The Pakistani currency is depreciating against the US dollar, causing inflation, and putting an impact on the lives of all Pakistanis.
However, supporting the rupee and its exchange rate against the dollar can assist to keep inflation and price rises under control.
This can be accomplished through remittances, exports, and foreign direct investment (FDI) into Pakistan.
Pakistan’s inability to attract FDI stems from a long-standing policy of prioritizing defence over international trade with other countries.
Foreign Direct Investment (FDI) has been a major non-debt financial resource for the economic development of any country.
Developing countries, emerging economies, and countries in their transition period fervently see FDI as a source of economic development, modernization, growth, and employment.
Prior to 1990, Pakistan was attracting a substantial volume of foreign investment from various corners of the world in most of the sectors of the economy.
Pakistan was way ahead of India in magnetizing FDI, almost 0.28 billion dollars in terms of FDI was falling into Pakistan and only 0.21 was coming to India.
Pakistan has lost the confidence of international investors due to political unrest and a failure to implement essential policies to motivate FDI, whereas India, on the other hand, liberalized its FDI regimes and pursued other measures to attract FDI.
As a result, India received approximately 64.06 billion dollars in FDI in 2020, while Pakistan received only about 2.10 billion dollars.
FDI into Pakistan is still low in comparison to other developing markets. Pakistan appears to be unaware of the significance of FDI in transitioning from a developing to a developed country. FDI leads to the triggering of technology spillovers, the production of human capital, the creation of a more competitive economic climate, and the development of businesses.
Furthermore, Pakistan can reach its goal of higher economic growth, which is the most effective tool for alleviating poverty in developing countries.
If special investment benefits are promised to foreign companies such as tax exemptions and etc they are enticed to invest in Pakistan to take advantage of relatively lower wages.
Pakistan must promote a liberal and open economic policy, inviting foreign investment in all sectors of the economy. Likewise, Pakistan must have a favourable policy framework and a stable economic environment in order for foreign money to keep flowing into the country. In this regard, the government must take certain steps, notably loosening FDI restrictions in sectors like agriculture, oil refineries, telecommunications, power exchanges, and stock exchanges, among others.
Most importantly, the time has arrived when Pakistan must rebuild its relations with other countries based on trade, not only defense. Pakistan’s defense is now impeccable, and it needs now to grow its economy, lift its exports, and bring prosperity to its citizens. Above all, the time has finally come for Pakistan to rebuild its relations with other countries based on trade rather than defense.
We must comprehend the factors affecting Pakistan’s foreign direct investment inflows and outflows as well as their ramifications. The following are the primary factors that influence foreign direct investment: the cost of transport and the state of the infrastructure are key factors in determining the desirability of investment. Although a country may have cheap labor costs, excessive transportation costs to bring goods onto the global market constitute a disadvantage. Pakistan has access to the sea, it only not reduces transportation costs but the raw materials and finished goods can reach their destination with ease and in a fair amount of time.
Multinational corporations will invest in countries that have a mix of low salaries and high labor productivity and skills. Pakistan has a large pool of trained labor accessible at competitively inexpensive wages compared to other countries. It makes it an attractive place for outsourcing and as a result, attracts investment.
Large multinational corporations have sought to invest in countries where corporate tax rates are lower. China, India, Bangladesh, and some other countries, have been successful in luring international investment by providing them a significant tax rate reduction.
The size of the population and potential for economic growth is another factor determining the inflow of foreign investment. Countries with a high population, provide more opportunities for new markets. For instance, this could entice multinational automakers, such as Volkswagen Fiat, and many others to invest and develop facilities in Pakistan in order to sell to the country’s increasing middle class and export to some neighboring countries.
Permission and procedures are additional barriers to FDI, with regulatory bodies’ outdated rules and regulations causing unnecessary delays in granting permission and extorting illegitimate money from investors while providing business licenses. If Pakistan is concerned about attracting FDI, it must revise its permissions and procedures for starting new businesses, and it needs to successfully establish a single-window operation for all types of permissions within a set time frame.
Political stability is the most essential aspect that supports or inhibits foreign direct investment. Uncertain political developments in countries will be a key deterrent. An economic crisis increased corruption, and a loss of trust in institutions, particularly the court and law and order, are the results of political cries. Long marches, strikes, country-wide lockdowns in the name of political sit-ins and sou moto challenges to international business agreements, such as the Reko Diq case, in which Pakistan not only lost FDI but now has to pay a large sum in compensation for breaching a contract with a foreign company.
There are various more elements that influence foreign direct investment (FDI), and it is difficult to identify and discuss each one. However, the aforementioned factors are the most critical and crucial in attracting FDI. If Pakistan really learns from its failures, develops an atmosphere that allows foreign investors to do business with ease, softens tax rules, eliminates corruption, fully implements the one-window operation, eliminates all unnecessary license requirements, and rebuilds relations with other countries based on trade rather than defence.
