Pakistan FDI grows despite fears of growing Chinese influence

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The Arabian sea port Gwadar in Pakistan is one of many infrastructure projects in the region to have been built by China. (Reuters)
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A container is loaded on to the first Chinese container ship to depart after the inauguration of the China Pakistan Economic Corridor port in Gwadar. Foreign investment is on the rise in Pakistan but some investors are wary over increasing Chinese influence. (Reuters)
Updated 22 March 2018
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Pakistan FDI grows despite fears of growing Chinese influence

ISLAMABAD: Pakistan expects net foreign direct investment (FDI) to jump about 60 percent in 2017/2018, the chairman of Pakistan’s Board of Investment said. However, some Western investors appear to be put off by China’s growing influence in the South Asian nation.
Chinese companies are building roads, power stations and a deep-water port in Pakistan after Beijing offered more than $50 billion for Pakistani infrastructure as part of China’s vast Belt and Road initiative.
Chinese investment has helped spur Pakistan’s economic growth to more than 5 percent, its highest in a decade, while also increasing Beijing’s clout in Pakistan. It comes at a time when Islamabad’s relations with the US, a historic ally, are strained over Pakistan’s handling of militants and the conflict in Afghanistan.
Naeem Zamindar, a state minister responsible for promoting foreign investment in Pakistan, said some Western investors appeared reticent because of a misconception that Chinese companies would get “exclusive advantages” and concessions that would not allow for an even playing field.
“A perception was created that the Chinese are taking over. The fact of the matter is that this is not true,” Zamindar told Reuters in his office in Islamabad.
“Pakistan’s government is very clear: we want investors of all hues to come in and participate in building this economy — whether American, English or Japanese.”
Zamindar said that some Chinese companies building power stations had obtained soft loans, with money that had been provided by Beijing, which made such terms a condition of its financing for projects that were part of the China-Pakistan Economic Corridor (CPEC), a key leg of the Belt and Road infrastructure network.
But for the second phase of CPEC, in which a series of Special Economic Zones (SEZs) will be set up to boost Pakistan’s industries, Chinese companies will not receive preferential treatment, Zamindar added.
“That is completely non-discriminatory,” he said, adding that Pakistan’s Special Economic Zones Act stipulates no country or company will get preferential treatment within the SEZs.
“The (SEZ) concessions are published and are on the website, open to all.”
Zamindar said net FDI for the financial year 2017/2018 (July-June) is expect to reach about $3.7 billion, with Chinese companies providing up to 70 percent of the new investment.
Net FDI has been gradually rising since 2014/2015, when it plummeted to less than $1 billion. It rose to $2.3 billion last year, according to central bank data.
Foreign direct investment is separate from the China-Pakistan Economic Corridor investments. More than 20 CPEC projects worth nearly $27 billion are currently being implemented, a senior government official told Reuters, meaning either work has begun on the projects or financing deals have been completed.
Zamindar said militant attacks were sharply down in recent years and security was much improved, but some investors are unaware of this and had an outdated “negative image” of Pakistan.
Yet overall interest in Pakistan had jumped, Zaminder said, and he would tour Britain, the US, France and Saudi Arabia in coming weeks to promote the opportunities available in the country of 208 million people and a fast-expanding middle class.
“We are open for business.”


Record budget spurs Saudi economy

The budget sets out to lift spending and cut the deficit. (Shutterstock)
Updated 10 min 16 sec ago
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Record budget spurs Saudi economy

  • “It is a growth-supportive budget with both capital and current expenditure set to rise.”
  • Government spending is projected to rise to SR 1.106 trillion

RIYADH: Saudi Arabia on Tuesday announced its biggest-ever budget — with spending set to increase by around 7 percent — in a move aimed at boosting the economy, while also reducing the deficit. 

However, analysts cautioned that the 2019 budget is based on oil prices far higher than today — which could prove an obstacle in hitting targets. 

Government spending is projected to rise to SR 1.106 trillion ($295 billion) next year, up from an actual SR 1.030 trillion this year, Minister of Finance Mohammed Al-Jadaan said at a briefing in Riyadh. 

The budget estimates a 9 percent annual increase in revenues to SR 975 billion. The budget deficit is forecast at SR 131 billion for next year, a 4.2 percent decline on 2018.

“We believe that the 2019 fiscal budget will focus on supporting economic activity — investment and wider,” Monica Malik, chief economist at Abu Dhabi Commercial Bank (ADCB), told Arab News.

“It is a growth-supportive budget with both capital and current expenditure set to rise.”

A royal decree by Saudi Arabia’s King Salman, also announced on Tuesday, ordered the continuation of allowances covering the cost of living for civil sector employees for the new fiscal year.

“The continuation of the handout package will be positive for household consumption by nationals,” said Malik. “We expect to see some overall fiscal loosening in 2019, which should support a further gradual pickup in real non-oil GDP growth.”

World oil prices on Tuesday tumbled to their lowest levels in more than a year amid concerns over demand. Brent crude contracts fell to as low as $57.20 during morning trading.

Malik cautioned that the oil-price assumptions in the Saudi budget looked “optimistic.”

“We see the fiscal deficit widening in 2019, with the higher spending and forecast fall in oil revenue,” she told Arab News.

Jason Tuvey, an economist at London-based Capital Economics, agreed that the oil forecast was optimistic, but said this should not pose problems for government finances.

“The government seems to be expecting oil prices to average $80 (per barrel) next year,” he said. 

“In contrast, we think that oil prices will stay low and possibly fall a little further to $55 … On that basis, the budget deficit is likely to be closer to 10 percent of GDP. That won’t cause too many problems given the government’s strong balance sheet. 

“Overall, then, we think that there will be some fiscal loosening in the first half of next year, but if oil prices stay low as we expect, the authorities will probably shift tack and return to austerity from the mid-2019, which will weigh on growth in the non-oil sector,” Tuvey said.

John Sfakianakis, chief economist at the Gulf Research Center, based in Saudi Arabia, said that the targets of the budget were “achievable” and the forecast oil price reasonable. 

“It is an expansionary budget that should spurt private sector activity and growth,” he said. 

“With Brent crude averaging around $68 per barrel for 2018 and $66 per barrel for 2019, the authorities have applied a conservative revenue scenario.”