Volatile exchange rate, delay in the finalisation of IMF program and weaknesses at the fiscal and external front have all contributed to the already deteriorating foreign investment in the country marred by lack of diversification and lack of aggressive policy stance. Hence, the result was a whopping 50 percent year-on-year slide in net foreign direct investment for FY19 that stood at $1.737 billion.
Data from the central bank shows that the overall decline in FDI for FY19 was led by sliding net inflows from China in sector like power and construction as CPEC concludes its first phase of aggressive power and infrastructure investment. Not only the inflows from China have been shrinking (down by 47% YoY in FY19), outflows have risen sharply as well (up by five times in FY19 YoY). The latest SBP quarterly report highlights that the increase in outflows from China have been due to the repayment of an intercompany loan of around $530 million by a power entity to its parent company in October 2018.
The central bank also points out the significant outflows from the telecommunication sector dragging the overall FDI as telecom firms operating in Pakistan made principal loan repayments to their parent companies abroad.
The current government has been claiming to pinning its focus on export oriented and manufacturing segments for attracting FDI. A streak of hope comes from the growth seen in the manufacturing sector FDI. Sectors classified as per GDP classification (agriculture, industrial, and services) show that the foreign investment manufacturing sector that includes all large and small scale manufacturing segments doubled in FY19 versus FY18. This broader manufacturing sector has thus contributed to around 46 percent of net FDI in FY19
The SBP quarterly report highlights that sectors like chemicals, beverages and automobiles have been on the investors’ radar during the period under review; whereas it can be seen from the data that some recovery also took place in textile and pharmaceutical inflows. Whether these are due to some concerted government efforts or just one time events, one will have to wait and see how FY20 unfolds in terms of FDI. Foreign investment in the country needs policy focus. Though the government is now apparently focusing on export led and import substitution sectors and special economic zones under CPEC for attracting FDI, the much needed aggressiveness is still missing.
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