FDI and its drivers: a perspective

Foreign Direct Investment (FDI) is all about country perception and country perception is all about political and economic stability of the country.

While economic instability could be condoned in expectations of better prospects ahead but political instability cannot be ignored, particularly in case of foreign investment, where country risk related to security and sustainability of investment, in men and material, overrides all other considerations.

In case of Pakistan, the fundamentals for economic and business growth are promising, but they are shrouded in political instability and uncertainty. Once the halo of political uncertainty is wrapped up, business opportunities would pop out, presenting a better outlook to prospective investors.

Over the past two years, as the country mired itself into political uncertainty, nine large multinational corporations divested their assets in Pakistan. Pharmaceutical giant, Pfizer of the USA, sold its manufacturing operations in Pakistan to the Lucky Group in May 2024.

Pfizer had a long and an outstanding presence in Pakistan and its healthcare products’ branding remained a household name in the country for safety and quality. Eli Lilly, another pharmaceutical company of USA, ceased its manufacturing operations in Pakistan in November 2022.

Whereas, Sanofi of France, another pharmaceutical giant, sold its 52.87 percent shareholding in Sanofi-Aventis Pakistan Limited to an investor consortium led by Packages Limited in April 2023. Viatris of the USA sold a portfolio of certain pharmaceutical brands to AGP Limited (AGP) in April 2023, marking another significant divestment in the healthcare sector.

Energy giant Royal Dutch Shell of the Netherlands divested its oil and lubricants retail business to the Wafi Energy Group. Shell’s branding in Pakistan was the ultimate in oil retail business, with the most sought after outlets in every nook and corner of the country. Another Oil giant, Total Energies of France, is going ahead to divest its 50 percent stake in oil marketing company, Total PARCO Pakistan Limited, to global commodities trader Gunvor Group.

Telecommunication giant, Telenor of Norway, which distinguished itself as a trend-setter in the cell phone service providers’ market of Pakistan, sold its operations to Ufone/PTCL in December 2023.

Ride-hailing service provider Uber of the USA, once a button-press away on the cell phone, has discontinued its operations in Pakistan, including its subsidiary Careem’s food delivery business. Lotte Chemical of South Korea sold its assets in Pakistan to Lucky Core Industries in May 2023.

Their exit is broad based; it is in multiple business segments – pharmaceuticals, oils, chemicals, food and telecommunications. All were part of Pakistan’s assets, which for decades provided to the nation world-class technology, talented and skilled human resources benchmarked to global standards, products of international standards in safety and quality. Above all, they contributed significant revenues in the shape of taxes to the government and systematic deployment of foreign direct investment in up-gradation and expansion. The nation will be deprived of these advantages. These multinationals enjoyed profitable operations throughout their stay and the reason for their exit does not appear to be profitability as it appears to be security, sustainability of investment and a level playing field.

They were mostly members of Overseas Investors Chambers of Commerce and Industry (OICCI). The OICCI is the voice of over 200 multinationals operating in Pakistan. These 200 companies have together reinvested over $ 22bn over the last 10 years till 2022. They contribute over one-third of country’s total tax revenue.

They have spent Rs 12 billion in 2022 as corporate social responsibility (CSR) with direct influence on the deprived communities across Pakistan. Such is the strength of foreign investors in Pakistan and the nation’s dependence on them in FDI, revenue and CSR.

The cumulative impact of these withdrawals could be far-reaching, affecting local revenue and foreign investment, employment, technological advancements and economic growth and above all it affects the country’s perception to invoke new foreign investment and motivate the existing investors.

This is more worrying at a time when Pakistan desperately needs foreign investment and local revenue. Their exit represents a substantial outflow of foreign investment by companies, which, otherwise, were capable of further investments through expansions and upgrades.

The exit of 9 multinationals, some of them global giants in their fields from Pakistan in a period of two years is a worrisome trend, underlining fault lines in the economic and political governance of the state. This needs to be addressed. As a case study, the cause of each exit needs to be professionally and fairly evaluated and shortcomings addressed to retain the existing ones.

The new foreign investors would invariably look at the health of the existing investors before committing investemtn in the new market. The country needs high profile investors on the ground to motivate the new ones. Often the first door that a potential foreign investor knocks is that of OICCI for a fair evaluation on the health of its member companies.

Copyright Business Recorder, 2024