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Bright prospectus for foreign investment in 2014

Published on 13th Jan, Edition 2, 2014

 

The government is taking measures to woo foreign investors as the country possesses huge investment potential in various sectors particularly energy sector. Being the world’s 6th largest populated country with major untapped market it is a delight for foreign investors along a growing middle class, talent pool, natural resource endowments, tourism landscape, maritime wealth, geographic location advantage, English language skills, legal system, social capital and soft power values of resilience. Foreign investors are heading to Pakistan to have benefit from a newly-elected government that has rolled out a program to aid the struggling economy.

Pakistan has several mega projects regarding infrastructure and logistics in pipeline and that there was a backlog of housing units to be constructed under low-cost housing scheme. It saw an improvement in inflow of Foreign Direct Investment (FDI) in the first four months of fiscal year 2013-14 as international investors injected $283.7 million into different sectors, up 12.5 percent to $252.1 million of investment recorded in the corresponding period in the previous year.

As per data made available to PAGE, FDI, however, dropped 58.5 percent year-on-year to $52.8 million in October. In the previous fiscal year, Pakistan had received FDI worth over $1.4 billion. The oil and gas sector has a lot of potential to attract FDI in the future, as there is room for further exploration and production. The oil and gas sector attracted the highest amount of FDI in the July-October period. It attracted a net foreign investment of $146 million, which is slightly higher than the investment of $135.2 million it received in the corresponding four-month period in the previous year. Improved FDI in chemicals ($58.4 million), financial business ($52.4 million), tobacco ($45.2 million) and food ($31.8 million) sectors led to the overall growth in foreign investment in the country. In contrast, a major dip in FDI was registered in the telecommunications sector, where a net outflow of $101.7 million was recorded in the period under review.

The benchmark index in the financial capital Karachi jumped 49.4 percent last year, ranking as one of the world’s top performers. The market jumped another 2.8 percent, the first trading day of 2014, quoted in the Wall Street Journal (WSJ) article.

Global investors have also snapped up Pakistani government bonds with yields, which move inversely to prices, falling to 7.54 percent recently from as high as 11.69 percent in April on the 10-year bond.
The telecom sector, having enormous opportunities for foreign and local investors, has attracted $472 million investment during 2012-13, showing almost 96 percent growth over investment of $240.3 million in a year before. The international and local telecom companies have significant presence in the country as these companies are successfully doing business and they invested more than $12 billion including $6 billion Foreign Direct Investment (FDI) during seven years from 2005 to 2012. However, during recent years, as telecom companies have already established most of their networks, companies have reduced their investments.

Sources revealed that telecom sector attracted substantial foreign investment after the deregulation. This increase in investment is mainly contributed by cellular mobile segment followed by Fixed Local Loop (FLL) and Wireless Local Loop (WLL). The segment-wise investment data showed that during 2007-08 cellular area attracted $2337.7 billion which gradually reduced to $211.8 million in 2011-12 and $421.5 million in 2012-13. The Long Distance International (LDI) area attracted $403.9 million in 2007-08 and the investment also reduced to $16.2 million in 2011-12 and $1.9 million in 2012-13. The total investment in Cellular, LDI, Local Loop (LL) and WLL was $3.136 billion in 2007-08 and reduced to $472 million in 2012-13. The sources claimed that recently, cellular mobile companies have also increased investments in their networks in anticipation of upcoming 3G/4G services in the country.

 

Despite the excellent growth in overall investment, Foreign Direct Investment (FDI) still remained on the negative side of the scale due to more capital outflows by companies than inflows. It is much due to political instability, which is encouraging more investors to focus on the country despite its population of around 180 million makes it the sixth most populous country in the world.

On the other hand, the import of telecom equipment and telephone/cellular handsets has witnessed a slight decline during 2012-13, reaching $918.4 million from $954.05 million during previous year. During the period, the import of mobile handsets increased to $467.1 million from $465.3 million at the end of previous fiscal year.

The rise in the demand for smart phones in the country has substantially increased the overall import bill of handsets. The government, earlier this year, imposed duty of Rs1,000 per handset on import of smart phones, which might not be helpful in reducing the demand for handsets. However, it might encourage smuggling and flow of sub-standard Chinese handsets in the market. In order to curtail the burden on import bill, there is a need to encourage private sector and multinationals for local manufacturing and assembly of handsets and telecom equipment.

According to Minister for Finance Senator Mohammad Ishaq Dar, the government has prepared a 3-year roadmap for achieving medium term targets under which Gross Domestic Product (GDP) growth to gradually rise to around 6-7 percent, investment to GDP ratio to rise from 12.6 percent to 20 percent, Tax-to-GDP ratio to rise from 8.5 percent to 13 percent, fiscal deficit to be brought down from 8.8 percent to 4 percent of the GDP, foreign exchange reserves to be increased to around $20 billion, public debt to be reduced to below 60 percent of the GDP as per statutory requirement.

Foreign Direct Investment (FDI) has emerged as a major source of private external flows for developing countries around the globe. FDI plays an important role vis-’-vis technology development, assisting human capital formation, contribution to international trade integration, helping in creating a more competitive business environment and promoting enterprise development.

Pakistan has one of the most liberal foreign investment regimes in South Asia. 100 percent foreign equity is permitted in the manufacture and infrastructure sectors as the country has a more market-oriented economy, with a rapidly growing private sector. Pakistan has a very fruitful market and a large consumer base of more than 180 million people. There is great potential in the power, infrastructure and natural resource sectors. There is also scope for investment in hydel and coal based power projects.

In this situation, it is expected that the country would attract huge foreign investment in 2014 that would be beneficial for the country as well as for the countrymen.

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