Investment flows slow down in February

KARACHI:

Foreign direct investment (FDI) in the country continued to fall in February, revealed data released by the State Bank of Pakistan (SBP) on Tuesday.

Total FDI inflows between July and February stood at $989.6 million, compared with $1,264.8 million during the corresponding period of the preceding year.

Foreign direct inflows to the country have been subdued in recent months, but higher portfolio investment (PI) propped up overall foreign investments. However, during February, FDI inflows tallied $42.6 million, down by a whopping 62 per cent over January, and portfolio investment fell by almost 90 per cent to a paltry $7.3 million.

In the first eight months of the current fiscal year, portfolio investment has registered net inflows of $242.1 million, compared with a net outflow of $295.3 million last year. Resultantly, cumulative investment in the country so far in FY11 has totaled $1,231.7 million, up by 27 per cent compared with $969.5 million during the same period last year.

Portfolio investment inflows posted successive improvements in recent months. Net PI stood at $37.4 million and $54.9 million in November and December 2010, respectively, and grew to $72 million in January. However, foreign investors appeared more cautious in local bourses during the previous month.

“A crisis in the Middle East started brewing around this time and seems to be getting worse,” commented InvestCap Head of Research Khurram Schehzad. “Add to this, the turmoil in Japan and you can see plenty of reasons for foreign investors to be on their toes when it comes to regional peers,” he added.

While Pakistan has not witnessed massive outflows of PI, as India, Bangladesh and other countries have, experts contend the inflow of foreign investments has slowed considerably.

The analyst also pointed out that FDI inflows are mostly attributable to recurring operational expenditures in the energy, telecommunications and banking sectors. The power sector appears to be an exceptional case, as FDI inflows to the sector have increased by 176.5 per cent to $101.3 million in July-February, compared with the same period last year.

“The country’s dire need for electricity, coupled with rising tariffs, will lead to further inflows to this sector,” commented an analyst. However, he stressed that in order to attract long-term investments, the country’s law and order situation will have to be improved.

He said that the perceived risk of investing in the country, especially for longer periods, will only improve if the political landscape remains stable and the government is able to implement much-delayed economic reforms.

Published in The Express Tribune, March 16^th, 2011.