KARACHI: Pakistan received $1.733 billion in foreign direct investment (FDI) during first 10 months of the current fiscal year of 2016/17, up 12.7 percent from a year earlier, as investment from Chinese companies continued to increase.
The State Bank of Pakistan (SBP) on Monday said the country received $1.537 billion during the same period of the last fiscal year of 2015/16. The SBP said most of the new investments, in the July-April FY17, went into food processing, electronics and construction sectors.
Pakistan has been attracting steady inflows of investments from China since the start of $57 billion worth of various infrastructure and power projects under China-Pakistan Economic Corridor (CPEC).
FDI from the Chinese companies rose 13 percent to $718.3 million in July-April FY17. Analysts said the prospects for direct investments are improving as the international creditors and rating agencies have projected a medium-term stable economic outlook for the country.
An analyst said foreign investors see country’s favourable growth prospects and investment environment conducive. “Flow of investment from China to Pakistan is growing faster than the investments from other countries.”
Analysts said strong foreign investment inflows, including public and private, are also necessary to finance the growing current account deficit. FDI from China is not just limited to power and infrastructure projects any more. Chinese companies also planned to invest in agriculture, tourism and telecommunication sectors under CPEC.
The SBP, in its second quarterly report on the state of Pakistan’s economy, said merger and acquisitions (M&A) deals helped boost FDI during the current fiscal year. The country witnessed acquisition deals in electronics sector in November last year when a when a Turkish firm acquired a privately held Pakistani home appliances company.
In December, a Dutch food conglomerate completed its purchase of a majority stake in a Pakistani food processing company for $458 million. M&A activity is also visible in the power, automobile, and pharmaceutical industries.
The central bank said it expects positive spillover of these M&A transactions to extend beyond the arrival of foreign exchange inflows only and lead to improvements in corporate productivity and efficiency, skill and technology transfer, introduction of innovative products and opening up of new markets for exportable products.”
In July-April FY17, foreign portfolio investment experienced an outflow of $387.8 million from the local equity market due to sell-off by investors.
Analysts, however, anticipate inflows of $300-$500 million into the capital market as a result of Pakistan’s re-inclusion into the Morgan Stanley Capital International (MSCI) Emerging Markets (EM) Index. There will be one large cap, five mid caps and 20 small cap stocks in the MSCI EM Index.
US equity index MSCI is set to announce the list of constituents on May 15 (early hours of May 16 (today) in Pakistan). The upgrade will be effective from June 1.