KARACHI: Foreign Direct Investment (FDI) fell by 41 percent during the first seven months of current fiscal year mainly due to poor macroeconomic conditions and deteriorating law and order situation. The decline in FDI during the first half (July-December) was 37 percent.
Despite better global economic conditions, FDI flows to Pakistan declined further during the current fiscal year owing to a number of domestic issues that substantially increased the cost of doing business in Pakistan. The State Bank of Pakistan on Wednesday revealed that inflows of net foreign investment continue to post a negative trend as both components of foreign investment comprising foreign direct investment and portfolio investment are on a decline.
Inflows of net foreign investment dropped by 64 percent to $446.2 million during the July-January of FY12 as compared to $1.237 billion in corresponding period of last fiscal year. Although, inflows of both components of foreign investment witnessed downward trend, however the portfolio investment is weaker than FDI followed by high outflow of investment from equity market.
During the period under review, FDI inflows registered a massive fall of 40 percent. The FDI declined to $594 million during July-January of FY12 compared with $1.002 billion in same period of FY11, depicting a decrease of 40.7 percent or $408 million. The second component of foreign investment ie portfolio investment posted a decline of 163 percent because of high outflows from the country's equity market due to political uncertainty. According to the SBP, portfolio investment stood in negative position and an outflow of $147.7 million was registered in first seven months of FY12 against inflows of $235 million in corresponding period of last fiscal year.
According to SBP's recent report, inflows under FDI are lower than last year and an improvement in either FDI or equity securities flows seems unlikely in near future because of poor macroeconomic conditions and the deteriorating law and order situation. Sector-wise data on FDI shows that the major fall in investment was registered in the telecommunication and oil & gas exploration sectors, whereas FDI flows to the power and financial sectors recorded a modest rise, it added.
The decline in the telecommunication sector probably reflects saturation in this sector. On the other hand, the law & order situation followed by increased incidents of attacks on gas pipelines and oilfields in Balochistan and KP are a major hurdle in attracting fresh FDI in the oil & gas exploration sector. This issue is proving to be the major constraint on companies looking to expand their operations, the SBP added.