Wanted: FDI

With each month’s FDI data release this fiscal year, that sinking feeling sinks even further. The latest released central bank data show that FDI in the first half of FY14 fell 27 percent year on year. Net FDI inflow stood at $416 million in 1H FY14, down from $568 million in the same period of last year.
SBP data show while the gross FDI inflow was $952 million the outflow was $536 million. The big ticket sectors that saw net inflow were oil and gas exploration ($221 million), financial services ($79 million), food ($43) and tobacco ($45 million). The sectors that saw net outflow were led by an outflow of $119 million in telecom, electric machinery ($11 million) and petroleum refinery ($9 million)
The net FDI inflows are also sharply lower than what the IMF had expected earlier this year. According to the details published in Article IV consultation document, the IMF had expected $982 million by the second quarter of current fiscal year. The actual net FDI inflows, however, are only 42 percent of what the IMF had expected. This slippage reflects in an array of economic variables.
On a month-on-month basis, however, FDI is up 81 percent, which should give some hope to those looking for light at the end of the tunnel. Also cling on to the optimism that repeated delays in the auction of 3G spectrum, the auction will finally be held this fiscal year. That should not only end the streak of net outflow from telecom sector in the last two years, but also help raise at least a $1 billion in one go.
The offloading of government’s shares in a few banking and oils stocks can also raise some foreign portfolio investment. The suggestive approach is to sell 70 percent of intended secondary offering though GDRs in international market, while rest of 30 percent to be raised domestically.
In order to have sustained FDI inflows, however, the government needs to take structural measures to boost investor confidence, where governance reforms and improvement in security situation are two of the urgent things to work on.