FDI and improvement-a far cry

The foreign investment statistics released by State Bank of Pakistan for the month of August presented yet another dismal picture for FDI. After free falling for the fourth consecutive years in FY12, FDI in August 2012 clocked in at negative 9.1 million dollars, with outflows exceeding the inflows.
It is worth mentioning that the SBP has decided to disseminate the monthly statistics of foreign direct investment not just as net flows, but also as inflow and outflows.
Based on this new format, the FDI inflows during August, the second month of FY13 were more than double on month on month basis, but the outflows, higher than the inflows, shoveled all the gains. On a year on year basis, FDI inflows contracted by 18 percent during August 2012, while the outflows remained on more or less the same level as that of August 2011.
The repercussions of a fragile institutional framework coupled with political uncertainty and weakening economic development continued to shape investor confidence. On an aggregate basis, the net FDI for 2MFY13 stood at 33 million dollars, taking an almost 67 percent dive from 99 million dollars during similar period last year.
Though the share has declined significantly over the years, the oil and gas sector continued to attract the most inflows. Net FDI during the first two months of FY13 aggregated to 35.5 million dollars, a decline of about 38 percent from July-August FY12.
Similarly, all the major sectors except financial businesses, electronics and electrical machinery, continued to be ignored by the foreign investors during July-August FY13. Where inflows in these sectors remained on the lower side when evaluated against similar period last year, the biggest divestment occurred in telecommunication sector.
But since FDI in sectors like power, oil and gas, textile, communications, construction, transport is worth every dime during such precarious times, the benefits of what was received during the two months of FY13 cannot be warded off.
Moreover, had it not been for the improvement of the local equity markets, the foreign investment position would have been in the red zone. Thanks to portfolio investment, the second component, foreign private investment surged by almost double during July-August FY13 versus similar period FY12. FPI surged to 74.4 million dollars during the said period compared to net outflows during 2MFY12.
The crucial question is how long the equity market will be able to uphold amidst the wobbly political and economic situation and continue supporting the falling FDI. As a first step, leadership and implementation requires an overhaul, and this was the core of the roadmap presented by the Board of Investment (BOI) earlier this month.