Nothing much has changed in how the foreign direct investment has been behaving. Net FDI inflows nosedived by over 46 percent in 4MFY19 to $600 million as per the latest numbers released by the central bank, where net inflows for October 2018 were cut by more than half on a year-on-year basis.
October 2018 net FDI inflows show significant inflows from South Korea ($43.9 million), and while the SBP data does not disseminate sectoral data from each country, one cannot help notice a similar increase of foreign inflows in beverages ($47.7 million) in October 2018. FDI in beverages has been negligible in the past, and same is the case with FDI from South Korea.
Nonetheless, FDI in the country is marred with lack of diversification; it has been emphasised various times that with China Pakistan Economic Corridor, government has put all eggs in one basket; CPEC has been a hallmark for investment in infrastructure and energy sector particularly power - the illustration shows how China and power sector have been dominating foreign investment in the country. And now that many of these early harvest projects are complete or near completion, the slowdown is dragging overall FDI numbers. For the first four months of FY19, FDI from China has dwindled to half of what it was in 4MFY18, while the power sector witnessed a decline of staggering 74 percent, year-on-year.
Inadvertently or otherwise, the focus on CPEC has been accompanied by waning investment in other sectors where some sectors like telecom and financial businesses have hit saturation while others have been unable to attract foreign as well as government attention.
Some other factors have lately added to the agony. These have largely emerged under the present government. Uncertainty over the economic policy amid the lack of clarity on what the new IMF programme would entail along with depreciating currency have kept investors sitting on the fence.
At the cost of repeating, there is a serious need for diversification in what the country attracts as foreign investment. The present government is planning to shift focus to agri and export oriented areas to attract FDI. The commerce division has drafted an investment framework to attract investment in export-oriented/ manufacturing sectors that have been neglected in the past with suggestions to remove all bottlenecks hindering investments. This shift of focus is being viewed as a silver lining by some. Whether the government’s efforts and the investment policy framework are enough to invigorate foreign investment in the country, only time will tell.
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