Fall in foreign investment

Foreign investment has played a crucial role in strengthening the economies of a number of developing countries. Sadly, however, Pakistan seems to be missing the opportunity offered by such a possibility due to a number of factors. According to the latest data released by the State Bank on 16th May 2011, flow of private investment into the country nose-dived to $1,588 million during July-April, 2011 as compared to $2,296 million in the corresponding period of last year, showing a sharp decline of $708 million or 30.8 percent.
Out of this, foreign direct investment (FDI) fell from $1,725 million to $1,232 million or by 28.6 percent during the first 10 months of FY11 while portfolio investment plunged from $571 million to $356 million or by 37.7 percent during this period.
The latest trend in foreign investment is even more disturbing. At $178 million in April, 2011, foreign private investment was lower by 47.02 percent as compared to its level of $336 million in the same month of the preceding year. Both FDI and portfolio investment registered high declines of 42.5 percent and 55.7 percent respectively during this period. It may be added that while FDI spurs growth, generates employment, reduces poverty and introduces technical know-how, portfolio investment generally flows into the country to earn quick bucks and leaves its shores whenever there is domestic uncertainty or better alternatives are available somewhere else.
A steep decline in FDI during the first 10 months of the current fiscal is definitely a cause of worry, especially when other developing countries are attracting much higher level of foreign investment these days and the country is in dire need of foreign investment to brighten its growth prospects. The compulsion to attract FDI would, of course, have been less severe if the country was mobilising higher level of domestic resources to finance the required investment but, unfortunately, this is not the case.
Also, it needs to be highlighted that foreign investors seem to have changed their perception about the country as a favourable destination of investment in the recent years. This is indicated by the fact that FDI which stood at $5.4 billion in FY08 came down to $3.7 billion in FY09 and further to $2.2 billion during FY10. At the current rate, inflow of FDI could be only around $1.5 billion during FY11, suggesting very clearly that if this source of investment is to be utilised to improve the economy of the country, drastic actions have to be taken to reverse this discouraging trend.
It must be stressed, however, that Pakistan has, so far, one of the most conducive policy frameworks as foreign investment is concerned. There is no restriction on the repatriation of capital, profits and dividends and attractive package of tax incentives is also in place. Besides, ample investment opportunities are available in sectors like energy, oil, minerals, port development and agriculture. As such, it is clear that poor infrastructure, energy crisis, worst law and order situation, corruption, political instability, lack of good governance, and more recently, suspension of the SBA with the IMF are some of the factors scaring away foreign investors.
We are afraid that the Abbottabad incident of 2nd May and the growing perception that Pakistan is a safe haven for terrorists and other criminal elements would further tarnish our image and cause a setback to country's efforts aimed at attracting foreign investment in future. We can only hope that authorities of the country, who are well aware of the importance of foreign investment, would do their utmost on all the fronts to remove the above mentioned impediments with a view to increasing the flow of FDI in order to brighten country's economic prospects. The enormity of the task should be acknowledged by everyone, it is, nevertheless, the only way in the short to medium-term to revive economic activity and resolve most of the economic woes.