EDITORIAL: SIFC (special investment facilitation council) is in the news yet again; this time for helping overcome hurdles to landmark Saudi investment in Pakistan.
It turns out that the biggest problem was the issue of arbitration, especially in light of the Reko Diq experience where Pakistan was fined $6 billion by the World Bank’s International Centre for Settlement of Investment Disputes for cancelling a mining lease for the project to Australia’s Tethyan Copper Company.
Since then, foreign investors have naturally been spooked by local courts and NAB (National Accountability Bureau) poking their nose into the financial domain, while Pakistan has shied away from including provisions relating to international arbitration in new investment agreements.
The Saudis, just like all other investors, were not willing to route their investments to Pakistan in the absence of concrete guarantees and the option of international arbitration. According to reports, this problem has been overcome through a two-stage solution.
Any disputes would first be brought to local courts and only then, in case there are any further sticking points, would they be taken for international arbitration. Now, according to reports, the two sides are ready to sign a formal deal for investments to the tune of $25bn. And once that is done, more deals with the UAE, Qatar and Kuwait are also in the pipeline.
This breakthrough is very welcome. Pakistan is in desperate need of investment, especially given its abysmal international credit rating. A poor rating makes the cost of floating bonds and acquiring foreign loans unbearably high, which is why foreign investment is the best bet to break out of the country’s pressing economic problems.
This is one more feather in SIFC’s cap. It was created to facilitate investment, after all, and after removing numerous irritants in the government’s working, especially helping solve resource sharing between the centre and provinces, it is doing its basic job of solving problems and cutting red tape that usually deter investors.
Let’s not forget that this is a crucial make-or-break moment for Pakistan. For the moment it is able to avoid default because of the IMF (International Monetary Fund) lifeline, but increasingly harsh “upfront conditions” make this option unviable with time.
This is also a good time to understand just why FDI (foreign direct investment) has traditionally been the least appreciated component of the current account in Pakistan. With both export revenue and remittances falling well short of the amounts needed to keep the account in the green, the finance ministry should have turned its attention to attracting investment a long time ago. Sadly, the country’s own cumbersome rules and political divisions have been the biggest irritants to outside investment.
But now that there is some progress, Islamabad should go on to seek new investments. Gulf countries are time-tested friends who have always helped the country in its time of need, but there is a need for more professional outreach to attract serious money from other financial centres as well. Hopefully, the SIFC will continue to deliver pleasant surprises.
Copyright Business Recorder, 2024
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