Elusive investment

September 25, 2020

LAHORE: Government aspires for economic turnaround, but we lack efficient technology to improve competitiveness of our exports. We are short of skilled workforce for establishing high-tech...

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LAHORE: Government aspires for economic turnaround, but we lack efficient technology to improve competitiveness of our exports. We are short of skilled workforce for establishing high-tech industries. We lack transparent policies that are essential for economic growth.

Pakistan’s economy on paper is open to all. The country is located on the trade corridor that leads to major economies like China, Russia, and India.

Our seaports are the shortest routes for all these countries (it saves a day to haul goods from most of the central Indian states from Karachi and Gwadar then Bombay). Our investment policy is very lucrative.

Investors can repatriate 100 percent of their profits on their investments. The government offers tax incentives in numerous export processing or special export zones.

Goods can be exported to all central Asian States, China, and Russia in a short time from Pakistan (even through semi completed China-Pakistan Economic Corridor). Still foreign investors are staying away from Pakistan. This is an enigma that puzzles many experts.

Foreign investors do not jump in on a lucrative investment policy only. They see other aspects like availability of hassle-free power and uninterrupted gas supplies at a reasonable price.

They also give importance to political stability in the country. They evaluate the way the bureaucracy works and how fast the contractual disputes are settled by the courts.

Investors hope that the government would at least honour its commitments. They see whether there are some long-term policies for investment in each sector.

They also want ironclad guarantees that the government would not tinker with its sector specific long-term policies any time it likes. Last but not the least, they also wonder why the local resourceful investors are not availing the trade facilities that are available to them as well.

It is unfortunate that no government in Pakistan has yet addressed these concerns of the investors.

They face difficulty in buying and registering industrial land for their project.

They may get power and gas connections but the tariffs on both counts are higher than regional average. Moreover, power outages are a routine even when the country has surplus electricity.

Unscheduled power interruption in many industrial processes causes huge losses of inputs. The gas supplies are erratic.

Low pressure is another major problem. It is not possible to generate power if the gas pressure is low.

Even today many textile units complained of low gas pressure.

Karachi’s sole power utility company, K-Electric is also grumbling about low gas pressure. There is no need to discuss the political instability that is visible to all.

The red tape of our bureaucracy in normal routine is known to all. Investors may get fast track approvals when they come in to invest, but after that they are thrown at the mercy of the same bureaucracy who deals with other industries in import and export, refunds, approvals, and exemptions etc.

The cost of red tape is very high and sometimes nullifies the advantage of establishing a project in the corridor with vast markets.

Up till now, the government has failed even to honour the commitment that it gave to the independent power producers (IPPs) under sovereign guarantee. It has recently signed a memorandum of understanding (MoU) with the power producers by managing to get some concessions from them on electricity pricing formula.

The IPPs said that they would convert each MoU to formal agreement provided the government clears their past dues by September 30. They also warned that the MoU would be scrapped if dues were not cleared.

The dues are still pending with the deadline only one week away. The prospective investors take this default on sovereign guarantees by the government very seriously and prefer to hold their resources.

Two five-year auto industry development policies were announced by different governments. The current policy announced in 2016 expires in 2021.

The state has tinkered with both the policies massively. This government has also changed that policy numerous times.

Why would investors trust the government? Similarly, two long-term textile policies were announced, but on the implementation side, one was implemented only 15 percent while the other was implemented 25 percent.

How could exporters evaluate their export prices if the policy implementation remains in limbo?

Local investors have sidelined themselves because they do not even get the fast track approvals at the launching of projects that are available to foreign investors. Another drawback that they feel is the availability of the skill workforce needed for the latest high-tech machines.

They do get top level skilled experts, but there is an acute shortage of mid-level skilled workers that are required on the manufacturing floor.

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