Poor economic indicators keep FDI at bay

Despite attractive incentives, Pakistan lags far behind regional economies in securing foreign direct investment (FDI). In the context of Asian emerging economies, investors seem to centre on China as the most attractive destination for foreign direct investment followed by India and Vietnam. Figures indicate that Pakistan, which was once one of the most attractive destinations for FDI could not attract a billion dollar during the current fiscal (first eight months).
Data also illustrates that Pakistan secured over $5 billion in FDI in 2005, but it could barely attract $990 million during the current fiscal period. On the other hand, figures reveal that China has proved the most attractive economy for FDI. It has secured around $718 billion in FDI during the last decade. Experts believe that an average GDP growth rate of eight percent since 1980, GDP investment of 15 percent on infrastructure development, preference for big foreign firms for setting up export-oriented units, guaranteed domestic consumption, 100 percent foreign ownership and 50 percent (15 percent) discount in tax rates are among the incentives that make China the most attractive destination for investment in emerging economies. India, the second most appealing destination for FDI, has secured some $180 billion in FDI over 2000-10.
It has offered duty free import of capital goods and raw materials for 100 percent export oriented zones (EOZs), 100 percent Income Tax exemption lasting a decade in EOZs with 15 years for industrials parks setup between 1977-2006, no cap on FDI on Global Depositary Receipt (GDR), American Depositary Receipt (ADR) and Foreign Currency Convertible Bonds (FCCB)
Other attractive features include the promotion of joint ventures with international financial institutions (IFIs), cancellation of a requirement to secure a license to manufacture, tax exemption for foreign income earned by foreign nationals in India, user friendly publications and guidelines and recognition of Intellectual Property Rights as well as liberalising trade.
However, some analysts believe that India has lost its FDI charm owing to strict imposition of environment laws on mining, township and port construction projects. In addition, imposition of a 24 percent FDI-cap in small scale industry is another hurdle in way of attracting FDI.
Economic experts believe that Pakistan also has one of the best economic policies in the region. They point out that the country offers 100 percent ownership of the business to foreign investors and no restriction on repatriation of profits or capital accumulation from shareholdings.
In addition, Pakistan’s investment policy offers investors the option to carry forward losses for up to six years for tax purposes, whereas in most countries this limit is five years. There is no minimum capital requirement to establish a new business, except for the services sector.
They believe that an advanced electronic data exchange system, vigorous intellectual property rights laws, Double Tax and bilateral investment treaties with 58 countries are some other salient features of the country’s foreign investment policy.
However, economic experts underline that the deteriorating security situation, maligned image of the country, energy crisis, poor infrastructure and lack of political will are major impediments in the way of improved FDI.
Speaking to Pakistan Today, noted economist Dr Pervez Tahir pointed out that during the last couple of years; the economy displays significant signs of failing. “Inflation has reached alarming levels, economic growth has been compromised and the fiscal deficit is swelling.” In addition, he indicated that the political leadership also seems to be against FDI.
Former finance minister Dr Salman Shah pointed out that Pakistan attracted some $7 billion in 2007, but owing to a lack of trust in the present leadership, no investors are drawn towards Pakistan. He underlined that both the government and opposition had inward looking policies, which had resulted in Pakistan becoming increasingly cut off from the rest of the world.