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Jump in foreign investment

After witnessing a steep fall in the last few years, foreign private investment surged by 106 percent or dollar 806 million to dollar 1.567 billion during FY13. Foreign Direct Investment (FDI), which was the major part of this investment and is a real catalyst for an economy, also rose significantly, depicting an increase of 76 percent or dollar 626.7 million to dollar 1.447 billion. Portfolio investment also registered a handsome growth as its inflows amounted to dollar 119.5 million in FY13 compared to outflows of dollar 60 million in the previous year. Country-wise, the highest FDI was received from the US (dollar 623 million or around 44 percent of the total), followed by Hong Kong (dollar 242 million), the UK (dollar 223 million), Italy (dollar 199 million) and Switzerland (dollar 149 million). The FDI from China was only dollar 90 million which seems negligible against the backdrop of increasing trade value with the neighbouring country.

A sharp increase in FDI during 2012-13 is of course an encouraging news for the country, especially at a time when the economy is in dire need of foreign resources to revive its growth prospects to create job opportunities and reduce poverty. Also, foreign investment could replenish the country's dwindling foreign exchange reserves to an extent and could be crucial for technological upgrade, innovative improvement and overall modernisation of the industrial base. All of this would serve to improve the productivity of the economy, and enhance exports besides increasing supplies of various goods and services in the domestic market. The compulsion to attract FDI would have been less severe if the country could generate the required level of domestic resources to finance the needed investment but that is not the case as indicated by the huge gap between aggregate savings and investment in the country. A noteworthy aspect of the situation is that FDI which had declined continuously during the last few years has shown handsome increase during FY13. Nonetheless, its level is still much lower than dollar 5.4 billion reached in the FY08.

Although, a rise in FDI during FY13 is a welcome development, yet the overall amount is still highly inadequate to make any meaningful contribution to the country's economic prospects. This is especially depressing when other countries in the region are attracting much higher level of foreign investment and making good use of this money despite the fact that Pakistan has one of the most conducive policy frameworks to attract FDI and its rulers continue to try to woo foreign investors through various ways. The reasons for the lack of interest of foreign investors are not hard to seek. Some of the deterrents they face are poor infrastructure, energy crisis, poor law and order situation, lack of good governance and increasing militancy. There is also a growing perception that Pakistan is a safe haven for terrorists and is a place where life and property of investors is not safe. In addition, a profound lack of progress in the privatisation process and disputes with some of the foreign investors over various issues, have also contributed to a woeful decline in FDI. We are sure that the present government is fully aware of the situation and would make concerted efforts to enhance the FDI flows to improve the economy. Such efforts are not only necessary to attract FDI but to provide an enabling environment to domestic investors who also appear to be keen to take their capital to safe shores. Hopefully, a fresh agreement with the IMF and the promise of the new government to remove all the impediments towards investment as early as possible would go a long way in boosting the confidence of investors and make Pakistan a favourable destination of investment in the near future. The complaint of Chinese investors during the recent visit of Prime Minister Nawaz Sharif to their country about the safety of their workers in Pakistan was an example how foreign investors look at the current investment environment in Pakistan.

Copyright Business Recorder, 2013


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Foreign Debt $60.9bn
Per Cap Income $1,368
GDP Growth 3.6%
Average CPI 7.5%
Trade Balance $-1.558 bln
Exports $2.117 bln
Imports $3.675 bln
WeeklyJuly 10, 2014
Reserves $14.638 bln