Free zones in Gwadar and rest of the country gearing up FDI

Mar 26 - Apr 01, 2007

Foreign Direct Investment (FDI) increased more than ten times during the last five years from US $ 322 million in 2000-01 to US $ 3.52 billion in fiscal 2006.

Going forward, there is a need to allocate a certain percentage for accommodating the flow of Foreign Direct Investment especially in view to provide greater opportunity to the local investors in forthcoming zones like textile city, garment city, marble city besides network of export processing zones and industrial estates being set up in different parts of the country to woo investors.

It is worth mentioning that out of the total Rs. 2.97 billion FDI, $ 679 million or 23% came from China while USA has invested $ 562 million or 18.9%, UK $ 547 million or 18.4% of the total FDI. The highest level of investment ever and UAE has invested $ 316 million or 10.6% of the total.

Although the government has extended an inviting package of attractive tax and tariff incentives has also been introduced ensuring no restrictions on remittances of capital, profit, royalties or fees, yet the bureaucratic chain which is known for discouraging investors whether local or from abroad calls for immediate reforms.

According to Investment and Privatization Minister Zahid Hamid FDI of $ 2.97 billion is 95% higher than last year's $ 1.52 billion and net portfolio investment of $ 1.65 billion is 378% higher than last year's $ 345 million.

An investment of $ 4.62 billion has been achieved during first 8 months of fiscal 2006-07 showing an increase of 148% compared to $ 1.87 billion in the corresponding period of the last year.

A record level of investment amounting to $ 1.15 billion comprising $ 875 million FDI and net portfolio investment $ 274 million has been achieved during single month of February 2007.

The FDI of $ 1.28 billion or 43% has gone into the communications sector while the financial business sector has received $ 573 million or 19.3% and oil and gas exploration sector $ 353 million or 11.9%.

This remarkable success has been achieved owing to a vibrant process of economic reforms, consistant economic policies and effective follow up of economic decisions introduced by the government.

Elaborating the economic agenda of the government, Zahid Hamid said the government's economic policies are based on three pillars of deregulation, liberalization and privatization together with transparency, good governance and continuity and consistency of policies.

The reforms have brought about very impressive economic growth over the last several years, with dramatic improvement in all major economic indicators, which have completely transformed the economy and placed it on the path of rapid growth.

GDP growth has averaged more than 7.5% p.a. during the last 3 years and GDP per capita has doubled over the last 7 years to $ 847 and poverty has declined from over 34% in 2001 to under 24% in 2006, he added.

The government is making all-out efforts to facilitate and encourage local and foreign investors through a very liberal and attractive investment policy in consultation with businessmen, investors, chambers of commerce, trade associations, representatives of multinational companies and other stake holders, besides ensuring level playing field for local and foreign investors and all economic sectors are open to foreign investors, he said adding that up to 100% foreign equity requires no government permission.

Though the government on its part has done its job by providing best possible incentives to the investors, yet it is unfortunate that the people enjoying the positions to facilitate the investors by granting various NOCs for infrastructural and land acquisitions and revenue collectors consider themselves above the board. Practically, speaking the first priority before them is to care for their personal interest rather than the national ones.

No doubt revenues provide fuel to move the government machinery, yet this is an area which needed reforms by simplifying the tax system as well as reduction in the tax rate which can be possible by expanding the tax net alone. One of the major reasons for opening the flood gate for FDI in UAE especially Dubai is total freedom from tax collectors. Freedom and sense of security is yet another area which also needs attention of the authorities to win the confidence of the investors.

Recently, the government raised electricity tariffs across the board for Wapda Discos (Distribution Companies) by 10%. The tariff hike has no direct bearing on the financial straits or earnings of IPPs. IPP earnings are determined by and regulated through their PPAs (Power Purchase Agreements). Since the power sector is the focus of foreign investors obviously due to growing demand of electricity and lucrative rate of return on investment. It is expected that the hike as a move toward greater sector stability with positive implications in both the immediate and longer terms. Feasibility for 20 gas fired power projects was already in hand and inviting likely to foreign investors owing to stable profit margins.