Islamabad

Attracting Foreign Investment

If the Pakistan government is genuinely committed to attracting investment from overseas Pakistanis, it must demonstrate commitment, build confidence and prioritize trust-building measures.

By M. Abbas Raza | January 2025


On November 11, Chief of Army Staff (COAS) General Syed Asim Munir addressed the business community in Karachi, expressing optimism about Pakistan’s economic progress and future. He emphasized that “Only Pakistanis could bring economic stability to Pakistan.” This statement aligns with the finance minister’s remarks from November 9, where he warned that no one was ready to deposit money in the country or roll over the debt, urging the private sector to take the lead in driving economic growth. The finance minister further stressed that the country cannot run on donations. The private sector should take the lead in reducing dependence on the government and ensure the system’s efficient functioning.

Though overdue, this shift in policy focus is a step in the right direction. However, these statements risk being mere rhetoric without well-defined economic, trade, and industrial policies. The respective departments and the Special Investment Facilitation Council (SIFC) must establish clear and effective policies to encourage overseas Pakistanis and attract investments. Investment by overseas Pakistanis should be treated at par with foreign direct investment (FDI), ensuring equitable incentives and streamlined procedures. Concrete measures will be essential to translate this policy shift into tangible economic benefits and long-term stability for which an Overseas Pakistanis Investment Policy is inevitable.

Pakistan faces policy gaps in industrial and trade development. It is concerning that Pakistan currently lacks a declared industrial policy for the manufacturing sector. The existing tariff structure and concessionary tariff regime fail to differentiate between key sectors, providing identical tariff treatment to (a) import-substitution industries and export-oriented industries,

(b) low-value-added and high-value-added industries, (c) low-tech and high-tech industries,

(d) labor-intensive and capital-intensive industries, and (e) small-scale and large-scale industries.

Additionally, energy-intensive industries are not incentivized differently from less energy-intensive ones, highlighting the absence of strategic policy. The Special Investment Facilitation Council (SIFC), Ministry of Commerce, and Ministry of Industries must collaborate to develop comprehensive, long-term industrial, trade, and agricultural policies to address these issues. These policies should create an enabling environment for local and foreign investments. Moreover, SIFC must work closely with ministries like IT and financial entities to craft policies that attract and facilitate investments from overseas Pakistanis.

Pakistan also faces challenges in Free Trade Agreements (FTAs). Negotiating Free Trade Agreements (FTAs) and securing market access for export growth has become increasingly challenging due to the complexities of the WTO regime. The process involves economic, financial and technical analyses, guided by WTO rules under Article XXIV (Customs Unions and Free-trade Areas) and Article XXVIII bis (Tariff Negotiations), which emphasize reciprocity, mutual benefits, and consideration of the needs of individual member countries and industries, flexibility for less-developed countries to use tariffs for economic development, special fiscal, developmental, and strategic needs.

Unfortunately, Pakistan has not effectively accounted for these aspects in the past FTA negotiations, particularly with China. Trade data reveals a stark imbalance; Pakistan’s exports comprise only about 6% to 8% of its total trade with China. The government needs to review existing FTAs to address loopholes and ensure future agreements align with national interests. This process must prioritize sectors where Pakistan holds a competitive advantage, offering these as key areas for investment to overseas Pakistanis. A detailed analysis is needed to identify priority industrial sectors for targeted domestic and foreign investments to maximize growth and revenue. Revising FTAs will help reduce tax exemptions granted due to poorly negotiated agreements, ultimately increasing government revenue.

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