Profit repatriation by foreign firms drops 35% to $1.35b

Foreigners investing in transport, chemical and tourism sectors manage to send back higher profits

Foreign firms and individual investors repatriated profits amounting to $1.35 billion to their headquarters and homeland in fiscal year ended June 30, 2020, according to Pakistan’s central bank.

The outflow from the country was 35% lower compared to the $1.83 billion repatriated in the prior fiscal year, the State Bank of Pakistan (SBP) reported.

However, the foreigners, who invested in transport, chemical and tourism sectors, managed to send back comparatively higher profits in FY20 compared to the prior year.

“A significant depreciation of the rupee against the US dollar (especially since the Covid-19 outbreak in late February in Pakistan) has partly caused the drop in repatriation in FY20,” Alpha Beta Core CEO Khurram Schehzad said while talking to The Express Tribune.

Apart from that, low earnings due to Covid-19 and slowdown in domestic economic activities before the pandemic prevented investors from repatriating higher profits, he said.

Multinational companies (MNCs) earned profit on long-term investments in different sectors of the economy like power projects, fast moving consumer goods, textile manufacturing, banks, chemicals and various other manufacturing sectors.

Similarly, foreign asset management companies, foreign funds and foreign individual investors made profit through receipt of dividends from listed companies at the Pakistan Stock Exchange (PSX) and appreciation in share prices at the bourse.

Another factor behind low repatriation may be that the investors opted to reinvest the profit in Pakistan instead of sending it to their headquarters.

“The probability of this, however, remained low as the domestic economy was in a stabilisation phase before the coronavirus outbreak. Secondly, the (Pakistan Tehreek-e-Insaf) government was a new administration and investors took time to observe how the government was functioning,” Schehzad said.

Fiscal year 2019-20, however, proved to be better as the repatriation of $1.35 billion was lower than the foreign direct investment (FDI) of $2.56 billion made in Pakistan in the year under review.

In the prior year (FY19), the repatriation came in at $1.83 billion, which was higher than FDI inflows of $1.36 billion in the year, according to the central bank.

Industry officials usually criticise the government for its failure to attract higher foreign investment by fixing relevant laws, making the investment process simple and facilitating investors through the provision of land for factories and utility connections in the agreed timeframe.

FY20 was, however, the fifth consecutive year in which foreign investors were net sellers of shares at the PSX.

Sector-wise repatriation

Contrary to the overall low repatriation, MNCs which invested in the transport sector repatriated 237% higher profit at $176.1 million in FY20 compared to $52.2 million in FY19.

Transport firms like Uber and Careem had aggressively grown in Pakistan before the global health crisis erupted. Besides, Airlift and SWVL (app-based mass transport companies) were also on the rise in the country before the crisis emerged.

“They may have been the ones who repatriated higher profits,” Schehzad said.

Chemical sector investors repatriated $124.4 million compared to $121.8 million. The nominal growth may have been achieved on the back of a notable growth in paints and fertiliser manufacturing industries, where foreign firms made significant investments, he said.

Investors from tourism sector dispatched $10.2 million in FY20 compared to $9.3 million in FY19.

Oil and gas exploration firms managed to repatriate the single largest profit among others at $250.6 million in the year compared to $258.5 million in the prior year.

Financial business dispatched $238.8 million compared to $273.3 million. Transport emerged as the third largest profit repatriating sector in the year.

Communication sector dispatched $154.4 million compared to $309.7 million.

Country-wise repatriation

Firms and individual investors belonging to the United Kingdom dispatched the single largest profit of $282 million in the year compared to $364.5 million in the prior year.

This was followed by the firms belonging to the United States as they dispatched $192.7 million compared to $316.7 million.

Companies from Hong Kong repatriated $147.1 million in FY20 compared to $92.3 million in FY19.

China which made the single largest foreign direct investment (FDI) in Pakistan in the under review year repatriated profit worth $111.6 million compared to $87.1 million in FY19.

Published in The Express Tribune, July 30^th, 2020.

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