Pakistan’s journey toward economic resilience hinges on shifting gears in many aspects; one of them is FDI. Shifting from merely attracting any sort of foreign direct investment to targeting efficiency-seeking, export-oriented FDI that offers long-term growth potential can help the country build a resilient economy, reduce reliance on imports, strengthen foreign reserves, and create sustainable job opportunities by integrating local industries into global value chains. The Pakistan Business Council (PBC) addresses this aspect and serves as a comprehensive roadmap, highlighting how Pakistan can strategically pivot its FDI policies to yield sustainable benefits.
Multinational companies’ desire to enter and serve the consumer market drives market-seeking FDI, which dominates FDI in Pakistan. This type of FDI typically targets countries with large or growing consumer bases, allowing foreign firms to produce goods or services locally to meet domestic demand. While this kind of FDI has been a key driver for direct employment, training and development, technology transfer, CSR, and taxes, the country’s over-reliance on market-seeking FDI has limited long-term economic benefits, mainly due to capital outflows via profit repatriation.
The “Efficiency-Seeking FDI in Pakistan” report underscores how this approach has constrained Pakistan’s potential for export growth and wide-ranging economic benefits. By analyzing how this strategy has led to significant capital outflows through profit repatriation, the report draws a contrast with efficiency-seeking FDI, which could integrate Pakistan into global value chains and enhance export potential. A key takeaway from the report is that the focus should be on quality rather than quantity of investment in achieving sustainable growth.
The comparative analysis of Pakistan’s FDI policies against regional peers such as India, Vietnam, and Bangladesh in the report offers a benchmark for Pakistan. It emphasizes learning from regional peers like Vietnam and Bangladesh, who have implemented reforms to attract export-oriented FDI effectively. For instance, Vietnam’s success with “DoiMoi” reforms and Bangladesh’s sector-specific incentives in textiles provide Pakistan with practical models.
FDI in Pakistan is small and untargeted. The PBC report recommends targeting sectors like manufacturing, IT, and agriculture to boost exports and integrate Pakistan into global value chains.
It emphasizes learning from regional peers like Vietnam and Bangladesh, who have implemented reforms to attract export-oriented FDI effectively. Moving beyond general FDI strategies like improving the investment climate and governance structure, the study rightly advocates for tailored strategies to maximize impact. For instance, fostering FDI in the IT sector could transform Pakistan into a hub for business process outsourcing (BPO), while encouraging investments in advanced manufacturing could spur technology transfer and job creation.
Key recommendations of the study include reforms to improve the business environment, such as labor market improvements, regulatory simplification, and targeted sectoral incentives, creating a conducive atmosphere for high-quality FDI. It also stresses the importance of policy consistency and improved governance to build a stable, investor-friendly environment.
Furthermore, it suggests renegotiating trade agreements to enhance Pakistan’s competitiveness for FDI by securing better market access for value-added products. Current FTAs, especially with China, lack provisions that could boost Pakistan’s export capacity. The report suggests that renegotiating trade agreements to secure broader market access for value-added goods could significantly increase Pakistan’s attractiveness for export-driven investments. This calls for strategic alignment between FDI and trade policy.