Pakistan’s dependence on foreign loans and its need for periodic bailouts from the International Monetary Fund (IMF) will continue past the completion of the present IMF programme unless policies to improve domestic productivity by encouraging local investment are devised and implemented.

“In order to attract new investments for rapid growth in domestic productivity the government will have to find a way to provide low-cost, long-term credit to the businessmen. At the present interest rates you cannot expect anyone to undertake a new venture,” argues Almas Hyder, the incumbent president of the Lahore Chamber of Commerce and Industry (LCCI).

He is spot on. Several business groups working on projects to expand their existing production capacities, set up new factories and upgrade technology for the last one and a half years have put their plans on a hold because of the exorbitant hike in the cost of capital investment amid massive currency devaluation and the sharp rise in interest rates by the central bank.

‘We need to have new industrial zones in every city with a population of one million people. That will help create jobs and slow down pressure on larger cities and towns’

Although Prime Minister Imran Khan recently told businessmen in Lahore that he expected the interest rates to start falling over the next six months to one year, majority of investors believe it is unlikely to happen for quite a long time.

“Why wait for interest rates to come down? Why can’t the government and the State Bank of Pakistan (SBP) create a window and work out a scheme to offer long-term finance at 6 per cent for the purchase of machinery and equipment to the businesspeople who are ready to invest now?” questions Mr Hyder. “I do not see any wisdom in wasting time. The government may facilitate certain select priority sectors like engineering, food processing, information technology and so on where we also have a strong potential to increase exports.”

The prime minister had during the Lahore meeting with the businessmen hinted at considering the proposal by the LCCI chief and discussing it with the SBP Governor Reza Baqir, but no progress has been made so far.

“Low interest rates are the key to unlock fresh investment in industrial projects and boost exports. But there are some other policy initiatives that the government should take simultaneously,” Mr Hyder points out. “We direly need to immediately create industrial zones along cities to make land available for the development of new industrial estates — both by the private sector and the government.

“People have money but they not have a place to put up their projects. When potential investors tell me that they have the capital to set up a factory and then ask me where they should look for land I have no answer. We need to have new industrial zones in every city with a population of one million people. That will help create jobs for the local population and slow down pressure on larger cities and towns.”

New industrial zones and estates are essential to bring down industrial land prices in the existing industrial estates and areas. The land prices in the existing estates are said to have spiked to new highs in recent years and gone beyond the reach of most of the small and medium investors.

He further advises the government to devise a scheme to help industrialists reschedule their bank loans. “In the given circumstances when the domestic demand is contracting rapidly because of the government’s economic stabilisation policies and the sharp reduction in purchasing power of people putting many industries in a tight spot, I can foresee many incurring losses and moving towards bankruptcies. My view is that the government and the central bank should make a policy to help such businesses avoid bankruptcies and closures through loan rescheduling.”

Finally, according to the LCCI president, the government has so far not been able to attract Chinese investment in industry, mainly because of the lack of industrial infrastructure. “The rising labour costs and the imposition of tariff restrictions on China’s exports to the United States have created an incentive for Chinese companies to relocate to other regions. They are moving to Vietnam, Thailand, Korea and elsewhere. Pakistan is still not on their map. It is important that we convince the Chinese investors to relocate to Pakistan. It is time the Board of Investment started talking with Chinese authorities on this subject.”

Published in Dawn, The Business and Finance Weekly, July 29th, 2019