Foreign direct investment woes in Pakistan have a new ally – the misfortune from coronavirus that the country will have little control over. So now the recovery in FDI flows not only depends on internal challenges but also external factors such as how the global economic recovery pans out post pandemic. Though countries including Pakistan have reopened, economic activity and investor sentiment in many will take a while to recover, which should mean that the outlook for FDI in FY21 is not sanguine. This has also been highlighted by UNCTAD and World Bank that project investment outlook to remain weak for developing countries.
The latest central bank numbers for July 2020 depict the same downbeat tone; net inflows in July 2020 are the lowest in 11 months at only $114 million. Those celebrating the year-on-year growth of 61 percent have forgotten that FY19 was a weak year with massively low FDI in July 2019. Moreover, on a month-on-month basis, FDI in July has been lower by 35 percent. Foreign direct investment has averaged at $135 million per month in the last four months that has been the peak period for Covid-19 around the world against the average of $250-300 million a month in pre-Covid times.
No prize for guessing that China has been the only key investor in July 2020 as well; however, the inflows from Malta, which is mostly popular because it is a tax haven has time and again captured a noticeable chunk. Sector wise, the highest investment came in the electrical machinery segment followed by the financial businesses and communication. Whereas the normally leading power sector witnessed one of the weakest growths among key sectors. FDI in construction sector has remained negligible in 2020 despite the focus that the sector has received in recent times. And investment in communication has always been restricted to telecom; internet services that are considered opportunity of the future have remained minuscule in attracting foreign investment. Oil and gas exploration sector has remained static, while the export-based sectors have not been interesting for investors despite the government’s claims for policies and incentives.