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Chinese FDI jumps over three-fold since FY15


10/10/2017

KARACHI: China has emerged as the biggest cross-border investor in Pakistan, with foreign direct investment (FDI) inflows more than tripled from $319.1 million in the fiscal year 2014/15 to $1.185 billion last year, a report said.

An increased level of Chinese FDI followed the China-Pakistan Economic Corridor (CPEC) under its One Belt One Road initiative within the last fiscal year of 2016/17, according to a report by the audit, tax and advisory services providing firm KPMG Pakistan on Investment in Pakistan. In FY16 the FDI from China was $1.063 billion.
 
The CPEC is estimated at a cost of over $50 billion. The project encompasses infrastructure projects involving highways, railways and pipelines along with several energy projects and establishment of special economic zones.   
 
Mostly, electricity generation and infrastructure sectors are attracting more Chinese money. Some construction projects that have received FDI from China in FY17 include the Thakot-Havelian section of the Karakoram Highway, Sukkur-Multan section of the Peshawar-Karachi Motorway, and the Lahore Orange Line project.  
 
Foreign businesses operating in Pakistan see a surging Chinese investment as a positive sign for the country.
 
“It is a fact that FDI from China has spiked in the past few years mainly in power and infrastructure sectors,” said a top official of Overseas Investors Chamber of Commerce and Industry (OICCI).
 
“CPEC investment commitment of over $50 billion in itself is very positive news and has created positivity in the business environment, leading to renewed interest from other international investors. This needs to be carefully nurtured with concerted efforts of the government and the private sector.”
 
Pakistan has welcomed the Chinese largesse with open arms, especially in the wake of CPEC. But the report said that the country became a less attractive destination for the investors of other countries during the period under review. 
 
Pakistan proved a dull recipient market for the investors in the United States, Europe, Middle East and South East Asian countries. They don’t look for fresh opportunities in Pakistan. Between FY15 and FY17, direct investment from the US firms fell to 68 percent.
 
The OICCI official said there is need to focus on positive fundamentals, including Pakistan’s growing middle class, availability of skilled and semi-skilled workforce, as well as the geographical location.
 
“Therefore it is quite logical to expect that we should be on the radar of most large investors worldwide whether in US, Europe, Asia, or the ME. It is the job of the authorities and regulatory institutions that draw up appropriate strategic plans and properly implement those plans to convert the various positive potentials into an attractive package for investors and aggressively pursue FDI from all countries in addition to commitments under CPEC.”
 
In terms of FDI, currently Pakistan severely suffers from negative perception which is definitely worse than the actual reality. Available statistics indicate that the concerns on security environment in Pakistan have largely receded, and an increasing number of foreign business visitors have been coming to the country in the last couple of years.
 
However, concerns have been raised about Pakistan’s poor rating in World Bank’s Ease of Doing Business survey, where the country’s ranking has deteriorated from being 75 in 2010 to 144 in 2017.
 
Another important negative which may be affecting the confidence of large local and international investors is the increasing level of negative surprises in the taxation and corporate regulations.
 
“All in all, Pakistan has the need and the capacity to attract large level of FDI, at least 2-3 percent of GDP, which is achievable through visible and measurable actions, from all the concerned government authorities,” the OICCI official said.  
 
Besides, capital investment under CPEC, China had a major share in loan disbursements, with multiple infrastructure and power projects being the main beneficiaries of funding. China disbursed a cumulative $404 million to finance various power generation and infrastructure projects during the first quarter of the last fiscal year.
 
Source: The News