FDI drops 42.6 percent to $439.5 million in Q1

KARACHI: Foreign direct investment (FDI) flows into the country dropped 42.6 percent to $439.5 million in the first quarter of the current fiscal year, dragged down by continuously declining Chinese inflows, eroding investor trust, and macroeconomic concerns.

Central bank data showed the FDI stood at $151.3 million in September, compared to $195.0 million in the corresponding period of time. Moreover, devaluation of rupee, falling foreign exchange reserves, and the uncertainty over the International Monetary Fund (IMF) bailout also dampened the business confidence and investment climate during the quarter under review. Chinese net direct investment into Pakistan declined $37.6 percent in July-September 2018/19. Chinese firms invested $280.1 million, mostly in the energy and the infrastructure sectors, during the first three months of this fiscal year, compared to $448.4 million in the same period last year.

Similarly, non-Chinese investments also saw a persistent downward trend. The data also revealed the FDI from the United Kingdom fell to $51.2 million from $57.9 million a year ago, while the US firms invested $25.2 million in the country in July-September 2018/19, compared to $35.5 million in the same period last year. The SBP’s figures showed the FDI pouring into the power sector decreased to $74.7 million in July-September FY2019 from $205.3 million a year ago.

The amount being directly invested in the financial businesses fell to $50.1 million from $190.1 million, whereas telecommunications sector saw an outflow of $48.6 million against the inflows of $68.2 million last year. Foreign companies invested $35.4 million in the oil and gas explorations sector. Such investments stood at $52.8 million last year.

The Overseas Investors Chambers of Commerce and industry (OICCI) business confidence index survey -Wave 16- showed the overall business confidence in Pakistan dropped to 14 percent positive from the 21 percent positive, recorded in the Wave 15, announced in November. The top five reasons for the decline in FDI are security concerns, ad-hocism and improper implementation of policies, high cost of doing business, inadequate basic infrastructure and trademark infringement.

Investors also showed concerns on delays in the processing of remittances and gap in policy implementation. “Overall confidence index in the respect of expansion plans of businesses in next six months have remained constant with a marginal decline of 1 percent. Twenty six percent respondents indicated plans to make capital investment over the next six months, while overall in the manufacturing and 20 percent in the services sector hinted at similar plans for the same period” the survey showed.

Talking about investment opportunities and constraints, about 34 percent businesses expect increase in investment in the country in the next six months, it added. The SBP’s figures revealed that portfolio investment at Pakistan Stock Exchange posted an outflow of $185.3 million in July-September against $78.2 million last year. Total foreign investment shrank 60.1 percent to $254.3 million in the three months of this fiscal year.