On Telecom FDI

In an arguably tough year for foreign investment, can telco’s help? Just last fiscal, the operators had provided roughly quarter of total net foreign direct investment (net FDI: inflows minus outflows). The investment into the sector soared from a net disinvestment of $78 million in FY19 to a significant net investment of $623 million in FY20, as per SBP data. But things have not started on a good note this fiscal for the sector, which has a direct bearing on how the country’s overall FDI numbers look.

For the three months ended September 30, 2020, net FDI in the telecom sector had come in at $26 million, a precipitous drop from $299 million seen in the Jul-Sep quarter last year. While the country’s overall FDI has also gone down in this period by 24 percent year-on-year, the decline in telecom FDI is very significant, at 91 percent year-on-year.

As a result, telecom FDI’s share in the country’s net FDI for the Jul-Sep period dropped to 6 percent, compared to 55 percent in the same period last year. The sector’s paltry net FDI in the quarter owes both to a 79 percent drop in FDI inflows and a 58 percent increase in outflows. This double whammy is worrying as the sector’s investment trends in early months of a fiscal are rarely bucked in ensuing months.

It must be recalled that FY20 was a great year for telecom FDI, in that the foreign investment in last fiscal alone was more than double the value of combined investment in the previous five fiscals. However, the big bump, despite the coronavirus pandemic’s impact on inflows, owed mainly to the government’s success in eking out partial payments (50%) for license renewals from operators Jazz (Warid), Telenor and Zong. Some of the demanded renewal fees came in as FDI, mostly from Norway, Telenor’s home.

Since the remaining installments for the license renewal saga are lower in value, as they are divided into five annual portions, don't expect the FDI to get a boost on this count this fiscal, or the next. Telco’s have paid up, despite protest and litigation, so that they could continue their business operations and protect investments that have already been made over the past decade and a half.

This government, just like the ones before it, has taken a revenue-centric approach and affected prospects of fresh investments that could go into mobile-broadband network expansion and other emerging avenues within the ICT sector such as Fintech. There has to be a realization that selling spectrum at a fair, reasonable price can magnify investment prospects in real economy, and tax revenues, along with it. Focus on long-term socioeconomic gains, or it will kill the goose that lays the golden egg.

Going forward, the government has to take seriously ICT development, without which initiatives like Digital Pakistan and E-commerce Policy will wither on the vine. At the very basic level, a review must be commissioned to assess investment needs in making ICT infrastructure resilient in times of crises and disruptions. The ICT sector played their part in keeping digital networks up and running during lockdowns, but the government was missing in action when it came to incentivizing this critical economic pillar.