Towards an industrial economy

September 13, 2020

The number of new industries in Gadoon Industrial Estate is on the rise

There is a broad consensus amongst economists that industry is the backbone of a modern economy. Industrialisation is especially important for developing countries like Pakistan. However, when Gadoon Industrial Estate (GIE) was being established in 1988, the primary motive behind the Rs 320 million provided by the USAID for the project was the eradication of poppy cultivation in the area.

The area was famous for cultivation of high quality opium poppy due to favourable climate. The government of Pakistan had banned poppy production in 1984. Since poppy cultivation was the main source of income for a large number of people the ban did not go well with the local population.

Some notables from Gadoon later met the then prime minister, Muhammad Khan Junejo, and demanded an industrial estate. To discourage poppy cultivation, the Junejo government launched the 884-acre GIE (now 1,116 acres) to give locals alternative livelihoods.

To attract investors from all over Pakistan, the Pakistan Peoples Party government led by Aftab Sherpao offered very lucrative incentives in 1988. These included duty-free import of machinery, sales tax waiver on import of raw materials, an income tax holiday for 10 years, ban loans at 3 percent interest rate and a 50 percent concession on electricity tariff.

The incentives proved appealing to the investors who flocked to the Estate. Within a very short period of time, approximately 250 industries were established creating over 15,000 direct job opportunities and attracting Rs 10 billion in direct investments. However, the incentives had a downside too. Industrialists in the Punjab and Karachi now found it hard to compete with their counterparts in the GIE.

Pressure was built up on the government by industrialists in the Punjab and Karachi to withdraw these incentives. Moreover, duty free raw material s increasingly found their way to industries in other parts of the country.

In 1991, these incentives were withdrawn by the Nawaz Sharif-led government. This led to closure of most units within a short span of time. By 1992, only 74 industries remained. Gadoon Industrial Estate thus became a failed industrialization venture on account of inconsistent policies. It soon came to be referred as a ‘graveyard of industries.’

The realization that industrialization can spur economic activity and create job opportunities has finally seeped in. The PTI government led by Pervez Khattak was unsatisfied with the performance of Sarhad Development Authority, responsible for facilitating the industrialisation in the province.

The SDA was seen as a hindrance to industrial development of the province due to alleged corruption and inability to bring investors to the province from other parts of the country and abroad. Being a former industries minister, Khattak understood the issues. He followed the Punjab model by creating a company like the Punjab Industrial Estates Development and Management Company, which is run by an independent Board of Directors, mainly industrialists.

To attract investors from all over Pakistan, the Pakistan Peoples Party government led by Aftab Sherpao offered very lucrative incentives in 1988.

The Khyber Pakhtunkhwa Economic Zones Development and Management Company (KPEZDMC) was formed in 2015 and is at the helm of industrial development in the province.

The company focused on revitalisation of the GIE and has spent Rs 725 million to rehabilitate the dilapidated infrastructure, including roads, drains, water supply and electrification work. Rs 10 billion investment in Cherat Packaging, Al Hajj Asia Star, and Abbasyn Steel was facilitated by KPEZDMC, creating more than 1,500 direct jobs. Ten new industries were established and 20 sick units were revived over five years.

A technical college, with courses in nine disciplines, is now providing vocational training to cater to the manpower needs of the industries. The institute is starting Chinese language course shortly. Over 10,000 trees have been planted and a playground with a professional-standard cricket pitch has been laid. Cheap 9 MW electricity from Pehur hydropower project has been supplied to industries which include Gadoon Textile, AJ Textile and Cherat Packages.

A Rs 5 billion, 20-kilometre road project, linking the Estate to the motorway is on the cards. This will reduce travel time from Swabi Interchange to the Estate from an hour to 15 minutes. The road will also bring GIE within easy reach of investors from Islamabad and Peshawar, hence, bringing more industries to GIE.

Currently, Gadoon Industrial Estate has 135 units with 20,000 direct jobs. Big names like Tabba Group, Saif Group, Ghulam Faruque Group, Habib Group and Diamond Foam have huge industrial units in the GIE. Gadoon Textile Mills with 6,000 employees is one of the largest textile mills in Pakistan. Due to effective marketing of the estate and subsidised price of plots, the demand for plots in the GIE has gone up and the KPEZDMC has leased almost all the plots in its possession.

However, to overcome its geographical disadvantage (being away from the port and markets of the Punjab and Sindh) incentives like an income tax holiday and subsidy on electricity are needed. Also, more attention needs to be given to the revival of sick units. The closed units are occupying land which remains idle. The KPEZDMC needs to come up with a way to either revive the closed units or cancel the plot allocations so that more investors can be provided the opportunity to set up new units or expand current units.

The graph of new industries in Gadoon Industrial Estate is on the rise. The stigma of ‘industrial graveyard’ has been lifted.

The writer is Head Of Business Development and Media, Khyber Pakhtunkhwa Economic Zones Development and Management Company (GoKP)

Towards an industrial economy