Pakistan’s anti-business environment is a barrier to FDI
In Pakistan’s gloomy political climate, it is uncommon to hear good news, but we have two pieces of excellent news that you do not want to miss.
First, China is considering investing $58 billion in a huge rail project to link Kashgar and Gwadar. The region will be affected significantly by this project.
If permitted, it will link up with the Arabian Sea, where a lot of sea traffic happens, and the largest factory in the world. This will present China with opportunity to spread its brand in another nation. A direct rail from China to Gwadar will also make it necessary to reopen the RCD Highway, which will allow access to Turkey via Iran.
It is not outlandish to picture China controlling the oil trade in the region given its involvement in restoring diplomatic ties between Iran and Saudi Arabia.
It is crucial to clarify that this is not the same as the $10 billion ML1 project, a CPEC project for the rail that currently connects Karachi and Peshawar.
A $10 billion refinery being built by private investors is the second project, which will mark an important development for business-to-business templates. Like the GCC nations, Pakistan cannot develop just through government-to-government trade; it also needs FDI particularly in the energy sector.
The global energy sector has been volatile since the post-COVID scenario, followed by the Ukraine crisis. These drastic conditions have made Pakistan’s already fragile economic situation even more vulnerable. The energy crisis, along with foreign exchange global turmoil in commodity prices, has been the most influential factor in causing this situation. Pakistan cannot sustain this situation any longer, mainly because of its obsolete oil refinery infrastructure.
Previously, Pakistan’s gasoline products were sustaining the shocks, and fuel rates were manageable despite global oil crises. However, to build sustainability in our energy future, a large-scale state-of-the-art oil refinery is much needed domestically. This will help save premium prices of fuel procurement at spot rates, which is an extra drain on our foreign exchange resources. Building 90-120 days oil and fuel storages will help buy at large quantities and at much better future rates.
Pakistani’s refineries are old and need upgrading for which there is no money, besides, they cannot cater to Pakistani’s entire needs. This refinery can clean Russian crude oil, but they are not environmentally friendly. Only a green refinery will use soft Saudi crude oil.
This refinery project is a move in the right direction for Pakistan’s economic progress (KSA garnered $450 billion FDI last year alone). Although this project is currently being actively pursued, for a successful completion of this massive project, it needs “the power that be” guarantees.
Here is the rationale: Even though red tape and numerous NOCs can be reduced through government-to-government business relations, B2B companies in Pakistan still face many difficulties. Inter-state stakeholders, such as Chinese state or state-sponsored investors, have easier access to policy-makers and stakeholders because of this, making it easier for them to push through agreements and complete projects.
Potential private investors in Pakistan, however, face a number of challenges, including taxation, regulatory risk and a lack of openness in public sector decision-making. They also frequently have to bribe a mafia-like structure.
For example, one source was striving to bring $5 billion to Pakistan on BtoB model basis, but was required to pay an unacceptable 25% business smoothing fee.
Pakistan receives very little private FDI, partly because foreign investors don’t trust the government. Ironically, Private investors sought guarantees from GHQ rather than the federal or provincial governments to protect their investment in the Reko Diq venture in Balochistan.
Therefore, billion-dollars B2B investments will only take place in Pakistan if the Establishment helps investors get past the obstacles posed by over 700 NOCs and the rent-seeking behaviour of the government and political elite.
Both of these initiatives have the potential to significantly improve the region and Pakistan’s economy. To ensure the success of these improvements, it is essential to monitor them and offer support. Pakistan’s bureaucrats and politicians must learn how to advance corporate aims if the country is to expand its economy without relying on foreign loans.
Establishing a reliable and open business climate is essential to luring international investment and fostering Pakistan’s economic expansion. In the meanwhile, big private investors only trust the Establishment’s assurances to disrupt the mafia ecosystem and red tape: Read my lips, please.