Closer ties with foreign firms to expand industries
Pakistan needs to attract investment into industries capable of selling globally, developing local suppliers
A foreign investor builds a factory in Pakistan, employs local workers and sells its products in the domestic market.Production rises, jobs are created and business activity expands.Yet if the factory depends heavily on imported machinery and materials, earns its revenue in rupees and sends part of its profits overseas, its contribution to the country’s foreign exchange position may remain limited.
Now consider a different arrangement.A Pakistani manufacturer joins hands with an overseas company, adopts its technology, improves production standards and begins supplying customers in international markets.
The partnership creates jobs at home while bringing in export earnings.Local suppliers may also benefit as the business expands.
For Pakistan, where the demand for dollars regularly outpaces the economy’s ability to earn them through merchandise exports, the difference between these two investment models deserves greater attention.
Economic analyst Shahid Anwar believes closer partnerships between domestic manufacturers and foreign companies could help Pakistan make better use of its existing industrial base.
“Pakistan needs to look beyond the headline figure for foreign investment and examine the economic activity it creates over time,” said Anwar, a former secretary-general of the Federation of Pakistan Chambers of Commerce and Industry (FPCCI).
According to the State Bank of Pakistan data, net foreign direct investment (FDI) reached around $495 million in July and August 2026, compared with $399 million in the same period a year earlier.The improvement followed a weaker full year, when net FDI fell to $1.67 billion in FY26 from $2.48 billion in FY25.
World Bank data shows that FDI has remained below 1% of gross domestic product since 2010.
Investment has also remained concentrated in a narrow range of activities.Pakistan Economic Survey for FY26 shows that the power sector attracted 52.7% of net FDI in the first nine months of the fiscal year, while financial businesses accounted for 43.5%.
Telecommunications recorded a net outflow of $465.5 million, which the survey attributed to a one-time divestment.Anwar argues that Pakistan needs to attract more investment into industries capable of selling internationally, developing local suppliers and reducing dependence on imported goods.The need is underscored by the country’s trade performance.Goods exports declined 5.93% to $30.1 billion in FY26, while imports rose 8.14% to $69.8 billion, according to the Pakistan Bureau of Statistics.
September brought some improvement in exports, which increased 17.6% year-on-year to $2.94 billion.But imports also climbed by more than 11% to approximately $6.49 billion.
The trade deficit for July-September reached $10.79 billion, about 15% higher than a year earlier.
The World Bank estimates that Pakistan has nearly $60 billion in untapped export potential.Yet exports have fallen from 16% of GDP in the 1990s to around 10%, leaving considerable room for improvement.
“Many Pakistani manufacturers can produce at scale, but entering overseas markets requires consistent quality, modern processes and reliable buyers.A foreign partner who brings those capabilities can help a local business move beyond the domestic market and compete internationally,” said Arshad Zia, a mid-scale businessman.Joint ventures could help achieve these objectives by combining established Pakistani factories and workforces with overseas technology, technical expertise and access to customers.The approach will not replace investment in new factories where additional capacity or new units are required.Instead, it will provide another route for expanding businesses that already have productive facilities.
Zia added that though this transition for Pakistani industries was not that easy, already some joint ventures were underway and were providing good results.”Such JVs, however, are largely for high-end industries, where money is not an issue, but for an average businessman, JVs are still not accessible.”
Anwar, on the other hand, proposes assessing major investment projects through what he calls a “dollar test”.Under this approach, authorities will examine projected export earnings, purchases from local suppliers and expected foreign exchange payments for imported inputs, profits and dividends over a 10-year period.
The results will be reviewed annually.
He called on the Board of Investment to work with chambers of commerce and industrial associations to match Pakistani manufacturers with suitable foreign partners.He also recommended linking tax and tariff incentives to verified exports, domestic sourcing, technology adoption and workforce training, while publishing an annual breakdown of investment by sector.”Attracting capital remains important, but the greater prize is investment that strengthens local production, connects Pakistani businesses with global markets and continues earning dollars long after the initial funds have arrived,” Anwar added.
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