The FDI woes

Foreign Direct Investment (FDI) inflows declined by 46 percent in the first four months of the current fiscal year (July-October), said a report of the State Bank of Pakistan (SBP). While the US, Europe and Japan - the front-ranking traditional investors in Pakistan - have, by and large, walked out of the Pakistani market after the influx of Chinese products and projects and rising cost of doing business. The inflows from China are also on a downward trend; these were only $335 million, which is 56 percent of the total FDI during the period under review and more than half when compared with $694.3 million inflows in the corresponding period of last year.
Moreover, the inflows from other countries are also on a decline with a mere $64.5 million from the UK, $45 million from the US, $43.9 million from South Korea and $36.3 million from Switzerland during the period.
The portfolio investment outflow was 269 million compared to outflow of 57 million in the same period of last year. The large outflow led to overall decline in the foreign private investment during the four months of this fiscal by 68 percent to $1.062 billion.
Understandably, the incumbent government is concerned about this situation, prompting PM Imran Khan to hold meetings with investors and hold out assurances to them that their interests and grievances will be well addressed by his government.
As an action plan, he has set up a secretariat at PM House to mobilise, facilitate and address the concerns of the investor.
This is not new as previous prime ministers also occasionally supervised foreign investment. But this set-up is somewhat different from the previous such initiatives.
Also, responding to the complaints of businessmen and investors about harassment by government functionaries and NAB a complaint cell has been established by NAB at PM House to address such issues.
There are multiple and complex issues related to FDI in Pakistan of which some are under government control. With turbulent global political and economic dynamics and uncertainty investors are holding back and moving out from unsecure markets to secure markets.
In case of Pakistan, the situation is further difficult on account of very poor doing business ranking because of deterioration in ease and cost of doing business. A unit to bring around improvement in doing business has also been set up at PM office
While the PM has taken a number of initiatives to boost the much-needed economic growth and investment, the government entities responsible for making the initiative a success remain complacent. It is this mindset that needs to be revolutionised if some success has to be achieved in investment and businesses. First government priority should be: set its house in order.
Over the years, gross misgovernance has been institutionalised in all the government institutions which are meant to serve investors. It is largely characterised by incompetence, lethargy and vested interests.
There is no such thing as 'One-window facilitation' for an investor in Pakistan which the Board of Investment promises the investor. There are multiple windows with BoI playing the role of a silent spectator.
There are over 10 main regulators and service providers where the investor is subjected to test his patience and endurance. Some investors endure the tiring process while others just cannot live with the prevailing system and opt in favor of other destinations offering investment enabling environment.
Federal Board of Investment (BOI) and the provincial boards of investment have no control nor influence on these entities at the federal or provincial levels and the objectives and interest of the two are in conflict with each other.
While the performance of the boards of investment is judged by the amount of investment they mobilise whereas the regulators has the mindset that the more tough time they give to the investor the better they are perceived to be performing. This modus operandi is often driven by vested interests. They can be termed as investor repellents.
The real challenge for the government is to convert these investment repellents into investment facilitators. This means a drastic management change at these institutions, the mindset and accountability.
The main regulators for an investor are SECP, FBR, building control authorities, utilities service providers, environment control authorities, labour department and similar. None of these proactively provides the investor any guidance or facilitation; these, in fact, try to complicate matters.
Some cases have come to light on this account where investors are unduly suffering at the hand of SECP, environment departments, building control authorities and others.
The NAB unit established at PM's office may randomly pick up a few such cases and conduct fair investigations and derive conclusions for plugging the system.
Also, for a business set-up and its operations an investor needs multiple NOCs from the said regulators. Majority of these NOCs are meaningless. The PM's office must do away with much of these NOCs and instead make the foreign investor self accountable as is the case with many vibrant markets.
The task for the incumbent government is humungous while the time is running out. It needs to catch up fast.
(The writer is former President of Overseas Chamber of Commerce and Industry)