Amongst the top six destinations for FDI in 2009-2011 set forth by UNCTAD in its World Investment Prospects Survey 2009-2011, China and India represented the Asian developing economies. FDI in these countries has been increasing as they continue to offer business-friendly environment to the foreign investors.
Pakistan, however, remains far behind its regional peers as foreign direct investment is persistently declining over the past three years. SBP numbers for July-September FY12 depict this worsening situation.
Total foreign direct investment for the first quarter saw a decline of 28 percent compared to the same period of last year with a stunted tally of $282.7 million.
While foreign investment from the USA registered a similar increase for the same period; contributions from other developed economies faltered, when compared to 1QFY11.
Reliance on the oil and gas exploration sector is telling in the SBP figures as over 61 percent of total FDI inflows came from this sector. Over the past three years, the contribution of the sector in the same tally averaged about 25 percent.
Financial sector and petroleum refining have witnessed positive flows albeit at a trickle. The communications sector has witnessed a decline, likely attributable to profit repatriation during the period under review.
Foreign inflows to the country are scarce and over reliance on a single sector may pose risk in the future. The lack of positive news on the front of significant new discoveries and pricing incentives for the exploration sector may compound this conundrum.
Subsequent investor confidence surveys such as the Business Confidence Index maintained by the OICCI demonstrate deteriorating sentiments concerning governance, inflation, power shortage and corruption in the country.
The political noise rising in the run-up to general elections scheduled for 2013 will only add to the din throwing off potential investments from abroad.
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