FDI ON DECLINE DUE TO INSECURITY

KANWAL SALEEM
(feedback@pgeconomist.com)
Dec 6 - 12, 20
10

Vitiated security climate in the country coupled with worsening power crisis and governance issues not only hampered the development but also led to decline in foreign investment in the country.

The devastations caused by recent floods also destroyed the infrastructure leading to fragile economic situation.

Foreign Direct Investment (FDI) has been instrumental in the development of the country. Currently about 250 foreign companies are operating in the country. They have interest in almost each and every sector. These include pharmaceuticals and chemicals, oil and gas exploration and marketing, power generation, food and beverages, automotive assembly, insurance and banking etc. Pakistan was among the first few countries in the region to open up the market in early nineties.

During the last three years, more than 70 per cent of FDI was concentrated in two sectors, i.e., communication and oil & gas exploration.

Foreign Direct Investment (FDI) fell by $181 million, or 28.5 percent, during the first quarter (July-September) of FY11 (fiscal year 2010-11) to $455.1 million from $636.5 million during the same quarter last year. The portfolio investment witnessed a sharp decline of 67.5 percent to $67.7 million during the period against $208.2 million received in July-September FY10.

Analysts attributed the decline in foreign investment to fragile economic situation, which destroyed infrastructure, the adverse security situation in the country and severe power crisis, which hampered the developments.

The foreign investment is consistently falling during the last few years, which led to dependency on foreign loans. The inflow of foreign investment from developed countries shrunk by 49.6 percent during the first quarter of FY11 to $243.8 million from $483.3 million last year.

The FDI from developed nations plunged by 50.3 percent to $125.5 million from $252.3 million. Similarly, the portfolio investment dropped by 48.8 percent to $118.3 million from $230.9 million. The inflows of foreign investment from developing countries, however, registered an increase of 185.3 percent to $194.3 million from $68.1 million. The FDI from these nations rose to $194.7 million from $50.4 million. The portfolio investment, however, came down sharply as outflow stood at $0.4 million during the first quarter of the current year against the inflows of $17.7 million.

Experts said the FDI remained under pressure amid deteriorating law and order situation and energy crisis. They believe that the growth in FDI and private inflows could further decline in coming months due to widespread damage and losses to national economy caused by heavy floods in certain parts of the country, which has badly hurt the agricultural output and infrastructure in the flood affected areas.

They were of the view that lacking good governance, adhocisim and negative indicators are the real impediment in attracting foreign investment. The foreign investment in energy sector is not encouraging despite tremendous potential. Nevertheless, the share FDI, flowing into Pakistan, is negligible when compared with the opportunities available in the country. The inflow into the country is less than one percent of the total FDI, made globally, they pointed out. "No one can deny the fact that the country needs foreign investment. If the foreign investment is required then Pakistan has to offer conducive environment for foreign investors," they asserted.

A spokesman of the Board of Investment (BOI) said that the BOI was established with broad based responsibilities of promotion of investment in all sectors of economy; facilitation of local and foreign investors for speedy materialisation of their projects and to enhance Pakistan's international competitiveness and contribute to economic and social development.

According to him, the BOI assists companies and investors who intend to invest in Pakistan as well as facilitates the implementation and operation of their projects. The wide range of services provided by BOI include providing information on the opportunities for investment and facilitating companies that are looking for joint venture partners.

The BOI acts as a focal point of contact for prospective investors, both domestic and foreign to provide them with all necessary information and assistance in coordinating with other government departments/agencies. The BOI also evaluates applications of investors for the work / business visa, branch / liaison office and security clearance.

FOREIGN INVESTMENT INFLOWS IN PAKISTAN ($ MILLION)

YEAR GREENFIELD
INVESTMENT
PRIVATISATION
PROCEEDS
TOTAL FDI PRIVATE PORTFOLIO
INVESTMENT
2001-02 357.0 128.0 485.0 -10.0
2002-03 622.0 176.0 798.0 22.0
2003-04 750.0 199.0 949.0 -28.0
2004-05 1,161.0 363.0 1,524.0 153.0
2005-06 1,981.0 1,540.0 3,521.0 351.0
2006-07 4,873.2 266.0 5,139.6 1,820.0
2007-08 5,019.6 133.2 5,152.8 19.3
2008-09 3,719.9 - 3,179.9 -510.3
2009-10 2,150.8 - 2,150.8 587.9
2010-11 (July-Oct) 467.7 - 467.7 -
Total 21,102.2 2,805.2 23,367.8 2,404.9


DIRECT AND PORTFOLIO INVESTMENT ($ MILLION)

COUNTRY 2009-2010 (JULY-OCT) . 2010-2011 (JULY-OCT) .
DIRECT PORTFOLIO TOTAL DIRECT PORTFOLIO TOTAL
PRIVATE PUBLIC PRIVATE PUBLIC
USA 133.9 192.0 . 325.9 75.5 120.7 . 196.2
UK 76.2 62.3 . 138.5 87.1 10.6 . 97.7
Netherlands 57.8 0.1 . 57.9 8.9 2.4 . 11.3
UAE 55.1 0.1 . 55.2 83.0 2.1 . 85.1
Switzerland 26.8 10.0 . 36.8 5.6 3.5 . 9.1
Singapore 33.2 1.3 . 34.5 16.1 -0.1 . 16.0
Caymen Island 45.1 - . 45.1 16.3 - . 16.3
Germany 8.1 0.05 . 8.2 1.4 -1.6 . -0.2
Other 160.2 22.6 . 182.8 173.8 -36.3 . 137.5
Debt Securities . . -9.9 . . . -38.7 .
GDRS
Total 596.4 288.5 -9.9 875.0 467.7 101.3 -38.7 530.3


COUNTRY WISE FDI INFLOWS ($ MILLION)

COUNTRY 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11(Jul-Oct)
USA 92.7 326.4 211.5 238.4 325.9 516.7 913.1 1,309.3 869.9 468.3 75.5
UK 90.5 30.3 219.4 64.6 181.5 244.0 860.1 460.2 263.4 294.6 87.1
U.A.E 5.2 21.5 119.7 134.6 367.5 1,424.5 661.5 589.2 178.1 242.7 83.0
Japan 9.1 6.4 14.1 15.1 45.2 57.0 64.4 131.2 74.3 26.8 0.3
Hong Kong 3.6 2.8 5.6 6.3 32.3 24.0 32.6 339.8 156.1 9.9 66.1
Switzerland 3.6 7.4 3.1 205.3 137.5 170.6 174.7 169.3 227.3 170.6 5.6
Saudi Arabia 56.6 1.3 43.5 7.2 18.4 277.8 103.5 46.2 (92.3) (133.8) 4.8
Germany 15.5 11.2 3.7 7.0 13.1 28.6 78.9 69.6 76.9 53.0 1.4
Korea (South) 3.7 0.4 0.2 1.0 1.4 1.6 1.5 1.2 2.3 2.3 0.9
Norway 41.9 0.1 0.3 146.6 31.4 252.6 25.1 274.9 101.1 0.4 0.4
China   0.3 3.0 14.3 0.4 1.7 712.0 13.7 (101.4) (3.6) 3.7
Others   76.6 173.9 108.6 369.3 521.9 1,512.2 2,005.2 1,964.2 1,019.6 138.9
Total 322.4 484.7 798.0 949.0 1523.9 3521.0 5139.6 5409.8 3719.9 2150.8 467.7
Privatisation proceeds - 127.4 176.0 198.8 363.0 1540.3 266.4 133.2 0.0 0.0 0.0
FDI excluding pvt. Proceeds 322.4 357.3 622.0 750.2 1,160.9 1,980.7 4,873.2 5,276.6 3,719.9 2,150.8 467.7
21.6% decrease in FDI Including Privatisation Proceeds as compared to July-October 2010.


SECTOR WISE FDI INFLOWS ($ MILLION)

SECTOR 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11(Jul-Oct)
Oil & Gas 80.7 268.2 186.8 202.4 193.8 312.7 545.1 634.8 775.0 740.6 150.2
Financial Business (34.9) 3.6 207.4 242.1 269.4 329.2 930.3 1,864.9 707.4 163.0 16.1
Textiles 4.6 18.5 26.1 35.4 39.3 47.0 59.4 30.1 36.9 27.8 7.7
Trade 13.2 34.2 39.1 35.6 52.1 118.0 172.1 175.9 166.6 117.0 13.7
Construction 12.5 12.8 17.6 32.0 42.7 89.5 157.1 89.0 93.4 101.6 21.5
Power 39.9 36.4 32.8 (14.2) 73.4 320.6 193.4 70.3 130.6 (120.6) 42.7
Chemical 20.3 10.6 86.1 15.3 51.0 62.9 46.1 79.3 74.3 112.1 25.5
Transport 45.2 21.4 87.4 8.8 10.6 18.4 30.2 74.2 93.2 132.0 34.1
Communication (IT&Telecom) NA 12.8 24.3 221.9 517.6 1,937.7 1,898.7 1,626.8 879.1 291.0 38.7
Others 140.9 66.2 90.4 170.1 274.0 285.0 1,107.2 764.5 763.4 586.3 117.5
Total 322.4 484.7 798.0 949.4 1,523.9 3,521.0 5,139.6 5,409.8 3,719.9 2,150.8 467.7
Privatisation Proceeds - 127.4 176.0 198.8 363.0 1,540.3 266.4 133.2 0.0 0.0 0.0
FDI Excluding Pvt. Proceeds 322.4 357.3 622.0 750.6 1160.9 1980.7 4873.2 5,276.6 3,719.9 2,150.8 467.7
21.6% decrease in FDI Including Privatisation Proceeds as compared to July-October 2010.