Accelerating foreign investment

Policy makers in Pakistan never seem to tire of talking about the prospects of attracting foreign investment in a big way and utilising it to increase the growth rate to well over 6 percent, thus raising employment levels and alleviating poverty.
The chances of success on this front, they feel, have been greatly enhanced by the recent gains in macro-economic indicators which need to be brought to the notice of foreign investors in order to attract their interest.
Not content with their efforts within the country, they often go abroad and organise seminars and conferences to convince the foreign investors about the desirability of investing in Pakistan.
In his latest visit to the US, Federal Privatisation and Investment Minister Dr Abdul Hafeez Shaikh seems to have gone through the same rituals.
In an interview on the concluding day of the three-day visit to Washington, he talked about having the opportunity to share with the US officials and businessmen the upbeat assessment of the positive developments and encouraging economic attainments of Pakistan and identify ways and means to try to attract more private sector investment from the United States.
The US side, according to the minister, was appreciative of the positive developments and showed keen interest in working with Pakistan on expanding investment and trade and private sector co-operation.
US investors were also informed about the decision to set up an Intellectual Property Rights Organisation in the Ministry of Commerce, and the judicial reforms being undertaken with ADB funds amounting to $150 million.
Probably in a bid to maintain the momentum, Dr Hafeez Shaikh also talked about plans to hold conferences in different US cities some time after summer this year.
According to the minister, this would provide "a window of opportunity for Pakistan to attract foreign investment in the country" by familiarising the prospective investors with the areas of their interest.
The US authorities had assured him of due help in organising such conferences. Already, Pakistan has held investment conferences in Paris and Beijing and there are also plans to hold similar conferences in Hong Kong and London.
Admittedly, this is not the first time Pakistani authorities are undertaking such expeditions.
The practice has been going on for the last few decades but without visible results. The average FDI inflows in Pakistan during the last ten years ended 2002-03 were only $548 million a year, which was far below the potential of the country to absorb foreign capital or the level of inflows in other countries like China and India.
It was only in 1995-96 that FDI crossed the one billion dollar mark, which was mainly due to agreements with the IPPs by the then Benazir government.
Subsequently, however, it declined consistently to $322 million by 2000-01. The FDI picked up to nearly $800 million in 2002-03 due to comparatively rational and consistent economic policies of the Musharraf regime, but the developments during the current year on this account are again not encouraging.
Pakistan has obviously failed to attract the desired level of foreign investment despite substantial gains in macro-economic indicators and very liberal FDI regulatory framework.
All economic sectors are open to FDI, foreign equity up to 100 percent is allowed, there is freedom to bring, hold and take out foreign currency from Pakistan, fiscal incentives provided by the government cannot be altered to the disadvantage of investors and no foreign enterprise can be taken over by the government.
The list of facilities to foreign investors continues to expand with the passage of time.
The inability of the country to attract FDI at a higher level despite so many goodies on offer could be directly traced to political factors, corruption and governance concerns, absence of an enforceable legal framework and the rule of law, weak and crumbling infrastructure and low productivity of labour.
While these were for the most part compelling influences on the flow of investment, some brave souls could still venture into the field by adopting some uncanny ways to overcome the difficulties.
Of late, the biggest and almost insurmountable challenge, however, has emerged in the form of deteriorating law and order situation in the country which has not only endangered physical assets but is a real threat to the personal security of the investors.
Let us face the fact that nobody in his right mind would invest in a location where he does not feel safe. During the last one decade, Pakistan has been subject to the twin menaces of religious extremism and ethnicism.
The situation has become worse with the ongoing war against terrorism. With Afghanistan as our neighbour, the media spotlight on daily basis is on Pakistan along with Iraq.
The first sight visitors see are the armed law enforcers at every corner and checking of vehicles in and around all major hotels as well as consulate offices in Karachi.
Truckloads of armed men patrolling the streets and stationed at strategic locations to convey a semblance of official presence gives the impression to the visiting foreigners that they are in a high security risk area. Roads around the US Consulate are occasionally kept closed for safety reasons.
The social elite and other VIPs move around the city with gunmen. Elsewhere, the highly publicised Wana operation has shown that the writ of the government does not extend to the whole of the country.
The negative perception is reinforced by travel advisories issued by the US and European governments from time to time through public announcements.
It is quite obvious that the government has to change its priorities. Instead of soliciting foreign investment through organising conferences, seminars and road-shows abroad, which in any case could only be of marginal value, the government has to concentrate on removing domestic constraints impacting on foreign investment.
Foreigners are not so na‹ve as to be easily influenced by official propaganda. They have their own sources and methods to vet their investment proposals.
Although all the bottlenecks to foreign investment have to be removed yet, in our view, the law and order situation and especially personal safety of the foreigners needs to be given top priority to at least induce the foreign investors to have a serious look at our country as a desirable destination of investment.
To start with, intelligence gathering by the relevant agencies needs to be vastly improved and strengthened in order to pre-empt attacks on the soft targets and nip the evil in the bud.
A reasonable success on this front could enable the authorities to reduce undue visibility of the security forces in urban areas and give the necessary confidence to the foreign investors in the ability of the government to at least protect their lives.
It must be understood that publicity is no substitute for hard work and nobody would rush to the country for investment at the risk of his life.