FAST DEPLETING FOREIGN DIRECT INVESTMENTS
May 17 - 23, 2010
The current financial year (2009-10) is perhaps going to be the worst year of the decade in terms of inflow of foreign investment in the country. Net foreign investment recorded during the first nine months (July 2009 to March 2010) was recorded at $1.37 billion down from $3.4 billion during the full year 2008-09.
Till the year 2004-05, Pakistan was considered as heaven by foreign investors and flow of foreign investment was steadily rising touched the peak of the decade with $5.4 billion during the year 2007-08.
Many factors were responsible for attracting foreign investors that include stable law and order situation, political stability, consistent economic policies, low cost of doing business, and prospects of good returns to the investors on their investment. Unfortunately, these factors have taken a reverse turn during the last five years making Pakistan most unsuitable country for doing business for foreign investors.
The global recession has also contributed to this but main factors are mainly the political turmoil, unsatisfactory law and order situation and high cost of doing business in the country. A recent survey conducted by Pakistan Chamber of Commerce and Industry has concluded that the high cost of business on the back of high cost of financing (rate of interest charged by the banks), high cost of petroleum products and undependable power supply besides higher corporate tax eroding profitability are responsible factors discouraging foreign investment in Pakistan.
Minister for State and Chairman Board of Investment Salim H Mandviwala however did not appear worried over the falling trends in DFI. Addressing a press conference on the subject last month, he said that Pakistan received FDI of over $1 billion during the first six months of the current fiscal year despite global financial crisis. Investment is falling all over the world and FDI is falling in all the developing countries. On a question, he said, "Investment has no target and I cannot predict how much it would increase in the next few months or next few years". He however hoped that situation would improve and cited the example of equity market (Portfolio Investment) where inflow of investment witnessed a significant improvement during the last few months.
The State Bank of Pakistan's (SBP) breakup of foreign investment indicated that the net foreign investment dropped by over 40 per cent during the nine months of the current financial year as compared to equivalent period of the previous fiscal. It may be mentioned here that during the last 3 years more than 70 per cent of FDI was concentrated in three sectors i.e. telecom, power and oil and gas exploration and financial sectors. Due to slowdown in merger and acquisition activities and banks rising non-performing loans, the FDI flows to the financial sector also fall significantly. It may be mentioned that power sector is the only one where FDI rises over 35 per cent.
The Board of Investment unveiled a 5 years investment policy aiming at attracting around $75 billion local and foreign investment by 2015. The proposed policy included FDI strategy to attract investment by adopting three action programmes. These included enhancing international image of Pakistan as an investment location, promoting investment projects by reaching to potential investors and providing services to potential and actual investors in Pakistan.
The proposed plan of action is there on paper so far and no groundwork is visible yet. Commenting on the proposed policy paper Pakistani economists and analysts rightly pointed out that before approaching foreign investors we must first restore confidence of our own business community. In the current situation, we are not only facing law and order problems but also the issues like the power and gas shortage besides their prohibitive costs.
Under such a situation to attract and win over foreign investors would be an uphill task especially in the present state of affairs in the country. Failure of the government lopsided policies, soaring energy cost, tussle with judiciary, NRO and its after effects has landed the country into an economic and political mess. To meet the serious challenges facing the country we need a strong, selfless, and visionary government. Unfortunately, our present rulers do not come up to that standard.