Terrorism weighs heavy on FDI

The recent attacks on telecom franchise offices and the pharma-conspiracy tell much about the shrinking investment in the country. Amongst the most striking factors that have hammered the foreign investment inflows in the country in the past, terrorism has a high correlation to the mourning state. The economy has come to a nail biting situation where the investment is marred, falling back to the point where it began a decade ago. To no ones surprise, foreign direct investment has nosedived yet again during January FY12 by more than 61 percent with respect to January FY11. For the seven months of FY12, the FDI has fallen by more than 40 percent with high prospects of derailing further. Portfolio investment, though a smaller portion of total foreign inflows, has been weaker during July-January FY12 going from positive $300 million during July-January FY11 to negative $150 million. The onset of the war on terrorism after the 9/11 incident has hit Pakistans economy badly, affecting its trade, economic growth and investments. In dollar terms the cost that the country has borne due to the war-situation has been trotting up very rapidly. A decade back when the FDI was merely half a million dollars, this cost as estimated by SBP was around $2.7 billion. Today, it has shot above $18 billion mark due to antagonising law-and-order situation in the region. The cost of war escalated due to the spiraling affect of various actions taken as a result of the historic 9/11. For one, travel bans by Western Countries for their visitors to travel to Pakistan affected investments in the region, exports and hence the economic growth. Security and military expenditure became the primary focus and tourism lost its appeal. On the other hand, UNCTAD reveals a different story for global FDI. Despite turmoil in the global economy, global foreign direct investment rose by 17 percent to $1.5 trillion in CY11 where developing economies account for more than half of it. To sum extent, the global trend suggests the same primary reason - law-and-order situation - for falling FDI in Pakistan. The FDI as a percentage of GDP for the country has plummeted from its highest 3.78 percent in FY07 to 1.33 percent in FY10. The country needs a way out of this mess soon for a major boost to its foreign inflows.