Foreign direct investment (FDI) proved resilient during various financial crises e.g. the East Asian crisis of 1997-98, the Mexican crisis of 1994-95 and the Latin American crisis of 1980s.

This resilience helped the developing countries to tilt the balance of favour towards the FDI as a form of capital flows over its counterparts e.g., the portfolio equity and debt. In developing countries like Pakistan, the need for the FDI has been larger due to the existence of saving-investment and export-import gaps. The domestic sector has not been able to come up with the required level of investment in the economy due to numerous reasons. This leads to the need for foreign direct investment as an appropriate solution both to the balance of payments issue and filling the investment gap. However, little success has been achieved on this front.

Investment promotion agencies (IPAs) play a vital role in promoting investment in any economy. These serve as the intermediaries/facilitators for foreign firms to establish their operations and serve the host markets. Various countries have established such agencies and have been able to attract significant amounts of the FDI. The existence of such IPAs sustains and strengthens the competitiveness of the FDI,seeking economies by enriching the information-content available to the potential multinational corporations (MNCs). An example of such IPAs is the Board of investment (BoI) in Pakistan, mainly responsible for promoting investment into the economy. This article aims at exploring the role of the BoI within the broader framework of an IPA, taking into account the outlines of the existing framework for investment promotion in Pakistan and coming up with some strategies of investment promotion in the country.

Given the size and dynamism of the Pakistan economy, the liberal FDI legislation, the cheap labour force and its proximity to the markets of Gulf and Central Asia, Pakistan should be seen as an attractive location for investment.

The key weaknesses of the Pakistan’s investment promotion campaign can be listed below:

* The national IPA i.e., the Board of Investment (BoI), is not distinct enough from the government bureaucracy and does not have the autonomy to employ necessary skills and engage in effective promotion.

* The support for attracting the FDI has not been vigorous and consistent.

* There appears to be lack of clear investment promotion strategy, sectoral focus and adequate understating of Pakistan’s competitiveness.

* There is a total absence of regional agencies to support the investment promotion efforts for such a large and diverse country.

* The website designed by the BoI does not provide any sectoral and regional information, facts about the existing investors and links to other government related institutions e.g., the State Bank of Pakistan (SBP), the ministries of finance, industries, etc.

These weaknesses need to be removed to provide full-scale information to the potential investor in Pakistan. A consistent and aggressive campaign is required to attract larger flows of FDI into the economy. Given the economies of China and India in its neighbourhood, Pakistan faces an intense competition on the investment front. The BoI has to play the role of a vibrant and dynamic IPA to highlight the significance of Pakistan’s locational advantages and propagate the economy’s competitiveness vis-a-vis the other FDI-seeking economies of the world, particularly of South Asia.

The board’s operations can be strengthened and made more effective by setting up, through institutional framework:

I) a promotional unit to implement focused investment promotion strategy; II) an information and analysis unit to promote understanding of Pakistan; III) a policy unit to influence the government policies; IV) an education and training unit for financial service industries to identify and address the potential skill gaps; and V) an after-care agency to take care of the strategically important investors and monitoring their business needs.

Technology use: Effective use of the Internet is required by offering the following key information through its website.

* The geographical location and the market access (through maps). * The labour costs, its availability, skills and education. * The property, site cost and its availability. * The infrastructure quality and costs (transportation, utilities, telecommunication and the Internet). * The joint venture possibilities. * The sub-contracting facilities. * The corporate climate, culture and quality of life. viii Support availability from the BoI and other agencies. * FDI trends, both national/sectoral and leading investors’ profiles. * The downloadable annual reports, marketing brochures and other relevant information sources. * Information on the regions of Central Asia and the Gulf. * The e-bulletins, to gather market intelligence and deliver tailored marketing to users.

A targeted investment strategy needs to be evolved: An industry-focused marketing and company-targeting strategy has to be designed by meeting the potential investor. A sequential approach is needed based on the country’s requirements for the desired nature of investment. The Ireland’s example is classic in this regard. Similarly, there is a need to attract investment in peripheral regions based on the objectives of job creation and outsourcing the promotion.

The above-stated steps need to be taken by the BoI for making its campaign effective to work. Steps suggested below would complement the BoI’s drive towards achieving and sustaining higher levels of FDI in the economy and fall into the periphery of government rather than the BoI.

* Skill development: There has to be an expansion of education and development of skills as a part of proactive strategy, anticipating the future needs. Emphasis needs to be placed on the science and information technology (IT) education.

* Low corporate taxes are important to increase the profitability of the MNCs.

* Political stability: A stable environment is very much essential for accurate forecasting about the future risks and returns for the MNCs. Time and again, the country has been plagued by political instability resulting from the military takeovers and dismissal of the governments. This has badly shaken the confidence of investors from abroad and suppressed the potential inflows of the FDI. A stable political environment needs to be provided to foreign investors in Pakistan to convince them in context of safe and secure returns.

* Economic stability: A sound and stable macroeconomic environment resulting from the factors e.g., the non-volatile exchange rates, adequate reserves, price stability and favourable fiscal balance promise healthy and risk-free returns on investments. As economic fundamentals have not been moving in the right direction since last many years, these have forced the foreign investors to adopt a cautious approach towards investment in Pakistan. The economy needs to be stable and growing at a pace consistent with the standards and norms of the high FDI absorbing economies among the developing nations.

There is a great need for Pakistan to place itself at the right place to emerge as a strong candidate for the FDI among the developing countries. The economy needs to regulate the diet-mix being taken at present. The FDI is a good cholesterol for the economy. The BoI can play a powerful role not only in attracting the FDI but also towards benefiting the national economy from such investments.