ADDRESS OF THE PRESIDENT OF PAKISTAN TO THE SPECIAL LEADERS FORUM ON 15 OCTOBER 2003.

Bismilah-e-Rahman-e-Rahim

Honourable Prime Minister Mahathir Mohamad,

Mr. Mirzan Mahathir,

Excellencies,

Ladies and Gentlemen,

Asalam Allaykum

I want to start by thanking the Asian Strategy and Leadership Institute (ASLI) for inviting me to address this business forum as part of the OIC summit. I am confident that under the leadership of its President Mr. Mirzan Mahathir, ASLI will generate ideas and implementation strategies to serve the citizens of Malaysia and the OIC countries.

The theme of the business forum "Facilitating Economic Growth and Co-operation in the OIC Nations" is both timely and relevant.

In the 21st century we have entered into an era of geo economics. Trade and commercial interests, and interaction, will not only dictate economic growth of Nations but will also guide inter state relations.

Success in trade and commerce can be optimised through a healthy Public - Private partnership. There is also no doubt that while the Government can only facilitate progress, it is the engine of Private Sector which has to lead the way to convert the vision of economic integration into reality.

1t is most commendable that this forum provides the suitable platform for the private sector to Interact with government leaders.

Ladies & Gentlemen,

We are meeting at a critical time for the Ummah. We stand at the cross road of our future destiny. We have to decide whether militancy, extremism and confrontation will lead us to our emancipation or a focus on our socio economic well being will benefit us.

Politically we find ourselves at the centre of most conflicts and disputes. The aftermath of 9/11 have placed us in a greater dilemma.

While on one side attempts at resolution of disputes are not making much headway - whatever the reasons - an the other side an anger at being wronged leading to frustration, hopelessness, deprivation and a sense of powerlessness is rising in the Muslim society. Such feelings form the basis of fuelling hatred, extremism and militancy.

This confrontationist situation diverts our energy away from economic development. We find the mobility of our citizens, the safety of our capital and the pursuit of our well being adversely affected. This is draining us economically.

In the socio economic sector also our performance has been abysmal. Our incomes, our growth rates, our human and technological development are all very disappointingly low.

The gap in the living standards between us and the rest is widening, !n the overall context we have certainly not lived up to the expectations of our people.

All this not withstanding we are meeting here, in Kuala Lumpur, at a time of tremendous potential and unprecedented opportunity. And a realization, perhaps more than ever before, that we need to work together.

We have to work together, if this tremendous potential is to be realized. If this unprecedented opportunity is to be seized.

I will structure my talk in two parts. First i will talk about the OIC countries as an economic group. i will focus upon the strengths, weaknesses and areas for enhanced cooperation to achieve growth.

I will then like to share with you the Pakistan story: the role of domestic policies for economic growth, our efforts and the emerging results.

Ladles and Gentlemen,

Out of 191 countries of the United Nations, 57 are in the OIC. We have a population of over 1.25 billion - one fifth of the world. We also possess roughly one fifth of the world's land mass.

We own some of the most abundant energy and mineral resources in the world. We possess 70% of world's energy resources. And we supply 40% of the global exports of raw materials.

But, unfortunately, the OIC as a group has failed to convert their abundant human and physical resources into economic achievement.

As a group the OIC has less than 5% of the world GDP; and, besides, the others are growing faster. Therefore the per capita income o f the OIC group is depreciating relative to other countries.

The GDP of the entire Ummah is roughly $1400 billion while that of Japan alone is $4500 billion. The highest GDP of a Muslim country is $ 185 billion while that of tiny European countries with no natural resources is above $ 200 billion.

This disparity is because of the technological and human resource edge they enjoy. The Ummah collectively can boast only of 500 universities (leave the quality aside) and 1000 PhDs per annum.

Japan alone has more than 9000 universities and England alone produces more than 2000 PhDs.

Incomes within OIC are also skewed. Only 6 countries account for more than half the OIC income. Rest of the 51 countries generate a meager income of barely $ 600 billion.

Out of the world's 48 least developed countries, 22 are in OIC. 23 OIC countries are classified as severely indebted by international institutions.

In Trade and Foreign Direct Investment. the O1C countries performance is again dismal. OIC share in world trade is only 6 to 8 percent.

Hardly $15 billion of FDI is attracted by all the OIC countries. This figure is roughly that of Sweden or Thailand alone. China atone has FDI of $50 billion.

What is most saddening is that lntra-01C trade is a small fraction of its total trade volume.

The serious questions that arise, therefore, are :

How can we generate economic growth in our countries? How can we increase intra OIC trade and investment? How can our citizens share in the prosperity that superior technology and better governance have made for many around us?

Let me enumerate some of the ideas that I would like to leave. The starting point for achieving growth has to be the reform of our domestic economic policies.

Unless our policies are market friendly and pro-business, it will be hard for us to promote intra-OIC trade or Investment. If we want to attract OIC investors, the best way to do that is to be attractive to all investors.

The big lesson of experience is that the OIC Investors will come only if they see others coming as well. The key areas of reform of domestic policies include foreign investment laws, tax and trade regimes, currency and exchange control systems, corporate governance, stack exchanges and the judiciary. OIC countries, pursuing these policies, such as our host, Malaysia, have shown visible gains.

Second, enhancing economic co-operation between OIC counties will be facilitated by active participation !n regional economic groupings. Thus sub-groupings of Muslim counties such as ECO, GCC, the Arab Maghreb Union must be made more active. Similarly.

OIC countries should benefit from their involvement in sub-groupings such as ASEAN, SAARC, the African Union, CIS, and futuristically, the European Union.

Third, while large business groups can afford to conduct due diligence and make Intelligent trade and investment decisions, a concerted effort should be launched to assist medium-sized enterprises. We must support innovative firms in emerging industries.

Fourth, business brands are the most tangible ways of scaling up businesses regionally and globally. The speed with which Nike and Starbucks have expanded their businesses around the world is a testimonial to effective branding.

There is a huge potential for leveraging the Cultural affinities within the 0IC to build robust brands. The success of Al-Jazeera and Mecca Cola are examples of the penetrative effect of successful brands.

Seed investments in innovative OIC companies, with potential for branding should be considered.

Fifth, instead of dissipating our energies on too many sectors and industries, a cluster of industries should be identified for focused attention in promoting intra-Q!C ventures.

Although detailed work is needed, i suggest the following four sectors far their synergies within the OIC: Energy; Agri-business, Financial Services, Information and Communications Technology.

Sixth, we must develop investment fund or funds to facilitate joint ventures and accelerate direct investment within the OIC.

The experience of the Islamic Development Bank may be utilized for the purpose, Seventh, we should explore mechanisms for allowing trading across the stock exchanges of OIC countries.

Eighth, we should leverage new technologies for the rapid transfer of information about OIC business opportunities, about sharing information on best practices and creating directories and data bases.

Finally, we should also consider the range of incentives available to us for translating pronouncements of co-operation into reality.

Who "should do all this? What are the lessons of past attempts at enhancing co-operation?
I believe that past efforts to enhance economic relations within OIC failed because of two fundamental reasons:
- a lack of an institutional framework for implementation.
- a lack of involvement of our business and private sector.

To remedy the situation, I propose that we develop a Joint Economic and Business Team consisting of top officials and top businessmen from OIC countries to develop the ideas I have proposed.

This team should be given nine months to complete the task and a year from now a special public-private economic summit be convened. This summit should adopt the program, commit the resources, and set a mechanism for implementation.

Affiliated agencies of the OIC such as the Islamic Development Bank and the Islamic Chamber of Commerce must be involved in the initiative.

In restructuring the OIC, creation of a Department of Trade, Commerce and investment can provide strong institutional support for the work of the Joint Economic and Business Team and subsequent implementation of their proposals.

Ladies and Gentlemen,

I turn now to the second part of my talk. To share with you the economic reform efforts in my country, Pakistan.

Four years ago, we inherited a shattered economy due to a combination of factors including corruption and misgovernance. During the 80's, our rate of economic growth slowed down.

Lack of fiscal discipline contributed to large deficits. Current account deficits led to expensive borrowing which created an unsustainable debt-servicing burden of two-thirds of our budget.

We were left with only one-third of the budget for meeting our obvious security needs and our establishment. Hardly anything was available for investment In infrastructure and social sector development.

FDI had almost evaporated. The exchange rate was continuously depreciating and foreign exchange reserves were abysmally low. Frequent changes in governments contributed to a sense of uncertainty and unpredictability.

The first area we attacked was fiscal deficit. Through very strict financial discipline we brought the deficit down from around 8% to 4.6%. The second area of our focus was our debt trap. We devised a debt reduction strategy that turned the annual debt increase of $ 2 billion, to a decrease of $3 billion in 3 years.

This turns around facilitated the reduction in our debt service liability from 66% of our budget to 34%, thus releasing 32% of our budget additionally towards all round developmental activity.

The third area of our focus was to enhance our foreign exchange earnings. We concentrated fully on enhancing our exports, increasing FD! and raising remittances from Pakistanis abroad: We met spectacular success in all.

Our exports have risen by over 40% in 3 years t o a record high, remittances have shot up 400% and FDI has increased by another about 70%. This success has turned our current account deficit of around $4 billion to a -surplus of $2 billion.

With all this turn around we have also taken our FE Reserves to a historic level of almost one year's imports capability, our revenue collection to a record high (raising it by 60%) and above all keeping the inflation in strict check at 3.6%. This, in brief is the success story of our economic revival.

To give the requisite fillip to investment in Pakistan we have adopted a holistic strategy.

. We have adjusted our domestic economic policies to make them business friendly.

.We have improved the regulatory framework in key economic sectors to give comfort to investors and inject transparency in our decisions.

.We have reduced the cost of doing business in Pakistan by reducing our interest rates from around 16% to a weighted average of under 8%. Good customers getting loans at only 2%. We are futuristically looking at reducing electricity charges.

. We have increased the profitability of investors. There are over 600 top firms of the world operating in Pakistan. All of them have generated profits between 20 and 60%.

. Stability of the exchange rate and strength of the Rupee imparts predictability to business in Pakistan.

To make Pakistan an attractive destination for foreign investment, we have opened all economic sectors to foreigners. They can even hold 100% equity.

There are no restrictions on remittances of profits, dividends, capital. royalty or fees. No government sanctions are required for most of the investments.

There is a network of industrial estates and export processing zones which are open to foreigners as they are to our own people.

Thus, Pakistan now is one of the most welcoming countries to foreign investment in the region.

We offer unlimited opportunities in the oil, gas, mining and energy sectors, in tourism and infrastructure development, in the IT and telecommunication sector, in privatization of state enterprises and in small and medium enterprises.

In conclusion I would like to say that the Ummah has to be emancipated. We have vast potential to be realised. We have to develop the capability to realise our potential and the willingness to help each other in optimising our strength.

The poorer among us need support; we have to develop the spirit of sacrifice for them. Within our own countries we have to work with honesty and focus for the prosperity of our peoples and our nations.

Let it not be said by our future generations that our generation failed them. Pakistan stands ever willing to contribute more than its share for the betterment of the Ummah.

I thank you all.