According to State Bank of Pakistan (SBP) foreign direct investment (FDI) amounted to more than $2 billion in July-May, up 22.6 per cent from a year ago. In 2015-16, FDI amounted to $1.903bn. It was less than $1bn in 2014-15.
The improvement in FDI during the last couple of years was because of increased inflows from China.
FDI from China in July-May rose to $879 million. It constituted 43pc of the total FDI received over the 11-month period. A large part of Chinese FDI is coming into the power sector.
Second-highest inflows were from the Netherlands that invested $465.6m in July-May, followed by France ($180m) and Turkey ($135m).
FDI amounted to $295m in May with China and Norway contributing $160.5m and $75m, respectively.
The highest investment came into the power sector. It amounted to $548m during the 11 months.
FDI into the construction industry was surprisingly high. It attracted $418m during the period under review.
The food sector attracted the second highest inflows in July-May with FDI of $476.2m. Oil and gas exploration and electronics attracted $135.6m and $148.7m, respectively.
Outflows through portfolio investment have increased during the 11-month period. This curtailed the overall foreign private investment to $1.616bn. Outflows via portfolio investment during this period were $411m. Despite these outflows, overall private investment increased 27pc.
Foreign direct investment inflows into Pakistan have maintained a steady decline, from a $5.2bn peak in 2007-08.
The State Bank of Pakistan reported foreign direct investment for first three months (July-September 2016) at $249.4m against $403.3m of same period last year, down 38.2 pc. After adjusting for portfolio inflows and outflows, the total foreign investment in the first quarter of the current fiscal year was reported at $368.1m when compared with $793.2m of same period last year, showing a further decline of 53.6 pc.
This should be a cause of concern for all because FDI is not only a source of foreign capital but also a trigger to technology transfer, improvement in managerial skills and market access — all critically important for a higher growth trajectory.
Not surprisingly, the country slipped two points to the 138th position among 189 in the World Bank Doing Business Ranking in 2016 from 136th in 2015. According to the IMF “Pakistan’s weak business climate continues to constrain private investment and economic growth” as its ranking in starting a business, getting credit, and trading across borders worsened.