BOI

Investment Environment & Opportunities in Pakistan

Jehangir Bashar Secretary, Board of Investment 28th September 2004

Kazakhstan
Toshkent

Frunze
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Almaty
#

BOI

Ur

Board of Investment

Uzbekistan
Samarkand

Kyrgyzstan
Kashi
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Turkmenistan
Ashkhabad
#

Dus hanfe
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Tajikistan China

Mashhad
#

Her at
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Kabul
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Islamabad
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Afghanistan
Yaz d
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Jum mu & Kas hmir (Disputed Territory)

Rawalpindi Faisalabad Lahore

# # #

Qandahar
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Amritsar

Iran

Zahedan
#

Pakistan
New Delhi Delhi
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Nepal
Kathmandu Kanpur
#

Jaipur

Luc know
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India
Hyderabad
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Benar es
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Patna
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Abu Z aby
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Karachi Ahmadabad
#

Masqat
#

ab Emirates Oman

Ca

BOI
Board of Investment

INVESTMENT ENVIRONMENT

Policies Pursued
Fiscal Reforms Capital Market Reforms Deregulation & Privatization Liberal Investment Regime Improved Governance

BOI
Board of Investment

Improving Economic Indicators

Indicators Exports (Billion $) Imports (Billion $) Trade Balance (Billion $) Net Revenue (Billion Rs.) FDI (Million $) 2000 - 01 9.20 10.72 (1.52) 393.91 322.40 2001 - 02 9.13 10.34 (1.20) 404.07 484.70 2002 - 03 11.16 12.22 (1.06) 460.59 798.00 2003-04 12.27 15.47 (3.17) 518.80 949.40

BOI
Board of Investment

+ (-) % 9.9 26.6 199.1 12.6 18.9

Workers Remittances (Billion $)

Forex Reserves (Billion $) Exchange Rate (Rs./ US$) Stock Exchange Index GDP Growth Inflation

1.09
3.22 58.4 1300 2.6% 4.4%

2.39
6.43 61.0 1520 3.6% 3.4%

4.24
10.72 57.7 3402 5.1% 3.3%

3.87
12.33 58.0 5,279 6.4% 3.9%

(8.7)
15.0 0.51 55.17

Source: State Bank of Pakistan (SBP), Federal Bureau of Statistics (FBS), Central Board of Revenue (CBR) 5

Liberal Investment Policy

BOI
Board of Investment

Equal treatment of local & foreign investors All economic sectors open to FDI Foreign equity upto 100% allowed No Government permissions required Attractive incentive packages Remittance of capital, profits, dividends, royalty, technical & franchise fee, allowed Network of Export Processing Zones/ Industrial Estates Import of raw material for export manufacturing zero-rated Bilateral Agreements :
Investment Protection: Avoidance of Double Taxation: 46 countries 52 countries
6

Policy Package
Non-Manufacturing Sectors POLICY PARAMETERS Manufacturing Sector
Agriculture Infrastructure & Social

BOI
Board of Investment

Services including IT & Telecom Services

Government permission Remittance of capital, profits, dividends, etc. Upper limit of foreign equity (%) Minimum investment (M $) Customs duty on import of PME (%) Tax relief (IDA, as % of PME cost) Royalty & technical fee

Not required except for specified industries * Allowed 100 No restrictions 5

Not required except specific licences from concerned agencies Allowed 60 0.3 0 100 0.3 5 100 0.15 0-5

50
No restrictions

50
Initial lump-sum upto $100,000 Max rate 5% of net sales
PME= Plant, Machinery and Equipment IDA= Initial Depreciation Allowance

* Specified Industries: i) Arms and ammunition ii) High explosives iii) Radioactive substances iv) Security printing v) currency and mint

Established Trade & Physical Infrastructure

Two seaports (third one under construction)
Well established network of dry ports Air links to all major cities Extensive rail and road network

BOI
Board of Investment

Modern telecom facilities

Trade facilitation (reduced clearance time and simplification of customs procedures) Well established banking system Low mark up charged by banks Securities & Exchange Commission of Pakistan (SECP) oversees the Company Law and ensures good corporate governance

Quick registration process by SECP

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Attractive Investment Climate

Strong privatization, liberalization, deregulation
Stable exchange rate Increasing reserves Vibrant capital market Independent regulators Reformed banking system Increasing FDI & foreign remittances Improving Credit Rating ( B2, B+)

BOI
Board of Investment

Business Survey (2003)

Companies participated Opinion of the business climate enthusiastic/optimistic Domestic economy improved External political situation improved 63% 93% 78%

BOI
Board of Investment

ABC 41

PBBAG 45
36% 80% 53%

Internal political situation improved

Law & order improved Consistency of policies Implementation of policies improved

29%
34% 45% 31%

69%
93% 64% 58%

ABC:

American Business Council

10

PBBAG: Pakistan Britain Business Advisory Group

Corporate Performance - ROE

Company Sector
Oil & Gas
Power Industrial Gas Pharmaceutical Consumer Items Consumer Goods

BOI
Board of Investment

1999
22%
24% 27% 19% 52% 33%

2000
27%
25% 22% 106% 33%

2001
20%
39% 11% 8% 45% -

2002
18%
28% 43% 15% 148% 41%

2003
21%
24% 48% -

Average
22%
29% 31% 16% 88% 36%

Shell Pakistan
Hubco British Oxygen Company Glaxo Welcome Lever Brothers Gillette Pakistan

Colgate Pakistan
Nestle Milkpak General Tyre Siemens Engg.

-doFood Tyres Engineering

18%
33% 21% 10%

21%
32% 29% 20%

25% 17%

31%
75% 23% 22%

36%
24% -

27%
41% 25% 17%

Source: Company Reports (annual accounts) ROE: Return on Equity

11

BOI
Board of Investment

FDI TRENDS

World FDI Comparison With Pakistan

1600 1400 1200 1000 800 600 400 200 0 1996 1997 1998 1999 2000 2001

BOI
Board of Investment

Million US $

Billion US $

2002

World FDI In Bln $

Pak FDI in Mln $

13

Pakistan Investment Inflows (1990 2004)

1,200

BOI
Board of Investment

1,102
950 798

1,000

800

682

Million US$

601
600

442
400

472

470 322

485

335 237

354 306

200

0 90/91 91/92 92/93 93/94 94/95 95/96 96/97 97/98 98/99 99/00 00/01 01/02 02/03

03/04

Source: State Bank of Pakistan

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Pakistan: Sources of FDI (1990 2004)

BOI
Board of Investment

Value in Million US$

OIC 10% UK 19.9%

Japan 5%

Germany 3.1%

Korea 2.5%

Others 22.3%

USA 37.7%

Total :

$ 7.782 Billion

Source: State Bank of Pakistan

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Pakistan: Sectoral FDI (1990 2004)

Ot hers 6% Po wer 17%

BOI
Board of Investment

M anuf act uring 23%

Oil& Gas, M in.& Quarrying 2 1%

Services 26%

IT & T eleco m 7%

Total :
Source: State Bank of Pakistan

$ 7.782 Billion
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FDI Inflows (2003-04)

Source USA Million $ Leading Sectors 238.4 Oil & Gas and Refining

BOI
Board of Investment

Million $ 273.3

Switzerland

205.3 Financial Business

242.1

Norway

146.6 Telecommunication

221.9

U.A.E.

134.6 Trade

35.6

U.K.

64.9 Textiles

35.4

Others Total

159.6 Others 949.4 Total

141.1 949.4
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Pakistan - Home To Over 600 Multinationals

BOI
Board of Investment

Deutsche Bank

18

Members of American Business Council

Sector Pharmaceuticals Services IT & Telecom Food & Beverages Chemicals Financial Business & Banking Consumer Products & Cosmetics Oil & Gas Electrical & Electronics Textiles & Leather Power Others Total

US Companies in Pakistan

BOI
Board of Investment

No. of Companies
10 8 7 7 6 5 5 2 2 2 1 2 57
19

Prominent US companies in Pakistan

American Express Bank American Life Insurance ACE Insurance Gerrys International KODAK Intel Corporation Unisys Pakistan -

BOI
Board of Investment

Citibank New Hampshire Insurance DHL Beckton Dickson Coca-Cola NCR Corporation 3M Pakistan

20

BOI
Board of Investment

INVESTMENT OPPORTUNITIES

Priority Sectors
Oil & Gas Power IT & Telecom

BOI
Board of Investment

Agriculture

Hydel
Offshore Call centers Thermal Cell phone Coal Refining Solar Pipelines Wind Software E-Commerce

Agri-business Corporate farming

& onshore exploration

Fruits & vegetables

Livestock & dairy Fisheries Cool chains Storages Seed production

Storages
Biogas

IT Parks

22

Priority Sectors
SMEs Mining Infrastructure

BOI
Board of Investment

Tourism

Value added

Coal
Granite Marble Semi-precious

Ports Roads Urban Mass Hotels Resorts

textiles & leather

Electronics Sports &

Transport
Water supply

Theme parks
Cultural tourism Entertainment

surgical goods
Furniture Gemstones &

stones
Copper

& sanitation
Housing Desalination

centres

jewelry

Rocksalt

23

Export Oriented Industries

Textiles Cotton fabrics
Madeups Cotton yarn Knitwear & readymade garments

BOI
Board of Investment

Leather & leather products Footwear

Surgical instruments
Sports goods Carpets
24

BOI
Board of Investment

PRIVATIZATION

Privatization Program

BOI
Board of Investment

Covers all sectors of the economy

Major transactions in finance, industry, telecom and power Two pronged strategy: - Strategic sale

- Selling shares via stock market

26

Privatization Recent Successes

18 transactions (Rs. 49.6 billion)
Cement, hotel, banks, oil & gas Habib Bank Limited Pakistan Petroleum Limited Sui Southern Gas Co. Pakistan International Airline Rs. 22.4 billion Rs. 5.6 billion Rs. 1.7 billion Rs. 1.3 billion

BOI
Board of Investment

Privatization Proceeds
Period
1989 - Oct 1999 Oct 1999 - Nov 2002 Nov 2002 - Aug 2004

No. of Years
10 3 Less than 2

Proceeds (Rs. Billion)

Total
60 36 50

Average per year

6 12 26
27

Upcoming Transactions
Strategic Sale:
Faisalabad Electricity Distribution Jamshoro Power Pakistan State Oil (PSO) Karachi Electricity Supply (KESC) Oil & Gas Development Corporation Ltd. (OGDCL) Pakistan Telecom Co. Ltd. (PTCL) National Investment Trust (NIT) Pak Arab Fertilizer Pak American Fertilizer

BOI
Board of Investment

Shares to General Public Kot Addu Power Company

28

BOI
Board of Investment

BOARD OF INVESTMENT

BOI Vision

BOI
Board of Investment

To promote domestic and foreign investment to enhance Pakistan's international competitiveness and to contribute to economic and social development

30

BOI Services
Investment promotion Investors facilitation 30 HICs in 22 countries; 3 in USA Visa assistance

BOI
Board of Investment

Website
Publications

31

BOI
Board of Investment

Board of Investment plans to organize

investment conference(s) in USA in March/ April 2005

32

BOI
Board of Investment

Thank You