It is a matter of some satisfaction that while main components of the current account balance are showing negative trends, Foreign Direct Investment (FDI) has posted a handsome growth during the current fiscal. According to the latest data released by the State Bank on 21st June, 2017, Pakistan fetched FDI amounting to dollar 2.028 billion during the first eleven months of FY17 as compared to dollar 1.654 billion in the corresponding period of last year, denoting an increase of dollar 374 million or 22.6 percent. Total inflows were to the tune of dollar 2.398 billion compared to the outflows of dollar 370.4 million during the period. FDI from China during July-May 2017 rose to dollar 879 million, constituting 43 percent of the total FDI. The second highest inflows were from the Netherlands that invested dollar 465.6 million, followed by France (dollar 180 million) and Turkey (dollar 135 million). The highest investment came into the power sector that amounted to dollar 548 million. This sector is the focus of Chinese investment under the China Pakistan Economic Corridor (CPEC). Within the power sector, FDI worth dollar 333 million was in coal-based power projects. Construction industry attracted an investment of dollar 418 million during the 11-month period which was surprisingly quite high. Real sector seems to have become a very profitable business over the last three years due to a substantial rise in property prices in the major cities of the country. Food sector attracted the second highest inflows amounting to dollar 476.2 million, followed by electronics (dollar 148.7 million) and oil and gas exploration (dollar 135.6 million). Month-on-month basis, FDI was dollar 294 million during May, 2017 compared to dollar 116 million in the same month of last year, depicting an increase of dollar 178 million or 153 percent.

The uptrend in FDI during the current year is of course a welcome development for the country. It is to be noted that FDI which was less than dollar 1 billion during 2014-15 had risen to dollar 1.903 billion in FY16 and is expected to be well over dollar 2 billion during the current fiscal. The rise in foreign investment over the past two years shows that foreign investors have gradually started shedding negative perception of the country and are now more willing to tie their fortunes with this South Asian country. It may be mentioned that the present government had pinned its hopes on the FDI to raise the saving-investment level, revive growth, create job opportunities and reduce poverty. Besides, foreign investment was direly needed for technological upgradation and modernisation of the industrial base to enhance competitiveness in the international market. Also, higher doses of FDI were particularly welcome at a time when other components of the current account balance were deteriorating rapidly and foreign exchange reserves of the country were falling almost consistently. However, while the recent rise in FDI inflows was a positive development, country's policymakers should not be content with the present inflows and try to make more concerted efforts to attract more investment from diversified sources. This is so because the present level of FDI is very meagre compared to most of the other countries in the region and cannot make any meaningful impact on the economic growth rate. Not only is FDI in the country small despite a recent increase, it is also considerably lower than the level of dollar 5.4 billion reached in FY08.

Obviously, the government needs to do much more to raise the level of FDI to make a reasonable impact on the state of economy. In this connection, foreign investors need to be absolutely certain about political stability, policy consistency, availability of enough energy, ease of doing business, conducive business environment and a reasonable quality of infrastructure. Mere road shows, policy statements, etc., would not be enough to convince foreign investors as they have their own sources to verify the ground realities in different countries before they could take informed decisions. The situation on international borders is required to be improved to arouse the interest of foreign investors.

Copyright Business Recorder, 2017