If high interest rates have been holding up industrial investment in Pakistan, the alternate solution investors is to go to stock market to raise the requisite capital.
This is not being done by the present or prospective investors as they do not want the scrutiny of their operations by the stock exchanges, the Securities and Exchange Commission of Pakistan and the active shareholders at the annual general meetings.
And unlike in the West or even in India, the local investors want to hold 60-80 per cent of the capital and manage the company as they want, heedless of the objections of the minority shareholders.
We have a long history of such high rates as the profit rates in Pakistan are pretty high. When Moin Qureshi became caretaker prime minister in the 1990s, he raised the interest rate to 23 per cent and the banks made it up to 30 per cent. He thought he would be killing inflation through that means which he couldn’t.
Now the Minister for Industries and Special Initiatives, Jahangir Tareen says that inflation is holding up interest rates and as inflation comes down, as projected, the interest rate too will come down and the investment rate go up.
But the hope of low inflation and low interest rates (except for brief periods) is illusory. The more common is high inflation and high interest rates and low industrial investment which however reached 20 per cent of the GDP last year after a very long time.
The other solution for low industrial investment is lowering the cost of investment and reducing the cost of production and doing business. That is to be done in the Punjab by setting up state of the art industrial estates like Sunder near Lahore. All the facilities needed by modern industries are to be provided there.
The Sunder project would be completed by the end of this year, the says, with total estimated investment of Rs30-60 billion.
The Punjab government is also setting up modern industrial estate in Multan and Faisalabad. And new industrial estates are planned in Gujrat and Attock and work on the two projects will begin within a fortnight, he says.
Foreign investors like Pepsi, LG, and Hier are setting up their business in Sunder.
Earlier it was proposed to offer industrial zones to the Japanese and Chinese investors exclusively. That has not materialised. The minister is now talking of making the Chinese interested in one such exclusive zone where all the facilities of development will be provided.
The Karachi Stock Exchange 100-index has again crossed the 11500 barrier. That means more and more money going into the existing stocks as new stocks are not being listed and these are also going into the holdings of companies privatised or shares of public sector companies (like OGDC, PSO,PPL and National Bank of Pakistan) are sold to the public.
The stock exchanges and their affluent brokers are seeing far more business and not so much the economy. They are getting too rich and not the people as a whole.
They are not trading on new capital but on the old capital or on its bonus shares to the existing shareholders.
Enlightened elements in the stock exchange say the boom is a result of too much money chasing too few shares, including the heavily borrowed money through CSF. So, the share prices are going up and up until the bears manage to push down the KSE-index a little before it bounces back again.
The solution hence is for the entrepreneurs to come up with new flotations or the government should privatise more of the public sector units or sell more of their shares.
As far as the domestic investors are concerned, they are discouraged by the acute shortage of power and prolonged breakdown in power supply and other infrastructural exasperations.
The government has to come up with new incentives for investment and make them real quickly.
Sindh is far behind in respect of the new industrial parks, but there are more suggestions and propositions than positive and constructive moves. Karachi‘s industrial park at Port Qasim is far from real and the textile city is still a vision.
Quick action is needed in this area. And the agonizing power problem of Karachi has to be solved in a radical manner and not two years from now with an addition of 1000 MW of power.
Meanwhile, the textile industry is facing an acute crisis and exports have fallen alarmingly. The textile industrialists are upset after making very heavy investments. And the All Pakistan Textile Mills Association talks of a million spindles closing down by the end of the year. It is an alarming prospect.
Urgent rescue measures for the textile industry are imperative so that the textile industry can compete with its rivals from India, China and Bangladesh. The fiscal and financial incentives announced earlier are not enough. Far more is needed on an urgent basis. And that is something far more than what the Export Promotion Bureau can do even after it is reorganised.
Until the established industry is helped out of its distress, new investors may be reluctant to come up and make large new industrial investments.
There are so many opportunities to make quick money in Pakistan now instead of going through the long haul of making industrial investment and waiting for results.
Real estate is exceedingly profitable. Domestic trade is very profitable with its high interest rates, Stock exchanges are profitable for the smart and the insiders.
The banks are making large profits up to 100 per cent a year through glitzy consumer baking-auto loans, home loans, luxury shopping, so the banks are not interested in long- term lending for industrial investment and slow recovery.
But the State Bank of Pakistan is reported to be working on a package to help the industrial investors get loans at low interest. Discouraging the banks now is a tragic end of the Industrial Development Bank with bad loans of RS27.5 billion due more to mismanagement and malpractices.
Earlier it was the non-performing loans of Rs250 billion which deterred the banks from long-term loans for large investment.
In spite of that, the industrial investment in the last financial year rose to 20 per cent from a stable 17 per cent and this upward movement should be maintained until it reaches 25 per cent.
The foreign direct investment (FDI) is increasing rapidly and exceeded $3 billion last year. And in the first quarter of this financial year- July-September, the FDI touched $1.1 billion, thanks to privatisation payments.
The home remittances are also rising steadily and have crossed on annual basis $5 billion from under $1 billion before 9/11 and in the first quarter of this financial year, there was an increase of 23 per cent in the remittances over the payments received in the same quarter last year.
Such payments have to be prudently used for productive purposes rather than for speculative business. Without the proper use of such resources, the massive unemployment problem cannot be solved, nor the rise in crime rate reduced. Without such an all-round improvement, there cannot be political stability, economic progress and social justice.
Issuing public appeals to the businessmen to make industrial investment will not yield positive results. Possible investors have to be contacted by relevant officials and their investment problems solved before they put their money in any industry.
The one-to-one contact should not be for foreign investors alone, but also with the domestic investors who need assurance and assistance in a difficult area.
