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Decline in direct and indirect foreign investment

  1. Disparity in import duty of palm oil
  2. The declining foreign investment
  3. Rupee volatility
  4. Boom is not far away
  5. Increasing domestic and foreign debt

There is a need to restore investors' confidence for swift inflow of foreign investment

From Shamim Ahmed Rizvi, Islamabad
July 05 - 11,1999

Despite Pakistan's most attractive investment policy in the region and hectic efforts being made by the Board of Investment, flow of foreign investment is not picking up. But, it has unfortunately declined.

Both the components of foreign investment, direct and portfolio (indirect), dropped by 40 to 90 per cent during the fiscal year 1998-99 as compared to the previous year. Ten-month figures (July 1998 to April 1999), released by the State Bank of Pakistan, suggest that total foreign investment nose-dived to $ 334 million as compared to $ 760 million of the corresponding period last year. This, analysts said, has reflected lack of investors' confidence and sluggish economic trend. Also, it showed that foreign investors' role in the country's stock market has been almost non-existent. The foreign direct investment (FDI) and portfolio investment are the two components of total private foreign investment. Decline in FDI has directly affected country's revenue collection and foreign trade where overall imports declined by over 11.2 per cent in the first 10 months as compared to the same period last year with exports declining by 12 per cent.

Commenting on the situation, the UNIDO representative in Pakistan, in a recent press briefing, observed that Pakistan with its present 'most attractive' investment policy should normally attract 2.5 to 3 billion dollars foreign investment annually. But several flaws and lapses in the overall political and investment climate discouraged the investors.

Law and order situation, in his view, was the number one problem which not only raised doubts about smooth operations of foreign-sponsored projects but also scared the investors regarding their personal safety in Pakistan. Recalling the killing of some US nationals in Karachi a few years back, he said, that incident ultimately led to the abandonment of the ambitious "Intechmart programme" which was sponsored by UNIDO to promote foreign investment along with transfer of technology in a number of projects.

He further mentioned the inconsistencies in the government's economic policies which hindered as sustained presence of foreign private investment in Pakistan and referred to the government's dispute with the IPPs besides the sudden decision to freeze the foreign currency accounts. These incidents, according to him, added to the worsening of climate for foreign investors in this country. The UNIDO chief in Pakistan, referring to the favourable investment climate prevailing in China, India and South Korea, stressed that the government in Pakistan should take note of the healthy atmosphere in these countries and initiate necessary steps to restore investors' confidence.

The US ambassador to Pakistan, in a recent meeting with the representatives of Lahore Chamber of Commerce and Industry observed that the IPPs issue, strife with pharmaceutical companies, followed by oil and gas problem, are turning investment climate in Pakistan from bad to worse. He said these issues had caused a severe setback to the flow of foreign investment in the country. US envoy also pointed out the law and order situation in Karachi and sectarian killings in other provinces as the major hurdles in attracting foreign investment. The US ambassador urged the business community to put pressure on the government to quickly expedite IPPs, pharmaceutical, oil and gas issues for free-flowing foreign business in the country.

However, authorities in the Board of Investment (BOI) claim that their recently concluded investment moots across the Middle East, East Asia and Turkey have done a lot to restore the investors' confidence. This campaign is still continues and similar moots are scheduled for Africa, Europe and the United States. They hoped that their efforts would materialize soon and fiscal year 1999-2000 will be a positive year for Pakistan in terms of foreign investments.

The BOI Chief, Humayun Akhtar Khan, at a news conference, explained in detail what his department has been doing to attract foreign investment. He said that BOI initiated a programme of investment promotion and marketing by holding Investment Conference in Kuwait on April 27-28, 1999 in pursuance of mutuality of interest expressed by the governments of Pakistan and Kuwait during joint ministerial meeting which was organized to elevate economic relations between the two countries. On the occasion of the visit of Prime Minister Nawaz Sharif to Singapore, an Investment Conference was organized by the Board of Investment on May 4, 1999 in collaboration with the Trade Development Board of Singapore. The conference, chaired by the Prime Minister, had a gathering of over 250 participants. The area of interest for investment indicated by the potential investors during the conference and meetings with major companies include software development, ports development and establishment of industrial zones in Pakistan. During the Prime Minister's visit to Brunei, the leadership and the relevant government authorities were apprised of the economic revival in Pakistan and the opportunities of investment which are offered by the liberalized investment policies under a de-regulated and congenial environment for trade and investment.

Thereafter the BOI chairman joined the official delegation for participation in the Investment Conferences organized by the Board in collaboration with Chamber of Commerce and Industry, in Gulf, Middle Eastern countries and Turkey which were held according to the following schedule:


Muscat: 15-16 May,1999

Saudi Arabia

Dammam: 17-18 May,1999

Riyadh: 19-20 May,1999

Jeddah: 22-23 May,1999


Dubai: 24-25 May,1999

Abu Dhabi: 26-27 May,1999



Istanbul: 31 May -1 June,1999

Ankara (Bilateral meetings) 2nd June,1999

Private sector delegation, represented by the chief executives/ heads of some major companies in Pakistan, attended the Conference in the countries of their interest. The Pakistan Investment Conferences focused on creating awareness of improvement in macro-economic indicators and positive signs of economic revival as a result of reformatory measures taken by the government and drew attention of the potential investors to the lucrative investment opportunities in various sectors of the economy and privatization programme under the de-regulated, liberalized investment and trade regime in Pakistan.

The Investment Conferences and one-to-one meetings with the potential investors, which were followed after each Conference, focused on promoting investment and joint ventures in Pakistan in the following priority sectors :

i) Oil and Gas, Petro Chemical and chemical.

ii) Banking and financial institutions.

iii) Value-added and export oriented industries.

vi) Agriculture and agro-food industry including; fisheries fish processing,

v) Business centre/commercial complex.

vi) Telecommunication.

vii) Infrastructure including ports, airports. highways and railways.

ix) Hydel/coal-based power projects.

x) Retailing/departmental stores.

xi) Housing.

xii) Services sector

As a result of these meetings some of the companies expressed interest to visit Pakistan to further pursue the prospects of investment in specific projects in Pakistan.

The BOI Chief was confident that as a result of these measures there has been a positive change in the investment climate and many projects in the above sectors would materialize in the fiscal year 1999-2000 "in which 1.5 to 2 billion dollar foreign investment in Pakistan is expected.