by Zhou Rong

BEIJING, July 27 (China Economic Net) - Foreign direct investment (FDI) in Pakistan was 10% lower than the $133.2 million recorded in April 2020 and 53% lesser than the $254 million registered in May 2019, as we all know Covid-19 forced global investors to put their new investment plans on hold.

The global lockdown imposed to contain the virus badly impacted economic activities, businesses, people's income and their purchasing power. As a result, the demand in international markets for many Pakistani products, except for food and pharmaceuticals, dropped sharply. Most of the foreign investment during the Covid-19 pandemic went to the ongoing projects in Pakistan rather than new projects.

The overall 91% growth in FDI got major support from an increase in Chinese investment, mainly in power projects under the frame of China-Pakistan Economic Corridor (CPEC). In the first 11 months of FY20, China was the largest investor with net investment of $855.6 million.

As we talk about the sectors investment, the communication sector, mostly the 3G/4G service providers, attracted the largest foreign investment of $73.5 million in May 2020, followed by oil and gas exploration firms $18.6 million and financial businesses $15.5 million.

The flow of foreign investment in future depends on the unfolding Covid-19-related events like the second and third waves of infections, controlling the crisis and introducing the much-awaited vaccine. The return of stability to the financial health of global firms is a must to attract new foreign investment in Pakistan and also Pakistan’s ability to absorb FDI.

Now, to attract FDI more effectively, the Pakistani government is all set to comply with the World Trade Organisation (WTO) provisions to implement Pakistan Single Window (PSW) to streamline cross-border movement of goods and regulatory bottlenecks, and the government has set a deadline of 2022 to put in place the whole system which will be implemented at a cost of $67 million. This will not only improve the ease of doing business, but also enhance controls through integrated risk management.

Dawn reported that the first phase of the PSW will be ready by the end of the current year, which will cover 80 per cent volume of various licenses, permits, certificates and other documents currently issued to regulate trade. The PSW programme includes phased establishment of an ICT-based platform involving simplification, harmonisation, and automation of regulatory process related to cross-border trade. It also includes implementation of a port community system to facilitate related logistics.

And it was estimated, in ease of doing business report, the economic operators incurred over $500 million costs in Pakistan than their counterparts in South Asia to comply with the government’s regulations on imports, exports and transit trade in 2020. And the time to clear cargo lasts for days as compared to hours in neighboring countries.

If PSW is attentively implemented, then, all of the stakeholders will benefit from PSW. Meanwhile, the Federal Board of Revenue of Pakistan is also completing the process of converting the eight-digit Pakistan Customs Tariff to 12 digits so that the governments of all provinces may be strong in effective regulatory controls at borders and ports in line with international standards.

According to customs, the PSW will establish, maintain and expand ICT-based NSW platform, Port Community System, Trade Inform?ation Portal, Integrated Risk Mana-gement and Unified Registration, etc. The PSW companies will work on a cost-recovery model without burdening the government while being accountable for the product rollout.

The services sector has critical importance for any vibrant economy; however, several steps are needed to tap true potential of sectors in Pakistan. Indeed, the services sector of Pakistan was facing hurdles to growth due to difficult access to business premises.

Some other challenges are affecting the sustainability of services sector firms including weak access to public procurement opportunities, inadequacy of e-commerce, and online and digital payments infrastructure and weak linkages with regional and global value chains.

The Pakistani government would soon agree on a trade-in-services agreement with China to curb costs for Pakistani firms interested in integrating with the Chinese services sector, and work on services sector-focused economic zones under the China-Pakistan Economic Corridor (CPEC) would be established, otherwise, some foreign enterprises even the Chinese ones were willing to relocate due to high labour costs. Information technology parks can help promote IT-enabled businesses, which are much desired by the Chinese companies.

Pakistan would like to see businesses, applying for loan, secure their future cash flows. Pakistan needs to be more receptive to joint venture and foreign investors. To boost productivity in the services sector, it is important to improve Pakistan’s ranking in information and communication technology (ICT) adoption and logistics indicators, which were closely observed by foreign investors.

Also, learning needs of women-led businesses should be explored in the post-Covid-19 scenario including orientation to online ways of doing business, overcoming constraints to mobility and attracting investors during the pandemic. The federal government should try to streamline the regulatory environment whereas e-commerce and cluster-based services sector development is also going to be promoted in the country.

Here I would like to briefly introduce what China has been doing recently on the issue. China has recently issued the Implementation Opinions on Further Optimizing the Business Environment and Better Serving Market Entities.

And by the end of this year, all provinces will have all the enterprises to open the “One Net Office” platform, realizing the whole process of business start-up online, reducing the business start-up time to 4 working days or even less.

And the Chinese government’s restrictions on the registration of small and micro enterprises, individual industrial and commercial households will be relaxed. For self-employed retail operators who are engaged in the basic living security of the masses during the COVID-19 epidemic, the venue and time of their activities will be further expanded, and registration will be exempted - that is a special award.

Under the "two-step declaration" mode, companies do not need to submit all declaration information and documents at once, and the overall customs clearance time will be reduced.

In conclusion, to streamline the regulatory environment for business is a must for both Pakistan and China.

Prof. Zhou Rong, special commentator of China Economic Net, Senior Fellow of Chongyang Institute for Financial Study of Renmin University