Due to rupee’s fall: Profit, dividend repatriation drops 45%

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VIASalman Siddiqui
SOURCEThe Express Tribune
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KARACHI:  The repatriation of profits and dividends by multinational companies in Pakistan to their homeland has dropped significantly mainly due to massive depreciation of the rupee, according to experts.

Besides, an ongoing slowdown in the domestic economy has also impacted the growth in repatriation of profits and dividends.

The repatriation dropped 45% to $171.9 million in November 2018 compared to $313.7 million in the same month of last year, the SBP reported on Thursday. “Rupee depreciation (against the US dollar) left a major impact on repatriation,” Arif Habib Limited Head of Research Samiullah Tariq told The Express Tribune.

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The rupee has weakened by a massive 32% to Rs139.05 against the US dollar as on November 30, 2018 compared to Rs105.5 on November 30, 2017.

Therefore, the drop in repatriation of profits and dividends is the direct result of rupee depreciation as multinational firms earn in local currency and dispatch profits and dividends mostly in dollars to their headquarters abroad. Additionally, some sectors of Pakistan’s economy and companies have announced lower dividends due to the ongoing slowdown in the economy and some sector-specific issues.

Also Read: Banking sector’s profitability set to radically recover in 2019

Issues like rising circular debt have led to low income and repatriation in the power sector. Banks have also announced comparatively lower dividends due to a significant drop in their net earnings this year, he said.

Pakistan’s business rules allow multinational companies to repatriate 100% profits and dividends, unlike China and some of the Middle Eastern countries. The low repatriation, however, does not reflect whether they have dispatched all the profits and dividends for the current year or in previous years. Many firms have opted to reinvest their profits in Pakistan, which remains a lucrative destination for foreign investors.

According to Overseas Investors Chamber of Commerce and Industry’s (OICCI) Secretary General Abdul Aleem, OICCI members have reinvested $2.7 billion in the previous fiscal year ended June 30, 2018 that is almost equivalent to fresh foreign direct investment in Pakistan.

However, many sectors managed to dispatch reasonably high profits and dividends in November, including petroleum refineries that dispatched $40.3 million.

Transport equipment (automobiles) sent $31 million, power $11.7 million, communications $22.6 million, financial business $20.1 million and food sector repatriated $10 million worth of profit and dividend in the month.

The analyst said Japanese auto manufacturers in Pakistan (Pak Suzuki, Honda Motors and Toyota), Pak-Arab Refinery, and mobile phone service providing companies (Zong, Jazz, U-fone, Telenor) would have possibly repatriated profit and dividends to their sponsor companies abroad.

However, Pakistan Business Council CEO Ehsan Malik said, “MNCs are doing good job in Pakistan.” He said the drop in repatriation does not truly reflect comparatively high growth in their earnings.

“The State Bank of Pakistan has not been fully dispatching their profit and dividend due to low availability of foreign currency reserves with it…this might be the reason for low repatriation,” he said.

“I don’t think MNCs have held profits and dividends in Pakistan considering reinvesting here under the provided working environment, he said.

Repatriation in 5 months

Cumulatively in first five months (July-November) of current FY19, the repatriation dropped almost 29% to $669 million compared to $936.3 million in the same period last year. 

Published in The Express Tribune, December 28th, 2018.

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