EDITORIAL: State Bank of Pakistan's (SBP's) latest data reveals that foreign direct investment (FDI) plunged from 2.59 billion dollars in 2020 to 1.847 billion dollars in 2021. FDI peaked subsequent to Chinese President Xi's two-day visit to Pakistan - from 20 to 21 April 2015 - during which infrastructure projects, mostly energy, worth 46 billion dollars, were agreed under the umbrella of the China Pakistan Economic Corridor (CPEC), prompting the then Prime Minister, Nawaz Sharif, to state that the CPEC "is a catalytic project that will help us combine the geo-economic streams of our countries."
As projects under the CPEC have mostly been completed Chinese investment has naturally tapered off. Pakistan has historically and compared to regional countries, particularly India, attracted very small FDI. Today, the factors impeding FDI inflows are the onslaught of Covid-19 globally, the ongoing its fourth wave in Pakistan, uncertainty due to the Taliban takeover of Kabul, sustained political discord between the government and the opposition on nearly all matters and the continued inability to present an attractive economically feasible policy for foreign investment that rivals those on offer by other countries, developed and developing alike.
China post-2015 became the major source of more than half the annual FDI inflows into Pakistan - rising from 340.8 million dollars in 2014-15 to 1 billion dollars in 2015-16 and 1.3 billion dollars in 2017-18. The significant discrepancy between the 46 billion dollar CPEC projects and the annual FDI inflows indicates not only Pakistan's small investment absorption capacity but also the fact that the bulk of these projects were loans backed by sovereign guarantees.
It is important to note that Chinese inflows plunged to 130.8 million dollars during the first year of the Khan administration, reflecting Chinese disapproval of the statement made by some members of the PTI administration that "the previous government did a bad job negotiating with China on the CPEC - they didn't do their homework correctly and didn't negotiate correctly so they gave away a lot... Chinese companies received tax breaks, many breaks and have an undue advantage in Pakistan; this is one of the things we're looking at because it's not fair that Pakistani companies should be disadvantaged." The government later backtracked and stated that "some parts of statements on the CPEC were taken out of context."
By 2019-20, FDI rose to 844 million dollars and declined to 757.9 million dollars in 2020-21 partly due to the onslaught of the pandemic and partly due to the completion of the large infrastructure power projects under the CPEC that began in 2015 and 2016 and which accounted for the largest FDI inflows in 2015-16 of 1.15 billion dollars followed by 716 million dollars in 2016-17 and 1.179 billion dollars in 2017-18. In the first year of the Khan administration, the inflow for power sector declined to negative 323.9 million dollars as per data uploaded by the Board of Investment and thence rose again to 764 million dollars in 2020 and 906 million dollars in July-June 2021. Clearly, Chinese investment in the power sector continues in spite of surplus supply in the country.
The July 2021 data indicates a net FDI of 89.9 million dollars against 128.7 million dollars inflows in July 2020. While the July 2020 inflow is hardly significant (though the decline in percentage terms is 38.7), yet this is no doubt temporary given that the decline is mainly sourced to a fall in Chinese inflows from 44.1 million dollars in July 2020 to 6.6 million dollars in July 2021 no doubt in the aftermath of the Dasu terror attack which killed 9 Chinese engineers.
It is required to be understood that Pakistan has never presented an attractive enough package for FDI and this continues to this day. The Board of Investment's input since its establishment has been negligible with most, if not all, of the FDI inflows in recent years sourced to diplomatic efforts or one-off investment opportunity. It is time for the government to look at this important aspect in a holistic manner rather than through the prism of a board that has neither the resources nor the wherewithal to make the offers attractive enough to foreign investors.
Copyright Business Recorder, 2021
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