Future is 'Made in Pakistan': Chairman Board of Investment Zubair Gilani

Zubair Gilani has diverse work experience from a professional career in banking through to running his own businesses. Zubair started his career in 1989 by joining BCCI and later moved to American Express Bank. He joined Faysal Bank in 1994, where he held senior management positions in corporate and investment banking. He ran an apparel manufacturing unit in Karachi in 2001, supplying garments to leading European Brands. The company’s garment-producing factory was one of those attacked and burnt in December 2007, in the aftermath of Benazir Bhutto’s assassination. Zubair has also set up a mechanized farm on 500 acres in interior Sindh growing cotton, wheat, and sugar cane.

GVS: What is the principal remit of the BOI?

Zubair Gilani: The primary job of the BOI is to promote and facilitate investment. It is entrusted by an executive order to improve the overall business environment that facilitates investment growth, from both existing and new investors, whether local or foreign. Business environment is to investment, what water is to fish.

So, my primary focus has been on improving the business environment. Rather than taking an academic approach, I have tried to tackle the issue by reaching out to the largest investors to work with them in resolving their pressing issues on the one hand and focus on promoting Ease of Doing Business on the other hand for the smaller or potential investors.

Towards this end, we are also compiling a Company Wise Electronic Investment Ledger in an Investor Management System to constantly monitor and resolve investor issues at the earliest possible.

GVS: Are you mapping out the different sectors of where current investment is within Pakistan?

Zubair Gilani: Yes, and by individual companies as well as by their country of origin. Just so you know, one of the biggest foreign investors in Pakistan, which also happens to be one of the biggest taxpayers in Pakistan, is a British group of Pakistani origin, called the Bestway group.

I have known them from before they setup their first factory in Pakistan and am in regular touch with them and others like them to understand, how the government can help and promote foreign investors of Pakistani Origin. I am very confident that this approach has already started paying off.

Because, one thing is to devise policies and strategies to give a vision of where you want to go, but in our current state of affairs there is also a crying need to attend to the more burning issues that impede investor confidence, many of which can often be resolved merely through greater focus. This approach has already generated greater trust in the institution that is helping investors to gravitate to the Board of Investment for long-term solutions.

GVS: Let me congratulate you on the dramatic improvement in Pakistan’s performance on the Ease of Business index – which rose by 28 points to now stand at 108 out of 190. What were the key factors behind this?

Zubair Gilani: The Ease of Doing Business Index, is a series of 10 measurable criteria that any enterprise faces in its natural life cycle, these are those minimum quantifiable criteria that are measured in 190 countries by the World Bank. We’ve posted improvements in the sense that while in 2007 we were at 74, by 2017-18, we had slid to 147.

Last year, we improved 11 places to come to 136, and this year, we have jumped a further 28 places to go to 108, but we are still not back to 74 where we were in 2007. In the intervening period, other countries have posted dramatic improvements, while we were sliding downhill. As a result, the job today is much harder than it was in 2007.

This year we did well on six of the indicators. The ones we didn’t do well include Enforcing Contracts, Getting Credit and Registering Property. While a low enforcement of contracts appears to be a regional phenomenon since we’re not too far behind other regional countries like India or Sri Lanka.

However, Enforcement of Contracts is extremely important, not just for business but also because they form the very bedrock of a society. Our main focus now is to improve the quality of our legal systems to ensure that no effort is spared in upholding the rule of law, especially considering that this is the very reason Prime Minister Imran Khan entered politics and named his political party as the Pakistan Tehreek-e-Insaaf (Justice Movement).

GVS: How do you intend to address the enforcement of contracts then?

Zubair Gilani: Well, from the World Bank’s point of view when it comes to the ease of doing business – the deliverables include setting up institutions such as specialized commercial courts, implementation of Case Management System and automation of the Courts, training of Judges and alternate dispute resolution mechanisms.

We have actively started pursuing these reforms with greater vigor. The Prime Minister has directed the Law Minister to engage with the Superior Judiciary to ensure that the Court related measures are adopted without any further loss of time. Obviously, there are amendments that are also required in the law for reasons including such as increasing the number of judges.

GVS: What about on the disbursement of the loans to the SME sector.

Zubair Gilani: Now, getting credit is a far more fundamental issue. Getting credit requires documentation, which makes it a complex issue because, as a society, we are just not used to being taxed. We have one of the lowest tax to GDP ratios in the world. To pay their taxes, everyone needs to come into the documented part of the economy.

To promote the documentation, the government needs to help make this a straightforward process to file your taxes, and the same is the case on sales tax. Sales tax is a tool to collect revenue, but it’s also an opportunity to document the entire value chain of businesses.

Now when you pay taxes and your documents/accounts are real, that allows the banking system to ascertain the true creditworthiness of an individual or enterprise. We have some fundamental issues, and that is why the banks, especially in today’s interest rate scenario, do not find much motivation in lending to high-risk small and medium-term enterprises because they get a much better return lending to the government with zero credit risk.

So, until the banks are equipped with such credible data of their potential borrowers that allows and encourages them to lend to the SME sector, access to credit for the SME sector will remain a challenge.

GVS: Are we putting two different issues together then? One is the government crowding out the private sector for credit, and the other is the fact that the creditworthiness of borrowers is not established.

Zubair Gilani: Banks would rather lend to people where the certainty of getting their money back is higher than where there is uncertainty. Therefore, even in a low-interest rate scenario, the fact that the SME sector has not been able to get credit is because banks have minimal means to ascertain the veracity of the books on the basis of which they are making their lending decisions, are accurate.

Towards this end, despite constrains accompanying an IMF program, we are considering innovative technology backed solutions such as digital cash registers and Sales Tax Incentives aimed at making the ordinary citizen a tax collector, by providing him an instant digital refund of a portion of sales tax paid by him before he leaves an outlet and at the same time ensuring that the retailer fully pays the actual sales tax.

GVS: So, documentation would enable that process? What else is it that the government can do, which will encourage the disbursement of SME loans? And one issue is that the capital markets are not very well developed in this country, meaning thereby that an alternative means of capital is not available to the SME sector.

Zubair Gilani: That is true, but to be honest, even for the documented sector, capital markets have not been able to provide the right solution for raising the kind of financial resources in terms of capital that they need to generate for their financing needs. And that’s in part because our capital markets have lacked the depth that they have in advanced countries.

So, to expect the capital markets to come to the fore and resolve that issue is challenging, even though the SECP has finalized a Growth Companies (GC) board, with listing requirements that are far more relaxed than they are for main PSE index.

GVS: It doesn’t seem as if you’re going to improve on this particular factor in the next year, at least in terms of the Ease of Doing Business Index.

Zubair Gilani: The index is crucial because it reasonably tracks the direction of the reform by the government of a country. So, I give it due importance. However, I would be naive to say that this alone best reflects all the necessary reforms that are needed to put our economy back on track, considering our peculiar circumstances.

GVS: Where do you see your ranking next year?

Zubair Gilani: It is much harder to climb the summit. I have to concede that it will be more challenging to jump from now on – but there is absolutely no doubt in our mind that we will post similar progress this year.

This is also in part due to the reforms that are already in progress but have not been accepted by the World Bank due to their independent mechanism for confirmation of reforms. I also believe that the real ease of business will be such that is felt by everyone doing business in Pakistan.

The aim is to go to the top 50 countries of the world, and that would only happen on the back of wide-ranging structural reforms being pursued by our government. One of which, for example, is the digitization of land revenue records on GIS/GPS coordinates to eliminate any possible ambiguity or cause of dispute or conflict between parties concerned. That’s when you take out the discretion of Patwari and anyone else.

It becomes absolutely uncontested. The pilot project has been approved by the Prime Minister for digitizing on GPS Coordinates, Land revenue records of Islamabad, Lahore, Karachi and Federal Government Lands across Pakistan in the first phase.

It’s never been done, and we have set ourselves the target of one year from now, and the prime minister reviews it on a regular basis. I’m pretty confident once that is done, the enforcement of the contracts will also be facilitated by easing of caseload pressure on our legal system.

We want to arrive at a level where owning a property is like owning a vehicle, leaving no dispute as to who the owner is. We have the owner’s biometric with the vehicle registration details, and nobody can pose to be an owner of the vehicle that one isn’t.

GVS: Are there any other Indicators that you are also targeting?

Zubair Gilani: We have embarked upon a series of reforms including the one called the Better Business Regulatory initiative. This reform is aimed at taking stock of the entire regulatory environment in which an enterprise operates and then to document every set of legislation, its underlying rules, procedures, licenses certificates, registrations across all three tiers of Government whether local, provincial or the federal government.

And then, evaluating them to see which of those laws, regulations procedures can be done away with to have the least amount of regulation. We would work on effective regulation with absolute transparency through automation so that the interface between the government and the enterprise is reduced to the very least possible to ensure best form of governance.

In most cases, it is the hurdles that are posed by the red-tape that make businesses fail, not the cost of business. I mean, if you look at local governments to date, even in provinces like Punjab, they are collecting taxes through manual registers. And the tax collectors treat those registers as personal property, and there’s no carryover to the next year.

Pakistan’s golden 60’s posted progress primarily because the legal and administrative infrastructure inherited by us from the colonial British at the time was still relevant to the challenges of that time, but no longer. Now we need to use technology and deal with today’s problems with 21st-century tools & solutions.

GVS: Do you have plans for digitalizing?

Zubair Gilani: That’s the whole idea. So, I am pushing for a reform called Pakistan Goes Digital. It will help increase transparency and accountability to the government. Transparency will automatically lead to elimination or a substantial reduction in corrupt practices.

When you take away the discretion of government functionaries, you will enable individuals and companies to operate with the kind of ease that they get when they work in civilized countries. I’ll give you an example of a startup called Careem.

It came up after Uber had done an IPO. So the concept was already out there in the market. Why Careem deserves our respect is not the novelty of the idea but the agility with which it was able to implement it, using technology, in the UAE, and then bring it to Pakistan – it has transformed the taxi market here and especially helped women to travel around safely and easily.

GVS: PM Khan visited China in October and it has been said that phase 2 of CPEC would be developed in earnest.

Zubair Gilani: Yes, I was fortunate enough to accompany the prime minister on his last visit to China, and we had fruitful discussions with the Chairman of the National Peoples Congress, Premier Li Keqiang and President Xi Jinping. They were extremely positive and reaffirmed their commitment to promoting the relationship between China and Pakistan.

Phase 2 is the construction of SEZs, and handholding of specific Chinese companies facing higher import tariffs from US to set up their factories in Pakistan and export their goods from here to the rest of the world. The success of such ventures will serve as pilot projects to encourage other companies from China and elsewhere for investment in Pakistan.

GVS: What is our existing situation about SEZs?

Zubair Gilani: The current SEZ law was passed in 2012 which encourages companies producing in Pakistan to sell in Pakistan. However, if you are an exporter, then there are other SROs that give you greater incentive than what is being offered under the SEZs. The 18th amendment has made it even more complicated as different provinces are enforcing different standards and conditions.

The current law envisages a 10-year tax holiday if the company is set up in Pakistan before June 2020 and a five-year tax break if set up after that, along with a one-time duty-free import of plant and machinery. Unfortunately, these two benefits are insufficient to attract people to set up industry.

We have finalized a set of incentives that will not hinder existing companies, but at the same time, will encourage Pakistani and international companies to come in from abroad that will produce goods to export to regional and international markets. We are therefore revamping the SEZ law, and discussions are underway with all relevant stakeholders to finalize the requisite legislative amendments.

GVS: Are the nine SEZs under CPEC limited to Chinese companies only?

Zubair Gilani: Not at all, I am happy to dispel this common perception that they are only open to Chinese companies. Under CPEC, in phase 1, the focus was on energy and transport infrastructure and Gwadar. The CPEC roads are being constructed and most of the power plants have been set up, as a result of which, we no longer have the kind of load shedding we used to.

On Gwadar, we just finalized the incentive package under the concession agreement, and an ordinance is in the offing that allows benefits to companies from across the world to come and set up shop in the Gwadar free zone. The industrial corporation is housed in the BOI, which also hosts regulation of SEZs within specific parameters.

We are currently finalizing the benefits for all companies to come and set up factories in the new nine SEZs as and when these become operational– but there is no restriction on foreign companies to set up factories all across the Country. We are looking at labor-intensive – import-substituting or exporting industries in the SEZs. We have 200m people, of which 60% are under the age of 30, and we need to provide them with jobs.

The focus will be on export producing companies in the SEZs; textiles, agriculture, livestock, meat, dairy, cheese, fruits, processed food of all types, pharmaceuticals, and the auto industry. The whole idea is to invest in businesses which help create employment opportunities in Pakistan to improve the lives of people.

GVS: How far are you on launching the SEZs?

Zubair Gilani: We are pursuing them vigorously. Groundbreaking for one of the nine SEZs, called Rashakai, close to Peshawar is expected to be in End-December – the development agreement for it will be signed in November. Then there is also Dhabeji SEZ, close to Port Qasim in Karachi, which is being pursued by the government of Sindh.

The have already invited international bids under Public-Private partnership – the closing date for submission of proposals is early next year. 3,200 acres of land for Allama Iqbal SEZ on M3, Faisalabad have already been purchased, which is also likely to be completed by December 2020.

The initial success of SEZ comes from the provision of utilities at the doorstep of an SEZ, which is called ground zero. PC1’s have been approved for Rashakai, Dhabeji, Hattar, Allama Iqbal and M3 Industrial Park, Faisalabad and Bin Qasim SEZ; which means resources have been allocated to provide utilities to them. Significant progress is expected to be achieved within the next six months.

So, if you want to pursue industrialization in Pakistan on the Chinese style of having a grand industrial construct, where you have everything ready on the plug-and-play, and then companies come in from Pakistan, it may be a great start, but not perhaps the most practical one.

Maybe, a more practical approach would be to pick up the opportunities of individual companies in Pakistan that are interested in joint ventures and help them join hands with Chinese counterparts and put up factories in Pakistan, especially, in sectors where the Chinese companies are already facing anti-dumping duties from the US.

So, if you bring in let’s say 20 large companies from China and help them set up their operation just for sale to the US alone, we could fix our current account deficit in three to four years.

GVS: Have they shown interest?

Zubair Gilani: Oh, absolutely! As a matter of fact, on just the truck and bus radial tire market, we’ve got two transactions that have almost been concluded. Radial Tires are not produced in Pakistan. So, one of them plans to sell/produce tires to the tune of about two to three hundred million dollars per annum, and the other one intends to produce tires to the tune of six to seven hundred million dollars per annum.

One of them has already signed a contract with a company, and the other one is expected to sign either on the sideline of the JCC meeting or later this month, depending upon the availability of the people concerned.

GVS: And will they be set up in the SEZs?

Zubair Gilani: They can set up factories in SEZs, or they could buy land outside, and we can declare those stretches of land as SEZs. We are very flexible. The objective is the end and not the means that count and the end objective is to have industrialization in Pakistan to fix our current account deficit and provide jobs.

GVS: Last year the government went to Malaysia, and there was much talk of Malaysian investment coming into Pakistan, the same with Saudi Arabia. When can we expect the dollars? Where have we reached in those talks?

Zubair: We’re looking forward to greater cooperation with not just with Malaysia but also with Saudi Arabia, we’ve already talked about China, we are also engaged with the UAE, and Qatar. We have an agreement with the Supreme Coordination Council that is headed by the Crown Prince of Saudi Arabia from the Saudi side and Prime Minister Imran Khan from our side.

From the Saudi side, there is a focal person appointed by the crown prince, Chairman BOI is the focal person from Pakistan; we have close coordination and are on track. With the Saudis, we are looking at four areas – one is mining, the other is refining, the other is renewable energy, and the fourth one is LNG.

In the mining, there is a Saudi company called Maaden, which is looking at mining opportunities primarily in Balochistan and in Sindh. On refining, we are putting up an oil refinery that is expected to cost somewhere around $20 billion, in which Saudi Arabia has expressed its keen interest.

On renewable energy, there is a company called Acwa Power from Saudi Arabia, which is the arm that will be investing, and it has already indicated an interest in setting up 2000 MW of renewable energy.

We are looking at photovoltaics as well as concentrated solar which offers electricity on 24 hours a day basis. On the LNG part, the Saudi fund for development has expressed its willingness to provide credit for purchase of their LNG.

GVS: Under the three other projects, how much money has come in Pakistan?

Zubair Gilani: Right now, on the renewables in the first phase, we are putting 500 MW in Balochistan, meeting its energy and development needs. Remember that the renewable tariffs are now pretty low because technology has developed significantly and the costs have come down.

It provides not just clean energy but also pretty cheap energy and help bring down the overall cost of energy in Pakistan, which is an essential issue because our energy cost is one of the highest in the region. It is one thing that we need to work on, and the government is actively working on that front.

GVS: Do you have a timeline?

Zubair Gilani: Yes. We have timelines, and, so far, we are on the agreed timeframe, and I’m pretty confident that the work is progressing on those timelines; the Saudis have told us that they are completely satisfied, so are we. So hopefully, in the coming year, you will see significant development on all four counts.

Coming to Qataris, they have indicated an interest in investing in our ports, airports, and the two RLNG plants (Bahadurshah and Bhikhi), and they have also expressed interest in investing in tourism-related opportunities. We are in active talks with them.

GVS: What exactly in tourism? Are they going to set up hotels?

Zubair Gilani: Absolutely! It would be setting up hotels, among other things, and the government of KPK is actively pursuing the concept of integrated tourism zones. While they have not specified their interests in any particular area but we believe that great opportunities in tourism exist in KPK and Gilgit-Baltistan. If you look at our north, globally, there is more interest in our north than our south.

GVS: Are integrated-tourism zones a part of SEZs?

Zubair Gilani: They will be treated as part of SEZs in terms of financial benefits that will be available to people who would invest in integrated tourism. I think that’s a great idea, and it’s a brand-new initiative of the KPK government. We are entirely on board, and we are supporting them in every way that we can.

GVS: What do you see as key quick wins for the government in the next one or two years? Where are you really focusing your energies on to achieve your end objectives of industrialization?

Zubair Gilani: One target is to get in between 30 to 50 large companies from China to set up factories in Pakistan. And I am hopeful that alone would be able to address not only our current account deficit, which we have already brought down from nearly 20 billion per annum to about around 12 billion dollars per annum. We are not assigning any particular importance or priority to any specific industry, but we would prefer labour-intensive sectors.

GVS: So you see these 30 to 50 Chinese companies coming in the next two years?

Zubair Gilani: Absolutely! It’s a tough challenge, but that what we are here for. Let me dispel any impression that all the industrial policies are centred on any country per se. We welcome investment from every country in the world.

We are looking forward to Japanese, Europeans, Americans, and whosoever wishes to come to Pakistan and invest in Pakistan so that we go back to producing goods in Pakistan, we go back to providing that focus where people take pride in what is produced in Pakistan.

So ‘Made in Pakistan’ brand has to gain enough strength, credibility, and respect that it deserves so that we get back on our feet and create the kind of current account and fiscal surpluses that allow us to invest in health and education, basically in our people.

To achieve that, we need to simplify the way government works and the way it interfaces with enterprises. We need to provide an environment that ensures the world that we are open to business transparently and without any barrier to entry in terms of the degree of difficulty that people face.

Future is ‘Made in Pakistan’: Chairman Board of Investment Zubair Gilani