ISLAMABAD - Though Pakistan has been making efforts to attract foreign direct investment (FDI), these endeavours have only looked for immediate gains rather than ensuring sustainable, long-term growth in the investment environment.
According to the United Nations Conference on Trade and Development (UNCTAD), despite a global decline of 12% in FDI in 2022, with developed economies facing the brunt of this downturn, Pakistan remained resilient in attracting foreign investment during the year. However, according to data released by the State Bank of Pakistan (SBP), the country witnessed a noteworthy drop in FDI during the period from July to June 2023, receiving $1.456 billion. This marked a decline of $480 million when compared to the $1.936 billion recorded in the previous fiscal year (FY22). Nevertheless, the FDI figures have been showing a gradual increase, thanks to the endeavours of the newly-formed Special Investment Facilitation Council.
“Pakistan’s strategic location and burgeoning market present significant potential for attracting FDI. However, Pakistan, like many developing nations, faces challenges in fostering an environment that consistently attracts and retains investment,” pointed out Muhammad Jahanzaib Khan, Deputy Chairman of Pakistan’s Planning Commission. Talking to WealthPK, he said to fully harness the potential of FDI, Pakistan must effectively address unique obstacles such as political instability, inefficient infrastructure and direly-needed regulatory reforms.
He further said that Pakistan’s FDI strategy should prioritise sustainable, long-term growth over immediate gains. “This implies giving precedence to sectors with the greatest potential for economic impact and job creation, such as technology, renewable energy, and manufacturing.” The UNCTAD’s World Investment Report 2023 highlights the challenges faced by developing countries in attracting sustainable investments. For Pakistan, addressing the cost of capital and infrastructural deficits is important for becoming more attractive for investments in crucial sectors like renewable energy.
The report’s proposal for a ‘Global Action Compact for Investment in Sustainable Energy for All’ holds particular significance for Pakistan, emphasising the need for national and international policy coordination, financing mechanisms, and sustainable finance markets. Jahanzaib added that infrastructure, governance and education served as the foundations of Pakistan’s economic landscape. “The country’s efforts in infrastructural development, particularly in energy and transportation, alongside improvements in governance and education systems, will play a pivotal role in attracting foreign investors.”
He further added that Pakistan’s geographical position— bordering the economic powerhouses of China and India, provides it a strategic advantage in attracting FDI. “China-Pakistan Economic Corridor, an integral part of the China-proposed Belt and Road Initiative, serves as a prime example of how infrastructure and connectivity projects can stimulate FDI,” he highlighted. “To optimise these investments, Pakistan needs to ensure that these projects are integrated into the broader economic framework, contributing to sustainable development and industrial growth.”