Pakistan FDI and Portfolio Investment Term Paper

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McQueen's research in 1990 demonstrates just how little progress has been made.

McQueen noted in 1990 that, "Pakistan has had consistent growth averaging 6.7% over the last decade, placing it among the fast-growing third-world economies. Some apprehension exists regarding deterioration in the law and order situation in Sindh Province, where in recent months ethnic and politically motivated violence has claimed a number of lives and slowed industrial activity. Regionalism, ethnic violence, and political uncertainty cloud the economic outlook, but many analysts are sanguine.

Pakistan's economy continues to be dominated by agriculture and agro-based industries. Agriculture employs 50% of the labor force in Pakistan, earns (directly or indirectly) approximately 70% to GDP. Industry contributes apporximately 20% to GDP and has become increasingly important to the country's development and export potential. The public sector share in Pakistani industry has diminished over recent years, and in fiscal year 1986, accounted for less than 20% of total fixed capital formation. Pakistan's industrial growth is supported by substantial imports of raw materials, intermediate inputs, and machinery." (McQueen, 1990)

When McQueen did her research, principal U.S. exports to Pakistan were soybean oil, wheat, tallow, machinery, transportation equipment (including aircraft and parts), chemicals, and phosphatic fertilizers. (McQueen, 1990)

According to Pakistani sources, aid disbursements increased some 40% in fiscal year 1988-89 to $2,551 million. (McQueen, 199) The World Bank, IDA, Asian Development Bank, Japan, and the United States were the chief donors, as expected given the history of the era.

In fact, at the time, the United States planned to authorize several billion dollars to Pakistan in military and economic aid over the next several years. The military aid made its way to Pakistan, but very little economic aid did. This was catastrophic for Pakistan since many USAID-funded projects provide opportunities for the sale of American goods and services, while the commodity import program may be used to finance many imports from the United States.

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USAID projects are concentrated in the energy, agriculture, and social services sectors, reflecting the Government of Pakistan's development priorities.

McQueen wrote, "High tariffs and taxes, limits on technical assistance fees, and royalty payments can diminish the competitiveness of certain U.S. products, but American embassy analysts say good opportunities exist now for increased sales in the following fields: electric power generation, computers and related equipment, textile and leather machinery, scientific instruments, security and safety equipment, food processing and packaging equipment, medical machinery, oil and gas field machinery, transport equipment and pumps, valves, and compressors. There also are opportunities for service companies in project feasibility studies, energy, communications, transportation, and engineering and design services." (McQueen, 1990)

Of course, some progress was indeed made, creating room for more investment now, in the post-9/11 world.. Senior Pakistani Government officials encourage foreign direct investment and are taking steps to eliminate many bureaucratic hurdles faced by foreign investors. A Board of Investment (BOI), chaired by the President, and a Committee of Investment, headed by the Minister of Industries, must approve major projects, but are charged with speedy processing of applications. Recently, the BOI removed the approval requirement for new investments or increases in existing investments under one billion rupees ($50 million) for projects which have 50% or more foreign equity. Analysts view this as an important step toward treating foreign firms on a par with domestic ones. (McQueen, 1990)

McQueen's research leads us to the core examination of this paper, assessed in Parts One, Two and Three below: What is the scope for FDI and portfolio investment in Pakistan today, given global terrorism, the Bush-Musharraf accords and the groundwork laid, but not cemented, in the 1990s?.....

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