Foreign Direct Investment (FDI) dropped by 2 percent in the first nine months of the current fiscal year as multinational companies and foreign investors of various sectors have been cautious in investing in Pakistan because of the uncertainties posed by the global situation.
According to the State Bank of Pakistan (SBP), the country had attracted FDI of $1.285 billion between July 2021 and March 2022 as compared to $1.31 billion in the same period last year.
However, the FDI had a net outflow of $30.4 million in March 2022 against an inflow of $173.4 million in March 2021, and analysts noted that Pakistan had the net outflow after November 2020.
The SBP explained the reason for the decreased FDI in the power sector in the first quarterly report for FY2022, stating that “most of the investments into the country’s power sector had been arriving under the first phase of China-Pakistan Economic Corridor (CPEC)”.
As the majority of these projects are complete and operational, fresh investments from China in the sector have correspondingly diminished. 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,” the SBP stated.
It also observed that in contrast to the power sector, FDIs in the information communications technology (ICT) sector gained momentum. Pakistan’s digital services firms and tech entrepreneurs are consistently increasing their exports and are now benefiting from the sharp increase in global investments flowing into tech startups.
According to the first quarterly report, foreign investors have been keen to invest in Pakistan’s communications sector since the outbreak of COVID-19 largely because of consistently rising telecom connectivity besides increased demand for digital services amidst the pandemic.
Cumulatively, in the first nine months of FY22, China remained the single largest investor with a net inflow of $333.5 million, followed by the USA which invested a net $183.1 million. Hong Kong also invested a net $133 million in this period.
Furthermore, the power sector attracted a single albeit largest investment of $489.1 million in these nine months. The financial sector received $322.8 million on the net while oil and gas exploration firms received a net $179.7 million in the same span.
