FDI sees modest growth

The SBP has released FDI statistics for June 2017, and net FDI for FY17 grew by a not-so-encouraging 4.58 percent year-on-year. Recall that the net FDI had soared by a much-impressive 23 percent year-on-year in 11MFY17. Therein came an SBP notification, aimed at enhancing the coverage of offshore foreign currency account transactions related to energy and power transaction. For simplicity, consider CPEC related flows.

So the revised numbers give a much modest reading of net FDI. The revisions carry greater impact on FY16 numbers, with an upward revision of $337.6 million from the 11MFY16 numbers. The revision in the corresponding number for FY17 stands at $184 million. Hence, a much lesser percentage change in net FDI year-on-year.

It is worth mentioning that the revised FDI inflows had crossed $3.15 billion in FY16, only to be spoiled by heavy outflows. The authorities must feel relieved that the outflows have considerably reduced in FY17, or else the FDI ship would have gone into another direction.

As expected, major changes have been witnessed in the FDI flows from China, which currently accounts for 49 percent of the total (46% in FY16). In absolute terms, the yearly net Chinese FDI has crossed the billion dollar mark. Only that, it had already breached the billion dollar bar in FY16, as per the revised numbers. Even on revised basis, the growth in Chinese FDI is healthy at 11 percent.

Bigger contributions in terms of growth came in from Netherlands and Turkey, but they may well prove to be one-offs. Whether it is fast becoming a case of all eggs in one basket or not is left for another day to debate, the fact remains that FDI from China will have to be central to sustainability of FDI in Pakistan.

In terms of sectoral share, no marks for guessing that power grabs the lion’s share at one-third of the pie. Much to the surprise though, it has fallen from half of the total FDI in FY16. Major acquisition in the food sector gave it the second spot with a one-fifth share. The usual CEPC suspect, construction, comes in next with one-fifth share too, having grown a massive ten times over last year. It remains to be seen if any political change in Islamabad, alters the sectoral share, especially that in construction.

All this while, the once biggest FDI attraction; oil and gas exploration sector has been slipping off the radar rather unnoticed. The sector’s FDI dropped by 92 percent year-on-year, and it share almost halved in the same period. For all the investment going into the power sector, it seems an inflated import bill for fuel sources is next in reckoning.