Cheers for the $21 billion investment promise from Saudi Arabia! If luck would have it, this flow of capital will add to the growing stock of $46 billion or $55 billion worth of promised CPEC inflow from China. Only that so far this year luck’s not having it.
Latest data released by the State Bank of Pakistan show that net FDI inflow in 7MFY19 is down 17.6 percent year-on-year. That from China is worse: down 28 percent. So much for the growing stock of billions of CPEC-related dollars!
But won’t inflow from Saudi Arabia turn things around? Well only if it does. Saudi investors haven’t really placed huge bet on Pakistan’s economy. Ever!
According to central bank data, total Saudi FDI flows to Pakistan since FY85 to-date (7MFY19) are a grand total of $370.5 million – yes that’s right $370.5 million. This is after accounting for the net FDI outflow of $321 million back to the kingdom since FY08 to-date. Guess what the size of Saudi FDI inflow to Pakistan was during 1985 to 1990, when Saudi Arabia had lots of love for Pakistan: Zero. FDI from all other countries during that period totaled about $910 million.
What has made Saudi Arabia changed its bets on Pakistan’s economy? It’s the CPEC amid a growing realisation that the kingdom must diversify out of oil, and therefore what might arguably be biggest game changer of the region offers hope and potential.
Only that the game is not changing. Not in FDI numbers surely, as flagged earlier. Perhaps because it is half time as CPEC phase-1 morphs into phase-2.
When BR Research interviewed Asad Umar in March 2017, he said “I am a numbers person. I don’t go by sentiment, I go by numbers”. Commenting on the CPEC, “there is not even a ripple on the still waters right now as far as investment excitement is concerned,” adding that the numbers are still anaemic even after $18 billion CPEC that are under way and that “there is no euphoria, except in a very small elite Pakistani circle.” About six months into the job himself, the same quote could be quipped back to him.
Behind the veil of Saudi-led elite euphoria, uncertainty continues to mount. If FDI is down 17 percent in 7MFY19, large scale manufacturing slid 10 percent in December 2018, taking the 6-month large scale manufacturing GDP growth to negative 1.53 percent. In other words, amid growing inflation, the economy is entering stagflation, as Dr Hafiz Pasha (Asad’s most cited economist when he was in opposition) puts it.
The cogs of economic governance are still to be oiled at a time when they actually need to be fixed and replaced. Amid delays in going to the IMF, headways such as the recent Saudi promises are only akin to driving with your brakes on. Efforts toward the fixing of the cogs are yet to be seen!