KARACHI, Nov 19: Foreign firms are liquidating their stakes in Pakistan at a much faster rate than private capital inflows.

A State Bank survey of foreign liabilities and assets and foreign investment in Pakistan reveals that the number of firms with foreign stakes declined to 570 in 1999 against 644 in 1998 and 800 in 1997.

In rupee terms, the total net foreign investment plummeted by 37.5 per cent to Rs.12 billion in 1999 from Rs.19.2 billion in 1998 and Rs.28.7billion in 1997.

Similarly, the net foreign liabilities on account of these companies\firms fell to $9.1billion in 1999 from $9.4 billion in 1998 and $9.7 billion in 1997. The drop is of three per cent per annum.

The sharpest fall has been witnessed in a number of companies incorporated in Pakistan in which foreigners hold interest. Their number has plummeted to 463 from 531 in 1998 and 661 in 1997. In 1999, foreign interests ceased to exist in 111 companies as against 43 fresh entrants.

Whereas partnerships, in which foreigners held stakes, remained unchanged at four for each year, branches of foreign firms/companies declined to 103 against 109 in 1998 and 134 in 1997. In all 19 companies ceased operations against 13 new entrants.

Sources here said that this trend has not been reversed in the subsequent years because of economic sanctions, lifted only recently, quick changes in governments, inconsistency in economic policies, IMF sponsored stabilization programme, depreciating rupee and lack of business confidence. Globalization has induced multinational giants to seek mergers and alliances in order to survive and prosper and for this, they have focused on industrialized economies in the west. Multinationals in Pakistan are also in the phase of consolidation rather than expansion.

Incidentally, the countrywise position of net foreign investment shows that Netherlands contributed 44 per cent of the total private capital inflows in 1999, followed by Mauritius 24.24 per cent, Cayman Islands 15 per cent, UAE 8.4 per cent, Saudi Arabia 6.3 per cent, USA 6.2 per cent, Japan 3.6 per cent, Korea 2.8 per cent and Germany 1.95 per cent. There was a negative inflow in case of other traditional investors.

The SBP survey reveals that the major part of the decrease in net foreign investment as on December 31, 1999 was by way of “cash brought in” which fell to Rs6 billion from the previous year’s level of Rs15.6 billion. Spending on capital equipment “brought in” dropped from Rs463 million to Rs131 million but reinvested earnings, however, increased from Rs3.1 billion to Rs.5.8 billion. After the freezing of foreign currency accounts, foreign banks prefer that domestic branches fund their operations through retained earnings or local rupee deposits.

By economic group, the utilities attracted the highest share of foreign investment yet their actual numbers were lower in 1999 against 1998 — Rs4.1 billion as compared to Rs7.6 billion. The various economic groups shared the foreign investment in the following ratios: Utilities 39.7 per cent, manufacturing 19.4 per cent, commerce 14.4 per cent, transport, communication and storage 8.8 per cent, mining and quarrying 7.13 per cent and construction 2.83 per cent. Those classified as “others” claimed a share of 7.8 per cent.

The liabilities of joint stock companies with foreign stakes declined from $7.267 billion in 1998 to $7.199 billion in 1999 and those of branches of foreign firms/companies incorporated abroad fell from $2.174 billion to $1.994 billion in 1999.

The SBP survey for 1999, which reveals the position as on December 31, 1999 shows that total net foreign indebtedness in all companies with foreign stakes increased by 0.6 per cent in 1999 and 9.6 per cent in 1998. The total net foreign indebtedness at the end of 1999 was Rs471.4 billion. By economic group, the largest indebtedness was of utilities (34.44 per cent) followed by manufacturing (26.27 per cent) and commerce (25.38 per cent). The relative share of debt from IFIs— IBRD, IFC, ADB and IDB— fell by 19.7 per cent to 17.6 per cent. The major creditors were USA, the U.K. and Japan.