3. Pakistan's economic situation and investment environment
(1) Resource endowment
Pakistan is rich in coal resources. According to estimates
by the Pakistan Geological Survey (GSP), Pakistan ’s coal resources are around
185 billion tons, of which 184 billion tons are in Sindh Province, accounting
for 99.5% of the country ’s total. Pakistan ’s main mineral reserves are:
492 billion cubic meters of natural gas, 184 million barrels of oil, 185
billion tons of coal, 430 million tons of iron, 74 million tons of bauxite, and
a large amount of chrome ore, marble, and gemstones. The forest coverage
rate is 4.8%.
Another important natural endowment advantage of Pakistan is
its geographical location. Pakistan is located in South Asia and borders the
Arabian Sea in the south. It is bordered by India, China, Afghanistan and Iran
on the east, north and west. It is a hub connecting South Asia, Central Asia
and West Asia (Middle East). The market has a wide range of radiation, which
can radiate to the Middle East and Central Asia and other regions, and has
close trade relations with the above regions.
(2) Economic conditions
For a long time, Pakistan has been trapped by various
internal and external instabilities, so its economic growth has been slow. In
the past ten years, Pakistan ’s economic development reached its peak in 2007,
and then gradually declined, reaching its lowest point in 2010-2011. In 2013,
when the Sharif government came to power, Pakistan ’s economy was languishing
and it was on the verge of debt default. It had to accept the IMF ’s new
bailout loans, adopt high-strength austerity policies as required by the IMF,
and focus on increasing fiscal revenue. After the efforts in recent years,
Pakistan ’s economic development has gradually stabilized. In the 2014/15
fiscal year, Pakistan ’s GDP was 27.38 trillion rupees, an increase of 4.2%
year-on-year, and the growth rate reached a new high in the past six years.
(Note: Pakistan ’s fiscal year begins on July 1 and ends on June 30 of the
following year).
[Industrial Structure] In the 2014/15 fiscal year, Pakistan
’s gross domestic product (GDP) was US $ 268.4 billion, with the primary,
secondary, and tertiary industries accounting for 20.9% main agriculture are
Wheat
Rice Cotton Sugarcane Oil seeds Coarse grains and pulses,
20.30%, and 58.8%, respectively.
[Industry] The textile industry is the most important industry
in Pakistani industry, followed by the food processing industry. In recent
years, the engineering, machinery, electronics, automotive, chemical and other
industries have also gradually developed.
[Agriculture] In the 2014/15 fiscal year, Pakistan ’s
agricultural growth rate was 2.9%. . The country's arable land area is 57.68
million hectares, of which the actual cultivated area is 21.68 million
hectares. The agricultural population accounts for about 66.5% of the national
population.
According to Pakistan ’s Federal Bureau of Statistics data,
in the 2013/14 fiscal year, Pakistan ’s agricultural and industrial sector
provided commodities totaling 111,773.03 billion rupees (about 116.237 billion
U.S. dollars), of which agricultural commodities were 60,510.15 billion rupees
(about 62.927 billion U.S. dollars), and industrial commodity production was
51262.88. 100 million rupees (approximately US $ 533.10 B); the service sector
provides a total of 129078.02 billion rupees (approximately US $ 134.233
billion).
【Composition of GDP】 In the 2014/15 fiscal year, Pakistan's
total investment accounted for 15.1% of GDP; private consumption accounted for
79.2% of GDP, public consumption accounted for 11.8% of GDP; and exports
accounted for 9.4% of GDP.
[Financial Revenue and Expenditure] Pakistan ’s fiscal
deficit for the 2014/15 fiscal year was Rs 1.996 trillion, accounting for 5.3%
of GDP.
[Foreign Exchange Reserve] As of the end of 2015, Pakistan
’s foreign exchange reserve reached 20 billion US dollars, a record high.
【External Debt Balance】 Since 2007, Pakistan's national debt
has continued to rise. As of June 2015, the total national debt reached 18.9
trillion rupees, of which external debt was 6.2 trillion rupees, internal debt
was 12.2 trillion rupees, and government debt accounted for 69% of GDP. In
fiscal year 2014/2015, the Pakistani government spent a total of US $ 6.82
billion (including US $ 915 million in interest) to repay foreign debt,
accounting for 47% of the country ’s fiscal revenue, which is far higher than
the reasonable level of 30%, greatly squeezing the country ’s And
infrastructure construction.
[Inflation rate] Inflation rate in Pakistan in the 2014/15
fiscal year was 4.5%, a significant decrease from the previous fiscal year and
lower than the 8% target set by the government.
[Unemployment Rate] The average unemployment rate in
Pakistan in the 2014/15 fiscal year was 6.1%.
[Savings] Pakistan ’s national savings account for about 15%
of GDP. In consumption expenditure, food accounts for 43.1%, housing accounts
for 15.2%, clothing accounts for 5.7%, transportation accounts for 5.6%, and
other living expenses account for 12.8%.
[Inflation] Pakistan ’s prices have continued to rise in
recent years, and inflation has been more serious. The situation has improved
since 2015. Data from the Pakistan Federal Statistical Office show that in the
2014/15 fiscal year, the Pakistan Consumer Price Index (CPI), Sensitive Price
Index (SPI) and Wholesale Price Index (WPI) increased by 4.5%, 6.5% and 80.3%
respectively over the same period of the previous fiscal year . In April 2016,
the average prices of Pakistan ’s main basic household items were: 38 rupees /
kg for flour, 59.5 rupees / kg for rice, 318 rupees / kg for beef, 636.9 rupees
/ kg for lamb, 190 rupees / kg for chicken, and 181.6 rupees / liter for
cooking oil , Fresh milk 78.5 rupees / liter, eggs 73.3 rupees, dozens, sugar
63.8 rupees / kg, potatoes 12.5 rupees / kg, tomatoes 16 rupees / kg, onions 25
rupees / kg, gasoline 65.1 rupees / liter, diesel 73.4 rupees / liter (Note: US
$ 1 is approximately Rs 105 in April 2016).
With a population of 190 million, Pakistan is the sixth most
populous country in the world and has great market development potential.
As of June 11, 2015, Moody ’s international rating agency
rated Pakistan ’s sovereign credit rating as B3, with a stable outlook. As of
October 22, 2015, the international rating agency S & P rated Pakistan ’s
sovereign credit rating as B- / B, with a positive outlook. As of April 12,
2016, Fitch, the international rating agency, rated Pakistan's sovereign credit
as B / B, with a stable outlook.
(3) Pakistan's foreign economic and trade relations
Pakistan ’s economic strength is weak, and it is willing to
join various trade arrangements to promote economic growth.
[Preferential Trade Arrangements] Pakistan is one of the
founding members of the General Agreement on Tariffs and the World Trade
Organization; one of the members of the SAARC Free Trade Zone; free trade
agreements with China, Malaysia, Sri Lanka; and Iran, Mauritius and Indonesia
Preferential trade agreement; signed a re-export trade agreement with Afghanistan.
[Total Trade in Goods] In the 2014/15 fiscal year, Pakistan
’s total trade in goods was US $ 69.865 billion, of which exports were US $
23.885 billion and imports were US $ 45.98 billion, up 4.67%, -4.88% and 2.01%
year-on-year respectively. The trade deficit was US $ 22.09 billion, a
year-on-year increase of 10.68%.
[Major cargo trading partners] In fiscal year 2014/15,
Pakistan ’s top 10 cargo trading partners were China, UAE, US, Singapore, Saudi
Arabia, UK, Kuwait, Germany, India and Afghanistan; the top 10 export
destinations were the US, China, Afghanistan, the United Kingdom, the UAE,
Germany, Spain, Italy, Bangladesh and the Netherlands; the top 10 import source
countries are the UAE, China, UK USA KSA
[Commodity Trade Structure] Pakistan ’s main export
commodities include textiles, food, jewelry, chemical products (including
pharmaceuticals), leather and its products, medical appliances, cement, sports
goods, engineering equipment, carpets, etc. The main import commodities include
crude oil and petroleum Products, food, transportation, steel, plastic raw materials,
power generation equipment, electrical appliances, steel scrap, fertilizer and
silk thread, etc.
【Total Service Trade】 In FY2014 / 15, Pakistan's total
service trade was US $ 13.99 billion, of which exports were US $ 5.741 billion
and imports were US $ 8.258 billion, up 4.94%, 7.40% and 3.30% year-on-year
respectively. The trade deficit was US $ 2.517 billion, a year-on-year decrease
of 3.93%.
【Service Trade Structure】 Pakistan's service trade exports
are relatively concentrated. The main types of exports are government services,
transportation services, telecommunications computers and information services,
and other commercial services. The main types of imported services are
transportation, tourism and other commercial services.
[Global Trade Agreement] Pakistan is one of the founding
members of the General Agreement on Tariffs and Trade (GATT) established in
1947 and the World Trade Organization (WTO) established in 1995.
[Regional Free Trade Agreement] mainly includes:
"Pakistan-Sri Lanka Free Trade Agreement", "South Asia Free
Trade Area Agreement", "Pakistan-China Free Trade Agreement",
"Pakistan-Malaysia Closer Economic and Trade Relations Agreement". In
addition, Pakistan is in negotiations with Singapore and the Gulf Cooperation
Council and other free trade zones, and is in negotiations with China for the
second phase of tax reduction.
[Preferential Trade Arrangements] Mainly include:
"Pakistan-Iran Preferential Trade Arrangement", "Islamic
Development Group of Eight (D-8) Preferential Trade Agreement",
"Pakistan-Mauritius Preferential Trade Arrangement",
"Pakistan-Afghanistan Re-export Trade Agreement" ,
"Pakistan-Indonesia Preferential Trade Arrangement".
[EU Universal Tariff System] Pakistan is a beneficiary
country of the EU ’s tariff preferences. The new Generalized System of
Preferences (GSP) program announced by the European Commission in November 2012
added three countries including Pakistan as the third type of GSP. Pakistan has
officially obtained the EU GSP + (GSP +), and can apply to the EU for duty-free
treatment (from January 1, 2014 to December 31, 2023).
[Radiation Range] The radiation range of the Pakistani
market is relatively wide, for the following reasons: First, Pakistan is
located at the junction of South Asia with Central Asia and the Middle East
(West Asia), and has close trade relations with the above regions / countries.
Second, Pakistan is very active in regional economic cooperation. So far, it
has signed free trade agreements with Sri Lanka, China, Malaysia, SAARC and
other countries and regional organizations. It has also signed preferential
trade arrangements with Iran, Mauritius, the Islamic Development Group of Eight
and other countries and organizations. .
[Trade Competent Authority] The Pakistan Trade Competent
Authority is the Ministry of Commerce of Pakistan. Its main responsibilities
include: domestic and foreign trade management and policy formulation, export
promotion, fair trade (anti-dumping, etc.), negotiation of multilateral and
bilateral trade agreements, organization and supervision of business
associations Insurance industry supervision, etc. The National Bank of Pakistan
is responsible for financial system supervision, foreign exchange control, and
currency issuance. The Federal Tax Commission under the Ministry of Finance of
Pakistan is responsible for tariff setting, tariff collection, and customs
supervision.
[Trade Regulations System] The main laws and regulations
related to trade in Pakistan include the "Company Law", "Trade
Organization Law", "Trade Monopoly and Restriction Law",
"Customs Law", "Anti-dumping Law" and "Anti-Hoarding
Law".
[Relevant Regulations on Trade Management] The Pakistani
government divides export products into: prohibited, restricted, price-limited
and general categories. Some of the banned commodities need to be approved by
the relevant government authorities, and the export of restricted commodities
must meet the relevant requirements of the government. Due to rampant smuggling
activities, Pakistan has very strict management of exports to Afghanistan, and
special regulations have been issued to regulate it. Imported products are
classified into prohibited categories, restricted categories and general
categories. Among them, the prohibited products include dozens of categories
that violate Islamic teachings; the imports of restricted products need to meet
the relevant requirements of the government.
In terms of regional preferential policies, the Pakistani
government encourages foreign companies to invest in export processing zones
and special economic zones to set up factories. The policies of various
industrial zones are relatively flexible. There are 21 export processing zones
in Pakistan (6 have been built). In 2012, Pakistan promulgated the
"Special Economic Zone Law", which encourages foreign investment in
special economic zones.
4) Pakistan's investment environment
Pakistan aslo WTO member. It has an open market, a large
population, and huge development potential.
1. Pakistan encourages foreign investment
In recent years, in order to promote faster and better
economic growth, the Pakistani government and the people strongly welcome
investment. The Pakistani government promotes economic reforms, economic
liberalization, and privatization, and has formulated a looser and freer
investment policy. It hopes to enhance its competitiveness in attracting
foreign investment by improving the policy system, providing preferential
treatment and good investment services. Almost all economic sectors in Pakistan
are open to foreign investment. Foreign and local investors enjoy equal
treatment, foreigners are allowed to own 100% equity, and foreigners are
allowed to remit funds freely. In addition, foreign investors in Pakistan enjoy
preferential policies on equipment import tariffs, initial depreciation
deposits, copyright technical service fees and other aspects.
In recent years, the Pakistani government has implemented
extensive structural reforms, introduced relevant preferential policies,
promoted investment facilitation, improved the investment environment, and
vigorously promoted special economic zones, hoping to attract foreign capital
to provide impetus to the country ’s economic development. In the 2015/16
fiscal year, Pakistan attracted foreign direct investment of US $ 1.281
billion, a year-on-year increase of 38.8%. Its main sources are China (US $ 594
million), Norway (US $ 172 million), UAE (US $ 164 million), Hong Kong, China
(US $ 131 million), and Italy (1.04t / US $).
Pakistan ’s use of foreign capital is relatively
concentrated. The three major areas of foreign capital utilization during the
2015/16 fiscal year were the power industry ($ 567 million), oil and gas
development ($ 261 million), and the telecommunications industry ($ 210
million). The Central Bank of Pakistan pointed out that the large investment
from China is the main reason for the good FDI data in Pakistan. The
China-Pakistan Economic Corridor is the largest single project for Pakistan to
attract foreign investment. . The energy sector has become the largest driving
force for Pakistan to attract foreign capital and imports of capital goods, but
in addition to this, FDI in almost all sectors has stalled.
According to the 2016 World Investment Report released by
UNCTAD, in 2015, Pakistan ’s foreign investment flow was 865 million US
dollars, and foreign direct investment flow was 23 million US dollars; as of
the end of 2015, Pakistan ’s foreign investment absorption amounted to 31.6
billion US dollars. The stock of foreign direct investment was US $ 1.719
billion.
Major multinational companies investing in the local area
include: Citibank in the financial sector, Standard Chartered Bank, HSBC and
Barclays Bank, Tokyo Mitsubishi Bank, Deutsche Bank, Industrial and Commercial
Bank of China, etc .; Telenor, China Mobile, Ericsson in the communications
field , Motorola, Huawei, ZTE, etc .; Dutch Shell in the oil and gas field,
Caltex in the United States, BP in the UK, Total in France, OMV in Austria,
PetroChina, Sinopec, etc .; Toyota, Honda, Suzuki, Hyundai, China FAW, etc .;
Procter & Gamble, Unilever, Colgate, etc. in the chemical industry; AES
Power Company, Siemens, Germany, Alstom, China Three Gorges Corporation, China
Power Construction, China Nengjian, etc. in the field of electronic appliances;
Philips in the Netherlands, Haier in China, Sony in Japan, LG in South Korea,
Samsung, Haier in China, Changhong, etc .; Nestlé, Coca-Cola, Pepsi,
McDonald's, KFC, etc. in the field of food processing.
2. Pakistan's currency environment
(1) Currency conditions
The Pakistani currency is rupee and is currently not freely
convertible. In the 2010/11 fiscal year, the Pakistani rupee exchange rate fell
further against the dollar, breaking the 91: 1 mark. In the 2012/13 fiscal
year, the average exchange rate of the Pakistani rupee against the US dollar
was 96.16: 1. In the second half of 2013, the rupee depreciated significantly
against the US dollar and the exchange rate at the end of the year was 105: 1.
Since 2015, due to the significant improvement in Pakistan ’s foreign exchange
reserves, the rupee against the US dollar The exchange rate is relatively
stable, fluctuating between 102: 1 and 106: 1.
At present, the renminbi and rupee cannot be directly
exchanged. The two parties have signed a currency swap agreement in 2011, with
a total value of 10 billion yuan (equivalent to 140 billion rupees). According
to the Foreign Exchange Account (Protection) Act 2001, Pakistan has not imposed
controls on foreign exchange. Foreigners residing in Pakistan, foreign-funded companies
established in Pakistan, and foreign companies registered abroad but operating
in Pakistan may open and use foreign exchange accounts in banks that are
qualified for foreign exchange operations. These accounts can freely remit and
remit foreign exchange, and can also freely deposit and withdraw cash locally.
Pakistan allows foreign investors to remit all capital, capital gains,
dividends and profits. The repatriation of the above amounts will be subject to
a 10% withholding tax. There are no restrictions on foreigners carrying foreign
currency cash and traveler checks.
(2) Financing environment
In terms of financing conditions, foreign-funded enterprises
enjoy the same treatment as local enterprises. If a foreign company invests or
contracts for a project locally, it needs to open a USD account and provide
collateral or guarantee from an entity recognized by the bank. Then it needs to
provide cash flow documents, financial statements and other relevant documents
that prove the company's qualifications and credit. In terms of financing
costs, due to severe inflation, Pakistan ’s base interest rate has been at a
relatively high level all year round. Since 2014, as inflation has eased, the
benchmark annual interest rate has gradually declined, to 8.5% in January 2015,
and commercial financing costs have been around 10%. On May 21, 2016, the
Central Bank of Pakistan announced a reduction of the benchmark interest rate
by 25 basis points to 5.75% for a period of 2 months to continue to stimulate
economic growth and respond to minor inflation expectations. The current
interest rate level is still the lowest since 42 years. In 2003, the Central
Bank of Pakistan allowed the use of Renminbi in exports to China. However, it
is currently not possible to use RMB to invest locally.
[Labor Resources] Pakistan ’s domestic labor resources are
abundant, and the overall quality is not high. The literacy rate of the
population over 10 years old is only about 58%, of which 69% are men and 46%
are women. According to statistics, there are 60.5 million working-age
laborers; the average unemployment rate in Pakistan in the 2014/15 fiscal year
was 6.1%.
[Minimum Wage] The Pakistani government adjusts the minimum
wage of the labor force every fiscal year. In 2013, the minimum monthly wage of
workers was 10,000 rupees (1 US dollar against 105.24 rupees); employees of
more than 10 companies participated in the social security plan Pay 7% of the
wages of insurance workers.
3. Investment regulations in Pakistan
(1) Investment authority
The Ministry of Investment of Pakistan is the department
responsible for investment affairs of the federal government. The main
functions of the investment department (BOI) include the liaison and liaison
between investors and other government departments; the establishment of an
investment docking database to provide investors with the necessary Necessary
information and consulting services. Pakistan Investment Authority has branches
in each province. (BOI official website: boi.gov.pk)
(2) Regulations of the investment industry
According to Pakistan ’s Foreign Private Investment
(Promotion and Protection) Act 1976, the Economic Reform Promotion and
Protection Act 1992 and Pakistan ’s preferential investment policies, all
economic sectors in Pakistan are open to foreign investment, and foreign
investment enjoys the same treatment as domestic investors. Foreign capital is
allowed to own 100% equity. In terms of the minimum investment amount, there
are no restrictions on manufacturing, but in non-manufacturing, there are
minimum requirements according to different industries, the service industry
(including finance, communications and IT industry) is at least 150,000 US
dollars, agriculture and other industries are 30 Ten thousand U.S. dollars.
Pakistan ’s investment policy stipulates that the five areas that restrict
investment are: weapons, high-strength explosives, radioactive materials,
securities printing and coinage, and alcohol production (except industrial
alcohol). In addition, since Pakistan is an Islamic country, foreign companies
are not allowed to engage in entertainment and leisure industries such as
nightclubs, dance halls, movie theaters, massages, and baths.
(3) Regulations on investment methods
Foreign investors can invest in Pakistan through greenfield
investment or mergers and acquisitions. The Pakistan Securities and Exchange
Commission (SECP) is responsible for company registration management and
listing. Pakistan has no special regulations for foreign natural persons to
carry out investment cooperation locally. Natural persons may conduct
investment cooperation in the form of sole proprietorship, partnership or
company, and abide by relevant laws and regulations.
4. Major laws related to investment
( Promotion and Protection) Law, the 1992 Economic Reform
and Protection Law, and related investment and privatization policies, among
which the laws related to the safety of foreign capital mergers and
acquisitions, Competition (M & A
Control) Regulations 2007, Investment Commission Act 2001.
The Foreign Private Investment (Promotion and Protection)
Act of 1976 clearly stipulates that foreign investment should be protected.
Nationalization of foreign-funded companies is not allowed, foreign profits can
be remitted, and foreign capital can enjoy national treatment. The "1992
Economic Reform and Protection Act" emphasizes the protection of foreign
exchange accounts of domestic and foreign companies, supporting investment in
setting up factories, protecting asset transfers, and keeping bank transaction
secrets. The "1984 Company Law" stipulates in detail the
establishment, registration, organization, operation, transfer, and
modification of companies, and clearly stipulates the establishment of
branches, offices, and business operations of foreign companies in Pakistan.
Pakistan has signed investment protection agreements
(including China) with 46 countries and double taxation agreements (including
China) with 52 countries. In addition, Pakistan is relatively active in
regional economic cooperation. So far, it has signed free trade agreements with
Sri Lanka, China, Malaysia, SAARC and other countries and regional
organizations, and has signed preferential trade arrangements with Iran,
Mauritius, the Islamic Development Group of Eight and other countries and
organizations. Most of the above trade agreements have already been
implemented.
At present, there are still many problems and bottlenecks in
Pakistan's investment environment, such as power shortages and relatively
backward infrastructure construction; high inflation and rising operating
costs; in addition, political turmoil and severe security situation have also
affected Investment prospects in Pakistan.
The World Economic Forum ’s 2015-2016 Global Competitiveness
Report shows that Pakistan ranks 126th among the 140 most competitive countries
and regions in the world. According to the World Bank's 2016 Global Business
Environment Report, Pakistan ranked 138th.
Domestic enterprises that have already invested in Pakistan
or are going to invest and start businesses in Pakistan must make full use of
Pakistan ’s natural resources, market space, diplomatic resources and labor
advantages, seize the strategic opportunities of Pakistan ’s economic
development, and carry out various modes of investment cooperation Judging carefully
the safety risks of the market, trying to solve the problem of safety footing
and safe development, better adapting to Muslim religious culture, integrating
into the local society more comprehensively, managing Chinese and foreign
employees more scientifically, and creating a harmonious corporate culture
atmosphere, To protect the foundation industry evergreen, to achieve mutual
benefit and common development.
