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Attracting foreign investors.

The International Investment Promotion Conference, the first of its kind held in Pakistan, has generated considerable optimism. Foreign and Pakistani investors participating in the moot have reached agreement in principle to investment in Pakistan approximately in the range of 1000 million dollars. This is a good beginning by all standards. Firm commitment has been made through exchange of letters of intent between the joint venture partners which is for about 600 million dollars. In addition, agreement in principle has been reached about certain projects which, if taken into account, would bring the total foreign investment pledge to one billion dollars. This clearly reflects the great confidence the foreign investors have in the economic destiny of this country and the soundness of the economic reforms initiated by the present government. The stock exchange has been experiencing an unprecedented boom in the wake of the enthusiastic response of the foreign investors to the investment opportunities offered by this country.

Thus the objective of the conference has been fully achieved. The message has gone home and the foreign investors have realised that the economic and industrial reforms introduced by the Pakistan government have made Pakistan one of the most attractive countries for investment. The participation of 400 delegates from over 40 countries plus 300 local delegates clearly demonstrated the interest of overseas and domestic investors in Pakistan's economy.

Concern expressed by the participants over the volatile law and order situation and gross inadequacy of infrastructure facilities was quite understandable. The demand for constitutional protection to the reforms was also justified. Happily the Pakistan government has also recently shown positive awareness of these grievous lacks. While steps have been taken to bring law and order situation under control, the investors have been told that the situation was not as bad as being projected. Worse conditions were prevailing in certain other countries, yet they did not constitute any serious hurdle to investment. As regards inadequacy of energy, telecommunications and other infrastructure facilities, bold steps had been taken to close the gap by inducting private sector in these fields. A firm has also been held out to provide constitutional cover to reforms, a legal protection has already been provided.

Thus all is set for a major breakthrough in the field of industrial investment on which hinges the future of teeming millions of this country. The solution of the massive unemployment problem solely depends on rapid industrialisation. In fact, the fast deteriorating law and order situation is also greatly related to the unemployment problem. So, neither the quality of life of the vast multitudes can be improved without industrialisation nor can the cherished goal of self-reliance be achieved without it. Our balance of trade gap is increasing because of liberalisation of import policy under IMF pressure and nominal increase in exports due to non-availability of large exportable surpluses and dependence on a handful of traditional items for exchange earning. It needs no stress that our salvation lies in a major breakthrough in the export field and reduction in imports through import substitution. Hence it is a matter of great satisfaction that an industrial boom is just round the corner.

A solid chunk of investible funds which found its way out of the country as a result of flight of capital following law and order problem and large scale nationalisation of industries, is expected to be lured back to be ploughed into productive channels to the great benefit of the national economy. A section of economists believes that if a congenial investment climate is created for non-resident Pakistanis, the need for capital from other FDI sources will be obviated. In this connection, the need for tying up the loose ends in the NRI Scheme is stressed.

Implementation of One Window Operation in the true sense can go a long way in attracting foreign investment. For, so far the cumbersome process of sanctioning of projects has proved a frustrating experience for the investors. Bureaucratic non-chalance and official red-tapism have proved a veritable nightmare for both local and foreign investors. Happily, these are now a thing of the past. With the deregulation of the economy, bottlenecks in the way of investment have been removed. The setting up of the industrial promotion board with the prime minister as its chairman, things have been made further easier.

Yet many hurdles remain. Our taxation structure has more often than not scared away the intending foreign investors. Hence the emphasis should be on mobilising more resources through better collection and plugging of gaping holes encouraging tax evasion, rather than raising revenues through additional taxes.

We must not lose sight of the fact that there are many competitors in the field who are offering equally attractive if not better incentives to investors. Hence the foreign investor has a wide option and he will choose the country where there is political stability and peace and there is no inadequacy of infrastructure facilities. Some of the Gulf countries have recently emerged as potent rivals to Pakistan. No wonder therefore, that even some of the Pakistani investors have set up industrial units there. All the basic facilities are made available there within weeks, not months and years. Our export processing zone has failed to make much progress, while those in other countries of the region have achieved tremendous success. This is due to the location of the X-zone far away from the seacoast, unnecessary bureaucratic interference, irrational duty structure, lack of credit and other facilities etc. This should serve as an eye opener.

The investment conference has gone a considerable way in diffusing existing negative perceptions, hitherto entertained by foreign investors. Let us take full advantage of it. Prime Minister Nawaz Sharif rightly said in his inaugural address that despite his government's far reaching reforms like decontrol, deregulation and privatisation, all problems had not been eliminated. Quite reassuring was the Industries Minister's statement that his ministry should henceforth play a promotional role rather than a regulatory one which meant that a favourable investment climate would be maintained.

Finance Minister Sartaj Aziz also assured to bridge the gap between resources and expenditure. In other words, the government attached top priority to containment of inflation. He also stated that serious efforts were being made to make Pakistan's trade system more open to the world economy. These statements must have reassured the foreign investors that the process of reform in Pakistan was not over; it is a continuing process. Pakistan's high growth rate must have assured the prospective investors of the wide scope of investment opportunities and profit margins. A World Bank official underlined the challenges facing the Pakistan economy. These included poverty eradication, and greater provision of social services. But the prime minister has rightly said that higher investment in the private sector would generate enough resources domestically and thus the social sector targets could be achieved. Since the investment conference has yielded palpable results in terms of attracting foreign investment, it leaves no one in doubt that Pakistan is going to turn a new leaf in its life. An era of economic prosperity and happiness is going to dawn soon. But in the enthusiasm to achieve progress, the goal of distributive justice should not be lost sight of. In case, the egalitarian objectives are relegated to the background, only the rich will get richer and poor poorer, leaving the broad masses in abject poverty and hardship. A distinct improvement in the quality of life of the vast multitudes can be brought about only through a happy blending of economic dynamism and distributive justice.

The Pakistan government has mounted a vigorous follow-up campaign after the investment moot on the directive of the prime minister. Teams of Korean and Japanese investors are due next year. Since the Koreans wanted to set up their own industrial estate, Pakistan government has offered them a piece of land in the export processing zone in Port Qasim area for this purpose. The Pakistan government has also offered similar facility to the Japanese investors if so desired. The government is prepared to allot them a tract of land on the Express Way being built to link Lahore with Islamabad. It is hoped that the US and European investors would follow suit. By and large Pakistan is being regarded as a storehouse of investment opportunities and hence overseas investors are expected to make a bee-line to plough their investible funds in Pakistan. Since investment opportunities in the developed countries have reached a saturation point, their capital is seeking investment opportunities elsewhere. Availability of cheap labour and abundance of raw materials gives Pakistan an edge over other nations.

Liberal incentives announced for foreign investors including repatriation of capital and profits. Permission to buy shares in the capital market has created an atmosphere most conducive to overseas investment.

A controlled economy which kept out foreign investment has been replaced by forward looking policy throwing open the country to all those who care to avail themselves of the vast investment opportunities here. Gone are the days of lawless trade unionism which brought ruin to national industry and economy and a disciplined labour force which strictly adheres to the rules of the game has put its shoulders to the wheel. In short, a new chapter has been opened in the economic life of the country which promises to usher in a new era of progress and prosperity in the country.

The International Investment Promotion Conference represented a significant milestone in the nation's endeavour to catch up with the times. For, the country cannot singlehandedly write off the lag of time. Its efforts have to be reinforced by foreign investors who have both material resources and technical know-how to give the industrialisation process a shot in the arm. Pakistan is about to enter the phase of high-tech industry which is not possible without foreign collaboration. Happily the ice has been broken and foreign investment of one billion dollars has already been pledged. More funds are bound to flow in, if vigorous follow-up measures are taken.

According to an estimate, globally 200 billion dollars worth of foreign investment is made every year out of which 80 per cent (160 billion dollars) goes to the US, Japan and Western Europe and the remaining 20 per cent (40 billion dollars) finds its way into the Third World countries and Eastern Europe. Even if a small fraction of it trickles down to Pakistan, it can mean a lot for the nation's economy. Ours is a small country whose total export earnings range between 5 and 6 billion dollars and total debt liability stands at just 15 billion dollars.

The floatation of Pakistan Funds by Citi-Corp., Grindlays, Baitul Mal Islamia and the Asian Development Bank reflects the growing interest of foreign investors in the shares of Pakistani companies. Pakistani expatriates are understandably ahead of the foreign investors who are picking up both new issues and existing shares in large numbers. There has been a strong psychological impact of the government's economic reforms which have paved the way for the emergence of an investment culture. Pakistan is being viewed as investors' paradise and hence attention is focussed on this country where a take-off in earnings is expected soon. The opening up of the economy has begun to bear fruit.

Today free market economy is the theme all over the world. Pakistan too has begun dismantling state control, allowing the private sector to play a more dynamic role and providing unprecedented concessions to foreign investors. This also underlines the emphasis on investment-oriented development and greater integration with the world economy. Happily at no point of time has foreign investment in Pakistan been disturbed, not even when industries, banks and trade were taken over by the state in the early Seventies. Political consensus continues to exist to encourage foreign private investment allowing it newer incentives.

Some of the major incentives included in the newest package are: all foreign controls have been abolished and the investor can bring capital, issue shares, remit dividends and transit capital out of Pakistan without any restriction; the investor can retain funds in foreign currency accounts and use them as collateral for local currency loans; ceilings on payment of royalties have been dispensed with and the investor can enter into contracts for transfer of technology and use of patent rights without government approval. Work permit restrictions on expatriate managers have been withdrawn. No industrial sanction is needed in most cases. Tax holidays exist for new industries for three years in urban industrial estates; for eight years in areas designated as |backward' and for five years in other rural areas. The debt-equity ratio has been reduced from 60:40 to 70:30. Import licensing has been eliminated and the maximum tariff rate has been reduced from 125 per cent to 90 per cent. Additionally customs duty and sales tax concessions will be available on new investment.

Besides these concessions, what Pakistan also offers is a hard working skilled and semi-skilled labour force with competitive advantage. Lately managerial skills in Pakistan have also developed, adding another resource to the input package for investment. Low real estate values and a favourable exchange rate make the investment cost in Pakistan lower than any home country.

Another significant factor in any investment decision is the size of the market. With the economy growing at an annual average of 5.6 per cent, self-sufficiency already attained in the food sector, exports rising by around 20 per cent and home remittances gradually picking up, enough income is being generated to create demand both for industrial and consumer goods.

The investment conference must have provided an excellent opportunity to the visiting entrepreneurs to explore prospective areas where they can make investment electronics, fertilizers, pharmaceuticals, mining, dairy farming, cement and engineering goods have been identified as enjoying specific incentives. Investment is also being encouraged in energy, transport, communications and tourism. Traditionally, foreign investment already exists in sectors like pharmaceuticals, engineering, electronics, oil and gas exploration, fertilizers and consumer items.

The effort to attract foreign investment has got off to a good start. Investments worth more than one billion dollars have already been attracted. Many more deals are under negotiation.

The most significant aspect of the conference was the number of overseas Pakistanis who attended the conference and the level of interest they showed in investing in Pakistan. This is very encouraging. This is the first drop of rain which will be followed by refreshing showers of heavy downpour. It is a foregone conclusion that without active participation of resident and non-resident Pakistanis in investment activity, we cannot expect foreigners and multinationals to invest in Pakistan. Happily, the ice has been broken and now we are at the threshold of a major breakthrough in the industrial field.
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Author:Jabir, Rafique
Publication:Economic Review
Date:Jan 1, 1992
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