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1- MICRO-FINANCING THROUGH MOBILE BANKING
2- TRADE OFF BETWEEN INDIGENOUS SAVINGS & FDI 
3-
IMPERATIVES OF PAKISTAN'S INFRASTRUCTURE FUND
4- ADB's FINANCIAL ASSISTANCE FOR PAKISTAN
5-
PETROLEUM PRICES
6- IRAQ SITUATION: CALL FOR OIL SUBSTITUTES.

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TRADE OFF BETWEEN INDIGENOUS SAVINGS AND FDI

 

A study of its nature and scope in pakistan.

 

   By Dr. MUHAMMAD AYOOB SHAIKH and 
Dr. IQBAL A PANHWAR

Feb 24 - Mar 02, 2003 
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Pakistan situated on one of the most important trade routes of the world. It has always been a center for exchange of culture and commerce of South, South East, West and Central Asia. With the fast developing communication, motorways and opening of world trade and investment, Pakistan is well placed to play a positive role for providing goods and services to meet the growing demands of the world community. Pakistan attached highest importance to the inflow of foreign investment. Foreign Direct Investment FDI has a significant role in the promotion and diversification of economic growth, importation of new technology, efficient management and marketing techniques. Foreign Direct Investment (FDI) being the single largest component of private capital flows has contributed to investment and growth in developing countries, leading to the reduction in poverty and improvement in the living standards.

Foreign Direct Investment (FDI) has been instrumental in the development of the country, actually it is an equity fund invested in other nations, and it is critical in both developed and developing countries as on one shape it is taken as great blessing but on the other a way to plunder the real wealth FDI has opened world for the investors and also helping nations to explore idle resources achieve economies of scales. In developing countries, where people are living below poverty line, FDI is rising, because it playing a key role. With the recent phenomenon of privatization and globalization, the majority of the developing countries are looking for foreign direct investors. It should be encouraged to provides capital, technology, access to overseas markets, and access to the management expertise and employment opportunities for local workers, to raise living standards, increase economic growth, and to get benefit of innovative technology and services ideas. If it flow in the export oriented sectors than the country can also improve their balance of trade.

Pakistan was among the first few countries in the region to open up the market in early 90's. Now the foreign investors can virtually invest in any sector except a few. Opening up of market and institution of process of privatization made Pakistan a center of attraction. FDI came in large volume, both a FDI and as portfolio fund. The FDI inlow to our country in 1992-93 was US$ 307 million and went up to 1095.7 million means by above US$ one billion in 1995-96 and in 1996-97 it was US$ 682.1 million and US$ 601.3 million in 1997-98 but in 1998-99 it was only US$ 376 million. Study reveals that in 1999-2000 it stood at US$ 469.9 million again it declined to 322.4 millions in the year 2000-2001 but in 2001-2002, it was only US$ 508.7 millions there has been a substantial increase in FDI in various sectors of the economy during the last few years. The year 1998-99 has been an abnormal year because of the economic sanctions and the South East Asia crises has also hampered the inflow of FDI Pakistan's major source of FDI inflows remained USA, UK and Japan. Therefore economic s sanctions imposed by these countries adversely affected the FDI inflows. But in 2001-2002 economic fundamentals have improved, all economic sanctions have been lifted.

However, since 1995-96 it has been registering a constant downward trend for a variety of reasons are given below:

i. The Saturation of Investment in Power Sector.

ii. The East Asian Financial Crises 1997.

iii. The Economic Sanctions and Freezing of Foreign Currency Accounts of May 1998.

iv. The IPP and the HUBCO Issues, particularly the way it was handled in the past

v. Low level of Foreign Exchange reserves and threat of Default on External Payments obligations and disarrayed relations with the International Financial Institutions (IFIs).

The present government of President Pervez Musharraf from the last 3 years has succeeded in removing the above listed constraints.

The FDI was targeted at US $ 600 million in the year 2000-2001. However the events of September 11 and the problem of Afghanistan created temporary difficulties. The FDI increase 33.4% in 2001-2002, when compared with 2000-01.

Increase in FDI is a very best sign that here some concrete steps are taken that in return attracting investors. Our country attracted foreign investment worth of US$ 484.7 million in year 2001-2002 against US$ 322.4 million in 2000-01. Facts and figures reveals that the limited states is still the biggest foreign investor in Pakistan and invested US$ 326 million in 2001-2002. Pakistan has vast gas, oil and coal etc., resources but is unable to explore them in absence of financial resources and advance technology. The US spent US$ 268.2 millions in Pakistan on oil and gas exploration. The great Britain is the second investment and spent the amount worth of US$ 30.3 million in 2001-2002. 6

The table shows Foreign Direct Investment into Pakistan during the period form 1995-96 to 2001-2002.

FOREIGN DIRECT INVESTMENT INTO PAKISTAN

Country

95-96

96-97

97-98

98-99

99-00

00-01

01-02

Total

Share % of each Country

U.S.A

319.8

246.2

256.6

163.9

166.9

92.7

326.4

1572.5

38.66

U.K

331.7

240.1

135.5

81.6

169.0

90.5

30.3

1078.7

26.52

UAE

46.8

54.9

19.2

6.9

5.7

5.2

21.5

160.2

3.94

Germany

26.0

17.6

24.0

19.3

10.5

15.5

11.2

124.1

3.05

France

14.0

10.2

4.9

7.0

1.6

0.7

6.9

45.3

1.11

Hong Kong

33.9

7.5

2.1

1.0

0.8

3.6

2.8

51.7

1.27

Italy

0.5

1.8

0.9

0.2

0.5

1.3

0.1

5.3

0.13

Japan

82.1

36.6

17.8

57.4

17.7

9.1

6.4

227.1

5.58

Saudi Arabia

26.9

17.0

12.0

1.1

28.6

56.6

1.3

109.5

2.69

Canada

0.8

1.7

0.5

0.3

0.2

0.1

3.5

7.1

0.17

Netherland

-

-

26.9

5.7

10.7

4.8

5.1

53.2

1.31

Holand

11.9

7.7

-

-

-

-

-

19.6

0.48

Korea

31.5

7.3

5.9

4.6

9.3

3.7

0.4

62.7

1.54

Singapore

-

-

-

-

3.4

3.7

3.9

11.0

0.27

China

-

-

-

-

0.0

0.1

0.3

0.4

0.009

Australia

-

-

-

-

1.7

1.5

0.4

3.6

0.088

Switzerland

-

-

-

-

3.2

3.6

7.4

14.2

0.349

Others

169.8

67.5

106.0

27.0

40.1

29.7

80.8

520.9

12.807

Total

1095.7

682.1

601.3

376.0

469.9

322.4

508.7

4067.1

100.00

Source: 1. American Information Resource Center, Karachi.
2. Various Economic Survey's Government of Pakistan, from 1995-96 to 2001-2002

 

 

It is clear from the table that the country wise FDI inflow to Pakistan during the last seven years, showing that USA has been the major source of FDI in Pakistan, as compared to other countries. The United States accounts for 38.66 share percent of FDI inflows, followed by United Kingdom 26.52 percent Japan account for 5.58 percent, UAE 3.94 percent, Germany 3.05 percent and Saudi Arabia 2.69 percent. The remaining amount of inflow is coming from other countries.

The Government of Pakistan is doing its level best to rebuild the investors confidence and show some signs of improvement in foreign exchange reserves that noted 7.27 billion on August 17, 2002. The FDI inflows to developing countries have gone up to US$ 172.9 billion in 1997 from US$ 33.7 billion in 1990. China as an individual country remained the highest recipient of FDI inflow with 31 percent stake in overall FDI inflows in spite of consistent decline since 1993 when it account for 38 percent stake. South Asia including Pakistan remained uncompetitive due to its vulnerable socio-economic and institutional set up. Pakistan's, stake in total FDI inflows to developing countries remained below 0.5 percent in 1997 while its share in South Asia decline from 27 percent in 1993 to 18 percent in 1997. The total FDI flow in the world in 1997 reached to US$ 400.5 billion again US$ 337.6 billion in 1996.

Pakistan hopes that FDI will rise and might touch the US$ one billion in the year 2002-03 that is more than double in comparison of 2001-2002. Our country is also encouraging foreign investors and multinational companies and announced incentives such as they can remit salaries and even earnings to their home lands. On one hand it is facilitating investors to maximize their profit and on the other hand probability is high that Pakistan will benefit from the personnel expertise and new technology.

Pakistan to enhance the Foreign Direct Investment and formulated commission will encourage and assist foreign investors. Some efforts should be made break through bureaucratic style of bureaucracy and politicians.

Revolutionary reforms and even new tax structure should be introduced in order to save investors from the complexity of tax structure as well as to save time.

In our country there were non-economic factors like political stability, economic stabilities, law and order situation, judicial, and dispute resolution systems government economic policies, legal system, attitude of bureaucracy and bureaucratic wrangling arising out of federal system of governance, which should not be compensated through economic incentives. But the present government of President Prevez Musharraf is also encouraging foreign investors and has selected few Export Processing Zones where all facilities are provided. And even some case tax relaxations are facilitated. Now government undertaking judicial reforms aimed at strengthening the rule of law and enhancing transparency and accessibility of legal system by modernizing the court system. The actual purpose of these reforms was to improve the investment climate in the country.

By the grace of almighty God our country is a gateway to the Middle East and Central Asia, foreign investors can establish their industries in Pakistan and export their products to those markets and FDI in Pakistan should increase economic growth, reduce unemployment, to raise living standards and to get benefit of innovative technology and services ideas.

 

 

Thus whereas the foreign direct investment from the United States of America increases sharply and it declined from the rest of the world in Pakistan, during the last seven years.

CONCLUSIONS

It is concluded from the above study that the socio-economic development of a Pakistan requires huge investment to steer the country to higher level of equilibrium. Domestic resources are short to finance our development needs and thus FDI plays crucial role in filling the gap between investment demand and saving. But the share of FDI flowing into our country is negligible when compared with the opportunities and economic fundamentals of the country. The inflow into the country is less than one percent of the total FDI, made globally.

It is clear from the study that Pakistan received the amount of a little over one billion US$ in 1995-96.

The FDI declined year after year and the largest share of FDI goes to the developed countries due to the earning potential of their markets. In 1997, China alone accounted for US$ 48 billion of the inflow and for US$ 28.5 billion of the outflows. If Government of Pakistan wants to achieve a respectable position among in the nations, it has to put the economy in order. Because no one can deny the fact that the country needs FDI, and our country must offer conducive environment for foreign investors in comparison of other countries, because it increase economic growth, reduce unemployment, to raise living standard to get benefit of innovative technology and access to super technology, improved managerial skills, market orientation to many countries and needed capital to finance economic development.

EXTENDED RESEARCH PROPOSAL ON COLLABORATIVE LEVEL

An extension to the issue is required to asses an appropriate level of FDI and its timely availability to enhance the economic development and growth in Pakistan. Thus to opt for a policy and mechanism, which guaranteed an optimal level of delivery through the FDI translation to the economic and social well being of the people of Pakistan in absolute as well as equitable standards.