When an investor, especially a foreign investor, considers putting money into a new country, the obvious questions are about market demand, taxes, energy costs, financing and expected returns. There is, however, another cost that rarely appears on a balance sheet but can have a significant bearing on an investment decision. It is the cost of dealing with the state.

How long will an approval, if needed, take? How many departments will need to be approached? Will a tax interpretation remain consistent? Who is responsible for the final decision? What happens if a dispute arises? For businesses, these are not administrative details. They affect the time, cost and risk attached to an investment.

This is why governance matters for investment. Pakistan has made progress on macroeconomic stabilisation, but stabilisation alone has not translated into a significant increase in investment. The investment-to-GDP ratio remained at only 14.38 per cent in FY26. At the same time, Pakistan continues to fall behind several regional competitors on key measures of government effectiveness, regulatory quality, rule of law and political stability.

This uncertainty effectively becomes a governance cost. It can take the form of delayed approvals, overlapping licences, uncertain tax assessments, unreliable utilities and management time spent navigating government processes. The result is that capital can remain idle while financing costs continue to accumulate, while businesses devote resources to managing uncertainty instead of investing in technology, skills and expansion. However, much of this cost is avoidable.

One of the strongest investment incentives may simply be a government that does what it says, within the time it has promised

The problem is not that Pakistan lacks policies. It is that businesses often face a considerable gap between a policy being announced and being implemented. Frequent changes in taxes, tariffs and regulations add another layer of uncertainty. An investor can price a known cost, but it is much harder to price an approval with no clear deadline or a regulation that may change during the life of a project.

The first step is to make the investor’s interaction with government simpler. Where responsibilities are divided between federal, provincial and local authorities, businesses should not have to determine which agency has the final say. There should be one clearly identified lead authority, supported by a shared digital process and a defined timeline for decisions.

I have sat in meetings well after office hours where discussions have revolved around changing company laws to make the business environment more workable. Many times, the discussion moves forward with broad agreement, only for the process to come to a halt for months, with no clear reason. For businesses, such delays are themselves a form of uncertainty. A reform that remains under discussion for months is of little value to an investor waiting for a decision.

The same principle should apply to implementation. Major investment and industrial reforms should have clear institutional ownership, measurable targets and deadlines. Progress should be reviewed regularly and, where possible, made public. This would make it easier to distinguish between a reform that has been announced and one that has actually been delivered.

Tax administration is another area where relatively straightforward improvements could make a difference. The formal sector should not repeatedly be asked to carry a greater burden because large parts of the economy remain outside the effective tax net. Broadening the base, simplifying compliance and reducing discretionary interaction between taxpayers and officials would make the system easier to navigate while improving the sustainability of government revenues.

Energy provides another example. High electricity costs are not simply a tariff issue. Distribution losses, weak recoveries, theft, poor planning and circular debt all contribute to the problem. Addressing these underlying weaknesses alongside tariff rationalisation would improve the reliability and cost of electricity for businesses. The recently revised and much clearer Pakistan Brownfield Refinery Upgradation Policy is a long-overdue, well-structured reform that unlocks billions in refinery investment for cleaner fuels. Its real test will be whether the government keeps the framework consistent through to delivery.

Industrial policy also needs greater certainty. Businesses have repeatedly been told that a comprehensive industrial policy is in the pipeline, but major investment decisions cannot be based on assurances. Investors need a clear and predictable framework covering tariffs, energy costs, taxation, access to finance, technology, exports and local value addition. The purpose should be to improve productivity and competitiveness over the long term rather than provide another short-lived package of incentives.

There is an important distinction here between creating new institutions and making existing ones work better. Pakistan does not necessarily need more committees, authorities or regulations. It needs clearer accountability and better coordination between the institutions that already exist. The success of reform should ultimately be visible to businesses through faster approvals, quicker tax refunds, fewer licences, shorter commercial cases and lower power-sector losses.

Macroeconomic stabilisation can create the space for investment. Good governance can determine whether that space is actually used. If Pakistan can make its institutions more predictable, decisions timelier, and responsibilities clearer, it can reduce the governance cost faced by businesses and make the country a more attractive destination for long-term capital investment.

One of the strongest investment incentives may simply be a government that does what it says, within the time it has promised.

The writer is Chief Executive/Secretary General, OICCI.

Published in Dawn, The Business and Finance Weekly, August 31st, 2026