FDI improves despite negative indicators

[Naveed Yaseen]

By Shahid Iqbal
KARACHI, Dec 18: The foreign direct investment (FDI) slightly rose during the last five months despite the country beset with negative indicators resulting from tense relations with both of its neighbours.

The official data showed that $1.603 billion came as FDI in the country during July-Nov, which was 1.5 per cent higher than the corresponding months of last year if privatisation proceeds are excluded from last year’s total. This year no privatisation proceeds are part of FDI.

However, with the inclusion of $133.2 million as privatisation proceeds in the total figure of last year, the FDI of the five months of this year showed a decline of 6.38 per cent.

The biggest fall of 57 per cent was noted in the FDI from the United States during the period under review. The FDI fell to $315 million from $735 million last year.

The figures also revealed that the biggest slash in FDI was exhibited from the developed economies as it fell to $727 million from $1,119.4 million of last year.

The FDI in Pakistan was greatly supported by the emerging economies, including Singapore and Malaysia, which kept the FDI reasonably higher for the country.

The details also show that the trend of FDI did not change and only few sectors remained attractive for the foreign investment.The financial sector attracted $444 million FDI, which was 49 per cent higher than the corresponding period of last year. The financial sector is under tremendous pressure in the developed economies and even giant banks are facing a gradual meltdown, while a number of banks have massively cut their operations.

This is encouraging for Pakistan that its financial sector is still attractive for investors, while it is facing global uncertainty.

Though the telecommunication sector attracted $336.7 million during the five months, it was still 41 per cent lower than the corresponding period of last year.

The third attraction was oil and gas exploration sector where the foreign investment increased by 18 per cent. During the five months the FDI in the sector rose to $275.5 million against $232.6 million of last year.

“This is highly encouraging that the inflow of foreign investment in this sector is intact despite highly disturbing economic and political situation of the country,” said Abid Saleem, a researcher.

Analysts and researchers said that FDI inflows were boosting confidence of the investors willing to invest in Pakistan. At the same time, it also negated the impression that Pakistan was a failing economy.

“The tension mounted on our border with India after Mumbai attack is highly discouraging for investors, while the ever-increasing current account deficit was giving wrong signals but still some sectors of the economy have great potential to be exploited,” said Abid adding that situation would be improved once the current account deficit and fiscal deficit were controlled by the economic managers.

The State Bank data also spoke about the portfolio investment, which was obviously negative mainly because of closure of stock markets for more than 100 days and global downtrend in capital market business.

http://www.dawn.com/2008/12/19/ebr1.htm