Former Finance Minister, Pakistan

Evolve: You are a well-learnt man. Was converting your expertise into a profession easy?

Salman Shah: I have researched the functioning of financial and product markets. The focus was on the finding of ways that can make contracting more incentive compatible and insure that markets don't collapse. Recession in America and Europe has multiplied the significance of regulation and deregulation of the markets.

Converting theory into practice can be very interesting. Do you remember that there was a time when the telecom industry was regulat-ed? On one hand, we had the monopoly of the government while on the other we suffered in terms of poor or no services. The phone connections were not only expensive but also difficult to get. By changing the market structure, we can change the whole sector: the government monopoly was replaced by a deregulated highly-competitive market. We have seen an explosion in services with remarkable decreases in prices.

This is the practical side of the research helping us in understating how to make a market more efficient. Wherever we find that a market is not functioning, this theory which has been developed on how to regulate and deregulate the markets helps us in understanding and rescuing it. I have found it very appropriate for today's world, particularly for Pakistan.

Evolve: Your tenure is applauded for the development of the private sector because large FDI flowed into the country. How did you achieve that?

Salman Shah: Keeping in mind the statistics of Pakistan, developing a nice story about it is not difficult. You name a sector and I will show you its abundance in talent. However, that nice story needs practical support from policies: the task is to show the world that we are changing and we are reforming. We are doing the right things and we are serious about this whole issue. When we assert that we want to put Pakistan on the world's economic map, the world listens. We did road shows all the time and made our pitch to all the capital markets of the world from Boston to LA to Hong Kong to Singapore, Geneva and London.

I must share with you the other side of the story. If we fail to follow the rules of the game, if we refuse to reform, if we are not transpar-ent, if our governance is bad then the investment will leave you in no time. The bad governance destroyed the image of Pakistan as a result the government has to re-build the brand of Pakistan. I won't say that it is impossible but I must tell you that it is very difficult.

Evolve: As a finance minister, you have negotiated with international finance institutions. How do they take the case of Pakistan and cope with their hopes and reservations?

Salman Shah: Well, we had a very positive partnership with the global institutions and various countries. Our policy was very clear: we wanted a modern Pakistan. We wanted a peaceful Pakistan. We were a responsible country in the region and on the globe so the world supported us. I never encountered any issues with the private or government sector. Cherry on the top was the development of our own private sector. The economy was expanding with a growth rate of 7 to 8%, one year we even touched almost 9%.

The world was very appreciative of us and IFC was doing business surveys. We were amongst the top 10 reformers of the world in 2006. Whenever you execute successful policies, you are rewarded.

The momentum becomes larger to help you take off. But today it sounds like an old story. Now we need consensus on the economy that by 2050 Pakistan should be a developed country. We have to grow this economy 8 to 10% a year. To tackle the population explosion, we need about 3 million jobs every year. I think we should be aiming to become members of the G20 in another 20 years. I would say the 20:20 target should be the G20 in 20 years. We are one of the most rapidly growing economies in the world. We have mega cities like Karachi, Lahore and almost medium level cities Multan, Rawalpindi, Faisalabad, Peshawar, Quetta, Sukkur and Hyderabad. These will be the magnets of growth. If there is outstanding governance, transparency and meritocracy in the country, Pakistan can easily grow. I have found the people of Pakistan ready for reforms.

Evolve: Investment in your time was 23 to 24% of GDP. In the last tenure it was around 12% of GDP. The position hasn't improved in the last year. How can we attract foreign investors?

Salman Shah: To begin with, Pakistan has been a victim of terrorism and we have tolerated it for a long time. Today we have ZERO tolerance for terrorism and operation Zarb-e-Azb demonstrates that Pakistan is making sure that nobody can export terrorism out of this country or bring it into the country. It's a positive message that can be conveyed to the world.

Secondly, the energy sector problems must be addressed so that energy, instead of being a hurdle in the investment, can become an incentive for investment. If we can get power from Kala Bagh, Bhasha and all the other dams, we can have at least 60,000-70,000 megawatt of hydro-power which would be very cheap. Country needs to focus on that and get out of this expensive and environmentally damaging energy. We should deregulate and develop the market.

The new model is a competitive power market.

Thirdly, we need to deregulate the rest of the economy, particularly our cities. Overseas Pakistanis are sending dollars for investment in real estate. Everyone wants to be in the bigger city and deregulation of the cities allows them to get developed, makes the construction possible. It can add at least 5 to 6% growth to our economy.

We also need to put into place good technical and location trainings so the youth can be gainfully employed. We need to develop our clusters; there is plenty of work to be done. And of course if we do it, investment will follow.

Evolve:  How can we improve our tax culture? Is there a trust deficit between the taxation department and tax prayer or something else?

Salman Shah: I think the taxpayers are very rational. Their taxes are not effectively used. A taxpayer wants to see the effective use of his money. There are things which he needs to know: how his national security is taken care of; what is the quality of the infrastructure, water supply and electricity; and how education, health and others facilities are provided. When he finds nothing worth his money, he gets disappointed.

There is also an issue of institutional capacity to collect the taxes. We ought to have outstanding machinery which must be honest, professional and focused.

The t polis must be appropriate. There must be a policy of I, Det licher taxes payable by everyone. Here is the combination, better administration, better use of funds and better tax policies. These three factors have shown results in other countries too.

Evolve: Do you propose any immediate remedies to improve our economy?

Salman Shah: The first step will be to turn this country into a meritocracy. We have to make appointments, starting with the cabinet and the leadership, strictly on merit. We should have professional and performance-oriented system. Every minister has to be responsible for targets and goals. Within our limited resources, we have to do better than what we are doing Putting the right man into the right job is the first target. Once we have the credibility, our economy will automatically flourish.

Evolve: Can Pakistan, being a heavily populated country, become a successful economy?

Salman Shah: Absolutely. All large countries are doing very well. In this globalized world large countries with large populations have the biggest advantage of huge domestic markets. If in that domestic market we create real competition and an investment climate, we will be rewarded with excellence. It is easier to generate market players who can go into global markets. We have to nurture our entrepreneurs and to make sure that the environment is right for them to Bow. Becoming larger from micro to macro enterprises, from small to medium, from medium to larger and then to multinationals. We should develop different levels of entrepreneurship in this country.

And I have no doubts when I say that we can be members of G20.

Evolve: You often talk about Pakistan as a Modern Islamic State. How would you define that?

Salman Shah: The European civilization is based on what they call the Judeo-Christian civilization. Their values and cultures have stemmed from Christianity and evolved into the modern culture which we see in America. At the same time, the Islamic civilization is fossilized. We have not used our roots to come into the twenty-first century. Islam is a progressive religion. It liberated the world from slavery and gave equal rights to humanity. From that basic knowledge, we have to bring our system of governance into this century. This has to be a model of renaissance of new thoughts.

Evolve: How do you define success and what is the best way to achieve long-term success?

Salman Shah: For a country success means bringing real prosperity and freedom to its people. Giving them security with liberty to think so that their full potential can be utilized.

Evolve: What type of books do you read?

Salman Shah: I'm impressed by the books written on the Turkish Empire, the Mughal Empire and the Persian Empire. How Arabia became a super power inspires me.

Evolve:  Did you make any sacrifices to be successful?

Salman Shah: I had been lucky. I had outstanding teachers in school. I have had the best opportunities and I was fortunate to grasp a few of them. I wouldn't say that I had to sacrifice anything. Maybe I sacrificed a few opportunities in my life which I should have grasped.

Evolve: Will you give any message to our readers?

Salman Shah: Pakistan is a dynamic place. It is a place which is going to grow.I think by 2050 it can be one of the major economies of the world. If we play our cards well, we could be in the top 15. There is a huge opportunity. The returns in Pakistan would be much better than other countries. So come and take the risk. You will reap great benefits.