The solutions lie with us
Driving through torrential rain in Germany yesterday while heading to Munich airport, my mind wandered through the last three weeks spent in the US, London and Germany. I had the opportunity to meet some opinion makers and investors who consider Pakistan a viable investment opportunity. But then, of course, they quickly come down to the nitty gritty of the prerequisites that would inspire them.
In Stuttgart at a seminar I met a group of investors including some from Turkey. The Turks were definitely curious about Pakistan but wary because many Turkish companies had invested and secured contracts that fell into chaos and legal battles causing severe losses. I reminded them that a few years ago legislation to protect foreign companies from being harassed by lower courts was passed, allowing them direct access to the High Courts. I also reminded them of the recent investments from Turkey in the transport sector in the Punjab. But the view that the system was loaded against foreign investors apparently continues to prevail.
There is a strong opinion that long term foreign investment can only be successful if it is given the freedom and incentives required. They clarified that investment in challenging, long gestation projects is forthcoming only when the host country is fully cognizant of the fact that it does not have the internal resources to develop the particular project or sector – hence the need for investment, both financial and technical, probably marketing too, from outside. The operative word is ‘fully cognizant’, with an emphasis. For only then are investment inspiring incentives and concessions developed.
Sometimes these concessions may look disquieting in the short term but it must be remembered these are not short-term projects. Returns to the host country come in multiple forms. Foremost, an unutilized resource, perhaps one that may never see the light of day, is developed and put into the mainstream. This leads to downstream development of engineering, skilled human resource capacity and employment. In the long-term, at the end of the concession period, the country will have acquired a fully developed sector and resource generating revenue, employment and life-long benefits. As most of these projects will be in outlying areas, new towns, businesses, education and medical centers will surface and enhance the quality of life in the entire region.
Government’s fears of local businesses, regulators, legislators, judiciary baulking at such concessions are not without cause, but this is where it must transparently market the benefits. And reality must prevail in the minds of such allegedly conscientious objectors. Lets be clear, the public sector has been a disaster in Pakistan and investment in long-term projects from big local investors has been insignificant. What we have are white elephants that are sucking the financial resources instead of contributing. In fact even the employment they have created is a nightmare as they are heavily overstaffed and been used by political parties to accommodate personnel for jobs that don’t exist.
Pakistan has hardly any joint ventures with foreign companies or even a strong public-private venture. We have been lagging in capital goods investments from the inception. Nationalization was a huge disaster and our industrial economy has still not recovered. Privatization was successful only during the Musharraf era and non-performing concerns were sold. Most have performed well under new management, the KESC being one such example. It is unfortunate that there is still an outstanding amount for PTCL but the organization is doing well and at least the bleed to the Exchequer has been stopped. Since that time, privatization is at a complete halt.
The issue of Pakistan Steel triggered that halt. If the Supreme Court was to consider, or have or has considered, the alleged loss that the applicants suggested was being caused by the privatization at that time and correlate it with the enormous losses born by the people of Pakistan since that time until today, it may perhaps be guided to reconsider the wisdom of its decision. It is too late though unfortunately. But it will always remain as a fierce reminder of Pakistan’s many omissions.
Similarly, the Reko-Diq project. This is a small town in Chagai District, Balochistan, Pakistan, in a desert area, 70 kilometres north-west of Naukundi, close to Pakistan’s border with Iran. The likelihood of any investment in that region from within Pakistan is close to zero. And from overseas now more than zero. Without going into the legal ramifications, one can only opine that any concession granted to enable this project to develop would have been beneficial to Pakistan in the long run. Now it will remain a buried treasure. Yet another unutilized resource of a country desperate for resource mobilization and development of its natural endowments.
Investors want security of their investment and implementation of the agreements permitting their role in the country. And Pakistan needs FDI. The pragmatic approach would be for stakeholders to sit together and for the executive to assume full responsibility and authority for the decisions it can and must make to ensure that all Pakistan’s resources can be fully developed, optimized and utilized. We have to stop the hemorrhages that the public sector companies, no matter which company, and the only way is to privatize them or shut them down mercilessly. At the same time, subsidies to businesses that should and must compete with the rest of the world must cease. Once you start offsetting subsidies from benefits earned an entirely different picture emerges. This is a challenge the new government must take.
Between my drive and flight back home, a new parliament has taken oath and we are all set for the new government. Mr Zardari has announced that he too will go at the end of his term. As it stands we are likely to see a complete change of management before the year is out in every significant segment. Barring Sindh, which has voted to maintain the status quo.
I am seriously put off by an advertisement in the press that urges the new government to defer certain taxation measures that may affect the stakeholders and instead impose measures that would ostensibly increase the tax base. Where I am all for increasing the tax base, and for imposing a workable agriculture income tax (in fact I submitted a paper a number of times with a modus operandi) this tax is unfortunately within the domain of the provinces. They do not have the capacity or will to impose or collect.
Seeking concessions at this point may not be appealing to either the government or the IMF and donors to whom it appears the government must go to and very soon. Perhaps the way forward is for the many big businesses in the country which do not pay their due taxes to step up and meet their obligations – hence encouraging the new taxpayer to come forward. It goes without saying the tax base must go beyond the salaried classes and this is Pakistan’s misfortune. If at all, the government must provide relief and stability to this sector. It is for the business sector to prove that it deserves consideration. Look at recent contributions and you will get a dismal picture.
The only way to success is for us Pakistanis to pay meet our social obligations and pay our bills. Whether it be power, telephone or gas and for the government to do the same. The energy crisis is exacerbated thus. And the curse of what is now commonly known as ‘circular debt’. I agree with the advert to the extent the “new government needs to adopt bold and innovative policies in consultation with key stakeholders” but I believe contrary to the advert that those key stakeholders are the people of Pakistan.
The writer can be contacted at: [email protected]