FDI is not experiencing exodus but evolving: brokerage report

KARACHI: Pakistan has witnessed a growing interest from international investors, with around 16 new foreign companies currently in the process of acquiring stakes in local businesses, a brokerage report said on Saturday.

Cross-border investment in Pakistan has fluctuated over the last four to five years due to economic and political instability. Many multinational companies were hesitant to make new investments or exit the country. However, during FY24, net foreign direct investment (FDI) increased by 17 percentper cent to $1.9 billion. China was the top contributor to FDI with $568 million, followed by Hong Kong with $359 million. The power sector received the largest investment, totaling $800 million, while the oil and gas exploration sector attracted $304 million.

A report from Karachi-based brokerage house Arif Habib Limited (AHL) statedstaited that the idea of a mass corporate exodus from Pakistan does not align with the reality of growing interest from international investors.

“Over the past 18 months, while 11 companies have exited or signaled signalled their intent to exit, what really is striking is that around 16 fresh foreign firms are in the process of taking over stakes in local businesses,” the report said.

“With the government introducing reforms and the establishment of the SIFC [Special Investment Facilitation Council], the country is prepping for flows of fresh foreign investment,” it added.

The oil marketing industry in Pakistan is undergoing a significant transformation through a series of mergers and acquisitions.

According to the report, established foreign companies like Shell Petroleum and TotalEnergies, which are transitioning out, are making way for new players such as Wafi Energy Holding, Gunvor Group and Saudi Aramco. In May 2024, Saudi Aramco acquired a 40 percentper cent stake in Gas and Oil Pakistan Ltd for approximately Rs56 billion ($200 million). Wafi Energy Holding purchased a 77 percentper cent stake in Shell Pakistan from Shell Petroleum Company Ltd, while TotalEnergies is working with Gunvor Group to sell 50 percentper cent of its stake in Total PARCO Pakistan. Saudi Arabia aims to establish a modern refinery in Pakistan, which is expected to reduce the country's dependence on imported petroleum products over the next 5-6 years.

The report highlighted that in the past two years, several older pharmaceutical companies that were working with imported ingredients have been leaving the market, while domestic companies are taking over. Recently, Pfizer Pakistan Ltd (a subsidiary of Pfizer Inc.) sold six of its assets to Lucky Core Industries Limited. thetThe Japanese pharmaceutical company Eisai Co Limited has sold off two product categories.

Since January 2023, there has been growing interest from foreign investors in Pakistan's IT sector, particularly in the fintech segment. A Turkish fintech company, Papara, has acquired 100 percent of the fintech company SadaPay Pvt Ltd in Pakistan. Furthermore, the microfinance bank Advans Pakistan Microfinance Bank Ltd, owned by a Luxembourg company in Pakistan, has been acquired by the Netherland company MNT Halan.

Meanwhile, the Norwegian company Telenor is selling Telenor Pakistan to the UAE’s Etisalat, which runs Pakistan Telecommunications Ltd. It is important to note that Telenor has already exited from nine countries over the last seven years.

Foreign companies have shown interest in renewable power companies during this period. One such transaction involves Pakistani group Dawood Lawrencepur Ltd selling Reon Energy Ltd to UAE-based company Juniper International FZ LLC for Rs300 million.

The AHL report anticipates a promising future for FDI in Pakistan due to the improved macroeconomic conditions. Many global players are targeting sectors such as energy, mining, refineries, corporate farming, and exploration. The government has recently deregulated the prices of non-essential medicines and is considering similar moves for petroleum pricing. Plans for the development of several IT parks and tech cities in the technology sector are currently in progress. These measures are expected to attract foreign interest and investment in pharmaceuticals, oil marketing companies, and the technology sector.