Tuesday June 25, 2024

Our real strength

By Dr Farrukh Saleem
June 02, 2024
A representational image showing a foreign currency dealer counting US dollars at a shop in Karachi. — AFP/File
A representational image showing a foreign currency dealer counting US dollars at a shop in Karachi. — AFP/File 

Are billions of dollars coming to Pakistan? That’s the wrong question to ask. The right question is whether Pakistan is prepared and ready to receive and effectively utilize billions of dollars in foreign investment.

The global total Foreign Direct Investment (FDI) inflow hovers around $1.3 trillion per year. In the 2024 Kearney FDI Confidence Index, which measures business executives’ perceptions of FDI potential in various countries, the United States takes the top ranking for the 12th consecutive year followed by Canada, China, UK, Germany, France, Japan, UAE, Spain, Australia, Italy, Singapore, Switzerland, Saudi Arabia, Sweden, New Zealand, Portugal and India. Pakistan is not on the list.

In the last Ease of Doing Business Index, Pakistan was ranked 108 among 190 countries. According to the World Investment Report 2023, Pakistan received $1.34 billion in FDI in 2022, which is a 37 per cent decrease compared to the previous year. China remained the biggest investor. During the first six months of the current fiscal year, net FDI grew by 35 per cent compared to the same period last year.

In the Country Liquidity Index (CLI), a metric used to assess a country’s ability to meet its short-term foreign debt obligations, the foreign exchange reserves held by the SBP are a crucial indicator of liquidity. As of May 17, net reserves with the SBP stood at a mere $9.15 billion.

Yes, there is a strong correlation between political stability and FDI. Countries with greater political stability tend to attract more FDI due to reduced investment risk, policy predictability, and transparency. Pakistan, however, lacks both policy predictability and transparency.

Business executives’ perception is our weakness. Ease of Doing Business is our weakness. The Country Liquidity Index (CLI) is our weakness. Policy predictability is our weakness. So, what is our real strength? To be certain, FDI decisions are complex and can be influenced by a whole host of factors. For example, there is a shifting focus away from large mergers and acquisitions towards greenfield projects, particularly in sustainable sectors like renewable energy.

Our real strength lies in industry-specific driven FDI. Copper is the ‘oil of the future.’ It is an excellent conductor of electricity and heat, making it essential for energy-efficient technologies such as electric vehicles, solar panels, wind turbines, geothermal energy, cryogenics, robotics, hydrogen production, 5G, quantum computing, drone technology, biodegradable batteries, and energy transmission systems. Pakistan boasts the world’s fifth-largest copper reserves, with the Reko Diq mine being a particularly large copper and gold deposit, estimated to contain 12.3 million tons of copper.

Are billions of dollars coming to Pakistan? Our legal and regulatory framework for mining is unclear and subject to change. Billions won’t come until we have a well-defined legal framework outlining exploration, extraction, and profit-sharing. Yes, security threats have deterred investors but security threats are manageable. Yes, we have bureaucratic hurdles and infrastructure bottlenecks. Until these issues are addressed head-on, the promise of billions will remain just that – a promise.

The writer is a columnist based in Islamabad. He tweets/posts @saleemfarrukh and can be reached at: