Attracting FDI
IN the opinion of experts, foreign direct investment is the most preferred mode of boosting economic activity and growth. From this perspective, the rise in the inflow of FDI in Pakistan by 19.2 percent during July-November 2014 is a welcome development. According to the State Bank of Pakistan, FDI rose to $422.8 million during the period under review as compared to $354.8 million in the same period last year. In November alone, the FDI inflows stood at $51.5 million. Details show that China emerged as the largest investor with $121 million during the five-month period. The United States came second with $116.2 million, followed by the United Arab Emirates with $74.9 million and Hong Kong with $72 million.
Overall, foreign private investment surged by 82.4 percent to $630 million in July-November 2014 as compared to the same period a year ago. However, the portfolio investment numbers depicted a negative situation as there was an outflow of $25 million. As far as portfolio investment is concerned, US injected $144.4 million in the country's equity market, followed by Luxembourg with $120 million. However, Hong Kong withdrew $41 million from the country's bourse
According to details, the oil and gas exploration sector proved to be the most attractive for the FDI, receiving $150 million during the first five months, while telecommunications attracted $147.4 million as FDI, the second highest amount. The same sector had registered a net outflow of $167m in five months of the last fiscal year. On the other hand, the IT sector witnessed a net outflow of $34 million as against last year's $0.5 million mainly due to high taxes by provincial governments. Further, the data released by the State bank shows that foreign private investment as a whole jumped by 82 per cent to $630 million in JulyNovember of the current fiscal year due to a rise in portfolio investment, which increased to $207 million against the net outflow of $9 million in the same period last year.
It may be mentioned here that Pakistan ranks 62nd in the list of FDI-friendly countries, a position which is not in sync with its potential and available resources. Financial experts are of the view that given the rising risk perception of investing in Pakistan, the government needs to develop a new policy to tackle the situation. They have recommended that the government should adopt forward looking and aggressive measures to attract foreign investment. To this end, a comprehensive strategy is needed to overcome low local and foreign investment phenomenon.
In this context, an urgent need is to promote internal economic vitality and strengthen the private sector which is facing serious difficulties due to acute energy shortage and a deteriorating law and order situation. Institutional fragility and political instability are among other major factors keeping foreign investors away. These and other key issues like power and gas shortages should be addressed on a priority basis to improve the foreign investment climate to put the country on the road to economic growth and development. Above all, efforts should be speeded up to improve the quality of governance as a whole without which foreign investment cannot be attracted.