As SBP puts it in its latest quarterly report, the ripple effect (decline in FDI from the pandemic) was not felt as strongly in Pakistan because FDI is mainly concentrated in long-term projects, involving government-level collaboration.
FDI in Pakistan continues to be concentrated as well as constricted. The net foreign inflows in 1HFY21 declined by 30 percent year-on-year. While the decline in net FDI during 1QFY21 was attributed to the base year effect where 1QFY20 FDI was inflated by a one-time inflow into the telecom sector to pay the GSM license renewal fees, net FDI in 2QFY21 was down by 39 percent year-on-year due to lower inflows as well as significantly higher FDI outflows. FDI in December 2020 alone was down by over 60 percent year-on-year. Country-wise, FDI is - predictably - largely coming from China. Sector wise, FDI remains concentrated in non-exporting sectors while investment in key exporting sectors, such as textiles, food, and leather products, had a tiny share in the total investment.
While in general the foreign investors globally are waiting on the sidelines amid looming uncertainty; how should governments spur activity in foreign investment? Trade and investment promotion agencies should have a clear, defined, and active role in the current environment. The goal should be to keep a tab on investors; just like remittance survey being conducted by the central bank, IPAs can survey investors to develop new strategies to reach them and mitigate their apprehensions as well as enhance lead generation.
Moreover, a renewed and adjusted focus on FDI can drive recovery from COVID-19. Recently on WEF COVID Action Platform, the President of Brazilian Trade and Investment Agency talked about how the IPA is taking the pandemic challenge. Advice coming from a key FDI destination with a population and demographics close to Pakistan can help. First, there is a need to rethink FDI; a need to think out-of-box solutions to attract investor sentiment in an already dreary and gloomy COVID-struck environment.
Second, IPAs need to hustle – something that is lacking in Pakistan; federal and provincial IPAs should work to provide on-time intelligence to policymakers, business leaders and entrepreneurs, while simultaneously maintaining and enhancing foreign investors’ confidence in our market. Third, tapping into the startup culture with IPAs connecting the entrepreneurs with potential foreign investors.
And fourth, going digital as well as upping efforts in sectors that offer opportunity in the crisis such as IT, communication, and pharmaceutical sectors. Also, as global trade fairs and road shows are off radar for some time, IPAs should work to shift and evolve to digital and virtual means.
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