- Stable and inclusive govt in Kabul may open ways for foreign investment
Interview with Hamad Rasool Bhullar – an analyst
PAGE: Tell me something about yourself, please:
HRB: I am currently working with a large public sector organization. With respect to the financial sector, I have been involved in research and training for over 28 years and so far, and conducted over 300 trainings on different aspects of Finance, Business Ethics, Audit and Corporate Governance from basic concepts to professional applications in Projects Finance, Shariah Compliant risk management, investment management and Corporate Governance etc. in addition to the freelance consultancy and Financial Advisory in these fields I have also remained a non-executive member on the Board of an Investment Bank during 2005 -08. My qualifications and experience over the last 32 years, have mainly been a mix of Accountancy, Corporate Law, IT, Economics Finance, Islamic Finance & Takaful, Projects Finance, Audit & ethics, Trainings and Business Turnaround Advisory.
PAGE: What is your perspective about Foreign Direct Investment (FDI) over the period of preceding couple of years?
HRB: The first thing in it is that FY 2019 was a year of change and election in Pakistan which clearly makes the investors cautious on investments unless a clear trust in the system is established. As the trust to investment is a multi-dimensional outcome of many factors, some making this simple comparison may not be that fair. The role of NAB and like institutions became a bit threatening in addition to the money laundering enforcement on top of getting Pakistan into the grey list, which has had serious consequences. At this stage the role of the political and administrative elites becomes vital in bringing the confidence of the investors back to the system. Some political slogans become venomous on the way gof financial growth although those slogans are vital for the change in our system to establish a long-term trust. The recent developments in the regional political and peace environment are expected to bring a handsome inflow of financial resources to bring some strength, and we have to see how our institutions are able to capitalize this opportunity.
PAGE: Pakistan attracted ample FDI inflows in 2007 and in 2008. Why can’t Pakistan have such amount of FDI now?
HRB: You are talking of the highest point before the subprime financial collapse, during 2007 and 2008, the first step towards this collapse started in 1999 when The Glass-Steagall Act of 1933, was partially repealed enabling the commercial banks to make risky investments with customer deposits. The interesting point here is that the bankers’ earnings increased manifolds during 1999 to 2007, for some it was the “industry trend” while immediately after it, the global financial services got dented due to the impact of the sub-prime crisis causing huge financial failures, financial mergers and contractions of financial services. After 2007 the dynamics of the Banking industry got changed, I have been writing on this topic over a decade ago. However, this factor consequently brought new control formulations in financial IT and many other related sectors. We cannot this way call it a dip in FDI rather it was the complete overhaul of the global financial and investment attitude globally. Here an interesting point which I like to mention is that the State Bank of Pakistan was declared as the best central bank having strict control procedures in the financial system of Pakistan.
PAGE: Foreign Direct Investment (FDI) in South Asia was $71 billion in 2020 according to the World Investment Report 2021 of the United Nations Conference on Trade and Development. Why couldn’t Pakistan capitalize on it?
HRB: FDI as mentioned in the World Investment Report 2021 cannot be picked as a trend maker or a trend setter as this requires a stability in policy issues requiring in addition to creating awareness for the small business houses while the grey list factor also downgrades the country risk index of Pakistan, which the government is trying hard to erase. As we have been more focused on trying to come out of the grey list the question for FDI became less important although this has been compensated by increased exports and remittances in spite of Covid effects over the last 18 months. Our country risk and “Grey list” has affected it in such a way that a corporate bond issue in gulf countries brings only less than 2% interest while a sovereign bond issue from Pakistan requires over 7%. Luckily our dynamics and Government policy saved us from the harms bringing in as I mentioned higher remittances and exports, further supported by import restrictions during COVID times.
PAGE: The FDI from the UAE, the second largest trade partner of Pakistan, increased last year to $86.6m. How would you comment on it?
HRB: We need to focus more on our vital investments in CPEC and Gwadar port instead of focusing on the UAE only. Then we can see a grand chunk of the investments block in Pakistan which will automatically trigger the whole trend of FDI passing this route. Unless and until we develop the right mix of assets in Pakistan, we cannot expect the FDI trend to come in. I tell you that the “investor’s Trust” is also an asset. As it is said “wealth always attracts more wealth” accordingly, the strategic nature of assets will bring more assets to come to Pakistan. It has been observed that recognizing distrust and its roots, can enable us to bring Trust. Here I am not saying that we must not care for the UAE, rather I suggest that we bring a balance in all aspects of the economy and make the right tradeoffs.
PAGE: What is your take on FDI in Pakistan during the current fiscal in the backdrop of the situation in Afghanistan?
HRB: The environment of trust is vital and for the first time in the last 30 years even the USA is recognizing this trust factor with Pakistan after their withdrawal from Afghanistan. The new Taliban Government is at its formative stage and USA is putting their trust behind them, simultaneously holding/freezing almost $10 billion of Afghan Funds, they have their own perspective of trust. While this positive sign will lead to bring more positives although Mr. Henry Kessinger has declared in the past that “to be an enemy of America can be dangerous but to be a friend is fatal”. In addition, at the moment we are stuck in the grey list with FATF unless we get rid of this trap expecting some miracle is getting too optimistic. However, as far as the Afghanistan factor is concerned, it is primarily dependent upon the outcome/policies of the new government in Kabul which initially seems to be positive as inclusion of all stakeholders is their primary thought. A stable and inclusive government in Kabul will ensure multiple benefits for its neighbouring countries; the major slice is expected to come to Pakistan. In the past all major problems in Afghanistan have been affecting Pakistan so the positives will also bring a proportionate share towards Pakistan In Shaa Allah.