By Saddam Hussein
Pakistan’s top business circles, awe-struck by the electoral success of Pakistan Tehreek-e-Insaaf (PTI), are still “cautiously” optimistic about Prime Minister Khan and his economic policies. It is believed that a three month period is too short a time for a government to successfully steer the economy out of choppy waters.
Many ask; how could a new government be expected to give results within its first 100 days in power? The answer is not that simple. However, even effective policies, made with concerted energy, focus and patience bear fruit with time. In the first hundred days, only a broader long term “direction” could be set.
The bold and pro-active policies that the PTI government is pursuing, and the road-map they project for the future, are signaling good days ahead for the country. The country is now also catching the attention of foreign investors, helping Pakistan not to put all its eggs in one basket, or relying on one major investing partner, such as China.
Even though the economy has witnessed its highs and lows in the first 100 days, the initial induction of Asad Umar and Razak Dawood had inspired confidence because of their prodigious business track record. Unfortunately, in the beginning, the pressure on the economy intensified with the issue of balance of payments and abrupt decisions by the government resulting in the hike of gas and energy prices. Nevertheless, PTI’s leadership privately blamed the unfriendly civil administration and started reshuffling the bureaucracy. The move, however, generated friction and created more problems for the sitting government.
Hence, there may be some shortcomings in the government’s approach towards economy, but currently, the problem at the core is not whether the Ministry of Finance or the people running it are competent or incompetent. The actual problem is the paradigm shift in Pakistan’s foreign policy, from a frontline state to a major Chinese partner in the latter’s Belt and Road Initiative, in form of the China Pakistan Economic Corridor (CPEC). Except Zulfiqar Ali Bhutto’s economic policies, all well performing economic policies of Pakistan in the past were fueled and funded by the USA, her allies and their sponsored institutions, such as the IMF and the World Bank.
Pakistan, with its lingering problems, is destined to experience some shocks, especially because of its paradigm shift under PM Imran Khan. Pakistan is in an economic-war-like situation, where a more vigorous approach is required. Otherwise, easy solution to the oncoming economic difficulties is to abandon CPEC and return to the US camp and its “glucose drips”. Though, a point to ponder is that the US assistance will be a temporary solution, whereas CPEC offers long-term strategic economic uplift; which requires patience for a few years to witness its true impact. However, the only thing the current government seems to be doing wrong at the moment is giving speeches and statements about economy every now and then. This also leads to speculations and skepticism in the stock market, as every word from any government official directly impacts the economy.
Furthermore, as far as the government is concerned, it appears to be doing everything at its disposal in bringing the economy back on its track. What people are misunderstanding is that the government is following market mechanisms and does not intend to artificially control the economy. That is why the exchange rate is surging, prices going up and interest rates are also on the rise. All of this is because supply and demand sides around these matters demand so. If market forces are allowed to adjust on their own, the economy will be stable in the long run and hence lesser chances of fluctuations in the future.
On a positive note, the pouring in of investments and growing interest in Pakistan from across the globe in recent months shows the world’s confidence in the new government. For instance, beverage giants PepsiCo and Coca-Cola pledged to invest $1.4 billion in the country in the next five years, according to the government statements. These statements came after executives from the two companies met Prime Minister Imran Khan. Coca-Cola said the investment: “Will create new jobs, support ancillary industries, and help the government earn incremental revenue through taxes as the business grows further”.
Likewise, a Turkish fast-moving consumer goods company (FMCG) – Hayat Kimya – has planned an investment of around $330 million in Pakistan. The company will introduce latest machinery to make high-performance products in Pakistan. Hayat Pakistan is fully prepared to capture a market worth $200 million.
On the automobile industry front, JW and Forland have collaborated to produce cargo trucks and special purpose vehicles in Pakistan. The $150 million project has been launched with the ultimate goal of making Pakistan a regional hub for manufacturing auto parts and automobiles. With the launch of the project, there will be technology transfer from China to Pakistan. “Progress only starts after the technology is transferred,” said Prime Minister Khan at the ceremony inaugurating the joint venture. He said that vocational schools will be established, where the technicians will be able to acquire skills. “We will produce cars which can eventually be exported,” Khan added. Similarly, Suzuki Motor Corporation (SMC) is also planning to invest $450 million by setting up another production plant in Karachi. It is note-worthy that this is not the first-time vehicles will be produced in Pakistan, but it is the first-time vehicles will be produced for commercial use. These initiatives would not only help in creating more jobs but also provide an opportunity to boost exports in the automobile sector.
On a similar pattern, Indonesian and Korean investors are also very keen to explore the opportunities Pakistan has to offer. Indonesia abolished import duties of up to 30 percent on 20 Pakistani products in a trade deal to secure future of more than one billion dollars of palm oil exports to the South Asian economy that is shifting to a new supplier on long-awaited tariff concessions. Indonesia losing market share to the world No. 2 producer, Malaysia, was a key factor in re-negotiated but mutually beneficial deal between the two countries. On the other hand, Korean investors are looking at Pakistan Railways for future investment prospects. A Korean delegation visiting Pakistan later this month would explore all the investment possibilities. In addition to that, the Asian Infrastructure Investment Bank (AIIB) and renowned Spanish superstore ‘Condis’ have also expressed their willingness to invest $1 billion each in Pakistan.
One of the key underlying factors behind these investments is Pakistan jumping 11 places on the Word Bank’s Ease of Doing Business Index now sitting on the 136th spot, its highest in 15 years. Pakistan carried out three reforms during the past year in the areas of starting a business, registering property and resolving insolvency, according to the World Bank’s annual flagship report titled “Ease of Doing Business 2019”. Besides, the country showed some progress on the indicators of getting electricity, securing construction permits, getting credit, paying taxes and trading across borders.
The fundamental concern that still remains in the local investors’ mind is whether Pakistan will be able to translate all these ventures into turning its economy around?
The answer is not simple and straightforward. However, Pakistan, under the PTI government, can achieve this turnaround if there is an increased focus on improving skills and create a future-ready workforce with an understanding of digital media and knowledge of entrepreneurship.
The author Saddam Hussein is a Research Fellow/Program Officer at Center for Research and Security Studies (CRSS), Islamabad. He graduated as a Development Economist from Quaid-i-Azam University (QAU) and also holds Master of Philosophy degree in Public Policy from Pakistan Institute of Development Economics (PIDE), Islamabad. He tweets @saddampide