The Pakistan Investment Policy issued in July 2023 is incomplete in the fundamental sense that it focuses exclusively on FDI, totally ignoring the fact that domestic investment is by far the most important driver of gross domestic capital formation in Pakistan. This illustrates the basic ideological view of our economic policy making elite. They are committed to subordinating the national economy to the forces of global markets, even at a time when the IMF is continuously revising its projections of global growth downwards.
The document should be called Pakistan FDI Policy not Pakistan Investment Policy 2023. But it is incomplete even with respect to FDI governance. We try to show this by comparing its strategic objectives to its FDI facilitation and regulatory proposals.
The policy’s strategic objectives are to welcome FDI in all sectors with some minor exceptions, incentivize FDI inflows in export oriented and R & D intensive sectors generating high skilled jobs, promote FDI links with domestic supply chains. Also included in the objectives is the encouragement of import substituting sectors, and the enhancement of FDI in under-served areas and communities.
These objectives are to be pursued with a focus on areas of our existing comparative advantage. The drafters of the policy do not recognize the fundamental contradiction in this policy strategy. For Pakistan’s current comparative advantage is precisely in low value-added products, and its focus on existing comparative advantage inhibits the transition to a more complex production system. How is this inability to be overcome – the document does not say.
Also, the commitment to welcome FDI in all sectors necessarily endorses the view that FDI can do no harm to the economy and also necessarily dilutes the incentivization of prioritized sectors, for it obstructs the paradigm of a level playing field for all foreign investors. This contradiction is also not recognized in this incomplete policy document.
Incentives & regulatory mechanisms
This World Bank crafted policy is fully committed to the neoliberal paradigm. No one seems to have paid any heed to how this ideological commitment is inconsistent with the incentives and regulatory measures proposed by the policy. In the main however, the proposals are World Bank approved and conventional – such as one window facilities, branch/Liaison Management Information System, Special Economic Zones Management Information System, Business Matchmaking module, online portal and helpdesk, etc.
But the commitment to incentivization of key sectors and the encouragement of the buildup of local supply chains are clearly inconsistent with the neoliberal orientation of the policy, as are commitments to induce firms to transfer technology. Again, it is not recognized that such attempts are often negated by the commitment to the preservation of intellectual property rights. The granting of fiscal incentives to priority sectors may be seen as being inconsistent with the neoliberal orientation of the policy, as are attempts to “adopt incentives to … indicators of performance of investors.” This is also the case with respect to locational incentives and incentives to producers of “national and strategic importance.”
The list of prioritized sections is maximalist. This list is so vast that it covers almost all sectors currently operational in Pakistan, including even agriculture and “high-quality” textiles.
Read More: Does Pakistan Need A Charter Of The Economy?
FDI rights mandated by the policy are taken almost verbatim from the World Bank and World Intellectual Property Organization (WIPO) legislation and standards. Further, the policy regime is literally mortgaged to foreign investors. The policy states that “foreign investors will be protected against any future policy shifts having any negative impact on their investments.” This effectively rules out not only any nationalization, but also puts restraints on M&A activities and corporate taxation changes. A model bilateral investment treaty, inspired by the World Bank, has been crafted for this purpose. A legal framework is being developed to continuously monitor and reform the regulatory regime to increase its conformity to globally mandated standards. A new foreign investment law and dispute resolution settlement procedures within the national legal system are under preparation.
A farewell to national economic self-reliance
It appears that the Policy is reflective of the much-hyped Charter of Economy. It is clear that our economic elite has bid farewell to the objective of achieving national economic self-reliance for all time to come. Foreign investment is now seen as the sole driver of development. Stimulating domestic investment does not interest the elite anymore; they cannot mend their rent seeking, tax avoiding ways or bring about meaningful or structural reform. The national economy is to be fully subordinated to imperialist money markets. This policy legitimates full scale privatization gradually of all of our national assets to foreign investors.
It is natural therefore that the ideology of neoliberalism dominates the proposed policy paradigm. State policy is being legally and institutionally subordinated to crises ridden global markets. References to sectoral prioritization, import substitution, technological upgrades, etc. are meaningless in this policy’s perspective.
As Pakistan integrates with global markets, its development process will necessarily become more unequal, and mired in the lower ends of global product and services supply chains, and subsequently more dependent on concessional imperialist loans and advances. Expect more of the status quo to follow.
The document should be called Pakistan FDI Policy not Pakistan Investment Policy 2023. But it is incomplete even with respect to FDI governance. We try to show this by comparing its strategic objectives to its FDI facilitation and regulatory proposals.
The policy’s strategic objectives are to welcome FDI in all sectors with some minor exceptions, incentivize FDI inflows in export oriented and R & D intensive sectors generating high skilled jobs, promote FDI links with domestic supply chains. Also included in the objectives is the encouragement of import substituting sectors, and the enhancement of FDI in under-served areas and communities.
This World Bank crafted policy is fully committed to the neoliberal paradigm. No one seems to have paid any heed to how this ideological commitment is inconsistent with the incentives and regulatory measures proposed by the policy.
These objectives are to be pursued with a focus on areas of our existing comparative advantage. The drafters of the policy do not recognize the fundamental contradiction in this policy strategy. For Pakistan’s current comparative advantage is precisely in low value-added products, and its focus on existing comparative advantage inhibits the transition to a more complex production system. How is this inability to be overcome – the document does not say.
Also, the commitment to welcome FDI in all sectors necessarily endorses the view that FDI can do no harm to the economy and also necessarily dilutes the incentivization of prioritized sectors, for it obstructs the paradigm of a level playing field for all foreign investors. This contradiction is also not recognized in this incomplete policy document.
Incentives & regulatory mechanisms
This World Bank crafted policy is fully committed to the neoliberal paradigm. No one seems to have paid any heed to how this ideological commitment is inconsistent with the incentives and regulatory measures proposed by the policy. In the main however, the proposals are World Bank approved and conventional – such as one window facilities, branch/Liaison Management Information System, Special Economic Zones Management Information System, Business Matchmaking module, online portal and helpdesk, etc.
But the commitment to incentivization of key sectors and the encouragement of the buildup of local supply chains are clearly inconsistent with the neoliberal orientation of the policy, as are commitments to induce firms to transfer technology. Again, it is not recognized that such attempts are often negated by the commitment to the preservation of intellectual property rights. The granting of fiscal incentives to priority sectors may be seen as being inconsistent with the neoliberal orientation of the policy, as are attempts to “adopt incentives to … indicators of performance of investors.” This is also the case with respect to locational incentives and incentives to producers of “national and strategic importance.”
The national economy is to be fully subordinated to imperialist money markets. This policy legitimates full scale privatization gradually of all of our national assets to foreign investors.
The list of prioritized sections is maximalist. This list is so vast that it covers almost all sectors currently operational in Pakistan, including even agriculture and “high-quality” textiles.
Read More: Does Pakistan Need A Charter Of The Economy?
FDI rights mandated by the policy are taken almost verbatim from the World Bank and World Intellectual Property Organization (WIPO) legislation and standards. Further, the policy regime is literally mortgaged to foreign investors. The policy states that “foreign investors will be protected against any future policy shifts having any negative impact on their investments.” This effectively rules out not only any nationalization, but also puts restraints on M&A activities and corporate taxation changes. A model bilateral investment treaty, inspired by the World Bank, has been crafted for this purpose. A legal framework is being developed to continuously monitor and reform the regulatory regime to increase its conformity to globally mandated standards. A new foreign investment law and dispute resolution settlement procedures within the national legal system are under preparation.
A farewell to national economic self-reliance
It appears that the Policy is reflective of the much-hyped Charter of Economy. It is clear that our economic elite has bid farewell to the objective of achieving national economic self-reliance for all time to come. Foreign investment is now seen as the sole driver of development. Stimulating domestic investment does not interest the elite anymore; they cannot mend their rent seeking, tax avoiding ways or bring about meaningful or structural reform. The national economy is to be fully subordinated to imperialist money markets. This policy legitimates full scale privatization gradually of all of our national assets to foreign investors.
It is natural therefore that the ideology of neoliberalism dominates the proposed policy paradigm. State policy is being legally and institutionally subordinated to crises ridden global markets. References to sectoral prioritization, import substitution, technological upgrades, etc. are meaningless in this policy’s perspective.
As Pakistan integrates with global markets, its development process will necessarily become more unequal, and mired in the lower ends of global product and services supply chains, and subsequently more dependent on concessional imperialist loans and advances. Expect more of the status quo to follow.