The investment drain

Pakistan is the 5th most populous country having 64 percent of its population under the age of 30. It is often being pitched as a land of opportunities. However, despite an expanding market, a youthful workforce and strategic location, the country has not been able to attract enough investment, whether domestic and foreign.

A lot of literature has highlighted various economic issues as the main culprits like interest rate, exchange rate, inflation, low economic growth, etc. but, there are some other issues, which are affecting investment adversely in the country. When other countries are moving upward, Pakistan’s investment is sliding downward.

Back in 1975, the investment to GDP ratio of Pakistan was approximately 17 percent. After 50 years, it has decreased to 13.1 percent, which is a serious concern and needs proper pondering of policy makers.

Beside weak domestic investment, the country’s performance of attracting FDI is also lackluster. Back in 1990s, Pakistan used to attract more FDIs than India, but the equation has flipped completely. For example, in 1992, Pakistan attracted USD 336.5 million in FDI, while India attracted only USD 276.5 million. Now the trajectory has completely changed; in 2024, Pakistan only managed USD 2.7 billion, while India attracted USD 27.1 billion, which is almost 13 times higher.

In 2022, India attracted USD 50 billion FDI, while Pakistan has just USD 1.46 billion. Why has this huge divergence occurred? Various initiatives were taken like the Board of Investment, One Window Operation, and most recently the establishment of SIFC, but to no avail. Simply, policies are not feasible to attract the investors.

For instance, take the corporate tax rate, which is extremely high and can reach 65 percent. An investor wants profit, not punishment for investing. The standard corporate base rate is 29 percent and reaches up to 44 percent for some sectors. Then there are 10 percent super tax, 2 percent worker welfare fund, and 5 percent worker participation fund, summing up to 50 percent.

Also add 15 percent income tax of the dividends; the tax rate reaches 65 percent. Why on the earth will someone invest with such a higher tax rate? Why an investor will not invest in Dubai where the corporate tax rate is only 9 percent when income is above a threshold otherwise 0 percent tax? However, this seems a small problem as compared to the other issues, which are discouraging investors.

The security situation is one of them. It has not improved for decades. The country ranked second on the Global Terrorism Index and the attacks are not receding. How is one supposed to invest in such situation? Even domestic investors have shifted their capital to safe havens.

Similarly, the law and order situation in the country is also forcing investors to move to safer avenues.

Political instability is another major hurdle. Political parties are after one another driven by vendetta and not by national interest. There is no long-term political vision for the betterment of the country.

Citizens witness strikes, lockdowns and closure of main roads for weeks, affecting businesses adversely. In developed democracies, there are consistencies of policy regardless whichever party is in the government. Regrettably, the case is different in Pakistan.

Likewise, regulatory burdens and red tape are another nightmare. Instead of facilitation, regulations are often used as a tool of control. Compliance is very time consuming. If someone wants to install an electricity or gas connection, he has to wait for months. If one wants faster service, then one has to grease the palm of the authorities.

Similarly, opening a bank account is a herculean task, providing endless documents like utility bills, proof of income and so on. Company registration takes even more long and hectic documentation. Why would someone put his hard earned money in a process full of hurdles? On top of that, repatriating money or profit is also a struggle.

The weak judicial system is often ignored while discussing the investment issue. A strong judicial system provides confidence to investors that his interest cannot be harmed by anyone. Pakistan judicial system is ranked 129 out of 142 on the World Justice Project. There is no quick mechanism for dispute resolution.

The courts are overburdened and inefficient having more than 2.3 million backlog of cases. A commercial dispute takes years and sometime even decades. If someone wants to trouble you, he will just file a fabricated case and it will take years to prove that there is nothing substantial behind it.

For many domestic investors, the fear of political victimization combined with the lack of judicial protection discourages them to invest.

Then there are issues of infrastructure and policy inconsistency. Investors face electricity and power outages along with very high cost. To cope, many businesses have installed solar for power generation and every year there is a debate to tax their own generation.

The lack of policy inconsistency makes the situation further exacerbated. Many investors fear that today’s rules will not survive the next budget. In such unpredictability, no one is ready to invest in the country.

To cut the long story short, if Pakistan wants high investment, it has to make some amends. Otherwise, increasing investment will be a far cry in the wilderness.

Pakistan must address its governance problem, improve its law and order situation, strengthen its judicial system, reduce bureaucratic hurdles, improve policy consistency and cool down the political temperature. Then it will boost the morale of investors to invest in the country. Instead of higher taxes, the country needs to incentivize investors so that productivity can rise. Without transparent tax system, regulatory regime, protection of rights, contract enforcement, sustainable macro policy and reliable infrastructure, Pakistan will be bypassed by the serious investors.

The country cannot afford the outflow of investors like the recent exit of Procter & Gamble (P&G), Shell, Telenor, Pfizer, Bayer, Total Energies, Uber, Careem, and Microsoft.

Copyright Business Recorder, 2026