Invest in Pakistan? Even the most ardent foreign advocates may take a step back after watching the heart-wrenching scenes from Peshawar. Some semblance of security was returning to Pakistan following the military operation in North Waziristan. With the perception, the investment figures were slowly improving as well. The Peshawar school massacre is an isolated incident in an already-troubled region, but its horrendous scale and global coverage may add a few more percentage points to the country risk premium.
Its not as if the foreign direct investment (FDI) had somehow reached satisfactory levels. As per the latest central bank data, Pakistans net FDI (gross inflows less outflows) were $422.8 million in the five-month period ending November 2014. That translates into a 19.2 percent year-on-year growth over 5MFY14.
While the yearly growth rate seems great, there is still nothing positive to write about the 5MFY15 FDI. Yes, the gross inflows look healthy (61 % YoY growth to $1.37 billion), but the 92 percent growth in outflows (reaching $948 mn) is also alarming. At that rate, outflows will be the highest in recent years by the time FY15 closes.
Then, the FY15 FDI had been disappointing till September. Thanks to the Octobers stellar show - when net FDI increased by 346 percent year-on-year to $254 million - the FDI suddenly turned the corner and started showing positivity on the fiscal-year-to-date (FYTD) picture. Apparently, China Mobile converted the debt of its Pakistani subsidiary (CMPak, Zongs sponsor) into equity to expand the rollout of 3G+4G data services.
As highlighted last month, China (the source) and telecommunications (the sector) are weighing rather heavy on Pakistans FDI scorecard. Now in 5MFY15, 60 percent of gross inflows and 74 percent of outflows were from China. Net FDI from China during the period was $121.5 million, about 30 percent of the total and highest among the top FDI origins. That corresponds with the telecoms sectors contribution of 61 percent to gross inflows and 73 percent to outflows - giving telecom a 35 percent share in net FDI.
Was November better? Far from i! Inflows slumped by 15 percent year-on-year and outflows jumped by 20 percent. Outflows went back mostly to China and Switzerland from IT services and tobacco sectors. That negative combination - declining inflows and growing outflows - led to a massive 64 percent fall in the monthly net FDI to a paltry $20.6 million. A few more months like November and watch FYTD growth slide to low single-digits, even negative.
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