Decline in FDI

FDI clocked at $64.3 million in July, down 14.6 per cent received in the first month of the preceding fiscal year

We have never been able to make Pakistan an attractive destination for foreign direct investment (FDI). What has come our way over the last several years has remained insignificant — mostly in telecom and oil and gas exploration — and that too was more than neutralised by repatriation of profits causing net outflows. The FDI that went into financing consumer goods industries and into simple fabrication of medical products for common diseases, too, could hardly make any difference to the domestic economic wellbeing or to its export potential. So, when last year China offered to invest as much as $46 billion to set up the CPEC and followed up immediately with an investment of $600 million dollars scaling up the FDI for the year to over $1.2 billion, it was assumed that the country was about to herald the advent of a game changer. That is why the sudden decline in the FDI inflows from China in July this year, the first month of the new fiscal year, should be regarded as a warning sign. The inflows from China seem to have 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 in Pakistan clocked at $64.3 million in July, down 14.6 per cent received in the first month of the preceding fiscal year. Statistics released by the State Bank of Pakistan (SBP) show inflows from China slowed down substantially in the first month of 2016-17. The government needs to look into the matter closely and remove the hurdles in the way of the game changer. FDI allows the transfer of technology — particularly in the form of new varieties of capital inputs — that cannot be achieved through financial investments or trade in goods and services. FDI can also promote competition in the domestic input market. Recipients of FDI often gain employee training in the course of operating the new businesses, which contributes to human capital development in the host country. Pakistan cannot afford to ignore the recent fall in FDI inflows.

Published in The Express Tribune, August 21^st, 2016.

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