Telecom sector continues to score low on the foreign direct investment (FDI) count. As per latest State Bank of Pakistan data, net FDI (inflows less outflows) for the sector stood at $24 million in the Jul-Sep quarter of FY22. That figure is an improvement on net FDI of negative $13 million in the same period last fiscal, and growth in telecom FDI also stands in contrast with Pakistan’s overall net FDI declining in the analysis period by 4 percent year-on-year to $439 million.
However, telecom net FDI this fiscal thus far is a fraction of roughly $300 million peak seen in the relevant period back in FY20. Back then, telecom FDI totaled 55 percent of Pakistan’s overall FDI; this fiscal, it accounts for just 6 percent. During the quarter under review, gross inflows in the telecom sector more than doubled over previous year to $54 million, even as outflows remained stable around $30 million.
Nonetheless, gross inflows could have been a whole lot more had the September’s spectrum auction for Next Generation Mobile Services in Pakistan managed to ensure participation from Jazz, Telenor and Zong as well (only Ufone had acquired spectrum in that auction). It’s unclear when the remaining unsold spectrum will be put on the market again. In the absence of another auction this fiscal, the telecom FDI will continue to rely on remaining proceeds on account of license renewals of those three operators.
Lack of vigor in telecom FDI is somewhat compensated by the stellar rise in foreign investment coming into Information Technology (IT) sector. The net FDI in the IT sector had surged to $64 million in Jul-Sep quarter of FY22, a six-fold increase over the same period last fiscal. The IT net FDI figure is close to three times as high as the telecom net FDI tally in the period.
During the analysis period, bulk of the IT FDI was received in the segment of ‘IT Services,’ where the $46 million net inflows were about five times as high as in the same period last fiscal. About $18 million of net inflows were recorded in the ‘software development’ segment, resulting in an eleven-fold increase over corresponding period last year.
All those foreign monies pouring into local IT ecosystem had ensured that IT net FDI accounted for 15 percent of Pakistan’s overall net FDI in the quarter. Different estimates show convergence around Pakistani startups making more than a quarter billion dollars in investment deals in 2021, a figure that is several times of what was witnessed last year. Some of that investment is coming into the country via FDI. Question is, can this momentum be sustained?