ISLAMABAD, 14 April 2008 — The new coalition government in Pakistan has decided to shift its focus to industry and farming, in addition to energy, in its new economic and business policy. Its key objective is to “achieve a real GDP growth on a sustainable basis.”
So far, services have been attracting more foreign and domestic private investment because these were recording a huge growth and profits. The new policy will be attractive for foreign investors, especially those from the United Arab Emirates, Saudi Arabia, Western Europe and US. Investors from these regions view Pakistan as a cost effective, freight-saving and reliable production hub to feed South and Central Asia.
The new emphasis on industry and farming will help feed the growing domestic demand for a number of consumer products, ranging from home appliances and electronics to autos, vehicles, busses and trucks, heavy electrical machinery, and power generation equipment.
Finance Minister Ishaq Dar has firmed up the new economic and business focus. It is part of the Government’s 100-Day Plan, and beyond. There is a reason for the policy shift and adoption of a new strategy. Dar says, “The growth strategy pursued in the last nine years led to import of luxury cars, cellular phones and expensive products for the rich. Such a strategy cannot assure growth on a sustained basis. The coalition government will now shift its focus toward agriculture and manufacturing.”
The focus now shifts to actual production, not merely services. The industry and business have to cater to the growing domestic demand for various products, to contain inflation, and to step up stagnated exports for which large surpluses will have to be created. Prime Minister Yusuf Raza Gilani has asked the central State Bank of Pakistan (SBP) to adopt “practical measures to effectively control inflation and prices of essential commodities, and ensure a sustainable economic development policy.”
“Controlling inflation is the government’s top priority so that benefits of economic growth pass on to the common man,” he has advised SBP Governor Dr. Shamshad Akhtar. Food Inflation in March was an all time record of 20.61 compared to same month last year. It was 16 percent in February, according to Federal Bureau of Statistics (FBS). Overall inflation in nine months of March was 9.49 percent, it reports.
Large scale manufacturing (LSM) output has declined to 4.5 percent in the first eight months of FY-08, sharply contrasting with an increase of 8.3 percent in the like period of FY-07. Output in previous years has ranged between 11 to 13 percent. SBP in its latest analysis says, the farm output too may not attain its 4.8 growth target as output of two major crops — cotton and rice — faced a shortfall. The record sugarcane and maize harvests, and a likely good wheat harvest, may not offset impact of reduced cotton and rice crops. However, the government already faces a worrying prospect of rising prices of wheat flour (‘atta’) now, at a time, the new crops is just being harvested.
An unprecedented hike in wheat flour price, in the run up to the February 18 national election was a key cause of the rout of President Mushraff-backed Pakistan Muslim League (Q).
Pakistan is making its business and industrial policies still more attractive to ensure larger inflows of foreign direct investment (FDI) under direction of the new government. It will continue permitting repatriation of full amount of investment, 100 percent dividend and royalties and fees. But, it is likely to persuade foreign and domestic investors to go into industry, farming, including corporate farming, energy, and some new areas.
The latest evaluation by the Ministry of Finance (MoF) estimates that less then five percent of FDI that flowed into Pakistan in recent years, went into industry. It means the inflows have not gone into long-term investment or enterprises. Rest of the inflows have gone into services like the mushrooming telecom and cellular fields, banking and financial services which have been making unprecedented high profits. Oil exploration, production and refining, natural gas, and electricity generation, were some of the other areas that attracted FDI.
This is also born by the outflows, from Pakistan, of the repatriated amounts of dividends and profits by foreign companies. These outflows on these accounts rose 10.9 percent during the first eight months - July-February — of the current FY-08, compared to the like period of FY-07. The overall repatriation abroad, by all companies with foreign shareholding, during these eight months rose to $556.6 million, up from $ 501.9 million in the same period of ’07, SBP reports.
Power generating companies, with foreign shareholding, top the list in terms of the amount repatriated with $122 million, up from $95.7 million in the like period of FY-07.
Foreign telecom companies repatriated $84.3 million. Oil & gas companies sent out $60.5 million, compared to $35.1 million in the previous period.
However, there was a 15.7 percent decline in the amount repatriated by banking and financial companies. They sent out $52.1 million — as against $61.8 million previously. Petroleum and refining companies sent out $48.2 million, up from $45.8 million. Pharmaceutical and OTC producers sent out $19 million, up from $4.7 million. Chemical manufacturing companies $28.4 million against $32.1 million previously. Tobacco and cigarette industry $27.3 million, up from $15.4 million. Food and beverage companies sent $17.71 million, down from $19.60 million. Companies in transport equipment repatriated $13.8 million, up from $8 million.
The future investment plans cover all industries and businesses which foreign investors may find attractive, as virtually all sectors are open.
