Net foreign investment flows in red

For the first time in at least a decade, annual foreign investment flows net of profit repatriation are negative. Though an alarming sign, this trend was anticipated. Even back in FY07-08 when the foreign direct investment was at peak - over $5 billion per year - fears existed that in the absence of alternate investment avenues to the saturating telecom and financial services sectors, dividend payments on FDIs could come close to inflows. But the global financial crisis and energy and security woes at home have meant an even worse outcome for the country as outflows are now surpassing inward investments. Dissecting the numbers revealed that repatriation is mainly in food, petroleum, power, transport, telecommunication and IT, and financial services sectors. These are the prime businesses in Pakistan and those at the helm of 600 plus international companies are sending money back more than investing fresh funds in Pakistan. In FY12 alone according to SBP data total repatriation of profits/ dividends crossed the billion dollar mark ($1,061mn) whereas FDIs amounted to a mere $813 million. This is resulting in a net outflow of $249 million as compared to a net inflow of $4,488 million just four years back. Isn it shocking? But, the picture is not as gloomy as it appears by these numbers. We need to recognise the fact that despite the difficult global economic conditions, uncertain politics, bleak law and order and falling energy infrastructure at home most of the foreign companies operating in Pakistan are well entrenched. According to a survey conducted by Overseas Investors Chamber of Commerce and Industry out of its 187 members, 47 percent reinvested over a billion dollars out of their retained earnings in 2011. These numbers are not quoted in any statistics released by State Bank of Pakistan or any other government departments. This billion dollar yearly retention is by 85 companies out of over 600 plus companies registered with Board of Investment. There is a need of such exercise to be conducted by SBP or Ministry of Finance and it should be obligatory on all the foreign companies to respond. These numbers shall be published along with FDI and repatriation of profits to have a clearer picture of foreign investment in Pakistan. But the story is not too rosy either. We don know the history of the profits being retained and reinvested and what we have from this snapshot survey is just about 15 percent of foreign companies being registered in Pakistan. An eminent economist who is offering consultancies to a few of the giant multinationals operating here contended that some companies have used bank credit to send hefty dividends back home. This could be one reason for 40 percent growth in repatriation during FY12.