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The state of investments in Pakistan

Published on 6th Jan, Edition 1, 2014

 

In the first 4 months of the current fiscal year, 2013-2014, the country has witnessed an improvement in its inflow of foreign direct investments. Investments brought into the country are worth $283.7 million spread out over a number of sectors and is 12.5 percent higher in comparison to the $252.1 million, which had been recorded in the corresponding period of the previous year.

Data released by the State Bank of Pakistan, in October of 2013, says foreign direct investment had actually dropped 58.5 percent year-on-year to $52.8 million while in the previous fiscal year, the country had received foreign direct investments amounting to $1.4 billion.

According to a research analyst Umair Naseer, the FDI in the country seems to be quite encouraging despite the increase occurring at a slow pace. He believed that the oil and gas sector of the country has a great deal of potential in order to attract investments into the country due to there being the possibility of further production and exploration. He said that the petroleum policy, which had been devised by the new government, was also offering a great number of incentives for production and exploration companies thus making the sector having great potential.

During the July-October period, the oil and gas sector was one which attracted the highest amount of foreign direct investment in the country; a net amount of $146 million, which is only slightly higher than the $135.2 million the sector had received in the corresponding period of the previous year.

Furthermore, improved investments were also witnessed in the chemicals sector worth $58.4 million, in financial businesses worth $52.4 million, tobacco worth $45.2 million and the food sector worth $31.8 million. All these together led to the growth of foreign direct investment in the country.

In contrast, there was a fall experienced in foreign direct investments as well and was seen in the telecommunications sector in which $101.7 million was recorded as net outflow during the July-October period. According to Umair Naseer, tobacco, food and other consumer goods are likely to attract FDI in the future as well due to the growth of the middle class as well as the importance being given to consumerism in the country.

Considering the foreign portfolio investment, during the period under review, Pakistan was able to attract $72.3 million in comparison to the $126 million that had been brought into the country in the corresponding period of the previous year thus suggesting a 42.6 percent year-on-year decline in the foreign portfolio investment.

The net inflow of foreign investments, including public and portfolio investments amounted to $424.9 million during the July-October period of 2013, showing a 13.3 percent increase in comparison to the year before.

Amongst the countries that had a large helping hand in bringing in significant amounts of money into the country via foreign direct investment included the United States, responsible for bringing in $1000.1 million, Switzerland bringing in $93.9 million, Hong Kong bringing in $59 million, Italy bringing in $41.2 million, the United Kingdom bringing in $38.6 million and lastly, Oman bringing in an amount of $35.2 million worth of FDI into Pakistan.

 

Foreign direct investment is also likely to increase further due to the foreign buyers purchasing the enterprises that have been put up for privatization, said Umair Naseer. He also believed that in order to bring in FDI into the country, stable economic policies were needed along with resolving macroeconomic issues the country is facing at present.

An increase in the FDI is what the country needs at present in order to eradicate issues such as unemployment and poverty which are unfortunately, crippling the economy. Keeping this idea in mind, the country needs to work towards not only attracting FDI but domestic investments as well along with making reforms such as maximizing economic growth and bringing the constant violence to an end, which is also preventing the country from prospering and achieving its economic targets in a timely manner.

Pakistan is a country, which has been bestowed with a number of resources; unexploited coal, solar energy, hydro power and wind power are some of its resources, which have great energy potential. While Pakistan itself may not have the required technology to exploit these resources, a number of other countries do, some of which have shown interest in helping Pakistan exploiting these resources. Being located in a strategic area within South Asia, the development and growth of Pakistan would not only bring positive impacts for the country itself but the Asian region and South Asia in particular would benefit greatly as well. Despite Pakistan facing the troubles it does, certain industrial houses and foreign investors have shown interest to invest in the country and it is time that Pakistan takes some action to expand its foreign reserves as well.

The Pakistani government has generally always had a relatively liberal policy towards foreign investment; proof of it being that Pakistan is home to over 600 foreign companies. Not only is the policy friendly towards the foreign investors but local investors as well are at an advantage thus the policies ought to be appreciated greatly. Considering the example of our neighboring country India, there is no reason as to why Pakistan too cannot emerge as a developing economy with the help of foreign and direct investments.

While the increase in the overseas investment is likely to take at least one or two years according to experts, it is a start nonetheless. Since 2008, FDI in the country has been stagnating. The country experienced a fall in FDI in the past 5 years with inflows dropping from $5.4 billion during the fiscal year 2007-2008 to $760.7 million during the fiscal year 2011-2012.

The path of the country in relation to foreign direct investments has not been very smooth; it does seem to be finding its path to stability. Pakistan has a great deal of potential, a lot of which remains untapped at present. Once these opportunities are grasped, there is no stopping Pakistan from becoming an emerging economy.

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