Finance, communication sectors see highest profit outflow

KARACHI: Communication and financial business sectors have shown the highest increase in repatriation of profits and dividends in the fiscal year of 2010 (July 2009 to June 2010), according to the State Bank of Pakistan on Wednesday. These two sectors are also the ones which have been driving Pakistan’s foreign investment inflows over recent years.

Foreign investors pulled out earnings worth $106.9 million from financial businesses in the outgoing fiscal year. This was an increase of 34.6 per cent compared to the previous fiscal year. Repatriation of earnings from the communications sector also jumped to $77.2 million over the same period, an increase of 53.4 per cent when compared to fiscal year 2009.

Foreign investors repatriated a total of $775.6 million in profits and dividends from Pakistan in the fiscal year of 2010.

SBP figures revealed that the repatriated earnings from foreign portfolio investments amounted to $194.1 million while the same from Foreign Direct Investment (FDI) stood at $581.5 million. Total repatriation increased by a nominal 1.5 per cent over the fiscal year of 2009, when the cumulative outflow stood at $764 million.

During the same time, net foreign direct investment inflows were recorded at $2.205 billion, down by a significant 40 per cent compared to net inflows of $3.719 billion in the fiscal year of 2009. Experts have attributed the slowdown in foreign direct investments to a combination of factors including deteriorating law and order situation in the country, the energy crisis and continuing depreciation of the rupee.

“In the previous fiscal year, there were significant one-off investments made by China Mobile and some other companies. This helped prop up investment inflows in FY09,” said Head of Research InvestCap Khurrum Schezad.

He added that “in the outgoing fiscal year, we witnessed investors focusing more on medium-term investments through stocks, bonds and money markets. They are not as interested in long-term commitments through direct investments.”

According to experts, the rising trend of repatriation of profits from communication and financial sectors highlighted the resilience and robust growth shown by these industries.

Economist for Arif Habib Investments, Tariq Ali, explained that all the large banks had experienced double-digit growth and high profitability even as the economy slowed down and global financial institutions crumbled.

Analysts assert that the average profitability of banks increased by around 20 per cent in the outgoing fiscal year, attracting interest from foreign investors.

The food sector witnessed a 36 per cent jump in profit and dividend repatriation over last year reaching $56.9 million. Chemical industries saw repatriation of earnings rise to $49.8 million, an increase of 65 per cent over the fiscal year of 2009.

On the other hand, petroleum refining, oil and gas exploration, electronics and fertiliser sectors witnessed varying degrees of shrinkage in repatriation of profits and dividends. Analysts say that the real economy has slowed and these sectors saw the bottom line contract in the outgoing fiscal year.

Khurrum Schezad pointed out that “the alarming aspect in these numbers is that fewer foreign investors seem to be attracted to long-term investments in the country right now. We are seeing more interest in portfolio investments which is not bad but further economic and political stability are needed to attract fresh long-term investments.”

Experts agree that financial and communications sectors have provided a major impetus for growth in foreign investments till now. However, they contend that improvement in the country’s socio-political environment can help attract investments to other sectors in the future.

Published in The Express Tribune, July 22^nd, 2010.