SEZs struggle to attract industries

The government decided to establish Special Economic Zones (SEZs) in the early 2000s with the objectives of increasing production, promoting exports, creating employment, attracting domestic and foreign investment, and achieving economic prosperity.

However, even after 20 years, neither have SEZs seen sufficient industries, nor has employment been generated as expected. So much so, the work of establishing SEZs in Biratnagar, Dhangadhi, Panchkhal and Gorkha has not gained momentum. Although some industries have opened in Simara and Bhairahawa SEZs, the results are not as expected.

Industrialists and businesspeople complain that the government built SEZs but did not create a conducive environment for establishing industries and factories. High rental fees, lack of favorable supply-related policies, bank guarantee requirements, and cumbersome administrative mechanisms make it difficult to set up industries in SEZs, they added.

The government is preparing to organize the Nepal Investment Summit on 28, 29 April 2024, with the objective of attracting domestic and foreign investments.

Although 49 industries have been given permission in the Bhairahawa SEZ, only nine are currently in operation. These industries employ around 500 people.

The government has invested Rs 13.68bn in Bhairahawa and Simara SEZs. If these two SEZs operate to their full capacity, they alone can generate 34,374 jobs. But due to a lack of private sector investments in SEZs, production and employment opportunities have been lost.

Tulsi Ram Marasini, acting executive director of the Special Economic Zone Authority (SEZA), said although the government has announced plans to establish SEZs in all seven provinces, work has not progressed due to difficulty in raising investment.

Bhairahawa SEZ had generated interest from the private sector initially. As many as 25 companies have received permission to set up their plants in the Bhairahawa SEZ. However, only seven are currently operational. They include Shakti Minerals, V-star Global, Tirupati Metal, Brilliant Lighting Industries, Panchakanya SS, S Plastic Production and Jaya Buddha Metal Craft. Each of these industries employs around 100 people.

According to SEZA officials, some industries have stopped production citing problems in power supply among other issues. Fifteen companies had applied at SEZA to set up industries in Bhairahawa SEZ. However, they have not opened industries even though they received permission four months ago. Now, the SEZA is preparing to terminate their contracts.

Sagar Silwal, the senior assistant spokesperson for SEZA, said most of the companies have not been able to operate industries due to a provision that requires industrial enterprises in SEZs to export at least 60 percent of their total productions. “Companies have complained to us that they are not being able to operate industries due to the mandatory export requirement and high rental fee,” he said, adding: “The government is preparing to show some flexibility.”

Likewise, only two industries out of 11, which have received permission, are currently in operation in the Simara SEZ. Nine more industries are at different stages of receiving approval.

Pashupati Ceramics and Lalita Kumari Srivastav Company are the two companies currently in operation in the Simara SEZ. These companies employ some 250 people.

Although the Panchkhal SEZ has been under construction in Kavre for the past five years, work progress has not been satisfactory. Since the SEZ lies 70 km south of the Nepal-China border in Kodari, it is expected to attract companies targeting the Chinese market.

The government has acquired 1,000 ropani of land for the Panchkhal SEZ. Officials say construction work has been affected due to a lack of approval for forest clearance.

Works on the other four SEZs are in the preliminary phase. Engineering studies have been completed at the SEZ planned in Burju Rural Municipality of Sunsari district, while feasibility studies have been completed at the SEZ in Palungtar of Gorkha. Likewise, detailed engineering studies have been completed for the SEZs planned in Kanak Sundari Rural Municipality of Jumla and Dhangadhi of Kailali.

Meanwhile, the government is reducing the mandatory export requirement for industries in SEZ to 30 percent of the existing 60 percent. Although the provision was introduced through the budget for the fiscal year 2023/24, it has not come into implementation yet. “We are amending legal provisions to reduce the mandatory export requirement to 30 percent. The amendment bill is likely to be approved before the Investment Summit,” Silwal said.

SEZA charges a rental fee of Rs 20 per square meter on industries in SEZ. The authority has acknowledged that this is the highest rental fee in the entire South Asia.