What should one make out of 9 percent increase in net foreign direct investment in the four months ending October 2020? The short answer is that the story hasn’t changed, even as the numbers have.
With CPEC activities slowing since 2018, FDI flows in construction sector has eased, whereas near-term saturation financial and telecom sectors as slowed the pace of inflows in these sectors as well. The story of oil and gas exploration is also well known; hard areas of exploration in a hard country requires very lucrative margins to attract investors, and those margins aren’t yet on the table.
Little wonder then, that 17 out of 36 economic groups the central bank classifies its FDI data in saw a year-on-year fall in 4MFY21, whereas another 15 sectors saw an inflow of less ten million dollars, which is peanuts. And with the ongoing pandemic across the world, the FDI outlook this fiscal year doesn’t look very pretty either.
What then should be the government’s strategy? Well at the risk of repetition, there is an urgent need to shift away from economic-package mindset to policy-reform mindset, for which deregulation and emphasis on policy reforms across the value chain and competitiveness is critical. It is not enough to give subsidized inputs when linkages between the value chain and drivers of competitiveness are weak. To that end, the government has done precious little so far.
Second, move fast towards digitization, internet, 3D printing and other facets of technology. As Tania Aidrus former advisor to PM, recently said: internet is as much a human right as is food and shelter. For businesses, that is an even stronger maxim.
Lastly of course, create linkages with private sector and appease and facilitate local investors instead ignoring them whilst wooing FDI, where in face of pandemic, it is critical for investment promotion agencies (IPAs) to focus on investor retention rather than just investor attraction. To that end, provincial board of investments will also have to pull up their socks, in line with the realities of devolution and international trends toward location-specific IPAs, which will require them to build teams of sector specialists for sector-wise pitching to clients.