SIFC, investment and CPEC

The economy of Pakistan is trembling because of debt crisis. Despite all the efforts, it is on the rise. According to official statistics, debt is more than Rs63 trillion. On the other hand, the circular debt of energy sector is a constant irritant. It was Rs5.73 trillion at the end of 2023, which makes it 5.4 percent of country’s national GDP. It is more than Rs1.5 trillion than the figures shared with the IMF. It is expected the IMF will flag concerns for Pakistan in the coming days. The circular debt is increasing despite frequent and substantial increase in electricity and gas prices.

It is likely the government will further increase the prices, which will raise the cost of production in the industrial sector. It will impact the competitiveness of Pakistani products. The exports can decrease, and it is feared the current account deficit will rise. The higher prices will further complicate the problem of inflation.

To overcome the crisis and break the vicious cycle of circular debt, Pakistan is in search of investment and economic opportunities. Pakistan is running pole to pole to find openings. It established a dedicated body, the Special Investment Facilitation Council (SIFC), to streamline and institutionalise the work.

The Council has been given the mandate to work on investment and privatisation, initially in five areas: Defence, agriculture, minerals, information technology & telecommunication and energy. It will act as a “One Stop Window” and develop a long-term economic growth and development framework. It will work to improve the ease of doing business by decreasing the cost of business, reducing processes and time and establishing SEZs to facilitate the business. Pakistan Army will play the role of facilitator.

Since the inception of SIFC, it has been contacting friends and potential investors to convince them for investment. SIFC has briefed ambassadors of many friendly countries urging them to bring investment in Pakistan. Due to continuous efforts, Pakistan has signed MoUs with the United Arab Emirates and Kuwait. Both the countries have shown interest in bringing billions of dollars (UAE $25 billion, Kuwait $10 billion) as investments in Pakistan. However, the MoUs will take a long time to convert into agreements. But still, it is a good sign Pakistan was able to convince investors to show intent to invest in country.

Pakistan can expedite the investment process, mature the MoU into agreements, and go for implementation of the programme by taking a few steps. It will have to create good examples by facilitating the business community to build the trust of investors.

The SIFC should concentrate on the available opportunities, work with the investors who have already committed to investing and facilitate them in executing their plans. SIFC should be tasked with solving the problems of the investors and streamlining their work on the urgent basis.

For example, Challenge Fashion, a Chinese company, wants to establish a special textile economic zone in Pakistan. The company has already bought more than 100 acres of land in Lahore. It is planning to bring upstream and downstream textile-related companies to Pakistan. It has already spoken to some companies in China about investing in Pakistan. If the investment matures, it will help in a number of ways.

First, it will help diversify the supply chain of textile industry by bringing upstream and downstream industries. It will lower the import of certain materials for the textile industry. Second, it will assist Pakistan in building foreign reserves, reducing imports and enhancing export of finished products. It is calculated Challenge Fashion, through the SEZ, can add to foreign reserves by $500 million annually in the initial stages.

Third, the SEZs will create over 30,000 jobs. Fourth, it will establish a modern research and development centre to accelerate research on the textile industry in Pakistan. Fifth, Yuanyi Industry, the mother group of Challenge Fashion, is planning to build a green and environment-friendly SEZ. It will help Pakistan start implementing its green industry vision and create a good example for the green CPEC programme.

SIFC can take the lead in facilitating the establishment of textile SEZ. It is in line with the mandate and objectives of SIFC. It should expedite the process of building forward and backward road linkages. It is extremely important to operationalise the SEZ, as it will ensure smooth transportation of raw materials to the SEZ and finished products to market. By doing so, SIFC will be able to establish credentials of a problem solver.

SIFC can help solve the disputes faced by many companies. For example, a California-based company won a bid to establish an information technology university in Islamabad. It was a great initiative to create high-quality human capital in Pakistan. It was envisioned the university would assist Pakistan in meeting the future needs of technology-driven human capital. However, according to the 2022 report, the company could not get the agreed land from CDA to build the campus. The company asked CDA either to give the agreed land or terminate the contract and pay back the money.

Again, SIFC can take the lead in solving this dispute. It would be a good example to showcase the dispute resolution strengths of the Council and sincerity of Pakistan to assist and facilitate investors. It is required because investment and dispute resolution mechanisms in Pakistan are the most discouraging elements for investors looking to invest in country. Investors, somehow, do not believe the system.

Recently, Pakistan finalised its free trade agreement with GCC countries. These countries, especially Saudi Arabia and Qatar, made sure Pakistan includes the option of an international dispute resolution clause in the FTA. It shows even our brotherly countries do not trust our dispute resolution system. Thus, SIFC must focus on it and create an example. It will assist Pakistan in building trust among the investors.

SIFC must focus on a bird in the hand while searching for new birds. Pakistan is negotiating with the Middle Eastern countries to invest in country. It is a good strategy, but what about the available investment under CPEC?

Middle Eastern countries must be thinking why Pakistan is not benefiting from CPEC and running after them.

Another interesting aspect of the story is that Arab countries are running after China to invest in Middle East. Pakistan is running after Middle Eastern countries to invest in Pakistan.

SIFC should put all its efforts into materialising the available investment under CPEC. For example, many Chinese companies have already committed to investing in SEZs and other parts of Pakistan. They need facilitation to execute their plans smoothly. Unfortunately, Pakistan is unable to facilitate them and put the required infrastructure in place. For example, after ten years of operationalisation of CPEC, the country is still unable to establish fully functional SEZs under the CPEC, except Faisalabad SEZ. Pakistan promised it would prioritise the construction of SEZs during the first phase of CPEC, but companies are still waiting for the operationalisation of SEZs.

It is suggested SIFC should take the lead in accelerating construction of SEZs. It will help SIFC fast-track inbound investment under the CPEC. It is an open secret there are many countries and companies, in addition to Chinese ones, that want to join CPEC as a third party. The construction of SEZ will encourage them to invest in Pakistan. Thus, Pakistan can easily attract billions of dollars on an annual basis. There would be no need to convince the investors or run after them.

In conclusion, there is a need for SIFC to rectify the problems and come up with solutions that can satisfy the queries and build the trust of investors. There is a need for concrete actions. Pakistan must set examples before looking for new investments. It will help Pakistan establish credentials as a good investment destination and attract business in the country.