June 12, 2006	Monday	Jumadi-ul-Awwal 15, 1427

TOTAL investment in the country rose to a record 20 per cent of the GDP in the current year from the 18.1 percent last year, breaking a bad log jam of low investment for years.

The investment has been at the 16-17 per cent of the GDP level for too long, beginning with 17.2 per cent in 2000.

The main reason for the low investment has been the low national savings, beginning with poor domestic savings which have been declining since 2001-2002 when they were 18.1 per cent of the GDP.

As a result, the large scale manufacturing has a share of only 12.7 per cent in the GDP now with the small scale industry have a tiny share of 4.3 per cent. And embarrassingly for a poor developing country, the service sector has a share of 52.3 per cent in the GDP. And the share of agriculture in a largely agricultural country has shrunk to 21.6 from 25 per cent within a few years, in spite of the investment made in that sector.

So, the large scale industry recorded a growth of only nine per cent in the current year after a growth of 15.6 last year and 18.1 per cent, the year before, which is too disturbing, and the small scale sector recorded a growth of 9.3 per cent.

The biggest sector of large scale industry is the textiles. After $5 billion investment in recent years and its demands $5 billion more of investment for further expansion, the performance of the large scale industry should not be so unimpressive.

However, a new textile policy is under preparation and what miracles it would produce remains to be seen. Along with that a new cotton vision is being formulated and the two will go in tandem promising great results.

What is remarkable about the record 20 per cent investment is that it has happened in spite of the poor national and domestic savings, which have been falling despite of the high incomes.

The national savings this year is 16.4 per cent of the GDP, while it was 16.5 last year. Since 2000 – 2001, it has been 16.5, 18.6, 20.8, 17.9, 16.5 and 16.4 per cent. And the domestic savings since 2000-2001 has been 17.8, 18.1, 17.6, 15.7, 14.5 and 14.4 per cent.

The domestic savings have been following the same trend since 2001-02 despite the improvement in per capita income which has now reached $847 from $503 in 2001-02. Evidently, much of the apparent prosperity in the country is a result of bank borrowing through consumer credit or the outcome of speculation in the real estate or the stock exchange.

Evidently, the gap between the investment and the national savings has been filled by foreign debt, foreign investment or foreign savings like the home remittances of Pakistanis overseas.

Pakistan has even otherwise the lowest savings rate in the region and among many developing countries and it ought to improve it quick to lend real monetary muscles to its economic growth.

Some of the money which went into investment are the privatisation funds, but the foreign funds are not direct foreign investment as they have only replaced the Pakistani investment. Only the funds invested including the locally raised, for new projects, can be called real investment. So there is some overlapping here which must be separated for statistical purposes.

We need far larger savings to cushion well the investment, otherwise some of the money can be pulled out easily and some of the enterprises left dangling.

Already, we have a few cases of Pakistanis bidding for the privatisation projects and not paying up when the time comes. So, evidently our bidders are not resourceful enough or they are bidding for more than they can afford.

There are many reasons why national and domestic savings are low in Pakistan. High and sustained inflation, far exceeding the official figures erode the savings. The poor return on savings deters the savings.

The small facilities for savings in Pakistan handicap the savers. Dishonest practices in the national savings organisation discourage the savers. So they opt for subscribing to phoney schemes and get cheated in the process. If there can be a massive scandal in the city court post office resulting in loss of crores of rupees, despite the fact the post office received the savings of the lawyers, the kind of cheating in other post offices is easily understandable.

Muslims societies are supposed to be high living and high spending societies. And local cheats promise large rewards and dupe widows and other gullible persons so the government has to make special efforts to protect the savers from spurious schemes. And insure the deposits as well.

Banks usually give low returns on loans, while charging high interest on loans and that discourages the savers. And the stock exchange has proved to be too risky a place for the small investors. Hence they have to rely on mutual funds which carry their own risks.

The government has done well to increase the deposit rates of the national savings organisations and the interest on prize bonds. But it is making no effort to make the banks enhance their deposit rates.

The government is to come up with a cotton vision 2015 next month to raise the output of cotton to 20 billion bales by the year 2015. The target has a span of ten years to achieve. It is also coming up with a new textile policy with value addition as its key objective. Officials say the textile exports alone have the potential to reach $24 billion in an international trade volume of $300 billion.

The poor performance of the large scale industry particularly textiles demand a totally new approach to the industry and make the textile industry realise its full potential along with the revitalisation of the cotton sector.