Investment is one of the essential components which formulate an economy as a whole. Here we talk about Foreign direct investment (FDI), particularly in the tech industry. FDI contributes a great chunk into the Gross Domestic Product (GDP) of Pakistan.
As far as the tech industries are concerned, the country requires more FDI for the development of the same. Since Pakistan does not have enough resources to establish and run the industry smoothly. Regrettably, FDI has been consistently declining for past several decades.
According to economists, numerous factors are responsible for the declination of FDI in the tech industry. These might include:
Law and order situation:
The stability of an economy lies behind the law and order situation in the country. The more smooth the situation, the better the economy will grow. It is the combination of such factors; external aggression, religious extremism, labor union’s strikes, boycotts or lockouts, and ethnic or racial cleavages.
The law and order situation in Pakistan becomes worse than before. These could potentially influence the inflow of FDI. Therefore, law and order situation needs to be improved so that the potential investors would attract.
The policies devised in Pakistan are fairly inconsistent. The tax levy and tariffs fluctuate instantaneously which will diminish the inflow of FDI. Tax relief or tax incentives for investment in the tech industry would gather more foreigners to make the investment in Pakistan.
The demand for energy is increasing enormously because of the industrial development and dense population. However, the production of energy is limited and can not be enhanced. There is a great difference between the supply and demand. As a result, the energy crisis has emerged. The shortage of energy will endanger the sustainability of business.
Hence, the optimum plan should be made to overcome the energy crisis which will lead to increase in FDI in tech.
Corruption is considered a strong constraint in the development of the country. Corrupted economies are incapable of functioning properly as corruption prevents the natural laws of the economy from mapping freely. The high extortion money will decrease the level of motivation which will ultimately impair the business viability.
Corruption can never be eliminated but controlled. Therefore, anti-corruption policies should be devised and followed strictly. As a result, the tech industry would develop on the back of FDI.
The rule of law, respect for fundamental rights, merit-based procedures, and free media are some of the basic features of democracy. Unfortunately, the democratic nation lacks with such basic rules. The political instability is not only disturbing the peace but also the economic growth of the country.
Good governance leads to the promotion of national cohesion, an independent judiciary, national integration, educational opportunities, socio-economic development, and equal distribution of wealth. Unluckily, the foreign investors will fail to find such essentials which will cause to diverse them. Pakistan would receive more investment from foreigners if she amends the governance.
Besides the other factors barriers to entry into the market will also restrict the FDI. Barriers are put in place to secure the local industries from the international competition. These barriers might include high setup cost, high research and development cost, vertical integration, and exclusive brands, patents, and rights. Therefore, the government should remove such restrictions, particularly in tech support investment, which will boost the economy gradually.
To some extent, discrimination will ban the flow of FDI in Pakistan. Preferences will be provided to the local investors in term of tax incentives, and government funds. Hence, the government should introduce the catchy schemes for foreigners too.
Undue government interference:
No one likes the intervention of others. Unfortunately, the undue government interference will slow down the growth of an economy. This phenomenon leads to restricting the government interference to some extent. The government should imply check and balance to ensure that none of the illegal activities would carry on, but not to show interest in the profitability.
Foreigners are afraid of losing returns on their investments. Apparently, they can not put reliance upon the industries. Consequently, the growth of tech industry slows down. The government should provide assurance to the investors so that they can easily put their savings in tech.