Foreign investment into the country’s telecom sector has flipped back to a disappointing trend in FY21 so far. The good run in FY20 was an exception to the bad streak in prior years. As the government pocketed handsome gains that fiscal on account of partial payments on telecom license renewals, telecom FDI’s share had surged to 24 percent of Pakistan’s overall net FDI of $2.56 billion in FY20, based on SBP data.
That windfall is gone, and the decline is here. In the seven months ended January 2021, telecom net FDI stands at negative $24 million, as opposed to a sizable $432 million in the same period the previous year. The sector attracted about $95 million in gross inflows in 7MFY21, a sharp reduction of 82 percent year-on-year, whereas outflows also increased at a significant rate of 25 percent year-on-year to $119 million.
Given that the pandemic is not yet over and considering that the HQs abroad are cautious when it comes to pouring fresh investment into one country when the economic malaise is spread across multiple markets, it is reasonable to not harbor expectations of a major turnaround in telecom FDI during the remainder of fiscal. Not to mention some local regulatory issues continue to test investor confidence.
Arguably, the conventional four-player mobile network operator (MNO) market has lost its sheen and short of mega spectrum auctions, significant FDI cannot be roped in. However, it must be pointed out that the likes of Jazz and Telenor no longer view themselves as MNOs but as tech companies. For it is the latter where the action is and where the monetization resides in future. That’s why one sees investment from these MNOs going into digital financial services, startup ecosystem and the Fintech space.
Therefore, the market may still be there for sizable, sustainable inflows over long term, provided conditions exist. The potential of ICT industry, of which telecom services (voice and data) are the backbone, cannot be ignored by the government altogether or left to market forces alone. Pakistan faces inadequacies in a number of things including connectivity infrastructure (from fiber optics to spectrum usage) as well as affordable access (gender and regional disparity in ownership/usage of ICTs).
The government has its role cut out to bring in policies and the regulatory tools that meaningfully address such limitations. Foreign investment can follow, providing the kind of long-term capital, expertise and networks that this country needs to step up on the digital economy ladder. While some ICT-relevant programs have been launched by this government, the key is to drive active collaboration within the public sector agencies and involve the private sector in a meaningful way.