“Pakistan is the land of opportunities”. So maintains the Overseas Chamber of Commerce and Industry. Hard data on the other hand suggests otherwise. Data released by the central bank yesterday shows that net FDI inflows more than halved in the ten-month period ending April 2019 as growth in gross outflows outpaced gross inflows. (See BR Research’s interview with President OICCI, published May 20,2019).

During 10MFY19 gross inflows dropped by $756 million, while gross outflows rose by $717 million. By definition, FDI inflows/outflows include cash received for investment in equity, intercompany loan, capital equipment brought in/out, equity in accounts abroad and reinvested earnings. For clarity sake, it is these various forms of investments that it is flowing out of Pakistan, rather than repatriation of profits as some often think.

The latest tick, however, should not come as a surprise. As early as in the first quarter, the signs of weak FDI this year were already in. (See ‘Weak FDI; weaker outlook’, October 19, 2018). The reason is quite simple: with the first phase of CPEC coming to end, Chinese and power sector investments inflows were expected to slow down. And it has, as is illustrated in the graphs.

Until such time the CPEC enters a new phase with a focus on business-to-business transactions that may drive up Chinese FDI inflows, expect total FDI inflows to take a backseat, especially considering that conventional foreign investors demand far more satisfactory environment than the Chinese.

This satisfactory environment is not only a function of ease of doing business rankings, which everyone in this country has gone potty about. It involves across the board changes in taxation and other macro affairs; power & energy; labour skills; and sector-specific policies to say the least.

For instance, how can telecom investors currently operating in the country convince their principals and others about opportunities in Pakistan when their licenses are not being renewed. (See Steep price, May 13, 2019 & Telecom licenses: indecision hurts, May 8, 2019). Or consider the fact that pharmaceutical industry remains a victim of price control saga.

Or for example, growth and investments thereof in processed dairy industry will struggle unless provincial governments draft and implement policies to replace loose milk with processed milk. Which raises the question what explicit incentives do provincial government have to attract FDI in sectors which lie squarely in their domain?

For a country that has poor capacity in public sector, and is struggling with inter-governmental coordination, that is a discussion worth having – only that obsession with ease of business rankings in public and private sector has taken up all the space.

Add to that the fact that the Board of Investment (BoI), supposed to be chaired by the PM, has not met since 2013. This suggests that attracting foreign savings in a country that has poor domestic savings is not on the agenda. Not before 2018 elections; not after. If that’s an intended move, then where are the plans to unlock and increase domestic savings and channel them into this so-called Make-in-Pakistan thesis. To date real estate remains the Panamas in Pakistan.

Five months ago, BR Research interviewed Haroon Sharif, Chairman BoI. He maintained that he does not want the BoI to be a talk shop. When asked about organizational improvements within the BoI, he said he had with him draft reports of two studies that shed light on how to improve the workings of BoI as an investment promotion agency. (See Nov 16, 2018 paper for Haroon’s interview)

Sharif was to discuss those findings with Dr Ishrat Husain, whom the Prime Minister has designated to lead the much-awaited institutional reforms (it’s been more than 9 months already), and with the Advisor to PM for Commerce and Investment before taking the matter to the Prime Minister. So far those plans to reform BoI itself have also not been made public. With this kind of performance, the state of FDI does not look good!