FDI – stagnant, diminutive and confined

FDI blues continue as every consecutive month posts an even dreary picture of foreign direct investment pouring into the country. The latest data from the State Bank of Pakistan shows that January 2021 was another such month; net FDI in Jan-2021 stood at $257 million, down by 12 percent year-on-year. With January’s net flows, net FDI in 7MFY21 stood at $1145, which is a 27 percent year-on-year decline.

FDI performance in the first seven months of FY21 is nothing to write home about. There is no other key foreign investor than China/Hong Kong – or maybe a couple of European countries like Norway and Netherlands. And there are no new investment pouring in any new and rising sectors. Sino-led FDI was concentrated in the power sector, and the sector accounted for 42 percent of net FDI. Other conventional sectors like communication saw its share in total FDI decline from 28 percent in 7MFY20 to only 1 percent in 7MFY21.

And Chinese FDI is also evaporating gradually as CPEC projects inch finish line; net FDI from China declined by 18 percent in 7MFY21 with significant outflows. Non-Sino FDI, which was around 56 percent of total net FDI in 7MFY21 is also falling, registering a 33 percent decline in the seven-month period due to falling inflows.

This has been a trend for long – long enough to say that FDI in Pakistan remains stagnant, diminutive and confined – and nothing close to what the Board of Investment (BOI) declares as priority sectors: food and beverages, auto and auto parts, information technology and IT-enabled services, logistics and value-added textiles.

The situation has become even more precarious with COVID-19 melting away foreign investor interest in general. UNCTAD’s recent Investment Trends Monitor highlights that the uncertainty about the pandemic’s evolution and the global investment policy environment will continue to affect FDI flows in 2021 with major concerns for developing countries.

Much more effort is required today to fix the state of affairs as far as FDI is concerned – maybe a focused strategy such as that of PRI in boosting remittances or maybe revamping and reorganizing investment promotion agencies at both federal and provincial level. A couple of opportunities might be on the horizon that could help revive some international interest such as the revival of IMF programme that would lift economic outlook; or the vaccination drive to COVID-19. And there are also some key efforts by the central bank such as the changes to the investment abroad regime, which gives a positive signal to international investors about the country’s drive to facilitate foreign investment in the country. However, maybe it’s time to revisit the investment policy holistically to start seeing some improvements.