FDI adding to the melancholic FY12

It’s the fourth year of the free fall, but it is still no surprise to anyone. Foreign direct investment signed off FY12 with a dreary performance as prospects for foreign investment in the country continued to be fraught with uncertainties and risks. Hopes started building up when Russia, China or Japan talked about revitalising investment in the region, but the country finds itself at its wits’ end as investors continued to run for cover. Following the political debility, security issues and the arduous energy crisis, the strained Pakistan-US relations and consequentially, the NATO decision played their role in further infuriating the investor confidence. In such a situation, tackling the image problem is another challenge. Against this backdrop, the country’s relation with China improved further, the fiscal year saw major movement in the relationship between Pakistan and India, opening up a new window of opportunity. On the brighter side, the FDI Attraction versus Potential Index by UNCTAD in its recent report revealed that though Pakistan ranks low on attracting FDI in absolute terms, the country ranks satisfactorily when it comes to long-term prospects. This potential is based on attractiveness of the market, availability of low-cost skills and labour, presence of natural resources and FDI-enabling infrastructure. Portfolio investment, a component of net foreign investment, has never been so miserable, highlighted by a decline of almost 120 percent compared to FY11. The point of significance is that this outflow is corroborated by an outflow of foreign money across Asia as yield-hungry investors shifted to lucrative stock markets. Where the country’s portfolio investment can be seen as a mirror image of what’s happening in Asia and the developing world, a lump of the investment in shape of green field projects has perished briskly when compared to the regional giant, India. Moreover, the developing world including India seems to have recouped to the pre-crisis level, while Pakistan is nowhere close to $14 billion mark – average green field investments from CY05-CY07. How aggravating could it get for Pakistan when after the US-Iran fall out and the whole sanction fiasco, Iran still managed to maintain its spotlight as number two for inward foreign direct investment in South Asia. It is time to figure out the trick to get the companies with the deepest pockets and largest appetites to set foot in the country.