South Asia’s Next Emerging Giant?

When it comes to emerging markets in South Asia, India naturally springs to mind: the country currently has the world’s fifth largest economy and jostles with China when taking the title of the world’s most populous country (although with populations well in excess of 1 billion, it’s worth remembering that both vastly outstrip the world’s third most populous country, the USA). Bangladesh, despite all of its recent political drama, is the region’s second largest economy. However, the focus of this article is the region’s second most populous country and fifth most populous globally, yet with the lowest nominal GDP per capita in the region – Pakistan.

Destination Strategies has recently had the pleasure of working with PwC on an Investment Framework assignment in Pakistan, funded by the UK’s Foreign Commonwealth & Development Office (FCDO). Our Managing Director, Dan Nicholls, has provided inputs and guidance to PwC’s Government & Public Sector Consulting Teams in Istanbul and Islamabad on sector and value chain segment prioritisation methodologies, institutional frameworks and benchmarking analyses for attracting and facilitating investment, as well as guidance on developing sector and subsector investment value propositions.

As the world’s fifth most populous country, Pakistan’s importance regionally and globally is evident, and yet the challenges its often-volatile economy faces are multifaceted and complex. Foreign Direct Investment (FDI) has the potential to bring many socio-economic benefits to the country, and yet investors will need to be convinced that Pakistan offers a compelling combination of attractive business opportunities (it does) and an improving business enabling environment.

The country’s regulatory framework currently ranks 38th out of the 50 countries assessed in the first edition of the World Bank’s recently-launched Business Ready (B-READY) report. International indices such as these suggest that much still needs to be done to render the country’s investment climate regionally and globally competitive.

Despite FDI’s well-known benefits, Pakistan is not currently fulfilling its longer-term broader investment potential: the country has one of the lowest investment to GDP ratios in the region, standing at less than 14% in 2023, according to IMF data. By contrast, India and Bangladesh’s ratios both stood at around 30%.

Looking ahead, Pakistan’s ability to enhance its competitiveness in areas such as international trade and skilled labour is all the more important when country’s market size – another draw for at least certain types of FDI projects – lags behind some of its regional peers like India and to a lesser extent Bangladesh.

PAKISTAN MONUMENT. IMAGE COURTESY OF mosafir.pk.

Despite the challenges ahead, Pakistan offers numerous attractive investment opportunities in sectors such as horticulture, livestock vaccines and renewables (especially solar, wind and hydropower). The Government’s ‘5Es Framework’, announced earlier this year, also marks a welcome commitment to move the country onto a more prosperous footing, drawing on the key themes of (i) Exports, (ii) E-Pakistan, (iii) Environment & Climate Change, (iv) Energy & Infrastructure and (v) Equity & Empowerment.

Moving forward, the key test will be to see whether the country will leverage its opportunities to attract investments that will deliver meaningful change. International development partners such as the UK, the USA and the EU are poised to provide the technical assistance and investment connections needed to help turn these opportunities and ambitions into reality. New investments from such markets would be a welcome development, since these are host to many of the world’s most dynamic and innovative companies, many of which could bring cutting-edge technologies and sustainable solutions that are closely aligned with the country’s 5E Framework and priorities. At present however, these and other western countries are under-represented when it comes to FDI in Pakistan: recent research from the Financial Times’ fDi Intelligence reveals that just 2% of announced greenfield FDI came from OECD countries in 2023, compared with 98% from BRICS+ markets. Time will tell whether this was an anomaly, or part of a more embedded trend.

Expect to hear more from South Asia’s emergent Emerging Market in western business circles (and please pardon the deliberate tautology!)