KARACHI, Jan 19: But for very few initial steps, the journey from unfinished fiscal reforms to market agenda has yet to pick up pace to stimulate investment and trade.
Though one of the government’s top priority has been economic revival, there has been no roadmap that could inspire business confidence. In fact, the priority for fiscal reforms and accountability, vitiated the investment environment. And investment has plummeted to lowest levels.
To quote chairman of the National Committee of the International Chamber of Commerce and Industry Tariq Rangoonwala “financial management and discipline have their own priority and place” but it is time for the government to focus on market agenda.
Finance Minister Shaukat Aziz says that the government is working on removing irritants to make the investment climate more conducive. For this purpose, a working group on investment promotion headed by a leading industrialist from Lahore Shahzad Alam, has been set up.
President Pervez Musharraf is reported to have told a group of 48 leading businessmen that his government was trying to persuade commercial banks to reduce the interest rates. On agenda of the government is also de-regulation of the economy. No concrete decision has, however, emerged so far in this respect.
The Paris-based International Chamber of Commerce wants Pakistan to adopt international law and business practices to woo the foreign investors.
And Azhar A. Malik, chief executive, ICI, says “we have lacked growth in the past largely because an entrepreneur is starved of capital unless he is an existing established entrepreneur. It is not an environment that if I have an idea, I could walk into the bank and seek finance. That could happen with 20-30 strong domestic banks.”
The government is committed to an export-oriented economy but has not provided the policy package to achieve its objective.
The ICI chief executive told Dawn recently “we can’t use Pakistan base to export. The cost and equalities do not allow export-oriented industry to be set up except for textiles where we have a domestic advantage.”
“Interest rate is huge and common to every industry,” he laments and adds: “Investment economics works on that basis. Even with reduction, the borrowing cost would be 10 per cent and overdraft about 12 per cent. Our competitors in Japan borrow at one per cent. Our return expectations are about 8-9 per cent. If your borrowing is at 12 per cent, your return expectation is 20 per cent.”
Mr Malik, however, expressed the optimism that it is an issue that would be tackled in due course of time. “There was a time when we were paying 17 per cent. We are now paying 12 per cent. So, we are working in the right direction.”
The energy cost is another major issue. The ICI says “our energy is priced at about 20 per cent above our competitors. The government has to address that.”
Some of it is being addressed through availability of gas and power generation but the key aspect of the government policy is hydel projects to reduce the average cost of their generation and gas availability for electricity generation.
“The high cost of energy is hampering our industrial growth. In ICI soda ash business, 40 per cent of input cost is energy. In PTA business, it is 15 per cent of input.” The ICI chief executive says “If we are overpriced by 25 per cent, we don’t have a chance for exports.”
Earlier this week, Finance Minister Shaukat Aziz told bankers that industry was in great need of financial assistance and their demand had to be met by the banks through their competitive products and lower lending rates. He deplored that the banks are reluctant to take in risks. “You have to relook your risk parameters,” he told them bluntly. He advised them to focus on risk management initiatives to help economic activity move at an accelerated pace.
The developments on the external sector appear to be in rhythm with the direction of