THE more permanent and non-debt-creating FDI inflows to Pakistan have shrunk by a whopping 27pc to a meagre $1.1bn in the first seven months of the ongoing fiscal to January from $1.6bn received in the same period in the last financial year, according to new State Bank data. The inflows during January also dropped to $192.7m, down by 12pc when compared to $219m in the same month of the previous fiscal. The decline in FDI is mainly attributed to the almost 20pc plunge in net inflows from China to $402.8m, and outflows of just below $26m to Norway during the period July to January. China, nevertheless, retains its position as the largest investor in Pakistan followed by the Netherlands, Hong Kong, Malta, the UK and the US. Much of the FDI received during this fiscal has gone into coal and hydel power, the financial sector, and, oil and gas exploration.
The FDI inflows are crucial for technology transfer, improvement in business management practices, competition, exports, employment and deeper integration with the world economy. But FDI to Pakistan has been on the decline since 2017 after Chinese investment in the power and transport sectors under the CPEC initiative started to dry up. According to UNCTAD’s World Investment Report 2020, FDI stock declined sharply from $40.8bn to $34.8bn in two years by 2019, entailing a hefty net outflow of $6bn. Consequently, we have seen a record increase in our foreign debt both in absolute terms and as a ratio of the size of the economy. Pakistan has never been a favoured destination for foreign investors because of a number of factors. Barring the record-high investment of $5.6bn and $5.4bn in 2007 and 2008, annual FDI inflows have accounted for less than 1pc of the nation’s GDP although other states comparable to Pakistan have attracted close to 3pc of the size of their economies. While Pakistan, to a large extent, has successfully addressed the security challenge and energy shortages — which have kept foreign investors from betting on this country in recent years — it has clearly not been enough to make Pakistan an attractive destination for foreign companies. The government also needs to tackle other challenges including a burdensome investment environment, policy inconsistency, an unskilled labour force as well as the lack of developed industrial infrastructure to woo foreign investors for sustained and rapid growth and a more stable external sector.
Published in Dawn, February 24th, 2021