Telecom sector alone has a potential to attract $15 billion new FDI in Pakistan

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 this conference.

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 added.

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 enforcement agents.

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.