Assignment No 2

Global Business Management

Submitted to : Sir Imran Ali Submitted by: Muhammad Asif Khan SP09-BBA-104

Date:

14th December, 2011

Potential of Pakistan for Global Business:

Pakistans size, geographical importance and abundant natural resources make it well-positioned to play greater role in the global market Pakistan has the distinction of possessing: A population of 180 million people one of worlds largest growing middle class, demanding better social and economic life for them and their children. There are 80 million mobile phone users and 20 million Internet users, where-by, Pakistan is positioned with people to people connectivity as one the best in the world. Per capita income of people is around 1000 USD being the highest in SARC countries. Pakistans business potential and opportunities include 2nd largest Salt Reserves 5th largest Gold Reserves 5th largest Coal Reserves 5th largest Milk Producer 7th largest Copper Reserves 7th largest Rice Producer 8th largest Wheat Producer One of worlds largest Irrigation canal system fed from five large rivers One of worlds largest Gems reserves Have year round sunshine with four crops per year (perishable and non-perishable / exotic and non-exotic crops.) One of worlds largest skilled man-power in field of Technology, Medicine, Economy, Banking, Agriculture with global presence and recognition. World class road network connecting Peshawar-Islamabad-Lahore-Faisalabad, Karachi.

 The great blend of material resources, man-power and infrastructure possession and potential of Pakistan duly merits global and local investments in Pakistan, especially in niche areas such as: 1. Dairy Farming, Fisheries and Agriculture 2. Mines, Minerals and Metals 3. Gems and Precious stones 4. Renewable Energy 5. Engineering and Services Today, world is undergoing phenomenal shift of economic growth and talent availability from the west to the east. After centuries of deprivation it is now Asia Pacific and South East Asia which is witnessing the highest economic growth in the world. China, India, Vietnam are few examples of this great feat.

5 Key Reasons To Invest In Pakistan

Reason - 1: Geo-strategic Location Located in the heart of Asia, Pakistan is the gateway to the energy rich Central Asian States, the financially liquid Gulf States and the economically advanced Far Eastern tigers. This strategic advantage alone makes Pakistan a marketplace teeming with possibilities. Reason - 2: Trained Workforce A large part of the workforce is proficient in English, hardworking and intelligent. Pakistan possesses a large pool of trained and experienced engineers, bankers, lawyers and other professionals with many having substantial international experience.

Reason - 3: Economic Outlook Pakistan is one of the fastest growing economies of the world having touched a GDP growth rate of 8.4% in 2005. Today Pakistan has over 170 million consumers with an ever growing middle class. Foreign Direct investment has risen sharply from an average of $300 million in the 1990s to over $3.7 billion in 2008-09. Fiscal deficit has declined from an average 7% of

GDP in the 1990s to around 3% in recent years. And FOREX reserves have increased from $3.22 billion in 2000-01 to $11.6 billion in June 2009.

Reason - 4: Investment Policies Current investment policies have been tailor made to suit investor needs. Pakistan's policy trends have been consistent, with liberalization, de-regulation, privatisation, and facilitation being its foremost cornerstones. Reason - 5: Financial Markets The capital markets are being modernized, and reforms have resulted in development of improved infrastructure in the stock exchanges of the country. The Securities and Exchange Commission of Pakistan has improved the regulatory environment of the stock exchanges, corporate bond market and the leasing sector. Whilst the Federal Board of Revenue has facilitated structural reform in tax and tariffs and the State Bank of Pakistan has invigorated the banking sector into high returns on investment.

New incentives and further liberalization measures include: 1. Capital Markets The capital markets are being developed along modern lines with the assistance of Asian Development Bank. These reforms have resulted in the development of infrastructure in the stock exchanges of the country. The establishment of the Securities and Exchange Commission has improved the regulatory environment for stock exchanges, corporate bond market and the leasing sector. However, structural reforms in tax and tariffs (Central Board of Revenue-CBR), financial sector (State Bank of Pakistan-SBP), deregulation and privatization, investment policy reforms, improved governance, sociopolitical reforms and poverty reduction programs hold their significance in attracting investment in Pakistan.

2. Liberal Investment Policy Pakistan is home to home over 600 foreign companies, which means Pakistan facilitates liberal investment policy. 3. Reduction in Fiscal Deficit There has been stabilization in policies with regards to reduced fiscal deficit (from 6.6% to 4.5% of GDP), current account deficit eliminated and market-based exchange rate. 4. Liberal Foreign Exchange Pakistan has a liberal foreign exchange regime with few restrictions on holding foreign exchange and bringing it in or out of the country. There are no limits on the inflow or outflow of funds for remittances of profits, debt service, capital, capital gains, returns on intellectual property, or payments for imported inputs. 5. Investment Friendly Environment Strategic location as a regional hub includes principal gateway to the Central Asia Republics, strong and long-standing links with the Middle East and South Asian countries. Pakistan offers comprehensive duty-free facilities for investors. 6. Foreign Private Loans The facility for contracting foreign private loans is available to all those foreign investors who make investment in the approved sectors. 7. Domestic Market Foreign controlled manufacturing concerns are allowed to borrow on the domestic market according to their requirements. 8. Human Resource Strong human resources including English speaking work force, cost-effective managers and technical workers. 9. Infrastructural Development Well-established infrastructure and legal systems are deep rooted foundation to lure investment. It includes comprehensive road, rail, sea links; good quality telecommunications and IT services; modern company laws and long-standing corporate culture. 10. Transparency There is a greater degree of transparency in procurement practices since the current

government took office in October 1999. International tenders are properly advertised and there is no sole sourcing, as contract specifications are not made according to any company's requirements, as was done in the past. Sanctity of contracts, however, remains a major concern for companies. 11. Loans and Paid up Capital Foreign controlled semi-manufacturing and non-manufacturing concerns can access loans equal to @ 75% & 50%, respectively, of their paid up capital including reserves. 12. No restriction on Payment of Royalty There is no restriction on payment of royalty / technical fee etc., in the manufacturing sector, allowed non in non-manufacturing sectors. For non-manufacturing sector, the initial lump sum fee should not exceed US $ 100,000. The maximum rate will be 5% of net sales. Initial period for which such fees may be allowed should not exceed 5 year. Further information can be supplied by BOI. 13. Foreign Equity Reducing minimum foreign equity from US$ 0.5 million to US$ 0.3 million. 14. Import Duties Zero import duties on capital goods, plant and machinery and equipment not manufactured locally. Central Board of Revenue (CBR) can supply a list of locally manufactured good. In case of doubt the investor is invited to consult the Board of Investment (BOI). 15. Tariffs on Agriculture Machinery The import tariff on agriculture machinery (not manufactured locally) for registered corporate agricultural projects will be zero-rated. 16. Import of Plant and Machinery The investors who invest in the newly opened sectors can import plant, machinery & equipment (not manufactured locally) at discounted rate of customs duty which is 10% and also avail first year allowance @ of 50% of the cost of plant, machinery & equipment. 17. Import Duties on Raw Material Zero import duties on raw materials used in the production of exports.

18. Expansion of Market Large and growing domestic market includes 140 million consumers with growing incomes and a growing middle-class moving to sophisticated consumption habits. 19. National Industrial Zones A composite scheme of National Industrial Zones engulfing industrial estates, Free Industrial Zones, Free Trade Zones and Export-Oriented Units (EOU) and Estates for small and medium industries within areas of its boundary has been launched to promote exports. In addition, establishment of export oriented units will be allowed to be set up all over the country. 20. Industrial Projects Foreign investors are allowed participation in industrial projects, on the basis of 100% foreign equity, without any permission from the Government. 21. Manufacturing Sector The manufacturing sector was open to foreign investment. Now, the policy regime has been liberalized by opening up other economic sectors to FDI and by mobilizing domestic financial resources to encourage investment. 22. Energy Sector Energy sector involves Hydel, thermal, coal, solar, wind and biogas. 23. Mining Sector Mining sector includes coal, granite, marble, semi-precious gems, chromites, dolomite, gypsum, limestone, Sulphur and rock salt. 24. Engineering Sector Engineering sector includes light and heavy whereas privatization sector attracts potentional investment in banking and finance, oil and gas and power, real estate, telecom and transport. 25. Land and Natural Resources Abundant land and natural resources exists in Pakistan including extensive agricultural land, crop production; wheat, cotton, rice, fruit and vegetables; mineral reserves; coal, crude oil, natural gas, copper, iron ore, gypsum; and fisheries and livestock production. 26. Tourism Tourism has been declared an industry and as such holds great promise for prospective

investors interested in exploring the true potential of a land as rich and diverse in its culture as it is in its geographical distribution. From snowcapped mountains in the north, with vast fertile plains of the Punjab, rugged land of the south, deserts and a long seacoast, Pakistan has all the hall marks to become a major tourist attraction. 27. IT sector The Government as the main facilitator, enabler, and promoter of the IT sector, has evolved an effective national IT Policy and Action Plan that clearly caters to the needs of nurturing the industry and is responsive to the dynamic forces of change that can effect its future growth. The Private Sector is being brought into the mainstream as the main driver for growth. 28. Oil and Gas exploration Oil and gas is another sector in which investor can have offshore and onshore exploration. They can invest in refinement, pipelines and storage facility. 29. Small and Medium Enterprises Small and Medium Enterprises (SME) includes value added textiles and leather, engineering, electronics, sports and surgical goods, furniture, gemstones and jewelry and chemicals. 30. Full Repatriation Full repatriation of capital gains, dividends and profits. 31. No Objection Certificate There is no requirement to obtain a No Objection Certificate (NOC) from the Provincial Governments for the establishment of projects. 32. Remittances Remittance of royalty, technology and franchise fee allowed to projects in social, service, infrastructure, agriculture and international chains food franchise. 33. Regulatory Reforms Regulatory reforms have led to the establishment of a legal framework for licensing and regulating private housing lenders. At present, five private housing companies are operating in a regulated environment and offering a variety of loan instruments. In order to mobilize funds, private housing companies may issue certificates of investment.

Ease of Doing Business Economies are ranked on their ease of doing business, from 1 - 183, with first place being the highest. The ease of doing business index averages the economy's percentile rankings on 10 topics, made up of a variety of indicators, giving equal weight to each topic.

The World Bank recognized Pakistan, 105th rank in Ease of Doing Business, while the 90th rank in starting a business in the world, in its annual 'Doing Business' report. The Ease of Doing Business Index is an index created by the World Bank. Higher rankings indicate better, usually simpler, regulations for businesses and stronger protections of property rights. The index is based on the study of laws and regulations, with the input and verification by more than 5,000 government officials, lawyers, business consultants, accountants and other professionals who routinely advise on or administer legal and regulatory requirements. The Ease of Doing Business index is meant to measure regulations directly affecting businesses. A nation's ranking on the index is based on the average of 10 sub indices The Government of Pakistan has granted numerous incentives to technology companies wishing to do business in Pakistan. A combination of decade-plus tax holidays, zero duties on computer imports, government incentives for venture capital and a variety of programs for subsidizing technical education, are intended there. Investment Foreign direct investment (FDI) in Pakistan soared by 180.6 per cent year-on-year to US$2.22 billion and portfolio investment by 276 per cent to $407.4 million during the first nine months of fiscal year 2006, the State Bank of Pakistan (SBP) reported on April 24. During JulyMarch 2005-06, FDI year-on-year increased to $2.224 billion from only $792.6 million and portfolio investment to $407.4 million, whereas it was $108.1 million in the corresponding period last year, according to the latest statistics released by the State Bank of Pakistan has achieved FDI of almost $8.4 billion in the financial year 06/07, surpassing the government target of $4 billion. Foreign investment had significantly declined by 2010, dropping by 54.6% due to Pakistan's political instability and weak law and order, according to the Bank of Pakistan

Pakistan is now the most investment-friendly nation in South Asia. Business regulations have been profoundly overhauled along liberal lines, especially since 1999. Most barriers to the flow of capital and international direct investment have been removed. Foreign investors do not face any restrictions on the inflow of capital, and investment of up to 100% of equity participation is allowed in most sectors. Unlimited remittance of profits, dividends, service fees or capital is now the rule. Business regulations are now among the most liberal in the region. This was confirmed by the Banks Ease report published in September 2009 ranking Pakistan (at 85th) well ahead of neighbors like China (at 89th) and India (at 133rd) Pakistan is attracting an increasingly large amount of private equity and was the ranked as number 20 in the world based on the amount of private equity entering the nation. Pakistan has been able to attract a large portion of the global private equity investments because of economic reforms initiated in 2003 that have provided foreign investors with greater assurances for the stability of the nation and their ability to repatriate invested funds in the future Tariffs have been reduced to an average rate of 16%, with a maximum of 25% (except for the car industry). The privatization process, which started in the early 1990s, has gained momentum, with most of the banking system privately owned, and the oil sector targeted to be the next big privatization operation. The recent improvements in the economy and the business environment have been recognized by international rating agencies such as Moodys and Standard and Poors (country risk upgrade at the end of 2003).

A strategic investor invariably considers Return on Investment Security of Investment Consistency in Rules and Regulation Security of its Personals

There are over 200 large multinationals operative in Pakistan. Their balance sheet of the last six decades truly demonstrate that invariably all of them have done exceptionally well, benched

marked to global performance indicators such as profit margins, return on investment and business growth rate. Even today many multinationals operative in Pakistan have outperformed the operations in their home markets in Europe and America. There has been no dent related to Security of Investment. No foreign investment has ever been nationalized in Pakistan. The business and investment rules have been consistent with all successive governments in power. In fact each successive govt. improved the same to invoke fresh FDI. Security of personals is indeed an area of concern in these difficult times. This is primarily the fall out on account of conflicts on our northern borders. Many countries have encountered similar issues and we are all aware that sustainable solutions in these countries also took lot of time. Pakistan's best option is to encourage growth in Small and Medium size industry. SME guarantees grass root economic growth which is sustainable and where larger numbers of entrepreneurs are the beneficiaries.

India's and China's economic miracle happened due to mushroom growth of SME supported by the govt' but, more by their overseas citizens who opted to return back to their countries with their knowledge, ideas and money and participated in the SME growth of their country. Today many of them are large global business leaders and players in the world economies.

Pakistan is also now ready for this phenomenon to happen in this land of opportunities. We only need to put our act together. The influx of FDI compounded with technology transfer shall accelerate the process. To come up with fair assessments and answers the visiting delegates may also share their concerns and issues with their fraternity of the existing foreign operative investors in Pakistan.

Opportunities in Home Appliances: Numbers in the Home Appliances sector (television, refrigerators air conditioners, & deep

freezers) are reached to a level where components manufacturing become viable in the country.

Opportunities in Automobile With Auto sector on the growth path, sub-sectors industries needs to upgrade manufacturing facilities by acquiring modern technologies &equipment.

Potential in Motorcycle Sectors: Domestic production volumes have reached a levels from where local component manufacturing has become a potential area for investment. CONSTRUCTION SECTOR: Housing backlog is projected at 6.19 million during 2005-06. Overall housing production has to be increased by 500,000 housing units annually. 50% present housing stock is also old OPPORTUNITIES: Opportunities available due to revival of Construction industry which give kick start to the ailing economy by reviving forty (42) allied industries.
Plastic Pipe R.C.C. Pipe PVC Pipe Air Conditioner Door bells Material Testing Equipment Pumps Electric Fans Cast Iron Span Pipe G.I. Pipe Aluminum Bricks Electric Control Panels Paint Electric Switches Washing Machine TV Sets Furniture Coal for firing bricks Wire Netting, Binding Wire Bulbs & Tube Lights Stone Crushing Steel Polyethylen e Sheets

Transport (Material)

Geyser & Cooking Range Sand Mining

Electric Cable

Marble Chips

Plywood

Door Locks Sanitary Fittings Cement

Door/Window Fixture Steel Fabrication Sanitary Wares Thermopile Sheets

Wooden Door making Glass Marble Tiles

Opportunities in Electric fitting:

Electrical fittings Industry have a huge potential for growth Technological obsolescence Lack of standardized products. Lack of testing facility for checking mould hardness, metallographic and material testing of mould etc. Manufacturing of Bakelite Powder Printing and Packaging for electrical fittings packing Manufacturing of Glass Tube for Energy Saver has unprecedented demand as currently 50-60 containers of Energy Savers are imported from China.

FAST FOOD MACHINERY MANUFACTURER : Existing hotel and fast food processing industry has not yet developed to its full potential, though this industry is now expanding rapidly

OPPORTUNITIES Joint venture agreement with foreign firms for transfer of technology in following areas: 1. Ice Cream Machinery 2. Coffee Machinery 3. Shawarma Machinery 4. Pressure Fryer 5. Chips

DAIRY PRODUCTS Pakistan is the fifth largest milk producing country in the world. At present infrastructure, especially chilling and storage facilities are the major issue.

OPPORTUNITIES Set up energy efficient mini pasteurization plants. Establish milk chilling units and storage facilities as well as refrigerated transports system.

CERAMIC: No proper facility exits (except in Master Tiles) for frit manufacturing which is used as raw material for glaze. Pakistan produces approximately 12 million sq.meter of

tiles and 40,000 tons of sanitary ware per annum. Raw material requirement is approximately 25,000 tons of frit per annum. Opportunity exists for the commercial need for setting up of another large frit manufacturing facility.

FURNITURE: Furniture Industry is meeting the domestic requirement of wooden furniture.

Investment Opportunities Steel and plastic furniture industry is yet to develop in a big way ,Hence opportunities exist in this sub sector.

INCENTIVES Full ownerships rights. Full Repatriation of capital and profits. No minimum or maximum limit for investment. Duty free imports of machinery, equipment and material. No sales tax on electricity and gas bills. Obsolete/old machinery can be sold in domestic market of Pakistan after payment of applicable duties and taxes. Freedom from national import restrictions. Foreign Exchange Control Regulations of Pakistan no applicable. Defective goods/waste can be sold in domestic market after payment of applicable duties, maximum upto 3% of total value of export. Domestic market of Pakistan available on same conditions as for imports from each countries. Production oriented labour laws to be solely regulated by the authority. Relief from double taxation subject to bilateral agreement.

References: http://www.brecorder.com/top-stories/single/595/0/1130616/ http://en.wikipedia.org/wiki/Economy_of_Pakistan http://www.pakboi.gov.pk/index.php?option=com_content&view=article&id=126&Itemid=2 http://www.findpk.com/yp/Biz_Guide/html/economic_indicators.html