Pakistan is one of the strategically located states with deep seaports, a very good climate, and rich natural resources and has a lot of investment potential. However, when it comes to having higher inflows of foreign investment, it is trailing behind the neighboring countries such as India and Bangladesh. India is being marketed as the ultimate destination for business and Bangladesh has proved to show remarkable economic growth, whereas Pakistan is much behind in gaining such confidence from both local and foreign investors.

The Challenges:

This article shows why all the inherent strengths of Pakistan could not yet make it an attractive place for investment, and how it requires some policy change in improving its investment climate.

• Political Instability:

The first and foremost reason behind Pakistan’s failure was that of undeterred persistent political instability coupled with bad governance. Successive governments might not complete their tenures; and because policy keeps changing, investors can rarely predict what will come the next day. Since most long-term investments have long gestation periods and, therefore, require a high level of confidence that regulations or incentives won’t change abruptly.

Weak governance structures as well as the lack of any effective checks and balances make economic growth difficult. Inconsistent policies and weak implementation discourage foreign companies to enter or expand in Pakistan.

• Insecurity:

At the same time, security concerns make the issues even worse for foreign firms. Despite internal security advances, the insecurity is at the top of investor lists. The fears about terrorism and regional conflicts create anxiety amongst investors who may shift investment to more secure India or other countries in South Asia. These safety issues result in an opinion regarding Pakistan as a high-risk country for foreign investment. Due to this reason, companies avoid trying out the business opportunity available in Pakistan.

• Red Tape:

Bureaucratic red tape and complex regulation are also inhibitors. Inefficiency is often reflected by bureaucracy in Pakistan, coupled with excessive documentation and slow clearance, creating serious hurdles both for homegrown and international businesses alike. Long-drawn processes and complex regulation increase time and costs attached to putting up or increasing operations. Moreover, an environment brought about by bureaucratic hurdles more often than not encourages corruption, as a company strives to circumvent long procedures, which chases off the genuine investors.

• Insufficient Infrastructure:

Inadequate infrastructure and power shortages pose important issues for the country. Pakistan remains at the developing stage; thus, the country’s transport and energy infrastructures lag far behind their competitors in the region. These are a big problem for industries, mainly due to constant power outages and very costly energy sources, thus not really appealing to foreign investors. India and China invested massively in infrastructure and established reliable systems to support industry and commerce. On the other hand, Pakistan must build a stable infrastructure network to be able to attract foreign investment, especially in manufacturing.

• Lack of Financing:

Furthermore, the availability of access to finances is also somewhat scarce. At the same time, high interest rates are discouraging the domestic private sector form introducing innovative products. The country’s financial sector is undeveloped and cheaper credits are not in hand. In reality, the lack of readily available funding is a peculiar challenge to small and medium-sized enterprises (SMEs) which constitute economic backbone for diversification and growth. High interest rates and inflation make borrowing very expensive, thus reducing a firm’s ability to invest in expansion or modernization. It discourages further the would-be foreign investors who have the potential to venture into a market whose constraints do not allow its prospects to grow.

Also read: Weaker Currencies Mean Higher Fuel Prices Despite Cheaper Oil

The Changes:

There have been some good steps taken recently towards attracting foreign investment. Setting up the Special Investment Facilitation Council (SIFC) is one positive development that focuses on the attraction of capital, especially from the Gulf States in areas like agriculture, technology, and manufacturing. Civil-military cooperation gives foreign investors more confidence, as historically, Pakistan’s military institutions were more trusted than the civilian government.

With the assistance of SIFC, Pakistan has signed more than 30 MoUs with Saudi Arabia, which would inject billions of dollars into the economy. Further examples are Prime Minister Shehbaz Sharif’s visit to Qatar, which exemplify Pakistan’s quest to obtain investment from a broad pool of sources. Yet the potential of such efforts could only be translated into an actuality when the government takes measures towards dealing with the very core causes that scare investors.

Transforming Pakistan into more of an investment-friendly destination would require policy reforms in the following measures.

• Political stability and policy continuity are a prerequisite for undertaking long-term goals that stretch further than individual governments and make people confident. Major projects by an independent economic body having consistency in the policies could provide investors with the required stability. It will also mean that economic policies of any government are to be backed by cross-party consensus and thus there won’t be a sudden shift. Finally, governance structure should be transparent and accountable with proper check and balance mechanisms.
• Meanwhile, Pakistan also requires improvement in security. In this connection, securing the regions around industrial centers will enhance the government’s prestige and safeguard the interests and safety of investors. To achieve this goal, public-private security infrastructure partnerships may also work towards providing a safer environment, especially to assure foreign investors.
• Another crucial reform is streamlining bureaucratic processes to create a business-friendly regulatory environment. Simplifying procedures, red tape removal and digitization of government services will ease a lot of business operations. There could be a “one-window” facility for investors with centralization of permits and approvals that  otherwise result in lengthy documentation procedures. Anti-corruption measures within the bureaucracy, including transparency in approvals and the penalty for misconduct, will improve efficiency and reduce corrupt opportunities, making Pakistan a more attractive investment location.
• Infrastructure investments and resolution of the energy crisis are also critical. Pakistan needs heavy investment in energy and transport sector to enhance the competitiveness of its industry. Public-private partnerships could be critical in bridging infrastructural gaps, whereas renewable energy initiatives will decrease dependence on expensive imports, thus reducing the cost of doing business. More importantly, it is also going to propel sustainable economic growth.
• Equally important is access to finance by local businesses. Easy access to credit by SMEs, venture capital, and low-interest loans will be instrumental in achieving economic growth and innovation. The decline in the rate of interest along with bringing inflation under control will encourage borrowing, thus uplifting the potential of domestic businesses to grow while also attracting foreign investors.
• At the same time, Pakistan needs to focus on developing special economic zones and industrial parks, which will provide various tax incentives and relaxed laws for specific sectors like manufacturing and information technology. The simplified tax regime will also ease the regulatory burden of businesses, thus making Pakistan attractive to foreign investment.

Pakistan has enormous potential for attracting foreign investment, but huge challenges are hampering the progress. The challenges should be met with a prolonged, multi-dimensional policy approach for boosting investors’ confidence and creating a stable, secure, and efficient business environment.

Therefore, political stability and streamlined regulatory processes, infrastructural improvement, and greater access to financing can bring a robust environment for foreign investment in Pakistan. With public-private partnerships, a strong commitment to governance reforms, and long-term policies in place, the future of the investment landscape of Pakistan lies in being transformed to serve as a guarantee for long-term economic growth and stability.