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May 6, 2002
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Monday
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Safar 22, 1423
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Attracting foreign investment
Poison from tanneries
Tearing off a poster
Attracting foreign investment
WHILE addressing an international investors’ conference organized by the Pakistan Development Forum in Paris, Finance Minister Shaukat Aziz listed all the right reasons why foreign investors should now stop avoiding Pakistan and begin to invest in the country. Pakistan has already achieved a modicum of macroeconomic stability. Its budgetary deficit has gone down from an annual average of seven per cent to a little over five per cent. Its current account deficit has declined from an annual average of five per cent to a surplus of 2.8 per cent of GDP. Its foreign exchange reserves have shot up to over five billion dollars from historic lows of $500-$700 million. Its remittances have doubled to nearly two billion dollars from an annual average of a billion dollars. And the official rate of inflation has hovered around three to four per cent over the last couple of years.
Also, in the last two-and-a-half years, Pakistan has successfully restored its relations with the international financial institutions and acquired high credibility for its reform programmes. Countries which showed such macroeconomic stability and such IFI approval for their reform programmes have in the past received generous flows of foreign investment. Pakistan has also established an enabling environment for absorbing such an increased flow of foreign investment resources by introducing liberal trade, investment and privatization policies. This scenario presents foreign investors with near ideal conditions to exploit to the full Pakistan’s potential as a gateway to the Middle East and Central Asia and also use this country as a staging post to benefit from the opportunities being offered by the reconstruction activities in neighbouring Afghanistan. With so much going for it Pakistan, as the Finance Minister put it, can become a huge manufacturing hub for markets in South Asia, China, Central Asia, the Middle East and Africa.
Without disagreeing with any of the points made by the finance minister in his appeal to foreign investors, a case can also be made for doing far more to encourage and accelerate domestic investment activity. Nothing attracts foreign investors more than a surge in domestic investment activity, both public and private. If it is demonstrated comprehensively that there is a good margin of profit to be made in the local market, the element of risk takes second place in the calculation of foreign investors. Another factor to be kept in mind while trying to attract foreign investment is the host country’s political standing in the major capitals of the world.
Experience has shown that if you are viewed as a friend in these capitals, no matter how badly you manage your economy, you will get assured and generous flows of concessional assistance and even massive doses of foreign direct investment. If you are not a friend, then the fact that the country is r
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