June 8 - 14, 2009

The phenomenon of extremism and terrorism, intensely rampant in the country, has grabbed the economic realm and commercial and industrial activities in its tentacles. The existing security system has failed to deliver the desired results and insurgency and criminal activities are engulfing the financial health of the country. Business community has now deep concerns and fears about increasing ratio of suicide bombing and deteriorating law and order situation across the country. Global economic recession carries much less weight for Pakistan where core issues are insurgency, sectarian violence, and target killings.

The recent brutal attack on Rescue 15 building at the hub of business in Lahore has induced deep condemnation on part of the business community as this particular blast has set property ablaze worth millions of rupees and ruined the inventory of cars as well as infrastructure. The bottom line is that for investors the physical security of their employees is even more important than profits. When extremist mobs torch outlets of western fast food chains these images of the under fire buildings flashing across the international media worsen the whole scenario. This wave of terrorism is badly affecting Pakistan's investment environment. While indicators, such as rising reserves and slowing inflation point to stability, political uncertainty and deteriorating law and order condition are posing risks to the economic growth. Deteriorated law and order situation is also impeding foreign direct investment in Pakistan.

Pakistan has great potential for foreign investment, particularly in IT, gas exploration, food processing and power generation sectors. US has been the largest investor in Pakistan with $1.3 billion direct investment in 2008-09 and $705 million during the first nine months of this year. However, the economic conditions have down turned on account of law and order issues which are compelling the prospective investors to distant places. There have been inquiries from the investors of Oman, Qatar and other Gulf countries for investment, but the recent wave of relentless attacks and rise in militancy would keep them at bay. According to board of Investment officials there are currently worth $10 billion projects available for investment but the global economic meltdown and the internal situation are creating impediments to attract investment. As a result of these downgrading variables the total investment in the economy has continued to decline and is projected to fall to 20% of GDP in FY09 from 21.3% in FY08. The central bank has projected that growth will slow down sharply for the full fiscal year 2009-10 to 3.5%, the lowest level in eight years.

If violence and anarchy prevails for a longer time then local and foreign investors would be forced to review their investment plans in view of the increased political risk to their investments. Weak external demand in Pakistan's main export markets, including the US, EU, and Japan, will negatively impact exports, particularly the textile sector, which accounts for 60% of export receipts. Besides private inflows, including remittances and FDIs, are expected to slow down in 2009, given the turmoil in global financial markets as well as increasing suicide bombings.

This bleak picture is creating an anti investment environment for Pakistan as now banks are also reluctant to lend to the private sector because of higher risk of non performing loans owing to the tight monetary policy of the SBP as well as hindrance in smooth running of business by miscreants. This sidelining of the private sector means that the economic growth will suffer, resulting in industrial closures, bank defaults and massive job losses. Exogenous price shocks (oil and food), debilitating power cuts, and the deteriorating security environment in the NWFP, which contributes 10% of national GDP, have led to falling domestic output. It was already exceedingly difficult to convince our foreign buyers to visit Pakistan in view of terrorism and deteriorating law and order situation around the country. We have witnessed massive industrial downturn for the last several months, which has led to closures and job losses. A large number of industrial units have closed down, pushing unemployment up in the months to come.


The government of Pakistan should now play its role if it is serious in transforming the present anti business climate into investment prone environment for domestic industry. WE need to be committed to providing an optimum investment climate for both local and foreign investors, and the government has to devise and implement measures to ensure the protection of all investments - and investors - in the country. Pakistan can not escape the downturn in the world trade and investment but the impact on the flow of foreign direct investment to Pakistan can be relentless than other countries because of uncontrolled security situation and branding of the country as a terrorist state.

The incredible opportunities for investment and development in Pakistan, particularly in the areas of infrastructure, cooperative farming, low income housing, energy, oil and gas, water, and telecommunication among others are available. These lucrative option are extending return on investment reaching as high as 30% in some cases, and investments paying for themselves within three years.

The foreign investors are being convinced by the government to invest in Pakistan in projects like garment and textile. Vocational training for human skills development plays a vital role in attracting foreign investments in any part of the world. If certain incentives are offered the investors would be willing to pour money here. For example in Agriculture sector investors should be able to own and cultivate the land in Pakistan, and export 100% of the crop if they so choose, and that the great incentives are being introduced to encourage investment in agriculture. The Ministry of Investment and Board of Investment should target investors from Asia, including the Gulf countries and China. It is also important to target existing investors who should be encouraged to reinvest a greater share of their profits, which is otherwise repatriated outside Pakistan. Sharjah-based Emirates Investments Group has already shown interest in investing in the real estate, housing and agriculture sectors in Pakistan.

In short, the state and people of Pakistan must combat extremism and terrorism collectively in the larger interest of the country to boost our economy and allure more people from outside to invest in the country. We should now stop being in denial of this grave threat.