PAKISTAN has recently witnessed the departure of several MNCs, raising concerns about its capacity to attract and retain foreign direct investment. The exit of major players such as P&G, following earlier departures of Shell, Pfizer, Total and Telenor, has intensified anxieties, given also the expectations of investment from the Middle East. Since 2010, Pakistan’s annual net FDI has averaged $2 billion, in contrast to Vietnam’s $14bn and India’s $44bn.

Many challenges have contributed to the exit of MNCs. A weak economic environment and unpredictable government policies hinder long-term planning. Businesses face high taxation and energy costs. Unfair competition from the informal sector impacts the investment climate. Intel­lectual property protection is weak, leaving companies vulnerable to counterfeiting. Investors grapple with restrictions and delays in remitting profits, royalties and technical fees. Rupee devaluation negatively impacts parent company profits.

Despite these obstacles, FDI brings benefits beyond capital inflows. It fosters the development of local talent and introduces new technologies. Talent from companies such as Citibank, Unilever, ICI and P&G is recognised for its contributions in and beyond Pakistan. MNCs are typically associated with high environmental, social and governance standards and substantial contribution to tax revenues.

Large fast-moving consumer goods (FMCG) MNCs like P&G and Unilever were attracted by Pakistan’s large, youthful and increasingly urban population, which was receptive to branded products. The companies benefited from a demographic dividend and with limited local competition, could focus on maximising profit margins. However, this environment shifted as domestic competitors emerged. These players prioritised absolute profit instead of margins, were less constrained by quarterly reporting, and could obtain know-how by hiring experienced MNC talent. To adapt to these circumstances, MNCs pursued various strategies. Unilever Pakistan leveraged its broader category presence across food, beverages, home and personal care to achieve scale and reach, strategically pruning its portfolio by divesting to other MNCs/ private equity, its beverages and spreads businesses. Within most categories, it addressed different market tiers and pioneered production outsourcing earlier than P&G. It also developed an extensive local distribution network, in contrast to P&G’s national distributor model. P&G, driven by margin considerations, struggled to compete with local and Chinese brands in the Pampers segment and lost market share in soaps and detergents.

MNC exits have cast a shadow over the investment landscape.

Unilever’s global business derives 60 per cent of its turnover from emerging markets, whereas P&G’s exposure is less than 40pc. This means that countries like Pakistan are less significant for it than for Unilever. As P&G’s global strategy now focuses on fewer markets, it could adopt a distributor model in Pakistan. Most P&G products will continue to be manufactured locally by third parties.

The departure of high-profile MNCs casts a shadow over the investment landscape. However, it must be noted that FDI can also lead to substantial outflows through dividends and royalties, sometimes with annual returns exceeding 100pc of investment. Except for two years since 2013, profit, capital, and royalty repatriation has exceeded FDI inflows in the food and beverages sector (which include all FMCGs). Of course, outflows can be justified if balanced by exports or reduced reli­ance on imp­orted materials, but these have not been priorities for MNCs due to Pakistan’s high cost of doing business. China, India, Indonesia, Thailand and Vietnam offer more cost-effective sourcing alternativ­­es for global ope­­-ra­tions.

MNCs exited the pharmaceutical sector due to bureaucratic price change process, weak intellectual property enforcement, and unethical practices by some local firms. Shell’s withdrawal was due to a global shift away from downstream retailing, while Telenor’s exit is driven by increased competition. Chinese investors continue to face security concerns, but most MNCs from elsewhere have managed to adapt to local challenges.

Pakistan needs both foreign and domestic investment in sectors in which it has or can develop a comparative advantage. It also needs higher exports to manage the external account balance. Comparative advantages may stem from its land, water and human resources, making sectors such as agriculture, minerals, tourism and exportable services like IT, suitable for prioritisation. FDI that brings technology and export potential should be encouraged. Improving the overall investment climate is crucial as issues that deter FDI also discourage local investment.

The writer is a former CEO of Unilever Pakistan and of the Pakistan Business Council.

Published in Dawn, October 9th, 2025