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The telecom sector has been a star performer lately when it comes to foreign direct investment. As per central bank data for the Jul-Dec half of the fiscal, telecoms fetched a net FDI of $420 million, which is nearly a third of total net FDI Pakistan in this period. Not only is this figure a sharp reversal from a significant negative score in 1HFY19, it is the sector’s best figure for entire decade, in the relevant period.

While a full-year analysis after the fiscal’s close will reveal better insights, it appears that the half-yearly figure of over half a billion dollars in gross inflows may be good enough to provoke a feeling of lull in the government circles that all is well with telecoms. Some context is warranted here.

The sudden rise in telecom FDI this fiscal, however, owes mainly to the license renewal saga. The crux of the matter is that telecom companies have begrudgingly made partial payments to renew their right to operate in Pakistan. (For more on that, read: “A bird in hand,” published September 6, 2019). The government, meanwhile, was all too happy to pocket valuable non-tax revenues to meet IMF targets.

But there is a limit to pushing the merry-go-round. In recent years, telecom sector has been flip-flopping on FDI. A good year is when a spectrum auction takes place, necessitating pumping of notable amount of inflows from telco’s foreign sponsors. But it tends to be followed by lean years sometimes characterized by net investment outflows. The ongoing fiscal has proved to be a good year thus far due to renewals.

In the second half of the fiscal, it isn’t clear if the government will prevail upon the operators, secure the remaining 50 percent of the renewal fees, and put the contentious matter to bed. (For more on that, read: “Telecoms: renewal saga isn’t over,” published November 13, 2019). But if the government succeeded in doing that, gross inflows associated with this sector may reach close to a billion dollars – a feat in itself.

However, the following year may again see handsome net inflows turn into outflows. With sector fundamentals already strained by declining average revenue per user amid erosion of dollar returns, there is little likelihood that the current downward spiral of the consumer-facing economy will rebound in FY21. Meanwhile, the nature of regulatory uncertainties may continue to hurt the case for “voluntary” investments.

Sustaining high level of telecom FDI will require some original thinking on part of the federal government. The avenues are plenty. Instituting a fairly-priced and predictable spectrum-auction regime, offering fiscal incentives for greater fiber-optic connectivity, and making it easy to invest in telecom tower business are three of the areas that can unlock further investment. But it may be expecting too much, given that the IT & Telecom Ministry is found rudderless, as the minister in charge is missing amid political wrangling.