The week in focus

Foreign investment dipped 49 per cent in the first quarter of the current financial year, thanks to lack of governance and acute energy shortages which kept investors at bay in this land of opportunities.

According to data released by the State Bank of Pakistan (SBP), foreign investment dropped to $236 million in July-September quarter compared to $406 million in the same period last year. Of the total investment, foreign direct investment fell by 28 per cent to $282 million while foreign portfolio investment declined 171% with outflows of $46.5 million in the quarter.

Though the government has been persistently trying to woo foreign investors at different forums, the investment has yet to take off and play a key role in creating job opportunities and accelerating economic growth. However, for that to happen a fair and transparent mechanism free from extortionists, corruption and other hurdles including electricity shortages must be in place.

A recent report of the World Bank and International Finance Corporation pointed out that doing business in Pakistan has become more difficult, putting the country at 105th position out of 183 countries.

“It is difficult to establish and run a business because of the threat of extortion which has ruined the investment climate over the past few years,” said Hamad Aslam, Group Head of Equities at BMA Capital.

Giving reasons for the decline in foreign investment, he said corruption, lack of political will to take decisions for improving the economy and energy shortages had discouraged investors. Of course, security problems must have an adverse impact on foreign investment as well.

Aslam said the financial crisis in Europe and the United States had in fact provided an opportunity to attract more investment as investors shifted their money from troubled economies of developed countries to emerging market economies in Asia and Latin America. India, China, Brazil, Sri Lanka and even Bangladesh were receiving investment, but Pakistan left behind with corruption being a major stumbling block.

Of the two types of investment – in industry and equities, investment in industry is considered more advantageous, which generates employment opportunities, raises people’s incomes and living standards and makes the country prosperous. Investment in equity markets too is supportive to the economy, but has limited impact in the form of strengthening balance of payments position of the country and strengthening of the rupee.

Not all was bad

However, not all was bad on the economic front. China’s Three Gorges Corporation has announced its intention to invest $15 billion in the current decade in different projects in Pakistan including generation of 10,000 megawatts of electricity.

In a bid to encourage foreign investment in exploiting Thar coal reserves, the Sindh government also organised an international conference to highlight the potential of investment in coal extraction and power generation from this cheaper source.

Sindh Board of Investment Director General Younus Daga, while talking to The Express Tribune, said the government was offering sovereign guarantees for purchase of electricity in a bid to stimulate foreign investment in energy projects. He said infrastructure facilities like water supply were also being developed to pave the way for foreign investment.

“We are offering returns of 17 per cent on energy projects while for coal-fired power generation returns are even higher at 20 per cent,” he said.

Daga also cited the international coal conference held on Saturday, saying the meeting was organised in an attempt to dispel misconceptions about the quality of coal present in Thar reserves. Among others, foreign investors and consultants also attended the conference and shared their thoughts.

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

Published in The Express Tribune, October 24^th, 2011.