The proposed deals for sale of stakes in K-Electric, Engro Foods and Dawlance currently in various stages of finalisation indicate a renewed interest by global investors in Pakistan’s domestic market. But none of the three deals will create new production capacity.

Foreign exchange reserves will go up when the sale of Dawlance, for $243.2m, and the reported amount of $460m — for the expected 51pc stake of Engro Corporation in Engro Foods — are realised. The sum will depend on the actual number and market price of EF shares. It is not however clear whether the sale proceeds of the utility company, with shares amounting to $1.77bn, will be utilised in Pakistan or transferred to the present owners abroad.

With these investments coinciding with the upgrading of Pakistan’s credit rating to grade B by Standards and Poor and the IMF’s praising the country’s performance and efforts for reforms; these sales will definitely send a positive signal to the international market: that Pakistan is an emerging destination for foreign investment.

But as in the past, foreign investors appear to be focusing on the domestic economy and perhaps ignoring the country’s export potential ... Export promotion and import substitution cannot be ignored while promoting foreign capital investment

Renault will invest $100m in a joint venture — 60pc of the project cost — with Ghandhara Nissan to produce initially 6,000 vehicles per anum.

But as in the past, foreign investors appear to be focusing on the domestic economy and perhaps ignoring the country’s export potential. Seen in context of the current situation when repatriation of profits and dividends abroad by foreign firms exceed the FDI inflows, export promotion and import substitution cannot be ignored while promoting foreign capital investment.

If foreign stakes in Engro Foods and Dawlance lead to the induction of the latest technologies, better management skills and a work culture that improves productivity to that of international levels thereby making the companies globally competitive, as is hoped for, the deals would be rewarding for the economy. But in many cases, multinationals just benefit from cheap local labour and resources, including local financing. This may then amount to crowding out of domestic companies.

There is a need to identify green-field projects, or consider the privatisation of state-owned enterprises, which could then help meet the demand of goods and services during the implementation of CPEC projects.

For example, the import of steel for building infrastructure will surge while the Pakistan Steel Mills is closed down. The steel plant could perhaps be revived if Chinese companies engaged in the long-term CPEC programme are attracted to acquire its management stakes.

However, foreign investors are more interested in acquiring business offered for sale by the private sector.

According to a study by South Centre (SC) Geneva, an inter-government body, by and large majority of emerging and developing economy’s export earnings by foreign companies do not cover their import bills and profit remittances. This is even true for countries highly successful in attracting export-oriented FDI, such as in China.

The SC study says that foreign firms invest in developing countries primarily because of their existing advantages such as rich natural resources, cheap labour and infrastructure services; rather than helping the country climb the technology ladder.

A large part of the FDI does not entail cross-border flows but is financed by income generated on the existing stock of investment in host countries. In 2011, half of the globally retained earnings of the host countries financed 40pc of the inwards FDI in these economies.

It is only the green-field projects that raise productive capacity and involve cross-border movement of capital goods.

If foreign investments tend to create an import- oriented economy with exports not moving fast, as is the situation today, and imports surging; external pressures would mount despite foreign capital inflows.

Islamabad is spending about 42.3pc of FBR revenues on servicing both domestic and public debts, running at a high level --at 65pc of the GDP, are much above the prescribed ceiling of 60pc. In July 2016 foreign debts stood at $72.978m. Fiscal deficits will become unsustainable and adversely impact the balance of payments position which is already under pressure.

Policymakers need to encourage foreign investment in areas where capital formation and technological progress can contribute to macro-economic stability.

Published in Dawn, Business & Finance weekly, November 7th, 2016