FDI falls to 12-month low

The foreign investment flow to Pakistan slowed down to a 12-month low at $112.3 million in August 2020 mainly due to subdued economic activities and recession in many European countries, which were a rich source of investment into Pakistan.

“Many European countries, including Spain, France and the UK, are facing a second wave of Covid-19 with the reopening of their economies,” Arif Habib Limited Head of Research Tahir Abbas said while talking to The Express Tribune.

Foreign direct investment (FDI) remained significantly low in Pakistan in August 2020 compared to an average of over $200 million a month in the previous fiscal year ended June 30, 2020.

The investment, however, was 24% higher compared to $90.9 million in August last year, according to the State Bank of Pakistan (SBP).

Cumulatively, in the first two months (July-August) of current fiscal year, FDI stood at $226.7 million, up 40% compared to $162 million in the corresponding period of last year. FDI inflow had stood low in the first two months (July-August) of previous fiscal year as multinational companies (MNCs) put their investment decisions on hold in the backdrop of a prolonged delay in reaching an agreement between Pakistan and the International Monetary Fund (IMF) for a bailout package.

Abbas said Pakistan had apparently controlled Covid-19 as economic activities and economic indicators were gradually returning to normality. The government is making efforts to attract more FDI but much depends on conditions in foreign countries.

“The government of Prime Minister Imran Khan is making efforts to attract FDI, mainly in housing and construction sector, as it wants to fulfill its pre-election promise of constructing five million low-cost housing units,” he added.

However, much depends on investing companies and countries as they are currently struggling to tackle the virus.

“Covid-19 situation may become clear in Europe in the next three to six months. Control over the disease will enable them to first stabilise themselves and later develop their investment strategy,” he said.

Country-wise FDI

Norway emerged as the largest investor in Pakistan in August 2020. It invested $45 million in the month, followed by the Netherlands at $21.3 million. Malta invested $18.5 million, according to central bank data.

China, which had remained the biggest investor for quite a long time due to its projects in the country under the multibillion-dollar China-Pakistan Economic Corridor (CPEC), withdrew a net $20.5 million in August 2020.

Cumulatively in July-August 2020, Norway, the Netherlands and Malta were the top three investors in Pakistan with net FDI of $45 million, $39.6 million and $37 million respectively.

Last year, Malta, the UK and Malaysia were the top three investors in the corresponding period.

Sector-wise FDI

Financial businesses attracted the largest net FDI of $61.5 million in August 2020, followed by oil and gas exploration sector at $17.3 million. The telecommunication sector received $15.6 million in the month, according to the SBP.

Financial businesses were also the largest recipient of FDI at a net $85.4 million in the first two months (July-August) of current fiscal year. They were followed by electronic machinery and oil and gas exploration sectors, which attracted $36.5 million and $34.3 million respectively.

Telecommunication, oil and gas exploration and power sectors were the top three beneficiaries of FDI in the first two months of previous fiscal year.

Published in The Express Tribune, September 18^th, 2020.

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