Pakistan's foreign direct investment (FDI) landscape presents a paradox: while foreign investors are increasingly optimistic about the country's economic prospects and more willing to recommend it for new investment, Pakistan continues to lag behind regional competitors in attracting large-scale capital inflows. This widening gap between improving sentiment and actual investment competitiveness is highlighted in the Overseas Investors Chamber of Commerce and Industry's (OICCI) Perception and Investment Survey 2025.
Rising Investor Confidence
The survey reveals that 73% of foreign investors operating in Pakistan would recommend the country to their global headquarters for new investment, a significant increase from 61% in 2023. This improvement reflects growing confidence following a period of macroeconomic stabilisation, marked by lower inflation, a relatively stable exchange rate, and improved availability of foreign exchange. “The proportion of respondents willing to recommend the country to their global headquarters for new foreign direct investment increased from 61% to 73%, indicating a renewed perception of Pakistan as a viable destination,” the report noted.
Declining Regional Ranking
Despite the improved outlook among existing investors, Pakistan slipped from seventh to ninth place among regional destinations preferred for investment projects exceeding $500 million. This decline underscores the structural impediments that continue to discourage multinational corporations from committing large-scale capital. China retained the top position among preferred destinations for large-scale investment projects, followed by Indonesia, Malaysia, and the United Arab Emirates.
Structural Hurdles and Policy Gaps
“People in government often ask me rather naively why foreign direct investment is not coming to Pakistan. I explain to them the issues investors face here. Often, what is announced and what is implemented are two different things,” OICCI Secretary General M Abdul Aleem said in an interview with The Express Tribune. The survey paints a mixed picture of Pakistan's investment environment. While foreign investors acknowledge notable progress in restoring economic stability after the foreign exchange crisis and record inflation of recent years, they remain concerned about policy unpredictability, taxation issues, regulatory complexity, and weak implementation of reforms.
Global Competition and Market Size
Many policymakers fail to fully understand why Pakistan struggles to attract meaningful FDI despite repeated investment promotion campaigns, said Abdul Aleem. According to him, multinational corporations evaluate investment destinations through highly competitive global frameworks, where countries compete not only on policy but also on market size, regional integration, and long-term growth prospects. “Structural hurdles remain significant. At the same time, Pakistan's economic size is relatively small compared with competing destinations. When aggressive activist kinds of directors sit in headquarters reviewing global investment opportunities, they make decisions based on the balance sheet in front of them. If they decide they will not invest in economies smaller than one trillion dollars, Pakistan gets excluded automatically,” he explained.
Sector-Specific Challenges
Aleem noted that consumer-oriented multinational companies continue to operate in Pakistan because they “cannot ignore the country's population of more than 240 million people.” However, services-sector companies are often reluctant to enter Pakistan. He recalled that Pakistan once hosted more than 30 foreign banks during earlier decades, a number that has gradually declined as international financial institutions reassessed the market. Among the major concerns raised by foreign investors are intellectual property and copyright protection. Aleem described weak enforcement in these areas as a significant deterrent for companies considering entry into Pakistan.
Benefits Beyond Capital
“FDI is important not only because it brings capital. It also brings knowledge, technology, skills and talent. Countries benefit from the expertise and innovation that foreign companies introduce,” he said. The OICCI survey identified policy inconsistency as the single biggest obstacle to attracting investment. Investors ranked the absence of a predictable, transparent, and stable policy framework as the primary constraint, followed by an increasing tax burden on compliant taxpayers and rising business costs. Respondents also highlighted the gap between policy announcements and implementation, uncertainty regarding incentives, and excessive regulatory controls as factors discouraging long-term commitments.
Regional Integration Essential
Aleem argued that regional economic integration is equally important for attracting global capital. “A country must have good economic relations with its neighbours if it wants to attract FDI. Regional trade is a prerequisite for investment. Foreign investors want access to larger markets, not isolated economies,” he said. He recalled instances where foreign companies explored opportunities in Pakistan primarily because of the possibility of serving regional markets. “There was a time when Korean companies approached us. They wanted to establish a steel mill here to export to India. Had regional trade relations been stronger, Pakistan would have benefited enormously.” He added that Turkish companies have recently shown increased interest in Pakistan due to cultural affinity and economic complementarities, while multinational participation in technology and engineering sectors remains limited.
