Foreign firms’ profit outflow higher than incoming FDI

Amounts to $817.1m; $170m more than inflow of FDI received over the same period

KARACHI:

Repatriation of profits on foreign direct investment (FDI) outpaced the net inflow of FDI in the first seven months of 2015-16, according to the State Bank of Pakistan (SBP).

The repatriation of profits by companies operating in Pakistan to their stakeholders based in foreign countries amounted to $817.1 million in Jul-Jan, which is almost $170 million more than the inflow of FDI ($647.9 million) the country received over the same period.



Pakistan allows 100% foreign ownership of businesses and unrestricted repatriation of profits to encourage investment in the country. The repatriation of profits can be in the form of either dividends or liquidation of foreign holding.

Profit repatriation on FDI increased 16.2% year-on-year in Jul-Jan, SBP data shows. In contrast, FDI registered growth of 4.5% over the same period.

In January alone, repatriations on FDI amounted to $76.7 million as opposed to FDI inflows of $23.9 million.



In 2014-15, profit repatriations on FDI amounted to $1.3 billion, up 30.6% from the repatriation of a little over $1 billion recorded in 2013-14. Pakistan received FDI of $709.3 million in 2014-15, which was 58.2% less than the FDI received in the preceding fiscal year.

Among major sectors of the economy, financial businesses repatriated the largest amount to their stakeholders in foreign countries in July-Jan. With the payment of $169.6 million profits in July-Jan, the year-on-year increase in the repatriated amount for financial businesses was 32%.

The thermal sector’s share in the repatriated profits on FDI during the first seven months of 2015-16 was $123.9 million, which was almost double (up 96%) from the corresponding figure recorded at the end of the comparable period of 2014-15.

The repatriated profits on FDI in the telecommunication sector remained $93.6 million, down 40% from the profit repatriation during the same period in the preceding fiscal year.



Repatriations from the oil and gas exploration sector in July-Jan were $63.2 million, up 62.5% from the comparable period of 2014-15 when they totalled $38.9 million.

Other sectors that recorded relatively substantial repatriations in July-Jan were food ($75.6 million), petroleum refining ($45.8 million), beverages ($45.2 million) and transport equipment ($42.4 million).

As for repatriation of profits on foreign portfolio investment (FPI), as much as $241.1 million left Pakistan during the first seven months of 2015-16, up 57.9% from the repatriations on FPI ($152.7 million) in the same period of the preceding fiscal year.

The notable increase in the repatriations on FPI is reflective of a global trend. International investors have been pulling their money out of emerging and frontier markets, which results in increased repatriations of profits. While sovereign funds belonging to Gulf nations pulled out money to bridge their deficits in the wake of declining oil prices, independent funds shifted their focus away to the United States where rising interest rates promised higher returns.

Published in The Express Tribune, March 13^th, 2016.

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