Pakistan's M2 provokes some jealousy across the border....

Indians have at least something to envy or to be jealous about Pakistan. Although both countries have different identities, they have so many things in common also. The corrupt practices of the public functionaries wherever there is involvement of contractors, is something which both can equally boast about. In the area of corruption, the public “servants” of both the countries have a common DNA.

Over the decades, the public works have consumed so much of the capital outlay that it bled the economy profusely without any tangible returns. The budgetary deficit was caused by corruption wherever construction was involved. Eventually, funds for development fell short of resources forcing borrowing. It is a common belief that works completed by public works department are 50% more expensive and 50% more unreliable as far as the quality of construction is concerned. 35% of the project funds are pilfered by functionaries with 15% paid to contractors in excess of his rightful claim. These are rough statistics of Pakistan and India would be no better.

It is for this reason that roads are built and rebuilt many times over making “them” rich at the cost of taxpayers. And as the ratio of indirect taxes dominates direct taxes, we can safely assume that 100% population of Pakistan pays taxes. These roads are built and are “maintained and repaired” every year then rebuilt after every five years but these are never of any international standard and are never in good conditions on both sides of the border.

However, there is one road,  which impressed even Indians and that is M2, Pakistan first motorway between Lahore and Islamabad completed in November, 1997. But alas! We have hardly any reason to be proud of because this road was never built by Pakistani Highway money minters, it was built by South Korean engineers. Wall Street Journal has reported that a major conundrum to those who visit both India and Pakistan is why the roads are so much better in the latter. For all its problems, Pakistan’s 367-kilometer-long M2 motorway between Lahore and Islamabad strikes a visitor as being streets ahead of India’s decrepit inter-state roads.

For one, there’s a disciplined motorway police that patrol Pakistan’s highways and don’t take bribes. If you go above 120 kilometers an hour, and are caught on camera, a fine awaits you at the toll gate. Nonpayment means you can’t get out. The M2 motorway passes through the densely populated Punjab countryside but there are no cows, rickshaws or motorbikes coming at traffic on the wrong side of the road which is a common experience in India. The M2 road was built in the late 1990s by South Korean firm Daewoo, whose name is still emblazoned on the modern service stations that line the route.

Sunita Kohli, a New Delhi-based interior designer who recently did work on a boutique hotel in Lahore, says she was impressed with the road compared to similar developments in India. “We really lag behind on infrastructure,” she said. “Now we’re trying to make up for lost time.”

That’s not to say Pakistan doesn’t face its own infrastructure challenges. Its most pressing need is to build more power plants and stop people from stealing electricity to avoid hours of blackouts across the country. And Pakistan’s motorways — at just over 600 kilometers in combine length — are only a small fraction of the total road network, much of which is old. Ms. Kohli says she sees the M2 as a “showcase.” India still slightly edges out Pakistan in the United Nations’ Human Development Index, which measures per capita GDP, literacy, life expectancy and other development criteria.

Until a couple of years ago, Pakistan’s economy was booming and there was plenty of public and private money for infrastructure spending. Now, foreign direct investment has dried up and the government, running a large deficit, has had to turn to the IMF for more than $11 billion in loans. But first-time visitors to Pakistan, many expecting a failed state, are surprised by some of the modern infrastructure. Apart from the roads, Pakistan’s broadband and wireless roaming speeds also compare favorably with India. Doing business in Pakistan is easier than in India and China, according to the World Bank.
With regular Taliban suicide bombings, though, Pakistan is unable to capitalize on these positives and continues to generate only negative headlines. [Article courtesy: Wall Street Journal]

Pakistan is still a milk cow for foreign investors. Please read this....

When Government of Pakistan released its Economic Survey of 2009-2010, a blog post titled Billions of dollars fly away.... reported that capital of over $600 millions invested in telecommunication sector had flown back to where it had come from. The major reason of this flight was lack of confidence of investors in the fair play by the Government as the Telecommunication De-regulation Policy 2003 was flawed and heavily tilted in favor of incumbent PTCL [now Etisalat] driving private sector licensee out of the market. Another sector from where capital worth $500 millions flew was the financial sector.

The trend of capital flight could not be arrested as there were no visible measures to restore investors’ confidence. It has now been reported by Express Tribune that apart from the capital, communication and financial business sectors have shown the highest increase in repatriation of profits and dividends in the fiscal year of 2010 (July 2009 to June 2010), according to the State Bank of Pakistan on Wednesday. These two sectors are also the ones which have been driving Pakistan’s foreign investment inflows over recent years. Foreign investors pulled out earnings worth $106.9 million from financial businesses in the outgoing fiscal year.

This was an increase of 34.6 per cent compared to the previous fiscal year. Repatriation of earnings from the communications sector also jumped to $77.2 million over the same period, an increase of 53.4 per cent when compared to fiscal year 2009. Foreign investors repatriated a total of $775.6 million in profits and dividends from Pakistan in the fiscal year of 2010. SBP figures revealed that the repatriated earnings from foreign portfolio investments amounted to $194.1 million while the same from Foreign Direct Investment (FDI) stood at $581.5 million. Total repatriation increased by a nominal 1.5 per cent over the fiscal year of 2009, when the cumulative outflow stood at $764 million.

During the same time, net foreign direct investment inflows were recorded at $2.205 billion, down by a significant 40 per cent compared to net inflows of $3.719 billion in the fiscal year of 2009. Experts have attributed the slowdown in foreign direct investments to a combination of factors including deteriorating law and order situation in the country, the energy crisis and continuing depreciation of the rupee. According to experts, the rising trend of repatriation of profits from communication and financial sectors highlighted the resilience and robust growth shown by these industries.

Economist for Arif Habib Investments explained that all the large banks had experienced double-digit growth and high profitability even as the economy slowed down and global financial institutions crumbled. Analysts assert that the average profitability of banks increased by around 20 per cent in the outgoing fiscal year, attracting interest from foreign investors. The food sector witnessed a 36 per cent jump in profit and dividend repatriation over last year reaching $56.9 million. Chemical industries saw repatriation of earnings rise to $49.8 million, an increase of 65 per cent over the fiscal year of 2009.

On the other hand, petroleum refining, oil and gas exploration, electronics and fertilizer sectors witnessed varying degrees of shrinkage in repatriation of profits and dividends. Analysts say that the real economy has slowed and these sectors saw the bottom line contract in the outgoing fiscal year. The alarming aspect in these numbers is that fewer foreign investors seem to be attracted to long-term investments in the country right now. We are seeing more interest in portfolio investments which is not bad but further economic and political stability are needed to attract fresh long-term investments.

Experts agree that financial and communications sectors have provided a major impetus for growth in foreign investments till now. However, they contend that improvement in the country’s socio-political environment can help attract investments to other sectors in the future.