- Is Pakistan ready?
While the recent developments in attracting foreign investment are commendable, domestic policy leaves a lot to be desired — may that be the recent finance bill to encourage, among other things, investment or the performance of investment related authorities. In my previous articles, in this space I have tried to highlight that the government needs to learn from the example of Vietnam, given how it was able to improve considerable the amount of foreign investment it received over the last many years; especially the way it was able to negotiate so many free trade agreements.
The silver lining has fortunately been grabbed by the PM’s efforts as far as foreign investment is concerned, and applaud is also deserved by the related investment ministry in giving good support. These strategic alliances with Saudi Arabia, UAE and Qatar, along with the continued support of China, have not only sowed the seeds for enhanced investment inflow, but at the same time allowed ministry of finance to continue to fend off — a once highly likely — IMF programme; which is a good news since IMF neoliberal policy prescription would have not allowed government- with its over emphasis on aggregate demand side curtailment conditionalities- to remain attractive for domestic or foreign investment- at least in short to medium terms.
Pleasantly, and as a break from recent past at least, Saudi Arabia, UAE and Qatar have opted to enter into longer term investment initiatives. Here, Saudi Arabia and UAE have shown interest to invest up to $30 billion in both investments and loans; where the Saudi part is $20 billion investment. At the same time, to cushion their investments by playing a part in bringing much needed stability to the precarious macroeconomic situation- with SBP indicating foreign exchange reserves to be at the paltry $6.9 billion, in turn, covering only two months of imports, and therefore well-below the minimum satisfactorily level of three months of import cover- Saudi Arabia and UAE are all set to provide loans to the tune of $12 billion; while on the other hand, reportedly China will also be providing $2 to $3 billion in loans shortly.
All this, if materialised, will help Pakistan to deal with its balance of payments crisis; after all of no fault of current government, it was indeed handed a yawning trade deficit of close to $36 billion- given it was around roughly half of this, at around $19 billion, when the previous government assumed office back in 2013.
The Saudi investment plan includes, among other things, investment to the tune of $10 billion towards building a petrochemical complex and an oil refinery. While both the complex and the refinery are to be located in Gwadar, other initiatives being planned include investment in projects in renewable energy, power generation, mining, and fertiliser production sectors.
The environment is all the more important, since it may appear from recent talk of a visiting US senator that a free trade agreement could be a likely possibility
These are all poised to bring home substantial opportunities for the economy and PTI’s promise of generating jobs. Firstly, the complex and refinery will help cut on the big ticket item of petroleum products imports. Secondly, as can be seen in countries including USA, investment in renewable energy not only will help deal with climate change issues, but also produces opportunities in generable large amounts of jobs- and that too both low skilled to high end spectrum employment opportunities. Thirdly, being a heavily dependent agrarian economy, agriculture sector remained neglected during the tenure of last government, and investment in fertiliser production will help reduce much needed crop production costs, and provision of good quality fertiliser will improve agricultural production. Fourthly, investment in mining will help exploit the potential to extract vast mineral base the country posses- especially in Balochistan- that will not only help boost exports, but will also being in employment opportunities in the backward areas.
So while the iron is hot in terms of investment getting attracted to country in these important sectors, domestic policy needs to meet this at least half way. The ministries- especially those of planning, agriculture, industry, mining, and climate change- need to pull up their socks, along with the investment authorities and ministry of finance. The lacklustre package of the recent finance bill will only scratch the surface to presenting an attractive environment for coming investments to feel at home. It is good that the PM has asked authorities to reduce visa restrictions and take other measures to open up Pakistan to the world, but it is the sound, wholesome policy- on both the demand and supply side- within each sector, especially the ones mentioned above, which will show that country is ready for this sort of investment.
The environment is all the more important, since it may appear from recent talk of a visiting US senator that a free trade agreement could be a likely possibility, going forward between the two countries. As he rightly pointed out, that will indeed be a big game changer for Pakistan; just like it was for Vietnam. Yet till the time it happened, Vietnam had soundly put in place- and refined over many years- an investment policy. Pakistan needs to do the same and quickly; while the likelihood of a default rain may have subsided for now, clouds of macroeconomic imbalances loom large, and a sustainable build up of foreign exchange reserves is indeed the need of the hour. This sort of policy and strategy homework is also needed if Pakistan needs to see CPEC investment shifting from infrastructure projects to building more factories in the country- as it has reportedly indicated to China.
Here, it also requires to be pointed out that by not opting to participate at the annual session of World Economic Forum (WEF), the PM, the foreign minister or the finance minister (wonder the recent finance bill could not be presented by the minister of state for finance), a good opportunity has been lost to present to businesses and governments areas where investment could be made in the country. Also, the message it sent was not right, and that was that a government who otherwise says that it is desperate for foreign investment, has not got the time to participate in such a big platform, where ideas and opportunities are abound for this.
Yet, two things that government could still learn from WEF is firstly, New Zealand’s policy- as well articulated by the country’s PM- towards bringing greater wellness for its country. Specifically, the idea that it is not economic growth but improvement in wellness of its people that the government is really looking to target, should be heard loud and clear in our policy corridors where most talk over the years has been on citing endlessly economic growth and per capita income (where the latter any ways means not much, since the average here is highly influenced in the wake of huge income disparities in favour of a tiny rich elite class). Hence, it is a good opportunity to learn from those wellness policies.
Secondly, and more importantly, as the climate change highlights the importance of constraints in harnessing endless economic growth prospects, one thing that is emphasized in WEF is the potential of solar energy that needs to harnessed properly, if growth prospects need to virtually infinitely improve, and climate change scorecard needs to improve. Hence, Pakistan being mostly a sun-abundant country should seek foreign investment and formulate needed domestic policy to harness this immense potential for both local economy, but also should look to contribute its share in improving global climate prospects, especially moving to world away from dependence of fossil fuels. Is Pakistan ready?
