Foreign direct investment down 46%
According to SBP, FDI inflows during the first month of the current fiscal year are down by 46 per cent.
KARACHI:
Foreign Direct Investment (FDI) to the country stood at $98.5 million during the month of July. According to the data released by the State Bank of Pakistan, FDI inflows during the first month of the current fiscal year are down by 46 per cent as compared to the same month in the preceding year.
Net FDI inflows have dropped by $83.5 million this month from over $182 million in July 2009.
Meanwhile, net foreign investment in the country has also fallen by 18.5 per cent to $144.8 million in July, compared with $177.5 million in the same month of fiscal 2009-10.
The data shows that FDI flows from developed nations have dropped by a whopping 70 per cent.
On the other hand, investments from developing countries have increased by 441 per cent. However, it is important to note that the value of investments from developing countries is very limited compared with the value of investments from developed nations.
Experts believe that FDI flows have dried up due to myriad domestic conditions and international issues.
“The war on terror and the energy crisis have driven away both foreign and local investors and FDI has come down in the past 3 years,” commented Shahid Hasan Siddiqui, an economist.
Foreign direct investments to the country stood at $5.4 billion in fiscal 2008, $3.4 billion in fiscal 2009 and only about $2.2 billion in previous fiscal year.
“Current floods will further worsen Pakistan’s trade imbalances and foreign exchange reserves,” he pointed out.
He added that the cost of doing business in the country has trended higher due to continuous hikes in prices of utilities and rising interest rates. “At present very little is being done to curtail inflation, improve economic indicators or crackdown against rampant corruption.”
Unless the government can address these issues on a war footing, not only will foreign investment inflows continue to suffer, even remittances from Pakistanis living abroad will start trend downwards, he said.
Asad Farid, another economist, highlighted that there has been a significant slump in investments into oil and gas sector over the past three years. This can be partially attributed to security concerns.
“The banking and communications sectors had attracted a major portion of foreign investments to the country in recent years, however there is no significant move towards further liberalisation in these sectors and they seem to have reached a saturation point by now,” he added.
Investments in oil and gas, banking and telecommunications sectors have historically formed about 70 per cent of FDI flows to the country. With fresh avenues for investment drying up in these areas, experts warn that investment flows could further weaken in coming months.
Investor-friendly policies needed
The precarious security situation in the country has discouraged fresh investments to the country.
“The law and order situation needs to be improved to attract fresh investments,” stressed Khurrum Schezad, Research Head at Invest Capital and Securities. “The recent floods will also have a significant impact on growth but investments opportunities will also emerge from this tragedy”.
Schezad pointed out that housing sector and other infrastructure will require attention and stressed that government should now be concentrating on introducing investor friendly policies in these sectors.
“The banking sector and telecommunication sectors are not as attractive as they were but banking spreads in Pakistan are still the second highest in the world,” he said.
Schezad explained that increases in portfolio investments show that profitability exists in various sectors.
He added that investors just needed more assurances that if they park their money in long-term projects they will receive better returns without losing their investments.
Published in The Express Tribune, August 17th, 2010.
Foreign Direct Investment (FDI) to the country stood at $98.5 million during the month of July. According to the data released by the State Bank of Pakistan, FDI inflows during the first month of the current fiscal year are down by 46 per cent as compared to the same month in the preceding year.
Net FDI inflows have dropped by $83.5 million this month from over $182 million in July 2009.
Meanwhile, net foreign investment in the country has also fallen by 18.5 per cent to $144.8 million in July, compared with $177.5 million in the same month of fiscal 2009-10.
The data shows that FDI flows from developed nations have dropped by a whopping 70 per cent.
On the other hand, investments from developing countries have increased by 441 per cent. However, it is important to note that the value of investments from developing countries is very limited compared with the value of investments from developed nations.
Experts believe that FDI flows have dried up due to myriad domestic conditions and international issues.
“The war on terror and the energy crisis have driven away both foreign and local investors and FDI has come down in the past 3 years,” commented Shahid Hasan Siddiqui, an economist.
Foreign direct investments to the country stood at $5.4 billion in fiscal 2008, $3.4 billion in fiscal 2009 and only about $2.2 billion in previous fiscal year.
“Current floods will further worsen Pakistan’s trade imbalances and foreign exchange reserves,” he pointed out.
He added that the cost of doing business in the country has trended higher due to continuous hikes in prices of utilities and rising interest rates. “At present very little is being done to curtail inflation, improve economic indicators or crackdown against rampant corruption.”
Unless the government can address these issues on a war footing, not only will foreign investment inflows continue to suffer, even remittances from Pakistanis living abroad will start trend downwards, he said.
Asad Farid, another economist, highlighted that there has been a significant slump in investments into oil and gas sector over the past three years. This can be partially attributed to security concerns.
“The banking and communications sectors had attracted a major portion of foreign investments to the country in recent years, however there is no significant move towards further liberalisation in these sectors and they seem to have reached a saturation point by now,” he added.
Investments in oil and gas, banking and telecommunications sectors have historically formed about 70 per cent of FDI flows to the country. With fresh avenues for investment drying up in these areas, experts warn that investment flows could further weaken in coming months.
Investor-friendly policies needed
The precarious security situation in the country has discouraged fresh investments to the country.
“The law and order situation needs to be improved to attract fresh investments,” stressed Khurrum Schezad, Research Head at Invest Capital and Securities. “The recent floods will also have a significant impact on growth but investments opportunities will also emerge from this tragedy”.
Schezad pointed out that housing sector and other infrastructure will require attention and stressed that government should now be concentrating on introducing investor friendly policies in these sectors.
“The banking sector and telecommunication sectors are not as attractive as they were but banking spreads in Pakistan are still the second highest in the world,” he said.
Schezad explained that increases in portfolio investments show that profitability exists in various sectors.
He added that investors just needed more assurances that if they park their money in long-term projects they will receive better returns without losing their investments.
Published in The Express Tribune, August 17th, 2010.