Despite visible improvement in macro economic fundamentals, growing reserves and shrinking deficit during the last 2 years, private investment, both domestic and foreign, has nt picked-up. Why it is so is a question, which is worrying both the economic managers of the Pakistan as well as donor agencies.

The first action taken by the elected Prime Minister is the constitution of a committee to formulate investment policy to suggest prompt measures to restore the investors confidence and improve investment climate. Talking to journalists after presiding over a meeting here at the Board of Investment (BOI) the Minister for Industries and Production, Liaquat Ali Jatoi said that the Prime Minister will head the committee, while he will be its vice chairman. The member of the committee will include the Ministers for Finance, Commerce, Information Technology and Privatization, along with provincial governors and private sector representatives. "We will try our best to create investment-friendly environment which is necessary to attract foreign as well as local investment much needed for industrialisation in the country," Jatoi said, adding that Pakistan was a country where the rate of return on investment is highest in the region and he hoped that the government's efforts in this direction would be fruitful.

This crucial question of investment was also raised in the World Bank policy development review of Pakistan, for the year 2002. The report had identified various impediments, like inconsistent policies, law and order problem, high interest rates and low levels of public development spending. It also suggested an action plan for troubleshooting the ailments.

According to World Investment Report 2002, Pakistani's potential to attract FDI has improved marginally form 141 points in 1990 to 159 points in 2000, but her relative performance to secure FDI has reduced substantially from 6 points to 2 points. Pakistani's position in the world ranking of 140 countries is 114th in terms of investment potential and performance. Seen in the context of the size of the country, population and economic potential, improving these indicators of investment is a real big challenge.

Equally big challenge is investment in the public sector by the government. Over a period of time, it has declined to 3.3 per cent of GDP in the year 2002. Three years' (1999-2002) average of FDI is $406 million. Domestic private investment during last financial year was Rs.30 billion against a target of Rs.96.7 billion. This year's target is nearly the same. These statistics reflect a pathetic state of investment.

Investment in Pakistan has also much to do with the region in which it is placed and the relations it has with the neighbouring countries. Trade with India is seriously constrained because of political reasons. Afghanistan's war-like scenario spread over the past two decades sends negative signals for investment in the neighbouring Pakistan.

Economic relations with Iran have not gained enough strength and momentum, because of the foreign policy factors; Pakistan pursues a pro-western and pro-Washington foreign policy, which is hardly liked by Iran. Such sentiments create barriers for economic co-operation and investment. Lack of harmony among regional states also deters investment. India like Pakistan has not succeeded to attract FDI in a big way.

According to World Bank report, South Asia, during the 90s has shown modest increase in DFI. It accounted for less than half a per cent regional GDP during 1990, compared to 2.7 per cent for East Asia, 1.9 per cent for Latin America and 1.4 per cent for Sub-Saharan Africa. South Asia also had the lowest ratio of FDI to gross domestic investment roughly four times less than those found in East Asia, Latin America and Sub-Saharan Africa". South Asia's share of total FDI during the 90s to the developing countries was less than 2 per cent, whereas other regions had managed to increase in their share of FDI from the world-wide pie which increased from $52 billion in 1980 to $171 billion in 1992, and to $360 billion in 1997. By the end of last year, it had increased to $678 billion. These figures show how South Asian region is handicapped to benefit from FDI that takes place across the world in such huge manner, mainly because of inter-states conflict and conflicts within the societies and polities, the report pointed out.

The Minister for Industries and Production said that the committee appointed by the Prime Minister will soon submit an interim report for immediate implementation. He said that the target sectors for investment will be agriculture including agri-business, livestock and dairy farming and fisheries, oil, gas, mining, energy, IT & Telecom, software, cell phone, e-commerce; SMEs including value added textiles and leather, engineering, electronics, sports surgical goods, furniture, gemstone and jewelry and chemicals. Jatoi also said that investment in infrastructure including airports, highways, roads, bridges, urban mass transport, water supply and sanitation will always remain a priority. There is huge scope for investment in tourism industry.

Continuing he said that the foreign investors will be provided one desk facility at the Board of Investment (BOI) to help resolve their problems at one place. Under this facility, the officials of all relevant departments like WAPDA, petroleum etc. will be available at one place to facilitate the investors. He said it has been decided that an investment officer will be deputed with every foreign investors to help resolve their problems, and remove the hurdles and bottlenecks in this respect.

Investment climate is a dicey expression. It depends upon the perception of investors about the investment opportunities prevailing in any country that ultimately helps them to decide about investment. There are ground realities and subtle economic indicators, such as stability of national currency vis-a-vis US dollar, state forex rules that regulate flow of capital and earnings on investment, infrastructure, volume of economy and its growth, volume of exports and return on investment which attract investors. But, equally, and may be more, important than these indicators are invisible factors that play vital role in attracting the investment.

US Secretary of Treasury, during his recent visit to South Asia, raised an important question related to investment in New Delhi: Why does India attract an investment of $4 billion per year against $40 billion attracted by China. There could be a number of factors affecting the investment in both the countries. But the US Treasury Secretary was emphatic to highlight one of the causes of difference, which according to him was that China honours the contracts and abides by the agreements, whereas India looks the other way. Abiding by the contracts and agreements is vital to attract investment and keep investors' confidence intact. It consolidates it further. Pakistan, like India needs to improve in these areas. IPPs during 1998-2000 were subjected to strict scrutiny by the ML (N) government and the army-led government. It must have shattered the confidence of investors. How far have we retrieved the loss of confidence since then, is difficult to quantify.

Political stability, one window operation to facilitate investment, economic governance at micro-level, particularly of these government officials who are tasked to provide utility services like water, electricity and gas to investors work force and its attitude towards investors and increasing production, bureaucratic attitude of policy-makers who directly deal with investors are some of the important factors which help substantially to build investors' confidence. Pakistani needs to improve in all these areas. Hopefully, the government will pay due attention to these factors.