Pakistan’s foreign direct investment debate has largely focused on one question: How can the government attract more foreign investors? Investment conferences are organized, delegations are received, incentives are offered and investment facilitation institutions are strengthened.
These efforts are necessary, but another question receives far less attention: Why is Pakistan’s own private sector not playing a much larger role in bringing foreign capital, technology and joint ventures into the country? The issue is not about reducing the government’s role. It is to develop a more balanced model in which government creates the conditions and Pakistani businesses become active participants in attracting foreign investment.
Pakistan’s FDI Position
Pakistan’s latest data show why this question deserves attention. According to the State Bank of Pakistan, net FDI inflows were $1.409 billion during July 2025 – April 2026 (FY2025-26), compared with $2.035 billion during the same period of FY2024-25, a decline of 30.8%.
During the period, China remained the largest source of FDI, while the power and financial sectors accounted for a substantial share of inflows. (State Bank of Pakistan, Foreign Investment in Pakistan, latest available data)
The concern is not simply the size of the FDI number, or its year-on-year decline. It is also about the composition and breadth of investment. Pakistan needs foreign investment in manufacturing, technology, export-oriented industries, logistics and other productive sectors.
The objective should therefore be not merely to attract more foreign capital, but to attract foreign capital that connects with Pakistani businesses and expands domestic productive capacity.
The Private Investment Gap
FDI cannot be considered separately from the strength of the domestic private sector. The World Bank maintains internationally comparable data on gross fixed capital formation by the private sector as a percentage of GDP, providing a useful indicator of private investment activity. (World Bank, World Development Indicators).
The World Bank’s broader assessment of Pakistan’s private sector has identified significant constraints to private investment, including weaknesses in the business environment and factors affecting productivity and competitiveness. (World Bank/IFC, Country Private Sector Diagnostic: Creating Markets in Pakistan).
This matters for FDI because foreign companies rarely operate in isolation. They need local suppliers, distributors, financial institutions, logistics providers, professional services and experienced domestic businesses. A stronger private sector therefore increases an economy’s ability to absorb, connect and multiply foreign investment.
Why FDI Quality Matters
Bangladesh provides an instructive comparison. Bangladesh Bank reported net FDI inflows of $1.77 billion in calendar year 2025, up from $1.27 billion in 2024.
The data also show why headline FDI requires careful interpretation: the total includes equity capital, reinvested earnings and intra-company loans. (Bangladesh Bank, Foreign Direct Investment and External Debt, July–December 2025).
The lesson for Pakistan is important. Policymakers should not assess FDI simply by asking how many dollars entered the country. They should also ask what type of capital entered, where it went, whether it created new productive capacity and whether domestic businesses benefited through technology, supply chains, employment and exports.
India provides a different comparison. Its much larger economy makes direct dollar comparisons with Pakistan less meaningful, but its deeper domestic corporate sector provides an important lesson: large and internationally connected domestic businesses can themselves become channels for foreign capital, technology and international partnerships. Pakistan needs to develop more of this capacity within its own private sector.
Indonesia offers another useful example because its investment authority reports domestic and foreign investment within a common investment framework. Indonesia recorded IDR 1,931.2 trillion in total investment realization in 2025, comprising IDR 1,030.3 trillion of domestic investment and IDR 900.9 trillion of foreign investment. (Indonesia Ministry of Investment and Downstream Industry/BKPM, 2025 Investment Realization).
The significance for Pakistan is not the absolute size of Indonesia’s investment. It is the policy principle: domestic and foreign investment can reinforce each other rather than being treated as separate policy areas.
Vietnam provides another important lesson. Its development has been closely associated with FDI, manufacturing and integration into global value chains. The World Bank has repeatedly highlighted the importance of trade and foreign investment in Vietnam’s export-oriented growth. For Pakistan, the relevant lesson is that FDI has greater economic value when domestic companies can become suppliers, partners and exporters within the ecosystem created by foreign investors.
The Missing Business Link
Pakistan’s conventional investment model largely starts with the foreign investor: identify the investor, present Pakistan, discuss incentives, and facilitate the project. A stronger model would work from both sides: identify the foreign company, identify the Pakistani company, match their interests, develop the partnership and facilitate investment. This is where the private sector can contribute something that government institutions cannot easily replicate.
A Pakistani pharmaceutical company may know which foreign technology provider it needs. A textile manufacturer may know which international brand could become a strategic partner. An engineering company may know which overseas manufacturer could establish a joint venture.
A food-processing company may know which foreign business could provide technology, capital and access to international markets. The commercial knowledge already exists. Pakistan needs a system to connect that knowledge with foreign investment opportunities.
Lessons from JETRO and KOTRA
Japan’s JETRO (Japan External Trade Organization) provides an important institutional example. Its investment-promotion activities include supporting foreign investment into Japan and facilitating international business partnerships. Its J-Bridge platform specifically connects Japanese and overseas companies for business alliances, technical cooperation, joint research, mergers and acquisitions and capital alliances, including joint ventures. JETRO also facilitates business meetings and follow-up support. (JETRO, J-Bridge).
Korea offers another relevant model through KOTRA and Invest Korea. KOTRA is the national organization responsible for promoting trade and investment, and operates an extensive overseas network.
Invest Korea functions as the country’s national investment-promotion agency and provides services to foreign businesses seeking to establish operations in Korea. KOTRA also facilitates connections between international stakeholders and potential Korean investors. (KOTRA; Invest Korea).
The lesson for Pakistan is not that it should simply create another JETRO or KOTRA. Pakistan already has several institutions performing parts of these functions. The lesson is that investment promotion becomes more commercially effective when it includes targeted business matching and follow-up.
Connecting Businesses Across Borders
Pakistan already has the Board of Investment, SIFC, TDAP, embassies and commercial missions, chambers of commerce, sector associations, and major private companies. The missing element is a structured mechanism connecting them.
Rather than creating another large bureaucracy, Pakistan could establish a Private Sector FDI Partnership Program within the existing investment-promotion framework. Its purpose should be narrow: identify investment-ready Pakistani companies, identify foreign companies looking for partners, match the two sides and follow the relationship until an investment or commercial partnership is actually established.
The initial program could focus on sectors where Pakistan already has industrial or export capacity, including pharmaceuticals, engineering, food processing, textiles, chemicals, IT, logistics, renewable energy, and agriculture-related industries.
Chambers and sector associations could identify credible Pakistani companies with expansion or partnership potential. Commercial missions abroad could identify foreign companies seeking joint ventures, local manufacturing partners, technology alliances, acquisitions, suppliers or new production locations. The investment-promotion system could then facilitate targeted business meetings rather than relying mainly on broad investment conferences.
A Bigger Role for Commercial Missions
Pakistan’s embassies and commercial missions should not be viewed simply as diplomatic outposts or organizers of trade events. They can become an important source of commercial intelligence. The relevant question is not merely whether a country has investment potential. It is much more specific: Which pharmaceutical companies are seeking South Asian partners? Which engineering firms are looking for new manufacturing locations? Which food companies need new sourcing bases?
Which technology companies are seeking local partners? Which foreign companies are considering joint ventures or acquisitions? That information should reach relevant Pakistani companies through chambers, sector associations, and investment agencies.
The process would become: foreign opportunity identified, Pakistani company matched, B2B engagement, commercial negotiation, government facilitation and investment implementation. This is a more commercially focused approach to FDI promotion.
Measure Investment Results
Pakistan should also reconsider how it measures the performance of investment-promotion institutions. The number of investment conferences, delegations and memoranda of understanding tells us relatively little.
A better scorecard would measure foreign companies identified, Pakistani companies matched, business meetings held, partnerships formed, actual investment realized, jobs created, exports generated, and technology transferred. This would also distinguish between announced investment and investment that actually becomes operational.
The objective should be investment multiplication. A foreign company that enters into a joint venture with a Pakistani manufacturer and brings technology, management expertise, and access to international markets can create a much larger economic impact than the initial capital injection alone.
A Practical FDI Model
Pakistan does not need to choose between government-led and private-sector-led investment promotion. It needs a clearer division of responsibilities.
Government should provide policy certainty, regulation, facilitation and investment protection. Commercial missions should identify foreign business opportunities. Chambers and sector associations should identify capable Pakistani businesses.
Private companies should lead commercial negotiations. Investment institutions should connect the two sides and track the outcome. This would move Pakistan gradually from a predominantly government-to-business FDI model toward government-supported, business-to-business investment mobilization.
The shift is not about creating another institution or another investment slogan. It is about using existing institutions differently and giving Pakistani businesses a more active role in attracting foreign capital, technology and partnerships.
The Policy Opportunity
Pakistan’s FDI challenge is not only about attracting more foreign investors; it is about creating more pathways through which foreign investors can connect with Pakistani businesses. The country already has the institutions, commercial missions and private companies needed to begin this process. What is missing is an organized mechanism that connects them.
Pakistan should move beyond a model in which government is the principal face of investment promotion and develop a system in which government facilitates, commercial missions identify opportunities, and Pakistani businesses actively pursue foreign partners, technology and capital. The objective should not be more investment announcements. It should be more investment partnerships that create production, exports, employment and technology transfer.
The private sector should no longer be viewed only as a recipient of FDI. It should become one of Pakistan’s instruments for attracting FDI.
About the Author
Shahid Anwar is a Business & Trade Advisor and Economic Analyst, and former Secretary General of the Federation of Pakistan Chambers of Commerce & Industry (FPCCI). He also served as Senior Director Research at the Institute of Cost and Management Accountants of Pakistan (ICMAP), with 36 years of experience in business, trade and economic affairs. He provides advisory support on trade, investment and business partnerships. He can be reached at shahid.anwar.writer.26
