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Cover Story

Often the investment has been substantial and in the pioneering projects

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 Exxon has withdrawn globally from the manufacturing of chemical fertilizer.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 (TRIPs).

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 Industries
(Million of U.S. Dollars)

Category Amout
Petroleum (1)
Total Manufacturing 36
Food & Kindred Products 10
Chemicals & Allied Products 11
Primary & Fabricated Metals 2
Industrial Machinery and Equipment 0
Electric & Electronic Equipment 0
Transportation Equipment 0
Other manufacturing 14
Wholesale Trade 28
Banking 164
Finance/Insurance/Real Estate 163
Services (1)
Other Industries (1)
Total All Idustries 630
(1) Suppressed to avoid disclosing data of individual companies.
Source: U.S. Department of Commerce, Bureau of Economic Analysis.