ASSIGNMENT ON

SUBJECT
International Finance
SECTION:
MBSM (A)
PRESENTED BY:
Salman Nadeem
Roll # 1448













College of statistical and actuarial sciences
University of the Punjab, Lahore.



ASSIGNMENT
Q-1 What is the procedure to register FDI in
Pakistan?
FDI up to 100% is allowed under the automatic route in all activities/sectors except the following
which will require approval of the Government:
Activities/items that require an Industrial License;
Proposals in which the foreign collaborator has a previous/existing venture/ tie up in the
same or allied field,
All proposals relating to acquisition of shares in an existing Pak company by a
foreign/NRI investor.
All proposals falling outside notified sectoral policy/caps or under sectors in which FDI
is not permitted.
FDI policy is reviewed on an ongoing basis and measures for its further liberalization are taken.
Change in sectoral policy/sectoral equity cap is notified from time to time through Press Notes
by the Secretariat for Industrial Assistance (SIA) in the Department of Industrial Policy &
Promotion. Policy announcement by SIA are subsequently notified by RBI under FEMA. All
Press Notes are available at the website of Department of Industrial Policy & Promotion.
Automatic Route
FDI Policy permits FDI up to 100 % from foreign/NRI investor without prior approval in most of
the sectors including the services sector under automatic route. FDI in sectors/activities under
automatic route does not require any prior approval either by the Government or the RBI. The
investors are required to notify the Regional office concerned of RBI of receipt of inward
remittances within 30 days of such receipt and will have to file the required documents with that
office within 30 days after issue of shares to foreign investors.
Government approval route
All activities which are not covered under the automatic route, prior Government approval for
FDI/NRI shall be necessary. Areas/sectors/activities hitherto not open to FDI/NRI investment
shall continue to be so unless otherwise decided and notified by Government. An investor can
make an application for prior Government approval even when the proposed activity is under the
automatic route.


Procedure for obtaining Government approval -FIPB
All proposals for foreign investment requiring Government approval are considered for approval
by the Foreign Investment Promotion Board (FIPB). The FIPB also grants composite approvals
involving foreign investment/foreign technical collaboration. For seeking the approval for FDI
other than NRI Investments and 100% EOU, applications in form FC-IL should be submitted to
the Department of Economic Affairs (DEA), Ministry of Finance.
Proposals requiring Govts Approval
Application for proposals requiring prior Govts approval should be submitted to FIPB in FC-IL
form. Plain paper applications carrying all relevant details are also accepted. No fee is payable.
The following information should form part of the proposals submitted to FIPB: -
(a) Whether the applicant has had or has any previous/existing financial technical collaboration
or trade mark agreement in India in the same or allied field for which approval has been sought;
and
(b) If so, details thereof and the justification for proposing the new venture/ technical
collaboration (including trade marks).
(c) Applications can also be submitted with Indian Missions abroad who will forward them to the
Department of Economic Affairs for further processing.
(d) Foreign investment proposals received in the DEA are placed before the Foreign Investment
Promotion Board (FIPB) within 15 days of receipt. The decision of the Government in all cases
is usually conveyed by the DEA within 30 days.
Investment in Pakistan - Various Business & Services Sectors:
Under the current Investment Policy of Pakistan, business and service enterprises are divided
into 3 main sectors or categories which are as follows:
Manufacturing or Industrial sector
Non-Manufacturing Sector
Other sectors
The Investment Policy of Pakistan may vary vis--vis these different sectors.

Investment Policy of Pakistan for Manufacturing & Industrial Sector
Foreign investors are allowed to hold 100% equity of industrial projects without 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 business sector
Investors are not required to obtain No Objection Certificate (NOC) from the Provincial
Governments for locating the project anywhere in the country except in the areas that are notified
as negative areas.
Investment Policy of Pakistan for Non-Manufacturing Sector
Foreign investors are allowed to hold 100% equity of non-manufacturing projects on repatriation
basis subject to the terms and conditions indicated against each sub-category stated herein below:
Where registration of a company in Pakistan is required, for a non-manufacturing project,
intimation should be given to the State Bank of Pakistan (SBP).

Investment in Infrastructure Sector in Pakistan
Foreign Direct Investment in an infrastructure sector is allowed for infrastructure projects which
may include development of an Industrial Zone(s).
Foreign investors may hold 100% equity allowed on repatriation basis and the minimum amount
of foreign equity investment in the project shall be 0.30 million dollars.

Investment in Social Sector in Pakistan
Foreign Direct Investment in the social sector is allowed in the following fields:
Education, Technical/Vocational Training, Human Resource Development (HRD), Hospitals,
Medical and Diagnostic Services.
Foreign investors may hold 100% equity allowed on repatriation basis and the minimum amount
of foreign equity investment in the project shall be 0.30 million dollars. Foreign investors may hold
100% equity allowed on repatriation basis and the minimum amount of foreign equity investment in the
project shall be 0.30 million dollars. Foreign controlled manufacturing concerns will be allowed
unlimited domestic borrowing according to their requirements for working capital.

Q-2 What is the FDI requirement of China and
Dubai?
CHINA:

The fourth quarter of 2012 appears to have been a turning point. Growth accelerated moderately
and will likely continue to do so in 2013. The revival of the economy came from a number of
sources, not the least of which was government stimulus. Such spending was heavily weighted
toward investment in railways, which was up 50 percent in the fourth quarter from a year
earlier. Such investment had been severely curtailed following a serious accident in 2011. This
type of spending should continue to rise in 2013.In addition; export growth rebounded in the
fourth quarter after a difficult period. The rate of increase of exports to both the United States
and other Asian countries increased, and the decline in exports to Europe decelerated. Domestic
demand also accelerated. Real estate investment, which had decelerated for much of the past
year, finally accelerated in the fourth quarter. Retail sales rebounded as well, growing 15 percent
in the fourth quarter. Still, retail sales decelerated in January as the governments crackdown on
excessive spending by officials took a toll. Traditionally, the Chinese New Year is a time for
gift giving, and the new governments crackdown on extravagance had a negative impact on the
growth of retail sales. However, going forward retail sales should continue to rise at a healthy
pace. Finally, accumulation of inventories decelerated dramatically, suggesting that future
increases in demand will be met by increased production. Indeed, industrial production has
already started to accelerate. Also, corporate profits were up in the past three months, having
declined for much of 2012. This means that businesses have a bit more pricing power and are no
longer facing a zero-sum environment.. Moreover, given that inflation appears to have bottomed,
the central bank will be reluctant to provide too much credit lest inflation gets out of hand once
again. Still, the government has not indicated how it intends to deal with the continued growth of
the shadow banking sector. As Chinese growth continues to come largely from domestic rather
than export demand, it is worth noting that there has been a decline in foreign direct investment
(FDI) into China. In January, FDI was down7.3 percent from a year earlier. Why is this? Foreign
interest in sourcing manufactured goods from China is declining because of rising costs of
production in China. Wages of migrant workers are up 12 percent from a year earlier, and the
labor force has stopped growing. Hence, labor costs are likely to continue rising. Plus, the
currency is expected to rise in value. The result is that global manufacturers are increasingly
looking at other locations such as Vietnam and Indonesia.

Chinas new leadership is starting to demonstrate the direction it wants to take. The State
Council recently approved a 35 point plan designed to correct Chinas widening income
disparity. But it goes beyond that; the plan would have the effect of moving toward a more
market-driven economy in which state-run enterprises have less power and engage in less
investment. The specifics include the following:
The minimum wage will be boosted to at least 40 percent of average salaries.
Interest rates on deposits and loans will be freed, allowing the financial system to work on a
market basis. Savers will obtain a better return, which may encourage them to save less and
consume more. Borrowers will face higher costs and will, consequently, be encouraged to invest
only in those projects that offer the promise of a good return.
State-owned enterprises will have to return a larger share of their earnings to the government,
thus creating a more level playing field for private sector business. This money will be used to
enhance increased spending on education and other social programs. Some critics say that the
amount that SOEs must pay to the government will still be too small.
The government will expand its experimentation with property taxation in order to encourage
more economically sensible use of property. This is a controversial issue. The steps announced
represent an attempt to gradually shift growth away from investments undertaken by state-run
companies and toward consumer spending. It also represents an effort to stem the widening
income gap that, officials fear, could become the source of increased unrest.




DUBAI:

A comprehensive report conducted by the Foreign Investment Office, part of Dubai Department
of Economic Development, that surveyed C-Level executives of fortune 1000 companies on their
future investment plans Dubai ranks among the top 25 global FDI destinations which attract 75%
of Global FDI flows. Investors continued confidence during these turbulent times is highlighted
with 81% of existing investors planning to maintain and grow their investments. Investors
emphasize Dubais economic fundaments, strategic location, and reach into one of the fasting
growing regions in the world as the key drivers making Dubai the FDI access point of the region
and perceived to be the first to rebound from the economic downturn. Dubai is the preferred
destination for future regional FDI, and shows a distinguished competitiveness on a global level
Dubai FDI, the foreign investment office of the Department of Economic
Development (DED), has published an updated study on the distinguishing
features that enables Dubai to remain an attractive destination for people and
businesses worldwide.
Dubai FDI, the foreign investment office of the Department of Economic Development (DED),
has published an updated study on the distinguishing features that enables Dubai to remain an
attractive destination for people and businesses worldwide. The latest issue of the 'Why Dubai'
study, completed after extensive interviews with business leaders and investors, shows Dubai's
lifestyle and retail choices as its most significant attractions, along with its visionary leadership,
pro-business government, suitability as a global hub for multinational firms, connectivity,
logistics infrastructure, and pre-eminence in information and communications technology (ICT).

"Today, the world is watching closer how Dubai is bucking global trends to sustain growth.
Dubai is re-inventing itself, providing more compelling reasons for people and businesses to be
in Dubai," commented His Excellency Sami Al Qamzi, Director General of DED."Dubai is home
to 2.17 million people from 202 nationalities reaping rich rewards from the 'can-do' attitude of
the emirate's leadership. Creating new opportunities for such a global population is the key factor
keeping Dubai ahead in the competition," added Al Qamzi. Why Dubai' points to the multi-
cultural, safe and family-friendly environment and the presence of best-in-class retail choices as
the driver of the emirate's popularity as a lifestyle destination. In 2011 Dubai was ranked number
one in the CB Richard Ellis report, 'Top 20 Cities for Retail.'
Over and above the ease and efficiency of doing business, a major strength of Dubai is its safe,
family-friendly and multicultural environment. For the growing number of multinational
companies moving to Dubai, the emirate's lifestyle is a major attraction as much as its
infrastructure and proximity to key growth markets," said Fahad Al Gergawi, Chief Executive
Officer of Dubai FDI. Tracing Dubai's evolution from a local trading community to a preferred
destination for foreign investment, the study says the emirate's logistics infrastructure,
connectivity, pro-business policies and transparent regulations have laid strong foundations for
accelerated growth. Dubai is the third largest export hub and has the fourth largest airport in the
world today as a superior transport infrastructure connects businesses and people to key
international markets within the shortest possible time. Dubai's total non-oil foreign trade grew
13 per cent to set a record of Dhs1.029 trillion during the first 10 months of 2012, compared to
Dhs911bn during the same period of 2011. The emirate is also the regional leader in information
technology and telecommunications, with the world's highest mobile penetration rate.

"As thousands of new businesses are discovering each year, Dubai is the perfect gateway
between East and West and the preferred hub for the region's imports and exports market - one of
the most lucrative in the world. Dubai's strategic location gives easy access to 2.2 billion
consumers from a unique centralized time zone that combines East and West business hours,"
says the study.
"Trade, logistics, transportation and tourism accounted for almost 60 per cent of Dubai's GDP in
2011, which grew in total by 3.4% and is expected to grow 4.6% by the end of 2012," says the
study, adding that Dubai's 575 hotels generated Dhs16bn in revenues in 2011.
"Confidence in Dubai's leadership and potentials are other significant factors promoting growth
and FDI inflows. Dubai's economy stayed on course despite the global slowdown and foreign
direct investment (FDI) inflows remained stable at Dhs23.1bn in 2011, creating more than
15,260 new jobs," noted Al Gergawi.
The study also points to the ease of access to finance and labor as well as the commitment to
innovation and competitiveness that governs decision-making in the government and the private
sector in Dubai.
"Dubai was ranked 33 in the 2012 Doing Business Report of the World Bank and 27 in the
Global Competitiveness ranking for 2011-2012. It has also been ranked as the top Middle
Eastern city in Mercer's quality of life index," added Al Gergawi.The support extended to
investors and businesses by DED and its agencies as part of the government's strategy to
diversify the economy and maximize growth opportunities are also outlined in the study, which
will be distributed in business forums and missions overseas.
Q-3 What are the limits of inflow and outflow of
capital, profits and royalty of foreign investors?
Introduction: Foreign direct investment (FDI) is defined as a long-term investment by a
foreign direct investor in an enterprise resident in an economy other than that in which the
foreign direct investor is based. Foreign direct investment (FDI) is also defined as "investment
made to acquire lasting interest in enterprises operating outside of the economy of the investor.
The FDI relationship consists of a parent enterprise and a foreign affiliate which together form a
Multinational corporation (MNC).
Objectives:
To identify the actual status of FDI.
What kind of changes has brought by the FDI in the world economy?
In what condition FDI may be beneficial for a country.
What type of FDI can bring what type of benefits?

Different Types of FDI
Inward:
Inward foreign direct investment is a particular form of inward investment when foreign capital is
invested in local resources.
Inward FDI is encouraged by:
Tax breaks, subsidies, low interest loans, grants, lifting of certain restrictions
The thought is that the long term gain is worth more than the short term loss of income
Inward FDI is restricted by:
Ownership restraints or limits
Differential performance requirements
Outward:
Outward foreign direct investment, sometimes called "direct investment abroad", is when local
capital is invested in foreign resources. Yet it can also be used to invest in imports and exports
from a foreign commodity country.
Outward FDI is encouraged by:
Government-backed insurance to cover risk
Outward FDI is restricted by:
Tax incentives or disincentives on firms that invest outside of the home country or on
repatriated profits
Subsidies for local businesses
Leftist government policies that support the nationalization of industries (or at least a
modicum of government control)
Self-interested lobby groups and societal sectors who are supported by inward FDI or
state investment, for example labor markets and agriculture.
Security industries are often kept safe from outwards FDI to ensure localized state control
of the military industrial complex
FDI Prohibited
FDI is not permissible in the following cases
Gambling and Betting, or
Lottery Business, or
Business of chit fund
Niche Company
Housing and Real Estate business.
Trading in Transferable Development Rights (TDRs)
Retail Trading
Atomic Energy
Agricultural or plantation activities or Agriculture (excluding Floriculture, Horticulture,
Development of Seeds, Animal Husbandry, Viniculture and Cultivation of Vegetables,
Mushrooms etc. under controlled conditions and services related to agro and allied
sectors) and Plantations(other than Tea plantations)
Foreign Direct Investment (FDI) is permitted as under the following forms of investments.
Through financial collaborations.
Through joint ventures and technical collaborations.
Through capital markets via Euro issues.
Through private placements or preferential allotments.
Large outflows of capital
large outflows began again in May 1998, following India's nuclear tests and volatility in the
rupee/dollar exchange rate. In an effort to avoid further heavy outflows, the RBI announced in
June that FIIs would be allowed to hedge their incremental investments in Indian markets after
June11, 1998.
Factors affecting FDI Inflows
Domestic market potentials
Low wage rates
Low transactions costs
High rates of return
Labor mobility
Matured capital market
Modern financial system
Efficient infrastructure
Established legal and institutional set-up
Transparent rules and regulations
Administrative speed and efficiency
Special economic zones, EPZs etc.
Q-4 Is there any industry wise special incentives?
Foreign direct investment has a significant role in the promotion and diversification of economic
growth, importation of new technology, efficient management and marketing techniques. The
government has enacted an extensive package of incentives, which include complete
deregulation. Foreign investors are placed at par with local investors in this package. To increase
the flow of foreign investment and build the investors confidence to invest in Pakistan these
incentives range from reduced or zero impact duty o9n machinery and equipment, exemption
from levy of tax on income, one window operation, fully developed infrastructure, supply of
uliliper of high quality and availability of fiscal and monitory incentives.
Foreign direct investment incentives may take the following forms:
low corporate tax and individual income tax rates
tax holidays
other types of tax concessions
preferential tariffs
special economic zones
EPZ Export Processing Zones
Bonded Warehouses
Maquiladoras
investment financial subsidies
soft loan or loan guarantees
free land or land subsidies
relocation & expatriation
infrastructure subsidies
R&D support
derogation from regulations
Fiscal incentives: Fiscal incentives include the following:
Corporate tax holiday of 5 to 7 years for selected sectors;
Reduced tariff on import of raw materials capital machinery;
Bonded warehousing;
Accelerated depreciation on cost of machinery is admissible for new industrial
undertaking;
Tax exemption on capital gains from the transfer of shares of public limited
companies listed with a stock exchange;
Reduced corporate tax for 5-7 years in lieu of tax holding and agricultural depreciation
Financial Incentives: Financial incentives include the following:
Cash incentives and export subsidies ranging from 5%-20% granted on the FOB
value of the selected product;
90% loans against letters of credit;
Funds for export promotion;
Export credit guarantee scheme;
Permission for domestic market sales of up to 20% of export oriented companies
outside EPZ.


Additional facilities: Additional facilities include the following:
100% foreign equity allowed;
Unrestricted exit policy;
Remittance of royalty, technical know-how and technical assistance fees;
Full repatriation facilities of dividends and capital at exit;
Citizenship by investing a minimum of US $ 5,00,000;
Permanent resident permits on investing US $ 75,000;
An investor can wind up investment either through a decision of the AGM or
EGM. The investor can repatriate the sales proceeds after securing proper
authorization from the central Bank.
Others: The following policy incentives are available to foreign investors.
Foreign exchange controls have been relaxed.
Foreign investors have been allowed participation in local projects on 100% equity
basis.
There is no requirement of having local partners and full repatriation of capital and
dividend is allowed.
Ceilings on payments of royalties and technical fee have been abolished.
Numbers of specified industries requiring government sanction has been reduced to four
as:
Arms and ammunition
High explosives
Radio-active Substances
(Security printing, currency and mints establishment of new units for the manufacture of
alcohol, except industrial alcohol, is banned)