Framework readied to attract FDI in export sector
ISLAMABAD: In order to promote foreign investment in export-oriented sectors, the Commerce Division has shared a draft investment document titled “Trade Related Investment Framework” with all stakeholders including Board of Investment (BoI).
The document provides a comprehensive framework to attract investment in export-oriented sectors and suggested measures to remove all bottlenecks hindering investments.
A senior official told Dawn that commerce division is awaiting feedback on the policy. However, he said the BoI has also not provided its response so far.
The draft policy recognises the critical nexus between trade and investment, identified the global trends in foreign direct investment (FDI) and analyses Pakistan’s investment performance over the years.
The policy comes at a time when cumulative foreign direct investment (FDI) inflows to Pakistan were recorded at $10 billion in the last five years out of which 81 per cent was concentrated in non-manufacturing sectors like power, oil & gas, construction, financial business, communication IT & telecom, transport and trade.
For promoting investments in export, the draft policy identified allocation of resources from labour intensive sectors — value added footwear and bags, apparel and textiles — to resource-intensive sectors such as copper cathodes, aluminium sheets and foils, and high-technology steel-making.
The document also highlights the need for investment in agriculture sector especially in value addition of resource-intensive sectors of agro-processing are especially juices and syrups, confectionary, fish and edible oil. It also suggests investments in import substitutions in oil refinery and petrochemicals, data processing/ITC equipment, telecom, LED Lights and solar panels.
The policy suggested integrating global value chains especially in consumer electronics, integrated circuits manufacturing, automotive electronics, electricity equipment; and chromium bromide batteries.
The document highlights extra ordinary incentives for selected sectors such as energy, sugar, fertilisers and attractive returns in real estate and stock exchange as the primary reasons for subdues investments in the manufacturing sector.
The past and existing policy channelises investments and FDI into non-manufacturing sectors but even in the case of manufacturing related investments, preference has been to capture local demands rather than prioritising exports such as automobile sector.
At the same time, the preferential market access secured under trade agreements has not been translated towards increasing exports to partner countries. Lack of synergy between the investment, industrial, agriculture, trade and tariff policies has also hampered the flow of investment in the country.
According to the draft, investment into export-oriented manufacturing in the priority sectors primary hinges on competitiveness of production and market access. The competitiveness enhancement could be achieved by interventions.
Top of the list is the tariff rationalisation. Pakistan has amongst the highest average weighted tariffs amongst the 68 countries with annual exports of $20bn. The tariffs, especially on raw materials, erode competitiveness and breed inefficiencies.
However, the 20 fastest export growth economies have reduced import tariffs; and the top two growing economies have reduced tariffs by 72pc and 51pc, respectively. A draft tariff policy currently awaits cabinet approval to remove anomalies.
Published in Dawn, October 26th, 2018
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