As Muhammad Aurangzeb took the podium to deliver his budget speech, a lot would have been on his mind. Would the heckling from the opposition benches get to him? Would he manage to read through the entire speech without stumbling on the complications of financial terms in Urdu? How would the IMF react to his ministry’s proposed budget for the next one year?
But one question that might just have been front and centre in his mind was his recent trip to China. In fact, Mr Aurangzeb’s budget speech was originally slated for Friday. It was the trip to China undertaken by the prime minister accompanied by a large cohort of business leaders that caused some uncertainty about when the budget would be presented.
The trip clearly took priority for the Sharif administration, particularly since foreign investment from China has been one factor that the government has regularly relied on, particularly in the past 15 years since the China Pakistan Economic Corridor (CPEC) has been active. But the results of the trip were less than ideal.
The finance minister alluded to the trip during his speech and tried his hardest to present the best possible picture. “Foreign investment is important for our debt repayments and for Pakistan’s image. In this regard, conversations with brotherly and friendly countries are ongoing and are at an advanced stage. I would like to mention the Prime Minister’s recent visit to China, which was meant to rejuvenate CPEC and bring about phase ii. Chinese Companies are being offered Special Economic Zones and Pakistani companies are also being offered the chance to make Joint Ventures with Chinese business entities.”
Pakistan hits a wall in China?
The comments in the speech made it sound like Pakistan was right on the brink of a breakthrough. But between the lines one can see that the Pakistani delegation returned from China nearly empty handed. This does not mean that diplomatic relations with China are strained. In fact the delegation was met with a warm welcome and the Prime Minister met with President Xi Jinping and other top officials in Beijing, but Chinese investors seemed reluctant to trust Pakistan as a reliable place to put their money in.
As the finance minister explained, the government and Pakistani business people attended a conference in Shenzhen with 97 Chinese companies but failed to sign any MOUs. The claim was that these were under discussion in different sectors including iron and steel, Mobile Solar Cells, EVs, automobiles, and manufacturing, but only six MOUs were actually signed by the Board of Investment with six different Chinese companies for B2B collaboration.
It is a dire state of affairs since Pakistan is desperate for foreign investment to boost its foreign exchange reserves. Some light needs to be shed on the role of the Special Investment Facilitation Council (SIFC) as well. During his speech, Mr Aurangzeb made it a point to praise the council. “Here I would like to acknowledge the role of the SIFC, which is playing a key role in bringing investment from GCC countries in areas such as livestock, mining, and agriculture,” he said.
The problem here has been that the SIFC, which was meant to provide foreign investors with a stable body to deal with removed from the rapidly changing political landscape of Pakistan, has failed to attract any significant investment. Since the SIFC was announced in June 2023, Net Foreign Direct Investment has not risen significantly and has continued to follow the same trends it has seen since around June 2020, when Pakistan’s economy began to overheat in earnest and inflation and political tensions were climbing.
At the start of June 2023 when the SIFC was announced, the 12-month moving average of Net Foreign Direct Investment was at around $150 million in Pakistan. In the one year since, this average amount actually fell significantly twice, and the last major inflow was when Suzuki decided to delist from the Stock Exchange, which was actually them taking a step back from Pakistan. At the end of the year, the overall amount was still at $150 million meaning it had not risen at all.
The positives
There have been some serious hopes, however, that the SIFC will be able to get some investment into Pakistan. In May this year, the UAE allocated $10 billion for investment in Pakistan’s promising economic sectors. The announcement comes following talks between UAE President His Highness Sheikh Mohamed bin Zayed Al Nahyan and Pakistan Prime Minister Shehbaz Sharif in Abu Dhabi. The Prime Minister later announced that this investment would come through the SIFC and would be managed as such. However, since no amounts have been transferred yet, it has not had an impact on the actual foreign investment numbers coming into Pakistan.
Before this in April, Saudi Arabia committed to fast-tracking the initial tranche of $5 billion investment in Pakistan, while Islamabad has promised to facilitate the expedited process aimed at enhancing economic cooperation between the two countries. The year before this, Saudi Arabia had promised to invest $25 billion within the next five years under the Special Investment Facilitation Council (SIFC) that is seeking investments in the energy, IT, minerals, defence, and agriculture sectors from the Arab countries. It is expected that the $5 billion investment would be made in the minerals sector especially the Reko Diq gold and copper mines as Saudi Arabia has already been studying the prospects of tapping into this sector, though the kingdom also has interest in petroleum, agriculture as well as IT sectors.
Mr Aurangzeb was correct in pointing out the SIFC was working on GCC countries, but statements alone will not make any difference until these countries earmark projects and areas they want to invest in and the government gives them a secure, stable environment to do so.
