FOREIGN INVESTMENT is a much touted-word these past few years. There is one view point which expounds the theory that foreign investment is an essential ingredient in the rapid industrialization of a development country of the Third World. This school of thought advocates the need for massive inflow of foreign men, material and money especially in high-tech industries to get a developing country into the footsteps of the Asian "four tigers", namely Hong Kong, Taiwan, South Korea, and Singapore. Or like the "newly industrializing countries" such as Thailand and Indonesia. There are, however, some who promote the "East India Company" theory that bringing in foreign investment invites a neo-colonialist mentality where the foreign investors are out to dominate (or rule) the market and whisk away the cream of managerial/skilled talent by offering high incentives and inducements. They are not keen on providing special facilities to the foreign investors which they remonstrate is at the cost of the local entrepreneur.
Take the case of Thailand. Until the beginning of the Eighties, it had as economy which was widely regarded as one of Asia's most precious, crippled by a manufacturing industry still in its infancy and a reliance on commodity exports for foreign exchange. But then, the government and the private sector got their heads together and embarked upon a program to take Thailand into the big leagues.
Result: In 1987, Thailand's Board of Investment was inundated with more than a thousand overseas applications worth 8.3 billion dollars while in 1988 the figures went over 9 billion dollars!! In 1987 the exports grew by 20.7 percent while in 1988 it went up by over 40.0 percent. Just imagine that in Thailand there are over 250 Japanese companies who have set up manufacturing plants. The Thai planners have monthly meetings with leading Thai businessmen and industrialists to solicit their opinions before making new policies. And there are no wishy-washy changes to suit the whims and desires of policy planners. And no IMF (ital) Changoo-Mangoos (dtal)! So strong is the government's commitment to growth that few businessmen see any change in economic policy, regardless of which party or general is in power. This is one major reason, this sense of continuity, which has enhanced Thailand's other attractions for foreign investment. There is also political stability which has been another important factor in boosting the inflow of foreign investment. Thailand also has an edge in the matter of political and ethnic friction. There is a complete absence of this kind of country-shattering absurdity. All this gives food for thought.
Indonesia's warm welcome to foreign investors is starting to pay handsome dividends. According to TIME magazine, "businessmen beleaguered by labor shortages, rising costs and Western protectionist threats have discovered this sprawling archipelago nation. And the world's fifth largest country has discovered foreign investors." In 1989 foreign investors put in 5 billion dollars. The total for the past two years is 9 billion dollars. Here too, export based industries are the main targets. Within three years manufactured exports doubled in value relieving the previous reliance which was exclusively on oil exports. The government planners, mostly U.S. educated, have eased cumbersome import restrictions, streamlined export procedures, offered encouraging rebates to exporters, allowed imported raw material, and got rid of all archaic foreign exchange controls. TIME further states that "officials also shrank a 238 page list of permissible foreign investment targets into a nine page Negative Investment List of the sectors that were out of bounds to non-Indonesians". Indonesia is another success story.
One by one Asian countries have converted themselves into economic powerhouses. With Japan as the role model, the Asian countries rapidly transformed their economies thru successful industrial restructuring. This astonishingly rapid export-led industrialization has changed such former low-economy countries as Singapore, Hong Kong, Taiwan, and South Korea into newly industrialized economies. They are now world class competitors in many advanced industrial sectors including computers, semi-conductors, audio and video equipment, ship building, and petro-chemicals. The result has been high GDP growth rates, rise in living standards, an improved distribution of income, a high rate or domestic savings, low external debt, heavy dependence on exports, and an achievement-oriented work ethic. It should be noted that all these countries enjoyed fast growth only after their economic strategy was changed to encourage foreign investment alongwith domestic entrepreneurship, and meeting international competition.
Foreign Investment is essential if Pakistan is to leapfrog from the present desolate state of a tortoise-speed industrialization to an emerging superstar in the ranks of newly industrialized nations. It is high time Pakistany policy planners understand the rationale for rapid technological upgradings and initiate steps to formulate activist government policies which should be pragmatic, positive, and revolutionary. There should be a well-defined policy to garner out all efforts to get the foreign investors scrambling to jump on board. This can be done by announcing far-reaching and pervasive incentives, lures, and concessions. The policy planners should profoundly reflect on the success of such countries as Thailand and Indonesia in attracting foreign investments.
There is no second choice. Pakistan needs foreign investment. The major impediments in attracting foreign investment is the excessive bureaucratic red-tape. A case in point is the Hub Power Project being set up in Balochistan by Xenel Corporation of Saudi Arabia. This will be the largest foreign investment in Pakistan, that is 1.1 billion dollars (26 billion rupees) worth of foreign investment. But how long did it take to give the O.K.? Too long. The foreign sponsors had to give a daring take it or leave it ultimatum before the authorities assented. The preliminary cost of the sponsors shot up from a budgeted 3 million dollars to ten times that amount. And remember, into this power-scarce country, 1200 MW of electricity is a big dandy.
The policy planners should be real open-minded. The industrial revolution that this country has been dreaming of all these years should now start with a bang. The foreign investment is required to complement the domestic investment in setting in motion an avalanche of industrial activity. It is necessary to set up plants to make computers, semi-conductors, machine tools, high tech-audio and video equipment and of course automobiles. Most of these products should be export-based. They should be forcefully marketed alongwith the traditional commodity exports and other low-tech exports such as apparel, fabrics, leather, onyx products etc.
Pakistan should impress upon countries such as America, Japan, South Korea, among others to propose guidelines for their country's investors to set up plants here. Let the foreign investors specify the facilities they require. Let the policy planners heed their advice and suggestions and formulate policies correspondingly. Like marketing executives in the private sector, the policy makers should publicize the country's welcome sign for foreign investors. One idea is to set up a separate industrial estate for foreign investors which should have special consideration. A "foreign environment" with dabs of local touches can be created in this specially protected estate. Local equity in any venture here should not be a condition. Let it be a 100 percent foreign venture if need be. The government should set up a target for 3 billion dollars in the first year and gradually build it up under a specified five year plan. Let them repatriate the profits. All of it if they want. In return, this country will get export revenue, technological know-how, more employment, more industrial activity, and more prosperity. And that's no small price to pay for getting foreign investments in.
Pakistan is wayback in the race for industrial development.
The government's decision on this critical problem will play a significant
role in determining how Pakistan meets the economic challenges now confronting
her. In today's world economic power will establish to a noteworthy degree
the standing of Pakistan in the ranks of developed countries. And, Pakistan
is now a middle-aged 43 year old, and aging fast.
APRIL 14, 1990