Foreign investment falls for 5th consecutive year

Political uncertainty, security fears, unstable Pak-US ties cited as key concerns.

KARACHI: Foreign investment in the country fell for fifth year in a row with a whopping decline of 63% in financial year 2011-12 to $741.5 million compared to $1.99 billion a year earlier, shows data released by the State Bank of Pakistan (SBP) on Monday.

In total foreign investment from July-June 2011-12, the drop was significantly higher in portfolio investment, which dipped by 120% while direct investment fell by 50.3%.

Portfolio investment stood at a negative $71.1 million compared to $364 million a year earlier, while direct investment slid to $813 million from $1.63 billion.

Foreign investment has been continuously declining from fiscal year 2007. It stood at $6.96 billion in 2007, $5.45 billion in 2008, $3.2 billion in 2009, $2.73 billion in 2010 and $1.99 billion in 2011.

Analysts attribute the continuous fall in foreign investment to political uncertainty and security concerns in Pakistan while uncertainty over world economy has also played its part.

Ahsan Mehanti, analyst at Arif Habib Corporation, commented that the decline in FDI in FY12 was not unexpected because of a variety of reasons.

“The reasons are political uncertainty, security fears, ambiguity over a fresh IMF loan programme and doubts over Pak-US relations that plunged to historic lows in the past seven months,” said Mehanti. Pakistan was also in hot water due to its macro economic instability, he said.

Discussing the significant decline in foreign portfolio investment, he, however, pointed out that the outflow of foreign money from stock markets was not a phenomenon that had affected Pakistan only. All major markets of Asia, including India, saw outflow of money in FY12, so it was not a Pakistan-specific problem, he added.

US stock markets were offering more lucrative opportunities than Pakistan, prompting foreign investors to pour money into US bourses, he noticed.

Giving his viewpoint on the plunging foreign investment, a leading exporter said apart from security concerns, the decline in investment over the last five years was mainly because of wrong economic policies of the present government.

“Who will invest in Pakistan in present conditions when local investment is risky and investors are fleeing to Bangladesh,” he argued and said both small and large manufacturing concerns of the country were shifting to regional countries.

He also blamed the government for failure to overcome the power crisis, which he said was the single biggest threat to the economy in present times.

Published in The Express Tribune, July 17^th, 2012.