MORE than a year into its tenure, the government has positive progress to show for its time in power.

The macroeconomic picture has been stabilised, reserves have recovered, the currency is stable, and the fiscal situation is being managed tightly. Signs of a revival of growth are visible. The private sector’s appetite for bank credit is growing, and idle capacity has been restarted.

Although credit should be given to the government for these achievements, investor confidence would increase significantly if there are clear signs of a more firm handle on the economy, decision making is faster, and more concrete fast-track actions are taken to address the security and energy issues. While investor confidence has revived, a visible change is needed for investors to feel confident that the economy will not be allowed to drift away any longer.

Every business leader with experience in running an enterprise — large or small — will tell you that initiating an effort is the easy part. The real challenge is in implementing and sustaining it. And this is where the government needs to focus.

At the heart of sustaining economic growth is the question of investor confidence. The government is right to bet that currency stability is one of the key factors in this. But there are other factors as well. A secure law and order situation, political stability, security of energy supplies at stable and foreseeable prices, smooth functioning of the tax machinery, accelerating meaningful interaction between business and government, and transparency in the government’s efforts to attract foreign investment are also essential for the confidence and comfort of the investor.

As part of our constant monitoring of business sentiment in Pakistan, the Overseas Investors Chamber of Commerce and Industry (OICCI) conducts regular surveys to gauge the state of business confidence amongst our members.

The first such survey, conducted after the elections, showed a remarkable uptick in business sentiments, with the Business Confidence Index jumping into positive territory for the first time in many years.

The sharp jump was attributed primarily to the perception that the new government would be ‘business friendly’ and would be coming in with a large enough mandate to allow it to make necessary structural changes for the revival of the economy. The perception helped unlock confidence, and plans were immediately made to expand capacity and hire more staff. The outlook on sales volume, profits and returns all saw a sizable jump.

To some extent, the perception has borne out. But then our next survey, conducted this May, suddenly showed a deceleration in this momentum, with business confidence dipping from a positive 2pc to a positive 1pc in less than six months. What are the explanations for this sudden slowing down of confidence?

There are a number of factors. For one, investors have carefully watched the growing contacts between the governments of Pakistan and China, as plans for the establishment of an ‘economic corridor’ gather pace. The infrastructure investments being planned under this initiative will go a long way towards boosting productivity and making Pakistan a vibrant hub for regional trade. Unlocking the economic potential of Pakistan’s strategic location is key to ensuring its long-term prosperity, and the government’s energetic efforts to pursue this goal could be its biggest legacy.

But foreign investors also believe that the effort could be strengthened if given greater transparency, so those with large stakes in the country today can feel reassured that they have a reliable outlook on what their business environment will look like over the medium term.

The infrastructure that is envisioned to be built under this growing partnership (between Pakistan and China) is a positive for investors. But the reciprocal commitments that are being entered into with government-supported commercial entities on the other side need to be better understood by all stakeholders.

Few things are more important to foreign investors than a stable and predictable business environment over the long run. We can usually work with and tide over short-term volatilities. But large-scale changes that alter the landscape within which we have set up stakes can only be helpful if they arrive with sufficient lead time, and out of a consultative process involving all whose stakes stand to be affected, so their impact can be duly incorporated into our financial forecasts.

When looking at the state of business confidence in Pakistan today, there is much to appreciate in the ground covered thus far. But confidence is like a delicate fairy: slow to woo and quick to flee. It is important that the government continues to pursue the crucial task of stabilising the macroeconomic framework. But it is equally important, going forward, that it signal to large investors that any significant changes to the environment within which they have acquired their stakes will reflect everyone’s input.

The writer is the President of OICCI

Published in Dawn, Economic & Business, July 28th, 2014