Pakistan: Good news from foreign investment front

Business Recorder

After declining almost continuously for a long period, foreign private investment has improved considerably during the first half of FY13. According to the latest data released by the State Bank on 15th January, 2013, it has jumped by as much as dollar 269.2 million or 63.9 percent to reach dollar 690.5 million during July-December, 2012 as compared to dollar 421.3 million in the corresponding period last year. The main factor responsible for this steep increase was a net inflow of dollar 127.8 million in portfolio investment in sharp contrast to the net outflow of dollar 109.8 million in July-December 2011. Foreign Direct Investment (FDI) which is the most important component of foreign investment to enhance productive capacity of the economy, however, indicated a slower growth of only dollar 31.6 million or 6.0 percent to stand at dollar 562.8 million in July-December, 2012. So far as the inflow of foreign investment during the latest month ie December, 2012 was concerned, it was highly encouraging, some would say even promising for restoring health to the economy. While portfolio investment in December, 2012 showed a net outflow of dollar 17.1 million as compared to dollar 28.8 million in the same month last year, foreign private investment and DFI were up dollar 153.9 million or 185.42 percent and dollar 142.2 million or 127.2 percent respectively, during this period. An improvement in the level of foreign investment should ordinarily be regarded as a very positive sign for the economy and a vote of confidence by foreigners in the economic management of the country. Undoubtedly, a higher amount of DFI could be very helpful in reviving growth, introducing new technology, increasing exports, generating employment etc. The inflow of DFI during the first half of the current year could also inspire the hope that at the current rate, the net inflow of foreign investment during FY13 would be higher than dollar 760 million received in the previous year though it will still be far below the level of dollar 5.454 billion attained in FY2008. However, before entertaining hopes for a permanent reversal in DFI trends with its positive impact, the rise during this particular period needs to be interpreted with great care. This is so because the level of private foreign investment during July-December, 2012 has risen mainly due to a substantial inflow of portfolio investment which is invested in the shares market for speculative purposes and could leave the country at a very short notice due to any negative development in the host country or better prospects abroad. As such, it does not contribute to strengthening the productive capacity of the country. Also, it needs to be noted that although the level of foreign investment has increased during the latest period, it is still too low to make a significant impact on the health of economy. Other countries in the region are receiving much more foreign investment than Pakistan. Lastly and more importantly, the latest picture about the trend in foreign investment has emerged basically due to a sudden spurt in its level from the US, Hong Kong and Italy. Although we don't know the actual reasons for such a sharp increase in foreign investment from these countries but most probably it could be only a one-off phenomenon. The fact of the matter is that we have to upgrade infrastructure, remove energy shortages, curb militancy, improve law and order situation, reduce corruption etc and just be a normal country before expecting increased flow of foreign investment from abroad on a sustained basis. Only a brave soul could invest in a country where sectarian killings and suicide bombings are rampant, sit-ins could paralyse life in the capital, electricity or gas is a rare commodity and the Prime Minister is likely to be arrested. All said and done, we want to see a sustained increase in the level of foreign investment for improving country's economic prospects but a number of hurdles have to be overcome first to create conducive conditions for the sustainability of the present trend.