The engine of economic growth is investment. Around us in South Asia, every economy is booming. Growth is recorded across the board, be it GDP or exports, revenue or investment. It is only Pakistan that is stuck in a time warp! Poor economic management, lack of cohesive economic policies prior to the democratic government and the subsequent lack of will to correct earlier wrong forming the basis of this unhealthy situation. Law and order and the results of the war on terror add the final blow.
While the latter will definitely deter foreign investment, the lack of investment coming from the indigenous private sector is definitely worrisome. High bank rates, a traditionally disproportionate collateral requirement and intensely partisan banking policies have not only made the availability of funds scarce to the private sector but also very unattractive.
Historically, banking funds have been available only to big business houses. 65% of the billions loaned to the private sector are in the hands of those with already deep pockets whose needs for these funds stem from greed. This sector is already famed for investing cleverly, both in the country and abroad, thus hedging their bets.
The more enterprising venture entrepreneurs have been compelled to fold their hands and leave the country or simply resign themselves to a job. Banking reforms are required to cap the quantum of lending to big balance sheet companies and make adequate resources available to broaden the base of shareholding. Venture capital completely missing from our market requires introduction. Simultaneously, the SME sector needs to be made vibrant.
Banks have recently preferred to invest in the booming stock market and loans to the government at high rates of interest. This has boosted their profits while creating a liquidity problem for the smaller fish in the private sector. Banks ceilings allocated to other sectors especially agriculture have not been utilised completely. In order to promote growth and investment, it is necessary that government addresses the high bank rate while penalising banks heavily for not lending as required. DFIs whose prime function is to fund projects must also be taken to task for falling behind targets.
Frequent policy changes create serious uncertainty in the investment market. Diplomats promoting invest into the country are often heard complaining about this fact, citing examples. In the past there was Hubco, of late there is KESC. Government interference in the reinstatement of labour has not been appreciated. Perhaps KESC dealt with the issue in a ham-handed manner but the privatisation agreement is clear in allowing them to take necessary action after a one-year embargo.
Similarly the fiasco over the Chinese investment in Thar Coal and the issue of Reko Diq are glaring examples. NEPRAs penny-wise, pound-foolish response on Thar Coal resulted in the Chinese companys withdrawal and left a core natural endowment in neglect for another decade. The reaction on Reko Diq is unclear to an economist/entrepreneur like me. Investment in Greenfield operations is a huge and a risky business. It is based on some inputs certainly but there is a large element of luck involved too.
Todays positive result in that entity is derived from apparently $30 million already spent in initial exploration. We are told it will take almost another $300 million before the company can begin to draw benefits. This investment would only be forthcoming if the sanctity of agreed terms is guaranteed and if the project makes economic sense. The current furore is not entirely justified. There is no inherent capacity within to develop the mining project. The endowment will lie there forever. Here is an opportunity to generate employment, develop the area and share the resultant revenue. The appropriate and honourable time to revise terms is at renewal not midway. This is how governments build credibility.
Senseless statements by politicians, sensational but negative reporting by the press, damaging intervention by agencies and populist decisions are the source of irreparable damage. The actions of one particular Pakistani owned international network in ridiculing the dispensation in its international broadcasts is embarrassing. Especially when we have highly nationalistic neighbours. In this fragile situation, the state needs protection. We are not providing this either by action or deed.
Given the $17 Billion and growing reserves, anticipated exports of $24 Billion, yesterdays overdue changes in the revenue division and the talented economic team, one must hope that the huge deficit will be controlled. Once revenues are close to target, we can breathe easier. Total commitment and harsh measures against evaders and defaulters will be necessary to achieve this.
Government must produce a dynamic growth and investment policy that should also cover privatisation. It must be approved by parliament and then adhered to, so that ensuing decisions are provided necessary legal cover protecting them from external interference.
The challenges are monumental but belief in this country will lead us through the quagmire. President Obama yesterday said, . to win the future, we will need to take on the challenges that have been decades in the making. Its time we did.
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