Talking about foreign investment the other day, Haroon Sharif, Chairman of the Board of Investment (BoI), stated that the biggest hurdle for the country for investment is the weak capacity of the state to deal with private sector investors and find a way to deliver on their needs. The lead route to attract investments is through construction of the Special Economic Zones (SEZs) and “we are welcoming investments from multiple countries for these zones” which are being developed by the provinces. BoI is “keen to get them up and running as soon as possible” but the major impediment is uninterrupted supply of utilities, mainly power, gas and water. There is currently not enough power to cater to large investment envisioned for these zones and the possibility of using captive power for the zones is something that BOI is proposing. Out of four SEZs being built under the CPEC, one in Faisalabad is nearly complete while that in Rashakai, KP, is in the final stage of getting approval for go-ahead. They have received 952 applications but it is difficult to say how many of them are looking for investment and how many are just real estate investors. Provincial governments are looking for partners interested on BOT basis but the concern is that if Chinese partners go for BOT alone, they could close the zones for other companies. So far as the Saudi refinery in Gwadar is concerned, the Chairman BOI is still trying to finalise an MoU and the feasibility has not begun as yet. The Saudis are looking at this as an investment but there is a strategic interest as well. Foreign investors have shown solid interest in Pakistan but it is up to the government to facilitate them and close the transactions.
The observations of Chairman of the BoI may be partly valid but certainly show a very dismal state of affairs at the government level insofar as foreign investment is concerned. One fails to understand that the government and the BoI, which is the main arm of the government to facilitate foreign investment, have failed to do their job when foreign investment is direly needed in the country due to low level of domestic savings. Haroon Sharif has clearly told that the state lacks the experience to structure transactions and it is primarily due to this reason that international commitments made by the government came under frequent suspicion. On captive power plants in the SEZs, he says that it puts the government in a bit of ‘chicken and the egg’ problem and investors would be reluctant to set up plants if a clear supply of reliable power is not available. Provincial governments are short of resources to build SEZs. Saudi refinery project had its beginning in the trip to Saudi Arabia taken by the Prime Minister and the Saudis may also be looking at it from a strategic point of view. At the same time, the Chinese may close the SEZs to non-Chinese companies if these are built on BOT basis from their resources. This will of course be a big drag on investment from other countries in Pakistan. One fails to understand why such issues were not considered seriously and resolved earlier as it is needless to argue that the country cannot develop without adequate foreign inflows of investment.
Haroon Sharif has also underlined the need to build the capacity of state institutions and put technical expertise on the table to accelerate foreign investment. It is a fact that foreign investment had reached over dollar 5 billion only a few years ago and is now hovering around dollar 1-2 billion per annum. Does this mean that the capacity of state institutions has declined over the years to attract foreign investment? This is probably not the case and the government authorities need to look at other reasons for the woeful decline in foreign investment which may be due to lack of reliable infrastructure, poor security situation in the country, corruption at various levels of government, confrontation at the borders, lack of trained man-power and political instability. Besides, the authorities seem to be mainly concentrating on the establishment of SEZs without thinking that countries without SEZs have also attracted a lot of foreign investment due to other favourable factors. In our view, the BoI and other relevant authorities need to work much harder keeping in view the realities on the ground and simplify the investment procedures as soon as possible to do the needful. Foreign investors would not like to invest in a country where they are continuously harassed by petty officials and asked to fulfil a lot of requirements which are, arguably, very hard to meet.
(This news/article originally appeared in Business Recorder on December 6th, 2018)