FDI falls 30% to $1.3b during Jul-Feb FY21

Investment dropped as investors were undecided about fresh plans amid Covid-19

KARACHI:

Foreign investment in different sectors of Pakistan’s economy like power, telecoms and financial dropped 30% to $1.30 billion in the first eight months (Jul-Feb) of current fiscal year as global investors were largely undecided about their new investment plans amid the Covid-19 pandemic.

Foreign direct investment (FDI) in Pakistan had stood at $1.85 billion in the same period of previous fiscal year, the State Bank of Pakistan (SBP) reported on Wednesday.

China was the largest foreign investor while power, electrical machinery and financial business sectors attracted major investments.

“FDI inflows are low, but are not very low considering global investors have continued to make investment during the current testing times,” Overseas Investors Chamber of Commerce and Industry (OICCI) Secretary-General M Abdul Aleem said while talking to The Express Tribune.

FDI remained stable-to-positive in the period under review, “if we remove the one-time inflow into the telecom sector last year”. “Had the pandemic not struck the world, the investment (FDI) flows would have been encouraging,” he stated.

Pakistan has a huge potential to attract FDI in several sectors. “Pakistan has the potential to receive FDI equivalent to 3% of gross domestic product (GDP) compared to around 1% aat present,” Aleem said. In February 2021 alone, FDI dropped 55% to $155.1 million compared to $277.5 million in the same month of last year, according to the central bank.

An official, who works in close coordination with global investors, said on condition of anonymity that Pakistan was well-positioned to attract foreign investment in export sectors like readymade garments. However, the pandemic put such plans on the back burner.

“I are receiving inquiries for new (foreign) investment in fast-moving consumer goods (FMCG), hospitality industry and services sector these days,” he pointed out.

Global investors are gradually recovering and reorganising following the pandemic shock. At the same time, according to the official, Pakistan is required to market its potential projects worldwide in order to attract investors to new sectors.

He added that the authorities concerned were required to bring consistency to policymaking to attract FDI.

“The government is again ready to introduce changes to the tax laws to increase revenue collection. Continued changes in policies make foreign investors confused while deciding on future investment plans.”

The central bank in January said the Covid-19 pandemic had forced foreign investors to hold back major investment decisions for emerging economies like Pakistan. Foreign investment was already low in the pre-Covid period due to the global economic slowdown.

According to the State Bank, even before the pandemic, the investment outlook was already weak, in the wake of slowing global growth, falling commodity prices and rising protectionism. The pandemic shock aggravated the foreign investment prospects, it said.

FDI in Pakistan is confined to a few non-export-oriented sectors such as power, construction, financial business, oil and gas exploration, electrical machinery and telecommunications.

In the first quarter (Jul-Sept) of FY21, these sectors attracted around 90% of the total FDI in the country, while investment in the key export sectors, such as textile, food and leather products, had a very little share in total investment.

“This suggests the need to continue promoting foreign investment in export-oriented sectors to further boost overall exports,” said the central bank.

Country-wise FDI

China was the largest foreign investor in Pakistan. It poured a net $493.9 million in the first eight months of FY21, followed by the Netherlands, which invested a net $117.8 million. Hong Kong invested $106.3 million.

China, Norway, Malta and Hong Kong had emerged as the top foreign investors during the same eight-month period last year. They invested $654.8 million, $288.5 million, $148.2 million and $134.3 million.

Sector-wise FDI

The power sector attracted the biggest net investment of $536.7 million in Jul-Feb FY21, followed by the financial sector, which received $196.9 million.

The oil and gas exploration sector registered net investment of $142 million during the eight-month period under review.

 

Published in The Express Tribune, March 18^th, 2021.

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