An Analysis of Why Pakistan Needs Special Technology Zones and a comparison of whats being provided in the region that have become giants in Tech By Barkan Saeed

1. Software Parks &
Special Economic Zones
A white paper by P@SHA

2. Why Software Parks and SEZ are required? ............................................... 3
Infrastructure for a Growth Oriented Industry ........................................................ 3
Brand Image of Pakistan .......................................................................................... 3
Safe Zones for Industry and Visitors ........................................................................ 4
What is IT READY Building ......................................................................... 4
What’s the affordable rate for Companies ................................................. 5
What’s the ideal rate for Companies ......................................................... 5
Model for Building IT Ready Building at less than 50 rupees sq. feet .......... 5
Cost of Land ............................................................................................................. 6
Cost of Building ........................................................................................................ 6
ROI Chart for IT buildings ......................................................................................... 7
Incentives in Other countries ..................................................................... 8
India UP ................................................................................................................ 8
India Madhya Pradesh .......................................................................................... 9
India SEZ Zones (Country Level) ........................................................................... 9
Philippines SEZ Zones ......................................................................................... 10
Incentives for Investors ........................................................................... 11
Summary ................................................................................................................ 11
Reference Data ...................................................................................................... 11

3. Why Software Parks and SEZ are required?
IT/ITeS industry is growing at a fast pace and currently there is a huge need of IT
Ready buildings in all the major cities of Pakistan. According to one estimate, there is
at least 2 million sq. feet of IT ready buildings required in major cities of Pakistan per
year.
There are around 2500+ registered IT companies and around 6000 total companies in
Pakistan. Total number of employees in IT industry are estimated to be around 150k.
Countries like India and Philippines have used special economic zone as a vehicle to
give incentives to their IT and BPO industry. Let’s look at some of the other reasons of
why Software Parks and SEZ’s are needed and how they can take Pakistan and IT
industry to the next level.
Infrastructure for a Growth Oriented Industry
IT/ITeS industry is growing at a sharp pace of 19% per year. With improved image of
Pakistan and governments planned incentives for this space, the space is expected to
grow by 30% per year. With this growth, there will be a sudden rise in requirement for
IT ready infrastructure. Right now, it’s a huge problem to find reasonable space at
good rate in major cities. Less than 100 rupees/ sq. feet for IT Ready buildings is
almost an impossible task.
Countries which have made progress in this space like Philippines, Malaysia, Vietnam,
India have incentivized real estate developers so they build ready infrastructures on
international standards which can be quickly occupied at reasonable rates.
Brand Image of Pakistan
IT Parks can significantly improve the brand of Pakistan. A visitor from abroad or a
client visiting Pakistan can quickly get an image of Pakistan’s IT sector by seeing all the
companies operating from one space and get a good feeler from the environment of
the place. Right now, most of the companies are located in shopping plazas or areas
which are not suitable for IT Companies space.
Bigger brands like IBM, S&P Global, Google can also be given incentives to setup their
offices in these SEZ’s. Similarly, national incubation centers and software display
centers can be setup in these SEZ to showcase the IT industry of Pakistan to visitors.

4. Visa support center for international clients can be setup in these zones so SEZ
company’s visitors are facilitated in visa processing.
Safe Zone for Industry and Visitors
These zones can be secured which will make them safe for foreign visitors still
hesitant to visit Pakistan. A combination of residential facilities and hotels along with
these zones will make these zones always ready for work regardless of the political
situation of the country. Pakistan’s image has improved significantly. However, there
are many visitors who still need the feeler of being safe to consider visiting Pakistan.
Having these safe zones will make it easy for many companies and their staff to visit
Pakistan.
Many Data Center surveys require assessment of crime statistics for the area. If the
zone is secured and has its own crime statistics, it will greatly help the companies
establishing data centers. These zones can also be exempted from cellular blackout
that country faces due to security situation because it is still an alien concept for most
international companies.
What is an IT READY Building?
IT companies usually require heating/cooling facility for 24 hours because of data
centers. There are some companies that also operate 24 hours like in BPO and cell
center industry.
They also require 24-hour power backup. Normal buildings e.gs in Islamabad Ufone
tower is not IT ready. Even though it charges 250 rupees per sq. feet, the cooling
option is only available from 9-5.

5. What’s the affordable rate for Companies?
Companies right now are leasing space from 30 rupees per sq. feet to 250 rupees per
sq. feet. However, for most companies going anywhere above 100 rupees sq. feet for
an IT ready space makes their infrastructure costs go very high. Right now, almost all
the software parks in Islamabad/Rawalpindi have an average rate of 150 rupees/ sq.
feet.
What’s the ideal rate for Companies?
The ideal rate for IT/ITES companies for IT Ready buildings is 50 to 70 rupees sq. feet.
The rate is also very important for BPO/Call center companies as they usually have
large work force.
For this very reason, most of the big BPO’s are located in Rawalpindi area instead of
Islamabad because the rate is cheap. For example, there are around 4 big BPO
companies around the 6th
area road with around 5000 total employees.
If all these companies were located in a good space and were given the option of
cheap IT ready space, there is no doubt that these companies can grow by 2-3x easily
in the next few years. There are examples of companies refusing even 1500 people
yearly contracts because of investment required to seat 1500 people.
Model for Building IT Ready Building at less than 50 rupees
sq. feet
The best way to build these parks is by giving incentives to investors so that the ROI is
attractive for them to invest in building these parks.

6. Cost of Land
Cost of land is one of the biggest factor in lowering ROI for investors in building IT
Ready buildings and leasing them out at rates which the IT companies require. IT
companies require space which is easily accessible for workforce and has transport
facilities so they can do their daily commute easily to these spaces.
It is almost impossible to lease out space in areas like blue area, or shahra e Faisal in
Karachi and lease them out at less than 150 rupees sq. feet simply due to the cost of
land.
IT companies however are still interested in setting up offices in clusters which are 5-
10 km away from main city but have good transportation facilities for the employees
to reach there. The clusters are also attractive for IT company’s employees because
they get a chance for networking and also increases their chances of being
employable by a much larger number of companies.
Cost of Building
A majority of IT companies don’t require high end towers like Ufone or arfa Karim
towers. Building towers increases the cost 2-3 times and the it is impossible to rent a
building at even 100 rupees sq. feet in a high-end tower with even free land.

7. Let’s look at the ROI based on these two factors for investors (2017 numbers)
ROI Chart for IT buildings
The most important figure in this is the ROI of 15.00% at 50 rupees sq. feet which is
good for investors provided the buildings they build are 100% occupied. In order to
increase ROI for investors, the incentives like income tax exemption, sale tax and
duty-free import of lifts, generator and other things required to complete building will
further incentivize them to create software parks.
Islamabad I9
Islamabad
Other Areas Cheaper Land
Cost of Land per Kanal 4 crore/kanal 8 crore/kanal 2 million
Rate per sq. feet (PKR) 8,888.89 17,777.78 444.44
Building Rate per sq. feet (with
heating cooling) 3500 4500 3500
Total Cost including land per sq. feet 12,388.89 22,277.78 3,944.44
Payback period at 100 rupees sq. feet 10.32 years 18.56 years 3.29 years
ROI at 100 rupees sq. feet 9.69% 5.39% 30.42%
Payback period at 50 rupees sq. feet 20 years 37 years 6.5 years
ROI at 50 rupees sq. feet 4.84% 2.69% 15.21%

8. Incentives in Other countries
India Utter Pradesh
• Rebate of 25% on purchase of land from state agencies on sector rates of AREA
(India UP)
• 100% exemption of stamp duty on purchase/lease of land/office/space building
for IT/ITeS (India UP)
• Exemption from Pollution and Environmental act (India UP)
• IT Units setup in IT Cities will get uninterrupted power supply
• Reimbursements up to 25% of lease rental charges for Medium and small
IT/ITeS companies and incubators established in state operated parks or any
notified location.

9. India Madhya Pradesh
• Land will be made available at 25% of collector guideline rate of un-irrigate
agricultural land.
• Land is allocated for 100 years
• 50% employment requirement from Madhya Pradesh
• Subsidy of 11 per sq. feet and limit of maximum 40 lakh subsidy per company.
• Subsidy of 200 per meter on laying cost of Fiber.
India SEZ Zones (Country Level)
• Minimum land required for Tech SEZ zones is 5 acres.
• Exemption from all local and national taxes for SEZ Developer
• Infrastructure Development Industry: Presently there is a 10-year tax holiday
for any company engaged in the development, operation or maintenance of an
infrastructure facility. Low cost infrastructure development services indirectly
aid BPO companies, most of which require plenty of office space as well as
equipment for rendering their services.
• Power Generation Industry: A 10-year tax holiday is applicable for power
generation and distribution companies as well. Affordable power costs
naturally benefit BPO companies.
• Industrial Parks & Special Economic Zones (SEZ): A 10-year tax holiday is
applicable for any company engaged in the development, operation, and
maintenance of an SEZ
• Single Window Clearance System
• Exemption from
o Labor Laws
o Industrial Labor Laws
o Minimum Wage Laws
o Social Security

10. Philippines SEZ Zones
Philippines has become the number one destination for call centers and BPO
industry. Their biggest incentive to this industry is establishment of SEZ’s under
an authority called PEZA. Setting up an office through one window operation
and getting an IT Ready space in really low cost are the biggest benefits of
Philippines SEZ’s. One can setup an office in days and even hire hundreds of
employees through the training center inside the zone.
The other benefits are.
• Tax and Duty-Free Imports
• VAT Zero Rating of local purchases including services, telecommunication,
electric power, water bills.
• Exemption from any local government fees and taxes.
• Exemption from withholding tax.
• Exemption from all local and national taxes for SEZ Developer
• Training centers inside SEZ to regularly train BPO employees.
• Simplified Import-Export Procedures (Electronic Import Permit System and
Automated Export Documentation System)
• Non-resident Foreign Nationals may be employed by PEZA-registered Economic
Zone Enterprises in supervisory, technical or advisory positions

11. • Special Non-Immigrant Visa with Multiple Entry Privileges for the following non-
resident
o Foreign Nationals in a PEZA-registered Economic Zone Enterprise:
Investor/s, officers, and employees in supervisory, technical or advisory
position, and their spouses and unmarried children under twenty-one
years of age
o Extended Visa Facilitation Assistance to foreign nationals their spouses
and dependents
Incentives for Investors
There are factors other than land and building cost which impact the ROI And increase
the chances of investors investing in building these software parks.
These incentives include
• Exemption on Income Tax on Rent and income from STP’s to investors
• Stamp/Duty Exemptions on Land
• Duty Free and Sales tax-free import of Generators, Lifts other material for
building
• Exemption from local withholding taxes.
Summary
P@SHA believes that Special Economic Zones for IT/ITeS services can accelerate the
growth of IT/ITeS Industry in Pakistan. They will solve the huge infrastructure issue in
cities, improve the brand image of Pakistan for IT company’s visitors, create an eco-
system for collaboration, and setting up of training centers in these zones will create
opportunities for our youth.
Reference Data
https://www.telegenisys.com/wp-content/uploads/2014/11/bpo-the-india-advantage.pdf
http://www.udyogbandhu.com/DataFiles/CMS/file/EOI_document.pdf