Foreign investment falling apart

The oil and gas sector is attracting more than 60 percent of foreign direct investment (FDI). But don let the numbers fool you as it represents a piece of only a very small pie. The days when investment poured into telecom, banking, mining, and construction sector are long gone; so are hopes for better FDI in the prevailing law and order and security situation. The ongoing year has seen little on the investment front, primarily due to political unrest and the crippling energy and security situation nationwide. Inflows of FDI in Pakistan have dipped by almost 44 percent to 559 million dollars during 8MFY12 vis-à-vis the same period FY11. Portfolio investment, the second component of net foreign investment, had net outflows of 128 million dollars versus inflows during 8MFY12 as investors shun the countrys main stock exchange. Hence net foreign investment has contracted by 65 percent during the said period. These figures reveal a very gloomy picture with expectations of only one billion dollar of FDI for FY12, a decline of more than 35 percent over FY11. Drastic changes have occurred in the FDI mix over only a couple of years. Financial businesses, telecommunication, and IT, once eye candy for foreign investors, have lost their sheen. Today these sectors lay neglected partly due to saturation in the industry, while the left over luster is eroded by the aforesaid factors. Oil and gas exploration and mining, another ig for the investors abroad, especially China, United States, and Europe, is the only major sector that is attracting inflows as of now. Though the segment has the largest share in net inflows, the debilitating investment in absolute terms is ringing alarm bells for policymakers. No wonder the share of oil and gas investments has risen where 775 million dollars of FDI in oil and gas in FY09 has gone down to 512 million dollars in FY11. It has been worse for telecom and banking sector. However, hopes have turned a little sanguine with some activity in the petroleum sector. The new incentives to gas exploration and production companies in the form of higher prices, interest of foreign giants such as Gazprom in the construction of IP pipeline and the recent interests shown by British High Commission to increase investment in various sectors offer some respite if things go as planned. All information and data used are from reliable source(s) and subjected to extensive research after diligent and reasonable efforts to determine the soundness of the source(s). This analysis is not for the benefit of or discredit to any person, scrip or tradable instrument. The content(s) of this analysis shall not be construed as an advice or recommendation to trade. No relationship of client will be created between Business Recorder and user of this information. Professional advice must be taken by the reader before making investment/trading decisions. BR disclaims any liability for investment(s) made or liability accrued on basis of this analysis. The content(s) including all opinion(s), statement(s) and information are subject to change without prior notice and/or intimation.