In recent years, Pakistan has witnessed a significant exodus of global companies and relocation of Pakistani businesses to other countries in the region, such as Bangladesh and the UAE. This trend raises concerns about the economic stability and attractiveness of Pakistan as a destination for foreign direct investment (FDI).
Several multinational companies (MNCs) have exited Pakistan since 2022 due to various economic challenges having a multiplier negative effect on the national economy. The key reasons for their departure include the depreciating Pakistani rupee, high inflation, dollar shortages, political instability, deteriorating law and order, and a generally unfavourable business environment. Additionally, factors such as the impact of Covid-19, global recession, and internal restructuring of the companies have also influenced some to leave the Pakistani market.
Global oil giant Shell Petroleum decided in June 2023 to divest its interests in Pakistan after serving the market for 76 years. Global Telenor of Norway exited Pakistan by selling its Pakistani company to the Pakistan Telecommunication Co Ltd (PTCL) in December 2023. Reportedly, Telenor, operating in Pakistan for 18 years, suffered heavy losses in 2022 due to high business costs, including energy costs, higher interest rates, and a significant increase in corporate income tax. Earlier, Warid Telecom, a UAE-based telecom company, had discontinued its business in Pakistan.
In another recent development, Procter & Gamble (P&G) signed an agreement in April 2024 with Nimir Industrial Chemicals for the sale of its soap manufacturing facility near Karachi. Likewise, Lucky Core Industries (formerly ICI Pakistan Ltd) acquired Pfizer manufacturing facilities in Karachi in May 2024.
Some notable MNCs in the pharmaceutical sector that have left Pakistan include Eli Lilly of the US, which ceased promotional efforts in Pakistan and handed over distribution of its products to a local company in November 2022. German-based healthcare company Fresenius Kabi discontinued operations in Pakistan due to an unfavourable business climate. Bayer of Germany closed its operations in Pakistan in June 2023. Many other foreign pharmaceutical companies have also exited due to the challenging business environment, including high business costs and regulatory issues.
Several other international companies closed their businesses in Pakistan. Puma Energy (formerly Admore Gas) of Singapore divested its major shareholding to Cnergyico in January 2022. Uber decided in April 2024 to discontinue operating its ride-hailing services in Pakistan. Several other enterprises, such as Airlift start-up company, Swvl the Egyptian transport company etc also discontinued their businesses in Pakistan.
The departure of these companies highlights significant challenges for Pakistan in attracting and retaining foreign investment. The government needs to address these underlying issues to create a more business-friendly environment and prevent the further exodus of MNCs.
Several Pakistani industries have also relocated to countries in the region such as Bangladesh and the UAE since 2021. In Bangladesh, the textile sector has seen significant relocation from Pakistan. Companies are attracted by Bangladesh’s favourable business environment, including lower labor costs and supportive government policies. This has resulted in an increase in Pakistani textile firms setting up operations in Bangladesh’s export processing zones and economic zones.
In the UAE, Pakistani businesses have expanded across various industries, including technology, financial services, and real estate. The UAE’s strategic location and investor-friendly policies make it an attractive destination for Pakistani firms looking to tap into the broader Middle Eastern market. Additionally, the presence of a large Pakistani expatriate community and strong bilateral trade relations have facilitated this trend. Overall, these relocations are driven by the pursuit of more stable economic environments, better regulatory frameworks, and strategic market access.
The foremost reason behind the exodus is political instability and security concerns. Pakistan’s political landscape has been marred by instability and frequent changes in government. Coupled with security challenges, including terrorism and sectarian violence, these factors have created an unpredictable environment for businesses. Companies prefer stable and secure environments for their operations.
Economic policies and the regulatory environment play a critical role in promoting and strengthening businesses. The business environment in Pakistan has often been criticized for its cumbersome regulatory framework and inconsistent economic policies. Bureaucratic red tape, excessive regulations, a liberal import environment, and lack of transparency have made it difficult for businesses to operate efficiently.
Pakistan has faced a severe energy crisis over the years, characterized by frequent power outages and a shortage of natural gas. This has significantly hampered industrial productivity and increased operational costs for businesses. High tax rates and a complex tax system have burdened businesses operating in Pakistan. Moreover, corruption at various levels of government has further exacerbated the situation, making it challenging for companies to operate without facing unethical demands.
Inadequate infrastructure, including poor transportation networks and logistics, has been a major deterrent for businesses in Pakistan. Efficient infrastructure is critical for the smooth functioning of industries, and the lack thereof has pushed companies to move to regions with better facilities. Countries like Bangladesh and India have made significant strides in creating favourable conditions for businesses. Bangladesh, for instance, has developed a robust textile industry, attracting investments that might have otherwise gone to Pakistan. The competitive advantages offered by these countries have diverted FDI away from Pakistan.
As global companies seek growth opportunities, they are increasingly investing in emerging markets that offer better prospects. Countries like Bangladesh and the UAE have positioned themselves as attractive investment destinations through proactive economic reforms and incentives for investors. Bangladesh’s access to favourable trade agreements, such as the Generalized System of Preferences (GSP) with the European Union, has given it a competitive edge in export markets. Similarly, the UAE’s strategic location and business-friendly policies have made it a hub for international trade and investment.
Against investors’ expectations, Budget 2024-2025 has been unable to take major structural reforms to create an enabling environment to attract and retain investments, particularly FDI which has been dwindling in past years. Currently, China is the lone major investor in Pakistan through the China-Pakistan Economic Corridor (CPEC) programme. China had committed to relocating its industries to Pakistan under the CPEC framework, but its second phase has been inordinately delayed, largely impacting the development of Special Economic Zones (SEZs) in the country. Last month, the government gave the green-light to relocate Chinese industries as part of joint ventures between companies of the two countries. One hopes it is not too late.
While the current situation appears challenging, there are opportunities for Pakistan to reverse this trend and attract FDI. Ensuring political stability and enhancing security measures is crucial for restoring investor confidence. A stable and secure environment will encourage both domestic and foreign investors to commit resources to Pakistan. Simplifying the regulatory framework and reducing bureaucratic hurdles can make it easier for businesses to operate. Implementing transparent and consistent economic policies will also foster a more conducive business environment. Investing in the energy sector to overcome the power shortage is imperative.
Upgrading transportation networks, logistics, and industrial zones will enhance the overall infrastructure. Special economic zones (SEZs) with state-of-the-art facilities can attract foreign investors looking for well-developed industrial bases. Implementing tax reforms to create a more business-friendly tax regime and combating corruption through stringent measures will improve the investment climate.
Ensuring that businesses can operate without undue pressure from corrupt officials is vital. Strengthening trade relations and seeking favourable trade agreements with key markets can boost exports and attract FDI. Negotiating access to markets in Europe, North America, and Asia will open new avenues for Pakistani products and services. The future of FDI in Pakistan hinges on its ability to create a stable, transparent, and business-friendly environment that encourages investment and fosters economic growth.
The writer is a retired chairman of the State Engineering Corporation, and former member (PT) of the Pakistan Nuclear Regulatory Authority.
