While enabling sustainable, long term investment is essential to contain unemployment and rationalise prices, the government needs to exercise prudence in figuring out the right policy mix from a narrow band of options. As rightly pointed out in post-budget debates in these pages, foreign investment will remain elusive so long as local investors are shy of engaging in the market. Presently, a chronically stagnant economy, a large government and political uncertainty have upset the risk-reward matrix, with few people willing to trust the present environment by committing to medium or long term investment.
I have often stressed the need for all political, business and economic stakeholders to commit to a minimum economic framework, where all concerned parties will accept a chronological plan of action aimed at revitalising long term investment and growth in the economy. Since all concerned quarters will give the go-ahead, political uncertainty that usually accompanies change of government will be ruled out, reflecting seriousness on part of policy makers regarding going ahead with selected programs.
While formulating these polices, first thought must be given to oversized government whose encroachment on the private sector is crowding out willing investors. Our present macroeconomic framework is just not conducive to investment of any sort. Since excessive government borrowing has dried credit for the private sector and failed to arrest high inflation, all the tight interest rate regime has accomplished is making borrowing costs unfeasible. Until inflation is brought significantly down to single digits, savings and investment will both be discouraged.
Then, it must be decided who to target specifically for investment purposes. It is no secret how badly Pakistan’s current security situation has harmed its international image, the litmus test for investors eyeing opportunities in emerging economies. So the government will have to be proactive in terms of inviting investors in addition to engineering conducive policies. And since few outsiders are willing at the moment, it would make sense to tap the large reserve of non resident Pakistanis with the potential to raise billions annually by channeling their repatriation into sustainable investment.
While labourers abroad regularly send remittances, there is yet more scope in targeting the working professional class interested in fixed returns as well as Pakistani entrepreneurs. The latter’s investments back home should be facilitated by setting up special economic zones and offering incentives like easy loans. Once these investments start flowing in, due attention can be given to employment generation.
First, it is important to upgrade the agriculture sector, the largest national employer and breadwinner. Its continued neglect borders on the criminal. There is urgent need for developing modern water reservoirs and incorporating increasing research and development aimed at enhancing yields. Aggressive focus on this sector will not only improve agriculture produce and subsequently export earnings, it will also create employment opportunities aimed at increasing innovation and value addition. It will also relieve pressure on cities by increasing agricultural returns and creating prosperity in the rural heartland.
Secondly, investments must also be channeled towards manufacturing and trade. As things stand, the manufacturing base is very small and fragmented. It is low on volume, the export base is limited and there is tremendous space for consolidation. Again, to improve efficiency and create jobs, targeted initiatives like vertical integration bolstering the agri-industry should be undertaken, anticipating a pronounced uptick in exports.
Finally, the above initiative will not come full circle till we expand our export market from one-third to EU and one-third to the US. We must also look more within our region and exploit the vast potential within SAARC and enhance trade cooperation with Central Asian Republics.
So, the cycle of change should incorporate the government withdrawing considerably from the main economy, allowing the private sector to initiate initial investment, employment generation and first-round growth multiplier. Then we should invite Pakistanis abroad to partake in the investment process. Finally, we should become more competitive in the international market through value addition and innovation. These policies are designed to have the combined effect of rejuvenating employment and growth by stimulating sustainable, long-term investment.
The writer is a former finance minister
