On the morning of Oct. 12, Ahsan Iqbal, former minister of state of Pakistan’s Ministry of Planning & Development, was at the University of California, Berkeley, preparing to give a guest lecture at the South Asia Center. Shortly before taking the podium he learned that Pakistan’s government had been overthrown by the military and that his boss, prime minister Nawaz Sharif, was under house arrest. Iqbal canceled his lecture.

Last week in Philadelphia, Iqbal, a native of Lahore who earned his MBA from Wharton in 1986, sat down with Knowledge at Wharton and talked about his country’s admittedly uncertain future. Although Pakistan’s new leader, General Pervez Musharraf, has not announced in any detail his plans for re-establishing democracy, Iqbal expressed his confidence in Pakistan’s ability to attract foreign investment and move its economy forward. At the same time he acknowledged the immense challenges that still lie ahead for this country of 140 million people.

Knowledge at Wharton: We have read that the morning after the coup the U.S. Embassy in Islamabad was inundated with phone calls from U.S. companies eager to invest in Pakistan. How do you explain this?

Iqbal: Investors have always maintained an interest in Pakistan, mainly because of our strategic location. We are at the hub of four engines of growth in Asia – South Asia, China, Central Asia and the Middle East. Even with the economic sanctions levied against us last year [following Pakistan’s decision to test nuclear weapons] investments were still being made in the oil, energy and automobile sectors.

Investors in Pakistan tend to have a long view of their investments. Changes in governments don’t matter to them as long as they see consistent policies. We offer a deregulated environment and we have privatized several public sector banks and many public sector corporations. Last month we were looking at a proposal to offload minor shares in major public sector companies through the stock market.

Knowledge at Wharton: Isn’t it difficult to attract foreign investment when Pakistan has such a history of corrupt leadership? Earlier reports of rampant corruption under Benazir Bhutto’s two governments between 1988 and 1996 have been followed during the last two weeks with newspaper articles suggesting that Sharif and his associates looted hundreds of millions of dollars from local banks. Doesn’t that make investors wary?

Iqbal: Corruption is prevalent in all developing countries. What is encouraging investors now in Pakistan is that [Musharraf] says he plans to restore clean government and purge corruption. Investors are always pleased by any country’s commitment to that goal.

As for corruption in Sharif’s government, I was a member of that government and can say there was no major scandal during its two and a half years. No international company ever complained about demands for kickbacks or commissions. As a matter of fact, representatives from the diplomatic community appreciated the change in culture from the previous government, when Asif Ali Zardari, Bhutto’s husband, became very famous all over the world for his corruption.

Any allegations people have been making with regards to Sharif concern his business interests from former years.

Knowledge at Wharton:Are there particular areas where you would expect major investments?

Iqbal: I have already mentioned the oil and energy sectors, because we have major potential there. The other sector is infrastructure development. Recently we started to develop a 750-kilometer coastal region of Pakistan, including construction of a major port and tourist resorts. Those will be attractive investments. Other areas of potential interest are road sector projects and electricity, including a massive potential for hydroelectric power.

In the industrial sector we are developing a master plan in the chemicals, electronics and engineering sectors where we already have attractive clusters of industries. We need investment and links to global markets for these areas to become vibrant sectors of the economy. In addition, Pakistan recently opened up its agricultural sector to foreign investment.

Knowledge at Wharton: Before you were elected to the National Assembly of Pakistan in 1993 and in 1997, you had a management consulting company. You have indicated that upon your return to Pakistan you plan to start that up again. What specific advice would you give clients who ask whether they should be investing in Pakistan?

Iqbal: I would tell them Pakistan has a lot of opportunities. In addition to the sectors I have mentioned, we have an advanced telecommunications infrastructure. We are now focusing on information technolgoy as India has done so well. Pakistan is on a launch pad to catch up to the international software export market. We are seeing some major companies moving to Pakistan because they find that Bangalore, in southern India, is becoming too expensive. They want newer and cheaper locations.

Knowledge at Wharton: Do you think pro-investment policies will continue under Musharraf?

Iqbal: I hope so. To a large extent there is a general consensus on a number of issues. For example, nobody challenges privatization. Everyone is committed to it and nobody sees any role for the public sector. As for attracting foreign direct investment, the consensus is that this, too, is one of the keys to our success.

It’s important to remember that Pakistan faces some major economic challenges, the main one being globalization. Globalization means that there is no more compartmentalization of first, second and third world countries. All countries have to be competitive. Everyone has to achieve global benchmarks of performance, efficiency and quality. Yet our structures and our economy are not yet geared to meet these challenges.

For example, we were doing well in many sectors with commodity products and services. All of a sudden in the last five years we find that as far as exports are concerned, there is a mismatch between our products and emerging trends. The preferences of the global economy are focused on specialized, differentiated products. So commodity prices have already started crashing.

And then there is the new trade order. The World Trade Organization (WTO) has very serious implications for developing countries. It has marginalized the share of developing countries in global trade because these countries did not get enough time to prepare their own industries for international competition. So in many cases industries have gone bankrupt.

Developing countries also feel that some non-tariff barriers are being applied unfairly. For example, textiles for us are very important. But Pakistan has been subjected to heavy quotas on textiles imposed by both the U.S. and the European Union.

Another challenge we face is the knowledge revolution. You need a knowledge economy, one where your workforce is educated to understand technologies and technology applications. Workers also must be able to understand the new global patterns of trade. For example, fishing. Catching fish in our seas has always been done very casually. But tomorrow we may find that the European Union imposes sanctions against all those countries where fish-catching practices are not compatible with underseas development. The same is true of farming. Tomorrow there may be sanctions against the use of pesticides in certain crops. Clearly this will affect farmers.

A positive development for our workforce has been the recent return of a large number of Pakistani workers from the Middle East. They bring with them the very rich experience of working with state-of-the-art equipment and modern office procedures.

All foreign investors who have come here have had a good experience with the workforce. The government, meanwhile, is taking steps to expand the scope of technical education by producing more functional literacy as well as technical skills.

But a lot still needs to be done to bring our workforce up to the same level as exists in other countries where there has been massive investment in human resource development. For all of South Asia, this will be the key issue. In the knowledge revolution a comparative advantage for countries and companies will be their people. Quality and productivity are the new dimensions of advantage and they are directly linked to the quality of manpower and knowledge.