(MENAFN- Colombo Gazette)
By Suhail Guptil
ISLAMABAD: Despite, Pakistan's efforts to promote China-Pakistan Economic Corridor (CPEC) for third party participation, foreign investors remain reluctant to invest due to a host of factors. They are apparently concerned over the overwhelming Chinese government loans to Pakistan for the CPEC projects, constituting about 20% of the total.
Even in the remaining 80%, Chinese companies have joint stakes. Further, investors are apprehensive about Chinese dominance in Special Economic Zones (SEZ) as in the case of Gwadar Port, where 91% of the revenues generated would go to China, while the Gwadar Port Authority would get only remaining 9% for the next 40 years.
Given China's rising aspirations to be a global power, the investors from third countries are also mindful about the possibility of the Gwadar Port being used by Chinese PLA Navy for logistics purposes.
Country-wise analysis suggests that China along with Hong Kong together contributed 55% of total Foreign Direct investment (FDI) inflow in Pakistan during July-March FY2020-21, with majority of investments going to CPEC. Most of these, especially in energy sector are from China's state -owned enterprises (SOEs) and are backed by Pakistan's sovereign guarantee. Even Saudi Arabia which had a proposal for developing a refinery worth USD 10
billion from Gwadar port city, now has decided to relocate to an industrial hub
near Karachi.
Pakistan's business climate is also unfavorable, notwithstanding the claims of the Pakistan Tehreek-e-Insaaf (PTI) government that business environment has improved. Pakistan scored 55.5 in the World Bank's Doing Business Index scores in 2019, which improved to 61 in 2020 in a scale of 0 – 100, where '100' represents best performance.
This is far less than what the World Bank deems as improved business environment, i.e., a score of 80. Foreign private direct investment in Pakistan is also sluggish due to a variety of
issues including poor infrastructure and policy regime. It witnessed a decline of 28% to USD 1.86 billion during
FY 2020-21 from USD 2.59 billion in FY 2019- 20, according to State Bank of Pakistan. Fareena Mazhar, Secretary of the Pakistan Board of Investment reportedly admitted that“Pakistan has not been receiving the amount of FDI it deserves,” adding that domestic security scenario and energy shortages have been the main concerns among investors in the past.
Shortages – power, gas & water – connectivity issues are prevalent even in the Pak SEZs. Though Pakistan's power generation has improved mainly due to CPEC projects, there are distribution issues resulting in power cuts. For example, quoting the recent outage at the disruption of natural gas, Shahid Sattar Executive Direct All Pakistan Textile Mills Association (APTMA), stated that Pakistan's textiles exports would lose USD 250 million in exports as the mills are currently running on 80% of the capacity.
Fragile state of domestic security in Pakistan is another matter of grave concern for foreign investors. The recent mob lynching of a Sri Lankan factory manager in Sialkot on the accusations of blasphemy has re-affirmed rising uncertainty of life and property in Pakistan. The Supreme Court of Pakistan in its verdict in 2019, acquitting Aasia Noreen a Christian woman accused of blasphemy, stated that“…. since 1990, 62 people have been murdered as a result of blasphemy allegation, even before their trial could be conducted in accordance with law”. This indicates non-compliance of the rule of law in the country.
At present, Pak economy has got some solace from its overseas worker's
remittances and textile exports helping to boost its forex reserves.
However, as its debt burden is rising, meeting its debt service obligation is becoming increasingly difficult. Pakistan received USD 12.9 billion in workers remittance while textile exports yielded USD 7.2 billion during July-November, together making up of 93% of forex reserves.
The year 2022 is very crucial as it will decide the course of economic recovery. Islamabad's measures in terms of economic reforms will decide whether the country would get help from the IMF, China and other development partners to avert forex crisis by 2030 or whether it will fall into the same trap as Sri Lanka.
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