Note: * The UNCTAD Inward FDI Performance index is based on a ratio of the country's share in global FDI inflows and its share in global GDP. ** The UNCTAD Inward FDI Potential index is based on 12 economic and structural variables such as GDP, foreign trade, FDI, infrastructures, energy use, R&D, education, country risk.*** Green field investments are a form of foreign direct investment where a parent company starts a new venture in a foreign country by constructing new operational facilities from the ground up. **** Gross fixed capital formation (GFCF) measures the value of additions to fixed assets purchased by business, government and households less disposals of fixed assets sold off or scrapped.
Why you should choose to invest 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%, leading to higher purchasing power. The positive GDP growth rate over the past few years resulted in the development of the country’s industrial and service sectors. Islamabad has steadily raised development spending in recent years, including a 50% budget allocation for development. 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.
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.
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.
