Can PML-N, the leading party of the ruling coalition, motivate and mobilise its political base of traders and industrialists to rise, take risks and surprise the nation by investing more than before against odds to prove mastery of their skills and to show their trust in democracy and the future of the country?

If the elites so decide they can plough into the big pool of idle private investible funds towards innovations, industry, productivity and competitiveness to fasten the pace of capital formation, reduce import dependence, boost exports, generate jobs and deliver higher GDP growth. Thus far these floating monies in private hands are deemed responsible for creating a bubble in real estate and distortions in commodity, currency and the capital markets. Such funds often landed overseas and sometimes get lost in thin air (Dubai housing fiasco, etc.).

Without higher investment, it would be hard for businessman-turned-politician Prime Minister Shehbaz Sharif and the ruling coalition to justify the removal of the PTI government (before their term ends in 2023) and the economic cost of the political turmoil in the current trying times globally. The electorate shows little mercy to those who cause them misery. Besides, it will be stupid to assume that the Pakistani love for democracy is absolute or unconditional.

Most business leaders were irate and former occupants of key economic positions sounded diplomatic. Pakistan has one of the lowest savings and investment rates globally. Over the past decade, this rate hovered in the band of 14-16 per cent except for 2017-18 when it hit the 17pc mark. In India and Bangladesh, the investment rate is roughly double this rate.

FDI is market-seeking, hoping for quick payback at relatively low risk, hardly ever promoting exports and results in a net outflow of capital. Besides, how realistic is it to expect FDI when locals don’t invest?

Shaukat Tarin, former finance minister offered a measured response on the question of investment prospects keeping Pakistani investors’ habits in sight. Mildly critical of the chaos created by the early fall of the last government he resented the perpetuation of the patronage culture. “Investments grow with political stability and a long-term policy framework in place. Moreover, we have to work on our savings rate. The market distortions we create by undue benefits to rent-seekers do not help the economy in the long run.”

Salim Raza, a former governor of State Bank, blamed low investment in desirable sectors to misplaced preferences. “One consistent ‘leakage’ of our potential investment is into non-productive land investment, commodity play and lending in the informal market. This shows up in a phenomenally high cash-to-deposits ratio, 42pc, when virtually no country is above 20pc, and developed countries, including China, are in low single-digits.”

Musadaq Zulqarnain, Chairman, Interloop Ltd and associated companies, made a strong case for quickly operationalising special economic zones. “Mobilising investment is a complex issue. First of all, Pakistan hasn’t been able to have a long-term balanced and sustainable industrial investment policy that it needs apart from other things such as political stability. Moreover, structural problems and inefficient energy infrastructure put a lot of pressure on the cost of production. Another issue is the lack of effort to improve the technical skills and efficiency of the workforce while the corporate entities have to compete with tax-evading informal providers.

There is a huge negative incentive in the form of other investment options with the promise of immediate huge returns at none or very low tax rates like real estate

“On top of that, there is a huge negative incentive in the form of other investment options with the promise of immediate huge returns at none or very low tax rates like real estate. This makes industrial investment less attractive. As such private capital looks for special packages to compete with higher returns in other areas. All these issues need to be addressed to drive capital flows towards the industry.”

Ehsan Malik PBC CEO defended the private sector and was critical of Prime Minister Shehbaz Sharif’s budget that penalises successful corporate entities. “It is unrealistic to expect a high rate of investment in an environment of inconsistent policies, disproportionate tax burden, lengthy bureaucratic processes, paucity of affordable industrial land, the difficulty of obtaining utility connections, low labour productivity and a banking system skewed to risk-free lending to the government.

“Raising long-term capital other than through the recent Temporary Economic Refinance Facility programme has been difficult. Development finance institutions don’t exist. Listing of companies is no longer incentivised. Formation of groups to promote scale and widen shareholdings is discouraged through double taxation of intercorporate dividends.”

He lamented over the glorification of foreign direct investment (FDI). “Most of the FDI is market seeking, hoping for quick payback at relatively low risk. It hardly ever promotes exports and results in a net outflow of capital. Besides, how realistic is it to expect FDI when locals don’t invest?

“Foreign investors have a choice of investment destinations. The much-mooted relocation of Chinese labour-intensive manufacturing is going to Laos, Cambodia, Vietnam and Ethiopia because of their comparatively more attractive environment and facilities. The current budget is certainly not supportive of large-scale investment”.

Several ministers heading economic ministries were reached for input. Their responses were not received within the deadline.

Published in Dawn, The Business and Finance Weekly, July 4th, 2022