GROWING JAPANESE INTEREST IN PAKISTAN

SYED FAZL-E-HAIDER
(feedback@pgeconomist.com)

Oct 22 - 28, 20
12

Japan has asked Pakistan to improve security environment and ensure consistent economic policies, as both factors would affect Islamabad's endeavors to attract foreign investment. The visiting vice president of Japan External Trade Organization (Jetro) Daisuke Hiratsuka recently told reporters at the Japanese Embassy that the country could become the next destination of Japanese investors. Hiratsuka disclosed that the Japanese firms had been reluctant to invest in Pakistan as they considered it a high risk country. During the last financial year, Japan merely invested $3.2 million in the South Asian country. The visit of the 23-member delegation comprising of corporate-level executives and top management of Japanese companies from several different sectors, has however helped change the negative perception about the country. The first Japanese business delegation that visited Pakistan this month in over a decade gave positive remarks about the strife-torn South Asian country. The visit was arranged by Jetro, a non-profit official trade and investment promotion agency working under the aegis of the Government of Japan and has been operating in Pakistan for more than fifty years.

While addressing the visiting Japanese delegation in Islamabad, the President Asif Ali Zardari urged foreign investors and entrepreneurs to take full advantage of the investment opportunities available in Pakistan, which offers a huge market for products and services due to its location at the crossroads of Central and South Asia. Zardari reiterated that Pakistan can serve a market of over three billion consumers in neighboring countries and called upon Japanese investors to benefit from these advantages.

Last month, President Zardari approved a legal and regulatory framework for creation, development and efficient operation of Special Economic Zones (SEZs) in the country to facilitate local and foreign investors. Zardari signed the SEZs Bill, 2012, which is believed to be a consensus law to ensure continuity of economic and investment policy and it would no longer be possible to change the policy without changing the law. Under the new law, all capital goods, machinery and equipment will get one time exemption from the customs duties and the entrepreneurs will be exempted from income tax for ten years.

The new law will encourage Japan to revive Japan Special Economic Zone (JSEZ) project in the South Asian country. In 2009, Japan proposed to set up the JSEZ at an initial cost of $5 billion for Japanese investors in Pakistan near the southern port city of Karachi in Sindh province. Several Japanese manufacturing units, including Suzuki, Sony, Yamaha and Marubeni, showed interest in establishing their units in the JSEZ. Islamabad offered 100% equity, free flow of money with remittance of royalty and technical fee to attract Japanese investors. JSEZ is however in doldrums, as Japanese authorities have practically been showing indifferent and non-serious attitude to invest in the project. Even after lapse of three years, the Japan has not taken any positive measure in this regard.

Japanese investors have shown interest in shifting their manufacturing facilities from regional countries to strategically located Pakistan, which they see as a potential country to increase their production base. Japanese firms are mainly interested in auto sector where they see huge investment opportunities if security situation is improved, infrastructure facilities are made available and consistency of policies is ensured. Japanese giant Yamaha Motors already plans to invest $150 million in motorcycle manufacturing plant in Pakistan. The proposed Yamaha's plant will not only create 25,000 jobs for Pakistani engineers and workers but also serve as a central location for Yamaha's move into Pakistan, India, and other emerging regional markets.

In 2009, Yamaha announced to establish motorcycle manufacturing plant in the National Industrial Park at Bin Qasim in Karachi with an investment of $150 million. The authorities in Islamabad, even after lapse of three years, have still not included two-wheelers in the automobile policy that would allow foreign bike-makers to come and invest in the country. The country is likely to lose a proposed investment by Yamaha because of its unclear automobile policy that only covers four-wheelers, hence making it 'not feasible' for any foreign company to manufacture bikes in the country. Analysts believe that Yamaha decided to make a direct entry into Pakistan by establishing a manufacturing plant to beat China, which has proved a tough competitor to Japanese bikes in the south Asian country. The geo-strategic location of the country gives Yamaha an added advantage to use it as a base for exports to neighboring Asian and African countries.

China is the tough competitor to Japan in Pakistan bike manufacturing industry. After the arrival of Chinese origin motorcycles in the market, the prices of Japan origin motorcycles have significantly come down. The Chinese bike makers are the key players in the rapid growth of the local bike industry. By the year 2005, there were 22 motorcycle manufacturing plants in Pakistan, which have increased to more than 50 now. In the same year, there were 19 plants producing Chinese motorcycles, which have now tripled.

The strong point of the Chinese bike assemblers has been the price difference as compared to Japanese bikes with higher prices. The Chinese bikes are now running side-by-side today with the Japanese counterparts on the roads in Pakistan. Even the imported Chinese bikes are also racing neck to neck with Japanese bikes.

The analysts see security concerns as major hurdle in alluring foreign investment in the country and argue that deterioration of law and order and frequent suicide bombings and bomb blasts in cities and towns have discouraged the foreign investors to invest in the country. Presently, while the foreign investors are losing attraction in the terror-hit Pakistan, the China has committed not only to complete its all ongoing projects but also to launch new projects in the strife-torn country. Beijing is all set to take over and run the country's strategically located Gwadar port in southwestern Balochistan province. Pakistan has already declared Gwadar as SEZ and all imports coming through this zone would be exempted from customs duty and sales tax along with sufficient concessions on income tax.

The Chinese have proposed several SEZs across the country. The under-construction Chinese overseas SEZ near Lahore city in Punjab province is the first Chinese industrial zone outside China in which leading Chinese groups would make investment and establish various projects. Ground breaking ceremony of the Chinese overseas SEZ was performed in December 2006 in the presence of Chinese President Hu Jintao and former Prime Minister of Pakistan Shaukat Aziz.