In an era where digital transformation is reshaping economies worldwide, Pakistan stands at a critical juncture.
The digital sector has long been recognised as a key segment for foreign direct investment (FDI), yet Pakistan has struggled to attract substantial digital FDI compared to regional peers like India or Indonesia.
Over the past decade, Pakistan’s digital FDI has experienced volatility, with a brief peak in 2020 due to Covid-19-driven investments. However, by the fiscal year 2022, the information technology (IT) and telecommunication sector’s contribution to total FDI had fallen to just six per cent, a stark decline from 25pc in 2020. Key factors such as macroeconomic instability, regulatory uncertainty, and currency fluctuations have significantly contributed to this slowdown.
Recognising these challenges, Pakistan has taken a significant step by implementing the ‘Digital FDI Initiative’, a project launched by the World Economic Forum (WEF) and the Digital Cooperation Organisation in 2022. This initiative aims to address the core barriers to digital investment, ensuring that Pakistan emerges as an attractive destination for foreign investors in the digital economy. Among the critical aspects of this initiative, intellectual property (IP) rights have been identified as a decisive factor influencing digital FDI.
Pakistan must address significant challenges in attracting FDI and updating IP laws to encourage long-term digital investment
Understanding the gaps in digital FDI landscape
Despite having significant potential, Pakistan’s digital sector faces numerous challenges in attracting foreign investment. Some of the most pressing concerns include frequent changes in economic policies, fluctuating currency values, and inconsistent regulatory frameworks that deter long-term foreign investments in the digital sector.
Historically, Pakistan’s telecom sector has been the primary recipient of digital FDI. However, net FDI outflows in the sector have exceeded inflows over the last three years, with over $200 million in net outflows recorded in FY23 due to high spectrum costs, excessive taxation, and currency risks. Although Pakistan’s startup ecosystem witnessed a record $355m in investments in 2022, funding drastically declined to $74m in 2023 and $37m by late 2024, reflecting growing investor hesitancy.
More critically, high tax rates, ambiguous regulatory frameworks, and a lack of clear data protection laws hinder foreign investor confidence in Pakistan’s digital economy, while weak IP protection laws and enforcement mechanisms discourage global technology firms from investing in Pakistan’s innovation-driven industries. Limited access to high-speed internet, power outages, and lack of cloud computing infrastructure also negatively impact digital business growth.
The digital FDI-enabling project
To tackle these challenges, the Digital FDI-Enabling Project (DEP) was introduced which aims to create a more investment-friendly digital environment by focusing on six key priority actions: private-sector investment promotion and partnerships between local digital firms and international investors; policy and regulatory reforms addressing legal inconsistencies; digital skills development enhancing workforce capabilities to meet the demands of global technology firms; tax stability and incentives introducing predictable taxation policies that facilitate investment; special technology zones developing designated areas with regulatory incentives to attract foreign digital enterprises; and, spectrum management creating a transparent and investor-friendly spectrum pricing model.
Other countries such as Nigeria, Azerbaijan, Cyprus, Oman, and Rwanda have also expressed interest in similar digital investment projects under the WEF’s Global Investment Policy and Practice Initiative.
IP rights — a key enabler of digital FDI
The WEF Insight Report on the Digital FDI Initiative underscores the critical role of IP rights in fostering a secure and attractive investment climate for digital businesses. Strengthening IP laws and enforcement can significantly enhance Pakistan’s ability to draw high-value digital FDI. Unfortunately, updating IP laws in Pakistan, especially for the protection of copyrights and trademarks, remains long overdue.
While some data localisation laws exist, there is no comprehensive data protection framework aligned with international best practices, and inefficient enforcement mechanisms make it difficult for businesses to protect their intellectual assets, discouraging investment in high-tech sectors. Furthermore, lengthy litigation processes due to an absence of specialised IP courts and weak penalties for IP violations deter foreign investors.
Sadly, instead of rectifying these challenges, different agencies overseeing IP regulations operate in silos, reducing the effectiveness of enforcement efforts. This has also led to businesses exploring other regimes that provide relatively faster recourse against infringement, such as under Section 10 (Deceptive Market Practices) of the Competition Act (2010).
Strategic recommendations
Pakistan’s decision to pioneer the Digital FDI-Enabling Project positions it as a forward-thinking economy eager to embrace digital transformation. However, to fully capitalise on this opportunity, strengthening intellectual property rights and maximising the potential of digital FDI is paramount.
Development of specific provisions for the protection of trade secrets, algorithms and artificial intelligence is required to allow the protection of digital IP rights to help the cause, along with setting up separate tribunals within the IP Tribunal structure to cater to the specialised nature of digital IP disputes. This — and compliance with international treaties like the World Intellectual Property Organisation — will improve investor confidence.
The country must also invest in cloud computing capabilities to expand broadband access and identify, select and incentivise further areas of focus within the realm of digitisation and tech (hardware manufacturing for digital infrastructure, software development or both) to ensure continued success.
If properly executed, these reforms are estimated in the WEF Insight Report to unlock $34.9 billion in economic value by 2030, making Pakistan a competitive hub for digital foreign direct investment.
The writer is the Secretary General of Overseas Investors Chambers of Commerce & Industry
Published in Dawn, The Business and Finance Weekly, March 10th, 2025
