Daily Times

The relationship between political governance and foreign investment is critical in shaping a nation’s economic prospects. When the political landscape is characterized by tyranny, it not only undermines the democratic fabric of society but also serves as a significant deterrent for investors.

The elite in many countries often view foreign investment as the singular route to national prosperity and their own enrichment. However, the obstacles presented by authoritarian rule can stifle this potential. In the case of Pakistan, the ongoing challenges since Shahbaz Sharif assumed power illustrate the complexities of this issue, particularly as the nation grapples with attracting the long-sought $10 billion in investment – a dream that has lingered since the 1990s.

Tyranny creates an environment where political instability thrives, and the absence of a transparent and accountable governance structure becomes the norm. This lack of accountability is a critical barrier for investors. They seek assurance that their investments will be safeguarded, and that any disputes can be resolved through reliable legal frameworks. However, in tyrannical regimes, the rule of law is often compromised, leading to arbitrary decisions that can adversely affect businesses. When institutions fail to hold themselves accountable, they breed uncertainty and mistrust among potential investors.

Investors need to see a system that promotes profitability and stability.

Moreover, the traditional practices of governance that rely on tax revenue generated from essential services like oil, gas, and electricity become detrimental to economic growth. When these sectors are treated as mere tools for filling the state’s coffers, the broader economy suffers. High energy costs and oppressive tax regimes create an unfavourable business environment, discouraging local and foreign investments. Investors need to see a system that promotes profitability and stability; otherwise, the allure of economic opportunity diminishes.

The situation is further exacerbated when government policies lack consistency. Investors thrive in environments where regulations are clear, stable, and transparent. However, in nations where political dynamics are volatile, and policies shift frequently due to political turmoil, potential investors may decide to withdraw or refrain from entering the market altogether. Political parties often engage in disputes that distract from effective governance, leading to increased levels of uncertainty. When the political temperature rises, investors tend to be more cautious, fearing that escalating tensions could lead to economic upheaval.

In Pakistan, despite the government’s attempts to attract billions of dollars from global investors by promoting sectors such as agriculture, mining, IT, and defense, the response has been tepid. The world remains skeptical. Countries like China and Saudi Arabia are actively seeking investors for their own markets, while the US and Europe are focused on specific sectors such as alternative energy, retail, and banking. This trend highlights the fact that foreign investors are increasingly discerning, prioritizing markets that demonstrate political stability and respect for the rule of law.

The barriers to foreign investment in tyrannical regimes extend beyond economic concerns; they are rooted in the broader socio-political landscape. The absence of effective mechanisms for dispute resolution and a transparent judicial system renders the environment inhospitable for investors. Investors often analyze a country’s commitment to protecting human rights and ensuring equal treatment under the law. In situations where the government disregards basic civil liberties, it signals to investors that their rights and investments may not be respected.

Political tyranny fosters a culture of oppression and fear, which not only affects individual citizens but also stymies business growth. In an atmosphere where dissent is suppressed and authoritarian tactics are employed to maintain control, innovation and entrepreneurship struggle to flourish. The economic repercussions are dire: businesses fail to thrive, job opportunities diminish, and the cycle of poverty perpetuates. Without a robust middle class to drive consumption and demand for goods and services, the entire economic ecosystem suffers, making the country less attractive to investors.

Additionally, the consequences of tyranny often lead to widespread socio-economic disparities. In Pakistan, the elite – those who benefit from oppressive regimes – often evade taxes while simultaneously reaping the rewards of systemic inequities. This results in a significant wealth gap that hinders sustainable economic development. When the ruling class prioritizes its interests over the welfare of the populace, the fabric of society frays, further eroding investor confidence. Investors are unlikely to engage in markets where systemic corruption and favouritism are prevalent, as these conditions create an uneven playing field.

The economic crisis fuelled by tyrannical governance can lead to a vicious cycle of instability. Investors are often deterred by the fear that their investments could be expropriated or devalued due to government intervention. The perception that a country is on the brink of collapse can prompt capital flight, as investors seek refuge in more stable markets. In Pakistan, the looming threat of bankruptcy and economic disarray serves as a warning signal to potential investors, discouraging them from committing their resources to a system perceived as failing.

Political leadership’s credibility is intrinsically linked to foreign investment. A political environment that emerges from genuine democratic processes is more likely to foster trust and attract investors. When political leaders embrace accountability, uphold democratic values, and make informed decisions, they enhance their standing both domestically and internationally. Conversely, when political parties fail to connect with the populace and are perceived as distant from the issues affecting everyday citizens, it creates a power dynamic reminiscent of a mafia. In such contexts, governance becomes synonymous with tyranny, and the potential for economic growth remains stunted.

The interdependence of political stability and economic prosperity cannot be overstated. Countries seeking to attract foreign investment must prioritize the establishment of a democratic framework that supports the rule of law, transparency, and accountability. Without these essential elements, investors are likely to remain cautious, choosing to invest their resources in more favourable environments.

The writer is an Islamabad-based veteran journalist and an independent researcher. He can be reached on Twitter @riazmissen