July 03, 2006	Monday	Jumadi-ul-Sani 6, 1427

IT cannot be denied that the level of foreign direct investment (FDI) has increased from some $300-400 million some six years ago to over $3 billion in the last ten months of fiscal 2005-06. But this amount also includes about half of the privatization money coming mainly from the sale of the Pakistan Telecommunication Company (PTCL) and the KESC.

Within the government, there is a growing consensus that Pakistan can attract up to $20 billion foreign investment per annum over next few years, provided some of the impediments are removed. Security and protection of foreign investment is a source of concern among investors and the element of consistency in policy is missing.

The government has so far failed to assure investors that there will be no change in policy in case the opposition parties come into power in future. On privatisation, the opposition parties have been saying that once in power, they would reverse the process and cancel numerous deals struck by the present government.

Saner elements are said to have proposed to the president and the prime minister to strive for a consensus on some important national and international issues by inviting the opposition parties for a dialogue. The president is on record having said many times that his government would offer constitutional guarantees to protect foreign investment, but it did not have the desired impact.

Whenever one confronts the government officials about the low pace of FDI, they compare Pakistan with India by saying that out of about $13-14 billion annual foreign investment in India, more than $10 billion is a portfolio investment. But many wonder why the government officials do not give the example of China which is attracting $40-45 billion FDI annually.

Interestingly, all the successive governments had been following the polices of privatization, deregulation and liberalisation for the last many years. But FDI remained a weak area.

Beside the issue of consistency, there are some other issues which had not been addressed adequately by the present government to promote foreign investment. In the absence of a well-thought-out policy of establishing industrial zones and industrial estates, the government could not ensure infrastructure facilities at competitive costs for foreign investors like many other countries of the region.

One of the major issues is the electricity and both Wapda and KESC have failed to resolve it. There are not many industrial zones and industrial estates, baring a few including that of Sundar where the power utilities offer this facility of electricity to an investor without charging them a lot of money. If some one plans to set up a factory or an industry in an area where there is no industrial estate or industrial zone, he is asked to pay the total cost of installing a transformer and arranging other things failing which, Wapda or KESC would not provide them the electricity.

Gone are the days when the government officials paid lip service for providing infrastructure facilities like water, gas, electricity land etc., through a so-called one window operation. The officials of the Board of Investment (BoI) admit that the idea of one window operation is not feasible and that people should stop talking about it.

Former chairman of the BoI Waseem Haqqie used to say that he was sick of convincing various relevant government departments to help provide instant infrastructure facilities to the foreign investors. “We can perhaps only try but this is not the way to attract foreign investment”, concedes an official of the BoI.

It is also admitted in the economic ministries/BOI that even the overseas Pakistanis, keen to invest, are often given tough time with the result they go back frustrated. About 70 per cent Pakistani businessmen prefer to do businesses in the United States, Canada, Europe and the Middle east particularly the UAE. And this is due to insufficient infrastructure facilities, lack of consistency in policies and the hounding by the National Accountability Bureau (NAB).

Privately, some of the concerned officials also call for reducing the corporate tax rate to attract investment. The government has reduced across the board corporate tax for public companies, private limited companies and the banking companies to 35 per cent in the budget for 2006-07.

“But for private limited companies, the corporate rate tax should have been reduced to 30 if not 25 per cent to attract foreign investment”, a concerned official said. He regretted that the proposal of the BoI was not accepted by the government to have 30 per cent across the board corporate tax rate for all the three types of companies.

“We had also proposed that tax holiday should be considered for under-developed areas and priority sectors”, he said.

Similarly, he said that tax cut up to 20 per cent should have been provided in the budget for 2006-07 in the first five years of commercial production to all those industrial undertakings set up by the overseas Pakistanis.

President Geneneral Pervez Musharraf has presided over many important meetings to promote foreign investment. He is still the patron-in-chief of the BoI. But when it comes to offering any instant infrastructure facility to any investor, he too is perhaps helpless - thanks to powerful organizations like income tax, labour department, EOBI etc., which look at things from their own agenda.

State Minister for Investment Omar Ghumman, a foreign qualified MNA is said to have prevailed on some departments to get infrastructure facilities for a couple of foreign investors recently. But this is not the way to deal with the issue.

The government will have take up this problem seriously if a meaningful flow of direct foreign investment in new industries is to be ensured.