No instant change, Reforms take time
Prime Minister (PM) Nawaz Sharif inaugurated a 60 kilometre long motorway project in Hazara in November 2014. This road will be completed at a cost of $ 27 million. By laying the foundations of a fenced four-lane motorway there, Pakistan has commenced off the multibillion dollar Pakistan-China Economic Corridor development programme. China-Pakistan economic corridor projects envisage $ 34 billion investment in the energy sector and around $ 11 billion in infrastructure. These projects offer immense opportunities to businesses and will give a boost to Pakistan’s economy.
Earlier this month, PM Nawaz Sharif during his visit to China also signed deals worth $ 45.6 billion, which included projects connected with the corridor. China and Pakistan will facilitate the development of Gwadar Port in south-western Pakistan along with strengthening cooperation in energy and electricity projects and the planned industrial parks along the corridor. The corridor was proposed in an agreement reached in May 2013. Plan is to connect Kashgar in China’s Xinjiang with Pakistan’s Gwadar Port in Baluchistan province, and the corridor is expected to serve as a conduit for Chinese imports of oil from the Persian Gulf. The early-harvest projects include 1,320 MW coal-based power projects at Port Qasim, 660 MW coal-based power projects at Gaddani, 1,100 MW Kohala hydropower project, 873 MW SukiKanari hydropower project, 720 MW Karot hydropower project, 3.5 metric tons annually coal mining project at Thar block-II, SECMC and Solar Power Park at Bahawalpur, in addition to the construction of East-Bay Expressway at Gwadar and a 300-bed hospital at Gwadar.
It seems that the leadership has recognised that the growth model that has driven the country over the last 68 years is not sustainable and is causing significant challenges. Government have outlined reforms that will increase the role of market forces and adjust the role of government. Multiple sectors are called out by economistsfor specific reforms from finance to healthcare while also calling on national resolve to tackle environmental challenges.
Environmental pollution has also become a major problem, which is nature’s red-light warning against the model of inefficient and blind development and we must have the mettle to fight on and break mental shackles to deepen reforms on all fronts. Many of the announcements require to be made to reduce bureaucratic red tape and gradually shift the country away from a planned economy to one based more genuinely on market forces. Economic reforms remain paramount to transform Pakistan’s economic growth away from exports and fixed investment. A greater emphasis has to be placed on allowing the market to play a decisive role in the allocation of resources and pricing. The core solution to economic reforms lies in defining a proper relationship between the government and the market. Many of the reforms fundamentally change the role of the state in the economy – including adjusting the focus of the backbone of the state planning mechanism. Over the last 68 years Pakistan has leveraged capital to drive economic development while guiding the introduction of western concepts, management skills, best practises and technologies.
The reform programmes must provide an answer to how to govern the country in an open market economy while addressing fundamental societal challenges. Investment continues to be an important component of economic development. As part of the reform agenda government policies should abolish or simplify preliminary review and approval procedures that give businesses full power over their investment decisions, and make it easier to make investments and start businesses. A system that lists all items over which government review and approval are required should be developed and released to the public. To adjust to the new realities of economic globalisation, Pakistan must accelerate the pace of opening-up, both internally and in terms of the outside world. Pakistan will have to lower the thresholds for investment, reduce bureaucratic investment approval barriers, accelerate the construction of free trade zones and boost opening-up in both inland and coastal areas. Reforms and opening-up are closely interconnected. Combined they will bring a range of positive opportunities for investors.
The commitment to allow market forces to play an increasingly decisive role in Pakistan is positive for business as it will introduce greater predictability. Yet, even with these reforms corporate success in Pakistan will not guarantee continued success unless some of the considerations that include the battle against officials’ misconduct have expanded firmly into the corporate environment.
It is imperative that companies operating in Pakistan ensure their corporate compliance systems are robust and are matched to the scale of their expanding Pakistan business. The expectations on companies operating in Pakistan have evolved and they are being held to a higher standard than they were in the past. Companies must ensure that they are operating in Pakistan consistently with their global values and are genuinely responsible local citizens. Some of the business sectors remain challenging, regardless of the positive reform agendas but for companies operating in those sectors it will require concerted issue engagement and resolve. Government is working to change the economic growth model and companies that operate in areas that were previously prioritised must consider how they can adjust to meet the new long-term focus.
A number of government bodies are looking to make their mark with decisive judgements, such as those involved in anti-trust. Economists focus heavily on the importance of reforms and unequivocally states, that reforms should be the top priority for the government. While reforms have brought great benefit to the country, Pakistan’s reform had entered a critical “deep water zone” and country must be prepared to pass through an area of deep water a period that will challenge the tested method of crossing areas of water by feeling the stones. The role of the government in the economy must adapt to match the developmental position of the country. Government should continue to reduce bureaucratic red tape and improve coordination between the centre and the provinces with the support of fiscal and taxation reform.
At the same time, the public should have the ability to scrutinise the use of power and to cage power of the authorities. Equal importance should be placed on the development of the public and non-public sectors. However, even with reforms the basic economic system continues to depend on public ownership as a cornerstone of its long-term success. The fight against corruption should remain firmly on the agenda and is the natural enemy of government and it is imperative that they take a zero tolerance approach. More reforms are expected in Pakistan’s judicial system to overcome problems over transparency and corrupt judges, including curtailing the politician’s political power to interfere in the legal cases. The government should make it clear that more effort will be exerted in accepting supervision from the public, including soliciting public opinion and paying more heed to media reports. A basic principal embedded in the reform programme is to differentiate and redefine the roles of government, market and societal entities so that the government will be able to focus on ensuring fairness, justice, rule of law and providing services. The market can be used to efficiently allocate resources and determine pricing and social entities can support dispute resolution and provide stability.
The reform agenda places great emphasis on allowing the market to play a decisive role in the allocation of resources. The core solution to economic reform lies in defining a proper relationship between the government and the market.
By Dr. Fawad Kaiser
Pakistan Rupee Exchange Rate