The week in focus

Though there are widespread opportunities for investment in the country, security concerns, energy shortages and inconsistent policies of the government have served as major deterrents in the way of wooing foreign investors.

According to data released by the State Bank of Pakistan, foreign direct investment in the country dropped 28 per cent to $1.08 billion in nine months (July-March) of the current fiscal year 2010-11 compared to $1.5 billion in the corresponding period of the previous year.

Investment is one of the important pillars of economy and its importance has increased further in recent times when the country faces lower-than-expected tax revenues and runaway expenditures. The State Bank in its second quarterly report on the state of economy said foreign direct investment (FDI) in July-February 2010-11 continued to perform poorly for the second consecutive year.

However, the central bank said FDI flow to South and Southeast Asian economies rose 18 per cent in calendar year 2010 because of improved economic conditions in the region. Despite these encouraging developments in the region, factors like weak economic growth, poor security situation, inter-corporate debt and energy crisis limited the profitability of foreign investors in Pakistan, it said.

The unsatisfactory security situation not only blocks the flow of foreign investment, but also drives away local investors to other countries which offer a much safer environment.

In addition to this, power and gas shortages have sapped the efficiency of industries. According to an analyst, disruption in energy supplies affects the efficiency level of industries, hampering their ability to produce according to their potential. “Industries in the country are operating below their maximum capacity, which reduces their profits,” he said.

Oil and gas exploration and energy are the most critical areas that need investment. “Though many independent power producers are already operating in the country, there is room for further such projects to tackle energy shortages,” the analyst said.

Consistency in policies

Invest and Finance Securities Head of Research Khalid Iqbal Siddiqui said that besides improving law and order, the government should ensure consistency in economic policies as repeated changes in rules and regulations discourage foreign investors and put their investment in jeopardy.

On the other hand, in order to improve its image, he said, the government should win a clean chit from the International Monetary Fund for the economy. This will show to the investors that the country is serious about improving fiscal balances, increasing tax revenues, tackling corruption and implementing power sector reforms.

Foreign investors have been increasingly investing in emerging economies for the past many years and, according to Siddiqui, this is the best time to bring foreign investment in the oil and gas sector. Besides oil, gas and energy, the other area that needed investment is agriculture, where investors could adopt modern techniques and promote corporate farming, he said.

Better investment climate

Sindh Board of Investment Director General M Younus Daga said investment climate is quite better in Sindh, where energy sector has good prospects of receiving foreign investment. China has agreed to invest $6.5 billion in wind energy production while Iran and Turkey have also expressed interest in this source of energy, he said, adding investment of $2 billion is expected in the next couple of years.

Daga said Thar coal and energy projects have also attracted the attention of local and foreign investors as China, Engro Corporation and the government all are working on these ventures. “We have received six Expressions of Interest (EOIs) for four blocks of Thar coal which were offered for investment. Of these, four parties will be selected,” he said.

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

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