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Pak govt plans to reverse dropping FDI inflows

AMONG several concerns that it has to tackle, Islamabad will need immediate steps to reverse the tide of dropping foreign investment inflows, as a new government is still trying to find its feet.

The demand has been voiced by Pakistan Federation of Chambers of Commerce & Industry, other business organisations and overseas investors, as the new government say it has its own development, investment and business strategy to keep the economic growth on a fast track.

Investment inflows dropped 37.20 per cent over eleven-months to May 2008, State Bank of Pakistan (SBP), the central bank, reports. Investment declined from a high of $6.281 billion in 11 months to May 2007, to $3.944 billion during the like period of fiscal 2008.

SBP also reports, total foreign investment, in the same period, declined 30.2 per cent to $3.927 billion, down from $5.628 billion in the like period of fiscal 2007.

FDI was down 14.1 per cent to $3.881 billion, in 11-months to May 2008, compared to $4.520 billion in 2007.

But, the portfolio investment went through a much bigger slash as it was down 96.5 per cent to just $62.2 million, compared to $1.76 billion in the like period of 2007. SBP also says that foreign investment in debt securities received the biggest hammering, dropping 250 per cent. Likewise, foreign public investment declined 97.4 per cent to $16.8 million, compared to $653.4 million in 11 months to May 2007.

Investment in telecoms, power, petroleum refining and financial business declined. But cement, oil and gas exploration and trade recorded increase.

In recent years banks and sectors like telecoms, chemicals, autos, and trade have been enjoying one of the highest profitability in Asia. Such sectors were attracting large amounts of FDI, particularly from the USA, UAE, Gulf and UK until 2007. The business and the government had hoped inflows will continue growing. But, the crisis over sacking of Supreme Court and High Court judges that erupted on the political and business scene on March 7, 2007, has dampened hopes.

The drop in various categories of investment is considerable, an analysis of the region-wise inflows indicates. The drop in investment from the developed countries, as a whole, was 28.7 per cent to $2.68 billion during the 11-month period. It includes $2.437 billion as FDI and $240.2 million in the form of portfolio investment.

A plus point was that United States-˜the biggest investor, provided 4.9 per cent more investment funds, raising them to $1.62 billion, up from $1.54 billion in the like period of 2007.

The FDI and portfolio investment during the first eleven months of fiscal 2008, from Western Europe, was $895.5 million. The EU as a whole provided $603.6 million.

Another plus point was that the African region, more prominently Egypt, provided $$149.5 million, up 63.3 per cent from the like period of 2007.

The Asian investment was down 41.3 per cent from $1.40 billion in 2007 to $623.1 million in 2008. Singapore, among others, was active in banking and telecoms.

The trouble over Judiciary, in the last sixteen months, got enlarged into a full scale political crisis, in the run up to the National Elections on February 18, when two time former Prime Minister Benazir Bhutto was assassinated on December 27. An end to these troubles is still not in sight, although Bhutto's Pakistan Peoples Party (PPP), and two-time Prime Minister Nawaz Sharif's Pakistan Muslim League (Nawaz) (PMLN) emerged as the two biggest parties in the elections and formed a coalition government in Islamabad. But, the PPP-led Coalition, four month into government, has still to come out with a clear economic and business vision.

In fact, at the Coalition Cabinet level, uncertainty was heightened further when pro-business Finance Minister Ishaq Dar, along with all of his collegues from the PMLN quit the cabinet May 12, protesting the new government's failure to restore the 60 sacked Judges, including Chief Justice of Pakistan Mr. Iftikhar Mohammad Chaudhri.

As a result, the National Budget for fiscal 2009 that starts July 1, was unveiled June 11 by acting Finance Minister Naveed Qamar. It was more of a quick fix rather than a coherent document that should inspire investors' and business.

Naveed Qamar, while unveiling the National Budget-2009 has described, restoring the investors' confidence as "the key objective," of the government's economic policies. The budget, he said, aims at "restoring investor's confidence by declaring the government's commitment to economic growth and investment and private sector's lead role in the process. It also targets removal of bottlenecks in supportive infrastructure for spurring growth."

At the same time, Privatisation Commission expects to earn $1.8 billion by privatising the state owned entities (SOEs) during the forthcoming fiscal 2009. It will be source of investment inflows from prospective foreign buyers of these units. But the first quarter, July-September may not see much activity as PC will like domestic political and business environment to improve, first.

However in spite of the current concerns, Barclays Bank of UK, among others, has come up with a $100 million investment. Barclays as been licensed by SBP to start its bank operations in Pakistan. Prime Minister Yousuf Raza Gilani, welcoming Barclay Bank's entry into Pakistan, this week, expressed the hope "the bank will extend its operations, especially to the rural areas where 70 per cent of the population lives." While talking to Ahmed Khizer Khan, Chief Executive of Barclays Bank and Mohsin Nathani, its Country Director, Gilani asked them cater to the banking requirements of small and medium sized industries as they form „ an important part of the industrial sector of Pakistan."

Gilani said, "Pakistan has a highly developed banking sector which will rapidly expand in view of the inherent strength of the country's growing economy." The sector will be further strengthened and become more competitive with the entry of foreign banks.

Ahmed Khizer Khan and Mohsin Nathani, upbeat over their planned Pakistan operations, informed Gilani that Barclays Bank is starting with an investment of $100 million in Pakistan, but will make "more substantial investment as our operations expand."

On the softer side of the business, CKE Restaurants Inc. signed in New York, this week, development agreements with MDS Foods PTE Ltd., and Global Food Connection LLC to open 25 new Hardee's restaurants in Pakistan. Global Food will open 10 restaurants in Karachi, the biggest Pakistani city, and MDS Foods will come up with 15 restaurants in Lahore, the second biggest city.

Moves like this should raise investor confidence and comfort level. This is something, the new government, and investors, definitely needs.