“Pakistan’s suboptimal performance in attracting Foreign Direct Investment, in general, and manufacturing-oriented FDI, in particular, has been caused by multiple factors. The present Industrial Policy gives equal preference for all sectors and the extraordinary incentives for selected sectors such as energy, sugar, fertilizer, and attractive returns in Real Estate and Stock Exchanges have diverted financial resources away from the manufacturing sector.” This was stated by Mr Tariq Huda, Additional Secretary, Ministry of Commerce, in his keynote address at the Consultative Meeting on Trade Related Investment Policy Framework organized by Employers Federation of Pakistan.
Mr Huda further added that investment, and FDI particularly, in Pakistan is generally channelized into non-manufacturing sectors while even in the manufacturing sector the preference is to cater to domestic demand rather than exports. He added that Pakistan’s current investment climate offers multiple advantages, such as strategic location, natural resources, large domestic market, a strong human resource base, increasing higher growth, a positive economic outlook, a much improved law and order and security situation, and the game changing CPEC initiative.
Mr Huda moreover informed that the government is planning to provide incentives to address the major input costs of raw materials, energy, labor and capital to export-oriented industries, especially to industries in the priority sectors. Pakistan needs to improve its global rankings in order to attract not only FDI but also to encourage domestic investors to set up manufacturing units, especially for exports. He disclosed that by the end of the present tenure of the government in 2023, the country should achieve the targets of Global Competitiveness Index from 115 to 70, Doing Business Index from 147 to 80, and Enabling Trade Index from 122 to 60.
Earlier, Majyd Aziz, President of Employers Federation of Pakistan, in his welcome address said that EFP has taken the initiative to host this consultative session in order to present the employers point of view and also to assist the government in fine tuning the TRIP Framework. He proposed that the government should absorb the cost of social protection for export-oriented units. He said that the social protection cost, for social security, EOBI, Workers’ Welfare Fund, etc is atleast 15% of the wage bill. This absorption will have advantages such as, lowering cost of doing business, actual registration of workforce in every unit, ease of compliance of ILO Core Labor Standards, etc and will also be an added plus with regards to GSP Plus and Better Work Program compliances.
Majyd Aziz further added that essential raw materials, production machinery, and equipment should be allowed at zero duty and taxes because this frontloading of taxes, duties and levies, although mostly adjustable, are a drain on the capital liquidity of a manufacturing unit. He also suggested that the government hierarchy must take any and all decisions related to manufacturing on a fast track basis. He said that the recent decision by ECC to allow sugar exports came at a time when global sugar demand is lower and India, with a bumper sugar crop, is capturing the market. If the ECC decision had come earlier, Pakistan would have been able to procure a higher export price. Similarly, Pakistan cement exporters have entered the clinker market again and in last few months have exported in excess of $75 million and have another $100 million orders in hand. However, the KPT bureaucracy abruptly issued directives that stocking of clinker at Karachi Port would not be allowed.
Majyd Aziz also suggested a revisit of the Manpower Export Policy and advised that there is a need to protect the workers from dishonest middlemen who play havoc with the careers and meager funds of the workers. At the same time, he said that the menace of smuggling, under-invoicing and mis-declaration has destroyed many manufacturing sectors and this menace is discouraging FDI into the manufacturing sector.
Ismail Suttar, Chairman EFP Economic Council and Director EFP, proposed that it is imperative that a comprehensive industrial policy is framed before finalizing the TRIP Framework. He said that if the trade and investment policy is announced before the industrial policy it would create problems in aligning both the policies as the local as well as foreign investors are looking towards the government to announce some attractive industrial investment policy. He said that both domestic and foreign investors are still apprehensive about frequent policy changes such as in tariff, taxes, and conditions of doing business.
Abid Niaz, representing ILO, mentioned that the Decent Work Country Programme (2016-2020) endeavors to support all actions that protect workers from all forms of exploitation. He supported an investment friendly tariff regime that will lead to creating more jobs, more growth, and the need for its proper regulation so that the objectives to promote decent work may be achieved. He added that if the growth was not properly regulated, it would add to labor market informality. He was of the opinion that TRIP Framework provided a great opportunity to boost industrialization in the country on one hand, and usher in improvement in social compliance in the form of meeting the decent work targets on the other hand.
Mr Fasihul Karim Siddiqi, Secretary General EFP, stated that in order to facilitate and boost export-oriented manufacturing and service sector, the government is well advised to consolidate all manufacturing good exports and service exports incentives scheme in a single package. The package should exempt export earnings from taxes and exporters from local manufacturing tax. Attention was drawn to the exports interest subsidy scheme allocations of Rs 25 billion by the Government of India through which the social security contribution in respect of workers in export-oriented enterprises were totally borne by the government. He added that Pakistani employers are ready to comply with all the international labor standards and decent wage requirements but the cost of compliance is too high and is affecting competitiveness of the products in the international market while the global buyers were not ready to bear the cost of compliance. He also suggested that special allocation from Export Development Fund be made to the export-oriented enterprises for skill development and skill enhancement of their workforce so that they are able to meet the challenges of technology, innovation, and use of artificial intelligence that are formidable tools for enterprise development.
Ahsanullah Khan, Director EFP, and Hanif Lakhani and Anwer Aziz from the textile sector provided details of the anomalies in the tariff regime and highlighted the immense damage these have done to the local industry. Their main contention was that pencils made in China are printed as Made in Pakistan while Indian fabrics are sent to China for processing and enter the Pakistani market as Chinese fabrics with the double damage of these being under-invoiced and quantity mis-declared.