THE government’s meek efforts to spur investment have virtually fallen flat with reluctant investors deferring their plans for capital spending for better times.
A few enterprising businessmen, seeking better options, are reported to have moved their surplus funds to fast growing Asian economies.
Even the surging consumer demand in the local market has failed to motivate the country’s private sector to commit its resources to fixed investment. Anecdotal evidence of new investment are stated to be very few. One reason for this could be excess installed industrial capacity that remains unutilised.
“The total investment declined from 22 per cent of GDP in 2006-07 to 13 per cent in 2011-12,” says the last Pakistan Economic Survey.
The current data cited by leaders in Islamabad indicates no improvement in investment graph over fiscal year ending next month.
Reports leaked by the private sector indicate that certain big business groups are shifting their capital to high growth economies of Asia, such as Vietnam, Indonesia and even Bangladesh, in search of stable returns and better business environment. Some tycoons in Punjab are said to be looking also at India with interest as a possible destination for their next big project.
Taking a cue from businessmen and responding to advice of caution from their respective governments, foreign investors have removed Pakistan from their investment map. Currently foreign direct investment (FDI) has depleted, some believe, to its historical lowest.
“As long as domestic investor are shy, I do not see much scope for the foreign investment. The global investor views Pakistan as a high risk zone. His hesitation is understandable,” said an analyst working in the research department of a foreign bank.
This is despite the stellar performance of many listed public companies recording a high 25 per cent rate of return in Pakistan. With Lever Brothers and P&G, the consumer item retailers at the fore front, the list of foreign firms doing well is long and diversified. Remittances by multinationals to their parent firms are reported to have jumped to over $900 million in ten months of the current fiscal from some $650 million during the same period last year.
A recent survey by a business forum confirmed that foreign companies operating in Pakistan do not want to leave because of exceptionally good returns and the promise that an expanding consumer base holds. However, they are not too keen to immediately expand their manufacturing capacities because of uncertainties.
Commenting on low investment rate, the author of the economic growth strategy launched last year, Nadeem ul Haq, Deputy Chairman Planning Commission of Pakistan, expressed his frustration over the lack of understanding amongst stakeholders in identifying real hurdles to investment.
“It is absolutely necessary to create the right environment to attract potential investors ready to compete and win on the strength of technology and innovation,” he said.
“To this end we need to improve the quality of governance and reduce unnecessary government interference in the market. We will have to open up space for entry of new investors and make cities drivers of growth,” he explained.
“No one can do this with a wink or a wand. It would take time. The ownership for the policy has to be created in an environment where the whole discussion in policymaking at the highest economic forums of the government is around public fund allocations. People are addicted to dole outs and the private sector leans heavily on the government,” Nadeem told Dawn from Islamabad.
On the other hand, the leaders of the private sector expressed their utter frustration over the situation. They consider the business environment totally hostile for investors. Beside obvious reasons of energy deficit and law and order, each leader had a wish list that he expected of the government to deliver for the idle capital to be ploughed into viable business projects.
“I do not consider the government solely responsible for the malice. It is free for all. No government with the best of intentions can perform under the kind of pressures that the PPP government survived.”
“Probably, we are too atoned to dictatorships. We have yet to understand that freedom comes with responsibility. The freedom under democracy has been abused,” an ex-president of the Karachi Chamber of Commerce and Industry commented.
“For me, the low investment is a worrisome indicator. If we take out contribution of public sector to aggregate investment figure the actual private sector investment is actually about eight per cent. This is dismal. The situation will have to be reversed not just for economic but also for political stability,” Dr Rashid Amjad, Vice Chancellor, PIDE commented.
“There is economic decay and I find the situation depressing. May be, closer economic ties with India could generate the energy seen lacking and serve as a driver to recharge the investment sentiments,” Kamran Mirza, CEO Pakistan Business Council, said.
The government has not been able to provide the much-needed push through investment in infrastructure projects because of resource crunch. Some economic commentators doubt the capacity of the Pakistan Peoples’ Party to deal with economic challenges. “It is a resistance party and needs to be trained in skills of governance,” an expert pointed out.
The data confirms the hesitance of investors’, particularly those weary of law and order situation, energy shortfalls and political instability leading to abrupt policy changes. How seriously does the government treat the investment issue will be known when the budget 2012-13 is announced.