Repatriation of profits and dividends from Pakistan rose by 12.2 percent during the first ten months of the current fiscal year. Foreign direct investors sent $735m abroad from July 2007 to April 2008, up from $654.9 million repatriated in the corresponding period last year, according to the figures released by the State Bank of Pakistan.
It is this policy of the Musharraf-Aziz era permitting repatriation of 100% of the profits that spurred a significant increase in foreign direct investment over the last several years. The investments in power, communication, oil and gas have led the pack in profits repatriated recently.
Thermal power generation companies sent $151.27 million, the most by any sector of economy. This represents 27.9 percent increase over $118.32 million sent last year.
It was followed by the telecommunications sector, which sent $92.06 million during July-April period. It is a drop of 14.3 percent from $107.42 million remitted last year.
The oil and gas exploration companies transfered $64.56 million, up by 83.9 percent from $35.1 million last year.
Petroleum refining sector repatriated $51.7 million compared to $48.69 million sent abroad last year.
Repatriation of profits by companies making pharmaceuticals & OTC products declined from $48.22 million to $26.31 million. Tobacco and cigarettes sector sent abroad $27.28 million as compared to $17.6 million last year.
Chemical manufacturing companies' profit repatriation declined from $42.74 million to $39.4 million. The repatriation of profit by financial sector fell from $92.12 million to $90.64 million.
Many sectors showed a significant decline in profits repatriation. The SBP statistics show no profits repatriated from paper & pulp, mining & quarrying and construction so far this fiscal year. Repatriation by foreign investors registered an increase of 59 percent to 804.2 million dollars during FY07 as compared to 504 million dollars sent abroad during FY06.
Foreign direct investments and the ability to repatriate profits have been the key to the phenomenal economic growth and dramatic poverty reduction in China. What has differentiated China's success from India's has been China's ability to attract vast amounts of FDI. Pakistan must follow the Chinese example to achieve similar results.While it may create major disparities between the rich and the poor in the short term, it is the only to ensure continuing poverty reduction and makes all boats rise with massive job creation. Please see earlier blog post on this subject.
There are some Pakistani economists who are advocating limiting profits repatriation by foreign investors. It may help reduce the loss of foreign exchange reserves temporarily. However, such a move will deter further FDI investments and hurt Pakistan's economic development, job growth and poverty reduction over the long run.
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