FDI falls 14 percent to $64.3 million in July

KARACHI: Pakistan’s foreign direct investment (FDI) dropped 14.6 percent during the first month of the current fiscal year of 2016/17, the central bank data showed on Tuesday.   

The country attracted $64.3 million in FDI in July 2016, compared with the investment flows of $75.3 million for the same month of the previous fiscal year.

The local equity market received an inflow of $50.3 million as against the outflow of $4.5 million in July 2015, signalling an obvious reversal in portfolio investment by the foreign investors.  

This was the direct impact of reclassification of Pakistan Stock Exchange (PSX) to MSCI emerging market index, making local bourse more attractive for portfolio investment by the foreigners, also supported by stability in global oil prices and improvement in economic growth.

Analysts said it may be too early to speak yet of a genuine FDI declining reason, looking at the one month figures.

“There was no immediate local or global cause to trigger investor [foreign] sentiment gloomier, skewing capital investment in the country...investment decisions are deliberate, slow and long-term,” said Zeeshan Afzal, an executive director at Insight Securities.   

The telecom sector attracted the highest amount of $20 million in FDI, followed by financial sector, fetching $10.2 million direct investment.   

Analysts presume capital flow by a Norway-based telecom; Telenor to have reflected on total FDI numbers.

The government awarded a spectrum licence to Telenor Pakistan last month at the base price of $395 million to enable the telecom operator to roll out its fourth generation services.  

“The company is expected to bring the planned capital to the country in different phases,” Afzal said.  

China invested significantly in the country during the last fiscal in the energy and infrastructure sectors, as a part of its broader strategy of making investments along the trading routes in different regions.   

However, the direct investment made by the Chinese investors fell to $12.9 million in July 2016 against $53.5 million in the corresponding month of last year.

The country attracted $11.9 million in FDI from UAE as against $12.4 million last year.   The sheer numbers suggest that broad trend will be cheerful.   

“The outlook for the FDI and portfolio investment remains positive, as the power sector is on track, attracting direct inflows under CPEC and other projects in years to come,” Afzal said.    

The government aims to complete several energy-related fast track projects under the CPEC this fiscal year.

“Most power plants (coal-fired) are near to financial closure and more than 10,000 megawatts are expected to be added to the national grid in the next 18-21 months,” Afzal added.

Resultantly, the country is likely to experience increase in capital expenditure on Greenfield investment projects.

The investor perception of the country, such as its ranking in ease of doing business also does matter in attracting FDI.  

The foreign investor’s expectation of Pakistan’s attractiveness as an FDI destination this year would depend on many factors, such as improvement in overall business environment of the country, and resolution of supply-side bottlenecks.