Profit and dividend outflow on foreign direct investment (FDI) increased by around 5 percent in 11MFY22 as per the latest available data on the central bank’s website. During the eleven months period, top five sectors for repatriated profits and dividends were food and beverages, communication, oil and gas, financial businesses, and power that together accounted for over 55 percent of the total outflow during the period. Countries that accounted for most outflow were UK and USA with over 32 percent of the repatriation on FDI while another 43 percent going to China, France Hong Kong, Netherlands, and Switzerland.
The sector that attracts the most FDI - the power sector saw significant rise in repatriation during the said period. The profits and dividend repatriated on foreign investment from the total power sector increased by 500 percent year-on-year. The MNCs sent out around $200 million profit and dividends during the 11 months if FY22, which also accounts for 13.8 percent of total outflows. The share of thermal power sector within the power sector was 13 percent. Repatriation from the coal sector declined, which was partly due to falling FDI in the coal sector as Chinese investment in the segment slows down.
Other sectors also witnessed increase in profit and dividend repatriation, which included food, transport, telecom, tobacco and financial businesses. To note, the total repatriation on FDI has remained on a higher side over the years accounting 77 percent of the net FDI received over the last six years.
Repatriation of profits and dividends has remained in single digits in 11MFY22. Previously, in FY21, repatriated profits and dividends increased by 24 percent year-on-year. The SBP’s second quarterly State of Economy report (2020-21) highlighted that the sectors that had a significant boost in earnings following the Covid-19 epidemic saw higher profit and dividend repatriation. In contrast, sectors with lower profitability saw decreased profit repatriation in FY21. Going by this argument, it shows that recent decline in earnings by the MNCs especially in the recent quarters reduced the overall repatriation.
Subdued profit and dividend repatriation by foreign firms and MNCs is partly reflective of the falling earrings and hence declining foreign investor confidence in the economy. Add to this the deteriorating FDI situation in the country due to recent political uncertainty and economic volatility. Despite subdued growth in repatriation during 11MFY22, FDI net of repatriation stood at a paltry $150 million.