Foreign investment: the governance test

“Foreign investors don’t fear risk - they fear bureaucracy, and foreign investors don’t leave markets - they leave systems. The markets in Pakistan are growing but the systems don’t support them.”

Capital is mobile. Confidence is not. Over the past decade, Pakistan has witnessed the quiet departure of numerous multinational corporations that once symbolised international confidence in the country’s economic potential. Their exit should have triggered a national introspection. Instead, it was met largely with official assurances that the investment climate would improve. A decade later, those assurances continue, while investors remain unconvinced.

Pakistan attracted only about US$1.7 billion in net Foreign Direct Investment (FDI) during FY2025–26, down from US$2.49 billion in the preceding fiscal year—a decline of around 30 percent. This underscores the widening gap between investor outreach efforts and actual investor confidence.

At this week’s Pakistan-UK Roundtable, Sindh Chief Minister Syed Murad Ali Shah reiterated his government’s commitment to regulatory simplification, policy consistency and a transparent, investor-friendly business environment. The intent is commendable. The challenge, however, lies not in policy declarations but in administrative execution.

The roundtable brought together representatives of leading British companies, multinational corporations, the Overseas Investors Chamber of Commerce & Industry (OICCI), senior officials of the British High Commission, and key provincial ministers and secretaries to discuss investment climate challenges, regulatory reforms and measures to improve ease of doing business.

Foreign investors do not abandon profitable markets lightly. They leave when the cost of uncertainty exceeds the promise of opportunity. That has increasingly become Pakistan’s predicament.

The departure of multinational corporations has cost the country far more than foreign capital. Pakistan lost globally recognised brands that strengthened consumer confidence, thousands of high-quality jobs, world-class management systems, technical know-how, research and development, supplier development programmes and technology transfer.

Equally significant was the erosion of Pakistan’s international reputation. Every multinational that leaves sends an unmistakable signal to prospective investors: if established global companies cannot operate efficiently, why should new investors take the risk?

Surprisingly, no comprehensive official study has ever examined this corporate exodus. Governments have continued to organise investment conferences and road shows without first understanding why existing investors chose to leave.

Retaining investors is invariably cheaper—and more credible—than replacing them.

The greatest obstacle is neither taxation nor infrastructure. It is governance.

Picking up on the above said assurances of the Sindh government, the prospective investor in Sindh quickly discovers the reality of a paper-based and cumbersome process of obtaining approvals. An industrial project typically requires multiple NOCs, departmental clearances, inspections and endorsements. At each transaction is a delay and frustration. And every delay has a cost. Financing charges accumulate, imported machinery remains idle, contractual deadlines are missed and investment decisions are reconsidered.

In today’s globally competitive economy, capital simply migrates to jurisdictions where governments move with greater speed and certainty. This is what ‘ Ease of Doing Business’ is all about.

The obvious question is why digital governance has failed to replace this cumbersome paper-based culture. The answer is uncomfortable. Automation thrives on transparency, accountability and measurable performance. Manual systems preserve discretion, opacity and fragmented responsibility.

Whether the persistence of paper reflects vested interests, bureaucratic lethargy, institutional incompetence or a combination of all three is ultimately irrelevant to investors. What matters is the outcome.

Pakistan’s private sector has already embraced digital decision-making. Large corporations routinely process multimillion-dollar investments through integrated electronic workflows where all stakeholders receive information simultaneously, approvals are time-stamped and accountability is clearly assigned.

Government departments continue to depend upon sequential file movement, physical signatures and repetitive documentation—administrative practices better suited to the last century than the digital economy.

There is also an important provincial comparison. While challenges remain across Pakistan, Punjab has generally advanced further in digitising public services, facilitating industrial investment and coordinating departmental approvals. Investors frequently cite greater administrative responsiveness and faster project execution. The lesson is clear: governance quality increasingly determines investment competitiveness.

Sindh possesses natural advantages that many competing jurisdictions would envy—a strategic coastline, Pakistan’s largest commercial hub, established industrial clusters, financial institutions, entrepreneurial talent and a sizeable consumer market. These strengths should naturally attract investment. Yet comparative advantage is steadily neutralised by administrative friction.

The way forward is straightforward. Sindh has to move to digital economy to match the speed of the private sector. Establish in real terms a legally empowered one-window digital investment authority. Replace physical files and NOCs with integrated electronic workflows.

Prescribe statutory timelines for every approval, with automatic escalation and deemed approval where departments fail to respond within the stipulated period. Publish departmental performance indicators. Most importantly, commission an independent study into the departure of multinational corporations and convert its findings into a time-bound reform agenda.

Investment is ultimately a vote of confidence in governance.

Foreign investors do not ask governments to eliminate commercial risk. They simply expect governments not to create avoidable administrative risk.

Until Sindh replaces the culture of files and NOCs with a culture of facilitation and accountability, investment conferences will continue generating headlines—but not necessarily investment.

Copyright Business Recorder, 2026