Attracting FDI
Foreign direct investment (FDI) worth $2.561 billion flowed into the country during the fiscal year 2019-20 (FY20) as compared to $1.362 billion in the fiscal year 2018-19 (FY19), according to figures released by the State Bank of Pakistan. This constitutes an 88% jump in FDI during the previous fiscal year, with most of the inflows seen into power and communications sectors. The figure, however, is far lower than the government’s target of $4.34 billion set for FY20.
Despite the incumbent government’s relatively open foreign investment regime, Pakistan remains a challenging environment for foreign investors. While the Covid-19 implications have much to do with the elusive target, Pakistan has historically been a poor performer when it comes to pulling in dollars through foreign direct investment — as well as through exports. And the main reasons for this bad performance to increase FDI include: improving but unpredictable security situation, difficult business climate, lengthy dispute resolution processes, poor enforcement as regards intellectual property rights, inconsistent taxation policies, and lack of harmonisation of rules across the provinces as compared to regional competitors.
That Pakistan remains a challenging environment in terms of FDI has also been pointed out in the ‘Investment Climate Statements for 2020’ released by the US State Department on Wednesday. The report — prepared by American economic officers stationed in embassies and posts in some 170 countries — is based on the factors including openness to investment, legal and regulatory systems, dispute resolution, intellectual property rights, transparency, performance requirements, state-owned enterprises, responsible business conduct, and corruption.
Even though Pakistan jumped 28 places on the World Bank’s ease of doing business ranking, its current position of 108 “demonstrates much room for improvement”, says the report. However, amid the prevailing Covid-impacted business environment where economic outlook is depressing and uncertain even for developed countries, all Pakistan can do, in the meantime, is to work on fundamentals for making the overall domestic environment attractive for foreign investors.
Published in The Express Tribune, September 11th, 2020.
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