The Khyber Pakhtunkhwa government has yet to create a favourable environment for local investors in the province.

While focus of the provincial government has largely remained on legislation in the last four years, local investors have started investing in other provinces, especially Punjab.

The business environment for medium- and small-size investors is not conducive or competitive, which has forced them to migrate and shift their businesses to central Punjab; there the cost of doing business is lower, and a greater market exists for consumers.

Also read: No foreign direct investment in KP since PTI took over

KP Chamber of Commerce and Industry President Zahid Shinwari said that the infrastructure in Punjab is far better than that of KP. “Skilled manpower especially trained vendors are available in central Punjab”, he said, adding that a backup in terms of technicians and parts is also easily found over there.

Moreover, he said that more than 70 per cent of products produced in his manufacturing units are sold in Punjab. According to him, Pakhtoons are lured by the better investment climate and market present in Punjab.

Historically economic activity in KP has also been sustained through greater exports to Afghanistan. Most of the investments, especially in cement, sugar, pharmaceuticals etc., were made to meet the demand from Afghanistan. However, here too, a considerable decline has been noticed in the past couple of years.

The KP government held two major roadshows in Dubai and Beijing with multi-billion dollar claims of investment. So far few investors have come to the province. Mr Shinwari opined that when local investors were not coming to the province, how did one expect foreign investors to come?

However, this does not mean that there are no local investors in the KP market. There are a few big families who have invested in multiple sectors including textile, match manufacturing, vegetable ghee/oil mills, marble tiles, chemicals, woollen mills, engineering, steel mills, chip board, ceramics, food, furniture, plastic and PVC, trading and warehousing, minerals processing, and fruits and vegetables processing.

While focus of the provincial government has largely remained on legislation in the last four years, local investors have started investing in other provinces, especially Punjab

A list of the provinces top business groups was compiled based on the pattern of top exporters and importers available at the KP Chambers of Commerce.

These groups are now investing in automobiles, steel, cement, and chip board, with supplies and presence in major markets of Punjab and Karachi. For instance, Shah Jee Gull Afridi has set up a truck manufacturing plant in Karachi; Nauman Wazir has recently installed a bigger steel plant in Lahore; Saif Group of companies have made huge investments in energy and other sectors in Punjab and Islamabad.

In September 2017, the provincial government unveiled a draft investment policy for a period of eight years. Under the policy, several sectors were identified to attract investment, including hydropower, oil and gas, tourism, mines and minerals, information technology, and agriculture.

Businessmen are critical of this policy on the grounds that it fails to address core issues discouraging local investors from coming to the province. Two major hindrances for investors are leasing of land and public private partnership. The provincial government’s promise of amending the existing laws, made a few years back, has yet to be fulfilled.

A couple of years ago, the federal board of investment carried out a study on the investment environment in provinces. One of the findings of that study was that KP is the least business-friendly province in the country. The broader indicators used for determining the conclusions were the multiplicity of taxes, tax payment at the start of business, enforcement of contract and days required for starting of business.

But the CEO of KP Economic Zones Development Company Syed Muhammad Mohsin was quite confident that all these issues have mostly been resolved for investors in economic zones. He said that in the two successful industrial estates — Hattar and Gadoon — approximately Rs40 billion worth of local investment was made.

In the recent CPEC meeting, he said that the special economic zone at Rashakai had also been approved. He estimated around Rs100bn of investment from local investors in the zone, and assured that the provincial government will also set up more zones to mobilise investment.

In a discussion with bureaucrats and businessmen, it came about that the most important issue that needed provincial government’s attention was a package for small- and medium-size manufacturing units.

Most of the units either closed down their operations or shifted their businesses to Punjab because of problems like high freight charges on raw materials, excessive power shortages, and lack of available capital from commercial banks — KP’s share in countrywide lending being less than 2pc.

Published in Dawn, The Business and Finance Weekly, November 27th, 2017