Business Recorder (BR) Research

Slipping and slithering, foreign direct investment is a genuine concern in Pakistan. Standing at $751 million for the first eight months of FY16 (July-February), prospects of it crossing the psychological billion dollar mark is still plagued with quite an improbability.

However, a slight improvement has been witnessed in the foreign receipts. In total, the country was able to attract $103 million in foreign direct investment in February 2016, up by around 16 percent year-on-year, and by over four times when compared to January 2016. While one explanation for the year-on-year increase could be the low base effect, the monthly growth in FDI can partly be attributed to investment in infrastructure and energy projects in the country under CPEC.

And this brings us to what is being referred to as the China Effect; as it frequently does, China has come in as the savior of the country. Investments by Chinese power companies have been the key growth trigger in the country’s FDI. Figures for 8MFY16 released by SBP show that around 35 percent of the total foreign inflows were brought by China. Sector analysis shows that 30 percent of the FDI inflows were parked in the power sector alone, of which 58 percent came in an investment in the coal power generation.

Financial Times has also pointed out that large-scale investments by Chinese power companies have given a significant boost to Pakistan’s FDI figures in the past year. It calls 2015 a bumper year for investment in the country that was largely due to the “China Effect”. As per the data collected by FT’s Data Service – FDI Markets, Pakistan received 39 greenfield investments adding to an estimated $18.9 billion in 2015, and that China emerged as the top source country for investment in Pakistan primarily due to its investments in power. 39 greenfield capital investments are significantly higher than 28 projects for $7.6 billion in 2014 (see illustration).