Partnering to Bolster Growth and Enhance Pakistan’s Competitiveness

Thursday, January 14, 2016 - 3:45pm

Members of the U.S.-Pakistan Business Council (USPBC), based at the U.S. Chamber of Commerce, are confident that Pakistan has the potential and the resources to become a vibrant and dynamic emerging market economy. Pakistan has a population of 186 million people, consumer spending amounting to over $100 billion, relatively low wages, high rates of return on investments, and a large and growing middle class. The U.S. private sector believes that with the right policies, the achievements of the past three years can help accelerate Pakistan’s economic resurgence and improve the country’s position in attracting investment.

The government of Prime Minister Nawaz Sharif has taken some important steps in improving Pakistan’s economic conditions. Since implementing initial reforms in 2013, Pakistan has made macroeconomic progress in a number of areas—growth is now above 4% and is projected to rise close to 5% in 2016—but more must be done to further strengthen these economic gains. Energy shortages persist, public finances are still fragile, and the country’s fiscal situation faces challenges.

The main engine of sustained economic growth will be foreign direct investment (FDI). If the Government of Pakistan wants to create an environment that is conducive to foreign investment, it should implement a variety of economic and institutional reforms to address the constraints that many foreign companies face in their daily operations and potential expansion.

A critical factor inhibiting foreign investors is the security situation, which while having improved, will require a sustained and long-term effort to improve. The security challenges, however, remain outside the scope of this study, and the report focuses on the economic and business environment in Pakistan as it relates to FDI.

The U.S. Chamber of Commerce strongly supports the efforts of the USPBC to strengthen the bilateral commercial relationship between the United States and Pakistan. The USPBC is testimony to the increasing interest in Pakistan as an investment venue for U.S. companies.

The USPBC is eager to work with the Government of Pakistan to bolster growth and enhance Pakistan’s competitiveness, and to set the country on a path to sustain and attract critically needed FDI.

As friends and partners in Pakistan’s progress, the USPBC recommends the following steps:

Pursuing macroeconomic stability. This is essential with or without an International Monetary Fund (IMF) program and will involve policies to improve public finances, increase exports by diversifying products and foreign markets, and generating private and official external financing.


Implementing reforms to sustain and attract foreign investment. Addressing the security situation and energy shortages are obvious, but steps should be taken to make the business climate more conducive. From a small survey conducted by the USPBC, current investors identified three main areas for such reforms: (1) taxation regime and policies (2) protection of intellectual property rights, and (3) introducing a modern bankruptcy law along with a transparent dispute settlement procedure. Enhancing the business climate, implementing the government’s reform agenda, and the recommendations of USPBC members on these three key areas can significantly increase the attractiveness of Pakistan to foreign investors. Our recommendations can be found on page 16-23.


Supporting energy and infrastructure development. Pakistan needs to continue to improve its energy systems and invest in its infrastructure, with power and transportation at the top of the list. In order to attract American investment and improve overall outcomes in these areas, government officials should consider integrated policymaking and infrastructure development plans to spur investment and lending in the sectors. U.S. companies welcome public-private partnerships to help improve investment in, access to, and delivery of infrastructure. The Government of Pakistan should also continue to pursue all avenues and fuel sources to meet its energy demand and consider short- and medium-term solutions.


Launching U.S.-Pakistan Business Dialogue. We hope that the Government of Pakistan would establish a regular U.S.-Pakistan Business Dialogue between senior Pakistani government officials and established American investors in Pakistan, to focus on concrete steps that can be taken to expand investments and attract investors. Through these high-level discussions, foreign investors would have more certainty about proposed policies, and government officials in turn would have a clearer understanding of the needs and concerns of investors.

 

The U.S. private sector is committed to jointly work with Government of Pakistan officials to help achieve the country’s economic development objectives and sustain and attract critically needed foreign investment. A regularized engagement between the government and  private sectors can deliver viable solutions and provide a forum to develop benchmarks against which to measure progress on economic reforms and business policies, as well as the growth of the U.S.-Pakistan commercial relationship.