FDI – slight improvement?

Where sources of dollar inflow such as remittances, loans and exports have grown or remained stable over the past several months, foreign direct investment has been insignificant. FY22 started off rather poorly for FDI where the first four month of the year continued to show a decline year-on-year.

However, the recent data form the central bank highlights a month-on-month as well a year-on-year increase in net FDI. Net FDI for December 2021 stood higher by 29 percent year-on-year, and 61 percent month-on-month. Net FDI in 1HFY22 increased by 20 percent year-on-year, where total FDI inflows during the first half as per SBP’s recent data were actually down by over 7 percent year-on-year and FDI outflows lower by 42 percent year-on-year.

The rise in FDI in 1HFY22 was much needed but continues to be insufficient. Lower inflows and higher outflows have described the general FDI trend in the country with reliance on limited sectors and countries. While COVID pandemic did jeopardize the growth in foreign investments across the globe, Pakistan has had its own set of challenges that continue to hamper investor sentiment and foreign direct investment activity.

These factors as highlighted many times in this space have resulted in FDI in limited sectors from limited countries. Reliance on China as part of CPEC can be seen in most of the foreign direct investment coming from China where its share too has started to fall as projects touch completion. As expected, much of the growth in FDI came from China directed towards the power sector projects under CPEC. During 1HFY22, China was the biggest foreign investor followed by Norway, US and Hong Kong. In terms of sector, majority of FDI was in power sector followed by the financial business and communication.

So the story remians the same. From the officical data, it can be seen that FDI in the country continued to be concentrated in the traditional sectors; and its too early to celebrate the slight improvement in numbers witnessed in 1HFY22 as corresponding period was bogged down by the challenges at home as well as the pandemic.