Pakistan’s business environment is undergoing a period of visible transition. The undocumented economy continues to challenge tax-compliant companies that find it increasingly difficult to compete. The recent transition of Procter & Gamble (P&G), one of the world’s largest consumer goods firms, away from direct operations in Pakistan has drawn attention precisely because the country is consumption-driven, where savings remain low and spending relatively high. In the past, profits for consumer firms were strong, but shrinking purchasing power has now become the main concern.

International companies bring leadership, technology, and governance. Despite repeated efforts to attract inflows, foreign direct investment (FDI) has remained subdued. According to the State Bank of Pakistan, net FDI stood at $2.46 billion in FY25, compared with inflows of over $30bn annually into Bangladesh and more than $70bn into India in recent years. Pakistan’s investment-to-GDP ratio has slipped to around 13–14 per cent, while India and Bangladesh maintain ratios above 30pc. For investors, both large and small, structural tax and regulatory hurdles remain significant considerations.

Over the past decade, many multinationals have scaled down, divested shares, or transferred operations to local partners. One of the most pressing concerns for foreign companies has been the difficulty of remitting dividends, with payments delayed. At the same time, industries have encountered prolonged hurdles in opening letters of credit for spare parts and raw materials. Such prolonged backlogs significantly impact production flows and business stability.

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In most emerging economies, FDI grows annually by 11–13pc. Pakistan, however, has witnessed stagnation in recent years. The reasons extend beyond global trends. Profitability in Pakistan is strained: a business earning 100 rupees may retain only about 35 after taxes. With the exchange rate around Rs280 per dollar, margins are further squeezed. Investors require consistent enabling conditions and confidence that policies will remain predictable.

While the exit of P&G and similar massive companies highlights the challenges of doing business in the country, corporate transitions are not unique to Pakistan

Exits have spanned several sectors. In energy, Shell sold its Pakistan operations to Saudi Arabia’s Wafi Energy. TotalEnergies sold its 50pc shareholding in Total Parco Pakistan Limited to the global commodities trading company, Gunvor Group. In telecommunications, Telenor sold its Pakistan business to PTCL, part of the Etisalat group. Uber closed its app operations in April 2024, while Careem announced suspension from July 2025.

The pharmaceutical sector has been among the most affected. At one time, 40 multinational pharma firms operated in Pakistan; today only 17 remain. Companies such as Eli Lilly, Sanofi, Merck, Johnson & Johnson, MSD, and Pfizer have either restructured or transferred portfolios to local partners. South Korea’s Lotte Chemical sold its entire 75.01pc stake in its Pakistani subsidiary, Lotte Chemical Pakistan Limited.

Historically, Pakistan was an attractive manufacturing location. In the 1950s, leading consumer and healthcare multinationals established facilities here. Over time, however, higher costs for the formal economy, while large informal segments remained untaxed, shifted competitiveness in favour of other regional markets.

It is important to recognise that these companies are not ordinary firms; they are global brands with reputations for investor trust. Their gradual withdrawal highlights the challenges of doing business locally in Pakistan. Factors such as taxation levels, currency depreciation, rising costs, inflationary pressures, import restrictions, and foreign exchange constraints continue to influence investor confidence.

At the same time, positive lessons exist. Pakistan’s banking sector illustrates this transformation. Nearly three decades ago, banks required government bailouts. Today, they are among the largest taxpayers. Investors, including the Aga Khan Fund and other local stakeholders, have consistently earned returns. The exit of some foreign names created opportunities for regional and domestic investors who helped stabilise the sector. Even when interest rates fell from 22pc to 11pc, banks sustained profitability. In today’s stock market, companies valued at close to or above $3bn include major banks such as Meezan Bank, reflecting local resilience.

Beyond banking, transitions continue. Ingredient maker Rafhan, Maize’s parent firm, divested majority ownership while keeping a minority stake. This represented a shift in management, not a full exit. In contrast, Saudi Aramco’s investment in Pakistan demonstrates confidence from one of the world’s largest energy firms. Several businesses, once foreign-owned, are now operated successfully by local investors. These examples highlight resilience and the capacity to sustain operations despite global withdrawals.

Corporate transitions are not unique to Pakistan. India, Bangladesh, and Vietnam have also seen companies restructure or exit sectors, though these economies continue to draw new inflows. Meanwhile, Bloomberg has ranked Pakistan among the world’s best-performing stock markets in recent years, showing that opportunities still exist when conditions align.

Standard Chartered’s journey in Pakistan illustrates this duality. Once running over 170 branches, it has now consolidated to fewer than 50. Whether this is progressive consolidation or a regressive retreat depends on perspective. It does, however, underline how business models evolve over time.

Looking forward, Pakistan’s prospects will be shaped by regional and global dynamics. Geopolitical realignments, trade flows, and cross-border partnerships will play important roles. The country stands at a critical juncture. With continued reforms, improved policy predictability, and measures to strengthen investor confidence, Pakistan can transform present challenges into opportunities. Its large population, consumption base, and strategic location remain advantages. The task ahead is to align business conditions with these inherent strengths.

The writer is an assistant director at the Federal Investigation Agency and is also a certified master trainer at FIA Academy, Islamabad.

Published in Dawn, The Business and Finance Weekly, October 6th, 2025