Indifference main reason for low FDI

Pakistan has received negligible foreign direct investment during the last fiscal year whereas its two neighbours China and India managed to tap huge foreign investment. The reason is simple. They have reduced their red tape and are committed to what they could honour while for us it’s the other way around.
Major foreign investment is in outsourcing and manufacturing. Pakistan could have attracted both but due to lethargy to sign the World Trade Organization’s Information Technology Agreement (ITA), it failed to do so. India signed the agreement in 1999 and attracted the outsourcing business. Pakistan has still not made up its mind to sign the agreement even though there is no opposition from any quarter. Pakistan had opted not to sign the treaty in 1999 on the poor logic that it would purchase licensed software which is more expensive. This could have played the role of a catalyst for attracting the outsourcing business. The Ministry of IT has not taken up this matter for a long time as it is operating without a functional minister for the last three years.
The government has been announcing that it will be issuing the third generation (3G) licenses since 2007, even though the officials knew very well that licenses could not be issued till January 1, 2012. The government had bound any incumbent telecom operator to enter the market until that date. Now, with the date for final bidding coming near, the government enthusiasm in licenses is weaning as its estimates come close to $800 million from three licenses. 3G investment in India has not yielded desired results for the companies due to the large number of poor.
The manufacturing sector could have attracted foreign investment if the government had played some role in match making. But now with the present energy crisis, no investment is possible in the manufacturing sector. With the burgeoning circular debt, companies are shy to invest in the power sector even though looking at the short to long term energy requirements of Pakistan, investment in the power sector looks to be very promising. The government has formed a power holding company that picked by Rs300 billion circular debt for 2009-10 but during the last fiscal year it again increased to Rs360 billion. With Rs20 billion subsidies a month, the circular debt is not likely to end anytime soon.
Experience shows that we have not even managed to retain those investors that have shown commitment for investment. One such sector on the verge of demise is the branded tea segment, which is highly taxed being in the formal sector while the informal sector is away from all taxes. Pakistan has one of the world’s highest tea consumption ratio of 1.1 kg of tea per capita per annum. This means that the country’s total import requirement is close to 200,000 tonnes. However, the legal import volume was 87,000 tonnes last fiscal year.
Since tea is a taxed item, customs duty and sales tax are levied at a rate of Rs251,000 per tonne, which results in branded tea being sold at fifty per cent a higher price than that in other South Asian states. The high rate of taxes on tea has promoted smuggling of tea which is non-branded and sold in open and is easier to adulterate than packed tea. The government earns nothing from smuggled tea. This promotes an informal economy and no revenue for the government. The local tea industry has approached the government with suggestions to curb smuggling that was shrinking their businesses. The government should resolve problems of the existing investors that and present a positive image abroad to attract more investment.