Change in govt: Investment inflows could not pick up pace

Security issues, energy woes, bad governance still drive away foreign investors.

ISLAMABAD:

Numbers tell everything. So far, for foreign investors, it seems that there is no difference between the government led by former prime minister Raja Pervaiz Ashraf and current Prime Minister Nawaz Sharif.

This is contrary to the expectations that a steady decline in foreign investment would come to a halt after the PML-N, which is considered business-friendly, formed the government in the Centre.

According to a presentation that the Ministry of Finance gave to Nawaz Sharif late last month, foreign investment dropped 27.5% in the first half of fiscal year 2013-14. The country got only $501.8 million in foreign investment compared to $691.8 million in the same period of previous fiscal year.

The figure should spark worries for the leadership that claims to be business-friendly and has promised to fetch $3.5 billion in foreign investment in its first year of government. The target seems impossible to touch as seven and a half months are already gone.

Foreign direct investment has been on a constant decline since peaking at $5.4 billion in 2007-08.

Unless the government brings foreign investment, its balance of payments woes will not ease and prospects of economic growth will remain dim. Also, a significant reduction in public sector spending will stifle growth.

Precarious law and order situation and acute shortage of energy are said to be the major impediments to investment inflows.

More hurdles

Other factors, of which many could be addressed easily, are surely hurting foreign investment more than a terrorist attack in a settled area of the country. These factors remain unaddressed and are rather aggravating to the disadvantage of the government.

The World Bank, in its annual report on Ease of Doing Business, has downgraded Pakistan’s ranking to 110 out of 189 countries. The Overseas Investors Chamber of Commerce and Industry (OICCI) is not surprised by the steady decline in foreign investment and has blamed it on the lack of enthusiasm for implementing policies and bad governance.

“We have been regularly asking the government to investigate the cause of such a sharp decline, which, among other things, is largely caused by investor’s perception of selective and lukewarm implementation of policies and governance,” said a latest report of the OICCI.

The government should not take the OICCI report lightly, as its 138 members contributed Rs724 billion in taxes in 2012. They hold assets worth Rs6.1 trillion and provide jobs to 150,000 people.

Among the biggest hurdles to foreign investment that have not been addressed are ad hoc measures, bad governance and red tape.

Intelligent team?

The government has so far been unable to assemble an able team to run the Board of Investment (BOI) – a body that should ideally provide one-window facility to investors. In less than seven months, a second BOI chairman has been brought.

After Mohammad Zubair was appointed chairman of the Privatisation Commission, another PML-N loyalist Dr Miftah Ismail was picked to head the BOI.

The board lacks policy direction because of the prevailing ad hoc system and the directors general, who are senior than the secretary, are reluctant to report to him. A Grade-20 officer, who was promoted to Grade 21 last week, is the BOI secretary.

BOI is said to be not effectively approaching the investors and has so far failed to perform its core function of advocacy. Its Karachi office, which was earlier processing visa applications within three days, is now taking more than two weeks, which is enough to irritate the investors.

Only China and Turkey

Last week, Nawaz Sharif removed all 62 honorary investment counsellors with a stroke of pen. Though all of them were not working efficiently, those stationed in Japan, Malaysia, Egypt, Canada and Norway were trying to convince investors to invest money in Pakistan. In place of them, new counsellors, with loyalty to the PML-N as the key yardstick, are being appointed.

The government is focusing all its energies on wooing investors from China and lately from Turkey and ignoring other potential investors. Probably, considering the lukewarm response to reforms, the International Monetary Fund is now pushing the country to implement a plan aimed at improving business climate. The plan talks about eliminating bottlenecks in starting a business, getting permit and trading across the border.

Published in The Expres Tribune, February 17^th, 2014.

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