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Is investor’s fright an investment’s flight?

Pakistan is nestled in the southern part of Asia, sitting precariously between Afghanistan, India, Iran, and below China, with the Arabian sea lapping on its southern shores and the Himalayas barricading its northern peaks, five mighty rivers making their way through from the north to the south meandering between fertile plains and glancing at the golden sands of three desert regions while barely avoiding the mine-rich red sands of Balochistan. The picture is perfect. With the sulfur of the Arabian waters sparkling under the sun and the wheat fields providing the gold amidst blooming mustard and paddies of rice, it is unimaginable to register that this is the country shackled with corruption, incompetence, ill will, and a never-ending saga of the power struggle between stakeholders.

During my recent visit to Riyadh and interactions with Saudi leadership, I couldn’t help but notice the excellent progress that Saudi Arabia has managed within a stipulated time frame and is now looking at countless opportunities to be part of the first world in terms of technology, tourism, healthcare, and most importantly education. Within 6 years of the launch of the ‘2030 vision’, KSA has practically changed the entire paradigm. From social to economic, the country is all set to give a run to the best of economies for their diversity and investment portfolio. Their women empowerment has jumped to 35% and their projects like Neom, Red Sea Project, Amala, etc., are gaining international recognition for the excellence of architecture and sustainability.

My articles documenting the same showcased my perspectives but made the readers question the authorities who could have achieved such a status for Pakistan also, by exploring and utilizing the opportunities within the country through a consistent framework of policies. Questions are essential for progress for they chart the path forward. The consistency in policies not only needs to attract new investors but must support and facilitate the ones who have already chosen Pakistan. My recent talk sessions and podcasts propagated the same.

The primary challenges facing Pakistan are many and include political instability, noncompetitive and distorting trade regime, poor infrastructure, slow pace of privatisation of state-owned enterprises, state bureaucracy, strict industrial licensing, price controls by the GOP, tax and tariff policies, inconsistent economic policies, poor intellectual property rights (IPR) enforcement, weak labor laws, the inadequacy of institutions, well-entrenched corruption, governmental regulations, and lack of harmonization of rules across the board. While stability and consistency are the keywords, my essay will be referring to Taxation, Privatisation, Special Economic Zones (SEZ), the IT industry, and Pharmaceuticals as some of the main streams that I would want to focus on regarding their immense investment potential for Pakistan and which to the best of my capacity to solve riddles, lies underexplored and neglected.

Over/under assessment of liability or biases, insufficient reviews and analysis have created a small selective tax net that overburdens the salaried class and corporate indiscriminately. Out of the official population of 230 million, only 3 million tax filers pay for the rest. The unregistered but expanding retail sector stays exempted as does agriculture except for corporate farming of the dairy industry. Mega revenue-producing segments are exempted and corruption takes care of the rest of it. I was caught by the statement ‘FBR sees Rs.1289bn tax gap for 2022’ – this gap exists because of selective taxation. There is a dire need to expand the tax net instead of vertically increasing by including agriculture, especially the ownership of agricultural lands. We can look at the raised revenue for each fiscal year. Vertically piling more tax on already suppressed customers is going to complicate the issue more. Furthermore, foreign investors in Pakistan regularly complain that both federal and provincial tax regulations are difficult to navigate through, and tax assessments are questionable and non-transparent. Since 2013, the government has demanded advance tax payments from companies, which has further complicated business operations.

Why are we risking discouraging the investor?

Strengthening the local and enabling the foreign investor is the way to go forward and this brings us to the other glaring barrier of tedious and time-consuming approval processes. If the turnaround time is making the investor miss the train, he would rather catch it for another destination. A cumbersome and time-consuming approval process, involving multiple entities, and a plethora of paperwork that takes precious time away, can be alternatively managed through transparent digitization for quick implementation of the concept and setting the machine rolling.

When talking of Special Economic Zones, CPEC (China Pakistan Economic Corridor) is right at the top. Hibernating for a good six years, CPEC could have become a resource for major revenue-yielding industries, road transport, and IT corridors with the neighboring regions. Agri-Zones also await someone’s attention. These are investment goldmines. We know for sure that food security is on priority for almost all Gulf countries and Pakistan can be a powerful collaborative trade partner. In fact, as Chairman Board of Investment (BOI), I had initiated a good plan with the Saudi government and business houses were ready to bring in the investment. The plan of course fell prey to the consistent discontinuity of policies.

With the privatisation of public sector enterprises, Pakistan can look at a quick recovery and long-term benefits in a short period. We will not need to chase a few billion US dollars in loans from the IMF or friendly countries, for we will have the capacity to generate revenue way beyond such figures. What prevents all this is the elite capture, especially in the power corridors of the twin cities. We must understand that the interest of the few has never served the national agenda and public money has many eligible targets other than PIA and Steel Mills that seem to be draining away the resources with no hope.

PTCL’s case of transfer of four agreed-on properties for FDI by Etisalat is still pending due to bureaucratic hurdles. PIA’s Roosevelt – an attractive impressive hotel property that stands haunted today in Manhattan pleading for the revival of its glory seems like a perfect metaphor for this grave economic situation. Ready investors to lease this estimated USD 3 billion property wait for the willingness of the state to resolve the issue. On the other hand privatisation of Habib Bank, PTCL, Allied Bank, K-Electric, MCB, and UBL strengthened the corporate industry, illustrating mega opportunities for business and financial growth. The performance of the Privatisation Commission has been dismal and has lacked any proactivity. There is an urgent need to analyze the industrial, corporate, and public sectors for more opportunities by weeding the dying or sick units and replacing them with potential privately owned entities.

Either we don’t push the agenda or create multiple streams for the promotion of the same, giving way to collision and overlapping at the cost of time and quality. The creation of the Special Technology Zones Authority (STZA) for the IT industry is a good example of this blunder. The responsibility now lies divided and unaddressed. Like, Ignite (National Technology Fund) and Pakistan Software Export Board (PSEB), STZA should be a subsidiary of the IT and Telecom Ministry ensuring hierarchical progress and continuation of work without any conflict of interest.

Again, with BoI, we had developed a complete plan with China for importing technology for the pharmaceutical industry so that our raw material starts getting locally manufactured. That is also a dream awaiting realization. The present state of pharmaceuticals, with medicines going short, LCs not opening and imports stuck, is close to paralyzing what could be the strongest arm of exports next to IT for Pakistan.

Similarly, the Petrochemical Policy was meant to be signed, and closed in April 2022. I was directly involved with this at the start. We are into February of 2023 and that alone proves my point. Time and again we have wasted opportunities, let the trains leave the station, ignore our muscle, and then to compound all this, chase foreign interest-based heavy loans. We have examples of countries like Nigeria crumbling under the interest payments and recently Sri Lanka. Are we planning to do the same?

For me, support of the local industry and foreign direct investment (FDI) are the two great avenues that can save us in the short term and build us in the long term. Looking at Pakistan’s debt servicing and given its inelastic balance of payments position, I see an urgent need to boost industrial production and for that the mobilisation of foreign resources is urgent. More borrowing will further complicate the payment schedules and large portfolio investments will create complexity. It is, therefore, essential to prioritize a clear path and scaffolding of policy structure that will streamline investments’ portfolios for at least the next couple of decades irrespective of any political change.

Countries in the region, like Bangladesh, Malaysia, and Indonesia got in the race with the South Asian Tigers. Why Pakistan has not been able to succeed, despite liberalising its economy, exchange rate, and a theoretical FDI regime is the question that needs an answer. Is it a lack of vision alone, or corruption or simple incompetence, that is enabling a repetitive undermining of the country’s resources and creating barriers to investments?

Muhammad Azfar Ahsan, "Is investor’s fright an investment’s flight?," Business recorder. 2023-02-03.
Keywords: Economics , Foreign investor , Exchange rate , National technology , Allied bank , Economic zones , Tax gap , Habib bank , Afghanistan , India , Iran , Bangladesh , Malaysia , Pakistan , FDI , STZA , PSEB , MCB , PTCL , CPEC , US , IMF

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