Seeking huge foreign investment
By Sultan Ahmed
DR Salman Shah, advisor to the prime minister on finance and revenue, is becoming more of a futurist. He is entranced by a rosy economic vision of the countryââ¬â¢s future. In doing that he often excels himself. He now talks of a total foreign investment of 100 billion dollars in the next 10 years in construction and other sectors. He is impressed by the keen interest of some of the Gulf construction firms in building houses and corporate entities including the controversial two islands in Karachi.
High economic growth creates its own problems in its wake, including overheating, particularly of weak economies. He is not discouraged by the current sluggish export performance of the country after an increase of 110 per cent since 1999, as Commerce Minister Humayun Akhtar has said. The exports may not rise beyond four per cent this year although the performance within the next three months will be better than what it has been during the last eight months.
Nor is Dr Shah nonplussed about the current account deficit which in the first six months of the financial year has left us with a deficit of $3.4 billion despite the large home remittances of overseas Pakistanis and the high-level foreign investment which may touch $6 billion this year.
The large investment is coming primarily to pick up the plums from among the large companies earmarked for privatisation, like the PSO and Sui Northern Gas Company and Sui Southern and the refineries. Foreign banks are interested in small Pakistani banks which face an enhanced capital adequacy problem. Now after the Standard Chartered Bank has taken over the Union Bank, the Prime Bank has been taken over by ABN AMRO and the official TAMASEC of Singapore is taking over PICIC Bank. After the bankââ¬â¢s takeover is completed there can be a long pause in this sector, though we will see the emergence of many new banking products.
We may see more foreign companies coming in to cater to the needs of the consumers. The Macro distributors of Germany have already opened a branch along with the Habib family and the leading American superstore, Wal-Mart, is interested in coming to Pakistan and Prime Minister Shaukat Aziz wants to welcome most of the distributive arrangements in view of the malpractices in the retail trade here.
Our efforts to have a free trade agreement with the European Union of 27 member-states are facing problems. The EU regards Pakistanââ¬â¢s economy as too small to have an FTA agreement with it. Pakistan is trying to secure the services of the UK and other leading European states to make the EU change its attitude.
The EU has already entered into an FTA agreement with India whose economy is regarded large enough and the fourth largest economy of Asia. Our efforts to have an FTA agreement with the US are not making much headway nor are the negotiations for the BIT making progress.
Pakistanââ¬â¢s efforts to make South Asia Free Trade Area (Safta) a success have met with reverses. India insists that it be given the most favoured nation treatment by Pakistan or full duty relief be provided to its goods in Pakistan. At the same time India insists on its numerous non-tariff and para-tariff barriers which negate Saftaââ¬â¢s duty concessions.
Pakistan prefers to trade with India on the basis of its positive list which now has over 1,000 items of various kinds. The issue is now to be taken up bilaterally and also at the Saarc summit to be attended by Mr Shaukat Aziz. Instead of focusing on rosy visions of the future, Dr. Salman Shah should be more concerned with some of the immediate issues. Among them inflation is a major issue. Core inflation is 5.5 per cent while the food inflation is 8 per cent, he says.
Core inflation which exceeds the high prices of food and POL is of small relevance in a country in which a third of the people live below the poverty line. What matters is real inflation beginning with food inflation which he says is eight per cent.
Food inflation seems to change day after day. When the price of one item goes down, the prices of three others rise sharply and foul up the whole process. It is more like the case of gas which has been reduced by 10 per cent and less while the rate of electricity has been raised by a uniform 10 per cent which hits the masses hard. However the reduction in urea prices following the fall in gas charges is welcome. POL prices have been reduced, but in India where inflation reached a two year high of 6.73 per cent, POL prices have been reduced twice in three months. In Pakistan LPG prices have been reduced twice within a fortnight.
India has cut its import duty on steel and other metals following the sharp rise in their world prices, but Pakistan has not done that, so the prices of mild steel bars have risen to Rs45,000 a tonne. India has reduced duties on imports of several key items after the world prices shot up. It has not really lost revenues on that score as the duties went up very high in monetary terms following the sharp rise in their import prices for vegetable ghee and oil as well.
But Pakistan has chosen a different path and Prime Minister Shaukat Aziz has reduced the price of vegetable oil and ghee by six rupees per kilo if bought through the utility stores only. The utility stores are to be supplied with twenty thousand tones of oil each month from March 10.
To the old 400 utility stores, have been added 400 more and 100 more franchise stores have been added to them. And now 200 utility stores will be set up making a total of 1100. The prime minister says there will soon be a utility store in each of the union councils and a franchise store.
These are too inadequate to meet the needs of the whole country particularly the rural areas where distances matter. In addition, the utility stores have their own brand of vegetable oil and ghee which is not popular with the consumers. The Banaspati manufacturers association has protested against the official decision and for not being consulted before the decision was announced. It prefers that instead of giving a concession to a limited number of people with access to the utility stores, the whole country should have been enabled to benefit from it by reducing the import duties as done in India, following the rise in the price of oil and ghee by $200 a tonne. Their delegation met CBR chairman Abdullah Yusuf who has agreed to reduce the sales tax of Rs 2.50 on the vegetable ghee and oil. They have decided to pass on the relief to the consumers.
The government is too slow in giving concessions to people after a sharp rise in import prices even when that will not mean a loss of revenue to the government. That the government should be too slow in taking the right decision in an election year is surprising. But there are moves to postpone the elections by a year.
There is fear that wheat flour prices may rise though there is no shortage of wheat and the new crop may exceed expectations. The government has also earmarked to export 800,000 tones of wheat including 300,000 by Pasco. But those who usually corner the market create artificial shortages and raise prices may do the same again. So the prime minister has written to the provincial chief ministers to prevent such possible mischief.
Salman Shah says there is no shortage of capital for investment in the country, but political stability is essential for large scale and sustained investment, particularly oneââ¬â¢s own capital in the domestic sector instead of borrowed money from banks on high interest rates. Political stability does not mean there should be one person at the top always, but institutional stability where the organs of the state function freely under a well honoured constitution.
Along with that, law and order is imperative and we should have a truly functioning socio-political system and the judgments of courts should be fully and properly executed by the government. But at the moment the judges are under threat from terrorists and one was killed in Quetta , the other survived in Multan.
Salman Shah has also spoken of the blessings of the great trade corridor from Karachi to Khunjerab through the Karakorum Highway and from there to China. Others have estimated the gains from the corridor up to $30 billion while he places that figure at a modest seven billion. Karachi and Gwadar will be connected through a modern road network.
Success of the trade corridor which can meet the oil needs of China as well depends on peace in Balochistan, friendship and cooperation between Pakistan and Afghanistan and good relations between Iran and Pakistan. President Musharraf has spoken of railway linkages with Tajikistan and Kazakhstan following the expansion and modernization of Pakistanââ¬â¢s railway system which is now prone to too many accidents.
So while talking of 100 billion dollar foreign investment in ten years, we should be prepared to create near-ideal conditions to make it possible. We will need real political stability which will have to be sustained with singular determination.
Too much of foreign investment to the accompaniment of small domestic investment is not good for the countryââ¬â¢s rapid economic growth. Thailand has now come to realize that and is trying to make amends in its policies.
http://www.dawn.com/2007/03/08/ed.htm#4
:flag: 
