With
a lot of help from China, the foreign direct investment (FDI) in Pakistan grew
to $316.1 million in the first four months of the fiscal year according to the
State Bank of Pakistan (SBP). [1] Total foreign investment jumped 48 percent
for the first four months of the year. However, real investment dropped by
$294m in the period from July-October. Economists argue that the government is
moving towards an isolationist political position and they are concerned that
the amount of foreign investment is only a fraction of what it could be.
Pakistan received FDI of $1,281.1m in the period from July to June 2016 an
amount that is $358.2m higher than the preceding fiscal year. [2] That equates
to an increase of 38.8 percent, great news considering China will continue to
increase its investment under the China-Pakistan Economic Corridor (CPEC). It
is estimated that CPEC will create 700,00 direct jobs up to 2030 and contribute
2.5pc to the country’s economic growth rate.
Pakistan
is now largely dependent on China its top investor with 46 percent ($146m) of
the total FDI. The United States invested $64 million in the first four months
of the fiscal year but investment from the United Kingdom and the United Arab
Emirates fell by 42pc and 17pc respectively. It is likely that The United
States will invest even less under Donald Trump so Pakistan will be more
reliant on Chinese investment.
Security concerns
Foreign
investors still have major security concerns about Pakistan. Most conversations
with potential investors in Pakistan begin with the ‘law and order’ situation.
Pakistan is facing security obstacles on multiple fronts. Former foreign
secretary Riaz Khan pointed to challenges in relations between India and
Pakistan, the rise of Islamic State, and the proliferation of nuclear power in
the region. Many embassies have issued an essential travel only warning given
the unpredictable security situation which includes the threat of terrorist
attacks and kidnapping.
The state of the economy
Growth
accelerated in the fiscal year 2016 which ended 30 June 2016. This can be
explained by the cumulative impact of structural reforms, macroeconomic
programs, and lower oil prices. Inflation was lower than expected, foreign
exchange reserves strengthened, and the deficit shrank. The Asian Development
Bank has raised its forecast for 2017 to 5.2 which will be well received given
the more pessimistic previous outlook.
The
government finalized a three-year reform program with the support of an
Extended Fund Facility through the IMF. This will go a long way to improving
macroeconomic stability. On the back of this positive news, Renault announced
that they will set up a vehicle assembly plant in Pakistan by 2018.
The
World Bank congratulated the Pakistani government in April after releasing its
Pakistan Development Update. [3] They noted the 20 percent growth in Federal
Board Revenue (FDR) for the first eight months of 2015-2016. The federal
government has performed a solid job in controlling recurrent expenditure while
still managing to invest in public sector development programs.
However,
for the positive changes to be sustainable it is crucial that Pakistan widens the
tax net, explores and develops new export markets and products, and minimizes
the bureaucratic barriers to entry in the formal sector. The government has
relied too heavily on bailouts which is not enough to secure a prosperous
future for the country.
Jean
Marc Fenet, the head of regional economic department for India and South Asia
commented that Pakistan is considered a huge market for business. He went on to
say that France is taking a keen interest in Pakistan and a lot of that is due
to CPEC.
Another
positive is the increased trade volume between Indonesia and Pakistan which
reached $2.3 billion in 2016, up from $1.6 billion in November 2014. [4]
Moreover, a new report from BMI Research identified Pakistan as one of its 10
emerging markets of the future. [5] They expect a manufacturing hub to emerge
in the country along with further construction growth—needed to support an
increase in the urban population. The construction industry is a safe bet in
emerging markets given the large housing shortfall exasperated year on year by
the rapid population growth. These new emerging economies are predicted to add
$4.3 trillion to global GDP by 2025—that’s the same as Japan’s economy.
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