Like other uncertainties in the country, the investment climate in Pakistan is always volatile. This is the very reason why the country has never been able to come close to the widely narrated and assumed potential – both in terms of local and foreign investment. FDI has been a weak link in the country’s economy with net flows remaining small, restricted, and undiversified.
The last couple of years saw another slip in FDI flows – not that they were impressive before that or even now. In the recently announced data by the central bank, net FDI in the country during April 2024 stood at $359 million. Analyzing it relative to peer economies and the population size, the net inflow is peanuts. But looking at the trend going on in the flows over recent months, there has been improvement, especially in March and April this year. April-24 FDI was the highest monthly FDI after 51 months, which again shows how weak FDI has been when the highest monthly FDI flows over more than four years was only $359 million.
Not only that, FDI continues to be concentrated and restricted to a handful of sectors and a couple of countries. Even today, China dominates the net FDI flows by a wide margin. China and Hong Kong together make the largest share of the annual FDI on average. The rise in Chinese FDI picked up during the initial CPEC times when Chinese investment came particularly in the power sector. Even today, the power sector has the largest share of FDI, followed by a few other sectors. Other key sectors like telecom/IT and financial businesses that have previously been core contributors have been facing a decline in net flows or even negative flows. This is by far not an improvement in the net inflows of foreign investment in the country. Add the waning investor confidence amid political and economic uncertainty to the constrained FDI, which further weakens the investment climate.
FDI in 10MFY24 increased by 8.1 percent year-on-year to $1.46 billion versus $1.35 billion in 10MFY23.
Again, China was the biggest investor accounting for 30 percent of the total FDI during the period. Together with Hong Kong, the two were responsible for 50 percent of the net FDI in 10MFY24. The power sector’s share in total FDI was again the largest at 44 percent, though it declined in absolute value in 10MFY24 versus 10MFY23.
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