The Foreign businesses and multinational companies (MNCs) in Pakistan exist through different forms i.e. holding companies, franchises and some are fully incorporated. MNS c in Pakistan used to serve an important purpose and help them to grow their economy. But due to the wide challenges to Pakistan, it becomes quite difficult for MNCs to do their business in Pakistan. This report will briefly analyses such challenges or hurdles which MNCs are currently facing in Pakistan.
Hurdles for MNCs in Pakistan
Pakistan, unlike China and India, has not regarded as the avid destination for the MNCs from across the globe for multiple reasons. Although Pakistan has high number of population i.e. 208 million but Pakistan lacks the lure with regards to attracting the MNCs. Various MNCs are operating in Pakistan but still Pakistan is not regarded as the foremost choice in the region. However, there are various hurdles which MNCs are facing in Pakistan. Some of them are explained below:
Financial and Economic Challenges
MNCs in Pakistan are now hesitating to invest further in Pakistan as the costs of everything has been increased to almost 50%. It has been observed that costs always increased when the stability drops and Pakistan is currently instability in their economy. The economic situation of Pakistan is quite critical for MNCs as it costs them really high to do business here due to increased cost of every single thing.
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Pakistan is having increased in their debts rates, increase in imports and decrease in exports, low investments, low savings, low collection of tax, low implementation of policies and moreover, excessive collection of tax has become a biggest burden for MNCs. Pakistan has also increase the tariff barriers which are imposed by their ruling party which have burdened and have created heavy hurdles in the way of doing businesses for MNCs.
War or Terrorism
Pakistan is facing not only war against terrorism but war for having the scarce resources which is another major hurdle for MNCs operating in Pakistan. Multinational Companies have to tolerate the opposition of some environmental friendly organizations. The MNCs which sued to manufacture in Pakistan need water resources but Pakistan is facing high shortage of water. For Example, Engro Foods in Pakistan requires large amount of water to have effective working for their food products but lack of water has created a threat for their activities. However, natural disasters such as floods and earthquakes have also disturbed the activities in Pakistan.
The biggest hurdle which MNCs are facing is the danger of bombing campaigns, terror and violence, the unrest, attacks, aggression have scared the people in Pakistan. The ease of doing business in Pakistan has been dropped due to religious or ethnic divisions. Various governments issue warning to their enterprises to not go to Pakistan as Pakistan is considered as dangerous to go. Moreover, in most of the cases, direct threats have been made to western business as a form of retaliation against the western governments. This has made the international business vary wary especially smaller business who do not have much resources.
Energy and Transport
Energy and power is the main issue which Pakistan is facing. Various multinational companies are interested in doing electricity projects in Pakistan which provides greater opportunity to Pakistan because the entire industry in Pakistan has been destroyed due to load shading.
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For example, China was eager to invest in Pakistan for electricity Projects. However, MNCs in Pakistan are also facing hurdles of communication and power which accounts for substantial loss in the overall productivity. The infrastructure of transportation is a major concern for many companies as Pakistan is facing high shortage of gas and oil. For example, Honda Company is selling its cars in Pakistan but due to the shortage of oil and gas, people avoid to buy such petrol consuming cars which ultimately impacts them negatively.
The MNCs in Pakistan are facing various challenges due to their destabilize economy as the economic situation in Pakistan is quite critical and Pakistan is now looking towards solution to improve the economy and the business environment in the state. As MNCs bring FDI in state which boost up the economy, therefore, it is essential for Pakistan to improve the environment for them. Some recommendations have been given below which will help Pakistan to improve environment for MNCs.
Pakistan is regarded as the state which has a high number of young labor force which can help them to improve their economy. It is now important for Pakistan to fuel their young men and women accurately, increase the participation of women in the labor force.
Pakistan should provide those skills and knowledge to their potential young generation would make their labor force the most efficient for the rest of the globe. This will give immense boost to the economy of Pakistan and due to high potential workforce, MNCs will be attracted towards Pakistan. Pakistan is currently making their high efforts which has increase the allowances of their workers from one billion dollar to 8 million dollars.
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Secondly, Pakistan is in high need to improve their rate of tax collection which will attract the MNCs to work in Pakistan. Pakistan is making their high efforts to improve the system and have witnessed 81% in their tax revenue which is a big plus for Pakistan. It is important for their government to allow Federal Board of Revenue to work as impartially, transparently and independently which will make their FBR an efficient tax administration. This will ultimately increase the confidence of MNCs who are the largest tax payers in FBR.