July 12 - 18, 20

Political instability, terrorist attacks, electricity and gas shortages and weak law order control has led to decline in foreign direct investment (FDI) in the year 2009-10 in the country with no much hopes of improvement in the situation in the year 2010-11.

On one side, foreign investors are showing reluctance in investing their capital in Pakistan while on the other Pakistani firms are unable to sign agreement with foreign investors due to the prevailing abysmal law and order situation.

Economists believe that the domestic shocks were major contributors in the declining trend of FDI. The ongoing disturbance in the northern areas and suicide attacks have restricted the foreign buyers from new investment in Pakistan. The share of foreign direct investment, flowing into Pakistan, is negligible when compared to the opportunities and economic fundamentals of the country. The FDI inflow into the country is less than one per cent of world's total. Since 1996, when received highest amount, FDI in Pakistan has been experiencing a declining trend, they said.

Improved law and order conditions will ultimately encourage foreign companies to invest more in Pakistan. To emerge as a promising nation Pakistan has to provide conductive environment for external economic flows. Foreign direct investment in Pakistan is a major external source to meet obligations of resource gap, human resource development, and goal achievement. Nevertheless, the FDI has played a vital role in the economic growth of Pakistan.

Net foreign investment has posted a decline of 15 percent during the first eleven months of the fiscal year 2009-10. The position of foreign direct investment for July-March 2009-10 shows a decline of 58 percent, with portfolio investment falling by 189 percent.

Major contributors to foreign direct investment were European Union ($474.8 million), USA ($443.9 million), Netherlands ($268.4 million), UK ($168 million), and Asian region ($126.3 million). Major sectors attracting FDI include oil and gas exploration ($519.9 million), telecommunications ($264.1 million), financial business ($118.7 million), trade ($65.1 million), construction ($77.7 million) and chemicals ($76.5 million).

With current decline, net foreign investment has decreased to $1.896 billion during the July-May of the current fiscal year as compared to $2.22 billion in same period of last fiscal year.

Analysts are of the view that the foreign investors are reluctant to invest in Pakistan due to political uncertainty and worst law and order situation. However, they believed that in the next few months some improvement would be witnessed as economy is growing well.

They said that some $1.89 billion net foreign investment during the first eleven months is also encouraging figure, as despite the uncertainty foreign investment inflows are higher than expectations, which is a positive sign and it means that still foreign investors are interested to invest in Pakistan.

According to statistics, FDI has posted a decrease of 39 percent, while portfolio investment has registered a surge of 88 percent during the period. With this reduction, FDI has declined to $2.031 billion in July-May of fiscal year 2010 as compared to $3.33 billion in corresponding period of last fiscal year, depicting a decrease of $1.3 billion. Including privatisation proceeds total private investment shows a decline of 7.2 percent to $2.57 billion during July-May of current fiscal year, which previously stood at $2.77 billion

However, net foreign investment by USA in Pakistan has surged by 141 percent during the eleven months of current fiscal year mainly due to high investment in equity market.

According to official figures, net foreign investment by US investors registered remarkable increase of $563 million, to $961 million, in July-May of fiscal year 2010 as compared to $398 million in same period of last fiscal year.

On the contrary, FDI by US investors posted a decline of 35.3 percent during July-May of fiscal year 2010. With current decline, overall FDI by USA in Pakistan has declined to $522 million in first eleven months of fiscal year 2009-10 as compared to $806 million dollar in same period of last fiscal year, depicting a decline of $284 million. However, USA investors have come back in Pakistan's equity market because of some improvement in share market and invested some $439 million during the July-May of 2010. Portfolio investment by US investors posted an increase of 207 percent to $439 million during the period as compared to withdrawal of $408 million in corresponding period of last fiscal year.

In 2001-02 fiscal year, when war against terrorism was started, US investment in Pakistan stood at 324.7 million dollars and it touched new peak of 1.748 billion dollars in fiscal year 2008. Similarly, United Kingdom (UK) investment posted an increase of 69 percent during the first eleven months of current fiscal year. UK invested $280 million in July-May of 2010 as compared to $166 million in corresponding period of last fiscal year. UK's FDI stood at 263.4 million dollars in the last fiscal year relative to 460.4 million dollars in fiscal year 2008, showing a decrease of 42.8 percent, while portfolio investment stood at a negative position of 77.7 million dollars. UAE invested $208 million, Switzerland $161 million, Netherlands $272 million, Singapore $105 million, Malaysia $11.8 million and Hong Kong made $28 million investment in first eleven months of current fiscal year. Total foreign investment witnessed a decline of 14 percent to $1.89 billion during July-May of current fiscal year as compared to an investment of $2.22 billion in fiscal year 2008.

Telecom sector in Pakistan is the only sector that witnessed encouraging foreign direct investment during year 2009-10.

Pakistan has huge potential with vast investment opportunities. The need of the hour is to strengthen the economy through investment friendly policies. National economy is passing through difficult time due to host of reasons. With determination and economic vision, improvement is possible.