Pakistani lurkers, read and weep

An investor's paradise?

Dr Farrukh Saleem

Pakistan will be the "hub of future economic activities". Pakistan is an "investor's paradise". Is it really? What do the experts say? Established in 1926, A. T. Kearney, a global management-consulting firm with 4,000 employees and offices in more than 60 cities and 35 countries, has been providing services for the past 75 years to major manufacturing multinationals around the world. For the past seven years, the firm has been surveying Chief Executive Officers (CEOs) and Chief Financial Officers (CFOs) of the world's largest thousand firms about their "opinions of various Foreign Direct Investment (FDI) destinations". The companies surveyed are responsible for about 70 per cent of global FDI flows and generate more than $20 trillion in annual revenues. The result of the survey is published as the 'FDI Confidence Index' (www.atkearney.com).

Guess which country is the most attractive FDI destination? A. T. Kearney says: "China maintained its position as the number one most attractive FDI destination in the world, while India rose from sixth to third most likely FDI location globally -- the country's highest ranking ever just behind the US. Although the Untied States remained the second most attractive FDI location in the world the perception gap between the US and India is closing."

What are the two top issues that investors look for, prior to investing? Answer: Government regulation and instability -- political, social and macroeconomic. At least 64 percent of the corporate decision makers cited government regulation as their most critical risk factor.

At least 46 percent of the CEOs and CFOs cited "political and social disturbances" as a risk, while the other most cited risk was "theft of intellectual property and terrorism". China and India "spar over FDI like David and Goliath". The two businesses that investors love to do with China are manufacturing and assembly. India beats China in IT, business processing and R&D (research and development). The UK, Germany, France, Australia, Hong Kong, Italy and Japan follow China, the US and India (Pakistan was not on the list). For the record, this is the third year that the US has lagged behind China, and now India is not too far behind.

India is fast emerging as an R&D hub. CEOs and CFOs cite management talent, a highly educated workforce, rule of law, transparency and the regulatory environment as being very favourable. According to A. T. Kearney: "No other country, except China, received such high marks in terms of investor optimism. Global investors are eager to tap into India's powerful knowledge base.... Communication service investors ranked India their second and chemical investors ranked it their fifth most attractive market (after China, India has the fastest growing cell phone market)."

In 1995, The Heritage Foundation -- the think-tank, a research and an educational institute -- raised a very pertinent question. Why does poverty persist? In order to find answers, the Foundation developed the 'Index of Economic Freedom'. The Index has been published annually ever since (http://www.heritage.org/).

In 2005, the Index of Economic Freedom measured "161 countries against a list of 50 independent variables divided into 10 broad factors of economic freedom". The factors are trade policy, fiscal burden of government, government intervention, monetary policy, capital flows, banking, wages, property rights, regulation and informal market activity.

In 2005, Hong Kong, with the lowest score of 1.35 was number one (the lower the score the better), closely followed by Singapore and Luxembourg. According to Heritage, "once again, Hong Kong is the poster economy for economic freedom around the world. With a duty-free port, simple procedures for starting businesses, minimal capital controls, and a transparent, fair rule of law." At the other end of the spectrum, with a score of 5, is North Korea followed by Burma and Libya.

As per the Index, Pakistan, with a score of 3.73, is at number 134 meaning that there are 133 countries where economic freedom is better than us and only 27 where economic freedom is worse. The Heritage Foundation considers Pakistan a country suffering from 'economic repression'. Pakistan's best accumulative score of 3.26 was for the year 1995 when Benazir Bhutto was the prime minister. At an accumulative score of 3.73, the year 2004 was economically the most repressed period. Pakistan was counted in Heritage's 'Top 10 decline' list. According to Heritage, "Pakistan experienced the second largest decline in economic freedom. Its fiscal burden of government, monetary policy, capital flows and foreign investment, and wages and prices scores are all worse."

Heritage's most thought provoking conclusions from eleven years of studying poverty are: One, "the countries with the most economic freedom also have higher rates of long-term economic growth and are more prosperous than are those with less economic freedom." Two, "a systematic analysis of these factors continues to demonstrate that countries with the highest levels of economic freedom also have the highest living standards."

Why are we poor? Answer: We are poor because we lack economic freedom. The Heritage Foundation has a formula: Desires + Abilities - Roadblocks = Success. We have both the desire to succeed and the ability. Then why have we been unsuccessful? Roadblocks are heavier than the sum of our desires plus abilities.

Are we on our way to becoming an investor's paradise? Are we about to become the 'hub of future economic activities'? No, not at all. Those are not even our priorities. We are first a 'security state' and then anything else.

The writer is an Islamabad-based freelance columnist

Email: farrukh15@hotmail.com