The week in focus

Opportunities of large-scale investment: energy, corporate farming, information technology, telecommunications etc.

The uncertain law and order situation is taking its toll on local and foreign investment, sparking fears of an investment slump and economic downturn.

This comes at a time when many countries are vying to have a bigger share in foreign investment because it creates jobs, boosts production and services, increases exports, brings technology and supports the economy.

In Pakistan, the law and order  situation deteriorates and violence erupts at regular intervals, prompting foreign investors to stay away and not risk investing in a country dubbed by some as ‘a land of lucrative opportunities.’

There are opportunities of large-scale investment in areas such as energy, corporate farming, information technology, telecommunications, infrastructure and others. Investment in these sectors can offer handsome returns but the security risk takes precedence over profits. Foreign buyers too are discouraged by the security threat – most do not come to the country for meeting suppliers and set meetings in third countries, particularly the UAE.

Pakistan’s textile products are of good quality, but most foreign buyers do not come to the country for inspection of manufacturing facilities. Though many buyers and sellers meet in Dubai or other countries, some miss out on the opportunity.

Last week, a prominent event manager who had come to the country in order to assess potential for business left early following deterioration in the law and order situation.

According to State Bank of Pakistan, foreign investment dropped 28 per cent to a meagre $746 million in five months (July-November) of the current financial year compared with $1.04 billion in the same period last year. Foreign investment has been continuously declining since financial year 2006-07, when $8.43 billion came into the country. In 2009-10, the figure plunged to $2.09 billion.

Energy sector needs investment the most

“Investment-to-gross domestic product (GDP) ratio is around 16 per cent which is low and should be 25 per cent. Low investment means less employment opportunities, low revenues, reduced exports and a weak economy,” said Hamad Aslam, head of equity research at BMA Capital.

He said that local investment is already hamstrung by lack of bank financing – which has mostly been taken up by the government for budgetary support – and high interest rates. Although foreign investors can find opportunities, the security factor is a major hurdle.

He was of the view that the energy sector is the priority area which requires most investment. But money should be directed towards generation of coal-based power, hydroelectricity and alternative energy, like solar and wind power, instead of expensive furnace oil-fired plants.

Inconsistent policies

“Established exporters are getting orders after meeting buyers abroad, but new players are finding it hard to convince importers and strike deals,” commented one expert. Moreover, frequent changes in policies by the government discourage investors from pouring in money which may get stuck. “No big investor will come and put in money, unless there is consistency in policies that help them make plans accordingly,” he said.

Former president Karachi Chamber of Commerce and Industry (KCCI) Anjum Nisar said the unsatisfactory law and order situation is sending wrong signals to the international community, leading to a sharp decline in foreign investment. “Foreign investment is at the lowest since 2006-07,” he said.

Nisar said stagnant exports over the past few years, caused by low investment, power and gas shortages and high cost of production, have stymied economic growth. The areas that need heavy investment include textiles, information technology, coal, energy, leather, gems and jewellery, agriculture and the dairy sector.

the writer is incharge Business desk for the Express tribune and can be contacted at [e-mail]

Published in The Express Tribune, January 10^th, 2011.