Foreign direct investments rose 56 percent in the quarter ending September 2017. Sooner than later you can expect the troika of FinMin Ishaq Dar, his wing man at the SBP Tariq Bajwa, and the BoI chief Miftah Ismail boasting about the growth in an exercise of self congratulations.
If quantum of growth is the only thing that matters, then let's give the credit where it's due; September 2017 saw FDI grow 7 percent year-on-year consolidating the gains in the preceding two months. If this continues for the rest of the year, Pakistan could fetch about $2.5-3 billion by June 2018. If it hits $3 billion, it would be the highest annual inflow since FY09.
Attention stock market boys: that's an "if", so don't start punting on rosy expectations just yet. As things go in FDI, there is no equation that can forecast FDI flows in next three quarters. One never knows when things plop.
Anyway, if the quality and reasons of growth is to be the criteria, then the troika best offer some clear vision, strategy and explanations instead of self congratulations. One of the key metric to assess quality is diversity. Chinese FDI in Pakistan rose more than two-folds from $136 million in 1QFY17 to $ 425 million in 1QFY18. Non-Sino FDI fell 19 percent over the same period. This trend has been gaining strength FY14 onward.
As is the case of power and construction sector FDI. Net inflows in these two sectors combined more than doubled to $392 million in 1QFY18, whereas inflows in all other sectors combined remained flat as plank. Combined these power and construction accounted for 59 percent of 1QFY18 inflows against 36 percent in the year-ago period.
Excessive reliance on China may be rationalized on the argument that the Western investors were sitting on the fence amid weak-to-neutral diplomatic relations; the do-more and what not. Whereas with China, Pakistan had a marriage of interest, CPEC in the backdrop of OBOR. This also provides the excuse for excessive reliance on first-phase CPEC sectors - power and construction.
Be that as it may, on a bigger canvas, the China-West-CPEC story does not justify the lack of diversity. Who knows when black swan emerges in China and nibbles CPEC as if it were a worm? Second, rumour has it that sectors other than power and construction are of importance too. Some of those other sectors are either saturated in near-to-medium term (think banks, telco), others are shooing away investors (think: pharma), whereas a host of others such as minerals, logistics, ceramics, or export oriented sectors (textile, leather etc), lack a clear focus on the part of federal and provincial governments. Remember that FDI is not only needed for the dollars but also for management expertise.
Speaking of dollars: here is a little perspective that mandarins shouldn't lose focus of. Between FY05-FY07, average FDI inflows balanced off nearly 76 percent of average current account imbalance during that period. Between FY15-FY17, it balanced only 28 percent of the current account gap on average. Whereas 3MFY18 FDI is only 25 percent of the 2MFY18 current account gap. That's not a savory food for thought to chew on.