The export target of $250 billion in 2030 is achievable if we focus our strategies in the right direction.

Mar 26 - Apr 01, 2007

Twentieth century gave a new feeling to the deprived third world. Establishment of World Trade Organization, lowering the trade barriers and tremendous innovations in electronic, technological and communicational fields gave the mankind a feeling that everybody and everything is accessible with the press of a button. World is looking at new horizons and everything that was once considered to be a dream, has at once become a reality. While in the first half of the 20th century, countries were busy developing the machineries to kill people, the later half taught the people to trust each other economically. This new era has given a real feeling of globalization.

Rules have been laid and the countries have an even chance in the race of economic goals. There is competition to find better values and cheaper products. Countries providing better infrastructure, cheaper skilled labor and freer market accesses are getting more attention. With over half of the population of the world concentrated in China and in the South East Asia region, the world attention to this area has grown rapidly in the past few decades. This is why South East Asia has become so important for the investors of the world. Pakistan is uniquely located as it shares its borders with both China and rest of South Asia.


The economic growth by an estimated 6.6 percent in the financial year that ended on June 30, 2006 after expanding by 8.6 percent the previous year makes Pakistan as one of the world's fastest-growing economies. This sterling achievement identifies a series of far reaching economic reforms.

The foreign exchange reserves continued to grow despite an increasing balance of trade deficit. The country is on the path of development and human development index (HDI) which is on the rise despite higher population growth. While Pakistan inherits cheap labor and there is tremendous improvement in the infrastructure, the free trade policies of the country have made this country very attractive for foreign investment.

From $25 billion in 1975 the global foreign direct investment (FDI) climaxed to $1.3 trillion in the year 2000. Highest ever! Since then, the FDI has declined to $653 billion in 2003, but has again shown rising trends in South East Asia.

*In China alone the FDI rose to about $40 billion in late 90s and in year 2003 it rose to $53 billion and recorded over $60 billion in the year 2004. The total FDI stock in China stood at $448 billion in 2002.

*In India, FDI rose from $100 million in 1990 to $5.5 billion in 2003.

*In Sri Lanka, total FDI in 2005 was $270 million. It is expected to be over $600 million in 2006.

*In Bangladesh, FDI was $360 million in 2003, $470 in 2004 and $692 in 2005.

*The FDI in Pakistan has also made rapid increase in the past few years. From $484.7 million in 2000-01, it rose to $3.87 billion in 2005-6. It is estimated that the FDI in the year 2006-7 will reach about $6 billion mark. The trend of Foreign Direct Investment is shown in the following chart:

*Figures taken from BOI Pakistan, 2005

The main target of foreign direct investment in Pakistan is on the purchase of state-owned enterprises. Pakistan sold several big state-run firms, including its biggest privatization of all, the $2.6 billion sale of a controlling 26 percent stake in Pakistan Telecommunication Co Ltd, to Emirates Telecommunications Corp in June 2005. A break-up of foreign direct investment in Pakistan in the year 2005 is shown in the following table:




Communication (IT&T)



Financial Business



Oil & Gas Exploration


















*Table from BOI Pakistan, 2005

Main bulk of investment to Pakistan is originating from United Kingdom, United States and United Arab Emirates, which counts for more than 68% of the total investment to the country.




























*Table from BOI Pakistan, 2005

The benefits of FDI are manifold. It creates positive impact on resource-transfer, general employment, balance of payment, overall economic growth and grooming the skill development effects. It has some adverse effects as well, which includes capital outflow, loss of economic independence and unemployment. FDI in Pakistan generated a mixed effect. Although Pakistan is successful in improving its foreign exchange reserves through FDI but not much of the investment is being made in the manufacturing sector. Major investment has been through GDRs (Global Depository Receipts), purchasing of the state-owned enterprises/banks and exploration of oil and gas. As a result, there is not much of an improvement in the exports of the country. The benefits are not transferring to the poor. Employment level has not improved and not much improvement can be noticed in the industrial sector. On the contrary, most of the FDI in China, India and Bangladesh is targetted on the manufacturing and value added services sectors. This has not only started creating stiff resistance to the exports of Pakistan but has also made it difficult to explore new markets.

Foreign investment in Pakistan has been mainly in the purchase of the state-owned enterprises and banks. When the new owners took over they applied rightsizing. Those who were forced to opt for "golden handshake" were rendered jobless and the ones who stayed back had a fear of following the suit, thus creating backlash and frustration. The employees of those companies that were listed to be privatized started agitating thus downrailing the privatization process.


The other form of foreign investment in Pakistan is portfolio investment. Foreign companies find it lucurative to invest in the stocks of the companies listed in the Karachi Stock Exchange. This makes the market rates to bounce unexpectedly. Reselling these shares at higher rates makes many small shareholders to bite the dust. It has happened very frequently in the past. The incident of "Black March" is not hidden from anyone! Foreign investments in our neighboring countries has been mostly in manufacturing units or in value added activities. The foreign investment made in India by well known computer companies of the world has made her the second home after the US for software technology. It is expected that India should top $70 billion export of software by the year 2010. Not only that, they have, in house, the biggest software manpower that can contribute a great deal in the automation of the country. Many countries are getting their software needs by outsourcing it to India. Not only that, India also earns lot of foreign exchange on the maintenance and tailoring of their own software.

Pakistan is geographically situated at a very important location. It borders two of the most populous nations of the world which are also two of the biggest consumer markets of the world. Also, it is at a hand shaking distance from the newly independent Central Asian states which are rich in natural resources but have great demand for manufactured goods. Pakistan has seaports, airports, railroads and a very intricate road system. It has cheap labor which is available in abundance. The Pakistan government provides excellent investment opportunities to the foreigners yet not much is coming in. What is wrong? Why people are not interested in coming to Pakistan?

First and foremost hazard for the foreign investors in abstaining from making long term commitments in Pakistan is "fear". After 9/11, things have changed. The world that used to be friendly and caring has become extremely cautious and ruthless. Pakistan sided with the forces that opted for "war on terror". The most powerful nations, living thousands of miles away from Afghanistan, waged a war to rout terrorism from Afghanistan because they feared these terrorists would launch attacks in their respective countries. Things with Pakistan are different. The country shares a long boarder with Afghanistan. Despite the fact that Pakistan has mounted a large number of armed personnel to monitor the borders, it has lost more than 800 trained and professional soldiers and yet it is getting a daily criticism from the Afghan president and the commanders of the Allied forces for not doing much. As if that is not enough, the suicide bombers are on the rampage in populous cities of the country, killing people at will and making things insecure. In a situation like this, who would like to risk his life by investing his hard earned money in Pakistan? If Allied troops with all the might that one can think of at their command could not establish peace in Afghanistan, how can Pakistan with limited resources could handle a situation like this? This fear is keeping the foreign investment away. Unless this situation is resolved, I am afraid, people will not head this way. If this situation persists then Pakistan will suffer even more. The neighboring countries would capture markets where Pakistan has a share. This is a dilemma that needs to be addressed with urgency. President Musharraf's compromise and a win-win policy may work. Perhaps a one month ceasefire and general amnesty could be a solution!

The second hazard the foreigners may be facing in Pakistan is the fundamentalism in the country. People believe that only the punishment realities of the religion should be followed for the non-Muslims. People are ruthless if they fancy that someone has not exercised the religion properly. An innocent female provincial minister Zill-e-Huma was killed in broad day light and in open public by a person who believes that women should not be doing office duties in public! What can be more absurd than that. They do not even think about the future of the children of the deceased person. Despite the fact that the education level is improving in the country and an effective free education program in Punjab is being exercised, yet the exercise of literacy seems to be missing. The tolerance level is at the lowest. Almost every religious event appears prone to suicide attack. Though the government is alert to toward any such incident yet they occur unabated.

The third hazard may be the lack of social activities available to the non-Muslims. An American or a British would rush to a pub soon after completing his hours of work for a moment for himself. That is their way of relaxing. In Pakistan, there aren't any entertainment outlets for the local population, let alone the foreigners. In India, foreigners get whatever they want. Well, the argument may be for India is a non-Muslim country and could afford to fulfill the needs to the westerners. What about Dubai, Qatar, Bahrain, Morocco, Egypt, etc? The philosophy these countries maintain is that one should have the privileges that are allowed within one's belief. The only fun fair that is available in Pakistan and has international attention is "Basant." People from far flung areas and foreigners too participate and make it look like a festival. This year that too has been ruled out by the legal authorities due to the killing of the innocent people because of the kite string. No international event takes place in the country. There are no beaches in the country. Karachi, the biggest and ancient port of the country, housing more than ten million people does not provide any sea activity to the local or foreign population. There are no sea cruisers, no water polos, no kite floating or fishing spot in the vacinity. There are no golf course events, car racing facility or horse or camel racing derby that would attract the sheikhs of the Gulf or the millionares from the western world.


The next hazard that the investor may find in this country is the non-availability of the skilled labor. Although, the country has a great number of universities in almost all parts of the country but the students that pass out have no vocational skills. The world needs efficient skilled labor to produce things at the cheapest rates. We do not have people to make things. The skilled people that we have are the ones that have learnt from the people that they work with. There are hardly any vocational schools in the country. We have labor. We also have it cheap but what good is that labor which cannot deliver?

In 1990, Michael Porter of Harvard Business School published the results of intensive research to determine why some countries succeed and others do not. His research was conducted in 10 nations and 100 industries. His conclusion was that those countries that have competitive advantage in producing manufactured good can succeed internationally. In his competitive advantage model, he presented four parameters for successful business and called it Porter's Diamond. The four factors are:

1. Factor endowment: (Skilled labor, Capital/Machinery and Infrastructure)

2. Demand Condition: Well established in its own country and having a competitive advantage.

3. Relating and Support Industry: All the related industries are within the country and provide support to each other.

4. Firm Strategy, Structure and Rivalry: The firm has a strong system to compete with the local producers.

He states that if a firm can possess all the above, it can relish in producing something that will be a quality product, cheap in cost and will be readily acceptable in the world market. After the second world war, Japan had nothing. The only asset they had were the highly skilled people. In 1960s, they rolled out three of their best car makes (Datsun, Mazda and Toyota) that created ripples in the very best car markets of the world. The reason? They worked on the theory that later became Porter's model. They produced every item of those cars at home and their product was cost efficient, fuel efficient and better looking than the ones in the open market. These cars instantly captured markets in America, Europe and Asia. They captured the market then and are still ranked as the best cars of the world. Unfortunately, Pakistan does not have any industry that can claim to be 100 percent indigenous. Even in textile industry, which forms more than 50 percent of our exports does not have 100 percent Pakistani stuff in it. The industry works on the imported machinery, the dyes and finishing products are imported and the transportation is carried out on foreign ships. This increases the cost of the production and becomes more expensive than the ones already there from other countries. Foreign investor is on the look out for such industries where everything is indigenous. We do not have any!!!


Energy is one of the main forces to promote progress. Our energy resources are limited. In summer, when the energy requirements increase, the government has no choice but to apply load shedding or load sharing. Even the capital city has to go through this process. This energy shortfall can be reduced or energy resources can be developed by the construction of dams. Work on Bhasha Dam has just started but debate of Kalabagh is bringing no results. Iran-Pakistan-India gas pipeline is still in the discussion stage. If this project goes through, Pakistan can provide additional energy resources for industrial development. It could be a major break-through. If this deal goes through, it could motivate some foreign investment towards industrial and manufacturing sector.

Energy loses in this region are at the maximum in Pakistan. The following chart, extracted from a World Bank report, published in 2002 should have been an eye opener for those who are running the energy sectors of the country.

Energy prices are increased every now and then. The electricity rates in Pakistan are among the highest in the region. This could easily be reduced if we restructure the mechanism. If this energy loss is controlled, we can improve our energy resources to make it available for our existing needs. China and Malaysia are both our friends. If we are not efficient in this exercise, perhaps we can use the expertise of these nations.


There is one big issue in the cultural system of our country. It is the establishment of "Jagirdari" system. Former Prime Minister, Zulfiqar Ali Bhutto tried to get rid of it. In one of his public speeches, he declared the end of the Jagirdari Nizam. But it could not be implemented through judiciary. The system prevails. These Jagirdars have a big influence on the demographic and democratic system of the country. Without the help of the Jagirdars, the government does not perform the functions properly. They sabotage the government. The government does not function independently. That is why, our political system is so unstable. India succeeded in breaking through Jigirdar system and has proved to be the biggest democracy of the world. If we succeed in reducing the effect of this group from our politics and make the government to function independently, the element of doubt or instability of political system is removed, tourism and investments can easily be generated.

WTO enforces trade related intellectual property rights (TRIPS) system in the world. Our region is considered notorious in following this aspect. Copyright violations are very high and there is no protection. The judicial system is so slow and expensive that getting a result for a case takes years and loses the credibility. The case of Zill-e-Huma is an example. The lady was killed in the presence of so many. There are a large number of witnesses. The culprit admits killing her and six others. The culprit is in the custody. Yet no action has been taken against him. What are we all waiting for? Why justice has not been done in any form? Where is the judiciary. The Alliance for Protection of Human Resources (APHR) condemns the murder but no one speaks about a speed action.

The above realities paint a very bleak picture for Pakistan. Are we at the brink of losing another great opportunity? The opportunity after the creation of WTO and the open markets of the 21st century? What are we doing when our neighbors are piling up their foreign exchange reserves; China exceeding $1 trillion and India nearing $200 billion.


All is still not lost. The export target of $250 billion in 2030 is achievable if we focus our strategies in the right direction. Here are a few recommendations that could improve the situation:

The Afghanistan issue must be resolved as early as possible. Let Mr. Karzai and his Allied forces be told that despite the power and finances they have at their disposal, they have not been able to succeed in winning the hearts of the Afghan people. It is time that they should change the policy. Extend friendship to all factions of the society. Make a compromise with the warring chiefs and develop a system to make Afghanistan a liveable place again. Peaceful Afghanistan can open a big door of opportunities to Pakistan. The rebuilding of Afghanistan is imminent. Pakistan can extend the vast un-skilled labour to rebuild Afghanistan. The construction industry will have to run round the clock to meet the requirements of Afghanistan. Employment level will increase and prosperity will come to both the countries. The other important opportunity Afghanistan can provide Pakistan is the journey through to the central Asian states. If that facility is on hands, Pakistan can then have excess to a very big market. It can also provide seaport facilities and transport service through Afghanistan to their countries. Afghanistan can also benefit from it by giving transit facilities. This would be a win-win situation for all parties.

Pakistan will have to work hard to expel fundamentalism from its ranks. This may be achieved by giving powers to responsible religious leaders to form a coalition and make sure that nothing anti-social activity is carried out against any sect or people of any other beliefs. They should own the responsibility. They should only be reportable to the chief justice of the country.

People of different cultures, religions and beliefs should be tolerated at all costs. They should be given the facilities that their culture permits them to use. This can be arranged in creating no go areas for the religious people and be a closed door arrangement. Vigilant security should make sure that the interest of everyone is maintained.

Try to make available vocational education to all and in all regions of the country. By doing a research and also by collecting secondary data focus education in those fields where there is greater international demand. This may be expensive initially but it will pay back in very short time and can improve the future of many.

Once the skilled labor is available, we can then employ them in the tax free industrial sectors that we have around Pakistan. This will increase the production of the country. We can then generate the slogan of "Be Pakistani, Buy Pakistani." This will reduce the trade deficit by reducing imports. The surplus skilled labor can be handy in getting employment in Middle East and Far East Asia thus earning foreign exchange for the country.

To enhance the industrial activities, we must focus on the energy resources. The more the energy we generate, the more machinery we can run. If we have surplus energy, we can also export it to our energy scarce neighbors and earn much needed foreign exchange.

Judicial system must be revived. Speedy courts should be set up. Justice should be provided to rich and poor alike. Process should be made easy and inexpensive. Cultural ethics should be restored.

Let us make a resolute effort to upgrade the name of Pakistan in the world markets. Let us regain the respect that we once had. Let us remove terrorism from the country. Let us improve our values. Let us educate ourselves and practice literacy. Let us make our judicial system powerful and like the Quaid once said, "Let us make Pakistan as one of the greatest nations of the world".

(Contributor is associate with SZABIST)