Foreign investment falls 15 per cent

Net foreign investment fell 15.4 per cent to $1.05b compared with $1.24b in the same period last year.

KARACHI:

Foreign investment in the country dropped 15 per cent in six months (July-December) of the current financial year 2010-11 as domestic and international economic slowdown and security fears hampered the flow of money to productive channels that drive the economy.

According to data released by the State Bank of Pakistan on Friday, foreign investment totaled $1.05 billion in July-December 2010 compared to $1.24 billion in the same period the previous year, showing a decline of 15.4 per cent. Of the total investment, $828.5 million came in the form of foreign direct investment while $221.5 million was in the shape of portfolio investment that went to the country’s stock markets.

Assistant Vice President Research BMA Capital, Abdul Shakur, said domestic economic slowdown, political instability and the law and order situation have discouraged foreign investors from bringing their money into the country. He said international economic recession over the past two years and turmoil in global markets in the wake of widespread debt problems have also stopped the flow of money into Pakistan.

The highest amount of $269 million was invested in the oil and gas sector in the six months, showing an increase of 5.5 per cent when compared to $255 million invested in the same period last year. It was followed by the telecommunication sector that got $111 million in investment during the period while financial business saw investments of around $106 million.

Shakur said investment in the telecommunication sector reflected the funds pumped into China Mobile, but total investment in the sector showed a decline of 39 per cent when compared to July-December 2009.

In the financial business sector, the increase in investment reflected the amalgamation of Atlas Bank into Summit Bank. In addition to that Bugis Investments injected $74 million into NIB Bank but it was made in January which may not be included in the foreign investment data.

Banking sector analyst at JS Global Capital, Mustafa Bilwani, said that sale of BP assets in Pakistan has given a boost to investment in the oil and gas sector.

Regarding the reduced flow of investment in the telecommunication sector, he said that from 2005 to 2007 telecom companies invested heavily in the country as mobile phone licences were issued by the government. During the initial phase, five mobile phone operators set up their networks and installed telecom towers, pumping in a huge amount of money.

However, for the last one and a half years, investment in the sector have slowed down, he said, adding 3G (third generation) is an area which can attract fresh funds but it seems difficult that any significant measures in this regard will be taken by the government any time soon. “If 3G licences are auctioned, it will definitely bring massive investment,” Bilwani said.

US investors injected the highest amount of $345 million into the country during the six months, followed by the European Union that made an investment of $139 million. Another major investor was UAE that invested $146 million.

Bilwani said that the US and the UAE invested in the country because they are Pakistan’s major economic and trading partners. Besides, the UAE government invests in its companies operating in the country such as Warid and Wateen.

Published in The Express Tribune, January 15th, 2011.