Foreign Direct Investm-ent (FDI) is on a rampant decline in the country as evident by the recently released data by the central bank. Bleak security situation, global economic slowdown and high corruption are the usual suspects responsible for the massive drop in FDIs which were halved during the first half of the fiscal year to a partly $1 billion.
But there is another irritant responsible for the ever increasing lack of investors confidence in Pakistan market - the complicated land ownership laws and its ineffective implementation. The aforementioned problem leads to hurdles being created for the foreign investors as they often find their money stuck amid complex land laws and the corrupt dealing of it - as transfer of land in Pakistan is more of a political and power grabbing issue.
Unfortunately, this not only dents the investors confidence and forces them to rethink about their future in Pakistan - but also sends negative signals to other potential investors, depriving Pakistan of the much needed foreign investments.
The fact that Foreign Portfolio Investment (FPI) against the run of the play increased by 45 percent during the same period, emphasizes the fact that investors are more willing to earn the easy way where the exit mechanism is relatively swifter. This very phenomenon indicates what weightage do the investors assign to the laws and there implementation - as the security situation and economic fundamentals remain the same in both cases.
To be more specific, the land grabbing by political parties especially in urban Sindh and Punjab has delayed a hefty sum of $799 million of PTCL privatization proceeds, which is detrimental for the country in a time of non-materialization of much anticipated, heavily relied foreign aid. The very problem has become the root cause in hampering privatization of other state owned entities as well. Pakistan Steel Mills and Gwadar Port are two such examples of land ownership disputes.
Makro, a Netherlands based super markets chain, became the latest victim of complex land zoning laws. The retail giant took a commercial land on rental lease from Army Welfare Trust (AWT) in Lines Area of Karachi in 2006 and spent Rs800 million on the construction and development of super market and employed over 350 workers.
But the land that was sub-leased to AWT in 2002 by Army used to be a playground of Karachi Grammar School before 1983 and was used as a dumping ground ever since. The company, on obtaining NOC from CDGK, had its construction plans passed from Cantonment Board. It was therefore the duty of Cantonment Board and Military Estate Organization (MEO) to ensure that the store was being built on a commercialized land, which sadly, wasn the case.
Army was handed over the land for its own use - local laws do not permit army to lease the land to AWT, which made the legitimacy of the rental lease to Makro challenged in the Supreme Court in light of those laws.
Therefore, the Board of Investment should take serious notice on this issue as the matter is not confined to one chain of supermarkets; rather, it hurts the sentiments of all foreign and local investors seeking to invest in the countrys potentially attractive real sector.
The very issue has so far discouraged the potential parties to indulge in taking care of entities such as Pakistan Railways among many others - where the land grabbing and the disputes thereof, are spread to an even wider horizon.
Local investors are no exception either as the AKD group which bought a land around Capri Cinema in Karachi had to return it to army on account of failure in obtaining NOC from a public bus terminal - envisaged in the Karachi Master Plan - to a commercial venture involving hotels and shops. The Master Plan is already approved by the provincial assembly. Any change in said laws would require the approval of the legislature.
The situation calls for a major revamp in land laws formulation and their implementation if those sitting in Islamabad - want the country prosper of foreign investment front. Moreover, the ever-so-vital political will is also needed to rectify things and bring the economy back on track.
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