TARIQ AHMED SAEEDI (tariqsaeedi@hotmail.com)
Sep 8 - 14, 2008

As investor seeks security in place where investment flows in, till the end of fiscal year 2007 Pakistan remained a desirable location for investment at every possible angle. It was the unpleasant crises at social and political fronts unfolded one after another after the mid that created concerns amongst investors about the fate of their businesses. To say that Musharaf's era was the treasure troves for the country stormed with aggressive currents of foreign investments causing stability in reserves to least to shore up progressive macro economic indicators is based on actual facts.

"Low interest rate was the real charm for investors during the period of last government," says Humayun Sayeed, chairman standing committee on foreign investment, FPCCI. Cost of production is a direct proportion to interest rate. "Yet certain corrective measures are still required to attract more foreign direct investments in the country," he answered abruptly when asked on telephone if national economic policies were still attractive to foreign investors. He says there are many unexposed areas to FDI in the country. With proper incentives and effective regulatory guidelines government can accumulate substantial foreign investments to develop number of sectors. "Regulatory framework needs to be reviewed and dully rectified," he asserts. "SBP has full prowess to direct flows." He thought government could maintain balance between economic growth and inflation provided prudent monetary measures.

"Consider the confusing political and worsening security conditions while observing the decline of foreign investments in the country," suggests Humayun.

While, according to SBP, starting month of July of current fiscal 2008-09 registered 40 percent growth in cumulative FDI inviting $340 million as compared to $193.5 million in the corresponding month of fiscal 2007-08, foreign investment in last fiscal year was decreased by over 50 percent to $5.2 billion in comparison to $8.4 billion in FY07. Note that total FDI factored in also portfolio investment that plunged by almost 400 percent in FY08 as compared to preceding fiscal and witnessed $120 million portfolio flight in a wide contrast to $36 million in FY07.

Although this exposes an impending apocalypse for an economy like Pakistan where FDI shields the pace of economic growth from being broken down and cushions gross development and national products against the devastating economic shockwaves, consistency in transference of capital from abroad in few sectors has beamed ray of hopes to work out prognosis at times when anarchy casts warning nationwide. The investment slowdown should not be parted from the socio-politico realities that are engrossed as much in the economic wheeling and dealing in the country as monetary tightening is.

Feared with security risks in recent turns, many Pakistan's friendly foreign states have been issuing advisories to their citizens who inclined otherwise to beat out business competition in Pakistan by investing directly or forming joint venture in different lucrative trade and industrial sectors.


Despite decline aggravated greatly by portfolio flight FY08 recorded FDI growth in oil and gas sector, financial businesses, chemicals, petro chemicals, mining and quarrying, pharmaceuticals, machinery products, transport equipments, and electronics to name few economic groups. While overall construction sector absorbed only $89 million foreign investment in last fiscal as opposed to sizeable $157 million in FY07, foreign capital arrival in cement sector of Pakistan overwhelmingly outweighed the FY07 $33.7 million by $102.5 million. Issuance of global depository receipts greatly helped cement sector to have this figure.

In last fiscal communication sector attracted $1.6 billion foreign investment as opposed to $1.89 billion received in FY07. Telecommunication was the main cause behind the decline enduring near $400 million cut-down in foreign investment. It invited $1.4 billion FDI including $133 million privatization proceeds in FY08 while $266 million privatization proceeds in FY07 equaled the FDI only in this sub sector to $1.8 billion. Manifestly, telecommunication emerged as a main booster of foreign investment among other investment attractive sub sectors such as postal and courier services and information technology in which $180 million FDI invested in FY08, outscoring $71.9 million of FY07.

Another sector where positive growth of FDI was recorded was oil and gas exploration which witnessed $635 million inflows in contrast to $545 million in FY07. Seemingly, the focus of foreign investors shifted to oil and gas exploration from petroleum refining and investment in refining dipped to $74 million from an earlier $155 million. There was a cogent reason behind this focus shift. In recent past government expedited its work to explore offshore oil and gas fields and liberalized trade regime especially de-regularized petroleum sector provided profitable investment opportunities to investors.

Finally, the marvelous growth of FDI in financial sector in last fiscal saved non-capital market investments from considerable fallout. While in FY07 FDI in financial businesses was to the tune of $930 million, it took a leap jump in the following fiscal to become $1.6 billion. The size of growth is reflected in the rapid expansion of banking and financial services all around the country and evident from the conspicuous rise in assets of conventional and non-conventional banks. The interests of foreign financial institutions in starting operations in Pakistan increased nonetheless internal chaos because of the fact that there is an enormous market to be explored.

No privatization proceeds landed in any other sectors during the under-reviewed financial years except in telecommunications. Despite uncomplicated way of gathering foreign reserves privatization needs cautious choosiness. "Advisably, national institutions which have national importance should mainly be controlled by the state only," says Humayun. "Government must occupy major stakes in such national kitties like steel mill."

Both confusion and optimism about the possible future of Pakistan's economy are reverberating in the atmosphere. Consistency in economic policies is required to erase the confusion that may debilitate investments further.