Infusing private sector dynamism within the Board of Investment (BoI), Chairman BoI, Salim Mandviwalla talks to Blue Chip about how to enhance Pakistan’s investment prospects
What are your views on Pakistan as an investment destination?
Saleem Mandviwalla: “It’s very simple. Investors will only come to a destination where they can make money. We can sing all the songs we want for Pakistan but that’s not going to bring any investment and investors will only come if they know that they can make more money in Pakistan than other country. And for that, I think we have opportunities and we have examples of companies which make more money here than anywhere else in the world – many of them being multinationals. That, I feel is our best selling point – if you want high returns, come to Pakistan.”
What sectors or industries do you believe have the greatest potential for investment?
SM: “Right now, our most vibrant sector is the energy sector – we have so many forms of alternate energy: hydel, geothermal, wind, solar. There is so much opportunity in our alternate energy sector that whatever amount of investment comes in is not enough. We are also energy deficient so such investments will be of great help to us.
Another sector which is totally unexplored is our mining sector. It has a huge potential. After coming to this office, I realised the real extent of Pakistan’s mining potential. On trade visits abroad, an issue which often arises is Pakistan’s lack of investment in its mining sector, but that relates to security issues as most of our mining potential is in Balochistan and Khyber Pakhtoonkhwa (KPK).
Coming back to energy, we have huge reserves of gas in Balochistan. There is enough gas to take us through the next 100 years or more – yet, we are short of gas and considering importing gas. If only our own areas were clear enough to be explored, we could be a gas exporting country. We also have a lot of coal.
But as far as investment is concerned, I have to give credit to this government for accepting whatever I have proposed. Whether it was Reko Diq or Thar coal – the reason these projects were not being explored was simply because there were no incentives. So, the moment we brought this up, we got the incentives approved from the cabinet and a lot of interest was shown consequently. We gave an IRR of 30% on Thar coal and now there is a great deal of interest in Thar coal.
Now, let’s take solar energy. There were no tariffs. Why would somebody come and invest $5 million in solar when he can put up a thermal plant for $1 million per megawatt? The investor will only come into solar if he is given the right tariff and the right IRR. We did just that and now we have the first solar IPP coming in from Germany. Once you give the investors what they are looking for, investment will come in which will eventually benefit the country.”
How can Pakistan enhance international trade?
SM: “I’ll give you an example. We just went to Sri Lanka with the President, I also went to Tajikistan and I plan on going to Sudan and Bangladesh as well: all these countries are looking towards us for setting up sugar and cement plants. They are also looking for support in dairy and livestock.
We have a company called Heavy Mechanical Complex (HMC) which has set up a lot of plants. A majority of our sugar plants have been installed by this company. All we need to do is to make the credit available to this company and export the plants to these countries. When you do this, you are putting that money into your own economy. These countries are going to be borrowing money from us in kind and our people are going to go there and install and run these plants. This way, you are exporting your products and your manpower, thereby creating an economic bridge with other countries.
We have just done that with Sri Lanka and we are going to do that with Tajikistan, Sudan, Bangladesh and any other country which is diplomatically, or otherwise, close to us. So, there is much to do and many areas to explore.”
What are the main challenges faced by the BoI?
SM: “We are not accounting – and have never accounted – for investment that comes in kind to Pakistan. We only account for the cash that comes in and treat that as an investment. I’ll give you one example. We have a ship that has just arrived from Turkey that is going to supply power to Karachi. The deal was concluded by this government and the ship arrived in 12 months and cost $300 million. It is not being shown in our investment figures although this investment has arrived and this ship will be here for the next five years, according to the contract. This type of investment is not accounted for in our books and sometimes is more than the actual cash that has come in.
So we are thinking of starting a system of registering foreign investment which doesn’t get registered right now. If someone wants to do a joint venture with a Pakistani company, or register a company themselves to come in and do business, we will make it mandatory for them to register with the BoI. Once they do that, we will come to know what each individual or company coming in from abroad is actually doing. This is a very big issue and it has happened in many other cases. A lot of American companies’ rigs have come in for oil exploration, and these rigs are worth around $200 million, but it is not shown in our figures because it is not cash that has come in. From June-November 2010, we are showing foreign direct investment (FDI) of $437 million. Now, this is just the cash that has come in, but if you include the Turkish ship as an investment as well, that itself is $300 million.”
How has the recent civil strife and security situation impacted investment in Pakistan?
SM: “People talk of corruption, the energy situation and all these other issues – but none of those issues are as detrimental to investment as compared to the security issue.”
What assurance can you give investors in light of this situation?
SM: “Well again, the security situation is not targetting any investment, that’s for sure. But obviously, when these things are happening and people in different countries are being issued travel advisories saying not to travel to Pakistan –it’s very difficult to convince people that everything is okay.”
What sort of incentives are you offering to make the investment climate more conducive here?
SM: “We are introducing the special economic zone. The bill is already in the Senate – one hearing has already taken place and it should go to the parliament soon. This is the first legislation ever that has been proposed by the Board of Investment. I thought this legislation was required because every investor who comes here is looking for some incentive and the main incentive in this special economic zone is that there are no import taxes on any machinery coming into this zone. The second incentive is that there is no income tax for five years from the time production starts and there are also going to be benefits to the zone developers. So what will happen is when someone comes to me and asks me for incentives, I will tell them to install their industry in this zone and they will automatically get the incentives.
We’ll start developing the zone after the act is approved. And since it will be an act, it will protect the investors in all times to come.”
Going forward, can you elaborate more on the BoI future strategy?
SM: “The BoI was created in 2001 and the mandate of BoI is very large – it is part of the Prime Minister’s office, so anything that is conducted by the BoI is actually being conducted by the Prime Minister. An ordinance was made that was later converted into an act but nothing was implemented and the reason behind that is that the bureaucracy wants to keep this organisation in their system and this organisation cannot be a bureaucratic organisation. I’ve just set out a report both to the Prime Minister and the President: $8 billion worth of investment is stuck in different ministries that I have identified – it might be much more. We are trying to address this by creating our own rules for the BoI and increasing our capacity – bringing in people from the private sector, bringing in technocrats and limiting the bureaucracy.”
What would you consider the main highlights of your tenure as chairman?
SM: “The main achievement for me has been to bring the BoI back to what it should be, as was the late Benazir Bhutto’s vision and also to make it independent and autonomous and vibrant. Secondly, I am very proud to have put together this act, as it is it the first act that the BoI has ever pushed through.
There are many other things that we have achieved – small and big. Small things like getting people their electricity connection or solving their union problems. We have dealt with such issues which the BoI has never done before, but we did it because I could understand their needs and how the investors were suffering, be it a local or a foreign investor. If an investor is suffering for reasons which I feel the State is responsible for in some form or the other, then somebody should be there to help them out.
All it takes is a phone call to the investors to ask them if they need anything. I have implemented a system whereby all companies are called by the BoI to ask if they have any issues. Coming from the private sector, I understand how important it is to let them know that we are here to help them. So, we have done some revolutionary things in BoI which have never happened before and I feel very good about them.”