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Investment and industrial climate in Pakistan.

We are presenting below the paper presented by Mr. Hussain Lawai, President Muslim Commercial Bank, at recently held investment promotions seminars at Toronto and Los Angeles.

Pakistan has become an attractive destination for foreign investors, as a result of the reforms carried out by the present government and by the open market policy it is pursuing. In fact, Pakistan now offers the most liberal package for foreign investment than any other Asian country. The economy is buoyant, inexpensive yet skilled labour force is available and the government is committed to privatization, deregulation and development.

Recent Major Investments

Investors of many countries are making the most of the current favourable investment climate. ICI (Pakistan) Ltd. is investing Rs. 1 billion on the expansion of its soda ash plant, which supplies material to the glass industry. Pak Suzuki Motor Company a joint venture between the Government and Suzuki Motors of Japan has recently expanded its capacity and Suzuki has fully taken over management with 40 per cent shares ownership this year. Toyota will not out cars from is under construction plant from February 93.

The first private sector power project in Pakistan the Hub Power Project has been sponsored by Hubco involving Multinational companies of Saudi Arabia, Italy, USA, Japan and the UK will add 320 megawatts of power to the national grid. The Overseas Telecommunication Corporation of Australia (OTCA) in a joint venture with Olex Ltd. is participating in the A $ 40 million. Pakistan Optical Fibre Transmission project involving the supply, installation and commissioning of about 2000 km of optical fibre cable along the country's main communication route between Karachi and Islamabad connecting major cities where digital transit exchange are in operation. This turn-key project is fully complete and due for commissioning in the very near future.

OTCA has also recently approved in principle the setting up of a data and voice communication network, using sophisticated Satellite Technology. The total investment planned over five years is estimated at A $50 million.

Alcatel CIT of France, through a joint venture Alcatel Pakistan Ltd., shares of which are mainly held by Alcatel CIT, will supply about 120,000 lines annually, one part of which will be manufactured by the factory being set up in Pakistan while the other part will be manufactured by the French Units.

Pakistan Petroleum Ltd. which has operated successfully in Pakistan since 1950 in the energy sector continues to invest in new energy sources. This year it was granted licences for exploration of hydrocarbons in six blocks. These are joint ventures with different companies viz. OMV of Austria and Hardy, Tullow and British Gas of UK. This company also has a joint venture with Hunts and Sabre Petroleum for the Mazarani Mining lease.

Pakcom Ltd., a multinational joint venture is one of the two companies licensed by the Government to set up and operate a National Cellular Telephone Network in Pakistan. The company is marketing its services under the brand name of INSTAPHONE. The foreign partner is Millicom International Cellular (MIC) based in Luxembourg. They have invested US $25 million in Pakistan with plans to invest a further US $30 million over the next two years. This investment places Pakistan in the forefront of the world's developing nations and brings the very latest communication technology to its people.

Privatization

Since November 1990, the Government has systematically sought to accelerate the process of privatisation. The privatization of Muslim Commercial Bank Ltd. was completed in about three months, followed by Allied Bank of Pakistan. Upto 30 June 1992, about 50 State Owned Enterprises (SOE) have been disinvested, while another 100 SOEs are in the process of privatisation.
The industries earmarked for privatisation industrywise are:
- Chemical and Ceramics 15
- Steel 02
- Fertilizers 07
- Automobile 12
- Engineering 11
- Bakery 16
- Cement 14
- Energy 10
- Vegetable 28
Of these units, the following units have already been disposed
off:
- Chemicals 04
- Engineering 09
- Bakery 09
- Cement 07
- Vegetable 07
 for a total bid price of Rs. 6,787 million.


Pakistan Telecommunication Corporation, a State owned enterprise which is responsible for the entire telecom network system in Pakistan, is in the process of preparation for being privatized. By year-end it will be decided whether to privatize in one attempt or in phases. In the financial sector the two largest Commercial Banks, Habib Bank Ltd. and United Bank Ltd. and some Development Financial Institutions are moving towards privatisation.

Capital Market Changes

The improved investment climate and the drive towards free market price mechanism is reflected in the significant growth of Pakistan's Capital Market. Capitalization which stood at Rs. 48 billion in 1989-90 rose to Rs. 68 billion in 1990-91 and was Rs. 181 billion in September, 1991. The Stock Market price index which was 283 in June 1990 has moved to 1142 this September.

On average two companies are being floated on the Stock Exchanges every week. The Pakistan Fund of US $23 million floated by City Bank and managed by Morgan Grenfel has been fully subscribed and invested. Credit Lyonnais Growth Fund is in the offing. In view of the bright prospects, the Asian Development Bank has recently proposed the floatation of Pakistan Privatization Fund for investment in the equity shares of Pakistan Federal and Provincial State Owned Enterprises in the process of privatisation or already transferred to private sector management. This will help promote wider ownership of shares among the people and facilitate their participation in the Capital Market. The fund will have an authorized capital of Rs. 1 billion and paid up capital of about Rs. 600 million initially.

Foreigners and non-resident Pakistanis may freely purchase, in foreign currency, stocks and shares of Pakistani Companies Repatriation of sole proceeds and dividends, in foreign currency is allowed in such cases.

Multinational Corporations & their Investment in Pakistan

Multinational Corporations have played a major role in industrialization of Pakistan. They have proved to be good corporate citizens and have invested heavily in projects that will have long term benefits for Pakistan and its desire for self-reliance. Many of these investments are in large companies which are quoted on the Stock Exchange. Thirty three of the top 100 companies ranked by market capitalization are multinationals and between them they represent almost one-fifth of the total capitalization of around 600 companies listed at the Karachi Stock Exchange. Six out of the top ten companies are multinationals and they also hold the top three positions in this ranking. Some of them and their dividend history, is briefly described here:

Philips Electrical Co.: A Dutch company known worldwide for its quality consumer Dealle & Electric goods started operations in Pakistan in 1954. It began with an equity of Rs. 14.00 million in Pakistan with foreign component being 50 per cent of the total equity.

Ciba-Geigy: A well know Swiss Company dealing in Pharmaceutical products. It started operations in Pakistan in 1954 with an investment of Rs. 1.136 million which was 60 per cent of the total equity. The agro-chemical wing of the company entered the Pakistan Market in 1973 and is doing booming business with the spurt in agriculture activity.

Parke-Davis & Co. Ltd.: Parke-Davis a pharmaceutical is an American multinational company. The company started its Pakistan operations in 1960s, with an equity of Rs. 5.7 million. The composition of foreign component was 86 per cent. The company's factory is located in Karachi.

I.C.I.: ICI a famous British multinational started its Pakistan operations in 1953 at Khewra with the manufacturing of Soda Ash. The equity was Rs. 62.80 million with a foreign participation of 70 per cent. The ICI then, entered the business of the manufacturing of paints and polyester fibre in 1977 at Sheikhupura (Polyester Fibre Plant) and Lahore (Paints). ICI has continuously been expanding its operation in Pakistan.

Sandoz: Sandoz is a Swiss company dealing in pharmaceuticals and chemical products, the company began operations in 1963 with an initial investment of Rs. 12 million. Foreign component of the equity was 75 per cent. The company has a sophisticated production unit 150 k.m. away from Karachi. In 1989, a further foreign investment of Rs. 19 million was made in the company by inflow of foreign capital. The company is now a leading manufacturer of chemicals and pesticides.

Brooke Bond: A world renowned tea blending and packaging company of British origin has been operating in Pakistan since 1948. It began with a initial foreign investment of Rs. 10.00 million which was 51 per cent of the total equity in Pakistan.

Lever Brothers: Lever Brothers a British Company started its operations in Pakistan in the year 1947 with an investment of 21 million which was 61 per cent of the total equity. Unilever has operations in more than 100 countries of the World. Lever Brothers is a market leader in Vegetable Ghee, Oil and Soaps.

Pakistan Tobacco: Pakistan Tobacco is a British company which started its operation in Pakistan in 1950 with an equity of 1.10 million. Pakistan Tobacco are the manufacturers of Gold Leaf and a number of other famous brands.

Berger Pakistan: A subsidiary of Johnson and Nicholson Group started its Pakistan operations in 1979 with an equity of 18.910 million with foreign component of 15 per cent. The company is known for quality paints, varnishes and chemicals.

Glaxo Laboratories: Glaxo a British Pharmaceutical Company started its Pakistan operations in 1970 with an equity of 29 million. The foreign component was 73 per cent of the equity. Glaxo is well known for its pharmaceutical products in Pakistan.

Reckitt & Colman: Reckitt & Colman a British Pharmaceutical started its Pakistan operations in 1956 with an equity of 2.4 million constituting a foreign component of 67 per cent. Reckitt & Colman is famous for its Dettol antiseptic and its factory is located in Karachi.

Boots Pharmaceutical: Boots has expanded its operations into infant foods as well.

Pakistan Oxygen Ltd: POL is manufacturer of Oxygen, Gas, D-Acetylene etc.

Wellcome Pakistan Ltd: Wellcome a British Pharmaceutical Company started its operations in 1955.

Pakistan Burmah Shell: PBS is a venture of Shell Petroleum Co. Ltd. UK. PBS apart from distribution of Petrol is engaged in the manufacturing of Oil Lubricants.

Burshane (Pak) Ltd: Burshane fills cylinders with L.P. Gas. A subsidiary of Shell Petroleum of UK started its Pakistan operations in 1982.

Cyanamid Pak Ltd. - Pharmaceutical: Cyanamid an American Firm based in New Jersey started its operations in 1959 with a 100 per cent foreign equity of 1.7 million.

Hoechst Pharmaceutical: The company started by manufacturing Industrial Chemicals and then entered insecticides and pharmaceuticals.

Siemens Pakistan Engineering Co. Ltd: Company manufactures Switchgears, Transformers and motors.

Abbott Laboratories: An American multinational Pharmaceutical started its operations in 1948 with an equity of Rs. 5.667 million.

Inflow of Foreign Direct Investment

The inflow of Foreign Investment comprising 'Cash Brought in', "Capital Equipment Brought in" & "Reinvested Earnings" recorded an absolute increase of Rs. 2,425 million (US $97m) or 63 per cent from Rs. 3851 million (US $154m) in 1989 to Rs. 6276 million (US $250) in 1990. The sourcewise position of net foreign investment shows that USA contributed the major portion with Rs. 2348 million (US $94m) or 39 per cent of the total foreign investment in 1990.

Since November 1990, when the present government took over, foreign direct investment rose to US $300 million. There has been an increase of 57 per cent in the import of plant and machinery which is an indication of an accelerated pace of industrialization in the country. Compared, of course, with the very high rates of foreign direct investment inflows into Malaysia and Indonesia, this is only a trickle. However, since sustained efforts are now being made by Pakistan in the right direction and at the right pace, signs of definite interest expressed by various countries indicate that the inflow will increase in tempo and volume.

Almost all industrial fields are now open to foreign investors including power generation, its transmission and distribution, as well as oil/gas exploration, mining, telecommunications, highways and bridges construction, port facilities including container and storage terminals.

Other unexploited sectors afford good investment opportunities such as electronics, computers, automotive parts. Over 200 projects in the private sector have been identified exceeding US $1 billion in investment opportunities.

Gateway to Central Asian Independent States

In addition to the large Domestic Market in Pakistan and markets of the surrounding countries such as the Middle East, Iran and Afghanistan, investors in Pakistan will now have access to even wider markets for their products in the Central Asian Independent States of Azerbaijan, Kazakhistan Kyrghystan, Tajikistan, Turkmenistan and Uzbekistan. Pakistan's close proximity to all these countries makes it an ideal place for investors, as a launching pad. Added to the favourable investment climate now prevailing, the prospects of growth and profitability for industrial ventures in Pakistan is virtually assured.
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Article Details
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Author:Lawai, Hussain
Publication:Economic Review
Article Type:Cover Story
Date:Nov 1, 1992
Words:2137
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