July 07 - 13, 2008

The country's internal situation and ill effects of negative vibes have led to decline in the foreign investment in Pakistan which during the first 11 months of the fiscal year 2007-08 witnessed a decrease of 37.2 percent with US $ 3943.3 million figure. The total foreign investment in the country was recorded at $ 6280.6 million in the corresponding period of last year, sources in the Ministry of Finance said.

However, the Foreign Direct Investment (FDI) amounted to $ 3881.1 million from July to May, 2007-08 as against $ 4520.1 million in the corresponding period of last year showed a decrease of 14.1%.

According to the sources, despite several internal shocks, Pakistan succeeded in attracting $ 3.8 billion FDI in the first eleven months (July-May) of the current fiscal year - almost $ 640 million less than the last year.

Approximately $ 800 million FDI in financial business has been transacted in May 2008 which includes a $ 680 million Maybank strategic investment in MCB bank and a $100 million investment by Barclays bank, reflecting continued investor's confidence in Pakistan's economy, the sources added.

The year is likely to end with a respectable amount of FDI, sources said adding that despite misperception on different issues created by the Western print and electronic media about Pakistan, the FDI from the United States has registered a handsome growth of 54.2 percent - rising from $ 794.3 million to $ 1224.8 million during the first eleven months of the current fiscal year. The total portfolio investment registered an inflow of $ 45.4 million as against an inflow of $ 1107.1 million during last year's July- May.

This deceleration in portfolio investment can be attributed to various factors including sub-prime mortgage issue that created excessive volatility in equity market globally and forced investors to reduce their exposure in emerging markets, including Pakistan.

The US has been the single largest investor in Pakistan, accounting for 31.5% of the total FDI in the July - May 2008 followed by UAE (14.3%), UK (11.0%), Norway (5.7%), Switzerland (4.0%), Hong Kong (3.5%), Oman (3.1%), Netherlands (2.9%), etc.

Communications along with financial businesses have been the major attraction for foreign investors in Pakistan, accounting for 32.9% and 22.7% respectively, followed by energy sector (oil & gas, petroleum refining and power) (17.6%), trade (3.8%), cement (2.5%), personal services and transport equipment (automobiles) 2.2% each

Moreover, Pakistan's manufacturing sector recorded the weakest growth in a decade during the outgoing fiscal year 2007-08 due to several unfavourable conditions.

Overall manufacturing sector posted a growth of 5.4 percent during the first nine months of the fiscal year 2007-08 against the target of 10.9 percent and 8.1 percent of last year, sources in the Ministry of Finance said.

The large-scale manufacturing, accounting for 69.5 percent of overall manufacturing, registered a growth of 4.8 percent in the current fiscal year 2007-08 against the target of 12.5 percent and last year's achievement of 8.6 percent.

Heightened political tension, deteriorating law and order situation, growing power shortages, cumulative impact of monetary tightening and rising cost of doing business are responsible for poor showing of manufacturing in 2007-08, the sources said, adding that the manufacturing sector in the country still revolves around the traditional low value added industries, whose share in world trade is continuously declining. "The investment in upgrading technology is low and diversifying into emerging markets, products and processes is either slow or nearly constant," they said adding that an efficient international quality supply chain, which is essential for local industry to flourish, is missing.

The sources added that major constraints in achieving and sustaining the goal of rapid industrialization, are low productivity level without the development of a widely embedded skills base, competence and productivity, global trading challenges and shortage of adequate skills.

Diversifying the manufacturing sector, developing SMEs and enhancing productivity are the major objectives to be achieved in the manufacturing sector. "Pakistan has to make important strategic choices to ensure sustainable growth in the manufacturing sector in a rapidly changing and challenging international competitive environment," they added.

This requires massive structural changes, shift in the production paradigm to technology and knowledge based industrialization, with a focus on the quantitative and the qualitative growth of an integrated and competitive industry in the private sector.