Prudence demands finding out real reasons as to why
local and foreign investors are reluctant to make further long-term
investment in Pakistan. Realistic analysis of the factors will provide
basis for changes in policies and procedures governing investment. A
review of the press reports reveals that the following are some of such
Pakistanis living in USA, UK, Middle East, etc. are desirous of making
investment in industries or businesses in the country. Many of them have
made substantial investment in the country. However, some of them had to
suffer delays or other problems purportedly due to non-transparent or
inconsistent policies. These expatriates and their associates might also
have withheld further investment due to real or perceived discrimination
by the government functionaries in dealing with foreign investors and
the Pakistani expatriates. Things have improved at BOI but problems
remain when it comes to plant implementation and operation.
have been changed often with the change of government. Same governments
have also changed policies to the disadvantage of some of the investors.
This makes investment planning difficult, adds uncertainty and enhances
risk. In today's competitive world, investors hate to see sudden changes
in policies. Foreign investors are inhibited if they perceive that
government authorities are unreasonably delaying things or are delaying
matters for insignificant reasons.
are seriously perturbed from poor law and order situation due to which
plant operations are disturbed or halted. Their priority is the safety
of their lives and that of the lives of the workers and the security of
project assets. They and their families wish to live in peace and carry
out their usual chores without having to look over their shoulders all
the time. In case they feel threatened, they would relocate to other
countries. Any single such untoward incidence shall be widely reported
and thus may hinder future investment for a number of years to come. As
reported in the press, a recent delegation from Japan was of the view
that the government has to go beyond coining the slogan 'Love Pakistan'
by ensuring security and safety to foreign investors.
number of industries owned by local investors or Pakistani expatriates
suffered due to untimely withdrawal of tariff protection or other policy
changes, which adversely altered the very grounds of financial viability
of the projects. Presently, the general impression is that the
government does not care much for protecting the interest of Pakistanis
investors. There is urgent need to remove any such impression.
foreign investors judge the investment climate in a country by looking
at the investment being by the local investors. Being sons of the soil
local investors are in a much better position to understand local
conditions and investment environment. However, these people have no
support or backing from international institutions or the press to take
up their cause should the government of the day decide on actions that
are not in the investors' best interest. Hardships of this type may be
removed on priority basis. Recently a visiting Japanese delegation of
business said that they would like Pakistanis to invest in their own
country before seeking foreign investment.
investors in Pakistan are obliged to deal with about thirty agencies at
different stages of project implementation and operation. This process
claims a lot of time of the top executives, in addition to the
associated expenses. Each agency has big nuisance value and the industry
has to bear with them. Different business associations including the
FPCCI have raised the issue with successive governments but the
situation is almost the same. Plant operations should never be under
threat of closure on flimsy grounds.
Physical infrastructure is mostly poor and not very reliable. On top of
that the rates of utilities are abnormally high. This adversely affects
the competitive position for exports and often disturbs the delivery
schedule. As a result, the company fails to achieve optimum production
or profitability. Improvement in infrastructure and rationalization of
utility rates must be tackled on priority basis.
The committee may consider the following main
remedial measures to enable the existing industries and businesses
prosper in the competitive world, attract fresh investment in
infrastructure / industry, provide jobs and reduce poverty:
local investors are the prime movers for any investment and economic
activity. Private sector, on the basis of their performance in areas
such as profitability, dividends or export proceeds, may be accorded due
recognition and respect in the government circles. They can assist the
government in formulating better policies and also in their execution.
Mutual trust needs to be established on strong footings at the earliest.
Prime Minister, in his first meeting with the top bureaucracy on 26th
November 2002, urged them to do away with red tape and to serve the
people efficiently and honestly. Red tape, covering a wide range of
delays in the disposal of public complaints or implementation of
pro-people projects, is the mother of all sorts of administrative evils,
including the menacing spread of corruption and nepotism. The menace of
red tape can be better overcome through a combination of measures
including security of service, pay package, accountability,
discretionary powers, etc. of the government officials together with the
love for the country and its people. The administrative reforms
initiated by the previous government must be continued. The task is
colossal and calls for the willing co-operation of the bureaucrats to
ensure quicker and increasingly satisfying results.
countries and institutions are also on the look out for investment
abroad. However, for them the profit is not the main or the only motive.
Their investment in a particular country sends positive signals to the
individual investors. Saudi Arabia, China, Kuwait, Oman, IFC, ADB, IDB
and similar other countries and institutions have invested in Pakistan
in one-way or the other. Close liaison may be maintained at the highest
level with these investors. They may also be associated in the
privatisation deals offered by Pakistan to the private investors.
offers attractive opportunities for the investors. Big deals need big
amounts that the local investors might not be able to muster for the
competitive bidding purposes. Similarly, privatization offers are often
big whole-lot deals, with little or no consideration for structuring
deals in ways that enhance greater participation by local or foreign
entrepreneurs with modest means. Privatisation policy might be suitably
modified to accommodate such investors.
government reportedly is giving highest attention to: (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 modernizing
the court system at all levels; and (3)
strengthening the capacity, effectiveness, and accountability of law
enforcement agencies. In order to convince the investment community as
to the sincerity of its intentions, the government might take further
substantial practical steps in all these areas.
spite of the past attempts for rehabilitation, the sick industrial units
are still there in large numbers. The fact that matters pertaining to
these units are in limbo, may possibly act as damper for large-scale new
investment. Some of the sponsors of these sick units may also own other
unit that are profitable and are not in default to any institution.
However, if the group is classified as defaulter, the credit lines to
those profitable/ non-defaulter units will also be cut off. If the
situation is not corrected in time the other profitable units might
possibility suffer losses and become defaulter. These aspects deserve
careful review by the committee.
in the past became sick due to a number of different reasons. Changes in
government policies may possibly be the major reasons for sickness of
some of the units. Some of the industries located particularly in Gadoon
Amazai Industrial Estate may fall in this category. It may be fair that
individual cases are looked into and the government provides some relief
to such sick industries and their sponsors. This step is expected to
send a positive signal to all investors as to the genuine desire of the
government in their welfare and for further industrialization on fair
government may review and improve the charter of various regulatory
authorities such as NEPRA, OGRA, etc. set up in the country. These
authorities play an important role in building investors' confidence.
These authorities might be considered for more independence and made
decisions of the FTO, reported in the press, show some of the cases of
mal-administration by the revenue officers. The revenue officers, at
least some of them, being over-zealous to meet the CBR targets, squeeze
more taxes from the industry or businesses. Such squeeze sends negative
signals to the investors particularly the foreigners as well as the
Pakistani Expatriates. The matters are being speedily resolved through
the FTO for better with the full support of the CBR to him. Much more
needs to be done to allay the apprehensions in the minds of the
prospective investors. Only recently the FTO has asked the CBR to
formulate standards of wastage of various types of industries aimed at
keeping the quality of products intact. Such remedial actions are
expected to attract investors to Pakistan. Also, the government may
consider appointing Ombudsmen in other areas such as Banks / DFIs to
resolve concerns of the investors and depositors.
Operate Transfer (BOT) appears to be the recent preferred means of
financing the physical infrastructure projects sponsored by provincial
governments, city governments or other authorities responsible for
managing ports or similar facilities. BOT is generally difficult to
negotiate; the project would probably cost more and take more time for
becoming operational. Possibilities are that the project services would
cost more and the general public will be fleeced through high tariff or
toll taxes. In order to avoid unpleasant situations it would be better
if the government allocates more local funds for implementation of such
projects where normally no foreign currency is involved.
would not be surprised to meet investors who come up with grandiose
schemes in industry, transport or infrastructure. They meet the top
people in various departments and convince them of the need and
justification of their scheme. They succeed in entering into Memorandum
of Understanding (MOU) with the concerned government authority. To avoid
future disappointment or embarrassment, MOU should be signed only with
counter- parties having good credentials and after the initial viability
check of the proposed project.
government also augments resource availability through foreign loans and
foreign direct investment (FDI). Pakistan has been attracting FDI since
long and the expatriate investors have been enjoying handsome dividend
that are repatriated, a direct cost to the country. In addition there
might be indirect costs in the form of transfer pricing for raw
materials, components and services acquired from the parent sources
located abroad. It would be advisable at this juncture to take a second
look at our FDI policy. Actual cost of FDI and the imports from the
parent companies need to be looked into to know real cost of FDI to the
nation. Moreover, it may be advisable to channel foreign investments
into sectors, which earn foreign exchange such as export-oriented
has shown that most of the public sector units have not been managed
well and the governments have been forced to inject huge amounts to keep
them afloat. This caused budgetary deficits to avoid which, the
international financing institutions invariably prescribe privatization
of the public sector. In few cases attempts were made to reform the
public sector units through improved governance. The government should
now consider reforming the management of public sector units and
selectively start spending to revamp the public sector units. It may be
noted that the institutions such as The World Bank, ADB, IFC and IMF,
all public sector entities are doing fine because of the good
management. Nearer home, Pak Saudi, Pak Kuwait. PTCL, OGDCL and Pak
Libya are also doing well simply because of the good management
countries have social, cultural and economic relations with Pakistan and
these relations can be further strengthened through joint ventures in
Pakistan. UAE, Middle Eastern Countries, Far Eastern Counties, China,
Russia and the Central Asian States fall in this category. This will be
in addition to the relations with the traditional investment partners
such as USA, UK, Japan, and Holland. Ties with these countries should be
encouraged for high-tech and capital intensive industries. Geo-political
situation is developing such that capital flows might change direction.
Pakistan may attempt to attract some of such capital for developing
infrastructure and industrial base.
EPB has reportedly recommended to the government that the local
machinery manufacturers should be allowed to import their requirements
of machines, equipment, components and raw materials from worldwide
sources at comparatively low rates of duty, so that they may compete in
the world market successfully. The government may allow such imports to
enable the local capital goods industry to meet increasing demand for
machinery in the industrial sector.