Dropped: FDI

Business Recorder (BR) Research

Miftah Ismail, the boss of the Board of Investment, must be quite put off yesterday. Media reports said the Prime Minister himself had ordered the restructuring of BoI, and the winding up of its regional offices. And to top it off, the central bank announced the FDI numbers for July 2016. The numbers are obviously not pleasing.

Net FDI inflows dropped 14.6 percent year-on-year last month. It would have been a bigger dent had the gradual decline in gross outflow been reversed. According to central bank data, gross FDI inflow was $93 million last month, compared to $179 million in July 2015.

Gross FDI outflow, however, was $29 million in July 2016 as against $104 million in the same month last year – and that is what saved the day. In fact, that is what saved the day last fiscal year.

SBP data shows that net FDI in FY16 was up 38 percent – something which made it to the headlines as well last month. But that uptick was large because of a decline in FDI outflow ($819mn in FY16, as against $1.8bn in FY15) than because of inflows, which were down 23 percent ($2.1bn in FY16, as against $2.7bn in FY15).

According to the central bank definition, gross inflows/outflows include cash received for investment in equity, inter-company loan, capital equipment brought in/out, equity in accounts abroad, and reinvested earnings.

Keeping that definition in mind, slowing outflow can give some hope that at least the existing foreign investors have stopped taking the capital out. But gross outflow numbers is not the key performance indicator of Miftah and his team; gross inflow is that the CPEC projects should not be a part of Bois evaluation since it is not because of BoI that China is pouring $46 billion. On that note, the SBP would do well to report segregated data for CPEC FDI and non-CPEC FDI – just as it reports segregated data of privatization-FDI and non-privatization FDI.

Published: August 17, 2016.