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The initial euphoria of tens of billions of dollars investment by friendly countries is slowly fading away. The anxiety amongst the business community is becoming visible. The reality is that the political instability and economic shocks of the last 18 – 24 months have dampened the investor sentiment, and it may not prove easy to hit the restart button.

Massive currency depreciation, record inflation and woeful economic slowdown have inflicted a big dent on investment and capital formation. It’s not easy to expand exports.

Previously, competitive textile players, who historically remained bullish on Pakistan, are becoming negative. It’s hard to attract new buyers, given the default mongering and political haze. The point is that it is hard for many to believe that the Gulf states would be willing to invest tens of billions of dollars in Pakistan as a good gesture or to tap the unleashed potential. They usually invest in the US and other developed economies in low-risk instruments and ventures.

They are not keen on investing in developing economies. For example, Saudi’s total investment in India is $3.5 billion in the last twenty-odd years.

The investment in countries such as Pakistan comes from within and by its diaspora. That is the story of India as well. And the private sector brings foreign partners. There are examples of big investments in collaboration with private players in Pakistan, such as the way Abu Dhabi Group came in with the Bestway Group to invest in a big bank. Mobilink was started by a local player who also brought money from outside Pakistan, and then later attracted a foreign investor.

In the KE turnaround story, the catalyst was investment from Abraaj, which used to be headed by an expat. There was a case of the UAE public company buying the largest telecom in Pakistan in early 2000s, and that company has only deteriorated after the acquisition.

The model that can work in the country is restoring the confidence of the domestic and expat private investors. However, what is happening is the exact opposite.

One expat group in a big bank has a clear strategy of monetizing its assets, and not reinvesting by issuing large dividends. The buzz is that the investor wants an exit. The sentiments of many local groups are similar. Large sums of wealth have been shifted out of Pakistan over the last eighteen months, and many still desire to do so.

Moreover, fresh investment has completely dried up. There is no big ticker FDI. Then the small investment by expats is drying out, which normally comes in real estate and small businesses (mainly family run). This is evident by the significant decline in the home remittances.

Economic revival hinges upon reviving confidence of local and expat players. The formation of special frameworks or special treatment has its limits.

Over the last decade or two, Pakistan has exhausted the limits of issuing sovereign guarantees to preferred investors. Now the fear of sovereign default has rendered this policy instrument unattractive, and the IMF (International Monetary Fund) isn’t in favor of it either. Giving it another layer may not work.

There are no doubts about the intentions of the authorities regarding economic revival and attracting investment. However, relying on public investment from friends may not be the best strategy. And if it must be, the pumping of dollars must begin. There are no signs of it, and it is building anxiety.

The key is to accelerate the reform process and usher in political stability in the country. There are some steps taken in the right direction such as plugging the energy circular debt growth, and crackdown on smuggling and reforms in the exchange companies. Much more is needed for reducing the fiscal deficit, and foreign capital is needed to plug the external gaps.

It is imperative for reforms to be instituted; a government with a clear political mandate from the people is handed over the reins.

The kind of mandate that Margaret Thatcher had to bring about whole-scale structural reforms to do away with the sclerosis that had brought Britain’s economy to its knees. Pakistan’s economy is on its knees too. To rise again, it needs governance that has the backing of the people. That can only come about through free and fair elections.

Copyright Business Recorder, 2023

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Ali Khizar

Ali Khizar is the Head of Research at Business Recorder. His Twitter handle is @AliKhizar

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BKShaikh Nov 27, 2023 08:57am
looking at the present state of our economy and industry , the way private banks are handling the crisis and their major shareholders are part of other big industries. SBP should nationalise the banks ,energy sector and fertiliser industry. Otherwise the conflict of interest will further jeopardise our agricultural and industrial growth in the long term.
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Yousuf Nov 27, 2023 09:21am
Having straight 8 years of experience in one of the largest investment firms in NY this is the first time I read a very good article covering different aspects and solutions. Bring confidence among overseas Pakistanis to invest in Pakistan like; China and India in the early stage of economic growth. No one will bring heavy investments to Pakistan where there own nations and specially the young generation do not have any confidence in Pak economy.
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zaya zaya Nov 27, 2023 10:36am
Thanks for telling the Truth
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Usman Nov 27, 2023 10:41am
@BKShaikh, privatization of all SOEs is the only solution to reform the economy. kindly Don't advocate the nationalization policies of ZAB which brings havoc to the economy and still haunting the business community to invest in Pakistan.
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KU Nov 27, 2023 11:26am
We only need to look at the nuisance value of 190 plus SOEs in our country, they have zero contribution to the economy and are on the life-line of taxpayer's money and funds from the government. Understandably these are used for corruption, but the time has come that leaders should come up with other novel ways to make illegal money and at the same time save the country.
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BKShaikh Nov 27, 2023 12:14pm
@Usman, its all about intentions and end results. when in 90's, privatisation started, all the profitable soe were done. thats why pakistan faced trillions of losses till today. even now the profitable ones will be sold or their shares. my point is conflict of interest and utilisation of resources, are the main reason among large business groups. look at present state of exports and industry and compare it with bangladesh, veitnam, indonesia, india.
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Usman Nov 27, 2023 01:34pm
@BKShaikh, trillions of losses this country is not due to privatization but due to current SOEs putting enormous pressure on the tax payer who is already facing difficulty in meeting it's ends.
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Syed Babar Mumtaz Nov 27, 2023 02:52pm
Nice analysis
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Rapid Fire Nov 27, 2023 06:34pm
Our nation was founded on the basis of Islam and Allah shall ensure that we become the best country in this world and in akhirat also.
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Az_Iz Nov 27, 2023 08:21pm
@Rapid Fire, if you jump off a cliff, no one will save you. Almighty does not say, he will protect you no matter what. You have responsibilities and rules to abide by. Nothing will be delivered to your doorsteps. You have to work for it. And then pray for the best.
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Az_Iz Nov 27, 2023 08:21pm
Looks like the PSX is in a different plane.
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dr.fahad Nov 27, 2023 08:27pm
@Az_Iz, Author is in different plane .
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Ch K A Nye Nov 27, 2023 08:37pm
The sad part of all this is that this panacea of "free and fair elections" does not exist. Weak politicos are beholden to their masters and of course their own pockets.
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Adi Nov 27, 2023 09:18pm
Vicious loop. There will be no free and fair election. Just another band of selected who will eventually be forced to rebel against the true masters. Forced to rebel by the logic of development that needs civilian supremacy. They will be unsuccessful and be forced out, again. Thus the cycle will continue. The current post-Musharraf era of Pak Gov with all responsibility and no authority is unsustainable. The Sharif’s were dumb in removing IK and letting him play victim. They will be dumber now in continuing to be the establishment’s stooge instead of revealing that the establishment indeed has no clothes.
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abrar08 Nov 28, 2023 09:52am
Well written, keep up the good work. Capital flight to other countries has dampened our economy. Trust is easy to lose but difficult to gain.
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Taha Lateef Nov 28, 2023 11:38am
The person who can bring in "Margaret Thatcher" like mandate will not be allowed into power. The political mess created by VONC in April 2022, will not resolve until the political actors involved in it are not made politically irrelevant, at least for the next 10 years. Right now the focus seems to be on rewarding the actors who were the actual cause of the current political mess.
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Taha Lateef Nov 28, 2023 11:44am
"Then the small investment by expats is drying out, which normally comes in real estate and small businesses (mainly family run)." As of now, real estate is the new villain in the town. Why would the expats invest in it?
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Taha Lateef Nov 28, 2023 11:52am
"The initial euphoria of tens of billions of dollars investment by friendly countries is slowly fading away." Even if that investment came, it would not have helped in solving the issue of low forex receipts. Most of it would actually have been spent abroad.
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Zubair Parekh Nov 28, 2023 01:00pm
All laws and rules are bent for a prospective foreign investor to ease in establishing a business. But if a local entrepreneur decides to invest, he has to go through hell to set up an industry. Strange.
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Trthskr Nov 28, 2023 02:05pm
"Economy on its knees" Indeed, but the compromised generals do not get it...and they are ruing the country to save their skins!
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Sabir Nov 28, 2023 03:54pm
@KU, LoL Last sentence is really good advice. Unfortunately these corrupt minds are so incompetent, greedy and short term bound that they can't think of such alternative novel ways and will kill the goose producing golden eggs.
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Anonymous Nov 28, 2023 04:06pm
We have not witnessed a free and fair election in the history of Pakistan. Even, IK came into power through the ladder of establishment, everyone knows it and now this thing was publicly admitted. In my opinion, the solution comes when everyone works within their mandate and supremacy of law prevails. No one should be above law that's how confidence of expats and foreign investors will be restored. Current example is UAE, a place where millions of dollars are invested by foreigners without any risk. This is because of strict compliance of law without any exception.
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Anonymous Nov 28, 2023 04:11pm
Second thing is, ease of doing business, When a local/foreigner wants to start a business, he needs to please a list of government departments just to start a business. That's why, foreign investors quit in the past. USD parity is another big issue when your currency devalues very fast, the real rate of return declines coupled with expatriating initial investment at a higher rate, and the net result is negative return.
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Shahid Khalid Nov 28, 2023 05:04pm
If there is such a picture of "gloom and doom" for Pakistani economy then why is the stock market booming with 48%+ gains this year?
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Saad Nov 28, 2023 06:40pm
@BKShaikh, no not nationalization again
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Saad Nov 28, 2023 06:46pm
@Shahid Khalid, I guess due to PKR devaluation
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Amonymiltary Nov 29, 2023 12:09am
1. Reduce govt expenses 2.Reduce govt employees 3. Reduce Govt Expenditure 4. Private public partnership on all projects 5. Let private sector get cheap loans instead of subsidies 6. Lower taxes to 2 to 5%. Make sure govt expenses do not cross more than 10% of the total. 7. Let military export weapons and get international contracts and reduce govt budgets on them.
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