KARACHI, Jan 21: A stringent security clearance policy adopted by the interior ministry for prospective foreign investors or companies prior to getting registered with the Securities and Exchange Commission of Pakistan (SECP) is taking its toll over direct foreign investment (DFI) in the country.

According to corporate consultants, six months ago the ministry widened the scope of security clearance by asking foreign companies, directors and even the foreign directors who get re-elected on boards of companies to get prior clearance and NOC. In the past the conditions were restricted to security service companies, non-governmental organisations (NGOs) having foreign funding or involving foreigners and companies having Indian nationals.

However, soon after the Raymond Davis incident in Lahore and the May 2 Abbottabad operation carried out by US Marines the ministry directed the SECP to include a new category of companies and people for clearance.

The ministry asked the SECP to put all cases of private security companies, foreign-funded organisations, NGOs and companies and those companies and organisations involving foreigners under processing for mandatory NOC before incorporation and registration with the commission and the Board of Investment (BoI).

The SECP, which works as a watchdog over the activities of the corporate sector, was also asked by the ministry to compile eight sets of documents for each case forwarded for granting NOC and security clearance.

However, corporate consultants have complained that the process of getting NOC and security clearance was discouraging foreign investment. They complained that a lengthy and cumbersome procedure took three to four months for getting the clearance from the interior ministry.

Mohammad Farooq, a leading tax consultant, alleged that the ministry’s officials were involved in corruption and intentionally delayed clearance of cases. “One would not like to risk the country’s security but it is equally important that economic security of the country should not be risked and foreign investment is an important component for achieving development and creating jobs,” he remarked.

Registration of several companies involving foreigners, he said, was pending with the SECP since long for want of security clearance from the ministry. Mr Farooq apprehended that if such delays and bureaucratic bottlenecks were not removed, no foreign investment would come to Pakistan.

He said the State Bank of Pakistan (SBP) had reported that countries which were major investors in Pakistan had either left or made minimum or insignificant investment. The US, UK and UAE were prime investors in the country in 2006-07, but their investment is now at a minimum level, he added.