KARACHI, May 1: Every crisis brings an opportunity. No risk, no gains. Low risk, low rewards. High risks, high rewards. This is how businesses take risks in normal stride, particularly in a volatile currency, stocks and bonds market.

Many seek insurance protection and security guarantees by state-run or multilateral donors. Financial markets and corporates hedge risks against derivatives. Bank and financial institutions link premium to perceived risks. Successful micro-finance banks with highest lending rates make more profit than commercial banks.

Shipping and insurance increased charges as clouds of war gather. The big business and major banks can take bigger risks, because they are able to normally contain the damage. Foreign banks are bailed out by the IMF as in the East Asia 1997 financial meltdown. In Pakistan, taxpayers' money was used to restore the financial health of banks before privatization.

But as the market supremacy is established across the globe, the risks are mounting. There are business risks emerging from global competition as well as growing number of oligopolies and cartels (as result of acquisitions, mergers and alliances) that stifle individual initiative. Then are there exogenous shocks like 9/11; and the Bush doctrine, coming in its wake, has enhanced global security concerns.

Despite a high growth rate and much-lauded economic reforms, Pakistan has a negative perception abroad, the latest one being on account of increased "terrorist" activity. IBA scholar Mahnaz Fatima says: "Pakistanis have to decide whether they have to be continuously engaged in informal battles on various fronts in the region or they should be waging a war for socio-economic development of the country, or both, and if so, how ?"

The government has responded with a banker's approach. Finance Minister Shaukat Aziz has asked the Asian Development Bank to offer "terrorism risk guarantees" against security risks on the basis of "political risk guarantees" offered in the late 1990s. The ADB has given a positive response. It means more business for the Asian Bank.

In Pakistan, the perceived risks are also linked to the social and commercial contracts which lack validity inabsence of the rule of law. In the dominant mindset, political stability is confused with individual rule. Institutions take a backseat. The abrupt changes in governments remain a threat to continuity in policies, raising sovereign risks. So, investors seek political stability.

Capital is so fragile, more so, if it originates from Europe and the United States. The rich in the West have prospered under protected national markets and captive foreign markets under colonial rule. Later, capital from the West was invested in newly independent countries under hegemonic influences that helped extract patronage not available to the natives. Western capital has developed in a greenhouse.

In Pakistan, foreigners got project-related incentives in additional to the industry-specific incentives not available to local investors. They have operated in niche market. At present oil companies are eligible for duty-free imports of drilling machinery and equipments; a similar concession is denied to domestic investors. Hubco gets an officially guaranteed return on an agreed minimum capacity. This has been happening despite the talk of "even playing field" for both domestic and foreign investors.

But Pakistan is opening up new business avenues for the Americans. On his return from the United States, Shaukat Aziz revealed that the US Exim Bank had decided to open up credit facilities for Americans to do business with Pakistan's public sector.

Incidentally, the multilateral donors are pressing Pakistan to increase the size of the Public Sector Development Programme from present Rs160bn to Rs250 next fiscal, with the government looking at a figure of around Rs200 billion. The US Exim Bank recently financed the controversial purchase of American aircraft by PIA.

The business with the public sector may open prospects for more foreign investment in Pakistan. Perhaps, foreign investors can minimize risks in joint ventures with locals.