FRIDAY JULY 15: FDI posts decline for third year in a row

KARACHI: Foreign Direct Investment (FDI) fell for the third straight year. In FY11, FDI posted a decline mainly due to adverse law & order situation, lack of infrastructure and rising energy shortfall. The State Bank of Pakistan on Thursday revealed that FDI has narrowed down by 27 percent to $1.5 billion at the end of FY11 as compared to FY10.
The State Bank reported that net foreign investment, comprising FDI and portfolio investment, dropped by 8 percent during FY11. With current decline net inflows of foreign investment in Pakistan fell to $1.918 billion in FY11 as compared to $2.086 billion in FY10, depicting a decline of $168 million.
During the last fiscal year, FDI - the major component of net foreign investment registered 26.8 percent decline, while portfolio investment, having 18 percent share in net inflows of foreign investment, posted a surge of over 600 percent. According to the SBP, out of total investment, FDI stood at $1.573 billion at the end of FY11 as compared to $2.15 billion in FY10, depicting a decrease of $577 million.
On the other hand, portfolio investment posted an increase of 634 percent because of improvement in the country's equity market. The country's stock market fetched $344.4 million portfolio investment during the FY11 as compared to outflow of $64.5 million in FY10. Economists voicing serious concern on the declining trend of foreign investment said that FDI statistics reflect that foreign investors have serious reservations over Pak economic policies and adopted wait and see policy.
"There are so many factors behind current decline in the FDI which include poor infrastructure, energy crisis, worst law and order situation and unstable government polices, besides rising corruption in the Pakistan," said Dr Shahid Hassan Siddique.
It seem that during the last three years the government focus was on war on terror and other political issues, while economic issues were not in the priority list of the present government. This resulted in slow economic growth, decline in FDI, rise in corruption and decline in industrial activity, he added.
"This is the government's responsibility to provide all necessary facilities to the foreign as well as local investors and develop such policies, which may fetch foreign investment. However, it has been observed that during last fiscal year, no new or attractive investment policy was announced by the government," Siddique said.
He said for last three consecutive years FDI is on decline due to poor economic policies. It stood at $5.7 billion in FY08 and $1.5 billion in FY11. "During last three years, there was only one positive thing: no new privatisation took place and last fiscal year's FDI was purely foreign investment by the foreign investors," he said.
Siddique said continuous decline in FDI would put negative impact on the country's ailing economy and if new measures were not announced, FDI would continue its downward journey. Similarly, foreign private investment with privatisation posted a decline of 29 percent to $1.938 billion during last fiscal year against $2.738 billion in FY10.