Country perception and FDI

24 Jun, 2023

Country Perception and Foreign Direct Investment (FDI) are closely interrelated. An investor when deciding to commit an investment in a country primarily takes into consideration two factors, notably: (1) the returns on investment, and (2) the security of investment.

The security of investment mainly takes into account, country risk which includes political stability, fiscal discipline and social stability, credentials of the country’s legal framework and its application, sustainability of government policies and market sentiments.

As of today, neither the return on investment nor the security of investment is motivating enough for the investor to commit investment in Pakistan. The figures reveal this unequivocally.

As per the Pakistan Economic Survey 2022 -23, FDI in the country during July 2022 - April 2023 period has shrunk to a meagre US $ 1.2 billion, recording a decline of 23.2 percent as against US $ 1.5 billion in the fiscal year 2021- 2022.

Prime Minister Shehbaz Sharif on Wednesday last, spelled out a strategy to revive the national economy and invoke Foreign Direct Investment (FDI).

He is reported to have stated: “Employing a whole-of-the-government approach, the coalition government has decided to set up a Special Investment Facilitation Council (SIFC) with a mandate to frame economic policies that ensure policy predictability, continuity and effective implementation to revive the economy”.

He further stated: “With the help of the Special Investment Facilitation Council (SIFC), the immediate task was to increase the Foreign Direct Investment (FDI) in the country up to $5 billion.”

He said he had fervently advocated a unified approach to steer the country out of the economic challenges. “Attracting investment from friendly countries remains one of the key goals of the SIFC,” he added.

The endeavours of the Prime Minister appear meaningful and address a dire need of the country. An FDI target of $ 5 billion, in normal circumstances, would have been a very modest target considering India’s achievement of an FDI of $ 70 billion in 2023. The rest of the countries in the region, with far lesser resources, have all done much better than us.

Special Investment Facilitation Council (SIFC) may not be able to achieve much insofar as FDI is concerned, given the complexity of deterrents and multiple factors related to return on investment and security of investment - largely influenced by the much bigger political and economic instability prevailing in the country.

Much of it being outside the mandate of SIFC. Exports and FDI are the two prime movers of the economy. Both are extremely stressed. A major political and fiscal shake-up is needed to ease the status quo.

The results of latest Business Confidence Survey Wave 23, conducted throughout the country during March to April 2023 by Overseas Investors Chamber of Commerce and Industry (OICCI), presents a realistic and a well-researched report on the prevailing foreign investor sentiment in the country.

The survey reports that the overall Business Confidence (BCS) in Pakistan, has gone down and now stands at negative 25 percent (-25%). This is a decrease of 21 percent compared to BCI of negative 4 percent (-4%) in the previous Wave 22 Survey conducted between September and October 2022.

The largest drop was recorded in the manufacturing sector (22 percent), followed by retail and wholesale trade (21 percent), and service sector (18 percent). The survey sample consisted of 42 percent respondents from manufacturing sector, 35 percent from the service sector and 23 percent from the retail/wholesale trade.

Overall, the manufacturing sector recorded a net confidence level of negative 19 percent, whereas service and retail sectors stood at negative of 26 percent and 35 percent, respectively.

The three major threats to business growth identified in the survey are high Inflation (by 82 percent respondents), high taxation (74 percent), and Pak rupee devaluation (72 percent), which could potentially slow down business growth in Pakistan, which remained consistent to feedback from the last wave of BCS.

The sentiments of the OICCI members, the leading foreign investors, who were also randomly included in the survey, stand at negative 19 percent compared to positive 6 percent in the previous wave.

OICCI, the oldest and largest investment chamber in the country, has a wealth of a diverse membership both in terms of sector and geography to draw on with current 200-plus members representing 35 different countries and 14 different sectors of trade and industry. OICCI is the pulse of foreign investment in Pakistan and the government is therefore required to take OICCI on board while framing policies on FDI.

Whatever good may come out of it in these challenging times is a step forward.

Copyright Business Recorder, 2023

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