometers from the city, also serves the area.

Ports are a key aspect of geopolitical competition in the region, with India worried about China’s “string of pearls” aimed at controlling the Indian Ocean, Gwadar being perceived as a key “pearl,” Iran busy improving infrastructure linking its ports to Central Asia, Russia fearful of losing its grip on the region, and allied commanders worried about the reliability of the southern supply route through Karachi, which accounts for the bulk of supplies to forces fighting in Afghanistan.

All these issues notwithstanding, ports are essential for the economic development of any country, facilitating trade and giving rise to thousands of jobs.

It is of course very difficult to separate economic from geopolitical concerns, since a broad concept of security would encompass the former, and a country’s interest in a port may well include both. For example although New Delhi is clearly concerned by the Chinese presence in Gwadar, Beijing claims its motivation is purely commercial and aimed at helping develop Xinjiang, a backward and landlocked province. [1]

Karachi is home to a projected special economic zone for Japanese companies, which would allow them to invest in favorable conditions. Pakistani Ambassador Noor Muhammad Jadmani, who arrived in Tokyo in January, referred to the project on May 15th during a visit to Japan Times President Yukiko Ogasawara. During the visit, he also expressed his hope that Japanese companies would invest in sectors such as “textiles, food, and energy,” pointing at what he considers his country’s strong points such as “good-quality but affordable labor and access to markets in China, the Middle East, and Central Asia.” [2]

With regard to the especial economic zone, the Pakistani ambassador stressed that it has been “specifically set aside for Japanese investment” and has a surface of 1,012 hectares. He also claimed to be seeking Japanese investment in the port of Gwadar and to develop a “massive coal deposit in the southern part of Pakistan near the Indian border. It is considered the world’s third-largest coal reserve, with 185 billion tons.” [3]

This is not the first time that media reports have referred to this projected special economic zone in Karachi, with a number of articles surfacing during the last two years. For example, in July last year, Syed Naveed Qamar, Federal Minister for Finance, Privatisation, and Investment, promised a visiting fifteen-member Japanese investors delegation that Pakistan would establish a special economic zone, equipped with basic infrastructure. [4]

This week, however, could bring more momentum to the project, since a Pakistani delegation is in Japan for the 5th Round of the Pakistan-Japan Joint Business Dialogue. Before leaving for Japan on May 24th, one of its members, Saleem Mandiwalla, chairman of the Board of Investment (BoI), stated in a press conference that the visit was intended to “offer [a] special industrial zone to Japanese investors in Karachi,” adding that “the delegation will present a report that will finalize modalities about the special zone.” [5]

Mandiwalla also said that Japanese investors would be able to select land from two sites, both in the Port Qasim area, which they could develop either by themselves or by means of a joint venture with local companies. Incentives would include some tax exemptions, as well as duty-free imports of machinery and raw materials employed to manufacture products to then be re-exported. [6]

One of the meetings held within the framework of this business dialogue took place on May 25th between the Chief Executive of Trade Development Authority of Pakistan (TDAP) Syed Mohibullah Shah and a number of Japanese businessmen. Shah encouraged them to increase their purchases from Pakistan, insisting on the high quality of Pakistani products such as “carpets, furniture, textile products, and handicrafts.” [7]

JAPANESE LOAN TO PAKISTAN

In an apparently unrelated development, Tokyo granted Islamabad US$20 million in the form of Non-Project Grant Aid (NPGA) on May 18th for the purpose of “importing commodities and machineries such as oil, medicine, fertilizer, and tractors.” The proceedings in local currency of the sale and lease of the resulting purchases will be deposited in a “Counter Value Fund” and devoted to economic and social development projects. [8]

NOTES

[1] “Port in China’s String of Pearls Worries India,” India Express, May 21, 2009.

[2] “Pakistani Ambassador Seeks to Promote Deeper Ties with Japan,” Japan Times, May 16, 2009.

[3] Ibid.

[4] “Qamar Assures Especial Economic Zone for Japanese Investors on Priority,” Privatisation Commission, July 23, 2008.

[5] “Pakistan to Offer Special Zone to Japan,” The News International, May 24, 2009.

[6] Ibid.

[7] “Japanese Businessmen Urged to Enhance Imports from Pakistan,” Business Recorder, May 26, 2009.

[8] “Japan Extends $20 million to Pakistan,” Daily Times, May 19, 2009.