When an investor, especially a foreign investor, considers putting money into a new country, the obvious questions are about market demand, taxes, energy costs, financing and expected returns. There is, however, another cost that rarely appears on a balance sheet but can have a significant bearing on an investment decision. It is the cost of dealing with the state.
How long will an approval, if needed, take? How many departments will need to be approached? Will a tax interpretation remain consistent? Who is responsible for the final decision? What happens if a dispute arises? For businesses, these are not administrative details. They affect the time, cost and risk attached to an investment.
This is why governance matters for investment. Pakistan has made progress on macroeconomic stabilisation, but stabilisation alone has not translated into a significant increase in investment. The investment-to-GDP ratio remained at only 14.38 per cent in FY26. At the same time, Pakistan continues to fall behind several regional competitors on key measures of government effectiveness, regulatory quality, rule of law and political stability.
This uncertainty effectively becomes a governance cost. It can take the form of delayed approvals, overlapping licences, uncertain tax assessments, unreliable utilities and management time spent navigating government processes. The result is that capital can remain idle while financing costs continue to accumulate, while businesses devote resources to managing uncertainty instead of investing in technology, skills and expansion. However, much of this cost is avoidable.
