In this page: FDI in Figures | What to consider if you invest in Pakistan | Procedures Relative to Foreign Investment | Investment Opportunities
According to UNCTAD's 2021 World Investment Report, FDI inflows to Pakistan declined by 6 % to USD 2.1 billion, as a result of the global economic crisis triggered by the Covid-19 pandemic. The drop in investment, however, was cushioned by continued investment in the power generation and telecommunications industries. At the same time, the total stock of FDI stood at USD 35.7 billion at the end of 2020. The financial sector is the primary recipient of FDI in Pakistan, followed by the chemicals industry and construction. In regards to countries, China is by far the biggest investor in Pakistan; however, recently, the United Kingdom, South Korea and Japan have stepped up their investments. According to the latest data released by the State Bank of Pakistan, net FDI inflows increased 12% during the first five months (July-November) of the current fiscal year 2021-22 (reaching USD 797.7 million, resulting from an inflow of USD 1,185.4 million against an outflow of USD 387.7 million). In the same period, the Netherlands were the main investor (USD 153 million), followed by China (USD 149 million).
The potential attractiveness of Pakistan for investment remains lower than neighbouring India but equal to Sri Lanka and Bangladesh. Pakistan's attractiveness improves, albeit very slowly, against a backdrop of a challenging security environment, electricity shortages, and a burdensome investment climate that also hinder investments. Foreign investors (except Indian and Israeli citizens/businesses) can establish, own, operate, and dispose of interests in most types of businesses in Pakistan, except those involved in arms and ammunition; high explosives; radioactive substances; securities, currency and mint; and consumable alcohol. Pakistan was ranked 108th out of 190 countries in World Bank’s latest Doing Business report, up by 28 positions from the previous edition. This was mainly a result of significant improvement in getting electricity and handling construction permits. In addition, from 2020 onwards, Pakistan has allowed companies to remit the proceeds of disinvestment to their foreign shareholders without prior approval from the State Bank.
Foreign Direct Investment | 2019 | 2020 | 2021 |
---|---|---|---|
FDI Inward Flow (million USD) | 2,234 | 2,057 | 2,102 |
FDI Stock (million USD) | 31,430 | 32,365 | 32,931 |
Number of Greenfield Investments* | 30 | 8 | 15 |
Value of Greenfield Investments (million USD) | 3,858 | 233 | 911 |
Source: UNCTAD - Latest available data.
Note: * Greenfield Investments are a form of Foreign Direct Investment where a parent company starts a new venture in a foreign country by constructing new operational facilities from the ground up.
Pakistan's main strengths for attracting FDI are:
Some of the main obstacles to attracting FDI to Pakistan include:
The Government has also set up special export-oriented zones called export-processing zones (EPZs), in order to encourage foreign investment. Some of the incentives offered to EPZ investors include exemptions from all federal, provincial and municipal taxes for export-destined production, exemptions from all taxes and duties on equipment, machinery and materials and access to Export Processing Zone Authority "one window” services.
The government also offers incentives to Export-Oriented Units, which are stand-alone industrial units allowed to operate anywhere in the country but have to export 100% of their production.
However, the government has set ceilings for certain strategic sectors (such as agriculture) and certain social sectors. In addition, foreign investment in some sectors is forbidden for national security reasons.
A multi-year FDI strategy is being developed by the Pakistani government. Its goal is to progressively increase FDI from USD 2.8 billion in FY 2019-20 to USD 7.4 billion in FY 2022-23.
Assured.
However both foreign and domestic investors are restricted to establish and own business enterprises in the following five industrial sectors which are of national importance: arms and ammunitions, high explosives, currency/minting operations, non-industrial alcohol, and radioactive substances.
Foreign investment in an existing Pakistani company essentially follows the same regulations as that for new ventures. Any purchase of shares by a foreign investor would require such investment to be registered with the State Bank of Pakistan so as to enable the entitlement of foreign investment similar to that of a new venture.
There are no minimum or maximum limits imposed on the age of individual investor ownership in a public limited company. However, in accordance with the Companies (Issue of Capital) Rules 1996, the sponsors shall at all times retain 25% of the capital of the company.
Acquisition of more than 10% stake in an insurance company should get prior approval from the SECP.
Similarly, in case of transfer of 5% or more shares of any bank or financial institution by foreign investors, the permission of the State Bank of Pakistan is required.
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Latest Update: January 2023