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The disappointing run in the telecommunications industry’s foreign direct investment (FDI) continues. Latest data from the central bank show that the industry’s net FDI (inflows fewer outflows) was at a negative $51 million in the half-year that ended December 31, 2022, compared to $70 million in net FDI in the same period of the last fiscal. For four out of six recent half-yearly periods, net FDI has been in the red.

In the current unprecedented economic times, the telco’s investment scorecard showing a large decline is not completely out of the blue, as other economic sectors are also struggling to show strength. Pakistan’s net FDI in all sectors (excluding telecoms) during 1HFY23 stood at $512 million, down by 54 percent year-on-year. Overall, the country attracted about $654 million less in net FDI than it did in 1HFY22.

However, in the telco’s case, the investment slump has pre-dated the current macroeconomic crisis as well as the Covid-19 pandemic. Except for a major frequency spectrum auction (which itself has been an occasional exercise based on fiscal imperatives rather than sectoral development) that helps the government to ripe in the big dollars from the foreign sponsors of mobile network operators (MNOs), net FDI has remained weak in recent years.

In the current operating environment, it is becoming harder for MNOs to even sustain their operations. Eroding purchasing power is impacting growth in users’ communication spending. Profit margins are squeezed due to high energy prices and growing reliance on expensive backup power during outages. Amid import restrictions, it hasn’t been easy to import necessary telecom machinery and energy backup equipment. Sponsor returns are taking a hit due to weaker PKR and apparent delays in profit repatriation.

With operating cash flows tight, fresh investments are under increasing scrutiny, impacting net FDI. The latest financial results of leading MNOs show that capital expenditures have been down by double digits. The 4G network expansion has been impacted by challenges not only from the operating side but from the financing side as well due to the prohibitive cost of borrowing both locally and abroad. This has implications for the digital divide, as just about half the population has access to high-speed mobile broadband.

In the remainder of FY23, prospects of a revival in net FDI are very low(in an ‘organic’ sense). The only thing that can resuscitate inflows in the short term is a big spectrum auction. But considering the sectoral challenges and overall economic situation, the odds of MNOs’ participation seem low. Besides, 2023 is the year of electoral transition in the country, which means that a new government is more likely to hold a billion-dollar auction than the politically-weak incumbents. Until then, telecom FDI may keep painting red.


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