It is no surprise that Pakistan has a long rhetoric history of trading. Powerful foreign countries have always been attracted to Pakistan for making investments and expanding their business. The top three sectors where you can observe massive investments include energy, telecommunications, and Fintech (financial Services).
Do you know why Pakistan is considered “the significant market”? Because not only it is the world’s 5th most populated country, but it also has approx. 63% youth. Most of the population is within the age range of 15-33. Youth entrepreneurship in Pakistan is rising, and foreign investors can take its maximum advantage. There are many reasons why the World Bank gave Pakistan the 108 place in the “Doing Business 2020” rankings among 190 countries.
There is a dire need to make refinements in Pakistan’s business climate, which must be aligned with the international best practices. The Securities and Exchange Commission of Pakistan (SECP) is taking the lead in improving Pakistan’s economy and access to capital markets, reforming tax affairs, updating the regulatory framework, modernising the corporate sector, and encouraging an entrepreneurship network.
Pakistan Foreign Direct Investment (FDI)
The USA has been the biggest investor in Pakistan for the past several years. But in 2020, China replaced America because of the CPEC (China-Pakistan Economic Corridor).
Being the largest source of FDI for Pakistan, China has a net inflow worth $333.5 million, followed by the USA with $183.1 million. There are many other sources, such as the Arab Emirates, the UK, and the Netherlands. Surprisingly, Hong Kong is known to invest $133 million, making it our reliable investor. Saudi Arabia, Kuwait and Turkey have also shown interest in making FDI in Pakistan’s diverse industrial sectors.
Foreign Investments in Different Sectors of Pakistan
To ensure the utmost protection of the foreign investment and guarantee legal authority to the foreign investors in Pakistan, there are two acts:
- The Foreign Private Investment Promotion and Protection Act (FPIPPA), 1976
- The Furtherance and Protection of Economic Reforms Act, 1992
Sector-Wise Comparison According to The SBP
- Pakistan’s telecommunication sector had a major downfall in FDI. In comparison to the FY2020’s net inflow worth $622.5 million, it is only $34.8 million for the FY21. A sharp drop of 94.4%!
- An unbelievable decrease of 81.6% is observed in investments in the textile industry. FDI for FY21 is recorded as $6.9 million, which was $37.7 million back in FY20.
- IT services are recorded with a massive jump of 71.4% in FDI. In the fiscal year 2019-20, the investments were made worth $28.6 million, and in the fiscal year 2020-21, the investment in the industry stood at $49 million.
- The FDI for FY21 has increased up to $906.1 million in the power sector (the value for FY20 is $765.6 million). In the 9months of FY21, a massive investment worth $489.1 million was made in the power sector.
- For the financial sector, FDI value stood at $322.8 million in FY2021. Based on local-foreign partnership, 20 applications for inward foreign investment in digital banks have been received by SBP.
- Companies offering oil & gas exploration had a net $179.7 million investment.
Soon you will see Pakistan’s digital services companies & tech entrepreneurs reaching the top of the chain as they are seen growing their exports consistently, ultimately increasing the FDI. These global investments will help new tech businesses flourish.
Infinix, Oppo, Vivo, and Realme are the Chinese brands for the mobile device that have made significant investments in Pakistan by setting up their assembly plants. Oppo is willing to construct production houses in Pakistan along with exporting 5 million mobile devices. Recently, Samsung Gulf Electronics Co. has joined hands with Pakistan’s Lucky Motor Corporation to start manufacturing Samsung smartphones inside Pakistan.
Talking about the big plans, Pakistani distributor Air Link is making the possibility of launching a production house for engineering Xiaomi mobiles in Pakistan.
Significant tax incentives are provided to the car manufacturing companies under the policy of the federal government’s Automotive Development (2016 – 2021) only if they agree on building their assembly plants in Pakistan. It has helped us invite Hyundai, KIA, and other renowned Chinese automobile manufacturers.
Moreover, taxes and excise duties are reduced brilliantly, giving a clear way of encouraging production, assembly, and import of electric as well as hybrid vehicles.
Relationship with Top 3 States
Kuwait Investment Authority’s Enertech Holding Co. and Pak Kuwait Investment Co have moved forward with the application for a digital bank license in Pakistan. Moreover, these two authorities also invested $200 million in the water pipeline.
Apparently, they are planning to invest another $750 million in two major areas, water management and the financial sector.
The relationship with China has always been friendly, but it got better with a profitable settlement, CPEC, in 2015. In phase 1 (2019), the investments were mainly focused on refining infrastructure, architecture development, and energy production. In phase 2, China changed its course and switched to supporting Pakistan’s industrial growth by launching special economic zones all over the state.
Under the agreement of the PRC, China has wilfully promised to arrange $1 billion by 2024 to offer financial assistance to plenty of other socio-economic enterprises from various industries, such as agronomy, healthcare, education, poverty mitigation, and occupational training.
According to multiple media reports and government officials, American investors are more likely to be involved in:
- Fast-moving consumer goods
- Agricultural business
- Fintech or financial services
- Thermal and renewable energy
- ICT (information and communication technology)
- Healthcare services
As per the State Department’s Office of Investment Affairs testimonial, multiple US businesses vowed to invest worth more than $1.5 billion in Pakistan in the last two years. Still, till FY21 very trivial portion of the pledged investment has been made.
Although FY2021 for Pakistan was a failure, each industry and country is affected by the COVID-19. The government is planning on introducing a multi-year FDI strategy which is considered a valuable step towards a better economy. The frequent, heavier, and faster mobilisation of foreign resources is required as we urgently need to promote industrial production. SBP and SECP are working diligently to surge FDI inflows in Pakistan to ensure long-term official assistance.