FDI in 4MFY24

The country attracted half a billion in foreign direct investment during the first 4 months of FY24 (4MFY24), a growth of 7.1 percent year-on-year. The SBP data shows that net FDI stood at $524.7 million during the period. The SBP data shows that FDI in October was flattish – growing by 1.4 percent year-on-year. And on a month-on-month basis FDI in October declined by 29 percent.

Foreign investment climate remains weak despite the recent growth in net FDI. Not only is the political environment not conducive at all for foreign investors, but the continuing structural challenges like the ease of doing business, transaction costs, taxes, complex regulatory policy, import/export restrictions and other trade barriers, will not let FDI to pick up in the country. The recent signing of a staff-level pact with the IMF may offer some respite. And the establishment of the Special Investment Facilitation Council (SIFC) has been portrayed an integral part of the investment revival plan. However, a recent report by PRIME highlights that it SIFC might fall short of its objective of attracting significant investment due to the involvement of the military in economic matters.

China remains the largest contributor to the FDI in the country, with FDI coming mostly in the power sector. It’s imperative to increase the share of contributing countries in FDI. However, in this turmoil time - when investors worldwide are sitting on the fence not only because of the ongoing geo-political issues and wars in the world but also because of weak economy and political instability in Pakistan – the window of opportunity has emerged with FDI from China. Even though China’s investment climate has been bleak in recent times – especially the inbound FDI in China – the outbound FDI has hit a record high with greenfield investment paving way into new markets. Sectors that are leading in Chinese investment for greenfield projects abroad are renewable energy and electric vehicles. Pakistan attracts most of the FDI form China in the power sector. And in the current realm of ongoing events, going into the renewable sector could help the country spur some growth in foreign investments.