THE man on the street in Karachi appears to be better fed and dressed than his counterpart not just in the all-literate Colombo and forward-looking Dhaka, but also in the powerhouse of the region — New Delhi. Yet, Pakistan’s gross fixed capital formation is the lowest among all other South Asian countries. How is that possible?

According to World Bank data, Pakistan’s gross capital formation as a percentage of GDP was 15pc in 2012, against 27pc in Bangladesh, 56pc in Bhutan, 49pc in China, 35pc in India, 35pc in Nepal and 30pc in Sri Lanka. The latest Pakistan Economic Survey cites absolute numbers and the percentage change over the last year is expressed at current market prices, and in some cases at 2005-6 constant prices.

The gross fixed capital formation (GCF) at the current market price is reported in a table in the Statistical Appendix to be provisionally at Rs3,147,235m in 2013-14 — up 7.9pc from the previous year. However, at constant price, the increment in the GCF rate scales down to 0.5pc.The percentage of GCF to GDP is not provided in the survey.

Gross capital formation, earlier reported under gross domestic investment, consists of outlays on additions to fixed assets of the economy, plus net changes in the level of inventories.

“The government is mindful of the situation and is targeting higher investment in private and public sectors to attain a comparable gross capital formation rate in the region,” says Dr Miftah Ismail, chairman of the Board of Investment

Here, fixed assets include land improvements (fences, ditches, drains etc); plant, machinery and equipment purchases; and the construction of roads, railways, schools, offices, hospitals, private residential houses, commercial and industrial buildings etc. Inventories are stocks of goods held by firms to meet temporary or unexpected fluctuations in production or sales, and ‘works in progress’. According to the 1993 System of National Accounts (SNA), net acquisition of valuables is also considered capital formation.

Dr Miftah Ismail, chairman of the Board of Investment (BOI), said the government is mindful of the situation and is targeting higher investment in private and public sectors to attain comparable GCF rate in the region. “We are a lot more naturally resourceful than others in the region. The right set of policy and action can work wonders, and the distance on the growth path can be covered faster than expected.

“The government is striving hard to improve the ease of doing business for the private sector and to fully utilise development funds under the PSDP and the four Annual Development Plans. God willing, we are hoping for a qualitative change on the investment front as the power crisis eases in the second half of the current fiscal,” Miftah said over phone while talking to Dawn.

Defending the government, he hinged growth in investment to improvement in economic vitals, besides the law and order situation. “Investment is a function of savings. We can invest only if we save. The current 12-13pc savings rate in the country is too low to acquire the required investment rate. We intend to improve the savings rate through a combination of measures, including higher real interest rates, which were negative for a very long time. We did succeed in attaining some measure of stability in the currency market. It will help restore confidence of people in the value of the rupee,” he argued.

However, his reasoning to explain the contrast between comparative living standards in better performing economies of South Asia and Pakistan was not convincing. He attributed the situation to higher pace of growth in Pakistan till the 1980s.

Dr Hafiz Pasha, a former finance minister, felt that data for gross fixed capital formation does not capture the reality, which might not be as depressing. “The rate of investment needs to be higher, but the situation is evidently not nearly as bad as projected when compared with Bangladesh, Sri Lanka or India. The data set understates the quantum of fixed assets and also the annual increment in Pakistan.

“The quality of data provided by the archaic Pakistan Bureau of Statistics leaves much to be desired. The level of documentation of the economy is low, and a huge informal economy is supporting a big chunk of the population,” he explained.

Dr Pasha argued that in the current situation, public sector development expenditure will crowd in private investment. “The private sector is shy. If the government slashes even whatever it set asides in the name of development spending, what do you expect,” he asked, while hinting at the 25pc cut in PSDP in 2013-14.

“I see no surprise here,” said a leading businessman, while venting frustration over long hours of power outages and hike in gas price. “Pakistani businessmen deserve medals of bravery and patriotism for investing in the most dangerous country with outdated infrastructure, inconsistent policy framework and hostile attitude of the public and the government towards investors.

“We are here by choice, despite threats to our life, honour and assets,” he added, hinting at the option of settling outside Pakistan on the strength of wealth.

Published in Dawn, Economic & Business, July 14th, 2014