It’s not all doom and gloom in corporate sector
KARACHI: Contrary to frequent closures of local businesses, Pakistan witnessed a higher arrival of foreign companies than those leaving the country in one and a half years.
Several notifications were sent to the Pakistan Stock Exchange informing the stakeholders about the closure or downsizing of the companies from textile to steel, leather and other sectors during this period.
However, the sold-out foreign companies (or stakes) were bought by other foreign firms during this period, negating the perception that foreign companies were not interested in the economy of 240 million people.
Pakistan has never been attractive to foreign investors for over a decade, as shown by different data, including foreign direct investment (FDI) figures.
Lack of security remains key concern for investors
However, short-term investments like domestic bonds and equities were found attractive to earn quick money and leave the country.
Foreign investors were keen to put their money into short-term treasury bills during the last six months as the yields were very high due to the record 22 per cent interest rate in FY24.
State Bank’s data shows that foreign investments in T-bills during the last two and a half months reached over $400 million. The volume of FDI was just $350m during the first two months of FY25, though it was higher than the previous year.
“Contrary to the widespread narrative, we are not witnessing an exodus of foreign investment, rather some foreign companies are being replaced by new players,” said Tahir Abbas, head of research at Arif Habib Ltd (AHL), adding that Pakistan’s foreign direct investment is not witnessing an exodus, but it is evolving.
The AHL data shows that during the past 18 months, 11 companies have exited or signalled their intent to exit, and around 16 fresh foreign firms have taken over stakes in local businesses.
An all-powerful Special Investment Facilitation Council (SIFC) has been established to assure foreign investors of the quick response to facilitate them, but the response was not good enough.
The government has so far been unable to sell its best assets to foreign investors.
According to the latest report, the World Bank has placed Pakistan in the fourth quintile, i.e. the group of economies which grapple with a challenging business environment characterised by relatively weak regulatory frameworks and public services, constraining the operational efficiency of their businesses.
“The country has been facing political uncertainty for more than two and half years, which could not make Pakistan attractive for foreign investors,” said a senior analyst, adding that the $26.2bn required for debt servicing in FY25 is another obstacle.
He said the business environment is suitable for large-scale investment unless the government provides special security as it did in Balochistan and Khyber Pakhtunkhwa.
According to the WB report, Pakistan scored 91.50 on business entry, 54.25 on business location, 59.21 on utility services, 53.45 on labour, 67.97 on financial services, 45.71 on international trade, 57.48 on taxation, 41.99 on dispute resolution, 46.24 on market competition and 48.79 on business insolvency.
Published in Dawn, October 6th, 2024