BR RESEARCH: FDIs and privatisation: Wooing investors the wrong way

It was in 2014 when the government, under then–Prime Minister Nawaz Sharif, gave a written assurance to the IMF that it would privatize Pakistan International Airlines (PIA). Fast forward to the end of 2025, the transaction is still inches away from closing.

In 2021, the government even set itself a target to privatize around 44 SOEs, as outlined in the “SOEs Triage: Reforms and Way Forward” report released by the Ministry of Finance, yet that target remains far from achieved. On the FDI front as well, despite successive governments making repeated trips abroad and foreign delegations visiting Pakistan with promises of cooperation and joint ventures, the inflow of actual investment has remained minimal. FDI for the month stood at a meager $179 million. While there are several factors contributing to this, the most glaring remains policy instability, abrupt regulatory shifts, and an overall inconsistency that makes long-term commitments risky for investors. Even the Special Investment Facilitation Council (SIFC), which has actively pushed to streamline investment processes and revive investor interest, cannot fully offset these risks without broader coherence and discipline across the government machinery.

As a result, many current investors now find their capital exposed to unforeseen regulatory decisions, prompting several to either downsize, suspend future commitments, or contemplate exiting Pakistan entirely. Comprehending this factor is not difficult. Attracting investment is much like a parent seeking admission for their child at a university. A prospectus can make any institution look impressive, but no parent relies on glossy brochures alone; they speak to current students and alumni to understand the real picture. Investors behave the same way. Regardless of the incentives, reforms, or promises the government lays out on paper, potential investors will always turn to those already operating in the country. It is critical to recognize that nothing attracts a future investor more than seeing existing investors thrive.

Now let’s talk about Pakistan’s current investors. The OICCI Perception and Investment Survey 2025 shows that nearly 45 percent of investors view Pakistan as a high business-risk environment, with regulatory changes and inconsistencies emerging as the top risk they face. For more practical evidence, consider Telenor’s decision to exit Pakistan after more than two decades, describing the environment as “too challenging,” in the words of Jon Omund Revhaug, Executive Vice President and Head of Telenor Asia. Or consider the recent announcement from Procter & Gamble (P&G), which has chosen to wind down its manufacturing footprint in Pakistan and shift to a distributor-only model — a direct reflection of cost pressures, taxation hurdles, and policy unpredictability.

Similarly, the experience of Halmore Power Company further illustrates the risks facing investors. Halmore, which operates a 225 MW plant under the 2002 power policy, was compelled in 2021 to accept a reduction in its guaranteed return on equity from 15 percent to 12 percent, leading to an estimated loss of USD 52 million. In October 2025, Halmore served a notice of arbitration under the UK–Pakistan Bilateral Investment Treaty, seeking compensation of roughly $80 million for what it described as violations of its investment protections. The government is now preparing to spend billions of rupees to defend its position — costs that will ultimately be passed on to consumers. A firm that entered Pakistan on the strength of long-term guarantees now finds itself entangled in renegotiation, write-downs, and international legal proceedings, raising clear questions for any investor concerned about what happens when the rules shift after commitments are made.

Then there is K-Electric. After a multi-year consultation process and an agreed multi-year tariff, NEPRA suddenly revised its determination with retrospective effect, slashing allowed returns and disallowing costs that had already been committed. In a tightly regulated market where tariffs, investment plans, and service standards are all controlled, a privatized utility like K-Electric has virtually no breathing space to recalibrate its business model or pass on these shocks. The result is a privatized entity facing mounting financial strain not because of market failure, but because the rules of the game keep changing.

Considering the current situation, Pakistan will continue to face great difficulties in attracting meaningful FDI merely through roadshows, incentives, or memoranda of understanding. Investors are not persuaded by announcements; they are persuaded by predictability. Until Pakistan demonstrates a stable policy environment, honors its regulatory commitments, and provides a consistent framework that treats investment as a long-term partnership rather than a series of ad hoc decisions, the country will continue to witness stalled privatizations, hesitant investors, and an FDI pipeline that never truly materializes. The world is not short of investment opportunities — but Pakistan is short of credibility. Restoring it is no longer optional; it is the prerequisite for any serious economic revival.