The needle on FDI is not moving; the latest monthly FDI data by the central bank's shows nothing jovial. Net foreign direct investment in August 2021 dropped by 10 percent year-on-year, while the same was seen falling by 20 percent in the first two months of FY22 as the country attracted $203 million. Small, trivial and shrinking is the trend in the FDI flows to Pakistan.
This is not a recent trend. With the exception of a few periods, Pakistan has failed to attract FDI, and what SDPI’s recent paper calls efficiency seeking FDI. The paper describes efficiency seeking FDI as foreign direct investment that flows into a country because of its labour market competitiveness.
From the efficiency seeking perspective, Pakistan has failed miserably. FDI in Pakistan has been concentrated in only a few sectors throughout: oil and gas exploration and production, power, telecom and financial business have been the most common and consistent sectors for attracting majority foreign investments, while other sectors have just been ticking the box for minimal contribution.
The data and the illustrations in the research paper also show that FDI in the country has been concentrated in a few periods and in few sectors such as power and telecommunication, not significantly due to the labour productivity but because of the strategic decisions of the investor countries.
This argument actually explains why FDI in Pakistan has been dwindling except for a few periods (1994-1998 IPP period and 2004-2010 telecom period) as efficiency seeking FDI allows for technology transfers, boosts in research and development, improvement in export diversification, upgradation of economic processes and growth of technology intensive industries in the host country - certainly not as byproducts of FDI in Pakistan.
So, what is needed maybe is the change of perspective - how the government and the policy makers look at FDI. There is a need to target efficiency seeking FDI as the paper suggests. There is a need to differentiate between efficiency seeking FDI and other types of FDI; inability to do so is probably why even after saying that the government is focusing on export oriented FDI, numbers fail to show any progress.