investment has been substantial and in the pioneering projects
By SHABBIR H. KAZMI
Mar 27 - Apr 02, 2000
The US has once again achieved the highest share in foreign direct
investment in Pakistan. The US-based companies have a diversified interest which range
from financial sector to information technology. The main concentration has been in
financial sector, chemicals and pharmaceutical manufacturing, oil and gas exploration.
Though, the US companies made a very late entry in power generation they are expected to
make a significant contribution in hydel power generation.
According to some analysts, the slow pace of inflow, in the recent
past, of the US investment into Pakistan was due to some external and internal factors. It
is understood that there was a shift in investment strategy of the US investors. They
preferred to make investment in the member countries of the North American Free Trade
Agreement (NAFTA) rather than in other regions. It is evident that when the GoP opened
energy sector for private sector investment, in early nineties, American companies did not
show keen interest. However, later on, the US companies realized the 'lost opportunity'
and tried to capitalize wherever possible.
An important point to note that often the US investment was the pioneer
in that particular area, be it computer marketing by IBM and NCR or manufacturing of
pharmaceuticals, chemical fertilizers. All the companies with the US investment play a key
role. For example, Union Texas has the largest share in crude oil production in the
country and a major contribution in natural gas production.
Exxon, in mid sixties, established the first ever urea production plant
in Pakistan. However, in early nineties, it divested its share due to the change in its
corporate philosophy. Exxon has withdrawn globally from the manufacturing of chemical
fertilizer. Another US company is a joint venture partner in a urea manufacturing company.
Similarly, General Tyre & Rubber Company was the pioneer in tyre manufacturing in
Pakistan and remained almost a monopoly for a very long time. The Company still has the
largest share among the local tyre manufacturing companies.
Another important area where the US investment has come lately is
foreign food franchise. Pizza Hut, the first in the long chain of fast food restaurant
entered Pakistan during the last quarter of 1993. KFC started its operations during the
first quarter of 1997. Some of the other franchise which have come to Pakistan are
McDonalds, Dunken' Donuts, Nacho Nana and Tacco Maker.
The United States Agency for International Development (USAID) has also
played a key role through training programmes, technology transfer and institution
building having long-lasting impact on the pace and quality of economic and social
development. Capital assistance for infrastructure and food assistance which generated
local currency for public investment were provided. USAID help reinforced GoP efforts to
stimulate agriculture growth and promote rapidly expanding industrial sector.
The GoP has significantly liberalized foreign exchange controls. The
rupee is fully convertible on current account. Foreign firms investing in Pakistan (other
than banks and insurance companies) may remit profit and capital without prior approval.
Pakistan is a signatory of the GATT Uruguay Round and World Trade Organization agreements
including the Agreement on Trade Related Aspects of Intellectual Property Rights
Although, it is often said that the inconsistent and adhoc GoP policies
were a source of irritation for the foreign investors, a point to be noted is that even
during the worst time, there was no restriction on repatriation of profit, royalty and
technical assistance fees. When economic sanctions were imposed on Pakistan these
investors realized the capital control measures. However, the GoP tried to honour all its
commitments to the maximum. As soon as it was possible to withdraw such restrictions these
companies were allowed to repatriate the over-due amounts.
An important point to be noted is that any foreign company which
entered Pakistan once has never closed down its operations in the country. Another point
is that over the years these companies have been making modest profit, expanding their
manufacturing capacities. The GoP has reciprocated the efforts of foreign investors by
providing the best possible protection to the foreign investment.
The U.S. Investment in Selected
(Million of U.S. Dollars)
|Food & Kindred
|Chemicals & Allied
|Total All Idustries
|(1) Suppressed to avoid disclosing data of individual
Source: U.S. Department of Commerce, Bureau of Economic Analysis.