Uncertainty is an evil for foreign direct investments. Political instability along with economic problems discourage foreign investors – this is a general observation in many countries the Middle East, Africa as well as South Asia particularly Pakistan. Security and law and order situation in the country in the past too has been a big deterrent in attracting foreign investment in the Pakistan. The rising political volatility in the country is definitely not a good omen for foreign investment. An even more important uncertainty that has kept investors at a distance in general has been the policy uncertainty. Whether it is the lack of diversification with all eggs in one (Chinese) basket or the lack of exuberance reflecting in Board of Investments initiative to boost FDI, policy around foreign investment in the country has come under fire many times.
Foreign direct investment in the country continues to be dull and dreary. Latest data from the central bank’s website shows that FDI in February 2022 fell by a staggering 34 percent year-on-year, whereas the month-on-month decline was 17 percent. The monthly net flows of $90.8 million as FDI in Feb-22 were the lowest since Aug-19. Monthly net FDI has been particularly been low during the last couple of months (Jan and Feb), which definitely does not bode well for already weak flows. Once could argue that the deteriorating geopolitics as well as rising political temperature inside the country have added to the number of restrictions for foreign investors.
During 8MFY22, FDI grew by 6 percent year-on-year to $1,257 million. The overall picture of country wise and sector wise investments remained the same: China remained the largest investor during 8MFY22 year-on-year, while United States remained the second largest investor. And in terms of sectoral classification, most of the foreign direct investment came in the power sector followed by financial business sector and communications sector.
Attracting FDI in the country has been a challenge for the longest time because of the country’s inherent structural and economic issues as well as the decline in investor interest either due to the security situation of the country, political instability, geopolitical volatility or global events like the pandemic. CPEC has been the only factor that has kept FDI going. Hence the story remains the same and unaddressed.
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