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.
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.
By addressing these gaps through diligent policy-making and strategic negotiations, Pakistan can strengthen its industrial base, enhance exports, and attract significant investments from overseas Pakistanis and global markets.
Article XVIII (Governmental Assistance to Economic Development) of the GATT recognizes that developing countries, to achieve the objectives of the WTO Agreement, may need to adopt policies aimed at economic development. These policies can include protecting or assisting new or infant industries and supporting the further development of existing industries. Such measures may involve temporary safeguard actions, including restrictions on imports, to maintain flexibility in the tariff structure and apply quantitative restrictions where necessary. These measures can support the creation and development of new industries, modification or extension of existing industries, and efficient use of resources in alignment with their economic development priorities.
To identify investment opportunities in consultation with overseas Pakistanis, the SIFC should actively engage with overseas Pakistani individuals, business communities, and organizations to identify areas of potential investment.
Such provisions are particularly relevant for a country like Pakistan, with a weak economy and in the early stages of development. Constrained by its low living standards and limited economic capacity, Pakistan can legitimately deviate from certain GATT / WTO provisions to pursue its developmental goals. This approach is in line with WTO allowances for developing countries, and even the IMF is unlikely to object if such measures are undertaken in good faith to promote sustainable economic growth.
To capitalize on these provisions, Pakistan must develop a clear, strategic framework to support industrialization and economic development while adhering to its long-term obligations under international trade agreements.
If the government is genuinely committed to attracting investment from overseas Pakistanis, it must demonstrate commitment, build confidence and prioritize trust-building measures. This includes showcasing a consistent and transparent approach to policy implementation and ensuring that overseas investors feel confident in the stability and security of their investments.
Regulatory bodies must be restructured to ensure effectiveness, transparency, and efficiency, reducing bureaucratic red tape and simplifying processes for setting up businesses, digitizing approval and licensing systems to enhance transparency and reduce delays, and establishing a one-window facilitation system specifically for overseas Pakistani investors.
To identify investment opportunities in consultation with overseas Pakistanis, the SIFC should actively engage with overseas Pakistani individuals, business communities, and organizations to identify areas of potential investment. It should organize forums, expos, and consultations to understand their preferences and align these with national economic priorities. It should publicly share a list of prioritized sectors and projects to attract targeted investments.
The government should develop and announce sector-specific investment policies, and SIFC should collaborate with the relevant ministries and divisions to create comprehensive investment policies. Clearly define incentives, including tax holidays, relaxed tariffs, and preferential treatment for overseas investors in identified sectors. This would also require an investment roadmap, ensuring predictability and alignment with long-term economic goals.
Revisit and renegotiate Free Trade Agreements (FTAs) with trading partners to exclude goods in which overseas Pakistanis have significant investment interests to protect domestic industries and add new sectors or products to which overseas investors can contribute. Ensure future agreements incorporate clauses that safeguard the interests of domestic and overseas Pakistani investors.
Overhaul the trade tax regime and tariff structure to create a conducive environment for investment in key industries. This would, among other things, include targeted relief and incentives under Article XVIII of the GATT, allowing for flexibility in support of new and infant industries. Introduce sector-specific benefits for high-priority industries aligned with Pakistan’s economic development goals.
The government must ensure that the SIFC and other related bodies are staffed with experienced professionals and subject matter experts who can effectively develop and implement policies.
If the government considers granting the Most Favoured Nation (MFN) status to India, it is crucial for economic policymakers to carefully examine the provisions of Clause 11 of GATT Article XXIV. This clause states, “Taking into account the exceptional circumstances arising out of the establishment of India and Pakistan as independent states and recognizing the fact that they have long constituted an economic unit, the contracting parties agree that the provisions of this Agreement shall not prevent the two countries from entering into special arrangements with respect to the trade between them, pending the establishment of their mutual trade relations on a definitive basis.”
This provision allows Pakistan to negotiate special trade arrangements that deviate from standard MFN obligations with India. Specifically, it enables Pakistan to exclude goods prioritized for investment by overseas Pakistanis from the MFN framework with India. By leveraging this clause, Pakistan can protect emerging industries and goods identified as critical for local economic development and investment, maintain incentives for overseas Pakistanis to invest in priority sectors by ensuring these goods are not subjected to competition under the MFN agreement with India, ensure that any MFN treatment granted to India is aligned with Pakistan’s broader economic and trade policies, fostering mutually beneficial trade while protecting key sectors. By strategically utilizing this exception, Pakistan can maintain flexibility in its trade policies, support domestic and overseas investments, and strengthen its long-term economic interests while establishing trade relations with India.
By implementing the above measures, the government can foster a business-friendly environment, attract significant investments from overseas Pakistanis, and unlock new opportunities for sustainable economic growth.
The writer is former Chairman National Tariff Commission Ex- Consultant NAB and the World Bank. He can be reached at abbasraza55@gmail.com
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