2014-15: FDI records 1.4% decrease in first seven months

Pharmaceutical sector shows the largest net outflow of $46.6 million.

KARACHI:

Pakistan received foreign direct investment (FDI) of $545.4 million in the first seven months of 2014-15, which is 1.4% less than the FDI received during July-January of the preceding fiscal year.

According to data released by the State Bank of Pakistan (SBP) on Tuesday, FDI decreased by $7.8 million year-on-year in July-January, as it amounted to $553.2 million in the first seven months of 2013-14.

FDI in January was only $16.3 million as opposed to the massive net flows of $106.3 million in the preceding month.



With a net FDI of negative $46.6 million in the seven-month period, the largest net outflow of FDI in July-January was recorded in the category of pharmaceutical and over-the-counter products.

Speaking to The Express Tribune, Pakistan Pharmaceutical Manufacturers Association (South Zone) Chairman Kaiser Waheed said the significant outflow of foreign investment reflects the waning confidence of multinational pharmaceutical companies in the national economy.

Prominent multinational company, Johnson and Johnson, recently wound up its operations from Pakistan and sold the company to a Pakistani pharmaceutical company for reportedly $30 million. At least four multinational pharmaceutical companies have left Pakistan for good in the last six years.

According to Waheed, foreign sponsors of multinational pharmaceutical companies operating in Pakistan would send money every year for balancing, modernisation and renovation (BMR) of their Pakistan operations in order to qualify for Current Good Manufacturing Practices – the set of guidelines prescribed by the US-based Food and Drug Administration.



That money constituted foreign direct investment, Waheed said. “But bad policies of the government are forcing multinational companies to pull out of Pakistan. Why would they invest money for BMR annually if they want to exit the market anyway?”

Drugs’ prices are regulated in Pakistan. In many cases, pharmaceutical companies cannot even incorporate the annual increase in the consumer price index into the final prices of their products.

Commenting on the recently approved drug policy, Waheed said it will wreak ‘total devastation’ on the pharmaceutical sector. “The new policy is so botched up that if a multinational planned to wind up its Pakistan operations in 10 years, it would now pack up and run away in just one year,” he said.

FDI in 2013-14 clocked up at $1.63 billion after increasing by 11.99% on an annual basis. The increase during the last fiscal year was mainly on the back of the auction of the telecom spectrum that fetched the government $610.9 million in May 2014.

Sectors of the economy other than pharmaceuticals that experienced a considerable net outflow of FDI in the first seven months of the current fiscal year were metal products ($31.9 million), information technology ($30.6 million), food ($8 million), cement ($5 million) and industrial electronics ($4.5 million).

The largest increase in FDI in July-January was in the category of oil and gas exploration, which attracted $167.1 million. However, it was 40.2% less than the foreign investment received during the same months of the preceding fiscal year when it totalled $279.5 million.

There was a net inflow of FDI amounting to $111.6 million from the telecommunications sector in July-January. In contrast, the same sector had registered a net outflow of $204.8 million of FDI during the same period of the last fiscal year.

Financial businesses attracted $68.2 million worth of FDI in July-January. However, it was down 27.2% from the corresponding seven-month period of the preceding fiscal year.

Published in The Express Tribune, February 18^th, 2015.

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