The Board of Investment met last Monday, after a break of five and half years. The last meeting of BOI was chaired by Nawaz Sharif in 1998. Since then dozens of seminars and investment conferences have been held every year, both at home and abroad, and the President and Prime Ministers have been personally exhorting investors to undertake business ventures in Pakistan.
Several ministers and other top functionaries have held road shows to attract investment. In sharp contrast, Prime Minister Shaukat Aziz's very first initiative, even before holding the first cabinet meeting, has been the chairing of BOI.
This itself exhibits the direction of change in the way of running the government. BOI was established on the demand of investors that there should be single window where they could knock to have both information and access to infrastructure and governmental policy support to establish business ventures in the country.
The precise reason for the Board to be headed by the Prime Minister was to obtain full support and force from the various government ministries and departments, at federal and provincial levels, to respond to the difficulties faced by an entrepreneur and enable him to save the time and money spent on running from pillar to post.
We hope the Prime Minister will now hold meetings of BOI with regularity as it is indeed the only forum where reports of task forces and feed-back from trade and industry can be debated, all obstacles and irritants in the way of investment properly addressed, and progress of private projects under implementation monitored.
Prime Minister Shaukat Aziz has stressed the need of facilitating the private sector to play its role as engine of growth. He said that his government would focus on speedy development of small and medium scale industries to put the country on the road to rapid industrialisation and creating more jobs.
This, as he rightly pointed out, necessitates encouragement to local investment, which serves as the catalyst for inflow of foreign investment. Again, while saying that the BOI is fully cognisant of the country's need for fast industrialisation as a means to creating more and more jobs, he specifically directed the provincial government to activate their own investment boards.
This, he said, will lead to identification of small-scale, agro-based industries and thus encourage the prospective entrepreneurs to invest in this sector. These exhortations appear to spring from the realisation that, generally speaking, provinces have fallen behind in the task of promoting development and growth of small and medium enterprises.
It is to be hoped that the Sindh, Balochistan, and NWFP Chief Ministers, Arbab Ghulam Rahim, Jam Muhammad Yusuf, Muhammad Akram Khan Durrani, respectively, would comply with the Prime Minister's advice and form provincial board of investments at the earliest as these three provinces are the ones that need to catch up fast with the industrial thrust evident in the Punjab.
During the nineties Pakistan's banking sector was afflicted with liquidity shortage and the government itself used to hog bank credit. The interest rates had touched the level 20 to 24 percent.
In a situation like this, the question of lending to SMEs or to give personal loans or provide housing mortgages did not arise. It is only in the last year and a half that lending rates have dropped to single digit and banks are flush with liquidity.
This is primarily due to the fiscal discipline exercised by the Government with Shaukat Aziz as the Finance Minister.
In order to exploit these favourable conditions, micro-finance, SME lending and housing finance are being pursued at all levels but the desired results are still not forthcoming and progress is very slow.
The only solace has been the upsurge in consumer lending which has resulted in full capacity realisation in the some fields like automobile (up 52 percent) and other consumer goods and durables, specially electrical goods, exhibiting a rise of 52.7 percent.
In order to sustain the momentum there has to be matching growth in the production of components supplied to these industries.
Realising this, the Prime Minister has asked BOI to focus on SME lending. In the textile field, the power loom sector has to be modernised. Similarly light engineering sector has to double its production and capacity enhancement is also needed in cutlery, fan, surgical, leather and sports goods manufacturing. On the positive side, existing capacity utilisation has been achieved due to rising consumer demand triggered by leasing and consumer loans.
The supply side in key industries has now reached the saturation point and cannot meet the appetite of consumers. This is now resulting in pressure on prices. The surest way to keep prices in check is to raise domestic output and allow higher imports.
Investment to raise domestic output will naturally generate employment too and only then will we be able to complete the growth cycle to raise our GDP to around 8.5 percent.
Higher income in some strata and rising population are putting pressure on food and beverages. Therefore, BOIs, both at federal and provincial levels, should also focus on agri sector. We need to target the dairy industry. Companies like Nestle and Halib etc have database on animal owners and daily milk supply received from them.
Commercial banks can use this data and provide loans to small farmers to double their animal holding and also place more chillers at an increasing number of collection points.
The Prime Minister being a banker knows that traditional approach will not work in SMEs. This sector is plagued with an acute lack of collateral acceptable to banks/DFIs.
The common entrepreneur has limited business experience. He lacks in modern management techniques and suffers from poor marketing knowledge. Given these constraints in the recourse to banks where cash flow is weak, specially in start-up cases, he needs to offer collateral in the shape of property.
From the bank's point of view, the charge on property is difficult and expensive to establish for SME sector due to obstacles of disputable title, improper registration and duplication in land records.
Land records in revenue offices are hand-written, easily tamperable and therefore not reliable. Provincial governments need to computerise them to facilitate recording, monitoring and tracking of bank's charge on properties. And, banks need inter-connectivity from a common server for easy access by various branches. NADRA can be entrusted with this task.
The Herculean task of creating a database on the population registration bears testimony to their capability.
The Registration Act 1908 needs to be amended, obliging registrars to compulsorily enlist/note equitable mortgage of property in land revenue records in the same manner as registered mortgagees. We also need to reduce high cost associated with documentation.
The same approach in the urban areas, ie computerised record and registration of equitable mortgage would be of immense help in giving housing loans a fillip. This is a key issue hampering the growth of housing sector which holds the promise of employing an army of unskilled workers in our country. And, lastly there have to be guarantees and refinance available from the government through the State Bank of Pakistan to promote SME financing.
Such models are available in some developed countries. It is indeed worrying that interest rates are once again on the rise and we have failed to encash the opportunity provided by low lending rates.
However, there is still time and nobody in government is better placed than the banker Prime Minister to guide and quicken the pace to overcome the obstacles in the way of employment generation.