'Corrupt' or 'Complementary'? Why Bangladesh is Pouring Billions into Pakistan

Governor Balochistan Jaffar Khan Mandokhel has confirmed a pivotal shift in South Asian economic dynamics: Bangladeshi investors are flocking to Pakistan, eager to inject capital into Balochistan’s resource-rich agriculture and trade sectors. This signals the end of a four-decade period of limited major Bangladeshi investment, largely attributable to lingering geopolitical friction and Pakistan’s history of political instability.

The key driver behind this new strategic phase is Bangladesh’s remarkable economic ascent. Starting from a lower economic base than Pakistan in 1971, Bangladesh has leapfrogged its former counterpart through a focused, export-led strategy centered on its ready-made garment (RMG) sector and robust human capital development. This success has created a new demand that Pakistan is uniquely positioned to fulfill.

The Corruption Conundrum: Why Lower CPI Score Isn't a Dealbreaker

A major question for observers is why a highly successful economy like Bangladesh is investing heavily in a country with acknowledged governance challenges. Both nations grapple with serious public sector corruption, as illustrated by the 2024 Transparency International Corruption Perception Index (CPI) scores: Pakistan (Score: 27, Rank: 135) and Bangladesh (Score: 23, Rank: 151). A lower CPI score indicates a higher perception of corruption, meaning Bangladesh is perceived to have a higher level of corruption than Pakistan.

The Pragmatic Rationale: For investors, the decision is less about absolute scores and more about predictable returns and supply chain security. Bangladesh now seeks new and reliable supply chains for raw materials and agricultural commodities that its booming manufacturing sector demands, which Pakistan, especially Balochistan, can reliably provide.

The 'Helping Hand' Theory: Globally, and in South Asia, some empirical research suggests that in countries with weak institutional frameworks, high returns in high-risk sectors (like food, energy, and finance) can still attract Foreign Direct Investment (FDI). Investors often mitigate corruption risk by focusing on large, transparent, and government-backed projects, as well as through detailed due diligence and risk assessment, rather than being completely deterred by the overall perception score.

Legal Protections: To address concerns, Pakistan has legal safeguards like the Foreign Private Investment (Promotion & Protection) Act, 1976, which guarantees foreign investment receives treatment no less favorable than domestic investment, along with recent special tax incentives for large projects.

Political Rapprochement and Economic Complementarity

This investment drive is being propelled by a current period of renewed high-level diplomatic and trade engagement. Recent developments include:

Institutional Revival: The Pakistan-Bangladesh Joint Economic Commission (JEC) is being reactivated, and a new Trade and Investment Commission is being established, demonstrating a concerted effort to institutionalize relations beyond political volatility.

Trade Focus: Discussions are underway to conclude a Free Trade Agreement (FTA) or Preferential Trade Agreement (PTA), which would formalize trade concessions and lower barriers.

Two-Way Benefit: Governor Mandokhel highlighted lucrative opportunities in agriculture, minerals, energy, and infrastructure for Bangladeshi capital. Conversely, Pakistan is keen to adopt Bangladesh's globally recognized expertise in small cottage industries and its successful model for ensuring women’s participation in economic activities—a crucial growth area for Balochistan.

The convergence of Bangladesh's need for resources and Pakistan's willingness to institutionalize and protect foreign capital suggests that economic complementarity is the overwhelming factor, paving the way for a crucial new stream of foreign capital in a relationship long defined by history.