FOREIGN DIRECT INVESTMENT IN PAKISTAN

BRIEF REVIEW OF POLICIES OF PAKISTANI GOVERENMENT REGARDING FDI IN DIFFERENT ERA’S:

1950’s    1960’s   1970’s:

Ø The private sector was the main vehicle for industrial investment during the 1950s and the 1960s . By the late 1960s the economy was largely dominated

by the private sector in important areas like banking, insurance, certain      basic industries and international trade in major commodities.

Ø Foreign investment was not allowed in the field of banking, insurance, and

commerce.

1980’s:

Ø The industrial policy statement of 1984 not only accorded equal importance to the public and private sectors but also encouraged the private sector to come forward.

Ø Foreign private investment was encouraged in the form of joint equity participation with local investors and in the areas where advanced technology, managerial and technical skills, and marketing expertise were involved.

Ø Adequate legal framework for foreign investment was provided through the Foreign Private Investment (Promotion and Protection) Act 1976 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.

Ø In order to encourage foreign direct investment in export-oriented industries, an Export Processing Zone (EPZ) was set up in Karachi. . The concessions and facilities offered by the EPZ included duty-free imports and exports of goods and tax exemptions.

Ø Pakistan began to implement a more liberal foreign investment policy as part of itsoverall economic reform program toward the end of the 1980s

Ø A Board of Investment (BOI), attached to the Prime Minister's Secretariat, was set up to help generate opportunities for FDI and provide investment services

1990’s:

Ø Originally, each foreign investment was subject to separate authorization, but this requirement was eliminated in May 1991. In general, no special registration was required for FDI, and the same rules and regulations were applied to FDI as to domestic investors

Ø Special industrial zones (SIZs) have been set up to attract foreign investment in export-oriented industries.

Ø Foreign investment in Pakistan is protected through the Constitution (Article 24) as well as through specific laws. Section 8 of the Protection of Economic Reforms Act 1992 provides legal cover to foreign investment in Pakistan.

Ø In the past, foreign investment was restricted to the manufacturing sector. Now foreign investment is allowed in sectors like agriculture and services, which constitute above three fourths of gross national product.

Ø The foreigners can now avail monetary and fiscal concessions equally with the local investors.

Ø They can invest in the fields of their choice like power generation, petro-chemical, petroleum, gas, fertilizer etc.

Ø Foreign investors can participate in local projects on 100% equity basis.

Ø Ceiling on payment of royalties abolished.

Ø No requirements of obtaining NOC from provisional government or locating the projects anywhere in the country except notified negative areas.

Investment in Pakistan-various business and service sectors

Investment policy In Pakistan divided in 3 main sectors.

·        Manufacturing or industrial sector

·        Non-manufacturing sector

·        Others sectors

Non-manufacturing sector is further classified in 3 categories.

·        Service sector

·        Infrastructure sector

·        Social sector

Whereas others sectors are as follows.

·        Tourism

·        Housing and construction

·        Information technology

1.Investment Policy in manufacturing and industrial sector:

Foreign investors are allowed to hold 100% equity of industrial projects without permission of the government. No government sanction is required for setting up any industry.

Investors are not required to obtain NO OBJECTION CERTIFICATE(NOC)from the provincial government.

2.     Investment Policy in non-manufacturing sector:

Foreign investors are allowed to hold 100% of non-manufacturing projects on registration basis.

·        Investment in service sector in Pakistan:

Foreign direct investment in a service sector is allowed in any activity subject to obtaining permission,NOCor license from the concerned agency and fulfilling the requirements of the respective sectoral policy.

·        Investment In infrastructural sector in Pakistan:

Foreign direct investment in infrastructural in allowed for infra structural projects which may include development of an Industrial zone.

·        Investment In Social sector in Pakistan:

Foreign direct investment in the social sector is allowed in the following fields

Education, Vocational/training, Human Resource development, Hospitals, Medicals and diagnostics services.

3.Investment In other sectors:

Foreign direct investors can invest in other sectors like tourism, housing, construction, information technology etc on again 100% equitable basis.

COUNTRIES, INTERESTED TO INVEST IN PAKISTAN:

There are many countries that are willing to invest in Pakistan in various projects like USA, UK, UAE, Germany, France, Hong Kong, Italy, Japan, Saudi Arabia, Canada, Netherlands,Turkey, Korea and many others.

1.     SAUDI ARABIAis interested to invest in Pakistan’s energy and agricultural sectors. It also facilitates foreign investment in various sectors of the economy including energy as the country seeks to overcome electricity shortages and spur industrial output.

2.     The United Arab Emirates (UAE)is interested in making joint ventures with Pakistan to develop agricultural land on a large scale in Sindhand Punjab, Pakistan has huge cultivatable land while UAE can bring technology that will not only improve the per acre yield but also boost supply chain from farm to markets.

UAE airline, RAK Air, has got license from Pakistan and is expected to soon start operations, which will further boost air-to-air contacts between Pakistan and the UAE. UAE companies are especially interested to invest in agriculture, mining, transportation, processing, infrastructure and power sector of Pakistan.

3.     China  also encourages the enterprises of both countries to strengthen mutually beneficial cooperation and learn from each other for common development in a manner that better complies with the rules of market economy. fPakistan‟s imports from China are value added, over 85% of its exports to China are raw materials such as cotton yarn and fabric, chrome and copper ores.  For example, copper and gold from Saindak Copper-Gold Project is exported to China in semi-finished form and re-exported to Pakistan after adding value. Chrome ore is exported to China in a raw form and China has the technology and smeltering plants that can then add value to Pakistani chrome exports.

4.     Russia is engaged to Invest in Steel, Banking Sectors. Russian investment in banking sector of Pakistan would start soon, while negotiation on Steel Mill was in progress.

5.     Japan and Korea are already investing in Pakistan’s domestic market, especially in the automotive, machinery sectors and chemical industry. A number of Korean home and telecom brands are already available in the domestic market and Pakistan’s large population offers opportunity for further growth.

6.     Italy is engaged to invest for cold storage units in Pakistan. Italian companies showed their interest to invest 150 million U.S. dollars in establishing cold storage units and refrigerator containers in Pakistan's eastern province Punjab

Woman is Dignity, Woman is Respect

Women are the symbol of love, peace, respect, beauty and dignity. But unfortunately the women are not treated the way they should be. In our society we see women in various beautiful roles, such as loving mother, caring daughter, generous sister, and the dignified wife. But the women are still not given place in the society that she deserves.

Women face various issues at homes as well as work place. Every day around the world we see women being subjected to sexual abuse, abduction, trafficking etc. The women are not secure at work place as well. About 54% of harassment cases take place at work on average. The industries having highest rates of such cases are business, trade, banking and finance, sales and marketing, hospitality, civil service, education, lecturing and teaching.

Today women are burnt by acids. In today’s civilized word still the women are subjected to crimes like servile marriages and honor killing. The women are not treated equal to men. There is favoritism and glass ceil effect seen in corporate world. Instead of treating women with honor and dignity, they are treated as commodity and are marketed on bill boards to earn money.

The following steps should be taken to ensure a dignified and respectful status of women in society:

1.      The women should be provided proper security at work places and there should be a proper committee to carry inquiry against cases of harassment. And after that, if the accused person is found guilty he should be taken to the court of justice.

2.      Though there are various labor laws which provide right of safety at work place for women but in most of the countries they are not implemented. Hence, they should be implemented properly.

3.      NGOs must play and active role in making women aware of their basic laws, so that they do not remain silent when their rights are being violated.

4.      Media should show programs to high light importance of women.

5.      The religious scholars must deliver their lectures on status of Women in Islam and discourage the acts that were done before the rise of Islam, such as burning women, honor killing etc.

6.      The Government should make strong policies to ensure that women are treated equally with men at work and education sector.

7.      Equal opportunity plans must be designed to empower women at corporate level.

8.      He women must not be treated as a commodity, as she is the symbol of respect and dignity.

“The strength of a woman is not measured by the impact that all her hardships in life have had on her; but the strength of a woman is measured by the extent of her refusal to allow those hardships to dictate her and who she becomes”

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Foreign Direct Investment

INTRODUCTION TO FOREIGN DIRECT INVESTMENT:

INVESTMENT: Before we go to the main topic, we need to know what is investment.

 Investment is the purchase of the assets with the hope that they will generate income and will appreciate in future. An investment is not purchased for the current consumption. It is acquired in order to create wealth.

FOREIGN INVESTMENT: The flow of capital from one nation to another is foreign investment. It is when the foreigners take active part in the management due to the capital invested by them in the economy other than their own.

The foreign investment is of two types:

·        Direct foreign investment

·        Indirect foreign investment

FOREIGNINDIRECT INVESTMENT:

Indirect investment is the investment in the real estate without actually investing in the property.

It can be done in many ways, such as investment in the securities, funds, private equity etc.

FOREIGN DIRECT INVESTMENT:

The net inflow of investment to acquire a lasting interest in an enterprise, operating in an economy other than that of the investor.

EXPLANATION:

Lasting management interest implies the existence of long term relationship between the direct investor and the enterprise and a significant degree of the influence on the management of the enterprise.

FDI is the measure of the foreign ownership of the productive assets such as the factories, mines and land etc. It is one of the most important measure of the growing economic globalization.

It may include:

·        Management

·        Joint Venture

·        Transfer of technology

·        Expertise

TYPES OF FDI:

FDI is of two types:

·        Inward FDI

·        Outward FDI

INWARD FDI:

When the capital is provided by the foreign direct investor residing in the country, to that economy, which is residing in another country.

OUTWARD FDI:

It is when a domestic firm expands its operation in the foreign country via merger, acquisition of the foreign existing facility, Green fielkd investment. This type of outward expansion is done when the firm feels the saturation ofthe business in the domestic market.

CATALYSTS FOR FOREIGN DIRECT INVESTMENT

The means by which the country can enhance the direct investment by the foreigners are:

·        Trade policy

·        Tariff Liberalization

·        Easing the restriction on the foreign investment

·        Deregulation

·        Privatization

CLASSIFICATION OF FOREIGN DIRECT INVESTOR

·        Individuals

·        A group of related individuals

·        Incorporated and un-incorporated entity

·        A public and private company

·        A group of related enterprise

·        Government body

·        An estate(law), trust or social institution

·        A combination of above

METHODS OF FOREIGN DIRECT INVESTMENT

Following methods can be adopted for foreign direct investment:

·        By incorporating a wholly owned subsidiary or a company

·        By acquiring shares in an associated enterprise

·        The merger or acquisition of an unrelated enterprise

·        Participating in the joint venture

DIRECT INVESTMENT ENTERPRISE

It is an incorporated or un-incorporated enterprise in which a foreign direct investor owns 10% or more of the ordinary shares or voting power of an incorporated enterprise or the equivalent of an un –incorporated enterprise.

The investor having 10% or more of the shares in the enterprise show the direct investment relationship which implies that he can participate in the management of the enterprise even though he does not have full control over it.

FDI SPECIAL TRANSACTION

v ACQUISITION

·        Direct investment flow includes shares and loans acquired from the third party or sold to the third party by the investor as well as the issuance of the new shares and the redemption.

·        Any organization taken over by the foreign investor from the local investor or from some other foreign investor.

·        When the inventor already holds the portfolio investment and further acquires shares.

v LOAN GUARANTEE

·        Direct investor may borrow the funds from the subsidiary’s bank and on lends them to the subsidiary.

·        A subsidiary may borrow the funds which are guaranteed by the foreign investor. Though it is not included in the direct foreign investment but when the guarantee is invoked and the subsidiary is at default, there is a flow from direct investor to the lender.

v LEASING

In case of leasing if the arrangement is such that the foreign investor is a lessor and the subsidiary or the branch or an associate is the lessee, then the loan is considered as the direct investment.

v CONSTRUCTION

The construction of the plant, building etc by one investor to the other economy is also a direct investment. If the machinery and the equipment is installed in some country, then it is also a part of FDI.

v  EXPLORATION OF THE NATURAL RESOURCES

Where the direct investment enterprise is set up in a foreign country, in order to explore the natural resources, capital expenditure incurred is treated as fixed capital.