Safety & Security Today recently had a conversation with Mr. Muhammad Azfar Ahsan, Chairman Board of Investment, to better understand about the vision of the Board of Investment, How it works and how important it is to attract foreign and domestic investment in Pakistan.
Safety & Security Today (S&ST): Can you tell us about your entrepreneurial journey?
Muhammad Azfar Ahsan (MAA): I am the founder of CORPORATE PAKISTAN GROUP – CPG. It is a group of 350 individuals from different backgrounds including Corporate & Business Leaders, Ministers, Senators, Governors, Federal Secretaries, Diplomats, Defence Personnel, distinguished Academicians, Media Practitioners, Energy Experts, Tech Entrepreneurs, Police Officials and movers and shakers of Civil Society. As Founder & CEO of Nutshell Forum; an international conference management and training resource organization, I have organized more than four hundred national and international conferences, seminars, training workshops and group discussions in Pakistan, Singapore, Malaysia, Sri Lanka, Dubai and Bahrain.
I am the Board Member of the Institute of Financial Markets of Pakistan, RYTS Global and also the Advisory Board Member of Shaukat Khanum Cancer Hospital, Karachi. I am the Vice President & Member Executive Council of Marketing Association of Pakistan; an apex body of marketing in Pakistan and have served as Chairman of MARCON; Pakistan’s flagship marketing event. In the last 20 years, I have managed dozens of community projects all over Pakistan in the field of health and education. I am affiliated with several professional organizations including Pakistan – US Alumni Network; OPEN – Organization for Pakistani Entrepreneurs in North America; IFTDO International Federation for Training & Development Organizations. Make-A-Wish Foundation and English Speaking Union of Pakistan.
S&ST: You have recently been appointed as Chairman BOI. Have you formulated your vision and strategy? Can you share that with us?
MAA: As a Chairman BOI, I envision projecting Pakistan as an attractive investment destination in the international market. I believe that a lot needs to be done in the domain of perception building by employing appropriate marketing strategies.
Under the dynamic leadership of Prime Minister Imran Khan, various reforms have been introduced to promote ease of doing business and create an investor friendly environment. By making effective use of media houses and other promotional channels, we aim to create awareness among existing and potential investors about the incentives being offered to investors in Pakistan.
Besides working towards attracting Foreign Direct Investment in the country, I also aim to facilitate the local investors of Pakistan by actively organizing public private dialogues.
S&ST: In your opinion, what are the enabling factors which can attract foreign and domestic investments in Pakistan?
MAA: In my view, key factors attributing towards attracting investment both local and foreign are political stability, predictable and consistent economic policies, simplified legal and regulatory environment, skilled labour force, availability of financing in the domestic market, simplified tax regime, low cost of production and competitive trade & investment environment.
The government of Pakistan is cognizant of the challenges and initiated a broader and multidimensional reforms process to improve the investment climate in Pakistan. The investment regime of Pakistan is liberal and investors’ friendly which contains competitive incentives across the board. The main thrust, among other factors, is to promote enabling business and commercial activities in the country. We have equal and non–discriminatory treatment to local and foreign investors. Almost all sectors of economy are open for foreign investment with 100% equity basis and repatriation of investment, profits/dividends and capital gains are allowed.
Accelerating growth and revival of SME sector is part of the Government’s priority sector agenda. The SME development strategy consists of three connected initiatives, including ‘Access to finance’, ‘Simplified Tax regime’ and ‘Regulatory Guillotine & simplification’.
S&ST: There is a lot of discussion and views on prospects of CPEC. Can CPEC really be a game changer to attract investments and be a catalyst for economic growth?
MAA: From FDI perspective and statistically speaking, CPEC undoubtedly is a game changer for Pakistan. Post 9/11, Pakistan took advantage of the geo-political scenario for attracting investments, particularly from the US. However, since 2013, as the geo-political influence shifted, it has embarked on a geo-economic trajectory to achieve the long-term goals of industrialization and economic revival. Since 2013, when the first MoU on CPEC was signed, Pakistan has been able to attract huge investments mainly under the Early Harvest Projects pertaining to Energy and Infrastructure. The improved network of highways and motorways since the inception of CPEC is testimony to the fact.
Besides, Pakistan has tremendously enhanced its power generation capacity which is way above the total demand. Since the inception of CPEC in 2013, China has made a cumulative net FDI of USD 6 billion in Pakistan, with total inflows of USD 8 billion. This is a tenfold increase in the investments from China. The CPEC projects have also improved the livelihood of people and provided job opportunities to the local workforce resulting in socioeconomic development.
The general public and the critics of CPEC must realize that the modus operandi of this mega project has been shifted and transformed into an arduous nature. The Industrial Cooperation may take a while to bear fruits, but it will have a long-term high marginal impact on Pakistan’s economy in general and the socio-economic development in particular. It is underscored that, BOI has been able to facilitate the foreign investments of USD 600 million and USD 250 million each, in tyre manufacturing plants which will also have a positive impact on Pakistan’s existing trade deficit once the plants go into production. These investments have come in the form of JVs between leading Pakistani and Chinese companies. BOI is taking the lead on Industrial Cooperation under CPEC, and concerted efforts are being put in to bridge the gap between enterprises of both countries.
The All-Pakistan Chinese Enterprises’ Association (APCEA) comprises of all Chinese companies operating in Pakistan under the patronage of the Chinese Embassy. BOI and APCEA have also established a Pakistan-China Business and Investment Forum (PCBIF) with the aim to augment the B2B collaborations in a streamlined manner. In a nutshell, Pakistan has been able to attract large investments under CPEC and the upcoming Special Economic Zones (SEZs) will definitely prove to be catalyst for economic growth.
S&ST: Do you think that the level of ease of doing business in Pakistan is conducive to attract investment?
MAA: Yes! Pakistan has been able to improve its ranking by thirty-nine notches in the last two years of Ease of Doing Business Ranking. This year we were expecting another big jump but unfortunately, World Bank has discontinued the report. It is an open fact that the initiative of EOBD has attributed a lot to make the business environment more conducive as many impediments for SMEs related to entry, operations and even exit has been removed or simplified. For example, single registration system of SECP provides the facility of registering online with federal and provincial departments in real time. Time bound provision of construction permits, digitization of land records, simplification of taxation system are just to name a few. However, Pakistan believes that there always exist room for improvement that’s why BOI is working on a number of investment promotion and facilitation initiatives. After reforming our Bilateral Investment Treaty regime, we are actively working on rehashing foreign investment law and FDI policy. We are also working to design and establish our SEZs as role models for other countries.
S&ST: We hear a lot about special economic zones (SEZ) in Pakistan. What role do you see for them in the coming years?
MAA: Special Economic Zones (SEZs) were established in many countries as testing grounds for implementation of liberal market economy principles. SEZ policy objectives and type differ substantially among the economies at different levels of what UN Conference on Trade and Development refers to as the development ladder. In developed economies, most SEZs are custom-free zones that provide relief from tariffs and the administrative burden of customs procedures, thereby providing support to sophisticated cross-border value chains. Developing economies often establish SEZs to attract FDI in order to build, diversify and upgrade industries, as such economies that have historically struggled to attract FDI show a higher tendency to implement SEZ concept. Whereas, new adopters, such as some African countries, are using SEZs to kick off manufacturing, industrialization and export generation to come alongside other regional competitors. In transition economies, technology-centered zones are spurring. Several advanced economies are utilizing SEZ to promote industrial upgrading, China’s Shenzhen SEZ being the classic case.
In Pakistan, the policy objectives and the type of SEZ framework provided through the SEZ Act 2012 was originally not aligned with the economic realities as the SEZs from 2012-2015 were placed outside the customs territory of Pakistan limiting their appeal for the investors that wanted to capitalize on the budding domestic consumer market. Resultantly, in order to expand the scope of SEZs and to accelerate industrialization, Board of Investment, being the custodian of SEZs in Pakistan, proposed certain amendments in the Act in 2015 to bring the SEZs within the customs territory of Pakistan. With the incorporation of the proposed amendments in the Act, the SEZs were made more investor and business friendly, opening them up for the domestic market, and that became the turning point for this industrial regime. By the end of 2016, 7 SEZs got notified across Pakistan.
To be able to use this policy tool towards achieving the desired economic goals and devise an SEZ strategy to do it, requires a critical analysis of the current state of affairs, against the global practices to identify the dos and the don’ts at each step.
Investment promotion strategy for SEZs, is not just about marketing the SEZs but creating a market for the SEZs while being cognizant of the regional competition, local economy, diplomatic channels and the locational advantages that a specific SEZ can offer to local and foreign investors. To colonize the SEZs with quality investments that align with the economic objectives requires strategic marketing with a long-term view more than a marketing strategy that is more suited to a traditional consumer product.
We have come to a point where looking at national security and economic security in isolation from each other can impact the sovereignty of the state. Global experiences from Japan, China and other economies, provide ample evidence that a coordinated development policy that converges towards national security via economic security, can build an independent economy, while also identifying specific market failures that can be addressed through targeted industrial policies. The need is to view this industrial policy tool from a national security point and realize the potential role of SEZs in instilling national economic independence and take steps at war-footings towards this end.
S&ST: What are the new sectors BOI is exploring to create incentives for investment?
MAA: A sector scanning exercise had been carried out to assist the government in prioritizing sectors with high investment potential. The sector scans provided information required to develop investment promotion material and design a more informed investor outreach activity plan. As a result of sector scanning exercise, 8 industrial sectors have been prioritized which are known as “Priority Sectors”. These sectors are textiles (value addition), IT & IT enabled services, food processing, logistics, Automotive and auto-parts manufacturing, pharma, construction and tourism.
Pakistan also has implemented sectoral policies designed to provide additional incentives to investors in those specific sectors. The Automotive Policy, Export Enhancement Package 2019, Alternative and Renewable Energy Policy 2019, Merchant Marine Shipping Policy 2019 with 2020 updates, Strategic Trade Policy Framework (STPF) 2020-25, the Electric Vehicle Policy 2020-2025 are a few examples of sector-specific incentive schemes. Sector-specific incentives typically include tax breaks, tax refunds, tariff reductions, the provision of dedicated infrastructure and investor facilitation services. Besides, Pakistan promulgated Special Economic Zones Act in 2012 to create industrial clusters and infrastructure to meet competitiveness for almost all sectors. This scheme has very liberal incentive regime.
Under its Regulatory Guillotine & Simplification Initiative, Pakistan has been able to introduce more than 165 reforms during last 6 to 8 months, out of which more than 50 % reforms stand completed while the rest are at advanced stage of completion. All these measures have enhanced the confidence of business community on reforms process.
Resultantly, there is unprecedented growth (+65%) in registration of new companies with SECP, establishment of new enterprises in SEZs, increase in exports, domestic investment and credit to private sector. CPEC is another area, which is a sort of regional initiative. This infrastructure project would act as a catalyst in encouraging investment in the country.
S&ST: What has been the impact of COVID-19 on investment in Pakistan?
MAA: The unprecedented and severely disruptive global labor market shock triggered by the outbreak of COVID-19 pandemic has still not dampened. According to the ILO, around 220 million people are expected to remain unemployed globally in 2021, while the global unemployment rate may reach 5.7 percent in 2022. Likewise, Global commodity prices are on an upward trajectory mainly due to the rise in freight charges making international trade more costly. Pakistan has also been affected in terms of low investment. The PBS survey shows that the biggest loss of income and jobs was experienced by causal labour; however, employers and the self-employed also experienced a sizeable shock.
The Government has been focused on managing the recurring waves of COVID-19 infections, implementing a mass vaccination campaign, expanding its cash transfer program and providing accommodative monetary conditions to sustain economic growth. Grappling with the fourth wave of COVID-19, the Government, as before, implemented micro-lockdowns that successfully limited the spread of the infection, while permitting economic activity to continue and thereby mitigating the economic fallout. Around 33 percent of households reported receiving some form of public transfers during the COVID-19 period. Through the scale-up of the Ehsaas program, the Government delivered PKR 179.8 billion as a one-time emergency cash assistance to 14.8 million beneficiaries at risk of falling into extreme poverty. Other initiatives included relief to daily wage workers, financial support to MSMEs, and interest free loans.
S&ST: Where do you see Pakistan’s market in the South Asian and Global context in the next 10 years?
MAA: I am quite confident that Pakistan’s market will be in the top performing markets not only in the region but also globally in the next 10 years. The reasons are very obvious as the current Government is focusing on improving the business climate for the private sector by adopting initiatives and policy measures aimed at: (i) reducing the red tape and administrative procedures required to set up and run private firms; (ii) introducing commercial courts for quick decisions; (iii) improving competition and abating barriers to market entry by private enterprises; (iv) providing better access to finance especially for small and medium-sized enterprises (SMEs); and (v) improving overall corporate governance.
S&ST: What message would you like to give to the potential investors of Pakistan?
MAA: I would like to convey to the potential investors that Pakistan offers a good business environment, with complete freedom of choice regarding location of activities and full repatriation of capital, profits and dividends. Generous fiscal and tax concessions are also available and these liberal economic policies had created a very favorable environment and ambience for foreign investment in diverse sectors. There is an immense potential and prospects for domestic and foreign investors in the country with 220 million people, which have growing needs in different fields. Many sectors of Pakistan`s economy like Food Processing, Textile, Logistics, Automobile, Information Technology, Housing & Construction, Tourism & Hospitality etc. offer plenty of investment opportunities to investors.