Investment Opportunities in NWFP

Bashir Ahmad

NWFP Committee of Investment

Publishing Date: Sunday, February 20 2005

The Province has substantial mineral, agricultural and hydel resources. Gympsum, cement, rock-salt, soapstone, rock phosphates, marble and refractory mineral rank highest in terms for resources size and market availability both within and outside the country. Some of these have already provided a basis of industrialisation in the province. Metallic resources such as fero-alloying, elements, chromite, copper, aluminium and zinc have also been discovered and are at various stages of investigations and development.

Manpower

The NWFP as the smallest province and with scarce agricultural resources has always been dependent on its hard working manpower. This has always been its main resource throughout history whether in peace or in war. Since independence the early construction works in Karachi and later the specialised steel and concrete work on our dams from Warsak to Mangla to Tarbela was handled by skilled Pathan labour. It was this same type of labour which built the new modern Gulf States and Saudi Arabia from the oil boom of the 1970's to the present day. We may recall the remittances sent by the very same labour during the 70's and 80's which kept out balance of payments surplus. This resource of manpower is available to help in growth at its very door-step.

Industries

In 1947, Industry was almost nonexistent in the NWFP. Some industrial enterprises were setup during the fifties and sixties. The pace slowed down during the seventies, however, significant industrial progress occurred during the eighties and during the first half of the nineties, mainly due to Gadoon and Hattar Industrial Estates, which attracted investments because of incentives offered by the Government of NWFP. The structure of industry in the Province is based on meeting the local needs based upon local raw materials, sugar, flour milling, tobacco, textile and leather. However, the present industrial production does not reflect the resource endowment of the Province, for energy-intensive and mineral-based industries which are almost non-existent.

The province has progressed significantly during the past 15 years. The structure of industry that has been established lays the ground for accelerated and sustained industrial growth over the coming years. The capital base now totals over Rs. 20 billion and employment in little over 60,000 persons. The composition of industrialisation has become diversified. It is time to specialise and concentrate on growth in sub-sectors which enjoy comparative advantage and can stand the test of market competitiveness.

Agriculture

In agriculture, maize, oilseeds, sugarcane, fruits, vegetables, poultry, livestock, and wood based industries offer substantial promise. Sugarcane and tobacco have provided a pioneering base for NWFP's industrialisation. Although there may still be some scope left in the area of sugarcane. Tobacco industry is dwindling and would almost fade away in the not too distant a future. Pakistan imports a substantial amount of Palm Oil. There is scope for maize and oilseeds development and associated industries. Wood-based industry is yet another promising area, as wood is exported by NWFP to other provinces where it is subsequently processed. Fruits, vegetables, poultry and livestock-based processing industries hold a very substantial promise. Silk and wool and the associated textile industry along with the nascent industrial base in MultiStaple Fibre developed in Gadoon and Hattar is yet another area. With the development of livestock, meat processing, tanneries, leather products and shoemaking industry can also be further developed, presently, the Province exports its production of hides and skins to other provinces.

Hydel Energy

The mountainous districts of Chitral, Dir, Swat, Kohistan and Mansehra, substantial prennial-streams and waterfalls are located which could be a source of abundant electrical energy. The Sarhad Hydel Development Organisation (SHYDO) has undertaken a number of detailed studies to assess the potential and feasibility of various sites. After detailed investigations, they have identified a resource potential of about 5,074 MW of hydel energy. Out of this 450 MW from small size hydel power plants with individual capacities below 25 KW, 700 MW for medium size hydel power plant with individual capacities ranging between 25 to 200 MW, and 3000 from large hydel power project with individual capacities in excess of 200 MW have been identified at national level. Studies have indicated that the hydel energy generated would cost about 5-6 cents per KWh depending on the resource location and its characteristics. It is estimated that SHYDO could offer and maintain an advantage of 25-33% to NWFP consumers in the long run. Thus energy-intensive industries could be attracted to the Province, without having to depend on subsidies from the provincial exchequer. We have seen that Gadoon has attracted steel melting and rolling. Steel melting has completely shifted away from Karachi to Punjab. Some of the investors could also be attracted to the NWFP.

Mineral and Other Resources

The Province has substantial mineral, agricultural and hydel resources. Gympsum, cement, rock-salt, soapstone, rock phosphate, marble and refractory mineral rank highest in terms for resources size and market availability both within and outside the country. Some of these have already provided a basis of industrialisation in the province. Metallic resources such as fero-alloying, elements, chromite, copper, aluminium and zinc have also been discovered and are at various stages of investigations and development. Gold and concentration (30%), have also been indicated in Pezu. it may be worth investigating the resource potential of nephlene cynite at Koga (Bunair). Mineral extraction, benefeciations, smelting and refining are energy-intensive processes, combination of hydel energy and mineral resource could lay the foundation of some comparative advantage for NWFP in the related products and sectors.

Incentives and concessions have been offered by the Federal, Provincial and Local Governments as policy measures to boost industrialisation. The depth and breadth of such incentives have varied from time to time depending upon the emphasis of the different governments. A proliferation of incentive has acted and counter-acted upon the progress of industrial structure time and again. However, these anomalies have been addressed in the soon to be announced new Mineral Policy which the Federal Government has decided to implement. With it NWFP can take a leap forward in this field.

The Bank of Khyber

The NWFP Committee of Investment has come to a stage when the first major initiative of the Provincial Government in the field of finance i.e. the creation of the Bank of Khyber (BOK) has taken root and is flourishing. The Bank of Khyber was created by an Act of the NWFP Assembly on 17th June 1991 with a subscribed capital of Rs. 300 million of which the NWFP government has retained 51%. The remaining 49% is to be raised through subscription at stock exchanges of the country. The Bank has been established to facilitate commercial and investment banking with a clear mandate to promote industrial, agricultural and socio-economic activities aimed at creating gainful employment and productive activity in the Province.

In its four years of operations the Bank has grown from strength to strength in a systematic and planned manner. In September 1994, the State Bank of Pakistan after a thorough audit and inspection qualified BOK for schedule status with permission to operate throughout the country and abroad as a full-fledged Bank. BOK now has a total of twenty-four branches (24), twenty one (21) in the Province and the remaining three in the Federal Capital of Islamabad, Lahore and Karachi. BOK ended the year 1994 with deposits of Rs. 3,145 million, profit of Rs. 102 million and advances of Rs. 843 million. The return on equity was as high as and is probably the best investment made by the Provincial Government.

On the sound & steady track of BOK, IFC (an affiliate of the World Bank) has agreed to enter into a long-term partnership by providing a line of credit for financing the foreign cost of industrial investment as well as agreeing to taking upto 10% in the equity of BOK. Similarly, DEG of the federal Republic of Germany has also agreed to take upto 15% stake in the equity of BOK. KFW also of the Federal Republic of Germany has agreed to provide funding for financing of small and medium industry to BOK. This is recognition of the financial soundness and professional management of BOK. The Provincial Government's decision to place the Secretariat of the Investment Committee in the BOK recognises the professional management of the Bank and appreciates that in the development of the province the Bank has to play a major role both in direct financing and in acting as a catalyst to attract domestic and foreign investments.

In 1980 as Managing Director IDBP, I was asked by the Federal Government to report on the industrial development of NWFP. Mr. D.M. Qureshi, the then M.D. of Bankers Equity Ltd. was the other member of the Committee. After much study and thought we found we could suggest very little in the way of solid recommendations. The major drawbacks, we found, was the lack of resources, the distance from the sea, the consequent long haulage and cost, and the lack of a sufficient market, because of the distance from the population centres. This was also the period of the war in Afghanistan when the Province was in the "front line," and investors preferred to put a safe distance between their investment and the Soviet army. That is all now part of history. The disadvantage of yesterday can and will prove an advantage today as with the return of peace to Afghanistan (Insha Allah) and the opening up of Central Asia, a vast new world has opened up and the Province is at the doorstep of this market. Peshawar, of the silk route fame, is now once again a market for Central Asia and the NWFP is no longer a Cul-de-sac but a highway to Central Asia and beyond. The opportunity is there to seize.