FOREIGN INVESTMENT BOLSTERS ECONOMIC GROWTH
A more aggressive privatisation drive would make for superior economic performance.
By KHALIL AHMED
Nov 28 - Dec 04, 2005
Skepticism is a hallmark of our society. The opponents of foreign investment in our society have got fear of unknown. They quote the examples of the English who came to India for the sake of business during the tenure of the last Mughal emperor and became custodians of the country.
They also quote the Jews who slowly and gradually commenced purchasing lands from the indigenous Palestinians and became tyrants as time went by, giving the Palestinians a refugee status in their own country.
Times have changed since my great grandfather was young. Foreign investment which was considered a threat earlier has become indispensable particularly for the battered economies and at the same time it creates a climate of detente. I heard someone saying war does not take place in a country where there is McDonald's, and that the US will never ever think of attacking China. Let me endeavour to dispel the fears of the skeptics about foreign investment by quoting something from history.
International business dates back to ancient times when goods were traded far-off lands. There is convincing evidence that traders carried goods to consumers around the world during the Roman Empire. This worldwide trade was an impetus to a new and refreshing concept of multinational companies in the nineteenth century whereby GE and International Telephone & Telegraph of the US whereas Ciba, Imperial Chemicals, Nestle, Siemens, and Unilever from Europe emerged predominately. From1950s onwards, the US dominated the world economically. Tens of US firms made substantial direct investment in foreign oil production and mining industries and viewed the rest of the world as a source of raw material, cheap labor and supplemental markets. In the 1960s, the US service industry ruled the world market. The US focused on direct investment rather than portfolio investment.
Direct investment is characterized by an active involvement in the management of foreign investments, typically through multinational companies. It was not only US but also Japan which later on started to invest in facilities in newly developing nations to lower their manufacturing costs thus becoming number one and two biggest economies of the world respectively. But perhaps both US and Japan had forgotten the potential strength of both China and India which were potential economic forces in the offing.
China has emerged as an economic and technological force over the period of three decades. There has been a gradual transformation from a predominantly an agricultural country into a modern and an economic paradigm for the rest to follow. After assuming EU presidency, Tony Blair quoted China and India as success stories. It was back in 1980s, when after the death of Mao Zedong, China's new generation of leaders promulgated an ambitious new plan for economic growth and hence economic reforms ensued. These reforms promoted entrepreneurship within stated-owned businesses permitted certain businesses to experiment with restructuring, and allowed entrepreneurs to start small, privately owned businesses.
MNCs such as Reebok, Nike, Squibb, and Ingersoll-Rand responded by investing in joint ventures with Chinese companies. In due course, by 1993, there were 3000 Chinese businesses authorised to deal with foreigners. In 1997, after Hong Kong was handed over to China scores of foreign companies, particulary US firms, craved to invest in the booming Chinese economy. According to the World Bank, $10 billion of state-owned assets have been sold into private hands in the last ten years. China received $42.4 billion of direct foreign investment in 1996. In 1980 the state owned nearly 80% of industrial activity which at present has shrunk to barely one third. To facilitate the investment, the difficulties of registration of private businesses have been greatly eased since the late 1990s.
By the end of 1980s, Communism had collapsed like a house of cards in a hurricane.
China and the former Soviet Union were the formidable influence in communist society but both plodded their way to capitalism. The Soviet economic reforms known as Perestroika were initiated by President Mikhail Gorbachev in 1988. When Soviet opened its doors to foreign investment, there was overwhelming response from European, Japanese, and American companies. Hefty investments were made by the US firms. McDonald's, Pepsi and Chevron were quite pervasive.
After computer technology became number one in Pharma industry, India has been able to attract colossal investment. The firms are relocating their plants in India due to lower-wage structure which in turn benefits the host country in slashing unemployment and earning revenue. Prudent strategies have helped Indian economy grow at the rate of over 9% preceded by Chinese economy which is growing at the rate of over 11%.
By quoting these instances, I might have convinced the skeptics that the world is changing rapidly and we need not lag behind. Change is a constant phenomenon.
Privatisation Commission of Pakistan came into being on January 22, 1991, beginning its operation with industrial transactions. After a couple of years, it dealt in Power, Oil & Gas, Transport, Telecommunications and Banking and Insurance sectors. Privatisation is good for economic growth of our country since it would attract foreign investors and open new avenues for us. Privatisation of banking sector has facilitated the masses and tough competition has compelled the banks to serve the clients with utmost respect and care. Privatisation of KESC and PTCL would bring about revolution in the service industry and this benefit would reach the masses.
In 1970s, Pakistan witnessed a massive redistribution of national assets from the private owners to the state. The proponents of this radical step made a grave mistake which gave us lousy public sector with the poorest service.
By the efforts of our well-wishers, we have been able to attract foreign investment to some extent and should pursue it with undying commitment. Among world's largest MNCs operating in Pakistan are: Toyota Motors, Shell, Unilever, Coca Cola, Pepsi, Nestle, Nokia, McDonald's, Citibank, Honda, Suzuki, Sony, Nescafe, Samsung, Merck, Kodak, Pizza Hut, Philips, Yahoo, Motorola, Johnson & Johnson, Nissan and DHL, to name a few.
Foreign investment is sine qua non and fetches potential benefits such as transfer of capital, technology, and entrepreneurship to the host country; improvement of the host country's balance of payments; creation of local jobs and career opportunities; improved competition in the local economy; and greater availability of products to local consumers. A more aggressive privatisation drive would make for superior economic performance. Foreign investment is a shoo-in for our sound economic condition.
Eschewing foreign investment would be an act of economic and industrial sabotage.