OVERVIEW: "The Government of Pakistan is taking major initiatives to encourage foreign investment in Pakistan," Chairman, Board of Investment

What is the mandate of BOI, and how does it interact with other government divisions and ministries?
Saleem H. Mandviwalla: The Board of Investment has been mandated to facilitate and assist the government authorities in attracting FDI by providing "One Window" facilitation to both foreign and local investors in Pakistan. BOI has close interaction with all stakeholder ministries and divisions vis-à-vis settlement of investors' outstanding issues. Being a facilitator agency, BOI helps arrange meetings of all foreign delegations with the relevant government stakeholder bodies.
BOI also has close liaison with all the international investment promotion agencies on investment-related issues and policies. Moreover, BOI has appointed 69 Honorary Investment Counsellors (HICs) who are responsible to attract FDI in Pakistan and keep close liaison with the business communities in their respective countries. The HICs also bring investor delegations to BOI for exploring investment opportunities available in Pakistan.
BRR: The foreign investment in the country is on a secular decline after peaking out in FY08. What specific measures has the BOI proposed (or intends to propose) to turn this abysmal situation around?
SM: The BOI has taken some specific measures and initiatives to improve the investment environment in the country. We believe that economic liberalisation, financial and capital market reforms, coupled with infrastructure spending, can contribute significantly towards making Pakistan an attractive investment destination of the region. FDI in key sectors like agriculture, energy, oil and gas, cement, textile, automobile, information technology, consumer products and construction can help put Pakistan on the track to attain sustainable economic growth.
However, we have to look at foreign investments from a global perspective. The West (US and Europe), which used to be our traditional source of investment, is in turmoil. The Middle-Eastern investments are there, but there is room for more. We at BOI feel that it is time for Pakistan to concentrate on the Asia-Pacific. We have been focusing on this region and we are getting results.
BRR: But, why is the declining investment trend getting severe every year?
SM: Despite the energy and security crises, Pakistan could still stop this decline and get considerable investment. However, that is not happening. I keep harping that we must stop the conventional ways of doing business. We have to go out of the way, provide out-of-box solutions, and those solutions happen to be difficult solutions, eg, giving incentives and creating economic zones.
Just look at India and China: They realised the same thing years ago that conventional approach won't work to attract investment. They came up with a product called 'Special Economic Zone' which allowed the investor not to go to any ministry as all the incentives and benefits were laid down in the economic zone. All an investor had to do was to put up its industry in that economic zone. And the investors developed their economies on a large scale through this product.
BRR: Special industrial and economic zones, including the US-backed "Reconstructing Opportunity Zones", have remained a hot issue in the past. Why couldn't these plans take off?
SM: The ROZ scheme, which was earlier initiated under the US financial support to provide economic opportunities for the people of tribal areas and other under-developed parts of Pakistan, could not be initiated because the US government backed out. However, BOI has been actively lobbying for creation of 'Special Economic Zones' in the country for over two years now.
The biggest hurdle in foreign investment is that we have no law to protect the benefit or incentives we offer to potential foreign investors. However, there are loads of 'short-lived' SROs which the government issues on its own behest and preference. We need to realise that investment is not like trade, as the former materialises in a longer time horizon. SROs do not last long and the incentives vanish with it. On the other hand, the investor, who is ready to come over and do business, is left on the street, smitten by the lack of consistency.
BRR: What incentives are you offering in the Special Economic Zones?
SM: The BOI developed and produced the SEZ Bill in the Senate, and the good news is that after many deliberations, the Senate has cleared this Bill and will hopefully become an Act of Parliament soon. The objective of the SEZ is to create clusters of manufacturing activities with efficient infrastructures to compete globally. The incentives and concessions in the SEZ scheme include ten years' tax holiday for zone developers and investors, duty free import of plant and machinery, and one-window facilitation offered by BOI to fast-track the process.
There are three types of special economic zones that we have proposed: public, private and public-private. These zones are not necessarily for foreign investors, local investors are also welcome, and there is no restriction on the type of industrial activity in a particular zone. Under this law, the government has the provision to develop a zone on its own (eg Industrial Parks) and these would be public zones.
The SEZ Bill covers two major requirements for any serious investor: no upfront costs and tax breaks in the formative years. This will hopefully break the status quo where genuine investors end up dealing with consultants and touts who deal on behalf of the rent-seeking bureaucrats in the Federal Capital.
BRR: But the crises, impediments and binding constraints will still be there!
SM: The impediments in creating conducive environment are many, however, the prominent ones are energy shortages, law-and-order deterioration, bureaucratic redtapisim, persistent high inflation and negative international media perception. The Government of Pakistan is taking major initiatives to encourage foreign investment in Pakistan by strengthening the institutions, increasing connectivity and bringing in consistency and continuity in investment policies.
Resolution of the security and energy crises and execution of viable projects on fast-track basis will certainly improve the investment environment and definitely boost FDI.
BRR: Most of the above issues are structural and governance related. How to muster up that willingness and active interest to shake things up?
SM: There is a need for an economic revolution in the country. We must take cues from Malaysia's Mahathir Muhammad who gave the developing world a new approach to attract foreign investment. Every economic decision was taken under his supervision, and approvals were given from his office, despite widespread criticism over his personal involvement in everything. The BOI he created was next to his office. It's difficult for Pakistan to bring about a change in this environment without such a model.
Pakistan's political leadership needs to get together and put their differences aside for the country. They need to have consensus on the economic agenda and economic goals, which the subsequent governments should not mess with. A strong leadership can bring about structural changes which are the prerequisite for economic change
BRR: Till that happens, will the serious and interested investors continue to get frustrated?
SM: Unfortunately, yes. Lotte's is a classic case where Pakistan is losing out on significant foreign investment due to rent-seeking. Lotte is willing to invest $500 million for a chemical plant in Karachi and wants an increase in import tariff to protect their investments. Same is the case with the $650 million investment from the Japanese motorcycle manufacturer, Yamaha. These investors are getting frustrated and they cannot lobby on their own. Only the BOI is lobbying for them because FDI inflows have significantly dried up.
BRR: Going forward, which particular sectors BOI would be targeting foreign investments for?
SM: All sectors of the economy are opened for foreign investors, and there is no difference between foreign and local investors because we treat them equally. However, the BOI has identified a few potential sectors for foreign investors which include agriculture, power and energy, mining and gems, infrastructure, transport and communication, IT and telecom and textile sectors.
Energy is the major sector where we need investment. We have been advocating the government to deregulate this sector for last three years. First thing that needs to be deregulated is the DISCOs, as this would immediately stop our circular debt issue.
BRR: How would deregulating DISCOs help contain the circular debt? KESC was privatised but the issues are still there.
SM: KESC is not a good example of deregulation, as the Company's private management could not deliver what they committed to, like revamping their power generation and distribution setups. The problem is not just in generation, but also in distribution.
My objective is that public utilities companies must be privatised to only those companies which are in that business. Give these to the operators, not to the investors. An investor looks at exit from day one: it hires an operator, makes quick money and leaves. The operator is in the business for the long run. Why is it that PTCL, whose management stake was sold to Etisalat, is a different, successful company today? Because Etisalat is an operator and will never exit because they want to do business.
Same must happen in the energy sector: sell to those entities that are in the power generation business. In power, railways and airlines businesses, there is no quick fix. This is all a long-term scenario. In my view, we should privatise the DISCOs and give 26 percent shares to the private sector operators. We have interested buyers. However, I don't see any drastic, revolutionary kind of privatisation in the foreseeable future, till a situation arises when we will be forced by circumstances to do it. This is how things happen in the governments.
BRR: Through the upcoming mobile spectrum license auction in the telecommunication sector in late March, there is an opening to materialise sizable foreign inflows this fiscal year. How can BOI be instrumental in this development?
SM: The BOI is not directly involved in the mobile spectrum auction process. However, it is facilitating the local telecom authorities in getting through to the foreign operators and investors. We are contacting other mobile operators and IT companies, to come and bid for the 3G spectrum auction and various European and Asian operators are interested. For instance, I have had interactions with the management of operators including DoComo, Korea Telecom and a mobile company from Vietnam and they are interested in bidding for 3G licenses. We are particularly interested in bringing a new entrant as it will increase competition in the auction.
BRR: Which projects and/or sectors can benefit from the public-private-partnership model?
SM: The Public Private Partnership (PPP) programme in Pakistan has made substantial progress since 2007. In term of policy framework, Pakistan's policy for PPP was approved in November 2007, and one of the milestones in the PPP history of Pakistan is the induction of the concept of Public Private Sector Dialogue in the investment policy and strategy of the country. In its Investment Strategy 2010-15, the BOI is the apex body of the Government of Pakistan to promote and facilitate investment in Pakistan.
The infrastructure projects and sectors that can benefit under Pakistan's PPP Policy include transport and logistics, mass urban public transports, local government services, energy projects, tourism projects, industrial projects, irrigation projects and social infrastructure. The Federal Government is engaging with the provincial and local governments to support their ongoing development projects through this model.
BRR: Which information channel, in your experience, is the most effective in promoting foreign investment in the country?
SM: Today, the print and electronic media have proved to be one of the important pillars of the country. The role of media in Pakistan's economic progress is very vital because there is an extreme need to project an image of Pakistan as a safe and lucrative investment destination. The positive projection and advocacy of investment friendly policies is the need of the hour and can be done through media in the shortest possible time span.