Foreign direct investment (FDI) has been crucial in supporting developing economies to participate in global trade by facilitating the flow of capital, talents, and knowledge. The flow of foreign capital into the recipient country reflects fiscal, economic and political stability and the investors’ confidence.
In the year 2023, Pakistan received an FDI of a mere $1.4 billion, with China leading with $ 432 million (30.09%) of the total FDI coming to the country. The message is clear - investor’s confidence and an enabling environment for investment do not exist. A mere $432 million investment from China mirrors some concerning fault lines in our state diplomacy and trust.
Among many factors considered by a foreign investor, the most important one is the return on investment and the security of investment, which includes country risk emerging out of political, economic and governance weaknesses of the state. The issue today with investors is the security of investment.
Recognising the futility of luring investment from the traditional investment partners from the West, the economic and investment managers of Pakistan eye Saudi Arabia and other Gulf states - both being ambitious to extend their economic and political outreach in South Asia.
India has capitalised the most in luring substantial and strategic investment both from Saudi Arabia and the UAE, marking a major shift in strategic diplomatic and economic cooperation of these countries in the region, which in the past was tilted in favor of Pakistan.
Pakistan has been struggling for some time to mobilize investment from Saudi Arabia and other Gulf nations and multiple Memoranda of Understanding (MoUs) have been signed for investment in mines and minerals, energy, IT and service sectors; the value of which runs into billions of dollars.
Notable is the $ 25 billion worth of MoUs signed on the occasion of a well-attended conference on mines and minerals held last year in Islamabad and the $10 billion refinery at Gwadar.
Collaborative efforts between teams from Pakistan and Saudi Arabia have been ongoing since last year to finalise a commercial agreement on the Gwadar refinery project. However, the project faces challenges related to financial viability, leading to its shelving for a period of time.
According to sources, Saudi firm Aramco, was initially hesitant to inject the entire equity into the multibillion-dollar refinery project, leading the Pakistani government to decide on a joint venture with key Pakistani state-owned companies. Under this plan, Pakistan State Oil (PSO), Pak Arab Refinery (Parco), Oil and Gas Development Company Limited (OGDCL), Pakistan Petroleum Limited (PPL), and Government Holdings Private Limited (GHPL) will contribute 70% of equity, while Aramco will inject the initial 30% equity into the project. The project has now gained momentum and an MoU has been refreshed.
While the bilateral government-to-government business initiatives are at MoU stage, there is an interesting development in the petroleum sector in the shape of a ‘business to business collaboration’ between and private entity partnering with none other than Saudi Aramco.
In a landmark development, Aramco, one of the world’s leading integrated energy and chemicals companies, early this month, signed definitive agreements to acquire a 40% equity stake in Gas & Oil Pakistan Ltd. (“GO”), the Saudi oil giant said in a statement posted on its website.
Mohammed Y. Al Qahtani, Aramco Downstream President, said: “Our second planned retail acquisition this year aligns with Aramco’s downstream expansion strategy, with a clear path ahead for growing an integrated refining, marketing, lubricants, trading and chemicals portfolio worldwide. GO has a significant storage capacity, high-quality assets and growth potential, which will help launch the Aramco brand in Pakistan.”
Saudi Aramco has a market cap of US $ 2 trillion - operating in collaboration with over 20 major integrated oil companies of the world inclusive of Shell, BP, Chevron, ExxonMobil, Petro-China and Gazprom of Russia. Their stakes in Aramco run into billions of dollars. For GO Pakistan, to be part of this distinguished fraternity of oil giants, is indeed commendable.
It has been brought to notice that Aramco spent 18 months in conducting an extensive due diligence of GO Pakistan to evaluate the company’s credentials in terms of its men and material assets, infrastructure, processes and governance competence. The process for GO was not an easy one. The winning point was the team behind GO operations and the quality of its systems and processes and its market outreach.
The successful example of collaboration between Aramco and GO provides a lead that ‘business-to-business (B to B)’ is a workable model and perhaps the only model of attracting foreign investors to Pakistan under the prevailing economic and political challenges the country is facing.
The government should restrict its role as a facilitator for B-to-B initiatives - at an arm’s length. Public sector enterprises in the energy sector like PSO, OGDC, SSGC and SNGPL, with sizable assets and consumer base, have a far better chance to engage foreign participation, as stand-alone entities once they are massively restructured in fiscal sustainability, assets uplift, and competence in governance and management of the entity.
Copyright Business Recorder, 2023
The writer is a former President, Overseas Investors Chamber of Commerce and Industry
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