There is more to Pakistan than just suicide bombs. Economic growth, and its distribution, is also important, and not just because economically marginalized people have a greater propensity to join up with the terrorists. Pakistan desperately needs foreign investment to overcome persistent budget and trade deficits, but flows have been hit hard by the triple threat of political instability, redoubled terrorist activity, and the world economic crisis. In the year to July 1, foreign direct investment (FDI) fell from $5.4 billion to $3.7 billion, and even the previous year’s figure is nothing to get excited about for a country with 175 million people. Nigeria, with around 150 million people and a lower per capita GDP than Pakistan, attracted $20 billion of FDI in 2008 – true, it does have oil, which Pakistan does not – and Egypt, a slightly richer country with just over 80 million people, took in $8 billion in the year to July 2009, down from $13 billion the previous year.
Political instability, armed insurrection, and attacks on foreign visitors are not powerful motivations for foreign investors to whip out their checkbooks, but Nigeria has disputed Presidential election results, widespread corruption, and armed groups with a habit of kidnapping foreign workers, while Egypt has also had questionable elections, faces tremendous uncertainty over the succession to President Mubarak, and has suffered a number of well-publicized terrorist attacks on foreign tourists. Pakistan is a more dangerous and instable place right now than either Nigeria or Egypt, but other factors also contribute to its anemic performance in attracting foreign investment.
A lot of learned books and articles have sought to explain the phenomenon, but I haven’t read many of them and even if I had I wouldn’t bore you by trying to summarize them here. But an article in yesterday’s Dawn newspaper provides some clues. The story, entitled “Officials seize, sell sugar at Rs40 a kilo” reports that Karachi city government officials have cracked down on retailers selling sugar at more than the official price of Rs40 (about 50 U.S. cents), seizing their tocks and forcing them to sell at that price. From October 1 to 18, over 100 people have been jailed and more than 400 shopkeepers have been fined. As a local colleague explained it to me, during the month of Ramadan, which ended a few weeks ago, sugar prices skyrocketed, going from around Rs38 a kilo to Rs55. Pakistanis like their tea sweet, and they drink a lot of it, so this is not a trifling matter.
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