FDI soars to 11-month high in Sept

Surge reflects revival of global investor confidence in Pakistan’s economy

Salman Siddiqui October 19, 2021


Net foreign direct investment in Pakistan jumped to an 11-month high at $236 million in September 2021, reflecting a revival of confidence among long-term global investors in the national economy.

The investment primarily entered IT and telecommunication, power, oil and gas exploration, and financial sectors.

Surprisingly, multinational companies (MNCs) from the United States made the largest investment of $68.7 million in different sectors of Pakistan’s economy in September despite some deterioration in diplomatic ties between Islamabad and Washington following the end of the US-led war in Afghanistan.

The Netherlands, the UAE, Hong Kong, China, and the UK were other notable investors in Pakistan during the month of September, according to central bank data.

Foreign investors are aggressively pouring money into Pakistani startups and the IT and telecommunication sector owing to improved infrastructure in the digital ecosystem.

“This part of foreign investment is reflected in the overall FDI,” BMA Capital Executive Director Saad Hashmey said while talking to The Express Tribune.

FDI increased 16% to $236 million in September 2021 compared to $202.8 million in the same month of last year, according to the State Bank of Pakistan (SBP).

The latest inflows were the “highest monthly FDI after October 2020 when foreign investment stood at $293 million,” Arif Habib Limited Head of Research Tahir Abbas said in brief comments.

Foreign investors made improved investments in September, which helped the country to achieve its quarterly (Jul-Sept) target.

“Global investors had avoided making such investment in the first two months of the quarter keeping in view the expected depreciation of the rupee against the dollar,” an expert said on condition of anonymity.

“They, however, injected the remaining amount, set aside for the quarter, in September,” he said.

“Stability of the rupee against the US dollar and other major currencies is a must to attract foreign investment to different sectors of the economy,” he said.

Cumulative FDI inflows in the first three months (Jul-Sept) of the current fiscal year 2021-22 were recorded at $439.1 million, which was 4%, or $18.5 million, lower compared to $457.6 million in the same period of last year.

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“Pakistan is expected to attract FDI worth $1.5-2 billion in the fiscal year 2021-22 keeping in view the revival of economic activities,” Hashmey said.

“Pakistan has a huge potential to attract foreign investment given that it is the sixth-largest country in the world by population and many sectors of the economy still remain untapped.”

The expert, who spoke on the condition of anonymity, termed it a good omen that global investors were making notable investments in the country despite volatility in the rupee and overheating of the domestic economy. “This depicts that global investors are bullish on Pakistan’s economy,” he said.

Following a fresh drop of Rs1.6 (or almost 1%) in the local currency against the US dollar on Monday, the Pakistani rupee has depreciated by a substantial Rs20.51 (or 13.46%) in the past five months to a record low of Rs172.78 compared to the 22-month high value of Rs152.27 achieved in May 2021.

Experts said that despite massive depreciation in rupee and high inflation reading, the country will still achieve an economic growth target of 4.8% in FY22.

Sector-wise FDI

The financial sector received the single largest investment worth $61.4 million in September followed by the power sector which secured $45.2 million.

The communication sector (IT and telecommunication) received $42.4 million. The oil and gas exploration sector attracted FDI worth $28.1 million in September.

The four sectors also secured a huge chunk of total FDI received in the first quarter (Jul-Sept) of the current fiscal year 2021-22.

Country-wise FDI

The Netherlands emerged as the second-largest investor in Pakistan as it injected a net $65.7 million during the month. UAE invested $33 million in the month while China invested a net $23 million and Hong Kong invested $16.2 million in the month.

Published in The Express Tribune, October 19th, 2021.

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