In spite of high rate of return on investment offered by Pakistan, foreign direct investment (FDI) declined by 52.2 percent during the first five months of the ongoing fiscal as compared to the same period of last year. This decline was due to the prevailing law and order situation, energy crisis and political uncertainty, according to officials in the Board of Investment (BoI).
The FDI during July-November 2009 declined to 774 million dollars as compared to 1.620 billion dollars for the same period last year. The largest contributor to the FDI, the US, reduced its inflows to 262.7 million dollars in July-November 2009 as compared to 345.4 million dollars during the same period of last year, while UK, the second largest FDI source for Pakistan, also reduced FDI to 88.5 million dollars from 114 million dollars.
The FDI inflows from Australia declined to 23.9 million dollars as compared to 31.3 million dollars in the comparable period last year and from Switzerland, the FDI declined to 32.4 million dollars during the first five months of the ongoing fiscal as compared to 70.4 million dollars in the same period of last year. The FDI inflows from Singapore have shrunk to merely 41.1 million dollars from 222.4 million dollars in the first five months of last year.
What is interesting is that in July November 2009, the FDI totalling 45 million dollars from the Cayman Islands entered Pakistan. Details of the sector that received this investment have not been released by the State Bank of Pakistan (SBP). The foreign direct investment from the Cayman Islands, the major offshore financial centre in the Caribbean, was negative 24.6 million dollars in July-November, 2008.
An offshore account is a bank located outside the country of residence of the depositor in a tax haven, there is no income tax or corporation or capital gains tax in the Cayman Islands. However, the islands allow greater privacy, easy access to deposits and protection against local political or financial instability.
On May 4, 2009, US President Barack Obama declared his intentions to curb the use of tax havens by multinational corporations with particular reference to the Cayman Islands. The subsequent day, the Cayman Island Financial Services Association reportedly submitted an open letter to the President detailing the Caymans' role in international finance and its value to the US financial system. Analysis of the data showed that the FDI increased from the Netherlands and the UAE during the first five months of the current fiscal as compared to the same period of last year.
From the Netherlands, the FDI was 18.5 million dollars during July-November 2008, which increased to 75 million dollars during the same period of ongoing fiscal. The FDI from the UAE increased from 24.5 million dollars to 69.3 million dollars for the current fiscal. Analysts are not optimistic about the possibility of improvement in the situation in the near future in the absence of any viable strategy by the government with regard to resolving energy and security issues.