KARACHI, Aug 6: The business community in Pakistan believes that foreign investment will receive a jolt, if the United States links its aid with Pakistan’s performance against terrorism.
It may lead to a steep decline in the foreign exchange inflows the business community said while expressing shock over the signing of a legislation by President Bush on Friday last. The bill requires the president to certify Pakistan’s satisfactory performance against Al Qaeda and Taliban before the US provides aid to the country.
“Foreign investors, especially European and American investors, take a lead from Washington’s viewpoint, and how it sees Pakistan and what plans they have for the country,” said Abdullah Zaki, acting president of Karachi Chamber of Commerce and Industry.
The decision has shocked us and would certainly shake the confidence of foreign investors, besides distorting country’s image abroad, he said. Pakistan received record over $8.4 billion foreign investment for the fiscal 2006-07.
A few businessmen in Karachi said most of the foreign investment was coming from the Gulf countries and there would be no response to recent US move which creates a negative image about the country.
However, analysts said American decision would not hit the flow of foreign investment as Pakistan has grabbed a significant role in global economy.
“American corporate sector is more interested in Pakistan than the Washington’s view about the country,” said Muzzamil Aslam, an economist at the KASB Securities who also looks after Merrill Lynch in Pakistan.
Americans are in election fever and they are not taking Pakistan issue seriously, said Aslam who recently returned from United States after a successful road show for his products.
Analysts said American investment could hurt not more than 25 per cent of the total foreign investment. The joint investment of European and American companies was about 30 per cent of the total inflows recorded last year. Foreign investment in Pakistan grew by 87.6 per cent in the fiscal year 2006-07 to a record $8.42 billion.
They said even if US stops aid to Pakistan, the reserves of the country have reached close to $15 billion which is enough to absorb annual gap of $950 million US aid.
Aslam said a Global Depository Receipts (GDR) of UBL was recently launched for $650 million but investors offered $2.5 billion showing keen interest of foreign investors in Pakistan.
“It is difficult to say because they (Americans) have not quantified the performance target of Pakistan,” said Mohammad Suhail, Director Equity and Brokerage at JS Research.
“With $15 billion in reserves, no major impact is likely,” he said.
However, business community feels that bad days may cripple trade with foreign countries, especially US and Euro zone.
The US bill requires screening of all cargo on passenger planes within three years and sets a five-year goal of scanning all container ships for nuclear devices before they leave foreign ports.
“We can assume with our past experiences that the scanning of container ships will badly hit our exports to other countries,” said a textile exporter.
He said the best way is to put harsh restrictions on imports from the US and European countries and trade should be strengthened with China and other regional countries.