Last month, Lotte Chemical sold its 75 per cent stake in Lotte Chemical Pakistan, one of the country’s leading petrochemical producers. Lotte’s exit marks the latest — fifth in 2025 and 25th since 2022 — in a flurry of multinationals pulling back from the country by either selling stakes or scaling down operations.

The foreign companies exiting Pakistan represent a range of industrial and service sectors, including energy, pharmaceuticals, engineering, chemicals, transport, IT, and telecommunications. Pharma­ceutical firms top the list with seven exits, followed by three each in energy and fast-moving consumer goods (FMCG) companies. The multinationals are leaving the Pakistani market despite it being the fifth-most populous nation.

Announcing its decision, Lotte said the sale of majority shareholding in its Pakistan operations is part of the company’s restructuring efforts to focus on high-value and speciality businesses, as it viewed its Pakistan unit as a non-core business.

In October, consumer goods giant Procter & Gamble (P&G) announced its decision to discontinue its operations in Pakistan, as part of its global restructuring efforts aimed at driving growth through portfolio, supply chain, and organisational changes. It said it would phase out its manufacturing and commercial operations in Pakistan, transitioning to third-party distributors to continue serving customers in the country.

Pakistan often represents less than a decimal point of overall global corporate revenues, yet it entails disproportionately high risks

Before it, Yamaha motorcycles and Microsoft too had closed their operations here. Careem also suspended ride-hailing services in the summer.

Though many companies leaving Pakistan insist that they were discontinuing or scaling down their operations in Pakistan as part of their global strategy to consolidate their international operations, some admit that their decision was heavily influenced by their concerns related to the nation’s tough economic conditions, weak regulatory environment and policy inconsistency.

Though many companies are retreating as part of their global strategy, their decisions are influenced by the tough economic conditions

For example, Lotte said its decision was also driven, even if partly, by its concerns related to Pakistan’s economy and exchange rates. “The sale helps Lotte reduce risks related to Pakistan’s economy and exchange rates, while improving financial stability,” the company said in a statement reported by Bloomberg.

To many, the outgoing year 2025 represents an eventful year for foreign investors in Pakistan. “The exit or downsizing of globally renowned companies from Pakistan during the past 12 months should be seen as the cumulative outcome of structural business challenges in addition to being headquarters-driven decisions,” contends a senior executive who has long experience of working with various multinationals in more than one sector.

“For global headquarters allocating capital across markets, Pakistan increasingly appears as a location where operational complexity and policy volatility outweighs its market potential in dollar terms, which has been decreasing with each devaluation, prompting caution over new investment,” says the CEO of an energy company on condition of anonymity.

From a global boardroom perspective, Pakistan often represents less than a decimal point of overall revenues, yet it entails disproportionately high operational, financial and compliance risks. In such circumstances, capital is naturally redirected to jurisdictions where returns are clearer and policies are stable.

A major factor is the declining consumer purchasing power. As disposable incomes shrink, markets move toward cheaper alternatives, usually with compromised quality. This erodes margins and makes it hard for companies operating on global quality and cost structures to compete sustainably.

Beyond these structural problems, deficiencies in the protection of intellectual property, inadequate and inconsistent regulation, and an uneven competitive environment further deter long-term investment. “Sustaining innovation proves challenging when rules exist on paper but are applied unevenly,” a pharmaceutical firm CEO says.

For pharmaceuticals, the implications are particularly serious. Tight price controls, rising import costs for active pharmaceutical ingredients and packaging, and regulatory uncertainty have compressed margins and made long-term manufacturing and innovation-led investment increasingly difficult. Several multinational pharmaceutical companies have exited manufacturing, sold local operations or significantly reduced their footprint.

Hence, the exodus.

“Alternative partnership models might offer a way forward; these involve a multinational partnering with both local and international investors to share operational and regulatory risk. Such structures can allow continuity of products, expertise, and employment with a reduced risk profile,” the executive quoted above contends.

Ultimate meaningful improvement depends on government action — especially in respect of taxation, transparency, enforcement, and governance to restore confidence and provide a level playing field.

Perhaps, this is the time for the government to seize the opportunity and undertake the structural reforms, which have long prevented Pakistan from attracting direct foreign private investment, and stop further exodus of multinationals.

Published in Dawn, The Business and Finance Weekly, December 29th, 2025