Amir Khan

Pakistan is facing challenges in attracting foreign direct investment (FDI), which is a crucial economic indicator for the growth of any developing country. Pakistan has fallen behind in securing significant investments compared to its regional peers. Talking to WealthPK, Aamir Nazir Gondal, an additional finance secretary at the Finance Division, stated that China's FDI strategy began with export-focused investments due to its underdeveloped domestic market. "This approach propelled China to become a global export leader." He highlighted that FDI had revolutionised many economies, each with its unique trajectory. "India leveraged its large middle-income group and early IT adoption to attract investments, resulting in its IT exports surpassing $250 billion. China initially attracted investment for exports due to its low per capita income, transforming it into the world's largest exporter," he further said. "Vietnam's success stemmed from its proximity to China and a cooperative market approach, enabling it to become a manufacturing hub.

Vietnam's exports, once less than Pakistan's, now surpass Pakistan's exports by twelvefold," he explained. Conversely, he said Pakistan's FDI journey has been inconsistent. "The 1960s saw a surge in investment due to an open, private-sector-oriented model, but political upheavals in the 1970s deterred investors. However, the China-Pakistan Economic Corridor (CPEC) brought significant Chinese investment primarily in the power sector, adding 8,000-10,000MW to Pakistan's electricity capacity." Talking to WealthPK, Mumtaz Hussain Shah, Joint Secretary at the Finance Division, highlighted the importance of remittances to Pakistan's economy, noting that they constituted 8-9% of the GDP, amounting to approximately $30 billion annually. He pointed out that while remittances were crucial, primarily supporting families and driving consumption, Pakistan currently needed more FDI.

"Unlike remittances, FDI is aimed at business expansion, economic growth and job creation. Despite the significant roles both play, remittances have consistently exceeded FDI in Pakistan." He said that the ease of doing business in Pakistan remained a significant hurdle. "The difficulty of registering companies and ensuring profit repatriation further dissuades investment. High tariff barriers also impede export-focused FDI inflows, limiting opportunities for local backward integration and eventual exports." To break this cycle, he said Pakistan must address these structural challenges, fostering an environment conducive to both remittances and FDI. "Only then can the country hope to emulate the success of its regional peers and achieve sustained economic growth."

Credit: INP-WealthPk