Whatever the focus of official policies, economic stagnation not only signals that it is time for change but also serves as a catalyst for it. The crises open up space for agents of change to invest in a better future.

As a recent United Nations report says, innovation, a cumulative learning process, should be enhanced to avoid a situation of ‘lock-in’ and ‘path dependency’ in commodities and low productivity sectors, which traps the developing/poor countries in a vicious cycle of underdevelopment.

‘Lock-in’ and ‘path dependency’ refer to situations where a country becomes stuck in a particular way of doing things or follows a specific development path, which prevents diversification.

While withdrawing irrational subsidies, the government is still preventing corporate deaths of sick units which cannot be rehabilitated, blocking the opportunity for new viable projects.

Official efforts notwithstanding, many hurdles need to be removed to facilitate businessmen

However, the performance of many sectors and enterprises also suffers from volatility because of an imbalanced economy. An analyst suggests that a spurt in manufacturing can be initially managed by utilising idle industrial capacity and channelling investment into productive and trade sectors. He adds economic growth has to be more endogenous to be sustainable.

It may be added here that private capital flows to developing countries peaked a decade ago and have since fallen by one-third, says World Bank Chief Economist Indermit Gill.

Arab countries are acquiring stakes in Pakistan’s running businesses such as banks, oil marketing, management of Karachi port operation and minerals. Saudi firm Wafi Energy LLC has reached an agreement with the Royal Dutch oil company to buy 77.42 per cent majority shares in Shell Pakistan. A Dubai-based businessman, Nasser Abdullah Hussain Lootah, has acquired majority stakes and management control of Summit Bank and plans to transform it into a full-fledged Islamic bank. The government expects to conclude a deal this year for selling stakes in Reko Diq, a vital gold and copper project.

For new projects, such as an oil refinery in Balochistan, Saudi Arabia and Qatar both seek exceptional incentives and protection of their capital.

To unlock the private sector’s potential, the International Finance Commission (IFC) has doubled its commitment this year to over $1.5 billion for short-and long-term investment compared to last year.

Unveiling its plan at the headquarters of the Board of Investment, the IFC country manager for Pakistan and Afghanistan, Zeeshan Sheikh, said the investment will be focused on key areas such as enhancing access to finance, improving technical and digital infrastructure, strengthening the pharmaceutical sector, and supporting export-oriented industries.

In September, the Securities Exchange Commission of Pakistan (SECP) registered 2,477 new companies, with foreign investment reported in 82 companies from 23 countries. A major chunk of proposed investment was recorded from China at 47 companies, the UK with six, the US with five, South Korea with three, Japan, Nigeria and Portugal with two each, and 15 companies from other countries, including Mongolia, Vietnam and Afghanistan. Pakistan is now the third top recipient of Chinese finance.

While withdrawing irrational subsidies, the government is still preventing corporate deaths of sick units which cannot be rehabilitated, blocking the opportunity for new viable projects

While official efforts are being mounted to attract foreign direct investment, a number of hurdles need to be removed to facilitate both foreign and local investments. Concerned South Korean companies have approached the Special Investment Facilitation Council secretariat regarding delays in different approvals for hydel projects at the Letter of Intent stage.

Similarly, over 100 wind and solar power projects are not being facilitated under different excuses, according to Power Division sources. A former civil servant says that good governance is essential for unlocking untapped economic potential.

To quote the latest Economic Survey, the manufacturing sector’s contribution to Pakistan’s GDP fell from 13.6pc five years ago to 12.01pc in the last financial year. It is not clear from the official focus on the nature of domestic and foreign private investment whether capital spending would help reduce external pressures.

The Ministry of Finance is reported to have informed the International Monetary Fund that the current account deficit may remain in the range of $4bn-4.5bn during the current fiscal year against the budgeted $6.5bn owing to compressed imports, as indicated by the first quarter’s performance. During July-September, the trade deficit stood at $5.29nb compared to the $9bn recorded for the same period last year.

But, many doubt if these positive trends can be sustained without structural reforms. Taxes are collected on economic activity and not on profits,” says Nishat Chunian Group Chairman Shazad Saleem, adding this ‘is killing small businesses, stifling growth and risk-taking by entrepreneurs.” Trade bodies say the recent increase of 100-130pc in gas tariffs would worsen matters for the manufacturing sector.

Pak-Suzuki has decided to delist the company from the Pakistan Stock Exchange as, it said, persistent losses and no dividends for shareholders left no reason for it to stay at the bourse.

As the ever-increasing compliance requirements and poor economic conditions have made it extremely difficult for the sponsor to run the firm, Johnson and Phillips Pakistan has also opted for delisting. It is no longer a manufacturing concern and is engaged primarily in trading — something that it finds is getting equally difficult owing to the fluctuating currency.

Published in Dawn, The Business and Finance Weekly, November 13th, 2023