Profit repatriation by overseas investors down 55pc

Published August 27, 2021
Local laws allow 100pc foreign ownership of companies and impose no limits on the repatriation of profits to attract overseas investors. — AFP/File
Local laws allow 100pc foreign ownership of companies and impose no limits on the repatriation of profits to attract overseas investors. — AFP/File

KARACHI: Overseas investors repatriated profits of $159.2 million in the first month of 2021-22 (FY22), down 55 per cent from the corresponding month of the preceding fiscal year, according to data released by the State Bank of Pakistan (SBP) on Thursday.

The sharp drop in repatriation follows an annual increase of 20.5pc in the total outflow of profits in 2020-21 as foreign investors transferred $1.6 billion abroad.

A disproportionately high share in the total repatriation was of the payment of profits on foreign direct investment (FDI) as opposed to foreign portfolio investment (FPI). Of the total $159.2m, repatriation on FDI constituted 88.6pc in July.

Local laws allow 100pc foreign ownership of companies and impose no limits on the repatriation of profits to attract overseas investors.

The profit repatriation on FDI amounted to $141.1m, which was notably higher than the net FDI of $89.9m that the country received in the same month.

The repatriated profits of the telecommunications sector in July were $62.5m, up 2.1pc from a year ago. The food packaging sector sent abroad a total of $26.8m in July as opposed to zero outflows registered in the same month of 2020.

Other sectors that recorded notable repatriations in the period under review were financial businesses ($23.3m) and chemicals ($13.8m).

Speaking to Dawn, Topline Securities Research Director Syed Atif Zafar said one month’s data reflecting a drop in the profit repatriation does not point to any long-term trend. “Repatriations are directly linked to corporate earnings, which have been steady,” he said. He attributed the sharp decline in the profit outflows to random reasons, such as possible delays in earnings announcements.

With regard to the negligible repatriation on FPI, Mr Zafar said the current level of portfolio investment in the country is too low. “Pakistan received a portfolio investment of about $2.5bn in fixed-income instruments a year and a half ago. All of it has already been repatriated,” he said.

With the exception of exports and remittances, FDI is generally considered the best source of foreign exchange as it creates jobs without increasing the debt burden. However, some economists believe FDI in Pakistan has become a drain on the economy, thanks partly to annual repatriations.

In an earlier interview with Dawn, economist Dr Kaiser Bengali said the net impact of FDI on the national economy is negative. FDI has mostly been in services or consumption-based sectors, such as banks, telecoms, packaged food, beverages, drugs, toiletries, clothing etc, he said.

This means companies backed by overseas investors earn in rupees but repatriate their profits in dollars, which leads to a drawdown on the country’s foreign exchange reserves.

Published in Dawn, August 27th, 2021

Follow Dawn Business on Twitter, LinkedIn, Instagram and Facebook for insights on business, finance and tech from Pakistan and across the world.

Opinion

Editorial

Smog hazard
Updated 05 Nov, 2024

Smog hazard

The catastrophe unfolding in Lahore is a product of authorities’ repeated failure to recognise environmental impact of rapid urbanisation.
Monetary policy
05 Nov, 2024

Monetary policy

IN an aggressive move, the State Bank on Monday reduced its key policy rate by a hefty 250bps to 15pc. This is the...
Cultural power
05 Nov, 2024

Cultural power

AS vital modes of communication, art and culture have the power to overcome social and international barriers....
Disregarding CCI
Updated 04 Nov, 2024

Disregarding CCI

The failure to regularly convene CCI meetings means that the process of democratic decision-making is falling apart.
Defeating TB
04 Nov, 2024

Defeating TB

CONSIDERING the fact that Pakistan has the fifth highest burden of tuberculosis in the world as per the World Health...
Ceasefire charade
Updated 04 Nov, 2024

Ceasefire charade

The US talks of peace, while simultaneously arming and funding their Israeli allies, are doomed to fail, and are little more than a charade.