May 12, 2003	Monday	Rabi-ul-Awwal 9, 1424

Is the country ready to invite, receive and reward venture capital which is described as “high risk business” by finance minister Shaukat Aziz.

It is, indeed, a high risk business in a country in which most of the investment in the last quarter of the last century was done through excessive bank borrowing. And only a part of that borrowed money was invested, while the rest was siphoned off, resulting in non-performing loans of Rs250 billion.

In its place the investors are to put in their own money along with that of their associates and the general public as the TMT-PKIC Incubation Fund is doing now, that is indeed a very welcome step.

Shaukat Aziz says that a healthy economic climate has been created in the country which allows such venture capital investment. Of course, he takes the credit for that but without actually using those words.

A part of the capital may come in the form of bank loans either for the venture or for the investors themselves. And the low interest rate which is a recent phenomenon helps them a good deal.

And the income from venture capital is to be exempted from income tax for ten years instead of eight years, says Abdur Rahman Qureshi, chairman of the Securities and Exchange Commission, who made the key note speech at the launching of the TMT-PKIC Incubation Fund.

The TMT’s Fund is modest and cautious beginning, although the association of the Pak-Kuwait Investment Company is very encouraging. But we need far more of such capital ventures. If enough of domestic capital or foreign investment is not coming forth, let more of venture capital come in to increase production and employment.

Shaukat Aziz called on venture capitalists to come up with their investment while he visited Gwadar for which he has great hope. He has also declared it as Special Economic Zone.

President Musharraf insists that Pakistan’s economy is at the take-off stage in which case the venture capital can play a significant part. He also wants the revival of Gadoon Amazai. In fact, those who had invested in Gadoon thought they were taking great risk as they could not believe that the vastly reduced electricity and other utility charges and taxes were great concessions. Ultimately only a few of the many factories are now working there. If Gadoon is revived, will that be on new conditions or on the basis of old conditions which were described in private as a “rip-off” by prime minister Benazir Bhutto?

Investors of risk capital need fairly good law and order situation. They are no longer operating in the old Wild West.Where the people are killed, kidnapped or fear they would shut shop and run or where policemen are among the worst culprits and they seldom get punished, the venture capitalists do not feel reassured to venture into investment.

They may have their own guards, but they can’t face the local warlords or tribal chiefs with their civil armies. Look at the manner the gas pipe line was blown up in Dera Bugti and later at Bahawalpur. When it comes to extortion or extraction of money from companies in rural or tribal regions the small warlords follow the big landlords in their respective areas.

It is not all major foreign oil companies which are looking for oil or gas in Pakistan’s countryside. That is a real risk capital areas, but most of them have been rewarded with small oil finds or they meet with gas instead of oil they look for, and are rather relieved.

If funds are to come in a big way as venture capital the income tax people have also to ask them few questions regarding the source of their funds.It may not be the official policy to grill the venture capitalists regarding the source of their funds but individual taxation officers may bully them to extract money. And that common abuse has to be checked. What is far more important for us now is the money is invested, production increase and employment rises.

Venture capital investment and the quest for profit in all kinds of businesses in the country do not go together. The retailers’ approach to high rate of profits prevails among most businessmen in Pakistan. Hence the economy had not grown as fast as it should. If exports have to expand and sales within the country increase, particularly after the sales tax of 15 per cent, which makes goods and services more costly, the businessmen have to reduce their profits.

Plenty of money is available in the country and at low rates of interest. Banks have more money than they can cope with under the existing safeguards.

We have foreign exchange reserve of $10.3 billion and plenty of rupee funds with banks. And the rupee is steady. In fact, it has become stronger by 10 per cent since 1991. The question is how the leaders of the economy manage them and produce the best results.

While they have managed the finances reasonably well, the issues are investment, job creation and accelerating economic growth in a country with almost 3 per cent population growth. The country is likely to face grave challenges after 2004 when the textile quota system expires and there is a free for all in the textile trade.—S.A