FDI: finding neverland

FDI data is here; FDI isn’t - unless one really counts those peanut-sized net inflows of $73.4 million in July 2019. Even gross inflow isn’t quite something to talk about. Locking at about $168 million, July 2019’s gross FDI inflow was at a 36-month low.

Closer look at FDI data reveals that gross inflows have dropped much more than the increase in gross outflows; inflows fell $96 million (36%) whereas outflows rose by $9 million (11%). Clearly there is a crisis of confidence over economy.

Of the $105 million year-on-year fall in net FDI, $94 million can be attributed to decline in FDI from China and $42 million fall in net inflows from the UK. These were partially offset by some inflows from the Netherlands, Malaysia, Switzerland and some nominal inflows from some other countries.

The story behind these numbers isn’t new; it’s been seen coming for a long time – after all, in a country that has one of the most liberal FDI regimes and where politicians are obsessed with chasing FDI, poor FDI data is a reflection of both poor economy and poor governance.

At the one end, there is a slowdown in CPEC inflows, to tackle which the government is trying to set up a CPEC Authority – as if that would really help. (Read BR Research’s CPEC Authority Aug 21, 2019). At the other end, there is economic slowdown marked by tight budget constraints leading to lower PSDP amid higher interest rates, high inflation, and a cloud of uncertainty that hangs in the form of ongoing tax reforms and notifications being sent to previously untapped prospects.

Meanwhile, the state of affairs at the Board of Investment isn’t helping either. The Board of Investment supposed to be chaired by the PM has not met since 2013 whereas its executive office has never really had a serious incumbent in the recent past – someone who really becomes an anchor and drives change in that organization and accordingly drive change in the country’s investment landscape.

As discussed earlier this space, the situation warrants change in strategy. Instead of being obsessed with FDI, divert some attention towards improving domestic savings, encouraging local investors, and putting ‘M’ part of the SMEs on the radar. The idea is that if local investors grow big then they could attract JVs or other forms of deals from investors abroad. Second, explore how provincial government can be encouraged to fix the sectors that lie in their domain, while improving inter-governmental coordination on various economic affairs. Neither has attracted the federal government’s attention so far, but it is about time to change old ways.