FDI recovers to $131 million in Feb
Foreign investment in various sectors of the economy, including energy, telecom, and financial sectors, amounted to $131 million in February, reaching a cumulative $821 million in the first eight months of the current fiscal year 2023-24.
According to the State Bank of Pakistan’s (SBP) data, foreign direct investment (FDI) had unexpectedly turned negative at $173 million in the previous month of January 2024.
This marked a 16% improvement from $113 million in February 2023.
The fresh inflow of external investment remains significantly low compared to the country’s true potential. However, the return of political and economic stability has provided the authorities with the opportunity to address flaws in the investment landscape and enable foreign investors to embark on new projects in Pakistan.
Speaking to The Express Tribune, M Abdul Aleem, Secretary General of the Overseas Investors Chamber of Commerce and Industry (OICCI), highlighted that the volume of FDI inflows has remained significantly lower than 1% of GDP.
“Pakistan has the potential to attract FDIs of at least 3% of GDP considering its growing population and economy,” he reiterated.
Aleem noted that the latest FDI inflows suggest foreign investors have mainly allocated funds to sustain existing projects rather than initiating new ones. He pointed out that the cumulative inflows of $821 million over eight months could be invested by a single investor in a single project if provided with a conducive environment.
He stressed that Pakistan has achieved political and economic stability after a prolonged period, with the rupee-dollar exchange rate remaining stable for several months. “This is an opportune time for policymakers and authorities to collaborate with local and foreign investors and foster an investment-friendly culture in the country.”
“Consistency in policies is key to attracting foreign investment, as abrupt changes often render investment projects infeasible,” Aleem added.
He suggested that Pakistan should learn from China’s approach to foreign investment. China, the world’s second-largest economy, responded to a slowdown in FDI inflows by formulating a new strategy to attract more foreign investment.
Read PM directs steps to attract FDI
Aleem recalled a recent policy statement by the new finance minister, Muhammad Aurangzeb, expressing the government’s desire to attract new FDIs in the export sector to reduce reliance on foreign loans and achieve sustainable economic growth in the medium to long term.
He urged authorities to proactively promote projects in the export sector to foreign investors, stating that a wait-and-see approach is no longer effective.
According to central bank data, FDIs in the first eight months decreased by 17% to $821 million compared to $990 million in the same period last year.
During this period, Hong Kong emerged as the largest foreign investor in Pakistan, investing $235 million, followed by the United Kingdom with $164 million.
China’s net investment of $80 million in the eight months slipped to the third position among top investors in FY24, down from $472 million in the same period last year (FY23).
The power sector attracted the largest investment of $249 million in the eight months of FY24, followed by the oil and gas exploration sector with $151 million. The financial sector received $125 million, while the petroleum refining sector secured $59 million in FDI during the eight months.
IT exports up 32%
Pakistan recorded monthly IT exports of $257 million, up 32% in February 2024 compared to the same month last year, according to Topline Research.
“The monthly IT exports in February 2024 exceed the last 12-month average of $233 million,” remarked Sunny Kumar, Head of Research at the firm.
The surge in IT exports is attributed to the relaxation of the permissible retention limit by the SBP, which increased it from 35% to 50% in Exporters’ Specialised Foreign Currency Accounts, along with a stable Pakistani currency, encouraging IT companies to repatriate their foreign income and deposit it in local accounts.
However, exports declined by 3% in February 2024 compared to the previous month of January. “The decline is attributed to fewer working days, with 19 days in February 2024 compared to 23 in January 2024.”
In the first eight months of FY24, IT exports reached $2 billion, up 15% compared to $1.7 billion recorded in the same period last year.
In a recent interview with a private TV channel, the newly appointed Finance Minister, Muhammad Aurangzeb, expressed optimism that IT exports are likely to reach $3.5 billion this year.
Shortly after the Sharif-led government took office, the prime minister convened a meeting focused on fully utilising the country’s potential for IT exports, directing the ministry to submit a comprehensive roadmap to boost IT exports.
Published in The Express Tribune, March 21st, 2024.
Like Business on Facebook, follow @TribuneBiz on Twitter to stay informed and join in the conversation.