Despite a relatively open foreign investment regime, Pakistan remains a challenging environment for foreign investors. An improving but unpredictable security situation, difficult business climate, lengthy dispute resolution processes, poor intellectual property rights (IPR) enforcement, and inconsistent taxation policies have contributed to lower Foreign Direct Investment (FDI), as compared to regional competitors. Pakistan ranked 136 out of 190 countries in the World Bank’s Doing Business 2019 rankings, gaining 11 places from 2018.
The Pakistan Tehreek-e-Insaf (PTI) government elected in July 2018 pledged to improve Pakistan’s economy, restructure tax collection, enhance trade and investment, and eliminate corruption. Since taking power, the PTI government has faced a rapidly expanding current account deficit and declining foreign reserves. Due to the inherited balance of payments crisis, the PTI government has worked on immediate needs to acquire external financing rather than medium- to long-term structural reforms. Progress has been slow on key structural reforms including broadening the tax base, reforming the tax authority, and privatizing state owned enterprises. Current tax policies negatively affect large businesses, as the government relies heavily on them for meeting its tax collection targets. The PTI government has not announced new policies to attract FDI yet, but is reportedly working on a five-year FDI strategy. The strategy reportedly aims to gradually increase FDI to USD 7.4 billion by Fiscal Year (FY) 2022-23.
The United States has consistently been one of the largest sources of FDI in Pakistan and one of its most significant trading partners. Two-way trade in goods between the United States and Pakistan exceeded USD 6.6 billion in 2018, a record for bilateral trade, and included a 4.3-percent increase in U.S. exports to Pakistan. Agriculture remained the largest growth area for U.S. exports. The Karachi-based American Business Council, an affiliate of the U.S. Chamber of Commerce, has 65 U.S. member companies, most of which are Fortune 500 companies operating in Pakistan across a range of industries. The Lahore-based American Business Forum – which has 25 founding members and 18 associate members – also assists U.S. investors. American companies have profitable investments across a range of sectors, notably, but not limited to, fast-moving consumer goods and financial services. Other sectors attracting U.S. interest include franchising, information and communications technology (ICT), thermal and renewable energy, and healthcare services.
In 2003, the United States and Pakistan signed a Trade and Investment Framework Agreement (TIFA) to serve as a key forum for bilateral trade and investment discussion. The TIFA seeks to address impediments to greater trade and investment flows and increase economic linkages between our respective business interests. Themost recent TIFA meeting was held in October 2016 in Islamabad, led by United States Trade Representative Michael Froman. The last TIFA intersessional, a working level meeting to review the decisions taken in TIFA, was in June 2017 in Washington.
Table 1: Key Metrics and Rankings
|TI Corruption Perceptions Index||2018||117 of 180||http://www.transparency.org/research/cpi/overview|
|World Bank’s Doing Business Report||2019||136 of 190||http://www.doingbusiness.org/en/rankings|
|Global Innovation Index||2018||109 of 126||https://www.globalinnovationindex.org/analysis-indicator|
|U.S. FDI in partner country ($M USD, stock positions)||2017||$518||http://www.bea.gov/international/factsheet/|
|World Bank GNI per capita (USD)||2017||$1,580||http://data.worldbank.org/indicator/NY.GNP.PCAP.CD|
Pakistan was ranked 117 out of 180 countries on Transparency International’s 2018 Corruption Perceptions Index. Following the institution of the 18th Amendment, corruption at the provincial level has increased, according to Transparency International. The organization noted that corruption problems persist due to the lack of accountability and enforcement of penalties, followed by the lack of merit-based promotion, and relatively low salaries.
Bribes are criminal acts punishable by law but exist at all levels of government. Although high courts are widely viewed as more credible, lower courts are often considered corrupt, inefficient, and subject to pressure from prominent wealthy, religious, and political figures. Political involvement in judicial appointments increases the government’s influence over the court system.
NAB, Pakistan’s anti-corruption organization, suffers from insufficient funding and staffing. Like NAB, the CCP’s mandate also includes anti-corruption authorities, but its effectiveness is also hindered by resource constraints.
Resources to Report Corruption
Justice (R) Javed Iqbal
National Accountability Bureau
Ataturk Avenue, G-5/2, Islamabad
5-C, 2nd Floor, Khayaban-e-Ittehad, Phase VII, D.H.A., Karachi