FOREIGN DIRECT INVESTMENT
The FDI will gradually pick up in Pakistan: SBP
From SHAMIM AHMED RIZVI, Islamabad
Dec 15 - 21, 2003
Although the first five months (July-Nov) of the current fiscal year did not show any increase in the direct foreign investment there are strong indications that investment climate will improve in the coming months. Numerous new foreign investors ranging from Saudi Arabia to Chinese and Pakistani expatriates in the United States are coming to Pakistan to invest in different sectors.
Besides, capturing the domestic market of nearly 150 million, the new foreign direct private investment is focused on locating foreign companies in Pakistan which is increasingly turning itself into a production base for the untapped but huge market of Central Asia. FDI inflows during fiscal 2003 that ended June 30 this year, rose to $798 million, in contrast to $485 million in 2002. It followed on the back of higher economic growth, macro-economic stability, financial sector and governance reforms, privatization of state-owned enterprises (SOEs), upgradation of Pakistan government's foreign debt and financial sector ratings, and some improvement in law and order situation.
The FDI came from the following countries: the United Kingdom $219.4 million, the United States $211.5 million. Other investors were from Japan, Hong Kong, Germany, Singapore, Switzerland, Netherlands and China. The investment went into financial business. Oil and gas exploration and production is now an attractive field. Petroleum Minister Naureiz Shakoor said, over the next two years, foreign companies have committed to invest more than $ one billion in this sector. Telecom, autos, trade, transport, pharmaceuticals, chemicals, fertilizers and textiles, are other attractive areas.
After a record rise to $11.7 billion in the forex reserves, and "the improved risk perception as reflected by recent upgradation of Pakistan's sovereign rating and secondary prices of Euro Bonds, it is expected, the FDI will gradually pick up in Pakistan," governor SBP claims. Despite the fact that FDI inflows during the first four months — July to October — of the current fiscal 2004 tallied up to $ 170.3 million, down from $ 406.6 million in the like period of fiscal 2003, the government analysts still expect, the amount will go up in coming months. Their projections are based on commitments and investment plans announced over the recent weeks, in view of good corporate profitability. Even the national flag carrier, Pakistan International Airlines (PIA), has just projected its profit for calendar year to end December 31, 2004 at Rs.4.366 billion, up from Rs.3.334 billion in year to December 31, 2003.
One of the most significant investment plans, just announced by Al-Tuwariqi Group of Companies, Damam, Saudi Arabia, is to establish a steel billets plant at Karachi, near Pakistan Steel Mills. Mr. Liaqat Jatoi, Minister for Industries and Production, said the government has declared the 100-acre location for the plant at Export Processing Zone in order to allow it fiscal and production incentives.
The entire annual production of one millions tons of steel billets by this $100 million plant, will be exported to Saudi Arabia. The export potential of the plant is $180 to 200 million annually. The plant will be based on the modern technology of a sponge-iron, using natural gas. Its billet melt-shop will be based on electric, furnace technology and continuous casting. "The Saudi Arabian company's investment in Pakistan is a good sign, and a reflection of pro-business policies of the government of Pakistan," said Jatoi.
Microsoft boss Bill Gates telephoned President Mushraff last month and informed that Microsoft Corporation was examining prospects of investment in Pakistan," Musharaff said he welcomed him. The two plan to discuss investment details when they meet in January at Davos, Switzerland at the World Economic Forum. Musharraf also said, "I am pleased at Bill Gates investment in IT business in Pakistan. I briefed him about the tremendous potential that Pakistan offers in this field, and informed him of the progress made in IT over the last few years, incentives offered for its promotion, a massive reduction in the bandwidth rates and establishment of an infrastructure network.
Business has long pinned it hopes on investment by overseas Pakistanis to kick-start a new phase of private investment. It is emerging in the form of a new private airline — Airblue. The Civil Aviation Authority, the industry regulator, has okayed Airblue operation. The airline, to begin with, will start flying its three new wide-bodied aircraft to major Pakistani cities in early 2004. It will have an initial investment of Rs.500 million. Tariq Chaudhary, a US-based Pakistani IT expert, is the Chief Executive and Chairman of the Airblue. He is assisted by Khaqan Abbasi, the former Chairman of PIA. PIA has a 75 per cent market share in Pakistan at present. Two private Pakistani airlines namely Shaheen Air International and Aero Asia handle the remaining 25 per cent.
Deputy head of the Pakistani Mission in Beijing recently gave the details of Chinese assistance to Pakistan in different forms including direct investment. In an interview to APP's Beijing correspondent he said China's total financial commitments to Pakistan during the last three years have reached around dollar six billions to help in implementing important public sector projects. These commitments were made in the form of grant, credit and direct investment. The projects have already been identified and necessary agreements, contracts of MoUs have been signed. Some of the projects are under implementation or at the negotiating stage.
The Sino-Pakistan economic cooperation has entered a new stage in the recent years. There are growing numbers of state-run Chinese companies which are taking part in the country's development activities. These companies have pledged to extend both financial and technical support to undertake some pending or new projects.
The projects include Gwadar seaport. Thar coal, second phase of Chashma nuclear power plant, rehabilitation of Pakistan Railways. Saindak coalmine, white oil pipeline and steel mill extension project, besides a number of other in hydropower sector.
Giving the details of economic cooperation. China's direct new foreign investment in Pakistan has also exceeded dollar 300 million during the last three years. There are about dozen Chinese companies, including Haer Electronic, ZTE corporation, Dongfong Automobile, MCC and Sino-Trans which have started making direct investment in Pakistan.
The Chinese Zooda Bus Company has entered Pakistan to set-up an assembly plant. The company annually produces 20,000 buses in China, with a revenue turnover of $500 million, has established a local company, Zonda Pakistan (Pvt) Limited. Mr. Bilal Janjua, its CEO, said the company has already booked orders from big Pakistani transporters in all major cities. It will promote and produce buses in Pakistan. It will also sell the buses in Pakistan and in the Middle East.
Federal Minister for Investment and Privatization, Dr. Hafeez Shaikh at a recent press briefing in Islamabad confidently claimed that Pakistan was all set to fetch big investors from Saudi Arabia as a number of Saudi investors have shown great interest in setting up new production units in different sectors in Pakistan. Besides setting up a mini steel mill in Karachi by Al-Dawarki Group. Pakistan is likely to get a big share in the multi-billion dollars investment plan of the Saudi government for massive expansion of railway in Saudi Arabia.
He said that he had made efforts to convince the president of Saudi Railways to extend some contracts to Pakistani companies. The Saudi government had given formal approval to the project and the possibilities of Pakistan's participation in it were under consideration, he added.
He said that another Saudi conglomerate, Tamimi Group, had shown interest in setting up a petro-chemical unit, besides bringing some investment in the gems and jewellery and education sectors. The head of the group, Tarique Tamimi, was scheduled to visit Pakistan in March next year to finalize the plans, Shaikh said. Adding that Saleh Al-Subai, having assets of four billion Saudi riyals, was also likely to visit Pakistan in March to assess the investment scenario and economic policies. In order to boost economic ties between the two countries an investment conference would be held in Islamabad in March next year, he added the conference would be a follow-up of this meeting with the Saudi foreign minister during Saudi Crown Prince's visit of Pakistan recently.
He hinted that some Saudi businessmen had expressed interest in the bidding of Karachi Electric Supply Corporation.
The visit of Kazakhstan President to Pakistan, signing of many agreements for cooperation in economic field and the meeting of Pak-Kazakhstan Business Forum and the ongoing IBC Gulf business conference in Islamabad will also help in attracting sizable direct foreign investment in Pakistan supporting the view FDI will pick up significantly during 2004.