The present government is rightly putting emphasis on attracting foreign investment for rapid economic growth. Starting from the prime minister down to the finance minister and others, all government leaders keep underlining the importance of foreign investment to strengthen the national economy. A major step in this direction is the setting up of a high powered body called Special Investment Facilitation Council to remove the hurdles in the way of foreign investment in Pakistan. But despite repeated rhetorical claims, foreign inflows have not grown as desired.

Since the 1990s, Pakistan has seen a dip in FDI inflows due to policy changes, uncertain political conditions, security concerns, and economic mismanagement. Over the past decade, net FDI has averaged less than  $2 billion annually, with significant outflows due to profit repatriation. The recent increase in Saudi Arabia’s investment pledge to $2.8 billion following Prime Minister Shehbaz Sharif’s visit highlights both opportunities and challenges in attracting foreign investment. Despite signing 27 MoUs worth $2.2 billion recently, the actual inflow of investments remains limited.

One major issue is the gap between pledges and actual investments. The Gulf countries initially committed $75 billion over five years, but only a fraction has so far materialized, such as Emirati investments in Karachi’s port infrastructure and Saudi acquisitions in the oil and mining sectors. This discrepancy between promise and performance highlights the need for credible and legally binding agreements.

The lack of interest from Gulf investors in key sectors like aviation and state-owned enterprises points to  deeper structural problems. The recent withdrawal of bidders for Pakistan International Airlines is symptomatic. Policy inconsistency and economic instability deter investors. Without stable policies, transparent governance, and improved infrastructure, Pakistan cannot attract the required  foreign investments. Addressing these issues is critical to building investor confidence and achieving sustainable economic growth.

As of now, FDI in Pakistan has been concentrated in a few sectors such as telecommunications, power, and financial services. However, these investments have predominantly targeted the domestic market, offering limited benefits for export growth and industrialization. Pakistan’s macroeconomic volatility, marked by high inflation, currency depreciation, and fiscal deficits, continues to adversely affect investor confidence. The uncertainty created by inconsistent economic policies and frequent changes in regulatory frameworks further deters long-term investments. Coupled with a shortage of skilled labor and low productivity levels, these factors diminish Pakistan’s appeal for foreign direct investment.

Corruption, bureaucratic red tape, and inefficiencies in public administration are major discouraging factors for foreign investors. Delays in approvals, inconsistent contract enforcement, and unequal treatment of local and foreign investors  are other hurdles to investment. Despite its strategic location, Pakistan has not been able  to utilize the potential for regional trade. Existing free trade agreements (FTAs) with China, Sri Lanka, and Malaysia have yielded limited benefits due to weak negotiation positions, persistent non-tariff barriers, and dependence  on raw material exports.

In this connection, examples from other countries are educative. Vietnam attracted FDI by liberalising investment laws and improving infrastructure. Vietnam’s emphasis on export-oriented manufacturing, supported by favorable trade agreements, has transformed it into a global hub for electronics and textiles. India launched its “Make in India” initiative and undertook sector-specific reforms to enhance its global competitiveness. India also simplified regulations, improved the ease of doing business, and offered incentives for high-value industries to attract substantial FDI in IT, pharmaceuticals, and manufacturing. On the other hand, Bangladesh focused  on ready-made garments to attract FDI. The country’s low-cost labor, coupled with improvements in infrastructure and trade facilitation, has made it an integral part of global supply chains.

Pakistan being close to major markets like China, the Middle East, and Central Asia can benefit a lot from regional trade integration. It needs to leverage the China-Pakistan Economic Corridor (CPEC) for infrastructure development and enhanced trade connectivity to attract export-oriented investments. Our abundant natural resources in the agriculture sector hold immense  potential for value-added exports, including processed foods and dairy products, while investments in manufacturing, particularly in textiles, electronics, and light industries, can diversify exports. The growing pool of IT professionals and competitive operational costs also positions Pakistan as a dynamic hub for business process outsourcing (BPO) and software exports. Revising free trade agreements to focus on high-value exports, improving trade facilitation, and reducing non-tariff barriers can enhance Pakistan’s competitiveness and position the country as a key player in regional and global trade.

Pakistan must undertake major policy reforms to claim its due share of the global FDI stock. It needs to invest in energy, transportation, and digital infrastructure to reduce operational costs and enhance productivity. At the same time, developing customized vocational training programs and upskilling the workforce can enhance labor productivity. Simplifying tax structures, reducing bureaucratic hurdles, and ensuring transparency in governance can go a long way to develop a more investor-friendly environment. Establishing a one-window operation for FDI approvals is a long overdue need which must be fulfilled without further delay. More fiscal incentives and rebates for export-oriented industries will be especially attractive for potential investors.