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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
CONFERENCE 20111012 April 2011
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
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PAKISTAN ENERGY
CONFERENCE 20111012 April 2011
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
CONFERENCE 20111012 April 2011
Role of OICCI in Attracting FDI
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PAKISTAN ENERGY
CONFERENCE 20111012 April 2011
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
CONFERENCE 20111012 April 2011
Regional FDI Trend
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PAKISTAN ENERGY
CONFERENCE 20111012 April 2011
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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CONFERENCE 20111012 April 2011
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
CONFERENCE 20111012 April 2011
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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CONFERENCE 20111012 April 2011
Business Climate in Pakistan
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CONFERENCE 20111012 April 2011
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
CONFERENCE 20111012 April 2011
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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CONFERENCE 20111012 April 2011
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
CONFERENCE 20111012 April 2011
EASE OF DOING BUSINESS IN PAKISTAN
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
Source: Doing Business Database
FOREIGN DIRECT
INVESTMENT
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PAKISTAN ENERGY
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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
16
Hurdles tocompetitiveness
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CONFERENCE 20111012 April 2011
EASE OF DOING BUSINESS IN PAKISTAN
Source: Doing Business Database
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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CONFERENCE 20111012 April 2011
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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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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CONFERENCE 20111012 April 2011
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
CONFERENCE 20111012 April 2011
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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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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