Significant liberalisation in the conditionalities for foreign investment in the services sector, as recounted by the Chairman of the Board of Investment (BoI), Wasim Haqqie, in an interview with the Business Recorder the other day, will be seen as an imaginative policy decision.
Designed to encourage foreign investment in the various fields of services sector in Pakistan on an increasing scale, the initiative coincides with the agreement reached among the 147 member-countries of the WTO in Geneva last week, which endorsed the demand from developed countries for further liberalising access of foreign investment to the services sector in developing countries.
According to the BoI's new decision, the condition that foreign investors in the services sector compulsorily dilute their 100 percent equity holdings over a period of five years into 60 percent by inviting 40 percent equity investment from local entrepreneurs, has been completely waived.
Thus foreign investors will now be entitled to control 100 percent equity permanently in a services sector enterprise.
Additionally, the restriction on repatriation of profits beyond 60 percent, has also been waived, and foreign investors may now remit the entire profit.
Among other BoI decisions, no official permission or sanction will be required by a foreign investor for the establishment of a new industrial unit, with the exception of a few sensitive industrial ventures, including manufacture of arms and ammunition and explosives, radioactive substances, security printing and mint, distillation of wine except industrial alcohol.
The BoI Chairman claimed that Pakistan offered one of the best packages of incentives and facilities to prospective foreign investors compared with several other countries in the region.
This is an irrefutable truth which is illustrated by a sustained increase in the inflow of foreign investment into Pakistan.
These investments rose from $322.40 million in the year 2000-01, to $484.70 million in 2001-02, $789 million in 2002-03 and to $949.40 million in 2003-04 indicating an annual growth rate of 18.9 percent, the cumulative increase in foreign investments over the last four years working out to an impressive 195 percent.
The BoI Chairman was right in his projections that return of peaceful conditions in Afghanistan combined with the on-going negotiations between Pakistan and India to resolve all outstanding disputes, including the Kashmir issue, would further add to the confidence of foreign investors planning to make fixed capital investment in Pakistan.
He was realistic, however, in his reference to the need of fully controlling law and order conditions in the country so that the present process of revival of foreign investment flows could be further strengthened and sustained.
In his assessment of the improved level of foreign investment in Pakistan, he cited the visits of as many as 100 delegations from about 20 countries over the last 18 months, which is a testimony to Pakistan's success in the efforts to attract private investment in a diversified range of industries.
The Planning Commission's macroeconomic section recently reviewed the progress of investment in the country's services sector at a meeting held in connection with the formulation of targets for the five-year plan 2005-10.
It was noted that the country's services sector occupied an important place in the economy. It has grown steadily from 1960-61 onwards and handsomely increased its contribution to the GDP from 39 percent in the 1960s to 52 percent in 2003-04. On the other hand, the major productive sectors, viz. agriculture and industry have reflected a shaky performance over the last four decades.
The agriculture sector which held a share of 43 percent in the GDP came down to 23.3 percent in 2003-04, while the manufacturing sector has shown little dynamism as could be noted from its practically unchanged ratio of contribution between 16 to 18 percent to GDP during the last four decades.
The decrease in the ratio of agriculture sector to the GDP was compensated almost solely by the services sector. By all appearances, the services sector which comprises about 100 types of professional activities as identified by the WTO, offered a wide range of opportunities for investors to participate in the development of the economy.
Liberalisation of conditions for foreign investment in this sector is, therefore, expected to further increase and upgrade its contribution to the overall growth of the economy in the coming years.
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