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The vital ways of attracting foreign investment

Published on 26th Jan, Edition 4, 2015

 

Infrastructure development and logistics is one of the vital ways through which any country can attract foreign investment and help achieve sustainable development for the growth of an economy. Considering the case of Pakistan, the focus on infrastructure while given importance isn’t always the most important aspect to consider since there are other issues the country has to deal with. There are the political sit-ins in the country, which have negatively impacted the economy, however, the Prime Minister Nawaz Sharif has time and again stated that despite the issue, work has constantly been done to put the economy back on the right track. Apart from this issue on the political forefront, the energy crisis and terrorism are other major issues, which are causing challenges for the country. With regard to this, speaking to a delegation of traders recently, he stated that the energy and petrol issues, which have recently gripped the major cities of the country are also being worked on so that domestic consumers and members of the business community no longer have to suffer. With the government already bringing the prices of petrol down over the past few months, relief has already been granted to citizens and business community members, however, without the availability of petrol, lower prices don’t matter much.

He also stated that power plants are being set up in the country with an aim is to achieve the maximum production of electricity by the year 2017. This would help in ensuring foreign and domestic investors from within the business community that Pakistan does have the energy as well as the resources, which are needed to meet the requirements set by these individuals who would enable them to invest in the country and help it steer towards sustainable development.

An infrastructure project on which work is ongoing is the gas pipeline between Gwadar and Nawabshah for which 85% of the financing worth $3 billion by China is to be completed. Out of this amount, $1 billion will be used to lay down the pipeline from Gwadar whereas the remaining money would be needed to construct the LNG handling and re-gasification facilities as well as for the development of large storage. This pipeline is expected to be extended into Iran as well once sanctions have been lifted on Tehran.

Furthermore, an additional pipeline would also be laid down from Iran to Gwadar, however, work has not progressed on this project due the country’s inability to obtain the required amount of finances as well as due to the United States of America pressurizing Pakistan not to enter into any agreement for the import of natural gas from Iran due to the existence of sanctions. With no government having successfully been able to get work to progress, the country continues to face a shortage of 2 billion cubic feet of natural gas daily. Iran was to penalize Pakistan with $2 billion a day over not completing its part of the construction by December 31, 2014, especially since Iran has completed its share of the work. While Pakistan has not been able to meet this deadline, the penalization has yet to be invoked.

 

Work is also being done on the construction of the Karachi to Lahore Motorway for the purpose of which Rs55 billion have been released. A number of additional motorways are also under progress with China being interested in investing in the construction of the Multan to Sukkur Motorway and with negotiations ongoing. The cost of this 387 km long project is expected to be completed at a cost of Rs259.4 billion out of which 90% of the cost is expected to be handled by China whereas the remainder of the cost will be paid by PSDP (Public Sector Development Program). The project is expected to be complete by late 2017 and is to be part of the Karachi-Multan-Lahore Motorway. A Khunjrab to Gwadar Highway too is being constructed, which would further assist once the Gwadar port has been made fully functional.

China seems to be amongst the allies of Pakistan when it comes to development projects, wanting to help the country rid its troubles. State owned banks in China have also agreed to finance companies in China to help in building, funding and operating almost $45.6 billion worth of infrastructure and energy projects in Pakistan in the upcoming 6 years. Some of the companies which will be investing in the energy sector in Pakistan include the China Three Gorges Corp, the company which built the world’s biggest hydro power project as well as China Power International Development Limited. An agreement which was recently signed between the two states included projects of coal, hydro energy, wind and solar energy worth $15.5 billion to originate by the year 2017. This would help in adding 10,400 megawatts of electricity to the national grid of Pakistan with an additional 6,120 megawatts to be added by 2012 at a cost of $18.2 billion.

The biggest advantage to come to light from these investment projects would be the generation of much needed electricity for the industrial and business sectors of Pakistan, which would help in boosting GDP and help the country steer towards sustainable development. Advantages however would not be earned by Pakistan alone. While the projects would help in alleviating the energy crisis and help the economy, the Chinese companies which would come in as independent power producers would also be able to enjoy returns of 17-27% annually on their investments.

At this point, it goes without saying that the generation of power and electricity is what is needed by this country to accelerate industrialization and to bring amount a significant improvement in productivity as well as in the standard of living of the people of Pakistan.

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