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The Chief of BoI claimed that a new strategy to attract foreign investment is to be announced soon

From SHAMIM AHMED RIZVI,
Islamabad

Oct 16 - 22, 2000

Contrary to the claims made by government officials in Pakistan, Foreign Direct Investment in Pakistan has declined from $918 million in 1996 to 531 million in 1999. This has been revealed in the World Investment Report 2000 released in Islamabad by the local office of United Nations Information Centre. The report has been compiled by the United Nations Conference on Trade and Development (UNCTAD) which celebrated this year the tenth anniversary of the publication of its report.

The report was launched at a Press Conference by Dr.A.R Kamal, Executive Director, Pakistan Institute of Development Economics (PIDE). The function was also attended, among others by the newly appointed Executive Director of the Board of Investment who took pains to explain and justify the poor performance of his department.

Among the highlights of this year's report is the fact that cross-border foreign direct investment worldwide is set to top $1 trillion in 2000, for the first time over. The 1999 total was an impressive $ 865 billion, indicating that the effects of the 1997-98 crisis are wearing off. Mergers and acquisitions lead the trend toward cross-border activity, rising 42 per cent annually over the last 20 years and attaining a 1999 completed value of $2.3 trillion.

The UNCTAD's publication also includes a list of the top 100 transnational corporations in terms of foreign assets, and an explanation of what the mergers and acquisitions mean for the prospects of emerging economies and poor countries.

The report provides an in-depth statistical analysis of the latest trends on foreign direct investment, country-by-country, details of cross-border F&As and the rankings of the top transnational corporations based on their foreign assets. Its extensive research, case studies and data are followed by recommendations on critical policy actions.

The report reveals interesting aspects of the investment activities of transnational corporations (TNCs). The world top 100 non-financial TNCs control over $ 2 trillion worth of assets and employ six million people in their foreign affiliates. In some cases, they are the principal drivers of international production. Direct foreign investment by the TNCs in developing Asia totalled $106 billion in 1998 of which only $3.2 billion went to South Asia.

The World Report has placed particular emphasis on mergers and acquisitions, which are the principal vehicles of TNCs to boost their overall level of foreign direct investment. These have been rising at a high level of 42 per cent per annum during the last 20 years. The value of cross-border mergers and acquisitions (defined as acquisition of more than 10 per cent equity share) rose from $100 billion in 1987 to $720 billion in 1999.

Authors of the Report have, however, warned the developing countries of the pitfalls of un-bridled cross-border mergers and acquisitions. According to them, mergers and acquisitions do not add to the productive capacity of a country and simply transfer the ownership and control from domestic to foreign investors. They could also suppress competition in the local markets. Other areas of concern could be laying off employees and closing of some units like research and development. The transfer of ownership could also affect the social, political and cultural realms and may ultimately be seen as eroding national sovereignty and amounting to recolonization. In order to contain the negative aspects, the report suggests a competition policy on a global level that should be able to take into account the interests and conditions of developing countries.

Speaking at the launching ceremony of the Investment Report, A.R. Kamal, the head of the PIDE tried to give a balanced view of the role of TNCs. Although their activities should be welcomed in a country like Pakistan, it is to be noted that they always try to bypass the countries in which they operate. Foreign Direct Investment (FDI) in Pakistan declined from $918 million in 1996 to $ 531 million in 1999. According to Kamal, the main factors hindering the flow of investment in the country were poor law and order situation and inconsistent policies of successive governments. Every incumbent government ensured the discontinuation of policies followed by the previous government but not much was done in this regard.

The Chief of Board of Investment claimed that a new strategy to attract foreign investment is to be announced soon to boost investment and attract foreign capital. The new strategy, he said, is being proposed keeping in view the foreign direct investment from western countries and expatriate Pakistanis working in Saudi Arabia, Gulf, and Middle East from external side as also the demands by domestic entrepreneurs. The government particularly the Ministries of Industries, Production and Commerce are now finalising the new policy in consultation with private entrepreneurs, businessmen, exporters and investors.

The government has strengthened its Board of Investment (BoI) that serves as a one-window facilitation service for potential investors from home and abroad. New steps are being taken to make it more effective so that other ministries involved in investment and industrialization take decisions and act on the Board's request and quicken the pace of investment work. The new strategy for investment and industrialization will cover several sectors. Topping the lists is information technology. Other sectors are: value-added textiles and hi-tech industries, agro-based industry, chemicals and engineering goods. These industries have the potential to capture substantial markets abroad.

In the context of Pakistan, however, the remarks of A.R. Kamal are quite relevant. Foreign investment is contracting for a number of reasons and the country needs to remove the irritants responsible for such a trend. The best advertisement in this regard at this juncture would be to encourage foreign investors already operating in the country. One way to do that could be to invite them, listen to their grievances very carefully and facilitate their activities by removing the obstacles.