Rise in FDI

After a plunge upto November during the current fiscal, Foreign Direct Investment (FDI) in the country has recovered to more than neutralise for the earlier fall during December, 2016 to register an increase of 10 percent to cross the dollar one billion mark during the first half of FY17. According to the latest data released by the State Bank on 16th December, 2016, FDI in July - December amounted to $1.08 billion which was higher by 10.4 percent than the first half of FY16. However, it was Dutch acquisition of Engro Foods which helped boost Pakistan's FDI as the Netherlands invested $495.5 million in December alone and made the real change to account for 55 percent of total FDI during the six months. As against this, the inflow from China, which is Pakistan's partner in the CPEC, dropped to $204 million during the first six months of 2016-17 as compared to $443.8 million in the same period of last year. Turkey was the third largest investor in Pakistan with a total investment of $129 million. Other important investors were the UAE ($77 million), France ($46 million), US ($38 million) and Britain ($44 million). The second component of foreign investment, ie, portfolio investment is still on the decline as it fell by 7.4 percent and witnessed an outflow of $254 million despite improved performance of the country's equity market. In December, 2016, the net inflow of FDI was $595 million compared with $139 million in the same month of last year.
Although the figures on FDI during July-December, 2016 would appear to be promising, these should be taken with a pinch of salt. The improvement in investment during the period under review was possible due entirely to the receipts from the Netherlands from the sale proceeds of Engro Foods. If we exclude these receipts, the data would show a fall in investment which had been seen in the earlier period of the current fiscal. The investors from foreign countries are obviously not very keen to invest in Pakistan. Another very important aspect of the data is that though the aggregate amount of foreign investment has shown an improvement yet we should not be satisfied with this trend as the total amount is too insignificant to make much difference on the overall development of the country and is also meagre compared with other countries in the region. Another sad aspect is that foreign investors are also taking their portfolio investment out of the country despite a very positive performance of the stock exchange and this shows a lack of confidence in the economy. Also, it is a well-known fact that Pakistan is offering all kinds of incentives and inducements to foreign investors but the level of FDI continues to be dismal. All of this shows that there is something seriously wrong with certain other factors which continue to depress interest of foreign investors. These negative factors could be poor law and order situation, absence of greater political stability, crumbling infrastructure, endemic corruption, unease of doing business and tensions at borders. Unfortunately, however, prospects of foreign investment are not promising either. The Post-Trump America, Europe after Brexit and certain other countries are feeding themselves on the frenzy of protectionism and are poised to be more inward-looking, hampering the prospects of outflow of foreign investment from these countries. The Finance Minister and his team have been asserting that the CPEC was going to be a game/fate-changer but inflow of investment from China is also not encouraging. Be that as it may, Pakistan cannot hope to make progress and be on the road of prosperity without sufficient inflows of foreign investment from other countries due to dismal rate of domestic savings. As such, it is important for the economic policymakers of the country to thoroughly analyse the reasons for the low level of FDI and undertake necessary measures to improve it sufficiently to play a much greater role in the development of the country. Mere propaganda and road shows won't work.