PAKISTAN NO MORE ON THE RADAR OF FOREIGN INVESTORS

SHAMIM RIZIVI
(feedback@pgeconomist.com)

Feb 14 - 20, 2011

Foreign investment inflows which started falling since the end of fiscal year 2007-8 are unlikely to pick up even during the current year (2010-11) owing to continuing recessionary conditions, insecurity, poor law and order conditions, inconsistent and unwise policies, massive corruption in the government departments, and unending power shortage and its rising cost. Pakistan which was considered as heaven by foreign investors till the year 2005 is no more on foreign investor's radar. After touching its peak of $5.4 billion during the financial year 2007-8, the inflow started falling and came down to $2.50 billion in the last fiscal year (2009-10) and further down to about $600 million in the first six months (July-December ) of the current fiscal.

During the last month of January, the government took two economic decisions, which, according to the experts, are tantamount to further shake the investor's confidence. The first was that the government forced reversal of KESC management's retrenchment of its 4460 non-core work force (drivers, security guards, sanitary workers, bill distributors and office attendants).

This was nothing but a brute interference in the affairs of a private company. The second was the ill-judged decision to allow the import of 5 year's old used cars. This is tantamount to badly hurt the auto industry. These decisions will have far-reaching impact on the investment climate in the country. It goes without saying that foreign direct investment (FDI), being the single source of private capital flow, has contributed immensely to investment and growth in the developing countries.

Given the effective role that the FDI can play in the acceleration of economic growth, developing countries have been making efforts to improve their policy environment to attract it. Countries lagging behind in attracting FDI are ones that faced macroeconomic instability, pursued inconsistent policies, and showed indifferent attitude towards foreign investors. The two decisions will further damage the already deteriorating investment climate.

The president of Overseas Investors Chamber of Commerce and Industry, Ameena Saiyed, in a press interview recently, frankly admitted that Pakistan was no more on foreign investors' horizon to set up their new business here. Worsening law and order situation has given a serious setback to the existing multinational companies, and remains the biggest hindrance for the new business and investment in the country, she said adding that the law and order remains number one issue in the eyes of foreign investors and that is why they have no plans to set up any new business in Pakistan during the year 2011. She maintained that the issue of law and order has become so complicated, especially since it was linked with multi-dimensional phenomenon of terrorism in the world. It may take years and years to replace things in order. She suggested that resetting the society in order should be on the top priority of the government and it was a must for the present elected government to bring political stability in the country.

Talking with reference to the recent visit of the Chinese delegation under the leadership of their Prime Minister whose team signed various memorandum of understanding and agreements with their Pakistani counterparts to invest up to USD35 billion in Pakistan in various sectors.

OICCI chief was of the view that holding of meetings and dialogues were just the beginning, and things were yet to be matured. Other experts and analysts were more optimistic about Chinese initiatives. There was, however, a consensus that foreign investment scenario is likely to remain bleak for sometime more to come.