naved_khan what will drive foreign investment in pakistan

8/2/2019 Naved_khan What Will Drive Foreign Investment in Pakistan

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PAKISTAN ENERGY

CONFERENCE 20111012 April 2011

PAKISTAN ENERGY

CONFERENCE 2011

10 12 April 2011

Naved A. Khan

Vice President, OICCI

WHAT WILL DRIVE FOREIGN

INVESTMENT IN PAKISTAN?


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PAKISTAN ENERGY


Role of Foreign Direct Investment (FDI) in the Growth of theEconomy

Role of OICCI in Attracting FDI

Regional FDI Trend

Business Climate in Pakistan

FDI and Prospects for Pakistan, Trends and Challenges

Reforms & Recommendations needed to Attract FDI to Pakistan

AGENDA

2


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PAKISTAN ENERGY


Fuels Economic Growth

FDI more stable than equity and short-

term debt

Domestic investment responds positively

to FDI inflows

Creates Employment Opportunities

Transfers New technology &

Management Practices

The government correctly identifies FDI as a key source of economic stability & growth in its

policy statements

WHY DOES AN ECONOMY NEED FDI

Creates Regional & Global Linkages

Finances Growth Deficits

Maintains Currency Stability

Improves Trade & Current Account Deficit

Access to Capital Markets is gained

FDI has a positive effect on savings and

investments

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PAKISTAN ENERGY


Role of OICCI in Attracting FDI

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PAKISTAN ENERGY


1. Acts as a Catalyst to Investment by Showcasingthe Success of Foreign Investors in Pakistan

2. Improves the Business Environment by CreatingBenchmarks and Models of Global Best Practices

3. Helps Generate Business and Entrepreneurshipthrough Investment, Technical Expertise, andCorporate Social Responsibility.

4. Counters Negative Coverage in the Global Media,Improves the Countrys Image, and Builds InvestorConfidence

5. Represents and Promotes the Interests ofInvestors

6. Identifies Major Bottlenecks that HinderBusiness and Growth

7. Shapes a New Framework for Business Progressand Development

8. Networks with Policy Makers to ImproveBusiness Opportunities and make Pakistan aProminent Investment Destination

9. Highlights Key Factors Contributing to EnablingGovernment Policies and Regulations

10. Works with the Government to Chart an ActionPlan to Propel Investment and Suggest Revivaland Reform Strategies

6

OICCI ROLE IN FACILITATING FDI IN PAKISTAN


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PAKISTAN ENERGY


Regional FDI Trend

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PAKISTAN ENERGY


FDI TREND OVER 2008-2010

Source: State Bank of Pakistan

0%

2%

4%

6%

8%

10%

12%

14%

0

20

40

60

80

100

Vietnam India Pakistan China

GDPGrowthR

ate%

FDIinUSDBillion

FDI & GDP Growth (%)

FDI - 2008 (LHS) FDI - 2009 (LHS) FDI - 2010 (LHS) Avg. GDP Growth Rate 2008-2010 (RHS)

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PAKISTAN ENERGY


China Most Attractive Destination

was able to attract around $ 718 Bn in FDI over 2000-10 due to:

1. Investment of 14-15% of GDP on infrastructure

2. High GDP Growth Rate (>8% since 1980s)

3. Preference for big foreign firms that will set-up export oriented projects Foreign enterprises account for

57% of goods/services exported.

4. Gargantuan Domestic (Consuming) Market.

5. Switch from Contractual JVs (partnerships) to Equity JVs and especially Wholly Owned Foreign Owned

Enterprises.

6. Tax incentives began in 1980s foreign firms had to pay 15% tax against ordinary 30%.

7. Qualified Foreign Institutional Investor (QFII) scheme in 2002 allowed approved foreign institutional investors

access to China's domestic capital markets

RATIONALE FOR HIGHER FDI IN ASIAN REGION

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PAKISTAN ENERGY


INDIA 2nd Most Attractive Destination

was able to attract around $ 180 Bn FDI over 2000-10

due to:

1. Investment of 5-6% of GDP on infrastructure

2. Tax Exemption of INR 20,000 on Infrastructure Bonds

3. Duty free imports of capital goods & raw materials for 100%

Export Oriented Zones (EOZs)

4. 100% Income Tax exemption for 10-years for EOZs (15-yearsfor Industrials Parks set-up b/w 1977-2006.

5. No FDI-Cap on GDR, ADR and Foreign Currency Convertible

Bonds (FCCB).

6. Initially, investment in Public Ltd. Companies could not be

transferred before 5 years. Now only 20% cannot be

transferred.

7. Promotion of JVs with ADB, IFC, CFC, DEG etc.

8. Usage of simplified Automatic Route with 100% FDI

allowance

9. Cancellation of requirement to obtain industrial license to

manufacture

10. Industrial undertakings free to select location of project

RATIONALE FOR HIGHER FDI IN ASIAN REGION

INDIA 2nd Most Attractive Destination

11. Tax Exemption for foreign income earned by foreign

nationals in India

12. User-Friendly Publications listing FDI Policies and Guidelines

13. Recognition of Intellectual Property Rights (TRIPS) and

Media Supervision

14. Trade Liberalization

India has lost potential FDI due to:

1. Imposition of Environment-Friendly Policies on mining,

township and port construction projects.

2. Imposition of 24% FDI-Cap in small scale industry

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PAKISTAN ENERGY


Business Climate in Pakistan

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PAKISTAN ENERGY


Young Population (3rd largest in Asia; 2nd in

South Asia)

Geo-strategic Location (Hub for Exports toCentral Asia)

Small and Medium Enterprise Development

Increasing Number of Females in the Work

Force

Diversity of Language/ Religion/ Culture

Modern and Emerging Financial Market

ATTRACTING FOREIGN INVESTMENT -

POTENTIAL & REASONS

ATTRACTING FOREIGN INVESTMENTPOTENTIAL & REASONS

AVENUES FOR INVESTMENT(SUNRISE)

Energy including alternative Energy (Wind /

Coal / Hydel / Solar)

Corporate Farming

Agro Based Industry

Minerals

Health /Pharmaceutical

Infrastructure

PAKISTAN BUSINESS

CLIMATE

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PAKISTAN ENERGY


Foreign Investors can own 100% of a business in

Pakistan

No restrictions on repatriation of profits or capital

accretions from shareholdings

Losses can be carried forward for up to 6 years for

tax purposes, whereas 5 years is the limit in most

countries

No minimum capital requirements to start up a

business, except for the services sector

No limitations on hiring expatriate employees.

Source:

OICCI sponsored study Competitiveness of Pakistan as a Destinationfor FDI with countries in the Region

INCENTIVES FOR FOREIGN INVESTORS

Implemented an advanced electronic data

interchange system

Intellectual Property Rights law in place

Signed Double Tax Treaties and Bilateral

Investment Treaties with 58 countries

50% Initial Depreciation Allowance

FOREIGN DIRECT

INVESTMENT

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PAKISTAN ENERGY


EASE OF DOING BUSINESS IN PAKISTAN

1 2

18 19 21

33

78 7983

102107

116121 123

134142

148

167

0

20

40

60

80

100

120

140

160

180

200

Ranking

Ease of Doing Business - Asian Comparison(Ranking out of 183 countries)

Source: Doing Business Database

FOREIGN DIRECT

INVESTMENT

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PAKISTAN ENERGY



83 85

98

126

65

28

145

81

155

67

0

20

40

60

80

100

120

140

160

180

200

Ease ofDoing

Business

Starting aBusiness

Dealingwith

Constr.Permits

RegisteringProperty

GettingCredit

ProtectingInvestors

PayingTaxes

TradingAcrossBorders

EnforcingContracts

Closing aBusiness

Ranking

Ease of Doing Business in Pakistan(Ranking out of 183 countries)

Key Aspect for

foreign Investors


FOREIGN DIRECT

INVESTMENT

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PAKISTAN ENERGY


PAKISTAN vs. GLOBAL RANKING

Best Practices in Pakistan compared Internationally

ProceduresGlobal Ranking (183

Economies)

Number of Procedures to Start Business 132

Days to Start a Business 71

Cost to Start a Business 89

Number of Procedures to deal with Construction Permits 13

Days to Deal with Construction Permits 42

Cost to Deal with Construction Permits 124

Number of Procedures to Register Property 79

Days to Register Property 64

Cost to Register Property 119

Days to Enforce Contracts 142

Cost to Enforce Contracts 47

Days to Export 87

Days to Import 66

Cost to Export 7

Cost to Import 13

Number of Tax Payments 119

Total Tax Rate 26

Time to Pay Taxes 168

Overall Rank 83

FOREIGN DIRECT

INVESTMENT

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Hurdles tocompetitiveness


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PAKISTAN ENERGY




66

74 74

77

75

83

50

55

60

65

70

75

80

85

90

2006 2007 2008 2009 2010 2011

Ranking

Ease of Doing Business in Pakistan over 2006-2011(Ranking out of 183 countries)

TRENDS IN FOREIGN

DIRECT INVESTMENT

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PAKISTAN ENERGY


COMPARISON OF EASE OF DOING

BUSINESS IN PAKISTAN

Only 8% of members prefer Pakistan in comparison to other emerging markets

Pakistan considered to be a better environment as compared to other countries in South Asia by only 19%of members

In comparison to 2008, Pakistan's perception has improved significantly, as the disapproval ratings have

been reduced

Emerging Markets - (such as China, India, Vietnam,

Hong Kong & the Middle East)

Major Countries in South Asia - (such as

Bangladesh, Srilanka, Nepal)

Source:

OICCI Perception Survey Report 2009

PAKISTAN BUSINESS

CLIMATE

Poor40%

Good8% Average

52%

Poor20%

Good19%

Average61%

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PAKISTAN ENERGY


FDI TREND DURING LAST 10 YEARS

Source: State Bank of Pakistan

TRENDS IN FOREIGN

DIRECT INVESTMENT

19

3.1%

4.7%

7.5%

9.0%

5.8%

6.8%

3.7%

1.2%

4.1%

2.7%485

798949

1,524

3,521

5,1405,410

3,720

2,151

990

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 8MFY11

GDPGrowt

h%

InUSDM

illion

Foreign Direct Investment(In USD Million)

GDP Growth % (RHS) FDI (LHS)


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PAKISTAN ENERGY


Law & Order Energy Deficit GovernmentStability

Infrastructure Cost ofOperations

Legislation HumanResources

Copyrights andIPR

ChangingSocial Values

Challenges to Future Business(Rank 1 refers to Biggest Challenge)

23

45

67

89

1

Source:

OICCI Perception Survey Report 2009

TOP CHALLENGES TO CURRENT AND

FUTURE BUSINESSES IN PAKISTAN

PERCEPTION OF

OVERSEAS INVESTORS

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PAKISTAN ENERGY


CRITICAL ISSUES

29%

15% 15% 15%13%

7%

0%

5%

10%

15%

20%

25%

30%

35%

Poor Governance Inflation Corruption Power Crisis Law & Order Politician

Critical Issues to Resolve TodaySurvey of Manufacturers (45%), Retailers (25%) and Services (30%)

Source:

Business Confidence Survey Quarter 3, 2010

GENERAL BUSINESS

INDEX SURVEY

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PAKISTAN ENERGY


Reforms & Recommendations

needed to attract FDI toPakistan

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PAKISTAN ENERGYCONFERENCE 2011

1012 April 2011

Enhance the perception of Pakistan

Energy deficit needs immediate resolution

Law and Order

Fiscal discipline required

Tax to GDP Ratio needs to be enhanced to 15% within 3-5 years

Government needs to initiate comprehensive dialogue with major stakeholders/ bodies toachieve fast turn-around

Ensure implementation of policy and recommendations

CRITICAL STEPS REQUIRED

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In the face of stiff competition from other emerging economies, and considering regionalconcerns, it is critical that Pakistan :


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PAKISTAN ENERGYCONFERENCE 2011

1012 April 2011

Create single access point for all tax registration and for social security requirements

Simplify Tax System

Provide incentives for local governments to develop a local tax base

Set-up Specialized Courts or Commercial Divisions in Existing Courts

Strengthen Alternative Dispute Resolution (ADR) System

Human Resource development plan

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CRITICAL STEPS REQUIRED


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PAKISTAN ENERGY10 12 April 2011

THANK YOU

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naved_khan what will drive foreign investment in pakistan

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