Declining foreign investment: Experts discuss impact of legal system flaws

KARACHI: The government needs to take urgent measures to stem declining foreign investment into the country and a key part of this should be judicial and legal reforms, experts said during a webinar here on Wednesday.

Titled ‘Pakistan’s Legal System and Challenges in Attracting Foreign Investment’, the webinar was hosted by TV journalist Talha Jatoi and speakers included Head of Research at Business Recorder Ali Khizar, Lawyer Mirza Moiz Beg, journalist Naimat Khan and former intelligence officer and researcher Amir Mughal.

The host initiated the discussion saying that there had been a 40% decline in foreign investment in the first eight months (year-on-year) of the current fiscal year.

He gave the recent example of a criminal case of defamation filed by former CEO TRG Zia Chishti against the board of his former company and pointed out that he had been asked to pay over 5 million dollars in damages on a sexual harassment arbitration case in the US and in Pakistan he was able to get arrest warrants issued against the directors of a company that brings in millions of dollars in foreign exchange to the country.

Cases such as this were sending a very wrong signal to foreign investors, he said. Naimat Khan said that laws needed to be enforced uniformly and that political uncertainty was a major issue as well. Lack of security was another issue as was the presence of an enabling environment, neither of which were present in Pakistan.

Mirza Moiz Baig talked about the lack of arbitration in the country and said that much of the law that is followed in Pakistan dates back to the 1940s. He said consistent business policies are essential for sustained foreign investment. He also said research showed that on average a civil case lasts for 25 years in Pakistan. Amir Mughal said that the country was run by a cabal of people and the policies that they were formulating weren’t very investment friendly.

Ali Khizar said that the return on investment is very low which discourages people from invest in the company. Investments are not efficiency-seeking and they are rather market-seeking. The taxation system was also in dire need for reform, he said. Naimat Khan added that the media portrayed Pakistan’s image negatively and this was not good as far as attracting foreign investment was concerned.

He also said that before attracting foreign investors, we need to encourage Pakistanis to invest locally rather than send funds overseas. Aamir Mughal said that constant media coverage and live commentary on the country’s political situation was exacerbating matters and making it even less attractive for foreign investors.

There was a general consensus that apart from much-needed judicial reform, it was imperative that there be political stability, and that policies be consistent and long-term. Furthermore, corruption in the judicial system needed to be rooted out wherever possible.

Copyright Business Recorder, 2023