Foreign direct investment for the first six months of FY18 stands at $1,381.7 million, down by around 3 percent year-on-year. The 1HFY18 tally is not much different from 1HFY17 aggregates ($1,422) or what the country fetched in 2HFY17 ($1,310). Though the December 2017 net FDI was down by 4 percent versus November 2017, the monthly numbers broke the above $200 million chain that had continued since May 2017. The last month of the year fetched $197.4 million in net FDI, which was also 71 percent low on a year-on-year basis.
Besides this, the FDI story is the same, dictated largely by CPEC led inflows. On a country-wise basis, China continues to dominate the FDI space accounting for 70 percent of the net inflows in 1HFY18 and around 65 percent in December 2017. Only once during the six-month period did another country surpass China’s share in monthly net inflows; Malaysia invested more than $90 million in July 2017, making it the second largest contributor to net FDI in 1HFY18 with a share of around 8 percent. This goes onto show how tilted FDI inflows are in the country. One key difference in 1HFY17 was large inflows from Netherlands in the food sector (Engro deal), which affected the shares back then.
Like China, power sector continues to be the recipient of a large chunk of foreign investment. For 1HFY18, its share in total FDI was close to 40 percent, which was followed by another important sector: construction. However, in December 2017, construction fetched the largest share in FDI (40 percent). Besides power sector, other notable sectors for December 2017 were the oil and gas exploration, financial business and consumer electronics with shares in double digits.
Nonetheless, $197 million in December does not hurt the consolidation achieved in the FDI momentum built particularly since early 2017, as the monthly FDI, averages close to $200 million.
Whether the country is able to lure in $3.7 billion target announced by BOI for FY18 depends on what efforts are made not only to increase inflows but to diversify inflows in the coming months. Also, higher FDI is much needed to offset the deterioration in the current account as deteriorating BoP metrics include concerns regarding heavy reliance on CPEC led FDI flows where any adverse changes could further increase external account vulnerabilities.
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