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Investment opportunities, challenges and threats

Published on 1st Sep, Edition 35, 2014

 

Size of Pakistan’s GDP and its growth rate is dismal when compared with the potential. While it is true that smaller size of GDP is due to lack of documentation, the most disappointing fact is that the successive elected governments have opted for policies that could help them in attain ‘political mileage’ rather than introducing policies that could ensure sustained development.

These governments have been following policies dictated by the International Monetary Fund (IMF) and multilateral lenders rather than coming up with ‘home grown’ policies. As a result GDP growth in Pakistan often slipped below 3%, while India managed to achieve up to 10% rate. This murky performance could be attributed to: 1) failure to come up with right policies, 2) policies driven by multilateral lenders and local groups having vested interest and 3) policies discontinued or radically changed with the change of government.

Those countries which wish to boost GDP size and its growth rate work on long-term policies, whereas in Pakistan adhocism has prevailed over. Enough has been written in print media and talked about at television channels but incoherent and inconsistent policies have prevailed over. The aid/grants and even project financing provided by multilateral lenders are driven by the foreign policy of super powers that virtually control IMF, World Bank, IFC and even Islamic Development Bank. Nearly seven decades have been wasted on experimenting and the country can’t afford to continue to follow absurd policies imposed by the super powers to pursue their declared and hidden motives.

In these pages it has been often highlighted that the country suffers from budget and current account deficit but little has been written and talked about ‘confidence deficit’, people having little or no trust in the ruling junta. Mian Nawaz Sharif created the history by becoming Prime Minister of Pakistan for the third time and his party formed government at federal as well as Punjab (having 65% population of the country) but within a short span legitimacy of his government became questionable.

PML-N has remained in power for a very long time in Punjab and also claims to have performed ‘miracles’ in the province but it is thriving on taxes collected from Karachi, gas produced in Sindh and Balochistan and hydro and thermal electricity generated in Balochistan and Khyber Pakhtunkhwa provinces. Since the basis of distribution of revenue is ‘population’ Punjab takes away bulk of the tax paid by industries located in Sindh, particularly in Karachi. The province claims to be the biggest producer of agri produce but income tax collected on income from agriculture is negligible. Punjab government is often accused for ‘stealing’ water of other provinces.

Balochistan and Khyber Pakhtunkhwa provinces have remained least developed because of failure of successive federal and provincial governments to establish right type of industries in these provinces. One of the complaints of Balochistan has been that the province produces huge quantity of natural gas but most of its areas, facing extremely low temperature during winter are not supplied gas. Sindh has emerged as the largest producer of fertilizer, which is used by other three provinces but gas supply to these plants is curtailed/halted to ensure its supply to domestic consumers located in northern parts of the country.

Over the years there have been concerted efforts to undermine importance of Karachi having two ports and the largest manufacturing infrastructure. In one of the previous articles, I have highlighted that as against a demand of about 5,000MW, K-Electric has the capacity to meet less than half of this demand (including the supply it gets from two IPPs located in its franchised area and 650MW from the national grid. Ever since PML-N government has come in power, it has been threatening to discontinue this 650MW supply to Karachi, which the government is bound to supply till 2015 according to privatization deal. Besides, K-Electric supplies electricity to many cities of Sindh and Balochistan. One completely fails to understand the logic; can additional supply of 650MW to Punjab help in reducing load shedding in the province?

 

Talking about the split milk is meaningless. The federal as well as provincial governments have to jointly explore: 1) investment opportunities, 2) challenges and 3) threats and then come up with home grown policies to usher new era of agriculture and industrial revolution. The driving rule should be exploiting competitive advantage rather than serving the vested interest of the elites. Some of the industries just can’t be located at other places, except port cities i.e. Karachi and Gwadar. All those industries that are dependent on imported raw material or export bulk of their production must be located near ports. The logic is simple, it will help in bringing down not only cost of transport but also save huge quantity of diesel used by vehicles first taking the raw material to other parts of the country and then bringing the finished goods back to Karachi for local consumption as well as export.

One of the most absurd examples is establishing of sugar mills in Punjab, particularly in the cotton growing belt. This has two adverse impacts: 1) reduction in cotton produced in the country and 2) higher cost of sugar produced in the province. If one explores exponential growth of sugar mills in Punjab two factors becomes too obvious: 1) most of the mills established in Zia-ul-Haq era and onwards are owned by politicians and 2) NDFC – the DFI that has gone virtually bankrupt has financed these mills at nearly half of the interest rate prevailing at that time. The situation is more or less the same in Sindh but despite all the inefficiencies mills located in the province have been achieving higher recovery. Soil and climatic conditions of Sindh are more conducive for the cultivation of sugarcane, which constitute nearly 90% of total cost of production.

Yet another problem is that bulk of molasses produced by sugar mills located in Punjab has to be brought to Karachi for export. The wiz-kids ruling Punjab have failed in convincing these mills to produce E-10 (motor gasoline containing 10% ethanol). Introduction of E-10 in Punjab can help in overcoming CNG crisis as well as reducing oil import bill of the country. Sindh government has also failed in exploiting this potential. Since there is ample ethanol production capacity in the country, quantitative restrictions should be imposed on the export of molasses to begin with, leading to complete ban on export of the commodity.

Since the world suffers from the worst geopolitical crises, Pakistan can’t be an exception. For the last four decades it has been fighting ‘proxy US war in Afghanistan’. The fallout is that the country is the worst victim of terrorism because militants have found safe sanctuaries in Pakistan. Since these militants gets funds and arms from outside, weeding out these elements is a must for ushering economic prosperity in the country. Enjoying ample supply or arms and money these groups have become the ‘biggest land grabbers and booty collectors’ and also use residents of the areas as human shields.
The largest industrial area of Karachi, SITE, has been virtually ruined by these elements. Even the main roads are without street lights and owners/workers are looted and kidnapped after late evening. It is mainly because the slums located around this largest industrial area are sanctuaries for criminals, who have mostly come from other parts of country and even from Afghanistan. Sohrab Goath in Karachi is also a den for militants and criminals. Ironically, local police is just not allowed to undertake ‘operation clean up’ in many of the localities which are considered ‘vote banks’ of political parties. The largest theft of electrify and gas pertains to these areas also.

Despite all odds if entrepreneurs dare to establish their manufacturing facilities in Karachi they have to face prolonged outages of electricity and gas, pay booty regularly and there are more than two dozen government entities to collect cess/tax as well as huge bribe or face closure of these industrial units. It was alleged that the fire at a garment factory in Karachi in which nearly three hundred workers, mostly females, were reduced to ash was a case of refusing to bow down before the demand of ‘booty collectors’.

The business community of Karachi does not demand any favors but robust infrastructure, uninterrupted supply of electricity, gas and water, level playing field and protection against criminals. Traffic jams result in huge loss of fuel that can be overcome by cleaning roads from all sorts of encroachments, construction of quality roads, underpasses and flyovers. The city does not need any charity but control over the taxes paid by the industries located in the city and vehicle tax.

It may be said with full confidence that despite all odds Karachi is still the hub of industrial and commercial activities, has the largest share in total export of the country and remains a preferred destination for foreign investors. It may also be kept in mind that nearly two-third of total population of the city comprises of people belonging to other parts of the country. They on one hand play important role in the economy of the city but on the other hand support their families living in the native areas. Survival of Pakistan is directly dependent on the well being of Karachi and city must not be allowed to become hostage of criminals, militants and booty collectors.

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