FDI in the construction industry fell abruptly

FDI in the construction industry fell abruptly

Foreign investment in the construction industry fell sharply in July this year compared to the corresponding month of last year, possibly due to the end of the amnesty scheme on June 30.

According to the latest data of the State Bank of Pakistan, the foreign direct investment (FDI) in the construction sector noted a net outflow of $4.9 million in the first month of the current financial year compared to an inflow of $31.2m in July FY21.

Prime Minister Imran Khan had elevated the status of the construction sector to industry on April 3 last year and announced a number of incentives for investors and businessmen.

He also announced that all the people investing in the construction sector this year will not be questioned about their source of income.

The premier minister extended the date for disclosures of the source of income by the investors to June 30 this year.

With the end of the scheme, the inflow of FDI in the construction industry almost stopped in June FY21 at $9.5m.

The inflows during the second half of 2020 for the industry were the highest in February when it received $35.5m.

The government was willing to mobilize the maximum from the foreign as well as the domestic investors for the construction sector which contributed almost Rs794bn to the Gross Domestic Product (GDP) in FY20 (FY19: Rs734bn), registering a growth of 8.1 percent year on year basis. Contribution to GDP decreased between FY19 and FY20 from 2.05pc to 2.04pc.

The central bank recently said that about 97pc of the overall target set by it for June 30, 2021, was met, adding that an increase of this quantum in housing and construction finance in one year is unprecedented in Pakistan’s history. As of June 30 banks have approved home financing worth Rs39bn.

The private construction industry refused to accept that the approved amount of Rs39bn for the industry has any significance.

The prime minister has also stressed that banks’ portfolios must show strong growth in the disbursements of loans in the coming days.

However, the FDI inflow for the construction industry during the entire fiscal of FY21 was significantly important as it reached $154.5m.

“The net outflow of FDI from the sector in July could be an indicator of the future trend,” said Kamran Khalil, a private builder. The construction activities in Karachi had declined compared to other cities, he said, adding that there were no significant activities in Karachi.

The building's construction is the largest segment of the market segmented by type, accounting for 52pc of the total revenue generated in 2019.

The construction sector absorbs 7.6pc of the country’s total labor force and also provides stimulus to over 42 ancillary sectors, including aluminum, brick, cables, cement, fixtures, glass, kitchen and bathroom fittings, marble, paint, steel, tiles, transportation, warehousing, and wood.

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