Barking up the wrong tree

Prime Minister Nawaz Sharif is reported to have noted that the Board of Investment (BoI) has failed to facilitate foreign investment which had been showing a downward trend since the assumption of power by the present PML (N) government. He also observed that after the establishment of BoI at the federal level, provincial governments had also set up similar institutions in the provinces with a similar set of objectives. As it was not wise to continue to run parallel organisations in the provincial headquarters, BoI should re-examine the utility of retaining its regional offices. Further, BoI may also look at current deficiency in its federal set-up and provide for a comprehensive reforms solution with a view to making the organisation more functional and vibrant.

The Prime Minister's observations on foreign investment evoked an interesting response from the BoI. Admitting that it was in no position to defend the Prime Minister's remarks, BoI acknowledged that a one-window facilitation or a "one stop shop" for investors could not be extended, barring a few cases in spite of a well thought-out strategy announced in 2013 for a five-year period. Operational windows were interdependent to a large extent and the strategy could not be operationalised in toto due to frequent changes in management, resistance to change, lack of ownership and the absence of an implementation/action plan. There were six changes of secretaries in 2013 and meetings of BoI board were rare and far between. A full-fledged SEZ secretariat had yet to be established. BoI also requested for the same pay and allowances as the staff of PM's office and BISP to strengthen BoI's human resource capital.

Observations by the Prime Minister on foreign investment and the response of the BoI would appear to be quite relevant in the prevailing situation to an ordinary person but are not crucial in attracting foreign investors or determining the level of investment in a country. The Prime Minister's concern about dwindling trend in foreign investment is of course fully plausible. For instance, total investment and gross fixed investment as a percentage of GDP have declined from 17.55 percent and 15.95 percent in 2008-09 to 15.21 percent and 13.61 percent during 2015-16, respectively. The share of foreign savings in gross fixed investment has also fallen from 5.51 percent to 0.61 percent in the same period. Needless to say that not only the level of investment has to be raised to over 20 percent of GDP to achieve a respectable growth rate of around 7 percent or so but the component of foreign investment has to be increased substantially to compensate for the shortfall in domestic savings. The present level of FDI hovering above dollar one billion per annum is way below the absorbing capacity of the country or its potential and is much less than the regional economies. This is despite the fact that Pakistan is blessed with a lot of untapped resources and welcomes foreign investors with very friendly investment policies. It also realises the importance of DFI in technology upgradation, employment generation, export expansion and acceleration in GDP growth rate. So far as the response of the BoI to PM's observations is concerned, the reasons given for not providing a "one-window" facility to all the foreign investors are quite convincing. Such a strategy could only be successful in countries where all the related departments are very efficient and co-operative to achieve a common cause. Unfortunately, however, in Pakistan such a situation does not exist and every department or organisation wants to show its relevance and importance by raising frivolous objections which delays the matters and frustrates foreign investors. The matter of increase in salaries could only be considered if the performance of BoI was excellent and the PM was happy with its feats.

The biggest weakness in the strategy of the government to facilitate foreign investment is undue importance and unwarranted expectations from the BoI in this respect. First of all, the level of domestic savings and the interest shown by the local entrepreneurs is the key to development while foreign investors could only play a supplementary role. Unfortunately, however, most of the policies in Pakistan are so designed that these usually discourage domestic savings and act as an impediment to investment. In fact, local investors are also looking for greener pastures abroad due to a variety of reasons. Secondly, even if the performance of BoI is raised to a level as desired by the PM, it cannot act as a catalyst to greater foreign investment because foreign investors are not convinced by mere canvassing but could be persuaded only by changing the realities on ground. They have their own sources of assessing the situation and rely on them to decide the locations of their investment. Foreign investment cannot be raised to the level of over dollar 5 billion per annum achieved a few years back if law and order situation remains poor, infrastructure is substandard, corruption and lethargy are rampant in government offices, extortion of money and kidnappings continue to be the order of the day and there is no certainty of policies. Undue emphasis on the BoI for attracting foreign investment is, therefore, like barking up the wrong tree. Its seminars and solicitation could hardly influence the decisions of foreign investors if the situation on ground remains unchanged.