ISLAMABAD-With energy cost continuing to escalate, the new investment challenges keeping on burdening the already weak economic landscape in the country, as the FDI in FY23 was down by 25 percent annually.
This was stated by Federation of Pakistan Chambers of Commerce and Industry’s Businessmen Panel (BMP) Chairman Mian Anjum Nisar, who asked the government to take concrete steps to attract foreign investment, saving the livelihood of millions of workers associated with various sectors.
FPCCI former president observed that the focus should be on streamlining the long-standing structural bottlenecks in the investment climate such as streamlining the FDI approval process. At the same time, stability in the country’s economic and political scenario is critical for any resurgence of investment in the country. Poor economic and political climate have been additional factors in bogging down the business and investment in the country over the last one year. Quoting the data, he said that the FDI in June more than halved to $114 million from $271 million in the same month a year ago while net FDI in FY23 has declined continuously over the last 4 years and was the weakest in FY23. What is worrisome is the fact that the consecutive decline over the last 4 years was also seen in FDI inflows with weakest FDI inflows in FY23 over the last 4 years. He said that the economic crisis has forced the global investors to put their new investment plans on hold, foreign direct investment (FDI) was 25 percent lower than the investment registered last year.
He said there is no visible improvement in employment while the small and medium industries (SMEs)—the main providers of jobs— are struggling because of lack of funds and demand. The BMP chairman said that the larger industries are also operating partially. Textile sector that was the major provider of permanent and daily wage jobs has lost 50 percent of both domestic and export market. The auto sector is operating at less than half capacity. The job losses at the original equipment manufacturers not significant but at auto venders, where bulk of auto-related jobs exist are operating with minimum possible staff. Mian Anjum said that that with a view to save the economy the government should announce special incentives for a cash-strapped SMEs, which represents more than 90 percent of around 3.2 million business enterprises in Pakistan, contributing 40 percent to the GDP, employing more than 80 percent of non-agricultural workforce, and generating 25 percent of export earnings.
He, expressing dissatisfaction over the financial packages, called for a significant cut in import duties and waiver of sales tax, income tax and additional income taxes which are still being charged in this time of grave economic crisis. He said that other factors have been the holding back of profits and dividends of the MNCs to control dollar outflow, which has left scared away foreign investors tremendously as they see the existing foreign investors unable to repatriate their earnings to their home countries.
Data shows that the FDI outflows have remained between $650 and $750 million except FY21 when outflows increased specifically from the telecom sector. Moreover, the FDI from China, which continues to be the largest investor in the country particularly in the power sector, has also come down over these years along with rise in FDI outflows.
The BMP chairman said that China has been the leading investor in Pakistan for few years and was a major contributor to the increase in the size of FDI. However, the outgoing fiscal FY24 may drag down the inflows from elsewhere due to slowdown of economies in the developed countries, he warned. He said that Pakistan has remained a potential market for foreign investors, who still have plans to make fresh investment in the country, but they have continued to wait for the return of economic stability. He highlighted uncertainty in the rupee-dollar parity as one of the major concerns of foreign investors. He said a slowdown in the economy had badly impacted business confidence. It is must for the authorities concerned to first create an enabling environment for the local businessmen desiring to make new investment. He advocated the need for raising the country’s tax base so that tax-to-GDP ratio improves from current poor level. He urged the trade officers to explore opportunities to diversify exports of goods and services in their respective areas, asking them to meet the challenges faced by Pakistan in European markets. He also suggested the ministry to devise strategies for promotion of Pakistani products, calling upon trade officers to take advantage of opportunities offered by China-Pakistan Economic Corridor (CPEC). He said that previously, foreign investors mostly poured money into the sectors which did not pose a risk to their profit margins due to rupee depreciation such as the power sector. It is hoped that Pakistan’s economy will now gain growth momentum, which should encourage foreign investors to invest in new projects, he added.