FDI falls 14.6% as inflows from China slow down

FDI from China declined 75.8% year-on-year, total FDI in July amounts to $64.3m

KARACHI: Foreign direct investment (FDI) in Pakistan clocked up at $64.3 million in July, down 14.6% from FDI received in the first month of the preceding fiscal year.

Statistics released by the State Bank of Pakistan (SBP) on Tuesday show inflows from China slowed down substantially in the first month of 2016-17.



China became the principal foreign direct investor in the last fiscal year, with a net inflow of almost $600 million in 2015-16. As a result, FDI in Pakistan surged 38.8% year on year to $1.28 billion in 2015-16, with China contributing almost half of the inflows under the much-celebrated China-Pakistan Economic Corridor (CPEC).

But inflows from China hit a snag last month with net inflows amounting to $12.9 million, which constitutes about one-fifth of the total FDI received in July.

FDI from China declined 75.8% in July on a year-on-year basis, SBP data shows.

With the exception of the last fiscal year that witnessed increased inflows from China as part of the CPEC, Pakistan has faced low levels of foreign investment in recent years. The SBP has called an increase in FDI ‘imperative’ for the sustainability of the economy’s external sector.



For example, FDI had amounted to $709.3 million in 2014-15, which was 58.2% less than the net inflows recorded in the preceding fiscal year. Unlike the last fiscal year when China invested most heavily, the largest contributor to FDI in 2014-15 was the United States ($238.7 million).

According to the SBP’s latest quarterly report, China has emerged as a dominant investor because of its interest in power projects.

Chinese companies have been interested in coal-based thermal generation, as it entails low unit cost compared to furnace oil and high-speed diesel, the SBP said. “Excluding power, FDI inflows into the country have declined,” it noted.

The United States, which has traditionally been a big source of FDI, pulled out $65.5 million from Pakistan in 2015-16. But there was a net inflow of $5.7 million in July, which was still 88.6% less than FDI received in the same month of the preceding fiscal year.

On a month-on-month basis, the drop in FDI was far more pronounced in July: net inflows recorded a decline of 67.4% over June, SBP data shows. However, the drop appears to be the outcome of a one-off major inflow of $138.5 million in the telecommunications sector in June.



 

SBP data does not name companies that have received foreign investment. But a separate sheet revealed the same amount of investment in June had originated from Norway, which is the home country of the parent company of Telenor Pakistan.

Major contributors to FDI in July were Norway ($20 million), China ($12.9 million) United Arab Emirates ($11.9 million), United Kingdom ($9 million) and the United States ($5.7 million). Saudi Arabia pulled out $10.6 million in July, SBP data shows.

Major sectors of the economy that received FDI in July were telecommunications ($19.4 million), financial businesses ($10.2 million), power ($8.6 million) and oil and gas exploration ($7.2 million).

Published in The Express Tribune, August 17^th, 2016.

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