FDI: New approach needed
The story of nine-month FDI inflows is not very different from that in the preceding eight months. On a net basis, the FDI is up 12 percent. Wonderful? Hiding behind that growth is an 11 percent fall in gross FDI inflows, which was more than offset by 58 percent decline in gross FDI outflows. March 2017 did see some improvement in gross FDI inflow; about 39 percent year-on-year. But it was too little to change the overall nine-month picture.
Gross FDI inflows and outflows include cash received for investment in equity, intercompany loans, capital equipment brought in/out, equity in accounts abroad, and reinvested earnings. The last item, i.e. reinvested earnings, are first recorded as an outflow and then recorded as an inflow, as per international balance-of-payment reporting standards followed by the State Bank of Pakistan.
The graph comparing nine-month FDI flows across FY15-FY17 shows how the rise in net FDI is because of falling outflows. What are the underlying explanations behind it? In the absence of detailed data, it is anybody’s guess. Despite its importance, the central bank’s publicly released numbers do not reveal the break-up of gross FDI inflows and outflows, which limits any meaningful analysis of foreign direct investments in the country.
In the year to date, food, power, and construction sectors dominate the FDI list. The electronics sector too saw some activity in the shape of Turkish firm Arcelik acquiring the home-appliance company Dawlance Pakistan for $258 million earlier this fiscal year. Transactions expected in the pipeline are concentrated in construction-allied, automobile, and food industries. Whether they will materialize in the ongoing fiscal year is difficult to say at the moment, since some of them are still in limbo such as the Renault transaction.
Aside from energizing the Board of Investment, easing the time and cost of doing business, and improving international perception abroad, Pakistan also needs to focus on two things to help boost the FDI.
At the one end, federal and provincial governments need to come up with attractive sector-specific policies. The latest Automotive Development Policy 2016-2021 seems to be attracting multiple foreign carmakers that have shown interest in stepping into the Pakistani market and forming joint ventures with local conglomerates. Similar policies in the fields of agri-businesses (including meat and dairy), surgical goods, gems, mines and minerals, etc. need to be explored to both tap the export potential of non-traditional sectors, and also bring foreign direct investments in the sector.
Second, as Dr. Vaqar Ahmed of SDPI maintains, there is a need to explore and tap the Pakistani diaspora abroad – Pakistanis who have done well and set up successful businesses in America, Europe, or Australia.
In the wake of Trump-ism, an increasing number of successful Pakistani expatriates may like to have some stakes in Pakistan as well – stakes that are more than just that dead capital called real estate. Therefore, PM Nawaz and the BOI should take a leaf from PM Modi on the east, and pay special attention to the Pakistani business community abroad.
As is the case with exports, FDI needs a multi-source and multi-sector approach. Focusing on merely a few sectors or only one country (China) is not a wise strategy by any stretch of the imagination. Hopefully, that wisdom will dawn soon in Islamabad.
This article was originally published at:
The opinions expressed in this article are the author's own and do not necessarily reflect the viewpoint or stance of SDPI.