By Shahid Anwar
Pakistans debate on foreign direct investment (FDI) has traditionally centered on a single question: How can the government attract more foreign investors? Investment conferences are organized, foreign delegations are welcomed, incentives are announced, and investment facilitation institutions are strengthened. These efforts remain important, but a critical question receives far less attention: Why is Pakistans own private sector not playing a larger role in attracting foreign capital, technology, and international partnerships?
The objective is not to diminish the role of government. Rather, Pakistan needs a more balanced investment model in which the government creates a stable and enabling environment, while domestic businesses actively participate in identifying foreign partners, facilitating joint ventures, and mobilizing investment.
Pakistans FDI Reality
Recent figures illustrate why a new approach is necessary. According to the State Bank of Pakistan, net FDI inflows stood at $1.409 billion during JulyApril FY2025-26, compared with $2.035 billion during the same period of FY2024-25, reflecting a decline of 30.8 percent. China remained the largest source of investment, while the power and financial sectors continued to account for a significant share of inflows.
The challenge, however, is not merely the volume of FDI but also its composition. Pakistan requires greater investment in manufacturing, technology, logistics, export-oriented industries, renewable energy, pharmaceuticals, engineering, and value-added agriculture. The goal should therefore be to attract foreign investment that strengthens domestic productive capacity and creates long-term economic linkages.
The Domestic Investment Gap
Foreign investment cannot be separated from the strength of the domestic private sector. International evidence shows that economies with strong local businesses are better positioned to absorb, utilize, and multiply the benefits of foreign capital.
Foreign companies rarely operate in isolation. They require reliable suppliers, distributors, logistics providers, banks, professional services firms, and capable local partners. A dynamic domestic private sector increases a countrys ability to attract investment, integrate into global supply chains, and create employment.
Pakistans private sector continues to face challenges related to the business environment, productivity, competitiveness, and access to finance. Addressing these constraints is essential not only for domestic growth but also for improving the quality and impact of FDI.
Why FDI Quality Matters
The focus should not be limited to how many dollars enter the economy. Policymakers should ask:
- What type of investment is entering?
- Which sectors are benefiting?
- Is new productive capacity being created?
- Are local firms receiving technology and skills?
- Are exports and employment increasing?
Countries that have successfully utilized FDI have focused on linkages rather than simply capital inflows.
Bangladesh: Looking Beyond Headline Numbers
Bangladeshs FDI data show that headline investment figures often include equity investment, reinvested earnings, and intra-company loans. The lesson is clear: the quality and economic impact of investment matter as much as the volume.
India: Strong Domestic Companies Attract Foreign Capital
India demonstrates how large and internationally connected domestic firms can become channels for foreign investment, technology transfer, and global partnerships. Pakistan needs to develop more businesses capable of performing this role.
Indonesia: Domestic and Foreign Investment as Partners
Indonesia reports domestic and foreign investment within a unified framework, recognizing that both reinforce each other. Rather than treating domestic and foreign investment as separate policy areas, Pakistan should pursue an integrated approach.
Viet Nam: Integrating into Global Value Chains
Viet Nams success illustrates how FDI delivers greater value when domestic companies become suppliers, partners, and exporters within global production networks. Pakistan can draw important lessons from this model.
The Missing Business-to-Business Link
Pakistans traditional investment model often begins with identifying foreign investors, presenting opportunities, and offering incentives.
A stronger model would work from both directions:
Foreign Company + Pakistani Company → Partnership → Investment → Growth
This is where the private sector possesses advantages that government institutions cannot easily replicate.
- A pharmaceutical company understands which foreign technology provider it needs.
- A textile manufacturer knows which global brand could become a strategic partner.
- An engineering firm can identify potential joint venture opportunities.
- A food-processing company can seek international partners for technology and market access.
The commercial knowledge already exists. Pakistan needs a system that converts this knowledge into investment opportunities.
International Lessons: JETRO and KOTRA
Japans JETRO and Koreas KOTRA provide valuable examples. Their investment-promotion models go beyond marketing and include:
- Business matchmaking
- Technology partnerships
- Joint venture facilitation
- Investment support
- Follow-up services
Pakistan does not necessarily need new institutions. It needs existing institutions to work in a more coordinated and commercially focused manner.
Building a Private Sector FDI Partnership Programme
Pakistan already has:
- Board of Investment (BOI)
- Special Investment Facilitation Council (SIFC)
- Trade Development Authority of Pakistan (TDAP)
- Embassies and commercial missions
- Chambers of commerce
- Sector associations
- Leading private companies
The missing element is a structured mechanism connecting them.
A Private Sector FDI Partnership Programme could focus on:
- Identifying investment-ready Pakistani firms.
- Identifying foreign companies seeking partners.
- Matching both sides.
- Facilitating meetings and negotiations.
- Tracking partnerships until investments materialize.
Priority sectors could include:
- Pharmaceuticals
- Engineering
- Food processing
- Textiles
- Chemicals
- Information Technology
- Logistics
- Renewable energy
- Agriculture-related industries
A Bigger Role for Commercial Missions
Pakistans embassies and trade missions should evolve beyond organizing events and promoting general investment opportunities.
They should become sources of targeted commercial intelligence by identifying:
- Companies seeking regional partners
- Businesses looking for manufacturing locations
- Firms interested in acquisitions or joint ventures
- Technology providers seeking local alliances
The process should become:
Foreign Opportunity → Pakistani Match → Business Engagement → Negotiation → Government Facilitation → Investment Implementation
This would create a more results-oriented investment strategy.
Measuring Success Differently
Pakistan should also reconsider how it measures the effectiveness of investment promotion.
Current indicators often include:
- Conferences organized
- Delegations hosted
- Memoranda of understanding signed
More meaningful indicators would include:
- Foreign companies identified
- Pakistani firms matched
- Partnerships established
- Investments realized
- Jobs created
- Exports generated
- Technology transferred
The true objective is not investment announcements but operational investments that create sustainable economic value.
A Practical Investment Framework
Pakistan does not need to choose between government-led and private-sector-led investment promotion. It needs a clearer division of responsibilities.
- Government: Policy certainty, regulation, facilitation, and investor protection.
- Commercial Missions: Identification of opportunities.
- Chambers and Associations: Identification of capable local companies.
- Private Sector: Commercial negotiations and partnerships.
- Investment Agencies: Coordination and monitoring.
This approach would gradually shift Pakistan from a predominantly government-to-business investment model toward a government-supported, business-to-business investment framework.
The Policy Opportunity
Pakistans investment challenge is not only about attracting more foreign investors; it is about creating stronger connections between foreign investors and Pakistani businesses.
The country already possesses institutions, commercial networks, and capable private enterprises. What remains missing is an organized mechanism that connects them effectively.
Pakistan should move beyond viewing the private sector solely as a recipient of FDI. Instead, domestic businesses should become active instruments for attracting foreign capital, technology, expertise, and global partnerships.
The ultimate objective should not be more investment announcements. It should be more productive partnerships that generate exports, employment, technology transfer, and sustainable economic growth.
About the Author
Shahid Anwar is a Business and Trade Advisor, Economic Analyst, and former Secretary General of the Federation of Pakistan Chambers of Commerce and Industry (FPCCI). He also served as Senior Director Research at the Institute of Cost and Management Accountants of Pakistan (ICMAP) and has over 36 years of experience in business, trade, investment, and economic affairs. He advises organizations on trade, investment, and international business partnerships. He can be reached at shahid.anwar.writer.26@gmail.com
This news graphic contains an AI-generated image created solely for illustrative purposes.
