Foreign direct investment surges 38pc to $1.281bln in 2015/16

KARACHI: Foreign direct investment (FDI) inflows into the country surged 38.8 percent to $1.281 billion in the last fiscal year of 2015/16 as Chinese investment in the energy projects continued to rise during the period, the central bank data showed on Wednesday. 

The country attracted $922.9 million in FDI inflows in the fiscal 2014/15.  In June, the FDI flows amounted to $197.5 million as against the outflow of $57.3 million in the corresponding month a year ago.

But, the yearly inflows remained lower than the target of $3.3 billion set by the government for the last fiscal year.     The SBP said FDI inflows were largely confined to coal-fired energy projects led by China. However, excluding power sector, FDI inflows in other sectors remained almost halted.

Analysts said the China-Pakistan economic corridor projects are the single biggest contributor to the foreign investment.

“We think the energy sector is likely to remain the biggest driver of both capital inflows as well as capital-goods imports – particularly in the context of CPEC projects,” economist Bilal Khan at Standard Chartered Bank said. “However, Pakistan’s ability to attract the broader foreign capital in FY17 is likely to remain limited, in our view.” 

Khan cautioned that despite improved macro indicators the country’s attractiveness is still held back by supply-side constraints and slippages on rankings, such as the World Bank’s ease of doing business.

The Chinese firms invested $593.9 million in the economic sectors during the July-June FY16 compared with $256.8 million in FY15.

China has lately emerged as the dominant source of FDI inflows, primarily due to its interest in power projects. The Chinese firms are capitalising on the low unit cost for coal-based thermal generation compared to furnace oil. 

In July-June 2015/16, power sector appeared as the main attractor of FDI with $566.6 million, followed by oil and gas sector ($261 million). However, telecommunication sector witnessed moderate $210.4 million of FDI inflows in FY16.

Norwegian investors brought $172 million direct investment during the last fiscal year as against a meagre $2 million in the preceding fiscal year. The country attracted $164 million in FDI from the UAE as against $218 million a year ago.  

The SBP data further showed that foreign private investment witnessed a 47.8 percent decline to $961.4 million in 2015/16.   

The equity market witnessed an outflow of $320 million in the last fiscal year as against the inflows of $917.3 million in the preceding fiscal year. The massive sell-off was also seen at the global stock markets due to low oil prices, hike in US Fed interest rate in mid-December and China’s stock market crash in early January this year.

The analysts, however, foresee a good time to come for the local bourse in the wake of upgrade of the Pakistan Stock Exchange to the emerging markets index of the Morgan Stanley Capital International from the frontier markets.

“Pakistan’s upgrade to MSCI EM could see higher passive inflows,” Khan said. “More broadly, Brexit-related uncertainty has heightened global risk aversion.”