By Arsalan Ali

ISLAMABAD, July 27:The government has been taking steps to increase foreign direct investment (FDI) in the country to improve the performance of local industries, WealthPK reports.

However, an expert said that the efforts could not achieve the desired results so far owing to various reasons including political unrest, economic instability and high tax rates in the country.

Ayaz Ahmad, a former senior research economist at the Pakistan Institute of Development Economics, said that FDI contributed to the economic uplift of the country. He said that FDI was the primary source of inflow of money from other countries that led to sustained development through product innovations, improvement in the quality of raw materials and enhancement in exports.

He said FDI helps boost economic growth, creating jobs and increasing the productivity of firms and the revenue of the government through taxation. “We should promote tourism to attract more foreign investment. The government may offer incentives to foreign firms to invest in the country,” he added.

Ayaz Ahmad said that the government was trying to attract foreign direct investment. “Foreign investors from the developed economies invest in resource-rich economies. Pakistan is rich in natural resources and has the potential to attract FDI,” he added.

He said that the economic development of a country depended on the utilisation of resources to increase production capacity. He added that FDI became more effective when combined with technology transfer because it led to an increase in exports of a country.

He said that the power sector received the highest FDI during the financial year 2021-22 followed by the financial business, information technology and oil and gas exploration industry. “We received the highest FDI from China, followed by the USA,” he added.

According to the State Bank of Pakistan, the country received $531.6 million in FDI from China, $249.6 million from the USA, $146.2 million from Switzerland and $143.9 million from the UAE in the previous fiscal.

FDI in Pakistan surged by 2.6 percent and reached $1.87$ billion in the previous fiscal as compared to $1.82 billion in the financial year 2020-21.

Ayaz Ahmad said that China-Pakistan Economic Corridor was a major source to attract (FDI). He said that the infrastructure, necessary for foreign investment, was developed under CPEC.

“Every country has its own policies to determine as to which of the sectors will be open to FDI. FDI should not drive out domestic industries. The industries with local expertise should be open to FDI. FDI should not be allowed in those industries wherein local firms cannot compete,” he said.

He said that some of the local industries were not taking the lead to attract FDI. “The problem is that the local industry does not possess the skills to attract foreign investment,” he added.

He said that FDI should not be allowed in those sectors that did not take the initiative and were unable to manage value-added activities. “For example, Pakistan is the largest producer of milk, but no local industry has tried to produce cheese,” he added.

Ayaz Ahmad said that Pakistan had the lowest FDI as compared to other regional countries. “The government has taken many initiatives aimed at attracting more Foreign Direct Investment. However, the desired results have not been achieved so far owing to political unrest, economic instability, corruption and high tax rates. These factors are the main obstacles to the FDI target,” he told WealthPK.

Credits: INP-WealthPk