Foreign Direct Investment (FDI) to Pakistan decreased by 29 percent during the first half of the fiscal year 2020-21 (July to December 2020), central bank data showed on Tuesday.
According to the State Bank of Pakistan (SBP), Pakistan was only able to attract less than a billion dollars in FDI during the H1FY21, to the tune of $952.6 million.
This is down from the $1.357 billion FDI inflows in the same period last year, showing a decrease of $405 million year-over-year.
This comparison, however, might not be truly indicative of the economic realities attracting FDI. The major part of this decline can be traced back to last year’s one-time FDI brought in by the telecom sector for GSM license renewal fees.
Analysts believe that the FDI of this year comprises mainly of investment from China for CPEC-related projects, especially considering that China’s share in Pakistan’s net FDI clocked in at 37 percent with $358 million for the first half of FY21. China’s FDI was also for projects beyond CPEC and encompassed industries such as financial businesses, oil and gas exploration, and the communications sector.
The country saw an outflow of $44.1 million from the Norwegian firms in July-December FY2021 against an inflow of $288.5 million in the same period last year.
The power sector remained the major recipient of the inflows as FDI in the sector rose to $434.9 million in July-December from $262.2 million a year ago.
The telecommunications sector pulled in $27 million foreign direct investment in the first half of this fiscal year compared with an inflow of $419.7 million last year. FDI in financial businesses fell to $145.9 million from $162.1 million.
Inflows sourced from Malta fell to $55.9 million in six months of this fiscal year from $111.1 million a year earlier. The COVID-19 pandemic shattered the investor’s confidence globally, disrupting input supplies amid growing uncertainties on economic prospects.
Due to the economic slowdown, foreign companies also faced adverse liquidity crunch. The companies refrained from reinvesting funds, which is another important source of FDI in Pakistan. Experts expect this pace to increase as additional funds would be poured into Pakistan for industrial cooperation during the second phase of CPEC, which is moving slowly.
FDI in Pakistan usually remains concentrated in a few non-export sectors, such as power, construction, financial business, oil and gas exploration, electric machinery, and telecommunications.
Furthermore, the investment in the Naya Pakistan Certificate is likely to come through Roshan Digital Account in near future from overseas Pakistanis and investors.
On the side of the outflows, portfolio investment continued the trend of negative growth with an overall outflow of $244 million from July to December 2020.
During the period under review, total foreign investment in Pakistan, comprising foreign direct investment, portfolio investment, and foreign public investment, declined 72 percent (or $1.314 billion) to $514 million in July-Dec 2020.
On a monthly comparison, FDI amounting to $193.6 billion arrived in December 2020, as opposed to $493 million in December 2019.
Hong Kong is the second largest investing country with a net FDI of $86 million to Pakistan, in the period under concern. Malta ranks third, with an investment of $72 million.