News: Removing barriers to investment
Name of the Newspaper: The News
Date of publication: Monday, March 19, 2007
Website: http://thenews.com.pk/daily_detail.asp?id=47432

The “State of Pakistan’s Competitiveness” report, released last week, focuses on some of the major constraints to investment in the country. The report has been prepared by the Competitiveness Support Fund, a joint venture between the US government’s aid agency and Pakistan’s ministry of finance. The report, which is the first of its kind, has focused on Karachi to make a point about problems faced by investors. It talks in particular about the distorted land and real estate market of the country’s business and commercial capital. It points out that land available for commercial and residential use is very limited owing to a number of factors and that is perceived as a barrier to new investment. These factors include property rights, inappropriate zoning laws, pro-tenant law and high taxes on property-related transactions. The report also talks about deficiencies in urban infrastructure, especially the electricity and water supply networks and comments on the city’s inadequate and outdated sanitation system. It makes it a point to state that Karachi contributes on an average about 70 per cent of federal revenues, but only a fraction seems to be put back into its infrastructure by the federal government. Without going into the debate on how much Islamabad should pump into Karachi given its commercial importance, the very fact that land and infrastructure issues have been highlighted as an impediment to investment in the city is worthy of some comment.

While much has been promised, very little has been done to address the problem of unclear property rights. The city government is yet to computerise the city’s property records. At present, given the manner in which records are maintained, problems of fraud and duplication of documents are common. Property taxes as well as fees charged on change of ownership of property may not be very high but the cost of transactions, given corruption in the departments concerned, makes the final figure much higher. This also scares away foreign investors who are required to comply with transparency-related home regulations. The city government has also not worked at launching new industrial schemes and commercial areas despite the immense interest in this from various quarters. As a result, rentals and costs of property in such areas is very high even by regional standards.

As if all this was not enough, the infrastructure offered in return is poor. Power and water problems exist, and these drive away serious industrial investors who want to set up industrial and manufacturing plants. The law and order situation in the city coupled with the bad state of roads, problems with obtaining permissions to start a business and the general apathy shown by the government towards such entrepreneurs only convinces potential investors to put their money elsewhere. This state of affairs is not particular to Karachi. Other large cities and towns across the country face similar problems. The government should wake up to this reality and make a serious and long-term effort to address these issues. Unless this is done, investment from both foreign and local sources will continue to elude the country which would be a shame considering how much Pakistan has to offer in return.