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Pakistan economic performance last year a mixed-bag; need to entice investment in manufacturing

Pakistan economic performance last year a mixed-bag; need to entice investment in manufacturing

Interview with Mr Nasim Beg – CEO, Arif Habib Consultancy

PAGE: Kindly tell me something about yourself:

NASIM BEG: I am the Chief Executive Officer (CEO) of Arif Habib Consultancy and have been associated with the Group for seventeen years in various capacities. My overall work experience is forty-seven years, having qualified as a Chartered Accountant in 1970. I have worked both within Pakistan, as well as abroad. During the 47 years, I have worked in the financial services, as well as the real economy.

PAGE: What is your take on the economic performance of Pakistan during 2017?

NASIM BEG: The economic performance is a mixed-bag, with good growth recorded in agriculture, manufacturing and services but the balance of payments and the resultant foreign exchange reserves have been under stress and on top of that the government is running a budgetary deficit, which is actually understated if we take into account the circular debt, unpaid subsidies and overdue tax refunds (the functionaries at the FBR in fact collect excessive advance tax through creating pressures on the few who file tax returns).

PAGE: What are your suggestions for industrialization in Pakistan?

NASIM BEG: While our demographics create very attractive opportunities for supplying almost anything to the consumer, whether domestic manufactures benefit from it or traders import from elsewhere, will depend on how we manage ourselves. There are a few basic measures that need to be taken to attract investment into manufacturing and conversely, not keeping running out of foreign exchange to finance imports. The first is to go back to basics of the principles for income-tax. We have over time moved towards a presumptive tax regime, whereby a larger amount of tax collected under the head of income-tax (i.e., what should be earnings based tax), is in fact withholding tax at each stage, which becomes final tax and is treated by the respective parties as a cost and passed on in pricing, thus making the consumer pay for it. In turn, the person from whom this tax was withheld, does not file a tax return of the real income. This promotes the undocumented economy and the worst impact comes through real estate.


Most of the undocumented funds end up being invested in real estate; this includes proceeds of crime, whether drugs, bhatta, kidnapping, human-trafficking, kick-backs, tax evasion and terrorist funds or those of agencies like RAW. Because of these flows of funds from all these variety of sources, the real estate prices keep going up at a pace higher than the economic growth and the natural supply and demand, making it very attractive to leave everything else and just trade in real estate. Many industrialists have discovered that it is better to simply invest in real estate and make a quick turn, rather than in manufacturing through patient investing.

The other important area is the lack of focus on understanding that the future lies in creating jobs through manufacturing and not simply through trade and services. The government has not been vigilant enough against dumping in our market, as well as the misuse of trade agreements. Most countries protect their industry (and agriculture), while making sure that the protection does not convert to rent seeking through monopolies and cartelization. The government needs to protect our industry and at the same time protect the consumers against rent-seeking. This can only happen if there well researched debate amongst all stakeholders in the matter.

PAGE: What must be done to attract foreign investment?

NASIM BEG: As pointed out in the previous answer, the important thing is to attract investment into manufacturing. Foreign investment will follow domestic investors. In any event, foreign investment is desirable only if it helps us in bringing in technology, import substitution or in exports. This again needs a very well researched and well debated policy with complete clarity on why we would want foreign investment – not simply foreign investment for the sake of foreign investment. We should not be applauding foreign investment in fast-foods, beverages etc. In the case of fast moving consumer goods, our emphasis should be on creating domestic brands and not be paying royalties to foreign brands or be suffering transfer-pricing.

PAGE: Your views about entrepreneurship in Pakistan:

NASIM BEG: Entrepreneurship is alive and kicking, just observe street vendors and their ingenuity; even the poor street children who scavenge rubbish dumps. There is no dearth of the entrepreneurial and human spirit.

PAGE: Your views on Pakistan’s international standing during 2017?

NASIM BEG: Weak/poor – the less said the better.

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