Demonstrating Pakistan’s investment readiness amid political turbulence 

Demonstrating Pakistan’s investment readiness amid political turbulence 

Short Url

Prime Minister Shehbaz Sharif’s much anticipated visit to Beijing earlier this month ended with Chinese commitment to support Pakistan’s economic development and giving a renewed push to current and future investments from China. Despite the positive tone, it goes without saying that three main issues still deter deeper trade and investment integration between the two neighbors. These include heightened chances of a turbulent political transition in Pakistan; Islamabad’s weakness in clearing payments of Chinese power producers in a timely manner; and the need to beef up security for Chinese nationals in Pakistan.  

The bottom line here is that Pakistan’s risk profile is preventing new investments by Chinese enterprises – particularly private sector firms. With low prospects of foreign investment under the current milieu, the most Islamabad was expecting from this visit was a roll over of maturing debt and additional pledges towards flood response. 

Though Saudi crown prince Mohammed bin Salman’s visit to Islamabad scheduled for later this month has been postponed, the Pakistani government will wish to make a pitch for investment whenever it materializes again-- but this will be hard because the government in power has the least control of provincial administrations. Media reports inform about possibilities of $4.2 billion in financial support to avert any debt crisis and revival of petrochemical refining project worth $12 billion. The latter project has been on the cards for very long and it is about time we accept that concerns facing Chinese investment equally apply to this case. 

Even if security issues and threats to lives, assets, and profits of foreign investors are kept aside, Islamabad hasn’t been able to position itself as a worthwhile recipient of new capital and technologies that could materialize into increased productivity and economic expansion. It is extremely difficult for foreign investors to freely enter in and out of the country just like they would experience in GCC or other destinations with certainty of visa regime. 

The bottom line here is that Pakistan’s risk profile is preventing new investments by Chinese enterprises – particularly private sector firms. 

Dr. Vaqar Ahmed

Several Asian economies require clearances for their Asian managers visiting Pakistan and time to process such visas is never known. The representatives of US entities have seen their visas rejected with no reason provided, resulting in diminishing interests of the American private sector in Pakistan. Such cherry picking usually doesn’t take place when you are giving a message to the globe that you are receptive to foreign capital. Either you are open to business or you are not, and there is no in-between. This is what the success of GCC economies, Singapore, South Korea, and China have demonstrated over time. Countries will not keep their money at a destination where their people cannot enter and move freely. The recent past has examples of visitors who were provided visas for a single city within Pakistan. Either movement to other cities was not allowed to these delegations or clearance for other destinations took too long for the visitors to wait. 

Foreign investors look closely at the financial health of local businesses. Pakistan is seeking Chinese and Saudi investment at a time when interests of domestic businesses are not well protected. Most locals realize that power shortages, lack of gas connections, curbs on imports and foreign exchange simply puts any new venture at extreme risk. They also realize that governments have moved away from their own economic policies including those promised with IMF in recent years. The strong resolve to undertake painful decisions even if that burns political capital is hard to ask for. In energy and export-oriented sectors, businesses have faced losses only due to fast changing regulatory and tax regime at the federal and provincial level. There is also a lack of policy coherence across provinces  - a  firm looking to expand from one province to another will face additional regulatory costs. 

While the above-mentioned challenges are not going to go away overnight, it is important to explain to the political leadership in friendly countries including China and Saudi Arabia what Pakistan could still offer amid structural constraints. One of the less energy and forex dependent sectors – IT is expected to post $5 billion exports next year. This will allow prioritizing digital trade integration with China and GCC. The pandemic has left a more resilient health and education sector. Private health outlets have developed themselves into credible providers of online medical advice and treatment services. Private sector medical, engineering, and business schools have opened branches in several other countries and end up repatriating profits and royalties back to Pakistan. Increased space for these ventures should be negotiated with foreign leadership. Market access to EU under GSP+ and a revised free trade agreement with China implies that investors producing and exporting from Pakistan will face lower or no duty on tariff lines under these trading arrangements. Finally, there is a big focus on technical and vocational education across the country which could help foreign partners source a certified workforce from Pakistan and at more economical wages. Overtime this could result in a win-win, whereby remittances see a sustained increase. 

- Dr. Vaqar Ahmed is joint executive director at the Sustainable Development Policy Institute (SDPI). He has served as an adviser to the UN Development Programme (UNDP) and has undertaken assignments with the Asian Development Bank, the World Bank, and the Finance, Planning, and Commerce Ministries in Pakistan.
Twitter: @vaqarahmed​

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