Remittance from Pakistan soaring at $1.9 billion: So Pakistan drains?

The State Bank of Pakistan said on July 3, 2017 that Foreign companies working in Pakistan repatriated $1.88 billion in profits and dividends to their home countries in the 11 months through May, a year-on-year increase of nearly 7 per cent.

The amount was almost equal to the foreign direct investment (FDI) of $2bn Pakistan attracted during the same period. Moreover, remittances sent by Pakistanis working abroad and the country’s exports are also in decline.

The highest FDI was received by the power sector during the period. However, the highest amount was repatriated from the food sector. This is notable that so many international food chains starts there operation in Pakistan during the last five years.

Inflows to the food sector were also higher this year, due mainly to the sale of a majority stake in Engro Foods to Friesland Campina, one of Europe’s biggest dairy companies. The sector saw no inflow a year ago. Instead, there was an outflow of $53m.

Another change was noted in banks and financial institutions, which received $63m in FDI but the profits and dividends sharply increased to $219m, the second-highest outflow this year.

The power sector received $548m in FDI during the 11-month period while the outflow of profits and dividends was $150m. The inflow during the same period of the last fiscal year was $703m.

The biggest change was noted in the construction industry which received the third-highest amount of FDI, i.e. $418m. The inflow was just $45m in the same period a year ago, indicating that the escalating property prices and housing demand attracted foreign companies to make big money. However, the outflow as profits and dividends from this sector during the July-May period was just $900,000.

FDI in oil and gas exploration companies also dropped to $135m from $235m a year ago, whereas the outflow as profits and dividends was $85.3m in July-May 2016-17.

The total outflow in the outgoing fiscal year could top $2bn, which would be a fairly big amount for the country, particularly against the backdrop of falling remittances, declining exports and a trade deficit of about $30bn. The current account deficit nearly trebled to $8.9bn during July-May, due mainly to poor exports. The country’s reserves are still over $20bn, but rising debt servicing is expected to bring them down.

Pakistan show an upside trajectory in consumption. For companies like the Swiss food maker Nestlé SA, such hungry consumers signal a sea-change.

According to the Bruno Olierhoek, Nestlé’s CEO for Pakistan “Pakistan is entering the hot zone,” and the country appears to be at a tipping point of exploding demand.

Nestlé’s sales in Pakistan have doubled in the past five years to $1 billion. Official figures show that the proportion of households that own a motorcycle soared to 34% in 2014 from 4% in 1991, and a washing machine to 47% from 13% over that same period.  Royal FrieslandCampina NV, a Dutch dairy company, paid $461 million to buy control of Engro Foods, a Pakistani packaged milk producer in a country where most milk is sold unpasteurized from open milk containers. What we see is consumer spending is rising.

Meanwhile World Food Programme in Pakistan’s assertion in September 2016 that 43 per cent of Pakistanis are food insecure.

According to World Food Programme’s out going Country Director Lola Castro, both the quality and quantity of food available to most poor and illiterate Pakistanis is not enough to meet their basic nutritional needs.

Due to high levels of abject poverty in both rural and urban areas and those geographical regions in which food crops are not grown in large quantities, the number of Pakistanis who cannot get enough to eat on a regular basis is quite high.

So it is the paradox in developing Pakistan.