Name: Why Pakistan persistently fails to unlock its economic potential
Uploaded: 2025-11-04T15:40:16.949Z
Duration: 5 min 53 s
Description: Pakistan’s foreign direct investment (FDI) remains strikingly low despite its abundant natural resources, youthful population, and strategic location near major global economies.

Pakistan’s foreign direct investment (FDI) remains strikingly low despite its abundant natural resources, youthful population, and strategic location near major global economies.

Islamabad

Pakistan, despite its wealth of natural resources, young population, and strategic location near major economies, has struggled to attract significant foreign direct investment (FDI). Over the past four years, FDI has averaged just 0.6% of GDP, far below comparable countries such as Vietnam. Factors contributing to this include an anti-business tax policy, extensive military involvement in the economy, and a shortage of skilled labor due to emigration.

While some foreign investment has come from countries like China, Hong Kong, the UK, the US, and the UAE, the benefits to Pakistan's economy have been limited, with much of the investment concentrated in infrastructure and energy. Experts suggest that comprehensive reforms and political stability are necessary for Pakistan to fully realize its economic potential and capitalize on opportunities in sectors such as minerals and rare earth elements.

Why Pakistan persistently fails to unlock its economic potential

Pakistan, a country rich in natural resources, home to a young population, and strategically positioned at the crossroads of some of the world's largest economies. It should be a magnet for foreign investment. But is it? Why is that? For the last 40 years, Pakistan's macroeconomic framework is not conducive to productive investment. Money is made by speculation rather than production of goods or services. A focus on short-term gains, limited exports, and weak production has stunted the impact of foreign direct investment. Let's put this into perspective. Over the past four years, FDI in Pakistan has barely reached 0.6% of GDP, low for a developing country. By contrast, Vietnam's FDI stands at 4.4% of GDP. So what's holding foreign investors back? We have allowed profit repatriation. We have also allowed ownership, 100% ownership of companies by foreigners. And generally, we have been quite flexible about the nature of the FDI. On paper, Pakistan has taken steps to attract investors. But the reality tells a different story. It is an anti-business tax policy. And if you look at a typical multinational company in Pakistan, it may have to pay 50 to 60% of its income in tax. Add that to the growing involvement of the military in the business space, and investor confidence begins to wane. There is a whole military commercial empire. They are into almost every sector of the economy. They are into industry, insurance, banking. They have even laundries. Because they get privileged treatment, the private sector is suffering. So the competition, my point is that competition in some sectors is not that strong, which will then allow the investors to operate. There's also a shortage of skilled talent, despite Pakistan's young population, with an average age of just 23. It's not easy to find skilled manpower in Pakistan because we are losing our skilled manpower to Europe, to the US, to the Gulf countries. And so that's another challenge, I think, which investors in Pakistan face. Despite these challenges, Pakistan still attracts some foreign investment. Its geopolitical location makes it appealing, especially to neighboring countries. Pakistan, as a developing country, sits in a region which is next to the largest economies in terms of the growth situation. So we are next to China and next to India. And also Pakistan is next to Central Asia. Over the past five years, China has invested 2.88 billion euros, making it Pakistan's largest foreign investor. Hong Kong follows with around 900 million, while the United Kingdom, United States and the United Arab Emirates have also made significant contributions. The Chinese investment has not really contributed to the economy. Yes, we have had a lot of investment. There's far more Chinese loans and rollovers than investments that are beneficial to the economy. Take Gwadar Port, for example. We leased out Gwadar Port for 40 years to China, and it turned out that the revenue sharing formula between China and Pakistan on Gwadar Port revenues was 9 percent for Pakistan and 91 percent for China. China's investments in Pakistan go beyond Gwadar Port, encompassing various infrastructure projects, including power plants. Over the past five years, the energy sector has been the primary recipient of foreign direct investment, attracting approximately 3.5 billion euros. This is followed by the financial sector with 1.3 billion, oil and gas exploration with 1 billion, and investments in communication and trade. While Chinese investments have strengthened Pakistan's infrastructure, their economic benefits and long-term sustainability remain subjects of debate. If it does not begin to change in the next two to three years, then perhaps we will never change. Pakistan is now actively seeking foreign investment to tap into its vast mineral wealth, including gold, lithium, copper and other rare earth elements, a major opportunity to boost the economy. The world around us is essentially on a reset mode. And that reset mode offers both opportunities and threats. Pakistan holds immense potential, but making it a reality will require comprehensive reforms and political stability.

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