Covid-19, FDI and Privatization Prospects

As the government is reportedly looking to privatize Pakistan Steel Mills (PSM), among other state-owned enterprises (SOEs), it should know that regardless of the debate that whether SOEs should be privatized or not, given the current pandemic and with it the existence of lockdowns in many parts of the world, these times of great economic uncertainty do not present themselves as the best time.

For one, aggregate demand and supply have collapsed, and winds of deglobalization have gained strength, and things are likely to follow this trend at least till there becomes available an appropriate vaccine. These are indeed not the best time to expect a lot of interest from foreign investors, especially in assets like PSM, which are in really bad shape, both in terms of efficiency and debt.

In fact, according to a recently released ‘World Investment Report 2020: International production beyond the pandemic’ by United Nations Conference on Trade and Development (UNCTAD) ‘Global flows of foreign direct investment (FDI) will be under severe pressure this year as a result of the COVID-19 pandemic. These vital resources are expected to fall sharply from 2019 levels of $1.5 trillion, dropping well below the trough reached during the global financial crisis and undoing the already lackluster growth in international investment over the past decade. Flows to developing countries will be hit especially hard, as export-oriented and commodity-linked investments are among the most seriously affected.’