Pipe dreams: Govt sets ambitious foreign investment target at $5.5b

Draft of the new investment policy prepared, to be sent to cabinet for approval.


Zafar Bhutta February 18, 2013
Under the new policy, there will be no upper ceiling on share of foreign equity, except in specific sectors like airlines, banking and media in the new policy. CREATIVE COMMONS

ISLAMABAD:


The government has set an ambitious foreign direct investment target at $5.5 billion per year in its new investment policy, which will be achieved gradually by adjusting economic priorities in the face of the changing global scenario due to an economic slowdown, coupled with domestic problems of power outages and continued pressure on economy because of the war on terror.


The Board of Investment (BOI) has finalised a draft of the investment policy for 2013, which will be tabled before the cabinet for approval.

According to the draft, the new policy will be instrumental in increasing foreign direct investment (FDI) to $2 billion in 2013, then with a growth of 25% to $2.5 billion in 2014, $2.7 billion in 2015, $3.25 billion in 2016 and $4 billion in 2017. FDI will be taken to at least $5.5 billion per year, it says.

Assuming an average annual economic growth of 5%, the FDI will account for 20% of gross domestic product (GDP) growth, which is close to the current global average.

The policy seeks to remove obstacles and impediments in the way of foreign and domestic investments, putting Pakistan’s investment environment in line with those of its international competitors.



The government will also remove the minimum equity requirement in different sectors. In the investment policy for 1997, which is in force at present, minimum foreign equity in services had been set at $0.15 million and in social and agricultural sectors at $0.3 million.

Under the new policy, there will be no upper ceiling on share of foreign equity, except in specific sectors like airlines, banking and media in the new policy.

Foreign investors will have the right to exchange local currency with any other freely-convertible foreign currency, subject to the foreign exchange regulations of the State Bank of Pakistan (SBP).

BOI has proposed that the government should place no restrictions on use of foreign private loans, which should be extended to any purpose and not restricted to financing the import of plant and machinery only.

According to the 1997 policy, the facility for contracting foreign private loans is allowed only for financing the cost of plant and machinery required for setting up a project.

In the upcoming policy, the BOI proposes that foreign investors in all sectors should be given access to domestic borrowing, subject to prevailing rules and regulations of the Securities and Exchange Commission of Pakistan (SECP), the SBP, and the observance of the debt-to-equity ratio.

In the 1997 policy, foreign-controlled manufacturing concerns are allowed domestic borrowing according to their working capital requirement without any limit, irrespective of their exports.

In the new policy, foreign investors will be entitled to lease land without any limit under the rules and regulations of the authority concerned.

In the policy for 1997, land for agriculture purpose could be acquired on lease for a long period initially up to 50 years, extendable for a further 20 years.

In the new policy, there will be no ceiling on transfer of land held by foreign investors unless contractually specified in an agreement between the landholder and the federal or provincial government.

Foreign investors will also be permitted to hold a 60% stake in agriculture projects. In corporate farming, the investors will be able to hold 100% equity.

An industrial unit introducing new technology in the country, which was not available before, will be declared an industry pioneer and will receive incentives similar to those enjoyed by units in special economic zones.

Published in The Express Tribune, February 19th, 2013.

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COMMENTS (4)

cautious | 8 years ago | Reply

I suggest you ask the international investors who participated in Reko Dig whether investment in Pakistan is a good idea. International investors want a level playing field where contractual terms count for something and you don't have to grease the palms of every politician, judge, or policeman who thinks they have a say in your business. To top if off - Pakistan doesn't have the best reputation when it comes to safety or how you treat foreigners who often don't share your religion. It's a big World with plenty of investment opportunities - my guess is that most investors will find better opportunities than Pakistan.

p r sharma | 8 years ago | Reply

"BOI (Boards of Investment) has proposed that the government should place no restrictions on use of foreign private loans, which should be extended to any purpose and not restricted to financing the import of plant and machinery only."

permission of private loans without a restriction on its use will give a loop hole for its abuse including money laundering to terrorist activities. At least the use/ purpose must be related to the business activities only with a system of check/ monitoring thereupon. All other relaxations are attractive for FDI but unless the economic environment is conducive the relaxations in the policy may not succeed. Agriculture sector is quite attractive for FDI except that govt. support on land acquisition ( on lease) is not mentioned/ specified.

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