International sources recorded that strategies of host countries have a significant influence on foreign investment decisions. Host countries can adopt strategies of stimulating foreign investment or they can restrict foreign participation in their economies in various ways. It is also recorded that host country strategies and policy pronouncements affect the perception of “political risk” by transnational corporations (TNCs) and thereby the amount of investment of these companies.
In addition, host country strategies can be instrumental in channeling investment flows toward sectors considered to be of particular importance to the country’s development. Given its fragile balance of payments (BoP) position and urgent need to increase industrial production, our country needs to significantly raise its mobilization of foreign resources. However, long-term official assistance will become increasingly scarce, while promoting large portfolio investments is not a proper policy option because of Pakistan’s underdeveloped and narrow capital market. Significant increases in commercial borrowings are also not desirable. It is therefore crucial to accord high priority to foreign direct investment (FDI).
According to the State Bank of Pakistan (SBP), FDI coming into Pakistan plummeted by greater than half to $430.1 million in the first 5-month (July to November) of the current fiscal year FY2023. The inflows were recorded $884.9 million during the corresponding period a year ago. The statistics for November identified a similar drop, as FDI plunged 48 percent to $81.8 million from $158.4 million in the corresponding month previous year.
Experts identified that since the beginning of the year, the declining inflows reflect foreigners don’t consider the country an attractive destination for investment at current amid economic and political unrest prevailing in Pakistan. Furthermore, a decline in FDI inflows could be challenging for the country, which is already faced with low foreign exchange reserves.
Statistics also showed that the worst signal is the poor foreign exchange reserves held through SBP, which has lost $11 billion in the last 12 months and now has $6.7 billion. The highest FDI inflows came from China during the July-November period, amounting to $102.5 million as against to $124.9 million in the corresponding period of last year. It is also recorded that China is the biggest trading partner of Pakistan and also its biggest lender. However, poor economic health and a riskier external front of the economy have compelled China to be cautious as well over investing in country.
Experts also identified that the United Arab Emirates was recorded the second-biggest investor with $81.6 million during the 5-month as against to the last investment of $62 million during the corresponding period of previous year.
Domestic sources recorded that presently the Government of Pakistan proclaimed to provide maximum facilitation and friendly environment to encourage foreign investment. The government is committed to fully support and facilitate Egyptian investment. Furthermore, the government has also planned to legislate to protect foreign investment in Pakistan in the future after its experience with the Reko Diq project. It is said that the legislation would provide a safe environment in Pakistan for foreign investors. The decision to enact the legislation was prompted through growing complaints from foreign investors.
Statistics also identified that other significant investors were recorded Switzerland and the Netherlands, with $58.7 million and $44.3 million, respectively. Moreover, the sector-wise position explained that the power sector attracted the highest foreign investment of $204 million. Despite an overall 51 percent fall in FDI, the power sector succeeded in improving its position, as it attracted $160 million inflows a year ago. Furthermore, inflows in the financial business fell but still remained at a reasonable level. The sector attracted $141 million as compared to $205 million last year. Another significant sector was recorded oil and gas exploration, which attracted $40 million as against to $93 million in the year-ago period.
Unfortunately, statistics also identified that FDI in Pakistan has been fairly low as it is less than 4 percent of the Gross Domestic Product (GDP). For every country, local investment and FDI are significant for the development.
In our country, low domestic investment can be attributed to a lack of company growth, poor retail, a fragile stock market, ineffective stability and unsupported construction activities. These challenges are a consequence of a self-centred or reactive strategy. Under mercantilism, foreign investment cannot be attracted without thriving domestic businesses.
Experts identified that the challenges related to taxes caused a lack of trust among businessmen and traders in government strategies. The public deficit made the strategies more volatile. Major cities in Pakistan namely; Lahore, Karachi, Sialkot and Faisalabad are the main industrial centres that can offer investment opportunities for foreign investors.
It is also recorded that frequent alters in taxes and a lack of trust in government strategies kept Pakistan at low investment levels as it was unable to attract foreign investment. Unluckily the Government of Pakistan has also lost its advantage in international trade through continuing to depend on low-tech products. No doubt, private sector players have adapted themselves to the new realities of global markets. Favourable trade, investment and openness in the strategies can contribute to the growth of dynamics. I would like to mention here current political situation was keeping away investors from the country. Political and economic stability is essential for greater international and domestic investment. No investor will be willing to invest in a politically or economically unstable country.