Foreign Direct Investment: Pakistan sees outflow of $30.4m in March

• Analysts say Pakistan witnessed net outflow last month after November 2020.
• FDI slows down in first nine months (Jul-Mar) of ongoing fiscal year 2021-22.
• Fall comes on back of a decline in inflows from China, withdrawal by MNCs.

KARACHI: Foreign direct investment (FDI) into Pakistan saw a net outflow of $30.4 million in March, compared to an inflow of $173.4 million in the same month last year as multinational companies (MNCs) pulled out some of the investment, The News reported, citing State Bank of Pakistan (SBP) data.

According to analysts, the country witnessed net outflow after November 2020.

Meanwhile, the FDI slowed down in the first nine months of the ongoing fiscal year 2021-22 due to a decline in inflows from China, while MNCs also invested less in some businesses.

According to data released by the central bank, the country attracted $1.285 billion in FDI between July 2021 and March 2022, down 2% compared to the same period a year ago.

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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 FY22. 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 FY21.

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% to $489 million in July-March FY22. However, the FDI in the financial business rose 71% to $323 million. Oil and gas exploration sector attracted $180 million in FDI in nine months of FY22, up 5% 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 FY22.

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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.

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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.