FDI: getting better

It's nowhere close to the high seen in 2007-08, but the net FDI tally may finally be turning a corner after struggling throughout this decade (see illustration). Latest figures by the State Bank of Pakistan put net FDI at $2.028 billion in the eleven months ended May 2017. That's a strong, 23 percent improvement over same period last year. With a month still left, it's turning out to be the government's best year on FDI.

The the FDI story hasn't changed much: the amelioration in net FDI in recent years has mostly been brought on by declining outflows, even as inflows have remained stagnant, failing to cross the $3 billion mark. In 11MFY17 as well, the net FDI improved so because of a sharp, 55 percent decline in outflows ($370.4 mn), whereas inflows were three percent down year-on-year to $2.398 billion.

The aggregate picture is muddled, because while declining outflows are surely a good omen, little to no growth in inflows is concerning. There are exceptions, of course, and the month of May was one of them. Gross inflows actually surged 115 percent year-on-year in May to $328 million, even as outflows declined 8 percent to $33 million. If June gives a powerful performance like that, the narrative will be encouraging.

With a 43 percent contribution to the Jul-May net FDI, China is writ large over the numbers. Gross inflows were dominated by China with a 38 percent share, followed by 20 percent for Netherlands, and 8 percent for France. At the going rate, gross inflows from China will likely cross a billion dollars by the close of FY17. Outflows were dominated by Norway (29%), United States (15%), and Germany (13%).

The sectoral breakup shows gross inflows concentrated in three sectors: power (24%), food (20%), and construction (18%). The sectors representing most of the gross outflows were telecommunications (31%), pharmaceuticals (12%), and financial business (10%).

Connecting the dots, it is clear that the FDI figures this fiscal have been dominated on the inflows side by Chinese power and construction-related investments linked to CPEC and Friesland Campina's purchase of Engro Foods, whereas on the outflows side, there was Telenor Pakistan's telecom business.

If it were not for a significant net outflow of equity investments worth $411 million, Pakistan's foreign private investment during the period under review could have been better than $1.616 billion. During the Jul-May period, issuance of debt securities - of about $1.027 billion - helped Pakistan score total foreign investment, both public and private, of $2.643 billion. That's more than double the same period last year. Let's wait see how the figures, especially gross FDI inflows, stack up in June.