FDI increases 8.7% in the first five months

[farhan_9909]

KARACHI:
Thanks to massive inflows from China, foreign direct investment (FDI) increased 8.7% in the first five months of 2015-16 on a year-on-year basis, according to statistics released by the State Bank of Pakistan (SBP) on Thursday.

Pakistan received FDI of $540.2 million in July-November, which is $43 million higher than the FDI received in the same five-month period of the preceding fiscal year. FDI from China amounted to $334.6 million in July-November, which has increased 117.7% from a year ago.

Despite being one of the principle foreign investors in Pakistan historically, the United States is now pulling out its investments at a massive level. US investors have pulled out $86.3 million from Pakistan in the first five months of 2015-16, although net inflows from the world’s largest economy amounted to $101.4 million in the same period of the last fiscal year.

Pakistan has faced low levels of foreign investment in recent years. The SBP has called an increase in FDI “imperative” for the sustainability of the economy’s external sector.

Other major outflows of FDI were from Saudi Arabian (-$53.1 million), Egyptian (-$19.4 million) and Swedish (-$8.8 million) investors in July-November, SBP data shows.

FDI clocked up at $157.3 million in November, up three and a half times from $34.6 million received in the same month of 2014.

The largest net outflow of FDI in July-November was recorded in petro chemicals (-$136.1 million) followed by metal products (-$24 million).

China was followed by Hong Kong ($64.5 million), Italy ($51.5 million), Switzerland ($42 million) and the United Kingdom ($41.8 million) as the largest contributor to the FDI in Jul-November.

The largest increase in FDI in July-November was in the category of power, which attracted $273.1 million. Other sectors that attracted substantial FDI in the first five months of 2015-16 were communications ($56 million) and oil and gas exploration ($126 million). However, FDI in the oil and gas exploration category dropped 15.3% on a year-on-year basis.

Pakistan received FDI of $709.3 million in 2014-15, which was 58.2% less than the FDI received in the preceding fiscal year.

Many foreign investors have left Pakistan for good in recent years because of the energy crisis and bad governance. According to the latest annual report of the SBP, FDI divestments have taken place in cement, metal and pharmaceuticals.

“Some of these divestments highlight policy-related constraints in the manufacturing sector,” the SBP said while referring to Tuwairqi Steel that has shut down its production in Pakistan because of its dispute with the government over the pricing of gas.

As for pharmaceutical sector, the decline in FDI reflects the exit of “a number of multinationals” because of heavy price regulation, high imports and smuggling of medicines and long delays in the registration and licensing of drugs, the SBP said.

However, FDI from China is expected to rise further in view of the recently announced China Pakistan Economic Corridor (CPEC), according to the SBP. “The implementation of infrastructure development and energy projects under the CPEC will further enhance the improving investment environment,” it said in a recent statement.

Courtesy China, FDI increases 8.7% - The Express Tribune

 

[Nilgiri]

Wait China's investment increases by more than 100% (i.e doubles)....but the overall total amount only increases about 9%?

That means there are severe drops from many other countries. Pakistan is becoming more reliant on Chinese FDI as a result.

Apparently Pakistan pulled in a respectable 5 billion one year:

Falling FDI inflows - Newspaper - DAWN.COM

It has been bad news since that though:

2014-15: Foreign direct investment shrinks by 58.2% - The Express Tribune

Considering there was a fall of 58% last year, an increase of 9% this half year is basically maybe a bottoming out (we will have to wait for the next half data). Pakistan needs doubling and trebling of FDI for a few years to make headway back to its previous levels and then keep going to actually put a real body on its abysmal GFCF numbers (stagnating at 13% for the last 5 or so years) given the size of its population and stage of economic development.

 

[Max Pain]

Wait China's investment increases by more than 100% (i.e doubles)....but the overall total amount only increases about 9%?

That means there are severe drops from many other countries. Pakistan is becoming more reliant on Chinese FDI as a result.

Apparently Pakistan pulled in a respectable 5 billion one year:

Falling FDI inflows - Newspaper - DAWN.COM

It has been bad news since that though:

2014-15: Foreign direct investment shrinks by 58.2% - The Express Tribune

Considering there was a fall of 58% last year, an increase of 9% this half year is basically maybe a bottoming out (we will have to wait for the next half data). Pakistan needs doubling and trebling of FDI for a few years to make headway back to its previous levels and then keep going to actually put a real body on its abysmal GFCF numbers (stagnating at 13% for the last 5 or so years) given the size of its population and stage of economic development.

indeed, however Realistically speaking this probably is the most friendly environment to conduct business as compared to previous years yet the investments are being pulled off,58% is alarming
Maybe this has something to do with government policies.

 

[Nilgiri]

Maybe this has something to do with government policies.

If you read the first article I posted, there are some important points raised:

quote:

Pakistan offers market size but little else to a world-savvy investor. Policy and political instability is high, lack of a serious commitment to economic reform means a macroeconomic crisis is never far away, the labour force is largely semi-educated and unskilled, technological innovation is rare, and the tax regime is complicated and chaotic.

To make a bad situation even worse, the country has engaged in frequent high-level disputes with large and small foreign investors over the past two decades. Nawaz Sharif as prime minister in the late 1990s skewered the Independent Power Producers set up under the 1994 power policy. Little thought was given to the fact that these IPPs represented not just some of the biggest international companies in the field, but the power investments represented a consortia of global financial, insurance, operations and maintenance and civil works companies. Most of the investments were underwritten or financed partly by the World Bank and International Finance Corporation and some of the world’s leading export credit agencies, such as the US Ex-Im Bank — making multilateral agencies and sovereign countries party to our political fight.

More recently, Pakistan is engaged in another dispute with one of the world’s largest mining companies over the Reko Diq concession in Balochistan. In 2012, Pakistan technically defaulted to the IPPs when sovereign guarantees were called, while the handling of the power sector since then means that the circular debt issue is never far from the minds of investors.

Finally, both the government and Federal Board of Revenue continue to do their bit to turn away FDI. By its failure to reform the taxation system and increase the tax net, the government has allowed FBR to resort to ‘predatory taxation’. This involves making excessive tax demands on large companies — usually multinationals in the oil and gas, financial or telecommunications sector — to meet quarterly tax collection targets.

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Pakistan sorely needs to fix its tax system regarding investment and prop up confidence that investors will not be retrospectively taxed to their teeth after they have commited.

Otherwise only China CPEC related investment is going to come in any meaningful stream (and its related high interest payments). That is putting all the eggs in one basket, which is a bad strategy for Pakistan to mature as an economy.

The tax structure is something Pakistan can do in the short term. The things like skills, training and education are of course even more important albeit something more long term and sustained.