- Global FDI rebounded to $802 billion in early 2024 but fell 36% in the second quarter
For both the developing and developed countries, the significance of foreign direct investment (FDI) flows is well documented in literature. Over the last decade foreign direct investment grew at least twice as rapidly as trade. As there is shortage of capital in the developing countries, which need capital for their development process, the marginal productivity of capital is higher in these countries. On the other hand investors in the developed world seek high returns for their capital. Hence there is a mutual benefit in the international movement of capital. For foreign investors the fiscal incentives and taxation structure is very important. The tax rate affects the profitability of investment projects. Therefore foreign investors seek locations where taxes are low.
| Pakistan: Net FDI ($ Million) | ||||||||
|---|---|---|---|---|---|---|---|---|
| Sector | 2017-18 | 2018-19 | 2019-20 | 2020-21 | 2021-22 | 2022-23 | 2023-24 | 2024-25 (Jul-Nov) |
| Oil & Gas | 372 | 349.8 | 311.4 | 251 | 195.3 | 135.1 | 303.6 | 124.6 |
| Financial Business | 400.3 | 286.5 | 274.8 | 236.4 | 405.3 | 275.1 | 208 | 249.4 |
| Textiles | 49.7 | 76.8 | 37.7 | 2.6 | 3.6 | 11.5 | 2.4 | -0.4 |
| Trade | 143 | 76.3 | 43.2 | 115.9 | 79.9 | 45.3 | 68 | 26.4 |
| Construction | 40.4 | 70.2 | 20.9 | 31.1 | 36.5 | 19 | 15.2 | 11.9 |
| Power | 1,179.50 | -323.9 | 765.6 | 911.7 | 737.6 | 622.6 | 799.9 | 454.5 |
| Chemicals | 5.4 | 48.9 | 24 | 0.9 | 29.3 | 49.7 | 19.7 | 2.6 |
| Transport | 163.5 | 56.9 | -1.5 | -93.6 | 34.8 | 40.2 | -12.8 | -1.4 |
| Communication (IT&Telecom) |
113.5 | -55.7 | 664 | 117.1 | 118.9 | 59.3 | -129.9 | 15 |
| Others | 375.7 | 739.2 | 457.4 | 247.4 | 226.6 | 198 | 627.5 | 241 |
| Total | 2,780.30 | 1,362.40 | 2,597.50 | 1,820.50 | 1,867.80 | 1,455.80 | 1,901.60 | 1,123.60 |
Various tax break regimes are often offered to multinationals as an incentive to attract FDI inflows. International experts recorded that FDI lies at the heart of globalisation and serves as a significant conduit for the transfer of capital, goods, services, and information across economies. They also registered that Global FDI flows rebounded to USD 802 billion in the first half of 2024. Much of the rise came in the first quarter of 2024 when they more than doubled, whereas global FDI flows dropped by 36 per cent in Q2 2024. FDI inflows to the OECD area were increased by 80 per cent but this is chiefly the result of upswings from large disinvestments in the Netherlands. Excluding FDI flows received by Luxembourg and the Netherlands, which highly fluctuated in present years, OECD FDI flows were down by 14 percent. FDI flows into non-OECD G20 economies dropped by 19 per cent, as FDI flows in the People’s Republic of China continued to fall in a context of geopolitical risk and economic policy uncertainty impacting foreign investors’ confidence.
Pakistan’s standing
In the developing counties like Pakistan, Net Foreign Direct Investment (FDI) grew by 32.3 per cent during the first four months of the current fiscal year (FY25), reaching $904.3 million, according to data released by the State Bank of Pakistan (SBP). FDI inflows during July-October FY25 totaled $1,242.5 million, while outflows amounted to $338.2 million. This is a significant improvement from the same period last fiscal year when net FDI reached at $683.5 million. However, October alone registered a net FDI of $133.2 million, reflecting an 18 percent year-on-year decrease compared to $163.3 million in October 2023. On a month-on-month basis, FDI fell sharply by over 65 per cent, down from $385 million recorded in September 2024.
It is said that Pakistan’s macroeconomic volatility, marked by high inflation, currency depreciation, and fiscal deficits, continues to erode investor confidence. The uncertainty created by inconsistent economic strategies and frequent changes in regulatory frameworks further deters long-term investments, making the business environment unpredictable.
Lack of infrastructure, like unreliable energy supplies and poor transportation networks, significantly raises operational costs for investors. Coupled with a shortage of skilled labour and low productivity levels, these factors diminish Pakistan’s appeal for efficiency-driven FDI.
Corruption, bureaucratic red tape, and inefficiencies in public administration remain major hurdles. Delays in approvals, inconsistent contract enforcement, and unequal treatment of local and foreign investors create additional barriers to investment, complicating efforts to attract worldwide capital.
Pakistan despite its strategic location, has struggled to maximize the potential of its trade strategies. Existing free trade agreements (FTAs) with Sri Lanka, China, and Malaysia have yielded limited benefits due to weak negotiation positions, persistent non-tariff barriers, and an over-reliance on raw material exports, hindering the country’s ability to leverage its geographic advantage.
Statistics showed that China stayed the largest source of investment during July-October FY2025, contributing $414.5 million, which accounts for 46 per cent of the total net FDI. This marks a greater than 100 per cent rise as compared to $207.1 million during the corresponding period last year. Hong Kong emerged as the second-largest investor, with net FDI of $99.7 million, up 43 per cent from $69.9 million last year, showing 11 per cent of total inflows.
Furthermore, the power sector attracted the largest share of FDI, receiving $414.5 million. The financial business sector followed with $189.6 million, while the oil and gas exploration sector attracted $103.8 million during the period.