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June 20, 2021

Foreign investors press regulatory efficiency to attract investment

June 20, 2021

KARACHI: Foreign investors are looking forward to an efficiency in Pakistan’s regulatory system as investment from abroad continued to face downtrend, analysts said on Saturday.

“The regulatory system needs to be made efficient as was done by many countries in the region including Vietnam, Malaysia, and Indonesia,” Abdul Aleem, secretary general of Overseas Investors Chamber of Commerce and Industry (OICCI) said.

“There is a need to create an echo system for attracting FDI [foreign direct investment] besides facilitating local investors.”

In a response to the economic targets, Aleem told The News that one window operation is important to boost FDI.

“We should deliver on our promises,” he said referring to digitalisation objective and special economic zones.

“Why Samsung has its 4G mobile phone facility in Vietnam and not in Pakistan, why most of the Japanese auto and home appliance are being manufactured in Thailand?”

FDI in Pakistan fell 27.7 percent to $1.7 billion in July-May of the current fiscal year of 2020/21.

Aleem said that globally FDI had been hit hard by the coronavirus pandemic.

“However, the decline was seen in the advanced economies, whereas the developing countries were, on aggregate, less affected,” he added. “In Pakistan, besides the pandemic the challenging foreign investment environment caused difficulties in attracting more FDI flows.”

Foreign investors are also monitoring the outcome of the Financial Action Task Force’s upcoming meeting. Pakistan needs to exit from its grey list as early as possible as the government's ambition for the growth path can only be successful if foreign investors/institutions pour in dollars in the shape of portfolio investment and foreign direct investment, according to analysts.

OICCI’s office bearer said there are no special incentives in the budget for foreign investors.

“Overall, we find the 2021/22 budget proposals in reference to taxation measures to be very positive and one of the best in the past many years,” Aleem said.

“No budget is perfect but under the ongoing COVID-19 situation, the government has done an admirable job in giving relief to businesses especially manufacturing and taken many measures on ease of doing business which also helps foreign investors.”

The government partially rationalised turnover tax rates, reduced 12 withholding tax filing to facilitate banks and corporate entities. It also rationalised import duty on imported raw materials in the past two years to promote manufacturing.

Pharma, consumer goods, energy, engineering and petro- chemical sectors and services sectors like hospitals, hospitality and tourism are expected to attract foreign direct investment. Additional investment is expected in projects under the China-Pakistan Economic Corridor framework.

Analysts said tax exemptions proposed in the budget are expected to improve FDI in the refinery sector. The signs of economic rebound, resumption of the International Monetary Fund program and improvement in the current account and the budget deficits are restoring investor confidence on economic outlook, they said.