Pakistan’s Special Investment Facilitation Council (SIFC), faces significant challenges in attracting foreign and domestic investment amid capital outflows. There is a need for fundamental regulatory reforms to instill investor confidence and drive substantial investment into the country. The SIFC’s efficacy is questionable over systemic changes rather than coercive measures to address Pakistan’s investment climate.
After over a year of its creation, the functioning of the Special Investment Facilitation Council (SIFC) faces FOUR major challenges. Firstly, how to convince foreign investors that Pakistan is the best place to park their money for lucrative returns in a situation when existing investments are being drawn out of the country or looking for a way out of it.
Secondly, how to instill confidence among Pakistani investors, most of whom are averse to staking their money at home. Ideally, it should come across as a facilitator of invoking investor confidence instead of being seen as an ambitious stick-wielding mechanism to enforce decisions by the bureaucracy.
Thirdly, a big question looms over the modus operandi of the SIFC; Is it a forum for facilitation of all and sundry or coercision of the bureaucracy to facilitate a few chosen ones? Is it working to level the field for all potential investors or out there to bend rules and regulations in favour of a particular investor?
Fourth, a policy and decision framework that itself should inspire confidence instead of making long presentations to potential investors.
A recent letter by the Pakistan Business Council (PBC) addressed to the SIFC highlights these challenges and calls for transforming the investment climate.
“Unless the investment climate improves, foreign investors’ high-risk perception will result in short payback periods, with today’s inward investment turning into net outflow very quickly,” Ehsan Malik, the PBC chief executive (as reported in the daily Dawn) warned in the letter.
Malik also urged the council to address “fragmentation and silo working of key ministries to ensure long-term predictability of policies.”
“Prospective investors look at the experience of existing investors…nothing is more off-putting than knee-jerk, short-term changes that render investments under previous policies unfeasible.”
He pointed to the “colonial-era regulatory overload, with slow and non-transparent decision-making on smuggling, under-invoicing, misdeclaration of imports, counterfeiting, misuse of Afghan transit trade, and concessions to Fata/Pata, which combined to create a perfect storm to undermine the industry.”
By quoting these factors Mr. Malik practically called out the nexus that currently exists between bureaucracy and traders, importers, and exporters. They all join hands to exploit the colonial-era regulatory framework that in a way encourages and facilitates smuggling, over-, and under-invoicing, and the special permit culture.
The PBC CEO even called out the Federal Bureau of Revenues’ extractive as well as predatory taxation regime for a flight of capital and people abroad.
“Heavy taxation of salaried employees is resulting in loss of talent as people either are moving abroad or switching jobs to the informal sector to evade taxes,” Ehsan said
Without transforming the business climate i.e. massive reform in the regulatory framework, no foreign investor will head to Pakistan, Malik said.
“When local business people shy away from investing, foreign investors are hardly likely to be enthusiastic,” said Malik pointing out that “our own investors are moving abroad, some even surrendering their nationality, due to a poorly conceived capital value tax that remains contested in the Supreme Court. This results in very little tax revenue for the country, he said.
What do we conclude from all this? As a whole, the SIFC movers and shakers may generate catchy headlines in the media and may entice some Saudi/Gulf investment in the country by extracting decisions without changing the fundamental drivers of the decisions.
But coercive means and measures hardly help in instilling confidence. Nor can they excite domestic or foreign investors. Without changing the fundamental regulatory framework and without extricating the decision-making from the baboos i.e. bureaucracy, no amount of effort by SIFC will bring in foreign investment that may be commensurate to the size and the needs of this hapless country.
