NEW INDUSTRIAL AND INVESTMENT POLICIES

The new government is eager to increase economic activities and employment generation; and is inviting all investors local as well as foreign for making investment in the country

By MUHAMMAD BASHIR CHAUDHRY
Oct 18 - 24, 2004

Welcoming the Ministers to the first meeting of the Cabinet at Islamabad on 16th September, the Prime Minister reportedly identified principal goals of his government as law and order, employment generation, stability of prices, good governance and streamlining of the judicial process. He said that the new Cabinet should be result-oriented and that performance of the new Cabinet would be judged by its achievements and deliveries to the people. He regretted the fact that processing of cases in the Ministries and Departments were unduly prolonged. All cases must be expeditiously processed and promptly decided. He said that the PM Secretariat would take the lead in this regard by significantly reducing the turnaround time for cases submitted to it.

"We need industrialization to create more jobs, to increase income and strengthen economy," the Prime Minister reportedly said in a meeting with the members of FPCCI led by its President, at the Governor House, Karachi on 17th September. He added that Pakistan's exports have reached US$12.5 billion, but still the country has to go far ahead. His government believes there is greater importance of local investor, who should invest in sectors with export potential. He observed that to meet the problems in supply of electricity and gas, the country is increasing power production as well as exploring import electricity from Tajikistan at competitive rate. According to him, efforts are already in hand for supply of gas from Iran. He said major industries can also set up their own power plants. He mentioned that a new industrial estate will be established where all infrastructure facilities will be provided and there could be public private partnership as well. He added that the provincial government of Sindh is keen to gear up industrial activity and is well prepared to facilitate the private sector. He directed the Sindh Police to beef up efforts to provide safety to life and property of the people and create a safe environment.

The approach outlined by the Prime Minister for promoting good governance and industrial development in the country provides an action framework for different Ministries, Departments and Institutions. "We trust that proper measures in this regard would soon be taken by all of them." In this context, suggestions for consideration by the authorities are offered for promoting accelerated industrialization in the country.

It is now over four months that a Committee, headed by the Secretary Ministry of Industries and Production and other stakeholders as members, was constituted by the then Federal Minister to formulate a National Industrial Policy covering all the potential sectors for foreign and domestic investment. Work on preparation of the policy is presumably continuing in the Ministry of Industries and Production (MI&P) and might take some more time as in the meanwhile a new Federal Cabinet has been installed. The formulation of a truly pro-active policy might be expedited taking into account the prevailing business and regulatory situation, which certainly is now more complex than in the past.

Many industries and functions earlier considered exclusive domain of the public sector have in the past few years been opened up to the private sector, under different policy and contractual arrangements. As such, the matters pertaining to these new 'industrial' projects transcend more to other Ministries, in addition to MI&P. Power generation plants, copper mining/refining plants or oil refineries in the private sector enjoy the status of industry but due to contractual arrangements might not strictly be under the purview of the MI&P as the traditional industries were in the past. These industries are largely overseen by other Ministries such as the Ministry of Water and Power (MW&P) or the Ministry of Petroleum and Natural Resource (MP&NR). The agro-industries would find it difficult to prosper without maintaining close working relation with the Ministry of Agriculture. The same is true for sectors such as housing construction, hotels, tourist resorts, etc. The new Textile Ministry has introduced another angle to responsibilities of the MI&P. In addition, the Board of Investment (BoI) is providing one-window facility to the investors. Further, due to importance of export rebates and taxation, most of the industries are coming into contact with the Ministry of Commerce as well as the Ministry of Finance and the CBR. These are all complex and time-consuming arrangements.

The principals governing such arrangements and the actual procedures to be followed need to be properly documented in the official long-term policies of the government. This should pave the way for accelerated development of industries on the one hand and on the other provide essential guidance to the investors. In addition to the Industrial Policy, policies such as Power Policy, Petroleum Policy, Housing and Construction Policy, Telecommunication Policy, etc might also be in need of revision due to the fast changing world business environment. In fact, the Prime Minister has already hinted at revision of the Power Policy. The revision of any government policy in these days is complicated as industrial project matters transcend to other ministries with which close coordination is required on timely basis. Perhaps, for speedy revision of all these policies, the Board of Investment (BoI) working directly under the Prime Minister might provide a proper forum. All relevant Ministries as well as all the provincial governments might be associated in this important policy work. All these policies when combined together might be called the Investment Policy of the country.

In the past, the government allowed guaranteed return on investment in petroleum refineries or some specified industries. Also, the government guaranteed maintaining of import duties at agreed minimum level for a specified period say ten years to certain chemical industries owned particularly by the multinational companies. These measures introduce unfair advantage to certain investors. An account of all such cases might be taken as part of the exercise for the preparation of the Investment Policy. For future transparent, fair and equitable policies and procedures might be introduced.

The new government is eager to increase economic activities and employment generation; and is inviting all investors local as well as foreign for making investment in the country. The investors these days are very choosy. They prefer a destination which can readily provide at one stop all relevant information and issues hindering operations are resolved at top speed. They want to start work on their projects rather quickly and they do not feel comfortable if they have to work with different ministries for permits before they can start implementing their project. Different Ministries, working in close liaison with the BoI, might be the facilitators in the implementation and operation of all projects undertaken by the private sector. The working of different Ministries and the Departments has to be streamlined by motivating the concerned officials for cutting delays/red-tape and thus reducing cost of doing business in the country. It is only through such an approach at the level of different Ministries that local industry could become competitive internationally effective January 2005 when all quotas will be abolished under WTO arrangements. The process, when streamlined, would remove irritants voiced by different Chambers of Commerce and Industry in their meetings with the authorities.

Majority of our industry has close linkage with our agriculture while some industries are related to mining. Agro-based as well as mineral-based industries might be preferred through incentives due to their contribution to development of agriculture/mining and the creation of jobs, mainly for the poor. Instead of exporting surplus cotton or course yarn to earn foreign exchange, we should be exporting more of value-added fabrics. This would promise us many times more foreign earnings as well as create more jobs in the country. We can meet many of our chemical or other requirements from minerals found in the country, waiting for proper exploitation. Cattle-farming might be an attractive sector for promotion. Special incentives need to be given for sustained growth of these industries.

There is justification for balanced development of the under-developed areas particularly in Sindh, Balochistan, Southern Punjab and areas falling under FATA or PATA. In order to create more employment opportunities in these areas, cottage, non-traditional and SMEs might be supported for establishment. The areas might attract more industries if proper roads and other infrastructure are there. The government might take urgent steps for improving infrastructure in these areas.

The local investors feel sort of left out, due to government's emphasis on frequent investment conferences in foreign countries for attracting foreign investors. The government might take tangible measures to remove such an impression. The foreign investors would normally not believe in the government pronouncements unless they see for themselves the local investors actually making big investment. The government is urged to provide level playing field for large industries to all investors while the SMEs might be reserved exclusively for the local investors. In Pakistan, many SMEs are handicapped as they are obliged to comply with tax and return-filing requirements applicable to large industries. The authorities are urged to find a satisfactory solution to such issues.

Many industrial estates, once outside the populated areas, due to outward growth of cities, are now in the midst of residential areas. Karachi is a typical example. There are pros and cons of the prevailing situation. It is considered proper that the industrial units that contribute more pollution or create traffic congestion are first relocated away from the populated areas in a planned manner. Other industries might be asked to control pollution by different means including installation of effluent treatment plants. Under WTO arrangements, all exporting industries will be required to be in full compliance of the environment and social requirements. The government might consider application of the principle "the pollutant pays". In certain cases, the government might have to subsidize the establishment of waste water treatment plants.

Labour laws and practices in the country might be brought by the government in line with our commitments to the International Labour Organization (ILO). As part of social compliance, the labour might be provided congenial work atmosphere, living accommodation, schools for their children and health facilities for their families. All future special zones and industrial estates must have such facilities for the labour. Motivated labour with higher productivity can make the industries prosper.

There are apprehensions that after January 1, 2005 many local industries might not survive the competition if these industries are now not supported and guided to prepare for the international competition in the coming days. The government through its Investment Policy might announce practical measures in this regard. In addition, the government is urged to take steps for rehabilitation of closed or sick industries.

These days all provincial governments are vying for attracting industries to their respective areas. Sometime back, the provincial government of Balochistan even conducted an international investment conference. It is imperative that each province encourages industries that have comparative advantage for location in the area. There might be one-window facility at the provincial levels as well so that the industrialists, for quick resolution of their issues, deal with only a small number of authorities. This would allow the industrialists to devote more time for improving operation and for making their products competitive internationally.

The provincial governments are urged to take measures for improving law and order, availability of physical infrastructure including roads and plants for waste disposal and effluent treatment plants. These should bring more transparency, better governance and create atmosphere of goodwill and credibility by helping out all the intending investors. This might be possible if the officials of the provincial governments are motivated to help the industries through better pay and extensive training locally and abroad. The provincial governments might liaise with the utility companies to provide regular supply of power, gas, telecommunication services, etc to the industries located in the area so that industry operations are not hindered due to any reason.