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Vague policies linger FDI into Pakistan

According to the January 2018 report of “Global Finance,” an English-language American monthly financial magazine with a Global circulation of over 50,000, the potential attractiveness of Pakistan for investment is a lot lower than India, which has received the Global 10th largest inflow of Foreign Direct Investment (FDI) during 2017 despite all its political upheavals, alarming poverty levels, mega corruption scams, human rights violations and rather poor socio-economic indicators. It is also revealed that earlier this year the worldwide flows of FDI had declined by 16 percent during 2017 to a predicted $1.52 trillion. They had reached at $1.81 trillion during 2016. The World Bank (WB) had also placed this statistic at almost $2 billion during 2016 though. The Global Finance magazine had also mentioned that despite the decline, the United States received the lion’s share of global FDI at $311 billion followed by China that saw register inflows at $144 billion. At a juncture when worldwide multinationals are flush with cash and approximately all states are locked in a pitched battle to win some of that cash in the form of FDI,

Pakistan is surely struggling on this front. Here follow the main 10 states of the Global that received the most FDI inflows during 2017: United States ($311 billion), China ($144 billion), Hong Kong ($85 billion), Netherlands ($68 billion), Ireland ($66 billion), Australia ($60 billion), Brazil ($60 billion), Singapore ($58 billion), France ($50 billion) and India ($45 billion).

Furthermore, present statistics also show that Pakistan attracted 5-month high FDI of $280 million in November 2018, as its all-seasons friend China remained the single heavy financier, reflecting its strong belief in the country’s future. The experts also calculated that the inflows were 17 percent greater than the $239.5 million during November 2017. The State Bank of Pakistan (SBP) also recorded that China alone has spent net $249.1 million, which makes up 89 percent of the total $280 million received in the month. It has apparently spent the funds in Pakistan’s construction and power sectors.

Our neighboring country China is no doubt spending $50 billion in Pakistan’s infrastructure (roads and railways) and power sector under the banner of CPEC, a part of its worldwide belt and road initiative (BRI). So far, the official statistics also show that it has spent almost $20 billion in the country. In the next phase of CPEC, China will help in building special economic zones (SEZs), which would assist boost production, exports and revive Pakistan’s economy in the years to come.

On the other hand sources also register that Saudi Arabia has showed interest in buying 2 LNG-fired energy projects of approximately 2,400MW in Punjab-province. The United Arab Emirates (UAE) has also showed keen interest in setting up a petroleum oil refinery in Karachi. Besides, the oil and gas exploration sector is also predicted to attract substantial investment in Pakistan. It is said that Pakistan is a strategic market for the investors but it still remains a very small market for electronic goods because of the low purchasing power of consumers. A small market size or the low purchasing power of consumers isn’t the only problem, the internal situation of Pakistan as well. On the other hand, the ever-changing customs tariffs, exchange rate volatility leading to economic unrest and a growing grey market of unlawful and under-invoiced goods hurt a manufacturer’s pricing structure and its ability to plan for future.


On top of these, there is this problem of inconsistency in strategies yet. Every international financier wants to have a dependable strategy environment and tax and other incentives for the next 20 or 25 years to plan for the long term not short term. SBP also mentioned in a statement that Pakistan attracted $3.09 billion FDI in the previous FY2018, closed June 30.

The economists stated that the other states have put their investment plans on hold in the wait for clarity on the government’s economic strategies, which are mainly linked with acquisition of IMF bailout package. It is also said that other states will be investing in the country shortly if it succeeds in getting an IMF bailout. In case of a possible delay in receipt of the bailout, it is a must to receive the predicted inflows value billions of dollars into international currency reserves from China and UAE like Saudi Arabia, who parked $2 billion in the last two months.

Statistics also revealed that cumulatively in 5-month (July-November 2018) of the present fiscal year, FDI reached at $880.7 million, which is 35 percent lower than $1.36 billion attracted in the same 5-month previous year. The country wise statistics also showed that South Korea appeared the second highest financier with worth $15.9 million during November 2018. It was followed by the United Kingdom (UK) and the United States, who spent worth $14.5 million and $11 million, respectively, in the month. However, Norway and Malta divested net $34.8 million and $11.7 million respectively.

The sector wise FDIs revealed that the electrical machinery recorded the single largest inflow of FDIs (net) worth $119.1 million, followed by the power sector at $62.2 million. Furthermore, the sources also recorded that the construction sector attracted $55.9 million, while financial business received $14.4 million in the month.

Communication sector, which had also continued to attract important investment for quite a long time, posted a net outflow of $41.6 million in the month. This was the second month in a row the sector has witnessed divestment. In spite of all above, the total investment as a percentage of GDP has grown slightly in the last 5 years — from 14.6 percent during 2014 to 16.4 percent during 2018. It is half the investment-to-GDP ratio of 30 percent in India and Bangladesh as well. On top of that, private gross fixed investment (GFI) has declined by 10 basis points from 9.9 percent to 9.8 percent during the corresponding period.

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