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More FDI likely from Arab states, China

October 23, 2007

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ISLAMABAD, Oct 22: Pakistan is likely to attract more foreign direct investment (FDI) in the coming years mainly from Arab states and China due to its aggressive privatisation policy and economic growth.

The country is so far at the bottom in the list of the top ten South, East and South East Asia FDI recipients.

However, a United Nations report on World Investment-2007 states that the West Asian companies spearheaded by Saudi Arabia and United Arab Emirates are likely to bring FDI in Pakistan to “new heights”.

The report says that the performance of Pakistan in attracting FDI ($4.3billion in 2006) has been “promising”. And, now there is a shift from developed countries to West Asian countries in terms of sources of FDI. But, the report has not pointed towards the 9/11 incident, which made the West Asian countries divert their investment to Pakistan from the developed countries fearing freezing of their assets on charges of any connection with the extremist elements.FDI inflows to South Asia surged by 126 per cent amounting to $22 billion in 2006, mainly due to investment in India. The country received more FDI than ever before ($17 billion, or 153 per cent more than in 2005).

Foreign retailers, such as Wal-Mart, have started to enter the Indian market. At the same time, a number of US trans-national corporations (TNCs), such as General Motors and IBM, are rapidly expanding their presence in India, as are several large Japanese TNCs, such a Toyota and Nissan.China’s FDI outflow increased 32 per cent to $16 billion last year, and its outward FDI stock reached $73 billion, the sixth largest in the developing world. Part of this overseas expansion involves considerable investment in other developing and transition economies.

For example, China is establishing the first group of eight overseas economic and trade cooperation zones in Nigeria, Mauritius and Zambia in Africa, in Mongolia, Pakistan and Thailand in Asia and in Kazakhstan and Russian Federation in South East Europe.

China will remain a magnet for FDI, but is becoming more selective with respect to the quality of FDI. India has shown huge potential for market seeking FDI, but faces a number of disadvantages that could impede progress in attaining its goals of raising annual FDI to $150 billion by 2010.

“Meanwhile, investors from West Asia may continue to drive FDI to South Asian countries such as Pakistan to new heights,” the report states.The FDI inflow to Sri Lanka rose significantly to $480 million. However, Bangladesh has not yet realised its potential, the UN report says.