JULY-JAN FY09: INCREASE IN FDI, DECREASE IN FPI

TARIQ AHMED SAEEDI (tariqsaeedi@hotmail.com)
Mar 02 - 08, 2009

Net inflow of foreign investment in Pakistan exhibited a decline of 12.7 percent to $2.23 billion in the first seven months of the current fiscal year over $2.55 billion in the corresponding period of fiscal 2007-08. Although, foreign direct investment in this period increased by 1.3% to $2.58 billion against $2.55 billion in FY08, staggering flight of portfolio of around $356 million from the capital market, which in percentage term was astronomical 0.1 million, overshadowed positive growth of foreign investment in cumulatively calculated net amount of foreign investment.

During July-Jan FY08 foreign portfolio of $0.4 million occupied equity positions in shareholdings. It not only kept from stayed afloat but also its high liquidity caused outflow of substantial FPI in July-Jan FY09. The highest outflow from stocks was in the first month of this fiscal year, showing $119 million drawdown in foreign portfolio account. Though similar trend ensued in next month, turn of September rang a bell of revival because portfolio investments registered upward swing until end November 2008. The removal of trading floor in the mid of December, placed almost three and half months ago to limit market loss, saw heavy selling pressure and again led to withdrawal of foreign shareholdings in stock exchange worth $17.8 million by month-end.

July-Jan FY09 recorded inflows of foreign direct investments in considerably matching volume from both developed and developing economies. Government received $1.26 billion FDI from developed nations including USA and UK and $1.05 billion from developing nations. While from developed nations fall of 16.9% was recorded over $1.51 billion in the same tenure last fiscal year, rise of 20.4% was depicted over $873 million earlier from developing nations. It is relevant to note that highest inflow of FDI of $522 million came from USA in this period despite that it declined by 45% when compared to $957 million transferred in the corresponding period FY08. Second to that was $279 million invested by Mauritius, followed by $229 million (Singapore), $208 million (Malaysia), $190 million (Switzerland), $189 million (UK), $119 million (UAE) etc. During the period under review, government pocketed $274.5 million FDI-68.4% growth over $163 million-from unspecified sources. According to the State Bank of Pakistan, unspecified accounts compose of investments made by International Financial Institutions and non-state entities.

During the period under review, communications and oil and gas explorations remained major recipients of FDI recording increases of 1.7% and 14% respectively. FDI in communication sector enlarged to $763.9 million in July-Jan FY09 from $751.2 million July-Jan FY08. In oil & gas exploration sector, foreign investment increased to $417.9 million from $366.4 million. Despite that, FDI in financial sector was $635.2 million in the period it exhibited a decrease of 7.2% when compared with preceding $684.3 million.

Within communications sector, except telecommunications and software development all other subcategories witnessed negative trends in foreign direct investments. Out of total FDI in communications sector, telecommunications received highest $708.5 million registering 6.4% rise over $665.8 million. Similarly, software development recorded highest percentage growth of 108% in FDI that distended to $15.4 million from $7.4 million. In contrast, FDI in hardware development fell by 52% to $0.5 million from $1.1 million, in IT service by 49% to $37.4 million from $73.4 million, and in postal and courier services by 42% to two million dollar from $3.5 million.

While energy and petroleum sector has been attractive for foreign investors over a time, mining and quarrying seems to lose its charm as it saw 25% negative growth in FDI that was little more than $12.6 million during seven months of FY09 as against $17 in comparable period. Notwithstanding the sector beholds huge potential and can produce multifaceted commercial advantages for investors once developed in full shape. However, petroleum refining received $64.1 million, posting an upsurge of 30.5% over $49.1 million.

In seven months of the current fiscal year, foreign investors showed keen interests in power sector. This manifested in acceleration of FDI by 112% during the period, both in thermal and hydel projects. While foreign investment in hydel surged by 192.8% to $13.4 million from $4.6 million, it remained to the tune of $66.3 million in thermal power posting a rise of 100.9% over $33 million.

FDI figures of the period portrayed unusual results, but are compatible with the dynamics in economic activities. With popularity for foreign investors one or two year ago, sectors are now retracting back in terms of their strategic positions. For example, automobile sector appeared unattractive for foreign investors during July-Jan FY09 who reduced their investments in the sector to $51.9 million from an earlier $60.5 million. Nevertheless, they augmented stakes distinctively in high traffic vehicles industry by increasing chunk of investments this time to $17.6 million from previously $9.8 million. FDI in cars industry slid down to $34.3 million from $50.8 million, chiefly causing FDI downside to automobile sector.

Decrease in volume of FDI or deceleration in its growth should not always be interpreted as underperformance of deprived sector because sometimes capitalization reaches to a point where further investment becomes unnecessary. Take for example a case of local financial business that despite of being at an introductory stage of penetration in masses in Pakistan thus having vast room for capitalization and having somehow buffeted by recoiled exposure of foreign bankers to emerging economies has clearly marked first phase entry in urban localities. Therefore, at present banks alike local or foreign engage in reshuffling of authorities without putting in to action full-fledged penetration plan across the country. It also applies to other sectors in which for the time being either foreign direct investment seems unproductive or it has maxed out.