Is eight-months FDI really up?

Business headlines in Pakistan today would likely read that FDI inflow in the country in the first eight months of current fiscal year was up 6 percent year-on-year. Some might even bemoan the depressive growth in FDI flows, and rightly so. The real story, however, lies in the gross FDI inflow, which fell a worrying 13 percent year-on-year, and the only reason overall net flows was up 6 percent was because gross outflows was down 50 percent.

A little bit of explanation is warranted here. Gross FDI inflows and outflows include cash received for investment in equity, intercompany loan, capital equipment brought in/out, equity in accounts abroad and reinvested earnings. The last item, i.e. reinvested earnings, are first recorded as an outflow and then recorded as an inflow, as per international balance-of-payment accounting standards followed by the State Bank of Pakistan.

With that definition in mind, a second look at data makes it quite certain that the fall in gross FDI outflow is not because foreign investors are reinvesting their earnings, though in the interest of clarity and transparency, the central bank would do well to release the break-up of gross inflow/outflow data on periodic basis.

Anyway, the bottomline is that both gross FDI inflows and reinvested earnings are on the decline, which smacks in the face of all the euphoria. In fact, if one subtracts the Engro group transaction, where that difficult-to-pronounce Dutch company acquired E-Foods for $446.8 million, then gross FDI inflow in 8MFY17 was actually down by 38 percent.

Inflows from China too have dropped; a whole 50 percent on net FDI basis, and 48 percent in gross terms. Why is the iron brother, the higher-than-the-stars friend not investing this year?

It is quite understandable that FDI comes in blocks transaction by transaction and therefore one cannot expect smooth monthly flows ala the portfolio flows. But somebody from the government circles should be explaining why flows from China are dwindling in the face of all the hype of CPEC related power and infrastructure projects. In the absence of explanation and disclosures provided by any relevant public office, controversies cannot help but produce like rabbits on their own.