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Oil major Shell’s exit could have a domino effect in Pakistan

Multinational companies finding it tough to operate in Pakistan

Pakistan’s economic crisis is further deepening with Shell Pakistan announcing the exit of oil major Shell Petroleum Company from the South Asian nation after 75 years. This has come as a big blow to the country which is struggling to attract investment to boost its economy. The announcement might set the ball rolling for other foreign investors too to look at exiting the country or halting operations temporarily.

Either way this will make the road to economic recovery even tougher for the cash starved nation. As more and more companies exit or downsize their operations in Pakistan, the level of unemployment will only rise.

Almost all multinational companies have run into huge losses due to massive depreciation in the Pakistani rupee. Earlier car manufacturer Honda announced halting operations.

The oil sector is one of the worst affected by the ongoing crisis. That apart, the pharmaceutical and automobile sectors have also been brutally impacted.

According to local news organisation Daily Duniya, Pakistan’s foreign direct investment (FDI) fell by 23 per cent this year to touch $17 billion compared to the previous year. The largest share of FDI poured into Pakistan from China. But in the last few months, China’s investments into Pakistan have been thinning with the rising political uncertainty in the country.

Import restrictions and dwindling foreign exchange reserves have added to the problem. To save forex reserves, the State Bank of Pakistan-the country’s central bank-has imposed stringent restrictions which have made it tough for the MNCs to remit dividends to shareholders outside the country.

The sharp depreciation of the Pakistani rupee has also led to a massive erosion of the value of the dividends.

“The country needs to provide an investor friendly business regime to attract foreign direct investment..this includes a stable political and security environment too. But the situation in Pakistan is just the opposite,” an analyst told India Narrative. The analyst added that the situation is getting worse. “There is no hope that the situation will improve anytime soon,” he added.

Pakistan Business Council (PBC) CEO Ehsan Malik earlier told the Express Tribune that the delay in remittances sends a “very negative signal to the potential (foreign) investors.”

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