www.pakboi.gov.

pk

Investment in Pakistan 2011

Zorlu Enerji Jhimpir Wind Farm

Lotte Group

Ensuring you can!

Chairmans Message
The President of Pakistan, H.E. Mr. Asif Ali Zardari attaches great magnitude to investment and business in Pakistan and desires the Board of Investment to be the apex body for fulfillment of all investor needs. To make it a vibrant organization as envisioned by the President, the Board of Investment has gone through a transformation in its structure and chain of command. The New BOI is an autonomous organization directly under the Prime Ministers Secretariat, as a result of the initiative and efforts of H.E. Mr. Yusuf Raza Gilani for the Board of Investment to be an empowered body for attracting Investment into Pakistan. The new setup has provided the BOI with the opportunity to deliver its functions more efficiently and effectively. Pakistan is amongst the important emerging economies of the region, with a consumer base of 170 million plus and a prime location in the heart of Asia. Pakistans ideal location gives her access to all the growing markets of the world. In order to capitalize on its strategic location, Pakistan has adopted liberal and investor friendly policies, broad features of which include; proactive facilitation, guarantees of equal treatment to both local and foreign investors, easy tariff structures and a liberal regime on repatriation of profits. These strategies have borne results with a record inflow of Foreign Investment of US $8.4 billion, Recently, the volatile environment in the region and the global financial crises has affected these figures. However, the Government now plans to undertake further structural reforms in various sectors of the economy to attract investors. The Government has declared the Power Sector as one of the top priorities for investment and is taking all necessary measures to build a more conducive environment by simplifying procedures to facilitate potential investors. At present, Pakistans total installed generation capacity from Hydroelectric, Thermal, Independent Power Producers (IPPs), and Nuclear sources stands at 19,566 MW. The existing capacity of thermal power generation in Pakistan stands at 12,630 MW, which is almost two-third (64.6 percent) of the countrys total generation capacity. Hydel energy is the second largest source of electricity and accounts for 33.1 percent of total power generation in the country. The rapid economic growth over the past few years has led to a power shortage in Pakistan and the country today is looking for investment in power production to meet its short and long term power needs. The financial sector of Pakistan is regarded as one of the best performing sectors in our region. The banking sector has shown robust performance and so have the stock markets. The contribution of the service sector in the growth of the economy has been almost 60% over the last few years. The financial sector has also attracted significant attention from the foreign investors in the recent past and still holds sufficient potential. The initiatives taken by the BOI to setup Special Economic Zones (SEZs) and other Industrial Zones will further harness the investment and the Board of Investment assures its full cooperation and support to the investors ready to come to Pakistan. I invite you to visit the Board of Investment and consult us before doing business in Pakistan. The Board of Investment assures you its full support and commitment to facilitate all your investment needs. Pakistan is progressing towards economic growth and we promise to make your business a success.

Secretary's Message
Pakistan is a land of many splendors and opportunities, a unique blend of history and culture from the East and the West. Growth has been underpinned in Pakistan by economic liberalization, deregulation, financial and capital market reforms and privatization along with wide scale investment in the infrastructure by the Government. World Foreign Direct Investment (FDI) flows fell moderately in 2008 following a five-year period of uninterrupted growth, in large part as a result of the global economic and financial crisis. While developed economies were initially those most affected, the decline has now spread to developing countries, with inward investment in most developed countries falling in 2009 too. The decline poses challenges for many developing countries including Pakistan, as FDI has become their largest source of external financing. Global FDI flows have dropped in 2009 by nearly two fifths last year, with both rich and poor countries suffering a drop in funds. Flows of Foreign Direct investment (FDI) on which many developing countries rely for growth could start to grow again this year as the economic recovery takes hold. In order to capitalize on its strategic location, Pakistan has adopted a liberal investor friendly policy, broad features of which include, proactive facilitation and guarantees of equal treatment of both local and foreign investors, easy tariff structures and a liberal regime on repatriation of profits. The country is facing severe energy crisis this year and the Government has accorded Power sector top priority for investment and is taking all necessary measures to build a more conducive environment by simplifying procedures to facilitate the potential investors. There is vast untapped potential in other sectors like horticulture, dairy, construction, infrastructure development, manufacturing and tourism can also prove highly profitable for any prospective investor.

Saleem H. Mandviwalla, Chairman, Board of Investment

Anisul Hassnain Secretary,Board of Investment

Chapter 1

Chapter 2

Investment in Pakistan
Investment in Pakistan is a booklet prepared by BOI to provide information on a number of subjects relevant for investment planning or doing business in Pakistan. This booklet provides a summary of the rules, regulations and tax laws applicable in Pakistan. Although covering many relevant areas, it cannot be exhaustive, and it is not designed to provide the complex and detailed information required for decision-making in relation to investments. Pakistan is fast adapting to the challenges of globalisation as an emerging market. Its economy was able to weather severe storms in FY2008-09. Pakistan is a land abundant in business opportunities for investors awaiting eager exploration of markets as well as identifying and mitigating inherent business risks. This guide offers an introductory overview of key investment determinants and considerations pertaining to investing in Pakistan, drawing from BOI diversified experience in Pakistan. F

Overview

Pakistan emerged as an independent sovereign state on the 14th of August 1947 and is the sixth-most populous country in the world having a population size of 170 million in 2009-10. Pakistan symbolizes the land of pure and has been the centre of the great Indus Valley civilization dating back at least 5,000 years. The historical excavations of historical sites at Taxila, Harappa, and Mohenjo-Daro dating back to 3,000 B.C. speak volumes about its rich cultural heritage. Pakistan is an emblem of diversity with respect to its diverse culture, climate, languages and geographical terrain make it an emblem of diversity. It covers 796,095 square km and constitutes four provinces, namely; Sind in the south east; Punjab in the north east; Baluchistan in the west, and Khyberpakthunkhawa (KP) in the north-west. Pakistan is strategically located at the crossroads of Asia with China as its neighbour in the north, India in the east and Iran and Afghanistan in the West. Geographically Pakistan is adorned with snow-covered peaks, fiery deserts, fertile mountain valleys and irrigated plains. The mountainous north serves as the juncture for three of the worlds largest mountain ranges; Hindu Kush, Karakoram and the Himalayas. The coastline of the Arabian Sea in the south stretches about 1,000 km long while the west boasts of the Baluchistan plateau. Whilst the east has been given life by the Indus River along with its network of tributaries journeying 3,200 km from Tibet, through the mountainous north and inundating the Indus plains before merging with the Arabian Sea of the Indian Ocean. Agriculture is the backbone of the countrys economy with a network of canals irrigating a major part of its cultivated land. Wheat is the principal food crop accompanied by cotton, rice, millet and sugarcane. Cotton is the most important non-food cash crop. Pakistan is also home to fruits that enjoy a major export market including mangoes, oranges, bananas and apples.

Colors of Pakistan

Pakistan is also a sanctuary to natural resources including coal reserves, natural gas, salt and iron. Other contributing sectors include textiles, sugar, cement and chemicals. Pakistan is home to the 10th largest labour force in the world.

Country Snapshot
Official name Capital City Main Cities Population Climate Currency Exchange rate Fiscal Year Central bank Adult literacy rate Major Industries Exports Imports Major crops Agricultural growth rate Natural resources Geographic coordinates Religion Form of state Sources: Islamic Republic of Pakistan Islamabad Islamabad, Karachi, Lahore, Peshawar, Quetta, Rawalpindi, Hyderabad, Faisalabad, Multan and Sialkot 170 million (estimated) in 2009-10 Sub-tropical; cold in the highlands Pak Rupee (PKR)= 100 paisa As at 31 December 2009: PKR 84.3: USD1 01 July - 30 June State Bank of Pakistan 56% (2007-8) Textiles, cement, fertilizer, steel, sugar, electric goods, shipbuilding Cotton, textile goods, rice, leather items, carpets, sports goods, handicrafts, fish and fish preparation and fruit Industrial equipments, chemicals, vehicles, steel, iron ore, petroleum, edible oil, pulses and tea Cotton, wheat, rice, millet and sugarcane 4.7% in 2008-09 Land, extensive natural gas reserves, limited petroleum, coal, iron ore, copper, salt, limestone 30 00 N, 70 00 E Islam 95%, other (includes Christian and Hindu) 5% Federal parliamentary democracy In response to the challenges, such as peaking inflation and balance of payments, the GoP strongly committed itself to restoring macroeconomic stability. The GoP entered the IMF programme in November 2008 under a Stand-by facility of USD7.6 billion which was subsequently increased to USD11.3 billion in August 2009. As a consequence of the infrastructural reforms under the programme the economy demonstrated fiscal stability with a decline in fiscal deficit from 7.4% in FY08 to 5.2% in FY09. The current account deficit of the country declined by 78% to USD1.76 billion during July-December 09 as compared with USD7.85 billion in the corresponding period last year, due mainly to a considerable increase in home remittances and fall in imports.
10% 9% 8% 7% 6% 5% 4% 3% 2% 1% 0%
MCB Bank

www.finance.gov.pk/survey_0910.html

Chapter 3

The Economy
Pakistans economy experienced stability in 2009 after a tumultuous 2008 as major performance indicators stabilized. Pakistans significant role and support in the war against terror had adversely affected the economy in 2008. Nonetheless, in 2009 the local bourses bore witness to the return of foreign investors driven by an improvement in risk perception, structural reforms implemented under the ambit of the IMF regime, easing monetary environment and progress to democratic evolution. Pakistans macro landscape has transitioned towards consolidation under the IMF program, leaving behind the bumpy ride of FY2008-09 with expected real GDP growth of 3.3% in FY10; higher than the 2% growth seen in FY09. The GDP Growth of Pakistan in the past ten years, and the composition of GDP in accordance with various sectors, is as follows:

Pakistans GDP growth rate 2000-2009

9.0% 7.5% 6.8% 5.8% 4.7% 3.9% 3.1% 2.0% 2.0% 4.1%

Pakistan Economic Survey 2008-09 EIU Country Report June 2009 Government of Pakistan website www.pak.gov.pk/BasicFacts

199900

200001

200102

200203

2003- 200404 05

200506

200607

200708

200809

Source: Pakistan Economic Survey 2008-09

The effective steps taken by the GoP to address the militant insurgency were further able to attain foreign investors confidence. The KSE100 index closed at 9,387 points at the year end 2009, with a six year high return of 60%. The local bourses are already depicting bullish fervour evident from the increase in average monthly inflow of foreign portfolio investment (FPI) to USD311million in July-November 2009 as against the net withdrawal of USD162 million during July- November 2008.
16.0

Foreign reserves
Pakistan's foreign exchange reserves amounted to USD15 billion in December 2009 as compared to USD11.8 billion at the end of July 2009. Foreign exchange reserves demonstrated increase by a substantial margin from USD6.4 billion in 200102 to USD15.6 billion in 2006-07; a period when Pakistans economy, along with its stock market, was booming with liquidity and investor confidence.

Foreign exchange reserves in USD billion

15.6 12.4 10.8 12.6 13.1 11.4 12.4 14.0

USD in billion

The GoP has also come up with a comprehensive and integrated medium term strategy under its 9-point programme, aiming at the enhancement of productivity, efficiency and competitiveness of the economy, and giving it a more stable look. The overall vision of the concerned departments is to regain macroeconomic stability and to attain GDP growth rate of 6% by 2012-13. The reforms under the plan were on track during the 1H-FY2010. The 9-point plan is given below.

12.0 10.0 8.0 6.0 4.0 2.0 0.0 199900 200001 200102 2.0 3.2 6.4

200203

2003- 200404 05

200506

200607

200708

200809

RC drilling in process

Source: Liquid foreign exchange reserves as available on the website of SBP

Reko Diq Balochistan

Yearly trade
40 35

Export Import

Foreign trade
Exports during the fiscal year 2008-09 amounted to USD19.1 billion as against USD20.4 billion in the fiscal year 2007-08, thereby showing a decline of 6.4%. The major negative contributors to exports were the textile sector and petroleum sector. Imports during the fiscal year 2008-09 amounted to USD31.7 billion in comparison to USD35.3 billion in the fiscal year 2007-08, thus showing a decline of 10.3%. The decline in import bill was mainly due to a massive fall in international oil prices. Pakistans foreign trade (exports and imports) during FY2002-09 are presented as follows:

The Government of Pakistans

9- point Plan
7

Social Development including Social Protection Industrial Competitiveness Macro-Economic Stabilization Agriculture Capital Markets Institutional / Administrative Reform Energy Human Capital Development Public-Private Partnerships For Infrastructure Source: Economic Survey of Pakistan 2008-09

USD in billion

30 25 20 15 10 5 0 FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 9 9 11 11 12 14 14 19 17 25 17 27 20 19 35 32

Source: Balance of Trade www.sbp.org.pk

Workforce

Foreign Direct
Habib Bank Building

Pakistan is home to the sixth largest population of the world estimated at 164 million in 2008-09. Pakistans young population presents a strong investment case in the form of growing domestic demand. Based on the Labour Force Survey 200708, Pakistan is endowed with a young labour force of 51.78 million, ranking 10th globally of which 49.09 million people are employed (14.61 million in the urban region and 34.48 million in the rural). According to Economic Survey of Pakistan 2008-09 there is a participation rate of 32.17%.
OGDCL Wokers

Investment inflows
15.6 12.4 11.4

Transforming the domestic market

16.0 14.0 12.4 10.8 12.6 13.1

USD in billion

12.0 10.0 8.0 6.0 4.0 2.0 0.0 199900 200001 200102 2.0 3.2 6.4

200203

2003- 200404 05

200506

200607

200708

200809

Source: Liquid foreign exchange reserves as available on the website of SBP

Foreign Direct Investment (FDI) has emerged as a major source of private external flows for developing countries around the globe including Pakistan. FDI plays an important role vis--vis technology development, assisting human capital formation, contribution to international trade integration, helping in creating a more competitive business environment and promoting enterprise development. Pakistan attracted decent FDI during 200708 of USD5.2 billion from USD1.5 billion in 2004-05 resulting in a CAGR of 34%. However, FDI inflows experienced a decline in developing economies in the wake of the global recession since 2007. FDI inflows in Pakistan also declined to USD1 billion during July - December 2009, a decrease of 56.9% as against PKR2.4 billion in July - December 2008. FDI in Pakistan during the last 5 years is depicted below:

Demographic Positives Urbanization

Pakistan is currently facing rural-urban migration causing rapid urbanization. The urban population comprises 35% of the total population in July 2008 Pakistans population can be majorly categorized as youth according to United Nations definition of youth An estimated 104 million Pakistanis, or 63% of the population, fall under the age of 25 years The Youth Literacy Rate (age 15-24) is estimated to be 56%

Rise in Per Capita Income

Per capita income has grown at an average rate of 9% per annum during the last five years rising from USD669 in 2003-04 to USD1,046 in 2008-09

Sources: Pakistan Economic Survey 2008-09 United Nations Development Program website www.undp.org.pk

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Chapter 4

Regulatory Framework for

Gas field Qadirpur

Investment in Pakistan
Pakistans investment policy has been formulated to create an investor-friendly environment with a focus on further opening up the economy and marketing the potential for direct foreign investment. Various incentives have been offered to attract foreign investment including full repatriation of capital, capital gains, dividends and profits. Furthermore, according to various economic commentators, Pakistan has the most liberal investment policy regimes and public-private partnership frameworks in the entire South Asian region.

Legal protection to investment

Foreign investment in Pakistan is fully protected by following Acts: Foreign Private Investment (Promotion & Protection) Act, 1976. Protection of Economic Reforms Act, 1992.

Emaar Housing

Construction & Housing

National Housing Policy 2001 Housing and construction companies shall be charged via Presumptive Tax Regime which shall not exceed 1% on yearly receipts. Stamp duty / registration fee, for the housing mortgage has been rationalized. All new construction of houses on plots measuring up to 150 sq. yards and flats having an area of 1,000 sq. feet, have been exempted from all types of taxes for a period of 5 years. Banks and DFIs shall extend credit facilities for balancing, modernization and replacement (BMR) of machinery used for housing and construction industry. Import of plant and machinery and spares by the housing and construction companies, not manufactured locally, shall be exempted from custom and import duties in excess of 10%.

Textile
Textile Policy 2009-14 Textiles Investment Support Fund (TISF) will be established under the ambit of the policy. Measures proposed for financing from the TISF include; export refinance available at 5%. long term loans will be converted on the pricing applicable to LTTF. scheme, together with a grace period of one year on both existing and converted facilities, without the facility of refinancing. to settle the past claims under R&D scheme of 2007-08, allocation of PKR5.4 billion for the purpose by GoP. GoP will contribute part of the investment financing or part of the investment cost through the Technology Up-gradation Fund. The policy will focus on certain sub-sector issues from fibre to garments including ginning, spinning, weaving, knitting, processing, fashion designs, handloom and handicrafts, carpets, technical textiles etc. The policy offers duty drawbacks of between 1% and 3% for a two-year period for valueadded textile exports. All textile machinery imports will be zero-rated to encourage new investments.Import duty on raw material, sub components and components used in local manufacturing of textile plants and machinery, has been reduced to zero percent.

Investment policies
In order to protect and stimulate investment (both local & foreign) in Pakistan, specific investment policies and procedures have been designed for individual sectors. Investment policies specific to the major sectors operating in the country are summarized below whereas policies in general are given in the table at the end of this chapter:

Agriculture

Salient features for Corporate Agriculture Farming (CAF): Only such companies (foreign and local) will be entitled to CAF that are incorporated in Pakistan under the Companies Ordinance, 1984. State land can be purchased or leased for 50 years through open auction, extendable for another 49 years. All banks and financial institutions will earmark separate credit share for CAF. Exemption of duty for transfer of land for CAF. Dividends from CAF are not subject to tax. Raw material for manufacture of agricultural pesticides can be generally imported at zero-percent rate of customs duty. Plant & machinery, equipment and vehicles meant for agriculture, harvesting, diary, livestock, poultry, agro-based industries, horticulture and floriculture, etc. under SRO 575(I)/2006 can be imported at zero-percent rate of customs duty.

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Energy (Power, Oil & Gas)

Financial Services
SBP allows complete freedom of investment and repatriation of profits / dividends / disinvestment proceeds to the foreign investors in line with the overall investment policy. As per the Foreign Exchange Regulations, any foreign investor can invest in shares / securities listed on Stock Exchanges in Pakistan, and can repatriate profits / dividends or disinvestment proceeds. The investor has to open a Special Convertible Rupee Account with any bank in Pakistan, in order to make such portfolio investments.

The energy industry is regulated by the Policy for Power Generation Projects 2002, Policy for Development of Renewable Energy for Power Generation 2006 and Petroleum Exploration & Production Policy 2009. Customs duty at the rate of 5% applicable on import of plant, machinery & equipment not manufactured locally for power generation projects whilst zeropercent customs duty applies on plant, machinery and spares imported by power generation projects under nuclear and renewable energy sources like solar, wind, micro-hydel bio-energy, ocean, waste-to-energy, hydrogen cell etc. For power projects above 50MW one-window support to be provided at the federal level. For projects below or up to 50MW support to be provided at the respective provincial level. Royalty will be payable at the rate of 12.5% of the value of petroleum at the field gate. Local petroleum companies are encouraged to establish joint ventures with foreign concerns.

State Bank of Pakistan - Multan

Import of equipment related to the petroleum & refining sectors allowed on concessionary rates. The lube industry has been deregulated.

Zorlu Enerji Jhimpir Wind Farm

IT & Telecom Sector

Specific licenses are required from respective authorities e.g. in order to start the cellular operation network, a license needs to be obtained from Pakistan Telecommunication Authority.

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Policy Package

Standard chartered Karachi

Banking
Note [1]: Specified Industries are Arms and ammunition High explosives Radioactive substance Security printing, currency and mint Source: Board of Investment website www.pakboi.gov.pk Income Tax Ordinance, 2001

The SBP, the Central Bank of the country was established in 1948. In addition to monitoring the implementation of Banking Companies Ordinance 1962, it specifies regulations relating to the monetary system, credit and banking policy and supervises their implementation. The main law governing in banking companies in Pakistan is the Banking Companies Ordinance, 1962 that regulates and governs the establishment and running of banking companies in Pakistan, in addition to business of commercial banking. Some important regulations governing the banking companies in Pakistan

The Banking Companies Ordinance, 1962 and State Bank of Pakistan Act, 1956 specify various regulations, some of which are specified below: Capital and reserve requirement Cash reserve Liquid assets Assets outside Pakistan Annual accounts and audit Remittance of profits Number of branches.

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