Drawbacks of investment in Pakistan

ByFahad Ali

Associated with maritime trade


August 13, 2022

Drawbacks of investment

Fahad Ali dwells on the difficulties in attracting Drawbacks of investment

Despite claims of the Drawbacks of investment contrary made by the current government, investment inflows in Pakistan paint a grim picture. The current government failed to improve upon the investment portfolio it received as was the previous one that received investment figures of $2665.3 million that were not increased and it is reported that the current government’s period in office witnessed a slight decline in them as currently, they are recorded at $2631.1 million. Another worrying point pertains to the outflow that the government claims to have reduced from its high point of $1208.9 million recorded to $537 million in the current fiscal year. These figures appear unpalatable as most financial reports indicate quite large outflows during the last five years.

Enhanced investment inflows are primarily dependent upon the capital costs, suitable trading environment, modes of taxation, sound regulatory policy and adequate infrastructure. Investors also critically note the ability of the state where they are going to invest to enforce contracts and provision of personal and investment security. They also explore the affectivity of financial connectivity that they would have access to in the destination they are going to make investment.

Pakistan cannot boast of a very impressive record of signing and implementing investment agreements over the last fifty years. Investment agreements entered into were few and far between as Pakistan emphasised more on developing industrial sector with the help of indigenous investment but succeeded in creating a class of industrialists that monopolised development. Not surprisingly therefore there were only two investments signed with Germany in 1962, and after an inexplicable delay of 16 years, the other with Romania in 1978.

Pakistani financial policy makers came into fast lane by the time new millennium was on the anvil and signed 14 investment arrangements out of which five were signed whereas nine were enforced agreements. Within these agreements, the only arrangement in which the government succeeded was with Bahrain that was agreed in. CPEC is not included in this portfolio as this arrangement in its present form is the evolution of its rudimentary functionality since 1989-90.

It is important to understand the conditions that restricted Pakistan from going for more robust investment regime. The reasons of investment drawback range from non-political to political. The first and the foremost reason of lack of investment is Pakistan’s complex administrative structure that has consistently proved a substantial barrier for investors. The complexity of the procedures related to policy formulation and implementation frustrates any attempt to successfully negotiate them.

The cumbersome official machinery requires investors to overcome barriers mounted by State Bank of Pakistan, Ministry of Finance and Federal Board of Revenue who are extremely hard nuts to crack. The primary façade of much trumpeted Board of Investment (BOI) has no connection with the workings of these monetary regulatory agencies. Pakistan suffers from tremendous uncertainties in the implementation of policies. Despite regular issuance of trade policies their effective implementation is often neglected. The lack of success in trade and commerce policies is the offshoot of weak governance system that is endemic from top to bottom.

Pakistan’s business climate has failed to diversify according to fast changing regional and global trends. Adding further difficulty is the low demand of Pakistani products as they accrue comparative advantage mainly in low value-added consumer goods such as textiles, clothing, leather products and vegetables. There is also low advantage in minerals, animals, pharmaceutical products, chemicals, machinery and technology. This low comparative advantage highlights the fact that enterprises in Pakistan lack capacity to produce more. This weak capacity thus becomes the core of all challenges failing to meet demand.

Pakistani policy makers are required to improve the underlying conditions regarding trade and investment in the country. The investment opportunities are ever-present in Pakistan provided the coordination between regulatory agencies is strengthened. BOI should act as the primary body to handle all investment matters and the traditional regulatory set-up should work under it. BOI is also required to coordinate with provincial investment bodies. Pakistan economic planners should work hard to improve connectivity with the world. Potential investors should be provided with facilitation points aimed at easing the investment procedure and subsequent productivity.

A focus is required on finished goods and promotion of branding while strengthening agencies like Intellectual Property Organization (IPO). Additionally, more storage space should be catered for along with provision of warehousing at ports and borders when it comes to trade-related investment which includes perishable items. Pakistan needs to shed protectionist point of view in national trade sphere. After a long time Pakistan has been successful in bringing about security in the country that has proved very beneficial for the economic outlook and productivity. The ongoing enthusiasm about CPEC has proved to be an economic advantage. Moreover, low interest rates and private sector credit provisions have proved to be positive signs for investors. TW


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