THE FRESH AVENUES FOR INVESTMENT IN PAKISTAN

Author: Mr. Muhammad Imran Malik

im4imranmalik@yahoo.com
Department of Management Sciences
Foundation University, Islamabad, Pakistan.

Co- author: Ms. Tajwar Ali

tajwarali@hotmail.com
Department of Management Sciences
Foundation University, Islamabad, Pakistan.

Co- author: Mr. Solomon Fernando Gomez

Solomon@all.com.pk
Department of Management Sciences
Foundation University, Islamabad, Pakistan.

Journal / Conference Paper.

June 15, 2007.
Abstract abundant land and natural resources, low cost
Purpose – The aim of the study is to discuss raw materials, the available market and
the Foreign Direct Investment in Pakistan and Pakistan’s strategic location.
the sources from where the foreign Originality/Value – This study highlights the
investment is pouring into Pakistan and the foreign investment sources and makes a
sector wise utilization of the foreign direct modest attempt towards depicting Pakistan
investment. Moreover the aim is to discuss as a potential for foreign direct
the reasons to invest in Pakistan. investment.(FDI)
Design/Methodology – This descriptive Keywords – Pakistan, Available resources, Strategic
study is basically based on the data published location, FDI..

by the government of Pakistan. In this study Paper Type – Descriptive Research study
we discuss the investment trends in Pakistan, Introduction
FDI sources and major sectors for investment.
After the world war-II, industrialization
Findings – Pakistan has to improve law and
became the order of the day, and no sooner
order situation, as it has an underdeveloped
the idea of occupying enemy territory was
capital market so significant increases in
transformed in controlling the economies of
commercial borrowings are not available.
the opponent states. The world thus entered
Domestic savings are not sufficient to meet
the phase of economic warfare. Pakistan has
the requirements of investment. It is therefore
been rated among the poor and under
crucial to accord high priority to foreign
developed countries of the world.
direct investment.
Successive governments have endeavored
Research Limitations – As the research is
to boost economic growth which resulted in
based on data obtained from various
its becoming industrializing economy.
organizations of government of Pakistan
Since last decade it has become a hub of
(GoP), therefore the reliability of data was an
economic activities. As domestic savings
issue.
are low FDI is major source of investment.
Practical implications – This information
can be used by the foreign and local investors Over view of Pakistan

by viewing the availability of strong, low-cost Pakistan is a land of opportunities,

and skilled human resources, large and repository of unique blend of history and
growing domestic markets, availability of culture from east and west. It is the cradle
of ancient civilization which developed
around Indus valley. It is the ninth most
populous country of the world with 152.2
Million tough, diligent, and hard working
people, which has entered 21st century as
an equal partner in the comity of nations.
Its geographical location and diversity in
temperatures provide friendly habitat to
excellent ranges of flora and fauna and a
large variety of agricultural crops used for
both food and raw material.
Definition of investment
Investment can be defined as:-
• Use of money in the hope of making
more money. (Soomro 2005).
• The purchase by a producer of a
physical good in the hope of
improving future business.
• Use of resources intended to
increase future production output or
income.
Reasons to invest in Pakistan
Pakistan is flanked by Iran and landlocked
Afghanistan in the west, capital and energy
surplus Middle East in the south – west, the
energy rich landlocked Central Asian
Republics and economic giant China in the
north. India and booming East Asia in the
south-east. See annexure 1.This makes
Pakistan a trade, energy, transport corridor
and industrial hub.
The other reasons to invest in Pakistan are:-
Availability of abundant land and natural
resources and low cost raw materials, The
strong human resources, Large and growing
domestic markets, Increasing reserves,
Extensive privatization program.
Current FDI Status
Foreign direct investments in Pakistan
increased substantially during the last seven
years, from US dollars 322.4 Million in
fiscal year 2000-01 to US dollars 4160.2
Million in fiscal year 2006-07.(Up to April
2007)
The major economic reforms which resulted
in this boom are:-
Consistency and continuity in policies , tax
and governance reforms, agriculture sector
reforms, industry and investment reforms,
deregulation, liberalization, privatization,
financial sector reforms, capital market
reforms , fiscal transparency, opening new
avenues of investment and its strategic
location. Major contributing countries are
Are (see figure 2 for graphical
representation:-
 Table A: FDI in Pakistan. as on 30th April
Total 4160.2 100
2006.Source State bank of Pakistan
Avenues for investment
Contributing Million $ % age of
Country investment Based on foregoing the potential of major
Netherlands 753.4 18.1 avenues for FDI which are capital intensive

724.4
are discussed as under.
U.K 17.4

708.9
Exploration of oil and gas
China 17.0

676.7 First exploration was made in 1866. And

USA 16.3
First oil discovery was made in 1915. So far
U.A.E 364.2 8.8
526 exploratory wells have been drilled and
Switzerland 157.8 3.8 142 discoveries have been made, giving an
Others 774.8 18.6 encouraging success of 1: 3.7

Total 4160.2 100 A total of about 737 million barrels of oil

and 38 trillion cubic feet of gas have been
The sectors in which the investment has discovered in Pakistan but prognostic
been made are (see figure 3 for graphical potential of total endowment of
representation) : hydrocarbons in Pakistan’s basins has been
Table B: Sector wise investment of FDI. Source estimated as 27 billion barrels of oil and
State bank of Pakistan 282 trillion cubic feet of gas. The current
Million % age of production of oil is insufficient to meet the
Sector
$ Investment local demand.
Communication (IT &T). 1423.3 34.2
Oil refining capacities
Financial business 871.4 20.9 Oil refining capacity in Pakistan is 12.73
Oil & Gas Exploration 449.4 10.8 million tons per year which would be

387.9 increased to 18.73 million tons per year in

Tobacco 9.3
relation to the demand of year 2010 by
Power 13)6.2 3.3
installing an additional refining capacity of
Trade 133.9 3.2 6 Million tons (through FDI) The existing
Others 758.1 18.3 storage capacity of petrol oil and lubricants
(POL) products excluding crude oil provide
a cover of 20 days this will also be • 94000 km local Government roads &
increased to 45 days (through FDI).. To 54000 km Municipal and
satisfy the needs for the white oil supplies cantonment roads
to Peshawar region a white oil pipeline at
With the annual growth rate of 12.64%
an estimated cost of US$ 154 Million would
passenger traffic and 6.13% of freight
be undertaken by 2010 through FDI. About
traffic, it is estimated that 439 billion
700 Compressed Natural Gas (CNG) station
passengers traffic and 198 billion tons of
will be established in different parts of the
freight traffic will be handled by roads by
country. During the 2005- 10 plan period
the year 2010. The plan provides for the
(plan) the pipeline transmission network
improvement & rehabilitation of about
will be increased from 8606km to 9700km
15932 km of existing roads & construction
and distribution net work from 62623km to
of 12180 km of new roads all over the
94000km.
country as shown below:
Margins of oil marketing companies are Table D: Plan for the improvement and
being increased to improve return and to rehabilitation of new and existing roads
encourage them to invest in storage
Improvement Construction
facilities and infrastructure. As a result,
National
about US$ 1 billion worth of investment has 6500km 2500km
Highways
been committed in this sector.
Provincial
6600km 9190km
Infrastructure Roads

Infrastructure mainly includes roads, ports, Special

2832km 490km
Areas Roads
housing, water supply, sanitation and
industrial zones. Total 15932km 12180km

The total length of roads in Pakistan is

An allocation of RS 256 billion is
approximately 258,000 km. This includes:
envisaged for these road development plans
• 9,000 km of national highways both in public as well as in private sectors.
• 101,000 km provincial intercity In addition, above mentioned program
roads several projects are in the pipeline with
private sector on build own and transfer
BOT basis for which an outlay of RS 31 • N-55, Indus Highway (Kohat, D.I.
billion is envisaged these projects include:- Khan, D.G. Khan, Shikarpur)

• Kakkar-Karachi Motorway (M-7) • N-80, Near Khushalgarh Bridge

• Tarnol interchange at Rawalpindi • N-85, Panjgur, Basima

• Rawalpindi bypass expressway Motorways

• Shahadra Flyover ¾ Faisalabad Industrial Estate already

being developed by Govt. of Punjab
• Faisalabad Multan Motorway (M-4)
near Milat Interchange on Pindi
• Multan, DG Khan motorway (M-5)
Bhattian-Faisalabad Motorway(M-3)
National trade corridor development ¾ On Islamabad-Peshawar Motorway,
programme (2007 - 2014) land around interchanges at Burhan,
Under this program rehabilitation of 2033 Ghazi and Swabi has been decleared
Km up gradation of 2755 Km and new for development of Industrial
construction of 2900 Km roads will be Estates.
completed till 2014. cost of project is RS
¾ On Islamabad-Lahore Motorway, land
351.477 (Billion).
near Chakri and Pindi Bhattian
Industrial zones/estates along NTC Interchanges has been identified for
(National Trade Corridor) Industrial Estates

Highways Housing

Identification of possible entry / exit points Pakistan is one of densely populated

on new highway corridor for the countries of the world. In Pakistan the
development of Industrial Estates needs demand for housing is estimated as 570,
thorough study. However, NHA proposes 000 units annually to fulfill the increasing
following areas where these Estates may be requirement. Only 300, 000 units are being
developed. built annually mostly in urban areas.
According to a survey the backlog for
• N-25, Khuzdar, Qila Abdullah
houses is estimated as 4.3 (M) units in 1998
• N-35, Nagar
which has increased to 6(M) units in 2005.
• N-50/N-70, Qilla Saifullah A massive investment has been earmarked
in this sector. Government seeks the over The projects for Karachi port trust (KPT)
all private sector investment as Rs 1150 includes:
billion with annual investment increasing
• Dredging for deepening of
from the present Rs 100 billion to Rs 350
navigation channel
billion by 2009-10.
• Reconstruction of oil pier-2
Water supply and sanitation
• Development of cargo village on
The development of water supply and
KPT estate
sanitation system is a part and parcel of the
development of housing schemes. As per • Construction of port towards

the Planning Commission of Pakistan complex

overall water supply coverage will be • Establishment of container terminal

increased from 65% of the population in for KPT
2005 to (80 % urban, 55 % rural) to 75 %
Projects for port Qasim include Deepening
by 2010 (urban 90%, 65% rural
of channel, Construction of second
The current sanitation and Sewerage container terminal and a liquid cargo
facilities at around 35% will be extended to terminal Both projects require investment
45% of population along with the of RS. 113 billion.
development of waste water. During the
Gwadar seaport will have boosting impact
plan an outlay of RS 600 Billion is
on the economy of Pakistan, requiring huge
earmarked
investment. The investment on the allied
Ports infrastructure is in addition to this.

The two commercial ports of Pakistan i.e. Power

Karachi port trust and Port Qasim enjoy a
Generation of electricity is one of the forms
monopoly. Over 95% of international Cargo
of energy which is a life line of any
passes through these two ports. Karachi sea
economy. It can be produced by means of
port and Qasim is currently handling 28 and
Hydel, Thermal, Coal , Wind, biogas,
10 Million tons of cargo respectively.
alternate energy sources and neuclear.
Government has decided to increase the
cargo handling capacities of both the ports.
Hydel 9 Rajdhani 86
(Punch)
The identified potential is 46000 Mega Total 2897
Watts while present installed capacity is
around 6459MW. Government has planned Table G: Showing Long term Hydel Projects

30 hydel projects, to shift the energy mix S. LONG TERM CAPACITY

No. PROJECTS (MW)
towards hydel generation which is a dual
1 Basha 3,360
purpose and cheap source. This will also 2 Dasu (Indus) 2,712
serve as life line for agriculture. The short, 3 Patan (Indus) 1,172
4 Thakot (Indus) 1,043
medium and long term projects are as
5 Bunji (Indus) 1,500
under.
6 Munda (Swat) 740
Table E: Showing short term Hydel Projects 7 Chokothi (Jhelum) 139
8 Naran (Kunhar) 219
S.No SHORT TERM CAPACITY
PROJECTS (MW) 9 Suki Kinari (Kunhar) 652
1 Jinnah (Indus) 96 10 Patrind (Kunhar) 133
2 Malakand-III 81 11 Azad Patan (Jhelum) 222
3 Allai Khwar 121 12 Karot (Jhelum) 240
4 Golan Gol 106 13 Mahl (Jhelum) 245
5 New Bong UGC 97 Total 12377
6 Khan Khwar 72
7 Duber Khwar 130
8 Pehur High Level 12 In addition to above MW of electricity
Total 715 is proposed from other sources.

Table H: showing other sources of energy.

Table F: Showing mediumt term Hydel Projects
S. PROJECTS CAPACITY
S. MEDIUM TERM CAPACITY
No PROJECTS (MW) No. (MW)

1 Raised Mangla 180 1 Combined cycle on 3600

2 Thal Reservoir (CJ 52 gas/coal
Link)
3 Doyian (NA) 425 2 Combined cycle on gas 1260
4 Neelam-Jhelum 969
3 Thar coal 1800
5 Kohala (Jhelum) 740
6 Matiltan (Ushu) 84 4 Lakhra coal 450

7 Gulpur (Punch) 116 5 Other coal based 900

8 Abbasian (Jhelum) 245
6 Wind power 100 Privatization of PTCL is a positive signal
from GoP, to deregulate this sector. This
7 Renewable energy 800
sector has lot of potential for |FDI
Total 8910
Findings

Pakistan in order to sustain and increase

Privatization
FDI has to make the following
All public units in oil and gas, banking , interventions:
finance, telecommunication and industrial
• Improve Law and Order situation.
sectors will be privatized in stages. These
sectors have been opened up for FDI. • Develop energy sources.

Tourism • Build water reservoirs.

Pakistan with the world’s oldest • Development and improvement of

civilization, mountain beauty and splendid new roads.
seasonal variety has immense tourist
• Development of Industrial zones
potential. The tourism sector is dominated
near the highways.
by private sector and Public sector acts
• Portray soft image.
mainly as a facilitator.
Conclusion
The foreign tourist represents only 13% of
all visitors’ arrival. Domestic tourist Pakistan shows all the positive indicators of
represents only 7 % of all domestic economic growth. The GoP is making
travelers. To enhance the tourism sector endeavors to build Pakistan on modern lines
GoP has planned an infrastructure to become an Asian tiger. Government of
investment of Rs 541 million during the Pakistan should provide a secure and
plan. The cultural and religious tourism conducive environment to local and foreign
needs to be focused to attract foreign investors.
tourist. Given its fragile balance of payments
Telecommunication position, handicapped by low domestic
savings and urgent need to boost industrial
This sector has shown tremendous growth.
production, Pakistan needs significant
It has received major share of FDI.
mobilization of foreign resources.
As long-term official assistance will become
increasingly scarce, and promoting large
portfolio investments is not a viable policy
option, while Pakistan's underdeveloped and
narrow capital market does not allow
significant increases in commercial
borrowings therefore it is vital to accord high
priority to foreign direct investment (FDI).
Once this objective is achieved Pakistan
will become a developed country.
FIGURE 1. FIGURE 3.
Map showing strategic importance of Pakistan
Sector wise utilization of FDI

1600
U
Kazakhstan Almaty
Frunze #
#

Toshkent
1400
Uzbekistan # Kyrgyzstan
Samarkand Kashi
#
Turkmenistan Dushanfe
# 1200
# Tajikistan

Million Dollars and % age.

Ashkhabad
#

Mashhad China
#
1000

Herat Kabul
# #
Islamabad Jummu & Million $
##
Kashmir
(Disputed Territory)
800
Afghanistan Rawalpindi % age of Investment
Yazd
# Qandahar Faisalabad Lahore
#
# # # Amritsar
600
Iran Zahedan
#
Pakistan
New Delhi Delhi Nepal
#
Kathmandu 400
#
Jaipur Lucknow
# Kanpur #
India #
Patna
Hyderabad Benares
# #
#
200
Abu Zaby # Karachi
#
Masqat
# Ahmadabad
ab Emirates # Ca
0
Oman
N

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o

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ad
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in

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To
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lb
n

Ex
ti o

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nc

as
i ca

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un

Fi

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Sectors

FIGURE 2.

FDI Contribution Countries

900

800

700
M illio n do llars an d % age con tribu tion

600

500
Million dollars
% age Contribution
400

300

200

100

0
Netherlands U.K China USA U.A.E Switzerland Others
Countries
References
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Development in Pakistan. Lahore: Maktaba
Jadeed Press.
[2] Mr. Soomro. Pakistan Economic Guide, 2005.
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Government of Pakistan., 1995b. Why Invest in
Pakistan? Islamabad: Prime Minister’s Secretariat,
Government of
Pakistan.
[5] Pakistan.” Background Paper for Pakistan 2010
Project, The World Bank, Washington, D.C.
[6] Kemal, A. R., and T. Shabbir, 1995. “Infrastructure
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1999.
[10] Government of Pakistan, “Policy for New Private
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[12] The Private Power Infrastructure Board Website
http://www.ppib.gov.pk/power_policy.htm.
[13] Pakistan Board of Investment Website
http://www.pakboi.gov.pk
[14] National highway Authority Government of
Pakistan Website www.nha.gov.pk