FDI becoming more of a challenge

Call it a misfortune or a spell on the economy, the remarkable in improvement of more than 100 percent YoY in the FDI figures released by SBP for October 2012 cannot be celebrated. The performance over first four months of FY13 continued to be a horror for the investment scenario.
The falling trend of foreign direct investment extended during 4MFY13 where FDI plunged by a hefty 24 percent YoY. However, portfolio investment, though a smaller portion of total foreign inflows, went from negative 75 million dollars during July-October FY123 to positive 126 million dollars.
Amongst the most striking factors that have hammered the foreign inflows in the country over the years, terrorism has had one of the highest correlations to the mourning state. Apart from the bleeding law and order situation in the country, the poor institutional climate collaborates with weak infrastructure to derail opportunities.
Global investment climate suggests further squeezing of foreign investment in the country: UNCTAD in its latest investment trend monitor has revised down its forecast for global inflows for the remaining half of CY12.
Global FDI during the first half of CY12 witnessed a drop of eight percent compared to 1HCY11 primarily due to renewal of setbacks during the second quarter of CY12. With inflows in US and BRIC countries falling significantly during the aforementioned period, greenfield investment and cross border M&A activity slipped by a colossal 40 percent and 60 percent year-on-year, respectively.
Inflows in South Asia also fell by 40 percent during the first half of the turbulent 2012 with the exception of Bangladesh which was able to attract investor interest in manufacturing.
Amid bumpy global recovery, falling demand and higher regulatory risks worldwide, the latest forecast predicts that at maximum, the global annual FDI for 2012 would level-off 2011. The caveat for Pakistan lies where the organisation has pointed out riskier times for investment flows to Asias developing countries with daunting investment opportunities in key development sector.