FDI drops 2pc to $1.28bn in July-March

KARACHI: Foreign direct investment (FDI) into Pakistan inched down in the first nine months of the current fiscal on a slowdown in inflows from China, while multinational firms also invested less in some businesses, State Bank of Pakistan (SBP) said on Tuesday.

The country attracted $1.285 billion in FDI between July 2021 and March 2022, down 2 percent from a year ago, the central bank data showed.

However, the FDI saw a net outflow of $30.4 million in March, compared with an inflow of $173.4 million in the same month last year. According to analysts, the country witnessed net outflow after November 2020.

Though the size of the Chinese inflows is on the decline, it remained the largest investor with net FDI of $334 million in July-March FY2022. These inflows stood at $642 billion in the corresponding period of last year.

The United States ranked the second largest investor with net FDI of $183 million. The US firms had invested $97 million in July-March FY2021.

The power sector, which has had the dominant share in net FDI over past few years, started falling. The investment into the power sector declined 34 percent to $489 million in July-March FY2022. However, the FDI in the financial business rose 71 percent to $323 million. Oil and gas exploration sector attracted $180 million in FDI in nine months of FY2022, up 5 percent from a year earlier.

“Most of the investments into the country’s power sector had been arriving under the first phase of China Pakistan Economic Corridor (CPEC),” the SBP explained the reason for the decrease of FDI in the power sector in the first quarterly report for FY2022.

As most of these projects have been completed and become operational, fresh investments into the sector from China have correspondingly diminished. Second, another possible factor could be the active global policy focus on reducing the usage of coal (including in power generation) over environmental sustainability concerns, the report said.

“This has discouraged investments into coal-fired power projects globally, including possibly in Pakistan as well,” it said.

In contrast to the power sector, FDI into the information communications technology (ICT) sector gained momentum, the SBP noted. Country’s digital services firms and tech entrepreneurs are consistently increasing their exports and are now also benefiting from the sharp increase in global investments flowing into tech startups.

According to the report, since the outbreak of Covid-19, foreign investors are looking to invest into Pakistan’s communications sector, largely because of consistently rising telecom connectivity, along with increased demand for digital services amidst the pandemic.