2008

Foreign Direct Investment
Project Report
´Anything that makes your attempt to buy an asset more risky can have a material effect on the amount of investment we get. These days, we'd be lucky if we get lots of foreign direct investment. We should not restrict it. We should make it easier.µ

BBA III (B) Bahria University Islamabad 8/5/2008

` Foreign Direct Investment

Foreign Direct Investment
Project Report

(including reinvested profits) between 1945 and 1960. Since that time FDI has spread to become a truly global phenomenon, no longer the exclusive preserve of OECD countries. FDI has grown in importance in the global economy with FDI stocks now

INTRODUCTION
Foreign Direct Investment
Definition & Explanation
Foreign Direct Investment is defined as, ´investment made to acquire lasting interest in enterprises, operating outside the economy of the investorµ. Foreign Direct Investment in relationship consists of parent enterprise and a foreign affiliate which together form a multinational corporation (MNC). In order to qualify as FDI, the investment must afford the parent enterprise control over its foreign affiliate. In the years after the Second World War global FDI was dominated by the United States, as much of the world recovered from the destruction brought by the conflict. The US accounted for around
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constituting over 20 percent of global GDP.

Types of Foreign Direct Investment
BY DIRECTION Inward Investment Inward investment means the investment when foreign capital is invested in local resources. Inward investment is encouraged by tax breaks, subsidies, grants etc. by the Govt. Inward FDI is restricted by ownership restraints or limits Differential performance requirements. Outward Investment Outward investment also known as direct investment abroad is the investment when local capital is invested in foreign resources means investment in imports and exports from a foreign commodity country.

three-quarters

of

new

FDI

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Outward Investment is encouraged by Government backed insurance to cover risk and tax incentives. Outward Investment is discouraged by tax disincentive, subsidies for local businesses and Government policies for the support of nationalization of the industries.

assets and operations is transferred from a local to a foreign company, with the local company becoming an affiliate of the foreign company. Horizontal FDI Horizontal multinational production countries. to FDI occurs activities when the in the same

undertakes

multiple

BY TARGET Greenfield investment Direct investment in new facilities or the expansion of existing facilities; Greenfield investments are the primary target of a host nation·s promotional efforts because they create new production capacity and jobs, transfer technology and know-how, and can lead to linkages to the global marketplace. Mergers and Acquisitions Transfers of existing assets from local firms to foreign firms takes place; the primary operation new type of of FDI. Cross-border different

Vertical FDI Vertical FDI occurs when the

multinational acquires a stake in a foreign firm that either uses its output or provides its input. The primary activity of the foreign firm usually precedes or succeeds that of the parent company. Backward Vertical FDI Investment in a firm whose industry output provides the input for the parent company's operations. Forward Vertical FDI Where an industry abroad sells the outputs of a firm's domestic production, or uses the firm's output as input.

mergers occur when the assets and firms entity. from countries are combined to establish a legal Cross-border acquisitions occur when the control of

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BY MOTIVE Resource-Seeking Investments which seek to acquire

Efficiency-Seeking Investments which firms hope will

increase their efficiency by exploiting the benefits of economies of scale and scope, and also those of common ownership. It is suggested that this type of FDI comes after either resource or market seeking investments have been realized, with the expectation that it further increases the profitability of the firm. Strategic-Asset-Seeking A tactical investment to prevent the gain

factors of production those are more efficient than those obtainable in the home economy of the firm. In some cases, these resources may not be available in the home economy at all (e.g. cheap labor and natural resources). This typifies FDI into developing countries, for example seeking natural resources in the Middle East and Africa, or cheap labor in Southeast Asia and Eastern Europe. Market-Seeking Investments which aim at either

of resource to a competitor. Easily compared to that of the oil producers, whom may not need the oil at present, but look to prevent their competitors from having it.

penetrating new markets or maintaining existing ones. FDI of this kind may also be employed as defensive strategy; it is argued that businesses are more likely to be pushed towards this type of investment out of fear of losing a market rather than discovering a new one. This type of FDI can be characterized by the foreign Mergers and Acquisitions in the 1980·s by Accounting, Advertising and Law firms.

(Source: http://en.wikipedia.org/wiki/Foreign_direct_investment

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Foreign Direct Investment in Pakistan ANALYSIS
Current Situations
The Pakistan government is working hard to attract large scale FDI into the country, including allowing foreign investors to hold unlimited equity and making concerted efforts to project a positive country image. ´Federal Minister for Privatization and Investment Dr. Abdul Hafeez Shaikh, said that Pakistan has great potential for foreign investment in various sectors and, for the first time, it would attract a foreign direct investment (FDI) of $1 billion this year. He said that foreign investment in the country was increasing every year and in the last seven months it had touched the figure of $600 million which is higher by 50 percent compared to the same period of last year.µ
(Source: Business Recorder)

Foreign investors should now come forward to invest and avail the vast opportunities available in gas, oil and other sectors in Pakistan and get benefit of business-friendly policies of the government.

An Overview
Developing countries by and large face a gap between domestic savings and the desired level of investment. In case of Pakistan, for example, domestic savings constitute only 15-18 per cent of GDP. This gap is to be filled by the inflow of foreign capital. Foreign direct investment (FDI) is arguably the most important source of foreign capital. In addition to filling the savings-investment gap, FDI yields a number of advantages to the host country including transfer of technology and managerial knowhow, employment generation, revenues to the government, provision of quality products to consumers, creation of backward and forward linkages, broadening of industrial base, and increase in exports. In order to increase the level of foreign capital inflows, developing countries liberalize their trade and investment regime by relaxing governmental controls and offering a number of financial and trade incentives like tax concessions and tariff reductions. Though exceedingly important, the right level of foreign investment is not enough. What also matters is the direction of investment, that is, in which sectors it is made.

Most of this investment was in oil and gas, construction, real estate and telecommunication sectors and was result of positive policies of the present government. Hafeez said that the image of the country is improving internationally and its growth rate, stable government and positive policies are attracting them to invest in this country.

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Having outlined the importance of FDI, let·s glance at foreign investment regime of Pakistan. However, before doing this it seems appropriate to look at the level of FDI in Pakistan during last one decade. Total FDI inflows into Pakistan from 199596 to 2005-06 stand at $10.93 billion, which come to $994 million a year. This of course is far below the desired level. In 1995-96, Pakistan attracted the (then) record $1.1 billion FDI, which was mainly due to agreements with Independent Power Producers (IPPs). However, the next year FDI registered a sharp fall as the successive government, repudiated agreements with IPPs. Thus ensued a row between the Government of Pakistan and IPPs, which severely affected foreign investor·s confidence in Pakistan. Pakistan·s decision to go nuclear in 1998 prompted several countries to impose economic restrictions, which also reduced FDI inflows. The sudden freezing of foreign currency accounts following the nuclear blasts increased the risk of doing business in Pakistan and severely affected FDI. The FDI level improved during last four financial years mainly due to consistent economic policies of the government. In 2005-06, FDI crossed the $3 billion mark for the first time as the total FDI was registered at $3.52 billion. However, the source of nearly half of the FDI was proceeds from the sale of state enterprises. As regards the direction of FDI, financial services, telecommunications and the energy

sector have received the bulk of FDI. The manufacturing sector, especially the allimportant textile sector, has received meager FDI inflows. This also means that Pakistan has received very little export-oriented FDI, thus limiting the role of FDI as a tool of export promotion.
(Source: Board of Investment, State Bank of Pakistan)

Coming to FDI regime of Pakistan, over past one decade Pakistan has opened its economy through privatization and deregulation and presently it has a very liberal FDI regulatory regime. The regulatory framework for foreign investment consists of three laws: Foreign Private Investment (Promotion & Protection) Act 1976; Furtherance and Protection of Economic Reforms Act 1992; and Foreign Currency Accounts (Protection) Ordinance 2001. Taken together, these laws protect FDI as follows: One, there is freedom to bring, hold and take out foreign currency from Pakistan in any form. Two, fiscal incentives provided by the government cannot be altered to the disadvantage of the investor. Three, the privatisation of an enterprise is fully protected. Four, no foreign enterprise can be taken over by the government. Five, original foreign investment as well as profits earned on it can be repatriated to the country of origin. Six, equal treatment is provided to a foreign investor and local investor in terms of import and export of goods. Seven, FDI is not subject to taxes in addition to those levied on domestic investment. Eight, foreign

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currency accounts are fully protected and they cannot be freeze.
(Source of facts & Figures: Foreign Currency Accounts Ordinance 2001)

Pakistan business strengths are investorfriendly policies allowing 100 percent foreign equity, protection to private investment, remittance of profit, royalty and technology fee, zero import duties on raw materials for production of export, large and growing domestic market, well-established infrastructure, skilled, qualified and cost effective manpower, regional hub in view of gateway to Central Asian Republics and strong links with Gulf region and South Asia.

activity, location and size except in case of four sectors relating to national security. Under the deregulation policy, government controls on business activity are being relaxed. To avoid double taxation on income earned by foreign investors, Pakistan has concluded agreements with 51 countries. The list includes nearly all the developed economies. However, one area in the regulatory regime needs a lot of improvement is the protection of Intellectual property rights (IPRs), particularly copyrights. Despite bringing copyright legislation in conformity with international copyright laws, the government has not been able to curb piracy. This increases the cost of doing business in Pakistan.

Factors affecting FDI in Pakistan
There is huge potential of investment of Rs 594.4 billion in engineering industry in Pakistan against existing Rs 289.8 billion in this sector including potential in Automotive & Agriculture Implements of around Rs 110.3 billion, against existing Rs 65.3 billion, Rs 26 billion in heavy machinery against existing Rs 17.5 billion, Rs 13 billion in Consumer Durables against Rs 9.5 billion, Rs 21 billion in Surgical & Cutlery against existing Rs 15 billion, Rs 251.5 billion in Steel against existing Rs 83.5 billion and Rs 172.6 billion in others against existing Rs 99 billion. As regards investment policy, all economic sectors including the service sector are open to FDI. Foreign equity up to 100 per cent is allowed. No government sanction is required for setting up an industry in terms of field of Let·s turn to social, economic and political factors that have bottlenecked the growth of FDI in Pakistan. Take political uncertainty first. Political instability has been endemic in Pakistan. During 1990s four governments and parliaments were dismissed and three general elections held towards the close of the decade, the civilian set-up was replaced with a military regime. Furthermore, whenever a civilian government was in office, speculations of its sack were ripe. Political uncertainty increased the risk of doing business in Pakistan and decreased its attractiveness as a market for investment. Frequent changes in government also made continuity of policies difficult. In our country there is a tendency on the part of a government to undo the policies of its

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predecessor. The row between the Nawaz Sharif government and IPPs has already been mentioned. Policy aphorism also begets uncertainty and increases the investment risk. Another important factor is law and order. During last one decade, Pakistan has been subject to twin menaces of religious extremism and ethnics, which have taken a heavy toll on our economy. Ironically ethnic violence ran rampant in Karachi, Pakistan·s business capital. There were several incidents of murder and kidnapping for ransom. Of late, Pakistan has faced a series of suicide attacks in different parts of the country. A couple of years back, the president had a narrow escape in two incidents occurred in the same place in a heavily guarded area. The fourth factor is lack of human capital. Workers are widely regarded as the principal asset of a firm and the capital source of its competitive advantage. That is why there is so much emphasis in developed countries on human resource development. In Pakistan however development of human capital has been given a short shrift, which is responsible for low worker productivity. While making investment decisions, MNCs take into account both worker productivity and wages. In Pakistan wages are low but productivity is also low. Infrastructure, including rail, road and telecommunication network, and price and availability of utilities is another area that needs a lot of improvement. Cost of water

and power for business consumers in Pakistan is higher than those in other neighboring countries like India and China. Infrastructure is also not up to the mark. Poor infrastructure and high cost of utilities increase the cost of doing business and make a country a less attractive market for FDI. Last but not least is the cultural factor. An overwhelming majority of existing or potential MNCs in Pakistan are western. The people of the West have a lifestyle different from us and want to continue that while staying here. However certain self-righteous people want to impose their own values on foreigners and thus meddle into their personal private lives. Nothing irks these foreign investors and managers more than meddling into their personal lives. In sum, to increase FDI, apart from creating an investor-friendly regulatory regime, the government will have to improve law and order situation and pursue consistent policies. Political stability, human resource development and cultural tolerance are also of capital importance.

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has announced increase of 300 million dollar in the foreign investment target

ANALYSIS OF ARTICLES
(1) Foreign Direct Investment up by 19 Percent (2004)
Foreign Direct Investment in the country witnessed a huge surge of 19 percent. After the company sold two cellular phone licenses and a strategic stake in Habib Bank, 798 million dollar was the FDI investment in June 2004, which was raised to 949 million dollar in July 2004. Two cellular phone licenses were auctioned in April for 291 million dollar each to Oslo based Telenor and UAE based Warid Telecom companies. The companies paid half of the billed amount in may and rest of the amount was adjusted in coming years. In December, Pakistan sold 51% shares of Habib Bank Limited Geneva based Aga Khan Fund for economic development. US and UAE investment were 238.4 million dollar and 205 million dollar respectively. Pakistan was expecting 1 billion dollar foreign direct investment, but on ground it received 1.25 billion dollar against 950 billion dollar of last financial year. Ministry of Privatization & Investment,

for the current fiscal year. In last 2 to 3 years, foreign direct investment was doubled to 748 million dollar after the country sold United Bank Limited and the security environment improvement in the region due to lessening of tension with India and Afghanistan.
(Ref.: Business Recorder July 26th,2004)

(2) FDI Resisters sharp rise during Fiscal year 2006 (2006)
The foreign direct investment flows in fiscal year 2006 amounted to 2 billion dollar, with a sharp rise of 70.6% over last year. More than half of the foreign direct investment year 2006. was fetched by the telecommunication sector during fiscal
(Ref.: annual report FY 2005 -06)

Due to sale of PTCL to a UAE based company, sale of KESC to Saudi Group and receipts for Habib Bank and exceptional rise of 1.5 billion dollar were registered during FY 2005 ² 06. This also shows that foreign direct investment in FY07 is likely to be lower than levels achieved in FY06. Half of the

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FDI originated from Middle East. E.g., 95.5% Foreign Direct investment from the Middle East is only in the communication sector, 40% of FDI from UK and USA in telecommunication and oil and gas exploration sectors during FY06.
(Ref.: Business Recorder Dec. 3 , 2006)
rd

said, Pakistan Textile exports stood at 67% and it would get a big boost in coming few years. While comparing with our

competitors, India, Bangladesh and Sri Lanka, he added, the cotton produced locally has made Pakistan better proposition than its competitors. China, Turkey and European Union would be the key foreign investors. Reasons for this companies coming into Pakistan are: Cheap labor, tax free zone, basic facilities required for establishing industry such as water, electricity gas are on ground there. Maintaining the WTO standards, like implementation international norms, treatment of labor and avoid hazardous material are also the key points for investment. Local industrialists as well as foreigner investors are very keen to start their business at textile in an investment friendly environment very soon.
(Ref.: Business Recorder June 24, 2006)

(3) Pakistan Textile City & Foreign Direct Investment (2006)
Pakistan textile city is established over 1250 acres near port Qasim, Karachi, Pakistan. Ground breaking ceremony was held on June 24th, 2006 by the President of Pakistan. While talking to business recorder, Executive Officer, Pakistan Textile City (PTC), Zahid Zaheer, said that the project has a tremendous attraction for the Chinese, Turkish and world wide investors, who have indicated their willingness to establish their own zones in the city. MOU was signed with Chinese industry Temsad to Joint Corporation. Their business men have invited and offered joint business ventures with Pakistan businessmen. He said, the project would double the figures of current foreign direct investment within few coming years in Pakistan. Zaheer

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(4) Local & Foreign investments grow by 20 percent (2007)
According to Shaukat Aziz domestic and foreign direct investments has grown up by 20%, which is highest in the last two decades. He said that our government is committed to good governance through transparency Democratic and institutions accountability. have been

He

also

said

that

we

have share

provided security to minority

holders and made efforts to bring transparency and better management and governance structure in the private sector. Our real challenge was to bring a good deal of foreign investment and we have achieved that.
(Ref.: Business Recorder Dec. 20th, 2006)

strengthed while a deep routed process of decentralization has been set in motion due to FDI. This huge increase in FDI has helped in developing deeper and more liberal agriculture markets. Apart from this it has also helped in developing markets in media, energy and telecom sectors. The foreign investment has modernized several of the key agencies including civil service, monopoly control authority and the police. This has of course been done utilizing and by deepening greater latest the decentralization, transparency, of developing

(5) Pakistan s Success story: Foreign Direct Investment (2007)
Mr. Riaz Haq telling about foreign direct investment tells us the views of former US Federal Reserve Chief Alan Greenspan. India has discouraged FDI. India received 7 billion dollars in FDI in FY 05 and China 72 billion dollar. India·s cumulative stock of FDI was at 6% at the end of 2005 and Pakistan·s 9%, China·s 14% and 61% for Vietnam. The reason FDI is low in India is because of India·s unwillingness to fully embrace the market forces. He is than telling about the strategies adopted by India to not allow the FDI which are as follows. When India faced with rising inflation in early 2007, the response was not to allow rising prices to prompt an

technology and relying on a high degree professional technocratic management.

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increase in supply, but to ban wheat exports for the nest of year and suspend future trading ¶curb-speculation· ² the very market forces that the Indian economy needs to break strangle hold of bureaucracy. Mr. Riaz Haq then pinpoints that Mr. Greenspan wrote the words, the FDI in Pakistan has continued to rise and has remained the success story. He says that the total investment grew by 21.4% of the GDP and FDI has posted a growth of 71% from 3.5 billion dollar to 6 billion dollar in the year 2007. The FDI represents a deeper and longer term commitment than portfolio investments which tend to be less durable and less reliable. According to him the increase in FDI to Pakistan has been made possible by the Pakistani Government·s liberal policies of allowing foreign investments in many sectors of the economy. It is also highlighted the continuous past 5 years. Foreign investors sent $ 519 rise in the profits has boomed with GDP doubling over the

compared to 467.9 million dollar of the corresponding period of 2006-07 which depicts an upsurge of 11%. State Bank·s statistics show that profit by foreign investors registered a significant increase of $51.4 million during 2006-07, the major share repatriation was seen in the power sector. He also added that according to business recorder, foreign investors have made new investments during the last few years due to power shortage. In the end, he concludes by saying one of the downsides of liberalization has been an upsurge in inflation in Pakistan which India has attempted to curb by actions such as banning export of wheat and suspending future trading.
(Ref.: southasianinvestor.com, May 2008)

(6) Major economic targets achieved (2007)
This article highlights the major economic targets achieved during the fiscal year 2007 and has briefed about the major role that FDI has played in achieving these goals. The major economic targets were real GDP growth,

million as their profits abroad during first 7 months of the current fiscal year as

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agriculture, services sector, investment, tax revenue during 2007 fiscal year. The State Bank of Pakistan, in its annual report on the state of economy, said that Pakistan·s economy witnessed a moderate recovery during 2007 financial year with real GDP reaching 7%, as compared to 6.6% growth seen in 2006 financial year and this was contributed by a surge in domestic private investment and record foreign direct investment flows. As a result, the economy looks well poised to continue on a high growth trajectory in the coming years. This article also sheds some light on the darker aspect that is despite the improvement the investment to GDP ratio remains low in Pakistan. Even though the savings, the GDP ratio had also increased 18 percent during 2007 financial year compared with 17.2 percent in the preceding year, it was still low as compared to regional and international standards. In the case of foreign direct Investment, it also highlights the most important aspect that is this impressive performance is result of continue

strength of domestic demand, a sharp rise in foreign direct investment as well as healthy increase in the public sector development program, (PSDP).
(Ref.: Business Recorder Oct. 30 2007)
th

(7) July January Foreign Investment down by 35 Percent (2008)
Foreign direct investment during July ² January registered a growth of some 8 percent but the declining the portfolio investment decreased

overall investment by around 35%. The State Bank of Pakistan issued statistics of foreign direct investment and portfolio statement, which showed overall 35 percent decline occurred in foreign investment during July ² January of current fiscal year than to last fiscal year. A drop of 1.2157 billion dollar occurred during this fiscal year from last fiscal year. Economic experts said that this major drop happened due to 100% decline in portfolio inflows as the foreign investors were reluctant to invest in the equity market due to political uncertainty and negative reports regarding country·s stock markets. Foreign investors would
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invest again their money in Pakistan·s stock market after the reconstitution of new political government. Including privatization proceeds total private investment showed a decline of 19.8 percent to 2.24 billion dollars, while excluding, it has dipped by 20.8 percent to 2.108 billion dollars during first seven months of current fiscal year.
(Ref.: Business Recorder Feb 24th, 2008)

economists told that it is contributed by record decline in the portfolio inflows, as the foreign investors are reluctant to invest in the equity market due to political uncertainty. Statistics show that foreign direct

investment (FDI) registered a dip of 15 percent to $2.52 billion during JulyFebruary against $2.97 billion during the same period of last fiscal year. Portfolio investment declined by 94.9 percent to $84.5 million as compared to $1.656 billion during the same period of last fiscal year.
(Ref.: Business Recorder March 20 , 2008)
th

(8) A Decline of 44 Percent in Foreign Investment (2008)
The State Bank showed that in Pakistan, overall foreign investment (including foreign direct and portfolio investment) decreased by $2.1047 billion to $2.612 billion during July-February of current fiscal year 2008 from $4.62 billion during the corresponding period of last fiscal year. Political uncertainty and poor law and order situation have reduced foreign investment by about $2 billion, or 44 percent, from $4.62 billion, during eight months of the current fiscal year. The reason behind major share dip in foreign
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(9) Foreign investors ready to invest in Pakistan (2008)
Foreign investors are hungry for investing in banking, real estate, telecom and the country·s steel industry: Salman Taseer, Federal Minister for Industries, Production said. Salman Taseer said that the

foreign investors would be ready to invest in expanding the Pakistan steel Mills to enhance its production capacity. India has an edge over Pakistan in the steel industry because of good

investment

in

Pakistan

the

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governance while its bank in abroad direct the flow of investment into India by guiding investors. Presently, China and India are buying steel on a large scale pushing unless its we high develop prices local internationally. The situation will not be improved resources. Presently, we are buying coal from Australia and Canada and iron ore from India and China. However Pakistan steel will sign an agreement with the Sandac project on Jan. 29 to buy 50,000 to 60,000 tonnes of iron ore. Concluding, the Engineering

the

newly

elected

government

in

Pakistan will continue the FDI linked policies, which we had introduced and which the previous government there will be continued. Obviously,

continuity in these policies. He informed the entrepreneurs about the new coalition government's priorities and said it had given market economy to the country (in the 1990s), introduced foreign direct investment policies as well as various other economic reforms. Earlier, the finance minister had a meeting with chairman US-Pakistan Business Council, Jay Collins, who said he had been "extremely impressed with the candor and vision" of the new top Pakistani finance official. "I was both pleased and reassured that the fundamental premises of the new minister in terms of kinds of policies that will allow Pakistan's economy to grow, allow the global investment community continues to have faith in Pakistan, will be implemented by this government so I am very supportive of what I heard."

Development Board CEO Almas Hyder said that the EDB will appoint foreign consultants for identification of iron ore and coal sites in Pakistan, the volume of investment needed for their exploration and future prospectus.
(Ref.: Business Recorder Jan. 26th, 2008)

(10) FDI: Linked Policies to be continued: Dar (2008)
Finance Minister Ishaq Dar has invited American entrepreneurs to avail investment opportunities Pakistan offers in various sectors. Ishaq Dar was addressing the members of the US-Pakistan Business Council, said,

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CONCLUSION
Foreign direct investment plays a vital role in economy of developing countries like Pakistan, not only it constitutes a very large percentage in GDP, but also gives a number of other advantages up large including scale of technology industries in transfer, managerial know how, setting competition and increasing country·s export margin. Pakistan·s economy which has a direct impact was on foreign direct its investment, scenario wobbling law since and

The following paragraph is about investments made by foreigners from 2004 to 2008. In 2004, FDI figure was 798 million dollar which was raised to 949 million dollar in only one year. In 2006 it was further raised to 2 billion dollars with a sharp rise of 70.6 percent over last year. In 2007, according to government figures, it was further raised to 20 percent more. In the current fiscal year 2008, FDI declines 44 percent mainly due to political uncertainity and poor law and order situation in Pakistan. It has again come to 2 billion dollar which was 4.62 billion dollar last year. Currently formed government is taking all necessary steps to attract and facilitate foreign investors, which will ultimately cause a large increase in FDI. In the end, we would like to comment, that Pakistan has got a huge potential in investment field. New government should maintain a investor friendly environment, so that Pakistan could be prosperous and will be very soon in the line of developed countries. (INSHALLAH)

creation back in 1947. Due to political and poor order situation it get worst day by day, but regardless of these unwanted factors, situation is not bad as it looks. In our research project, we have gone through the FDI figures collected from 2004 to most recent investment in 2008, and according to our knowledge, we are at far better position today, when compared with 2004.

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FINDINGS
Pakistan·s FDI has got an

important of all, the Arabian Sea, which is the back bone of all trade done in Pakistan. It is matter deep sadness for all of us, to know that investors all over the world, who were looking towards Pakistan·s political and law in order situation, and changing their plans are moving towards other investment areas, like India and Bangladesh, which is not at all in favor of Pakistani economy. Our Government should keep this in mind that investor will never take risk while spending its capital. So far concluding, all over

enormous increase in last 7 to 8 years, mainly due to the effort of President Pervez Musharraf, who has rebuild the peaceful image of Pakistan around the whole world. Because of this environment, many investors (Big guns) have invested in Pakistan. In our research, we found that all things were going smoothly till fiscal year 2007. But after 2007 the Foreign direct investment droped on a large scale which has been mentioned in the articles and their reviews. It was mainly due to political unrest and bad security environment. Pakistan is blessed with a very ideal geostrategic location which includes world·s most booming economy. China as its neighbor. Central Asian states looks towards Pakistan·s see route for the mode of trade. By this, we found that Pakistan has got all the necessary tools for enhancing our FDI, which mainly includes availability of cheap labor, fertile land of Punjab and Sind, world·s most organized irrigation system and the most

research work, we came to a major point that if newly formed government is able to provide investor friendly environment. Pakistan is soon going to be a hub for all the trade done in not only in Asia, but all over the world. But besides that, if these things are not taken as a serious matter, Pakistan·s economy will be in great danger. Investment by foreigners in

country not only enhances their profit maximaization need, but also create a lot of job opportunities, bringing back to life the industries, which have been closed.

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And most interaction of Pakistani market with the whole world. We should atleast learn from our neighbors like China and India¬ Two of world·s fastest growing economy countries. What they have got in which Pakistan is lacking behind? Law and order situation, smooth functioning of government, proper power (electricity, water, gas) facilities, tax free zone and interaction revolutionary economy. with WTO, in can bring change Pakistan·s

´This is continuation of trend of expansion of existing investment in Pakistan and will hopefully mark the state of real upward trend in FDI.µ
President of Pakistan while addressing congress members in USA

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GLOSSARY
Abbreviations used in the project report.

FDI Foreign Direct Investment FY Fiscal Year PTC Pakistan Textile Company WTO World Trade Organization PSDE Pakistan Society for development of Economists SECP Securities and Exchange

GDP Gross Domestic Product CPI Consumer Price Index SPI Sensitive Price Index IPRS Intellectual Property Rights IPP Independent Power Produces SBP State Bank of Pakistan GDR Gross Domestic Revenue

Commission of Pakistan PIDE Pakistan Institute of development economists

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REFERNCES
WEBSITES VISITED:
Wikipedia http://en.wikipedia.org/wiki/Foreign_direct_invest ment

Business Recorder

State Bank of Pakistan http://sbp.com.pk/

http://www.brecorder.com/index.php?

Google search Engine http://google.com.pk Business & Finance Review http://www.jang.com.pk/thenews/

Foreign Direct Investment website http://www.fdimagazine.com/

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