July 12 - 18, 20

Even a cursory look at the inflow of foreign investment flowing into Pakistan over the last couple of years show that entrepreneurs have been avoiding investment in creating new productive facilities. In such a scenario where local investors are shy, foreign investors also prefer to stay away. Lately, there has been substantial increase in portfolio investment, which has attracted mixed reaction from the analysts and the experts.

While some of the quarters were more than jubilant on the inflow of foreign portfolio, others were feeling highly uncomfortable. They even went to the extent of suggesting to the government to take some precautionary measures. They warned the government of a similar boom in certain countries, which led to losses of millions of dollars to the investors, when the bubble burst. However, foreign investment has remained intact to a large extent despite market registering some ups and downs.

It was feared that daily trading volume would shrink considerably after the imposition of capital gain tax. Initially daily trading volume nosedived but seems that investors have gathered some courage to play in rather difficult situation. One of the positive points is that trading and profits up to certain limits would still remain tax exempt. It is likely that after the official announcement of this exemption daily trading volume would start picking up. The results season is about to start and analysts are confident that all the quality scrips would post good results. As such, the performance of stock market during FY10 has been far better.

Whatever has happened is now part of history, which can't be changed but a new chapter can be certainly added with the beginning of current financial year. Pakistan certainly needs huge investment in oil and gas exploration, electricity generation, transmission and distribution and commercial banks, facing a daunting task of mobilizing additional capital to meet minimum capital requirement. Nearly half of Pakistan's commercial banks enjoy substantial foreign investment and there are opportunities for mergers and acquisitions.

In the past, some of the blue of the blue chips had issued Global Depository Receipts (GDRs). The latest news is that Fatima Fertilizer is getting ready to issue 'American Depository Receipts (ADRs). With foreign funds having substantial exposure in Pakistani market issuing GDRs/ADRs should not be too difficult.

Since the international financial institutions have expressed their unwillingness to provide funds for the construction of dams, Pakistan has no option but to go to the global markets. In this respect dollar and/or rupee denominated bonds as well as Sukuk can be issued. The advantage is that by producing more of hydel power, oil import bill can be contained and savings can be used for debt servicing.

Many analysts are of the view that Pakistan has been more than fortunate in getting huge assistance from the IMF and commitments made at FoDP have also started pouring in. However, the problem can't be overcome without boosting exports. Since energy shortage has emerged as the biggest impediment in boosting exports, uninterrupted supply at affordable cost can be ensured by facilitating investment in the energy sector.

There is consensus among the experts that opting for rental power plants (RPPs) was a bad option. Therefore, all those units which have failed in meeting the deadline should be scrapped immediately. Since public sector utilities can't invest in power generation, allowing independent power plants (IPPs) is a better option. However, there are a few suggestions 1) minimum size of an IPP should not be less than 1000MW; 2) plants should be either hydel or coal-fired and 3) arranging fuel supply should be the responsibility of the sponsors. However, there is also a need to privatize generation, transmission and distribution companies operating under Pakistan Electric Power Company (Pepco). In fact there is an urgent need to privatize distribution companies requiring massive investment for revamping the network for containing rampant theft, the basic reason for high electricity tariff. The T&D losses in Pakistan are as high as 40 per cent, out of this three-fourth are theft.

All major sectors having attraction for foreign investors lost their charm as either investment flew out or shrunk to the minimum level except the oil and gas exploration sector. It has been the only sector where the investors poured almost the same amount of money. During first eleven months of FY10 the sector received an investment of US$654 million as compared to US$658 million a year ago.

The prevailing scenario shows that the country has lost attraction even in the sectors having great potential to earn like power sector. This sector faced a net outflow of US$17 million. During this period of last year the power sector had received over US$100 million. Food packaging sector, which had received over US$102 million a year ago, attracted just US$5.4 million in FY10. However, food sector received higher amount of US$72 million compared to $46 million during this period.

Another major center of attractions has been financial services but it lost the ground and failed to attract foreign investment. The sector attracted US$154 million as compared to US$689 million. Though, the foreign investment trend changed globally due to financial crisis in the United States and Europe. While it engulfed entire developed world, developing countries like China and India succeeded in maintaining their position and remained attractive for foreign investors.

Analysts believe the country enjoys great potential for foreign investment but war like situation in the northern part of the country, influx on infiltrators from Afghanistan and series of suicidal as well as remote controlled blasts in major cities has rocked investors' confidence. They say the country needs to improve its image.