FDI on a long vacation

No wonder the foreign direct investment has gone down considerably in a country where investors continue to be shooed away. The pleasure of having an FDI pool is wearing off with little hope round the corner. To no ones surprise, the current situation of the country says it all. In this resource-constrained country where investment plays a pivotal role, FDI has been trailing down for three successive years with no respite. The performance during the current fiscal year (FY12) supports the ongoing trend of sluggish investments. For the first five months of FY12, the foreign direct investment witnessed a major setback yet again. A decline of 27 percent in FDI is a big blow to the economy owing to a lack of foreign investors interest. FDI for 5MFY12 declined from $576 million to $420 million, while November FY12 registered a 9 percent fall in FDI compared to the same month in FY11. The net foreign investment comprising FDI and portfolio investment tapered by more than 59 percent during 5MFY12. Of the two, the major decline was in portfolio investment by more than 166 percent due to outflows from the equity market. What else could be blamed for the dilapidated flight of FDI but the prevailing law-and-order situation and the severe energy crisis in the region? To top it up, the impact of the global recession has depressed FDIs across the world. FDI inflows from advanced economies that include US, UK, Japan, Germany, Switzerland, Norway and Japan have dropped by almost 15 percent to $218 million during 5MFY12 compared to the same period FY11. This is primarily due to the grave debt crisis in the eurozone and the Japanese quake which has rocked the FDI situation worldwide and hence Pakistan. FDI from emerging economies stood double to those by developed countries for the first five months of FY12. However, unlike FY11 where emerging economies supported FDI inflows with an increase of over two times, 5MFY12 did not do much with respect to the inflows from developing countries as they were greatly affected by the turmoil in the MENA region. While the triple catastrophe of Japan, eurozone crisis and the turmoil in the MENA region set the background for the gloomy foreign investment scenario in Pakistan, domestic issues cannot be ignored. Furthermore, SBP has deemed domestic factors to be more chronic and decisive. The combo of low saving rates, institutional fragility, acute energy crisis and deteriorating security concerns as stressed by the central bank have agonized the investment landscape of the country.