INVESTMENTS FACE PERIL OF UNCERTAINTY

TARIQ AHMED SAEEDI (tariqsaeedi@hotmail.com) 
June 8 - 14, 2009

What makes investors to invest? Of course, high predictability of directions of society and economy. When there is an absence, they either wait or strike the flag at worst. The situation is not at this stage in Pakistan fortunately however spiralled low predictability is an opaque warning. Fortunate it is because there are still few economic activities occurring and sectors having potentials galore to retain confidence of investors in the economy. The orgy of terrorism and uncertainty is staggering investments for a while.

According to Engr. MA Jabbar, Chairman Site Association of industry (SAI), if law and order situation is not good then it implies contraction of rating by 40 percent on business barometer. "This also means a hard billow to business progress. Security threats have spread their tentacles to all parts of the country, posing a serious danger to normalcy of economic activities. Thus, a simple answer for a question of investment climate is not so simple," remarked Jabbar when asked about prospects of private capital flows in the country. "The sooner the law and order is restored, the better." Nevertheless, he seemed to have not lost all hopes, saying, "Capital intensive projects of energy sector are still attraction for investors". But, wooing investors in any sector requires policy measures, he added. 'They will not come until they are provided with incentives.'

Foreign investment is vital for the economy, but its integration with the domestic economy is as essential, commented SAI chairman. He said local participation was indispensable to bring in sustainability in the economy. Replying to a question, he said there were some sectors holding great potentials. Among them telecommunication sector has an enormous space to cultivate financial resources. He expressed his dismay over the misplacement of resources in the sector, raising a right question that how much investment has been directed towards local manufacturing of telecommunication devices, out of huge foreign direct investments in the sector.

Telecommunication sector has attracted $9 billion in last three years. The amount is equivalent to 46 percent of the country's total FDI. With this sizeable investments emerged out a revolution in information and communication services across the country. While government upstream incentives to telecommunication services providers brought about variety of services, yet the tariff structure especially of cellular and broadband services has not squared with the downstream benefits. Often, this makes government face criticism that is justified to the extent when people demand revisiting of tax structure of the telecommunication services.

According to a senior official of Pakistan Telecommunication Authority (PTA), mixture of local bodies' taxes, various levies on infrastructure and consumer taxes are jeopardising the real growth of overall telecommunication sector. "We have requested the government to rationalise these taxes in the upcoming budget 2009-10," he told this scribe, requesting nondisclosure of his identity. "I think government is serious in considering obstacles that can deter progress of the sector in the long run,"he said.

Prime Minster, Yusuf Raza Gillani has recently ensured telecom operators that government would lay down an enabling environment for telecom operators. While talking to chief executives of Mobilink, Warid, Ufone, Telenor, and China Mobile, he said government would provide them with supports as stimulus. In the meeting, the operators committed a joint investment of $1 billion in building and strengthening telecom infrastructure in Pakistan. Despite that government is hell-bent to facilitate telecom operators in order to enhance expenditures outturn by them in capital intensive telecom projects in rural and remote areas of the country, at this point it seems to be uncared for price benefits of subscribers.

The PTA official was of the view that government would root out impediments of investments as it did not want investors to retreat at this crucial moment when there was a dearth of investment. "There is no new private capital flows in pipeline," he confided. However, government has earmarked an outlay for Telenor to establish infrastructure in Umerkot district of Sindh. It is safe to assume that presently Universal Service Funds (USF) is utilized in expanding telecom network to remote areas. Universal Service Fund was established by the Ministry of Information Technology to expand outreach of telecommunication services to un-served and underserved areas in Pakistan. All telecommunication service providers contribute 1.5 percent of adjusted revenues towards the fund. After qualifying bidding process, telecom operators are allowed to harness the capital for building and improving infrastructure in remote areas. Telenor, Warid, Mobilink have participated in the utilization of the funds. USF is a unique concept of accumulating parts of revenue of telecom operators to build information motorways and ensure all kind of telecommunication services in areas with low or no fibre connectivity.

According to an estimate, out of 400 Tehsils across Pakistan only 30 percent has been covered with fibre optics network. He says wireless local loops as well as broadband services are two of the main categories in which importance is placed. Mostly local companies are operating broadband services while PTCL is the prime holder of market shares. The target is to expand Digital Subscriber Line (DSL) connection countrywide to 11,000 by 2010, according to a news report. Another official said the priority was given to WLL because of its relatively low-capital outreach to difficult topography. Telecom operators are giving importance to other technologies such as Wimax. The technology is available in many major cities of Sindh province, such as Karachi, Hyderabad, Sukkur, etc.

As long as telecom operators do not get desirable penetration in targeted locations, there will remain charm for them to go ahead. The return of investments in telecommunication sector is an attraction that can only be retained by prudent policy measures of the government of Pakistan. Then again, low predictability about the future can make expansionary or diversification plans in any sector shelved. Government can make it high by at least not tinkering with the negative propaganda campaign, instead tackling with it dexterously.