Foreign direct investment (FDI) can benefit Pakistan's economy by bringing growth, jobs, technology and market access. Pakistan actively seeks to attract more FDI due to a lack of domestic capital and financing. Pakistan offers liberal investment policies including allowing full foreign ownership, easy profit repatriation and tax incentives. Key sectors attracting FDI include energy, agriculture, mining and transportation. The government has introduced special economic zones and reforms to further encourage investment by improving infrastructure, reducing business costs and facilitating investors. Increased FDI would boost Pakistan's economic development by generating employment and income growth.

1. Investment climate in Pakistan
By Hafsa Khaled
Foreign Direct Investment in any country can bring growth, jobs, technology, skills, market
access and development. Currently more than 90% of third world government policies are
dominated by the view that FDI is necessary for the development of the third World and without
FDI there will be no growth. It is also believed that FDI brings inter alia efficient management of
resources, technology, a culture of competition, and access to global markets. FDI is the best
source of development finance, on the grounds, among other, that it is self-liquidating since
foreign investors have to show profits for the host country as well as for themselves.
Pakistan is amongst the important emerging economies of the region, with population of 180
million plus, presenting the ideal location for access to all the growing markets of the world, with
liberal and investor friendly policies. In Pakistan, foreign and domestic investors can directly
invest in every sector and even there are no limitations on bringing in or taking out capital. The
government of Pakistan desires to encourage investors in order to support investment activities in
Pakistan. Pakistan is a gateway for foreign investors into Central Asia through which the volume
of external trade can be expanded. Almost 70 % of FDI has come into power sector;
telecommunication sector; chemicals, pharmaceutical and fertilizer; oil and gas; and banking and
finance. Large size of market, more domestic investment, trade liberalization, little indirect taxes,
low inflation, and low external debt are encouraging FDI inflows into Pakistan. Significant
improvement in the country’s overall macroeconomic environment and sound policies have
helped attract relatively large inflows of FDI in Pakistan. The investment policy of Pakistan
offers proactive facilitation, guarantees of equal treatment to both local and foreign investors,
easy tariff structures and a liberal regime on repatriation of profits. These strategies have borne
results with a record inflow of Foreign Investment of US $23 billion during the last ten years.
Pakistan in the recent past was no exception to global financial crisis coupled with domestic
difficulties but the economy has shown resilience to the shocks and has maintained global and
regional patterns and has performed better than some of the neighboring countries. The World
Bank Report of 2013 confirms that Pakistan ranks ahead of Russia, Indonesia, Brazil, India and
Philippines.
Recently, Pakistan showed an increase in the FDI by 6 percent in the first six months of the
current fiscal year. Pakistan attracted a total of $562.8 million foreign direct investment in July
to December 2012, as against $531.1 million received during the corresponding period last year.
An improvement in the foreign direct inflows is mainly driven by the investment in the oil and
gas exploration and financial sectors by the global companies in the country.
Foreign investment in Pakistan is fully protected through Foreign Private Investment (Promotion
& Protection) Act, 1976; and Protection of Economic Reforms Act, 1992. Pakistan has a very
liberal policy on repatriation for foreign direct investors; therefore, investing in Pakistan may
give foreign direct investors the following added advantages.

2.  Remittance of royalty, technology and franchise fee is allowed to projects in social,
service, infrastructure, agriculture and international chains food franchise.
 Minimum share of the local (Pakistani) partner in a joint venture will be 60:40 for the
service sector. However, 100% foreign equity can be owned for first 5 years.
 The FBR (Federal Board of Revenue) will not question as to the source of investment;
however, the FBR will only want to know whether the investor has paid requisite Income
Tax on that specific investment. The FBR will not inquire into the source of the funds.
 Foreign investors are allowed to invest in industrial project on 100% equity basis without
any permission from the government.
 There is no requirement for a No Objection Certificate from the Provincial Government.
 In addition to manufacturing sector foreign investment on a repatriate-able basis is
allowed in services, infrastructure and social sectors.
 Full repatriation of capital gains, dividends and profits.
 The facility for contracting foreign private loans is available to all those foreign investors
who make investment in the approved sectors.
 Foreign controlled manufacturing concerns are allowed to borrow on the domestic market
according to their requirements.
 Foreign controlled semi-manufacturing and non-manufacturing concerns can access loans
equal to @ 75% & 50%, respectively, of their paid up capital including reserves.
The Board of Investment being fully conscious of global economic competitiveness has
introduced the Special Economic Zones Act 2012 , which will allow to create industrial cluster
with liberal incentives, infrastructure, investor facilitation services to enhance productivity and
reduce cost of doing business for economic development and poverty reduction. The Law further
envisages reducing processes through SEZ in Pakistan.
Investment Attractions for global Investors:
Energy:
The current supply shortage in Pakistan has been estimated at 6,500MW (megawatts) with
frequent electricity outages experienced country-wide in FY2012 whereas demand of electricity
growing at over 10% per annum. 67% of Pakistan’s electricity generation is tilted towards
thermal power generation with power plants operating at a reduced capacity utilization of 34%
presenting opportunities for investment in plant machinery.
Agriculture/ Agro-based Industries:
Agriculture has been the main stay of Pakistan’s economy with a contribution of 20.9% to GDP.
The value of livestock is 6.1% more than the combined value of major and minor crops. Poultry
meat contributes 19% to the total meat production in the country. Pakistan earned US $964
million from leather exports and a meager USD188 million from meat exports.
Mineral Development:

3. Mineral potential of Pakistan though, recognized to be excellent is inadequately developed as its
contribution to GNP in FY2011.
The Mining and Quarrying sector had a GNP total value worth USD 4.8 billion in FY2011. The
mining and quarrying sector has contributed 2.4% of GDP and has growth rate of 0.4%.
Transportation sector
Although the quality of roads generally improved in 2008 due to facilitation by National
Highway Authority’s (NHA) planned to invest USD5.36 billion in the sector. This plan benefited
from a USD 900 million multi-tranche loan from the ADB. However, in FY2011 10% of roads
were destroyed due to floods.
So, it may be said, that due to the paucity of capital, finance and lack of appropriate technology,
Pakistan actively seeks to enhance more foreign investment. FDI is very much crucial for
economic development because it provides tangible and intangible assets to the recipient
countries. The tangible assets like finance, capital and increase in revenue etc, while the
intangible assets are managerial skills, creation of job opportunities, provision of different
lifestyles and tastes and healthy competition among domestic investors etc. a comparison of the
inflows of FDI with other Central Asian countries shows that the inflow in the case of Pakistan is
comparatively high. Thus, due to the sincere efforts of the government of Pakistan, the
enhancements of FDI will boost the process of economic development through generating
employment opportunities and increase per capita income and the ultimate result would be
prosperity of the society. The government of Pakistan at the moment is in an effort to encourage
domestic infrastructure, reduce political instability and terrorism in the areas, which are the main
hindrance in the way of FDI inflow. In addition, it is also formulating adequate policies which
are more conducive for FDI enhancement.