Sep 8 - 14, 2008

Since the end of Shaukat Aziz era fresh commitments by the foreign investors seem to have dried. On top of this there has been flight of capital, particularly from the SCRAs. Whatever foreign investment has been received since January this year, it is the result of already made commitments. The next payment from Etisalat has become overdue but prospects of receiving the amount are getting dim with the passage of time.

If one looks at the absolute number of foreign direct investment received, it may look substantial but certainly it is a fraction of the receipts Pakistan should have got. Major investment has been received in banking and telecom. Some of the analysts may say that receipt of over US$ 3 billion in January-June 2008 period is significant but others say it is realization of commitments made in the past. They also say that hardly any fresh commitment has been made lately.

Some of the critics go to the extent of saying that the present economic managers are 'too engrossed' in other matters and they hardly get time to look at even the most pressing issues. This perception is also being conveyed by the MNCs and transnational companies.

According to one of the investors, 'We have allocated funds for investing in Pakistan but we also want certain assurances by the new government. However, either the ministers/high officials are not available or even if we get a chance to meet them they are not in a position to make any commitment'.

According to another foreign investor, "If we intend to make millions of dollars investment in Pakistan, we cannot do this without achieving certain level of comfort. But the situation is that every minister holds more than one portfolio and often does not get enough time to interact with the secretaries of the concern ministries. For example Naveed Qamar is responsible for Finance, Investment, Privatization and Port & Shipping. All these ministries are strategic and it is not possible for one person to oversee all these ministries at once. With the passage of time list of pending items is on the rise and it is feared that after some time pulling out any particular file from the heap of papers may not be possible".

The level of aggravation could be gauged from the fact that the country had to import 300,000 tons of urea to meet the demand for Kharif season but only 30,000 tons could be imported. The Rabih season has started and 500,000 tons of urea has to be imported to meet the demand but orders have not been placed. The delay in decision making will cost a fortune to the country because the amount involved is around US$ 400 million. This will be an additional burden on the fast depleting foreign exchange reserves. It is surprising that the representatives of different ministries and local urea producers have official meetings regularly but the decisions are not made in time.

Another serious crisis being faced by the country is 'circular debt of the energy sector' resulting in 12-16 hours of electricity load shedding throughout the country. According to informed sourced HUBCO used to keep 10 days furnace oil inventory but delay in payment by WAPDA has reduced this to stock hardly sufficient for 48 hours. Some other IPPs and KESC has cut down their power generation to almost half because they don't have funds to pay off OMCs and Sui twins.

Many investors, local as well as foreign, say if the basic utilities are not available or investors have to pay exceptionally high tariff why should they invest in Pakistan? As against this most of the emerging markets offer much better working environment and governments offer incentives to the investors. This could be gauged by the FDI going to other countries of the region.

Till recently Pakistan stock market was termed one of the best performing markets and dollars were flowing in but now the situation has been reversed. Most of the foreign fund managers have either pulled out their investment or are desperate to liquidate their holding but frequent changes in the rules have made it almost impossible. They could not sell either due to lower locks or local investors are no longer to execute big orders.

On top of this depreciating rupee is also raising concerns because size of the FDI is shrinking. Investors are also abstaining from making fresh commitments. Even the local investors are pulling out funds from stock market and sending it to some of the Middle Eastern countries witnessing real estate boom.

In the recent past Pakistan has successfully mobilized millions of dollars through issue of Global Depository Receipts (GDRs) and Sukuk. Some of the transactions were deferred due to general election. However, the new government has not been able to conclude these transactions. With the plunging of stock market lately the prospects for completing these transactions have dampened.

Similarly, the government has not been able to pronounce its privatization policy. Therefore, prospects of mobilizing funds from sale of state owned enterprises are bleak. The on going political uncertainty even does not allow the local investors to make long-term commitments. It goes with saying that if the local investors are shy no foreign investor is expected to make any investment.

Lately, some of the investors from oil producing countries had shown interest in acquiring agriculture land on ownership and/or rent but the precarious law and order situation has forced them to stay away from Pakistan. The foreign investment in agriculture sector could have helped in boosting production of food and cash crops in the country as well as earning huge foreign exchange from exports of these produces.

Some of the analysts are critical of government's policy of encouraging sale of stake in local banks to foreign investors. They strongly feel that handing over control of commercial banks to foreign investors could have serious repercussions.