FDIs: diversification calling

Last week, the Chairman of Pakistan’s Board of Investment, Naeem Zamindar, was reported to have said that “Pakistan wants investors of all hues to come into the country and participate in building this economy - whether American, English or Japanese.” “Pakistan is open for business,” he added. Apparently, he was trying to clear the perception that only the Chinese can do business in this country.

Statements like these are necessary. The popular perception among business community in Pakistan is that new business opportunities are only available to the Chinese. Some of those projects are; and that’s because the Chinese are giving a loan, or assistance for those projects. But not all opportunities are exclusive to the Chinese. The official notification for the SEZs, for example, does not limit the incentives to Chinese investors. Any foreign investor can enjoy those benefits; though it’s another thing that it is too early to guesstimate when will these SEZ see the promised light of the day.

The problem with western investors is that they themselves were indecisive about taking fresh stakes in Pakistan’s economy. As a result, the share of all countries other than China has slipped to less than 40 percent in 8MFY18, from more than 90 percent ten years ago. (See also Sino-isation of Pakistan’s FDI, March 19, 2018).

Be that as it may, the BoI should know well that foreign investors won’t come to “participate in building” Pakistan’s economy. Investors don’t invest with an Edhi mindset; instead they chase returns. And returns are difficult to be had in an economy that suffers from policy inconsistency and dis-ease of doing business at the one end, and poor governance at the other.

There was a time when the Board of Investment had taken rather seriously, such that no less than the then Prime Minister Benazir Bhutto used to personally chair the meetings of the board; she took prompt decisions while taking notice of any irritants bothering potential foreign investors.

Naeem rightly pointed out last week that the security situation in Pakistan has improved remarkably, but some investors are unaware about this and had an outdated negative image of Pakistan. Well, this is exactly one of the key jobs of the Board of Investment – a job that is not being adequately performed by it since long before Naeem took office. And now with elections around the corner, his opportunity to make an impact may be limited.

The PML-N had set a good precedent by holding annual investment conferences in Islamabad in its early years of government. But instead of taking the next step forward of holding successive road shows and re-branding campaigns launched globally, it stopped in its tracks.

As for the perception that Pakistan is only open for Chinese Investors, it is the Board of Investment that will have to do more. As a start, it will have to reach out to existing foreign and local investors in the country and address their genuine concerns on a wide array of policy and governance issues.

Between FY10 and 1HFY18, Chinese investments in Pakistan’s power sector FDI was 78 percent of total power FDI. Is it not valid to ask why it is so that despite such lucrative returns in the power sector, Pakistan is mostly attracting power investors from China? If power policy really offers attractive returns, then investors from other countries should also be making a bee line.

While attracting Chinese investments is important and indeed inevitable in the wake of the CPEC, the time-tested principle of diversification demands that Pakistan also attract investments from other countries. Unlike, the Chinese players, who are mostly concentrating on power and construction sectors, other investment partners, have historically gone into a wider sectoral basket. And that’s the kind of diversification Pakistan can ill afford to lose!