Pitching Pakistan’s economy: brokerage house AHL says country not witnessing exodus of foreign investment

Brokerage house Arif Habib Limited (AHL) has emphatically said that Pakistan is not witnessing an exodus of foreign direct investment (FDI), and instead labelled it an evolving exercise that is seeing ownership changes within companies.

In a rather detailed report released on Saturday, the AHL report – unusually authored by its senior staff (CEO Shahid Ali Habib and Director Equities Tahir Abbas) – stated that some foreign companies are being replaced by new players.

“Reality check- over the past 18 months, while 11 companies have exited or signaled their intent to exit, what really is striking, is that around 16 fresh foreign firms are in the process of taking over stakes in the local businesses,” it stated in the beginning.

“The truth? Pakistan’s foreign direct investment is not witnessing an exodus, —but it is evolving,” said AHL.

As per latest figures, FDI in Pakistan rose by 55.5% during the first two months of this fiscal year (FY25). The State Bank of Pakistan (SBP) reported that Pakistan got FDI amounting to $350.3 million during the first two months against $225.2 million in the corresponding period of last fiscal year (FY24).

Still, many in Pakistan have opined that foreign investors were looking to wrap up as high interest rates, runaway inflation and low economic growth leave little room for expanding profits. Coupled with corporate layoffs, and high taxation on the formal sectors, the negative sentiment around the economy has probably never been greater. Additionally, regular plant shutdowns and downsizing announcements have only added to concerns as Pakistan continues to hop from one bailout with the International Monetary Fund (IMF) to another.

However, AHL said the narrative of a mass corporate exodus “is not only misleading but also completely contrary to the reality of the growing interest from international investors”.

“With the government introducing reforms and the establishment of the SIFC [Special Investment Facilitation Council], the country is prepping for flows of fresh foreign investment.”

The report was also optimistic regarding the future of FDI inflows in Pakistan.

“Several global players are focusing on tapping into sectors like energy, mining, refineries, corporate farming, and exploration. As Pakistan’s macroeconomic conditions improve, we anticipate an acceleration in the inflows of foreign investments,” it said.

The brokerage house noted that with Pakistan’s population reaching 241.5 million in 2023, the surge in demand for commodities is expected to continue, drawing even more foreign companies to the market.

The report highlighted that the government’s consideration of deregulating petroleum prices “is a forward-thinking move that will empower OMCs to set their own prices, further attracting foreign investors to the vibrant local market”.

Moreover, more pharmaceutical companies are expected to enter the market instead of divesting, AHL said.

Also, with the imminent introduction of 5G in the country, “we should expect to attract further foreign investments going forward” in the technology sector.

In its report, AHL highlighted three sectors that looked set to attract investment – oil & gas, technology, and pharmaceutical – and also singled out some transactions in other sectors.