Introduction:

Foreign direct investment (FDI) plays an extraordinary and growing role in global business. It can provide a firm with new markets and marketing channels, cheaper production facilities, access to new technology, products, skills and financing. For a host country or the foreign firm which receives the investment, it can provide a source of new technologies, capital, processes, products, organi ational technologies and management skills, and as such can provide a strong impetus to economic development. Foreign direct investment, in its classic definition, is defined as a company from one country making a physical investment into building a factory in another country. In recent years, given rapid growth and change in global investment patterns, the definition has been broadened to include the ac!uisition of a lasting management interest in a company or enterprise outside the investing firm"s home country. #s such, it may take many forms, such as a direct ac!uisition of a foreign firm, construction of a facility, or investment in a $oint venture or strategic alliance with a local firm with attendant input of technology, licensing of intellectual property, In the past decade, FDI has come to play a ma$or role in the internationali ation of business. %eacting to changes in technology, growing liberali ation of the national regulatory framework governing investment in enterprises, and changes in capital markets profound changes have occurred in the si e, scope and methods of FDI. &ew information technology systems, decline in global communication costs have made management of foreign investments far easier than in the past. 'he sea change in trade and investment policies and the regulatory environment globally in the past decade, including trade policy and tariff liberali ation, easing of restrictions on foreign investment and ac!uisition in many nations, and the deregulation and privati ation of many industries, has probably been the most significant catalyst for FDI"s expanded role. (roponents of foreign investment point out that the exchange of investment flows benefits both the home country and the host country 'he push factors indicate the benefits to the investors and the pull factors to the host countries. First, international flows of capital reduce the risk faced by owners of capital by allowing them to diversify their lending and investment. )econd, FDI allows capital to seek out the highest rate of return. 'hird, FDI helps to expand market. FDI can also be categori ed based on the motive behind the investment from the perspective of the investing firm* + Resource Seeking: Investments which seek to ac!uire factors of production that 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). 'his typifies FDI into developing countries, for example seeking natural resources in the ,iddle -ast and #frica, or cheap labor in )outheast #sia and -astern -urope.

+ Market Seeking: Investments which aim at either 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. + 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 reali ed, with the expectation that it further increases the profitability of the firm.

Importance of FDI:
,aking a direct foreign investment allows companies to accomplish several tasks* #voiding foreign government pressure for local production. /ircumventing trade barriers, hidden and otherwise. ,aking the move from domestic export sales to a locally0based national sales office. /apability to increase total production capacity. 1pportunities for co0production, $oint ventures with local partners, $oint marketing arrangements, licensing, etc.

(romotional efforts to attract foreign direct investment (FDI) have become the important point of competition among developed and developing countries. 'his competition is also maintained when countries are adopting economic integration at another level. 2hile some countries lowering standards to attract FDI in a 3race to the bottom,3 others praise FDI for raising standards and welfare in recipient countries.

Five Reasons to Invest in Pakistan:

4. #bundant 5and and &atural %esources*
+

-xtensive agricultural land /rop production (wheat, cotton, rice, fruit and vegetables) ,ineral reserves (coal, crude oil, natural gas, copper, iron ore, gypsum, etc.) Fisheries and livestock production

+ + +

6. )trong 7uman %esources*

-nglish speaking work force /ost0effective managers and technical workers

8. 5arge and 9rowing Domestic ,arket*

+

4:; million consumers with growing incomes # growing middle0class moving to sophisticated consumption habits

<. 2ell0-stablished Infrastructure and 5egal )ystems*

+

/omprehensive road, rail and sea links 9ood !uality telecommunications and I' services ,odern company laws 5ong0standing corporate culture

+ + +

=. )trategic 5ocation as a %egional 7ub*

+

(rincipal gateway to the /entral #sia %epublics )trong and long0standing links with the ,iddle -ast and )outh #sia /omprehensive duty0free facilities for investors

+ +

Foreign Investment in Pakistan:

Foreign direct investment (FDI) in (akistan is a ma$or external source to meet obligations of resource gap, human resource development and goal achievement. 'he FDI has played a vital role in the economic growth of (akistan. /urrent global economic recession, and falling profits have caused many companies to cut capital expenditures and reduce FDI. 'his economic crisis has affected every region with varying geographical impacts. 'his crisis originated in developed countries and their ma$or effects on the developing world have been indirect up till now which has affected FDI flow. 'he share of foreign direct investment, flowing into (akistan, is negligible when compared to the opportunities and economic fundamentals of the country. 'he FDI inflow into the country is less than one per cent of its total, made globally. )ince 4>>:, when received highest amount, FDI in (akistan has been experiencing a declining trend. 'he highest, (akistan received, was the amount of a little over one billion ?) dollars in 4>>=0>:. -ver since it has been experiencing a declining trend. ?nder the prevailing circumstances there is

a need that economic mangers should take cogni ance of the factors which are responsible for pushing the foreign investors away from (akistan. #s (akistan plans to double its exports in next two years, the country needs massive investment, both local and foreign, to broaden the industrial and services base to produce exportable surpluses and to cut down imports. In order to accelerate the rate of 9D( growth, the country needs investment in large si e industrial units. #long with this (akistan has to attract foreign investment through privatisation. 'herefore, there is a need to examine the trend of flow of FDI and to redefine the investment policy of the country. FDI has been instrumental in the development of the country. 'he presence of foreign companies in (akistan predates the inception of country. 'o !uote a few examples, )hell started operations in the area in 4>;8. Imperial /hemical Industries (I/I) established soda ash manufacturing unit in 4><6. #&@ 9rindlays Aank and )tandard /hartered Aank were working in these areas before independence. /urrently about 6=; foreign companies are operating in the country. 'hey have interest in almost each and every sector. 'hese include, pharmaceuticals and chemicals, oil and gas exploration and marketing, power generation, food and beverages, automotive assembly, insurance and banking etc. #ccording to a large number of analysts, no foreign company, which entered (akistan, has ever left the country, rather they have been expanding their operations through expansion and diversification. &ot only that, even at the time of nationalisation, all the foreign investment was exempted from the preview of nationalisation. 2hereas in many countries foreign investment has been the first to be nationalised. (akistan was among the first few countries in the region to open up the market in early nineties. &ow the foreign investors can virtually invest in any sector except a few. 1pening up of market and initiation of process of privatisation made (akistan a center of attraction. Foreign investment came in large volume, both as FDI and as portfolio funds. 'he FDI inflow to (akistan in 4>>60>8 was ?)B 8;C million and exceeded ?)B one billion in 4>>=0>:.

FDI Outlook in Pakistan:

#s the rituals for a bailout package are being performed, it has become evident that the 9o( has to play a key role in attracting new investment. First the local entrepreneurs have to be convinced that the conditions are conducive for investment in the country. 'he statement of an ex0country manger of /itibank must not be ignored. 1nce he had said 3-ven if the 9o( spends millions of dollars in arranging investment conferences to tell the foreign investors about the incentives being offered no one will give it much attention. #ny foreign investors will look only at the sort of profit being made by overseas companies operating in the country to make a decision.3 #nother chief executive once said* 39ive me the worst policy I am still willing to work in

(akistan but the only assurance I need is the implementation of policy in letter and spirit. I do not want over night changes as it distorts all my plans.3 )aying that the current problem of (akistan is similar to the crisis faced by other #sian countries is incorrect. )imilarly the remedies for (akistan are different from those needed for the other #sian countries. 'he 9o( has to redefine its ob$ectives, formulate the policies accordingly and then implement these policies in letter and spirit. ,ost of the leading '&/s and ,&/s are already in operation in (akistan. Foreign investors are still ready to participate in the process of privatisation but demand even0playing field. In an era of competition between countries to attract FDI, the growing focus on policies as determinants of FDI decisions by corporations leads to a number of sticking conse!uences and challenges for governments of host countries. 'hese are* + 'he expansion of number of policies that investors view as constituting a good investment climate, + 9reater demands of the effectiveness of investment policies,

+ -mergence of new policy areas that cut across traditional policies such as those affecting the production of created assets D from special people skills to technological innovation D that '&/s are increasingly seeking,

Country
Country ?)# ?F ?.#.Gapan 7ong Fong )wit erland )audi #rabia 9ermany Forea ()outh) &orway /hina 1thers 'otal including 866.< (vt. (roceeds (rivatisation 0 <4.> %&&&' &( >6.C >;.= =.6 >.4 8.: 8.: =:.: 4=.= 8.C

ise FDI Inflo!s "# Million$:

%&&(' &% 86:.< 8;.8 64.= :.< 6.E C.< 4.8 44.6 ;.< ;.4 ;.8 C:.: <E<.C 46C.< %&&%' &) 644.= 64>.< 44>.C 4<.4 =.: 8.4 <8.= 8.C ;.6 ;.8 8.; 4C8.> C>E.; 4C:.; %&&)' &* 68E.< :<.: 48<.: 4=.4 :.8 6;=.8 C.6 C.; 4.; 4<:.: 4<.8 4;E.: ><>.; 4>E.E %&&*'&+ %&&+'&, %&&,'&- %&&-'&. %&&.'&/ %&&/'(& %&(&'(( 86=.> 4E4.= 8:C.= <=.6 86.8 48C.= 4E.< 48.4 4.< 84.< ;.< 8:>.8 =4:.C 6<<.; =C.; 6<.; 4C;.: 6CC.E 6E.: 4.: 6=6.: 4.C =64.> >48.4 E:;.4 :<.< 86.: 4C<.C 4;8.= CE.> 4.= 6=.4 C46.; 4,8;>.8 E:>.> <:;.6 =E>.6 484.6 88>.E 4:>.8 <:.6 :>.: 4.6 6C<.> 48.C 6:8.< 4CE.4 C<.8 4=:.4 66C.8 (>6.8) C:.> 6.8 4;4.4 <:E.8 6><.: 6<6.C 6:.E >.> 4C;.: =8.; 6.8 ;.< 68E.> 6;E.4 6E<.6 8.6 46=.: <C.6 64.6 C.C (<E.;) <C.< %&(('(% "0uly$ 6;.C 4;.; 6>.6 ;.E ;.C ;.8 ;.4 ;.8 ;.8 ;.; :.E 64.C >;.> ;.;

4,<6<.= ::4.=

(488.E) :.=

(4;4.<) (8.:)

4,=46.6 6,;;=.6 4,>:<.6 4,;4>.: :84.:

4,=68.> 8,=64.; =,48>.: =,<;>.E 8,C4>.> 6,4=;.E 4,=C8.: 8:8.; 4=<;.8 6::.< 488.6 ;.; ;.; ;.;

(roceeds FDI -xcluding 866.< 8=C.8 :66.; C=;.6 4,4:;.> 4,>E;.C <,EC8.6 =,6C:.: 8,C4>.> 6,4=;.E 4,=C8.: (vt. (roceeds 4C.6H decrease in FDI Including (rivatisation (roceeds as compared to Guly, 6;4;044. &ote* (akistan"s Fiscal Iear runs from 4st Guly till 8;th Gune. >;.>

Sector
Sector 1il J 9as Financial Ausiness 'extiles 'rade /onstruction (ower /hemical 'ransport

ise FDI Inflo!s "# Million$:

%&&&' &( E;.C (8<.>) <.: 48.6 46.= 8>.> 6;.8 <=.6 %&&(' &% 6:E.6 8.: 4E.= 8<.6 46.E 8:.< 4;.: 64.< 46.E ::.6 <E<.C 46C.< %&&%' &) 4E:.E 6;C.< 6:.4 8>.4 4C.: 86.E E:.4 EC.< 6<.8 >;.< C>E.; 4C:.; %&&)' &* 6;6.< 6<6.4 8=.< 8=.: 86.; (4<.6) 4=.8 E.E 664.> 4C;.4 ><>.< 4>E.E %&&*' &+ 4>8.E 6:>.< 8>.8 =6.4 <6.C C8.< =4.; 4;.: =4C.: 6C<.; %&&+' &, 846.C 86>.6 <C.; 44E.; E>.= 86;.: :6.> 4E.< %&&,' &=<=.4 >8;.8 =>.< 4C6.4 4=C.4 4>8.< <:.4 8;.6 %&&-' &. :8<.E %&&.' &/ CC=.; %&&/' (& C<;.: 4:8.; 6C.E 44C.; 4;4.: 446.4 486.; 6>4.; =E:.8 %&(&'(( =46.6 6<:.> 6=.; =8.; :;.E 8;.= 4;<.: (8<.4) <4E.> %&(('(% "0uly$ 6>.E 6.4 8.E 6.C :.= 4.8 6.4 4.; 4:.E 6<.E >;.> ;.; >;.>

4,E:<.> C;C.< 8;.4 4C=.> E>.; C;.8 C>.8 C<.6 8:.> 4::.: >8.< 48;.: C<.8 >8.6

(46;.:) 4==.E

/ommunication &# (I'J'elecom) 1thers 4<;.> 'otal including (vt. 866.< (roceeds (rivatisation (roceeds 0

4,>8C.C 4,E>E.C 4,:6:.E EC>.4 6E=.; 4,4;C.6 C:<.= C:8.<

4,=68.> 8,=64.; =,48>.: =,<;>.E 8,C4>.> 6,4=;.E 4,=C8.: 8:8.; 4,=<;.8 6::.< 488.6 ;.; ;.; ;.;

FDI -xcluding 866.< 8=C.8 :66.; C=;.: 44:;.> 4>E;.C <EC8.6 =,6C:.: 8,C4>.> 6,4=;.E 4,=C8.: (vt. (roceeds 4C.6H decrease in FDI Including (rivatisation (roceeds as compared to Guly, 6;4;044. &ote* (akistan"s Fiscal Iear runs from 4st Guly till 8;th Gune.

Reasons for Decline in Foreign investment in Pakistan:

(akistan is one of the poorest countries in the world with many of its citi ens living in poverty. 'his makes it difficult for the inhabitants of (akistan to get a good healthcare policy. 'he main problem with the (akistani economy is the instability of the government. 2ith constant changes in government and their policies it has been very difficult to either attract foreign investment or for the economy to grow internally. 'he country has made some changes to help the economy

grow in recent years the growth has been strong. ?nfortunately the growth has been accompanied by very high levels of inflation. 'his has left most (akistanis worse off than before. 'here are many challenges facing (akistan as it attempts to diversify its economy. 'he biggest is the lack of foreign investment. Due to the instability in the country very few companies are willing to invest in (akistan. 'hat makes it very difficult to do things like setting up factories for western companies which is what most developing nations do. 'here are also serious issues with infrastructure, especially with getting enough electricity to meet the needs of industry. 'he poor education system has also left (akistan with a work force that lacks the skills necessary for development. %ight now (akistan relies heavily on foreign aid as a means of keeping its economy going. In fact the two largest sources of income are foreign aid and remittances from (akistanis working abroad. 'his is not going to help the economy to grow as chances are that if anything foreign aid will decrease in the future. If the country is going to get its problems sorted out it is going to take a serious effort on the part of the government.?nfortunately (akistan"s economic problems extend beyond its lack of development. Due to the poor decisions of the government the value of the currency has been depreciating dramatically in recent years. 'his has made the countries financial troubles even worse. 'he main result has been the massive inflation. 'his is another issue that (akistan is going to have to address. It won"t be easy to solve this problem given that they rely so heavily on foreign aid and that they need to import so much of their raw materials. 'his leaves them with a very poor balance of trade and serious currency problems.(akistan has been spot as one of the potential markets for foreign investors who are shifting their business to #sian and #frican countries in a bid to capture unexplored regions with their technology, capital and money.'he )tate Aank of (akistan ()A() statistics showed 6E percent decline in Foreign Direct Investment (FDI), which stood at ?) B 4.;6E billion in Gul0,arch.-conomic -xpert said that this is high time for the government to cash in on the trends of global economy and make (akistan"s environments attractive for foreign investors with curbing the weakness in the present system. K(akistan could be platform for foreign companies if the government takes series steps to control security and ensure investors for safety of their lives and property with concrete measures,L said #meena )aiyid, (resident 1verseas Investors" /hamber of /ommerce and Industry (1I//I). K1therwise, investors will move to India, /hina and Aangladesh as alternatives market and (akistan will lose an important chance to attract huge foreign investment, transfer of technology and advanced practices in businesses,L she said.'he Foreign Direct Investment (FDI) is likely to increase if the government improves the perception of the country (which is worst than reality of the country) its political stability, governors, law and order situation and provision of utilities.)he explained the importance of (akistan in the region as growing economy of the world with lot of business opportunities in different sectors.,ultinational /ompanies (,&/s) are focusing to expand their business in (akistan with handsome investment of capital, transfer of technology and advanced business practices provided

that the government addresses their long0demanding issues seriously with consistent policies and concrete plan, she added. Foreign investors and ,&/s indicated five sunrise industry for investment including /orporate Farming, #griculture, Infrastructure, )kill Development, ,inerals and #lternative -nergy such as coal, hydel, wind and solar energyM power production. 'he electricity crisis is challenge and opportunity alike as it could magneti e huge investment in the country. In three !uarters, FDI in power sector showed <4< percent growth to increase more than >> million. )imilarly, agriculture, telecom, automobile and many other sectors can be a window of opportunity for investors and (akistan. 'here is a need to win the confidence of foreign investors in (akistan, which badly hurt owing to inconsistence attitude and abrupt ?0turn policy of the present government. 'he foreign automobile companies have invested %s 6; billion in recent years after the government made a plan with investors to flourish local industry. Aut the government has become backtrack from its commitment and allowed =0year imports of cars to stop the growth of local automobile industry, which earn huge foreign exchange for country through exports of cars and trucks. 'he telecommunication is also a sector, which attracted more than ?) B C.< billion dollar FDI landed in 6;;406;4; and generated %s :4= billion revenues and thousands of $obs, came under attack recently as minister of interior %ahman ,alik asked cellular operators to allow one )I, to an individual, which ultimately result of collapse of industry. 'he auto and telecom sectors could continue landing billion dollar investment if the government provide them confidence and level playing field through policy consistency. 'he government policy u0turn has not only cast negative impression on the investors of different sector but it also shakes the trust of foreign donors who pledge for aid to flood affected country. 'he government business friendly policy will not only improve the economic situation of the country but it will also improve common lives of the people and strengthen the democratic system and confidence of masses and investors over political parties, expert said.

Conclusion:
(akistan does not only have an enviable track record of economic growth in sixties but still it has the potential to repeat the past. It still en$oys incomparable economic fundamentals. 'he country has often come out with pro0investment policies. 7owever, the adhocisim, and poor implementation of policies D driven by pressure groups D have been distorting the system. 'he post economic sanction era is the best example of this muddle. If the country wants to achieve a

respectable position among the nations it has to put the economy in order. &o one can deny the fact that the country needs foreign investment. If the foreign investment is re!uired then (akistan has to offer conducive environment for foreign investors D comparable with other countries D soliciting the same.