Opinion

SIFC: In search of FDI

August 7, 2023

“We will ensure an investor-friendly system that avoids unnecessary delays and provides easy terms and conditions for business. There are vast mining opportunities in our country which will be realized through joint efforts”—address of Chief of Army Staff, General Syed Asim Munir, at Mineral Summit Islamabad on August 1, 2023

Tenure of the present National Assembly and the government of Pakistan Democratic Movement (PDM) is ending on August 12, 2023 as per the Constitution of Islamic Republic of Pakistan [“the Constitution”]. However, there are reports of early dissolution by the Prime Minister because of which, the National Assembly is busy in the enactment of new laws without meeting established democratic norms (deliberations and debate, etc.). There has been noticeable critique regarding the way most of the bills are being approved—many without undergoing scrutiny in the appropriate committees. Nevertheless, media reports suggest that the entirety of these legislative actions is being carried out with the endorsement of influential stakeholders.

At the fag end of his rule, Prime Minister Muhammad Shehbaz Sharif seems engaged in enhanced futuristic commercial plans. His adeptness in persuading the Managing Director of the International Monetary Fund (IMF) to secure a 9-month US$3 billion Stand-by Arrangement (SBA) for the financially strained economy to avert potential default is particularly significant as is his role in enhancing bilateral ties with friendly nations, especially Saudi Arabia, the United Arab Emirates, and China.

Shehbaz Sharif’s efforts for improving foreign exchange reserves and to elicit, encourage and promote Foreign Direct Investments (FDI) at a time when domestic investment has almost dried up, have earned him vast admiration. It is worth noting that he attributes a good portion of this “success” to Chief of Army Staff, General Syed Asim Munir, demonstrating his prioritization of results over personal credit.

In the process of establishing Special Investment Facilitation Council (SIFC), a specialized investment facilitation body, Shehbaz Sharif included Chief of Army Staff as a council member. This “strategic decision” is aimed at ensuring that foreign investors encounter minimal unwarranted delays and that all aspects related to their investments are efficiently addressed through a centralized framework. Creation of SIFC is an endeavor to attract FDI, essential in extricating the country from its prevailing economic crisis. In this effort, Pakistan army has assumed a key role, wherein the Army Chief holds membership (in fact, command) with responsibilities including coordination of the apex committee (where Director General of Implementation will be army officers) and executive committees.

All steps taken as part of SIFC are very important to put Pakistan back on the path of economic development. However, it appears that the Prime Minister in his entire tenure remained clueless about the basic issues that are creating hurdles in revival of economic development. FDI is conditional to satisfactory law and order situation, robust justice system, modern and efficient infrastructure, stable currency and ease of doing business etc. Unfortunately, we find ourselves entangled in challenges across all of these domains. Pakistan’s ongoing vulnerability to default remains a pressing concern, primarily attributable to its dwindling foreign reserves. Scarcity of these reserves exerts considerable strain on our currency. Moreover, our debt burden looms large, a mismatch with the level of reserves at our disposal.

Interestingly, during the preceding tenure of the Pakistan Muslim League Nawaz (PMLN), China-Pakistan Economic Corridor (CPEC) assumed considerable importance. Enthusiastically heralded as a game changer project, the narrative emphasized substantial Chinese investments pouring into Pakistan, poised to revolutionize our economic landscape. While substantial strides were made in electricity generation and some infrastructure development through this initiative, the anticipated establishment of industries, which was touted as a catalyst for generating economic activity within the nation, failed to materialize.

Consequently, we are still waiting for the anticipated influx of Chinese investments although it’s worth noting that Chinese loans currently constitute a substantial 24% of the nation’s overall debt. It is good time for us to renegotiate the maturity date for these loans so that we can ease pressure on our foreign reserves.

Another obstacle hindering the attraction of FDI lies in prevailing law and order situation. The recent suicide bomb blast targeting a political gathering of the Jamiat-e-Ulema-e-Islam (Fazal-ur-Rehman) (JUI-F) has underscored vulnerabilities in our security arrangements. Despite Pakistan’s persistent efforts spanning two decades to combat terrorist groups, unfortunately, we have not achieved complete success on this front. It is, thus, imperative for all stakeholders to deeply analyze the underlying causes of shortcomings and formulate an all-encompassing strategy to effectively counter terrorist activities. By effectively curbing terrorism and restoring peace, along with enhancing the overall law and order situation within the country, we can undoubtedly foster an environment conducive to FDI.

The Parliament must also focus on enhancing efficacy of the justice system. The existing self-accountability mechanism has inflicted considerable harm on proper judicial framework and effective dispensation of justice. The extensive authority wielded by the Chief Justice of Pakistan, encompassing matters like composition of benches, appointment of judges, and dismissals, has given rise to numerous concerns about the judiciary’s role. Furthermore, issuance of compromised verdicts has not only fomented political turmoil within the country but has also cast doubts regarding its credibility in the minds of foreign investors, thereby creating an atmosphere of insecurity. A robust and independent judiciary, coupled with stringent accountability measures, serves as both guardian of the Constitution and a catalyst for ameliorating law and order, fortifying democracy, and fostering economic prosperity.

Our economic managers must also address the underlying causes of inflation and take steps to curb wastage of resources in order to maintain fiscal discipline. Significant sums are expended on sustaining sick industrial units and on providing subsidies, with minimal returns but having consistent impact on the ordinary citizen’s purchasing power. Instead, if funds are channeled towards enhancing social sector indicators it would ultimately lead to elevation in the quality of life for the general public.

Imposition of hefty indirect taxes, duties, and escalation of gas and electricity prices to generate funds for supporting these economically nonviable ventures not only exacerbates inflation within the country but also increases cost of conducting business reducing competitiveness of businesses in the global market.

It is important for those who matter in the land to recognize that genuine FDI will remain elusive until we achieve political stability, enhance law and order, reform the judicial system, and reduce the cost of doing business. This transformation can only materialize when all stakeholders wholeheartedly adhere to the principles of trichotomy of powers envisaged in the Constitution.

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Dr. Ikramul Haq, Advocate Supreme Court, specialises in constitutional, corporate, media, ML/CFT related laws, IT, intellectual property, arbitration and international tax laws. He was full-time journalist from 1979 to 1984 with Viewpoint and Dawn. He served Civil Services of Pakistan from 1984 to 1996. He established Huzaima & Ikram in 1996 and is presently its chief partner as well as partner in Huzaima Ikram & Ijaz. He studied journalism, English literature and law. He is Chief Editor of Taxation. He is country editor and correspondent of International Bureau of Fiscal Documentation (IBFD) and member of International Fiscal Association (IFA). He is Visiting Faculty at Lahore University of Management Sciences (LUMS) and member Advisory Board and Visiting Senior Fellow of Pakistan Institute of Development Economics (PIDE).

He has coauthored with Huzaima Bukhari many books that include Tax Reforms in Pakistan: Historic & Critical Review, Towards Flat, Low-rate, Broad and Predictable Taxes (revised & Expanded Edition, Pakistan: Enigma of Taxation, Towards Flat, Low-rate, Broad and Predictable Taxes (revised/enlarged edition of December 2020), Law & Practice of Income Tax, Law , Practice of Sales Tax, Law and Practice of Corporate Law, Law & Practice of Federal Excise, Law & Practice of Sales Tax on Services, Federal Tax Laws of Pakistan, Provincial Tax Laws, Practical Handbook of Income Tax, Tax Laws of Pakistan, Principles of Income Tax with Glossary and Master Tax Guide, Income Tax Digest 1886-2011 (with judicial analysis).

He is author of Commentary on Avoidance of Double Taxation Agreements signed by Pakistan, Pakistan: From Hash to Heroin, its sequel Pakistan: Drug-trap to Debt-trap and Practical Handbook of Income Tax.

He regularly writes columns/article/papers for many Pakistani newspapers and international journals and has contributed over 2500 articles on a variety of issues of public interest, printed in various journals, magazines and newspapers at home and abroad.

Twitter: DrIkramulHaq

Abdul Rauf Shakoori, Advocate High Court, is a subject-matter expert on AML-CFT, Compliance, Cyber Crime and Risk Management. He has been providing AML-CFT advisory and training services to financial institutions (banks, DNFBPs, Investment companies, Money Service Businesses, insurance companies and securities), government institutions including law enforcement agencies located in North America (USA & CANADA), Middle East and Pakistan. His areas of expertise include legal, strategic planning, cross border transactions including but not limited to joint ventures (JVs), mergers & acquisitions (M&A), takeovers, privatizations, overseas expansions, USA Patriot Act, Banking Secrecy Act, Office of Foreign Assets Control (OFAC).

Over his career he has demonstrated excellent leadership, communication, analytical, and problem-solving skills and have also developed and delivered training courses in the areas of AML/CFT, Compliance, Fraud & Financial Crime Risk Management, Bank Secrecy, Cyber Crimes & Internet Threats against Banks, E–Channels Fraud Prevention, Security and Investigation of Financial Crimes. The courses have been delivered as practical workshops with case study driven scenarios and exams to insure knowledge transfer.

His notable publications are: Rauf’s Compilation of Corporate Laws of Pakistan, Rauf’s Company Law and Practice of Pakistan and Rauf’s Research on Labour Laws and Income Tax and others.

His articles include: Revenue collection: Contemporary targets vs. orthodox approach, It is time to say goodbye to our past, US double standards, Was Due Process Flouted While Convicting Nawaz Sharif?, FATF and unjustly grey listed Pakistan, Corruption is no excuse for Incompetence, Next step for Pakistan, Pakistan’s compliance with FATF mandates, a work in progress, Pakistan’s strategy to address FATF Mandates was Inadequate, Pakistan’s Evolving FATF Compliance, Transparency Curtails Corruption, Pakistan’s Long Road towards FATF Compliance, Pakistan’s Archaic Approach to Addressing FATF Mandates, FATF: Challenges for June deadline, Pakistan: Combating the illicit flow of money, Regulating Crypto: An uphill task for Pakistan. Pakistan’s economy – Chicanery of numbers. Pakistan: Reclaiming its space on FATF whitelist. Sacred Games: Kulbhushan Jadhav Case. National FATF secretariat and Financial Monitoring Unit. The FATF challenge. Pakistan: Crucial FATF hearing. Pakistan: Dissecting FATF Failure, Environmental crimes: An emerging challenge, Countering corrupt practices .