FDI – Will China be our silver lining?

Globally, pressure on FDI is mounting due to the coronavirus pandemic. The UN’s trade and development arm (UNCTAD) has painted a bleak picture; in less than a month the organization recently revised its forecasts for FDI flows from the earlier 5-15 percent drop, to 30-40 percent contraction. The upated Investment Trend Monitor also says that the pandemic and its mitigation measures and lockdowns across the world are affeceting all three components of FDI: Greenfield investments, capital expenditure and expansion plans, while cross border M&A acivity has been delayed. Global supply chains have been disrupted and demand has nosedived.

At home, many are celebrating the growth witnessed in 9MFY20 foreign direct investment amid the global slowdown and looming recession. For most part of the year, as highlighted many times before in this section that the growth in FDI in came largely from lower outflows than any substantial rise in inflows versus 2019, and hence growth against a low base. Outflows fell by 56 percent in 9MFY20. However, growth in 9MFY20 was also partly due to recovering inflows from China in the power sector since January 2020 that remained subdued in 1HFY20.

FDI inflows witnessed a growth of 26 percent year-on-year in 9MFY20, and after China (including HongKong), inflows from Norway particularly in the telecom sector in the second half of FY20 also supported the overall growth. Together China and Norway accounted for 60 percent of the net FDI in 9MFY20. Whereas the power and the telecom sector both had a net outflow in 9MFY19.  FDI inflows in March 2020 were also mostly driven by power sector inflows. (approx 70%).

Slowdown in FDI is approaching, not that the country has been doing very well on this front. The only good news is that China, which has survived the pandemic is eager to continue work on CPEC. And since much of the FDI is composed of Chinese investment under CPEC, is that a ray of hope for domestic FDI inflows? Putting all eggs in China’s basket might actually come handy this time because investment prospects from other developed countries are depressing. That doesn’t mean we forget about diversification – forecasts for FDI oil and gas exploration and production sector and the transportation sector aren’t sanguine, but the sectors likely to shore up global FDI flows according to FDi Intelligence include e-commerce and digital technologies, health sector and biotechnology, and renewable energy. Pakistan can at least try for e-commerce, pharmaceutical sector and renewable energy.