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.