China Pakistan Economic Corridor (CPEC) is the major driver of Foreign Direct Investment (FDI) in Pakistan and accounts for its increase by 56 percent, according to the World Investment Report (WIR) 2017. The United Nations Conference on Trade and Development (UNCTAD) WIR 2017 "investment and digital economy", states that FDI in Pakistan, pulled by China's rising investment in infrastructure related to the One Belt One Road initiative, led to FDI of $2.006 billion in 2016 as compared to $1.289 billion in 2015.
Responding to Business Recorder question, James Zhan team leader of the annual UNCTAD WIR said $2 billion is at an initial stage and this trend will continue as the first commitment of investment is about $5 billion. Zhan said, "For Pakistan investment inflows increased dramatically, significantly last year. It rose by 56 percent to over $2 billion. I think it is historically high now and is mainly because of raising Chinese investment in infrastructure. In fact that is investment in infrastructure in overall we see under the CPEC relate to One Belt One Road Initiative. So for that we see China outdoor investment is a driver".
Zhan further said Chinese investment also crowded out investment from other countries as well as domestic investment particularly SMEs. In terms of big investors, that includes for example Qatar investment under a kind of consortium to work on infrastructure with the Chinese company.
"We see that trend will continue because investment in large amount flow in installments and this is only the initial stage of $2 billion there will be more to come. Initial commitment is about $5 billion so we expect more investment to come," he added. According to WIR FDI inflows to India were largely flat at about $44.486 billion in 2016, up only one percent from $44.064 billion in 2015. Bangladesh witnessed 4 percent increase in FDI receiving $2.3 billion in 2016 compared to $2.235 billion in 2015.
The report states that South Asia is benefiting from a number of projects being implemented along the CPEC. This has resulted in a large amount of foreign investment in infrastructure industries, especially electricity generation and transport. For instance, Power Construction Corporation (China) and Al-Mirqab Capital (Qatar) have started to jointly invest in a power plant at Port Qasim, the second largest port in Pakistan. In addition, the State Power Investment Corporation (China) and the local Hub Power Company have initiated the construction of a $2 billion coal-fired plant.
Only South Asia escaped the sharp decline in FDI thanks to stable flows to India and a rise in flows to Pakistan, maintained in the report. Some projects currently under construction under the overall framework of the CPEC have also attracted a large amount of foreign investment in infrastructure, especially electricity generation and transport.
Some Russian firms are also involved in downstream projects, such as RT-Global Resources and the construction of the Karachi-Lahore gas pipeline in Pakistan, which is part of a $2 billion build-operate-transfer project to be completed by 2020.
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