FDI flow turns negative in March

Investment drops $30m as political instability plays on minds of investors

KARACHI:

The multinational companies (MNCs) in Pakistan pulled out some of the investment in March mainly from the telecommunication sector as telecom companies, with their headquarters in China and Norway, made some payments to their parent companies from Islamabad.

Besides, majority of MNCs working in multiple sectors of the economy in Pakistan held their investment decisions during the month amid political instability and return of volatility in rupee-dollar exchange rate, Alpha Beta Core (ABC) CEO Khurram Schehzad said while talking to The Express Tribune.

Foreigners pulled out a net $30 million on account of foreign direct investment (FDI) in March compared to a net inflow of $173.4 million in the same month of the previous year, according to State Bank of Pakistan’s (SBP) data.

The telecommunication sector alone recorded a net outflow of $173.5 million in March, as China and Norway were the two major countries which partially withdrew the investment from Pakistan, the data suggests.

The outflow was partially offset by inflows that entered diverse sectors including financial (mostly banks) and power segments as Switzerland, United Arab Emirates (UAE) and United States (US) made small routine investments in Pakistan during the month under review.

The flow of FDI turned negative after a gap of 16 months in March 2022. FDI outflow in Pakistan was last recorded in November 2020, of $26.5 million, amid Covid-19 pandemic.

A telecom industry official opined that the mobile phone service providers had paid “dividend” to the international owners.

Another industry official, however, contradicted the opinion and said that the companies were not making enough profit to enable them to distribute it among owners. “We are reinvesting the profit in Pakistan,” he said.

Cumulatively in the first nine months (July-March) of the current fiscal year 2022, the flow of FDI decreased 2% (or $26 million) to $1.28 billion compared to $1.31 billion in the same period of the last year.

Schehzad did not allot high importance to the outflow in the single month. “The amount of outflow is little ($30 million). This (the outflow) is part of usual businesses.”

Foreign investors are expected to resume flow of required working capital on monthly basis in a couple of months following the return of political stability after the new political set up assumed office in the country.

The investors may observe for a couple of months as to how the new government would overcome the energy crisis, stabilizse rupee-dollar parity and resume the International Monetary Fund (IMF) loan programme worth $6 billion in near future.

“The government’s policy decisions would guide foreign investors to pour investment accordingly,” he said.

Initially, major sectors of the economy like oil and gas, power, banks and telecom may continue to attract FDI. Later on, the policy decisions would guide investors to invest in new sectors. Startups have emerged as new sectors of the economy that have been attracting foreign investment for the past several quarters, he said.

“The country may attract a total of $1.5-1.6 billion FDI in the ongoing fiscal year 2022,” he estimated, and added the country is having high potential to attract $3-4 billion a year.

Country-wise FDI

Norway and China emerged as the top two countries that withdrew foreign investment from Pakistan in March.

Norway pulled out a net $71.1 million, while China withdrew a net $39.7 million.

On the other hand, Switzerland invested a net $12.9 million, UAE poured $12.3 million, while US injected a net $10.9 million in the month under review.

Cumulatively in the first nine months of FY22, China remained the single largest investor with net inflow of $333.5 million. It was followed by US which invested a net $183.1 million. Hong Kong invested net $133 million in the nine-months.

Sector-wise FDI

Telecommunication sector alone recorded a net outflow of $173.5 million in March.

However, financial sectors attracted a net FDI worth $23.3 million in the months. Power sector received net investment worth $77.8 million.

In the nine months, power sector attracted the single largest investment of $489.1 million. Financial sector received $322.8 million in net. While oil and gas exploration firms received net $179.7 million in the nine-months.

Published in The Express Tribune, April 20^th, 2022.

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