'Pakistan is a land of opportunities' an interview with Shazia Syed, President OICCI

Shazia Syed is the Chairperson & CEO of Unilever Pakistan Ltd who has recently taken charge as the President of the Overseas Investors Chamber of Commerce and Industry (OICCI) for the 2019 term. In her 26 years with Unilever, she has worked across various categories at the company, including three years with Unilever Vietnam as Business Unit Leader for Personal Care, and later as its Vice President. Before Shazia took over as CEO of Pakistan operations in late 2015, she was the Chairperson of Unilever Sri Lanka. Until last year she had also served as a Director of the Pakistan Business Council (PBC).
In this interview as President OICCI, BR Research finds out her views on current macroeconomic situation, including the delay in going to the IMF, the IMF programme itself, taxation & budget. Reasons for slowdown in FDI are also discussed, along with her policy suggestions to turn the situation around.
BR Research: Finally, we have a deal with the IMF. What's your initial reaction to the press release?
Shazia Syed: The announcement has come as a relief. The uncertainty surrounding the IMF programme was not conducive in terms of making long term business plans. Now that the deal has been finalised businesses can go back to their drawing boards as soon as details of the programme are released. If the press release is any guide, things look challenging and we must make tough decisions.
BRR: What's your outlook for PKR-USD over the next twelve months?
SS: It's difficult to put a number on it so far.
BRR: Surely there must be a number that you use in your business models.
SS: The parity we are assuming in our business projections is Rs142-150 to the dollar. But it has been quite a volatile environment for some time, which is why all these assumptions are revisited on a monthly basis.
BRR: What are your thoughts on the unexpected ousting of Asad Umar and the recent reshuffle?
SS: Asad Umar's unexpected ousting sent the wrong message; our principals became cautious after the decision. But recent appointments such as SBP Governor and Chairman FBR are some positive developments.
BRR: There are those who maintain that government should have gone to the IMF as soon as it came to power. Others argue that a delay was warranted to assess the situation. Where does the OICCI stand on this?
SS: It was better to take stock of the situation before going to the IMF, and it is also fine to explore low hanging fruit such as loans from friendly countries because we all know IMF's conditions do have an impact on growth and welfare.
As OICCI, we understand the rationale behind government's decision to delay the IMF programme, especially considering the rather aggressive statements made by the US officials as well as the whole China-IMF-Pakistan story. I think as a result of the delay, and support from friendly countries, the IMF has mellowed down a bit.
However, it would have been better if a sense of timeline was provided earlier on, such as that the IMF will be reached out to after the budget or in the coming fiscal year. That would have brought clarity to businesses. You may recall there was no clarity of statements about the timing, or whether we were going to the fund at all! That created a little bit of panic in the market during the last few months.
BRR: We are clearly in a downward cycle at the moment; when will we bottom out?
SS: The next twelve to eighteen months are going to be tough, but things will start improving after second half of the next fiscal year. The limbo won't last longer than that, because the size of population offers a lot of growth opportunities.
BRR: The budget is around the corner, and we also have a new private sector expert at the helm of FBR. What are OICCI's demands from the government keeping in mind the practicalities of tight fiscal constraints?
SS: We believe that taxation law isn't so bad; it is the implementation which is making life very complicated. We ask for transparent and consistent tax policy and a more consultative process in making tax policy and enforcement plans.
There have been a few positive developments already such as the removal of super tax and gradual reduction in corporate tax rates. One of our more significant requests has been for a consistent tax policy on sales tax on services; the rates are not consistent across provinces. Moreover, procedures for input-output adjustments are complicated.
Secondly, whatever tax incentives the government gives for new investments should be well thought out. They usually give time bound incentives for five years not realising that a major investment such as the setting up of chemical plant or steel plants takes about three years on the drawing board, another three years for setting it up. By the time the project takes off, the incentives are withdrawn.
BRR: What is your view on the government's focus on corruption which some say is excessive?
SS: The intent is absolutely right; there should be zero tolerance for corruption. But one hardly finds a country free of corruption, especially in the emerging markets. Taking a hard stance on smuggling or tax evasion are inevitable steps for a strong economy which will be the fuel for growth for local manufacturing sector. There should be equal focus on reforms for governance in a planned and phased out manner.
BRR: What is your understanding behind slowing FDI? Clearly there are many other countries that are ranked poor in ease of doing business and have security issues as well. Yet they receive decent FDI.
SS: Until 2013, Pakistan faced a serious law and order situation. But just because that issue was resolved doesn't mean that investors will start flocking to the country. Perception takes a lot of time to change and harness in our favour. We believe that even today, Pakistan's biggest hindrance is the negative perception.
This is partly because of unfortunate events that take place regularly, such as the recent PC Gwadar incident, but it is also because successive governments haven't made efforts to improve Pakistan's perception around the world.
Secondly, you can't take one step forward, three steps backward, and then expect FDI to grow. Case in point is the recent delay, in the renewing of telecom licenses that has sent a very wrong message to foreign investors. Similarly, there have been delays in issuing clearance/visas to foreign directors and sponsor shareholders.
BRR: Do you see this changing now? What actions do you propose?
SS: When the new government came to power, there was a lot of interest from our foreign principals and other fresh queries as well. There was interest in the Naya Pakistan slogans raised by a leader who is widely perceived as honest and has a positive global recognition. But the government needs to back up those sentiments by going to forums such as Davos and doing other road shows and investor conferences.
In fact, the OICCI was also organising a conference in London next month which has been postponed. We believe now that it is the time to market Pakistan and change the perception of foreign investors so they can see the country's long-term growth potential, and growing demand fuelled by a larger middle class and a very young population. There is an appetite for people to invest in Pakistan because it is seen as a wide-open space. But investors need to know government's plans on education; digitisation of economy; tax reform plans and so forth.
We are quite impressed with the growing engagement by the Board of Investment in promoting investment and Ease of Doing Business in Pakistan. The OICCI is one of the key members of the BOI Policy Board, which is chaired by the PM. I am told that this board has not formally met since 2013. Activating that board is critical so that the PM gets first-hand feedback from foreign and local investors.
Having said that, we must also acknowledge that PM Imran Khan has been very approachable, and we have had a few meetings already with him at different forums which have given him a sense of key challenges being faced by the investors. We will continue to urge for formal meetings of the BOI Board. We have also been raising our concern that the Policy Board of IPOP (Intellectual Property Organisation of Pakistan) has not been convened since late 2016 which is hurting the growth of FDI in the country.
BRR: What kind of FDI interest are you seeing in Pakistan, and in which sectors?
SS: OICCI is the hub of existing foreign investors in Pakistan. We are the first point of call for many potential investors in Pakistan. Many potential investors and business delegation meet us to explore the investment potential of the country especially based on the experience of our members. Foreign diplomatic missions also bring in their trade delegation here.
Pakistan is on the radar of many international companies. The interest so far is mostly in merger and acquisition transactions as against greenfield projects. This is because an M&A transaction is easier, whereas greenfield operations get you bogged down in so many regulations, approvals and delays. These problems are quite evident in the country's poor ease of doing business rankings.
Based on the queries, we see that European, Japanese and lately some Middle Eastern interest is emerging for potential investment across a wide range of sectors. The potential areas for FDI include IT, petrochemicals, LNG terminal and oil refining, automobiles, production of solar panel and other alternate energy, hospitality, engineering, hospitals and FMCG. We also encourage our members, and potential incoming FDI, to use Pakistan as a re-export base especially for the Middle East.
BRR: The landscape of business advocacy has changed in the country; the PBC has become quite a vocal force. How do you plan to compete and does the OICCI plan to start annual moots & short seminar series on various reform agenda and sector specific issues ala the PBC?
SS: We don't compete with the PBC. The OICCI is the largest chamber of commerce in Pakistan in terms of economic contribution, be it investment or contribution to GDP and tax payments. If you take the top 20 taxpayers in the country, over 70 percent will be our members. We are a 160-year-old organisation; more than half of OICCI members are also members of the PBC.
We both have a common agenda to promote investment and business in Pakistan. In fact, we work closely together on a lot of issues such as taxation, promoting Pakistan as a destination for investment etc. OICCI has expertise on FDI, whereas PBC is doing good work in promoting trade and commerce.
If merit is the deciding factor, then OICCI deserves a prominent role in all key government forums where private sector representation is required. We are the only body that has a pulse on foreign investors; we know what motivates or de-motivates them. We are a research-based organisation and we can help the government in many ways - from policymaking to capacity building. The government doesn't need to hire consultants, when there is enough global expertise available through our 200 members.
BRR: Given current economic situation and outlook, are you optimistic, cautiously optimistic or bearish?
SS: We are optimistic. Pakistan is a land of opportunities. Senior representatives from foreign principals of most of our members recently visited Pakistan, which is a clear sign of interest, and nearly all of our members are in expansion mode. As a country we have to showcase opportunities as well as the areas for improvement, as any mature investor knows that no country is without issues. What makes the difference is how these issues are managed.