Pakistan

Investing in Pakistan

FDI in figures | Why you should choose | Administrative procedures relative to foreign investment | Finding assistance or further information

FDI in figures

There has been a slowdown by steady increase in FDI since 2000. FDI stocks as percentage of GDP reached 11.4% in 2006, as compared to 5.7% in India, 10.9% in Sri-Lanka, 6.3% in Bangladesh, and 21.4% in Maldives.

According to the World Investment Report 2007 of the UNCTAD, the potential attractiveness for foreign investment in Pakistan is lower than its neighboring country India but almost at par with Sri-Lanka and Bangladesh. However performance in terms of actual reception of FDI is poor.

Foreign Direct Investment	2005	2006	2007
FDI of inward flow (millions USD)	2,201	4,273	5,333
FDI inward stock (millions USD)	10,209.0	13,682.0	20,086.0
Performance Index*, world ranking	104	89	83
Potential Index**, world ranking	126	125	n.c.
Number of Greenfield investments	69	27	29
FDI inwards (in % of GFCF)	6.0	9.2	15.4
FDI stock (in % of GDP)	7.9	9.3	12.0

Source: UNCTAD, World Investment Report

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.

Why you should choose Pakistan

Strong points: -          a population of approximately 167 million people

-          GDP growth rate of 6-8% experienced between 2004-0, which has resulted into development of country’s industrial and service sectors.

-          Poverty levels have decreased by 10% since 2001, leading to higher purchasing power.

-          Islamabad has steadily raised development spending in recent years, including a 52% real increase in the budget allocation for development in FY07/08.

-          The government has started privatization of many public companies in sectors like energy, financial services and telecom. Foreign investors are allowed to bid on the privatization of these state-owned companies on terms at par with local investors.

-          Overall, Pakistan is now reaping the fruits of several years of stringent macro-economic policy adjustments. The government has tackled some of the most difficult issues related to economic reforms, including Pakistan’s massive debt.
Weak points: There are significant security threats to foreign interests in Pakistan (especially from USA and Western countries) from terrorist organizations like al-Qaida, Taliban, and even from domestic terrorist organizations.

- A high degree of corruption exists in the country, especially in the areas of government procurement, international contracts, and the taxation system. Pakistan is not a signatory to the OECD Convention on Combating Bribery.

- Other weak points includes all those challenges faced in a developing economy, like poor infrastructure, inconsistent government policies, lack of transparency in decision making, political pressures, and restricted FDI in some sectors.
Government measures to motivate or restrict FDI: The government of Pakistan offers a number of inducements, including tax and non-tax incentives for setting up new industrial units in certain specific sectors which includes power, ports, highways, electronics and software.
Government has also set up special export oriented zones called export-processing zones (EPZs) to encourage foreign investment. Some of the incentives offered to EPZ investors include an exemption from all federal, provincial and municipal taxes for production dedicated to exports, exemption 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 (EOU), 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 sector-specific caps on foreign equity in certain sectors like agriculture and certain social sectors. In addition, foreign investment into some sectors is banned because of reasons related to national security.
For more details, visit:
Board of Investment
Privatization Commission, Ministry of Finance & Economic Affairs

Administrative 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 amunitions, 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.
Obligation to declare: Foreign investment in an existing Pakistani company essentially follows the 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.

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, the sponsors shall at all times retain 25% of the capital of the company.
Competent organization for the declaration: http://www.finance.gov.pk">Ministry of Finance
http://www.pakboi.gov.pk">Board of Investment
Requests for specific authorizations: 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.