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Investment opportunities in Pakistan.

The writer of this article is a Senior Partner in a firm of Accountants in London. He recently attended the "Investment Promotion Conference" in Islamabad - Pakistan.

I have often wondered that if I am asked to classify the type of Asians living in this country, how I would do it? Well, I will classify them as follows: 1. Asians, who think that they are here

temporarily and one day they will return

home. 2. The second class of Asians are those

who think that they are here

permanently and treat this country as their

home, but at the same time they want to

maintain their links with the country of

their origin. 3. The third category is of those Asians

who were never happy in their own

country of origin and they are always

making plans to move out to other

countries at the appropriate time. 4. But, there is a fourth category of Asians

as well. This tiny minority of Asians can

best be described as "Trouble Makers".

They specialise in making life

miserable and uncomfortable for those fellow

Asians who are living a happy life. We

have witnessed the manifestation of

their sinister moves in the beginning of

the new year.

We are not gathered here this afternoon to think or talk about them, but the purpose of our meeting is to investigate what the Asian business and professional community is thinking and planning for themselves and their family: 1. Some businessmen, when faced with

adverse trading conditions (as some

are experiencing these days), may be

thinking to sell all their assets in this

country and to move out for good. 2. Many Asians feel that they can not go

back home permanently, but they would

like to establish trading links. For

instance, they may be willing to enter into

"Joint Ventures" with reliable

businesses abroad. In such an event, their

physical presence may not be

necessary all the time, while local parties

could operate the business more

effectively. The popular formula for such a

venture is that the local parties provide

usually land and building and the

overseas partners will supply the

machinery and the technical know-how. 3. The third category of businessmen is of

those, who are connected with the

"Retail Trade" and control one or more

outlets in this country. They wish to

take advantage of importing and

marketing of the finished goods from the

developing countries, because of the

low unit cost these goods.

When I decided to attend the "Investment Promotion Conference" in Islamabad, I had the requirements of these persons in mind and I wanted to find out - in which direction Pakistan economy is going and what - the country can offer to these overseas Asians.

The Ex-President of Pakistan, Ayub Khan (1958 to 1968) was the promoter of "Enterprise Culture" in the country. He understood the creative talent and hard working nature of the Pakistanis. During his regime, he provided the best conditions and created the right atmosphere for the growth of trade and commerce. In other words, he had realised, what the eminent Indian economist, Minoo Masani, had said, "South Asian Countries have got to produce more, who produces it, is immaterial". The result of Ayub Khan's commercial policies of producing more was that at one stage the growth rate shop up to 13 per cent per annum. South Korea, Singapore and Taiwanese Governments rushed to Pakistan to learn secrets of this success story. When a friend of the late President taunted him by saying that his sons were making a lot of money, he replied, "Why don't you do the same".

Mr. Zulfikar Ali Bhutto (1970-77) believed in "Socialism" and he was of the opinion that there should be a fair distribution of the wealth in the country. "It is good to make profits", he said, "but the question is in whose pocket these profits are going!". He decided to carry out wholesale "Nationalisation" of the industry irrespective of its size and turnover. He appointed bureaucrats with no commercial experience to run these nationalised industries. The result was an economic disaster.

General Zia-ul Haq (1977-88) tried to run the country on a "Mixed Economy Basis". Certain large industrial units were returned to their previous owners, but as some Pakistanis pointed out to me, his efforts to make "Mullaism" respectable in order to perpetuate his rule, increased the internal strife and jeopardized further investment in the country. Further, on account of his Afghan Policy, it is said, "Heroin Culture" was introduced in the country. As a result, investment capital left the country in large amounts.

Ghulam Ishaq Khan was elected President of Pakistan in 1990. He is a cautious and methodical man. He is not a Bloodhound" and has been described as an alert "watch dog". He has been conditioned to work within the legal framework. Nawaz Sharif, the Prime Minister and his brother, Shabaz Sharif, the "Sharif Brothers" as they are popularly known, have learnt the secret of successful trading from their father, Mian Sharif, who taught his sons the lessons of maintaining efficiency in business at an early age. After accepting the premiership of Pakistan Mr. Nawaz Sharif, with his commercial knowledge, moved with considerable speed to carry out reforms and revised the policies of his predecessor with the blessings of the President. He has taken the following steps:

1) Privatization and deregulation,

nationalised commercial bank to be

privatized, permitting the establishment of

new private banks and to identify 115

industrial units to be sold to private

sector in three phases. (ii) Measures to encourage foreign equity

Investment without prior approval up

to 100 per cent of equity in a venture,

free remittances of dividends, access

to borrowings by foreign companies

and above all to make the Pakistani

Rupee fully convertible.

These are some of the measures adopted by the new Government of Nawaz Sharif.

The "Investment Promotion Conference", which was held in Islamabad from 18 to 20 November, 1991, was to encourage foreign investment in the country and the response from investors from all over the world was overwhelming. Three hundred foreign and about four hundred local businessmen accepted the invitation to attend the conference. It was a good opportunity for the foreign investors to meet and exchange views with individual entrepreneurs and responsible officials of many private and public companies, who in other words, are the "creators of the wealth" in the country.

During the summer of 1991, several federal ministers came on visits to London from Pakistan and spoke at large about liberal commercial policies of the present Government of Pakistan, but they were unable to answer specific and individual question and those of us, who attended these meetings, were disappointed. Fortunately, with the invitation for this conference, a company based in Washington and an affiliate of the World Bank, had sent us the required information relating to the following: a) Pre-Investment feasibility summaries

on the Agro-based Industries; b) Profiles of selected public enterprises

for Privatization; c) Profiles of firms in Pakistan seeking

"Foreign Collaboration" with existing

businesses and in "New Projects".

On the basis of the above information, my firm selected a few would be investors from UK to circulate this information. We are also grateful to the General Manager of the National Bank of Pakistan in London to co-operater and co-ordinate our efforts to provide this valuable and useful information to the local anticipating investors.

Arrival in Pakistan

Letters were exchanged and I informed the Ministry of Industries about my travel plans. On 16 of November, 1991, on my arrival at Karachi, the immigration officer at the airport, after noting the purpose of my visit, said with respect, "Sir! the Officials of Ministry of Industries are waiting on the nearby desk to receive you". I was surprised to find them present at that hour at the airport to receive incoming delegates. They gave me a list of telephone numbers which were monitored twenty-four hours to provide all assistance to the needs of the delegates during their stay in Karachi. They told me to report to the VIP lounge next day to fly to Islamabad. The delegates were sitting in groups, discussing about the forthcoming conference. I spotted an old acquaintance of mine, presently the Chairman of ICI Pakistan and managed to find a seat near him. We were joined by a tall, fair looking gentleman, Mr. Yusuf H. Shirazi, who was to deliver the keynote address at the Plenary Session for the Conference the next day. A discussion was already going on, some in favour and some in disagreement of the government policy to allow foreign investors up to 100% of equity in a venture. I joined in the discussion and jokingly quoted Lord Chandos remarks about capital investment; he had said, "Capital is like a beautiful shy woman, who has many admirers". Mr. Yusuf Shirazi instantly replied, "We know how to treat a lady with respect in this country". On this encouraging note, our flight departure to Islamabad was announced.

There was a slight commotion when we arrived at the Islamabad airport, which could have been avoided by installing a desk top computer to flash the names of the delegates on a screen. Reading the names of the delegates from a written list was a cumbersome procedure, which caused delay in the allotment of hotel rooms to the delegates. However, after this minor hiccup, we were taken to respective hotels. The transport arrangements were excellent.

Main Conference Sessions

Next day, the inaugural session of the conference started at about 9 a.m. in the old Assembly Hall building. Delegates were assisted to their seats by young volunteers with remarkable courtesy and efficiency. These volunteers were selected from University students, both boys and girls. This youthful display throughout the conference impressed the delegates. After all the delegates were in their respective seats, the Prime Minister of Pakistan, Mr. Nawaz Sharif delivered his prepared speech. Soon after his speech, there was a coffee break and the plenary session of the conference began under the Chairmanship of the Finance Minister of Pakistan, Mr. Sartaj Aziz.

Speeches were delivered by Mr. T.Z.Farooqi, Secretary, Ministry of Industries on "New Industrial Policy and Initiatives" given by the Government of Pakistan and by Mr. Yusuf H. Shirazi, a leading businessman from Karachi giving comprehensive details about foreign investment in Pakistan. Mr. Michael Wiehen of the World Bank and W.R. Thompson of the Asian Development Bank summed up the overall view of the Pakistan economy, its satisfactory performance in the past and its present encouraging prospects. The session then, was thrown open for questions from the floor, which were skilfully answered by Sartaj Aziz. Delegates were pleasantly surprised by the Minister's answers to the sophisticated and difficult questions from the international delegates, with such an ease that both the audience and the Minister were enjoying the lively as well as a grilling question/answer session.

In the evening, there was a dinner given by the Prime Minister and during this dinner, delegates formed their own small groups, visiting cards were exchanged, private meetings and appointments were arranged. The conference was now in full swing. Several Federal Ministers were present and were surrounded by delegates raising various points of mutual interest. Free excess to ministers and important Government Officials was evident throughout the evening. Investors or their representatives, who had brought "Business Plans" with them could discuss their plans on the spot with high Government Officials present for this purpose and in some cases decisions were taken and N.O.C. were issued then and there. Every delegate wanted to make maximum use of his time to work out something tangible to follow on their return home.

The next day, workshop Chairman was Shazada Alam Manoo and topic to be discussed in this session were Agro-based industries, textile and leather industries. Shazada Alam Manoo and Tariq Saigol, both prominent businessmen and Textile experts, gave a lively account about the performance of this sector. Tariq Saigol in his paper on the "Textile Industries" had great deal of useful information for would be investors in this field. For instance, he said that out of total crop of 9 million bales of cotton only 5 million bales of cotton were currently being processed. The emphasis should be on value-added exports and to get out from the stagnant level of $2 billion per annum as against a country like South Korea, whose Textile exports level have touched $17 billion per annum in spite of coming on the World market about a decade or so ago. Another interesting point to note is that Pakistan has not been able to fill the EEC quota for garments due to poor or inconsistent quality. It is also necessary to have a tie up in technical know-how with companies in the Far-East, the EEC and the USA.

In garments, hosiery, towels and made ups, Pakistan has the potential for dramatic growth. The need is for the establishment of efficient and quality oriented production units to function to break into existing and new markets.

Other workshops were conducted on Engineering, Electronics, Electrical, Chemical and Petrochemical Industries. There were notable contributions from the floor during the workshop sessions, which attracted a great deal of attention and these contributions were from Saadullah Jan Mari, Secretary for Industries, Balochistan and Mr. Inam-ul-Haq. Both the learned contributors spoke passionately about the Fruit Preservation and canning industries and its tremendous scope in Balochistan. Such was the response to these contributions from the delegates that Saadullah Jan Mari had already distributed all his visiting cards before I managed to approach him. However, he was kind enough to give me the telephone numbers of his Office and residence. He also told all those interested that he was at their disposal 24 hours of the day.

Private Meetings of Foreign & Local Businessmen

I was fortunate enough to be included in these private deliberations, which took place between the foreign and local businessmen from time to time during the conference. Mr. Peter Dunn, the British Trade Commissioner in Islamabad had invited the British Contingent to his residence for a private discussion, but due to prior commitments, I had to send my apologies.

The delegates were concerned with the Following main issues facing the country and wanted a frank and honest discussion about these issues with local participants.

The comments on these issues are summarised as follows: A. Availability of Infrastructure: As soon as the NOC is issued, the departments dealing with the following matters are informed.

a) Electricity and Gas

b) Telephone

c) Water Supply

Special instructions have been issued to the departments/authorities dealing with the above important matters to complete the job without any delay. In case of telephone connections, a source of common complaint, there has been an improvement of 20% in getting speedy connections all over Pakistan. B. Political Stability: Stability in the country, they say, has been adequately provided by the presence of a disciplined and efficient army. The present Government has been elected on a majority vote and seems to be firmly in its place for the time being, but if there is a change in the country, it will be change of certain faces; commercial policies are not likely to be effected. The reason for such an optimistic view is this that the country has gone through a full circle (i.e. experiments with free enterprise system then wholesale nationalisation and then back to free enterprise system). Moreover, the world is overwhelmingly in favour of "free enterprise system". Pakistan economy is part of the "Global Economy", no country in this world can exist in isolation these days.

The Army will be most reluctant to take on governing this country again and all political changes in future will be through the democratic process. C. Law and Order Situation: To a visitor the country seems to be functioning normally. Shops are open and are well stocked; transport is running and people are going about their business peacefully. There are no curfews in any part of the country, dacoits are active in some parts of the country notably in the Province of Sindh and there are certain "no go areas" in the country, but the situation is improving and getting better everyday. I would like to give my own impressions after visiting Karachi, Islamabad and Lahore. In Lahore, I had a very busy schedule and some business meetings were arranged late in the evening on a "jogging track", which was situated in a huge beautiful park, like the Hyde Park of London, in the heart of Lahore.

During the winter months, it is dark after 6pm and I spotted a number of single women jogging freely after 6pm. There were weight conscious couples accompanied by their children, walking, strolling in the park. I often returned home after midnight from the engagements in Lahore and Karachi. D. Implications of Islamic Laws: Delegates have been reading adverse press comments in their local papers about the imposition of "Shariat Laws" in Pakistan and how these measures will be affecting day to day life of the people.

A question was raised, "What are the implications of such laws in the country?"

Answer: The answer, which was heard from the participants was that the image of our country has been tarnished by depicting it as a country inhabited by "Fundamentalists".

"Have you seen any evidence from such a claim during your stay here?", they asked. They sincerely think that to bring about changes in the conduct of the masses generally, to act honestly and correctly in their day to day life according to Islamic Shariat, it will require winning the hearts and minds of the common man. In a democratic society, such an "External" and "Internal" change of heart can only be achieved by "persuasion" and "consent" of the people.

In short, Pakistan is a democratic country and in a democracy you do not impose anything from top, it has to grow from within.

Some important measures taken by the Pakistan Government according to the "Pakistan Investment Guide", issued by the Minister of Industries in July 1991 to encourage Foreign Investment may be summarised as follows: 1. Abolition of Foreign Exchange

Controls: Free flow of Capital in and

out of Pakistan without any restrictions. 2. Issuance of Shares 3. Remittances of Dividends and Interest 4. Opening of Foreign Exchange Accounts

and use of these funds to be used as a

collateral for local currency loans. 5. No ceilings on payment of royalties.

One can enter into contracts for

transfer of technology and use of Patent-Rights

without the approval of any

Government Agency. 6. No restrictions on the issue of "Work

Permits "for expatriates. Expatriates can

remit 50% of their earnings on regular

basis, the rest of their savings they can

take with them at the end of that tenure. 7. NOC: It is advisable to talk to the local

Director of Industries and get a NOC

issued by them. 8. Import Licenses: Import Licenses can

be obtained without delay. 9. Taxation: All units established in rural

areas prior to June 1995 will be exempt

from Income Tax for a period of 5 years

and the same facility will be extended to

8 years, if the unit is in a backward area.

CONCLUSION

It is said that higher the risk is in a venture, higher will be the reward. Let us see how the foreign investors in Pakistan have done over the years. The story of such investors is of great success, expansion and prosperity. These foreign companies operating in Pakistan have been classified as "Blue Chips". The yield on their shares in Pakistan is one of the highest in the World. There has been no notable business failures in the past. Pakistani entrepreneurs have done even better and in some cases, have recovered their investments in a record period of two years.

The present position of the economy is sound and during 1990-91, the GDP has risen by 6.5% annually and exports have increased by 19%. Margins of profits are very high in spite of Global recession. And industries like textile/cement/leather/sugar and carpets are showing an outstanding growth. New share issues coming on the stock market have been over-subscribed six times. Stock exchange, a barometer of confidence in any country is going through a "Boom Period". There are no signs of any "recession" anywhere.

But sooner or later, the global recession will start effecting the export sales and Pakistan companies has to look for new markets and to expand in the existing markets by producing better quality goods at competitive prices. A strong lobby of Pakistani businessmen are in favour of strengthening the present structure of "SAARC" by removing the VISA restrictions and to allow free flow of capital, goods and services between "SAARC" countries.

A leading Japanese banker was recently asked, "What do the investors look for in a country before investing there?" "The attitude of the Government and the attitude of its people to investors", the banker replied.

I have come back reassured and impressed from Pakistan, impressed by the "openness" of the Government policies and the optimistic attitude of its people in their future.
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Article Details
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Author:Ahamd, Sajjad Ali
Publication:Economic Review
Date:Jan 1, 1992
Words:3532
Previous Article:Overview of Pakistan's economy and programme of reforms.
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