Though investment-led economic growth is not within easy grasp, positive trends indicate that the stagnation in investment is beginning to melt.

With stable exchange rates, consumer financing, low interest rates and soaring corporate profits, firms are expanding their running business through modernization and balancing of their plants. Investments have begun to bounce back but not in traditional ways.

Technologies are being updated to cut costs in a process of consolidation and expansion. It is departure from the previous practice when excess capacity was created in sugar, textiles, automobile, etc funded by external finances (now dried up) and channelled by development finance institutions (now fading away).

Foundations of industrialization are being laid on much firmer grounds financed by corporate savings and equity markets. For project financing, firms now prefer self-financing in greater proportion to bank borrowings. Much of the increased bank credit to the private sector has gone for refinancing, to swap expensive debt for cheaper priced credit. This has improved company balance-sheet.

Official figures show that capital spending is picking up: The capital goods imports during July-December 2003 amounted to nearly $1.6 billion, up by 19.65 per cent as compared to corresponding period of previous year.

After remaining stuck up at about $2 billion for two consecutive years, the imports in this category jumped up to $2.84 billion during fiscal 2002-2003.

Corporates' self-financing is indicated by an observation of the National Bank President, Syed Ali Raza. He says banks' share in funding of the textile mills in $3bn balancing and modernizing was $1.3billion.

In the past, these mills were normally set up on debt equity basis of 60:40 and quite a bit of money was siphoned off through over-invoicing of machinery and plants facilitated by foreign machinery suppliers and by inflating the cost of land and buildings.

Flow of foreign credits, poorly monitored as is the money now lent by the international financial institutions for government projects, provided the rentier class an excellent opportunity to prosper. The outcome was rich managements and poor companies.

Industrialization promotes self-reliance and employment. Investment in textiles that contributes 65-70 per cent of the foreign exchange earnings, is boosting exports. Capital spending on petroleum products, accounting for $2.8-3billion imports per annum, will help improve balance of trade.

Foreign oil firms have been encouraged by cut in corporate profits from 50 per cent to 40 per cent and zero rate of customs duty on exploration and drilling equipments. Deregulation has made investment more lucrative for oil marketing companies.

Further induced by privatization, foreign investment has swelled to about $800 million per annum, up from a previous range of $400-500 million. The UBL was sold for over just $200 million and this year the proceeds from privatization of HBL would be twice that amount. Federal minister Dr Abdul Hafeez Sheikh says he is targeting $1 bn foreign investment this fiscal.

Anecdotal evidence also shows investment flowing into new areas supported by increasing imports of non-textile and non-oil capital goods. A Lahore-based joint venture between Swiss and a local partner is setting up a milk plant in Karachi at an estimated cost of $10 million.

A Saudi company plans to set up $100 million steel plant. Arab investors account for major investments in the financial and petroleum sectors. The Kuwaitis are serious bidders for the state-run Pakistan State Oil.

The "feel good" factor is coming back for a variety of reasons: high growth trajectory (5.1-5.3 per cent), stable exchange rate and cheaper industrial inputs, low interest rate, corporate profits ranging 30-60 per cent or more, reinforced stability from government-MMA agreement on LFO and easing of tensions with India.

Yet, some snags have yet to be removed: Lack of pro-active official policy to catalyse investments; inefficient implementation machinery; weak rule of law and sanctity of commercial contracts.

Pakistan is not part of any regional grouping which could provide bigger access to regional markets for local products. Bilateral tariff concessions agreements with China and few other countries will however help promote regional trade.

With the signing of the South Asia Free Trade Area agreement, some multinationals are eying the regional market. Local entrepreneurs say the MNCs would be able to plan investment for a regional market and relocate production facilities to cut costs.

The London-based Commonwealth Development Corporation (CDC), a UK government-owned unit, is in the process of creating a South Asia Equity Fund to increase investment in the region, says finance minister Shaukat Aziz.

The CDC is also being privatized. In the absence of major regional outlets, the European and US multinationals depend on niche market for such items as food, electronic goods, automobiles, cosmetics, many pharma products, etc, consumed by the upper income groups.

These multinationals find support in policies of international financial institutions whose prescriptions for borrowing countries help create growing prosperity for ten per cent of the population at the cost of the rest.

Focus on consumer finance is helping improved utilization of surplus industrial capacity in traditional industries like cement, automobiles or assembly units for durables. It is improving company balance-sheet.

But the investment taking place at the current level may not be enough to take into the higher trajectory growth nor it is employment generating as needed, says a research report of a foreign bank. The nature of investment is quite different, neither"high-profile nor visible" nor job-creating as in the past, the report adds.

Perhaps, the situation can be explained by the changes in a faltering global financial system and the focus on fiscal deficits and inflation. The outcome has been dwindling flow of official development assistance by rich countries followed by reduced foreign investment except in a very few selected countries.

Trillions of dollars of liquid cash is flowing into volatile currency, corporate bond and shares market and speculative derivative investments. Currency has been turned into a commodity for speculative trading.

Asian central banks have piled up billions of of dollars in foreign exchange reserves that cannot be absorbed either by private business or by the state sector because of imbalance created between the government and the market as a result of macro-economic policies.

These reserves are spent to check speculations in foreign exchange and stabilize forex rates. Dollars earned through exports by Asian finance budgets, trade and current account deficits of the United States.The global financial system has been designed to transfer money from the periphery to the world financial centres. Development no longer features as a priority of international agenda.

The multinationals are trying to consolidate their business through acquisitions, mergers and alliances and through oligopolies, helped particularly by tax cuts and low interest rates in the United States. To remain globally competitive, MNCs have also relocated manufacturing facilities in China and service industry in India. There are limits to their resources and plans for expansion in a period of restructuring.

A US-led accelerated pace of globalization in the decade of of 1990s, has increased world wide poverty. Rising unemployment has meant loss of customers and shrinking of markets.

To quote Dr Waiden Bello, a professor at the University of Philippines, "trade policies should be subordinated to development and, "technology must be liberated from stringent intellectual property rules" to spur development.

As the current investment trends indicate, also evident from Chinese investments in Gwadar, Saindak and feasibility studies on power plants based on Thar Coal, regional trade and investments would overtake the current stagnant globalization.