©The Pakistan Development Review 48 : 4 Part II (Winter 2009) pp. 821–838 Fostering FDI in the Agriculture Sector AREEF SULEMAN * I. INTRODUCTION Irrespective of the level of sophistication and technological advancement achieved by mankind, agriculture remains the backbone of human existence and survival. Despite the benefits arising from technological progress, the corresponding higher yields and more resistant crop varieties, the basic need and fundamental problem still facing the world is food security. With approximately 65 percent of Pakistan’s population living in rural areas, and agriculture contributing approximately 20 percent to its GDP, it is clear that at the core of any sustainable development and poverty reduction strategy is the development of agriculture. 1 Gallup (1997) shows that an additional one percent increase in per capita agricultural output would result a 1.6 percent increase in the incomes of the poorest 20 percent of the population. These findings are further supported by Thirtle, et al. (2001). who on the basis of cross-country analysis, found that a 1 percent increase in agriculture yields would reduce the number of people living on less than $1 a day by 0.83 percent. In addition, the growth linkages/multiplier effects between agriculture and the rest of the economy are relatively strong with every $1 of additional farm income creating a further $0.8 non-farm income in Asia [Bell, et al. (1982); Hazell and Ramaswamy (1991)]. The multipliers are even stronger in the case of Africa where it ranges from $0.96 in Niger to $1.68 in Burkina Faso [Delgado, et al. (1998)]. The importance attributed to the agriculture sector was given further impetus in 2008, when food prices surged, and limited food supplies threatened food security in several countries, and triggered civil unrest in several others. This resulted in many countries (notably the GCC), exploring alternatives for investing in the agriculture sector. In the case of the GCC, investing in agriculture is a shift from previous self-sufficiency schemes, and is being undertaken to firstly ensure food security, and secondly to maintain price stability and reduce exposure to market volatilities in their home countries. This presents a unique opportunity for countries such as Pakistan which have under-utilised agriculture land to benefit from the potential FDI in agriculture. However, despite significant interest in FDI in the agriculture, and the desire to promote FDI in the sector, progress with investment remains minimal, and the constraints Areef Suleman <areef@isdb.org> is associated with Islamic Development Bank Jeddah, Saudi Arabia. Author’s Note: This paper is a distillation of the findings of the IDB occasional paper on “Fostering Intra-OIC FDI in the Agriculture Sector” prepared by the author. 1 IDB (2008a).