Plunging FDI

Investors stay away from political and economic turmoil. And Pakistan has been in a serious one for the past eight months. So hoping that the investment activity will pick up during these precarious times hasn’t turned out well. Pakistan’s removal from FATF grey list, and reaching the IMF agreement earlier too have not been able to revive investor sentiment for Pakistan. And it’s not that Pakistan was a hotspot for foreign investors before these last 8-9 months; FDI has mostly been a challenge for the country

In the first four months of FY23, foreign direct investment was just around $348 million, which is 52 percent less during than they were in the similar period of FY22. Net FDI during 4MFY22 amounted to $726.5 million. During the four months of FY23, FDI inflows were $514.5 million against outflow of $166.2 million. During October alone, net FDI wasn’t even $100 million, down by 62 percent year-on-year. On a month-on-month basis, FDI was up 13 percent in October-22 – a sign that that September FDI was even lower.

Unlike the previous years where FDI from China under CPEC continued to increase despite trivial growth in overall FDI stats, FDI from China has also been following for some time. During 4MFY23, FDI from China fell by 27 percent year-on-year. Non-China FDI has been led by UAE in recent months with a growth of 28 percent in 4MFY23 and a share of 13 percent in total FDI – close to 14.5 percent share of China in net FDI in 4MFY23.

Sectors that have been attracting FDI most include the power sector, oil and gas and financial businesses – highlighting not only the lack of diversification but also limited foreign inflows. However, FDI in the oil and gas sector and communications sector also fell too significantly during the July-October FY23 period.