Counting-on-telecom-FDI

Heading into FY21, the harsh weather is here for Pakistan’s FDI scorecard. But it doesn’t have to be that way, if telcos step in again and do some magic.

Based on the latest foreign investment data released by the central bank, in the 11MFY20 period so far, the telecoms external investment had a prominent role in nearly doubling Pakistan’s overall net FDI, contributing roughly a quarter of the $2.4 billion figure.

That’s the highest telecom sector contribution to Pakistan’s overall net FDI since FY14! In the Jul-May period, the telcos’ net FDI rose from a low of -$73 million in the last fiscal year to $548 million this fiscal year. The sharp, favorable reversal owes mainly to the windfall that the federal government scored in the first half of the fiscal on account of license renewal of three operators: Warid (Jazz), Telenor and Zong.

There is a reason why telecom FDI matters in these times. Unlike sales of many sectors among industrial and services entities, the consumption of cellular and broadband services seems to have been shielded from adverse impact amid Covid-19. It is even likely that the operators have grown their topline over same period last year. One will know for sure next month when the second quarter financial results come out.

The FDI that poured into the telecom sector during the gloom and doom of the initial coronavirus wave seems to affirm that hopeful view. The combined net FDI inflows into telecom sector in March, April and May this year have totaled about $96 million. That’s about 20 percent higher compared to the corresponding months last year, and even higher compared to corresponding months in the previous years, going all the way back to 2015!

Telecom FDI can do better and fetch bigger numbers. What are the avenues to attract large investment next fiscal, given that a large spectrum auction is not in the offing? Before answering that, it bears reiterating that what happened last year in the name of license renewals, and the whistles of NAB enquiry into a past merger, was counterproductive. It was a rather high-handed manner in which the telcos were made to cough up over Rs100 billion in license renewal fees on account of a stale policy framework.

Facing a revenue-hungry government and litigation (which is apparently still going on), the telcos had to relent and pay up 50 percent of renewal fees ($688 mn). The government is expecting to receive the remaining half of the money, in five equal yearly installments. That comes to about Rs20 billion a year, and a similar amount has been budgeted under non-tax revenues for PTA in FY21. Some of that is to come in the form of inward FDI. But this alone won’t help the sector grow from its FY20 tally.

The key for the relevant policymakers is to provide specific incentives to facilitate the telcos to commit more investment next fiscal. The ongoing crisis, which has hurt the poor and low-income households disproportionately, underscores the need to bridge the digital divide in the country. This will require, among other things, investments in modernizing existing networks as well as laying down new fiber optic cables in under-served and un-served areas. The budget missed the boat. But there is still time!