GCC business interests in Pakistan: A trigger to the path of foreign investment

It was February 2019 when the much awaited arrival of the Saudi Crown Prince and Defence Minister to Pakistan took place amid much bon homie. His departure took place on an exceptionally hopeful note. The Saudis had decided to invest $10 billion in an oil refinery. Other areas of investment were discussed personally by the then Prime Minister Imran Khan and Saudi Crown Prince Muhammad Bin Salman. To nail it all down, to actually make it happen with speed and substance, the Pakistan-Saudi Supreme Council for Coordination was set up. Khan and the Crown Prince were to head the council. Four years and four months later, there’s not much on the score card of the supreme council.

The Qataris too came during the Khan government. They showed interest in leasing three of Pakistan's leading airports: Karachi, Lahore and Islamabad. Disagreements within Pakistani institutions meant no progress and it was another bottleneck to foreign direct investment (FDI) materializing for Pakistan.

Meanwhile, in the last couple of years, the UAE has expressed interest in investing in Pakistan instead of sampling loaning funds or parking them in Pakistani banks to help build Pakistan’s dwindling foreign exchange reserves.

This has been the read out over the last few years from Pakistan's close friends and neighbors. Cash flows have been on the downturn given post-Covid challenges, the climate change crisis and the Ukraine war. Too many are competing for depleting funding, with the World Bank flagging fears of global depression.

Pakistan stands a few steps ahead of a depression. Its crisis revolves around a fast devaluing rupee, insufficient funds to service loans in the current fiscal year, sky rocketing inflation and unprecedented flood damage across the country. And above all, it is still struggling to restart a stalled International Monetary Fund (IMF) loan program with less than a week to go. 

For Pakistan, these are hard times.

Pakistan's perennial political battles often enter other frays. Political brawls cross over into economic zones, accentuating the already extreme crisis.

In the last few years, declining FDI  has to do with the challenges posed by political instability within Pakistan, the post-Covid value chain disruption and too many contenders for shrinking global capital.

Nasim Zehra

Among several warning signs emanating from the economic zones is the declining trend in FDI. For example during the current fiscal year, FDI went down to $17 bn with a 23 percent reduction compared to the last fiscal year.

Against this backdrop of the crisis and simultaneously the interest of the Gulf states to invest in Pakistan, a potentially significant step has been taken. The Special Investment Facilitation Council (SIFC) was set up about three weeks ago. A three tiered organization, it has an apex body, an executive body and an implementation set-up.

The significant factor in all three levels is the inclusion of serving army men. In the top two tiers, senior military officers will be members with the army chief who could be called to the meeting as a special member. Significantly, the secretariat in charge and the national coordinator will both be army men, while at the implementation level, 17 out of 40 members will be army representatives.

It’s a lot about optics. Clearly the army will be seen to push matters in the ‘right’ direction and cut across red tape, plus ‘push’ for coordination. Significantly in the past, army officers have played effective facilitation roles, according to Pakistan's business community, in various business or related business initiatives including settling IPP payments, FATF, Reko Diq etc.

This SIFC is meant to secure a one-window operation for foreign investors, to remove bottlenecks at the implementation levels and to protect the interests of foreign investors in keeping with commitments made in Pakistani law. 

This is a landmark step to encourage FDI. A critical engine for growth, employment, foreign exchange earnings and indeed overall national prosperity, has stalled for multiple reasons. In the last few years, declining FDI  has to do with the challenges posed by political instability within Pakistan, the post-Covid value chain disruption and too many contenders for shrinking global capital.

Bureaucratic red tape has been an abiding problem and getting out of the phenomenal 90 No Objection Certificates (NOCs) required by foreign investors from different Pakistani ministries hasn’t worked. Several attempts to fix the issue have not succeeded.

While GCC plans to invest in Pakistan are the trigger for fast track setting up of SIFC, it does address three abiding issues that critically undermine foreign investor’s confidence. One, continuing political infighting and instability; two in the absence of an agreed economic policy agenda by all of Pakistan's stakeholders, with every change in government, there’s a change in economic policy; and three, there is no consensus between the federal and provincial governments causing additional delays and disruption adding to the uncertain prospects and timelines of the projects.  

Of the several objections that its critics put up against the setting up of the SIFC, two merit attention. One is that the government through SIFC will sell expensive national assets at throwaway prices. Only transparent transactions and decisions made by SIFC can prove or disprove this. Two, that the army’s presence in an investment facilitation body is unnecessary. What role will army officers actually play, only their actually work and approach within the SIFC will tell.

But for now, GCC countries seek army involvement in the setup overseeing their investments, and no less do Pakistani businesses. The presence of senior army command is seen to “get the work done.”

Otherwise, the army has no reason to be involved in the substance of trade and business.

– Nasim Zehra is an author, analyst and national security expert. 

Twitter: @NasimZehra