ISLAMABAD, 26 November — Inhumanely bombarded, the people of Afghanistan now lie emaciated, although an end to the American "War" is not in sight. But, has it, or will it, make Pakistan aflush with foreign private investment dollars?
Islamabad, Washington and its Ambassador Wendy Chamberlin, say "yes." They foresee Pakistan flooded with foreign investment. But, the facts, as of today, say "no". The most optimist, in between these two views, put a question mark on investment.
How, and how far, has the war turned Pakistan into investor-attractive? How far, historically speaking, had investment or aid dollars flowed into Pakistan or Afghanistan, after the Afghan people, assisted by Islamabad and Washington, defeated the ex-super power Soviet Union as a result of a 10-year war?
While Foreign Direct Investment (FDI) flows into Pakistan have virtually dried up, the existing investment is being cut back. This is the lesson one learns from the latest State Bank (central bank) survey of foreign liabilities and assets, as on Dec. 31, 1999. Investment declined from Rs.28.7 billion in 1997 to Rs.19.12 billion in 1998, and further to Rs.12 billion in 1999.
The Board of Investment, however, claims FDI inflow in July-October, 2001 was $119 million, compared to $55.5 million in the like period of 2000. There is no way to independently double-check this claim.
The SB says, the net foreign liabilities covered by foreign companies came down from $9.7 billion in 1997, to $9.4 billion in 1998, and still more to $9.1 billion in 1999.
The survey indicates "the sharpest fall" was witnessed in companies, incorporated in Pakistan, in which foreign investors held interest. The number of such companies came down from 661 in 1997, to 531 in 1998, and to 463 in 1999. Foreign investment in 111 companies was withdrawn, while investment was received only by 43 companies. Only 13 new companies entered the country but 19 others withdrew in 1999.
A more detailed look at the net foreign investment in 1999 indicates that both the cash brought-in and spending on capital equipment brought-in declined. Cash-in amount fell dramatically from Rs.15.6 billion in 1998 to only Rs.6.0 billion in 1999, while the amount for capital equipment declined to Rs.463 million to Rs.131 million. A plus point, however, was that the earnings reinvested in Pakistan rose from Rs.3.1 billion in 1998 to Rs.5.8 billion in 1999. Out of the total investment, utilities received 40 percent, manufacturing 19.5 percent, commerce 14.5 percent transport and communications 9.0 percent, mining 7.0 percent, construction 3.0 percent and the balance by miscellaneous entities. The net investment originated from: The Netherlands 44 percent, Mauritius 24.3 percent, Cayman Islands 15 percent, United Arab Emirates 8.4 percent, Saudi Arabia 6.3 percent, United States 6.2 percent, Japan 3.6 percent, South Korea 2.8 percent and Germany 1.95 percent.
What caused the decline in FDI? The SB survey and analysts attribute it to frequent changes in government policies, inconsistent economic policies, imposition of Western sanctions that have just been lifted, the financial and economic squeeze resulting from the IMF program that was ostensibly meant to stabilize the economy, the exchange rate situation and depreciation of the rupee, consolidation rather than expansion of the multinationals in Pakistan, growing political uncertainties, a rapid change of governments, and mergers and groupings triggered by globalization. Private capital and forex, reportedly, is being retained abroad, or has flowed out of Pakistan in billions over the years because of these reasons. It is unlikely to return.
Meanwhile, foreign securities holdings by Pakistanis rose from Rs.51 million in 1998 to Rs.153 million in 1999. At the same time, investment by Pakistani companies rose from Rs.1.732 billion in 1998 to Rs.4.364 billion in 1999. One of the reasons for a growing interest in buying foreign securities is the fact that no new companies were floated in Pakistan and attractive investment avenues were not available.