Globally, optimism is cautiously returning to FDI landscape. The prospects have gradually improved and UNCTAD’s World Investment Report 2021 highlights that though prospects are highly uncertain, global foreign direct investment is expected to recover some lost ground in 2021 and jump back to pre-Covid levels in 2022. The recovery in FDI is hinged upon the pace of economic recovery in economies amid the uncertainty of the pandemic.
However, the improvement in global FDI landscape is likely to be patchy. Where steep decline in FDI during 2020 was mostly seen in the developed world, most of the growth and improvement is also now being attributed to developed economies because of the M&A activity and large-scale public investment support. While the recovery in Latin America and the Caribbean is not expected soon, inflows to Asia are expected to remain resilient primarily because of India and China.
Better prospects should spell some hope is FDI flows to Pakistan, which have been abysmally low and continue to slither further down every year. When compared to its peer countries, FDI to Pakistan is lagging far behind.
The US Department of States in in 2021 Investment Climate Statements acknowledges that Pakistan’s current government has made efforts to boost by pledging to restructure tax collection, boost trade and investment, and fight corruption. However, it also points out that the balance of payments crisis that the government inherited has forced it to prioritize increasing reserves and shore up its current account which has affected the structural reforms. Though the situation in terms of law and order and security has drastically improved in the country as well as some progress has also been made across the Doing Business indices, the US Department of State points out unpredictability of security situation, lengthy dispute resolution processes, poor intellectual property rights (IPR) enforcement, inconsistent taxation policies, and lack of harmonization of rules across Pakistan’s provinces as factors that place Pakistan much behind its regional competitors.
Pakistan’s placement on FATF’s monitoring list is another key factor that is inhibiting foreign investors to flock into the country. Since 2018, Pakistan has been on the watchdog’s monitoring list; and while FDI has been falling or has remained stagnant at best much before that, the grey listing by FAFT surely scares investors.
COVID has further put pressure as global FDI was drastically down in 2020. And then comes the much ironic factor for poor performance in attracting foreign equity investment: the much-needed interest and efforts of the governemnt and the Board of Investment. This not only entails finding and approaching prospective investors, conducting road shows (digital shows during the pandemic), but also lack improvisation in FDI diversification both in terms of sector and countries.