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Review of FDI in July-October 2021

Review of FDI in July-October 2021

Strategically located in the heart of Asia, experts said that Pakistan is at the crossroads of the world, offering a locational advantage to investors with opportunities within and around the country. It is said that bordering emerging economies of the future, Pakistan offers competitive advantage at home and access to South East Asia, the Middle East, West Africa, and Europe through Central Asia. Pakistan has an open foreign investment regime. Protections afforded to foreign investors are no less than the treatment to national investors.kamalFDIpic1

Its present statistics show that the Foreign Direct Investment (FDI) of $662.1 million was recorded approximately 12 percent lower as against to the investment of $750.6 million in the corresponding period of previous year. The experts identified that the foreign investors poured $662.1 million chiefly into energy, telecommunication and financial sectors of the country in the first 4-month of current FY2021-22. Foreign Direct Investment (FDI) has played a significant role in reducing global poverty over time by opening up under developed economies to businesses that were otherwise outside the reach of those countries.

Pakistan has seen a sharp increase in FDI over the past decade. With the announcement of China’s plan to make Pakistan an integral part of its Belt and Road Initiative (BRI), foreign direct investment took on a new meaning for Pakistan. The $62 billion China Pakistan Economic Corridor is being developed through multiple projects across the country, which will significantly improve connectivity within Pakistan and allow for greater ease of access to neighbouring trade partners. The development of Gwadar port is projected to become a trade and logistics hub within the region opening up western China to its closest sea link to Africa and the Middle East as well providing access to the Arabian Sea to landlocked Central Asian states.

Furthermore, experts also recorded that the Netherlands, China and US were recorded the three big sources of FDI inflows into Pakistan in the July-October period. They invested a net $160.5 million, $116.5 million and $114.3 million respectively. In October alone, the FDI inflows amounted to $223 million as against to $293.1 million in the corresponding month of previous year, showing a drop of 24 percent.

Experts also recorded that FDI had started to recover across the globe in present months after plunging in the wake of pandemic. However, the investment inflows had not yet revived in the country mainly because of volatility in the rupee-dollar parity and economic uncertainty. Latest economic developments on the local front may pave the way for foreign investors to unveil their investment plans for Pakistan. Rupee stability in recent days and the central bank’s decision to proclaim the monetary policy early will remove uncertainty in the market.

It is also said that worldwide investors keep a vigilant eye on economic activities and exchange rate in the states where they invest as economic growth and a stable exchange rate are directly connected with the rate of return on investment. The benchmark interest rate remains the main anchor for the exchange rate. The anticipated raise in interest rate by 75-100 basis points will support rupee stability. This should encourage foreign investors to make hefty investment in the country in the coming months.

Sources also recorded that the country might attract higher FDI in real estate, travel and tourism, and telecommunication sectors. An expert said that the widening gap between inflation and the real interest rate sparked uncertainty about economic growth and forced foreign investors to wait for the return of stability before initiating new projects. As a result, the FDI inflows have stayed slow since the starting of current fiscal year on July 1, 2021. Furthermore, the adjustment in economic indicators counting interest rate, inflation rate, stability in rupee-dollar parity and predicted reduction in imports may slow down economic activities. However, fine-tuning of economic indicators would assist attain sustainable economic growth in the long run instead of being stuck in the cycle of overheating and meltdown of economy. Oil and gas exploration, power, telecommunication and financial sectors would continue to attract FDI.

It is also important to note that since Pakistan’s IT sector and IT exports were growing at a rapid pace, worldwide investors might consider making important investment in the sector considering the huge size of local population and a extraordinary growth in the telecommunication sector. Pakistan might attract notable FDI when it launched 5G internet. Besides, the present government is also focusing on travel and tourism to raise foreign investment.

Accordingly, foreign investors are predicted to initiate new projects in the 2-sector shortly. The Power sector witnessed a notable fall in foreign investment in the period under review while the financial sector attracted 8 percent higher investment.

No doubt, recent years have seen a sharp change in the attitude of developing countries regarding FDI. The growing balance-of-payments difficulties as well as the decline in concessional aid have forced many developing countries to reassess their stances on FDI and to take substantial unilateral steps to liberalise their inward FDI regimes. In spite of liberalising the inward FDI regime, tempering or removal of obstacles to foreign investors, and according liberal incentives, Pakistan has not been able to attract sufficiently large FDI despite liberalisation measures. Inconsistent economic policies have also discouraged foreign investors to increase their participation in Pakistan.

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