According to the State Bank of Pakistan, there has been a decline in Pakistan’s Foreign Direct Investment (FDI) numbers. During the first seven months of the current fiscal year, from July to January, the FDI fell by 27 percent compared to the same period last year. Pakistan fetched FDI amounting to $1,145.3 million in this half of the financial year, compared to $1,577 million in the same period of the last fiscal year, thus showing a decline of $431.7 million.
The government ought to not panic too much over these numbers nor blame itself—this is, after all, a comparison between post-pandemic and pre-pandemic numbers. FDI, like all other areas of business, was bound to suffer due to the lockdown, shrinking of the world economy and restrictions on travel.
The pandemic has eroded the trust of investors in investment—which has an adverse impact on every step of FDI, including input supplies, increasing uncertainties and liquidity constraints for the multinational firms. There are also other external factors out of the government’s control.
A major chunk of the recent foreign investment was contributed by China, which has remained the largest investor with over 35 percent share in overall FDI. This means that our fate is inextricably tied to China’s. Details showed that net inflow of FDI from China was $402.8 million against $502.6m in the same period of last fiscal year.
Yet this does not mean that the government should sit easy. Even if the state has been dealt difficult cards, it can still act wisely to ensure that it can utilise the maximum benefit to the country out of this situation. It needs to pick up on the sectors of investment less affected by the pandemic and diversify our FDI plans.
The status quo for international investment for Pakistan has always focused on coal and power—but the government should tap into the small, growing sectors, such as technology, to see how it can build a more sustainable economic base, even in times of crisis.