Strategy of empty promises, not investments

Pakistan has seen economic stabilization for the past 18 to 24 months. Yet signs of fresh investment remain elusive. Promises and claims abound, but no substantial new projects are materializing. Neither local investors nor foreigners are committing to new ventures, except in the mining and new energy vehicles (NEV) sectors.

The pressing question is why investment is missing, and how stability can translate into real growth.

Investment as a share of GDP in the last two years has fallen below 14 percent. This is the lowest since 1974. Foreign direct investment (FDI) is dismal. Of the 2.5 billion dollars in FDI reported last year, 2.2 billion was retained earnings, profits earned by foreign investors but not repatriated as dividends. This means fresh investment in FY25 was a mere 300 million dollars. It was even less in FY24.

The stock market has broken records over the last two years. The index has more than tripled. New accounts are being opened, which is promising. However, new listings remain scarce. Curiously, foreigners continue to be net sellers. They offloaded shares worth 355 million dollars last year. Why is foreign portfolio investment negative when the stock market is booming?

There were hopeful talks of 75 to 100 billion dollars in FDI from the Middle East. In reality, the UAE has only taken control of ports: both sea and air. Meanwhile, many Pakistani passport holders face visa rejections from the UAE. It remains a haven for the elite’s wealth. Why is this happening when relations are supposedly improving?

Saudi Arabia shows no excitement either. The Saudis have pulled back from investing in the Reko Diq mine, and refinery investments appear to be dead. Their only involvement in oil and gas is acquiring small oil marketing companies (OMCs) while dumping refined products. This limits domestic refinery utilisation.

The country still depends on debt and deposit rollovers from Middle Eastern allies each year. Investment-wise, the best one can find are photo-ops with food chains and the Prime Minister, accompanied by commitments of a few million dollars in sales.

Chinese sentiment is not much different. Although they supported Pakistan during the war and helped build power infrastructure, investors are now struggling to receive full payments. During recent visits, the government-business talks focused more on the security of Chinese personnel than on fostering business relations or skill spillovers in CPEC Phase 2.

Western investors, mainly from the US, are wary. The reasons include weak contract enforcement, particularly intellectual property rights and inconsistent government policies that tend to flip with every administration change.

Local industrial groups are not optimistic either. Textile manufacturers, previously resistant to reform, now express genuine concerns about competitiveness. The key reasons are high taxes and expensive energy. No one can export a country’s inefficiencies.

There is significant slack in the economy. Many sectors are operating at low capacity. Cement utilization stands at 50 to 55 percent, including exports. The automobile sector faces similar issues. Many new NEV entrants exist, but utilization among existing assemblers is only 30 to 40 percent. Industrial value chains are suffering across the board. Expansion under such conditions is unlikely.

Despite this, large business groups remain cash-rich and eager to invest. When stock valuations were low, many bought back shares on secondary markets. Now they are eyeing good assets for acquisition in food, airlines, and other sectors.

Both local and foreign interest is concentrated in mining. The US is keen on investing in Reko Diq and exploring mining and oil and gas opportunities in KP and Balochistan. Chinese interest in mining is growing, and local groups are bullish.

However, mining has a long gestation period. No significant impacts are expected before 2030. Extracted minerals must be transported to ports, requiring large investments in rail infrastructure. After that, Pakistan mostly benefits from royalties, since local expertise for processing is lacking. For mining to spur broader economic growth, surrounding cities must be developed. That is extremely challenging, given the current law and order issues.

Mining alone is unlikely to trigger a broader investment surge. NEVs are not the answer either, especially when local value addition remains low. The broader growth narrative is missing. Confidence remains low. The scars from capital controls in 2022 and 2023 are still fresh. Many business groups feel the bureaucracy demonizes profit-making. The government is failing to address the root causes of boom-and-bust cycles.

Real economic reform is needed, not media campaigns or pep talks. Only then can investor confidence be restored and stability translated into sustainable growth.

In short, Pakistan’s economic plot currently reads like a suspense thriller. There is stability and potential for action. Yet investors are nowhere to be found. Perhaps they are waiting for a plot twist, a script rewrite, or just the popcorn to run out. Until then, promises will be promises, and the box office remains disappointingly empty.

Copyright Business Recorder, 2025