Other countries pull out, China increases investment in Pakistan

FDI in Pakistan up 10.5% during July-May

KARACHI: Foreign direct investment (FDI) increased 10.5% in the first 11 months of 2015-16 on a year-on-year basis, according to statistics released by the State Bank of Pakistan (SBP) on Friday.

Pakistan received FDI of $1,083.6 million in July-May, which is $103.3 million higher than the FDI received in the same 11-month period of the preceding fiscal year.

With almost all countries that had traditionally invested in Pakistan now pulling out their investments, China has increased its FDI as part of the China-Pakistan Economic Corridor (CPEC).



More than half of the total FDI that Pakistan received in July-May of 2015-16 originated from China alone. FDI from China amounted to $571.2 million in the first 11 months of the fiscal year, which is up 144.2% year on year and equals 52.7% of the total FDI Pakistan received over the same period.

Statistics show the rise in the FDI from China has largely offset the decrease in direct investments from the rest of the world in the first 11 months of 2015-16.

FDI clocked up at $64.3 million in May, up 9.1% from the FDI received in the preceding month.



Although the increase in the FDI appears satisfactory in percentage terms, a closer look at statistics reveals the year-on-year growth remained “concentrated in cross-border mergers and acquisitions” for at least the first six months of the fiscal year. According to the SBP’s latest quarterly report, the FDI in greenfield projects stayed “virtually flat” in nominal terms in Jul-Dec.

The United States has traditionally been a big source of FDI, but that trend is changing now. As opposed to making fresh investments in Pakistan, they are now pulling out their money instead. US investors have pulled out $71.9 million from Pakistan in the first 11 months of 2015-16, although net inflows from the world’s largest economy amounted to $197.1 million in the same period of the last fiscal year.

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.

Other major outflows of FDI were from Saudi Arabian (-$91.6 million), Egyptian (-$41.7 million) and German (-$32.4 million) investors in July-May, SBP data shows.



The largest net outflow of FDI in July-May was recorded in petro chemicals (-$136.1 million) followed by metal products (-$53.8 million), food (-$20 million) and IT services (-$15.8 million).

China was followed by United Arab Emirates ($151 million), Hong Kong ($130.6 million) and Italy ($92.7 million) as the largest contributor to the FDI in July-May.

The largest increase in FDI in July-May was in the category of power, which attracted $532.9 million, up 194.4% from a year ago. Other sectors that attracted substantial FDI in the first 11 months of 2015-16 were oil and gas exploration ($246.6 million), telecommunications ($71.9 million) and beverages ($63.9 million).

Published in The Express Tribune, June 18^th, 2016.

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