The investment potential arising out of China Pakistan Economic Corridor (CPEC), the UAE’s $10 billion investment pledge, and Saudi Arabia’s $5 billion investment package commitment are all perceived as a game-changer to turn around the fragile economy of Pakistan. The prospects of investment from Kuwait and Qatar, whose heads of state are expected to visit Pakistan soon, have also been described as “bright”.
Special Investment Facilitation Council (SIFC), launched for the economic revival of the country and for attracting investments from friendly nations, is spearheading the mandate of mobilisation of investment in the country.
Earlier this month, Prime Minister Shehbaz also constituted a committee of economic experts to be headed by the finance minister for developing “Home-grown Economic Development Plan”.
The body comprises professors from the universities of Oxford and Cambridge, and economic academics and experts from Pakistan. It is unclear whether and how this forum of experts will interface with SIFC.
Also, it has been reported that the government has established seven dedicated desks earmarked for China, Qatar, the UAE, Saudi Arabia, the European Union, the United States and the Far East to mobilize and facilitate investment from these countries. Notably, there already exist multiple investment facilitators in public sector such as Federal Board of Investment (BOI), Provincial Boards of Investment of Punjab, Sindh and KP, a fleet of commercial counselors around the globe and many chambers of commerce and industry in the private sector.
Setting up SIFC and forming a panel of economic experts are the steps in the right direction and give a much dedicated and professional level of management coverage and comfort to investors and provide a well considered lead to the investment initiatives. Also, in light of no interest of investment by the West in the Pakistani market, the outreach to Arab nations for investment is the option worth exploring.
The timing appears to be right as taking into consideration a broader global business perspective the UAE, Saudi Arabia and other Gulf states are eager to extend their investment outreach in countries, which could provide them space and an enabling business environment to mark their footprint in these countries.
India, with its vibrant economy and welcoming attitude to cash rich Arab states, is currently their favourite hot spot. Pakistan also has the potential to carve out its share of investment from them if it could provide somewhat a similar market and business enabling environment.
The government is doing all it could do to bring around a change in the economic and fiscal discipline of the country. It is too early to say that the game is not changing, but there are early indicators that all is not well and there are serious challenges in converting the investment intentions into tangible actions. The challenge is to offer a business enabling environment to investors and this is not happening.
In case of Pakistan, the very basics of doing business have gone terribly wrong. The investor, be it local or foreign, primarily takes into consideration two primary factors for its ‘Go’ or ‘No-go’ decision for investment:
The return on investment - which is profitability and long-term business prospects based on cost and ease of doing business;
Security of investment - which includes sanctity of government policies and legal framework, fiscal sovereignty and the country risk related to political and social stability and personal security.
Today, the investor finds both the factors as extremely challenging to commit investment into Pakistan market. The government has to set the basics right to move on with investment and its inflow into the country’s economy.
Although, Pakistan is a market with a sizable consumer base and with a good human and material resources, but the return on investment is undermined by the high cost of doing business in terms of energy costs and lending rates and the challenges posed to ease of doing business (a measure of how easy and difficult it is to start and operate a business in a country) by excessive regulatory controls and bureaucratic hurdles; whereas, the long-term business perspective is shrouded in political and social uncertainty.
Pakistan’s dependency on the IMF for its fiscal sustainability and its conditionalities on fiscal and debt exposure curtails government’s freedom to manage country’s economy and fiscal discipline in accordance with its needs and ambitions. Investors are well aware of these constraints.
The game-changing investment potential and commitments arising out of the CPEC are now more transparent but appear limited. China’s policy of ‘go slow’ on CPEC is primarily driven by its concerns on security of its personnel working in Pakistan and the settlement of the long pending payments to Chinese contractors engaged in projects in Pakistan.
During the visit of Prime Minister Shehbaz Sharif to China in November 2022, President Xi Jinping, in a joint statement, is reported to have underlined that: “China hopes the Pakistani side will provide a sound business environment” and in the next sentence President Xi expressed his great concern about the safety of Chinese nationals in Pakistan. Both these concerns need to be sincerely addressed to achieve any meaningful progress on the CPEC.
The CPEC is undoubtedly an important part of China’s Belt and Road Initiative and is the dire need of China. However, this need of China is primarily focused on the road corridor that links Gwadar with Xinjiang and the Gwadar port and it allied Special Economic Zone for its exclusive use, which provides China a strategic access to the Gulf and the Indian Ocean and secured berth and storage facilities at the port. China very much secured the strategic road link and the facilities at the port at the very start of the CPEC initiative.
China is one country whose overall policy of support and preference for Pakistan has been consistent irrespective of change of government in Pakistan, as it has always distanced itself from the internal politics of the country. It has worked equally well with all the governments without exception.
Further investment by China in CPEC, if any, would be at Pakistan’s call and compliant to the way of doing business conditions well defined by China. Realistically, under present debt exposure constraints, what remains in Pakistan’s interest are the Special Economic Zones - earlier committed to be populated by Chinese investors.
Beyond the immense goodwill of China for Pakistan - it needs to be understood that the branding could well be the CPEC, but when it comes to doing business, for China too ‘business is business’ and it has politely spelled this out time and again. Prima facie, this fact has not been comprehended by many and the CPEC is perceived as a vehicle that is available for a free or a subsidized ride.
The only difference is that the CPEC is the only ride available on Pakistan route. Investment modalities and the way forward with our brotherly Arab countries would be no different when it comes to business. This is something which the government needs to well understand. A business enabling environment in both cases is a prerequisite in order to move forward in a meaningful manner.
Investment from Arab countries is most likely to be in assets’ acquisition and its operations in sectors like mines and minerals, agriculture, real estate and services.
What is most needed in these dire times is the foreign direct investment in real terms supporting country’s industrial growth through transfer of technology, human resource development and investment.
In the past, the leading companies in technology from the West willingly engaged with Pakistan in transfer of technology and investment in the fields of engineering, pharmaceutical, banking, consumer products, transportation and logistics. Over the years, deprived of a level playing field and an enabling business environment, many of them pulled out of the Pakistani market. The West needs to be worked upon and brought back to the Pakistan market.
It becomes absolutely clear that whichever way we may look, for Pakistan to capitalize on the available game-changing opportunities lot of real hard work has to be put in to set the basics right and come up with an enabling business environment for the investor to favourably look at the Pakistani market.
Copyright Business Recorder, 2024
The writer is a former President, Overseas Investors Chamber of Commerce and Industry
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