1 Introduction

Foreign Direct Investment (FDI) is any form of investment that earns interest in enterprises which function outside of the domestic territory of the investor. FDIs require a business relationship between a parent company and its foreign subsidiary. Foreign direct business relationships give rise to multinational corporations. For an investment to be regarded as an FDI, the parent firm needs to have at least 10% of the ordinary shares of its foreign affiliates. The investing firm may also qualify for an FDI if it owns voting power in a business enterprise operating in a foreign country. 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, organizational 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. The direct investment in buildings, machinery and equipment is in contrast with making a portfolio investment, which is considered an indirect investment. In recent years, given rapid growth and change in global investment patterns, the definition has been broadened to include the acquisition of a lasting management interest in a company or enterprise outside the investing firms home country. As such, it may take many forms, such as a direct acquisition of a foreign firm, construction of a facility, or investment in a joint 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 major role in the internationalization of business. Reacting to changes in technology, growing liberalization of the national regulatory framework governing investment in enterprises, and changes in capital markets profound changes have occurred in the size, scope and 1

methods of FDI. New information technology systems, decline in global communication costs have made management of foreign investments far easier than in the past. The sea change in trade and investment policies and the regulatory environment globally in the past decade, including trade policy and tariff liberalization, easing of restrictions on foreign investment and acquisition in many nations, and the deregulation and privatization of many industries, has probably been the most significant catalyst for FDIs expanded role.

1.1 Problem statement:

Causes of Decline in Foreign direct Investments in Pakistan

1.2 Objective
I have interest in import and export sector that is why My first objective is to get knowledge about why foreign direct investments are decline in our country and why foreign investors are running away from our country, secondly what are major projects and resources in Pakistan are available by which we can attract foreign investors to invest their capital in Pakistan

1.3 Significance of the Study

The study which I conducted is very beneficial for the business men and if we improve the performance of the Karachi stock exchange then it will be good for our country.

2 Review of Literature
In literature review some of well experienced scholars and economists mentioned their view about declining of foreign direct investments in Pakistan. Some of them said it is due to down turn of economy and most of them criticize on the current financial crisis like Political Instability, Terrorist attacks, power gas and water shortage, weak law and order. The share of foreign direct investment (FDI), flowing into Pakistan, is negligible when compared with the opportunities and economic fundamentals of the country. The inflow into the country is less than one per cent of the total FDI, made globally. The highest, Pakistan received, was the amount of a little over one billion US dollars in 1995-96. Since it has been experiencing a declining trend. Under the prevailing circumstances there is a need that economic mangers should take cognizance of the factors which are responsible for pushing the foreign investors away from Pakistan. As Pakistan 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 GDP growth, the country needs investment in large size industrial units. Along with this Pakistan has to attract foreign investment through privatization. Therefore, there is a need to examine the trend of flow of FDI and to redefine the investment policy of the country.

2.1 Security issue in Pakistan keeping foreign investors away A Mold - 2008 Although Pakistan is an attractive destination for business and investment international investors remain apprehensive of setting up businesses here in view of the current security situation, energy deficit and uncertain operating environment. The Netherlands Ambassador Joost Reintjes stated this while leading a delegation, which visited the Overseas Investors Chamber of Commerce and Industry on Thursday. The delegation went the chamber to get an overview of issues hampering foreign direct investment in Pakistan. In an atmosphere where besides local business foreign business is being hindered by the off-putting image of the country, the State Banks recent figures suggest a further 50 per cent decrease in FDI to just $775 million during FY10. In such an atmosphere, there is a dire need that foreign investors are taken into confidence to help revive the plummeting economy of the country. The ambassador understood the overall investment climate in Pakistan and said that Pakistan is a significant emerging market but the negative perception of the country still acts as a major deterrent to further investment. Farrukh H Khan, President OICCI, pointed out that a large number of Netherlands-based companies are currently operating in Pakistan, of which 15 are members of the OICCI. Among various issues discussed during the meeting were the Afghan Transit Trade (ATT) and the subsequent loss of revenue to the business community and the GoP. The chamber President shared that the Chamber has raised this issue on various occasions as well as in the OICCI Budget Proposals 2009 to have a quantitative ceiling for imports required for Afghanistan, as in the case with all other landlocked countries. The Proposals also stressed on the need for strict exchange control mechanisms to help curb ATT.

2.2 Pakistan opens its gates for Foreign Direct Investment in Power sector AH Khan 1999 Power shortage stricken country, Pakistan has opened its gates for Foreign Direct Investment and offers attractive package filled with incentive to the investors. The incentive package includes 100% foreign equity with no restrictions on remittance of royalty, capital, profits and dividends, technical and franchise fee. The Prime Minister while talking to an Indian delegation of one of the largest corporate business house of India, The ESSAR Group said that it welcomed investment in power generating set ups. The Prime Minister also directed the attention of International community that the besides same incentive will be open for Foreign Direct Investments in constructions, real estate, telecom, steel and electronics. The meeting of the Prime Minister with ESSAR Group was also attended by Pakistan Foreign Minister, the President and Vice President of SAARC Chamber of Commerce and Industry. 2.3 Foreign Direct Investment in Telecommunication in Pakistan N Saeed June 2001 Facts on policy reforms provided evidences that government of Pakistan is taking serious steps for the growth of Foreign Direct Investment in the country. It also witnessed that investors are given proper incentives and protection. They are considered back bone of growing economy of the country. Steps for the liberalization, privatization and deregulation of the telecom sector were specially appreciated by investors and considered as rational thinking of the current government. The liberal FDI policy by the Government of Pakistan and deregulation and privatization of the sector has triggered a wave of international acquisitions in the sector. During the last year about US $ 2 billion worth of acquisitions were made in the telecom sector. After liberation of the sector a large number of firms are found working in Pakistans telecom sector. 5

Information on the environmental factors also observed same kind of trends which are targeted toward increase in FDI in the country. Moreover, our government is very much keen to provide investment friendly environment for the investors. Solid steps of PTA as regulatory body of telecom sector and support from the government enhanced the level of confidence of foreign investors and stimulate the investment environment of the country. Due to satisfaction of the investor Pakistan enable to have 19th position out of 175 countries in securing investors. PTA has proved a conducive and investor friendly environment in the telecom sector by awarding licenses in a fair and transparent manner. All operators mostly foreign are rolling out their networks rapidly all over the country, which requires huge investments. The foreign investment has created an environment of competition in the mobile sector and the tariffs have reduced substantially with improved telecom services. Since international investors learnt it worthwhile opportunity to invest in Pakistan and especially in the telecom sector, telecom companies have invested over US $ 8 billion during the last four years in Pakistan. In 2006-07 Cellular Mobile sector has invested over US $ 2.7 billion. This sector of economy is in its boom in these days and it is generating chunk of profits for the investors and revenues for the government in the form of taxes. Pakistan Mobile industry is witnessing increasing net addition to total subscriber base for last five years. In 2006 the net addition was more than 21 million in one year showing 1.75 million average addition per month whereas in 2007 the net addition was more than 27 million increasing average addition to 2.3 million per month. Pakistan kept on relaxing investment-related policies for its telecom industry, FDI in the sector boosted up. The difference between nature of policies in early 90s and in 2000 onwards is reflected in the difference in the level of foreign direct investment in telecom, especially cellular phone, sector of Pakistan.

During 1980s, utility of telecommunication sector was globally recognized and it was considered as the pre-requisite for the economic Growth. Thus gradually in all countries 6

various telecom sector regulatory Reforms like opening of boundaries for foreign direct investment (FDI), Liberalization and privatization were introduced. Japan has low foreign direct investment in the past few decades especially in telecom sector but Now this trend has changed. Share of FDI in telecommunication sector of The country was 0.9%, 16.2% and 12.3% in 1989-97, 1998-2003 and 1989-2003 respectively. There were some restrictions on foreign capital 2.4 FDI in Pakistan Farhan Sharif (Jan 2010) Foreign direct investments in Pakistan declined by 54.6%, past seven months of the fiscal year with investments falling to only $1.18 billion, State Bank of Pakistan confirmed today. According to State Bank of Pakistan the FDI flow into the state during July to November period of this fiscal year fell by 54% but when combined with portfolio investment reported a decline was 25.6%. State Bank in an email stated, Investments have fallen to $1.18 billion from $2.59 billion a year earlier. Global funds bought $290.7 million more Pakistani stocks than they sold in the seven months, compared with net sales of $355.8 million a year ago. According to economists, although the global economic meltdown was also a reason of slow growth in FDI, the domestic shocks were major contributors in the declining trend of FDI. November was the third consecutive month in which the country posted decline in foreign direct investment. We were expecting some increase in the FDI during the current fiscal year ahead of positive economic indicators. The ongoing war in the northern areas and suicide attacks in different cities had restricted the foreign buyers from new investment in Pakistan. The State Bank of Pakistan (SBP) on has said, FDI had posted a decline of 52.2 percent during July-November period of current fiscal year. Although, some increase was

registered in portfolio investment in the first five months of current fiscal year, FDI still remained on decline. FDI reduced to $774 million during July-November of current fiscal year in last fiscal year it was $1.62 billion, depicting a decrease of 846.7 million dollars. Portfolio investment has reached to $311.3 million in July-November of fiscal year 2010. In 2009 it was 162.9 million dollars. The government expects gross domestic product will grow 3.3 percent this fiscal year. The share of foreign direct investment, flowing into Pakistan, is negligible when compared to the opportunities and economic fundamentals of the country. The FDI inflow into the country is less than one per cent of its total, made globally. Since 1996, when received highest amount, FDI in Pakistan has been experiencing a declining tren Foreign direct investment (FDI) in Pakistan is a major external source to meet obligations of resource gap, human resource development and goal achievement. The FDI has played a vital role in the economic growth of Pakistan. 2.5 Current financial crisis SBP Feb 2010 While some of the analysts hold the current financial crisis responsible for the down turn of economy, many do not agree with this. They say that the current situation is more like force majored. The fear of default came only because disbursement of funds from multilateral lenders was suspended. Once the flow resumes the situation will be averted. They also say that the lenders will not allow Pakistan to commit default because: "Pakistan has been prompt and current on all its debt serving obligations and no lender wants to penalize its customer, if it faces any problem. That is the reason that grace period for making payments has been extended." These lenders are still trying to workout a bailout package but the GoP has to come at terms. The only thing these lenders are worried about is the ability of Pakistan to meet its debt serving obligations. Therefore, they want Pakistan to agree to enhance revenue collection, expand and diversify export 8

base, make the exchange rate more realistic. Since energy sector suffers from huge interoperate debt they want GoP to rationalize tariffs of electricity and gas. Due to inefficiency of state-owned WAPDA and KESC, their privatization is being perused Apart from the IPPs muddle the other complaint of foreign investors is inconsistency in GoP policies and delaying tactics. In this regard the point of view of multinational pharmaceutical manufacturers needs immediate attention. The GoP has agreed on a formula to revise the price of 'controlled' medicines, ensuring annual price adjustment. But they were not allowed any price increase since November 1996. This has been affecting their profit margins but more importantly resulted in postponing of BMR and expansion programmers. Since the parent companies have options to invest anywhere in the world, their decisions to expand are based on the profit margins of the specific unit. Due to inconsistency of GoP policies the proposals of expansion by Pakistani operations of MNCs were not allowed by their headquarters. This on the one hand has deprived the country from potential FDI and on the other hand will cause shortage of quality medicine in the country. Some local investors complain that MNCs draws their strength because they have invested in the sectors enjoying the highest protection and some of these sectors have been insured minimum rate of return on equity by the GoP. However, one may say that the availability of these incentives does not bar local investors to enter these sectors; therefore, the MNCs should not be blamed for enjoying unprecedented incentives. They further say that textile sector had enjoyed complete protection for nearly 50 years but had failed to deliver any positive results. Therefore, availability of incentives or no incentives is not a criterion. It is the management outlook which makes a sector attractive for investment.

3.1 Research Methodology:

Quantitative Research approach is applied for this study. This is a study in which we study about the problem that why foreign directs investments are decreasing in Pakistan.

3.2 Research Design:

Methodology approach is used for conducting a research on the topic named as causes of declining in foreign direct investments in Pakistan; a questionnaire is developed for exploiting my topic and then conducted an interview with businessman, teachers and students.

3.3 Population and Sample:

Sample size of 30 people is taken for this research which includes Self Employed, students, and employees. I conduct research in Faisalabad.

3.4 Population Sample size:

Population 1- Students 2- Teacher 3- Businessman Sample size 10 10 10

3.5 Sample and Sample Method:

Sample size of 30 people is taken and picked out almost all categories of people which are related to Investments directly or indirectly.

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3.6 Research Instruments

15 close ended questions are prepared in this research projects questionnaire for conducting research.

3.7 Limitations
While making this project numerous of problems are faced like load shedding which always break the continuity and concentration while making project.

3.8 Assumptions
30 people are taken as sample size for this research, in which includes Self Employed, students, and Job persons.

3.9 Procedure and Data Collection:

In this research project mostly all the data is primary data but secondary data is also use in literature view.

3.10 Data analysis and Interpretation

In this phase the work has been done on SPSS (statistical packages social science) software for research project, By applying this software I obtained the accurate results.

4 Results
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The data is collected and results are concluded by taking the views of respondents, variables are put in to spss and got the percentage and perfect figures of the sample size which are given blow. 4.1 RESPONDENT PROFILE Occupation 30 people are chosen as sample for filling the questionnaire. 10 are students, 10 teachers and 10 are Businessman. Qualification Most of the peoples qualification is graduate and post graduate from which I collect the data and filled questionnaire of this research. 4.2 GROWTH OF FDI Focus on Investment adds According to this diagram the mostly respondents sometimes focus on Investment adds. Investment offer In the above diagram we can see that most of the respondent doesnt know that was Electricity investment offer for Pakistan or not Reason of slow growth
TABLE 4.1
Percent 70.0 13.3 16.7 100.0

Valid

yes no may be Total

It is shown that 70 % of respondent said that global economic meltdown was the reason of slow growth in FDI in Pakistan

Disadvantages of FDI 12

Most of the respondent does not think that FDI has disadvantages Infrastructure of Pakistan According to diagram 50% of respondents said that infrastructure of Pakistan may improve by increasing in FDI Markets Growth
TABLE 4.2

Valid

yes no may be Total

Percent 33.3 20.0 46.7 100.0

According to diagram near 50% of respondents said it may be helpful for marketers growth Effect of Government police As we see in above diagram that most of the respondent said that we blame government police for running away investors 4.3 EFFECTS ON FDI Increasing FDI effects on job Opportunities
TABLE 4.3

Valid

agree strongly agree disagree Total

Percent 20.0 73.3 6.7 100.0

According to the diagram most of the respondents said that it is the advantage in increasing job opportunities when FDI increases

Effect of FDI at our culture

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TABLE 4.4

Valid

agree strongly agree disagree strongly disagree Total

Percent 50.0 10.0 20.0 20.0 100.0

According to the diagram 50% of the respondent agree that foreign organization modernize our culture by increasing by investing Effect of Financial Crises Most of the respondent agrees with current financial crises is responsible for the down turn of FDI. Effect of Politically Instability FDI is too much affected by politically instability in Pakistan more then 65% people said according to the questionnaire. Effect of Wrong Government policies Table 4.5

Valid

yes largly effect yes but not too much Total

Percent 40.0 40.0 20.0 100.0

More then 40% people believe Wrong Government policies largely Effect FDI and 40% believes that it is effected and 20% people believe it is not effected on it.

4.4 DEVELOPMENT IN FDI

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Investing in Pakistan Near 3/4th of the population thinks that it is favorable investment. Investment in any other country According to the above diagram Near 3/4th of the total population are interesting in investing in out country

4.2 Findings:

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 Mostly of the people sometimes focus on Investment adds Most of the respondent doesnt know that was Electricity investment offer for Pakistan or not 70 % of Agreed that that global economic meltdown was the reason of slow growth in FDI in Pakistan 70 % of respondent said that global economic meltdown was the reason of slow growth in FDI in Pakistan Near 3/4th of the total population are interesting in investing in our country Most of the respondents conclude that it is good investment Near 3/4th of the population thinks that it is favorable investment if they invest their money in Pakistan Most of the respondent agree with current financial crises is responsible for the down turn of FDI 50% of the respondent agree that foreign organization modernize our culture by increasing by investing Most of the respondents said that it is the advantage in increasing job opportunities when FDI increases Government police are responsible for running away investors Infrastructure may improve if there is increase in FDI

5.1 Conclusion:
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Pakistan 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 enjoys incomparable economic fundamentals. The country has often come out with pro-investment policies. However, the aphorism, and poor implementation of policies driven by pressure groups have been distorting the system. The 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. No one can deny the fact that the country needs foreign investment. If the foreign investment is required then Pakistan has to offer conducive environment for foreign investors comparable with other countries soliciting the same.

5.2 Suggestions:
Government should pay attention on the problem of decreasing Increase in living standards of people Give social securities and non-commercial securities Give Incentives to Foreign Investors Improve Infrastructure to attract Foreign Investors Modernize our education sector We need to make a good image of our country to attract foreign investors

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References
www.google.com www.wikipedia.com www.altavista.com www.ask.com www.jeeves.com www.caymanMama.com

Bibliography
A Mold 2008 AH Khan 1999 N Saeed June 2001 Farhan Sharif Jan 2010 State Bank of PakistanFeb 2010

APPENDIX
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QUESTIONNAIRE

Dear participant: I am student of MBA at Riphah International University. I am interested in learning about actual cause of declining Foreign Direct Investments in Pakistan My objective is to help expand body knowledge about the importance of marketing Your views will help in completing my market research Your reply will be treated hearted and thank you very much for giving your time and co operation. I greatly appreciate your participation in this research. Cordially HINA ARSHID Name *: Age *: Gender *: Contact no: Note: Fields marked with (*) are compulsory.
A) RESPONDENT PROFILE

Date:

1. What is your qualification? Primary / Secondary Education Intermediate Graduate Post Graduate 2. What is your occupation? Student Job person Self employed
B) GROWTH OF FDI

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3. Do you focus on the investment Adds? Yes No Sometimes 4. Was Investment offer for Pakistan electricity? Yes No Maybe
5. Do you think global economic meltdown was also a reason of slow growth in FDI in Pakistan? Yes No Maybe

6. Do you think Foreign Direct Investment has disadvantages? Yes No Maybe 7. Do you think Infrastructure of Pakistan may improve by increasing in FDI? Yes No Maybe 8. Do you think FDIs are helpful for marketers growth?
Yes No May be

C) EFFECTS ON FDI 20

9. Do you blame the Government polices for running away of investors? Yes No Maybe 10. Current financial crisis is responsible for the down turn of FDI Agree Strongly agree Disagree Strongly Disagree 11. Are you agree with the statement increase in FDI is equal to increase in Job opportunities? Agree Strongly agree Disagree Strongly Disagree 12. Some foreign organizations modernize our culture by investing in our country Agree Strongly agree Disagree Strongly Disagree
D) DEVELOPMENT IN FDI

13. Suppose you are investor from any country, what will you think about investing in Pakistan? Favorable investment Unfavorable investment 14. Are you interested in investing in any other country? Yes No

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