Measuring FDI attractiveness 

Despite the recent diplomatic faux pas and a few other disappointments and U-turns on political and economic front, the sheen of PM Khan’s charm offensive to potential investors, both foreign and expats, has not faded. Investors have warmed up to the idea of exploring opportunities in a host of business areas, and there are reports that at least the Pakistani diaspora in the US and cash rich investors in Malaysia are interested in Pakistan.

The question being asked by these potential investors is ‘which sectors of Pakistan’s economy are mature enough to attract FDI’, which in turn begs the question ‘how exactly should one measure maturity or attractiveness’?

There are two broad ways to assess a country’s FDI attractiveness. Some of them are survey based; for instance, the FDI Confidence Index prepared by A.T. Kearney, a global management consulting firm. The index is essentially an annual survey of global investment intentions and preferences of C-level executives of global 1000 companies in relation to political, economic, and regulatory changes of 25 top potential FDI destinations chosen by Kearney consulting. Another example of survey based FDI attractiveness indicator is the audit firm’s EY’s FDI Attractiveness Survey.

Then there are indicators that are based on actual data. For instance, there is a certain Global Foreign Direct Investment Country (GFDIC) Attractiveness Index that management consultant Riadh Ben Jelili came up with. That index looks at core data relating to inter alia cost components, telecom & ICT, logistics performance, innovation, financial structure development, the presence of multinationals in a country, and World Bank’s Doing Business or governance type indicators that in turn are survey based.

The problem with both these broad types of indicators is that they are country specific, rather than being sector specific. What is there to show for, after a given country’s marketing-in-chief – usually the PM or the president – has sparked interest, and investors start making sector specific inquiries.

Sector specific queries from investors often revolve around growth potential in that sector, policy readiness, labour productivity in that sector, sector-specific cost of doing business and a host of other factors that most global indices only cover at aggregate country level.

Investor queries directly and indirectly entertained by BR Research of late only reinforce what has been previously argued in this space: one that obsessions with macro economy need to be tamed and that there is a need to look at province, and/or sector-specific doing business type rankings in addition to the need to come up with sector-wise FDI attractiveness indicators. (See BR Research’s ‘Macro obsessions’, Dec 3 2019 & ‘Doing business: beyond World Bank rankings’, Oct 28, 2019).