FDI –down she goes!

For foreign direct investment, there is nothing to write home about – for a long time now. Every month since the last peak in FY16, net inflows have remained weak and low. After yet another somber year in FY21 – net FDI inflow in July-21 was infinitesimal at only $89.9 million and posted a decline of 30 and 57 percent year-on year and month-on-month, respectively.

Improvement in key macro-economic indicators has not been matched by any improvement in FDI. Unfortunately, despite its significance that is acknowledged time and again by the current government, FDI is treated like a stepchild which is denied sustenance and discipline. Despite claims of friendly investor policies being announced or in the offing, FDI in Pakistan has remained adamantly short.

CPEC – the catalyst for FDI in the country - has not been able to invigorate the interest of foreign investors. Despite being the largest investment that the country has attracted, FDI during the first phase of the project that peaked in FY16 and FY17 was still short of FDI levels achieved during the period FY06-09. While part of this has to do with loans – and not pure FDI backed nature of the CPEC projects, some of it has also been due to weak uptake capacity of foreign direct investment in the country. Back in those days when FDI touched $5 billion, FDI from China was not prominent but was much more diverse with largest share held by UK, USA, and UAE.

The lackadaisical pace of FDI in the country has been a much older phenomenon due to indigenous factors. Not only has there been a decline in annual FDI flows, FDI stocks are also decreasing over the last five years falling from $42 billion to $36 billion in five years till 2020. One reason for fall in FDI recently is the thinning of FDI from China in the last couple of years as early harvest projects were completed. Then there has been a lack of will and effort by the board of investment and other responsible authorities. Covid-19 further added to the decline in line with falling global investments. And the prospects are unfortunately not optimistic either especially with the instability in Afghanistan – a glimpse of which can be seen in July’s little FDI flows. Investment from China under CPEC is much needed during the ongoing precarious times, which too could have been impacted temporarily by the recent increase in insurgent attacks on Chinese workers – net FDI from China was only $6.6 million in July-2021.