Investments by foreign businessmen in Pakistan have been on a precipitous decline during the last two years. But contrary to what many think, the fall in foreign direct investment inflows isn't just because of the global economic slowdown or the rising security risks in the country.
It is, in the light of latest report by Overseas Investors Chamber of Commerce and Industry, nearly as much due to insufficient industrial infrastructure as irregular and expensive power supply.
OICCIs recently released Investment Survey Report says investments in the calendar year 2009 plunged by Rs55 billion, or 37 percent while reporting that manufacturing industries, such as engineering and industrial products, chemical, fertilizer, pesticides, pharmaceutical, automobile saw their profits fall by 33 percent in the year before.
This points to the fact that investments made in the past were either not channeled to crucial sectors, which are considered as the engine for economic growth or were not sufficient enough.
But since the past can't be undone, the biggest concern for policy makers today is to boost foreign investments and industrial growth, primarily in manufacturing sector, since manufacturing sector alone contributes to 18 percent of the GDP and accounts for 80 percent of exports, according to the World Trade Organization.
One of hows in this equation involves channeling domestic and foreign investment in the infrastructure sector. Investment in low cost, alternate or hydel, energy sources is a much-needed solution to weather current energy crisis, in contrast to previous inflows which were mainly routed to oil and gas sector that considerably increased cost of doing business in Pakistan.
It is relatively easy to induce investment in this sector as it is one the most profitable industry at home given the yawning demand-supply gap. Even globally, investments in this sector are growing rapidly; investments in renewable energy sector alone rose from $34 billion in 2004 to $142 billion in 2008, according to World Economic Forum.
The other major sector highly desired for the growth of industrial base is trade logistics and transportation. Poor performance of the transportation sector in Pakistan is estimated to cost the economy about 4 to 6 percent of GDP each year, according to World Bank estimates. Improvement in infrastructure will not only boost domestic trade but will also facilitate regional trade since Pakistan offers one of the nearest seaports to the gradually developing landlocked central Asian countries.
In fact, Pakistan's manufacturing sector, due to availability of cheap labor, resources and relatively skilled manpower, has great potential for exports to Central Asian and African countries since industries, such as textile, pharmaceutical, automobile etc in those regions are less developed and it is expensive for them to import from far eastern countries owing to high freight charges.
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Profit-before-tax Rs (mn)
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Sectors 2008 2007 %Chg
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Engineering & Industrial products 2864 4881 -41%
Chemicals, Pesticides, Fertilizer & Paints 11906 20394 -42%
Pharmaceutical 7460 8804 -15%
Automobile 3698 4651 -20%
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Source: OICCI