Jan 4 - 10, 20

Foreign direct investment in Pakistan is less than 1% of the total global FDI. This percentage seems terribly low when compared to the opportunities and untapped potential in various sectors of the economy.

Total FDI for the fiscal year 2008-09 in Pakistan (from 1st July 2008 to 30th June 2009) was $3.72 billion. Over the years FDI has been experiencing a declining trend.

UAE is the third largest investor in Pakistan after the United States and Britain. Abu Dhabi Group is one of the largest foreign investors in Pakistan. The group's investments include Bank Alfalah, Warid Telecom, Wateen Telecom, and United Bank Limited.

According to the State Bank of Pakistan the FDI plunged 53% to $622 million during July-October 2009-10 compared with $1.329 billion in the same period last year. The overall foreign investment declined 21% during the period under review but the portfolio investment supported the investment trend.

Foreign investment in Pakistan has mainly been poured in to non capital intensive service sectors like telecommunication and banking etc. Sector-wise breakup for FY09 indicates a paradigm shift as the FDI in the sectors like oil and gas, textiles, construction, power, and transport increased whereas FDI in the sectors such as financial business, trade, chemical and telecommunications declined during 2008-09.

At the moment, the country faces wide demand-supply gaps in power and oil primarily. The primary reason is power sector's colossal and sustained demand-supply gap of over 3,500MW and upsurge in oil demand leading to import 80% of fuels. But the sector is offering lucrative and confirmed return. Pakistan has been holding negotiations with France for getting civil nuclear energy, but such a deal with a third country has not been allowed by the US.

Investment is shifting towards real economy of the country i.e. oil & gas exploration and power sector. According to SBP power sector received US$130.6m during 2008-09 as compared to US$ 70.3m in 2007-08; whereas oil and gas exploration sector attracted as much as US$ 775m in 2008-09 as compared to US$ 634m during 2007-08.

As a matter of fact the global recession has hampered growth in these sectors. However there is a scope for investment growth in oil and gas sector. There is a scramble for oil and gas deposits in the Caspian Sea area and elsewhere in Central Asia, but no foreign energy firm is venturing into Balochistan because of the political trouble and the restiveness in the province.

This problem has reduced potential exploration area in the country. Pakistan has been trying to attract $37-40 billion FDI in the energy sector to offset looming energy shortages as a result of 10% annual increase in energy needs. Development and privatization of energy sector units and oil and gas exploration sector have also been pursued aggressively. There is a dire need to invest in import and supply chain of liquefied natural gas (LNG) in order to fill the gap in energy supply till the proposed pipelines for gas import would be operational.

It is inevitable to mobilize international investors for $7 billion Iran-Pakistan-India gas pipeline, $5 billion Turkmenistan-Pakistan-India gas pipeline and $8 billion Qatar-Pakistan-India gas pipeline. Similarly we need to seek about $8 billion investment for generating over 32,000MW of hydroelectric power to increase the share of indigenous resources in the overall electricity production. Coal projects are also in pipeline for foreign investors along with thermal power plants to plug the shortfall on war footing.


The FDI caught the attention of policy makers when it entered the country through telecommunication projects and revolutionized the entire telecom industry. At the same time the booming financial market attracted big investment in the banking. The banking and mobile phone industry attracted most of the FDI and helped the country to attain a high economic growth rate in the last five years.

However, the trends are reversing now and telecom sector received only US$879.1 million during 2008-09 as compared to US$ 1,626.8 million in 2007-08. Financial & banking sector secured US$ 707.4 m in 2008-09 as compared to US$ 1,864.9 m during 2007-08.

FDI in the telecom sector was $1.6 billion or 28% of the overall FDI inflows in 2008. It was the second highest in overall FDI inflows into Pakistan. FDI in 2007 in telecoms was $1.8 billion or 36% of the overall investment of FDI in 2007. FDI in this sector for three years (2004 to 2007) was the highest in total FDI inflows.

After several years of major investment a great deal of FDI inflows, including those from United Arab Emirates, has put telecoms on the fastest growth track. Now a days major telecom companies working in Pakistan have expressed their commitment to jointly invest at least one billion dollar in infrastructure, capital expenditure and technology in the next fiscal year to complement the enabling environment that the government is providing as a stimulus.

The government appreciated the investment made by the mobile companies in the telecom sector of Pakistan, which has so far attracted foreign direct investment of US$ 9 billion amounting to 46% of country's total FDI in the last three years.

Investment horizon has turned out to be bleak and dismal for Pakistan. Even China and Saudi Arabia decided to keep their money in safe instead of sending to Pakistan. China withdrew its investment while Saudi Arabia made a meager investment of $1.4 million in 2008-09. FDI from US and UK was considerable despite a fall while comparing it with the FDI during the first quarter of 2008-09.

Financial sector and the telecom sector had been instrumental for the increase in foreign investment. It is pertinent to mention that there is a staggering lack of confidence by investors to bring additional capital in Pakistan. With constant turmoil in the country, members of tax contributing chamber face various issues of high cost of doing business, declining profitability, high taxes, lack of proper policy implementation and the law and order situation.

A primary reason for the lack of foreign investment is political instability, high energy tariffs and poor infrastructure. In such a situation, unless the government takes prompt measures, it is difficult to maintain the foreign investment as each company takes its own decisions on policy and planning of investment. The measures to guarantee a regular flow of overseas investment in the country should be adopted. Many sectors of Pakistan's economy like energy, oil and gas, infrastructure development, minerals, agriculture offer plenty of investment opportunities to investors. Economic incentives do attract foreign investment, but if we want it to come in a big way, the government must first improve law and order in the country.