BoI's grand plan

It has been reported that the Board of Investment (BoI) is aiming to increase Pakistan's FDI to $ 250 billion by 2025 and is developing a long-term strategy to maximize benefits from the China-Pakistan Economic Corridor (CPEC) with a view to achieving the said ambition. BoI's plan is reported to be based on development of infrastructure, energy and special economic zone projects under the CPEC. And, the revenue generated out of CPEC will be blended in with the rhetoric of Pakistan's strategic location and a growing consumer market.
It is also reported that the BoI plans to hold road shows in China, Germany and other major economies in coming months in an effort to stimulate foreign direct investment (FDI) flows into the country. Under the plan, BoI will organize road shows in collaboration with different chambers of commerce with focus on textile, steel and automobile industries.
Although BoI's plan, however, is not realistic. After touching a peak of over $ 8 billion in 2006-07, the foreign direct investment (FDI) has not staged a comeback as to date. FDI in Pakistan averaged $2.6 billion from 2010 until 2016 reaching a peak of $ 3.1 billion in 2010 and a record low of $ 2 billion in 2012. The averaged out FDI from 2013 to 2016 has been recorded at $ 2.7 billion which means that the FDI in Pakistan has not gone above $ 3 billion in the last decade. Also, that the funding to be received from China is more in the shape of loans and less in FDI. The FDI is largely in the shape of equity in the power plants in the private sector. Whereas major part of the Chinese funding is the financing of energy projects in Pakistan.
In phase-I, around $ 15.5 billion worth of energy projects, largely power projects, are to be set up by the private sector of the two countries which would be financed by China's Export-Import Bank (Exim) at commercial terms with a 5 to 6 percent interest rate. The lien of the bank is on the project itself with no liability of the government of Pakistan, which is only a facilitator in this case. However, there is a commitment from the Pakistan government to purchase electricity from these plants at pre-negotiated prices. The affordability of this power by consumers is questionable
The infrastructure projects under the CPEC will be largely under Public Private Partnership (PPP) and Social projects under soft loans. Reportedly in August 2015, China announced that concessionary loans for several projects in Gwadar totaling 757 million dollars would be at zero interest rate which would include construction of the $ 140 million East Bay Expressway project, installation of breakwaters in Gwadar at a cost of $ 130 million, a $ 360 million coal power plant in Gwadar, a $ 27 million project to dredge berths in Gwadar harbour and a $ 100 million 300-bed hospital in Gwadar.
Pakistan's real issues related to FDI are structural issues which cannot be resolved through illusions and optics. The issues are country's declining global rating in Ease and Cost of Doing business and constant decline in Global Competitive Index (GPI). In Doing Business Pakistan's ranking is around 148 out of 200 countries as per the World Bank report of 2017, whereas Pakistan's ranking in GPI is 122 out of 137 Countries while Malaysia's is at 22 and India's at 39.
The government of Pakistan in general and BoI in particular have to work harder on bringing around significant improvements in Ease of Doing Business and Global Competitiveness. An investor's first priority is profitability and return on investment followed by security and sustainability of investment. Pakistan has to be presented as a better location to a foreign investor in a competitive environment where more and more countries are surfacing on the map of emerging markets offering wider choices and incentives to prospective investors. Pakistan has to be better than them.
BoI's plan to hold global investment conferences by projecting the CPEC as a catalyst to woo foreign investments is a good step. The CPEC for Pakistan indeed means better mobility and connectivity to investors through roads, rail and urban transportation, better availability of energy to meet the needs of investors and availability of Special Economic Zones to investors to set up their industries. These are competitive advantages available to all investors around the globe to benefit from. But all of this has to be professionally formulated, packaged and presented to investors with a close follow-up on the leads. Often, the investment conferences organised by the government of Pakistan lack professionalism and a mechanism to lead investors to the very end of the investment chain. The events are largely cosmetics and the results of such expensive conferences remain unmeasurable.
In July 2017, Swiss Business Council Pakistan in collaboration with its associate business chambers in Switzerland held conferences in Switzerland, pitching the CPEC as an opportunity to European, particularly Swiss investors. The events led to evoking good interest with some promising results.
The CPEC alone will not attract FDI to the country as imagined or anticipated by BoI. At best, the CPEC can be a catalyst but most important is the need for bringing about a significant improvements in Pakistan's ranking in Doing Business and Global Competitiveness to make it an attractive destination for foreign investors to look at.
(The writer is former President of Overseas Investors Chamber of Commerce & Industry)