An exploration of FDI inflows and factors which can contribute to the Pakistan telecom sector’s growth and development

Foreign Direct Investment (FDI) plays a vital role in the economic development of a host country. The telecommunication sectors of developing countries have attracted a massive amount of FDI in the last three decades. The primary purpose of this study is to analyse the role of FDI in Pakistan’s telecommunications sector through an in-depth exploration of FDI inflow on a monthly and annual basis between 2001 and 2019. This study will highlight the factors affecting FDI in Pakistan’s telecommunications sector in addition to portraying the inflow-trends of FDI in Pakistan’s telecommunications sector. Finally, an analysis will be undertaken of the public opinion about the service delivery provided by telecom companies in Pakistan and opinion of people will be assess through three variables overall quality, customer care, and social connectivity of the Pakistan telecom sector.

This study involved both primary and secondary data. The secondary data was collected from the Pakistan Telecommunication Authority’s (PTA) Annual reports, the State Bank of Pakistan, and Pakistan’s economic surveys. The secondary data were analysed through descriptive statistics, correlations, regression modelling, (Fully modified least square (FMOLS) and Vector Error Correction Modelling (VECM). The primary data were collected through stratified random sampling from Pakistan, and the total number of completed responses collected was 780. The primary data gathered from the telecom consumers in Pakistan were analysed to measure the level of service delivery provided by the telecom companies in Pakistan. For the primary data analysis, frequency distribution, contingency table analysis, the Chi-Square test, independent t-test, and one-way ANOVA were used. Structure equation modelling has been used to examine the relationships between the latent variables.

Overall, the results of this study demonstrate that FDI in the telecom sector plays a significant role in the growth of Pakistan’s telecommunications sector. Furthermore, it has helped to establish the telecommunications sector in Pakistan and enhanced the country’s overall economic development. This study also shows the opinion of the Pakistani people about the service delivery of Pakistan’s telecom sector. FDI in the telecommunications sector helps the Pakistani people utilise telecom services at reasonable prices by offering the latest 3G and 4G. The telecom services include broadband services and mobile calls at competitive rates both locally and internationally. The telecom sector helps its clients (through social connectivity) to connect with their friends and family by providing quality services and customer care.

This research contributes to the existing knowledge on the complete history and background of the Pakistan telecommunications sector, its segments and detailed policies over the time and the importance of FDI in the Pakistani telecom sector. Furthermore, a detailed analysis of the secondary data concludes that the month of June is statistically significant in each year for attracting more FDI as compared to the other months for the period under study. The years 2006, 2007 and 2008 were statistically significant for attracting the highest FDI as compared to the other years from 2001 to 2019. Government officials need to evaluate the inflow of FDI into the Pakistan telecommunications sector from 2001 to 2019. This will enable them to analyse the factors responsible for the increase in the inflow of FDI in specific years and months. The regime of dictatorship had experienced less hurdles towards FDI as compared to the democratic regime. Inflation, political instability, terrorism, and financial instability are the major hurdles for the smooth integration of FDI into the Pakistan telecom sector. It is imperative to reduce or overcome these hurdles to attract more FDI in the Pakistani telecom sector. Furthermore, FDI has both a long-run relationship with some of the telecom sector’s growth indicators such as private investment, teledensity and contributions to the National Exchequer, and a short-run relationship with teledensity and telecom contributions to the National Exchequer. The primary data analysis shows that different provinces in Pakistan are using various types of telecom services. Moreover, the level of public satisfaction with these services is strikingly different across the four provinces of Pakistan. The SEM (Structure equation modelling) demonstrates that customer care has a significant and positive effect on overall quality, and that the overall quality of the telecom services has a significant and positive effect on social connectivity. Furthermore, social connectivity helps to identify the strategies for the development and growth of the Pakistan telecom sector.

To attract more FDI into the telecommunications sector, the Pakistani government should revise its tax policies to increase the transparency in the system and to ensure the security of foreign investors. Political stability and conducive law and order conditions are necessary pre-conditions for attracting a considerable amount of FDI into the Pakistan telecommunications sector. This research has established that the inflow of FDI into the Pakistan telecommunications sector plays a pivotal role in the growth of Pakistan’s telecom sector overall. Finally, this research proposed the strategies for the growth and development of the Pakistan telecom sector.

This research will provide an impetus for the policy makers in Pakistan for devising such policies as are helpful for improving the influence of FDI in the Pakistan telecom sector. This study will also help the researchers to further explore this area of knowledge.