BR Research: In your first meeting with BR Research as Chairman BOI, you had identified restructuring of the organisation as the top priority. What progress can be reported on that front since our meeting in 2013?
Miftah Ismail: We have re-constituted the board of directors after all our recommendations to the Prime Minister of Pakistan were accepted. The board currently comprises of ten representatives of the government alongside seven members from the private sector. The private sector representatives are all seasoned professionals who are intimately aware of the opportunities and challenges that businesses face in the country. Our members include prominent academicians and we are also working on enhancing our linkages with academia.
The internal restructuring is ongoing. USAID had offered to share some of their resources with us however we have declined that offer as there is a significant difference between the pay scales and work culture which creates imbalances. We are also in the process of augmenting our teams, specifically to work on Special Economic Zones (SEZ).
BRR: What key performance indicators do you use to monitor the progress and achievements of BOI?
MI: We have adopted the global ranking of ease of doing business as KPI for the organisation and we aim to improve the country's standing by ten positions each year in that global comparison. To be honest, BOI is not entirely in control of this metric but we are trying to work with legislators, tax authorities, provincial and local governments as well as other relevant stakeholders to improve business and investment climate in the country.
Domestic institutions are often quite skeptical about global rankings and international observers. So one of the key challenges is to familiarise our own institutions, public and private, about the significance and working of such metrics. In time we hope that the rising awareness will lead to simplified processes and expedited government services.
For example, the Burmese government recently issued a gas purchase contract. The entire document spans just a single page, yet covers all crucial requirements and considerations. By comparison a similar deal in Pakistan requires permissions from Ogra, Nepra and a host of other regulators and watchdogs which impedes speedy investment in the country.
Finance Minister Ishaq Dar constituted a committee of various business and economic chambers to suggest reforms to improve ease of doing business. BOI is in contact with various provincial authorities to encourage relevant reforms.
BRR: PPRA rules are often criticised as archaic, ineffective and cumbersome. What role can BOI play to improve these?
MI: PPRA rules while not ideal, are also not as bad as they are often presented to be. However, the general level of awareness regarding PPRA is low and that is partly to blame for their ill perception. Having said that, PPRA has not been effective in curbing corruption and misappropriation. We are reviewing the rules in this light and will present our findings and recommendations soon.
BRR: How are you mobilising domestic investment?
MI: Domestic investment comprises 95 percent of total investment in the country so its importance cannot be overemphasised. Our government is constantly in touch with domestic businesses and investors. There are more new listings on the stock market taking place at present than there have been for years. Business confidence has also registered marked improvements in recent times. We are quite aware that capital formation is a challenge and we are working to achieve macroeconomic stability and prosperity which will in turn lead to more investment.
BRR: A home-grown draft for Bilateral Investment Treaty is still elusive. When will BOI complete its draft?
MI: We do not see benefit in signing bilateral investment treaties with any new country at present. We have developed our own draft but before we implement that draft with more countries we will implement it with 10-12 of the 48 countries that we have existing BITs with.
We are not interested in going down a path where companies sue countries. The liberal jurisprudence prevalent under BITs is dependent on the same lawyers that have been representing companies for much of their careers.
There is an inherent bias towards companies and there is also no other legal recourse after going into arbitration through these mechanisms. Signing of BITs presents great opportunities for officials to travel abroad and have their photographs published in newspapers but there is little benefit to national interest.
BRR: The US government has expressed inability to offer FTA but have been pushing for a BIT. Given your comments, should we assume that the two countries will not be signing agreements on trade or investments?
MI: The draft BIT shared by US authorities is basically a portion from the standard FTA that they implement with trading partners. When I inquired about the possibility of using this agreement as a pathway to FTA, I received a negative response. Since this is not going to lead us to FTA with United States, we see no significant benefit to our country in such a deal.
If a large investor approaches with interest in investing in the country, we can accommodate their demands including any consideration for arbitration. But we cannot apply blanket terms that allow all and sundry to sue the state without regard for national interest.
BRR: Renault and Volkswagen have both expressed interest in entering the domestic auto market. What is the government willing to offer them to facilitate their entry to this market?
MI: We will create space for new entrants. There is a misperception that I am favouring German auto makers. We want new entrants in the market, be they German, Korean, Italian, French or Japanese. At present, there are many segments within which there is only one model each so effectively the existing auto companies are not competing with each other. We would prefer car prices to come down on account of competition instead of changes in duty structures.
BRR: What are the specific policy recommendations that new entrants in auto sector desire?
MI: They have asked for provisions for semi-knocked down (SKD) and medium-knocked down (MKD) units. We are in consultation with Ministry of Industries and other relevant stakeholders to create a level playing field for all players in that market.
BRR: The Chinese investments pledge is gargantuan compared to historical FDI inflows. How realistic are these plans?
MI: Total foreign direct investment into the country over the past 60 years stands below $30 billion. Compared to that, $51 billion investment within next 8-10 years is indeed a hefty tally but I am quite optimistic considering that majority of these pledges are in buoyant sectors like power generation, road and infrastructure projects.
Our economy is large enough to absorb such sums and China is also quite willing and capable of investing these funds here and it is also in Chinese interest to generate demand in the region. Chinese are very efficient and I believe there will be positive spill over of that within our own industries as well. In my opinion, project initiation is more important than completion as jobs will be generated as soon as work commences.
BRR: What proportion of jobs created through this investment can we expect to go to Pakistanis?
MI: In my view the majority of jobs will go to Pakistanis. And whatever experts they bring in from their own country will also have a positive impact on our economy in terms of skill transfer and raising levels of efficiency and productivity.
BRR: What update can you provide on investments in energy projects?
MI: About $33 billion have been pledged for energy projects by the Chinese government. This includes two coal based power plants at Port Qasim Authority, of 610 MW each. Then Sindh Engro Coal Mining Company is working on a project at Gwadar Port with a Chinese partner.
Then there is a transmission line project spanning Mathiari to Lahore. Coal conversion of Jamshoro power plant is in the works, as is the Muzzafargarh plant. China is investing in a 700MW hydro project in Karod, and in a 1320MW plant in Sahiwal. Quaid-e-Azam Solar Park has already started generating some electricity and will go up to 1000MW.
The coal power plants may not be up and running within the tenure of this government. The Gadani Power project has been abandoned. So there are many different projects all over the country that the Chinese and some other investors are working on and within a few years many of these will be online.
BRR: What is the status of Iran-Pakistan gas pipeline?
MI: We are building the pipeline from Gwadar to Nawabshah. Gwadar to Iran is another 80 kilometers and we can connect this patch whenever international sanctions against Iran are lifted.
BRR: Green Line Bus Service was announced for Karachi in Federal Budget 2015-16 but there were no details in terms of cost and expected completion. Can you enlighten us on these?
MI: The project will cost about Rs 16 billion. Sualeh Farooqui, Chairman of EOBI is the in-charge of the project on behalf of the Federal Government. The funding has already been approved by ECNEC. Assuming that we receive right of way and other necessary clearances from Sindh Government in a timely manner, we have strong resolve to complete the project by December 2016.
Keep in mind that the route; Surjani Town to Aram Bagh, runs through an extremely congested part of the city and so it will require a lot of efforts and co-ordination by local authorities in terms of diverting traffic, managing logistics, etc.
BRR: Confidence surveys are improving and pledges are rising. But when will foreign investment flows pick up?
MI: In my view, investment is not being held back due to law and order issues; it is choked because of the energy crisis. Especially when it comes to domestic investment or flows from Pakistani expatriates, it is not an issue. Fundamentally, we need to provide adequate electricity and gas continuously and at affordable rates.
We need injection molding machines at every corner; we need welding shops; electrode manufacturers; blow molding and scores of other small industries all over the cities and towns of the country. The large industries can all afford generators and captive power. But the real growth impetus can only come from vibrant small and medium enterprises in the country and those need energy.
The other imperative is consistency of policy and continuity of government. If not us, then any of the other political leadership needs to be put in government for 10 years. Look at Malaysia, Turkey, Sri Lanka; all these countries have witnessed exponential growth thanks to this continuity. If you have consistent policies for a decade, the country's fate will change miraculously.