How to Attract Investment
The Federal Government has recently launched a major investment effort in the public sector, this is in utter contrast to the recently (and oft) stated intention of the PM to go in for privatisation of the nationalised industries. The question arises, is this a major shift of policy, a volte-face on earlier pronouncements or is there more to it than meets the economic eye? On the face of it the Federal Government’s machinery is emanating conflicting signals, not surprising that along with other “encounters of the strange kind” we have been blind-sided by them. Mr Ali Nawaz Shah, Federal Minister for Industries, accompanied by Mr Tariq Sayeed, President Federation of Pakistan Chambers of Commerce and Industry, and a high level delegation visited the US to solicit foreign investment in late August this year. Widely reported in the business media, he reiterated PM Benazir’s avowed intention to go the Thatcher route, her Ambassador-at-Large, Happy Minwalla has been negotiating happily and willy-nilly with investment banks (Rothschilds in particular) along with other consultancy firms in the UK to devise ways and means to accomplish such an eventuality. On the other hand, Raja Shahid Zafar, Federal Minister of State for Production, has uncovered a series of initiatives in the public sector which must have been some time in the works and could not have been plucked out of thin air. It would be interesting to note where the money is going to come from, rich Arab uncles are running scarce (and scared) these days!
In economic terms the answer to this is rather simple, though it does need to be explained to the (incredulous) public at large. Third World countries have necessarily to pursue dual-track policies of investment in the public and private sectors. If the industrialised sector is totally privatised, there may be uneven development with more emphasis on urban rather than rural areas, particularly the underdeveloped areas may be sorely neglected. At the same time, if response to the repeated invitations for investment in the private sector remains sluggish, the government must have a ready outlet to generate employment, taking due cognisance of the fact that the public corporations may be grossly inefficient as compared to private enterprise. Some industrial effort most also be made purely for necessary socio-economic reasons e.g. Saindak Copper Project, it being taken for granted that such projects would be a long-term financial loss, the gain would be the development of an area which otherwise would remain many centuries behind the rest of the country.
Seen in this light, the recent announcement of the Federal Government for a major industrial drive under its own aegis becomes comprehensible, one only hopes that bureaucracy does not take advantage of the situation to waylay the government’s seemingly sincere direction and declared intention, turning it rather towards cessation of the privatisation effort leading to the establishment of another “Hidden Kingdom” for themselves, leaving the political governments of the future to pick up the pieces from time to time.
The sure-fire way of attracting investment is not to go around soliciting for it making rosy promises that cannot be kept because of the inadequacies of the prevalent system but to create such a conducive environment on the domestic scene that will encourage investment, a case of “making a better mousetrap and the world will beat a path to your doorstep” or more or less as the saying goes.
At the moment Government of Pakistan (GoP) is encouraging investment to foreign and local entrepreneurs by giving tax incentives. These need to be rationalised and simplified, giving escalated benefits to Non-Resident Pakistanis (NRPs) who want to invest in the home country. The idea is to create a reverse flow in the exodus of foreign exchange and entrepreneurial skills. At the same time, an NRP who invests in Pakistan is likely to come back to the country to oversee his investment, this entrepreneurial talent flow is badly needed to vitalize the body economic across a broad spectrum of our daily industrial and commercial life, to create standards and objectives for others to emulate. Human ingenuity and enterprise are irreplaceable, money and material is. In the same context we must have an “open door” policy for foreign talent, entrepreneurial and managerial. It is only possible to maintain quality and standards if these can be compared or competed within an open economic environment. The results in places like Singapore, Hong Kong, Dubai, etc are there as concrete examples of how “imported” enterprise and talent have contributed to the spectacular development of these city-states, besides other factors.
Loosening of bureaucratic controls is another major step to be taken. The government of most countries in recent history have held forth on the ills of bureaucratic meddling in economic affairs, yet government after government persists in increasing bureaucracy’s powers and influence over the affairs of the state, particularly in a field which demands least interference, the economy. In a Catch-22 ploy these recalcitrant bureaucrats create a “file complex” in the minds of youthful politicians and bog them down in trifling details of inconsequential subjects, which are made important in their eyes. Unless the body economic is freed from the many sanctions that have to be accorded before investment in industry can come to any fruition, the economic development will be by fits and starts on a “client-patron” relationship based on money or influence, merit having next to no place in the scheme of things. When foreign entrepreneurs, used to dealing with governments having “open door” policy about the granting of facilities almost on a “turn-key” basis, face the Cretan maze of bureaucracy in Pakistan they push off to easier pastures. The bureaucrats favourite stance is “protecting the rights of the nation from avaricious multi-nationals”, while the true story envisages the ensuring of their fundamental right of lining their pockets, multi-nationally. The Board of Investment (BoI) may be sincere in doling out sanctions, no industry can be located until the right wheels are greased for finances, telephones, gas, electricity, water, etc, etc. We keep hearing about the elusive one-window operation, it is more like going into a wind tunnel. Unless this aspect is streamlined sincerely with lip-service being avoided, we are not going to see any real proliferation of industrial investment.
The financial sector needs to be completely overhauled, credit and venture money must be made available easily without going into a stifling bureaucratic banking process. All the DFIs are in the public sector presently and they mostly exist to shore up the hopeless financial situation of the public sector units, leaving very little for the private sector, particularly the not so influential. The amount of money that has been poured into bankrupt public ventures defies description, good money being thrown into an abyss. What is really needed is a number of private investment banks to come to the scene, mobilising funds for the public and making them available to private enterprise. One should not hope for anything from the Pakistan Banking Council (PBC) or the nationalised banks, unless the bad debts are removed from their books they will remain incapable of making any significant contribution, to the development of Pakistan’s economy. In any case the PBC is an anachronism which must be swiftly dispensed with. In this respect one must highlight the important role being played by a number of private leasing companies that have appeared on the scene despite bureaucratic intransigence. Theirs is an extremely significant contribution to the development of private sector enterprise particularly in the services-oriented sector. Leasing companies are playing a vital role in the economies of developing nations, as the experiment in Pakistan has shown we need to permit greater freedom of operation to them as well as streamline some of the present pitfalls that are hampering their growth.
We have talked about a secure environment, at the moment the two political parties are greater enemies to themselves than to each other, they are slowly strangling democracy. If they stay the present course they will fail the people of Pakistan on whose hopes and aspirations they have ridden into positions of power and authority. By highlighting canards or blowing small incidents out of proportion they have succeeded in scaring genuine foreign investment away, even the domestic entrepreneurs are having second thoughts. One does not attract investment by talking about an insecure environment in the country and repeating darkly (and hoarsely) about third forces out to disintegrate the country. These forces are well-known, most of them are in trouble themselves. While it is incumbent upon the politicians to keep the masses abreast about political developments within and outside the country, it is not necessary to indulge in public debate over trivial matters or to make a mockery out of the rule of law, this has to immediately stop. The shying away of investment is going to create unemployment for those who appear on the job scene in the future, leading to conditions of anarchy as they resort to other means of survival. The politicians must control their rhetoric to reflect only genuine grievances not imagined slights to their overblown egos. The commitment of politicians is to the public at large who are genuinely expectant that they will perform, to create conditions for economic emancipation they must create a conducive security environment. At the moment we are busy in polarising our society for no earthly reason.
Money and entrepreneurial skills always flow to safer havens, the only sure means of attracting investment is to create a sound economic environment.
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