Pakistan

Pakistan Overview

Main Industry Sectors
The agricultural sector is the main pillar of the Pakistani economy. It contributes around 22% to the GDP and employs approximately 42% of the active population. Wheat, rice, cotton, sugarcane, fruits, vegetables and tobacco are the chief crops. Cattle livestock farming is also very important. Pakistan is the 4th largest cotton producer in the world and has abundant natural resources, mainly copper, oil and gas.

The industrial sector contributes around 25% to the GDP. The major industries are textile production (the largest source of foreign exchange revenue), oil refining, metal processing, and the production of cement and fertilizers. Maritime transport is also a significant activity.

The tertiary sector contributes to around half of the GDP. Money transfers from Pakistanis working abroad create a considerable godsend financial income for the country.

Economic Overview
The GDP’s growth rate remained positive despite the international economic crisis, thanks to the positive results of the agricultural sector.

In recent years, the government made significant macro-economic reforms, which include the privatization of state-subsidized services, the institution of an anti-money laundering law, an increase in the harshness of punishment against the piracy of intellectual property and quick settlements for the disputes between investors. In the context of the fight against terrorism, the country has received substantial financial aid from the United States, an important factor for growth and economic stability. However, when this payments reached their end in October 2008, Pakistan asked aid from the IMF in November, and adopted a stabilization plan which has obtained limited results. Despite a slight improvement, the country remains confronted with several difficulties: economic slowdown, budgetary deficit and insufficient growth of tax receipts. Some of the major threats to Pakistan’s economy are: international high prices in oil barrels, inflation, raw materials prices, a deficit on the balance of payments and political insecurity and uncertainty.

The main indicators of the country are in the red. Approximately 30% of the population lives below the poverty line. The unemployment rate is estimated at around 7.5% and the level of under-employment is very high. Life expectancy is only 64 years and barely 55% of the population is literate. Extreme poverty and under-development are major problems in Pakistan, especially in rural areas.

The perspectives of growth for 2011 are expected to be low due to the strong floods that devastated the country in 2010. Thousands of agricultural workers lost their jobs and the cost of reconstruction is estimated at USD 15 billion.

FDI in Figures
FDI increased by 1.3% during the first 7 months of the 2008/09 budget year, with the telecommunications sector being the primary recipient of the FDI in Pakistan, followed by the financial and the energy sectors. However, FDI’s flow remains very low due to different factors: lack of security, political instability, poor condition of its infrastructures, the non-respect of intellectual rights, the arbitrary administration of laws and regulations, the administrative resistance (federal and provincial) to open up its economy.

According to the UNCTAD report on world investments, the potential attractiveness of Pakistan for investments is lower than India, its neighbour, but equal to Sri-Lanka and Bangladesh. However, performance in terms of actual reception of FDI is poor and this situation will not improve because the country has a very negative image in the international plan since it is considered a rear base of Islamic terrorism.

FDI Government Measures
The Pakistani government is carrying out an active foreign investment promotion policy, and has taken a number of economic liberalization measures to make the country more attractive. Pakistan offers a number of tax incentives for the establishment of industrial units in certain specific sectors: energy, ports, highways, electronics and software.

The Government has also set up special export oriented zones called export-processing zones (EPZs), in order to encourage foreign investments. Some of the incentives offered to EPZ investors include exemptions from all federal, provincial and municipal taxes for export-destined production, exemptions from all taxes and duties on equipment, machinery and materials, and access to Export Processing Zone Authority “one window€? services.

The government also offers incentives to Export-Oriented Units, which are stand-alone industrial units allowed to operate anywhere in the country but have to export 100% of their production.

However, the government has set ceilings for certain strategic sectors, for example agriculture and certain social sectors. In addition, foreign investment into some sectors is forbidden because of national security reasons.

For more details, you can consult the BOI Pakistan’s website (Council for investment) and the Privatization Commission of the Ministry of Finance and Economic Affairs.

Country Strong Points
With a population of almost 176 million inhabitants and significant natural wealth, Pakistan has a potentially big market. The poverty level has decreased by 10% since 2001, leading to higher purchasing power. The positive GDP growth rate between 2000 and 2004 resulted in the development of the country’s industrial and service sectors. Islamabad has steadily raised development spending in recent years, including a 52% budget allocation for development in 2007/08. The FDI attraction policy led by the government (privatizations, equal treatment between foreigner and local investors, tax incentives, etc.), and the efforts made in terms of economic reform are the pillars of Pakistani development

Country Weak Points

  • There are significant security threats, to foreign interests in Pakistan (especially from the USA and Western countries), from terrorist organizations like al-Qaida, Taliban, and even from domestic terrorist organizations.
  • A high degree of corruption exists in the country, especially in the areas of government procurement, international contracts, and the taxation system. Pakistan is not a signatory to the OECD Convention on Combating Bribery.
  • Other weak points are poor infrastructures, lack of procedural transparency, political pressures, and FDI restrictions in some strategic sectors.

Foreign Trade Overview
Despite its economic and political difficulties, Pakistan has taken steps to liberalize its trade and investments in the context of commitments made with the WTO, IMF, and the World Bank. The share of foreign trade in the country’s GDP is around 35%. The drop in global demand has resulted in a high trade deficit.
In the 2008/09 fiscal year, the trade volume decreased by 9%. After having more than doubled between 2001/02 and 2007/08, Pakistani exports declined by 6% in 2008/09, in relation to the same period in the previous year. Imports, which were multiplied by three between 2003 and 2008, declined by 10.5% in 2008/09, compared to 2007/08. The fall in imports led to a reduction of 17% on the trade deficit in 2008/09, compared to 2007/08. During the fiscal year 2009/2010, exports reached the amount of USD 15.9 billion and its main trade partner was the United States.

Pakistan’s three main customers are the United States, the United Arab Emirates and Afghanistan. The main export commodities are cotton, textiles, clothing and cereals. Its three main import partners are Saudi Arabia, the United Arab Emirates and China. Pakistan mainly imports fuels, oil, vehicles, iron and steel.