How to facilitate investment

Since Pakistan’s economy is clearly struggling, and the political leadership across the board is focusing more on the next elections, it is time to review our administrative structures and suggest improvements in the hope that the incoming government can use them to quickly set about the task of rebuilding the confidence of domestic and foreign investors and restoring the country’s growth trajectory.

This article examines the administrative government structures for promoting investments in the economy, as these are important to, firstly, generate domestic and foreign investor interest, and then to convert it into actual, productive investments.

There are two government bodies dealing with investments. The Privatisation Commission (PC) deals with brown-field projects, while the Board of Investment (BOI) deals with green-field projects. A look at the privatization proceeds since 2016 and the FDI numbers since then present a clear picture that both the organizations have delivered a below par performance over the last few years. My previous three articles have talked about the privatization structure and processes, while this article will focus on the BOI.

The BOI is placed with the Prime Minister’s Office. It is supposed to market investment opportunities to global and local investors and facilitate them in establishing and running projects in the country. It is also responsible for setting up Special Economic Zones in the country. Recently, it has also worked on Regulatory Modernization reforms, besides facilitating investor visas for foreigners.

While FDI has nosed dived over the last five years, investor visas have been taken away from BOI and placed again with the Interior Division, and nothing noteworthy has happened with regulatory modernization, which admittedly may not entirely be the BOI’s fault, perhaps the only achievement of the BOI has been spearheading the Ease of Doing Business reforms, which helped Pakistan jump from 136 to 108 in the global rankings in 2020.

Why has the BOI not been effectively able to play its mandated role? When the PTI government came into power in 2018, several important Middle Eastern rulers, the president of Turkey, and the PM of Malaysia visited Pakistan, along with scores of very important CEOs of their global companies. The petroleum, power, and tourism sectors were focused in the discussions. The then PM also visited these countries, and B2B meetings were organized on the sidelines of each visit. Yet, despite the loud cheers of massive investments rushing in, hardly any investment of note materialized. Even a beeline of European and Chinese corporate investors showed keen interest in setting up projects in Pakistan, yet nothing of significance happened.

It may be easy, and also perhaps fair to some extent, to blame failures on things beyond one’s control like the onset of Covid-19, macroeconomic issues, law & order problems, and a host of other such things. However, the government can certainly endeavor to improve what it can. A few such administrative changes are proposed here to enable the BOI to become an effective organization.

First, it is proposed to pull out the BOI from the PMO and place it, along with the PC, under one ministry. This way, one ministry would be dealing with both the brown and green-field projects, while retaining them as separate entities under its fold. Both the entities need to be headed by chairpersons who have a proven professional track record in investment related work. Both the chairpersons, of the PC and the BOI, need to be top professionals and should be given market-based compensation, with clear KPIs, rather than being awarded with the status of a minister of state, which doesn’t give any real authority to them except maybe some additional prestige. No KPIs have ever been set for them either. They should be like top corporate CEOs – well paid and empowered, but ready to be sacked for not meeting the KPIs set for them.

The chairpersons would market business opportunities and facilitate investments, while the minister could help get the deals through the cabinet sub-committees, like ECC, CCoP, & CCoSOE, and the cabinet. A politically strong minister could also get the required cooperation from the other concerned ministries, which is seldom available to professional chairpersons, who are usually outsiders to the political and bureaucratic systems.

Second, there is a dire need to develop the BOI into a ‘one-stop shop’ for major investors. They need to be saved from our complex and tedious system of getting approvals for everything. Assigning a dedicated investment officer from the BOI to the potential investor for ensuring quick completion of all required formalities would be helpful. Having senior level representation on the Board of the BOI from the Ministry of Energy, FBR, and chairpersons of the provincial BOIs could be a mechanism for quick resolution of issues under one roof, so that the investor is not given the customary run around. Similarly, the BOI needs to be reinvested with the power of granting investor visas. Investors require quick facilitation and not the standard treatment usually meted out to foreigners.

Third, the BOI is responsible for setting up the SEZs (Special Economic Zones) in the country. Why hasn’t there been any substantial progress in this regard? There are a couple of reasons for that. In reality, nearly all the SEZs are to be set-up in the provinces, hence, the land availability and development of these zones and sale of plots is to be done by the provinces, while the federal government is responsible for the fiscal incentives to the developers and the industrialists, along with the provision of utilities. Therefore, the pace of development of these SEZs and the quality of development largely depends on the provinces.

It is also dependent upon the relations of a provincial government with the federal government. This puts the timely completion and industrialization of SEZs at risk. The industrial plots are ‘sold’ to potential buyers, who are not always genuine industrialists. This leads to it becoming a kind of real-estate scheme rather than facilitating investment for purely industrial purposes. A much better way is to lease out these plots to lower the project costs for potential industrialists.

The government also needs to ensure labour housing and skill development / labour facilitation centres in each SEZ so that the industries can use them to train their labour at new things. The federal government also needs to do away with the FBR’s requirement for zone developers and investors for filing the annual tax returns for the years where they are already exempted from payment of taxes and duties. The government needs to get off the back of investors.

Fourth, there is the issue of multiplicity of special economic or industrial zones. There are SEZs, as explained above, and then there are other federal industrial parks, technology zones, and export processing zones. What makes it even worse is that they are placed under different ministries, while the objectives of all of them are pretty much the same. For example, the National Industrial Parks Authority and the Export Processing Zones Authority are under the Ministry of Industries, the Special Technology Zones Authority is with the Cabinet Division, and as we discussed above, the SEZs Authority is with the BOI. It is proposed that all these various authorities need to be placed with the BOI. This is necessary not only because they have similar objectives, of investor facilitation for industrial promotion, but also to develop synergies between them.

Fifth, the two more instruments for promoting investments have been put in place over the last few years: (i) the Public Private Partnership Authority (PPPA), which is placed under the Ministry of Planning & Development; and (ii) the Inter-Governmental Commercial Transactions Act, 2022, which doesn’t mention which ministry would be responsible for implementing transactions under it, but one can presume every ministry would process their transactions through the cabinet’s sub-committee set up for the purpose.

However, no transaction has yet been processed under this Act. It is proposed that since all transactions under the PPPA and the Inter-Governmental Commercial Transactions Act also fall under the subject of investment promotion and facilitation, both the subjects also need to be placed with the PC. Since both BOI and PC are proposed to be under one ministry, there would be synergies in realizing all such investments.

Finally, there is an urgent need to set up a Land Bank for Pakistan. All public (federal and provincial) and private landowners willing to offer land for industrial purposes, like tourist industry, should be facilitated to place their unencumbered land on a portal to be developed and managed by the BOI. This would save the frequent embarrassment to the government where investors show interest but land for the project is not readily available.

These are just some of the measures that would help streamline and re-energize our limp investment promotion and facilitation agencies. As always, these suggested administrative measures are dependent on the political will of the government. With dwindling investor interest, not just foreign but domestic as well, and the economy seriously struggling, can the government afford any further delay in reforming its administrative structures?

Would it be expecting too much of the PM to chair review meetings of the BOI & PC every month to see what’s happening at the investors’ front and to ensure resolution of issues? Perhaps, we need to understand that we are not the only country in the world that is wooing investors!

The writer is a retired civil servant. He tweets @ansukhera

And can be reached at: ansukhera23@gmail.com