Investment, production and export are sine qua non of a viable economy. Pakistan has, however, constantly suffered from its inability to achieve this viability — more recently arising out of the nuclear explosion in 1998, followed by a change in the government in ‘99 and the September 11 disaster at the twin towers of the World Trade Center in New York leading to the war in Afghanistan.

This situation is further accentuated by international finance institutions — IFIs, working for globalization rather than as a coalition for a general economic development of the world. The role of these IFIs is increasingly under scrutiny. The recent Argentinian economic crisis has accentuated the view that the IFIs have thrusted globalization blindly rather than promoting balanced economic development of the world. Those IFIs are highly vaulted institutions manned by prudent managers.

Their prudence, however, has yet to focus on the desperation, helplessness and the decline of poverty of the people at large, particularly in the developing world. There are two billion people living on barely a dollar or two a day in the world population of five billions. The World Bank has recently focused only on international competitiveness as the yardstick for investment in developing countries.

A recent World Bank statement was published, stipulating “to phase out existing industries which are internationally non-competitive — sugar, refineries, chemicals — automotives, fertilizer and steel which are imposing high cost on the Pakistan economy”. In this context, arguably, even Pakistan’s main industry, textiles, is not internationally competitive, as it needs massive doses of subsidies for export through devaluation of currency, cheaper export finance and duty drawbacks. Without all the above industries, one wonders where the investment, production and export, ensuring increasing employment, would lie!

The International Monetary Fund, similarly, has promoted high devaluation and low tariffs. This, ironically has led to inflation and increased interest rates. Started by an interim government in the early 90’s, the protection provided to the local industry has been gradually reduced to 35 per cent from 65 per cent. This has to be further reduced to 25 per cent as per agreement with the IMF threatening further to 15 per cent. Be as it may, nowhere in the world has industry developed without adequate protection in whatsoever manner and a practice which is still continuing in the developed world in one form or another.

Following the Seattle debacle last year, the WTO chose far flung Doha to hold its next meeting on free trade. The question, however, is what and where is the free trade? In USA, Europe, India or else where! If it were, there would have been no EU, NAFTA or any such closed regional markets. The truth is that this is an age of regionalism and protectionism, if not nationalism. The guarding of national interest has been most avidly depicted by the refusal of the United States to lower tariffs on Pakistani textiles. The pressure by the WTO and the IMF on developing countries to remove or lower tariffs thus leave an impression that they are promoting a one sided developed countries agenda in the guise of globalization. Accusations of lack of original thinking is increasingly marring the IMF’s reputation. It is felt that it simply prescribes one prescription for all ailing economies, while serving none satisfactorily. As such, even in the developed world there have been demands — from George Shultz, William Simon and Walter Wristen — to ‘abolish the IMF’.

The WTO, on the other hand, is accused of representing the richest corporations and individuals, 0.01 per cent of the world population enabling about 1000 large corporations, contributing 4/5th to the world production. Several multinationals are now more powerful than many nation states. In Australia, the ten biggest international multinationals have each annual sales revenue which are more than their government’s tax revenues. The decade saw increase in wealth by 70 per cent to 85 per cent in the richest countries as against 2 per cent decline in the 20 poorest countries of the world. Further, foreign investors come in to make money and if they perform any socio-economic objectives, they are incidental. And, the policies of the IFIs skew in favour of the developed world and actually discourage further local investment.

Intellectual property rights, royalties, technical fees and transfer of prices are in addition to dividends and other payouts leaving hardly anything worthwhile for the host country. On the other hand, the countries which do not rely upon these IFIs, like Cuba and Malaysia, have developed better, faster and smoother than those that chose to rely on the advice of the IFIs. Pakistan’s own experience of 1960’s is that genuine investment came from independent quarters — local entrepreneurs backed by domestic institutions — not foreign investors. The foreign investment followed local investment and not vice versa.

Business environment: The business environment has seldom been favourable to investment or entrepreneurship. There has been an inconsistency in objective and direction. The rule of law and business buoyancy have been lacking with the broad daylight snatching of cars and motorcycles, which in itself has become a multi-billion business in Karachi.

Murder and dacoities further scare businessmen, encouraging the organized flight of capital. Generally, there is a default culture in loan repayment, taxes and utility bills. Smuggling and over-and-under-invoicing is increasingly encouraging the organized sector to opt in favour of the unorganized. Trade is being preferred over industry. Whatever foreign investment is being made, it is generally in simple manufactures, consumer goods, beverages and fast foods. Industry which provides goods and services, earns and saves foreign exchange, creates employment — all leading to self reliance — is devoid of any road map of progress. The government and business dialogue is at best just accommodating. The government at large still considers local businessmen to be profiteers rather than developer of local economy and creators of employment. The sense of nation building exercise is still absent. Accordingly, there has been a flight of capital and brain drain. To cap it all, the general attitude has been to follow the IFIs without realizing their impact on the economy. Indigenization programmes of the engineering industry, for example, are proposed to be revisited at the cost of billions of rupees in investment, hi-tech technology and job opportunities, not to speak of several joint ventures and the technical assistance agreements, being put in jeopardy just because the government chose to sign an agreement under the WTO constraints, without any prior consultations with the private sector.

This, in fact, is the start of the reversal of manufacturing to assembly. The last budget reaffirmed this by allowing assemblies in electronic and electric goods industry at 5 per cent custom duty replacing the age-old manufacturing programmes of the country. A highly responsible government spokesman further took pride in saying “We want good assembly plants....!” And as if, it was not enough, the local firms were allowed to set up companies abroad — in fact, legalizing the flight of capital under the garb of earning foreign exchange for the country when the government is badly in need of inviting foreign capital within the country. And, then we ask why investment is not taking place.

The September 11 attack on the World Trade Centre twin towers has led to the removal of sanctions and rescheduling of loans and promises of grants and credits. The real test, however, is, whether it initiates or reinforces investment, production and export. Equally important is that what kind of investment climate would emerge in the country given the above circumstances. Despite effort in reviving the economy and promoting foreign direct investment, results remain elusive. The latest report by the State Bank bears testimony to the fact that much more has got to be done in order to revive the economy. The situation, therefore, has to be reviewed in Pakistan’s context in a fast changing world. The solution lies in the development of hi-tech value added industry even at the “expense” of protection not favoured by the loan-giving IFIs; otherwise the end-result of the phased out industries, as recommended by the IFIs, could be more damaging to the country’s economy than the nationalization of the 1970’s. Luckily the top administration and the economic team are serious and sincere. Let us hope, they deliver the goods against the severe odds faced by the country.

The strenghth of a country lies in strong defence, abundant and cheap food and a strong civil bureaucracy, capable of enforcing law and order and ensuring sound administration. According to a UN report, reinforced by the Harvard University, wherever there is a strong civil bureaucracy, there is a strong economy and vice versa. This includes France, UK, Japan and even India! The Pakistan’s bureaucracy has been adjudged as well-educated and trained with high experience and expertise. It has its roots among the people. The bureaucrats themselves generally come from middle, if not lower middle class. They are recruited through competitive examinations on merit. And, whenever relied upon, they have delivered the goods quite well. However, one government after another, has damaged this service. In the process, they have hurt the very sovereignty of the country, not to speak of the socio-economic order. It is high time that wisdom prevails over the whims and subjectivity of all those suffering from this malady to make use of this elite service in the re-building of the economy of the country, with adequate sense of direction from the top. The sooner it is done the better.

Focus on agriculture: Pakistan is mainly an agrarian economy where the agriculture contributes 25 per cent of the GDP but caters to 70 per cent of the population and the resultant purchasing power. Agriculture must be the first and foremost priority. Historically, when agricultural performance has been good, the whole economy has benefited, even contributing to political solidarity. The recent trends to remove subsidies or price supports to agricultural outputs which exists everywhere in the world, including USA, EU, Japan and India, will have to be carefully evaluated.

The stance of the EU and the WTO meeting in Doha on subsidies bears testimony to this need. “Onions must be imported and onions must be exported” slogan in some quarters of the government is misconceived, to say the least. Emphasis also will have to be laid on agro-based industry and agro-based export.

Further, the government has to define categorically what kind of investment and technology is wanted and will be protected under all circumstances; otherwise, investment will further shy away. Steel and engineering being the soul of any economy, will have to be encouraged. This must include the transport sector with the knowledge that the auto industry has played a leading role in the development of the successful economies; otherwise, the Rs40 billions worth investment in basic industry and vending in Pakistan will continue to suffer. In the spirit of the WTO’s commitment to a “development” agenda, the government should apply for adequate extensions to the WTO conditions to rehabilitate the industry. Let us hope that it is done to the satisfaction of the industry.

Devaluation: It has seldom helped investment, production or even export. Pakistan is no exception. According to the State Bank figures, in the last decade, the yearly average devaluation was about 11 per cent. It has led to an increase in exports at an annual rate of less than 4 per cent and the imports by an annual average of more than 3 per cent, thus leaving a net benefit of just about 1 per cent. However, the economic fall-out of this policy has been extremely negative. Inflation has increased at an average of more than 10 per cen6, expenditure at 16.6 per cent and debt servicing at 17.73 per cent. Now, when the rupee is finally finding its own level and moving upward, our thinkers must put their heads together and decide whether it is a stronger rupee which will help the economy on the whole or a weaker one. Our neighbour, India, for example, has not suffered from a strong rupee. Its exports have not suffered and, in fact, the foreign direct investment has been encouraged by a stable currency. India’s relatively stronger economy is supported by an equitable tax against 35 to 45 per cent and 15 per cent, including a 5-6 per cent presumptive tax payable, whether income tax is payable or not in Pakistan. The rate of interest in India has been around 10-12 per cent as against 14-16 per cent in Pakistan with foreign currency reserves of $47 billions in India as against $4.63 billion in Pakistan. India has been a hi-tech value added export-led economy comprising steel, engineering, chemicals, and IT as against the simple manufacture, while Pakistan’s export comprise yarn and textile made-ups. The Indian economy including agriculture has been highly subsidized. It is because of this concession that smuggling from India is estimated to cost Rs10 billion in taxes to Pakistan. If at any time Indo-Pakistan trade is to resume this imbalance would have to be rectified; otherwise, Pakistan will be a loser in all respects.

Level playing field: Smuggling which is mainly from India and Afghan transit trade has eaten into the vitals of the economy, depriving the government of huge revenues. Investment in strategic industries in India has been allowed only against foreign currency fixed deposits and commitment to the generation of specific amount of foreign exchange and other such obligations. In Pakistan, it has been at the whims of the government including policies, such as the import of fully built- up ‘yellow cabs’ and ‘green tractors’, followed by duty and sales tax free import of knocked down components — CKDs. These measures have hurt industries where plants set up at heavy costs remain idle. The government must reverse these trends in respect of “engineering procurement and construction contracts” protecting local contractors from foreign competition, “including all major industrial and infrastructure projects in all matters of recognized local design engineering and manufacturing organizations” as per a recent direction issued by the government.

The general default culture in respect of loans, taxes and utilities has ultimately hit investment, production and export. A healthy business environment together with a clear sense of direction, rule of law and clear cut thinking on business, industry and trade issues would help to revive the economy. Chronic deficit finance, trade imbalance and inflation lead to flight of capital and brain drain and can only be contained by industry and not by trade as such. The traditional tariff walls, thus will have to be reconsidered and certain checks and balances to be maintained in the larger interest of the economy as a whole; otherwise, apathy towards investment and more so foreign direct investment will continue.

Industry vs commerce: Pakistan’s experience of combing public and private sector investment and commerce in one ministry has not been a success, as in some other countries. The fact of the matter is, that they are extremely remote culturally from one another. Industry has a parental role — protection — while commerce is trade-oriented. Similarly, the private and public sector investment have different socio-economic mandates. The result is that local industry continues to suffer on the whole, thanks largely to the effective lobbying for commerce and trade. Tension between the demands of trade and industry is bound to be further tested in the future. To project the cause of each fairly, a bifurcation of the two ministries is a logical conclusion. Otherwise, investment shall remain shy and so the production and export.

National interests: In conclusion, Pakistan will have to be guided by its national interests in following any policy emanating from external factors. The World Bank President, Mr Wolfensohn, in one of his statements did not agree with the view of globalists led by Clinton that “ .... a truly global market has lifted the lives of billions of people”. Instead, he said that there were “....searing images of desperation, hopelessness and decline of people who once had hope but will have it no more.... We need local ownership and local participation.

Gone are the days when development could be done behind closed doors in Washington or western capitals or any capital for that matter....” It is thus a coalition for development and, as such, globalization through localization i.e. glocalization, that is in global interest.

Let there be no globalization at the cost of political, social and economic deprivation of people at large. The Noble Laureate, Professor Sen, emphasizes that “....globalization must be dovetailed with national priorities”. One should therefore, accept that local ownership and involvement must be central to any structuring of the economy by any government in the world, more so in Pakistan. In self-reliance lies salvation;