Fetching foreign direct investment has become arduous for Pakistan, and the slithering numbers month over month are a clear evidence of that. Net FDI for FY16 was a mere 40 percent of what it was back in FY07. Expectations however, spiked with the signing of CPEC. But these expectations have materialised meagerly. Moreover, the debate over whether to quantify CPEC inflows as loans or FDI is being mulled over by the market, and now the authorities as well.
Amid declining net inflows, 1HFY17 numbers by the central bank have shown an improvement. Net FDI in 1HFY17 increased by 10 percent to over a billion dollar, year-on-year. However, this increase has been exclusively due to the inflows in December 2016 alone as net FDI in 5MFY17 was down by 45 percent year-on-year. To be precise, net FDI increased by 328 percent year-on-year in December 2016, after remaining subdued for five months consecutively.
The massive increase in December FDI inflows came from Engro Foods acquisition by the Netherlands-based Friesland Campina in December 2016. This is why Netherlands was the country with the largest share in December FDI.
Sector-wise analysis show that the food and the electronics were the two key sectors that attracted the most inflows. Where EFOODS and Friesland Campina represent the increase inflows in the food segment, a big chunk of net FDI in November 2016 in the electronics segment corresponds with inflows from Turkey, particularly in consumer household segment.
While it wont be wrong to say that investor confidence has improved over the last year with Europeans taking over EFOODS and investing in Dawlence, and Chinese buying major stakes in K Electric and Pakistan Stock Exchange, the increased in 1HFY17 FDI might be being overplayed. Inflows from China have been actually declined by 54 percent in 1HFY17, which was also the decline in the power segment. Whether CPEC transactions are loans or foreign investment, it is a complex issue - something the column will take up separately at another time.
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