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‘State capacity biggest hurdle to foreign investment’

Updated December 02, 2018

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Gantry cranes lined up on Gwadar port. Construction of the Gwadar Free Zone, where industry is supposed to be located, has shown very little forward movement thus far.—File photo
Gantry cranes lined up on Gwadar port. Construction of the Gwadar Free Zone, where industry is supposed to be located, has shown very little forward movement thus far.—File photo

KARACHI: The PTI government has placed a great deal of emphasis on attracting foreign investment into Pakistan, and has taken trips to Saudi Arabia, Malyasia, the UAE and China in an effort to spur investor interest.

“We have found tremendous interest in Pakistan in all these countries,” says Haroon Sharif, chairman of the Board of Investment (BoI) who has the job of coordinating between the investors and the government. “The biggest hurdle for us is surely the weak capacity of the state to deal with private sector investors and find a way to deliver on their needs.”

He tells Dawn that the state lacks the experience to structure transactions, and it is primarily for this reason that international commitments made by the government come under frequent suspicion locally.

The lead route to get investments into the country is through construction of the Special Economic Zones (SEZs), he says, though other government-to-government deals are also in the works.

“We are welcoming investments from multiple countries for these zones,” he tells Dawn, adding that pace of work needs to be expedited. “They are being developed by the provinces,” he says, adding “and BoI is keen to get them up and running as soon as possible. The major hurdle is uninterrupted supply of utilities, mainly power but also gas and water.”

There is currently not enough power in the country to cater to large investments envisioned for these zones, he says, and adds that the possibility of using captive power for the zones is something that he is proposing. This puts the federal government in a bit of a chicken and the egg problem. Captive power becomes feasible if there are plants ready for offtake, but investors will be reluctant to set up plants if a clear supply of reliable power is not available. “We can explore some options like starting construction on captive power at the same time as the plants begin coming up,” he says.

Out of the four SEZs being built under the China-Pakistan Economic Corridor umbrella, he says the one in Faisalabad is nearly complete, while that in Rashakai, KP, is in the final stage of getting approval for go-ahead. “Within one year they should be in a position to offer plots of land for investors,” Haroon says. Thus far, they have received 952 applications from various parties, but it is not clear how many of them are looking to set up a plant in the zone and how many are just real estate investors.

“Eventually the zone will have to become a one-stop shop to be successful,” he says, where banks should be available as well as labour and all other requirements for investment. That will take time.

Beyond Faisalabad and Rashakai, he says Dhabeji in Sindh is also moving along, albeit slowly. “They are now starting their bidding to find a developer,” the chairman tells Dawn. Provincial governments lack the resources to build these zones, he says, and they are looking for partners who will be interested in a Build Operate Transfer (BOT) arrangement on it. “The concern in that is that if Chinese partners go for BOT, then they might close the zones to Chinese companies only.”

Gwadar, however, will take time, he says. “The government of Balochistan is still working on it. Our biggest interest is in Gwadar is in the refinery.” That project had its beginnings in the trip to Saudi Arabia taken by Prime Minister Imran Khan, though it is far too early at this stage. “At the moment it is early days, I am still trying to finalise the memorandum of understanding, even the feasibility has not begun yet.”

One question mark hanging over the refinery project is what the Saudis intend to do with the refined oil output. The location is far from areas where traffic is heavy, so the output will need to be transported a great distance to reach the market. “That is up to them to figure out, whether to use a pipeline to Karachi, but certainly tankers will cost a great deal for this purpose,” says Sharif.

“I’m sure the Saudis are looking at this as an investment proposition, but there is a strategic interest as well,” he adds. The Kingdom is trying to diversify its investments, for example it putting up a $44 billion refinery in India.

“I need to build capacity of state institutions to absorb foreign investments. When investors show interest, the state needs to put technical expertise on the table. Request for proposals have to be drawn up, roadshows put up, financial modelling has to be done. Since the state has been doing investment on its own for so long, it has no capacity to deal with private sector partners as such.”

Foreign investors have shown solid interest to come to Pakistan, he says. “Now it is up to the government how we facilitate them, and how we close the transactions.” He says he has ten proposals from Malaysia alone, “very serious companies that want to come to Pakistan, from education and halal meat to agri business and IT. Can we offer the deal to them? Can we close the deal?”

Published in Dawn, December 2nd, 2018

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