BUSINESS WITH PAKISTAN :
BUSINESS OPPORTUNITIES
FDI to Pakistan reached USD 1.73 billion in the fiscal year 2016-2017 (between July 2016 and April 2017), marking an important recovery from 2015 (slightly under USD 1 billion in 2015 and USD 1.28 in the fiscal year 2015-2016). Energy, construction, and oil and gas sectors continue to be the primary recipients of FDI in Pakistan. Country-wise, China was by far the biggest investor in Pakistan, accounting for more than 40% of FDI. Historically the biggest investor in the country, the U.S. invested merely USD 47.9 million in the last fiscal year
The potential attractiveness of Pakistan for investment is lower than India, its neighbour, but equal to Sri Lanka and Bangladesh. However, its performance in terms of actual reception of FDI is poor and the FDI influx is still far from peak levels of 2007-2008 (USD 5.4 billion). This situation is unlikely to improve, as the country has a rather negative image on the international level, considered a rear base of terrorist groups.
Country Comparison For the Protection of Investors
| Pakistan | South Asia | United States | Germany | |
| Index of Transaction Transparency* |
6.0 |
5.0 | 7.0 |
5.0 |
| Index of Manager’s Responsibility** |
6.0 |
5.0 | 9.0 |
5.0 |
| Index of Shareholders’ Power*** |
8.0 |
6.0 | 4.0 |
8.0 |
| Index of Investor Protection**** |
6.7 |
5.3 | 6.5 |
6.0 |
Source: Doing Business - Latest available data.
Note: *The Greater the Index, the More Transparent the Conditions of Transactions. **The Greater the Index, the More the Manager is Personally Responsible. *** The Greater the Index, the Easier it Will Be For Shareholders to Take Legal Action. **** The Greater the Index, the Higher the Level of Investor Protection.
| Foreign Direct Investment |
2014 |
2015 |
2016 |
| FDI Inward Flow (million USD) |
1,867 |
1,289 |
2,006 |
| FDI Stock (million USD) |
32,594 |
32,088 |
39,017 |
| Number of Greenfield Investments*** |
30 |
41 |
36 |
| FDI Inwards (in % of GFCF****) |
5.9 |
3.4 |
5.2 |
| FDI Stock (in % of GDP) |
13.3 |
11.8 |
13.7 |
Source: UNCTAD - Latest available data.
Note: * The UNCTAD Inward FDI Performance Index is Based on a Ratio of the Country's Share in Global FDI Inflows and its Share in Global GDP. ** The UNCTAD Inward FDI Potential Index is Based on 12 Economic and Structural Variables Such as GDP, Foreign Trade, FDI, Infrastructures, Energy Use, R&D, Education, Country Risk. *** Green Field Investments Are a Form of Foreign Direct Investment Where a Parent Company Starts a New Venture in a Foreign Country By Constructing New Operational Facilities From the Ground Up. **** Gross Fixed Capital Formation (GFCF) Measures the Value of Additions to Fixed Assets Purchased By Business, Government and Households Less Disposals of Fixed Assets Sold Off or Scrapped.
Why You Should Choose to Invest in Pakistan ?
Strong Points
With a population of almost 176 million inhabitants and significant natural wealth, Pakistan has a potentially big market. The poverty level has decreased by 10%, leading to higher purchasing power. The positive GDP growth rate over the past few years resulted in the development of the country’s industrial and service sectors. Islamabad has steadily raised development spending in recent years, including a 50% budget allocation for development. The FDI attraction policy led by the government (privatizations, equal treatment between foreigner and local investors, tax incentives, etc.), and the efforts made in terms of economic reform are the pillars of Pakistani development
Weak Points
There are significant security threats, to foreign interests in Pakistan (especially from the USA and Western countries), however from research it shows that most of companies in eastern region does not face such issue.
Other weak points are poor infrastructures, lack of procedural transparency, political pressures, and FDI restrictions in some strategic sectors.
Government Measures to Motivate or Restrict FDI
The Pakistani government is carrying out an active foreign investment promotion policy, and has taken a number of economic liberalization measures to make the country more attractive. Pakistan offers a number of tax incentives for the establishment of industrial units in certain specific sectors: energy, ports, highways, electronics and software.
The Government has also set up special export oriented zones called export-processing zones (EPZs), in order to encourage foreign investments. Some of the incentives offered to EPZ investors include exemptions from all federal, provincial and municipal taxes for export-destined production, exemptions from all taxes and duties on equipment, machinery and materials, and access to Export Processing Zone Authority "one window” services.
The government also offers incentives to Export-Oriented Units, which are stand-alone industrial units allowed to operate anywhere in the country but have to export 100% of their production.
However, the government has set ceilings for certain strategic sectors, for example agriculture and certain social sectors. In addition, foreign investment into some sectors is forbidden because of national security reasons.
For more details, you can consult the BOI Pakistan's website (Council for investment) and the Privatization Commission of the Ministry of Finance and Economic Affairs.
Procedures Relative to Foreign Investment
Freedom of Establishment
Assured. However both foreign and domestic investors are restricted to establish and own business enterprises in the following five industrial sectors which are of national importance: arms and ammunitions, high explosives, currency/minting operations, non-industrial alcohol, and radioactive substances.
Acquisition of Holdings
A majority holding interest in the capital of a local company is legal in Pakistan except in certain sectors where investments are subject to limitations. same regulations as that for new ventures. Any purchase of shares by a foreign investor would require such investment to be registered with the State Bank of Pakistan so as to enable the entitlement of foreign investment similar to that of a new venture.
Obligation to Declare
There are no minimum or maximum limits imposed on the age of individual investor ownership in a public limited company. However, in accordance with the Companies (Issue of Capital) Rules 1996,
Foreign investment in an existing
Pakistani company essentially follows the sponsors shall at all times retain 25% of the capital of the company.
Competent Organisation For the Declaration
Requests for Specific Authorisations
Acquisition of more than 10% stake in an insurance company should get prior approval from the SECP.
Similarly, in case of transfer of 5% or more shares of any bank or financial institution by foreign investors, the permission of the State Bank of Pakistan is required.