FDI in Pakistan: lurch in March

In modern times, foreign direct investment is became an Instrument of advancement for the economic development of developing countries. However, political instability and terrorism have become Pakistan's lasting values, therefore; it has not been a favorite investment destination among foreign investors. But still there is an inflow of foreign investment here.

But in March this year it has seen big negative effects. Foreign direct investment in Pakistan slowed down in March, amounting to just $152.7 million compared with $318.3 million in the same month of the previous year. The drop comes apparently due to a pickup in political noise ahead of the general elections to be held later this year.

The State Bank of Pakistan (SBP) reported on April 17 that Foreign Direct Investment (FDI) has halved to $152.7 million in March compared with $318.3 million in the same month last year.

Cumulatively, in the first nine months (July 2017 to March 2018) of the current fiscal year, FDI improved 4.4% to $2.09 billion from $2 billion in the same period last year, the central bank added. The latest monthly investment is the lowest in any of the previous seven months or after August 2017’s FDI of $152.5 million, according to the central bank.

On the other hand, Pakistan’s economy continued to expand. Gross Domestic Product (GDP) grew at the decade high level of 5.7% in fiscal year 2018, in progress, compared to last year’s decade high of 5.3%.

According to the State Bank of Pakistan’s data, China remained the single largest foreign investor with net investment of $58.9 million in March, followed by the Netherlands $15.9 million, the United Kingdom $15.4 million, the United States $8.7 million and Norway’s $8.4 million.

FDI from China mainly arrived in the power and construction sectors. Besides power and construction, firms in exploration and production (E&P) and financial sector also attracted FDI, though their quantums remained relatively moderate.

Sector wise FDI

During this 9 month period Power sector remained the main attraction of foreign investors in the Pakistan during the period under review as sector attracted major chunk of investment which is evident from the inflows of foreign investment of $ 712.4 million while sub-sectors of the power group including hydel power generation, thermal power generation and coal based power plants attracted $ 109.2 million FDI, $ 16.9 million and $ 586.3 million FDI respectively.

Due to rapid infrastructure development in Pakistan under CPEC related projects, the other prominent sector to attract foreign investment was construction which received $ 525.4 million.

Construction sector attracted the single largest amount of net (invest/divest) FDI of $54.5 million in March, financial business received $25.8 million, oil and gas exploration $16 million, electronic sector $8.4 million and cars manufacturing sector attracted $7.1 million.

The communication sector witnessed significant outflow in the tune of $ 183.6 million while foreign telecommunication companies pocketed $162.5 million from Pakistan in nine months of current fiscal.

Bourse investment in Pakistan

Foreign investors divested a net $300,000 at the Pakistan Stock Exchange (PSX) in March compared to $5.3 million in March 2017. Also, in nine months of the current fiscal year, foreign divestment slowed down to $93.3 million compared to $346.3 million in the nine-month period last year.

The China angle!

China becomes the biggest investor in Pakistan during nine months of current fiscal by investing $1.34 billion dollars in Pakistan.

According to the State Bank of Pakistan, foreign direct investment (FDI) in nine months to March 31, 2018 amounts to $2.094 billion, up 4.4 percent as compared to same period last year. (In the previous fiscal year 2017, the country received $2.73 billion in FDI.)

Net foreign investment in the country stands at $4.451 billion, up 69 percent of same period last year. Foreign investment was up mainly because of selling of euro and sukuk bonds.

This is a very dangerous situation for a country like Pakistan when it receives more than 60 percent of its total foreign direct investment from a single country, and especially when that country is China, whose patterns and motives for investing are sinister and extremely portentous.

We have seen this in issues related to Djibouti Maldives and Hambantota of Sri Lanka and to see in many other places in the near future. Pakistan's regional sovereignty is critical because of the CPEc.

Pakistan is investing around 25 percent of its GDP on a single project, which can create a game-ending situation for Pakistan. In the name of foreign direct investment, China is investing in projects that are directly or indirectly linked to the CPEC.

So foreign direct investment has become a type of data jugglery. A country with major export is terrorism, law and orders situation has become shaky, the political instability always exists and where democracy is always on the payroll of the army, cannot be able to provide favorable conditions and environment for business and development.