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Investment Opportunities in Pakistan

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hamida shams

on 11 November 2014

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Transcript of Investment Opportunities in Pakistan

Investment Opportunities in Pakistan
Area: 796,096 sq. Kms
Population: 186 millions (6th largest
in the world)
Pakistan Profile
The Economy
1. Unstable geopolitical environment
2. Distressed law and order situation
3. Lack of policy research and implementation of policies under a medium to long term horizon.
4. Access to debt capital available to a limited number of entrepreneurs
5. Impaired availability of Infrastructure
mainly power
1. Inflation leading to loss in purchasing power
2. Rising debt burden
3. Insufficient foreign exchange reserves
leading to high currency devaluation
4. Spreading of Extremism
5. Flight of capital
5. Defined policy and legislative frameworks for
investment protection and competition
2. Abundant Land and Natural resources
6. Developed capital markets and financial services sector along with growing private sector
3. Urbanizing population and rising per capita income (3.4% in 2012-13)
1. Fiscal decentralization from center to provinces; and from provinces to local bodies
2. Significant productivity enhancement/value
addition in agriculture & manufacturing
sectors
3. Reorientation of energy strategy including
harnessing of alternative energy (wind, solar,
coal etc.
4. 60% of the population is working class (9th largest labor force)
4. Rationalization of Govt. expenditures and enhancement of revenue collection
by broadening the tax base
Foreign Exchange Regulations
1. Free flow of Capital.
2. Requirement of Registration for foreign investment protection
3. Foreign controlled companies are facilitated with Rupee loans and credits to meet working capital requirements.
4. Non-residents are permitted to purchase shares of Pakistani Companies quoted on stock exchange irrespective of their nature of business.
5. There is no restriction on residents and non-residents on bringing in, and holding foreign currency.
1. The standard tax rate for companies is 34%
2. 100% tax credit is provided to existing and new companies for investments in Plant and Machinery through new equity.
3. Exemption from tax up to 10 years is given for investment in special zone.
4. An asset which has been placed into service in Pakistan for the 1st time in tax year, a deduction namely "initial allowance" is available at the rate of 25%.
5. Dividend is chargeable to tax at 10% on gross receipt basis.
GDP
Billion USD.
230
Agriculture
60
Industry
51
Services
129
Crops
Livestock
Forestry
Other
26
32
1
1
Billion USD
Total
60
Billion USD
Manufacturing
Mining and Quarrying
Construction
Electricity generation &
Distribution and Gas
Distribution
33
8
5
5
Total
51
Billion USD
Wholesale and retail trade
Transport, Storage and
communication
Finance and Insurance
Housing services
General government services
Other Private Services
49
24
6
12
17
21
Total
129
Pakistan SWOT Analysis
Strengths
Weaknesses
Opportunities
Threats
Sector Outlook
Agriculture
The Market
1. Contributes 21.4% to the GDP.
2. Pakistan is one of the largest cotton producing country in the world after China, India and U.S.A.
3. Pakistan produces some of the world's best fruits that are exported to over 40 countries. Recently Pakistan started export of Mangoes to Australia.
4. Pakistan's total land under cultivation is watered by one of the largest irrigation systems in the world.
The Opportunity
1. The All Pakistan Fruit & Vegetable Association
has set a target of USD 60 million through exporting 175,000 tons of mangoes.
2. Recently, The European Parliament permitted duty-free imports of cotton from Pakistan.
3.The EU has decided to allow imports of Pakistani fish products to its 27 nation block.
4. Pakistan and the United States have agreed to enhance the scope of scientific research in the agricultural sector to benefit from modern technology.
Textile
1. Pakistan is the fourth largest producer of cotton and has the 4th largest spinning capacity representing 7.6%in Asia.
2. Development of a textile industry has been a priority area towards industrialization. At present, there are 1,221 ginning units, 442 spinning units, 124 large spinning units and 425 other small units that produce textile products.
3. During 2013, cultivation of cotton increased by 5% as against last year.
4. In 2012, the production of cotton reached a record level of 14.8 million bales breaking the previous record of 14.3 million bales in 2005.
5. 80% of total cotton and synthetic production is exported in the form of yarn, cloth, knitwear, bed wear and ready made garments.
The Opportunity
1. EU granted Pakistan's exports with reduced tariffs under the EU Generalized System of Preference(GSP Plus). This will allow almost 20% of the Pakistani exports to enter the EU at zero tariffs while a further 70% is allowed to enter at preferential tariff.
2. GoP has allowed duty-free and tax-free imports of textile machinery to encourage capital investment. Textile industry has been exempt from load-shedding. It will also enjiy priority in gas allocation.
The Market
Power Generation
1. Pakistan's total power generation capacity was 23,538MW in 2012 whereas at any given time available capacity remained below 14,000 MW
2. The number of consumers has increased to 21.7million from 20.8 million in 2012.
3. CK Solar Korea has signed MOU with Baluchistan government to set up a 300 MV solar power project in Quetta.
4.Pakistan and Afghanistan are moving towards joint management of common rivers with a construction of a 1,500 MW hydropower project on Kunar river.
5. GoP planning to shift electricity generation from the costly diesel and furnace oil
to coal in order to generate 9,800 MW cheaper electricity over the next three years.
6. WAPDA is executing, on a priority basis, projects such as 969 MW Neelum-Jhelum and 4,500 MW Diamer-Bhasha Hydropower projects.
The Opportunity
HYDRO Electricity
> Total hydro power resources in Pakistan have been estimated at over 50,000 MW.
> Most of the resources lie in the North of the country offering sites for large scale (100MW to 700 MW) power projects.
> Smaller sites for power projects (less than 50 MW) are available through out the country.
COAL Energy
> Reserves of Coal in Pakistan are estimated to be over 186 billion tonnes.
These reserves include 175 billion tonnes identified at Thar in the province of Sindh having a potential of generating 100,000 MW of electricity..
> GoP plans to increase the share of coal in the energy mix from 10% to 18% by 2017-18.
WIND Energy
> Pakistan has a potential of about 340,000 MW production of electricity.
> The Gharo-Keti Bandar wind Corridor
(50,000 MW) is attractive for investors due to good resource potential as well as close proximity to major load centers and the National Grid.
SOLAR Energy
> Solar Village Electrification Program was initiated in 2013.

>3,000 Solar Home Systems have been installed in 49 villages in Sindh Province.

>Another 51 villages in Sindh and 300 villages in Baluchistan are approved for electrification using solar energy.
Nuclear Energy
> The GoP has mandated Pakistan Atomic Energy Commission for the installation of 8,800 MW nuclear power capacities by the year 2030.
> The construction of Chashma Nuclear Power Plant unit C-3 and C-4 is in progress.
Construction
The Market
1. Housing and construction is one of the sectors identified by the GoP as the drivers of economic growth.
2. Construction and material industry has grown at a pace of 5.2% in the fiscal year of 2012-13 as compared to last year.
3. Construction and material industry contributes 11.42% in the overall industrial sector.
4. The cement industry has continued to grow and posted over 10% growth in the fourth quarter of 2012-13.
The Opportunity
1. Rising level of urbanization projected to increase from 34.9% in 2005 to 50% by 2030.
2. This sector has a potential to export services worth USD 1 billion per year to KSA, Central Asian States and other Middle eastern countries.
Telecom and IT
The Market
1. Pakistan is fast becoming the destination of choice of International IT/TeS companies looking to relocate their operations offshore.
2. Currently Pakistan's global share is estimated at USD 2.8 billion.
3. In 2012 =, Telecom sector contributed PKR 133 billion to the national Exchequer in terms of taxes, regulatory fees, activation fees and other charges.
4. The total international traffic reached an all time high of 20.2 billion minutes during 2012.
5. Universal Service Fund- as the apex telecom development fund- has subsidized laying down of more than 4,250 km of optic fibre cable.
6. Broadband subscriptions increased from a meagre 168,082 in June 2008 to 2.35 million in Dec. 2012.
The Opportunity
1. GoP has plans for stretching the broadband services further in un-served and undeserved areas of the country.
2. The GoP has provided a reliable IT infrastructure and its package of incentives has been instrumental in the industry's development.
> Income tax exemption till 2016 for income from export of computer software or IT services or IT enabled services.
> Over 85% of telecommunication infrastructure is on fiber-optic cable.
> Internet access is available in over 2000 cities/towns across Pakistan.
> 100% ownership of equity allowed with 100%
repatriation of profits permitted to IT companies.
Financial Services
The Market
1. As at June 30, 2012, aggregate assets of Pakistan's financial sector amounted to PKR 10,265 billion.
Source: pak.gov.pk
finance.gov.pk
For FY 14
Source: www.sbp.org.pk
Agriculture GDP
For FY-14
Source: www.sbp.org.pk
Industry GDP
For FY-14
Services GDP
For FY-14
Source: www.sbp.org.pk
Source: www.spb.org.pk
The Opportunity
1.SECP is working with the World Bank to create an enabling environment for the provision of micro insurance in the country.
2. Investment Finance Services (IFS) are being redefined, with more focus on non-fund services and production innovation.
3. Only 10% of the adult population of Population have individual or shared accounts at formal financial institutions.
4. 2% of the account holders had originated new loans in the year from formal financial institutions.

Billion USD
Total Receipts
41
-Net revenue receipts
-Net Capital receipts
-Estimated provincial surplus
Internal resources
External Resources
Total Expenditure
Current Expenditure
Development expenditure
-Federal PSDP
-Development Loans
-Other Development Expenditure
Bank Borrowing
32
22
7
3
9
43
35
5
1
2
3
Budget 2014-15
2012
2013
PE ratio
10.6
9.7
Earnings Growth
17%
10%
Dividend yield
7% 6%
ROE
24% 22%
Source: Topline research/ Pakistan Investment Strategy
Source: finance.gov.pk
Transportation
The Market
1. Pakistan generates a total domestic transport load of around 300.4 billion passenger km and 153 billion ton km annually.


2. The growth in demand for transportation services is considerably higher than the growth in GDP.
3. The road network carries over 96% of inland freight and 92% passenger traffic.
4. Improvement/Modernization of transport sector accounts for 11% of GDP and 16% of gross fixed amount.
5. GoP allocated 50.7 billion for NHA's development projects.
6. Road network in Pakistan is about 263.415 km comprising of 3.53% National Highways and .87% Motorways.
7. The network of Pakistan Railways comprises of 7791 route km, 515 locomotives, 1901 passenger coaches and 17,543 freight wagons.
The Opportunity
ROADS
> NHA is improving East-West connectivity through construction of numerous bridges across the rivers, as sustainable economic growth is dependent on robust and low cost transport system.

> NHA is now constructing Trans-Pakistan Motorway Networks to bring remote areas on mainline,

> Recently, Bus Rapid Transport System has been successfully launched in Lahore. GoP is planning to launch similar service in other cities as well.
RAILWAYS
> Under Public-Private Partnership, Pakistan Railway has started its services between Lahore and Karachi to cater the needs of business community and general public.

> Pakistan Railway has involved private sector in the management and operation of terminal facilities.

> The Track Access Policy has been formulated to under the Infrastructure Project Development Facility, provides that the private sector would be allowed to use track and infrastructure of Pakistan Railways for private train operations.

> During the period 2012-13, the contract agreement for procurement manufacturing of 202 passenger coaches was signed at a cost of USD 134.5 million with Chinese Supplier firm.
AVIATION AND AIRLINE
> Civil Aviation Authority (CAA) will develop the Benazir Bhutto International Airport scheduled to become operational in 2014 having a passenger handling capacity of 9 million in 2014, expected to increase by 9 million in 2019.

> Pakistan has seen a growth in domestic traffic with 2012, seeing around 9 million passengers flying to various cities.


Oil and Gas
The Market
1. Oil and Gas meets over 80% of our energy needs.
2. 59 Oils and 193 Gas fields have been discovered in Pakistan giving a drilling density of 2.32 wells per 1000 km at the success rate of 1:3
3. Pakistan is ranked as 9th among the largest shale oil estimates (9 Billion barrels of shale oil)
4. 24,573 thousand barrels crude oil is imported every year.
5. Abu Dhabi is planning to revive the billion dollar Khalifa coastal Oil Refinery, a joint venture with Pakistan, with a capacity of 250,000 barrels per day.
7. GoP has decided to accord top priority to liquified natural gas import from Qatar.
6. Pakistan and China are laying an oil pipeline from Gwadar Port to Western China border.
8. During 2012-13 SSGC and SNGC have laid 14km gas transmission network, 4,325 km distribution and 831 km services lines.
The Opportunity
1. Pakistan has huge sedimentary basins stretching over 827,268 sq. km offering immense potential for exploration and development of local natural resources.
2. GoP has announced a 10-year road map for private investment that is aimed at drilling up to 100 wells a year.
3. The two main pipeline projects: Iran-Pakistan Project and Turkmenistan-Afghanistan Project will provide 750 MMFCD and 1.34 BCFD gas to Pakistan, respectively.
2. Scheduled Banks, DFIs and MFIs are regulated by the SBP while NBFCs, Insurance Companies and Modarbas are under regulatory ambit of SECP.
3. Banking sector comprises of 23 listed banks with a listed capital of PKR 3.76 billion and market capitalization of PKR 817.7 billion.
4.Branchless banking in the country grew by 14% during the third quarter of 2013
5. NBFIs include NON-Bank Financial Companies, Mutual funds and Modarbas which are regulated by SECP and DFIs which are regulated by SBP.
6. The mutual funds sector has grown rapidly in the last few years and has accounted for the largest segment (more than 50%) in the total assets of the non-bank financial sector.
5. Positive prospects for mobile banking, given high mobile density of 54% per 100,000 people especially in areas not being feasible for expansion through ATMs.
6. The non-bank financial sector can play an important role in mobilizing financial savings along with meeting the diverse financing needs of various sectors of economy.
5. Pakistan is the third largest producer of raw milk in the world with growth potential of 20% per annum in exports.
The Market
7. Two nuclear power plants; Karachi Nuclear Power Plant and Chashma Nuclear Power Plant are operational while Chashma Nuclear Power Plant unit-2 is also in progress.
5. On GoPs invitation International Companies from Germany, Canada, Iran, Italy and Malaysia have participated in the construction sector, in order to facilitate execution and completion of GoP's mega housing scheme.
6. The construction industry in Pakistan has tremendous potential; with a sizable proportion of trained professionals such as approx. 80,000 graduate engineers,
20,000 licensed contractors and 1,000 registered consultants.
Rate of FED on telecom services is reduced from 21% to 19.5% in order to reduce the cost of service.
Foreign companies can choose between setting up a liaison office, branch office or incorporate a Pakistani Company as either its wholly owned subsidiary or joint Venture with a Pakistani/Overseas partner.
-promotional activities
-Provision of technical assistance
-exploring the possibility of joint collaboration
-export promotion on behalf of its parent company in Pakistan
LO is restricted from entering into revenue generating activities and is required to meet its operational expenses through remittances from its parent company.
Requirement:
A foreign company desirous to set up an LO in Pakistan is required to obtain permission from the BOI by submitting an application on a specified format.
> A BO is set up specifically to execute the contracts awarded to the company.
> A BO can not indulge in Commercial/Trading activities.
Pakistan subsidiary / Joint Venture
- Private Company
-Public Company

The Companies Ordinance Mentions the following types of companies.
Company Limited by Shares
Unlimited Company
> Share Transfer restriction
> Members limited to 50
> Invitation to public for subscription is prohibited.
-Single Member Company
> An Individual obtains corporate status.
> Shares are vested with single member.
> Liability of the proprietors is limited
Performance of Karachi Stock Exchange Limited
Source: tradingecnomics.com
Inflation Rates in Pakistan over a period of five years
Source: sbp.org.pk
Interest Rates in Pakistan
Recent Initiatives
Expressions of Interest Invited
Entities
Divestment Strategy
International / Domestic Capital
Market Offering
OGDCL
PPL
Domestic Capital Market Offering
HBL
Capital Market (Secondary Public
Offering -SPO)
UBL
Capital Market (Secondary Public
Offering -SPO)
Capital Market (Secondary Public
Offering -SPO)
ABL
Divestment with Management Control
Divestment with Management Control
HEC
NPCC
PIAC
7th largest army in the world
6th Nuclear Power of the world
Poverty Rate: 60% population below poverty line
Per capita Income: USD 1,386
Population demographics
0-14 years 34%
15-24 years 22%
25-54 years 35%
over 55 years 9%
The 3G Advancement
 GoP, is planning to undertake an auction to award Licenses to use spectrum in the 2,100 MHz, 1,800 MHz and 850 MHz ranges and to grant the successful bidders rights to establish, maintain and operate Next Generation Mobile Networks (NGMN)
 The award process will be overseen by the Advisory Committee as per the policy directives by the Government of Pakistan (GoP).
 Base price for one 3G license from 2,100Mhz is set at $295 million while the reserve price for 4G license from 1,800Mhz band is set at $210 million for a duration of 15 years.
 In case a new operator wins the 3G and/or 4G license then it will also have to buy a GSM license worth $291 million from 850Mhz.
 In order to win 4G spectrum in 1,800 MHz band, the bidder must win at least one 3G license.
Major Industries: Textiles, cement, fertilizer,
steel, sugar, electrical goods and
shipbuilding.
Major crops: Cotton, wheat, rice, millet and
sugarcane
2011
2010
2009
Choice Of Vehicles
Liaison Office
The activities of LO are restricted to:
Branch Office
Requirement
A foreign company desirous of setting up a BO in Pakistan is required to apply for permission to the BOI by submitting an application on a specified format.
Literacy rate: 57%
Billion USD
Direct Taxes
Indirect taxes
12
16
Others
11
Gross Revenue Receipts
39
Provincial Share
(17)
Net Revenue Receipts
22
Billion USD
General Public Services
Defense
7
Others
2
Total
34
Revenue Receipts
Budget 2014-15
Source: finance.gov.pk
Source: finance.gov.pk
Current Expenditure
Budget 2014-15
Source: finance.gov.pk
Working Deficit
Federal revenue
Total Federal Expenditure
22
(39)
Billion USD
Federal Deficit
(17)
Estimated Provincial Surplus
29
Financing of Deficit
Net External Financing
Domestic bank Financing
Domestic Non-Bank Financing
5
2
7
Total
14
Total
14
Budget 2014-15
Source: finance.gov.pk
Repayments
External Resources
Budget 2014-15
Billion USD
External Loans
-Project Loans
-Program Loans
-Other aid
6.2
1.7
2
2.5
External Grants
2.4
-Project aid grants
-Privatization proceeds
-Others
0.3
2
0.1
9
4
5
Net External Financing
3. The investment policies in Pakistan permit 100% foreign equity ownership in the construction sector.
4. There is an annual shortfall of 270,000 units housing units at present, the backlog of around 7 million units is in addition.
KSE 5 Years
Double Taxation Treaties
1) Pakistan has concluded Double Taxation treaties
with
63
countries for the avoidance of double
taxation and the prevention of fiscal evasion with
respect to taxes on Income.
2) Income Tax treaty Netherlands-Pakistan is in force
since October 4, 1982.
3) The scope of Tax Treaty Covers the following
incomes:
Business Profits
Shipping and Air Transport
Associated Enterprises
Dividends
Interest
Royalties
Capital Gains
Independent and Dependent Personal services
Pensions and annuities
Directors' Fee, artists and athletes
Government Service
Ease of Doing Business
Benchmark
Ranking
World Rank 110 (189)

Protecting Investors 34
Resolving Insolvency 71
Getting Credit 75
Trading across borders 91
Starting a business 105
Dealing with construction Permits 109
Registering Property 125
Enforcing Contracts 158
Paying Taxes 166
Getting Electricity 175

Regional Ranking 4 (8)
Source: doingbusiness.org
5% 20% 17%
11% 6% 7%
23% 22% 23%
5.2 7.0 6.8
Source: sbp.org.pk
2009-10 2010-11 2011-12 2012-13 July-Dec 13
Exports
Imports
Gap
20 25 25 25 13
(31) (36) (41) (40) (21)
5 6 5 7 3
(7) (8) (8) (8) (4)
(13) (13) (19) (16) (9)
Trade
Goods
Exports
Imports
Services
Billion USD
1. Focus on developing democratic institutions
IMF's
Extended Fund Facility
IMF approved a 36 month SDR 4,393 million Extended Arrangement in September 2013.
SDR 360 million funds released up-front.
SDR 3,673 million is contingent upon completion of satisfactory quarterly reviews.
Conditions for the facility
Certain fiscal targets relating to to budget and foreign exchange reserves
Enhancing the tax base
Rationalization of electricity and gas tariffs i-e elimination of subsidies
Privatization of SOE, specifically PIA
Enactment of laws including autonomy of SBP
The country was on target on above conditions during the first review by IMF in December 2013.
Privatization
Investment Structure
Debt Servicing
-Servicing of Foreign Debt
-Foreign Loan Repayment
-Servicing of Domestic Debt
Transfers/Subsidies
1
3
12
4
5
Restructuring followed by divestment of 26% GoP equity stakes to strategic Partner with Management Control
Pak-China Economic Corridor
200 Km road and rail link connecting Kashgar
with Gawadar (Port).
Chinese companies will arrange finance from Chinese banks for the projects.
USD 32-50 Billion worth of projects out of
which 20 Billion in Energy Sector.
Focus on energy, Transportation Infrastructure, Industrial Parks and Special Economic Zones
Source: kse.com.pk
Economist Jim O'Neill's Projections
Currently Pakistan is the 44th largest economy in the world.
Pakistan would become the 18th largest economy in the world by 2050 with a GDP of USD 3.33 trillion (almost the same size of current German Economy).
If this projection is correct then Pakistan's economy would grow 15 times in next 36 years.
Population growth rate: 1.7% per annum
6. Corruption
7. Tax collection issues
Shipping
6. Opportunities in live stock projects.
Gadani ranks as the world's third largest ship breaking yard after Alang and Chittagong in terms of volume and it is the world's leading ship breaking yard in terms of efficiency.
Two world class shipyards on joint venture basis are proposed to be built at Gwadar and Port Qasim.
SBP Foreign Exchange Reserves and Exchange Rate
Full transcript