InternationalVolume 14 Issue # 11

FDI inflow: A dismal picture

According to a report of the State Bank of Pakistan, Foreign Direct Investment (FDI) inflows declined by 46 percent in the first four months of the current fiscal year (July-October). A detailed analysis of the report shows that the US, Europe and Japan – the front-ranking traditional investors in Pakistan – have, by and large, walked out of the Pakistani market after the influx of Chinese products and projects and rising cost of doing business. The inflows from China are also on a downward trend; these were only $335 million, which is 56 percent of the total FDI during the period under review and more than half when compared with $694.3 million inflows in the corresponding period of last year.

Moreover, the inflows from other countries are also on a decline with a mere $64.5 million from the UK, $45 million from the US, $43.9 million from South Korea and $36.3 million from Switzerland during the period. On the other hand, the portfolio investment outflow was 269 million compared to the outflow of 57 million in the same period of last year. The large outflow led to overall decline in the foreign private investment during the four months of this fiscal by 68 percent to $1.062 billion. Understandably, the incumbent government is concerned about this situation, prompting PM Imran Khan to hold meetings with investors and hold out assurances to them that their interests and grievances would be addressed by his government.

As an action plan, Imran Khan has set up a secretariat at PM House to mobilise, facilitate and address the concerns of the prospective investors. This is not new as previous prime ministers also occasionally supervised foreign investment. But this set-up is somewhat different from previous such initiatives. It is more result-oriented and time targeted. Also, responding to the complaints of businessmen and investors about harassment by government functionaries and NAB, a complaint cell has been established by NAB at PM House to address such issues.

There are multiple and complex issues related to FDI in Pakistan of which some are under government control, while others are not. With turbulent global political and economic dynamics and uncertainty investors are holding back and moving out from unsecure markets to secure markets. In case of Pakistan, the situation is exacerbated on account of very poor ranking in ease and cost of doing business. A unit to bring around improvement in doing business has also been set up at the PM office.

While the PM has taken a number of initiatives to boost the much-needed economic growth and investment, the government entities responsible for making the initiative a success remain complacent. It is this mindset that needs to be changed if some success has to be achieved in investment and businesses. In this respect, the first government   priority should be to set its house in order. Over the years, gross bad governance has been institutionalised in all the government sectors which are meant to serve investors. All government departments tasked to facilitate business and industry are characterised by incompetence, lethargy and vested interests.

In actual fact, there is no such thing as “one-window facilitation” which the Board of Investment promises the investor. There are multiple windows with Bo1 playing the role of a silent spectator. There are over 10 main regulators and service providers where the investor is subjected to a test of patience and endurance. Some investors endure the tiring process while others just cannot cope with the prevailing system and opt in favour of other destinations offering an investment-enabling environment.

The Federal Board of Investment (BOI) and the provincial boards of investment have no control nor influence on these entities and more often than not the objectives and interest of the two are in conflict with each other. While the performance of the boards of investment is judged by the amount of investment they mobilise, the regulators have the mindset that the tougher time they give to the investor the better they are perceived to be performing. This modus operandi is often driven by the motives of corruption and vested interests. The real challenge for the government is to convert these investment-repellent bodies into investment facilitators. This means a drastic management change at these institutions, specially in the mindset. The main regulators for an investor are SECP, FBR, building control authorities, utilities service providers, environment control authorities, labour department and similar other bodies. None of these proactively provides the investor any guidance or facilitation; these, in fact, try to complicate matters.

Some cases have recently come to light on this account which show investors unduly suffering at the hands of SECP, environment departments, building control authorities and others. The NAB unit established at the PM’s office may randomly pick up a few such cases and conduct fair investigations and make suggestions for plugging the system. Also, for a business set-up and its operations an investor needs multiple NOCs from the regulators. A majority of these NOCs are meaningless. The PM’s office must do away with most of these NOCs and instead make the foreign investor self-accountable as is the case in other countries. Needless to say, more FDI is imperative for rapid economic growth.