FDI jumps 154.9 percent in July-August FY18

KARACHI: Foreign direct investment (FDI) inflows to Pakistan more than doubled to $457.2 million in the first two months of the current fiscal year, the central bank’s data showed on Monday. Most of the rise in FDI flows to the country was due to investments, particularly in the power and communications sectors.

The country attracted $179.4 million in FDI during the same period of the last fiscal year. FDI surged to $234.5 million in August from $94.6 million a year earlier. The State Bank of Pakistan’s (SBP) figures revealed that the country received increased volumes of FDI from China and Malaysia. Net FDI inflows from China rose a whopping 435.9 percent to $259.4 million in two months of FY18.

Similarly, Malaysia helped drive inflows to a level of $110.8 million, compared with $1.3 million last year. The impact of China-Pakistan Economic Corridor (CPEC) activities were seen in the growing FDI mostly within the energy sector.

The power sector was a strong performer, attracting inflows of $210.8 million, up 155.2 percent from a year ago.   The communications sector saw a significant 266.2 percent increase in direct investment during July-August FY18. It drew in $94.5 million in FDI.

According to the SBP’s data, $30.6 million went to the oil and gas exploration companies against $14.2 million a year earlier. Analysts said the current government looks aggressive to increase the FDI flows further, but it needs political certainty and consistency in ongoing policies.

“The cross-border investments into the country are expected to go up with most [flows] going into power and telecommunications firms. The technology start-up companies can generate ample interest in times to come,” said Khurram Schehzad, a chief commercial officer at JS Global Capital Limited.

It is important to mention here that a Malaysian telecommunication firm, Axiata Group’s infrastructure unit is acquiring telecom towers in Pakistan for $940 million with a local partner.

Axiata subsidiary edotco Group Sdn Bhd and its Pakistani partner Dawood Hercules Corp will acquire Deodar, the tower unit of Pakistan Mobile Communications Ltd.

Schehzad said, “An increased FDI in the telecommunications sector is possibly reflective of an acquisition deal between Pakistan and Malaysian IT companies.”       Moreover, some Malaysian electricity utility companies have invested in gas-fired power plants in the country.

For now, the level of foreign investment indicates an underlying investor confidence in Pakistan’s economy, aided by the improvement in the macroeconomic conditions and security situation.  

The investment prospects are likely to remain bright, triggered by CPEC. Some of the long-term projects in electricity generation under CPEC are at advanced stages of development, with higher requirement for working capital.     

Pakistan’s economic growth, which the IMF expects to increase to five percent in 2017 and 5.2 percent in 2018, has made it an attractive destination for foreign investors.

Despite these comforts, the foreign portfolio investment experienced an outflow of $105.7 million from the local bourse during July-August FY18 against $40.9 million inflows in the corresponding period of last year. Total foreign investment increased 37.1 percent to $301.8 million.