Systemic failure

THE spectacle of a number of cabinet ministers at an investment conference in Istanbul last week offers an insight into the current government’s perception of how to fix Pakistan’s problems. Of course, the inseparable duo of the prime minister and deputy PM was there too. The two may well have secured a place in the Guinness World Records for the most world tours undertaken together. They were apparently there to project Pakistan’s potential for foreign investment. No one denies the significance of such conferences for attracting foreign investment critical for economic growth. But the ministers’ presence at every conference will not, on its own, draw investor interest. What matters more is fixing things at home to create the environment and capacity for both domestic and foreign investment. Chaotic governance and inconsistent policies have been a major impediment in the way of any investment coming to the country.

Over the past few years, Pakistan’s top leadership has addressed investment conferences in several regional countries, but there has not been much of a response. In fact, there has been a consistent decline in foreign direct investment. From a peak of $5-6 billion in 2007-08, there have been periods when FDI fell to $0.5bn. For an economy of its size — and being the fifth-largest country by population — that figure is strikingly low. By comparison, Vietnam, with one-third Pakistan’s population, pulls in $15-20bn annually.

We are made to believe that a tremendous opportunity for foreign investment exists and it is only a matter of time before investors will start lining up to do business here. A few years ago, while speaking to a gathering of businessmen in Islamabad, the army chief was reported to have said that the country could attract $100bn in foreign investment. This was echoed by some senior cabinet ministers. A federal minister even claimed that minerals worth $6 trillion lay in the former tribal areas. We also heard about the US interest in investing in rare earth minerals in Balochistan.

A few years ago, we were also told that Saudi Arabia was ready to invest $25bn in various sectors. Indeed, many Saudi business delegations have visited Pakistan to explore investment opportunities here. A member of the former caretaker government who was present at one of the top meetings said Saudi officials told them they could not find any such opportunity. What they were pointing to was the lack of capacity — a major problem often cited by potential investors.

Chaotic governance and inconsistent policies continue to deter foreign investment in the country.

In fact, over the past few years, Pakistan has experienced an unprecedented wave of MNC exits, with major global brands closing operations, selling to local firms and withdrawing entirely. Each company may have its own reason and its exit may be part of a worldwide shift and not Pakistan-specific. But many do complain of the high cost of doing business in the country. Some of these MNCs, including American companies, had been here for decades.

A senior American diplomat told me that, among other reasons, high corporate taxes and ever-changing policies were the main factors behind companies’ decision to wind up business here. In August 2024, the Pakistan Business Cou­ncil warned that repeated and prolonged internet disruptions were pushing MNCs to consider wrapping up business in the country. An unreliable digital infrastructure is incompatible with modern technology and service-sector operations.

Frequent policy reversals and persistent economic and political instability deter foreign investors the most. Many cite the lack of administrative stability and bureaucratic hurdles, which make long-term planning difficult. Pakistan consistently ranks poorly on global ease-of-doing-business indices. Each high-profile exit triggers further loss of investor confidence. These problems cannot be resolved by high-level participation at international investment conferences; the focus must shift to addressing the issues impeding economic growth at home.

Foreign investment is directly linked to domestic investment. One cannot expect foreign capital to flow in while domestic investment is stagnant, even falling. Domestic private investment has fallen to a decades-low level, though there was a slight improvement last year. Total investment as a share of GDP has dropped from around 17 per cent in 2018 to roughly 13-14pc in 2023–24. We have the lowest savings rate in the region, which weighs on domestic investment. In such a situation, how can one hope for FDI to materialise?

In June 2023, the government established the Special Investment Facilitation Council, designed as a ‘single-window’ platform to coordinate investment promotion, cut through bureaucratic red tape and fast-track large projects. The civil-military body, led by a senior army officer, has the explicit purpose of facilitating investment from ‘friendly nations’, with particular emphasis on the GCC countries. The government claims the SIFC has secured roughly $27bn in pledges since its launch.

But there is a huge gap between pledges and actual investment. As the World Bank has noted, facilitation is not reform. The SIFC may accelerate deal-making; on its own, it cannot change investors’ perceptions shaped by inconsistent policies, bureaucratic bottlenecks, judicial delays and a flawed taxation system. However powerful it may be, the SIFC cannot convert pledges into sustained, broad-based FDI under the prevailing conditions.

A perception is now being built that Pakistan’s newfound international prominence — driven by its role as a mediator in the US-Iran conflict and its geostrategic position — may bring a windfall in foreign investment. The multibillion-dollar FDI potential, as touted in official circles, does not exist, and it is best to shift our focus to resolving fundamental structural problems. That is better for the country.

Investment comes when economic fundamentals are strong, not because of a fleeting moment in the international limelight. More importantly, political uncertainty — driven by political volatility and weak judicial and democratic institutions — does not give investors the confidence required for long-term commitments. The political unrest and militant insurgency gripping the two major provinces, alongside tense eastern and western borders, reinforce perceptions of Pakistan as a fragile state. The government needs to focus on these systemic failures at home rather than basking in the international limelight.

The writer is an author and journalist.

zhussain100@yahoo.com

X: @hidhussain

Published in Dawn, July 8th, 2026 ...