It’s a season of doom for Pakistan’s overall net FDI, which fell 51 percent year-on-year – or $1.35 billion – in 9MFY19. Breaking down that decline, telecom emerges among the major sectors responsible for the fall. Net FDI in telecom sector stood at a negative $157 million in the nine-month period, underscoring a third successive year of net outflows from a prominent sector, for the relevant period under review.
To be fair to this government, the PML-N government also confronted a sizable net outflow ($242 million) in telecoms during their first nine months in power. The decline was reversed the following couple of years, a direct consequence of the then government holding the long-stalled spectrum auction for 3G and 4G licenses in April 2014. Net outflows, however, returned in FY17 and FY18, continuing into FY19.
The PTI government now has a new economic team in the offing. Telecom experts suggest that the government can reverse the telecom investment slide by taking a few administrative decisions immediately.
First, the license renewal process for telco’s must be expedited. Tossing the matter from one committee to another will only result in more uncertainty. The government, instead of viewing the renewals as a matter of making more money, should offer a reasonable renewable price. A quick decision in this regard will boost the net telecom FDI, shore up the dollar reserves and relieve fiscal deficit to some degree. Second, to cater rising spectrum demand among telecom operators, the government needs to introduce a predictable spectrum auction regime. If the unmet demand for more spectrums at fair price is met through an auction calendar, it can not only lead to sustained dollar inflows in the sector but also help in the development of the digital economy. One spectrum auction every year will receive good market response.
And third, investment can also come through “fabrication” if the government addressed underlying issues. It is time to connect every union council with fiber-optic connectivity so that broadband becomes reliable, accessible and affordable for all. Fixed-broadband leader PTCL and smaller players, however, face stubborn challenges. These include a) paying high import duties on equipment/materials needed to lay down the fiber and b) getting NOCs for right-of-way through housing societies and neighborhoods.
Of course there is more that can be done to boost telecom FDI. But one can argue that the fundamental issue facing this sector is also somehow macroeconomic in nature. The operators’ parent entities must be wary of further investing when PKR has lost about a fifth of its value in last one year, hurting their dollar returns. Therefore, the new economic team’s primary task is to stabilize the macroeconomic slide. While they are at it, positive regulatory interventions like the ones mentioned above need also be looked at.
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