Foreign Direct Investment (FDI) in telecom sector remains pathetic as cellular operators are mostly reluctant to invest in Pakistan’s market on the back of low returns and heavy taxation on services.
According to State Bank of Pakistan (SBP), the overall inflows of FDI were recorded at $120 million in the first half of financial year 2015-16 as compared to handsome inflows of $876 million recorded in the similar period of last financial year.
The overall FDI after outflows of investment is $76 million because local investors and companies invested in $43.7 million outside Pakistan in different projects and business related to telecom sector.
An industry official said that expansion is much needed in the telecom sector with respect to sustaining the growth of 3G and 4G technologies however the government policies, mainly with regards to the taxation issue, restrained mobile phone operators to continue with their investment plans in Pakistan, which has now become a market of low returns.
In the past six months, two mobile phone companies have canceled out their orders to purchase equipment and infrastructure with corporations of network roll-out, a C-Level executive told ProPakistani.
This is due to new taxes introduced on mobile internet tax (including 3G and 4G technologies) by the provincial government of Punjab in May 2015, which not only shocked the whole industry but also hurt foreign investors as well.
Political and Security Situation Hurt the Telecoms Industry
He explained that the telecom scenario of Pakistan is very difficult as mobile phone companies started launching 3G and 4G services since May 2014 and there was an ensuing Dharna (sit-in) in Islamabad by Pakistan Tehreek-e-Insaaf.
The event, regardless of political outcomes, adversely impacted the uptake of new services introduced by CMOs, which continued till December 2014-end.
After the horrific incident at Army Public School of Peshawar, operators came under fire and were asked to run a challenging biometric re-verification drive on a war footing basis which not only cost more than Rs 3 billion to industry but also hurt their sales and revenues drastically in the first half of 2015.
Operators continued to take steps for promoting new technology but they have had to re-launch their services as a consequence of the post-Dharna and SIM re-verification drive period. Unfortunately, the situation lasted till May 2015 because in the ensuring few weeks the provincial government of Punjab dropped bombshell over cellular sector, by imposing 19.5 GST on mobile internet/data services.
Source: PTA Annual Report
Telecom Sector’s FDI in Future
The situation of telecom sector improved in the past two months as provincial government of Punjab removed 19.5 percent GST on mobile internet. On the other hand, Mobilink and Warid announced their merger in a tough marketplace environment, for purposes of better consolidation.
Zong, Deputy CEO Niaz A Malik had announced that CMPak will invest $ 1 billion in next two years, mainly for expansion of 3G and 4G services. Other market players are likely to follow the same precedent.
FDI in dollars or local currency will land in the sector due to the auction of WLL spectrum in AJK and Gilgit Baltistan, a move that will generate Rs 108 million in the next ensuing months as per the scheduled of payment prescribed by PTA.
Haier announced investment of $5 million for setting up mobile handset plant near Lahore that is likely to start production in 2016.
Similarly, on the ICT side, General Electric also announced its plans to invest $50 million for establishment of a Digital Center in the coming years.
The proposed mega project of China Pakistan Economic Corridor (CPEC) will generate big opportunity for telecom sector as well as mainly for rolling out optic fiber and different projects.
The investment plans may not materialize to show jump in values of FDI in the remaining second half of financial year 2015-16 but it will continue to reflect in couple of upcoming years depending on government policies and market scenario.
Further, the federal and provincial government should realize the importance and remove/ reduce taxes on telecom services, which is second highest in the world, if not to relieve telecom operators and consumers but to attract FDI and to boast their performance for getting good PR.