In recent years, many
developing countries have increasingly turned to foreign direct investment by
offering incentives as a source of capital, technology, managerial skills and
market access need for sustained economic growth and development. Investment
plays a very important and positive role for the progress and prosperity of any
country. Pakistan is amongst the important emerging economies of the region,
presenting the ideal location for access to all the growing markets of the
world, with liberal and investor friendly policies. This area has traditionally
been a Center for exchange of cultures and commerce of South, South East, West
and Central Asia. The country shares borders with China to the North, Iran and
Afghanistan to the West, and India to the East, while the Arabian Sea to the
South offers a vast coastline for maritime trade. So the Government of Pakistan
welcomes foreign investment and offers incentives to attract new capital
inflows, including tax concession or exemptions, fiscal incentive, credit
facilities and infrastructure and investor facilitation services.
In 1990’s Government of Pakistan has opened its doors for foreign investors in
agriculture, telecommunication, energy and service sectors by relaxing its
polices. Unfortunately, Pakistan could not attract considerable share of foreign
direct investment as compared to other developing countries due to political
uncertainties and inconsistent policies during 1990’s.Although in last few
years, Pakistan foreign direct investment were increased somehow as 485 million
dollar (2001-02), 798 million dollars (2002-03), 949 million dollars (2003-04),
1524 million dollars(2004-05),3521 million dollars (2005-06) and 5139.60 million
dollars (2006-07). But in fiscal year 2007-08 Government of Pakistan also
offered incentives like tax exemption and many other incentives to foreign
investors enabling them 100% ownership for investment in many sectors. According
to this investment policy Government of Pakistan had provided equal investment
opportunities for home and foreign countries but it could not attract more
foreign investors. So foreign direct investment during this period were 1532.80
million dollars which is less than previous fiscal years. During fiscal year
2009-10, foreign direct investment raised to 3184.3 million dollars. But in
fiscal year 2014-15 Pakistan’s foreign direct investment of 709.3 million
dollars which is 58.2% less than the foreign direct investment received in
preceding fiscal years.
Although In 2016, Government of Pakistan also offered some incentives to attract
foreign investors and began to implement a more liberal foreign investment
policy as part of its overall economic development. A number of policies and
regulatory measures were taken to improve the business environment in general
and attract foreign in particular. A Board of Investment attached to the Prime
Minister Secteriate, for establishing policies to attract foreign direct
investment, by the decision of Prime Minister Nawaz Sharif. Prime Minister Nawaz
Sharif offered a number of incentives such as the requirement for government
approval of foreign investment is removed with the exception of few industries
like arms and ammunition, high explosive, security printing, current and mint,
radioactive substances and alcohol beverages(in fact, these industries were also
closed for domestic private investors). In all industrial sectors except
mentioned above, Foreign investors are allowed to invest in industrial project
on 100% equity basis .However, 100% foreign equity can be owned for first 5
years. And there is no requirement for a No Objection Certificate from the
Provincial Government.
In addition to manufacturing sector foreign investment on a repatriate-able
basis is allowed in services, infrastructure and social sectors. There is full
repatriation of capital gains, dividends and profits. The facility for
contracting foreign private loans is available to all those foreign investors
who make investment in the approved sectors. Foreign controlled manufacturing
concerns are allowed to borrow on the domestic market according to their
requirements. Foreign controlled semi-manufacturing and non-manufacturing
concerns can access loans equal to @ 75% & 50%, respectively, of their paid up
capital including reserves.BOI’s (Board of Investment) approval is not required
for foreign companies to open a bank account. Remittance of royalty, technology
and franchise fee is allowed to projects in social, service, infrastructure,
agriculture and international chains food franchise. The FBR (Federal Board of
Revenue) will not question as to the source of investment; however, the FBR will
only want to know whether the investor has paid requisite Income Tax on that
specific investment. The FBR will not inquire into the source of the funds.
That’s why in fiscal year 2015-16 (July- January), foreign direct investment
increased by 4.6% as compared to previous fiscal year.
The main objective of the present Investment Policy of Pakistan and offering
incentives to foreign investors is to enhance the level of investment and
capital inflows in Pakistan. The essence of the Policy is to keep Pakistan
competitive in the International Investment Market by: liberalizing the policy
regime; offering fiscal and tariff incentives; and providing procedural and
social facilitation. BOI (Pakistan board of investment) also joins hands with
World Bank for investor facilitation in Punjab. World Bank Group mobilized a
mission to visit Lahore during fourth week of February 2016. This mission was as
a part of Punjab Investment Climate Project and Punjab Jobs and Competitiveness
initiative. One full day session was conducted to train all professional staff
at BOI to introduce them to international best practices in investment promotion
generally, focusing on investment facilitation, investor information systems,
investor-tracking, and a bit of M&E. The training workshop was titled,
“Servicing Investors and Nurturing Leads to Win the Foreign Direct Investment
Sought - A BOI Training and Brainstorming Session.” This workshop aimed to build
staff knowledge of related principles and practices and to kick starts the work
of designing BOI’s own Investor Information System and Investor Tracking System.
The training workshop also introduced global value chains, investment promotion
cycle, FDI trends, and site selection processes deployed by global investors.
The training was attended by CEO BOI, Director Generals and all professional
staff.
As the government has been giving hopes of attracting huge foreign investment.
The investment policy of Pakistan and incentive package offered by Pakistan may
help to raise capital inflows in Pakistan. But Government should come up with an
attractive policy for foreign investors and also take tangible measures by
solving key issues, especially energy problem, security challenges and law &
order situation due to which many potential investors are still hesitant to come
to Pakistan. It was encouraging that China has committed huge investment in
Pakistan. However, for attracting more foreign investment, government should
focus on ensuring political stability and establishing investor-friendly legal
framework that should extend optimum facilitation to foreign investors.
Government of Pakistan should also provide area based incentives, Simplification
of immigration and work visa procedures, Simplification and consolidation of
labor laws, Protection to investment. Pakistan can make quantum leap in economic
growth and uplift living standard of people by attracting better foreign
investment in various sectors of its economy.