UAE, Saudi Arabia lead FDI revival in Pakistan

The UAE and Saudi Arabia are following in China’s footsteps in channelling foreign direct investment (FDI) into Pakistan.

According to a Khaleej Times report, a major chunk of these investments are going into energy projects. As these energy projects go on stream, they will have a multiplier effect on the Pakistan economy.

Over several years, the whole country and the economy in particular was badly hit by energy shortages.

World Bank estimates show that prolonged outages of electricity and natural gas supplies to major industrial units in Pakistan had eroded the economy by a reduction of up to two per cent in the annual gross domestic product (GDP).

The State Bank of Pakistan (SBP), the central bank, reported that FDI into Pakistan rose by 4.8 per cent during July-February period of the current fy-2016.

The net FDI inflow during these eight months was $750.9 million as compared to $716.2 million in the corresponding period of fy-2015.

The gross inflow of FDI during this period was $1.3 billion, while the outflow was $583 million, the central bank said. The outflows mainly comprised repatriation of dividends and profits earned by foreign investors.

The UAE came second only to China, with an investment of $111 million.

Saudi Arabia committed $105 million and Hong Kong $101 million during the July-February fy-2016, the SBP said.

According to report, Ahsan Iqbal, minister for planning, development and reforms, who is also the key person on the China-Pakistan Economic Corridor (CPEC) projects, informed Parliament that out of the total Chinese funding of $46 billion, $35 billion are commercial loans which will be invested in Pakistan by the Chinese private sector. The remaining $11 billion are concessional loans.

The SBP also reported that credit takeoff by Pakistani businessmen has gone up but it was mainly used as working capital to raise industrial output. It is a good sign for the economy, with exportable surpluses getting bigger.

“At the recently-concluded Textile Asia Exhibition at Karachi, 400 foreign, mainly European, and 300 Chinese business delegates participated. Several of them expressed interest to invest in the Pakistani textile sector or doing much bigger business than their current operations,” Khawaja Arif Kapoor, one of the organisers and chairman of Pakistan Chemicals and Dyes Association, said.

Foreign fund inflows are improving and projected to go up in the coming months. This is indicated by the fact that February fund inflows rose to $103 million – up from $89.1 million in February 2014.

The amount may look small but it is significant considering low international oil prices which have hit demand for products in key export markets, reduced foreign trade volumes and lowered the level of investment funds globally.

Senior analysts in the capital market attribute this increase in FDI inflow to improving foreign investor confidence in the Pakistani economy and fresh efforts by the government to reduce the cost of doing business.

“We are now benefiting from the lowest commercial bank rates during the last 11 years. It means the cost of our products is becoming more competitive internationally, our exports will grow and benefit the economy,” Ashraf Mahmood Wuthra, governor of SBP, said.

He hopes the present easy monetary policy, which has brought down the interest rate to six per cent, and low inflation would help the economy and attract more FDI.

Khawaja Asif, minister for water and power, said: “More energy is the key to solve our economic problems. I am glad to see that a major part of the new FDI will go into generating electricity.”

Besides China, other foreign investors from the UAE and Saudi Arabia have also committed to invest in energy projects, finance minister Ishaq Dar said.

“Our growing energy demand has made Pakistan a big emerging investment destination. The investors are topped by Chinese multinationals, generating power and doing infrastructure development,” Prof Iqbal said. “China, the biggest investor, has invested $447.8 million during July-February fy-2016. It invested $200 million in fy-2015.”

The SBP reports that capital investment in Pakistan included $362.2 million in the energy sector during the first eight months of fy-2016. Investment in oil and gas exploration totalled $214 million. Beverages attracted $57.8 million.

Foreign investment into coal-fired energy projects was $240.3 million.

The government and economists project that as work on projects included in the CPEC speeds up, FDI inflows, not only from China but also from other countries, including the UAE and Saudi Arabia, will go up. “UAE and Saudi companies are in negotiation with us, and we are close to announcing details of these projects,” Dar said.

Another vibrant area attracting investment in Pakistan is telecom-IT.

Anusha Rehman, minister for IT and telecom, informed Parliament that “FDI in IT-telecom rose to $908 million in fy-15, up from $160.8 million in fy-14.”

“We expect FDI to rise further in fy-16. After launching 3G and 4G technology, the number of mobile users rose by 26 million,” she said.