K-P can be hub for investment, but govt needs to do more

Lack of facilitation and ease of doing business erase advantages provided by intrinsic resources.

FAIZAN RASOOL October 09, 2017
Nazim says they have not received any money for projects. PHOTO: APP

ISLAMABAD: Khyber-Pakhtnkhwa (K-P) is bestowed with huge amounts of natural resources including high-value precious metals and gemstones that are made into fine quality jewellery, large deposits of metal and mineral resources, and a vibrant natural landscape.

The industriousness of the people of K-P is well-known. The province itself has always been known as the one that has made progress with as much effort as needed.

The industriousness of the people has resulted in their gaining competency in oil and gas, mines and minerals, industry and agriculture, energy and power, tourism and science, technology and information technologies.

While there are other sectors in which K-P has prospered, such as fruits and leather, these listed industries are the potential industries that would generate the best growth and investment.

The core competencies were gauged via several consultancies and online research into the data and documents offered by the K-P and Federal government. The attempted investment policy is what the K-P government is attempting to enhance its core competitiveness in the overall economic landscape of Pakistan.

The fact of the matter is that these core competencies are in a very good position for growth due to the availability of resources in terms of machinery and human resources, willing and able investors and buyers from both internal and external markets.

However, despite the stellar potential, things on the ground are not so positive. There are huge problems that are affecting all aspects of businesses. These include a lack of one-window facility, forcing investors to waste time with repetitive process of permits. Acquisition of permits and licences takes far too long. Land acquisition is similarly tedious and fraught with legal perils and market distortions.

Foreign companies are forced to contend with institutional rules that impede them from starting up. There is an across the board issue of performance and start up benchmarks, rules, checks and enforcement. Energy is frequently deficient in its availability and distribution, remaining sketchy or semi-reliable at best.

Finances are a huge issue as well, with both financial abilities constricted by convoluted federal and market regulations. Fiscal measures, mainly in the form of taxes, have made doing business more difficult. An example of this is that in the IT industry, there is a 19.5% sales tax applicable on broadband fixed line and mobile internet, a 15% tax collection against service provided or rendered by call centres and 15% tax collection against software or IT based system development.

As we can see from the above, the presence of massive natural resources is definitely not a guarantee for the success of businesses in K-P.

What is needed is an overhaul of the system through effective policymaking, governance and incentives. First of all, a system needs to be created that streamlines the entire process of investment itself. This is only possible with the introduction of a one-window system.

A one-window system allows international investors to submit regulatory documents such as customs declarations, applications for import/export permits, and other supporting documents such as certificates of origin and trading invoices to be submitted to a single entity. The main reason for this entity to exist is to increase the efficiency of the processes and save time and cost of both the investors and the regulators.

Observe the massive increase in efficiency and the overall ease of doing business and trade facilitation once the system is implemented.

It is also crucial to understand that to truly acquire a one-window system; this single trade facilitation entity is not to be confused with a central department for e.g. customs. A central department is, however, often a requirement on the road to implementing a single window system.

Obviously, there are issues here too- no department wants to let go of their power of oversight in an aspect. But it has been proven in the long run to be extremely beneficial to investors, particularly those of foreign origin.

The fact of the matter, perhaps sadly, is that the possibility of a One-Window system remains far off, as the idea of one entity controlling all the operations of trade facilitation seems to reek of an all-powerful government agency. However, this would hopefully not be the case, as there are enough checks and balances in a one-window system to prevent abuse of power and maintain cost and time efficiency, and most importantly, transparency.

Another main method of enhancing investment potential is streamlining ease of financing and reinvigorating the tax system. The former would be achieved via a banking regulations overhaul. The latter would be achieved through removing double taxes, some tax reductions, and reworked taxes for incentivising new investment.

A major improvement area is the capacity of the K-P province, both locally and for international investors. The fact of the matter is that both human resource and lack of adequate and machinery pose threats to achieving high production levels.  The former is due to a massive lack of skilled labour. The latter is due to ageing machinery, sever lack of resources and lack of skilled operators.

This issue threatens to undermine most if not all investment, as it sets a very real, current and hard limit on the capacity of investment. This low capacity results in low rates of return, low value addition, and low integration into the value chains locally and at the international level. Therefore, immediate and urgent attention needs to be paid to this phenomenon.

Another important area is improving governance and security.

As always, the emphasis must be on robust implementation and enforcement. Eventually, the main aim is to streamline investment. Without economic and policy coordination, the one-window policy may as well fail.

At the end of the day, the government of K-P must dedicate itself to changing the structure of the investment, business and trade regimes. The one window trade facilitation system is crucial for increasing the ability and reality of the generous natural and human resources in the province.

The writer is a researcher at the Sustainable Development Policy Institute’s (SDPI) Policy Solutions Lab and holds a Master’s degree in Economics from Belgium

Published in The Express Tribune, October 9th, 2017.

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