Portfolio investments, falling 67.5 per cent, suffered the most during this period. The first quarter of the current fiscal year saw just $67.7 million being invested under this head in the country against $208.2 million during the same period last year.
Foreign direct investment (FDI) also slipped to $387.4 million, or 9.5 per cent, compared with $427.9 million over the same period last year. “Portfolio investments were quite high around this time last year, so the higher base is one reason behind such a large dip in portfolio investments,” commented Khurram Shehzad, Research Head at InvestCap.
However, he added “the capital gains tax has taken away the volumes from the market and driven away many prospective investors.”
“Political uncertainty and continuing power sector problems are the biggest reasons why investors are turning away from Pakistan.” Economic imbalances and depleting foreign exchange reserves have been predicted as the country emerges from the destruction caused by the recent flooding. “There will also be opportunities for investors, local and foreign, in this path but they need assurances,” said Shehzad.
Meanwhile, economist Shahid Hasan Siddiqui pointed out that foreign investments have been falling for the past three years. “FDI stood at $5.4 billion in fiscal 2008, $3.4 billion in fiscal 2009 and only about $2.2 billion last year.”
According to him, the cost of doing business has trended higher due to continuous increases in interest rates and cost of utilities such as electricity and is to be blamed for the pattern.
The data shows that investments from developed countries stood at $243.8 million, with $125.5 million coming in the form of FDI and $118.3 million as portfolio investments during the outgoing quarter.
Meanwhile, investments from developing countries stood at $194.3 million, $194.7 in the form of FDI, slightly reduced by an outflow of $0.4 million in portfolio investments.
The United States remained the largest investor in Pakistan with investment inflows totalling $158.4 million. Of the amount, $61.3 million were invested as FDI, while the rest came under the category of portfolio investments. The oil and gas sector was the destination of most investments – $112.7 million during the quarter under review. The telecommunications sector received $60.7 million, power sector $36.6 million and chemicals sector $23.5 million in July-September.
“Investments in the oil and gas sector and telecommunications are largely continuing on account of existing joint ventures with international companies,” said Shehzad. “Pricing policies and other rules in these sectors are also generally seen to be investor-friendly,” he explained.
Analysts highlighted that these sectors have typically been the focus of up to 70 per cent of investments flowing into the economy. However, these sectors may be getting saturated and experts stress that fresh avenues must be explored and highlighted.
They say that the agriculture sector has the potential to attract sizeable investments if it is regulated and investor-friendly policies are introduced.
“Even local business groups have scaled back on fresh investments in recent times,” highlighted Faisal Shaji, Head of Research at Standard Capital Securities. “The government’s financial advisers appear inactive and incapable of addressing pressing issues,” asserted Shaji, adding that foreign investments require political will.
“The initiation of trade talks with Russia and China’s involvement in nuclear power projects are promising signs but not enough is being done to build confidence among local or foreign investors.”
Published in The Express Tribune, October 16th, 2010.
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