Business in Pakistan
|Official Name :
||Islamic Republic of Pakistan
||Sindh, Punjab, Baluchistan, NWFP
||National – Urdu
Official – English
|Main Business City:
||Cotton, Sugar, Textile goods, Rice, Leather items, Carpets,
Sports goods, Fruit, Electrical Appliances
||Iron, Petroleum, Edible Oil, Industrial Equipment
||Cotton, Wheat, Rice, Sugarcane
|Official web site:
|Pakistan – Business and Investment Paradise
Pakistan’s economy has delivered yet another year of solid economic
growth in 2005-06 in the midst of an extraordinary surge in oil prices
and the devastating earthquake of October 8, 2005. With economic growth at 6.6
percent in 2005-06, Pakistan’s economy has grown at an average rate of almost 7.0
percent per annum during the last four years (2002/03 – 2005/06) and over 7.5 percent
in the last three years (2003/04 – 2005/06), thus positioning itself as one of the
fastest growing economies of the Asian region.
GDP Growth: Real GDP grew strongly at 6.6 percent in 2005-06 as
against the revised estimates of 8.6 percent last year and the 7.0
percent target for the year. The key drivers of this year’s growth
have been the service sectors and industry.
Services: The services sector continued to perform strongly and grew
by 8.8 percent over an equally robust growth of last year. All the
components of services sector registered strong growth with the
exception of ownership of dwellings and public administration and
defense. Finance and banking sector posted a remarkable growth of
23.0 percent over an equally strong growth of 29.7 percent last
year. The wholesale and retail trade and transport, storage and
communication registered strong growth of 9.9 percent and 7.1
Agriculture: The performance of agriculture remained weak this year
as it grew by only 2.5 percent, as against 6.7 percent of last year
and the 4.2 percent target for the year, with major crops and
forestry registering a negative growth of 3.6 percent and 5.7
percent, respectively. Agriculture, this year was subjected to
adverse weather conditions. Major crops, accounting for 32.5 percent
of agricultural value added, depicted a negative growth of 3.6
percent as against an impressive 17.8 percent growth of last year.
Excessive winter rainfalls, (January – March 2005) along with melting
of snow on mountains top were responsible for higher than normal availability
Manufacturing: Manufacturing is the second largest sector of the
economy, accounting for 18.2 percent of GDP, and registered a growth
for the third year in a row, albeit at a relatively slower pace
of 8.6 percent as against 12.6 percent last year. Large-scale
manufacturing, accounting for 69.9 percent of overall manufacturing,
registered weaker-than expected growth at 9.0 percent as against the
target of 14.5 percent and last year’s achievement of 15.6 percent.
The relatively slower pace of expansion perhaps exhibits signs of
moderation on account of higher capacity utilization on the one hand
and a strong base effect on the other.
Per Capita Income: Per capita income is one of the main indicators
of development. It simply indicates the average level of prosperity
in the country or average standard of living of the people in a
country. Per capita income defined as Gross National Product at
market price in dollar term divided by the country’s population,
grew by an average rate of 13.9 percent per annum during the last
four years – rising from $582 in 2002-03 to $847 in 2005-06.
Per capita income in dollar term registered an increase of 14.2
percent over last year – rising from $ 742 to $ 847.
Consumption: Pakistan’s economy is undergoing structural shifts
that are fueling rapid changes in consumer spending patterns.
In particular, the middle classes are becoming an increasingly
dominant force. Pakistan’s per capita real GDP has increased at
an average of 5.6 percent per annum during the last three years
(5.5% in 2003-04, 6.7% in 2004-05 and 4.7% in 2005-06), leading
to a rise in average income of the people. Such increases in real
per capita income have led to a sharp increase in consumer
spending during the last three years. As opposed to an average
annual increase of 1.4 percent during 2000-2003, the real
private consumption expenditure has grown at an average rate of
10.9 percent per annum during the last three years.
(11.5% in 2003/04, 13.1% in 2004/05, and 8.1%in 2005-06).
Investment: Investment is a key determinant of growth. During the
fiscal year 2005-06, gross fixed capital formation or domestic fixed
investment in real term grew by 10.3 percent as against 9.3 percent
last year. The real private sector investment grew by 11.0 percent
this year as against an increase of 9.6 percent last year. Public
sector investment on the other hand registered a substantial increase
of 22.5 percent as against a robust growth of 10.0 percent last year.
Monetary Policy: An important lesson that we learnt from the
experience of the decade of the 1990s is the importance of a healthy
banking and financial sector. This is a key element of macroeconomic
stability. A weak financial sector can undermine efforts to achieve
stability through prudent fiscal and monetary policies. A strong and
well-functioning financial and banking sector is also critical for
sustained higher economic growth.
According to the credit plan for 2005-06, the SBP has set the target
for monetary expansion to the tune of Rs.380 billion or 12.8 percent
higher than last year (FY05) on the basis of a growth target of 7.0
percent and inflation target of 8 percent.
Stock Market: The stock market continued to maintain its strong
performance and achieved new heights by creating many new records
during the fiscal year 2005-06. The KSE-100 Index crossed the barrier
of 12000 marks for the first time in the history of capital market
and touched an all time high on April 13, 2006. The KSE-100 Index
made further inroad and reached 12274 points on April 17, 2006,
showing a growth of 64.7 percent over June 2005. Similarly, the
total market capitalization also increased to Rs.3419.4 billion
on April 17, 2006 (US$ 57.0 billion) from Rs.2013.2 ($ 33.7 billion)
showing a growth of 70 percent over June 2005. At current levels,
KSE’s market capitalization is equivalent to about 46 percent of
estimated GDP of FY06. The government’s economic policies and
capital market reforms helped in promoting a fair, efficient
and transparent capital market and restoring investors’
Fiscal Policy: Fiscal policy primarily deals with the levels and composition of taxation, spending and borrowing by the Government. A sound fiscal policy is essential for preventing macroeconomic imbalances and realizing the full growth potential. In order to address the structural problems in the tax system and tax administration, the government has been introducing wide-ranging tax and tariff reforms, as well as reforms in tax administration. These reforms have already started yielding handsome dividends. During the last seven years, tax collection by the CBR has increased by 130.0 percent – that is, more than doubled.
External Sector: Like many other developing countries, Pakistan has also benefited from a strong and sustained growth in world economy. Notwithstanding global economic expansion, the sound macroeconomic policies that Pakistan pursued coupled with wide – ranging structural reforms, particularly in the areas of trade and tariff that it implemented over the last six or seven years have helped Pakistan doubled its exports in seven years.
Exports: Exports were targeted at $ 17 billion or 18.1 percent higher than last year. Exports during the first nine months (July-March) of the current fiscal year are up by 18.6 percent – rising from $ 10.18 billion to $ 12.07 billion in the same period last year.
Imports: Pakistan’s imports continue to be pushed higher by unprecedented rise in oil prices and continued strength of non-oil imports owing to buoyant domestic demand. Imports were targeted to grow by 4.25 percent for the fiscal year 2005-06 – rising from $ 14.4 billion to $ 20.7 billion. Imports are up by 43.2 percent in the first nine months (July- March) of the current fiscal year – rising from $ 14.45 billion to $ 20.69 billion in the same period last year.
Foreign Direct Investment: Foreign Direct Investment (FDI) has become an important source of private external finance for developing countries. It is different from other major types of external private capital flows in that it is motivated largely by the investors’ long-term prospects for making profits in production activities in the host countries. FDI in 2005-06 has reached $3.5 billion – the highest ever in the country’s history, as against $ 1.5 billion in the same period last year, thus registering an increase of 131 percent.
Privatization: A wide-ranging structural reform introduced during the last six year coupled with macroeconomic stability and rapid, strong and sustained economic recovery has transformed Pakistan into one of the ideal locations for foreign investment. Foreign investors are not only entering into the greenfield projects but are also actively participating in Pakistan’s privatization program. This is also the reflection of the confidence of the global investors on the transparent privatization program that has been followed in the past several years. Since January 1991 and until April 18, 2006, Pakistan has completed 160 transactions with gross proceeds of Rs.395.2 billion.
Pakistan’s Link with International Capital Market: With the successful implementation of first generation structural reforms and after gaining economic stability, Pakistan decided to give signal to the international capital markets through issuance of debt instruments. On February 12, 2004 Pakistan made a successful return to the international capital markets for the first time in more than five years. Pakistan issued S$500 million 5-year Regulation-S Eurobond due 2009 lead managed by JP Morgan, Deutsche Bank and ABN Amro Bank. This transaction attracted strong demand from high quality and diversified international investors resulting in 4 times over subscription and consequent tightest possible pricing of the bond in comparison to similar rated sovereign offering for 5-year new issues. The success of this transaction reflected a vote of confidence by the international investor community on Pakistan’s economic policies and reform agenda.
In January 2005, Pakistan issued US$ 600 million Islamic Sukuk lead managed by Citi Group and HSBC. The 5 year notes, structured to comply with Islamic law (“Shariah”) were priced at 6 month US$ Libor + 220 bps benchmark. Pakistan’s debut Islamic Bond issue saw considerable interest from both conventional as well as Islamic investors across the three regions, Asia, Middle East and Europe. It attracted orders worth $1.2 billion, with more than 80 accounts participating in the transaction. Pakistan decided to increase the transaction size from the original US$ 300-500 million to US$ 600 million to cater for the significant demand and to allocate the bonds to high quality accounts. Pakistan had over 80 accounts with a well-distributed book (Middle East 47%, Asia 31% and Europe 22%).
Eurobond of 2016 and 2036: On March 23, 2006, Pakistan successfully issued US$500 million new 10-year Notes and US$300 million new 30-year Bonds in the international debt capital markets lead managed by JP Morgan, Citi Group and Deutsche Bank. This transaction, which represented the first international 144A bond issued by Pakistan since 1999, raised significant interest amongst US QIBs and international Institutional investors. The 10-year notes were priced with a coupon of 7.125% to yield 7.125%, framing a spread of 240bps over the relevant 10-year US Treasury benchmark. The 30-year bonds were priced with a coupon of 7.875% to yield 7.875%, framing a spread of 302bps over the relevant 30-year US Treasury benchmark. Pakistan was able to achieve spreads on both the new 10 and 30-year bonds that were tighter than its previous 5-year issues. By issuing 10 and 30 year bonds, Pakistan completed its primary objective of establishing a full Pakistani International yield curve in record time.
|PAKISTAN'S INVESTMENT POLICY AT A GLANCE
Liberal Investment Policy
All economic sectors open to Foreign Direct Investment.
Equal treatment to local and foreign investors.
100 % foreign equity allowed.
No Government sanction required.
Attractive tax / tariff incentives package.
Remittance of Royalty, Technical & Franchise Fee, Capital, Profits, Dividends allowed.
Foreign investment fully protected
Foreign Private Investment (Promotion & Protection) Act, 1976.
Protection of Economic Reforms Act, 1992
Foreign Currency Accounts (Protection) Ordinance, 2001
1. Manufacturing/Industrial Sector
Foreign Investors are permitted to hold 100% of the equity of industrial projects without any permission of the Government.
No Government sanction is required for setting up any industry, in terms of field of activity, location, and size, except for the following:
Arms and Ammunitions.
Security Printing, Currency and Mint.
Alcoholic beverages or liquors.
There is no requirement for obtaining No Objection Certificates (NOC) from the provincial governments for locating the project anywhere in the country except in areas that are notified as negative areas.
2. Non - Manufacturing/Industrial Sector
Foreign investment 100% equity on repatriable basis is allowed in the Service, Infrastructure and Social Sectors subject to the conditions indicated against each.
|Relevant Laws & Legislations
Constitution of the Islamic Republic of Pakistan
Laws related to Companies www.secp.gov.pk
Laws related to Income Tax, Sales Tax, Wealth Tax, Central Excise Duty,
Customs & Tariff www.cbr.gov.pk
Laws related to Banking, Leasing, Capital Market and Insurance www.sbp.gov.pk
Laws related to Labours and industries/factories www.labour.gov.pk
Central Board of Revenue (CBR)
Securities and Exchange Commission of Pakistan (SECP)
Ministry of Finance & Economic Affairs
Board of Investment
Ministry of Industries
Ministry of Tourism & Culture
Ministry of Interior
Ministry of Foreign Affairs
Ministry of Law & Parliamentary Affairs
Ministry of Commerce
Ministry of Finance
Monopoly Control Authority
The Information Gateway to Pakistan
Federation Pakistan Chamber of Commerce & Industries