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Trade and Investment Opportunities in

PAKISTAN

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Macro Policy Framework

• Legislation - Legal Framework (1976 Foreign Private Investment Act and 1992 Protection of Economic Reforms Act).

• Privatization - SoEs, banking and telecomm.

• Liberalization - ‘withering away of the state.’

• Financial Regulatory Bodies - SBP, SECP and MCA.

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Snapshot of the Economy

• Growth (7%), inflation (9%) and unemployment (6.5%).• GDP (PPP) $427.3 billion (ExRt) $124 billion.• GDP Per Capita (PPP) $2600/- • GDP composition (services 52%, agri. 22% & manuf.

26%) and sectoral labor distribution (services 38%, agri. 44%, and manuf. 18%).

• Growth sectors – agriculture (livestock, wheat, rice & cotton), manufacturing (textile/apparel, steel, chemical, fertilizer & cement), services (banking/finance, telecomm/IT, hospitality, warehousing/distribution, transport, medical & education).

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Investment Sectors• Telecomm.• Financial Services (Banking and Insurance).• Services (IT/BPO, Accounting, Legal, Medical, Education/VTT and

Tourism).• Energy (IPPs, Hydel, Wind and Solar).• Construction/Housing/Engineering (DHAs).• Commercial Real Estate Development (UAE and Malaysia).• Infrastructure/logistics (RR, Roads, P&S, Airports and

Storage/Warehousing).• Agro-tech/Corporate Agricultural Farming (Dairies/Livestock,

Fisheries, Farming and Food/Fruit processing and Horticulture).• Manufacturing (Textiles and Apparel, Light Engineering,

Pharmaceuticals, Medical, Sports and Leather garments).• Mining (Marble/Granite/Onyx).

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Pakistan’s Export & International Level Specialization in 11 out of 20 Globally Ranked

‘Most Market Dynamic Products’ • Silk.• Knitted Garments.• Plastic Articles.• Leather Manufactures.• Non-alcoholic Beverages.• Medical Instruments.• Electrical Distribution Equipment.• Textile Undergarments.• Cereal Preparations.• Knitted Fabrics.• Pharmaceutical Products.

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Trade and Business Opportunities in Different Areas of Business

• SMEDA (Pre-feasibility Studies).

• BoI (Matrix and Sectors).

• OPD (OPIC March 5-6, 2007).

• Privatization Commission/Ministry.

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Trade Regulations

• WTO commitments – Tariffs, Services and IPRs.• Tariff rationalization – 4 tariff slabs (5-10-15/20-

25) based on value addition.• Trade Policy 2006 – inclusion of defense exports

and services trade, FTAs (SAFTA), Domestic Commerce, TDAP, skill development, Carpet Cities, Dazzle Park & import of used machinery.

• Import/Export Orders.• MoC (TP) www.commerce.gov.pk• IPOP (IPRs) www.ipo.gov.pk• CBR (Tax/Tariffs - SROs) www.cbr.gov.pk

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Legal Issues

• BoI (Investment Policy) www.boi.gov.pk

• SECP (Companies Ordinance and Stock/Capita Market) www.secp.gov.pk

• SBP (Prudential Regulations and Policy Guidelines) www.sbp.gov.pk

• Ministry of Finance (Macro economic policy and Budget) www.finance.gov.pk

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Investment Incentives

• FDI protection. • Forex security.• Export/Import schemes.• SBP/SMEDA Financing.• Tariff reduction.• 100% repatriation.• 100% equity.• No performance (local

content) requirements.

• IT Parks.• Industrial Parks.• EPZs.• Tax (duty drawback and

GST refund) and subsidy relief.

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International Confidence Indicators

• FDI $3.02 billion (FY2005-06).• Portfolio Investment $12 billion.• Stock market capitalization $57 billion.• Islamic Sukuk $600 million and Eurobonds $1.4

billion.• Country rating (S&P): Positive – 'B+' foreign

currency, 'BB' local currency long-term & 'B' short-term sovereign ratings .

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American Companies in Pakistan

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Cost of Doing Business - I• TI ratings/Corruption Perception Index (CPI score

142/163 in 2006; 144/158 in 2005; 129/145 in 2004).• HDI - 136/178.• IFC Doing Business Index – 74/175 (Starting a business

of 50 employees involves 11 procedures and 25 days).• Competitiveness Index - 90/192.• Risk Rating - 66/100 (D).• Business Environment Ranking - 72/82.• WTO (TP Report) 2 TP reviews (1995 and 2002) passing

marks and liberal policies.

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Cost of Doing Business - II

• Direct labor cost $0.75/hour wage rate.• Electricity cost 1/5 of total costs ($0.09/Kw/hr).• Transportation/freight cost to USA: 24.8% air & 6.4% by sea (regional

average is 12.5% & 3-4%).• Container Shipping Time: 25-35 days.• Inland Rail/Road Transport - $0.01-$0.02/km/ton. • Average landed tariff - 18.5% plus GST.• GST – zero rating vs. 15%.• Port Dwell Time – Exports 2 days/Imports 10 days.• Customs Clearance – PRAL and PACCS. • Red tape and speed money.• http://www.engineeringpakistan.com/CODB/CostofDoingBusiness.pdf

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Three steps of Investing Step 1

• Obtain a NICOP/POC.• Contact Pakistan’s Trade Officer in your area.• Contact the Board of Investment (BoI) – the primary focal &

coordination point for Overseas Pakistanis and foreign investors.• http://www.pakboi.gov.pk/• http://www.pakboi.gov.pk/About_us/directory_of_boi_officials.html• Attaturk Avenue, G-5/1Islamabad, Pakistan,

Tel: 92-51-9219957, 9224101Fax: 92-51-9215554, 9206160Hours: Monday to Thursday & Saturday - 0800 hrs to 1500 hrs Friday – 0800 hrs to 1200 hrs

• Utilize the BoI’s Facilitation Center and Business Guide.

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Three steps of Investing Step 2

• Contact SECP (Securities & Exchange Commission of Pakistan) – the main regulator of the capital markets and implementer of the Companies Ordinance (the grund norm governing businesses in the country).

• http://www.secp.gov.pk/• SECP registers foreign and domestic companies in Pakistan.• http://www.secp.gov.pk/divisions/Portal_CLD/

index_CSS.htm• http://www.secp.gov.pk/Guides/PromotersGuide.pdf

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Three steps of Investing Step 3

• Visit the CBR, SBP, SMEDA and MoC websites to learn about the taxes/tariffs structure, credit policies, SME policy and latest Import and Export Orders governing trade.

• Contact the US-Pakistan Business Council in Washington DC (http://www.uspakistan.org/) and the American Business Council of Pakistan in Karachi (abcpak@cyber.net.pk). The ABC is the largest group of single country investors in Pakistan.  It acts as a catalyst to promote US investment in the country.

• Undertake a ‘look see’ visit to Pakistan to obtain a first hand view of the lay of the land.

• Visit the Engineering Development Board and scrutinize their various studies.

• Follow the proposed ‘investors checklist’.

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Investor's Checklist• Learning from others – contact US based expats already doing business in Pakistan.• ‘Look see’ preparatory visit.• Feasibility study (http://www.pakboi.gov.pk/Misc/project_brief.html; http://www.smeda.org.pk/pre-

feasibility.php).• Check the Engineering Development Board’s website for studies and useful information on many

sectors of the economy (http://www.engineeringpakistan.com/EngPak1/index.php).• ABCP (American Business Council of Pakistan).• BoI/SMEDA/SECP interface. • RoI projection.• Due Diligence.• Local partner/risk sharing.• Local content/sourcing.• Hiring a legal consultant.• Checking land title transfer record.• Legal instrument drafting/risk transfer & mitigation issues.• Scrutinizing financing options- loan and equity issues.• Assessing Land-Capital-Management-Labor costs -- the ‘TFP equation’.• Perseverance and patience.• Consistency and constant follow up.

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GoP Paradigm• Education and skills development – HEC and NAVTEC.• Managerial development – bridging the ‘knowing-doing’ gap.• Free markets – trade liberalization and WTO commitments/FTAs.• Consumer protection – regulatory bodies.• Economic liberalization.• Transparent Privatization.• Regulatory oversight (SBP, SECP, PTA, NEPRA, OGRA, MCA, PEMRA,

PPRA, HEC, PMDC, PEC & FAB).• Availability of credit – SBP, Banks and SMEDA.• Banking & insurance reform – SBP and SECP.• Stock market – foreign portfolio investment ($12 billion).• FDI – forex liberalization.• CBR overhaul – Customs and IT.• Trade Facilitation – reducing cost of doing business and National

Trade/Transportation Corridor – Gateway to Central Asia.• Infrastructure development – roads, ports, railway and air transport.

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Useful Websites

www.engineeringpakistan.com/EngPak1/index.php (Engineering Dev Board)www.pakistan.gov.pk (GoP Gateway)www.commerce.gov.pk (Trade/Commerce)www.pakboi.gov.pk (Investment)www.privatisation.gov.pk (Privatization)www.tdap.gov.pk (Trade-Export)www.sbp.org.pk (Finance and Regulation)www.smeda.org (SMEs)www.cbr.gov.pk (Tax/Tariffs)www.secp.gov.pk (Capital/Stock Market)abcpak@cyber.net.pk (American Business Council of Pakistan)

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ELECTRIC MACHINERY

ETC; SOUND EQUIP; TV

EQUIP; PTS

210,058,572

COTTON, INCLUDING YARN

AND WOVEN FABRIC

THEREOF

119,335,148

All Others

565,135,631

NUCLEAR REACTORS,

BOILERS, MACHINERY

ETC.; PARTS

247,390,062

AIRCRAFT, SPACECRAFT,

AND PARTS THEREOF

847,613,218Product Value ($) Percent

AIRCRAFT, SPACECRAFT, AND PARTS THEREOF 847,613,218 42.60%NUCLEAR REACTORS, BOILERS, MACHINERY ETC.; PARTS 247,390,062 12.40%ELECTRIC MACHINERY ETC; SOUND EQUIP; TV EQUIP; PTS 210,058,572 10.60%COTTON, INCLUDING YARN AND WOVEN FABRIC THEREOF 119,335,148 6%

All Others 565,135,631 28.40%

 Grand Total 1,989,532,631 100%

United States Exports to Pakistan

2006

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State Total in $Texas 154,434,000Illinois 57,046,000Ohio 37,295,000Tennessee 37,294,000Wisonsin 33,407,000Louisina 22,914,000Mississippi 18,625,000Kansas 18,078,000Indiana 8,299,000Missouri 7,418,000Oklahoma 6,471,000Minnesota 6,247,000Michigan 4,903,000Iowa 4,107,000Kentucky 3,997,000Nebraska 2,909,000Arkansas 1,521,000

Texas , 154,434,000

Illinois, 57,046,000Ohio, 37,295,000

Tennessee, 37,294,000

Wisonsin, 33,407,000

Louisina, 22,914,000

Mississippi, 18,625,000

Kansas, 18,078,000

Indiana, 8,299,000

Missouri, 7,418,000

Oklahoma, 6,471,000

Minnesota, 6,247,000

Michigan, 4,903,000

Iow a, 4,107,000

Nebraska, 2,909,000

Kentucky, 3,997,000

Arkansas, 1,521,000

Midwest Exports to Pakistan

2006

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Illinois Exports to Pakistan

2006

Product Value ($) PercentElec. Eq., Appliances & Parts 22,632,620 39.70%

Machinery Manufactures 10,457,529 18.30%

Crop Production 7,930,366 13.90%

Computers & Electronic Prod. 5,361,796 9.40%

All Others 10,663,822 18.70%

 Grand Total 57,046,133 100%

All Others10,663,822

Computers & Electronic Prod.5,361,796

Crop Production7,930,366

Elec. Eq., Appliances & Parts22,632,620

Machinery Manufactures10,457,529

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United States Imports From Pakistan

2005

Product Value ($) PercentTEXTILE ART NESOI; NEEDLECRAFT SETS; WORN TEXT ART 1,297,865,795 35.30%APPAREL ARTICLES AND ACCESSORIES, KNIT OR CROCHET 1,033,103,495 28.10%APPAREL ARTICLES AND ACCESSORIES, NOT KNIT ETC. 394,366,081 10.70%COTTON, INCLUDING YARN AND WOVEN FABRIC THEREOF 333,811,451 9.10%

All Others 613,877,785 16.70%

 Grand Total 3,673,024,607 100%

AP P ARE L ART ICLE S AND

ACCE SSORIE S, NOT KNIT

E T C.

394,366,081AP P ARE L ART ICLE S AND

ACCE SSORIE S, KNIT OR

CROCHE T

1,033,103,495

T E XT ILE ART NE SOI;

NE E DLE CRAFT SE T S;

WORN T E XT ART

1,297,865,795

Al l Other s

613,877,785

COT T ON, INCLUDING

Y ARN AND WOVE N

FABRIC T HE RE OF

333,811,451

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State Total in $Texas 100,262,392 Wisconsin 157,627 llinois 75,616,211 Minnesota 7,351,476 Louisiana 49,514,204 Michigan 68,790,640 Ohio 83,133,662 Missouri 21,875,225

Texas $100,262,392

Louisiana $49,514,204

Michigan $68,790,640

Minnesota $7,351,476

Wisconsin $157,627

llinois $75,616,211

Missouri $21,875,225

Ohio $83,133,662

All Import Commodities to Midwest from Pakistan

2005

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Texas 160,855.00$ Florida 160,742.00$ California 128,266.00$ New York 93,808.00$ Illinois 88,753.00$ Tennessee 68,926.00$ Georgia 52,976.00$ South Carolina 51,472.00$ North Carolina 45,316.00$ Wisconsin 29,950.00$

Wisconsin $29,950.00

Georgia $52,976.00

California $128,266.00

Florida $160,742.00

Texas $160,855.00

North Carolina$45,316.00

South Carolina $51,472.00

Tennessee$68,926.00

Illinois$88,753.00

New York$93,808.00

Top Ten U.S. States Exporting to Pakistan

2005