With global FDI flows expected to fall below $1.2 trillion in 2009 after reaching $2 trillion in 2007, according to UNCTAD, Pakistan is no exception as foreign direct investment nosedived by 53 percent to $622 million in first four months of this fiscal year.
However, contrary to the global trends there was a tilt in foreign investments towards developing countries, up 17 percent in 2008, as against a decline of 29 percent in case of developed part of the world, according to the earlier UNCTAD report on trade and investments.
With falling domestic savings at home, reliance on foreign investment is imperative for Pakistan to revert to decent growth in the coming years, but the fact that the inflows to Pakistan are in sharp contrast to its peers is quite disappointing, albeit not surprising.
FDI inflows were primarily channeled in service oriented sectors including telecommunication and financial businesses during the last many years. These two contributed 65 percent and 43 percent in FDI during FY08 and FY09 respectively. Now, with the saturation in cellular segment and virtual death of acquisitions story in the banking sector, their share in FDI has been reduced to mere 5 percent in Jul-Oct period.
In contrast, the foreign investment in oil and gas exploration sectors, whose share increased from 12 percent to 21 percent in FY08, is down to 18 percent in Jul-Oct 09. Yes, the brunt of bleak security situation on investment is visible from this trend.
Although, the services sector investment had given some respite to balance of payments in the last few years along employment creation, it also promoted excessive consumption at the expense of domestic savings.
So, the investment policy for 2010-15 currently under discussion amongst policy makers should focus on attracting FDI in the real sectors to spur growth. The focus should be on energy and other industrial sectors that will help reduce the burden of country on energy imports in the long run and spur exports through modernization of industrial sector.