‘SIFC faces hurdles in attracting FDI’
PRIME recommends that the political leadership of the country should formulate an economic roadmap that garners support from all political parties and the business community to ensure policy continuity. photo: reuters
The Special Investment Facilitation Council (SIFC) of Pakistan may fall short of its mission to attract significant foreign investment due to a lack of focus on structural issues, while the involvement of the military in economic matters threatens the nation’s stability, according to a recent report by the Policy Research Institute of Market Economy (PRME).
Inclusion of the military in economic decision-making without the requisite expertise could not only destabilise the country but also lead to the failure of key initiatives, the report cautioned.
The report, released on Monday, offers a comprehensive analysis of the factors behind the establishment of SIFC, its role, and the potential for success. It highlights a critical concern that the government has largely neglected vital institutional reforms and regulatory issues in its quest to attract foreign investment and address the balance of payment crisis.
“The establishment of SIFC, with its exclusive focus on attracting foreign investment, while disregarding institutional and regulatory concerns and excluding the local business community, fails to restore trust in the political government,” the report emphasises.
Moreover, the report contends that the “mandate of SIFC and its objectives are not aligned with the country’s needs” and suggests that SIFC essentially mirrors the Board of Investment (BOI).
Read SIFC initiatives to have ‘trickle-down effect’ in each province
BOI, tasked with promoting Pakistan as an investment-friendly destination and attracting foreign investment, has faced shortcomings due to the challenging economic and political environment within the country, as noted by PRIME. These underlying issues have not been addressed, and SIFC, while created with the intention to fix these problems, also falls short in addressing these critical matters.
SIFC’s primary task is to facilitate foreign investment and resolve balance of payment issues, but the report stresses that relying solely on foreign investment will not alleviate Pakistan’s economic challenges. The policy environment remains unfavourable as long as the government continues to make frequent policy changes and relies on administrative controls to impose restrictions. Pakistan lacks professionals with the necessary expertise and experience, and this deficiency is also reflected in the management of SIFC.
The report further asserts that SIFC has failed to develop mechanisms to mobilise domestic resources toward productive sectors. If local investors are unwilling to invest in the country, foreign investors will be hesitant to commit capital unless guaranteed abnormal profits, which is unsustainable in the long term.
The exclusive focus on foreign investment by SIFC is a cause for concern and may not yield the desired results.
SIFC was established to facilitate foreign investment, which stood at a modest $1.4 billion in the last fiscal year. PRIME recommends that the political leadership of the country should formulate an economic roadmap that garners support from all political parties and the business community to ensure policy continuity. Additionally, institutional reforms are crucial to enhance transparency and transform the bureaucracy into a public-serving facilitator.
The frequent changes in exchange rate policies, tariffs, and taxes have created an uncertain economic environment, and these policies have repeatedly failed, but the government continues to implement them while expecting different outcomes.
The report also delves into the projects that SIFC has decided to undertake, revealing that the government has offered substantial incentives to foreign investors in various sectors.
Agriculture
According to the report, approximately Rs205 billion in investment is needed in the agriculture sector to achieve SIFC’s objectives. Around 50,000 acres of land in Cholistan will be cultivated with crops such as wheat, canola, millet, and cotton. An estimated Rs37.6 billion will be required to meet food security goals, reduce the import bill, and create jobs.
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In the livestock subsector, a corporate dairy farm with a capacity of 20,000 animals will produce 900,000 litres of milk daily, with an estimated cost of Rs72 billion. Additionally, a corporate feedlot farm with a capacity of 30,000 animals will provide 15,000 tons of meat annually for domestic and export purposes, with an estimated cost of Rs58 billion.
Moreover, a corporate camel farm with a capacity of 10,000 animals will supply 450 tons of meat and 2 million litres of milk annually, with an estimated cost of Rs37.7 billion.
Foreign investors will be permitted to hold a 60% stake in agriculture projects, while corporate agriculture farming will allow foreign investors to have full equity ownership, according to PRIME.
Mining
The government has offered concessional customs duty and sales tax exemptions on the import of machinery for exploration, as well as 100% foreign equity ownership. Thar Coalfield has been designated as a Special Economic Zone, with zero customs duties on machinery imports, withholding tax exemptions on dividends for the initial 30 years, and exemptions on other levies including special excise duty, federal excise duty, WPPF, and WWF for 30 years.
Export Processing Zones offer exemptions from all customs duties and taxes on machinery, equipment, and materials. They are also free from national import regulations and exchange control regulations of Pakistan. Sales tax on inputs, including electricity and gas bills, is non-existent, and 20% of production can be sold locally.
Published in The Express Tribune, October 31st, 2023.
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