Oversubsidised foreign investment hurts economy

LAHORE: As the government lures foreign investors, it chooses to remain blind to the fact that no investment will pour in from overseas as long as local capital is jetting out of the country at an alarming rate.

The foreign investment that has been made in Pakistan is based on solid sovereign guarantees that either assure guaranteed rate of return on investment or substantial protection from imports. In both the cases the consumers suffer. This investment cannot be termed as real investment as the investors get a higher rate of return than they could securely get anywhere else in the world. 

The concessions guaranteed to the foreign investors are so lucrative that almost all foreign investors in independent power projects have not only recovered all the investment they had made but also raked in profits worth three to four times their investment. The banks privatised to foreign investors are similarly taking back more profit every year than the amount they paid at the time of privatisation. The party that acquired Pakistan Telecommunication Company Limited (PTCL) still owes privatisation dues to the government.

Most of the banks could have been handed over to the domestic investors but the state was so obsessed with foreign investment that it even ignored the highest domestic bidder in favour of an overseas capitalist. It is interesting to note that the rich overseas Pakistanis, with investments in projects in Pakistan, entered the market as foreign investors and availed all the perks and privilege reserved for them.

In these circumstances, it is not surprising that Pakistani investors have pledged a huge amount in real estate in Dubai. Many large corporate entities have made investments in other economies. Manufacturing investment has almost dried in Pakistan, except in cement sector where players can be counted on fingers.

Another point worth noting is that those foreign investors, who invested in manufacturing, are gradually leaving the market as their plants have aged and the concessions awarded at the time of investment are no longer up for grabs. 

The carmarkers are active in the market because they still enjoy high duty protection against import of new car variants. The obsession with foreign investment is so strong that a global bike-maker that promised only $150 million investment in 10 years was given audience by the former prime minister and was granted the status of new entrant on some of its new models.

Sovereign guarantees have given a bad name to the country, particularly in power sector where the government is unable to make timely payments to the power producers due to huge inefficiencies in distribution sector. Still the government is providing sovereign guarantees at a high rate of return for new power projects. The power rates are higher because of these concessions and inefficiencies in the distribution system.

Foreign investment has thus become a nightmare for the people of Pakistan. At the same time, the foreign investors even after obtaining lucrative concessions do not feel comfortable in Pakistan. The government would have to find a better way to deal with foreign investments. 

All sovereign guarantees should be subjected to the approval of the National Assembly or any other forum of high integrity that should vet them within a specified time. There should be no concession for products that would be consumed exclusively in the country. 

Investments that generate exports should be sought and encouraged. In case of exports, the investor would be earning foreign exchange for the country and would not be a burden on the national economy. They would be earning more foreign exchange than taking back as profits. To achieve this aim, the government would have to remove bottlenecks in exports. It should improve policies and governance instead of providing subsidies on exports.