TotalEnergies’ Pakistan exit stirs company exodus fears

ISLAMABAD — France’s TotalEnergies has joined a growing list of Western businesses reducing their exposure to Pakistan, dealing further shock to the country’s struggling economy.

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Over the last two years, at least nine firms, including Norwegian telco Telenor and Shell Oil, have declared plans to reduce or eliminate their interests in Pakistan owing to worries about overregulation, a ban on repatriating earnings, and political instability.

“Multinational businesses (MNCs) rely on predictability, stability, and consistency to succeed. “If these elements are missing, they are more likely to withdraw,” said Shahid Maitla, an Islamabad-based political expert.

Total said last week that it has sold a 50% investment in Total PARCO Pakistan, which has a retail network of over 800 petrol stations, to Swiss commodities trader Gunvor Group. The investment, worth an estimated $26.5 million, was relocated to focus on “core geographies with growth and transitioning opportunities,” according to Total.

The news comes less than a year after Telenor Group sold its local operation to Pakistan Telecommunication Company in December for $388 million. Telenor had been active in Pakistan for about two decades, with approximately 45 million consumers.

Another high-profile example was Shell Oil, which agreed to sell its 77.42% ownership in Shell Pakistan to Saudi firm Wafi Energy in a transaction expected to close by the end of this year.

Pharmaceutical companies Pfizer and France’s Sanofi are among the multinationals that have divested wholly or partially.

In the midst of an economic crisis in which foreign exchange reserves plummeted, Pakistan sought a multibillion-dollar bailout from the International Monetary Fund last year, while officials imposed currency controls that made it more difficult for businesses to shift their profits abroad, a major reason for those companies leaving the country.

“If an investor cannot return profits from a country, the investor will probably leave over time,” Telenor CEO Sigve Brekke stated in an April media interview.

According to previous claims in local media, between $1 billion and $2 billion in revenues from three multinational corporations were held in Pakistani banks for more than a year.

“Why would a company choose to invest if it cannot liquidate its profits?” Maitla is also the managing editor of Bloom Pakistan, a political and economic news portal.

Overregulation is frequently mentioned as a contributing factor to the exodus, particularly Shell’s exit, while an extra 10% super tax on corporate earnings, borrowing rates as high as 22%, and foreign exchange concerns have all had an impact.

Officials are dealing with smuggling, the underground economy, and intellectual property violation.

Pakistan is also facing its biggest political crisis in decades, following the ouster of popular Prime Minister Imran Khan in 2022 and his subsequent imprisonment last year on a slew of charges he claimed were politically motivated.

Some government officials debate the reasons for multinationals leaving the country.

“[MNCs] have left Pakistan’s market due to global restructuring decisions rather than problems with Pakistan’s economy, which has enormous growth potential,” one investment official told Nikkei Asia on the condition of anonymity since the individual is not permitted to speak to the media.

But another executive of a multinational in Pakistan dismissed that argument: “MNCs do not leave their existing portfolios while restructuring.”

In any case, the run of divestments calls into question Pakistan’s economic climate and efforts to boost the country’s low levels of foreign direct investment.

“The country’s negative rating and uncertain future is even forcing local investors to move outside, and with the exit of reputed MNCs, there is now little hope for any breakthrough on the FDI front,” Ikram ul Haq, a lawyer with experience in economics and taxation, told Nikkei.

Islamabad must implement radical reforms to curb the migration and attract new investment, Maitla remarked.

“Pakistani policymakers need to understand that a rent-seeking approach toward the next wave of potential investors will not be effective,” said Mr. Khan.