FOREIGN INVESTMENT IN PAKISTAN
From SHAMIM AHMED RIZVI,
Oct 04 - 10, 2004
The Minister for Privatisation and Investment Dr. Abdul Hafeez Shaikh emphatically tried to dispel the impression that flow of foreign investment in Pakistan has declined. "It has rather significantly picked up during the outgoing financial year," he said adding that two years back the volume of foreign investment in Pakistan was about $422 million, which has jumped to $ 950 million during 2003-04.
Dr. Shaikh was talking informally to the newsmen after inauguration of PICIC Kashmir Road Branch in Rawalpindi. He said that involvement of private sector in economic activities has attracted both domestic and foreign investors because of socio- economic stability in the country. The government was thinking now to concentrate on policy planning and hand over the finances and other matter to the private sector.
The world investment report 2004 of the United Nations Conference on Trade and Development (UNCTAD) launched in Islamabad last week also endorses the view that the investment inflow has shown sign of revival in the first half of the current year and the prospects of continuation of this trend appeared bright. The foreign direct investment has also picked up after declining during the past three years. This is an international trend including Pakistan.
The report was marked by a rising trend in the worldwide flows of foreign direct investment in the first quarter of 2004, which provided a pleasant contrast to the persistent decline almost continuously during the previous three years. At the end of 2003 total FDI was estimated at $560 billion, which, according to the report, increased by 3 percent in the first six months of 2004. Cross border mergers and acquisitions in particular increased from $197 billion at the end of 2003 to $207 billion in the first quarter of 2004, which was indicative of an improvement in the flow of foreign direct investment. The report noted that 111 countries received increased level of FDI during the first six months of the current year while 88 countries experienced declines in their inflow.
Sector wise directions of investment flows indicate that services sector has emerged as the largest attraction in the first six months of 2004, claiming almost 2/3rd of the total amount of foreign investment during this period. On the other hand, investment in the manufacturing sector decreased from 43 percent to 34 percent of the total FDI flows. Declining trend was also noticeable in the primary sector. On the whole, prospects of a sustained increase in the FDIs have been projected in the report, which quoted observations from the 335 leading transnational companies (TNCs), which are also operating branch offices in the developing countries. These projections are seemingly based on improvement in the growth outlook in the leading world economics. The report has bracketed Pakistan with Thailand and Vietnam in terms of the volume of FDIs, which averaged between $1 to $2 billion each. This is also corroborated by the official statistics showing inflow of about $1 billion into the country as foreign direct investment during the last financial year.
The BoI Chairman, Waseem Haqqi, who presided at the press briefing on UNCTAD report, expressed the view that the chances for Pakistan to attract foreign investment were fairly bright considering the overall improved economic situation and substantial increase in the global trade volume. He felt that opportunities for investment in Pakistan's oil and gas sector in addition to expansion in information technology were pretty wide because actual discoveries of the oil reserves in the country were still very low. His optimism was based on the recent visits approximately 100 trade and investment delegations from as many as 21 countries.
Saudi Arabian investors have shown keen interest in investing in Pakistan in different sectors. A 30-member high level Saudi delegation led by Prince Abdul Aziz Bin Abdul Aziz, Chairman of Kanooz Al-Watan Holding Group held a meeting with Dr. Abdul Hafeez Shaikh, Federal Minister for Privatisation and Investment. Prince Abdul Aziz expressed keen interest to participate in privatisation process of Karachi Electric Supply (KESC) and also to invest in various sectors including housing in Sindh. He remarked that he anticipates a bright future for Pakistan because of the economic reforms and its transparency and the promising macro economic indicators. Kanooz Al-Watan Holding Group is a conglomerate of 16 companies having worldwide investment and is operating for decades under several subsidiaries covering different business activities including trading of industrial and consumer commodities and development etc.
Similarly Iran has offered to invest in exploration of iron ore in Pakistan. The offer was made in a meeting held in Tehran between Pakistan's Steel Chairman Let. Gen (Retd) Abdul Gayyum and the Iranian Deputy Minister for mines. The Pakistan Steel Chairman had visited Iran with an exhaustive idea of the prospects of cooperation in the steel sector and of the urgency of it should become evident from the expectation now expressed after the two countries signed an agreement, under which, Pakistan Steel engineers would get training at Ispahan Steel Industry in Iran and an experts level Iranian delegation would visit Pakistan in the near future to identify the areas in which the two countries could extend technical and financial assistance to each other in matters relating to the steel industry. Since Iran has a developed steed industry, its cooperation can help Pakistan to meet its domestic demand of iron ore, and also expand its own steel industry.
There are encouraging sign as many countries and new investors have shown interest to invest in Pakistan. However, it may not be out of place to emphasis that the law and order situation in the country to be far from satisfactory which has assumed more worrisome proportions due to the on-going military operations against terrorists in the tribal areas of the country bordering Afghanistan. The fall out from the border operations is feared in other parts of the country in the shape of terrorist activities. The growing shortage of electricity and other infrastructure facilities is also one of the noticeable impediments in the efforts to accelerate the pace of investment activity. Karachi is a glaring example of unabated power breakdowns as uncontrollable daily happenings. The mega city has a large potential to promote industrial development in new and diversified fields. In this context, it is difficult to envision that Pakistan would be able to reap maximum benefits from the globally increasing flows in foreign investment.