April 3, 2006	Monday	Rabi-ul-Awwal 4, 1427

CAN foreign investor’s initial problems be solved quick if President Musharraf presides over all foreign investment conferences? The President announced he would preside over investment conferences in future to resolve the problems faced by foreign investors are resolved then and there.

By now, the government is so much focused on foreign investment that hardly any mention is made of domestic investment. Even the banks are not interested in long-term industrial investment and prefer consumer lending including personal loans with high interest rates.

The short-term personal loans for varied consumer needs or pleasures are at their peak and the banks are making very hefty profits, even 100 per cent over the preceding year as the National Bank of Pakistan has done.

Many good companies are declaring big dividends, with plenty of bonus shares. They can easily raise large share capital from the public through the stock exchanges or through term finance certificates, particularly oil and gas companies, banks, cement manufacturers and fertilizer companies.

The President has made the announcement that he would preside over all future foreign investment conferences while inaugurating expo 2006 after the reports that $40—50 billion of foreign investment could not be materialize recently because of an excess of red tape. He hopes to cut through the red tape.

He is also following the Singapore model which became famous under Lee Kwan Yu as Prime Minister that any investor can approach the Prime Minister’s office with an investment proposal which, if found feasible, would be accepted and assistance would be extend for its implementation.

In the past, Pakistan’s prime ministers including Benazir Bhutto visited the PM’s office in Singapore to get to know how the system worked and came back duly impressed, more so the officials in charge of investment promotion in Pakistan.

But Singapore is a unitary state, while Pakistan is a federal state with provincial governments and now assertive district governments. And land for industries is largely under the control of the provincial government. And the usual complain is the low level bureaucracy does not go whole hog with the foreign investors who want to move fast.

Industrialists complain there are about 40 federal, provincial and local taxes on industry which hampers industrial growth.

In the past, successive governments had promised a one-window operation for industrial investment particularly foreign investment but they had not been successful in achieving that. They still have to deal with many government departments at various levels.

But once the President takes the direct personal interest in foreign investment and seeks to expedite that, a great deal of the cobwebs and excess of red tape may be cut down. But his vigilance or the vigilance of the officials assigned to expedite the investment has to be constant.

The foreign investors are now free to invest on any enterprise and most of the old restrictions are gone in favour of level playing field when compared with the local investors. Having given such total freedom, we should be able to encourage more investment.

But the President’s announcement does not say he intends to deal with individual investors but instead will preside over investment conferences within the country. Such conferences are meant for policy formulation and formal announcements and not to deal with investor proposals on case by case basis as Lee Kuan Yu did in Singapore.

So where does the individual investor go after the conference? They meet him one by one with their proposals and seek acceptance of their investment. He has do some further thinking in this regard and be more clear about how he intends to go about it. May be, he takes the bureau of investment under his wing.

He is also showing keen interest in foreign trade and exports in particular. He has been saying exports this year will be $18 billion instead of the target of $17 billion, as Commerce Minister Humayun Akhtar has been repeating.

His forecast for exports next year is $20 billion. Evidently he wants to be a visible active participant in the economic growth of the country instead of leaving that to Prime Minister Shaukat Aziz and his advisors.

Foreign investment has picked up because of large and growing corporate profits. Most of these are repatriated by investors to their homeland without any check. No capital outflow restrictions exist. Uni-lever is in the lead among such companies along with Wyeth of the US.

Will this policy be sustained for long without straining the foreign exchange reserves of the country. Most of the foreign oil marketing companies repatriate their profits in foreign exchange- at least it is true for the oil and gas sector. But their output replaces the oil we have to import and that is indeed helpful.

But when they come into the consumer sector and make several hundred percent profits and repatriate the amount in foreign exchange that does make a difference.

President Pervez Musharraf has to think about the foreign exchange policy and the pharmaceutical sector more clearly and formulate better proposals. He should also promote domestic investment. In fact many foreign investors complain they do not get suitable local partners.

May be, the government thinks large profits the companies are making and the hefty dividends they are declaring will encourage the domestic investors to invest more? The fact is that the investment of 17 per cent of GDP is very low for a developing country and everything has to be done to promote larger investment including domestic investment.

We need an industrial community to invest more and make the industries diversified and increase their value added content. The CBR chairman Mr Abdullah Yousaf says that the corporate tax in the new budget will be 35 per cent and that will be continued. But the industrialists have been clamouring for a more liberal rate of 25—30 per cent. The CBR chief has announced there will be no new tax on stock exchange earnings save the recently introduced nominal capital value tax.

There will be a great deal more economic activity, when Pakistan becomes an energy corridor with gas pipelines from Iran to India, from Turkmenistan to India and a gas line from Qatar passing through Pakistan. Mr Shaukat Aziz has been talking of logistic and supply chains to make trade more efficient.

The Nepra has announced a thirty-year tariff regime for the independent power producers to increase the output of power in Pakistan. The Sindh chief minister has announced his government will do everything possible to help the domestic and foreign investors. He gives due importance to domestic investor.

He is earmarking land for industries including 1200 acres for Mercedes Daimler, and land has been reserved for industries in Nooriabad Industrial Estate and Kotri Industrial Estate.

The land allotment procedure is to be simplified. The land will be sold to industries 25 per cent cheaper that commercial rates but work must start within six months, otherwise the allotment will be cancelled. The chief minister has been talking of a textile city in Sindh close to Karachi. And the minister of state for investment Umar Gumman says foreign investors are keen to invest Rs12 billion in Sindh. He has not given us the break up but it is up to Dr Arbab Ghulam Rahim to make that a reality.