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The Importance of Saudi Investment for Pakistan

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Zafar Iqbal

Foreign investment can bring numerous advantages to a developing country. One of the most significant benefits is the injection of capital that can be utilized to improve the country’s infrastructure, modernize its industries, and create new jobs. When foreign investors bring their capital into a country, it can boost the local economy. This can be especially crucial in developing countries where capital is often scarce. Additionally, foreign investment can also lead to the transfer of technology, knowledge, and management skills that can help improve the productivity of local firms and industries.

Another advantage of foreign investment is that it can help diversify the economy. Developing countries often rely on a few key sectors to generate their GDP, such as agriculture or natural resources. This can leave the economy vulnerable to fluctuations in global commodity prices. However, foreign investment can help promote the growth of other industries, such as manufacturing or services, that can provide more stable sources of income. This can help reduce the country’s dependence on a few key sectors and make its economy more resilient.

Foreign investment can also help improve the balance of payments. When a country attracts foreign investment, it can often lead to an increase in exports as local firms seek to sell their products to the investor’s home market. This can help improve the country’s trade balance and reduce its reliance on imports. Additionally, foreign investment can also lead to an increase in foreign exchange reserves, which can be used to stabilize the local currency and reduce inflation.

Finally, foreign investment can also help promote good governance and transparency. When foreign investors enter a country, they often demand a certain level of transparency and accountability from local firms and governments. This can help reduce corruption and promote good governance practices, which can benefit the country in the long run.

In summary, foreign investment can bring numerous benefits to developing countries, including the injection of capital, the transfer of technology and management skills, the diversification of the economy, improvements in the balance of payments, and the promotion of good governance and transparency. However, it is essential to ensure that foreign investment is channelled into productive sectors and that the benefits are distributed equitably to ensure that the country’s development is sustainable and inclusive.

Over the course of several decades, Pakistan and Saudi Arabia have cultivated a robust alliance, deeply rooted in shared values and mutual interests. This enduring relationship was notably reaffirmed when Shehbaz Sharif, Pakistan’s Prime Minister, chose Saudi Arabia as his inaugural foreign destination upon assuming office. In Makkah, he engaged in a fruitful dialogue with Crown Prince Mohammed bin Salman, the de facto ruler of the kingdom. Their discussions spanned a wide array of topics, from Saudi investment in Pakistan to the shared aspiration for peace and stability in the subcontinent.

The joint statement issued after the meeting unveiled a promising commitment from Saudi Arabia to invest $5bn in Pakistan, with the potential for further investment in the future. While the specific sectors for this investment are yet to be determined, there are indications that the Saudi funds could be channelled towards lucrative areas such as mining, including the Reko Diq project. The Arab state has also expressed interest in other sectors, including oil and gas, renewable energy, and tourism, all of which could serve as significant catalysts for Pakistan’s economy.

Saudi Arabia has long been a significant investor in Pakistan, and the two countries have a strategic partnership that includes cooperation on security and defence. However, while there have been various figures for Saudi investment in Pakistan, little substantial investment has been made so far. This may change with the new government in power, but ensuring political stability, security guarantees, and continuity of economic policies are not just important, they are crucial for attracting foreign investment. Without these factors, few investors would be willing to invest their money in Pakistani projects. The urgency of creating a pro-business environment cannot be overstated.

The potential for investment in several sectors in Pakistan is substantial. The country boasts abundant natural resources, including coal, copper, gold, and oil, and is home to a large, young, and burgeoning population with a high demand for goods and services. However, the state must address the barriers that hinder foreign investment and foster a pro-business environment that is devoid of bureaucratic hurdles and corruption. Moreover, foreign investors are not philanthropists; they seek profit, which is why ensuring smooth profit repatriation is crucial for sustaining foreign investment. A few billion dollars alone will not be sufficient to revitalize Pakistan’s economy.

All stakeholders must not just think long-term, they must act long-term to help Pakistan break the shackles of dependence and realize its economic potential. The country must focus on building a sustainable and inclusive economy that creates jobs and reduces poverty. The private sector must play a leading role in this effort, and the government must provide an enabling environment for businesses to thrive. It’s not just about immediate gains, it’s about sustained efforts for long-term economic development.

Saudi mediation in the dispute between Pakistan and India should also be seen in the context of geo-economics. Riyadh is eyeing a $100bn investment plan in India and wants peace in the neighbourhood. It remains to be seen if the allure of Arab money can convince India’s leadership to talk peace with Pakistan. However, there are signs of a thaw in relations between India and Pakistan, with both countries agreeing to a ceasefire along the Line of Control in February 2021. If this trend continues, it could pave the way for increased regional economic cooperation and investment.

Saudi investment in Pakistan can potentially bring significant benefits to both countries. However, continuity and consonance on political stability, security guarantees, and economic policies are essential for attracting foreign investment. The state must create a pro-business environment free from red tape and corruption while ensuring that profit repatriation is smooth for continued foreign investment. Long-term thinking by all stakeholders is required to help Pakistan realize its economic potential and Saudi mediation in the dispute with India should be viewed in the context of geo-economics.

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