If Chinese investment in Pakistan was a confidence booster for international investors, the recent announcement by present government regarding re-evaluation of China Pakistan Economic Corridor CPEC projects may prove to be a dampener for them. Local and international investors are holding back, watching the developing situation in Pakistan with caution. After witnessing surge in Foreign Direct Investment (FDI) through investment in FMCG (fast-moving consumer goods), telecom and automobile sector, Pakistan has not been able to attract major investment since 2016. A recent example is the cancellation of Jazz-Edotco deal amounting US$ 940 million.
However, the situation is not altogether gloomy on the investment front. Onboarding of Saudi Arabia on CPEC bandwagon is a step in this direction while China continues to remain the biggest investor in Pakistan. Recently, Pak-China have signed eight MoUs worth US$ 200 million for investment in seafood, steel, agriculture and 4G sectors. Apart from this, investment opportunities are galore in the automobile sector as new auto players intend to invest US$ 800 million in Pakistan. Further, foreign furniture makers have shown interest in Pakistani interior designing and manufacturing markets.Moreover, if the present government goes ahead with its 5 million houses project for the poor, it will open a sea of investment in the housing and real estate sector of Pakistan.
One of the arguments against investment from MNCs in host countries is the repatriation of profits to parent countries. While franchising and joint ventures are some of the options, they have their own advantages and disadvantages. Since MNCs possess some expertise, which could be ‘spilled over’ to the FDI-receiving country, hence instead of undertaking projects on ‘BOO — Build, Own & Operate’ basis, it would be better if public private partnership is done on ‘BOT– Build, Operate & Transfer’ basis. This way, issue of ownership will not arise.
Despite joining the trillion-dollar club, Pakistan’s exports are not competitive globally due to lack of value addition. An ideal model for Pakistan would be somewhere between ‘Made in Pakistan’ and ‘Make in Pakistan’. Some of the traditional sectors famous for exports are:
- Surgical goods
- Sports goods
- Automotive parts
- Fruits & vegetables
- Livestock & agriculture
Pakistan stands a better chance to gain export-competitiveness if it concentrates on unconventional sectors like gems and stones, tourism, furniture, financial services and Information Technology and Telecometc.
On a macroeconomic level, no two nations have the same level of resources due to which the earlier form of ‘barter’ has transformed into ‘international trade’. Every nation has some specialized skill or some special ‘product’ that it produces by virtue of its geographical location which is desired by some other nation due to lack of the same in their country. By engaging in international trade, economies of both the nations flourish resulting in better lifestyles for their people. Based on the concept of ‘comparative advantage’, agrarian economies import machinery for mechanized farming from industrial economies which results in better production yields and by exporting the ‘finished product’, they earn valuable foreign exchange. This is how the world economies thrive. On a microeconomic level, in today’s competitive business world, no organization could consider itself complete in terms of resources and efficacy of management. It has been observed that a firm may have some advantage over another firm in the same market due to some production/technical expertise.