FDI dips 58% to $156.7m despite signs of recovery

Published: September 19, 2019
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PHOTO: REUTERS

PHOTO: REUTERS

KARACHI: Despite the national economy showing signs of recovery and stability, foreign investors have continued to wait for further clarity and have opted to hold back decisions on investing in new projects in Pakistan.

Foreign direct investment (FDI) dropped 58% to $156.7 million in first two months (July-August) of the current fiscal year 2019-20 compared to $376.9 million in the same period of last year, the State Bank of Pakistan (SBP) reported on Wednesday. In August 2019 alone, the FDI shrank 58% to $83.4 million compared to $197.9 million in August 2018.

“It should spark fears as foreign investors are not coming to Pakistan, though the economy is back on track of recovery and stability,” remarked Overseas Investors Chamber of Commerce and Industry (OICCI) Secretary General M Abdul Aleem while talking to The Express Tribune.

“According to the World Bank’s report, the Asian region has continued to attract most of the FDI across the world. Pakistan luckily exists in the region but has been unable to attract its due share despite having a high potential to invite new foreign investment in different sectors of the economy,” he said.

Aleem said an overvalued rupee was the major cause of concern for foreign investors in the past one to two years. However, the currency has depreciated by a massive 52% since December 2017 to Rs160.05 to the US dollar on June 30, 2019. “The rupee has remained stable since then. The central bank reported the end of uncertainty and volatility in the rupee-dollar exchange rate last week. Then why foreign investors are not coming?” he asked.

An analyst, who requested anonymity, said authorities, who remained concerned about low foreign investment, had continued to remain on the ‘wait and see’ mode. “Time has come to get rid of the wait-and-see approach and take action. They should identify areas where Pakistan wants new foreign investment and market such projects aggressively through roadshows and conferences across the world,” he said.

He questioned what the Board of Investment (BOI) in Islamabad, provincial boards and policymakers were doing these days. “What are they waiting for? Why don’t they market the projects which are in need of FDI?”

He said when Vietnam, Cambodia, Indonesia and the Philippines could attract FDI, then what was wrong with Pakistan, which had a huge potential to attract new investment. “Pakistan remains a developing economy. It still needs to launch projects in a number of sectors. For example, its railways, engineering and re-export sectors have enough potential to attract FDI,” he said.

Foreign investment in PSX

Foreign investors, however, have started returning to the Pakistan Stock Exchange (PSX) with the beginning of the new fiscal year on July 1, 2019. A massive drop in share prices may have encouraged them to invest in the stock market.

Foreign investors invested $107.3 million in the PSX in July and August 2019 compared to divestment of $129.6 million in the same period of last year.

The stock market has recorded foreign inflows after recording an outflow of over $1 billion in the past four consecutive years.

Country-wise FDI

China remained the largest investor in Pakistan. It invested $28.9 million in the two months – July-August 2019. However, the new investment was sharply lower than the $216 million it invested in the corresponding period of last year.

China has continued to invest billions of dollars in Pakistan under China-Pakistan Economic Corridor (CPEC) projects. The completion of first phase of CPEC has caused a slowdown in investment from Beijing for the time being, the analyst said.

The United Kingdom remained the second largest investor with $22.8 million compared to $65 million last year.  Malaysia, which has emerged as a new big investor in Pakistan in recent months, came at the third place with investment of $19.6 million compared to $5.1 million in the previous year.

Sector-wise FDI

Oil and gas exploration sector attracted the single largest FDIs of $21.3 million in the two months; July and August 2019 compared to $44.5 million in the same period of last year. Hydel power projects attracted $18.7 million compared to $21.2 million.

Cars manufacturers received $17.5 million in the two months compared to $19.7 million in the corresponding period last year. 

Published in The Express Tribune, September 19th, 2019.

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