THE sharp decline in FDI in recent months is worrisome. New State Bank data shows that FDI has plummeted by a hefty 35pc to $1.4bn year-on-year from July to March and by 40pc to 167.6m month-on-month in March. Although Covid-19 has led to a significant decrease in investment across the world during the last one year as investors wait for the crisis to subside, the plunge in FDI flows is not a one-off event in Pakistan. We have seen investment tumble from 2017 as foreign investors, including Chinese companies, do not appear inclined to consider Pakistan as their favourite destination. That is not all. Many foreign firms have sold their businesses and exited Pakistan for good. The Italian oil and gas major, ENI, is the most recent example. Historically, FDI flows have constituted less than 1pc of the nation’s GDP while comparable economies have attracted foreign investments equal to or over 3pc. The only time Pakistan saw an FDI ‘boom’ was during the mid-2000s when foreign investors brought their capital here to invest in the power, financial, oil & gas exploration and telecom sectors, and during the mid-2010s when China bankrolled expensive power and transport projects under the multibillion-dollar CPEC initiative. There were numerous reasons, such as energy shortages and poor security conditions, for the lacklustre response of foreign investors to attractive policy packages that successive governments announced in the last decade and a half to woo them.
Now, with the energy shortages taken care of and improved security conditions, the continuous decline in FDI flows underscores policy issues that the government must address to make this country attractive for foreign capital. This needs to be done urgently as the world is expected to return to normalcy before the end of 2022 as most people across the continents get inoculated against the coronavirus, and companies reconsider their investment plans for markets like Pakistan. With China becoming less attractive for global capital because of an aging population and increasing labour wages, both Chinese and Western firms are looking for new destinations. Luckily for Pakistan, Vietnam and Bangladesh have also lost some of their lustre for international investors. This leaves us with large room to market Pakistan’s potential to foreign companies and influence their investment decisions. But for that to happen, the government will need to draw up a proper strategy and reform its policies to make them predictable and bring consistency to them.
Published in Dawn, April 21st, 2021