GOVERNMENT EXPECTS $10BN FOREIGN INVESTMENT

KANWAL SALEEM
June 8 - 14, 2009

Due to high-profit margins Pakistan was one of the most favourite countries for foreign investors during the last five years, however, presently foreign investors are reluctant to invest in Pakistan due to the discouraging economic indicators and poor law and order situation.

Negative indicators like worsening law and order situation, poor economic indicators, power shortage etc., have largely hurt foreign investment, which has posted a sharp decline of around 43 percent during the first 10 months of current fiscal year (2008-09).

As per statistics of the State Bank of Pakistan, net foreign investment comprising foreign direct investment (FDI) and portfolio investment has registered a decline of some 1.6496 billion dollars during the first 10 months (July-April) of fiscal year 2008-2009. Overall, net foreign investment stood at 2.2129 billion dollars during the first 10 months of current fiscal as compared to 3.8625 billion dollars in the same period last fiscal year. Statistics show that both FDI and portfolio investment have presented a negative trend during the period. FDI has shown a decline of 13.8 percent, while the massive outflow from the country's equity market has posted a significant decline of 792 percent in portfolio investment.

According to statistics, FDI stood at 3.2054 billion dollars during July-April as compared to 3.7191 billion dollars in the corresponding period of last year, depicting a decrease of 513.7 million dollars. Portfolio investment downed by 992.5 million dollars during the first 10 months of current fiscal year over the investment of 143.4 million dollars in the same period of last fiscal year. Total private investment including privatization proceeds shows a decline of 27.9 percent to 2.7539 billion dollars during July-April as previously it stood at 3.818 billion dollars.

Economic experts told PAGE that operation against militants and rising tension in the northern parts of the country had played a leading role in the depleting net foreign investment. The country's overall net foreign investment, which was in positive zone in the initial months of current fiscal year, has been constantly on decline since the last few months due to domestic shocks, they added. "Only portfolio investment was on decline during the first half of current fiscal year due to high outflows from the equity market, however at present both FDI and portfolio investment are presenting negative growth," they said.

According to them, foreign investors have adopted wait and see policy and stopped new investment in the country until the situation in the northern areas is certain. According to Ministry of Finance's "Review of Economic Situation", Foreign Direct Investment has declined by eight per cent during the first eight months of current fiscal to $3.0421 billion against $3.306 billion in the same period of last year.

The FDI declined in Chemical and Petro-Chemicals by 15.4 per cent to $72.3 million from $85.5 million during the period under review. The cement sector received 64.9 per cent less FDI during the period under review against the same period of last year. The FDI inflow in cement sector squeezed to hardly $31.3 million this year against $89.1 million a year ago. Automobile sector received 64.5 million FDI during July-March of current fiscal, which is 12.2 per cent less from $73.4 million a year ago while FDI in power sector declined by 5.7 per cent to $140.4 million from $149 million in the same period of last year. The FDI in communication sector declined by 12.7 per cent and shrank to $806.1 million against $922.2 million a year ago. In financial business, the FDI dwindled by 28.7 per cent during the ongoing year to $672 million against $942.7 million in the same period of last year while in personal service it declined by 3.2 per cent.

According to the figures compiled by Pakistan Telecommunication Authority (PTA), telecom industry of Pakistan has been flourishing by leaps and bounds in the recent years and overall teledensity, subscriber base, technology advancements and influx of FDI are indicators for the growth of telecom sector of Pakistan.

The sources said the overall teledensity in the country has reached 60.6 percent. There are currently 91.4 million mobile subscribers with mobile penetration reaching 56.78 percent. Cellular segment leads the share in total teledensity by 93.7 percent followed by FLL 3.8 percent and WLL 2.5 percent. There are total 10,001 cities/towns/villages covered and 26,300 cell sites installed by all cellular operators covering almost 90 percent of the land area of Pakistan.

According to them, total fixed line subscribers (FLL) in Pakistan stands at 3.7 million yielding a teledensity of 2.3 percent. The Wireless Local Loop (WLL) solution in relation to fixed line requires less investment with high returns. Today WLL services are available across Pakistan in 14 telecom regions and value added services like EvDO are also available. The WLL services are getting popular especially in rural areas and total subscribers of WLL stood at 2.5 million with 1.5 percent teledensity as of March 2009. Broadband is experiencing healthy growth since last year and companies are providing broadband services with DSL, Cable, FTH and WiMAX technologies across Pakistan whereas DSL is the most popular technology. There are currently 267,180 broadband subscribers showing almost 59 percent growth in 6 months. Broadband penetration in the country has increased from 0.04 percent in December 07 to 0.17 percent in December 2008.

The Federal Minister for Investment Senator Waqar Ahmad has expressed the hope that the country would achieve the target of US $10 billion foreign investment during the current year.

According to him, Pakistan was an attractive place for investment in construction sector due to shortfall of eight million houses in the country. The Pakistanis, who had invested US $8.5 billion in the United Arab Emirates (UAE) real estate business, could be the prospective investors in Pakistan. He said the Ministry of Investment has decided to set up a task force in collaboration with the private sector to attract foreign investment.

The LCCI President Mian Muzaffar Ali has stressed the need for bringing foreign investment in labour-intensive industries because every year four million new people were adding to the existing workforce. He said this could easily be achieved through active participation of commercial attaches, working in foreign countries and private sector's collaboration with the chambers of commerce in other countries. According to him, foreign investment is constantly shrinking due to multiple reasons.