introduction to foreign direct investment, definition and forms of foreign direct investment, features of foreign direct investment policies-Pakistan, investment policies of Pakistan, challenges to foreign direct investment in Pakistan, no go areas for foreign direct investment in Pakistan

1. FDI
www.slidehsare.net/AhmadHassan244

2. PRESENTED TO:
Ma’am Rida Bilal
PRESENTED BY:
Ahmad Hassan
Roll No. 15 (Reg)
B.Com (Hons)
8th Semester

3. INTRODUCTION
• FDI is an investment made by a firm or individual in one country into business
interests located in another country.
• FDI takes place when an investor establishes foreign business operations or
acquires foreign business assets, including establishing ownership or controlling
interest in a foreign company.
• Foreign direct investments are distinguished from portfolio investments in which
an investor merely purchases equities of foreign-based companies.

4. DEFINITION
Organization for Economic Cooperation and Development:
FDI is an investment that reflects the objective of establishing a lasting interest by a
resident enterprise in one economy (direct investor) in an enterprise (direct
investment enterprise) that is resident in an economy other than that of the direct
investor.

5. Lasting Interest And Element Of Control
• A lasting interest is established when an investor obtains at least 10% of the
voting power in the firm.
• Control represents the intent to actively manage and influence a foreign firm’s
operations.
• If an investor owns less than 10 percent, the International Monetary Fund
defines it as part of his or her stock portfolio.

6. FORMS OF FDI
Greenfield Investment Merger and Acquisition
Brownfield Investment

7. 1. Greenfield Investment:
• It is done through opening branches in host countries or through making
investment in the equity capital of the host country firm.
• A parent company builds its operations in a foreign/host country from ground up.
• It includes construction of new production facilities, distribution hubs, offices and
living quarters.

8. 2. Merger and Acquisition (M&A):
• They are either purchase of a running company abroad or a merger with a
running foreign company.
• For the case of Acquisition, the acquiring company maintains its existence and
the target company looses its existence.
• For the case of Merger, both loose their existence in the favor of a new company.

9. M & A
Merger and Acquisition are either Horizontal or Vertical Conglomerate.
Horizontal Conglomerate:
• It is when two or more firms engaged in similar activities (same product lines and
markets) combine.
Vertical Conglomerate:
• It is when two firms involved in different stages of production of a single final
product combine. Example, Oil exploration with a refining.

10. 3. Brownfield Investment:
• BFI is when a company or government purchases or leases existing production
facilities to launch a new production activity.
• The advantage of BFI is that the buildings are already constructed.
• The costs and time of starting up, therefore, may be greatly reduced and the
buildings already up to code.

11. • How Secure is Investment?
• Incentives Offered
• Investment Policy
FEATURES OF FDI POLICIES -
PAKISTAN

12. How secure is investment?

13. Following legal and policy instruments directly relate to Foreign
Investment in Pakistan:
Foreign Private Investment
(Promotion & Protection)
Act, 1976
Protection of Economic
Reforms Act, 1992
Investment Policy 2013 FDI Strategy
2013-2017
An Act for promoting and
protecting foreign private
investment in Pakistan.
An Act to provide for
furtherance and protection
of economic reforms, to
create a liberal
environment for savings &
investments and matters
relating thereto.
The goal of Investment
Policy 2013 is to address
and adjust economic
priorities in the face of
changing global scenario of
economic slowdown
coupled with domestic
difficulties of power
outages and continued
pressure on economy due
to war on terror.
Formulated by Board of
Investment (BOI), this
Strategy focuses on
generating FDIs in Pakistan.
It also envisages special
programs to promote
linkages between
domestically and foreign-
owned private enterprises.

14. Foreign Exchange
Regulation Act, 1947
Foreign Companies Regulations,
2018
Trade Related Investment Policy
Framework
2015-23
The object of this Act is to regulate,
in the economic and financial
interest of Pakistan, certain
payments, dealings in foreign
exchange, securities, import/export
of currency and bullion.
This regulation aims to oversee
regulations pertaining to
registration, operations and other
corporate related matters for
effective monitoring of foreign
companies in Pakistan.
An integral part of the upcoming
Strategic Trade Policy Framework
(STPF) 2018-23, which incentivizes
and facilitates investment in the
export oriented and import
substituting industries through
policy reforms, predictable tariff
structure and regulatory
transparency.
Following legal and policy instruments directly relate to Foreign
Investment in Pakistan:

15. INCENTIVES OFFERED
• Full repatriation of capital gains, dividends and profits.
• Remittance Allowed - royalty, technology and franchise fee.
• Max foreign share in Joint Venture vs Minimum share of the local (Pakistani) partner 60:40 for the
service sector.
• 100% foreign equity can be owned for first 5 years.
• No question on source of investment/funds by The FBR (Federal Board of Revenue).
• Foreign investors are allowed 100% equity basis investment in industrial project.
• Pre approved NOC from provincial governments.

16. INCENTIVES OFFERED
• Foreign investment on a repatriate-able basis is allowed in services, infrastructure and social
sectors
• The facility for contracting foreign private loans is available to all those foreign investors who
make investment in the approved sectors.
• BOI's (Board of Investment) approval is not required for foreign companies to open a bank
account.
• Foreign controlled manufacturing concerns are allowed to borrow from the domestic market
• Foreign controlled semi-manufacturing and non-manufacturing concerns can access loans equal
to @75% & 50%, respectively, of their paid up capital including reserves.

17. INVESTMENT POLICY
GOVERNMENT OF PAKISTAN
Manufacturing Sector
The entity must be a company incorporated
under the Companies Ordinance, 1984.
100% foreign equity is permissible on the basis
of repatriation of capital and profits (dividend).
The amount of foreign equity investment must
not be less than U.S. $ 0.3 million.
Services Sector
The entity must be a company incorporated
under the Companies Ordinance, 1984.
100% foreign equity investment is permissible
on the basis of repatriation of capital and profits
(dividend).
The amount of foreign equity investment must
not be less than U.S. $ 0.15 million.

18. CORPORATE STRUCTURES FOR FOREIGN
COMPANIES
In terms of the Investment Policy of the Government of Pakistan, there are three
(03) ways, whereby, a foreign company may have its presence in Pakistan.
Liaison office Branch Office
Locally
Incorporated
Subsidiary

19. • Branch Office: Branch Office is established by a foreign company to fulfill its
contractual obligations with the public or private sector in Pakistan. Their activity
will be restricted to the work mentioned in the agreement/contract signed.
However they cannot undertake any commercial/trading activities.
• Liaison Office: Liaison Office is established by a foreign company for promotion of
product(s), provision of technical advice & assistance, exploring the possibility of
joint collaboration and export promotion. However they cannot undertake any
commercial/trading activities.
• Locally Incorporated Subsidiary: An entity located and incorporated by a foreign
company in Pakistan and owned by a parent corporation which is in a different
nation.

20. NO GO AREAS FOR FOREIGN INVESTMENT
• Arms and Ammunitions
• High Explosives
• Radioactive Substances
• Security Printing, Currency and Mint
• Alcoholic Beverages or Liquor

21. Challenges To

22. FDI LEVEL IN PAKISTAN
July 2018 to Feb 2019
$1.22 Billion
July 2017 to Feb 2018
$4.43 Billion
72.5%
Declined Foreign
Investment in
Pakistan

23. CHALLENGES LEADING TO RELATIVELY
LOWER FDI
Despite a relatively open foreign investment regime, Pakistan remains a challenging
environment for foreign investors.
Key challenges include:
• An improving but unpredictable security situation
• Difficult business climate
• Lengthy dispute resolution processes
• Poor intellectual property rights (IPR) enforcement
• Inconsistent taxation policies

24. EASE OF DOING BUSINESS
Starting A
Business
Dealing With
Construction
Permits
Getting
Electricity
Registering
Property
Getting Credit
Protecting
Minority
Interest
Paying Taxes
Trading Across
Borders
Enforcing
Contracts
Resolving
Insolvency
Labor Market
Regulation

25. Doing Business 2019 Pakistan
Ease of Doing Business in
Pakistan Region South Asia
Income Category Lower middle income
Population 197,015,955
City Covered Karachi, Lahore
DB
2019 Rank
DB 2019 Ease of Doing Business Score
Note: The ease of doing business score captures the gap of each economy from the best regulatory performance observed on each of the indicators across all economies in the
Doing Business sample since 2005. An economy’s ease of doing business score is reflected on a scale from 0 to 100, where 0 represents the lowest and 100 represents the best
performance. The ease of doing business ranking ranges from 1 to 190.
EASE OF DOING BUSINESS (CONT’D)

26. Starting a
Business
Dealing with
Construction
Permits
Getting Registering Getting
Electricity Property Credit
Protecting
Minority
Investors
Paying Taxes Trading
across
Borders
Enforcing
Contracts
Resolving
Insolvency
Ease of Doing Business Score on Doing Business topics - Pakistan
EASE OF DOING BUSINESS (CONT’D)

27. STARTING A BUSINESS
Standardized Company
Legal form Private Limited Liability Company
Paid-in minimum capital requirement PKR 0
City Covered Karachi
Indicator
Karachi
South Asia OECD high
income
Best Regulatory
Performance
Procedure – Men (number) 10 7.6 4.9 1 (New Zealand)
Time – Men (days) 16.5 13.7 9.3 0.5 (New Zealand)
Cost – Men (% of income per capita) 6.8 11.0 3.1 0.0 (Slovenia)
Procedure – Women (number) 10 7.8 4.9 1 (New Zealand)
Time – Women (days) 16.5 13.9 9.3 0.5 (New Zealand)
Cost – Women (% of income per capita) 6.8 11.0 3.1 0.0 (Slovenia)
Paid-in min. capital (% of income per
capita)
0.0 0.2 8.6 0.0 (117 Economies)

28. DEALING WITH CONSTRUCTION PERMITS
Standardized Warehouse
Estimated value of warehouse PKR 8,543,954.20
City Covered Karachi
Indicator
Karachi
South Asia OECD high
income
Best Regulatory
Performance
Procedures (number) 18 15.2 12.7 None in 2017/18
Time (days) 261 165.5 153.1 None in 2017/18
Cost (% of warehouse value) 11.8 13.2 1.5 None in 2017/18
Building quality control index (0-15) 12.5 9.2 11.5 15.0 (3 Economies)

29. GETTING ELECTRICITY
Standardized Connection
Price of electricity (US cents per kWh) 18.7
Name of utility K-Electric Ltd.
City Covered Karachi
Indicator
Karachi
South Asia OECD high
income
Best Regulatory
Performance
Procedures (number) 5 5.4 4.5 3 (25 Economies)
Time (days) 185 98.3 77.2 18 (3 Economies)
Cost (% of income per capita) 1587.1 1054.7 64.2 0.0 (3 Economies)
Reliability of supply and transparency of
tariff index (0-8)
0 2.1 7.5 8.0 (27 Economies)

30. REGISTERING PROPERTY
Indicator
Karachi
South Asia
OECD high
income
Best Regulatory
Performance
Procedures (number) 8 6.8 4.7 1 (4 Economies)
Time (days) 208 114.1 20.1 1 (New Zealand)
Cost (% of property value) 4.2 6.9 4.2 0.0 (Saudi Arabia)
Quality of the land administration index (0-
30)
7.0 8.8 23.0 None in 2017/18

31. GETTING CREDIT
Indicator
Karachi
South Asia
OECD high
income
Best Regulatory
Performance
Strength of legal rights index (0-12) 2 5.5 6.1 12 (5 Economies)
Depth of credit information index (0-8) 7 4.0 6.7 8 (42 Economies)
Credit registry coverage (% of adults) 10.7 4.8 21.8 100.0 (4 Economies)
Credit bureau coverage (% of adults) 7.2 18.5 65.3
100.0 (25
Economies)

32. PROTECTING MINORITY INVESTORS
Indicator
Karachi
South Asia
OECD high
income
Best Regulatory
Performance
Extent of disclosure index (0-10) 6.0 5.8 6.5 10 (13 Economies)
Extent of director liability index (0-10) 7.0 5.0 5.3 10 (Cambodia)
Ease of shareholder suits index (0-10) 6.0 7.4 7.3 10 (Djibouti)
Extent of shareholder rights index (0-10) 8.0 6.9 6.4 10 (Kazakhstan)
Extent of ownership and control index (0-
10)
9.0 5.9 5.4 None in 2017/18
Extent of corporate transparency index (0-
10)
7.0 6.1 7.6 10 (6 Economies)

33. PAYING TAXES
Indicator
Karachi
South Asia
OECD high
income
Best Regulatory
Performance
Payments (number per year) 47 27.6 11.2
3 (Hong Kong SAR,
China)
Time (hours per year) 293.5 274.8 159.4 49 (Singapore)
Total tax and contribution rate (% of profit) 34.0 43.5 39.8
26.1% (32
Economies)
Postfiling index (0-100) 10.49 41.78 84.41 None in 2017/18

34. TRADING ACROSS BORDERS
Indicator
Karachi
South Asia OECD high
income
Best Regulatory
Performance
Time to export: Border compliance (hours) 75 62.9 12.5 1 (19 Economies)
Cost to export: Border compliance (USD) 356 347.2 139.1 0 (19 Economies)
Time to export: Documentary compliance
(hours)
55 74.1 2.4 1 (26 Economies)
Cost to export: Documentary compliance
(USD)
118 160.3 35.2 0 (20 Economies)
Time to import: Border compliance (hours) 120 95.8 8.5 0 (25 Economies)
Cost to import: Border compliance (USD) 476 504.6 100.2 0 (28 Economies)
Time to import: Documentary compliance
(hours)
143 100.8 3.4 1 (30 Economies)
Cost to import: Documentary compliance
(USD)
250 276.7 24.9 0 (30 Economies)

35. ENFORCING CONTRACTS
Standardized Case
Claim value PKR 539,098
Court name Karachi District Court
City Covered Karachi
Indicator
Karachi
South Asia OECD high
income
Best Regulatory
Performance
Time (days) 1096 1101.6 582.4 None in 2017/18
Cost (% of claim value) 18.1 29.8 21.2 None in 2017/18
Quality of judicial processes index (0-18) 6.0 7.0 11.5 None in 2017/18

36. RESOLVING INSOLVENCY
Indicator
Karachi
South Asia
OECD high
income
Best Regulatory
Performance
Recovery rate (cents on the dollar) 43.4 32.7 70.5 None in 2017/18
Time (years) 2.8 2.6 1.7 0.4 (Ireland)
Cost (% of estate) 4.0 9.9 9.3 1.0 (Norway)
Outcome (0 as piecemeal sale and 1 as
going concern)
0 .. .. ..
Strength of insolvency framework index (0-
16)
11.5 6.6 11.9 None in 2017/18

37. OTHER CHALLENGES
• The macroeconomic environment has deteriorated over the past year with a
rapidly expanding current account deficit and declining foreign reserves resulting
in the new government embarking upon an effort to mobilize fiscal alliances and
arrangements with partner countries.
• Lowest tax-to-GDP ratios in the world–approximately 12.5 percent in 2017. Heavy
reliance on multinational corporations for tax collections. Federal and provincial
tax regulations difficult to navigate.

38. OTHER CHALLENGES
• World Bank’s Doing Business 2019 report notes that companies pay 47 different
taxes, compared to an average of 27.6 in other South Asian countries. On
average, it takes businesses over 293.5 hours per year to calculate the payments
required under the federal and provincial tax regulations.
• While Pakistan’s legal code and economic policy does not discriminate against
foreign investments, enforcement of contracts remains problematic due to a
weak and inefficient judiciary.

39. QUESTION AND ANSWER SESSION

40. THANK YOU
For Feedback:
ahmad2805@outlook.com