Learning from neighbors: Pakistan's path to attracting efficiency-seeking FDI

Pakistan’s FDI inflows have lagged, with the country’s investment-to-GDP ratio remaining the lowest compared to regional peers like India, Vietnam, and Bangladesh, Pakistan Business Council (PBC) noted in a report on Thursday.

Regional competitors like India, Bangladesh, and Vietnam have excelled in attracting efficiency-seeking Foreign Direct Investment (FDI), which drives long-term economic growth.

India's economic liberalization, sector-specific reforms (like in rail infrastructure and defense), and initiatives such as "Make in India" have significantly boosted FDI.

The country has attracted major companies like Foxconn, Samsung, IBM, and Accenture by improving ease of doing business and infrastructure.

Vietnam's "Doi Moi" economic reforms, liberalized investment laws, and investments in industrial zones have made Vietnam a hub for electronics, textiles, and footwear manufacturing.

Companies like Samsung, LG, Intel, and Nike have set up operations here, driven by Vietnam's competitive production environment.

Bangladesh focuses on manufacturing, particularly ready-made garments (RMG) and electronics. Improvements in infrastructure and competitiveness have helped attract major global brands such as H&M, Zara, Walmart, and Samsung.

Economic liberalization and policy reforms create attractive environments for FDI. India and Vietnam have shown that simplifying regulatory procedures and improving the ease of doing business attract substantial investments.

Investments in infrastructure and maintaining a competitive business environment are crucial for success, as demonstrated by Bangladesh and Vietnam. Offering tax incentives and creating special economic zones helps attract and retain foreign investors, as seen in India and Vietnam.

Targeting sectors where local investors lack capital or risk appetite and focusing on export-oriented industries can boost FDI and technological advancement. Encouraging foreign investment in research and development enhances local innovation and capabilities, as demonstrated by India and Vietnam.

For Pakistan, adopting these strategies and learning from the successes of its regional peers can help attract efficiency-seeking FDI, fostering sustainable economic growth and integrating the country into global value chains.