Flying away: Foreign investment falls 59% in five months
Foreign investment in the country dropped 59 per cent to $305.4 million in the first five months (July-November) of fiscal year 2011-12 compared to investment of $748.7 million in the same period last year, State Bank of Pakistan (SBP) said on Friday.
According to breakdown, foreign portfolio investment fell significantly by 166 per cent to $114.5 million against $172.5 million in the previous year. On the other hand, foreign direct investment declined 27 per cent to $419.8 million compared to $576.2 million last year.
JS Global Capital Limited economist Muzammil Aslam said the decline in foreign direct investment (FDI) is certainly not good for the country. “What is disturbing is that there is no inflow of technology and knowledge that usually comes with FDI,” he said. “Similarly, it is also a bad sign for growth and employment opportunities.”
The decline in foreign investment from $5 billion in 2007 to the present level of $305 million is significant for a country that is now facing a current account deficit, he said.
Aslam said the government can overcome this challenge by reviving the privatisation programme and marketing viable sectors where foreign investment can come easily.
“The government has to move on and attract investors because the country’s image as an investment destination has been shattered. It can be achieved through continuous interaction with investors, which the government is not doing efficiently,” he added.
Though most analysts are attributing the continuous decline in foreign investment to the sluggish economy, some experts have divergent views as well.
AF Ferguson and Company partner SM Shabbar Zaidi said as far as FDI is concerned, the situation is not that bad as is being portrayed by some quarters.
It is a misperception that Pakistan got huge FDI in the good times of 2007 or before as around 70 per cent of foreign investment before 2007 comprised portfolio investment, which is usually considered “unreliable” in the world. Portfolio investment comes in stock markets and then quickly vanishes within months, he pointed out.
“As an investment adviser, I can tell you that huge investments, especially from South Korea and China, are coming. Most probably, the investments will come in 2013,” he said.
Compared to portfolio investment, investments are much more reliable in manufacturing, “but I do not see much investment in this area in the last two decades,” he noted.
Published in The Express Tribune, December 24th, 2011.
COMMENTS (16)
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When the great "leaders" of Pakistan are not willing to invest in Pakistan, how can you expect any foreigner to invest? Someone rightly said about Pakistan: “Leaders Ameer-tareen, Voters ghareeb-tareen. Wah Pakistan Wah !!”.
@Aslam Beig: I am sure you are born in one of those countries - namely India! I for one prefer to be born in Pakistan which is my country. Why not just stick to posting comments on your own Indian blogs?
@Chilli: Do you think the global economic depression is due to the PPP/ Come on and try to be fair. Europe is in bad shape and the same is true for the US. Why should any Western nation want to invest in any Third World country including Pakistan when the West's economy is in shambles? They are talking about an economic collapse of global proportions and you are fixated on the PPP? Learn to see things in perspective.
I pointed out a number of internal inconsistencies in the article but somehow ET has chosen not to publish my comment which was professional and polite - no spamming or flaming.
Who cares. As long as we have nuclear weapons, the west will be forced to support us and give us as much aid as we want.
@Cautious:
No, more related to the euro-crisis. They want their money back.
@Anishu Rahman:
Thanks very much for the education. I know one from the other and it is the portfolio that always bothers me because this is "hot money" that can and does de-stabilize economies by coming in and pushing up asset prices and then dashing for the exit and taking the exchange rate down with it.
The drop in foreign investment is tied to the drop in relations with the USA - no sense in beating around the bush. In the best of circumstances investment in Pakistan carries more risk and complications than other alternatives -- add in an economy on the brink and the potential of USA imposed sanctions and few investors in the World will consider Pakistan.
Thank you PPP for utter mismanagement and corruption. You always throw Pakistan into stone ages.
In this article, FII (portfolio outfows) is being talked about.... FDI is not easy to take out as these money are generally in fixed assets..
FDI is foreign direct investment..... It occurs when foreign companies open business in pakistan ,creating factories, back end infrastructure, employing people for jobs, producing goods in Pakistan and then selling it to people. This is good because the raw materials,jobs and end consumers are in pakistan, which increases the growth of economy.. FII is Foreign institutional investment...... Foreign hedge funds, institutional investors invest in pakistani companies by investing in share market(i.e. in the shares of pakistani companies). This is volatile money because as soon as economic conditions deteriorate these money are gone in a blink of the eye... FDI is long term investment mechanism that creates long term growth of the economy....!!! Hope i was clear.... cheers from India !!!
@Nobody:
I thinnk you are right. There was a huge outflow from India in recent weeks and the rupee plunged.
ET, as I have asked before, please make a distinction between portfolio flows and FDI. I don't know which one is being talked about.
Pakistani's have a penchant for making excuses and this Mr. Nobody is doing exactly that. Interestingly, despite poor security conditions, there are several sectors in Pakistan that are readily attracting foreign investors yet they are somehow discouraged due to poor political stability and bad policy making.
Considering the global economic conditions, especially in Europe, it is quite understandable to see a decline in foreign investments. I do not think it has much to do with Pakistan's own economic down slide or political scenario.