Telecom sector alone has a
potential to attract $15 billion new FDI in Pakistan
From SHAMIM AHMED
May 13 -19, 2002
It is really heartening to learn that after a long
wait Pakistan has been declared as 'Potential Place' to invest. This
encouraging certificate came from heads of international lending
agencies and reputed multinational companies who gathered to attend the
investment conference under the theme "Business climate and
opportunities for business in Pakistan" held at he World Bank group
Headquarters in a Paris last week.
This unanimous view of these mega international
player was that if a number of administrative and policy related
irritants are removed, the country with its strategic location can
become an attractive business house for the international investors'.
President Mobilink invited the other international investors to invest
in Pakistan Telecommunication centre which accord to his assessment
offered a $15 market for the next five years.
The conference was jointly organized by the World
Bank and the government of Pakistan. The main purpose was to brief the
major investment players in the European market about new opportunities
in Pakistan. Leading Business Houses from Pakistan and Europe attend
The multilateral officials highlight some positive
aspects of the economy, and also talked about initiatives to address
major bottlenecks. A leading official observed that telecom sector alone
has a potential to attract $15 billion new FDI in Pakistan. The
government of Pakistan had geared up efforts to divest major public
sector entities, including Pakistan Telecommunication Company Limited (PTCL)
energy sector and financial sector entities.
The privatization of oil and gas fields had already
been underway, to be followed by other oil and gas sector companies,
similarly, sale of the United Bank Limited (UBL) during May, and of
Habib Bank Limited early nest fiscal year would open many new areas for
foreign private operators in the country.
The multilateral officials indicated that
International Finance Corporation (IFC) and Asian Development Bank (ADB)
would also acquire stakes in the post-privatization structure of Karachi
Electric Supply Company (KESC), which needs at least $400 million new
investment to overhaul its aging system.
The privatization of big-ticket items, like PTCL, PSO,
bank and few other entities had to be delayed in the post-September
situation due to adverse regional situation. However, the situation is
fast returning too normal and there are hopes to attach major investors
in the coming months.
Particularly in the banking sector there has been a
lot of interest. The banking sector reforms initiated in 1997 had down
results. Almost 30 thousand staff, 1200 branches were closed down to
make financial sector institutions learner and efficient. Zakir Mahmood,
President Habib Bank Limited (HBL) made a presentation on the subject in
the investment conference.
At present, almost all the Nationalized Commercial
Banks (NCBs) had come out of the red. Their capital adequacy ratios were
well placed after new liquidity injections. Legal environment for loan
recovery had improved. The banking courts had processed about 22
thousand cases out of 56 thousand, Similarly, recoveries of about Rs.130
billion, between 1997 to 2001 were reported.
Though the size of nonoperforming loans (NPLs) was
still high, there are hopes the new regulatory framework of the Central
Bank, de-politicization, better monitoring and professional management
would save these institutions from further losses.
Finance Minister Shaukat Aziz while addressing the
conference via satellite from the World Bank office in Islamabad said,
Pakistan attaches highest importance to the inflow of foreign direct
investment and is currently pursuing a liberal foreign investment policy
as part of its economic reforms agenda.
Talking about the government's progress in the
economic sector during the past two and a half years, he reiterated that
the most important achievement has been the improvement in the external
account of the balance of payments.
"Our current account balance which remained in
deficit to an average of more than 5 per cent of GDP during most part of
the 1990s was reduced to an average of 2 per cent during the last two
years. It is at present in surplus to the extent of $1.66 billion or 2.8
per cent of GDP. The surplus in the current account has helped us in
building foreign exchange reserves to the level beyond $5 billion".
He pointed out that the strong build-up in reserves
has provided much needed stability in the exchange rate, which in turn,
has encouraged expatriate Pakistanis to send their remittances through
official channels, and by end June this year remittances may cross $2
billion mark, almost double in one year.
He mentioned that Pakistani stock market has remained
buoyant during the last one year with the index rising more than 500
points or 40 percent, and yet another important achievement has been the
sharp reduction in fiscal deficit from an average 7 per cent of GDP over
the last two decades to 5.2 percent last year.
He pointed out that the trends on Pakistan's domestic
debt in absolute external debt have been stablised. "Domestic debt
in absolute term has declined by Rs.112 billion and it stood at 45.6 per
cent of GDP, down from almost 51 per cent a year ago. External debt had
almost doubled in 8 years of the 1990s. it was at $38 billion in 1999
and is still at the same level after two and a half years', he added.
Inviting the foreign investors to invest in Pakistan
Finance Minister maintained that Pakistan is not only a market of 140
million people but it serves as a gateway to Afghanistan, Central Asia
and Middle Eastern countries.
He said that country's privatization programme was
interrupted by the events of September 11 but now it is back on track.
"High ticket items like telecommunication, oil and gas, power
sector, finance and banking and industries are on strategic sale.
Internationally reputed firms like JP Morgan, Goldman Sachs, Merill
Lynch, Price Water house are actively involved as financial advisers in
the privatization programme, he added.
He said, present government has put in place number
of wide-ranging structural reform programme over the last two and a half
years. "We are re-orienting our public expenditure towards growth
enhancing and poverty reducing outlays; we are improving monitoring and
transparency in public finance; we are strengthening our tax
administration we are trying to restructure our public sector
enterprises so that they may be ready for privatization soon; we are
further strengthening our financial and banking sector and also working
towards improving exchange market", he added.
He mentioned two key points which are receiving the
highest attention of the government; 1) assessing existing regulations
and procedures that affect the interaction between the administration
and the business with a view to eliminating red tape and with it
corruption opportunities; 2) Judicial reforms aimed at strengthening the
rule of law and enhancing the transparency and accessibility of the
legal system by modernising the court system at all levels, and
strengthening the capacity, effectiveness, and accountability of law
Chairman Board of Investment (BOI) Wasim Haqqie told
the conference that government is aiming at initiating such a medium and
long-term policies which will help to restore the confidence of the
investors "keeping this objective in view BOI has enhanced its role
to Corporate facilitating organisation so that it can help the
businessmen investigating in Pakistan at policy and operational
level", he added.
Some of the participants, however pointed some of the
irritants which were till a source of discouragement. According to them,
large intermediation cost, high interest rate and limited product range
is still something where a lot of work needs to be done. A recent report
of the World Bank, however, had identified various impediments, high
interest rates and low levels of public development spending that were
responsible for impeding large investment flows.