While addressing the 3rd Pakistan-US Business Opportunities Conference in Islamabad last week, the visiting US Secretary Commerce, Penny Pritzker, underlined security, unfair taxation and bureaucratic procedures as key impediments to doing business in Pakistan for Americans. Further, she urged the Government of Pakistan to improve the business climate by implementing measures to increase transparency, enforce contracts and streamline bureaucracy.
The government of Pakistan leadership while responding to the US investors' concerns came up with a rhetoric, which one hears again and again - a promise of good governance and transparency, reforms to support investment and ease to do business in Pakistan, Pakistan cited as the prime destination for investors with abundance of natural resources and strategic location and more of such promises and meaningless big talks, which no serious investor buys. This rhetoric has not worked before nor will it work in future. The investor has far more in depth knowledge about the country they focus to invest in than the superfluous and all is good information they are provided by our government functionaries. What they want to hear is more of implementations and a balanced and fair analysis of shortcomings and in categorical terms how the concerns will be addressed under a defined road map.
The concerns expressed by the US Secretary Commerce are also the observations of other foreign investors specially the ones from OECD countries. During the visit of Prime Minister Nawaz to Germany in November 2014 Chancellor Merkel, at a joint press conference, expressed similar concerns related to the German investments in Pakistan. Both the US and Germany have repeatedly pledged their sincere support to facilitate investments from their countries, but, in an enabling environment to be provided by the state in Pakistan. But, not much has happened so far. We sincerely need to set our house in order.
With FDI hovering around pathetic US $1 million and Pakistan's global ranking being at the bottom 50% in most of the performance indicators in ease of doing business as per the World Bank's report "Doing Business 2015" it is apparent that Pakistan's endeavours to attract FDI are flawed and not working and much of it has to with the implementation part of the investment policies.
While security is indeed a concern in Pakistan but we cannot hide behind this reason indefinitely. There are many other matters of concerns, which can be addressed- the foremost being the transparency of doing business in Pakistan.
In the last decade the global rules of fair business practices with zero tolerance are strictly applicable in OECD countries largely driven by US laws with severe penalties in case of default. These include zero tolerance in grafts, price fixing, cartelisation, tax evasion, money laundering and similar business integrity compliance subjects.
The US, followed by Europe, are the largest foreign direct investors in Pakistan who for over six decades enriched Pakistan with state of the art technology and investments in men and material. This phase is drying out for many reasons - the foremost being the transparency and uneven playing ground now available to this premium segment of investors. The biggest loss to Pakistan in the process is the increasing depletion in technology transfer and the training of manpower.
Pakistan has to move out of its Ostrich Syndrome and outreach the west once again to invoke FDI from this part of the world who is still eager to support if we can manage to set our house in order. For this our government functionaries need to be proactive and move beyond the business as usual and passive approach. World Economic Forum ( WEF) being held each year at Davos Switzerland is one such venue where the investors, business and political leaders and decision makers from all over the globe meet each year building social and business relations in a cohesive businessmen fraternity.
Till 2007, Pakistan was an integral part of this global fraternity enjoying great credentials resulting in the FDI of over US $8 billion. After that only in 2009, Prime Minister Gilani showed up at Davos. In 2014 and again in 2015 the participation of Prime Minister Nawaz Sharif at WEF Davos was announced, but, both times cancelled at the last minute conveying a repetitive negative message to the global forum of investors. Even Pakistan's ambassador to Switzerland opted to stay out on both the occasions leaving Pakistan's Ambassador at WTO Geneva as the sole Pakistan's representative at a forum of such great business significance. We need to outreach the global business fraternity with a serious approach and reliable credentials.
The US is currently focused rightly to support investments more in the social, industry and energy sector of Pakistan. This has also been the traditional approach of the US. In the meantime the Defence Production sector of Pakistan has come up as a promising and well-structured sector demanding state of the art technology and investments. It is reported that indigenous defence production is now substituting imported defence equipment worth US $1.5 billion per year, which means the foreign exchange savings can be diverted to fund more of public sector projects. More of such savings and export of defence hardware will ease Government pressure to fund the defence needs of Pakistan. This trend, therefore, needs to be well-supported and encouraged.
It is reported that US has shown keen interest in India's defence hardware and software procurement by the state and also FDI in India's growing defence hardware production market. India allowed FDI participation in its defence production industry up to 26% in 2013, which was jacked up to 49% in 2014 and in the budget 2015 it is proposed to be jacked up to 100% FDI. Notwithstanding the fact that US is cautious to export defence hardware and technology and all of it is subject to government approvals but there could be many non-sensitive segments where FDI and technology from the US in our local defence production can be made possible.
Most of the investors who accompanied the US Secretary Commerce are Pakistani Americans who are interested to invest in Pakistan more out of patriotic consideration rather than pure business consideration or most probably a combination of both. But, so far the ground realities in Pakistan have failed to provide the basic level of comfort to match their enthusiasm.
The foreign remittances to Pakistan by overseas Pakistanis are hovering around US $15 billion, but, not much of it has been channelled into our real economy. The phenomenal economic growth in India and China and many other emerging markets, spread over a decade, is largely driven by their overseas nationals who opted to return back to their country with technology and funds and in turn flourished well in an enabling business environment provide by the state in their home country. This phenomenon has not commenced in Pakistan although the offshore Pakistani's are ready to invest but the state is not ready. Its about time Pakistan catch up with rising emerging markets and position itself as it truly merits. We only need to put our acts together.
(The writer is Chairman Avant Ventures and former President OICCI and ABB- Asea Brown Boverie)