Saudi Arabia has decided to revive its proposal to establish an oil refinery and petrochemical complex in Gwadar, Balochistan with heavy investment. The petroleum refinery project which was stalled since 2019, will be based on state-of-the-art deep-conversion technology to be introduced in Pakistan that operates five main petroleum refineries, generally using obsolete process technologies and currently planning for technological upgradation and capacity expansion. The United Arab Emirates (UAE) is likely to join Pakistan and Saudi Arabia in this venture, which may cost about $12 billion on completion.
In these times of economic distress and political turmoil it is heartening that many countries have shown interest in exploring fresh opportunities for investing in Pakistan. Pursuant to Pakistan’s endeavors seeking investments from friendly and neighboring countries with a target of $30 billion to help the country with its post-flood challenges, Saudi Arabia, Japan, Qatar and the UAE, besides China, have come forward with concrete proposals identifying specific areas for investments. In October, Japan has indicated to invest in the energy sector, especially in renewable energy, whereas earlier a delegation of the Japanese investors, visiting Pakistan in August, has committed investing $1 billion in different industrial sectors including the automotive industry for production of hybrid vehicles.
Sometime in September Japan had also shown interest in making significant investment in the railways and aviation sectors. Likewise, Qatar is willing to invest $3 billion in existing commercial and energy enterprises such as buying two combined cycle thermal power plants located in Punjab and taking on lease three international airports (Islamabad, Karachi and Lahore).
The UAE plans to invest $1 billion, expected to materialize within a few months, in various areas of industry and commerce including energy, infrastructure and logistics. The revival of projects under the China- Pakistan Economic Corridor (CPEC) program having total financial outlay of $65 billion, will see major investments in a wide range of sectors, particularly in the Special Economic Zones being developed. It is hoped that the CPEC framework will be expanded this month to include another three projects of railways and hydropower plants costing $12 billion. A Chinese company also announced last month its plans to set up a petroleum refinery and oil storage & trading project in Gwadar.
Indeed, China has emerged as the largest investor in Pakistan, representing 26 percent of total foreign direct investment (FDI), followed by the USA which contributes 14 percent. On the other hand, Japan has recorded negative FDI in Pakistan during the last two years. Importance of the FDI is well-acknowledged particularly in developing countries as it brings along numerous benefits. These include creation of various employment opportunities, improving human skills through transfer of technology & managerial skills, market access, high productivity, and enhanced exports. Thus, the inflow of FDI results in improving financial, social, cultural and environmental conditions of a nation thereby transforming the national economy. In the case of Pakistan the FDI is of critical importance as the country lacks sufficient local capital and is heavily dependent on foreign capital.
In these times of economic distress and political turmoil it is heartening that many countries have shown interest in exploring fresh opportunities for investing in Pakistan. Pursuant to Pakistan’s endeavors seeking investments from friendly and neighboring countries with a target of $30 billion to help the country with its post-flood challenges, Saudi Arabia, Japan, Qatar and the UAE, besides China, have come forward with concrete proposals identifying specific areas for investments.
Sadly, we have been unsuccessful, particularly in recent years, to attract the FDI in relation to its potential, due to a variety of constraints, which remains lowest among the regional countries. During the last ten years (2013-2022) the inflow of FDI was almost static at average $3 billion in a year, ranging from high $3.49 billion (2018) to low $2.62 billion (2022). In comparison to previous years, Pakistan had registered $5.59 billion in 2007 that accounted for 3.67 percent of the year’s GDP. It may be of interest that the FDI inflows in 2020 in Indonesia amounted to $19.2 billion and in Vietnam $15.8 billion though these countries have lesser natural resources and much smaller market sizes compared to Pakistan.
Therefore, there is a need to make strenuous efforts to mobilize FDI enhancing at a significant level. A number of measures are required to be taken to provide conducive business environments to both foreign and domestic investors, offering sustainable and attractive areas for investment. Economic prosperity through industrialization should be the cherished goal of the government, and the industrial or manufacturing sector, which is the third largest sector of the economy, needs to be supported, diversified and further developed at a fast pace through creation of advanced technological infrastructure. Currently, the manufacturing sector, mainly consisting of large-scale manufacturing (LSM) and small-scale manufacturing (SSM), has a share of around 18.7 percent in the GDP, which could be targeted at nearly 30 percent to be achieved progressively by the year 2030. Currently, the FDI is dominated by the power sector with 38 percent share, followed by financial services with 25 percent share, and oil & gas 14 percent, whereas FDI share in the industrial sector is negligible.
The Board of Investment (BOI), which is practically dormant these days, has to be made vibrant and active. BOI identifies conventional areas for investment such as textiles, pharmaceuticals, automotive, footwear and furniture industries, which are either saturated or stagnant for various reasons. In fact, immense potential exists in other emerging and prospective subsectors of manufacturing and mining sectors that need to be strengthened and developed to meet the future challenges of industrialization and production. In the late 2000s many countries emerged as newly industrialized countries (NICs) through promotion of the engineering industry, producing machinery and electronic goods that currently have a major share in global trade. These countries are Malaysia, Turkiye, Thailand, Indonesia, South Africa, Mexico, Brazil, and the Philippines.
The in-vogue Investment Policy 2013 should be reframed and revised keeping in view the national priorities and globalization trends. Also, Pakistan has not framed and implemented an integrated industrial policy since the last two decades or so. A draft of the National Industrial Policy 2010 was finalized associating all the stakeholders aiming at establishing a formidable manufacturing economy producing the goods for a fast-expanding domestic market as well as for exports. But the policy document could never see the light of the day. Unfortunately, the present government too has no plans to frame and implement a national industrial policy.
The writer is retired chairman of the State Engineering Corporation