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Uptick in FDI may not be sustainable

January 15, 2013

KARACHI: The volume of foreign investment witnessed a slight improvement in the first half of this fiscal year, but experts think if the political chaos continues the FDI inflows would not sustain in the remaining months of 2012-13.

The Sate Bank reported on Tuesday that the foreign direct investment improved by six per cent during the first six months of the fiscal compared to the same period of last year. The hike was fed by sudden increase of investment from Hong Kong.

According to State Bank, the total FDI during the first half of the current fiscal rose to $562 million from $531 million in the same period last year.

The business community said the country’s political uncertainty may dissuade foreign investors as a peaceful working environment is a precondition for investment.

Analysts have been indicating another crisis in their reports for prospective investors, besides the energy shortfall that hurt trade and industry that was generally depressed failing to spot signs of solution in the near future. They said FDI would fade away in the presence of twin crisis.

The details of SBP report showed large disinvestment from Pakistan; even the most attractive sectors like telecom are facing withdrawal of investment.

The FDI from Hong Kong worth $112 million arrived during the six months while it was only $18 million last year. It made the difference for improvement in overall FDI which increased by $31 million (or 6 per cent).

Another large improved inflow was from Philippines that were $93.1 million while last year it had zero investment.

The portfolio investment showed improvement since there was a net withdrawal during the same period last year. During this first half the portfolio investment rose to $127 million.

Pakistan has the poorest record of attracting foreign investment in the region since the country has been a permanent target of terrorism which aggravated during the last five years.

During the five years the FDI saw a steep fall and remained just 14 per cent of what it was five years back. According to State Bank report the FDI in 2008 were $5.454 billion which fell to just $760 million in 2012 or 14 per cent of 2008 FDI.

Economic experts have been warning that deteriorating situation on domestic investment would completely erode the foreign investment from the country. The domestic investment is almost zero.

“Who is going to invest under the rising terrorism, falling economic growth and generally poor law and order situation prevailing at least for last three years,” said Aamir Aziz, a textile manufacturer and exporter.

Analyst said the foreign investors track the record of domestic investment before they land into a country. The State Bank in its several reports mentioned that private sector is out of investment including project investment while the banks doing business with government.