Foreign Direct Investment (FDI) into the country has, of late, shown a rising trend. According to the latest data released by the State Bank, Pakistan received FDI of $ 1.162 billion during July-January of FY17 compared to $ 1.057 billion in the corresponding period of last year, posting a gain of $ 105 million or 9.9 percent. The inflows of FDI stood at $ 1.458 billion against outflows of $ 297 million. Chinese and the Netherlands investors invested their capital largely in power and food sectors which accounted for over 70 percent share in FDI. The investment in food and power sectors amounted to $ 468.3 million and $ 245 million, respectively, while electronic, oil and gas exploration sectors attracted FDI amounting to $ 135 million and $ 93 million, respectively. Portfolio investment stood negative at $ 354.7 million in July-January, 2017 compared to the outflow of $ 313 million in the same period of last year, denoting a further decline of 13 percent. On the other hand, foreign public investment surged by 125 percent to $ 1.024 billion at the end of January, 2017. Month-on-month basis, FDI registered an increase of 4 percent to $ 81 million in January, 2017 compared to $ 78 million in the corresponding period of last year. During this month, FDI inflows stood at $ 139 million as against the outflows of $ 58 million.

A modest increase in the level of FDI is of course a welcome development, especially when the domestic saving rate of the economy is extremely poor and such an investment is needed for the upgradation of technology in production and improvement in skill levels. However, it needs to be noted that the increase in FDI witnessed during the current year is largely due to a one-off receipt from the Netherlands in the food sector and not due to some solid improvement in the investment climate in the country. Moreover, the level of FDI in the country is still very meagre compared to most of the other countries in the region and also too small to make a significant impact on bridging the saving–investment gap and raising the growth rate of the economy. It is also sad that FDI inflows which stood at $ 5.4 billion in FY08, have almost been declining consistently and, as such, their effect on the economy has been very limited. However, it is good to see that investment from China is beginning to go up, albeit slowly, and may increase further with the passage of time due to CPEC. But it would have been better if other sources of investment would have been also supportive to make a real difference. While Pakistan needs massive amounts of foreign investment for infrastructure and other projects, these receipts could also be useful to improve exports, reduce massive trade deficit and meet the challenge of slowly declining remittances.

The authorities of the country, in our view, should not be satisfied with a recent small rise of FDI but must redouble its efforts to woo foreign investors and convince them to look at our country as a favourable destination of investment. Mere propaganda, roadshows and better credit rating cannot help very much in this regard as foreign investors have their own sources of assessment, particularly their counterparts in the host country. It is true that the obstacles to foreign investment like energy shortages have been overcome to a certain extent but a lot of impediments are still there to discourage foreign investors. Factors like corruption, poor infrastructure, unease of doing business and political instability are still endemic in the system while the recent wave of terrorism and slow pace of reforms after the conclusion of the last IMF programme would certainly deter foreign investment. It would of course be very useful if Pakistan could continue its reform process without the IMF breathing on its neck. We know that it is difficult to properly tackle the problems holding back foreign investment in a short period of time but it is the only viable alternative to help the economy grow and remove squalor.