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Criticality of foreign investment

Apparently, foreign investors are finding it difficult to maintain sustainability of their businesses in Pakistan. Recently, Shell Pakistan announced that the parent company Shell Petroleum Company would be exiting Pakistan with the sale of its 77% shareholding in the company. It is stated the Shell Petroleum Company suffered losses in 2022 due to exchange rates, the devaluation of the Pakistani rupee and overdue receivables.

Shell is one of the oldest multinationals in Pakistan and has been present in the South Asian region for over a century. It has a network of 700+ sites, countrywide storage facilities and a broad portfolio of global lubricant brands. It is one of the most recognized brands in the country and remains committed to playing a leading role in meeting Pakistan’s growing energy demand.

Earlier this week, Bayer Pakistan rebuffed reports of the company’s exit from Pakistan and stated that the company is not planning any such move. However, interestingly, in a statement issued the company stated, “Bayer is analyzing which of its manufacturing activities may no longer be of strategic focus going forward. In doing so, the company intends to strengthen the competitiveness of its manufacturing capabilities and support the transformation of its pharmaceutical business to deliver long-term, sustainable business growth.”

It is further stated that as part of this strategic review, Bayer intends to transfer selected assets, i.e., its pharmaceutical and consumer health manufacturing plant based in Lahore, as well as selected brands from the pharmaceuticals and consumer health portfolios to an international diversified company with a strong presence in Pakistan. Impacted Bayer Pakistan employees will be transferred to the acquirer with a two-year job guarantee, comparable compensation and special bonuses. There have been no layoffs as part of this transaction. Impacted employees have already signed offer letters issued by the acquirer.

It stated in its policy statement that : “Bayer has been a part of Pakistan’s healthcare and agriculture landscape for the last 60 years, demonstrating a commitment to creating greater value for customers, stakeholders and society as a whole. The company continues operating its Pharmaceuticals, Consumer Health and Crop Science businesses in Pakistan, in line with its global vision: Health for All, Hunger for None.” However, it increasingly appears that Bayer is shedding off its manufacturing portfolio while retaining its marketing and high-end imported product base in Pakistan.

More such models of downsizing of foreign investors’ commitment in Pakistan could be in the offing. What is worrisome is their exit from the manufacturing base in Pakistan, which is the crux of their commitment to value addition in the country.

As per the Pakistan Economic Survey 2022-2023, the FDI in the country in the period from July 22 to April 23 has shrunk to US $ 1.2 billion, recording a decline of 23.2 percent as against US $ 1.5 billion in the same period of fiscal year 2022. The results of Business Confidence Survey Wave 23, which was conducted throughout the country during March to April 2023 by Overseas Investors Chamber of Commerce and Industry (OICCI), rang alarms bell regarding the foreign investors’ sentiments in the country. The survey reports that overall Business Confidence (BCS) in Pakistan has gone down and now stands at negative 25 percent (-25%). This is a decrease of 21 percent, compared to BCI of negative 4 percent (-4%) in the previous Wave 22 Survey conducted from September to October 2022.

The largest drop was recorded in the manufacturing sector (22 percent), followed by retail & wholesale trade (21 percent), and services sector (18 percent). The survey’s sample consisted of 42 percent respondents from the Manufacturing sector, 35 percent from the services sector and 23 percent from the retail & wholesale trade. Overall, the manufacturing sector recorded a net confidence level of negative 19 percent, whereas services and retail sectors stood at negative of 26 percent and 35 percent, respectively. The three major threats to business growth identified in the survey are high inflation (by 82 percent respondents), high taxation (74 percent), and Pak rupee devaluation (72 percent), which could potentially slow down business growth in Pakistan, which remained consistent with the feedback received through the last Wave of BCS.

Pakistan needs FDI (foreign direct investment) for one reason: FDI companies are directly involved with day-to-day tasks in the country, resulting in a systematic transfer of foreign exchange, knowledge, skills, and technology transfer into the country. Their models of business governance, best international practices of systems and procedures, quality and standards, set the benchmark for the local investors to compete in the market. Foreign companies’ branding in Pakistan is indeed the branding of Pakistan that provides motivation and comfort to prospective or potential investors to invest in Pakistan. When a foreign company exits the market or down-sizes its operations in the country, it takes all of it with it. Pakistan needs foreign investors’ manufacturing base at all costs. This is where all the skill development, technology transfer and innovation take place. Therefore, the government must do all it can to retain the interest of foreign investors in Pakistan on a more serious note.

Farhat Ali, "Criticality of foreign investment," Business recorder. 2023-07-03.
Keywords: Economics , Skill development , Foreign exchange , Direct investment , Economic survey , Agriculture landscape , Pakistan , BCS , FDI , US

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