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SAZH-TAF Report on FDI

Human Resources - Certification & Training

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FDI is inherently tied to the host country’s working population. They are dependent upon each other as investors wish for a skilled workforce to ensure they succeed, and workers rely upon investors to provide them with better pay and opportunities. According to Romer’s (1986) endogenous growth theory, “FDI plays an essential role to economic growth through labor training and skill acquisition not only through capital accumulation and technology transfer.” (Javaid, 2016) Technology and knowledge transfer have positive effects on a country’s human capital leading to greater efficiency and potentially greater economic output. In this way, domestic firms can thrive from FDI and even adopt better marketing, management practices and organizational arrangements. The World Investment Report (2008) states that “FDI boosts the economy by creating employment opportunities, transfers skills and technologies, increases in productivity, and continuous long-term development in the developing countries.” (Javaid, 2016)

 

This is also where FDI brings a positive impact on the economy as foreign investors introduce new training opportunities, management, and skill development, consequently improving the market standard through competition, such as the Alibaba Founders Fellowship program with National Incubation Center, Karachi, and the construction of Pak-China Technical and Vocational Institute at Gwadar for vocational training.

 

One of our experts who is a venture capitalist, pointed out this lacuna in Pakistan’s trust system. He mentioned succinctly that his first point of entry would be to find legal experts, yet he has no feasible mechanism or database using which he may find a legal expert, who is equipped to deal with international investments, and all that it would entail. He has to explore through references, and educated guesses, which according to him, is not an ideal situation when trying to make decisions pertaining to investment, whether big or small. Thus, he mentioned that a necessary step in building a trust system is certification and trainings of key individuals who could then advise as to how foreign investments would be brought in, how share purchase may work and whether or not there is any control on foreign exchange. As an investor, he needs to be able to trust a system that certifies such individuals and has catered to a competitive market, so that he does not only have the handful of law firms or experts to choose out of the international directories, such as the Legal 500 and Chambers & Partners.

 

A senior legal expert in Pakistan similarly shared that very few lawyers or accountants in Pakistan knew and could advise on the foreign exchange manual, which governed how remittances could be sent outside Pakistan. This is a crucial element for investors to know, as it governs how they receive profits, or how they can exit from their investment. Likewise, it was highlighted that there is a distinct lack of knowledge or training in Pakistan pertaining to international arbitration, hence parties are either engaging expensive foreign lawyers, or from the few in Pakistan, expensive local lawyers. Pakistan needs to begin training individuals in this key expertise that investors are looking for, and to cultivate their mindsets on saving time and spending it productively in a monetary beneficial manner without wasting the time and opportunity costs of the investors.


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