Investment Climate in Pakistan
Investment Climate in Pakistan
4.1 Investment Appeal
【Market potential】
Pakistan's domestic market has huge potential. Pakistan has a total population of 208 million, of which 55% are under the age of 20. The population structure is young and the labor force is abundant. The size of the labor force is about 65.5 million. With the continuous progress of urbanization, Brazil's 129 million urban consumers constitute the main force of domestic consumption, and the market scale is huge.
【Location advantage】
Pakistan is located in South Asia, on the south side of the Arabian Sea, east, north and west by India, China, Afghanistan and Iran respectively on three sides of the border, is a transportation hub and trade and energy corridor connecting South Asia, Central Asia and West Asia (Middle East). Pakistan's domestic market can radiate to the Middle East, Central Asia, South Asia and other regions, and the trade space is very broad.
With the exception of areas prohibited or restricted in national security and public safety, almost all sectors of Pakistan's economy are open to foreign investment with equal treatment for foreign and local investors.
【Preferential Policies】
In 2018, Pakistan identified 9 special economic zones as priority development zones under the China-Pakistan Economic Corridor. According to the 2012 “Special Economic Zones Law”, foreign-invested enterprises in special economic zones enjoy tax breaks and exemptions. In 2019, the President of Pakistan signed and issued a decree on preferential tax policies for the Gwadar Free Zone, specifying that enterprises investing in the Free Zone will enjoy 23-year tariff, sales tax and corporate income tax exemptions.
【Economic and Trade relations】
Pakistan has investment protection agreements with 32 countries (including China) and double taxation avoidance agreements with 54 countries (including China). In addition, Pakistan is active in regional economic cooperation. So far, it has signed the second phase Protocol of China-Pakistan Free Trade Agreement with China. Signed free trade agreements with Sri Lanka, Malaysia, SAARC and other countries and regional organizations; Signing preferential trade arrangements with Iran, Mauritius and the G8 Islamic Developing countries and organizations; There is a transit trade agreement with Afghanistan.
【Face difficulties】
There are still many problems and bottlenecks in Pakistan's investment environment, such as policy continuity, relatively backward infrastructure development, high inflation, volatile rupee exchange rate and severe security situation.
According to the World Economic Forum's “Global Competitiveness Report 2020”, Pakistan ranks 110th out of 141 most competitive countries and regions in the world. Pakistan ranks 108th out of 190 economies in the World Bank's “Doing Business 2020 Report”.
4.2 Financial Environment
4.2.1 Local Currency
The currency of Pakistan is Rupee, which can be directly exchanged with US dollar, Euro, British pound, Japanese yen and RMB in the local market. On March 31, 2021, the exchange rate of US dollar and euro against Rupee was 165.9 and 182.5 respectively. At present, the RMB and the rupee can be settled directly. The exchange rate of the rupee and the RMB is published daily on the website of the Central Bank of Pakistan. On March 31, 2021, the central parity rate of RMB against rupee was 23.26.
Table 4-1 Exchange rate of Pakistan rupee against US dollar in last four years
Time | US dollar vs Rupee Exchange Rate |
End of 2017 | 110.3 |
End of 2018 | 138.7 |
End of 2019 | 154.8 |
End of 2020 | 159.8 |
4.2.2 Foreign exchange management
【Provisions for Foreign-capital Enterprises to Open local foreign exchange accounts】
According to the Central Bank of Pakistan, foreign currency accounts can be opened in Pakistan under the following circumstances:
1. Nationals of Pakistan or Nationals outside Pakistan, including nationals with dual nationality;
2. All foreigners, whether residing abroad or in Pakistan;
3. All diplomatic missions stationed in Pakistan and their diplomats;
4. All international organizations in Pakistan;
5. Companies, including those with foreign shares;
6. Charitable trust funds, foundations, etc.;
7. Foreign companies and their subsidiaries in Pakistan;
8. Banks or financial institutions.
The above accounts are not allowed to retain foreign currency and must be converted into rupees within the specified time unless the Central Bank has given permission to retain foreign currency.
For special foreign currency accounts, banks can open special foreign currency accounts for private power companies, such as deposit reserve foreign currency accounts, insurance foreign currency accounts, offshore foreign currency accounts, etc., provided that the private power company has signed an IA agreement with PPIB. These accounts can retain foreign exchange. Foreign oil/mineral exploration companies and foreign contractors and their foreign subcontractors may open foreign currency accounts and retain foreign currency. But on condition that all their expenses in Pakistan, including salaries of foreigners/non-residents, are paid in rupees. Funds and payments received by such companies under their contracts must be made through foreign currency accounts.
【Procedures for inward and outward Foreign exchange】
According to the provisions of the Central Bank of Pakistan, there is no limit on the remittance of foreign exchange in principle. After the company explains the purpose of the remittance of funds, it can be entered into the account. The main types of foreign exchange remittances are under trade, capital and investment. For all non-trade remittance, the central bank needs to approve, such as application letter, contract, invoice, calculation method of capital amount, proof of capital principal injection, audited financial statements, etc.
【Tax on remitted profits】
Pakistan allows foreign investors to remit all capital, capital gains, dividends and profits, subject to a 10% withholding tax, also known as withholding tax.
【Relevant Regulations on Foreigners Carrying cash into and out of the country】
There are no restrictions on foreigners bringing foreign cash into the country, but they are allowed to bring cash up to US $10,000 or its equivalent out of the country and up to 3,000 rupees (or 500 rupees if the destination is India).
4.2.3 Banks and insurance companies
【Central Bank】
Main functions of the State Bank of Pakistan: formulating and implementing monetary policy; Issuing its own currency; To supervise and administer the order of the banking system; Implementing foreign exchange management and maintaining reasonable exchange rate levels; Forestall and defuse systemic financial risks and maintain national financial stability, etc..
【Commercial banks (institutions)】
State-owned commercial banks (9)
Including the National Bank of Pakistan, NBP), Bank of Punjab, SME Bank, First Women's Bank Limited, Industrial Development Bank of Pakistan, Punjab Cooperative Bank, etc.
Private banks (20)
It mainly includes Allied Bank, MCB Bank, United Bank, Habib Bank, Askari Bank, Atlas Bank, NIB Bank, Faysal Bank, etc.
Foreign banks (11) :
It mainly includes Citibank, Standard Chartered Bank, Bank of Tokyo Mitsubishi, Deutsche Bank, Barclays Bank, Maybank, Industrial and Commercial Bank of China, Bank of China, etc.
Joint investment institutions (7) :
Pakistan - Kuwait Joint Investment Company, Pakistan - Oman Joint Investment Company, Pakistan - Brunei Joint Investment Company, Pakistan - Iran Joint Investment Company, Pakistan - Saudi Joint Investment Company, Pakistan - Libya Joint Investment Company, Pakistan - China Joint Investment Company.
Islamic Banks (5) :
It mainly includes Pakistan Islamic Bank, Dubai Islamic Bank, Dawood Islamic Bank, etc.
【Insurance Company】
The Securities Commission of Pakistan is responsible for planning and regulating the development of the securities and insurance market, while the Ministry of Commerce has the direct management power of the national life insurance and reinsurance companies and the final approval authority of industry regulations, the two departments are jointly supervised and managed. Most insurers have joined the Insurance Industry Association (IAP).
Insurance companies mainly include: National Life Insurance Company, National Insurance Company, Pakistan Reinsurance Company, EFU Insurance Group, etc.
【Chinese-funded banks】
The Central Bank of Pakistan has granted permission to the Industrial and Commercial Bank of China (ICBC) and Bank of China (BOC) to set up RMB settlement and clearing systems in Pakistan to enhance the convenience of using RMB settlement in China-Pakistan trade and foreign exchange flows. Icbc Karachi branch and its subsidiary Islamabad branch started operations in May 2011 and opened a branch in Lahore in April 2015.
The China Development Bank and the Pakistani side jointly set up a China-Pakistan Joint Investment Company in Pakistan and sent a working team to stay in Pakistan.
Bank of China opened its branch in Karachi on Nov 7, 2017.
The China-Pakistan Joint Investment Corporation is based in Islamabad, the capital of Pakistan, Tel: 0092-51-2099666
The contact information of the Working Group of China Development Bank in Pakistan is 0086-28-86029760.
Icbc Islamabad Branch: 0092-51-2078266
Icbc Karachi Branch Contact information: 0092-21-35208988
Bank of China Karachi Branch: 0092-2133110688-688
4.2.4 Financing Channels
【Base interest rate levels and business funding costs】
Due to serious inflation, Pakistan's base interest rate level has been at a high level for a long time. However, in response to the economic and social impact of the COVID-19 pandemic, the Central Bank of Pakistan has continuously lowered interest rates, maintaining the benchmark interest rate of 7% since June 2020.
In terms of financing conditions, foreign-funded enterprises enjoy the same treatment as local enterprises. When foreign companies invest or contract projects in the local area, they need to open a US dollar account, provide collateral or guarantee by an entity recognized by the bank, and then provide cash flow documents, financial statements and other relevant documents to prove the company's qualification and credit.
4.2.5 Use of Credit Cards
Credit cards are not widely used in Pakistan, and only large shops in big cities are equipped with POS machines. Credit cards issued in China with VISA, Master and UnionPay logos can be used there.
4.3 Securities Market
【Stock exchange】
The Pakistan Stock Exchange (PSE) is Pakistan's only national stock exchange. Its products include stocks, bonds and derivatives.
In December 2016, China International Capital Exchange, Shanghai Stock Exchange and Shenzhen Stock Exchange jointly issued an announcement saying that a consortium consisting of China Financial Futures Exchange, Shanghai Stock Exchange, Shenzhen Stock Exchange, China Pakistan Investment Corporation Limited Liability Company and Habi Bank of Pakistan successfully competed for 40% of the shares of Pakistan Stock Exchange, among which the three Chinese exchanges would hold 30%.
In fiscal year 2019, there were 544 listed companies on the Pakistan Stock Exchange with an average daily trading volume 9.1 billion rupees and a market capitalisation of 6.8 trillion rupees, or about $43 billion. The main business of Pakistan securities market includes stocks, trusts, mutual funds, corporate bonds, government securities, etc. In Pakistan, online trading has begun, allowing investors to buy and sell stocks online. Pakistan's stock market is fully open to foreign investors, who enjoy the same rights as local investors, and capital can be sent out freely
4.4 Factor Cost
4.4.1 Prices of water, electricity, gas and oil
【Water price】
Most areas of Pakistan are not covered by tap water, and industries most relies on their own Wells for water. A tiered pricing system is implemented for urban domestic water charges. For details of key cities, please refer to:
Lahore https://wasa.punjab.gov.pk/tariff
Karachi www.kwsb.gos.pk/View.aspx?Page=45
【Electricity price】
The price of electricity in different provinces of Pakistan varies according to the consumption, use and time period. For details of key provinces or cities, please refer to:
Islamabad:https://iesco.com.pk/index.php/customer-services
Karachi:https://www.ke.com.pk/
Lahore: http://www.lesco.gov.pk/
【Gas price】
Natural gas prices:https://www.ssgc.com.pk/web/?page_id=103
【Oil price】
According to the notice issued by the Petroleum and Gas Regulatory Authority of Pakistan (OGRA), the prices of gasoline and diesel of different specifications for May 2021 are shown in the table below
Table4.2 Gas and diesel prices in Pakistan
Gasoline diesel type | Price |
high-speed diesel fuel | 110.76 rupees/liter |
regular gasoline | 106.06 rupees/liter |
Regular Euro 5 gasoline | 108.56 rupees/liter |
Note: At 155.20 rupees per US dollar, the OGRA website is: www.ogra.org.pk/ | |
4.4.2 Wages of the labor force, and its supply and demand
【Labor supply and Demand】
Pakistan has abundant domestic labor resources, but the overall quality is not high. Relevant statistics show that there are 65.5 million people of working age in Pakistan. The distribution of labor force is as follows: agriculture 38.5%, manufacturing 16.1%, construction 7.6%, wholesale and retail 14.9%, storage and transportation 6.2%, community services 14.7%, other (mining, finance, etc.) 2%. Of the Labour force, only 42.4% are salaried employees, 21.4% are unpaid domestic workers, 34.8% are self-employed and 1.4% are employers.
【Salary level】
According to the “Labour Force Survey 2017-18” released by the Pakistan Bureau of Statistics, the salary levels of industrial workers and managerial positions in different sectors are shown in the table below. Under the Employees Pension Insurance Institution (EOBI), if more than 10 employees participate in the social security plan, the employer must pay 5% of the salary of the insured employees.
Table 4-3: Salaries of certain industries in Pakistan
Position | Monthly salary, rupees |
Managers | 56944 |
Professors | 31536 |
Technicians or Associate Professors | 26764 |
Civil Servant | 27712 |
Services and Retailers | 16865 |
Skilled Workers in Agriculture, Forestry, Animal Husbandry and Fisheries | 17635 |
Craftsmen and Related Business Workers | 15885 |
Factory/Machine Operators and Assemblers | 17539 |
Basic Occupations | 12770 |
Source: Economic and Commercial Office of the Chinese Embassy in Pakistan compiled according to the "Labour Force Survey 2017-18" released by the Pakistan Bureau of Statistics
【Minimum wage】
The government adjusts the minimum wage for the workforce every fiscal year, and in 2021, the minimum monthly wage for unskilled workers will be 17,500 rupees (1 US dollar is about 155 rupees).
【Foreign Labor Service】
Pakistan has a high unemployment rate and is a big labor exporter, so there is not much demand for foreign labor. At present, the number of foreign labor in Pakistan is very small, and most of them are managers and technical workers.
4.4.3 Land and housing prices
The price gap between land and rent varies greatly depending on the area and the use. For more information, please refer to the website of Pakistan Housing agency: www.zameen.com/
4.4.4 Construction cost
In recent years, the price of construction materials in Pakistan has risen rapidly, and the government has regulated and moderately intervened in this regard. The price of construction materials varies widely by province and city. In May 2021, the price of construction rebar is about 121,000 to 135,000 rupees per ton, the price of 50kg bagged cement is about 550 to 650 rupees, and the price of 100 cubic feet of sand is about 1816 rupees to 5,012 rupees, the price of 100 cubic feet of stone is about 1,700 rupees to 8,000 rupees.
