AFTER, almost seven years of investment stagnation in Pakistan — except moderately in the oil and gas sector and the failure of almost 4,000 sick industrial units to expand — the government is making determined efforts to step up industrial investment.

It is not relying so much on public sector initiatives, except in infrastructure, but on the private sector. It is now truly reaching out to the private sector. But, whether it will pay the price which that sector demands remains to be seen.

With Commerce and Industries Minister Razak Dawood, Federal Finance Minister Shaukat Aziz, and Privatization Minister Altaf Saleem, it should have been easy to get closer to the private sector and induce them in making the kind of large industrial investment the country needs; but that has not been the case despite frequent meetings between the ministers and the investors. Businessmen argue that once a person, from amongst them becomes a minister, he thinks more like an official the moment he comes within the ambit of bureaucrats.

Sindh too, has a private sector banker as Governor, Mohammadmian Soomro and Dewan Yousuf as the Minister for Industries. But now efforts are being made for the government to get closer to possible investors and pursue them to invest for increasing the production, exports, employment and the revenues.

Following a meeting with Pervez Musharraf, the President Federation of Chambers of Commerce and Industry, Iftikhar Malik says the President has established a high-level working group comprising members from the private and public sectors to “identify the factors hindering the industrial development and a business-friendly environment”. He says the working group will study the factors deterring large-scale investment and strive for promotion of such investment and speedy development.

President Pervez Musharraf, who attaches a great deal of importance to the economic expansion says, “he will take businessmen into confidence while framing future export, import and investment policies”.

Sindh government too, is setting up such committees following frequent meetings between Governor Mohammad Mian Soomro and the businessmen with the assistance of provincial Finance Minister Abdul Waheed Shaikh. The Sindh Development Forum, set up by the Sindh government and inaugurated recently, is a major step in this direction. This can ensure substantial flow of foreign aid, as Sindh has been authorized by the centre to negotiate directly with donors, in the manner the Indian states have been doing for long.

Shahid Feroze from private sector is Vice-Chairman of the Sindh Economic Development Council for developing urban areas beginning with Karachi; and Nasir Ali Shah Bukhari, of Khadim Ali Shah Bukhari and Co, investment specialists, is the Chairman of Sindh Privatization Commission. Some of the nazims in Sindh, too, are from the business sector with their own ideas on promoting economic development.

Adding to that is the coming up of a number of active bilateral business councils or committees between Pakistani businessmen and foreign countries like the US, France, Germany and Japan. The latest is the Pakistan-British Business Advisory Council which includes Waseem Haqqie, Chairman of the Investment Promotion Bureau, as its member along with nine others. They will try to promote larger business between Pakistan and those countries and attract investment here, and plead the right causes of investors with the government.

Sindh is also identifying some areas of the province as special industrial zones, while the federal government is ready to give fiscal exemption to some of the advanced industries. Dr Attaur Rehman, Minister for Science and Technology has been talking of getting $400 million as investment for the IT despite current glut in this sector worldwide.

A major problem in holding up investment by Pakistanis is the disinclination of public sector banks to give large investment loans, except to their best customers, while the official development finance institutions have too little money to lend or are utterly broke, such as the National Development Finance Corporation, which had to merge with the National Bank.

President Musharraf and the State Bank Governor, Dr Ishrat Hussain have been urging the banks to be more helpful to investors. Businessmen argue that out of five or six industrial units, even if one unit defaults on loan, the bank declares it a defaulter and declines to give any loan, which holds up their investment programme. The banks, rather prefer to allow trade finance which is both small and for a short period.

Two healthy developments in this sector are; fall in interest rates from around 18-20 per cent to 12-14 per cent for credible borrowers, and the stabilization of rupee against the US dollar. Reversing the trend to rush towards Rs70 to a dollar, the currency stood at 60.12 to a greenback on February 13 at inter-bank rate which makes the industrial investment using imported machinery cheaper, while the cost of borrowing to meet local expenditure of projects also comes down.

Both are felicitous development for stepping up large scale investment. While the cost of investment is coming down now, along with the value of land, the legal stumbling blocks for investors, particularly foreigners, is still very large.

Recently David Hunter, Commercial Counsellor of the US Embassy, asked the Karachi’s economic writers: How many foreigners would invest in Pakistan if a commercial dispute in court took 20 years to settle?

And now a study by the Centre for Strategic and International Studies in Washington says, “Pakistan needs to start reforming its justice system as an early step in reviving its economy”.

Experts participating in a study of such projects placed justice system ahead of more conventional economic recommendations and felt this was the critical missing ingredient in most economic prescriptions for Pakistan.

“Restoring a sound framework for law and order needs to be a starting point of the strategic reform effort, as such deficiencies affect the country at all levels.”

The study determined that the weak administration of justice is a “major impediment to the investment which Pakistan badly needs and undermines the country’s political institutions.

To strengthen the legal system and enable it to deliver quick justice, the Asian Development Bank and the World Bank are coming up with large financial assistance.

But the question now is, will such funds, which are repayable with interest, be put to the best use and the necessary legal reforms to bring about?

And after these reforms are introduced, will the new laws be enforced diligently and on a continual basis. Will the judges act with the needed alacrity or give the litigants unending postponements of cases, particularly commercial cases which cause large loss to the victims?

Official policy lapses like those which created dispute with Hubco and prolonged it in the days of the Prime Minister Nawaz Sharif and was extended further during the military rule, too discourages foreign investment in a big way.

Judges think they are being patriotic if they do not give in to the appeals of foreign investors and support the government, however, erratic it is, or the Pakistani partners of such enterprises.

Legal reforms which ensure early liquidation of companies, prudent in solvency laws and quick settlement of genuine disputes are essential if the cleaner part of the business is to make headway and more foreign investment is to come in a big way.