Foreign Direct Investment (FDI)
Foreign direct investment and its benefits to economic growth have been studied in a number of studies. The wide array of benefits include transfer of technology, managerial expertise, knowledge transfer, etc. Businesses also seek their own benefits when entering a new region, some of which include gaining better technology, reaching a certain market, or gaining access to resources. Whatever the reason may be, we know that foreign direct investment has a positive impact on the economic growth of a country. Developing economies are in need of foreign investment in order to prosper and accelerate their growth. However, foreign investors are looking for safe markets within developing economies in order to invest their money. Besides legal issues, foreign investors also expect to begin their business quickly so they can reap the benefits from their new investments.
Pakistan Lags Behind in Attracting FDI
With the population of around 190 million people, where an abundance of consumers make up the domestic market, Pakistan has failed to attract the FDI which is expected of it. For the past few years, FDI flows to Pakistan have done poorly on the back end of an energy crisis, political instability, and the terror climate which has followed Pakistan for over 10 years now.
Table 1: Foreign Direct Investment Flows of some South Asian Countries from 2005 – 2015
|Foreign Direct Investment Flows ($ Millions)|
Source: United Nations Conference on Trade and Development (UNCTAD)
Figure 1: FDI Flows for major South Asian Economies from 2005 – 2015
Indian has attracted the highest number of FDI among South Asian countries for a number of years now and continues to grow as one of the best emerging economies around the globe. Something interesting we find through these numbers is the fact that Iran has consistently attracted higher FDI than Pakistan even though it faced sanctions for a number of years which were recently abolished. Bangladesh is also emerging in gaining a higher amount of FDI, whereas, Pakistan has lost their share since the 2008 global financial crisis.
Pakistan has faced quite a bit of challenges over the years but we cannot blame those for the lack of investor interest in the country. Pakistan has also consistently failed to provide favourable conditions to investors whether it be a lack of infrastructure or bureaucracy. World Bank’s Ease of Doing Business Index ranked Pakistan at 144 out of 190 countries ranked in 2016. Pakistan is ranked even worse in some of the more crucial categories such as getting electricity, registering property, paying taxes, trading across borders, and enforcing contracts. Policy makers should focus on developing the basic infrastructure, cut down on bureaucracy, create more open trade policies, and provide a safer legal environment for foreign investors. Moving forward, Pakistan should look to attract investment from various different investors around the globe in order to assist economic growth. With the current policies, bureaucracy, and business environment, we should ask would our policy makers themselves be willing to invest in Pakistan? The large number of foreign investments by our policy makers says otherwise.