Amir Khan

As Pakistan tirelessly seeks to attract foreign investment into its economy amid persistent shortages of foreign exchange reserves, a comprehensive assessment of the country's Foreign Direct Investment (FDI) strategy is crucial, said Ahsan Ali Mangi, additional secretary at the Ministry of Commerce. “It is clear that the current approach to FDI is not yielding the desired results and does not align with Pakistan's long-term economic goals,” he told  WealthPK. He said to bridge the gap between potential and reality, Pakistan must evaluate its ‘come one, come all’ approach to FDI. “Policymakers need to be more discerning, directing foreign funding to sectors that align with the country's long-term objectives and can provide competitive advantages,” he underscored. He said that investors should also be held accountable for ethical business practices, fair wages, and environmental responsibility. Over the years, Pakistan has attracted over $50 billion in FDI, yet the resulting benefits have been disappointingly scarce. Numerous sectors in the country remain non-competitive without subsidies or trade protections, and the past ad-hoc policies have done little to address the core issues such as food security, energy security, human development, and climate action.

The hard currency demands of businesses have only exacerbated the economic challenges facing the nation. “Foreign investments have often been motivated by short-term political expediency rather than long-term strategic goals. This has resulted in attracting opportunistic capital, which may not align with Pakistan's broader economic interests,” he pointed out. He explained that a prime example is the energy sector, where substantial FDI has fuelled electricity generation capacity but has left the nation vulnerable due to a lack of control over generation inputs. He further explained that similarly in the automobile industry, FDI has been solicited under the Automotive Development Policy 2016-21, but a closer look reveals that the balance of payments may not favour Pakistan's interests. “International contractors, often affiliated with offshore investors, carry out significant portions of capital-intensive projects, leading to substantial dollar outflows.”

Additionally, he said the returns on capital for foreign investors, especially in a high-risk environment like Pakistan, further strained the nation's foreign exchange reserves. “To assess the desirability of these enterprises in the long-term, it is crucial to consider their impact on the trade gap. The ideal scenario is where inputs are paid for in rupees, and sales are generated in dollars.” Unfortunately, for certain industries, he said this is not the case, leading to a net outflow of dollars. “A glaring example is the automobile assembly industry, which relies on importing components, adding further challenges to Pakistan's trade balance.” Ahsan Ali said failure to do so could result in a scenario like Russia, where foreign firms curtailed their operations, leaving significant gaps in the provision of goods and services. “Strategic policymaking in the realm of FDI is not just a prudent choice; it is a necessity for Pakistan's economic prosperity and sustainable development.”

Credit: INP-WealthPk