Written By Hassan Khan

The economic stability of any country is heavily dependent upon the business opportunities available in the country, to promote foreign and domestic investments. Pakistan has the most liberal investment policy in the South Asian region. It is the 27th Largest economy in the world in terms of purchasing Power, and the 45th largest in absolute dollar terms. Its GDP remained in the 6-8% range in 2004-06. In 2005, the world Bank‘Ease of Doing Business 2010’ ranked Pakistan 85 among 181 countries around the globe. Pakistan ranks highest in South Asia, even higher than China, Russia and India. The main indicators as per this report are as follows: Pakistan the top reformer in its region and in the top 10 reformers globally. The World Bank (WB) and International Finance Corporation’s (IFC) flagship report

From the above it can easily be construed that Pakistan has a very liberal investment policy in the South Asian region. The present incentives include:

• Almost all economic sectors are open for foreign investors
• Foreign equity up to 100% allowed
• No Government permissions required, only terms & conditions apply
• Attractive incentives package including:-
• 0-5% customs duty on import of machinery
• No sales tax on import of machinery
• No withholding tax on import of machinery
• No duty on raw material imports for 100% export based products
• Specialized Industrial zones and Export Processing Zones

In addition to the above, the prevailing policies allow remittance of capital, profits, royalty, technical & franchise fee. There is no differential treatment between local and foreign investors and they can avail credit as easily as any local investor. The legal framework regarding protection of investors’ rights is already in place and Pakistan is ranked way better than any other country in the region. After the dismal performance of the industrial sector following the 1972 nationalization, a change occurred in the government’s approach toward the role of the public and private sectors. The two subsequent Acts, in this respect, were implemented namely Foreign Private Investment (Promotion & Protection) Act, 1976 and Protection of Economic Reforms Act, 1992, which were tuned towards attracting foreign investments. The 1976 Act guaranteed the remittance of profit and capital, remittance of appreciation of capital investment, and relief from double taxation for certain countries. Foreign investment was also encouraged in industrial projects involving advanced technology and heavy capital outlay like engineering, basic chemicals, petrochemicals, electronics, and other capital goods industries.

In November 1997, the government issued the New Investment Policy which includes major policy initiatives. Now foreign investment is now allowed in sectors like agriculture and services, which constitute above three fourths of gross national product. The main objective of the new policy is to enhance the level of foreign investment in the fields of industrial base expansion, infrastructure and software development, electronics, engineering, agro-food, value-added textile, tourism, and construction industries. A new industrial policy package was introduced in 1989 based on the recognition of the primacy of the private sector. The Board of Investment (BOI) was set up to help generate opportunities for FDI and provide investment services, which has been quite effective in attracting investors globally. Pakistan is considered to be a favorable country for investment by the foreign investors, as the “Ease of Doing Business Index” reflects. The overall business environment is investor friendly, as the foreign investors are free to invest in any sector, with equal treatment for foreign and domestic investors alike. During recent past there have been some substantial corporate acquisitions by foreign investors, as follows:

• PICIC by Singapore based Temasek Holdings
• Union Bank by Standard Chartered Bank
• PTCL by Etisalat
• PakTel by china Mobile (publicly listed state owned enterprise of China) etc

The figures for Foreign Direct Investment in the country are as below:

*- Until Jan 2010

Source=BOI (Fig in US $ billions)

From the above it is reflected that the foreign investment surged in the period from 2004 till 2008, and then it declined onwards. The main reason for the decline may be attributed to the global financial meltdown; however the same has not been able to rise back to the desired level, after the crisis. In order to enhance the confidence level of foreign investors, there are certain key factors, which if played properly, can be effective in attracting foreign investment, some of which are discussed below:

In spite of the above strengths, there are a number of challenges which Pakistan has to face, to promote it in attracting foreign investments. Recently we have been facing severe challenges like the War against Terrorism, general law and order issues, energy crisis, disparity in balance of payment, heavy debt burden and corruption, due to which the economy took a downturn. While there has been significant progress in the War against Terrorism and law and order situation, the government should take some long term concrete and visible measures that should be geared towards bringing economical stability in terms of continuous energy supply, long term infrastructure for industry, improving the rupee dollar parity etc. These challenges are of severe nature and require a steady long term approach by the government in the shape of sustainable policies.

The Government has taken some extra ordinary steps for energy conservation recently, by announcing a 5 day working week, in an attempt to ensure smooth supply to industrial sector. Another aspect which needs to be looked into is providing a transparent and fair business atmosphere, which is surely expected to bring a much needed boost to our economy. With these steps, the country shall become an investors’ paradise.