Boosting Foreign Investment in Pakistan

Author: Gulzar Dildar

Saudi Arabia recently increased its pledged investment in Pakistan by an additional $600 million, bringing its commitment to $2.8 billion. This pledge was solidified with the signing of seven new Memorandums of Understanding (MoUs) during Prime Minister Shehbaz Sharif’s recent visit to Riyadh. Last month, a Saudi delegation led by the Saudi investment minister had already concluded 27 MoUs worth $2.2 billion in Islamabad. Following these fruitful discussions in Saudi Arabia, Prime Minister Sharif traveled to Doha, aiming to attract Qatari investors as well.

For over a year, Pakistan has been actively seeking investment from both official and private entities in sectors such as agriculture, oil and gas, aviation, mining, and state-owned enterprises. Initially, there was high hope for significant investments, with Pakistan expecting $25 billion from three key Gulf allies – Saudi Arabia, the UAE, and Qatar – over the next five years. To facilitate and reassure these investors, the Shehbaz Sharif administration established the Special Investment Facilitation Council, backed by the military, with the goal of ensuring policy consistency and creating a secure investment environment.

However, as time passed, Pakistan had to adjust its expectations, realizing that initial investment promises were overly optimistic. Only a modest portion of the pledged funds has actually materialized so far, with some Emirati investment in Karachi’s port infrastructure and Saudi Arabia acquiring shares in a Pakistani oil marketing firm. Contrary to early government assertions, investors from Qatar and other Gulf nations have not yet shown serious interest in Pakistan International Airlines (PIA) or Islamabad International Airport, two major assets that the government hopes to privatize.

Pakistan had to adjust its expectations, realizing that initial investment promises were overly optimistic.

The recent Saudi announcement of increased investment coincided with nearly all bidders withdrawing from the airline sale process, indicating challenges within Pakistan’s investment landscape. Furthermore, potential Chinese investments through the China-Pakistan Economic Corridor (CPEC) have encountered obstacles. Security concerns remain high on China’s list, particularly after targeted attacks on Chinese nationals working in Pakistan. Additionally, dissatisfaction has grown over the portrayal of power plants established under the CPEC framework, with Pakistan’s revisions to power producer contracts raising concerns among investors. Such one-sided adjustments and the negative image surrounding these projects are eroding investor trust.

Pakistan’s investment climate has been deteriorating due to persistent balance-of-payments issues and political uncertainty, driving several foreign companies to exit the market in recent years. While Prime Minister Sharif’s diplomatic visits demonstrate proactive efforts to market Pakistan’s “untapped economic potential” and attract the foreign investment needed to stabilize reserves and boost economic growth, there are deeper, structural issues that must be addressed for these efforts to be successful.

One fundamental requirement is policy consistency. Frequent shifts in policy and unexpected changes to investment conditions create uncertainty, discouraging both current and potential investors. Investors need assurance that the regulations and policies governing their investments will remain stable over time. Building investor confidence in this regard is crucial.

Another pressing need is honoring contracts. Ensuring that agreements are respected without unwarranted alterations is essential to attracting and retaining investors. In recent years, unexpected changes in contract terms – particularly in the energy sector – have raised concerns. Power producers, for example, have been subjected to contract revisions that have strained investor relationships. This kind of approach signals instability, making Pakistan less attractive to new investors and more challenging for existing ones.

Additionally, Pakistan must address its security challenges. Concerns over safety, particularly for foreign workers and businesses, have deterred potential investors. Enhanced security measures, particularly for projects involving foreign nationals, are necessary to ensure that investors can operate without fear. This is especially important in regions where international collaborations are prominent, such as the CPEC projects. Ensuring a safe environment is essential for establishing a welcoming and reliable investment climate.

Political stability is also critical for fostering an investor-friendly environment. Frequent changes in leadership and political unrest create uncertainty, impacting the economic climate and deterring long-term investments. Political stability allows for the establishment of clear economic policies and smooth continuity in agreements, fostering an environment where investors can plan long-term ventures without the risk of sudden policy changes.

Efforts should also focus on reducing bureaucratic obstacles. Reducing complex procedures and easing the process of setting up and operating businesses can make Pakistan a more attractive destination for foreign companies. Bureaucratic delays, excessive regulations, and inconsistent practices can deter investment. Streamlining these processes and offering clear guidelines can encourage more businesses to invest in Pakistan.

In conclusion, while Pakistan’s recent moves to secure investments from Saudi Arabia and other Gulf nations reflect progress, these efforts alone will not be sufficient to boost foreign investment significantly. Beyond high-profile MoUs and official visits, Pakistan needs to implement practical steps to improve its investment climate. This includes ensuring policy consistency, honoring contracts, addressing security issues, fostering political stability, and cutting down bureaucratic hurdles.

If Pakistan can address these areas, it has the potential to attract substantial foreign investment and put its economy on a path toward sustainable growth. The country’s resources, strategic location, and promising sectors offer significant opportunities for investors. However, without addressing the core issues that create an uncertain investment environment, Pakistan will struggle to realize its economic ambitions fully.

The writer is a freelance columnist.

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