Pakistan has no shortage of hurdles to overcome in its efforts to attract more foreign direct investment, from systemic corruption to security issues. But one of the biggest impediments to investment, especially in the manufacturing sector, has been the country’s inadequate, unreliable power supply.
China, as it so frequently does, has stepped into the breach.
Large-scale investments by Chinese power companies have given a significant boost to Pakistan’s FDI figures in the past year and will create a virtuous circle for the longer term by improving power supply and therefore making the country more attractive to investors in other sectors.
Last year was a bumper year for investment into Pakistan. The country received 39 greenfield investments totalling an estimated $18.9bn in 2015, according to fDi Markets, an FT data service.
This compares with 28 projects for $7.6bn in 2014, and marks a high point for greenfield capital investment into the country since fDi began collecting data in 2003.
The number of projects is the largest since the country attracted 57 greenfield projects back in 2005.
China has emerged as the number one source country for investment into Pakistan, surpassing the second-ranked United Arab Emirates, primarily due to its investments in power.
China-based Shanghai Electric, a power generation and electrical equipment manufacturing company, announced plans last year to establish a 1,320 megawatt coal-based power project in Tharparkar, scheduled to launch in 2017 or 2018. Traditional energy and power projects made up two-thirds of last year’s total greenfield investment into Pakistan at $12.9bn, with alternative energy bringing in a further $1.8bn.
Among the more notable projects, UAE-based Metal Investment Holding Corporation announced plans to partner with Power China E & M International to invest $5bn to build three coal-fired plants at Karachi’s Port Qasim. But the transportation sector is also showing promise, with 12 projects totalling $3bn being announced or initiated last year.
Pakistan will be hoping an improved power supply can help it compete more strongly for regional investment flows and that this in turn will unleash economic growth. The country’s economic performance has been respectable - GDP growth increased from 2.7 per cent in 2011 to 4.7 per cent in 2014, according to the World Bank.
The World Bank estimate for 2015 was 5.5 per cent growth, and the forecast for 2016 is the same figure. But this is below the regional average and is a far cry from the rampant growth being experienced in neighbouring India.
The World Bank expects growth in South Asia to reach 7.3 per cent in 2016.
If it wants to keep up with faster-growing rivals, Pakistan will need to keep fuelling its economy, and its FDI flows, with raw power.
