A combination of special industrial estates and free trade deals along with the policy of open house for foreign investors, is a key formula now for the industrial development.
Under the Vision 2020 , a million more jobs have to be provided each year, We are seeking FTA agreements not only with small Asian states like Sri Lanka, Bangladesh, Nepal, Thailand and Malaysia but also with large countries like China, USA and Canada who approach such prospects more cautiously.
To feed the FTAs with adequate exportable goods, we are setting up a large number of industrial estates with Sunder near Lahore as the model which itself is patterned on the successful Thai industrial estates.
As we seek larger and larger exports of new value-added goods, the problem is of managing enough of exportable surplus after meeting the domestic demand.
These industrial estates which are to be self- sufficient in many facilitates, have to produce exportable goods in abundance and the foreign investment we seek and are getting, will increase the output of such goods.
An industrial estate near Faisalabad is to be developed by the Chinese through an investment of $200 million .
We made such an offer to the Japanese and the Koreans as well, but the Japanese did not pick it up. Actual Japanese investment in Pakistan is very low compared to the potential. Sunder which was visited by the Punjab chief minister Chaudhary Pervez Illahi last week was initially to have a Rs1 billion investment through the public private partnership. All the plots were sold as in Chunian earlier. In all 55 industrial units have so far been completed and 105 are under construction. Sundar is to offer 60,000 jobs directly and 600,000 indirectly,
It has its own power production unit and a water management system . It is developing a labour colony of its own so that the workers do not have to travel a long distance at a high cost.
An industrial estate is also being set up in Faisalabad with 500 acres of land allotted separately for the Chinese- a group of 15 industrial investors.
Sindh is very backward in this regard, although it has a number of industrial estates beginning with the oldest SITE which has often prolonged electric failures and scant water supply. It is plagued by the law and order situation as well. The Korangi industrial estate, Karachi’s second estate is highly underdeveloped. And the EPZ has a stunted development because of policy fluctuations. It is a kind of stop-go EPZ.
The north Karachi industrial estate is also highly underdeveloped and Nooriabad estate in Dadu is plagued by fear of dacoits. It has a power problem as well.
And now a textile city is to come up in the Port Qasim area along with an industrial park but these are taking a long time in coming up. They have too many teething troubles. While the industrialists want land at economical cost, their prices are high.
But we have to produce far more goods rapidly not only through the new units but also by expanding the capacity of the established industries and through foreign investment. Hence the government is seeking foreign investment with a great deal of vigour and expects the foreign direct investment to exceed $5 billion in the current financial year. Last year we received over $3 billion including the privatisation proceeds.
The textile mills are consuming almost all the cotton the country produces- 12.5 million bales and making small gains by converting much of that into yarn and exporting at low prices. Hence there is need for increasing the value added in textiles. Foreign investors should be encouraged to go into high valued textiles so that exports can bring in far larger earnings. Hitherto foreign investors have shown scant interest in textiles, that should change and we should be able to induce the foreign investors to go into high value textiles and increase their profits.
The response has been good to the government’s liberal policies for attracting foreign investment. It offers foreign investors a level playing field as it offers to the domestic investors. They are free to invest anywhere and up to 100 per cent of the capital. There is no limit to the profits they can make and remit home.
Unilever, for example, has announced a dividend of Rs122 for a share of Rs50 for 2006. It can repatriate all the profits home. Foreign investors can add to their capital by raising more of that locally as many Arab investors are doing. Many of them are now going into the lucrative real estate and are erecting luxury buildings.
Now we are seeking FTAs with small as well as large countries indiscriminately. It is a kind of come one and come all approach. How it works in practice remains to be seen. We have already signed an FTA with Sri Lanka which has come into operation. We are seeking such deals with Bangladesh, Nepal, Thailand and Malaysia in the East and Jordan and Morocco in the Middle East. And we are seeking FTAs with the US, China and Canada. The latest agreement for an FTA we seek is with Switzerland which can eventually mean a lot of cheese to Pakistanis as well as chocolate and other delicacies.
The tie- up between the industrial estates and the FTA has to be proper for the vision 2020 of President Musharraf to be a real success. Otherwise, the increase of a million in employment each year may be illusory.
Of course, we cannot expect every industrial investor to have his own power and we have to ensure he gets the water he needs. In fact, the infrastructure should be developed properly. An experts report says building adequate infrastructure will cost Rs290 billion. which is a lot of money. But without a proper infrastructure, the economy cannot take off. We are now told that 50 private sector power plants will generate 13400 MW of power by 2016 at a cost of $12.8 billion. We have seen such claims earlier but nothing much came true. Let us hope it will be different now.
It is not enough if we let the foreign investors do whatever they like. They have also to be provided what they really need. Otherwise the cost of production will be high and exports will suffer. There has been persistent demand for lower interest rates all round. Exporters want export refinance at four per cent.. The Federation of Chamber of Commerce and Industry wants seven per cent interest for industry instead of 12-15 per cent. The government has to bring down interest rates selectively by avoiding aggravation of the inflation.
There is a constant cry of the high cost of doing business. High prices of industrial inputs raise the cost of production as also the high profits of the suppliers in some sectors. They must lower their profit rates so that industries and exporters can get cheaper supplies and services. Each sub-sector cannot be expecting a high profit and ultimately a low cost of production. With low interest rates, modest profit must become a matter of trade policy. The suppliers and service sector agents must play their part in lowering the cost of production.