OVERSEAS INVESTORS WORRIED OVER DECLINE IN PROFITABILITY
Jan 4 - 10, 2010
The high cost of doing business on the back of high cost of financing (interest rate), electricity, and petroleum products besides higher corporate tax are eroding profitability of the foreign companies while discouraging them to further invest in Pakistan.
Farrukh H Khan, President Overseas Investors Chamber of Commerce and industry at the launch of "Investment Survey 2009" said that the Overseas Investors Chamber of Commerce & Industry (OICCI) was an important stakeholder in the economy of Pakistan.
Apart from foreign direct investments (FDI), creating employment opportunities, corporate social spending, and other benefits, OICCI represents the single largest group of tax payers in Pakistan contributing 29 percent of overall GNP and 22 percent of overall tax receipts, as per the OICCI Investment Survey Report (ISR) 2009.
The responses of 124 member companies (71 % of OCCI members) indicate a snapshot of foreign investors and companies present in Pakistan and document the contributions made by them towards the growth and development of the country's economy.
"The survey provides invaluable feedback to the government and the business community about the trend of foreign investment in Pakistan, as well as the positive and negative challenges faced by the existing foreign investors."
Farrukh H. Khan, President said that "the key conclusions to be drawn from the Investment Survey are that although OICCI member companies have continued to grow in terms of revenue, margins have come under pressure, leading to declining profitability and hence declining investments in Pakistan."
He pointed out that disturbed law and order, power deficit, and implementation of policy remain significant concerns impacting both new FDI and re-investment by existing companies.
Another important issue impacting profitability is the high incidence of direct and indirect taxes which are the highest in the region.
OICCI President emphasized that "as important stakeholders and partners in economic progress, we urged the government to implement our recommendations and continue to include OICCI in policy-making forums".
The survey highlights that new and concrete measures are needed to enhance tax revenue by expanding the tax base rather than imposing further taxes on existing taxpayers, which has started to yield negative results.
The Survey Report showed a limited increase in FDI by 0.97 percent in FY08 in comparison to FY07. While this cautious but continued increase in investment comes as a positive surprise, forecasts for the following year indicate that members plan to withhold investments by approximately Rs55 billion - a substantial decline of approximately 37 percent.
This clearly indicates that foreign investors who had over the years continued to show confidence in the country are now cautious of bringing additional capital for the time being. Rs93 billion was planned for FY09. This trend, if remains unchecked, can be a source of concern given the significant contributions of OICCI members to the national treasury.
"In addition to representing significant investments within Pakistan, OICCI is also the largest tax payer in the country. In 2008, OICCI members contributed Rs229.7 billion in taxes to the government, which amounts to 22 percent of overall tax receipts. It is worth mentioning that despite declining profitability, tax paid to the government has increased 8.41 percent.
Despite the challenging global climate, exports from OICCI member companies increased 33 percent to Rs34.8 billion during FY08. While recorded figures in Corporate Social Expenditure indicate a decline, it must be noted that these are not completely reflective of the full degree of contributions. Whether it is contribution towards national tragedies like that of the recent Internally Displaced Persons (IDPs) in the aftermath of the military operations in the North or investing in society for overall development, member companies continue to make generous contributions in cash and in-kind as well as in the form of sharing of skilled personnel.
Any changes in the OICCI membership by way of exit from the Pakistani market will have a major impact on the extent and pace of the macroeconomic recovery of Pakistan. Investment of member companies in sectors essential for the development of Pakistan's economy is high and in case there is any further fall in FDI they might be a problem.
It must be noted that the 124 members (survey respondents) of OICCI have invested paid-up capital worth USD9.6 billion in Pakistan with the majority of investment in sectors such as financial services (27 percent), oil/gas & energy (21 percent) and food & consumer products (18 percent).
(for graphs please refer PAGE hard copy)
PAKISTAN'S LIQUID FOREIGN RESERVES POSITION
The total liquid foreign reserves held by the country stood at $ 13,967.6 million on 26th December, 2009.
The break-up of the foreign reserves position is as under: -