Govt aiming toward FDI improvement, inviting investors
Foreign Direct Investment inflows into Pakistan have been declining over the past few years. The sharp deterioration in the internal security situation around 2007 onwards coincided with rising political uncertainty in the country. At the same time, the global financial crisis had impacted FDI flows worldwide. Lack of good governance, political turmoil and complicated business registration processes were the major factors behind the fall in FDI.
After recording an all-time high of $5.4 billion in 2007-08, net FDI dropped to a low of $824 million in fiscal year 2012. Net FDI fell to a paltry $87 million, from $138 million in the same period in 2013.The sharp decline in FDI comes at a time of global recovery in outward FDI from developed economies. According to UNCTAD, total outward FDI in 2013 amounted to $1.45 trillion globally; the share of developing countries was 54 percent or a total inflow of $778bn. Of this, Pakistan managed to attract 0.17pc - far below its weight in terms of GDP.
Pakistan received FDI of just $169 million during July to September 2014, which was highly disappointing. This has happened despite the fact that many sectors of the country's economy including energy, infrastructure development, agriculture, oil and gas, mineral offer huge opportunities, but the government could not evolve a better strategy to attract potential investors due to which the FDI was diverting to regional countries.
On the other hand India FDI has been showing a continuous a highly favourable trend. FDI inflows to India increased 17 per cent in 2013 to reach $ 28 billion, as per a United Nations report. The Indian govern- ment's has kept a robust business environment so that foreign capital keeps flowing into the country. The government has taken many initiatives in recent years such as relaxing FDI norms in 2013, in sectors such as defence, PSU oil refineries, telecom, power exchanges and stock exchanges, among others. The same year, big global brands such as Tesco, Singapore Airlines and Etihad lined up to invest in India as the government opened more sectors to foreign investment. Total FDI inflows into India in the period April 2000August 2014 touched $ 341,357 million. Total FDI inflows into India during the period April-August fiscal year 2015 were $ 17,445 million.
The services sector ($ 2,336 million) attracted the highest FDI equity inflows in the period April-August 2014, followed by the services ($ 1,086 million) and drugs & pharmaceuticals ($ 903 million) sectors. Mauritius led the share of top investing countries by FDI equity inflows into India with $ 3,934 million during April-August fiscal year 2015 , followed by Singapore ($ 1,892 million), the Netherlands ($ 1,562 million) and Japan $ 897 million).India's cabinet has cleared a proposal which allows 100 per cent FDI in railway infrastructure, excluding operation. Direct Investment in India averaged $1009.21 million from 1995 until 2014, reaching an all time high of $5670 million in February of 2008 and a record low of -$60 million in February of 2014.
In this context the example of Bangladesh may be taken into consideration. Foreign Direct Investment in Bangladesh increased to $1300 million in 2013 from $1191 million in 2012. Foreign Direct Investment in Bangladesh averaged $772.25 million from 2002 until 2013, reaching an all time high of $1300 million in 2013 and a record low of $276 million in 2004. The inflow of Foreign Direct Investment in Bangladesh has gone up by 24 percent in 2013 despite the country witnessed serious political unrest and anti-business climate during the period. The 'World Investment Report' of the Unctad, released, said Bangladesh received $1,599 million FDI last year. The country holds second place after India in South Asia in drawing FDI last year.
The largest increase in FDI in JulyOctober 2015 in Pakistan was in the category of oil and gas exploration, which attracted 0.5 million. However, it was 10.6 percent less than the foreign investment received during the same months of the preceding fiscal year when it totaled 6 million. Financial businesses attracted .6 million worth of FDI in JulyOctober. However, it was down 7.25 percent from the corresponding fourmonth period of the preceding fiscal year. Other sectors of the economy that received major FDI in JulyOctober include chemicals (.7 million), tobacco and cigarettes (.1 million) food (.9 million), trade (.4 million), personal services (.5 million), textiles (.7 million), power (.3 million) and cars (million).
For the last few months, FDI was on decline because of several domestic and external issues including energy crisis, poor law and order situation and lack of infrastructure. FDI is presenting an improved image supported by massive foreign inflows in October 2014. Rising FDI inflows is a good sign for the country's poor economy.
The government is required to take some more serious steps to attract new foreign investment in the country. An improved law and order situation, long-term economic policies and strong infrastructure is required to maintain this upward momentum.
An amount of $350 million was being expected through privatization of OGDCL; but the federal government suddenly suspended the OGDCL privatization following a poor response from foreign buyers as oil prices in the world market are on decline. OGDCL privatization will be done later, when oil prices in the international will stabilize.
FDI is associated with the technology transfer; productivity gains; foreign market access; higher wages and better labour conditions. In this context, Pakistan's exclusion from global FDI flows is troubling and but hardly surprising.
Pakistan would like to expand foreign direct investment in energy, infrastructure, development, food, pharmaceutical, chemicals, engineering, agriculture and agro based industry mining and oil and gas exploration. Energy sector is the highest priority and the biggest concern. Unless we overcome the problem of power shortages swiftly and effectively there can be no meaningful development in the country.
Pakistan is one of the most investor friendly countries in the world. Pakistan allow 100 percent foreign ownership with no limit on repatriation of profits dividends or other funds in the currency of the country of origin, the Prime Minister said while addressing the Investment Forum.
Pakistan is focusing on improving the efficiency of existing power plants addressing problems of power generation and distribution. At the same time Pakistan has embarked on a massive programme of power generation from all available sources including hydel, coal, solar and wind.
The government accords high importance to facilitating private sector enterprises to expand business in Pakistan. Pakistan has competitive, thriving and growing private markets in the banking and telecommunication sectors. It has an ambitious privatization programme which aimed to shift the role of public sector to regulation from management.
It is now most important time to resolve all the political issues for the economic growth of the country. The Chinese President's arrival very soon to Pakistan will bring a favourable image in the world. The calm investment climate will ensure that the country moves rapidly towards encouraging Foreign Direct Investment. This will ensure immense employment to the youth and develop the economy on solid foundations.