Investment regulations and economy

Investment plays a crucial role in economic growth and development of nations. The declining trend of investment in Pakistan does not support the economic progress and industrialisation. Pakistan is also in-competitive in cross border trade due to physical infrastructure particularly weak transport and logistics infrastructure. To accelerate investment and industrialisation in the country, we have to develop physical infrastructure of ports, means of transportation, energy and communications in order to reduce cost of transportation.
The history of public finance in Pakistan indicates the misuse of funds for the development of politically-motivated projects: to offset the losses of commercial institutions in the public sector, to create inflated employment opportunities, to subsidise public services and to finance unnecessary populist projects. The cost of these bad decisions is ultimately paid by the middle and lower middle class peoples in the form of indirect taxes. It is obvious that fiscal space in public sector is not available for needed projects. We suggest that such developmental works should be based on private sector investment. Particularly, foreign direct investment should be promoted for the developmental works on the patterns of Lahore-Islamabad Motorway.
To enhance employment opportunities we have focused on investment particularly FDI from expatriate Pakistanis. At initial stage government has to develop the basic infrastructure to boost the private investment. Now, we are lacking the development finance institutions (DFIs). In past, Development Finance Institutions (DFIs) have been playing an important role in the development of infrastructure in Pakistan. NDFC, PICIC, PIDC, IDB and BEL are included in these institutions. Now, the role of DFIs in the economic development is almost negligible, while monetary policy and banking system do not support the mega projects in Pakistan. In the absence of these institutions we suggested a 'New Development Initiative program'. It will not be a part of PSDP and will be govern by a separate board of governors including representation of stakeholders' holders from private sector. Here, it is noteworthy that inducement of private investment particularly foreign direct investment is the only feasible option to develop the badly deteriorated infrastructure in Pakistan. Greenfield investment and capitalisation of the savings of expatriate Pakistanis are also included in this program. The stagnancy of traditional fiscal policies in Pakistan has failed to revive the economy and we do not have fiscal space for badly needed developing projects.
The miracle growth of Indian economy after 1990 depends largely on foreign investment, while this investment is not from foreign funds' managers and MNCs. More than 60 per cent inflow of FDI in India belongs to expatriate Indians. Major part of FDI in India belongs to Singapore and Mauritius (not from USA, UK or developed countries). The biggest part of this investment in India belongs to expatriate Indians who live abroad. We should also encourage those Pakistanis to contribute in the economic development of Pakistan by inducing investment in the national rebuilding projects including construction, steel industry, energy sector, and financial services.
For successful launching of supply side policies, changes in economic and social policies are required. Financial openness, economic freedom, trade liberalisation, and changes in the social and political policies are required to attract foreign investment for long-term projects. Global and regional integration, new public management, the lean government are also the associated policy measure for economic liberalization.
In February 2013 the Prime Minister announced to introduce green field Investment in Pakistan but still we are waiting the details of this scheme which require liberalising the rules and regulations. Particularly at the moment we are facing severe problems in the inflow of FDI and foreign portfolio investment. Though, government has introduced Greenfield Investment scheme for such developmental projects, but necessary legal framework and administrative measures have not been taken to implement those investment policies till now. Greenfield investment policy requires the constitutional amendments. We will have to highlight and then amend all those administrative obstacles which are discouraging investment. Those obstacles may be at local, provincial or federal government levels.
Business competiveness, economic growth, public welfare, enhancement in investment activities and regulating the capital market are interrelated phenomena. There is no doubt that mega projects are required in the economy. Gwadar-Kashgar railway link, Motorways and linked highways, construction of big dams and energy producing and transmitting networks, and expansion in ports capacity are required at the initial stage of accelerated development process. These projects will lead the enhanced activities in construction, energy, steel, mining, transport and financial sector. Vested interests of various groups at national and international levels may be involved in this fast developing process. We suggest avoiding from politicizing these economic ventures. It is possible only when we create transparency and liberalisation for all stakeholders on competitive basis without discrimination.
It was observed that major irritants in the systems are not based on economic policies; these are based on administrative measures and procedural requirements. To avoid from administrative and regulatory obstacles in the developing process, we initiated a 'New Development Initiatives Program', which is a disparity from traditional approach. It is a major change in the public sector investment in development programs. Such initiatives belong to the proposed Kashgar-Gwadar rail link, Gwadar link with the rest of country through motorways and highways and development of energy and transport related projects. WTO mechanism permits the subsidies and public spending on infrastructure development. We strongly recommended that government should focus on the development of physical infrastructure through public funding. It may substitute the necessities of other kinds of subsidies in future. We also suggest avoiding from politicizing these economic ventures. It is possible only when we create transparency and liberalisation for all stakeholders on competitive basis without discrimination.
We are well aware about the impact of oil prices on world economy. This impact which was accompanied with the global recession has affected the world stock markets and investment activities. Pakistan has no exemption. In the globalise economic linkages no country has exemption to keep it isolate from global impacts. However, the economic survival of Pakistan is attached with the investment and particularly the inflow of FDI. We cannot afford continuous decline or uncertainties in capital markets. Our economic survival has been attached with the investment activities.
We are the strong supporter of Compulsory Provision for CSR. Though some companies have added good CSR practices, Unfortunately due to the poor law and order situation, underdevelopment, and poor health and education facilities a large part of population facing economic and social miseries. Therefore we recommend that all companies which has more than 500 million rupees paid up capital should be liable to spend 2.5% of the after tax earnings on CSR activities. This spending should not include the benefits to the employees of those companies.
As we are aware, the National Shipping Corporation has become inactive and freight outward from Pakistan is monopolised by few international shipping lines. The added charges on Pakistani products by those shipping lines and their cartelization make cost of business high due to high freight charges. In this respect, Pakistani Investors should be encouraged to launch shipping line business and those Investors should be supported by fiscal and monetary incentives including subsidized rate of interest on long term debt financing for new capital intensive ventures. To save Pakistan, we adopted the survival strategy.
The accelerated economic growth in long-term and providing the relief to over burden segments of the society in short-term are the basic principles which have been adopted in the formulation of budget proposals. In survival strategy, our main target was to control over poverty by reducing inflation and unemployment.