A Foreign direct investment (FDI) is a controlling ownership in a

business enterprise in one country by an entity based in

another country.

Foreign direct investment (FDI) is a measure of foreign ownership of productive assets, such as factories, mines and

land. Increasing foreign investment can be used as one

measure of growing economic globalization. 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

prov ide a source of new technologies, capital, processes, products, organizational technologies and management skills,

and as such can prov ide 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 firm’s 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 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 priv itazation of many industries, has probably been been the most significant catalyst for FDI’s expanded role.

Why is FDI important for any consideration of going global?

The simple answer is that making a direct foreign investment

allows companies to accomplish several tasks:

1. Avoiding foreign government pressure for local

production.

2. Circumventing trade barriers, hidden and otherwise.

3. Making the move from domestic export sales to a locally-

based national sales office.

4. Capability to increase total production capacity.

5. Opportunities for co-production, joint ventures with local partners, joint marketing arrangements, licensing, etc;

WHO CAN BE A FOREIGN INVESTOR?

A foreign direct investor may be classified in any sector of the

economy and could be any one of the following:

1. An individual;

2. A group of related individuals;

3. An incorporated or unincorporated entity; 4. A public company or private company;

5. A group of related enterprises; 6. A government body;

7. An estate (law), t rust or other societal organisat ion; or

8. Any combination of the above.

Foreign direct investment (FDI) in Pakistan increased by

17.9 percent to $606.3 million during the first eight months of the

current fiscal year, according to figures released by the State

Bank of Pakistan (SBP) on Friday.

FDI inflows stood at $514.2 million during the same period

of last fiscal. FDI has been on the decline since 2008 in the

wake of security concerns, weak law and order situation and

energy and power outages in the country. And while the

increase in the pace of FDI inflows is reasonable, the volumes

the country received during July-February FY14 are far from

satisfactory, economists say.

Between July 2013 and February 2014, overseas investment by businesses declined by 11 percent to $1.262

billion against $1.418 billion in the corresponding period last

year. Similarly, outflow was recorded at $656.2 million in the

period under rev iew against $904.4 million for the same period

in the prev ious fiscal, revealed SBP data.

The oil and gas exploration sector emerged as the biggest

recipient of FDI with $296.2 million, followed by the financial

sector with $102.8 million in the July-February period in FY14. Foreign investment in food, chemical and tobacco and

cigarette sectors was recorded at $75.1 million, $71.6 million

and $55.5 million, respectively.

FDI stood at $79.2 million in February 2014 against outflow of $14

million in the corresponding month of the last year. The numbers on foreign investment showed that portfolio investment fell drast ically from

$169.9 million for the July-January period in FY13 to $54 million over the same period in the current fiscal – a drop of over 68.2 percent .

Total foreign investment for the first seven months of the current fiscal was up 6.5 percent to $724.6 million against $680.4 million for the

same period in the previous fiscal.

Year Greenfield

Investment

Privatisation

Proceeds Total FDI

Private

Portfolio Investment

2001-02 357 128 485 -10

2002-03 622 176 798 22

2003-04 750 199 949 -28

2004-05 1,161 363 1,524.00 153

2005-06 1,981 1,540 3,521.00 351

2006-07 4,873.20 266 5,139.60 1,820

2007-08 5,019.60 133.2 5,152.80 19.3

2008-09 3,719.90 - 3,179.90 -510.3

Jul-Mar-10 1,553.9 - 1,553.9 378.6

Total 20,037.60 2,805.20 22,303.2

Foreign Investment inflows in Pakistan($Millions)

Country Wise FDI Inflows ($ Million)

Country 2007-08 2008-09 2009-10 2010-11 2011-12

2012-13

2013-14

(July-

Apr)

USA 1,309.3 869.9 468.3 238.1 227.7 223.0 185.5

UK 460.2 263.4 294.6 207.1 205.8 632.3 93.9

U.A.E 589.2 178.1 242.7 284.2 36.6 19.9 2.5

Japan 131.2 74.3 26.8 3.2 29.7 30.7 13.8

Hong Kong 339.8 156.1 9.9 125.6 80.3 242.6 199.0

Switzerland 169.3 227.3 170.6 110.5 127.1 149.0 193.4

Saudi Arabia 46.2 (92.3) (133.8) 6.5 (79.9) 3.2 (38.2)

Germany 69.6 76.9 53.0 21.2 27.2 5.0 (2.4)

Korea (South) 1.2 2.3 2.3 7.7 25.4 25.8 23.4

Norway 274.9 101.1 0.4 (48.0) (275.0) (258.4) (32.9)

China 13.7 (101.4) (3.6) 47.4 126.1 90.6 (20.3)

Others 2,005.2 1,964.2 1,019.6 631.3 289.7 283.6 133.2

Total including Pvt. Proceeds

5,409.8 3,719.9 2,150.8 1,634.8 820.7 1447.3 750.9

Privat isat ion

Proceeds 133.2 0.0 0.0 0.0 0.0 0.0 0.0

FDI Excluding Pvt. Proceeds

5,276.6 3,719.9 2,150.8 1,634.8 820.7 1447.3 750.9

12.9% decrease in Net FDI in 2013-2014 (July-Apr) as compared to 2012-

2013 (July-Apr). Note: Pakistan’s Fiscal Year runs from 1st July t ill 30th June. The figures in

brackets are in negative.

Sector Wise FDI Inflows ($ Million)

Sectors 2007-08

2008-09

2009-10

2010-11 2011-12

2012-13

2013-

14 (July-

Apr)

Oil & Gas 634.8 .0 .6 .2 .4 .6 394.0

Financial

Business 1,864.9 707.4 163.0 310.1 64.4 314.2 130.8

Textiles 30.1 36.9 27.8 25.3/td> 29.8 10.0 0.7

Trade 175.9 166.6 117.0 53.0 25.3 5.7 (10.4)

Construction 89.0 93.4 101.6 61.1 72.1 46.0 20.6

Power 70.3 130.6 (120.6) 155.8 (84.9) 28.4 26.1

Chemical 79.3 74.3 112.1 30.5 96.3 71.6 81.9

Transport 74.2 93.2 132.0 104.6 18.7 44.1 (6.5)

Communication (IT&Telecom)

1,626.8 879.1 291.0 (34.1) (312.6) (385.7) (132.9)

Others 764.5 763.4 586.3 416.3 282.6 872.6 123.8

Total including Pvt.

Proceeds 5,409.8 3,719.9 2,150.8 1,634.8 820.7 1447.3 750.9

Privatisation Proceeds

133.2 0.0 0.0 0.0 0.0 0.0 0.0

FDI Excluding

Pv t. Proceeds 5,276.6 3,719.9 2,150.8 1,634.8 820.7 1447.3 750.9

12.9% decrease in Net FDI in 2013-2014 (July-Apr) as

compared to 2012-13 (July-Apr).

Note: Pakistan’s Fiscal Year runs from 1st July till 30th June.

The figures in brackets are in negative.

Sources:

http://masoodandmasood.com/foreign-direct-investment-fdi-pakistan-law-lawyer-consultant-help/

http://www.going-

global.com/articles/understanding_foreign_direct_investment.htm

http://boi.gov.pk/ForeignInvestmentinPakistan.aspx