FDI in figures

FDI increased by 1.3% during the first 7 months of the 2008/09 budget year, with the telecommunication sector being the primary recipient of the FDI in Pakistan, followed by the financial and the energy sectors. However the FDI influx remains very small due to different factors: lack of security, political instability, weakness of infrastructures, the non-respect of intellectual rights, the arbitrary administration of laws and regulations, the administrative opposition, at the federal and provincial level, to opening up the economy.

According to the UNCTAD report on world investments, Pakistans attractiveness potential for investments is lower than that of its Indian neighbor, but on par with Sri-Lanka and Bangladesh. However performance in terms of actual reception of FDI is poor.

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% since 2001, leading to higher purchasing power. The positive GDP growth rate between 2000 and 2004 resulted in the development of the country’s industrial and service sectors. Islamabad has steadily raised development spending in recent years, including a 52% budget allocation for development in 2007/08. 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), 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 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 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

Ministry of Finance
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.

Finding assistance for further information

Investment aid agency

Board of Investment

Other useful resources

Central Board of Revenue
Privatization Commission
Securities Exchange Commission
Ministry of Finance