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The FDI challenge

Pakistan’s foreign direct investment (FDI) dropped 52% to $1.37 billion in first 10 months (Jul-Apr) of the current fiscal year. The country recorded a net outflow of $22.6 million in the same period under the head of foreign investment compared to a net inflow of $5.16 billion in the same period of last year.

Well, let’s set aside the negativity and move towards finding solutions on the strength of tremendous positivity this nation can offer to foreign investors.

Not too far back, in 2006-7, Pakistan’s economy with a growth rate of 7 percent and FDI over $ 9 billion was rated among the three best in the region – Pakistan, Vietnam and India.

Since the 2oo8 general elections in particular, the FDI has been showing a systemic declining trend.

According to a Chinese proverb, investors are like a flock of birds on a tree. Once scared they all fly away. To bring them back one has to motivate the first two – the rest would follow. In all these years no serious efforts has been made to bring back the early birds. The Federal Board of Investment (BoI), responsible to mobilise and regulate FDI, is no longer a one window operation and has more or less lost its relevance for the purpose it was formed for. It’s now more of a regulator to issue NOCs.

The good news is that the fundamentals of FDI are strong in Pakistan. It has one of the world’s largest growing middle classes with ambition and talent. The country is also one of the world’s largest consumer market with great purchasing power – which can be verified from the mushrooming of retail outlets flooded with local and expensive imported products. It is this combination which propelled the unprecedented and sustainable economic growth of India, China, Vietnam and others in the region.

Pakistan with better fundamentals is left out as we failed to put our act together. We need to put in a lot of efforts to make this happen through reforms and restructuring to make the country investor friendly, which we are not when benchmarked to other countries in the region.

The following is the order of priorities of a prospective investor:

1. Return on Investment

2. Security of Investment

3. Incentives offered by the county

4. Ease and cost of doing business to ensure sustainability of Investment.

The rate of return and incentives offered to investor in Pakistan are attractive. The 200 multinational companies, operative under the ambit of Overseas Investors Chamber of Commerce and Industry record invariably a double-digit profitability.

The issue is the security and sustainability for the investor, notably to the potential investor with no exposure to Pakistan. It is this fear which needs to be addressed. Much of this has to do with country perception then realities on ground.

We need to work on building a soft image of the country which needs to sink into the hearts and minds of foreign community. India has set up its cultural centers in all major business hubs where Indians exhibit their country’s image through art and culture to wider segments of society. Unfortunately, however, Pakistan has none.

Our foreign missions need to move from passive to active mode for better business and people outreach. India has the presence of its business chambers at all important business hubs, notably, in Brussels, in the vicinity of the EU office. Pakistan has none.

While Pakistan may have a probability of achieving some mega FDI from China or Saudi Arabia or elsewhere but this is an unpredictable model to adopt for boosting FDI.

Pakistan needs a critical FDI mass as a base for its sustainability and growth in FDI. Under the circumstances, it can be very fast achieved by mobilizing the SMEs, particularly those in Europe, which are hungry to venture into new markets because of a significant slowdown in Europe and deterrents placed by the USA. Also, the best chance to fill in the numerous Special Economic Zones is through SMEs – foreign, local and joint ventures.

To attract FDI to Pakistan is not any easy task but it is a possible one. Lots and lots of efforts have to be employed in the reorganization and restructuring of our entities, processes and systems and a workable strategy to outreach the prospective investors.

The incumbent government has done well in its foreign policy and outreach, easing out the visa facilities and opening up tourism. Much, much more, however, needs to be done to achieve our goal as a sustainable investor friendly country.

(The writer is the former President of Overseas Investors Chamber of Commerce and Industry)

Farhat Ali, "The FDI challenge," Business Recorder. 2019-05-25.
Keywords: Economics , Fiscal year , Foreign investment , Chinese proverb , Foreign missions , Economic zones , Visa facilities , Tourism , NOCs , FDI