Pakistan FDI seen surging, but some Western investors fret over Chinese influence

By Drazen Jorgic

ISLAMABAD (Reuters) - Pakistan expects net foreign direct investment (FDI) to jump about 60 percent in 2017/2018, the chairman of Pakistan's Board of Investment said, but some Western investors appear to be put off by China's growing influence in the South Asian nation.

Chinese companies are building roads, power stations and a deep-water port in Pakistan after Beijing offered more than $50 billion in funding for Pakistani infrastructure as part of China's vast Belt and Road initiative.

Chinese investment has helped spur Pakistan's economic growth to more than 5 percent, its highest in a decade, while also increasing Beijing's clout in Pakistan at a time when Islamabad's relations with the United States, an historic ally, are fraying over Pakistan's handling of Islamist militants and the conflict in Afghanistan.

Naeem Zamindar, a state minister responsible for promoting foreign investment in Pakistan, said some Western investors appeared reticent because of an incorrect perception that Chinese companies would get "exclusive advantages" and concessions that would not allow for an even playing field.

"A perception was created that the Chinese are taking over. The fact of the matter is that this is not true," Zamindar told Reuters in his office in Islamabad.

"Pakistan's government is very clear about it: we want investors of all hues to come in and participate in building this economy - whether American, English or Japanese."

Zamindar said some Chinese companies building power stations had obtained soft loans but that was because the money was provided by Beijing, which made such terms a condition of its financing for projects that were part of the China-Pakistan Economic Corridor (CPEC), a key leg of the Belt and Road infrastructure network.

But for the second phase of CPEC, in which a series of Special Economic Zones (SEZs) will be set up to boost Pakistan's industries, Chinese companies will not receive preferential treatment, Zamindar added.

"That is completely non-discriminatory," he said, adding that Pakistan's Special Economic Zones Act stipulates no country or company will get preferential treatment within the SEZs.

"The (SEZ) concessions are published and are on the website, open to all."

Zamindar said net FDI for the financial year 2017/2018 (July-June) is expect to reach about $3.7 billion, with Chinese companies providing up to 70 percent of the new investment.

Net FDI has been gradually rising since 2014/2015, when it plummeted to less than $1 billion. It rose to $2.3 billion last year, according to central bank data.

Foreign direct investment is separate from the China-Pakistan Economic Corridor investments. More than 20 CPEC projects worth nearly $27 billion are currently being implemented, a senior government official told Reuters, meaning either work has begun on the projects or financing deals have been completed.

Zamindar said militant attacks were sharply down in recent years and security was much improved, but some investors are unaware of this and had an outdated "negative image" of Pakistan.

Yet overall interest in Pakistan had jumped, Zaminder said, and he would tour Britain, the United States, France and Saudi Arabia in coming weeks to promote the opportunities available in the country of 208 million people and a fast-expanding middle class.

"We are open for business."

(Reporting by Drazen Jorgic; Editing by Eric Meijer)