EDITORIAL: In Pakistan, one of the reasons behind frequent boom-burst cycles on external account is woeful lack of inward foreign direct investment (FDI) to finance the current account deficit. Overcoming this challenge is therefore imperative for a sustainable growth path.
Fiscal slippages are attributed to pilferages of public sector entities, which are on the privatisation list in the tenure of every government, yet no privatisation deal has taken place in a long time.
One of the many investment deals that fell victim to too much judicial activism is the Reko Diq copper-gold project. The good news to us all is that this project is showing strong signs of revival.
However, the investor now wants all kinds of protections for the investment committed on a deal already signed by the state of Pakistan.
Barrick Gold Corporation President, Mark Bristow, at press conference stated that the project would be completed by 2027-28 and that it “shall” be a world class mine, which would transform Balochistan into a fully developed province.
However, given a ‘very bad experience’, the company’s head has demanded a legal cover against any prospective parliamentary or judicial review, along with speedy settlement of pending legal issues. This reflects a sad state of affairs.
It brings to the fore the fact that foreign investors are not comfortable even when the counter-party is the government of Pakistan itself. They need additional guarantees and protection in order to ensure that their investment would remain secured.
The state and its pillars have no one but themselves to blame. Reko Diq is not the only project that faced ‘unwarranted’ intervention. In mid-2000s when Pakistan Steel Mills was being sold, the then Supreme Court Chief Justice intervened and his implausible intervention led to annulment of deal. It is important to note that Pakistan Steel Mills was still profitable when it was being privatised.
It is, however, needless to say that a successful deal would have fetched a decent foreign exchange amount for the country. Now, it’s bleeding money and there is no buyer in sight. The problem is not confined to courts. Every time a new government comes to power it reviews projects and deals executed under past regimes with a view to filing corruption cases against its opponents – irrespective of the merits of any case.
Moreover, incoming governments seek to shelve projects initiated by previous regimes to discredit their predecessors. They don’t care for the fact that there is any involvement of foreign investors in those projects.
There are many instances where projects at the inception stage (or construction stage) were shelved, and investors had to incur losses. Even kosher projects under CPEC (China Pakistan Economic Corridor) were reviewed and audited by the PTI (Pakistan Tehreek-e-Insaf) government as those projects had become flagship projects of the then PML-N government.
The PTI government’s actions put off the Chinese investors and it took some time for the government to normalise those relations. Some analysts believe that rocking the boat with China contributed to PTI’s ouster from power. Recently, QatarEnergy is also not happy with the incumbents (and ex-government) for creating roadblocks to the 3rd LNG terminal.
Similarly, there have been a number of projects and deals that could not materialize over the last two decades. As a result of which, losses in PSEs (public sector enterprises) and opportunity cost of not mining minerals contributed to the high fiscal deficits. Today, the country is running from pillar to post for only one billion dollars.
No one is ready to invest. No one is ready to lend without the IMF (International Monetary Fund) taking the lead. It is, therefore, high time to rethink the strategy. The country cannot run on its own; it needs foreign direct investment (FDI).
That cannot happen without providing investors the needed institutional cover. The state shall have to work harder to regain the lost confidence of international investors. It is also important to note that growing FDI can also promote competition in domestic input market.
Last but not least, our neighbor India still remains attractive for FDI investors. At present, its cumulative FDI stands at around $570 billion. Unfortunately, however, our FDI has surged just 2.6 percent to $1.868 billion in financial year 2021-22. Where are we?
Copyright Business Recorder, 2022