Foreign Direct Investment in Pakistan: Policies and Trends

Abstract

Recent years have seen a sharp change in the attitude of developing countries regarding Foreign Direct Investment (FDI).. The growing balance-of-payments difficulties as well as the decline in concessional ajd. have forced many developing countries to reassess their stances on FOI and to take substantial unilateral steps to Iiberalise their inward POI regimes. In spite of liberalising the inward FOI regime, tempering or removal of obstacles to foreign investors, and according liberal incentives, Pakistan's has been a lacklustre performance in attracting FDI. This paper attempts to find out the reasons why Pakistan has not been able to attract sufficiently large FOI despite liberalisation measures. The analysis identifies a number of factors responsible for low FDI in Pakistan. These include the lack of political stability particularly during the last eight years, and unsatisfactory law and order situation particularly in the. city of Karachi, the largest industrial and commercial centre and the only port of the country. The macroeconomiC imbalances and the slowing down of economic activity tog~ther with inconsistent economic policies have also discouraged foreign investors to increase their participation in Pakistan. The slow bureaucratic process, inappropriate business environment, and inadequate infrastructure facilities have played their role in discouraging foreign . investors to undertake investment initiative in Pakistan. The lack of trained, educated, and disciplined labour force, along with complicated and overprotective labour laws, have inhibited business expansion and frightened away productive investment. The cultural and social taboos as well as the quality of life are not conducive to attracting foreign investors to Pakistan. The lack of welcome to foreign investors by government agencies and officials has also been a problem.