Attracting Investment

Author: Gulzar Dildar

In Pakistan, attracting foreign and private investment has often proven to be challenging. Successive governments have taken the approach of visiting foreign countries in pursuit of investments, yet this method has not yielded the expected results. The way investment is pursued reflects a misunderstanding of how private investments work and raises questions about Pakistan’s economic environment. For private investors, stability and confidence in the regulatory framework are crucial, and chasing after investment can sometimes have the opposite effect, making Pakistan seem uncertain as an investment destination.

In recent months, the Pakistani government has embarked on multiple high-level visits to neighbouring countries, hoping to secure substantial investment pledges. In May, there was an announcement of a $10 billion commitment from the UAE, following Prime Minister Shehbaz Sharif’s visit. This was followed in June by a trip to China, where the government aimed to attract Chinese business deals. Despite a large delegation and significant effort, the outcome was limited to a few memorandums of understanding (MoUs) rather than actual, concrete deals. The primary focus of the visit was renegotiating terms for power projects initially established under the China-Pakistan Economic Corridor (CPEC).

Another recent investment push included a visit from a high-ranking Saudi delegation in October, during which 27 MoUs worth $2.2 billion were signed. Shortly afterwards, Prime Minister Sharif visited Saudi Arabia again, increasing the total MoUs to 34, with claims that some had started operations. However, these announcements do not guarantee actual investment, as many MoUs do not materialize into concrete projects. While these MoUs are encouraging on paper, the pattern of continuous foreign visits and reliance on government-led investment pursuits can give an impression of desperation.

Pakistan must focus on building an economic framework that speaks for itself, attracting investors without the need for constant government appeals.

At the same time, domestic issues present significant obstacles to attracting investment. For example, during the Saudi delegation’s visit, it was revealed that only a single party had shown interest in purchasing Pakistan International Airlines (PIA) in the government’s recent privatization effort. The sole bidder was a real estate company rather than an established airline or aviation firm, which could raise questions about the seriousness and credibility of the bidding process.

When the government actively pursues investment in this manner, offering special incentives and exceptions to attract foreign investors, it can inadvertently signal instability within Pakistan’s investment climate. Investors may perceive that the investment environment is so challenging that it requires government intervention and incentives to attract interest. This perception is compounded when governments continually make international visits seeking investment but fail to secure substantial, long-term financial commitments.

A more effective approach to attracting investment begins at home. The Pakistani government must focus on building a stable, reliable, and investor-friendly environment. This requires establishing a transparent legal, regulatory, and tax framework that ensures consistency and predictability for investors. Frequent policy changes or adjustments can deter potential investors, as they need to feel confident in the stability of the business environment.

One of the challenges in Pakistan has been the government’s role in setting prices for key sectors, such as energy and agriculture. Price-setting creates uncertainty for investors, who worry about how changes might affect their profitability and long-term viability in the country. For example, several Chinese investors initially attracted to Pakistan’s power sector during the early days of CPEC now face issues with delayed payments and requests to reschedule their receivables. Such conditions discourage investors from entering sectors where the government has a strong hand in price controls.

In addition to regulatory issues, foreign exchange liquidity is another major concern for investors. Pakistan has experienced import restrictions and difficulties with profit repatriation due to a shortage of foreign reserves, causing hesitation among potential investors. While the government may offer assurances that these issues will be resolved, experienced investors will often conduct their analysis and consult independent experts to determine the likelihood of future liquidity constraints. Addressing these challenges is essential for creating an environment where foreign investors feel secure in bringing their capital to Pakistan.

Investors also consider other factors, such as the quality of education, healthcare, political stability, and the sanctity of contracts, before making investment decisions. Unfortunately, Pakistan ranks poorly in many of these areas. Improving education and healthcare can help produce a more skilled and productive workforce, while political stability and respect for contractual agreements foster a more predictable business environment.

The government has established initiatives like the Special Investment Facilitation Council (SIFC) to improve the investment climate, but their impact has been limited so far. For example, the SIFC’s main accomplishment, as advertised, is a letter of understanding for a Chromebook assembly line in Haripur, a modest achievement given Pakistan’s larger economic goals. Such efforts are unlikely to inspire investor confidence on a significant scale. Rather than relying on high-profile international visits, the government should invest in domestic policy reforms that make Pakistan inherently more attractive to investors.

To promote investment effectively, Pakistan must focus on building an economic framework that speaks for itself, attracting investors without the need for constant government appeals. This involves creating a stable and supportive regulatory environment, ensuring policy consistency, and addressing core issues that deter investment. A comprehensive strategy would also include securing foreign exchange stability, establishing clear contract enforcement mechanisms, and fostering a politically stable environment conducive to long-term investments.

Pakistan’s current strategy of seeking investment through foreign visits and government-led delegations has had limited success. While efforts to secure MoUs and promote investment opportunities are commendable, they do not address the core issues that deter investors. A shift towards policy reforms, increased transparency, and a commitment to improving domestic conditions is essential for attracting sustainable, long-term investments that can genuinely benefit Pakistan’s economy.

The writer is a freelance columnist.

Share
Leave a Comment

Recent Posts

  • Editorial

Targeted Tragedy

By the time of writing this editorial on Thursday evening, the number of innocent passengers…

18 hours ago
  • Cartoons

TODAY’S CARTOON

18 hours ago
  • Editorial

Sour Sweeteners

Sugar. The sweetener word brings sour taste to one's mind when people come across the…

18 hours ago
  • Op-Ed

Trump’s Bureaucracy Cuts

The stunning results of the USA elections surprised both Democrats and Republicans alike. Trump's unprecedented…

18 hours ago
  • Op-Ed

Countering Misinformation

The advancement of technology around the world and the widespread spread of social media have…

18 hours ago
  • Op-Ed

“It’s the economy stupid!”

Pakistan's democratic system is in jeopardy. Civilians and the military have taken turns to rule…

18 hours ago