Foreign investment jumps 44 per cent

KARACHI: Net foreign investment in Pakistan has increased by more than 44 per cent in the first seven months of the current fiscal, compared with the corresponding period of preceding year.

According to the State Bank of Pakistan (SBP), net foreign investment stood at $1.18 billion between July and January 2010-11. Net foreign portfolio investments increased by 176 per cent to reach $234.8 million, helping bolster total investments, even though foreign direct investments dropped by 16 per cent to $947 million.

After months of heightened interest from foreign investors in the country, foreign direct investment (FDI) has started to show signs of tapering down. In January, net FDI inflows stood at $111.5 million compared to $262.7 million in the previous month.

“Long-term investors are shying away from the country,” said InvestCap Head of Research Khurram Shehzad. He pointed out that power shortages, lack of economic reforms and growing political uncertainty have perturbed foreigners, who are reluctant to take a long-term interest in the economy.

Portfolio investment (PI) in the country posted successive improvements during the last three months. Net PI stood at $37.4 million and $54.9 million in November and December 2010, respectively, and grew to $72 million in January. However, the bullish sentiment witnessed in the country’s stock exchanges has somewhat subsided in recent sessions.

Analysts expect that portfolio investment flows during February will not be as impressive, should the flight of foreign funds from local bourses gathers pace. “In the past few weeks, we have witnessed a slowdown in foreign investments in the Karachi Stock Exchange and in regional markets such as India and Bangladesh and major outflows of FDI,” said Shehzad.

He warned that lack of interest in long-term investments may be a harbinger of less favourable flows of short-term investments, such as in equities and short-term bonds.

Sector-wise investment data released by the central bank showed that investments in telecommunications as well as oil and gas exploration sectors have declined in seven months of fiscal 2010-11, when compared to the same period last year.

“What is more disturbing is that most of the investments that are still being seen in these sectors are on account of existing projects,” said BMA Capital Head of Research Hamad Aslam.

Aslam explained that investments in the oil and gas sector were largely attributable to MOL, the Hungarian firm currently operating the Tal block in Khyber-Pakhtunkhwa, while investments in the financial services sector included rights share subscription by NIB Bank sponsor Temasek.

“If you look at investments going into new projects, we have to acknowledge that there has been a steep decline in recent months, and that is most disturbing for economic growth in the future,” he added.

Analysts stress that foreign investments in local equity markets usually fall short of foreign investments in regional markets such as India, Bangladesh and Thailand. With billions of dollars of foreign investments flowing out of other emerging markets, experts anticipate a similar bearish sentiment among foreign investors in the country.

They also pointed out that multilateral donors have stopped releasing loans to the country until economic reforms mandated by the International Monetary Fund (IMF) are put in place. Experts are eyeing the upcoming round of deliberations between government and IMF officials for further clarity on the prospects of foreign investments in the country.

Published in The Express Tribune, February 18^th, 2011.