IT & Telecom FDI Soared Under Imran Khan, Now in Decline: WEF Report

Pakistanโ€™s digital foreign direct investment (FDI) has shown fluctuations over the past decade. According to a new World Economic Forum (WEF) report the digital FDI in Pakistan experienced a peak during the tenure of Imran Khanโ€™s government but has struggled with negative growth since 2023. The reasons for this decline are mainly the macroeconomic challenges and policy hurdles, as per the report.

From 2018 to 2024, net digital FDI showed intermittent growth, with a marked spike in 2020 driven by COVID-19-related investments. However, the momentum shifted after 2022, with net digital FDI turning negative in 2023 and 2024. The decline reflects higher outflows than inflows, which is a concerning trend for Pakistanโ€™s digital economy.

Source: World Economic Forum

Drivers of Growth and Subsequent Decline

The spike in 2020 stemmed from an increased focus on digital solutions during the pandemic. The telecom sector witnessed an inflow of around $800 million. However, investor confidence took a hit in FY 2022 due to PKR depreciation, taxation issues, and policy uncertainties. Another setback was limited participation in recent network spectrum auctions, largely due to spectrum pricing tied to the US dollar. Telecom operators faced challenges fulfilling payment obligations amidst currency depreciation and economic instability.ย  The IT & Telecom sector net flows also decreased significantly since 2020, as evident in the graph.

Telecom Sector Revenue
Source: World Economic Forum

Start-ups have been pivotal in attracting digital FDI, especially in sectors like fintech, edtech, and agritech. In 2021, investments in start-ups reached $352 million, with a further rise to $355 million in 2022. However, investment levels dropped to $74 million in 2023 and just $37 million by November 2024.

Startup growth
Source: World Economic Forumย 

Despite these declines, strategic initiatives offer hope for recovery. The upcoming 5G spectrum auction, Mobile Virtual Network Operator (MVNO) Policy, and Mobile Device Manufacturing and Export Policy aim to attract investments, enhance competition, and reduce import reliance. Similarly, the National Fiberization Policy seeks to expand high-speed internet access, and the National Space Policy of 2023 aims to strengthen Pakistanโ€™s space capabilities.

  • Challenges

Economic instability and policy inconsistencies remain the primary obstacles. High spectrum prices, excessive taxation (19.5% on Telecom sector), and currency depreciation have deterred telecom operators and investors. The decline in telecom sector inflows highlights the need for reforms to ease financial pressures and encourage investments.

Start-ups is one of the promising segments which have also faced reduced funding in recent years. Notable deals, such as the $350 million acquisition of Cloudways by DigitalOcean, show the potential of Pakistanโ€™s digital ecosystem. However, sustaining growth requires strategic support and a stable macroeconomic environment.

Our Opinion

The decline in digital FDI is a wake-up call for policymakers. Immediate action is required to implement reforms, stabilize the economy, and attract long-term investments. Digital transformation is essential for economic growth, and Pakistan must prioritize policies that promote innovation, enhance investor confidence, and leverage its potential as a regional technology hub.

The incumbent government is working actively stabilize political conditions and restore investor confidence. However, reforms targeting taxation, spectrum pricing, and policy clarity are essential to revitalize digital FDI. In additionn, promoting innovation in emerging technologies like blockchain, cloud computing, and IoT could attract international investors. By addressing macroeconomic challenges and prioritizing digital infrastructure, Pakistan can unlock the full potential of its digital economy.

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