PTI govt’s 100-day plan: The clock is ticking – V

To insulate Europe and Japan against the rising tide of communism, the US came up with the Marshall Plan to build up the economy of Europe and Japan and institutions such as the IMF and the World Bank were set up, sponsored by the US, to provide funds for the structural and infrastructure development of these nations. Both Germany and Japan well utilized this support and within a decade emerged as world’s leading economies and moved out of the IMF and World Bank. Later, these institutions supported the emerging markets like India, Malaysia and Thailand. They too generated enough revenue to pay back the IMF and walked out of it – never to go back again.

Pakistan is among the few unfortunate countries that are still stuck with the IMF and other lending agencies for the simple reason that the loans acquired were not deployed towards revenue generation but consumed to cover up budget deficit, loan repayments and losses incurred by public sector enterprises.

Up to now, PTI government’s 100-day plan on enhancing revenue generation is largely silent.

On account of high costs and increasingly difficult environment for doing business in Pakistan, the pace of industrialization has slowed down, exports are no longer competitive in global markets, the foreign investor does not consider Pakistan as a favorable destination for investment. Electricity tariff in Pakistan is 11 cents, as compared to 9 cents in India, 8.3 cents in China and 7 cents in Vietnam.

The World Bank in its annual Ease of Doing Business index 2018 records Pakistan’s ranking at position 147 out of 190 countries while Malaysia is 24, Thailand 26, Vietnam 68, Singapore at 2 and India at 100. In 2007, Pakistan was among the top 20 reformers worldwide and the runner up in South Asia with ranking at 74 among 175 countries, whereas, India at that time was at 134. In 2008, Pakistan lost this distinction to India followed by systematic slide during the tenures of the last two political governments (2008 – 2018).

Unless, we fix the ‘Cost and Ease of Doing Business’ in Pakistan our endeavours to reach out to Saudi Arabia as third partner in CPEC or setting up of Special Economic Zones under CPEC is meaningless as it is all about business and return on investment.

The incumbent government in its 100-day plan needs to straightaway focus on creating enabling environment for a sustainable economic growth through industrialization, exports and FDI.

1) Industrialization 

If the government could manage to bring around improvements in Doing Business Ratings, ensure availability & affordability of electricity and protect the industrialist from the yoke of approvals & permits machinery of the state largely driven by vested interest with little or no benefit to the state, the industry of Pakistan is all set to flourish to provide revenue to the government & employment to its people at the expense of minimal investment of the government.

Tasks 

Doing business rating – Set up a team to work on cost & ease of doing business with ToRs to restore its ranking at 74 by 2021. Factors which needs to be worked upon are : Starting a Business, Dealing with licenses & Construction permits, Getting Electricity, Protecting Minority Investors,, Registering, Property, Getting Credit, Resolving Insolvency, Paying Taxes, Trading across borders, Enforcing Contracts;

Captive power network – Make strategies for captive power network (generation and distribution) or captive bulk power distribution for industrial zones/clusters under private sector (IPPs) or public-private partnership (PPP);

One-window facility – Make strategies for one-window operations at focal points in industrial zones/clusters for construction permits and approvals, licences from provincial and federal agencies and regulators; and

Change management – Replace company boards and principal management at all relevant entities with merit-based professionals.

2) Exports 

Pakistan has increasingly become non-competitive in global markets with its competitive global index on the sliding trend together with the Doing Business global rating. After achieving an export level of US $ 25 billion in 2012 it has by over 20 percent since then. High cost of Doing Business specially inputs like electricity, erratic disbursement of rebate incentive, over reliant on textiles as the principle export (60 percent of total exports), lack of will & professional marketing skills of Pakistan’s commercial missions abroad (60 missions) and Trade facilitation entities in the country are the key factors responsible for the declining exports. . Being highly un-competitive and fragmented policies, Pakistan could not effectively exploit the openings created by the GSP + status granted by the European Union after extensive negotiations nor could capitalize on the opportunities offered under China-Pakistan Free Trade Agreement and the South Asia Free Trade Area (SAFTA).

Tasks 

Doing business – Make strategies to restore Pakistan’s competitiveness in global markets vide bringing around a paradigm shift in the cost and ease of doing business;

Export portfolio – Make strategies to broaden export base – agriculture produce, IT software/services, SME produce, precious stones and jewellery. India exports precious stones and jewellery alone now earn more than twice the total exports earnings of Pakistan. Pakistan’s IT software/services exports are over $ 2 billion, whereas India is at $ 111 billion;

Rebate incentives – Make strategies for disbursement through commercial banks rather than through FBR;

GSP plus – Make strategies to maximize the openings created by GSP+, China Pakistan Free Trade Agreement, SAFTA. New markets strategies to develop new markets especially Central Asia, Iran and Turkey. Establish professionally managed target focused business hubs at Pakistan embassy/commercial section (Europe, Americas, Central Asia, Asia Pacific, China, etc); and

Change management – Replace management of TDAP & TCP with merit-based professionals. Replace commercial counsellors at Pakistan’s foreign missions with merit-based professionals. Fix ToRs and business targets for them in line with successful business examples.

3) Foreign Direct Investment (FDI) 

The foreign direct investment has not come back to Pakistan after touching a peak of around $ 9 billion in 2007 with a corresponding GDP growth of over 7 percent. The winning strategy now is to encourage foreign SMEs to enter Pakistan market through FDI, technology transfer and joint ventures.

Tasks 

Investment policy – Structure and announce a realistic and fact-based investment policy which invokes investor’s trust and interest;

Country’s perception – Make strategies and structure a plan to present to investors country’s economic strength, business potential and soft image of the country;

Country’s soft image – Make strategies and structure a plan to build up a positive soft image of Pakistan through confidence building people to people exchange programs and events in sports, music, arts, culture, media and similar venues of cooperation;

Investment potential – Prepare specific saleable project briefs and business plan for marketing it to potential investors on one-to-one basis;

SME investors – make strategies to promote and manage the footprint of foreign SMEs in Pakistan through joint ventures, agency agreements and transfer of technology;

Investment segmentation – Map new venues of investments – sports, education, media, cinema, vocational training, retail services, real estate, men and material mobility;

Special economic zones – Make strategies and plan mobilization of investor’s interest in SEZs on the strength of offered tax incentives, infrastructure and opening of new markets; and

CPEC – Make strategies and identify business opportunities emerging out of CPEC for foreign investors from all countries on account of opening of new markets and accessibility to them through infrastructure, road network and mass transit mobility.