Opportunities For Pakistan

NEW BUSINESS OPPORTUNITIES IN PAKISTAN
NEW BUSINESS OPPORTUNITIES IN PAKISTAN
AN INVESTOR’S GUIDEBOOK
Consultants and authors of this report:
Philippe Guitard
Shahid Ahmed Khan
Derk Bienen
This report has been produced with the assistance of the European Union under the Asia-Invest
programme. The views expressed herein are those of the consultant and can therefore in no way be
taken to reflect the views of the European Union.
New Business Opportunities in Pakistan
TABLE OF CONTENTS
LIST OF TABLES ................................................................................................................................. VIII
LIST OF FIGURES .................................................................................................................................. X
LIST OF BOXES..................................................................................................................................... XI
LIST OF ACRONYMS ........................................................................................................................... XII
INTRODUCTION ..................................................................................................................................... 1
EXECUTIVE SUMMARY......................................................................................................................... 2
PART I: PAKISTAN GENERAL INFORMATION ................................................................................... 8
MAP OF THE COUNTRY........................................................................................................................ 8
PAKISTAN AT A GLANCE ...................................................................................................................... 9
1 GENERAL COUNTRY INFORMATION ...................................................................................... 12

1.1 General environment..........................................................................................................12
1.1.1 Population............................................................................................................ 12
1.1.2 Geography ........................................................................................................... 12
1.1.3 Climate................................................................................................................. 13
1.2 History ................................................................................................................................13
1.3 Political environment ..........................................................................................................14
1.4 Foreign affairs ....................................................................................................................15
1.5 Human resources and social environment.........................................................................16
1.5.1 Social infrastructure ............................................................................................. 16
1.5.2 Social security...................................................................................................... 16
1.5.3 Education ............................................................................................................. 16
1.6 Cultural environment ..........................................................................................................17
1.6.1 Languages ........................................................................................................... 17
1.6.2 Nationalities ......................................................................................................... 17
1.6.3 Religion ................................................................................................................ 17
1.6.4 Values .................................................................................................................. 18
1.7 Physical infrastructure........................................................................................................18
1.7.1 Road network....................................................................................................... 18
1.7.2 Railway network................................................................................................... 18
1.7.3 Ports..................................................................................................................... 19
1.7.4 Airport and international links .............................................................................. 19
1.7.5 Energy.................................................................................................................. 19
1.7.6 Telecommunications............................................................................................ 20
2 ECONOMIC OUTLOOK .............................................................................................................. 21

2.1 Economic structure ............................................................................................................21
2.1.1 Agriculture............................................................................................................ 21
2.1.2 Manufacturing ...................................................................................................... 22
2.1.3 Services ............................................................................................................... 23
2.2 Economic reforms and policies ..........................................................................................24
2.2.1 Budget and fiscal reform...................................................................................... 25
2.2.2 Liberalisation and privatisation ............................................................................ 26
2.2.3 Financial sector reform ........................................................................................ 27
2.3 Short and medium-term economic performance ...............................................................29
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2.3.1 Economic growth trends ...................................................................................... 29

2.3.2 Inflation ................................................................................................................ 30
2.3.3 Employment......................................................................................................... 31
2.4 Foreign trade......................................................................................................................32
2.4.1 Structure .............................................................................................................. 32
2.4.2 Foreign trade policy: recent developments.......................................................... 35
2.4.3 Trade balance...................................................................................................... 36
2.4.4 Trade with EU countries ...................................................................................... 36
2.4.5 WTO issues and developments........................................................................... 38
2.4.6 Regional integration............................................................................................. 40
2.5 Balance of payments and exchange rate ..........................................................................43
2.6 Public finance and debt......................................................................................................44
2.7 Foreign investment.............................................................................................................45
2.7.1 FDI flows and portfolio investment ...................................................................... 45
2.7.2 Structure of the FDI flows and stock per country of origin................................... 46
2.7.3 Structure of FDI flows and stock per sector of investment .................................. 47
2.7.4 Activities of EU enterprises in Pakistan, a success story .................................... 48
2.7.5 Profitability ........................................................................................................... 48
2.8 Investment climate and sector policies ..............................................................................49
2.9 Investor perceptions...........................................................................................................51
2.10 Country risk assessment....................................................................................................51
2.10.1 Moody’s Investor Service..................................................................................... 52
2.10.2 Standard & Poor’s................................................................................................ 52
2.10.3 Export Credit Agencies ........................................................................................ 52
2.10.4 Bretton Woods institutions ................................................................................... 53
3 BUSINESS ENVIRONMENT....................................................................................................... 55
3.1 Legal framework.................................................................................................................55
3.2 Business regulations ..........................................................................................................56
3.2.1 Corporate regulation ............................................................................................ 56
3.2.2 Legal entities status ............................................................................................. 56
3.2.3 Foreign exchange regulations ............................................................................. 57
3.2.4 Investment regulations......................................................................................... 58
3.2.5 Labour law ........................................................................................................... 58
3.2.6 Competition law ................................................................................................... 59
3.2.7 Industrial and intellectual property....................................................................... 59
3.2.8 Environmental law ............................................................................................... 60
3.3 Foreign investment policy ..................................................................................................61
3.4 Transparency of the business environment.......................................................................61
3.5 The banking and financial system......................................................................................62
3.5.1 Banking sector ..................................................................................................... 62
3.5.2 Other financial institutions.................................................................................... 64
3.5.3 Capital market...................................................................................................... 64
3.6 Market and distribution channels .......................................................................................65
3.6.1 Distribution structure............................................................................................ 65
3.6.2 Retailer profile...................................................................................................... 65
3.6.3 Commercial terms................................................................................................ 65
3.6.4 Organised retail ................................................................................................... 66
3.6.5 Government intervention ..................................................................................... 66
4 SUMMARY: INTERNATIONAL COMPETITIVENESS OF PAKISTAN....................................... 66
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PART II: PRACTICAL BUSINESS INFORMATION............................................................................. 68
5 SETTING UP A BUSINESS IN PAKISTAN................................................................................. 68

5.1 Business regulatory environment.......................................................................................68
5.1.1 Types of investment and foreign shares allowed ................................................ 68
5.1.2 Types of legal forms for doing business .............................................................. 69
5.1.3 Type of companies .............................................................................................. 69
5.1.4 Business regulations for company registration.................................................... 70
5.1.5 Acquisition of a Pakistani company ..................................................................... 72
5.1.6 Dealing in shares ................................................................................................. 72
5.1.7 Protection of investor interest .............................................................................. 73
5.1.8 Other standards ................................................................................................... 73
5.2 Business opportunities .......................................................................................................74
5.2.1 Privatisation to date ............................................................................................. 74
5.2.2 Privatisation plans................................................................................................ 75
5.3 Foreign investment conditions ...........................................................................................76
5.3.1 Manufacturing/industrial sector............................................................................ 76
5.3.2 Services sector .................................................................................................... 76
5.3.3 Infrastructure sector............................................................................................. 76
5.3.4 Social sector ........................................................................................................ 76
5.3.5 Agriculture sector................................................................................................. 76
5.3.6 Others .................................................................................................................. 77
5.3.7 Investment incentives .......................................................................................... 77
5.4 Location decision ...............................................................................................................78
5.4.1 Regional strengths and weaknesses................................................................... 78
5.4.2 Cost of industrial land .......................................................................................... 80
5.4.3 Industrial zones.................................................................................................... 80
5.4.4 Export processing zones (EPZ)........................................................................... 81
5.5 Business support institutions .............................................................................................84
5.5.1 The Small and Medium Enterprise Development Authority (SMEDA) ................ 84
5.5.2 The Board of Investment ..................................................................................... 84
5.5.3 The Export Promotion Bureau ............................................................................. 85
6 OPERATING A BUSINESS IN PAKISTAN ................................................................................. 85

6.1 Labour issues.....................................................................................................................85
6.1.1 Trade unions........................................................................................................ 85
6.1.2 Hiring and firing of labour..................................................................................... 86
6.1.3 Minimum conditions of employment .................................................................... 86
6.1.4 Wages rates......................................................................................................... 86
6.1.5 Statutory contributions ......................................................................................... 87
6.1.6 Labour Productivity .............................................................................................. 87
6.2 Costs and prices ................................................................................................................87
6.2.1 Efficiency costs .................................................................................................... 87
6.2.2 Energy costs ........................................................................................................ 88
6.2.3 Price level ............................................................................................................ 89
6.3 Insurance ...........................................................................................................................90
6.4 Financing and bank accounts ............................................................................................90
6.5 Import and export procedures, tariffs .................................................................................91
6.5.1 Tariff rates............................................................................................................ 91
6.5.2 Procedures .......................................................................................................... 91
6.6 Foreign exchange control ..................................................................................................93
6.6.1 Local currency ..................................................................................................... 93
6.6.2 Repatriation of capital and foreign currency accounts ........................................ 93
6.6.3 Technical assistance (Fee remittance)................................................................ 93
6.7 Accounting and auditing.....................................................................................................93
6.8 Taxation .............................................................................................................................94
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6.8.1 Direct taxation...................................................................................................... 94

6.8.2 Indirect taxes ....................................................................................................... 98
6.8.3 Investment protection treaties ............................................................................. 99
6.9 Government procurement ................................................................................................100
6.9.1 Pakistan regulatory authority ............................................................................. 100
6.9.2 Government purchasing and tenders ................................................................ 100
6.10 Litigation and arbitration...................................................................................................101
6.10.1 Domestic arbitration........................................................................................... 101
6.10.2 International arbitration (private/private)............................................................ 101
6.10.3 International arbitration (private/public) ............................................................. 102
6.11 Environmental issues and quality controls.......................................................................102
6.11.1 Standards Development Centre (SDC) ............................................................. 103
6.11.2 Quality Control Centre (QCC)............................................................................ 103
6.11.3 Technical Services Centre (TSC) ...................................................................... 103
6.11.4 Pakistan National Accreditation Council (PNAC) .............................................. 103
6.12 Regulation and bureaucratic control ................................................................................104
6.13 Social accountability of Investments (child labour, bonded labour).................................104
7 LIVING IN PAKISTAN ............................................................................................................... 105

7.1 Visa and residence requirements ....................................................................................106
7.1.1 Business visa..................................................................................................... 106
7.1.2 Work visa procedures ........................................................................................ 106
7.1.3 Registration of foreigners with the police........................................................... 107
7.2 Housing ............................................................................................................................107
7.3 Living costs ......................................................................................................................107
7.4 Personal security..............................................................................................................108
7.4.1 Terrorism............................................................................................................ 108
7.4.2 Crime ................................................................................................................. 109
7.4.3 Political situation ................................................................................................ 109
7.4.4 Local travel ........................................................................................................ 109
7.4.5 Health................................................................................................................. 109
7.5 Holidays, time difference etc............................................................................................109
7.5.1 Time difference .................................................................................................. 109
7.5.2 Office hours and days worked ........................................................................... 109
7.5.3 Holidays ............................................................................................................. 109
7.6 Adjusting to the cultural environment...............................................................................110
7.6.1 Introductions ...................................................................................................... 110
7.6.2 Build a solid relationship before talking business.............................................. 111
7.6.3 Orientation to time ............................................................................................. 111
7.6.4 Business customs & etiquette ........................................................................... 111
7.6.5 Meetings ............................................................................................................ 111
7.6.6 Business dress .................................................................................................. 111
7.6.7 Negotiating style ................................................................................................ 112
7.6.8 Further hints....................................................................................................... 112
PART III: SECTOR ANALYSES, INVESTMENT AND MARKET OPPORTUNITIES........................ 113
8 INTRODUCTION AND SECTOR OVERVIEW.......................................................................... 113
9 THE TEXTILE SECTOR............................................................................................................ 115

9.1 Sector overview................................................................................................................116
9.2 Main sub-sectors within the textile industry value chain ..................................................116
9.2.1 Cotton ginning and fibre production................................................................... 116
9.2.2 Yarn spinning..................................................................................................... 116
9.2.3 Fabric weaving & knitting................................................................................... 117
9.2.4 Finishing sector including fabric processing, dying, printing & finishing............ 117
9.2.5 Garments, hosiery, knitwear and made ups including bed-linen, towels etc..... 117
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9.3 Type of businesses by size and category........................................................................117

9.3.1 Large companies (More than € 1 million turnover)............................................ 117
9.3.2 Small & Medium sized companies (Less than € 1 million turnover) .................. 118
9.4 Break-up of Investment in Textile Sector .........................................................................118
9.5 Value addition ..................................................................................................................118
9.6 Growth of the textile industry in Pakistan.........................................................................119
9.7 Main raw material and components .................................................................................119
9.7.1 Main machinery and equipment ........................................................................ 119
9.7.2 Main products manufactured ............................................................................. 120
9.8 Cost factor analysis..........................................................................................................121
9.8.1 Labour................................................................................................................ 121
9.8.2 Raw-Material...................................................................................................... 121
9.8.3 Energy Cost ....................................................................................................... 122
9.8.4 Financing ........................................................................................................... 122
9.8.5 Logistics ............................................................................................................. 122
9.8.6 Research and development............................................................................... 122
9.8.7 Government policies and incentives.................................................................. 122
9.9 Analysis of export flows ...................................................................................................122
9.10 Analysis of the main trends..............................................................................................123
9.10.1 Location ............................................................................................................. 123
9.10.2 Trends, possible evolution ................................................................................. 123
9.10.3 Role of local exporters, foreign agents .............................................................. 124
9.11 EU GSP, WTO rules and regulations...............................................................................124
9.12 Exports and quotas ..........................................................................................................125
9.13 Local and regional competition ........................................................................................126
9.13.1 Competition from imports................................................................................... 126
9.13.2 Competition in the export markets..................................................................... 126
9.13.3 Domestic competition ........................................................................................ 126
9.14 Identification and assessment of major business co-operation, project and investment
opportunities.....................................................................................................................126
9.15 Analysis of the most interesting forms of co-operation in addition to direct investments
such as joint ventures, transfer of know-how, subcontracting etc. ..................................127
9.15.1 Subcontracting................................................................................................... 127
9.15.2 Technical agreements ....................................................................................... 127
9.15.3 Co-operation agreements .................................................................................. 127
9.15.4 Joint Venture agreements.................................................................................. 128
9.16 List of major local companies...........................................................................................128
9.17 Listing of European and other foreign companies present in the sector .........................129
9.18 Main sources of information.............................................................................................129
9.19 Textile export statistics for Pakistan.................................................................................131
10 THE FOOD PROCESSING AND PACKAGING SECTOR ....................................................... 135

10.1 The dairy sector of Pakistan ............................................................................................135
10.1.1 General description of the sector....................................................................... 135
10.1.2 Main industrial processes .................................................................................. 135
10.1.3 the dairy processing industry............................................................................. 136
10.1.4 Main raw material and components................................................................... 138
10.1.5 Main cost factors................................................................................................ 138
10.1.6 Analysis of import & export flows....................................................................... 139
10.1.7 Analysis of the main trends................................................................................ 140
10.1.8 WTO rules and regulations ................................................................................ 140
10.1.9 Local and regional competition.......................................................................... 140
10.1.10 Success stories.................................................................................................. 141
10.1.11 Listing of major local companies ....................................................................... 141
10.1.12 Listing of European and other foreign companies present in the sector ........... 142
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10.1.13 Main sources of information............................................................................... 142

10.1.14 Import and export statistics on the food and dairy sector.................................. 143
10.2 Fruits and vegetables.......................................................................................................145
10.2.2 Main industrial process ...................................................................................... 145
10.2.3 Growth of the fruit and vegetable processing industry ...................................... 146
10.2.4 Main raw material and components................................................................... 146
10.2.5 Cost factor analysis ........................................................................................... 147
10.2.6 Analysis of Import & Export Flows..................................................................... 149
10.2.7 Regional production structure............................................................................ 149
10.2.13 Import and export statistics................................................................................ 153
10.3 Fisheries...........................................................................................................................154
10.3.1 Overview ............................................................................................................ 154
10.3.4 Analysis of import and export flows ................................................................... 159
10.3.8 Co-operation with foreign investors ................................................................... 162
10.3.9 List of major local companies ............................................................................ 162
10.3.11 Statistics on Pakistan fish imports and exports ................................................. 163
10.4 Business co-operation in the food sector (dairy, fruit & vegetable, fisheries)..................163
10.4.1 Identification and assessment of major business co-operation, project and
investment opportunities.................................................................................... 163
10.4.2 Analysis of the most interesting forms of co-operation in the food processing
sector ................................................................................................................. 163
11 THE LIGHT ENGINEERING INDUSTRY.................................................................................. 165

11.1 The Auto part sector.........................................................................................................165
11.1.2 Main parts manufactured locally........................................................................ 167
11.1.6 WTO................................................................................................................... 171
11.1.8 Analysis of the most interesting forms of co-operation in addition to direct
investments such as joint venture, transfert of know-how, sub-contracting etc. 172
11.2 Textile related engineering...............................................................................................176
11.2.2 The Industry in Asia ........................................................................................... 176
11.2.3 Material and processes involved to produce a typical textile part /component . 177
11.2.4 Main machinery and equipment and their origin ............................................... 177
11.2.5 Main parts manufactured locally........................................................................ 178
11.2.9 WTO................................................................................................................... 179
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11.2.14 List of textile parts manufactured in Pakistan .................................................... 181
11.3 Electrical capital goods ....................................................................................................185
11.3.1 Description of the size and nature of the sector ................................................ 185
11.3.2 Main products and manufacturers in the market ............................................... 185
11.3.4 Analysis of the Import and Export Flows ........................................................... 187
11.3.5 Identification and assessment of major business co-operation project and
11.3.6 Analysis of the most interesting forms of co-operation in addition to direct
investments such as joint venture, transfer of know-how, sub-contracting etc. 190
11.3.7 Siemens, a success story .................................................................................. 191
11.3.9 Listing of major foreign companies.................................................................... 192
12 NICHE SECTORS..................................................................................................................... 194

12.1 Surgical and dental equipment ........................................................................................194
12.1.1 Pakistan surgical industry structure................................................................... 194
12.1.2 Classification of Pakistani surgical instruments................................................. 194
12.1.3 Global trade of surgical instruments .................................................................. 195
12.1.4 Pakistan export of surgical instruments............................................................. 196
12.1.5 Tax Structure for Surgical Instrument Industry .................................................. 198
12.2 Gem and jewellery ...........................................................................................................198
12.3 Marble production ............................................................................................................200
12.4 IT software, call and financial services centres, specific software development (animated
films, video games…).......................................................................................................200
PART IV: SOURCES OF INFORMATION.......................................................................................... 201
13 USEFUL ADDRESSES ............................................................................................................. 201

13.1 Addresses in Member States...........................................................................................201
13.2 Web sites about Pakistan ................................................................................................204
13.2.1 Web sites of multilateral organisations .............................................................. 204
13.2.2 Web site of U.S. official sources of information ................................................. 204
13.2.3 Web site providing information on investment promotion/FDI in general.......... 205
13.2.4 Websites of EU and EU Member State representations in Pakistan: ............... 205
13.3 Internet sources in Pakistan.............................................................................................205
13.3.1 Pakistan Government entities web sites............................................................ 205
13.3.2 The Pakistan web directory ............................................................................... 206
13.3.3 Commercial information providers web sites..................................................... 206
13.3.4 Business associations web sites ....................................................................... 208
13.3.5 Private consulting firms...................................................................................... 209
13.3.6 Foreign banks in Pakistan ................................................................................. 209
13.4 Useful addresses of public entities in Pakistan................................................................209
13.5 Recent relevant publications............................................................................................211
13.5.1 Practical guides for investment in Pakistan ....................................................... 211
13.5.2 Pakistan – general country/economic analyses ................................................ 211
13.5.3 Pakistan – investment climate/investment environment.................................... 211
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LIST OF TABLES
Table 1: Pakistan Traffic volume, road vs. rail, 2002-03.................................................................................................................19
Table 2: Federal Budget 2003-2004 ...............................................................................................................................................26
Table 3: Pakistan Major exports by Commodity (values in million USD)........................................................................................33
Table 4: Pakistan Direction of Exports (Share% of each country in total exports) .........................................................................34
Table 5: Pakistan Major Imports by Commodity (values in million USD)........................................................................................35
Table 6: Pakistan Pattern of trade with EU countries (1998-99 to 2002-03, values in million USD) ..............................................37
Table 7: Pakistan Trade with ECO Countries; (USD million)..........................................................................................................43
Table 8: Pakistan – Debt servicing (Rs billion) ...............................................................................................................................44
Table 9: FDI Inflows to South and East Asian countries, USD million............................................................................................46
Table 10: Rate of return on FDI (in%).............................................................................................................................................46
Table 11: Inflows of Direct and Portfolio Investment to Pakistan, 1995-2003 (USD million) ..........................................................47
Table 12: Sector breakdown of FDI Inflows to Pakistan, 1990-2003 (USD million)........................................................................47
Table 13: Corporate Performance of Major Companies-Return on Equity (ROE), in%..................................................................49
Table 14: Court case statistics........................................................................................................................................................55
Table 15: Pakistan - Commercial banks .........................................................................................................................................63
Table 16: Pakistan – Non-banking financial institutions .................................................................................................................63
Table 17: Pakistan's investment climate compared to India and China..........................................................................................67
Table 18: Starting a business in Pakistan and selected other countries, 2002 ..............................................................................68
Table 19: Summary of foreign investment regulations ...................................................................................................................69
Table 20: Summary of privatisation transactions by sector, 1991- June 2003 (values in RS million) ............................................75
Table 21: List of Upcoming Major Transactions (as of December 2003)........................................................................................75
Table 22: Concessional tariffs.........................................................................................................................................................78
Table 23: Cost of Industrial Land ....................................................................................................................................................80
Table 24: Overview of minimum employment conditions ...............................................................................................................86
Table 25: Salaries & Benefits..........................................................................................................................................................86
Table 26: Energy costs (gas & fuel costs, as of July 2003) ............................................................................................................88
Table 27: Water and Power Development Authority (Wapda) tariff schedule ................................................................................88
Table 28: Import tariffs and their dispersion ...................................................................................................................................91
Table 29: Residency status.............................................................................................................................................................95
Table 30: Corporate tax rates evolution..........................................................................................................................................95
Table 31: Presumptive rates of income tax ....................................................................................................................................96
Table 32: Personal Income Tax Rates ...........................................................................................................................................97
Table 33: European Union rates under the tax treaties ..................................................................................................................98
Table 34: List of 45 countries with substantial investment in Pakistan .........................................................................................106
Table 35: Rental for private accommodation ................................................................................................................................107
Table 36: Prices of consumer goods ............................................................................................................................................108
Table 37: Selected SME Projects in Pakistan - Cost Analysis .....................................................................................................115
Table 38: Pakistan large textile companies ..................................................................................................................................117
Table 39: Pakistan small and medium size companies ................................................................................................................118
Table 40: Breakdown of investment in the textile sector by sub-sector (total investment) ...........................................................118
Table 41: Pakistan value addition in textile...................................................................................................................................118
Table 42: Pakistan growth of cotton textile industry .....................................................................................................................119
Table 43: Pakistan consumption of raw material ('000 kg) ...........................................................................................................119
Table 44: Pakistan consumption of man made fibre ('000 kg; '000 Rs)........................................................................................119
Table 45: Pakistan import of textile machinery (in Rs million) ......................................................................................................120
Table 46: Textile exports – core categories (values in USD million) ............................................................................................121
Table 47: Import of polyester staple fibre (values in USD million) ................................................................................................122
Table 48: Breakdown of Pakistani textile exports by destination country .....................................................................................123
Table 49: Pakistan Textile export (USD million) ...........................................................................................................................125
Table 50: Textile export market analysis ......................................................................................................................................125
Table 51: Pakistan Competitor countries in the textile industry ....................................................................................................126
Table 52: Yarn trade statistics (SITC 651), values in USD '000 ...................................................................................................131
Table 53: Cloths trade statistics (SITC 652, 653, 654, 655, 656, 657), values in USD '000.........................................................131
Table 54: Garments trade statistics (SITC 841, 842, 843, 844, 845), values in USD '000 ...........................................................132
Table 55: Towels trade statistics, values in USD '000 ..................................................................................................................132
Table 56: Bedwear and linen trade statistics (SITC 65841, 65842, 65843), values in USD '000.................................................133
Table 57: Made-up textile articles trade statistics (SITC 658), values in USD '000......................................................................133
Table 58: Bedwear trade statistics, values in USD '000 ...............................................................................................................134
Table 59: Annual production of milk and milk products (2001-02)................................................................................................136
Table 60: Per capita consumption (kgs.) of milk and milk products (2000) ..................................................................................137
Table 61: Pakistan number of cattle per type ...............................................................................................................................138
Table 62: Pakistan – number of cattle per region type (in millions) ..............................................................................................138
Table 63: Food processing and packaging trade data - SITC 0 (excl. 00 live animals except fish and 08 animal feed),
values in USD '000 ..............................................................................................................................................................143
Table 64: Milk and dairy products (excl. eggs) - SITC 022, 023, 024, values in USD '000 ..........................................................144
Table 65: Pakistan surface under cultivation, ‘000 hectares ........................................................................................................146
Table 66: Production of major fruits and vegetables in Pakistan, 2001-02, in tonnes ..................................................................147
Table 67: Pakistan, regional production of fruits and vegetables, in tonnes.................................................................................149
Table 68: Pakistan, export of major fruits and vegetables in Pakistan in 2001-02 .......................................................................150
Table 69: Pakistan, major export markets of Kinnow (mandarin and oranges) – global exports in USD million ..........................150
Table 70: Pakistan, major orange and mandarin producing countries (1999 figures) ..................................................................150
Table 71: Vegetables (fresh, chilled, frozen, preserved, preparated), values in USD '000 ..........................................................153
Table 72: Fruits (fresh, dried, preserved, preparated, including juice), values in USD '000 .........................................................154
Table 73: Pakistan fish production (in '000 tons) ..........................................................................................................................156
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Table 74: Pakistan Exports of Fish & Fish Preparations, values in USD million ..........................................................................156
Table 75: Types of fish catch in Pakistan .....................................................................................................................................157
Table 76: Summary of registered fishing vessels, 2001 ...............................................................................................................158
Table 77: Pakistan main fishing ports ...........................................................................................................................................160
Table 78: Fish and seafood (SITC 03), values in USD '000 .........................................................................................................163
Table 79: Pakistan / India Japanese cars price comparison ........................................................................................................168
Table 80: Pakistan auto part cost breakdown...............................................................................................................................168
Table 81: Pakistan auto manufacturing installed capacity............................................................................................................168
Table 82: Pakistan auto manufacturing forecasts.........................................................................................................................168
Table 83: Pakistan auto manufacturing required investments......................................................................................................169
Table 84: Pakistan auto manufacturing local content ...................................................................................................................169
Table 85: List of technical agreements in the vendor industry......................................................................................................173
Table 86: Auto parts import and export statistics (SITC 784), values in USD '000.......................................................................175
Table 87: List of Textile machinery parts/components manufactured in Pakistan........................................................................181
Table 88: Textile/leather machinery (SITC 724), values in USD '000...........................................................................................184
Table 89: Pakistan power generation equipment sector...............................................................................................................187
Table 90: Pakistan power generation equipment market .............................................................................................................189
Table 91: Pakistan power generation equipment projected per 100 MW .....................................................................................189
Table 92: Average additional power required per year.................................................................................................................190
Table 93: Trade statistics SITC 71 (power generating equipment), 771 (power transmission equipment), values in USD '000..193
Table 94: Pakistan exports of surgical and dental equipment ......................................................................................................196
Table 95: Gemstone productive areas..........................................................................................................................................199
Table 96: Pakistani exports of gems and precious stones 2000-2002, USD 000.........................................................................199
Table 97: Pakistan's gem exports by destination..........................................................................................................................199
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LIST OF FIGURES
Figure 1: Reliance on power generators.........................................................................................................................................19
Figure 2: Pakistan Structure of GDP by sectors, 2002-2003 ..........................................................................................................21
Figure 3: Pakistan Composition of agriculture, 2002-03, in% of value added ................................................................................22
Figure 4: Pakistan Composition of Services sector, 2002-03, in% of value added ........................................................................24
Figure 5: Regional markets index ...................................................................................................................................................28
Figure 6: Comparison of average growth rates of various countries with Pakistan 2002-2003......................................................29
Figure 7: Pakistan Growth rates of main economic sectors, 1998–2003, in% ...............................................................................30
Figure 8: Pakistan Annual rate of inflation, 1990-2003, in%...........................................................................................................31
Figure 9: Pakistan Employment by sectors, 2003 ..........................................................................................................................31
Figure 10: Pakistan import and export evolution (USD million) ......................................................................................................32
Figure 11: Pakistan Trend in Exports (1998-99 to 2002-03)...........................................................................................................33
Figure 12: Pakistan Growth in Imports over the Years ...................................................................................................................34
Figure 13: Pakistan Pattern of balance of trade .............................................................................................................................36
Figure 14: Pakistan Trade with European Union Countries, USD million.......................................................................................37
Figure 15: Pakistan Trade with India, 1997-2003 (USD million).....................................................................................................42
Figure 16: Exchange rate, Rupees per USD, average of period, 1996-2003 .................................................................................44
Figure 17: Exchange rate, Rupees per USD and EURO, average of period, 2002-2003...............................................................44
Figure 18: How do general constraints differ? ................................................................................................................................50
Figure 19: Contracts, property rights and rule of law......................................................................................................................60
Figure 20: Pakistan: Turnover of shares at KSE and KSE-100 index ............................................................................................65
Figure 21: Privatisation proceeds ...................................................................................................................................................74
Figure 22: EPZ location map ..........................................................................................................................................................81
Figure 23: Organisation Chart of The Board of Investment. ...........................................................................................................84
Figure 24: Electricity prices, a comparison in Asia, 1999. ..............................................................................................................89
Figure 25: Customs delays on imports ...........................................................................................................................................93
Figure 26: Milk processing chart ...................................................................................................................................................136
Figure 27: Market share of local manufacturers ...........................................................................................................................171
Figure 28: Import of ECG, 1995-2001...........................................................................................................................................188
Figure 29: World export trends in ECG, 1995-1999 .....................................................................................................................188
Figure 30: Pakistan – ECG exports, 1995-2002 ...........................................................................................................................189
Figure 31: World export share 2000 of surgical and dental equipment ........................................................................................195
Figure 32: Global import market for medical instruments .............................................................................................................196
Figure 33: Pakistan and world exports, surgical and dental equipment, 1993-2000 (USD million) ..............................................196
Figure 34: Pakistan export destinations of surgical instruments...................................................................................................197
Page x
LIST OF BOXES
Box 1: Recent political developments .............................................................................................................................................15
Box 2: The Kashmir conflict ............................................................................................................................................................15
Box 3: The impact of 11 September 2001 on the Pakistani economy ............................................................................................30
Box 4: Recent developments concerning the EU-GSP with Pakistan ............................................................................................38
Box 5: SAFTA main characteristics ................................................................................................................................................40
Box 6: SAFTA likely impact on regional trade ................................................................................................................................41
Box 7: Pakistan, India to cut duties on 500 items ...........................................................................................................................42
Box 8: Pakistan and the Paris Club ................................................................................................................................................45
Box 9: ICI PAKISTAN .....................................................................................................................................................................48
Box 10: Opinion of the Pakistan-Britain Advisory Group on the Pakistan Investment Climate.......................................................51
Box 11: Rating spectrum.................................................................................................................................................................52
Box 12: Coface Pakistan review, October 2003 .............................................................................................................................53
Box 13: World Bank Country Paper Pakistan, 2003 .......................................................................................................................53
Box 14: Pakistan no more on list of ‘high-risk’ economies..............................................................................................................54
Box 15: Application for registration of copyright .............................................................................................................................60
Box 16: Islamic banking and financing ...........................................................................................................................................64
Box 17: Available Infrastructure and conditions at KEPZ ...............................................................................................................83
Box 18: Price control of public utilities ............................................................................................................................................90
Box 19: Taxes in Pakistan, an overview .........................................................................................................................................94
Box 20: List of countries with double taxation agreements.............................................................................................................97
Box 21: List of Countries / Organisations with which Pakistan has Bilateral Investment Treaties................................................100
Box 22: Arbitration and legal dispute in Pakistan, the Siemens-Westinghouse case...................................................................102
Box 23: The Hub Power Company Ltd. case................................................................................................................................102
Box 24: Child labour and education in 2003 .................................................................................................................................105
Box 25: Holidays in 2004 ..............................................................................................................................................................110
Box 26: Bank holidays ..................................................................................................................................................................110
Box 27: Six Reasons to Invest in Pakistan as presented by the BOI ...........................................................................................114
Box 28: Textile sector overview ....................................................................................................................................................116
Box 29: GSP negociations with the EU ........................................................................................................................................125
Box 30: NESTLE MILKPAK ..........................................................................................................................................................141
Box 31: Britain to invest in seafood processing ............................................................................................................................162
Box 32: Main products and manufacturers in the market .............................................................................................................185
Box 33: SIEMENS PAK LTD.........................................................................................................................................................191
Box 34: SWOT analysis of surgical instrument manufacturing in Pakistan ..................................................................................198
Box 35: SWOT Analysis of the gem and jewellery sector.............................................................................................................200
Page xi
LIST OF ACRONYMS
ADB Asian Development Bank ICSID International Centre for Settlement
ADPB The Agriculture Development bank of Investment Disputes
AOP Association of Persons IDA International Development Agency
APO Asian Productivity Organisation ILO International Labour Organisation
APTMA All Pakistan textile Mills Association IMF International Monetary Fund
ASP Agricultural Statistics of Pakistan IOML International Organisation for Legal
ATC Agreement on Textile and Clothing Metrology
BEL Bankers Equity Limited IOSCO International Organisation of
BOI Board of Investment Securities Commission
CAF Corporate Agricultural Farming IPEC International Programme on the
C&F Cost and Freight elimination of Child Labour
CBA Collective Bargaining Agents IPF Investor Protection Fund
CBR Central Board of Revenue IQF Individual Quick Freezing
CCOI Cabinet Committee on Investment ISE Islamabad Stock Exchange
CGO Customs General Order ISO International Standards
CHPF Clearing House Protection Fund Organisation
CLA Corporate Law Authority JETRO Japanese Export Trade
COFACE Compagnie d’Assurance pour le Organisation
Commerce Extérieur KAPCO Kot Addu Power Company
CTL Central Testing Laboratories KCCI Karachi Camber and Commerce
DFI Development Finance Institutions and Industry
DTRE Duty and Tax Remission for KEPZ Karachi Export Processing Zone
Exporters KESC Karachi Electricity Supply Company
ECG Electrical Capital Goods KSE Karachi Stock Exchange
ECGD Export Credit Guarantee LFO Legal Framework Order
Department MFA Multi-Fibre Arrangement
ECO Economic Cooperation Organisation MFN Most Favoured Nation (MFN)
EDS Export Development Surcharge MIRDC Metal Industry Research and
EFA Education for All Development Centre
EFS Export Finance Scheme MMA Muttahida Majli-i-Amal
EOBI Employees Old Age Benefits NAB The National Accountability Bureau
Institution NBP National Bank of Pakistan
EPB Export Promotion Bureau NCB Nationalised Commercial Banks
EPZ Export Processing Zone NCCWD National Commission for Child
EPZA Export Processing Zone Authority Welfare and Development
ESR Education Sector Reforms NCEL National Commodity Exchange
FATA Federally Administered Tribal Areas Limited
FBS Federal Bureau of Statistics NDFC National development Finance
FCS Fishermen Co-operative Society Corporation
FPIA Foreign Private Investment NDND No-duty No-drawback
(Promotion & Protection) Act NEPRA National Electricity Regulatory
FTA Free Trade Agreements Authority
GATS General Agreement on Trade in NOC No Objection Certificates
Services NPL non-performing loan
GATT General Agreement on Tariff and NSS National Saving Schemes
Trade NTB Non-Tariff Barriers
GDP Gross Domestic Product NTDC National Transmission & Despatch
GIP Gross Industrial Product Company
GOP Government of Pakistan NTN National Tax Number
GSD Government Supplies Department NUST National University of Sciences and
GSP Generalised Scheme of Tariff Technology
Preferences NWFP North West Frontier Province
Gw Giga watt OCSIR Pakistan Council for Scientific and
Gwh Giga watt per hour Industrial Research
HACCP Hazard Analysis and Critical Control OECD Organisation for Economic Co-
Points operation and Development
HBFC House Building Finance Corporation OEM Original Equipment Manufacturers
Hydel Hydro Electric OGRA Oil and Gas Regulatory Authority
IAS International Accounting Standards OIC Organisation of Islamic Conference
Page xii
OICCI The Overseas Investors Chamber of RIA Reportable Injury Accident

Commerce and Industry SAARC South Asian Association for
PAAPAM Pakistan Association of Automotive Regional Cooperation
Parts and Accessories SACE Istituto per i Servizi Assicurativi del
Manufacturers credito all’Esportazione
PC&A Pohl Consulting and Associates SAFTA South Asian Free Trade Area
PE Permanent Establishment SAPTA South Asian Preferential Trading
PEFGA Pakistan Export Finance Guarantee Arrangements
Agency SBP State Bank of Pakistan
PEMRA Pakistan Electronic Media SCCI Sialkot Chamber of Commerce and
Regulatory Authority Industry
PIA Pakistan International Airline SDC Standards Development Centre
PMLQA Pakistan Muslim League Quaid-i- SECP Securities and Exchange
Azam Commission of Pakistan
PNAC Pakistan National Accreditation SIPEC Sino Petroleum Import Export
Council Company
PPIB Private Power and Infrastructure SMC Single Member Company
Board SME Small and Medium Enterprise
PPP Pakistan People’s Party SMEDA Small and Medium Enterprise
PPRA Public Procurement Regulatory Development Authorities
Authority SRO Special Regulatory Order
PRGF Poverty Reduction and Growth TEC International Electrochemical
Facility Commission
AJK Azad Jammu and Kashmir TRIPS Trade-related aspects of intellectual
PSI Pakistan Standards Institution property rights
PSQCA Pakistan Standards and Quality TSC Technical Services Centre
Control Authority UHT Ultra High Temperature
PTCL Pakistan Telecommunication UR Uruguay Round
Company Ltd. WAPDA Water Resources & Power
PUD Peeled, undeveined Development Authority
PWC Pakistan Workers Confederation WTO World Trade Organisation
QCC Quality Control Centre
RCCI Rawalpindi Chamber of Commerce
and Industry
Page xiii
INTRODUCTION
This Guidebook for European Investors in Pakistan has been prepared under contract for the
European Commission with funding for both the research and production of the Guidebook financed by
the Asia Invest Programme of the Europe Aid Cooperation Office.
This Guidebook and the research behind it are the work of POHL CONSULTING & ASSOCIATES. In the
course of their research, the consultants had discussions in many key business centres of the EU
Member States and Pakistan in order to validate current financial and factual information, and to gain
an insight into the perceptions, motivations and experiences surrounding European investment in
Pakistan from both viewpoints.
The Guidebook attempts to deal with the various topics that are likely to be relevant to potential
investors and also includes useful internet addresses in order to allow investors to update their
information.
The material in this Guidebook is solely provided for the guidance of those contemplating investment,
but it is no substitute for professional advice, which should be sought before taking any specific action.
The information in this document is believed to be correct as of December 2003 but no responsibility is
taken for its accuracy.
This report has been produced with the assistance of the European Union under the Asia-
Invest programme. The views expressed herein are those of the consultant and can therefore in
no way be taken to reflect the views of the European Union.
Page 1
EXECUTIVE SUMMARY
Despite some negative perceptions among the international, including European, public, Pakistan has
shown remarkable political and economic developments since the late 1990s when the country was on
the verge of bankruptcy. With a rapidly growing population of about 150 million, Pakistan is a major
country, recognised by the international community, and is one of the most important actors in the
Islamic world.
Based on its geographical location Pakistan has close political and economic relations with the Middle
East, Central and South Asia. It is the main gateway to Central Asia and supplier to the Emirates.
Economic integration with South Asia has been less effective in the past due to the strained relations
with India on the Kashmir issue. However, recently notable steps have been taken by the South Asian
Association for Regional Co-operation (SAARC), of which Pakistan is a member, to establish a South
Asian Free Trade Area (SAFTA), including India.
Politically, despite some reservations from the European Union about the last presidential and
legislative elections, Pakistan has been moving towards democracy. Based on the experience of the
last thirty years, it is hoped that the present administration and its successors will continue to pursue
the sound economic reform policies initiated by President Musharraf. By the end of 2003, an
agreement between President Musharraf and the main opposition Islamic Parties helped to resolve a
serious impediment to the functioning of Parliament. It is hoped that soon the European Union as well
as the Commonwealth of Nations will recognise Pakistan as a full-fledged democracy.
Economically, the support from Pakistan’s main creditors after 9/11 has initiated a virtuous economic
circle, allowing fast export growth, a positive balance of payments, reduction of the cost of debt
service, a dramatic increase in the country’s currency reserves and an all time low for domestic
interest rates, coupled with the appreciation of the Rupee against the US Dollar in 2002 and 2003. By
the end of 2003, foreign reserves with the Central Bank reached more than USD 11 billion, while the
Balance of Trade deficit kept reducing to USD 1 billion in fiscal year 2003. However, thanks to the
reduced cost of debt servicing and a dramatic increase in remittances by overseas Pakistanis (up to
USD 4 billion), the balance of payments has been positive over the last few years.
The main consequence of these macro economic successes has been an increased liquidity in the
country and the subsequent lowering of interest rates to a single digit for prime borrowers, from rates
as high as 17% to 18% a few years ago. This has enabled higher profits for most businesses, followed
by an exceptional boom on the stock market.
Also, banks have aggressively marketed consumer finance to the emerging middle class, allowing for
a consumption boom (more than a 7-month waiting list for certain car models) as well as a construction
bonanza.
The Central bank has carefully managed the incoming “hot money” so that inflation remains under
control at less than 3% per annum.
Overview of the Economy and Foreign Trade
Pakistan's economy is still very dependent on agriculture. The sector contributes 25% to GNP but
employs nearly 50% of the labour force. Industry contributes approximately 18% to GNP and services
about 50%, of which wholesale and retail trade account for 15%, and transport and communication for
10%. As a result of the importance of the agricultural sector, climatic conditions and water resources
have a significant impact on the yearly economic performance. Over the period 2000 to 2003, GNP
growth has increased from an average of 3% per annum to nearly 5% in fiscal year 2003.
The industry is concentrated in the Karachi area, as well as in Punjab, around Lahore, Sialkot and
Faisalabad. Other cities such as Quetta, Multan, Hyderabad or Peshawar also present some industrial
activity but cannot compete with the former as far as the quality of the business environment is
concerned.
Page 2
The size of the domestic market has been increasing at a high rate based on a growing middle class,
presently estimated at 7 million, with a Purchasing Power Parity of USD 7000.
The volume of foreign trade has been increasing since 1999; in 2003, total import value was USD 12
billion, approximately 1 billion higher than total exports.
Imports are dominated by petroleum and derivatives as well as machinery and equipment.
The largest export sector of Pakistan is the textile and apparel sector with nearly 70% of the total
exports, the balance is made up of cereals (mainly rice), miscellaneous manufactured goods (mainly
toys and sports goods), chemicals, food and fish products and scientific instruments.
The European Union is the single largest trading partner of Pakistan and during fiscal year 2003, the
share of Pakistani exports to the EU markets was in excess of 30% of Pakistan’s total exports. The
exports to the EU market this year grew by more than 22% over the previous year. Pakistan enjoys a
reasonable trade surplus with the EU. Growth in exports to the EU was primarily due to the
enhancement of 15% in the textile quota and therefore, an increased market access for Pakistani
exports from January 2002.
Chances for a substantial growth of intra-regional trade are high. In January 2004, the South Asia Free
Trade Agreement has been signed, with the Free Trade Area expected to become effective in 2006. In
a similar vein, bilateral trade between Pakistan and India is expected to gain momentum after tariff
cuts were agreed on at the end of 2003.
Infrastructure
Infrastructure is regularly being improved, with a main focus on the road network which requires
upgrading. The government is also making efforts to improve the reliability of the electricity supply.
Despite a number of recent developments, including the opening of the sector to foreign investors, as
well as attractive sites for the production of hydro-electric supply, most enterprises have to operate
back-up generators, which increases the cost of their operations. Furthermore, the price of electricity is
high compared to the rest of the region.
Telecommunications is an area where the situation is satisfactory with most cities in the country linked
to internet, and equipped for mobile telephony.
International airports are well served by international airlines, while the Karachi Port is complemented
by Port Quasim, a recent development a few kilometres from Karachi, as well as the Gwadar port, in
Balochistan, in the west of the country.
Regulatory framework
Business regulations have been profoundly overhauled along liberal lines, especially since 1999. Most
barriers to the flow of capital and international direct investment have been removed. Foreign investors
do not face any restrictions on the inflow of capital, and investment of up to 100% of equity
participation is allowed in most sectors (local partners must be brought in within 5 years and contribute
up to 40% of the equity in the services and agriculture sectors). Unlimited remittance of profits,
dividends, service fees or capital is now the rule. Business regulations are now among the most liberal
in the region. On these grounds, Pakistan appears much more investor friendly than its larger
neighbour, India. However, implementation of business regulations especially by the lower level
bureaucracy could still be improved.
Tariffs have been reduced to an average rate of 16%, with a maximum of 25% (except for the car
industry). The privatisation process, which started in the early 1990s, has gained momentum, with
most of the banking system privately owned, and the oil sector targeted to be the next big privatisation
operation. It is worth noting, however, that very few OECD investors have shown an interest in
privatisation: Most investors come from the Middle East and China.
Page 3
Corruption and transparency issues are still of concern, as demonstrated by the Transparency
International ranking of Pakistan, despite a number of measures being implemented under the
guidance of the World Bank to improve the situation. It is recognised by most people met during the
course of this study that the situation has improved dramatically with the present administration.
Enforcement of laws, rules and regulations could still be improved, with lower levels of the
administration not presently fully efficient. One major drawback is the contentious legal framework
which does not automatically recognise and implement international arbitration decisions. The judicial
system also still lacks effectiveness. Intellectual property rights, while legally protected, are not always
enforced – pirated and copied goods are prevalent in most sectors of the economy.
Another issue is the security situation, which has three dimensions: the still unstable situation in
Afghanistan, which spills over to the neighbouring regions in Pakistan; the conflict with India over
Kashmir, which is the subject of renewed peace talks between the two countries, initiated at the end of
2003; and sectarian violence between Shiites and Sunnis. In this context, foreigners need to be
cautious and are advised to keep themselves informed e.g. by consulting travel advice issued by the
European foreign ministries. It is worth noting however, that Pakistan-India relations have improved
recently, and negotiations are being undertaken to try and resolve a number of issues including
Kashmir.
Foreign investment in Pakistan
A number of large international companies have been operating successfully in the country for the last
twenty years or more. However, no significant new entrants have come recently. The main
multinationals in the country are in oil and gas exploration and production, electrical engineering, and
the pharmaceutical, food, and chemical industries.
European and American companies have not shown much interest in privatisation to date. Most export
credit agencies in EU Member States (with the exception of Hermes in Germany) do not cover
Pakistan risk (October 2003), except on a case by case basis.
Despite this, inward foreign direct investment (FDI) has increased significantly in the fiscal year 2003
to USD 800 million, a large part being linked to privatisation. Major investors in the country come from
the UK, the Middle East and the US, each contributing 25% of FDI. China has traditionally had a strong
presence in the country, mostly through infrastructure development and supply of low cost goods and
equipment. China accepts differed payment risks through large suppliers’ credit, up to ten year
duration. It is certainly a country which has a long term strategy regarding its investments, and
European Investors may have to compete with Chinese investments in Pakistan.
The recent improvements in the economy and the business environment have been recognised by
international rating agencies such as Moody’s and Standard and Poor’s (country risk upgrade at the
end of 2003). Provided the positive trend is maintained, Pakistan presents numerous and significant
opportunities for investments aiming both at using Pakistan as an export base and at tapping an
emerging market with a rapidly growing middle class.
Recommendations for potential investors
To limit the risks inherent in all business activities, medium sized investors from Europe are advised to:
- select a reliable partner, with an obvious long term interest in a partnership, to help understand the
local environment;
- target a sector where Pakistan has a specific advantage, and to plan for a long term investment;
- bring into the project a distinct and permanent advantage, such as a new technology, process,
know how, brand, design or marketing ability;
- ascertain that at least 75% of the output is exported, gaining therefore sufficient foreign currency
income to service the foreign investment, while the local market, still small, shall only become
significant over time.
It is worth noting that finance is not at present an area where Pakistani businessmen are looking for
help or support from overseas partners. As discussed above, further to an improved macro economic
Page 4
situation, the country is liquid and many business groups are flushed with funds, eagerly looking for
business opportunities and know-how.
High potential Sectors for Foreign Direct Investment
During the course of preparing this Investor Guidebook a number of sectors have been identified which
are expected to be particularly attractive for foreign investors. The study has been based on the
analysis of export led sectors, in term of volume and growth, import substitution sectors, as well as the
domestic (non-tradeables) sector.
Among the significant sectors which provide clear opportunities for medium sized investors, the
following ones are presented in greater detail in this Guidebook:
Textiles and garments
In the textile and garment sector Pakistan has a definite competitive advantage, further enhanced by
the disappearance of the Multi-Fibre Agreement by the end of 2004. Despite its successes and its
recent spate of investment in state of the art machinery, the industry still needs know-how and
processes to improve the quality of its products, as well as design, fashion and marketing
development.
This sector has been divided into the different stages of production, such as spinning, weaving, knitting
and finishing, dyeing, etc. while the major groups usually cover all stages of the product cycle. Most
products are cotton based with emphasis on the first stages of production like yarn, cloth and fabrics.
Only recently has the country entered into the more added value production of garments. The
particular emphasis on bed linen and towels is worth noting, given that it is the subject of an anti
dumping review by the European Union.
Based on the competitive advantages of this sector in Pakistan, and the liberalising of international
trade after the end of the Multi-Fibre Agreement by the end of 2004, there should be opportunities for a
mutually beneficial co-operation between Pakistani business groups and European investors.
Food processing and packaging
Opportunities in the food processing and packaging industry (especially dairy products, fruits and
vegetables, fish and sea food), based on a very large agricultural sector and a large and expanding
fishing fleet, are primarily related to upgrading of the underdeveloped collecting, processing, packaging
and distribution system.
Obvious export markets are the Middle East, South and Central Asia as well as Europe and the USA if
the present phyto-sanitary constraints can be resolved. The local emerging middle class should also
provide an outlet for well processed and packaged food in the medium term. The impression from the
authors is that investment in this sector should definitely be long-term, in view of the necessity to
organise the supply chain as well as the distribution network in a rather primitive environment, be it in
the fruit, vegetable, dairy or fishing sectors.
Also, a major part of the sector depends on the packaging industry, including carton boxes, tin can, or
freezing processes, which are still underdeveloped.
Light engineering and automotive parts
The light engineering and automotive parts industry should also provide opportunities, as far as they
are backed up by export markets. Based on an infant automobile industry still protected by high tariffs
and dominated by Japanese assemblers, the existing automotive supply industry is in dire need of
technology improvements. Similarly, there is a great demand for machinery and equipment linked to
the textile and garment sector, such as industrial dryers, cooling fans, spinning needles, etc.
Last but not least, the electrical and engineering sector linked to power generation and transmission is
expected to face a strong and growing demand in coming years. However, this sector has been
targeted only as a third priority sector mostly based on the competition which is already present from
technology sourced from other Asian countries, such as Japan, Korea, Taiwan and more importantly
Page 5
China, which appears to be a main trading partner for Pakistan as well as a potential investor in this
sector.
Other sectors
Other sectors have been identified as worthy of consideration by foreign investors, but are more limited
in size. The following niche sectors have been identified:
- Surgical instruments
This sector exports 95% of its production, mostly to the USA and the EU. It represents a turnover
of about USD 150 million per annum and consists mostly of metal instruments. This industry is
concentrated in Sialkot, north of Lahore, making it one of the significant clusters for such
production worldwide. The technique is mostly based on forging and metal finishing for which co-
operation with European firm with the proper know how might be required.
- Marble production
Marble is used extensively by the domestic construction industry, and part of the production is
exported, mostly to the Middle East. Mining and production sites are spread more or less over the
North and East of the country. The production represents about USD 25 million per annum. The
main drawback of this industry is the absence of sophisticated techniques: mining through
explosives which do not allow the production of large slabs of marble and implies important
wastage. The industry is definitely interested in acquiring know-how, as well as the proper slicing
equipment to improve the quality of its products. The main drawback for a foreign investor would
be to find the right partner in an industry which is made up of a number of small enterprises.
- Gems and jewellery

This sector, based on vast resources of rough semi precious stones is still in the infant stages. The
official export of rough stones represents about USD 5 million per annum, while no stones are cut
locally yet. The government is trying to develop a stone cutting industry and has created three
training institutes.
- IT (call centres, service centres, software development, etc.)

It may be surprising that this sector has so far not been developed in Pakistan, especially when
compared to its large neighbour India. At present there is no such industry in Pakistan, despite the
opening of a few call centres by financial institutions or some overseas Pakistanis from the USA.
Also, some incubators have projects in the animated video games sector. However, the
government has recently launched initiatives to promote the industry, through the development of
IT education and training.
Reader's Guide
This Guidebook consists of four parts, which can be read independently of each other, depending on
the user's interest and needs.
Part I provides a comprehensive overview of Pakistan and its economy, with a special focus on issues
which are of interest to the potential investor. It can be read as an introduction to the country, and may
also serve as background reading for investors primarily interested in hands-on information on how to
establish and run a business in Pakistan.
Such practical information is provided in Part II of the Guidebook. Here, the potential investor will find
detailed information on how to establish a venture in Pakistan.
Important sectors of the Pakistani industry which have been identified as being particularly interesting
for foreign direct investment are analysed in detail in Part III of the Guidebook. Again, the focus is on
providing sector information which will be useful for a potential investor in taking an investment
decision. This section also provides some details on high potential niche sectors.
Finally, Part IV provides an extensive list of other sources of information, both in and outside of
Pakistan, and including online resources accessible through the World Wide Web. It goes without
saying that the reader should consult and collect information from as many different sources as
Page 6
possible before taking a final decision on a potential investment. The institutions and publications listed
in part IV of this Guidebook may serve as a starting point.
Page 7
PART I: PAKISTAN GENERAL INFORMATION
MAP OF THE COUNTRY
Page 8
PAKISTAN AT A GLANCE
Page 9
Page 10
Page 11
GENERAL COUNTRY INFORMATION

With presently 150 million inhabitants, Pakistan is expected to be the third most populous country by
2020. As a result, the domestic market, which is still small due to the limited purchasing power of large
parts of the population, is expected to grow rapidly. In addition, the country's geographic position
provides for an easy access to South and Central Asia and the Middle East, and trade liberalisations
schemes are in the process of being established.
Politically, the Government's reform initiatives since the 1990s, and especially in past five years have
begun to show positive results: macro economic figures have improved substantially in the period
2000-2003; the financial sector has recovered; and the stock market has shown the best performance
worldwide in the period since 2001. However, although the Government is committed to the
eradication of terrorism and communal violence, the country’s stability depends on international factors
such as the situation in Afghanistan and the Kashmir conflict. In this regard, the recent renewal of the
peace process with India should be noted.
1.1 General environment
1.1.1 Population
Pakistan is the world's seventh most populous country with a population estimated, by the end of 2003,
to be around 150 million. The population density ranges from 19 people per square kilometre in the
province of Balochistan to 359 people per square kilometre in the province of Punjab. Pakistan’s
population is distributed in 19.21 million households with an average household size of 6.8 members.
Although the population growth rate is constantly decreasing, Pakistan is expected to become the
world’s third most populous country after India and China within the next couple of decades.
The urbanisation process is accelerating in Pakistan. In 1970 only 25% of Pakistan’s inhabitants lived
in urban areas; this figure has increased to 33% in 2000. There are remarkable differences concerning
the degree of urbanisation between the provinces. Whereas almost one half of the population in Sindh
is located in urban areas, nearly the whole Federally Administered Tribal Areas (FATA) remain rural.
The biggest cities in Pakistan are Karachi (11 million inhabitants), Lahore (8 million inhabitants),
Faisalabad (2 million inhabitants), Rawalpindi (1.4 million inhabitants) and Peshawar (1 million
inhabitants). The capital city Islamabad has about half a million inhabitants.
1.1.2 Geography
Pakistan has a strategic location, spread over a landmass of 796,096 square kilometres, which is
about 1.5 times the size of France. Pakistan borders Iran in the South West, Afghanistan in the West
and North, China in the North-East and India in the East.
Pakistan exhibits a wide range of different landscapes including coastal beaches, lagoons and
mangrove swamps in the South, deserts and fertile plains in the centre and high mountains in the
North. Three major geographical areas can be identified: the northern High Mountain Region, the
Indus River Plains, and the Balochistan Plateau.
The High Mountain Region stretches in the North from east to west including parts of the Himalayas,
Karakorum, and Hindukush mountains. In this area there are 40 of the world’s 50 highest mountains;
among them the K-2 (second highest with 8,611 meters) and the Nanga Parbat (eighth position with
8,126 meters). Because of their rugged topography and the rigors of the climate, the northern
highlands and the Himalayas to the east have been formidable barriers to movement into Pakistan
throughout history.
In the east of the country lie the flat, fertile plains of the Indus River and its tributaries. The Indus is the
main river of Pakistan and the nation’s lifeline. It runs the length of the country from Tibet on its course
to the Arabian Sea, a total of almost 2,500 km. This area, which closely coincides with the provinces of
Sindh and Punjab, is hot and dry and is occupied in its eastern borders by the Thar Desert. Extensive
Page 12
irrigation facilities, fed by the waters of the Indus, make the Indus basin the agricultural heartland of
Pakistan, where most of its population is located.
The Balochistan Plateau in the western part of the country, which is roughly identical with the province
of Balochistan, is an arid region with slightly wetter conditions in the northern part. Large portions of
the area are not suitable for agriculture and are thus inhabited by nomads.
1.1.3 Climate
Pakistan lies in the temperate zone, characterised by hot summers and cold winters. Although within
the monsoon region, it is generally arid with Balochistan as the driest part. However, there are distinct
differences among particular locations attributable to the geographical differences. The coastal area,
for instance, is usually warm, whereas the northern mountain region is cold throughout the year with
rain in the summer and snow in the winter. The Plateau regions experience hot summers and cold
winters with some rain in the winter.
Pakistan’s general climate can be divided into four seasons: cold season, hot season, monsoon
season, and post-monsoon-season. The cold season (winter) lasts from November to March being
cool and dry. The spring season from April to June is usually hot and dry. Temperatures often exceed
40°C and more. The monsoon season with somewhat lower temperatures and extensive rainfalls
starts at the beginning of July. The post-monsoon season from October to November is a transitory
period with hot days and cold nights; these two months are the driest months.
The climate in the capital city of Islamabad varies from an average daily low of 2°C in January to an
average daily high of 40°C in June. Half of the annual rainfall occur in July and August, averaging
about 255 mm in each of those two months. The remainder of the year has significantly less rain,
amounting to about 50 mm per month. Hailstorms are common in spring.
Pakistan's largest city, Karachi, is more humid than Islamabad but gets less rain. Only July and August
average more than 25 mm of rain in the Karachi area; the remaining months are exceedingly dry. The
temperature is also more uniform in Karachi than in Islamabad, ranging from an average daily low of
13°C during winter to an average daily high of 34°C on summer days. Although the summer
temperatures do not get as high as those in Punjab, the high humidity may cause discomfort.
Most areas in Punjab experience fairly cool winters, often accompanied by rain. By mid-February the
temperature begins to rise; springtime weather continues until mid-April when the summer heat sets in.
The monsoon used to reach Punjab by May, but since the early 1970s the weather pattern has been
irregular. The spring monsoon either skipped the area or heavy rains caused floodings. June and July
are extremely hot with temperatures above 40°C.
1.2 History
What presently comprises Pakistan was initially part of the larger Indian sub-continent with a long
history and a recognised civilisation dating back to many centuries. However, in the 17th century, the
sub-continent was annexed by the British.
After the unsuccessful First War of Independence in 1857, the British were determined to suppress
and weaken Muslims, whom they held mainly responsible for the uprising. Sir Syed Ahmad Khan
(1817-1898) made one of the first attempts to restore Muslim status by founding the Aligarh
movement, which later became the Muslim League.
In 1947 after the Second World War, the sub-continent gained independence with the creation of a
Muslim majority state called Pakistan and India comprising the Hindu majority. Prominent amongst this
struggle from the side of Pakistan were leaders such as Sir Syed Ahmad Khan, Dr. Muhammad Iqbal
who proposed the creation of a separate Muslim state and Mr. Mohammad Ali Jinnah, the founder of
the nation.
The division of the subcontinent proved difficult, particularly with respect to relocation of large
population groups who migrated to reposition themselves in accordance with the religious status of
each State. The main area of contention was the fertile Punjab, where Hindu, Muslim, and Sikh
population were inextricably mixed. The result was that at Independence an estimated six million
Muslim refugees, mainly from the Punjab, streamed across the border into Pakistan. Similarly, about
Page 13
4.5 million Sikhs and Hindus crossed into India. This migration was accompanied by violence and
bloodshed in which about 0.5 million people lost their lives.
There were other problems. One concerned Kashmir, a Muslim majority state whose Hindu ruler
(Maharaja) opted to join India upon Independence, although the Kashmiris are predominantly Muslims.
This led to the division of Kashmir in 1948. Today both Pakistan and India still claim Kashmir, and the
territory has been a central issue behind most of the disputes between the two countries since
Independence.
The greatest difficulty facing the new Pakistan was that it consisted of two parts, West Pakistan and
East Pakistan, separated by nearly 2000 kilometres of India, with considerable differences in cultural
and social patterns. Independent Bangladesh seceded in 1971. Today, Pakistan consists of only the
western wing of the original Pakistan.
1.3 Political environment
The Islamic Republic of Pakistan is a federal republic consisting of four provinces (Balochistan, North-
West Frontier Province, Punjab and Sindh), one territory (Federally Administered Tribal Areas) and the
Islamabad Capital Territory. Additionally, Pakistan also administers its portion of the disputed Jammu
and Kashmir region.
Although, with the adoption of the first Constitution in 1956, originally intended as a parliamentary
democracy, Pakistan experienced some turbulent times since democracy was challenged by several
military coups. Civilian and military administrations were alternating. The latest coup took place in
October 1999 and has had an effect on the politics until now.
Until October 1999, Pakistan was governed by the constitution of 1973 as amended in 1985, which
provides for a federal parliamentary form of Government with a prime minister as head of the
Government and a president as head of the state. On 12 October 1999, the military mounted a
bloodless coup. General Pervez Musharraf, Chief of the Army Staff, took control over all parts of
Government, suspended the constitution, and assumed the title of Chief Executive. In May 2000, the
Supreme Court validated the coup but imposed restrictions to return to an elected Government within
three years. On 20 June 2001, General Musharraf declared himself President and Head of State and
dissolved the suspended assemblies. His presidency was extended for five years by a referendum.
In accordance with the decision of the Supreme Court, national and provincial elections were held on
10 October 2002 restoring constitutional Government. Under the amended constitution there is a
bicameral parliament, comprising a 342-member national assembly (lower house) with 272 members
directly elected on a first-past-the-post system and the rest, designated to women and minorities,
nominated by the parties according to their overall election results, and a 100-member senate (upper
house) chosen mainly either by provincial assemblies or, in tribal areas, by popular election. Each
assembly is elected for a five-year term. The President is the Head of State, and the Prime Minister the
chief executive. Each province has its own legislative assembly whose members are elected by direct
popular vote, a provincial governor appointed by the President, and a chief minister elected by the
legislative assembly. There is an independent judicial branch of Government.
In the elections of 2002, no single party won a majority. The major political forces within the National
Assembly turned out to be the Pakistan Muslim League Quaid-i-Azam (PML QA) with 136 seats,
followed by Muttahida Majli-i-Amal (MMA) with 67 seats and the Pakistan People’s Party (PPP) with 58
seats. Mr Zafarullah Jamali (PML QA) became Prime Minister of Pakistan while General Musharraf
remained President of Pakistan. The PML and the PPP are the most popular parties, which have
widely influenced recent political history. Both parties are committed to a liberalising, market-oriented
economic policy.
Today, the biggest domestic political issue stems from a conflict further to the modification of the
Constitution towards a Presidential regime as per the Legal Framework Order (LFO), issued by
President Musharraf on 21 August 2002, prior to the parliamentary elections. The main issue arising
from this LFO comes from the new right given to the President, to dissolve the parliament as well as
request the resignation of the Government. This modification in the Constitution was approved by the
Supreme Court which it is argued does not have such authority. Amendments to the Constitution are
the preserve of the Parliament, based on a two third majority rule.
Page 14
The LFO, as well as the circumstances of the latest elections (Presidential referendum and
parliamentary elections) have been contested by the opposition, and has provoked international
criticism, including by the European Union. Pakistan has not yet been reinstated as a full member of
the Commonwealth, based on its democratic record. However, a tentative agreement on how to solve
the LFO conflict has been reached by the President with the opposition party, the Muttahida Majli-e-
Amal, (MMA), by the end of 2003 (see Box 1).
Box 1: Recent political developments

The Constitution of Pakistan has now been fully restored. Elections to the Provincial Assemblies and National Assembly were
held on October 10, 2002, and elections to the Senate were held on February 24, 2003.
A major debate is underway on whether the amendments made to the Constitution by the Legal Framework Order (issued by
General Pervez Musharraf on August 21, 2002) are valid.
By the end of 2003, the PML-Q (the President party) has negotiated with the opposition MMA party (the Islamic parties) the
following agreement, to be approved by the parliament:
By end of 2004, President Musharraf shall renounce his functions as Head of the Armed Forces;
Revocation of the Government by the President shall only be effective after consultation with the Prime Minister and agreement
from the Supreme Court;
Finally, the President should be confirmed in his post by a 51% vote from Parliament, within thirty days from the Constitution
revision.
1.4 Foreign affairs
Pakistan’s foreign policy is influenced by its Muslim state status in South Asia as well as its
relationship with India, which has led to four armed conflicts (see Box 2). In an unstable regional
environment, one of the main objectives of the Pakistani foreign policy is the preservation of its
security and territorial integrity.
Since its foundation, Pakistan has maintained good relationship with the United States and the West
as well as with China. The country's standing in the international community has been strengthened by
the position taken after 9/11 and its committment against international terrorism, as well as the
continued efforts of the present Government to support a democratic process. In spite of certain
resistance resulting from the aftermath of the military coup in 1999, its relationship with the EU has
been restored and the EU is committed to assist the country in its efforts to promote economic growth
and social reforms.
Pakistan is a member state in regional organisations including ECO and SAARC. The Economic
Cooperation Organisation (ECO) is a regional organisation, established in 1985 by Iran, Turkey and
Pakistan, for the purpose of sustainable socio-economic development of its member states. In 1992,
seven other countries including Afghanistan and the southern former Soviet Union states joined the
organisation.
The South Asian Association for Regional Cooperation (SAARC) consisting of Bangladesh, Bhutan,
India, Maldives, Nepal, Pakistan, and Sri Lanka was founded in 1981 to promote the welfare of the
peoples of South Asia and to improve their quality of life.
Box 2: The Kashmir conflict

The Kashmir conflict dates back to the partition of British India in 1947 when the Hindu Maharajah of a Muslim majority Kashmir
decided to join his state with India under a contract dated 26 October 1947. This led to the conflict and it was agreed that the
position would be resolved at a later stage through a referendum which until now has not been organised.
Since then, the cease-fire line which followed the first conflict, in 1948, has divided Kashmir into two parts, one controlled by
Pakistan (1/3), the other controlled by India (2/3). Two subsequent wars were fought over Kashmir, one in 1965 and another in
1971, followed by the secession of East Pakistan. On a number of occasions, tension between Pakistan and India over Kashmir
mounted; for the last time in 2000.
Peace talks have been initiated towards the end of 2003, with further discussions among senior diplomats to be held in February
2004. It is hoped that progress towards a resolution of the conflict can be achieved in the near future. In the past, although
economic relations between the two countries have persisted, the conflict has had a negative impact not only on bilateral
relations but also on the regional economy, e.g. by preventing a free trade regime among SAARC countries.
st
The signing of a South Asian Free Trade Area Agreement (SAFTA) in January 2004, to be operational on 1 January 2006 is
contributing to increased regional trade expectations (see 1.11.6.1).
Pakistan is also a member of the Organisation of the Islamic Conference (OIC), which includes all
Islamic countries worldwide and combines all resources of the Muslim world to ensure their interests.
Page 15
Besides this, Pakistan is a member of the United Nations and has always played an active and
constructive role within the UN and its affiliated organisations. Pakistan is also a founding member of
GATT (now WTO) and a signatory to all important WTO agreements.
1.5 Human resources and social environment
1.5.1 Social infrastructure
Although health indicators in Pakistan have been improving, the situation is still serious in many
regions of the country. Unhygienic living conditions, lack of appropriate outreach of health facilities,
scarcity of potable water and malnutrition, particularly among children, contribute to a poor health
status. Pakistan has one of the highest child mortality rates in Asia (110 out of 1000 under 5 years)
and a low life expectancy (63 years). In 2001-2002, 49% of the households did not have access to a
reasonable system of sanitation system. Both public and private spending on health is low with
expenditures totalling 0.7% of GNP in 2002. However, poverty alleviation initiatives recently launched
by the Government have brought about an increase in Government spending on areas which include
health and sanitation.
Apart from this, improvement has also been brought about through increasing health facilities and
launching of a number of health programmes. These programmes address various health problems
such as Malaria, AIDS, or malnutrition as well as immunisation in order to reduce child mortality.
1.5.2 Social security
As in many developing countries, poverty (affecting one third of the population) is one of the main
social problems. Social security schemes, first introduced in the 1960s, have not been very successful,
due to lack of financial means. Traditionally, family and kin provide a social security net.
Nevertheless, there are some formal social security schemes provided through the Zakat and Ushr
Ordinance. Under this system, the poor receive support. In FY 2002, 1.7 million people benefited from
the Zakat Programme. Also various other programmes have been launched to support the
Government drive on supporting the poor, through poverty alleviation programmes.
There are various state run programmes providing retirement benefits, such as the Employees Old
Age Benefits programme, which is available for workers in private sector establishments with a
minimum of 10 employees. However, private sector pension funds are rarely put into practice except
by large firms. Generally, participation in retirement benefit schemes is low. Under the EOBI
programme, for example, only 1.6 million employees (out of an estimated 10 million eligible) were
insured at the end of 2000.
There is also a pension scheme for civil servants who have worked at least 25 years for the
Government.
1.5.3 Education
Despite notable improvements, literacy rates are still low. According to the last census in 1998, the
literacy rate was 43.9% with marked differences between the urban (63.1%) and the rural (33.6%)
population. There is also a remarkable gender difference; only 32% of Pakistani women are able to
read and write whereas this ratio amounts to 54.8% for Pakistani men. Presently (2003), the overall
literacy rate has increased to 51.6%.
Pakistani general education comprises twelve years, of which ten years are compulsory. Higher
education is provided by universities and professional universities. Presently, there are 96 universities
and higher education institutions where over 100,000 students are enrolled. The Government
established a Higher Education Commission in 2002 to strengthen higher education. The Higher
Education Commission aims to increase student enrolment from 2.6% to 5% by 2005, corresponding
to doubling the number of students to 200,000. 1% of GDP are planned to be dedicated to higher
education (currently 0.39%).
Page 16
The Government has taken steps to enhance the educational level by implementation of the Education
Sector Reforms (ESR) and the Education for All (EFA) programmes. ESR is a comprehensive
programme for increased access and improved quality at all levels of education. The EFA programme
refers to the commitment to ensure that by 2015 all children would complete primary education of good
quality and that gender disparities would be eliminated.
1.6 Cultural environment
1.6.1 Languages
Today, there are more than twenty different languages spoken in Pakistan. The national language of
the country is Urdu. Other most common languages include: Punjabi, Sindhi, Balochi and Pushto,
which all belong to the Indo-Aryan branch of the Indo-European language family; whereas some less
spread languages, especially in the northern regions, go back to the Dravidian language family.
The distribution of different languages roughly corresponds to the provinces, with Punjabi and Saraiki,
which is a variant of Punjabi, spoken in Punjab, Sindhi spoken in Sindh, Pushto spoken in NWFP and
Balochi spoken in Balochistan.
Urdu, the mother tongue of a minority of 7.6% of the population, is the official national language. It is
understood and spoken throughout the country. It is the native language mainly of Muslim immigrants
from India (so-called Muhajirs) and has no regional connection in Pakistan. Urdu developed after the
Muslim invasion during the Moghul period and is influenced by Persian and Arabic elements.
English plays a major role in Pakistan. Besides Urdu, it is the second official language predominating
in administration and business. It is also the lingua franca in higher education although there are
tendencies to replace it by Urdu.
1.6.2 Nationalities
The ethnic composition of Pakistan roughly corresponds to the linguistic distribution of the population,
at least among the largest groups: 59.1% of Pakistanis identify themselves as Punjabis, 13.8% as
Pashtuns, 12.1% as Sindhis, 7.7% as Muhajirs, 4.3% as Baloch, and 3% as members of other ethnic
groups. Each group is primarily concentrated in its home province, with most Muhajirs located in urban
Sindh.
1.6.3 Religion
As indicated in Pakistan's official name, the Islamic Republic of Pakistan, Islam is the state religion.
About 97% of Pakistanis are Muslim forming two distinct major groups: Sunni (77%) and Shi’a (20%).
The most visible groups of non-Muslim minorities are Hindus and Christians. Most Hindus are located
in Sindh whereas Christians are found all over the country.
The central belief in Islam is that there is only one God, Allah, and that the Prophet Muhammad was
his final messenger. The Koran, the holy script of Islam, plays a central role in Muslim social
organisation and values. Believers recognise the Koran as the true word of God, and as such it is
eternal, absolute, and irrevocable. The fact that Muhammad was the last of the prophets and that no
further additions to "the word" are allowed is significant; it closes the door to new revelations.
Islam was the basis to form Pakistan as the partition of British India created two states separated by
religion: a Muslim one (Pakistan) and a Hindu one (India). Hence, Islam played a crucial and unifying
role in the foundation of modern Pakistan. However, Islam was not initially intended to serve as a
model for Government. Islamisation of political life in Pakistan started in the 1970s, with the coming
into existence of opposition Islamist parties.
In this context, the Sharia has had some influence on the legal environment in Pakistan, affecting
mostly Civil law (primarily marriage and inheritance related matters). As far as commercial law is
concerned, the Modarabas (Islamic way of banking) is a result of Islamic thought. The Sharia has not
affected the criminal law so far.
Page 17
1.6.4 Values
Islam widely influences social life in Pakistan. Religion, state and society are conjoined. For Muslims,
religion is not a private affair but a law affecting all parts of life.
One basic principle of Muslim society is the brotherhood of man. The Muslim community conveys a
sense of solidarity and security. To become member of the community, a Muslim has to obey certain
duties. These “five pillars” contain the affirmation of faith, the obligation to pray at five fixed times a
day, the obligation to provide alms for the poor, the obligation to fast during the month of Ramadan
and the pilgrimage to Mecca once in a lifetime. In addition to these five pillars there are some other
obligations, for example the prohibition of alcohol, pork and gambling.
The family is the centre of social organisation in Pakistan providing its members with both identity and
protection. Rarely does one individual live separated from relatives. Children tend to live with their
parents until marriage and sons often stay with their parents after marriage forming a joint family.
1.7 Physical infrastructure
Pakistan's economic infrastructure is a drawback for business productivity. The roads are not
satisfactory in most parts of the country, including exporting industrial areas. However, expansive
plans for improvements have been announced, and port and airport facilities are efficient while being
expensive.
Electricity supply, while having excess capacity, is not reliable and necessitates investment in back up
generation at the plant level. Telecommunication services are reliable and efficient.
http://www.eac.gov.pk/webinfrastruct/WEBS/main/infrainvidx.htm
1.7.1 Road network
Pakistan's road network covers a total of 252,000 kilometres utilised by 4.4 million registered vehicles.
It has grown rapidly (in 1990-91 there were only 170,000 kilometres) but still requires further
improvement both in quality and quantity. The road network includes 8,845 kilometres of highways and
one motorway of 367 kilometres, in addition to highway, connecting Lahore and Islamabad.
Being the most important way of transportation in Pakistan, the road network is being improved at
present; the Government has dedicated a considerable budget to road building projects. One of these
projects deals with the construction of a system of motorways connecting the south (Karachi) with the
north (Peshawar) of the country. A total of over 2,000 kilometres are planned. The overall aim of the
Government is to raise the national average road density from currently 0.23 to 0.3 kilometres per
square mile. Involvement of the private sector in the road network expansion is being promoted
through the implementation of Build Operate and Transfer (BOT) schemes for new highway
construction.
1.7.2 Railway network
The railway network connects the country from north to south and from east to west. At the end of
March 2003, it comprised 7,791 route kilometres, 577 locomotives, 1,901 passenger coaches and
23,939 freight wagons.
The railways system in Pakistan has recently experienced some structural as well as management
changes. In the past, Pakistan Railways suffered from the traditional problems of public sector
organisations. However, reforms initiated in 2002 have brought about various favourable changes
including modernisation and better performance. Tracks were rebuilt, coaches and wagons refurbished
and the quality of services improved. Traffic in terms of passengers and freight is now increasing.
Nevertheless, the railways still play only a minor role compared to roads (see Table 1).
Page 18
Table 1: Pakistan Traffic volume, road vs. rail, 2002-03

Road Railways
Passenger traffic (in million passenger km) 215,892 20,094
Freight traffic (in million ton km) 109,124 4,529
Source: Economic Survey
1.7.3 Ports
Pakistan has two major seaports, Karachi Port and Bin Qasim Port, handling over 40 million tonnes of
cargo in 2001-02. Another port is under construction at Gwadar.
Besides the seaports there are several dry ports throughout the country serving the needs of the local
industries. All ports are connected to the road and railway networks. To meet future requirements the
most important port, Karachi Port, is being modernised.
1.7.4 Airport and international links
Pakistan's is linked to the world through five international airports located in Karachi, Islamabad,
Lahore, Quetta and Peshawar, with Lahore and Karachi International Airports being the most modern
in the country. A new airport at Islamabad is under consideration with expected completion by end
2005.
Air transport, which has been deregulated by the Government, has grown significantly in recent years.
5.2 million passengers are carried yearly. The Government encourages the construction of new
airports with the contribution of the private sector. Several private airlines took up services alongside
the national flag carrier.
1.7.5 Energy
Pakistan's installed electricity capacity adds up to 18 Gw generating over 70,000 Gwh of power.
Thermal plants using oil, natural gas and coal account for 70% of power production, with
hydroelectricity making up 27% and nuclear power plants 3%. Although transmission losses due to
bad quality and thefts amount to 25%, Pakistan has now some excess generation capacity, but
significant power demand growth is expected in the long run since only one half of the population is
connected to the national grid and much of the rural areas are yet to receive electric power.
The Government addresses the future challenges with an emphasis on water power, cheaper than
thermal power, and through the private sector participation in power production.
Although there is no overall shortage in the availability of electricity for business, power cuts do occur
mostly due to the problems in the distribution network. As a result, at present some 40% of firms have
installed their own backup power generators; although this rate is low when compared to other
countries in the region, such as Bangladesh and India, it is high by international comparison (see
Figure 1).
Figure 1: Reliance on power generators
80
(% of firms using
60
generators)
40
20
0
Bangladesh India Pakistan China
Source: World Bank, Investment Climate Surveys
Page 19
1.7.6 Telecommunications
The telecommunication sector is growing rapidly though it is still underdeveloped even in comparison
to other South Asian economies. By end of March 2003, there were 4.6 million fixed telephone lines
(June 2002: 3.6 million). The Government announced an aggressive deregulation programme which
has come into operation by end of 2003 with a defined roll out plan to deregulate and privatise the
telecommunication sector.
It should be noted, however, that despite the limited scope of the telephone network, businesses are
quickly connected; the average waiting time for installation of a fixed line is approx. one week. Mobile
telephone networks are well developed at least in the major business centres of the country.
Internet services are also growing fast. The number of Internet users in Pakistan increased from
100,000 in 1998 to 3 million in 2002 although the dispersion of personal computers with 4 for every
1000 Pakistani has been stable at this low level throughout the period.
Page 20
ECONOMIC OUTLOOK
The macro economic situation of Pakistan has made a dramatic turnaround since 1999 when the
country was on the verge of bankruptcy. Positive developments since then include improvements in
the political process and the security situation, foreign debt renegotiations, the quasi disappearance of
foreign exchange regulations, a significant increase in exports to more than USD 11 billion, a positive
current account balance (overseas Pakistanis’ remittances), the opening of most sectors to foreign
investment, increased Foreign Direct Investment of than USD 800 million, and an increase in foreign
exchange reserves to more than USD 11 billion.
As a consequence, the financial markets are very liquid, providing cheap financing to entrepreneurs
(ST interest rates for Government bonds of around 2% p.a.) and fuelling a consumption boom by the
emerging middle class. Meanwhile, inflation remains subdued, further to the proper management of
the incoming funds by the State Bank of Pakistan.
1.8 Economic structure
When Pakistan became independent in 1947 it was largely a farming state with very little industry;
most of the industry was located in what was to be India. Thereafter, its economic managers have
constantly endeavoured to promote the industrial sector. At present, there is a substantial industrial
base producing goods for private as well as for industrial consumption.
However, agriculture (including forestry and fishing) has remained the single most important sector in
the Pakistani economy accounting for nearly a quarter of total GDP and involving almost one half of
the labour force. The industrial sectors contribution to total GDP represents another quarter and
services about 50%. The most important sub-sectors besides agriculture are manufacturing (18.4%),
wholesale and retail trade (15.5%) and transport and communication (9.9% - see Figure 2).
Figure 2: Pakistan Structure of GDP by sectors, 2002-2003

Construction (3.3) Electricity & Gas Distn. (3.4) Others (3.0)
Ownership of Dwellings (6.2)

Agriculture (23.6)
Publin Admin. (6.6)
Transport & Storage

(9.9)
Manufacturing (18.4)
Services (10.1)
Wholesale & retail (15.5)
Source: Federal Bureau of Statistics
Pakistan’s labour force is still concentrated in agriculture (48.4%); only 17.4% are employed by the
industrial sector with 11.5% in the manufacturing industry. This figure shows that albeit the success of
the industrial sector, it has not been able to produce a comparable amount of jobs.
1.8.1 Agriculture
The main characteristic of the Pakistan agricultural sector is the persistence of huge domains owned
by absentee landlords. No significant land reform has been implemented.
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Agriculture is the dominant sector in the Pakistan economy. Approximately 22 million hectares out of a
total area of 79.6 million hectares are cultivated. The most important major crops are wheat, rice,
cotton, and sugarcane, which account for 37% of the value added in agriculture. Among the minor
crops, oilseed is the most important product, followed by the fruits and vegetables.
During the 1990’s the average annual growth rate was 4.5% but fluctuated widely from -5.3% (1993-
94) to 11.7% (1995-96). The performance of agriculture in the recent past has remained subdued
owing to the drought, which engulfed the entire country for three consecutive years. Consequently,
agriculture grew by 4.2% in 2002-03 as against an almost flat growth for the previous year. The
improved growth performance of agriculture is attributable to the impressive recovery by the major
crops.
The livestock sub-sector, which accounts for 39% of overall value added in agriculture (see Figure 3),
witnessed a modest growth of 2.9% in the recent past. The production of milk, egg and mutton are
estimated to have gone up by 2.9%, 2.3%, and 2.9% respectively. The fisheries sector, on the other
hand, witnessed a growth of 16.6% against a decline of 12% the previous year. Components of
fisheries such as marine fisheries and inland fishing contributed to an overall increase in the value
added of the fisheries sub-sector.
Figure 3: Pakistan Composition of agriculture, 2002-03, in% of value added
Forestry; 1,3%
Fishing; 3,4%
Major crops;
40,5%
Livestock;
38,8%
Minor crops;
16,0%
Source: Economic Survey and PC&A calculations
The main issue affecting the agricultural sector concerns the supply of irrigation water, dependent on a
vast network of irrigation canals which might not be able to accommodate increased demand in the
future. The development of new water storage and the set up of drip irrigation are developments which
the Government is tackling, to avoid bottle necks in the sector.
The second most important feature of the sector is the lack of infrastructure to achieve proper
conservation of harvests, while the marketing/distribution of the products, as well as the financing of
the small farms are also significant issues to be addressed.
1.8.2 Manufacturing
Within the manufacturing sector, the textile industry is the most important, accounting for about 46% of
the manufacturing sector in terms of GNP.
Manufacturing is the second most important individual sector of the Pakistan’s economy. This sector
performed reasonably well in recent years. Growth rates amounted to 4.0% in 2001-02 and 7.7% in
2002-03. Large scale manufacturing, which accounts for 71.2% of overall manufacturing, performed
best, growing by 8.7%. This can be attributed to improving macroeconomic environment, sharp
recovery in exports and the availability of consumer financing at reasonable rates.
Within the manufacturing sector the textile industry is the most important. In spite of the Government’s
efforts to diversify the industrial base and exports, textile remains the backbone of the industrial activity
in the country. Its share in the economy, in terms of GDP, exports, employment, foreign exchange
Page 22
earnings, investment, and contribution to the value added in industry makes it the single largest
determinant of growth in the manufacturing sector.
The demand for textiles in the world is around USD 18 trillion. Pakistan has emerged as one of the
major cotton textile product suppliers in the world market and its share in world yarn trade is about
30%. The share of textiles in Pakistan’s export earnings is 68% (USD 7 billion). Value added in the
sector accounts for 9% of GDP; the sector's share in employment is 38% of the industrial workers. For
the last three years, the Pakistan’s textile sector has been preparing to face the challenges of the post-
quota regime in 2005.
The Textile Vision 2005 report, besides providing a road map to enhance exports, also sets
benchmark investment requirements for the creation of new capacities and upgrading of the existing
production base. Textile Vision 2005 maintains that during the initial phase, heavy investment would
be needed to create additional capacity in the apparel industry. Meanwhile, the textile sector received
USD 1.5 billion worth of investment during the last three years.
Textile production comprises cotton ginning, cotton yarn, cotton fabric, fabric processing (grey-dyed-
printed), home textiles, towels, hosiery and knitwear, and readymade garments. The textile industry
consists of large-scale organised sector and unorganised cottage/small and medium units. The
performance of all these sectors in terms of production and exports has been exemplary during the last
three years.
The automotive industry is one of the emerging industries in Pakistan. There are 18
automobile/motorcycle manufacturing units in assembling operations which are supported by 850 units
manufacturing auto parts. The auto industry and downstream vendor industry employ more than
100,000 people. The performance of the automobile industry has been very good during the recent
past. The impressive recovery touched almost every segment of the auto industry. The auto industry is
the forerunner of growth in the large-scale industry.
The other industrial sectors worth noting are the oil exploration and production sector, facing a buoyant
future, further to incoming privatisation. The power generation sector still requires investment despite
the large recent increases in generation capacity.
Further to the privatisation of the cement plants, and the recent boom in the construction industry,
cement manufacturing is performing very well. Similarly, the privatised fertiliser plants are fully
operational.
The pharmaceutical sector with a large presence of the main international corporations is a major
player now in the country.
The leather goods industry and, to a limited extent, the metal surgical instruments sector, mostly based
in Sialkot, are impressive exporters.
On the negative side, the chemical industry as well as the steel production present deficiencies in the
range of products manufactured, their quality as well as their price competitiveness. Large investments
in these sectors will have to be considered to ensure the necessary base for downstream industries.
1.8.3 Services
Wholesale and retail trade has the highest share within the services sector (30.6% - see Figure 4)).
Transport & communications and services together account for about 40% with equal shares of 20%.
The public administration, defence and ownership of dwelling account for one-fourth of the total
services sector and their share is 13% and 12% respectively.
The services sector has been growing at a faster pace than the other sectors of the economy for quite
some time. The trend remained unchanged during 2002-03 as the services sector grew by 5.3%
against 4.1% in 2001-02. Within the sector, the wholesale & retail, transport, storage and
communication sub-sectors contributed positively to the overall development of the sector.
However, the finance and insurance sub-sector remained depressed as far as value addition is
concerned. The sub-sector registered a decline of 1.4% in value added during 2002-03 against the
target of 5.1% and the previous year’s achievement of 8.1%.
Page 23
Public administration and defence also contributed positively to the overall growth of the sector.
Similarly, two minor sub-sectors, ownership of dwelling and social services, have maintained a positive
contribution to the growth of the sector.
Figure 4: Pakistan Composition of Services sector, 2002-03, in% of value added
Finance & Insurance (4.7)
Ownership of Dwellings
(12.2)
Wholesale &
Retail (30.6)
Public Admin. & Defence

(13.0)
Transport & Communication

Services (19.9)
(19.5)
Source: Pakistan Federal Bureau of Statistics
1.9 Economic reforms and policies
Since 1999, the Government has initiated a number of reforms to address governance problems and
long-standing structural challenges. The Government has been implementing reforms across a broad
front, despite some problems at implementation stage due to capacity constraints, absence of
technical know-how at critical levels and strong resistance in some areas.
Pakistan is assisted in many of its efforts by international financial institutions such as the European
Union, the International Monetary Fund, the World Bank and the Asian Development Bank.
In the 1990s Pakistan suffered a number of political, economic, and financial shocks. Bad governance
contributed to large non-performing loan portfolios at the public sector banks, poor delivery of social
services, and major inefficiencies and financial losses at public enterprises. Despite efforts at tax
reform, the tax-to-GDP ratio remained stuck at about 13% and the fiscal deficit remained above 6%
causing a continuous increase in the already large public debt. Failure in governance and financing
also adversely affected the strategy to narrow the social gap by improving basic education, health, and
reduce gender imbalances through the Social Action Programme (SAP), which did not yield the
expected results.
By the end of the 1990s, Pakistan faced a tough future. Low growth rates and large macroeconomic
imbalances led to an unsustainable debt burden with debt indicators worst than those of many Highly
Indebted Poor Countries (HIPC). A weakening economic growth along with weak progress on human
development caused poverty to stagnate at around 33% throughout the 1990s.
The Government that came to power in October 1999 has initiated a number of reforms to address
governance problems and long-standing structural challenges. The new Government showed
awareness of the country’s difficult circumstances. Its response was the quick articulation of ambitious
reforms aimed at modernising Pakistan, and its institutions. Many aspects of the reform agenda built
on efforts of previous administrations, yet a salient feature was the Government’s attention to
governance. Crosscutting measures to improve governance were made the centre of the reform
programme so that Pakistan could gradually rebuild its severely eroded credibility, re-establish
confidence in public institutions, and improve the investment climate to revive growth.
Progress in the implementation of reforms is unprecedented – both for the scope and the depth of
reforms. In the short period of time leading to the fiscal year 2003-03 budget, the Government made
significant progress in turning around the poor governance environment that was at the core of
Pakistan’s deteriorating performance. It implemented measures to reform key institutions, reduce the
Page 24
fiscal deficit, encourage export-oriented growth, improve the climate for domestic and foreign
investment, strengthen the banking system, improve public financial management and accountability,
enhance transparency, and external oversight of Government actions, strengthen social safety nets,
and improve the delivery of key public services in health, education, and family planning.
These reforms were actively supported by Stand-By Arrangements approved by the IMF, new short-
term liquidity relief by the Paris Club, Structural Adjustment Credit approved by IDA, and new
programme lending by the Asian Development Bank (ADB).
1.9.1 Budget and fiscal reform
The main characteristics of the Pakistan budget over the years have been:
- The low%age of tax collection compared to GNP, presently at around 17.6%;
- The persistence of a significant budget deficit (while reduced to 4.6% in 2002/03) with increased
indebtedness as a consequence;
- The cost of servicing the debt (despite much reduced rate of interest lately);
- The cost of the armed forces;
- the limited amount of funds available to invest in infrastructure development.
Like many other developing countries, fiscal profligacy has been the main underlying cause of
macroeconomic instability in Pakistan during the 1990s, which in turn impeded the medium-to-long
term economic growth prospects. Persistence of large fiscal deficits (on average 7% of GDP) resulted
in sharp accumulation of public debt as it increased from 91.3% to 103% of GDP during the 1990s. In
1990-91, almost 38% of the total revenue was consumed to fund debt servicing and in 1999-2000 debt
servicing increased to 64% of total revenues.
Furthermore, the total expenditure to GDP ratio exhibited a declining trend in the 1990s. This decline
has occurred primarily at the cost of development expenditure. The development expenditure
decreased from 6.5% of GDP in 1990-91 to just 3% in 1999-2000.
Various attempts were made in the past to achieve fiscal consolidation. Despite imposition of new
taxes, additional tax measures, and curtailment of non-essential expenditures, these efforts could not
achieve the desired goals. One cause of this was Pakistan’s tax structure which suffered suffered from
several weaknesses, as it was complex, inelastic and inefficient.
Realising the weaknesses of Pakistan’s tax structure, a concerted effort was launched in 2000. The
Government launched a series of wide-ranging tax and tariff reforms on the one hand and fiscal
transparency on the other, with a view to reduce the tax rates, to broaden the tax bases to hitherto
untaxed or under taxed sectors. The emphasis was on shifting the incidence of taxes from international
trade and investment to consumption and income. In the course of reforms, the Government has
abolished the wealth tax, the number of taxes at the federal and provincial level has been reduced and
tariffs have been brought down to a maximum of 25% (except on automobile exports).
After three and a half years of extensive efforts, fiscal imbalances have been narrowed. The average
fiscal deficit of almost 7.0% of GDP in the 1990s has been reduced to an average of 5.0% during the
last three years (2000-03). The notable achievement of the fiscal year 2002/2003 has been a further
reduction of the fiscal deficit to 4.6% of GDP. Revenue deficit (the difference between total revenue
and total current expenditure), a measure of Government dis-saving, has been narrowed from an
average of 3.0% to 1.0% of GDP in 2002-03. Primary balance (total revenue minus total non-interest
expenditure) remained in surplus to the extent of 1.5% of GDP in 2002-03.
Reduction in fiscal deficit is the result of improvements in revenue and curtailment of expenditures.
Total revenue as%age of GDP increased from 17.2% to 17.6% and total expenditure declined from
22.8% to 22.2% in fiscal year 2003. Current expenditure in fact declined sharply from 19.3% to 18.1%.
The overall performance of tax collection remained encouraging as the Central Board of Revenue
(CBR) collected 15% more revenues than the previous year.
The planned budget for 2003-04 is presented in Table 2.
Page 25
Table 2: Federal Budget 2003-2004
Source: Ministry of Finance of Pakistan
1.9.2 Liberalisation and privatisation
The Government is also striving hard to bring substantial deregulation and liberalisation so as to take
the economy as close as possible to a fully market-oriented system. Accordingly there has been
substantial reduction in direct intervention and steps are being taken to open up the economy to
international competition.
Along with liberalisation, Pakistan has set up a privatisation programme in order to strengthen the
private sector. Since the 1970s, Pakistan has relied on the public sector to provide nearly all
infrastructure and financial services and to run industrial units. The Government nationalised many
businesses and thus owned and operated services in banking, energy, telecommunications, transport
and infrastructure. As in many developing countries these state-owned enterprises faced losses due to
mismanagement, overstaffing, inappropriate investment, poor quality services and failure to tap the full
potential.
Since 1991, privatisation has been promoted in order to relieve public finances, attract new investment
and enhance the quality and quantity of goods and services. The Government has established a
Privatisation Commission and entrusted it with selling federal Government property. By the end of May
2003, the Privatisation Commission completed 132 transactions amounting to 99.7 billion rupees. A
Page 26
recent landmark in the privatisation programme was the divestiture of the Government's minority
interest in seven oil and gas concessions and the sale of Pak Saudi Fertilisers which was the largest
industrial transaction in the history of Pakistan's privatisation programme. More details on privatisation
are provided in section 1.25.
1.9.3 Financial sector reform
1.9.3.1 The banking sector

Under the guidance of the World Bank and the IMF, the banking sector in Pakistan shall be nearly fully
privatised by the end of 2004. The financial markets have increased in size and depth to levels never
seen before, offering ample liquidity at very competitive rates.
Until recently, the Nationalised Commercial Banks (NCBs) accounted for more than 50% of the
banking system’s assets and deposits. Long term financing was channelled through Government
owned development finance institutions (DFIs). Due to politicisation and reliance on direct and
subsidised credit, these institutions accumulated a large portfolio of non-performing loans (NPLs)
which adversely affected their profitability and performance as financial intermediaries. Due to a weak
legal and regulatory regime, limited competition and high explicit and implicit taxes, intermediation
resulted in exceptionally high interest rate spreads.
The present Government has attached high priority to financial sector reform and restructuring. These
priorities implied the privatisation of the NCBs and the closing of the DFIs. Meanwhile, considerable
progress has been made in strengthening prudential regulations, supervision of the banks as well as
improving corporate governance.
Changes in laws were made to allow both independent boards and management of public sector
banks and DFIs. Corporate governance has been strengthened with amendments to the Banking
Companies Ordinance and Banks Act, to allow professionals from the private sector into the board of
directors as well as appointment of private sector professionals as bank managers. In addition,
changes in the law protected the banks from interference.
The SBP Act was amended to provide greater autonomy to the State Bank for formulating and
regulating the monetary and credit system. In addition, amendments in the Banking Ordinance allowed
consolidation of SBP’s role as the sole regulator of the banking system. The State Bank has also
undergone extensive reforms particularly for strengthening its human resource base and streamlining
processes through investment in information technology.
The very core of Pakistan’s strategy for improving the performance of the banking sector is to privatise
the nationalised banks and divest minority in the two partially privatised banks. The privatisation
process started in 1991 with privatisation of two of the original five NCBs while the banking sector was
steadily opened to domestic and foreign competition. In September 2002, the United Bank Limited was
sold to a foreign group, while Habib Bank is close to the point of sale.
A large portfolio of non-performing loans, serious shortage of new funding, low institutional efficiency
and gross overstaffing led to the restructuring of the DFIs in 2000. Bankers Equity Limited (BEL) was
liquidated, National Development Finance Corporation (NDFC) was amalgamated with National Bank
of Pakistan (NBP), and The Small Business Finance Corporation and Regional Development Finance
Corporations merged into a new SME Bank.
The Agriculture Development bank (ADBP) and the House Building Finance Corporation (HBFC) were
subjected to continuing restructuring to make them more effective.
A gradual process of strengthening the Islamic Banking system in parallel with the conventional
banking is underway. Various banks have introduced Islamic banking operations with Mezan Bank and
Muslim Commercial Bank leading the way and various other banks applying for licenses to undertake
Islamic banking.
1.9.3.2 The capital market

Pakistan’s capital market comprises its stock market and the recently emerging commodities market.
The stock market made up of the 3 stock exchanges: the Karachi Stock Exchange (KSE), the Lahore
Stock Exchange (LSE) and the recently established Islamabad Stock Exchange (ISE) with KSE in the
Page 27
lead. The Government’s capital market reform programme over the last three and a half years has
significantly strengthened the capital markets and Pakistan is today largely compliant with the
International Organisation of Securities Commission’s (IOSCO) 30 principles of securities regulation.
Although equity issues have not picked up, there has been a significant increase in debt capital issues,
the aggregate amount of new capital listed in the last two years being as much as Rs 30 billions.
During the fiscal year of 2003, Pakistan’s stock markets, recognising the relative macro economic and
political stability of the country, witnessed positive buoyancy. The KSE-100 index, recording
phenomenal growth, has been acclaimed as the best performing market in the world during the
calendar year 2002 and onwards, recording for the fiscal year 2003 a share index increase of more
than 70% in USD terms. A comparison of the regional market index for the year to June 2003 is given
below.
Figure 5: Regional markets index
80
75
70
65
60
55
% Change in US $
50
45
40
35
30
25
20
15
10
5
0
-5
-10
-15
-20
-25
Pakistan
Srilanka
Malaysia
Indonesia
Thailand
Philippine
China
Singapore
Hong Kong
Korea
Taiwan
Japan
India
The Central Depository Company of Pakistan (CDC) launched five years ago provides an efficient
settlement method through a state-of-the-art settlement system. It is currently carrying 7,000 investor
accounts, having more than 1.2 billion securities. This is one of the major achievements of the capital
market development programme and has tremendously helped in promoting efficiency and
transparency in the capital market. The National Clearing and Settlement System (NCSS) was
launched on 24 December 2001, and the number of security trades at NCSS is being gradually
increased. The CDC also has a comprehensive arrangement with NCSS. The CDC continues to
diversify its operations by adding more features and functionalities, which are synergetic to its core
activity such as handling its first electronic de-merger of ICI Pakistan into two entities. The
implementation of T+3 settlement system has resulted in an increased settlement volume, despite a
20% reduction in transaction fees, effective from November 2001.
The capital market reform includes measures taken by the Securities & Exchange Commission of
Pakistan (SECP) to strengthen the regulatory mechanisms, and to introduce an effective code of
corporate governance, curtailing the “Undisclosed Trading System” where the identity of the buyers
and sellers are not disclosed. Various regulations to strengthen the capital markets were brought in
such as a new “take over law” promulgated on November 1, 2002, regulation on Futures Trading in
provisionally Listed Companies and approval of the concept of an Over-the-Counter (OTC) market.
The Commission has approved the establishment of the National Commodities Exchange Limited
(NCEL), for trading in future contract in commodities. The NCEL is the first de-mutualised exchange
and will be sponsored by the three stock exchanges of Pakistan.
Page 28
1.10 Short and medium-term economic performance
1.10.1 Economic growth trends
During the 1980s, Pakistan's economy increased by an average annual rate of 6.1%. Growth slowed
down in the 1990s to 4.9% in the first half and 4% in the second half of the decade. In the period 2001
to 2005 economic growth in Pakistan was expected to be lower than in other countries in the region.
Nevertheless, the growth rate is expected to improve continuously from 2.5% in 2001 to 5.5% in 2005,
and to catch up with the average of Asian countries by 2005.
The Pakistani economy had to withstand several external problems in FY2001 and 2002, namely the
shocks generated by the events of 11 September 2001 (see Box 3), tension on the border with India,
slow growth in the global economy, and a severe drought affecting the agricultural sector. However,
due to Pakistan's recent economic reforms and support from the major creditors, macroeconomic
fundamentals have been able to recover significantly.
Stronger than anticipated pick up in growth is one of the important developments. Economic growth
has been broad-based as all the three major components, namely, agriculture, manufacturing, and
services staged a robust recovery. The GDP grew by 5.1% against the target of 4.5% in fiscal year
2003 and previous year's achievement of 3.4%.
While growth slowed in many countries as a result of rising uncertainties in 2002-03, Pakistan posted a
relatively stronger growth, exceeding the average growth of developing countries (4.6%). When
compared with the growth performance of Hong Kong, Singapore, Indonesia, Malaysia, Philippines,
India, Bangladesh annd other countries, Pakistan's growth performance stands out clearly (Figure 6).
Only very few countries - China (8.0%), Korea (6.1%), Thailand (5.2%) and Iran (6.0%) – have
outperformed Pakistan.
Figure 6: Comparison of average growth rates of various countries with Pakistan 2002-2003
6
Average Growth rates (%)
0
es
g
sh
sia
y
e
sia
a
ka
an
SA
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on
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The overall outlook for the years to come is positive. All indicators point to further growth of the
economy and the targets are going to be outperformed in all probability. However, the Government has
to continue the course of reforms it has pursued in the last years despite an improving fiscal and
external balance situation.
Page 29
Box 3: The impact of 11 September 2001 on the Pakistani economy

The events of 11 September 2001 adversely affected the Pakistani economy. In the aftermath of the terrorist attack, there were
cancellations of export orders and obtaining new orders had become more difficult. Therefore, export earnings declined by 0.7%
to approx. USD 9 billion in 2002. Additionally, exports became more expensive since international transport and shipping
companies had to cater for increased risks resulting in a jump of freight costs and in a decline of cargo capacity. Economic
growth was as well affected by a generally more reserved investment environment.
11 September 2001 had also negative implications on Pakistan's fiscal deficit as revenues were declining due to the drop in
exports while expenditures, particularly on defence, were increasing. The fiscal deficit finally amounted to 5.2% of GDP;
compared to projected 4.9%.
Though there were immediate negative effects on the economy and external as well as fiscal balances, Pakistan could at the
same time benefit from the new political environment, as it has become a front-line state in the war against terrorism. The lifting
of nuclear-related sanctions, increased likelihood of economic assistance, debt rescheduling and better access to US and
European markets contributed to a mid-term positive side-effect on the overall economy.
The growth rates of the individual sectors differ substantially (see Figure 7). Agriculture, the backbone
of Pakistan's economy, experienced difficult times in FY2001 and 2002 due to a severe drought and
successive dramatic water shortages. As a consequence, agricultural output dropped by 2.7% in 2001
and almost stabilised in 2002 owing entirely to the good performance of the livestock sub-sector, which
increased by 3.7%. In FY 2003, the water availability improved as water conditions turned favourable.
So did agriculture by managing to rise by 4.2%.
The manufacturing sector has grown by 7.7% in the last fiscal year after an increase of 5% the year
before. The sector surpassed targets by far, enabled by improvements in the macroeconomic
environment, a sharp recovery in exports and the availability of consumer credits at reasonable rates.
Services have been growing steadily even at a faster pace than the commodity producing sector. For
FY 2003 the growth rate amounted to 5.3%.
Figure 7: Pakistan Growth rates of main economic sectors, 1998–2003, in%
10.0
8.0
6.0
4.0
2.0
0.0
-2.0
1998-99 1999-00 2000-01 2001-02 2002-03
-4.0
Agriculture Manufacturing S ervices S ector
1.10.2 Inflation
The inflation rate in Pakistan is presently low. In the first half of the 1990s Pakistan saw inflation rates
fluctuating around 10%, measured by a consumer price index. Inflation combined with a large fiscal
deficit was the major source of macroeconomic imbalances in this period. Causes for the inflation were
attributed to an easy-going fiscal management resulting in an excessive money supply, imported
inflation and inflationary expectations, among others.
Since monetary and fiscal reforms have been put into practice, through tight monetary policy and
prudent fiscal management, inflationary pressures have diminished (see Figure 8). Since 1997 inflation
has dropped significantly to 3% at present.
Page 30
Figure 8: Pakistan Annual rate of inflation, 1990-2003, in%
14
12
10
0
19 1
19 2
19 3
19 4
19 5
19 6
19 7
19 8
19 9
20 0
20 1
20 2
3
-0
-0
-9
-9
-9
-9
-9
-9
-9
-9
-9
-0
-0
90
91
92
93
94
95
96
97
98
99
00
01
02
19
1.10.3 Employment
Pakistan's labour force is made up of an estimated 42.75 million persons, corresponding to a labour
participation rate of approximately 29%. The labour force is split between rural and urban areas at 70%
and 30% respectively. Female participation in the labour force is very low amounting to 9.3% while the
male participation rate is 47.6%. However, due consideration should be given to the female
participation in the labour force in the agricultural sector.
Nearly half of Pakistan's labour force is employed in the agricultural sector (see Figure 9). 19 million
persons are presently working in agriculture related activities. From 1998 to 2003 the employment
share of the agriculture sector has increased from 47.2% to 48.4% and that of the manufacturing &
mining sector from 10.1% to 11.5%. The share of financial & social services sector declined from
16.2% to 15.2%.
Figure 9: Pakistan Employment by sectors, 2003
Finance, Others; 0.7%

Insurance,
Community &
Social Services;
15.0%
Transport; 5.0%
Agriculture;
48.4%
Wholesale & Retail
Trade; 13.5%
Construction;
5.8%
Manufacturing &
Mining; 11.5%
Source: Economic Survey
Unemployment has risen from 5.9% in 1998 to 8.1% in 2002 and 7.8% in June 2003. Furthermore, it
has to be kept in mind that the definition of employment, as in many developing countries, is rather
loose and hence the true rate of unemployment has to be adjusted upwards.
Nevertheless, the Government has taken steps to reduce unemployment. Many job opportunities are
expected to be created by strengthening SMEs and self-employment. In addition to that, vocational
Page 31
and technical training facilities have been extended aiming to bring better skilled persons back to
employment.
1.11 Foreign trade
2003 has witnessed a further strengthening of the country's external balance of payments despite the
fact that the world economic environment remained difficult. Both exports and imports registered
impressive growth, the current account posted a large surplus, the workers' remittances surged, while
the strong build up in foreign exchange reserves further strengthened the rupee vs. the US dollar. A
substantial increase in FDI was recorded. These developments have almost eliminated Pakistan's
external account vulnerability. Now the challenge facing the country is to sustain these improvements.
1.11.1 Structure
Pakistan has traditionally been following a mix of both import substitution industrialisation and export
promotion strategies. However, encouraging import substitution and protection of the local industry,
primarily on the basis of the infant industry argument, had an overwhelming role in the formation of the
overall economic policies of Pakistan.
The stress of the recent medium-term trade strategy was thus to revamp and overhaul the tariff regime
in Pakistan. The objective was to reduce the inherent anti-export bias in the system and make
Pakistani exports more competitive in the international markets. The Government removed most of the
trade restrictions and anomalies by lowering and consolidating tariff. In 2002-03 the Government
brought down the maximum tariff rate to 25%.
Figure 10: Pakistan import and export evolution (USD million)
14000
12000
10000
8000
6000
4000
2000
0
1991- 1992- 1993- 1994- 1995- 1996- 1997- 1998- 1999- 2000- 2001- 2002-
92 93 94 95 96 97 98 99 00 01 02 03
Exports Imports BOT

Source: Pakistan: Federal Bureau of Statistics
As shown in Figure 10 above, import levels have remained higher than exports over the years,
however, the two have followed almost similar path. The reason for this similar pattern is that exports
are fairly dependent on imports, especially import of textile machinery. The balance of trade as can be
seen in the figure above has stagnated, during the past 5-7 years, at around USD 2 billion, coming
down gradually to USD 1 billion in 2003.
The Government has shown its resolve to move towards a free trade regime by reducing the number
of procedural restrictions for exports, including the removal of all the textile items from the negative list.
In the Trade policy 1999-2000 and 2000-2001, 16 procedural restrictions on exports were simplified.
Only 30 categories of items are on the negative list, banned due to health, safety/security, environment
and international convention reasons.
Furthermore, to help SME exporters meet their collateral requirements in order to have access to
export financing from the banks, a Pakistan Export Finance Guarantee Agency (PEFGA) was
Page 32
established and formally launched in July 2001. This Agency was designed and developed with the
help of international consultants and with close collaboration of the private sector and the Government.
With equity participation from 13 banks and ADB, PEFGA is now fully operational; it has started
issuing pre-shipment guarantees, and is aggressively marketing its products and services to its SME
clientele. During the period January to 31 December 2002, the PEFGA issued 102 financial
guarantees valued at USD 3.9 million.
Another important element of the Government’s Medium Term Trade Strategy was the establishment
of a Foreign Currency Export Finance Facility, which has complemented the reform of the Export
Finance Scheme (EFS). This USD 150 million facility enables exporters to meet their import
requirements by borrowing form this facility in US dollars. Under this scheme, market based export
finance is available to Small and Medium sized direct and indirect exporters. This scheme runs parallel
to the existing EFS as an additional and alternate facility.
Structural reforms in the trade regime and the steps taken by the Government during the past three
years have helped Pakistan regain its share in the international market. Despite all the unfavourable
circumstances for doing business, Pakistan’s exports have managed to cross the USD 9 billion mark in
2000-01 and 2001-02 and a record breaking USD 11 billion in 2002-03 (see Figure 11).
Figure 11: Pakistan Trend in Exports (1998-99 to 2002-03)
12
11
10
9
8
US $ Billion
7
6
5
4
3
2
1
0
1998-99 1999-00 2000-01 2001-02 2002-03
Source: Pakistan: Federal Bureau of Statistics
The major items that Pakistan has been traditionally exporting are presented in Table 3. The bulk of
Pakistani exports consists of cotton and cotton based textile products. Other important exports include
rice, carpets, leather and products, sports goods, and surgical items.
Table 3: Pakistan Major exports by Commodity (values in million USD)

1990-91 1991-92 1992-93 1993-94 1994-95 1995-96 1996-97 1997-98 1998-99 1999-00 2000-01 2001-02 2002-03
Rice 346 416 317 242 454 504 469 562 534 540 526 441 N/A
Yarn 1183 1173 1122 1259 1528 1540 1412 1160 945 1072 1074 942 953
Cloth 676 819 863 821 1081 1276 1262 1250 1115 1096 1032.5 1133 1380
Readymade Garments 497 614 618 612 642 649 736 747 651 772 827 882 N/A
Made-ups 355 398 477 415 504 601 665 755 866 1018 1073 1270 N/A
Towels 129 137 139 129 145 174 194 200 178 196 242 270 N/A
Knitwear 334 425 464 509 689 703 689 697 742 887 911 842 N/A
Carpets 222 230 174 151 198 209 199 200 203 264 289 233 223
Synthetic 347 418 503 648 575 457 512 618 399 458 545 410 N/A
Leather 271 333 399 389 349 333 364 343 334 339 426 239 241
Sports 136 141 131 199 265 248 309 384 256 279 271 295 344
Surgical 83 91 102 93 114 127 126 125 112 120 124 138 N/A
Others 2048 1379 1271 2445 1892 1240 1451 531 2056 1208 2139 1660 N/A
Total 6904 6814 6803 8137 8707 8320 8628 7779 8569 8422 9202 9124 11160
Source: Pakistan: federal Bureau of Statistics
The USA and the European Union are the two main destinations for Pakistan’s exports (Table 4). More
than 50% of Pakistan’s exports go to these two markets. The other important destinations include
Hong Kong, Japan, and the Middle East.
Page 33
Table 4: Pakistan Direction of Exports (Share% of each country in total exports)

1991-92 1992-93 1993-94 1994-95 1995-96 1996-97 1997-98 1998-99 1999-00 2000-01 2001-02 2002-03
USA 12.8 13.9 14.4 16.2 15.7 17.7 20.5 21.8 24.8 24.3 25.4 23.5
Dubai 4.4 5.9 6.3 4 4.7 4.6 5 5.4 5.7 6.7 8.3 9
U.K 6.6 7.1 7.8 7.1 6.5 7.2 6.9 6.6 6.8 6.3 8.1 7.1
Germany 7.1 7.8 8 7 6.9 7.5 6.3 6.6 6 5.4 6.7 5.2
Hong Kong 7.3 6.6 7.3 6.6 9.2 9.4 7.1 7.1 6.1 5.5 5.2 4.6
Italy 3.2 2.6 2.7 2.9 2.8 2.9 2.7 2.7 2.4 2.5 3.2 3
France 3.9 4.3 4.1 3.3 3.1 2.9 2.9 3.1 3.3 2.9 3.6 2.6
Netherlands 2.2 2.6 3.1 3.2 3.1 3.3 3.2 3.1 2.7 2.5 3.3 2.6
Belgium 1.4 1.7 2.3 2.6 2.4 2.6 2.7 2.4 2.4 1.9 3.1 2.2
Japan 8.3 6.8 8 6.7 6.6 5.7 4.2 3.5 3.1 2.1 2.3 1.3
Others 21.3 22 20.2 23.6 23.7 22.4 23.9 23 23 24.8 30.8 38.9
The import trend over the years definitely points towards industrialisation. Growth in imports slowed
down to about 5% per year in the 1980s and 1990s (Figure 12). The share of consumer goods
decreased from 20% in the 1970s to 14% in the 1990s. On the other hand the share of raw material
increased from 40% in the 1970s to 48% in the 1990s. The share of capital goods remained more or
less the same across the three decades.
Figure 12: Pakistan Growth in Imports over the Years

35
30
25
Ave. Annual GR
20
15
10
0
1970s 1980s 1990s 2000-03
Petroleum and derivative products constitute the single largest category of imports in Pakistan (see
Table 5). Their share in total imports is almost one-fourth. The demand for petroleum products in the
country has shown a steady growth since 1982-83.
Import of machinery constitutes the second largest category with a share of more than 16% of total
imports of Pakistan. This category of imports also registered a sharp increase since the mid 1980s.
Within the machinery group, textile machinery imports rose sharply during the 1980s and early 1990s.
In the recent past, since 2000-01, the growth in import of textile machinery has once again increased
very rapidly.
The composition of imports has undergone a significant change. The share of capital goods in total
imports rose but the share of industrial raw material for capital goods, which was quite low in 1972-73,
has since then declined further. This shows the country’s increasing dependence on imported
machinery and other capital goods. The share of raw material declined form 56% to 50% between
1973 to 2001-02, while the share of capital goods was erratic but generally remained around 35%
during the same period. The proportion of consumer goods in Pakistan’s total imports remained
between 14 to 17%.
Page 34
Table 5: Pakistan Major Imports by Commodity (values in million USD)

1992-93 1993-94 1994-95 1995-96 1996-97 1997-98 1998-99 1999-00 2000-01 2001-02 2002-03
Iron & Steel 315 327 373 484 464 321 293 305 278 336 402
Medical Product 230 232 264 327 273 249 264 259 239 228 222
Fertiliser 250 267 128 345 387 208 265 198 171 176 240
Paper & Paper
Board 138 124 127 156 128 121 113 118 125 137 132
Transport
Equipment 1248 834 617 554 560 483 541 564 426 501 685
Edible Oil 584 488 997 856 612 768 824 414 327.6 393 587
Chemicals 1011 996 1195 1514 1310 1340 1303 1540 1740 1456 1825
Tea 207 187 188 170 134 227 223 210 206 157 173
POL & Products 1542 1400 1587 1988 2255 1572 1465 2804 3361 2807 3066
Machinery excl.
Transport Equipm. 2417 1885 2371 2555 2742 1915 1683 1683 2068 1541 2257
Others 1961 2835 2549 2856 3030 2914 2458 2215 2668 2380 2871
Total 9902 9573 10394 11805 11894 10118 9432 10309 10729 10340 12220
1.11.2 Foreign trade policy: recent developments
In the recent past, a number of steps were taken to improve export profitability.
Tax refunds: a delay in sales tax and custom duty refunds had become a serious problem for exporters
as it created serious liquidity constraints. Special attention was given to resolve this issue. Sales tax
and customs duty refund registered a growth of more than 37% during the year 2002-2003 over the
previous year (2001-02), confirming efforts by the Government to reduce this burden.
Duty and Tax Remission for export (DTRE) rules were formulated and introduced in 2000-01.
Introduction of DTRE rules and speedy refunds of sales tax and custom duties has minimised the need
to get export finance that entails financial costs (now at market rates); this in turn has reduced the cost
of doing exporting business and thereby made it more profitable and competitive.
Export finance is another area, which has been given special attention during the last three years.
Although the subsidy on export refinance was withdrawn as part of a commitment agreed upon with
the IMF under the Structural Adjustment Programme, new instruments to facilitate access to export
finance were introduced such as the Pakistan Export Finance Guarantee Agency (PEFGA).
Realising the importance of quality control, the Government has encouraged exporters to go for better
quality. In the Trade Policy 1999-2000 it was announced that exporters who are ISO 9000 and ISO
14000 series certified are no longer required to obtain Pakistan Standard Marks, as per provisions of
the Pakistan Standards and Quality Control Authority Act of 1996, for exports of a number of
manufactured goods. The Government of Pakistan hired the services of internationally recognised
consultants to help establish a national accreditation infrastructure, focusing the National Accreditation
Council (PNAC) and developing ISO 9000 and ISO 14000 schemes. The PNAC is now in place and
fully active. Realising that a comprehensive quality policy is needed to address the emerging global
requirements of trade, environment, health, and safety of the consumers, the Pakistan National
Accreditation Council has initiated work on the formulation of a National Quality Policy. The objective
of the policy is to enhance Pakistan’s image as a provider of quality products and services to the
international markets.
In the Trade Policy 2001-02 it was announced that provision of unhindered access for exports to world
markets would be the primary focus of the Government. To provide greater market access, the Ministry
of Commerce compiled a comprehensive list of all kinds of barriers that Pakistani exports faced in
various markets. Necessary remedial measures were accordingly initiated and with persistent efforts,
Pakistan managed to achieve preferential and greater market access for most of its exports, including
its textile products in the European markets, the single largest trading partner of Pakistan.
In addition to the successful negotiations with the EU some progress was also made in getting greater
market shares in USA and Turkey. Similarly, talks on bi-lateral Free Trade Agreements (FTA) with
countries in the region (Bangladesh and Sri Lanka) were also initiated. Free Trade Agreement with Sri
Lanka has already been signed on August 01, 2002.
Page 35
1.11.3 Trade balance
Pakistan’s trade performance over the last two decades (1983-2003) generally compares well with the
dynamic East Asian countries. The volume of Pakistan’s export grew from 6% a year during 1973-
1983 to 10.2% during 1984-2002, while East Asian export volumes increased from 8.5% to 11.0%
during the same period.
Because of this lower trade performance, Pakistan’s share in world trade has remained small. In
addition, declining prices for Pakistan’s key exports have eroded dollar earnings. As a result,
Pakistan’s share in global exports since 1972-73 has not exceeded 0.2% of total world trade.
Moreover, Pakistan’s exports remained concentrated towards a limited number of markets and
diversification of exports in terms of commodities exported remained minimal.
Figure 13: Pakistan Pattern of balance of trade
-0.5
Trade balance in billion $
-1
-1.5
-2
-2.5
-3
-3.5
1980-81 1990-91 1995-96 1999-00 2000-01 2001-02 2002-03
During 2000-01 Pakistan’s trade deficit has been recorded at an all time low of 2.58% of GDP. In
2002-03, the trade deficit in Pakistan was USD 1.1 billion.
As shown in Figure 13, Pakistan’s balance of trade deficit has been reducing regularly over the last
few years. However, after the events of 11 September 2001, foreign remittances have experienced
massive growth, as Pakistanis working abroad started using formal channels to send their remittances
back home. For the first time in the history of Pakistan, its current account became positive– about
USD 2.2 billion in 2002 and USD 4.3 billion in 2003.
1.11.4 Trade with EU countries
1.11.4.1 General trade pattern

The secession of East Pakistan in 1971 created structural changes in Pakistan’s trade as part of the
country’s internal trade was ‘externalised’ while Pakistan had to find markets for substantial portion of
a number of commodities/products previously sold to East Pakistan. The country was able to diversify
its trade relations and find new markets. The most significant development was the emergence of
countries in Western Europe and the USA as markets for Pakistani exports. The USA and Europe also
became a major source of imports for Pakistan while Japan became an important supplier of capital
goods and industrial raw material.
The European Union (see Table 6 and Figure 14) is the single largest trading partner of Pakistan and
during fiscal year 2003, the share of Pakistani exports to the EU markets was in excess of 30% of
Pakistan’s total exports. The exports to the EU market this year grew by more than 22% over the
previous year. Pakistan enjoys a reasonable trade surplus with the EU. This growth in exports to the
EU was primarily due to the enhancement of 15% in the textile quota and therefore, an increased
market access for Pakistani exports from January 2002.
Page 36
Table 6: Pakistan Pattern of trade with EU countries (1998-99 to 2002-03, values in million USD)
Country 1998-99 1999-00 2000-01 2001-02 2002-03
Export Import BoT Export Import BoT Export Import BoT Export Import BoT Export Import BoT
Austria 19.2 13.6 + 18.2 20.2 - 18.3 13.1 + 27.4 16.9 + 26.1 26.2 =
Belgium 200.3 144.9 + 209.2 125.6 + 174.9 182.1 - 178.4 258.4 - 239.8 295.4 -
Denmark 45.6 16.3 + 41.7 17.9 + 36.9 21.9 - 35.2 21.2 + 40.1 33.9 +
Finland 17.2 13.8 + 16.2 20.2 - 15 14.6 + 17.6 20 - 20.3 33.3 -
France 266.2 190.2 + 292.4 232.6 + 265.2 145,9 + 247.7 133.1 + 291.3 162.1 +
Germany 550.7 411.4 - 530.3 437.8 + 494.6 382.9 + 452 440.2 + 579.3 562.3 +
Greece 46.4 11.6 + 43.6 10.2 + 44.7 7.1 + 50.4 7.9 + 67.2 9.5 +
Ireland 12.4 34.2 - 14.4 32.9 - 17.3 19.8 + 19.6 13.8 + 25.7 18 +
Italy 221.6 275.5 - 216.5 177.1 + 231.3 179.4 - 256.3 213.7 + 348.8 257.8 +
Lux’burg 1.2 0.81 + 1.5 0.6 + 2.1 0.8 + 1.66 1.8 - 0.6 3.3 -
Neth’land 260.3 158.2 + 237 158.2 + 232.8 179.2 + 258.6 175 + 286.9 193.9 +
Portugal 77.3 5.6 + 80 2.7 + 88 1.3 + 71.1 2.1 + 73 3.7 +
Spain 157.1 49.8 + 155.5 49.8 + 162.4 46.8 + 173.8 58.3 + 228.7 56.1 +
Sweden 69.1 42.2 - 63.4 51.2 + 61.4 47.7 + 60.8 33.8 + 58.4 39.4 +
UK 553.9 433.1 + 599.5 367.9 + 576.4 351.9 + 661.9 356.6 + 788.3 356.2 +
Total EU 2490 1801 + 2519 1705 + 2421 1595 + 2513 1753 + 3074 2051 +
Figure 14: Pakistan Trade with European Union Countries, USD million
3500
3000
2500
2000
1500
1000
500
0
1998-99 1999-00 2000-01 2001-02 2002-03
Export Import
1.11.4.2 The EU Generalised Scheme of Tariff Preferences (GSP)

Trade between Pakistan and the European Union is regulated through a bilateral agreement under
which export of certain textile categories to the 15 Member States of the EU is under quota restraints.
Pakistan achieved a major breakthrough on 15 October 2001 when a comprehensive package of trade
measures aimed at improving access to each other’s markets was agreed upon between Pakistan and
the EU. The main concession secured from the EU under this package was an increase in quota levels
for import of Pakistani textile and clothing products by 15% which by 2004 will grow to 60%. However,
from the 1 January 2005, the following sectors shall “graduate” and will revert to the normal tariff
regime: XVII leather, raw hide and skins, XVIII leather articles, XXI textile and XXII clothing, as per the
Commission regulation (EC) N° 2331/2003 of 23 December 2003.
In addition, Pakistan also succeeded in obtaining from the European Union, under special
arrangements to combat drug production and trafficking, a zero tariff for all its products except where
Pakistan has ‘graduated out’ by virtue of its high market share. Thus this tariff concession which came
into force in 2001-02 covers about 75% of Pakistan’s exports to the European Union. See the Council
Regulation (EC) N° 2501/2001 of 10 December 2001.
However, the improved quota and tariff for the Pakistan textiles are now subject to review by the
European Union, further to complaint by India to the WTO, for undue preference (see Box 4).
Page 37
Box 4: Recent developments concerning the EU-GSP with Pakistan

Pakistan is expected to be out of the drug window of the European Union’s generalised system of preferences (GSP) scheme
with a World Trade Organisation (WTO) panel ruling against the provisions of the GSP. Though India will benefit from the ruling,
Brussels is to determine whether or not Pakistani textile sector has graduated out of the scheme by issuing a notice for the
purpose, say commerce and textiles ministry officials. They, however, avert that the exercise of issuing a notice to Islamabad will
take some time, thereby delaying the benefits flowing from the panel’s recent ruling.
Brussels had taken a “unilateral” decision to extend duty-free concession to the Pakistani textile industry under the drug window
of its three-year GSP scheme from January 1, 2002.
The panel, however, had upheld New Delhi’s contention that the decision had adversely affected India’s textile exports to the
Union. To support their viewpoint, officials said the utilisation of quotas by the Pakistani textile sector had increased in 2002 over
2001— from 72.43% to 86.07% (knitted shirts), from 21% to 39.71% (blouses) and from 18.69% to 36.97% (gent’s shirts).
Officials also pointed out that the compounded annual growth of Pakistani textile exports to the EU had increased during 2002,
while that of India had declined.
Source: World of Garment-Textile-Fashion, Fibre 2 fashion, News and Views, 21st October 2003
Another issue being presently discussed at the EU level is the imposition of an anti-dumping duty on
Pakistan exports of bed linen.
1.11.5 WTO issues and developments
The last Round of the General Agreement on Tariff and Trade (GATT) successfully completed – the
Uruguay Round (UR) – produced a rich array of accords that opened substantial new trading
opportunities, strengthened international trading rules, and reinforced the institutional foundation of the
world trading system. The main features of the UR are:
– Greater market access including time-bound reduction in tariffs, tariffication and removal of non-
tariff barriers (NTBs)
– Improved rules in trade in agricultural goods, textiles, subsidies, anti-dumping, licensing, and
custom’s valuation.
– New areas such as General Agreement on Trade in Services (GATS), Trade-Related aspects of
Intellectual Property Rights (TRIPS), and Trade-Related Investment Measures (TRIMS).
– Better mechanism for enforcement of rules and dispute settlement.
As one of the founding members of GATT, Pakistan is a member of the WTO and consequently, a
signatory to all of the major accords established under the aegis of the UR.
The results of the UR confront Pakistan with both an opportunity and a challenge. Greater market
access to developed country markets due to lower tariff rates and more limited usage of non-tariff
barriers offers a variety of opportunities for Pakistan to expand its export base and diversify its exports
markets. The most rewarding opportunities for Pakistan are likely to materialise over the medium term
as further trade liberalisation expands the world’s markets in those areas for which Pakistan has an
advantage (e.g. agriculture, textiles, and labour intensive services).
The most significant positive impact of the WTO for Pakistan comes from the dismantling of the Multi-
Fibre Arrangement (MFA) from the 31st December 2004 and a potential agreement on agriculture. The
main objective of the WTO’s Agreement on Textile and Clothing (ATC) was the integration of the quota
based MFA under the GATT rules. The ATC should allow increased market access for Pakistani
textiles and clothing exports in restricted markets of the OECD countries. Improved market access
means a potential increase in Pakistan’s exports due to easier access to its markets as a result of
fewer quantitative restrictions.
Nevertheless, Pakistan will have to compete with other exporters from both developed and developing
countries, especially in products currently under quantitative restrictions in an increasingly aggressive
global market. Pakistan’s ability to succeed in this new environment is predicated, in part, on its
capacity to improve the competitiveness of its own products, systematically expand and find new
markets for these goods and remain committed to its global trading system obligations.
There are factors, which can counteract potential gains from ATC. For example, protectionist
measures can be applied by the importing countries under the Safeguard clause, if they can prove
serious damage to the local textile and clothing industries. Concessions on greater market access
imply that Pakistan will have to open up the domestic textile and clothing market to imports. This would
mean that Pakistani markets would get textiles, yarn, and garments from competitor nations like, India,
Bangladesh, Sri Lanka and China. The quota restriction’s reduction and integration would also mean
that Pakistan’s textile and clothing will face fiercer competition in the international market, especially,
as the quota were not a binding constraint for Pakistan in many categories of textiles and clothing.
Page 38
The agreement on agriculture is the first attempt to bring agriculture under the WTO/GATT discipline.
The main features of the agreement are:
– Tariffication of non-tariff barriers.
– Greater market access.
– Reduction in exports subsidies and domestic support for agriculture.
The likely impact of the Agriculture Agreement would be that Pakistan would have to pay higher prices
for future imports of wheat, dairy products and oilseeds. On the other hand the agreement can result in
larger markets for Pakistan’s primary goods exports. The reduction in agriculture protection would
create several market access opportunities for Pakistan:
– The value of raw cotton export is expected to increase due to increased demand resulting from
trade liberalisation in textiles and clothing.
– Liberalisation in the Japanese and Korean rice markets will expand market access, but Pakistan will
only be able to take advantage of this improvement if it can diversify its rice production in
accordance with consumers taste in those markets.
– Diversification of Pakistan’s export base with a greater focus on non-traditional agricultural exports,
including flowers, fruits, and vegetables can take advantage of substantial tariff and/or subvention
reduction in the developed country markets.
The TRIPS agreement is one of the new areas in which the WTO negotiations have made significant
headway. It was recognised that trade-related aspect of intellectual property rights will be a major area
of tension in international trade relations and hence a comprehensive agreement was needed. The
WTO agreement on TRIPS covers issues of copyright laws, trade and service marks, patents,
industrial designs, counterfeit goods and more. The implementation schedule was supposed to start
after 5-year transition period for developed countries and after 11-year period for least developed
countries by which time countries are expected to set in place necessary legislation to implement the
TRIPS laws (see section 1.19.7 for more details).
The three-part GATS agreement consists of the basic obligations (which applies to all countries), the
National Schedule of Commitment (country specific), and the Special annexes (service-specific). The
basic aim is to expand market access and greater transparency in rules and regulations regarding
trade in services. The scope of the agreement is broad. It covers trade in services such as
transportation, storage, brokerage, communications, tourism, banking and insurance, construction and
consultancy.
Compared to other developing countries, South Asian countries have made very few commitments on
market access under GATS. Hence the impact of this agreement is likely to be limited in this region.
However, one can expect greater role of multinational banks, financial firms and other foreign service
providers in Pakistan as restrictions on number of service providers, total value of transactions and
number of service operations are reduced over time.
The trade related investment measures (TRIMS) primarily aim at removing GATT inconsistent
investment policies in individual countries within 2 years, for developed countries, 5 years for under
developed countries, and 7 years for least developing countries. The agreement includes requirement
on local content, trade balancing and foreign exchange. For example, the benefits to Pakistani firms
under the Locally Manufactured Machinery (LMM) and local content exemption to exporters will have
to be removed. This agreement will basically mean entry to trans-national corporations into the
investment-restricted economies of developing countries. But as many developing countries, including
Pakistan, had already liberalised the trade and financial sectors in terms of entry and operation of
multinationals in recent years, the TRIMs agreement is unlikely to cause additional impact in these
countries.
The above remarks cover the broad and most important areas of the WTO agreements and their likely
impact on the Pakistani economy. There are many other aspects of the WTO agreements such as the
new quality and environmental standards, which could have serious repercussions on Pakistan’s
economy and its future trade relations. These are not yet well understood. In addition, clearly defined
rules on anti-dumping, subsidies and countervailing duties, customs valuation, pre-shipment
inspection, rules of origin and import licensing procedures are going to provide a new discipline in
international trade, which will have important effects on how trade is done in Pakistan in the future.
Page 39
1.11.6 Regional integration
The dispute between India and Pakistan over the Kashmir issue has so far not allowed any significant
regional trade development and integration in South Asia. Neither SAARC nor ECO have been
effective in promoting trade in the region. India which absorbed more than 50% of Pakistan exports
just after independence barely accounts for 2% at the moment.
1.11.6.1 SAARC
http://www.saarc-sec.org/
The South Asian Association for Regional Co-operation (SAARC) was established in 1985. The
SAARC's member countries are India, Pakistan, Sri Lanka, Nepal, Bhutan, and the Maldives. The
South Asian Preferential Trade Agreement (SAPTA) was drawn up in 1993, providing for bilateral
reductions in tariff and non-tariff barriers on specified commodities on a reciprocal basis, but with
special treatment given to the least developed states. The eventual objective is for SAPTA to become
a South Asian Free Trade Area (SAFTA) from 1st January 2006, based on multilateral tariff reductions.
On the whole, the achievements of SAARC and SAPTA have been limited. Although tariff concessions
have not been negligible, they have been introduced on items that represent no more than 1% of the
total trade of the seven-country grouping.
The South Asian Association of Regional Cooperation comprises Bangladesh, Bhutan, India, Maldives,
Nepal, Pakistan, and Sri Lanka. The basic aim of the Association is to accelerate the process of
economic and social development in member states through joint action in agreed areas of co-
operation.
The idea of regional co-operation in South Asia was first mooted in May 1980. Following consultations
among the countries of the region in Sri Lanka in 1981, five broad areas (Agriculture, Rural
development, Telecommunication, Metrology, Health and Population Activities) for regional co-
operation were identified. Subsequently four additional areas (Scientific and Technological co-
operation, Postal Services, Transport, and Sports, Art and Culture) were added.
The objectives of the Association were to promote the welfare of the peoples of South Asia and to
improve their quality of life; to accelerate economic growth, social progress, and cultural development
in the region and provide all individuals with the opportunity to live in dignity and to realise their full
potential; to contribute to mutual trust, understanding and appreciation of one another’s problems ; to
promote and strengthen collective self-reliance among the countries of South Asia.
The SA region has a low level of trade between its countries, trading among themselves less than 5%
of what they trade with the outside world. This low level of trade between the countries of the region is
the result of a lack of mutual trust, spill over effects of ethnic and religious conflicts, and most
importantly the Kashmir dispute between India and Pakistan.
Political rhetoric impeding mutually advantageous intra-regional trade and myriads of import
restrictions has prompted smuggling (unofficial intra-regional trade is estimated at 2 to 4 times the
official trade). The only bi-lateral free trade agreement enforced in the region is the Indo-Lanka FTA.
Pakistan’s trade with the relatively large countries of SAARC (India, Sri Lanka, and Bangladesh) is
very low and total trade (import plus export) is less than USD 300 million. Pakistan’s share is less than
2% in these markets of more than USD 14 billion all together. It is understood, however, that trade via
third countries like Singapore or Dubai could reach up to US$ 1.5 billion.
Due to the limits of SAARC, bilateral trading arrangements were considered, such as a 2001
unilaterally announced duty concession on some of the important Bangladeshi exports to Pakistan, or
the signing of a trade agreement between Pakistan and Sri Lanka, yet to be enforced.
In the later part of 2003, relations between India and Pakistan improved. Hopes are that the Kashmir
situation shall not stand in the way of trade openings. Prior to the SAARC summit of 2004, a South
Asia Free Trade Agreement (SAFTA) has been signed, to replace from the 1st January 2006, the
present SAPTA. The aim of the agreement is to remove barriers to cross-border flow of goods.
Box 5: SAFTA main characteristics

Safta's Trade Liberalisation Programme (TLP) includes:
Page 40
* Tariff reduction by the Non-Least Developed Countries (NLDCs) - primarily India and Pakistan - from the existing rates to 20
per cent. It is to be done within two years, starting January 1, 2006. "If the actual tariff rates on that date are already below 20
per cent, they will undertake an annual reduction on a Margin of Preference basis of 10 per cent on actual tariff rates for each of
the two years.
* The subsequent tariff reduction by the NLDCs from 20 per cent, or below, to 0-5 per cent will be done within the next five
years, starting January 1, 2008. The period of second tariff reduction by Sri Lanka will be six years.
* Tariff reduction by the Least Developed Countries (LDCs) from their existing rates will be to 30 per cent within two years. If the
actual tariffs are below 30 per cent, there will be an annual reduction of 5 per cent "on actual tariff rates for each of the two
years."
The subsequent tariff reduction by the LDCs from 30 per cent, or below, to 0-5 per cent will be done within a second time frame
of eight years beginning January 1, 2008. But the LDCs are encouraged to adopt reduction in equal annual instalments, no less
than 10 per cent annually. The above schedules of tariff cuts will not prevent member countries from immediately reducing their
tariffs to 0-5 per cent, or from following an accelerated timeframe of tariff reduction. The LDCs and the NLDCs can have
separate "Sensitive Lists." Higher tariffs, agreed between member countries, to protect their domestic products, will apply to
these items.
The Safta Ministerial Council will review continuation, or otherwise, of "Sensitive Lists" after every four years, or earlier, to
reduce the number of these items. Each member country will accord "national treatment" to the products of other members in
accordance with the provisions of Article III of Gatt 1994. The LDCs will receive special considerations before any anti-dumping
or countervailing measures are to be applied against them.”
For Pakistan, the main benefit expected from these negotiations will be increased access to the large
Indian market. However, it also means that Indian exports will compete with Pakistani production,
especially in the transport equipment, cotton yarn and fabrics, pharmaceuticals, machinery, iron and
steel products, and food commodities, creating opportunities for economies of scale, as well as
increased competition.
Box 6: SAFTA likely impact on regional trade

The conclusion of two rounds of South Asian Preferential Trading Arrangements (SAPTA) in late 1990s are preliminary steps
towards the objective of achieving duty free trade under South Asian Free Trading Arrangements (SAFTA). In this study, an
estimate of the increase in the bilateral trade of SAARC countries under three alternate scenarios has been made: (a) SAPTA-I,
(b) SAPTA-II, and (c) SAFTA, where tariffs will be completely eliminated. To analyse the likely increase in bilateral trade flows
due to these scenarios, methodology based on gravity model is used. After tariff concessions under the SAPTA-I, the results of
this study show that the likely increase in intra-regional trade will be insignificant. The tariff concessions of the SAPTA-I will
generate an additional 5.01per cent to the existing level of intra-regional trade. The picture is quite disappointing for SAPTA-II.
There would not be any perceptible change in intra-regional trade here. After implementation of SAPTA-II, the likely increase in
the intra-regional trade would be only 0.6 per cent.
By completely eliminating tariffs on all the products, under the SAFTA, the likely increase in intra-regional trade of SAARC would
be substantial. The simulation results of this study show that the complete removal of tariffs would enhance intra-regional trade
by 1.6 times or 160 per cent. In terms of total imports of the SAARC member countries (SMCs) (from the world), it is 25.0 per
cent and 16 per cent for Bangladesh and Sri Lanka, respectively. The corresponding figures for Pakistan and India were 3.0 per
cent and 1.5 per cent, respectively. The results also show that after the SAFTA, intra-SAARC trade would substantially increase
in the manufacturing sector
Source: Study published in the Asia Pacific Journal of Economics and Business, vol. 4, no. 1. by Rajesh Mehta : SAPTA to
SAFTA : Impact on Intra-regional trade.
High tariff nations, including Pakistan, would lose import tariff revenues from any tariff reductions.
However, unofficial trade between India and Pakistan could be converted to official trade resulting in
significant government revenues.
1.11.6.2 Bilateral relations with India

Relations between India and Pakistan have improved recently with tentative agreements to resume air,
road and train links. If the situation was to normalise, it would definitely improve the business
environment.
India has granted ‘most favoured nation’ (MFN) status to Pakistan but it is reported that non-tariff
barriers (NTBs) hamper exports from Pakistan into India. Pakistan, on the other hand has not given,
even on paper, the most favoured nation status to India.
In December 2003, Pakistan and India agreed to lower duties on a list of 500 products (see Box 7).
Apart from the official trade between India and Pakistan, a significant volume of exchange is going on
via informal or indirect channel or smuggling. According to a crude estimate the illegal trade between
the two countries is three to four times that of the legal formal trade.
Page 41
Figure 15: Pakistan Trade with India, 1997-2003 (USD million)
250
200
150
100
50
0
197-98 1998-99 1999-00 2000-01 2001-02 2002-03
Export Import
Box 7: Pakistan, India to cut duties on 500 items

Friday December 05, 2003-- Shawwal 10, 1424 A.H.
NEW DELHI: India and Pakistan on Thursday agreed to lower duties on an expanded list of products traded between the two
countries, a news report said, in what appeared to be another step forward in improving relations between the South Asian
neighbours.
The decision, as well as India’s confirmation to attend a trade summit next month, removes a major glitch in taking forward the
process of regional trade cooperation in South Asia.
Last year, a proposed summit of the South Asian Association for Regional Cooperation (SAARC), in Islamabad had to be
postponed after India dropped out of it, citing Pakistan’s reluctance to extend lower duties to more Indian products.
But Indian Prime Minister Atal Bihari Vajpayee sent a letter on Thursday to his Pakistani counterpart confirming his participation
in the SAARC summit in Islamabad from Jan 4-6 next month, an official statement said.
At a meeting at the SAARC secretariat in the Nepalese capital Kathmandu, India and Pakistani officials agreed to reduce duties
by 10 to 25% on a list of some 500 tariff lines, Press Trust of India news agency reported.
It did not elaborate on the goods covered under Thursday’s agreement, but said the concessions will be extended to other
SAARC members, if they’re not already available to them. India already has a free trade pact with Sri Lanka and a preferential
trade arrangement with Nepal.
In Pakistan, the foreign ministry said that Prime Minister Zafarullah Jamali endorsed the idea of a meeting of SAARC commerce
secretaries on the free trade accord ahead of the January 4-6 summit in Islamabad. South Asian leaders have long called for a
free trade deal but the proposal has gone nowhere amid constant friction between India and Pakistan, the region’s two largest
members.
A restrictive list of items allowed to be traded with India, available from the Federal Bureau of
Statistics, covers mostly pharmaceuticals, chemicals and the food sector.
1.11.6.3 Trade with ECO countries

The Economic Cooperation Organisation (ECO) established in 1985 was formally a trilateral
organisation under the name of “Regional Co-operation for Development (RCD)” comprising of Iran
Turkey and Pakistan as its members. In 1992, ECO was enlarged by the inclusion of Afghanistan and
the six Central Asian States. Present members are Iran, Turkey, Pakistan, Afghanistan, Azerbaijan,
Turkmenistan, Tajikistan, Kazakhstan, Kyrgyzstan, Uzbekistan. The organisation now unites more than
350 million people. The objective of the organisation is to contribute to the socio-economic
development of its Member States.
Table 7 shows that Pakistan's only significant trade relations concerns Iran, Turkey and Afghanistan.
Trade with the other ECO countries is very limited, with a combined value of less than USD 20 million.
Page 42
Table 7: Pakistan Trade with ECO Countries; (USD million)

Country 1998-99 1999-00 2000-01 2001-02 2002-03
Export Import BoT Export Import BoT Export Import BoT Export Import BoT Export Import BoT
Afghanistan 52.1 39.1 + 115.3 40.8 + 142.6 30.5 + 168.6 22.8 + 314 34.8 +
Azerbaijan 2.1 0.6 + 1.6 0.8 + 0.9 0.8 + 0.8 0 + 1.9 0 +
Iran 12.1 82.3 - 11.8 134.8 - 24 370.6 - 29.2 157.2 - 63.2 303 -
Kazakhstan 13.6 0.3 + 12.2 0.3 + 9.5 0.44 + 8.9 0.3 + 10.3 0.1 =
Kyrgyzstan 4.3 0 + 3.1 0.1 + 2.6 0 + 1.1 0 + 1.5 2 -
Tajikistan 4.5 1.3 + 1.8 0.5 + 2 0.6 + 1.6 0 + 0.2 0.2 +
Turkey 37.5 140 - 63.2 110.2 - 100.2 47.5 + 98 34.7 + 146 126 +
Turkmenistan 2.3 0.9 + 1.9 4.1 - 0.7 1.3 - 3.7 0.6 + 1.7 0.5 +
Uzbekistan 12.8 68.2 - 10.7 26 - 9.9 5.3 + 5.2 5.3 - 6.3 1.8 +
Total ECO 141.3 332.8 - 221.4 317.6 + 292.3 457 - 317.2 221.1 + 545.1 468.4 +
1.12 Balance of payments and exchange rate
The balance of payments for the last two years has recorded a surplus which has contributed to
improved foreign exchange reserves and an appreciating Rs/USD exchange rate. The improved debt
situation further to renegotiation with the main creditors has initiated this virtuous circle, amplified by
overseas Pakistanis’ remittances and increased FDI.
Following the nuclear tests in May 1998 and a difficult balance of payments situation, cash margin
requirements were imposed on imports, and the exchange rate regime underwent various changes.
In the financial year 2000, the managed exchange rate system was adopted, and during the year the
nominal exchange rate was kept almost unchanged.
At the beginning of financial year 2001, the managed float was abandoned, and a market-based, free-
floating exchange rate system was put in place. The currency came under several speculative attacks
during the year, and in the financial year 2001, the rupee depreciated by 18.6% against the dollar.
Because of the low rate of inflation, this resulted in a real depreciation of over 10% in that financial
year, which provided a much needed boost for exports.
However, 2002 witnessed a sharp rise in workers' remittances, which played a critical role in
strengthening the country's external balance of payments. As against the yearly target of USD 2.87
billion, workers' remittances stood at USD 4.3 billion during the fiscal year 2002-03. As compared with
the last year, remittances grew by 90% in fiscal year 2003, an all time high in the country's history, with
30% coming from the US, 20% from the UAE, followed by Saudi Arabia and Kuwait. The monthly
average remittances have increased more than four fold - rising from an average of USD 85 million
during 1998-2000 to more than USD 350 million during 2002-03.
A strong build up of foreign exchange reserves has been the most important achievements of the fiscal
year 2003. During July-May 2002-03, the country has added USD 4.28 billion in its reserves and at the
end 2003 the total foreign exchange reserves stood at more than USD 11billion - sufficient to finance
almost one full year of imports.
The strong build up in foreign exchange reserves have not only strengthened the Pakistani rupee viz.
the US dollar but provided much needed stability in the exchange rate - a key element of
macroeconomic stability. The Pakistani rupee has appreciated by almost 4.0% since the beginning of
the 2002-2003 fiscal year and the average exchange rate for the fiscal year 2002-03 is Rs 58.5 per US
dollar as against the average exchange rate of Rs 61.42 per US dollar in 2001-02, thus depicting an
average appreciation of 5.0%. Since July 3, 2001 and until June 30, 2003 Pakistani rupee has
appreciated by 11.4%.
Page 43
Figure 16: Exchange rate, Rupees per USD, average of period, 1996-2003
65
60
55
50
45
40
35
30
03
03
3
96
97
98
99
00
01
02
3
3
-0
r-0
-0
ay
ar
19
19
19
19
20
20
20
nv
vr
av
M
M
fé
ja
Source: IMF, International Financial Statistics, July 2003
Figure 17: Exchange rate, Rupees per USD and EURO, average of period, 2002-2003
70
68
66
64
62
60
58
56
54 PKR/$ PKR/EUR
52
50
Nov 02
Jan 02
Jun 02
Jul 02
Jan 03
Jun 03
Jul 03
Feb 02
Mar02
Apr 02
May02
Aug 02
Sep 02
Oct02
Dec02
Feb 03
Mar03
Apr 03
May03
Source: State Bank of Pakistan
1.13 Public finance and debt
Pakistan has developed a debt reduction and management strategy that focuses on continuing strong
fiscal adjustment to limit public borrowing, boosting exports through structural reform, seeking new
borrowing on concessional terms, and writing off or rescheduling debt. This strategy was the basis for
its negotiations with the IMF for the Poverty Reduction and Growth Facility (PRGF), and the Paris Club
for long term and significant debt rescheduling. Both negotiations were completed by the end of 2001.
Table 8: Pakistan – Debt servicing (Rs billion)

1997-98 1998-99 1999-2000 2000-01 2001-02 2002-03
Total Debt Servicing 278.3 343.1 353.9 325.0 431.2 306.1
Total interest payments 191.6 220.1 256.8 237.1 266.3 241.7
Domestic 160.1 178.9 206.3 178.8 189.5 172.0
Foreign 28.7 38.0 44.9 50.5 61.1 40.3
Payments of Principal (foreign) 86.7 123.0 97.1 87.9 164.9 64.3
Source: Federal Bureau of Statistics, 2003
One of the most important achievements has been the decline in public debt in absolute terms: from a
figure of Rs. 3695 billion in end June 2002 to Rs 3642 billion by end-March 2003, a decline of Rs 53
billion in nine months. As a%age of GDP, it reduced from 102% to 91%, and as a%age of total
revenue: 592% to 516%. In fact, during the last two years (since end of June 2001), the stock of public
debt has declined by Rs 112 billion which in terms of%age of GDP and revenue represents a decline
by 19%age points and 163%age points respectively.
Page 44
Clearly in the overall reduction of debt, the containment of the domestic debt has been achieved
primarily through reduction of the fiscal deficit and interest costs to finance such deficit along with
prudent debt management. While such debt in the past recorded an annual average growth rate of
16% in the 1990s, in the 2002/2003, its growth has been Rs 13 billion only or 0.7%.
Regarding the foreign exchange debt, Pakistan has not only succeeded in arresting the rising trend in
the stock of external debt and foreign exchange liabilities but also succeeded in reducing them. From a
figure of USD 37.9 billion, this external debt has fallen to USD 35.6 billion while liabilities adjusted for
SBP liquid reserves declined from USD 36.9 billion to USD 26.5 billion by end of fiscal year 2003.
At the end of 2002/2003, the medium and long term external debt has provisionally been estimated at
USD 28.4 billion or about 42% of GDP, while debt service payments are projected at USD 1.4 billion or
about 2.1% of GDP. The foreign aid commitments and disbursements during the 2003 fiscal year have
represented USD 2.3 billion and USD 1.9 billion, respectively.
The Paris Club creditors, Denmark and the Commonwealth Development Corporation of U.K. have
waived their entire outstanding debt of USD 18.4 million and USD 29.5 million respectively, while the
Netherlands has given remission in debt service payments equivalent to USD 14.3 million; the USA
has cancelled an amount of USD 1.0 billion of their debt. An amount of USD 11.5 billion has been
rescheduled, as all the bilateral agreements have been signed except with the Republic of Korea and
the Russian Federation which are under finalisation.
Box 8: Pakistan and the Paris Club

Pakistan has the distinction of being the only country to conclude two agreements with Paris Club creditors in the course of one
year. The agreement of January 2001 rescheduled USD 1.8 billion comprising arrears at end November 2000 and 100% of
principal and interest falling due from December 1, 2000, to September 30, 2001, on loans contracted prior to September 30,
1997 (the cut-off date). The agreement was concluded under Houston terms: repayment of the rescheduled amount will be
made over 20 years, including 10 years of grace for ODA loans, and over 18 years, including 3 years of grace, for the
guaranteed commercial loans.
The agreement concluded in December 2001 rescheduled USD 12.5 billion – the entire stock of debt outstanding on loans
contracted prior to the cut-off date (September 30, 1997), including amounts owed under prior rescheduling agreements with
Paris Club creditors. Repayment of the rescheduled amount will be over an extended period, and in addition, part of the
moratorium interest will be capitalised and debt service due up to June 30, 2002, on debt contracted after the cut-off date, will be
deferred. ODA loans will be repaid over 38 years, including 15 years of grace at a concessional interest rate. Guaranteed
commercial loans will be repaid over 23 years, including 5 years of grace at market interest rates. The repayment schedule is
graduated, rising from an initial payment equivalent to 0.67% of the total amount rescheduled to a final payment equivalent to
7.20% of the total amount rescheduled.
In recognition of Pakistan’s particularly acute balance of payments situation, Paris Club creditors agreed to capitalise 100% of
moratorium interest accrued from December 1, 2001, to June 30, 2002, and 20% of the amount accrued from July 1, 2002, to
June 30, 2004, including the rescheduled debt. These amounts will be repaid in four equal semi-annual instalments beginning
May 31, 2005, and ending November 30, 2008. They also deferred 100% of principal and interest falling due from December 1,
2001, to June 30, 2002, inclusive of post cut-off date debt (that is, loans contracted after September 30, 1997). These amounts
will be repaid in four equal semi-annual instalments beginning May 31, 2005, and ending November 30, 2006.
Source: Global Development Finance 2002
1.14 Foreign investment
Foreign Direct Investment into Pakistan has achieved a high USD 800 million in fiscal 2003, a figure
significantly higher than during the previous years. This good performance was helped by foreign
investment into large privatisation operations. The good performance shall be maintained during fiscal
2004, if the privatisation process continues. Thereafter, FDI into Pakistan shall more directly reflect the
current opportunities for development. It then shall be an appropriate measure of investors’ perception.
1.14.1 FDI flows and portfolio investment
World total FDI flows have experienced massive contraction globally since 2000, declining from almost
USD 1.2 trillion to about USD 500 billion in 2002. Both developed and developing countries have been
affected by the reduction in FDI flows with the exception of China and Central/Eastern European
countries where they have continued to rise.
In such a difficult external environment Pakistan succeeded to attract USD 800 million in FDI during
the 2002-03 fiscal year as against USD 484 million in the previous year. Oil and gas, financial sector
(include the privatisation proceeds of the UBL), chemicals and transport together account for nearly
three-fourth of FDI. Almost 30% of FDI have come from the UK followed by the US (25.0%), and the
UAE (16.3%).
Page 45
Pakistan has one of the most attractive foreign investment regimes in South Asia. Foreign companies
can invest in all three key sectors of the economy namely Agriculture, Industry and Services. The
industry sector where foreign equity investment up to 100% is permitted in most cases is the most
open. Pakistan’s aim is to attract USD 1.4 billion in net FDI in 2004 in a bid to lift its low investment to
GDP ratio.
Table 9: FDI Inflows to South and East Asian countries, USD million
Average Average Average Average
1981-1985 1986-1990 1991-1995 1996-2000 2001
China 849.6 2,852.6 22,534.6 41,851.8 46,846.0
Singapore 1,348.9 3,332.5 5,823.1 8,590.6 8,608.8
Thailand 282.3 1,211.9 1,876.2 3,482.8 3,759.0
India 59.0 182.0 796.8 2,652.8 3,403.0
Korea, Republic of 116.6 799.3 1,016.2 5,839.7 3,198.0
Philippines 62.8 496.6 1,124.0 1,268.0 1,792.0
Viet Nam 11.0 39.3 1,100.0 1,772.6 1,300.0
Malaysia 1,082.9 1,182.0 5,063.8 4,803.4 553.9
Pakistan 60.9 154.1 417.0 594.6 385.4
Sri Lanka 41.9 39.6 123.1 230.2 172.0
Cambodia 0.0 0.0 63.6 239.0 113.0
Bangladesh 1.1 2.2 6.4 160.2 78.1
Mongolia 0.0 0.0 7.5 28.8 63.0
Nepal 0.1 1.9 5.4 11.6 19.3
Afghanistan 0.1 0.1 0.0 1.1 2.1
Indonesia 236.4 598.6 2,343.2 644.0 -3,277.0
Source: UNCTAD Division on Investment, Technology and Enterprise Development
The year 2001 was disappointing with investment less than the average of the previous 5 years.
However, in 2002 the figure improved to reach USD 486 million, but falling short of the target. In 2003
direct foreign investment almost doubled to reach USD 800 million as detailed in Table 11.
The rate of return on FDI in various countries seems to single Pakistan as an attractive destination with
a yearly return of 7.0% in 2001 as can be seen from Table 10.
Table 10: Rate of return on FDI (in%)

1999 2000 2001
World average 7.1 6.8 5.5
Developing countries average 4.6 4.3 4.2
Pakistan 3.4 6.1 7.0
China 5.6 6.2 5.8
Indonesia 5.5 5.7 5.4
Korea 3.0 3.1 3.3
Source: UNCTAD, World Investment Report, 2003
1.14.2 Structure of the FDI flows and stock per country of origin
As far as the inflows of foreign direct investment into Pakistan are concerned, the USA, the UK, and
the UAE are the three major sources of foreign direct investment (FDI) in the country. The inflow of
foreign direct investment from the USA over the last 8-10 years has remained more or less consistent.
The USA is also the single largest direct investor in Pakistan. In 2002-03 foreign direct investment from
the EU was to the tune of USD 229 million of which UK has the largest share: USD 219.4. Incidentally,
the UK is the only country except Korea which has disinvested in portfolio investment in Pakistan. As
shown in Table 11, UK took away more than USD 34 million of portfolio investment from Pakistan in
fiscal year 2003.
Page 46
Table 11: Inflows of Direct and Portfolio Investment to Pakistan, 1995-2003 (USD million)
Country 1995-96 2000-2001 2001-2002 2002-03
Direct Portfolio Total Direct Portfolio Total Direct Portfolio Total Direct Portfolio Total
USA 319.8 35.9 355.7 92.7 -37.8 54.9 326.4 -1.7 324.7 211.5 15.1 226.6
U.K 331.7 68.1 399.8 90.5 -33.8 56.7 30.3 -32.4 -2.1 219.4 -34.6 184.8
UAE 52.8 -22.3 30.5 5.2 -10.9 -5.7 21.5 -4.2 17.3 119.7 0.7 120.4
Germany 26 3.3 29.3 15.5 0 15.5 11.2 0 11.2 3.7 0.1 3.8
France 14 0 14 0.7 0 0.7 -6.9 0.3 -6.6 2.6 0 2.6
Hong Kong 33.9 -4.3 29.6 3.6 -16.3 -12.7 2.8 20.6 23.4 5.6 -0.4 5.2
Italy 0.5 0 0.5 1.3 0 1.3 0.1 0 0.1 0.2 0.2 0.4
Japan 82.1 13.3 95.4 9.1 0 9.1 6.4 0.2 6.6 14.1 0 14.1
Saudi Arabia 26.9 -1.1 25.8 56.6 -1.7 54.9 1.3 0.1 1.4 43.5 0.1 43.6
Canada 0.8 0 0.8 0.1 0.5 0.6 3.5 2.7 6.2 0.5 0 0.5
Netherlands 11.9 0 11.9 4.8 -1.3 3.5 -5.1 -0.8 -5.9 3 0 3
Korea 31.5 0 31.5 3.7 0 3.7 0.4 0 0.4 0.2 -6.8 -6.6
Other 169.8 112.3 282.1 38.6 -39.1 -0.5 92.8 5.1 97.9 174 47.7 221.7
Total 1101.7 205.2 1306.9 322.4 -140.4 182 484.7 -10.1 474.6 798 22.1 820.1
1.14.3 Structure of FDI flows and stock per sector of investment
Pakistan is a rich country in terms of mineral resources. It has vast deposits of oil, natural gas, various
kinds of ores, marbles etc. Therefore mining and quarrying, especially oil and gas exploration attracts
the highest volume of foreign direct investment in Pakistan. From 1996 to date this sector alone has
got foreign direct investment worth USD 877 million or one-fourth of the total foreign direct investment.
The promising thing about foreign direct investment in the mining and quarrying sector is that it has
remained consistent and over the last two years it has grown many folds, primarily due to the liberal
policy adopted by the Government especially in the oil exploration sector.
Power generation is another sector which has attracted important foreign direct investment. Investment
in this sector however, has shown a declining trend and over the past few years it has stagnated at
around USD 30-35 million from a high in the mid-1990s. The primary reason for this evolution comes
from the then severe shortage of energy in the country while the industrial sector was growing at a
reasonable pace. In order to bridge the gap between the demand and supply for power, the
Government of that time decided to open this sector to private investment. The estimated shortage of
electric power by the mid 90’s was estimated at 3000 megawatts. As a result, during 1996-98 the
power sector alone attracted more than USD 600 million.
In addition to sectors advised for future investment, the other important sectors in terms of foreign
direct investment have been the chemicals, the pharmaceutical, the fertiliser, the financial and the
transport, storage and communication sectors (Table 12).
Table 12: Sector breakdown of FDI Inflows to Pakistan, 1990-2003 (USD million)
Sector 1996-97 1997-98 1998-99 1999-00 2000-01 2001-02 2002 - 03 Cum 96-03 Share (%)
Mining & Quarrying – Oil explor. 37.7 99.1 112.8 79.7 84.7 274.8 188.2 877.0 25.0
Power 244.8 239.5 131.4 67.4 40.3 36.4 32.8 792.6 22.6
Chemical, Pharm. & Fertilizer 51.7 72.1 54.1 119.9 26.3 17.8 92.4 434.3 12.4
Financial Business 106.5 20.4 24.4 29.6 -34.9 3.5 207.5 357.0 10.2
Transport and Storage & Comm. IT 6.4 10.2 33.3 31.0 81.5 35.2 114.1 311.7 8.9
Food, Beverages & Tobacco 51.5 19.1 7.4 49.9 45.1 -5.1 7.0 174.9 5.0
Construction 14.5 21.5 13.9 21.1 12.5 12.8 17.6 113.9 3.2
Trade - 12.6 5.5 7.6 13.2 34.2 39.1 112.2 3.2
Textile 12.4 27.3 1.7 4.4 4.6 18.4 26.1 94.9 2.7
Cement / Sugar 49.4 3.0 2.0 6.1 15.2 0.5 1.3 77.5 2.2
Petro-Chemical & Refining 1.5 1.6 38.8 12.0 8.7 5.0 3.0 70.6 2.0
Electrical Machinery 4.1 8.7 1.9 1.5 2.1 10.5 10.5 39.3 1.1
Electronics - 2.7 1.2 2.3 2.8 15.9 6.7 31.6 0.9
Tourism / Paper & Pulp 7.4 5.7 - 0.7 1.4 0.8 1.5 17.5 0.5
Machinery other than electrical 2.0 - 0.9 3.1 0.3 0.1 0.4 6.8 0.2
Others 92.2 57.8 43.0 33.6 18.6 23.9 49.8 318.9 9.1
Total 589.9 543.5 429.3 436.3 303.8 460.8 748.2 3,511.8 100.0
Page 47
1.14.4 Activities of EU enterprises in Pakistan, a success story
Box 9: ICI PAKISTAN

Imperial Chemical Industries (ICI) Plc and its predecessors have been operating in Pakistan for over 100 years. Its first
manufacturing operations commenced at Khewra with 18,000 tons per annum plant to manufacture soda ash. The company
became public in 1952.
From a modest 18,000 tons per annum (18Ktpa) Soda Ash Plant, the company has diversified into a number of Businesses,
details of which are provided below:
Soda Ash Business: The Soda Ash Business has been the formative Business of the Company & ICI Pakistan currently
commands a market share of around 85% of the local ash market. From an original plant of 18Ktpa, the current capacity of the
plant stands close to 200Ktpa. Soda Ash is used in the manufacture of products including glass, soaps, detergents, paper and
chemicals.
Polyester Fibre Business: The Company entered the polyester staple fibre industry in 1982, with the commissioning of a 12Ktpa
plant at Sheikhupura, which has been periodically expanded & today has a polymerisation capacity of 90Ktpa & a staple fibre
capacity of 60Ktpa. Staple fibre is used to manufacture blended yarns.
Paints Business: ICI Pakistan's Paints Business is one of the largest in the country, which started with the acquisition of Fuller
Paints (Pakistan) Limited. The business manufactures paint for the Decorative, Refinish and Industrial segments.
PTA Business: In 1995, ICI Pakistan made its single largest investment in Pakistan, a USD 490 Million Pure Terephthalic Acid
Plant with a capacity of 400Ktpa of PTA, the main raw material used to manufacture polyester staple fibre. At full plant capacity,
this business will save the National Exchequer valuable foreign exchange of approximately Rs. 100 Million annually.
Agrochemicals & Seeds Business: The Agrochemicals & Seeds Business operates under an agency agreement with Zeneca Plc
(UK) and other overseas agrochemical companies. It is amongst the leading providers of products for plant protection,
particularly insecticides for cotton. ICI Pakistan also operates an agrochemical formulation plant which provides toll
manufacturing facilities to outside parties.
Major Achievements for the Year Ending 2002

Manpower productivity, as measured by turnover per employee, increased by almost 27% over 2001. This ratio has, on average,
annually increased by over 21 over the last five years, supported by improved processes and a shared culture of performance
excellence across all levels of the organisation.
The Polyester Fibre Plant achieved record fibre production of 92,678 tones for the fourth successive year inclusive of product
toll-manufactured by Fayzan Manufacturing Modaraba. Man power productivity, as measured by units per employee, was 33%
higher than 2001.
The Soda Ash Business completed 5.24 million man-hours without a Reportable Injury Accident (RIA) for permanent staff and
10.34 million man-hours for contractor staff by the end of 2002.
The Paints Business achieved a RIA and Classified Injury Accident (CIA) free year for permanent staff. The Business was also
commended by the Asia Pacific Region for its painter product stewardship initiative.
The Pharmaceuticals Business maintained its RIA free record since November 1997.
The Chemicals Business successfully completed 1.6 million RIA free man-hours by the end of 2002.
Source: BOI
1.14.5 Profitability
The Pakistan authorities are eager to demonstrate the opportunities to operate a business profitably in
Pakistan, as shown in the following table prepared by the BOI.
Page 48
Table 13: Corporate Performance of Major Companies-Return on Equity (ROE), in%

Company Sector 1996 1997 1998 1999 2000 2001 Average
Shell Pakistan Oil Distribution 22 30 16 22 27 20 23
Rafhan Maize Food 24 33 33 34 34 29 31
Hub Power Co. Ltd. Power - 39 50 24 - 39 38
National Refinery Oil refining 28 36 31 33 30 27 31
BOC Industrial Gases 46 44 37 27 25 11 32
Gilette Pakistan Consumer items 4 6 26 33 33 - 20
Knoll Pharma-ceutical Pharma-ceutical 27 16 19 19 26 - 21
Glaxo Welcome -do- 11 15 20 19 22 8 16
Lever Brothers Consumer items 60 44 50 52 106 45 60
Colgate Pakistan -do- 25 17 13 18 21 - 19
Nestle Milkpak Food 20 17 24 33 32 25 25
General Tyre Tyres 2 1 17 21 29 - 14
Siemens Engg. Engineering 30 23 19 10 20 17 20

Source: BOI Pakistan
The significant increase in profitability is mainly due to the recent improved financial position of the
country and the resulting favourable interest rate for highly leveraged borrowers. Aggregate profits of
the 202 quoted companies showed an increase of 30% over the previous year performance by mid
2003.
1.15 Investment climate and sector policies
The GOP has liberalised the investment policy by reducing bureaucratic discretion and offering tax and
other incentives in the infrastructure, services and agriculture sectors. The Government decided to
give "priority industry" status (see section 1.26.7) to tourism, housing and construction sectors,
approved a new industries list for "value added" status, and allowed the non manufacturing sector to
remit royalties, technical and franchise fees.
As part of an integrated investment promotion strategy, a comprehensive programme of radical

economic reforms including liberalisation, privatisation and deregulation to bring the economy into a
fully market-oriented system has also been introduced.
Page 49
Figure 18: How do general constraints differ?
General Constraints, Cambodia, China, Bangladesh and Pakistan
Corruption
Electricity
Regulatory Policy Uncertainty
Tax administration
Tax rates Bangladesh

Pakistan
Crime, theft and disorder
Cambodia
Macroeconomic Instability China
Customs and Trade Regulations
Anti-competitive or informal practices
0 10 20 30 40 50 60 70 80
% identifying constraint as "major" or "very severe"
Source: World Bank, Investment Climate Surveys
The privatisation process has been redesigned to make it more transparent. Power generation,
telecommunication, highway construction, port development and operations, the oil and gas,
services/infrastructure, and social and agriculture sectors have now been opened to foreign
investment. Pakistan's legal framework and economic strategy do not discriminate against potential
foreign investors. Foreign investment is generally subject to the same rules as domestic investment,
with the exception of certain sensitive areas such as defence production, banking, and broadcasting.
Various sector specific policies have been announced with substantial incentives as follows:
(i) The Fertiliser Policy provides substantial incentives including committed supply of gas at
controlled price for existing and new investments, concessionary import duties on certain
essential raw materials and permission to import second hand plant. Similarly the Engineering
Policy defined as Engineering Vision – 2010, or the Textile Policy defined as Textile Vision
2005 aim at the development of these sectors through higher production and exports so as to
place Pakistan amongst the top 5 exporters of textile in Asia.
(ii) The Petroleum Policy 1997 defines incentive packages for upstream and downstream
activities, provides incentive for offshore drilling as well as other incentives and production
enhancement initiatives. Similarly the policy for power generation projects 2002 looks at
promoting investment in this sector through further liberalisation and financial incentives as
well as certain fiscal incentives so as to cover the energy gap forecasted by the year 2005.
(iii) The Pakistan Merchant Marine Policy 2001 aims at facilitating investment in shipping and its
development by expanding Pakistan’s merchant fleet, increasing cargo capacity, revival of ship
building and expansion of maritime training and support. Various incentives such as exemption
of import duties and reduced berthing rates have been defined.
(iv) The Government’s Information Technology Policy 2002 identifies special efforts for the
development of this sector with increased budget allocation and expectation to reach software
export of USD 1 billion by 2005. Various incentives for the development of this sector have
been provided including substantial reduction in bandwidth cost, major training initiatives, tax
exemption on software export business up to 2016 as well as various other direct and indirect
tax concessions.
(v) The Government’s Tourism Policy 2001 sets out its target to promote and increase tourism
and targets an increase of its 0.5 million foreign visitors by 6.5% annually over the next 5 years
and increased foreign earnings to USD 500 million per year over next 5 years. To achieve
these targets, various incentives have been designed, including reduced customs duty on
import of the hospitality industry, 50% tax rebate on income of tour operators who bring in at
least 500 inbound tourists and provision of land for tourist activity on non-commercial rates and
long lease basis.
Page 50
(vi) The National Mineral Policy targets development through investment in small scale mining,
provision of grants, reduction in customs duties and provincial levies and exemption on exports
The Foreign Private Investment (Promotion and Protection) Act 1976 provides that foreign investment
shall not be subject to more taxation on income than investment made in similar circumstances by
Pakistani citizens. The new Investment Policy provides equal investment opportunities for both
domestic and foreign investors. Foreign investment on a repatriable basis has now been allowed in
manufacturing, infrastructure, hotel/tourism, agriculture, services, and social sectors.
Detailed analysis of these incentives is conducted in Part II of this Guide.
1.16 Investor perceptions
Box 10 presents the opinion of the Pakistan-Britain Advisory Group (British companies being the major
EU investors in Pakistan), as resumed by the press, further to the publication of their report, mid 2002.
Most of their conclusions remain valid to day.
Box 10: Opinion of the Pakistan-Britain Advisory Group on the Pakistan Investment Climate
KARACHI, April 30: Pakistan remains behind the more progressive developing countries, its direct competitors for investment, in
creating a climate attractive to "new businesses".
The British companies, operating in the country, see "existing investments as safe and worthwhile" but rule out new investment
as "very unlikely."
Well-established multinationals, used to the country's environment, continue to invest but new-comers are not encouraged
because of poor policy implementation.
This is the feedback that Pakistan-Britain Advisory Group (PBAG) got from British companies while compiling its
recommendations for promotion of investment and trade.
Foreign companies, operating in Pakistan, are of the considered view that "a Government structure that attaches scant
importance to the implementation of ministerial and cabinet decisions" has slowed down the investment inflows.
The attitudes towards private sector and deregulation and the culture has not changed in lower levels of civil service that pays lip
service to policy and is a big snag in execution of strategic decisions. Brain-drain has resulted in shortage of quality educated
and trained people, particularly in the civil service.
While fully backing the Government's reform agenda and applauding the President's initiative to remove irritants, the PBAG
report has stressed the need of improving the record of policy execution to release the full potential of deregulation and reforms
agenda. For this to happen, it has suggested creation of an Implementation Cell within the Presidency designed to ensure that
strategic decisions, particularly those with cross-cutting impact across a number of ministries, are put into effect.
The cell should work with a single focus not on policy creation but policy implementation. Similar small cells should be created
within the ministries and should be responsible to the Cabinet Minister. "It is like a simple business practice. If the company's
board decisions are not implemented, the businesses, the COEs and MDs do not survive. The Government should be no
different."
The PBAG report was submitted by the British High Commissioner Hilary Synnott to federal minister for commerce Razzak
Dawood on Friday. In its recommendations, the report suggests that Pakistan should match the appeal of Korea and Malaysia
for large investments to flow in and warns that this will not happen while the Government machine remains resistant to change.
"Radical overhaul is clearly necessary," it emphasises.
A representative sample of the view of the British companies currently operating in Pakistan has been summed up as follows:
Pakistan is perceived as multinational "bashers." Investors consider it as a high risk country, with poor policing and high security
risk costs. The attitude towards creation of profits is looked down on by society and civil servants.
The country suffers from continuous political instability with no track record of political consistency and social stability leading to
gross uncertainty among UK investors.
Pakistan has a poor law and order image with UK investors. It is perceived to have weak laws and even poorer implementation.
It enjoys a reputation for lack of detection of perpetrators, and is seen as lawless society that harbours terrorists and criminal
factions. Similarly, the country is perceived to have iniquitous taxation systems, too many presumptive taxes and advancement
payments system. The CBR demonstrates irrational attitude.
The UK investments into Pakistan are eroded by negative perception, says PBAG report and stresses that the Governments of
the two countries can create the right political atmosphere, stimulate fresh thinking and redress false media perception and in
other proactive ways provide a lead for increased investment and trade.
The report acknowledges that times are changing and with the prospects of better and more consistent policy making and a
friendlier business environment, the opportunities are growing for trade and investment. It, however, calls for clarity and
continuity in policy formulation, a total commitment to business friendly policies and rigorous implementation.
Source: The Dawn, 01 May 2002
Contacts made with a number of overseas Pakistanis in London confirmed the above vision, especially
as far as the smaller investors are concerned. The larger ones took a more positive view of the
opportunities offered by the country.
1.17 Country risk assessment
Within the global context, the political and macro economic situation of Pakistan has dramatically
improved during the last three years. The effect of such satisfactory features is translating into micro
economic improvements at the firms’ level, and is already improving the living standards of the
population.
Page 51
1.17.1 Moody’s Investor Service
http://www.moodys.com/cust/default.asp
Moody's Investor Service raised Pakistan's rating for external debt and bank deposits from Caa1 to B3
in February 2002 as a consequence of the country's agreement with the Paris Club of inter-
governmental lenders. A further increase from B3 to B2 intervened in October 2003 to reflect the
narrowing fiscal deficit, the rapid decline in debt ratios, and the ongoing strength of the external
position. The outlook is stable across the rating.
The upgrade reflects the improved macro economic position and is additionally backed by the
Government's reform policy as well as the IMF assistance.
1.17.2 Standard & Poor’s
http://www.standardandpoors.com
Standard & Poor's currently assigned Pakistan's external debt in local currency a stable but
speculative rating of BB- and in foreign currency a speculative rating of B, with a stable outlook until
very recently. However, Standard & Poor’s Ratings Services on Tuesday, December 2nd 2003, revised
the outlook on its long-term sovereign credit ratings on Pakistan to positive from stable. The ‘B/B’
foreign currency and ‘BB-/B’ local currency sovereign ratings on Pakistan were affirmed.
The outlook revision reflects improved fiscal and macroeconomic performance, growing external
liquidity and continued structural reforms under Prime Minister Jamali’s Government.
Box 11: Rating spectrum

Each business day, issues that are included or have the potential to be included in the U.S. Investment Grade Credit Index must
have a Standard & Poor’s rating within one of the rating designations below. The issue must also have had a Moody’s Investors
Service rating, within one of the designations below, on the previous day. Issues that are split-rated at the ‘crossover’ rating
spectrum—covering issues rated within an investment grade rating category by Standard & Poor’s but speculative grade by
Moody’s Investors Service or vice versa—are not included in either the U.S. Investment Grade Credit Index or the U.S.
Speculative Grade Credit Index. Each business day, issues that are included or have the potential to be included in the U.S.
Speculative Grade Credit Index must have a Standard & Poor’s rating within one of the rating designations below. The issue
must also have had a Moody’s Investors Service rating, within one of the designations below, on the previous day.
1.17.3 Export Credit Agencies
http://www.cofacerating.com/
http://www.ecgd.gov.uk/home/cir_cc.htm?frmchk=y&cID=153
www.hermes-kredit.com/
Page 52
The main export credit agencies of Europe such as the Export Credit Guarantee Department (ECGD),
the Compagnie Française d’Assurance du Commerce Extérieur (COFACE) or the Istituto per i Servizi
Assicurativi del credito all’Esportazione (SACE) will consider the Pakistani risk only on a case per case
basis. Box 12 preents COFACE's opinion on Pakistan as per October 2003.
It is worthwhile to note that Hermes from Germany has a limit of Euro 50 million for medium term risk,
and an open limit for short term commitments.
Similarly, China is considering the Pakistani risk as acceptable, having recently authorised among
others, a 10 year delayed payment of USD 120 million covering the delivery of pipe related equipment
by the Sino Petroleum Import Export Company (Sipec).
Box 12: Coface Pakistan review, October 2003

Assets:
- International aid received after Pakistan joined the antiterrorist alliance has consolidated the country's financial situation.
- The country's nuclear-power status and the risk of it switching to an anti-Western camp have given it a central position
among American strategic priorities.
- Several structural reforms, like banking sector consolidation, have been progressing under IMF auspices.
- Private remittances by expatriate workers have been underpinning the country's foreign currency position.
Liabilities:
- Very dependent on farming, the economy is vulnerable to weather conditions.
- Political risk could impede investment.
- The country's financial situation is dependent on relief granted by creditors and on financial aid flows.
- India's persistent problems tend to create substantial risk of regional destabilisation.
- Public opinion is far from unanimous on external political options.
Risk assessment:
Pursuing its policy of cooperation with the United States in combating terrorism, Pakistan has been benefiting from international
financial assistance that bolsters the economy. The September 2001 Paris Club agreement and continued IMF support have
been contributing to improvement of Government solvency. Furthermore, an export increase has reduced the external financing
need and improved the currency liquidity situation. Finally, the growth and inflation rates reflect the country's relative dynamism.
However, the good performance's durability is uncertain since it is partially attributable to exogenous factors notwithstanding
progress made on implementing some reforms like a tax system overhaul. Structural impediments continue to hamper growth.
Sectors that dominate the economy are weak. With textiles representing 60% of exports and agriculture 26% of GDP, the
economy's health is dependent on the weather. The country has fallen far behind on health and education and the demographic
constraint is substantial.
Moreover, political risk is high. The influence of Islamist movements opposed to pro-American policy has been growing, spurred
by increasingly widespread anti-American sentiment. Externally, Indo-Pakistani relations continue to be tense with the two
countries' official positions having remained somewhat unchanged on the Kashmir issue and uncompromising despite recent
declarations favourable to opening talks
1.17.4 Bretton Woods institutions
http://lnweb18.worldbank.org/SAR/sa.nsf/Countries/Pakistan/E446D9087F72838E85256B02006CBFF
4?OpenDocument
http://www.imf.org/external/np/vc/2003/092303.htm
Extracts from the World Bank assessment of Pakistan in its country paper 2003 are presented in Box
13, and a summary of the most recent IMF assessment in
Box 14.
Box 13: World Bank Country Paper Pakistan, 2003

Pakistan has turned around a deteriorating macroeconomic situation to a rapidly improving one. In 2002/03, GDP grew by an
estimated 5.1% while inflation remained low at 3.3%. The budget deficit was contained at 4.6% of GDP. However, despite these
favourable developments, Pakistan still lags behind countries with comparable per capita income in most social indicators. Only
44% of Pakistan's population is literate, compared to an average of 64% of the population in countries with similar income per
capita.
The Government of Pakistan's economic reform programme, now in its fourth year, has renewed hope that these development
challenges can be tackled seriously. But this will not be achieved without fully developing human capital, improving the
investment climate, and increasing productivity growth to sustain the 5 or 6% annual growth rate needed to significantly reduce
poverty. In addition, a greater challenge faces Pakistan: that of its transformation—politically, economically, socially, and with
respect to gender—to a modern state.
Despite the recent economic improvements, Pakistan's external and public debt is both quite large, and there are concerns over
the fragility of the country's external position and future growth prospects. Moreover, perceptions about security risks and
political instability continue to dampen investor interest and prospects for exports and Foreign Direct Investments (FDI) in the
country.
Page 53
Box 14: Pakistan no more on list of ‘high-risk’ economies

ISLAMABAD: The IMF has removed Pakistan from the list of ‘high-risk’ economies but is expected to negotiate for another
programme for fiscal reforms.
Sources told The News here on Saturday that the removal of Pakistan from the list would mean an end to the practice of
quarterly scrutiny of the country’s fiscal performance, and now there would be only half-yearly appraisal.
However, there could be a mid term communication for pointing out major drifts from the planned course in reform
implementation as well as exchange of new ideas on how to run fiscal administration more prudently.
During such overtures, the IMF is also expected to launch negotiations for an altogether new programme of reform assistance,
the sources added.
Primarily, the removal of Pakistan from the list of countries at highest-risk has been taken on the basis of plugging of slippage in
resources and spending; improvement in the situation in bank borrowing for meeting budgetary requirements; reduction in fiscal
deficit and stability in inflow-spending scenario on account of batter revenue collection during the past five months.
Chairman Central Board of Revenue Riaz Malik, when contacted, said, the revenue situation has been a major irritant in the past
while dealing with the IMF on performance review, but the stability now appears to have come to stay, providing ground enough
to indicate stability in overall fiscal course.
He refrained from putting a claim on revenue-collection play a decisive role in achieving up-gradation in fiscal administration, but
pointed out that measures put in place worked in accordance with requirements of improved tax deposits. That was why the
Fund officials agreed with Islamabad on the country having crossed the barrier for de-listing from the high-risked economies.
Since the targets agreed between Pakistan and the Fund for Budget-2004-05 have been offered enough backing to meet the
terms in fiscal administration, the two sides would only be discussing matters that might impede the run on course toward putting
in place of additional measures for securing the targets
Source: The News, 28 September 2003
Page 54
BUSINESS ENVIRONMENT
The business environment has been profoundly liberalised in recent years. Most barriers to the flow of
capital and international direct investment have been removed. Tariffs have been reduced an average
rate of 16%, with a maximum of 25% (except for the car industry). The privatisation’ process, which
started in the early 1990s, has gained momentum, with most of the banking system already in private
hands, and the oil sector targeted to be the next big privatisation operation.
The foreign investment regime has been liberalised and most sectors have been opened to foreign
investors without any restrictions. Unlimited remittance of profits, dividends, service fees or capital is
now the rule. Business regulations have been streamlined and are now among the most liberal in the
region.
One of the main issues confronting FDI in Pakistan is the obtention of an unbiased treatment of claims
in court, as well as the lengthy delays it may imply. While Pakistan has signed the New York
convention on International Arbitration, this agreement has not been ratified yet and is therefore not
readily enforceable in the country. Protection of patents and copyrights while being the subject of a
satisfactory legal framework is not yet enforced easily.
1.18 Legal framework
Pakistan's legal system is based on British law, with a more recent overlay of Islamic law. Statutes are
a mixture of laws carried over from British rule and updating amendments and laws enacted since
partition. Pakistan's commercial laws largely follow common law principles.
Civil or criminal claims are brought in the first tier to local court on a sub-district level and from there it
may move up through the District Court and High Court to the Supreme Court. The Supreme Court,
based in Islamabad, hears appeals from the four provincial High Courts and the Federal Sharia (i.e.
Islamic) Court. It also deals with cases involving disputes between provinces or between provinces
and the federal Government.
Each province has a High Court (the Islamabad Capital Territory falls within the jurisdiction of the
Punjab High Court at Lahore) which hears appeals from judgments and orders of the District Courts
(for civil cases) and Sessions Courts (for criminal cases) and have original jurisdiction in certain other
matters.
The Federal Sharia Court examines and determines whether or not certain provision is repugnant to
the injunctions of the Islam. There are also a number of special courts and tribunals to deal with
specific types of cases such as customs, banking, environment and labour.
A shortage of judges continues to slow down litigation in Pakistan and therefore cases can often take
years to be resolved (see Table 14). However, Pakistan is assisted with legal and judicial reforms by
the Asian Development Bank which dedicated a considerable financial package to reform the judiciary
and strengthen legal protection for all in Pakistan.
Table 14: Court case statistics

Number of Duration Cost (% GNI Procedural
Economy Procedures (days) per capita) Complexity Index
East Asia & Pacific 19 193 66.3 55
OECD: High income 17 233 7.1 49
South Asia 19 358 92.6 55
Bangladesh 15 270 270.3 51
India 11 365 95 50
Nepal 24 350 44.2 63
Pakistan 30 365 45.8 53
Sri Lanka 17 440 7.6 59
Source: World Bank, Investment Climate and Regulation
Page 55
1.19 Business regulations
Pakistan business regulations cover aspect corporate regulation, trade, industry, taxes, foreign
exchange, competition, intellectual property, social security and labour laws.
1.19.1 Corporate regulation
The Corporate Law, in line with the general legal framework, derives its basis from English law and is
made up of regulations directed towards the various corporate activities including legal structures,
operating mechanisms, fiscal and legal transactions, regulatory arrangements as well as covering the
working of companies, financial and other corporate sector institutions such as stock exchanges, non
banking financial institutions, insurance companies etc. While the main regulation is that of the
Companies Ordinance of 1984 and the Companies Rules of 1985 there are various other statutes and
rules.
The Securities and Exchange Commission of Pakistan (SECP) is the corporate law regulator. It was
formed under the Securities and Exchange of Pakistan Act, 1997 (the "SECP Act"), and became
operational by 1999.
The SECP issues approvals and permissions for the setting up of companies including those involving
foreign investment, foreign branch offices as well as issuance of approvals for listings on the stock
exchanges. As a regulator its role extends to ensuring implementation of corporate regulation and
carrying out investigation under the SECP Act.
As of 30 June 2003 there were a total of 41,665 companies registered with SECP, of which 37,914
were private limited, 2,690 were public limited, and 536 foreign companies.
1.19.2 Legal entities status
A foreign company can have its representation in Pakistan established through various legal forms
such as (i) a partnership, (ii) a privately or closely held limited liability company or (iii) a public limited
company which may or may not be quoted on the stock exchange. A variation in the form of limited
companies is that of Companies Limited by Guarantee. In case a foreign investment is in a non-
commercial or charitable venture then choice of a Foundation or a Trust is also available.
The main legislation governing incorporated companies is the Companies Ordinance of 1984 and the
Companies Rules of 1985. These two statutes provide the law and regulation which deals with private
or public limited companies including foreign controlled companies. Partnerships and proprietorships
are governed by the Partnership Act of 1932.
Incorporated companies provide the most effective and recognised legal framework for corporate and
commercial activity including foreign investment. In these, private limited companies are subject to
least regulation while public quoted companies are subject to maximum regulation and reporting. Non
commercial activities and non-profit ventures are best accommodated through not-for-profit companies
limited by guarantee.
Foreign companies operating temporarily in Pakistan, e.g. executing construction contracts, usually do
so through by setting a branch office; for liaison activity a liaison office can be established (see
1.24.4.3). However, foreign contractors who work in joint venture with local entities can establish
operations under a partnership arrangement.
For setting up of a company the procedure extends from getting approval of the companies name right
up to getting the company registered through filing of its Charter (Articles and Memorandum of
Association) along with other information concerning its business objectives, capital, registered office,
directors, etc. In case of requirement to set up a partnership firm or any other legal entity such as a
Trust or a Foundation or a Society, the requirements of registration follow a similar path with the
designated registration authority such as the Registrar of Firm for partnerships or the Registrar of
Societies for societies.
Practical information on Companies registration are described in more details in 1.24.
Page 56
1.19.3 Foreign exchange regulations
The banking system provides repatriation and remittance facilities permitted in accordance with the
financial regulations, defined by the State Bank of Pakistan. Accordingly, full repatriation of capital,
profits and dividends is allowed from all activities. For royalties, technical fees and franchise fees,
remittance payments have been permitted for all sectors in accordance with the levels of payment
permitted.
Foreign investors can contract foreign private loans without restriction subject to registration with the
State Bank of Pakistan. While foreign controlled manufacturing concerns can undertake unlimited
domestic borrowing for working capital, others are only entitled to borrow up to 50% or 75% of their
paid up capital.
Foreign Exchange regulations are principally contained in the Foreign Exchange Regulation Act of
1947 with the State Bank of Pakistan having the main responsibility for the administration,
management and implementation of the foreign exchange policy much of which is defined in the State
Bank’s Foreign Exchange Manual.
The foreign exchange regime has been liberalised substantially, and foreign exchange transactions
are subject to a limited number of conditions. For Pakistani business entities, the Rupee is convertible
as far as current account transactions covering trade, travel, tourism and services are concerned.
However, specific permissions have to be obtained for capital account transactions.
Pakistani companies can raise borrowings and equity funds in foreign currency from abroad without
prior permission within specific ceiling and in accordance with guidelines. The ceilings relate to those
placed by reference to prudential regulations where debt has to be within defined financial parameters
with reference to equity. These guidelines are contained within prudential regulations. Working capital
financing raised from abroad is also subject to certain restrictions referred to as the “L Form” category.
Some of the important foreign exchange regulations relating to foreign entities and persons resident
outside of Pakistan include the following:
- Individuals, companies and other business entities including foreign controlled companies are
permitted to maintain foreign currency accounts with banks in Pakistan. Business income received
in foreign currency is required to be converted into Rupees on receipt with certain exemptions
permitting such receipts to be retained in foreign currency. (At times some of the manufacturers /
exporters such as textile and foods etc. who have recurring foreign currency cost for marketing
promotion and imports are allowed through special permission to retain part of their export
proceeds in foreign currency to meet such costs).
- Business expenditure for authorised transactions is permitted to be undertaken while in some
cases prior approval of State Bank is required (Most business transactions involving foreign
currency are undertaken through normal banking process, however, certain transactions such as
interest, royalties etc. require clearance from SBP before being implemented.)
- Payments for imports of goods and services are required to be effected through banking channels
along defined codes for each transaction. Remittances for management fees, royalties, fee for
technical services and the like are permitted against contracts which should be pre registered with
the State Bank.
- Profit earnings, dividends and capital can be remitted subject to fulfilment of declaration and
clearance of taxes.
- Salaries earned by expatriates working in Pakistan are fully repatriable subject to certain
formalities (State Bank regulations permit remittance of salaries earned by expatriates in Rupees
provided it can be demonstrated that such remittance is for maintenance of dependents outside of
Pakistan).
- Foreign investment is required to be made in foreign currency or assets and converted into
Rupees or Rupees worth after receipt into Pakistan. Repatriation against such investment both for
capital and profits can be made subject to clearance of all taxes due.
- Business entities which have undertaken foreign currency denominated debt are permitted to
make repayment of principal and interest in foreign currency provided the loan agreement has
been registered with State Bank of Pakistan.
- Borrowings by foreign controlled companies can be undertaken only after specific permissions
have been obtained from the State Bank as well as compliance with other regulations relating to
borrowings such as those contained in the prudential regulations. (Foreign controlled companies’
borrowings are subject to prior clearance from the State Bank. On working capital loans,
manufacturing companies are exempted from such requirement while others can only borrow up to
Page 57
50% to 75% of their equity. In addition certain specific debt equity ratio and specific current ratio
have to be maintained in accordance with prudential regulation).
1.19.4 Investment regulations
The Board of Investment (BOI) is the central investment promotion and facilitation agency of the
Government. It is headed by the Prime Minister and overseen by the Minister of Industries. A Cabinet
Committee on Investment (CCOI) headed by the Finance Minister has been formed and is concerned
exclusively with matters relating to private sector investment.
Various regulations regarding licensing, approvals for investment in the negative list of industries,
regulations on minimum equity requirements, and extent of foreign investment in specific sectors as
well as conditions with regard to royalty, technical fees and franchising are principally determined
through the BOI which provides for the first point of approval wherever necessary.
1.19.4.1 The Foreign Private Investment (Promotion & Protection) Act of 1976 (FPIA)
This Act has been enacted to promote and protect foreign private investments in the country. FPIA1
provides protection to foreign investors with respect to their industrial establishments in Pakistan,
precludes the Government from acquiring foreign capital or foreign investments in an industrial
undertaking except under due process of law with adequate compensation. It upholds the principle of
equal treatment to foreign owned industrial undertakings with regard to laws, rules and regulations.
Furthermore, it confirms the availability of permission for repatriation of capital and profits in foreign
exchange as well as remittance by foreign employees for maintenance of their dependents abroad.
1.19.4.2 The Protection of Economic Reforms Act, 1992

This Act was subsequently enacted mainly to provide legal cover for economic reforms related to
privatisation and deregulation and other fiscal incentives introduced on and after 07 November 1990,
through various policies, programmes and regulations of the Government. The Act allows all Pakistani
and foreign nationals to bring in and take out of the country foreign exchange without any restrictions.
Foreign currency account holders in Pakistan are assured that no restrictions will be placed on their
deposits by the central bank. The law assures the investors that the fiscal incentives allowed to them
through rules and regulations shall continue for the term specified therein and shall not be altered to
their disadvantage. Contrary to the FPIA, which allows the federal Government a take-over under due
process of law, this law clearly lays down that no industrial or commercial enterprise or any equity
investment in a company or financial institution shall be compulsorily acquired or taken over by the
Government.
1.19.5 Labour law
Pakistan has an extensively regulated system for protecting the interests of industrial workers and
employees in Government controlled sectors. However, regulations are less strict for management and
administration, non-manufacturing enterprises, casual workers and domestic help. Labour disputes are
handled by Labour Courts. A more detailed and hands-on analysis of the labour environment for
operating a business is given in section 1.29.
1.19.5.1 Wage regulations

The Minimum Wages Ordinance of 1961 as well as various others laws provide for a federal minimum
wage for unskilled workers (2,500 rupees or about USD 41 per month) which are subject to periodical
review. In addition, various other payments including a minimum bonus for industrial workers, certain
cost of living and support allowances, gratuity on leaving employment etc. are also available and
covered by different wage regulations.
1.19.5.2 Social security

Various regulations cover the social security primarily of industrial and public sector employees. The
Employees Old Age Benefit Act, the Employee Social Security Ordinance, the Workers Participation In
Profits Act, or the Workmen Compensation and Liability Regulations are but a few of these. Through
these acts, various contributory funding arrangements have been set up through which employers
contribute towards the cost of such social requirements including retirement and pension as well as
1
Industrial undertakings are defined in FPIA as entities involved in the production, distribution or processing of goods.
Page 58
provide for payment of compensation to workmen and their dependents in case of injury, accident,
disablement or death in course of employment.
1.19.5.3 Working conditions

The Factories Act of 1934 as well as the Workmen Compensation Act and regulations concerning
employment of children as well as disabled persons mainly provide for the framework on working
conditions. It provides for a maximum workweek of 48 hours (54 hours for seasonal factories) with rest
periods during the workday and paid annual holidays.
In general, foreign owned enterprises do better than most employers in fulfilling their legal obligations
and dealing responsibly with unions. The constitution and national law prohibit slavery and forced
labour, including forced labour by children. In Pakistan child labour as well as bonded labour is still an
issue. However, there is a conscious effort by the Government to overcome this through social reform
measures. The Constitution prohibits employing children aged 14 years and under in factories, mines
and hazardous occupations. No child can work overtime or at night.
1.19.5.4 Trade unions and workers' rights

There are various regulations on trade unions and industrial relations through which a number of
workers’ rights are granted. The right of association includes the right to form trade unions. Workers
are permitted to organise and to freely elect representatives to act as collective bargaining agents. The
right to strike is constrained by the Government's authority to ban any strike that may cause serious
hardship to the community or prejudice the national interest, as well as any strike that lasts for more
than 30 days.
1.19.6 Competition law
Enforcement of competition law in Pakistan is under the jurisdiction of the Monopoly Control Authority,
an independent regulatory authority. The Competition law is governed by the Monopolies and
Restrictive Trade Practices Ordinance of 1970.
The Government subscribes to principles of international competitive bidding, but it has been reported
that political influence on procurement decisions has been common in the past, and that decisions
were not always made on price and technical quality alone. There has been a greater degree of
transparency in procurement practices since the current Government took office in October 1999. The
present Government has also promulgated the Public Procurement Regulatory Authority Ordinance of
2001, under which a procurement regulatory agency has been set up.
The issue of private competition with public enterprises is complicated by the fact that many of the
entities that remain in the public sector are chronic loss-makers. The Government has not adopted
visibly unfair competitive practices in these public-private matters, but the situation varies from industry
to industry.
1.19.7 Industrial and intellectual property
Despite having a set of laws covering most aspects of patents, trade marks, intellectual property and
industrial property, as well as being a signatory to the WTO rules on the subject, legal protection from
copy infringement is not easy to enforce in Pakistan. Local production of copies of expensive foreign
equipment is often considered normal by industrialists who do not appear conscious of the property
rights issues implied.
Intellectual property used to be protected by nearly a century-old Pakistani law. As a member of the
WTO, Pakistan has signed the Agreement on Trade Related Aspects of Intellectual Property Rights
(TRIPS) and committed to adopt international standards. In compliance with its obligation Pakistan has
amended its legislation since 2000.
Protection of literary work including works on humanity, religion, social and physical sciences,
compilation of data, computer programmes and artistic work including phonograms is granted. The
period of copyright of a literary, dramatic, musical or artistic work is the life of the author and 50 years
thereafter. In case of a cinematographic work or a photograph, copyright exists for 50 years from the
beginning of the calendar year of the publication of the work.
Page 59
Patents are granted by the Patent Office, a department of the Ministry of Industries and Production, on
new inventions for up to 20 years from the date of application. An invention is meant to be any new
and useful product including chemical products, art, process, method or manner of manufacture,
machine, apparatus or other article. It also incorporates substances, articles and manufactured
products, and includes any new and useful improvement on any of them. The Patent office is also
responsible for registering industrial designs. Legal remedies such as injunctions are available in case
of patent infringement.
Trademarks are registered through the Trademark Registry, a department affiliated to the Ministry of
Commerce. Trademarks can be registered for a period of ten years from the date of registration and
the registration may be renewed for a further period of ten years. Civil and criminal remedies are
available in case of trespassing of trademark rights.
Pakistan has met the requirements of the WTO and also became a member of the Berne Convention
for the Protection of Literary and Artistic Works, the Universal Copyright Convention and the World
Intellectual Property Organisation. However, it is not a member of the Paris Convention for the
Protection of Industrial Property. Despite being a member to these conventions, the enforcement of
intellectual property laws has been rather weak (see Figure 19).
Figure 19: Contracts, property rights and rule of law
7
6
Score (scale 1 to 7)
5
4
3
2
1
0
Pakistan
India
Sri Lanka
China
Malaysia
Thailand
Finland
USA
Bangladesh
Korea
Source: World Economic Forum; Global Competitiveness, Report 2003/04- Contracts and law sub-index
Box 15: Application for registration of copyright

The author or publisher or other person interested in the copyrighting any work has to file an application for registration of the
copyright. According to the Copyright Rules, 1967 ("the Rules") for each work a separate application has to be filed. The
application procedure is as follows:
Form II, available from the Registrar of Copyrights, has to be filled out in three copies.
Two copies of the actual work to be copyrighted.
Submission of a registration fee of Rs. 500/- by Challan to State Bank of Pakistan/ National Bank of Pakistan or by bank
draft/pay order in favour of Registrar of copyrights.
Affidavit.
Copy of all the above documents are to be then submitted to the Registrar of Copyrights – Karachi. Placement of advertisement
in the newspaper of the artistic work and submit two copies of this advertisement to the registrar copyrights.
Provided the Registrar has no objections, a Certificate of Copyrights is issued to the author on first come first serve basis.
Copyright for Computer Programmes In Pakistan:

In Pakistan, computer programmes are excluded from patent protection under the patent laws. Protection under the copyright
laws is the only safeguard available for the computer software industry. The Ordinance provides that copyright subsists in
original, literary, dramatic, musical and artistic works. With regard to the computer programmes, the definition of `literary work' is
amended by the Copyright (Amendment) Act, 1992 ("the Amendment Act") to include computer programmes. The Ordinance
defines literary work to include work, on complications and computer programmes. "That is to say programmes recorded on any
disc, tape, perforated media or other information storage devices, which, if fed into or located in a computer or computer based
equipment is capable of reproducing any information".
1.19.8 Environmental law
New environmental rules are expected to generate important investments in various industries to
improve their treatment of gas and water residues. The textile sector, due to its size, should be one of
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the sectors targeted by foreign suppliers of environmental technology, especially for the treatment of
wastewater. Soda ash and various chemical dyeing products are the main effluents needing treatment.
In order to prescribe the use and check the abuse of environmental resources, the Government of
Pakistan has laid down National Environmental Quality Standards (NEQS) for municipal and industrial
liquid effluent and industrial gaseous emissions, motor vehicle exhaust and noise. The NEQS in
respect of municipal waste, industrial units and vehicular emissions were notified on and enforced from
24 August 1993. With regard to new industrial units, the NEQS have been enforced from 01 July 1996.
The Pakistan Environmental Protection Act 1997 and other regulatory rules and regulations clearly
demonstrate the progress that has been made in the environmental arena.
1.20 Foreign investment policy
Foreign investment conditions have been defined by reference to various sectors of the economy. The
investment policy regime has been liberalised with most economic sectors open for foreign
involvement.
The Government has announced that the main objective of the present investment policy is to enhance
the level of foreign investment in order to improve competitiveness and contribute to economic and
social development. This indicates the high level of importance that is attached to foreign investment in
Pakistan.
The Government has therefore liberalised its investment policy, promoted a stronger and faster
enabling framework and opened up almost all sectors for foreign investment while offering tax and
other incentives for investment as well as enabling 100% ownership for foreign investment in many
areas. The new Investment Policy provides equal investment opportunities for both domestic and
foreign investors.
The Government has decided to give "priority industry" status for foreign investment into information
technology, oil and gas exploration, mining, leather production, corporate farming, livestock and dairy,
financial business and trade, infrastructure, tourism, housing and construction sectors. Complete
freedom of choice has been provided on where to locate an activity.
The Government has entered into double taxation agreement with 51 countries and has committed to
the principle for equal treatment under its investment laws. It has also entered into bilateral
agreements on promotion and protection of investment with 40 countries.
Detailed analysis of these regulations is presented in Part II of this guide (chapters 0 and 0).
1.21 Transparency of the business environment
The World Bank is actively involved with the Government to improve the general economic
environment with a view to reduce corruption prone regulations. Improved salary of civil servants and
amendments to regulation bottlenecks are part of a comprehensive programme being presently
undertaken.
With a Corruption Perception Index of 2.5 (on a 0 to 10 scale), Transparency International ranked
Pakistan Number 92 out of 133 countries worldwide in the year 2003. In 2002, the CPI was 2.6,
ranking Pakistan 77 out of 102 countries.
Pakistan has laws to combat corruption such as the Prevention of Corruption Act, 1947, the Efficiency
and Discipline Rules, 1973, and, most recently, the National Accountability Bureau Ordinance, 1999.
Giving and accepting bribes is a criminal act and entails punishments such as confiscation of property,
imprisonment, recovery of ill-gotten money, dismissal from service and reduction in rank. However,
further progress need to be made. Consequently, the current Government has made accountability
one of its major priorities, and has brought cases against former Prime Minister Nawaz Sharif and
other members of the National and Provincial Assemblies as well as other organisations, officials or
individuals involved in corrupt practices. In June 2000, 1,000 officials in the Central Board of Revenue
were fired for corruption and inefficiency. The National Accountability Bureau (NAB), which is
responsible for fighting corruption, has also targeted loan defaulters and recovered huge sums of
money from them as in the past many Pakistani have used political connections and influence to
Page 61
borrow large sums of money without any intention of ever paying it back. There is a clear talk that this
area is on the mend showing considerable improvement, and the World Bank is highly involved in
supporting the reform of the country in this area, notably through reform of the CBR.
1.22 The banking and financial system
The banking system is now mostly privatised with about 60% of banks in private hands (2003), and
probably 85% by the end of 2004, when the Habib Bank shall be privatised.
Although it is difficult to assess the financial situation of the banks the State Bank of Pakistan (SBP)
has stated that “non performing loans are satisfactorily covered, up to 60%”2. The SBP is reinforcing its
control requirements, such as the compulsory increase of banks’ equity from Rs 30 million initially to
Rs 1 billion.
The depth of the financial market has improved further to the satisfactory foreign exchange reserve
situation of the country, allowing for a diversification of the banks’ activities into capital market
operations through private bond issues, medium term lending and leasing, as well as strong consumer
finance development.
Foreign banks although present in limited number but are involved in major corporate and investment
transactions with private sector. The foreign banks present are ABN Amro, Deutsche Bank, HSBC and
Standard Chartered. Societe General and Credit Agricole Indosuez have recently wound up their
operations in Pakistan
Pakistan's financial sector faced some critical issues in the mid-1990s. The security law was outdated
and the regulatory framework was weak. High interest rates and after tax yields on National Saving
Schemes (NSS) were retarding long-term financial intermediation and crowding out private sector
investment. With the financial sector liberalisation programme, which has been put into effect since
1991 but has not made an impact until 1997, both the banking sector and the capital market have been
strengthened and have improved coniderably.
1.22.1 Banking sector
Pakistan's banking system is headed by the State Bank of Pakistan (SBP), which is the central bank of
the country. One of its core functions is the regulation and supervision of the financial system except
for non-bank financial institutions and leasing companies which are monitored by the Securities and
Exchange Commission of Pakistan.
Other duties of the SBP are the issuance of banknotes, banking services for the Government, foreign
exchange control and the management of foreign exchange reserves. It also conducts the monetary
and credit policy, which is done in accordance with the Government's targets for growth and inflation.
The commercial banking sector of Pakistan comprises public sector scheduled banks, private sector
banks, specialised banks, foreign banks and various other financial institutions. The state-owned
banks, of which the largest were the Habib Bank Limited and the United Bank Limited, have been
privatised (the Habib bank is expected to be privatised before the end of 2004). They are still
dominating the sector in terms of total deposits and number of branches.
The National Bank of Pakistan (NBP) has not been privatised and the State Bank is quite clear that it
will not be privatised as NBP performs the treasury functions for the State Bank.
There remain several other public sector banks including special purpose banks, regional banks and
cooperatives.
With the amendment of the regulatory framework it has been possible to open private sector banks
since 1991. Today, 12 domestic and 17 foreign private commercial banks have branches in Pakistan.
Table 15 presents a list of all commercial banks operating in Pakistan.
2
Comment from the State Bank of Pakistan’s Governor.
Page 62
Table 15: Pakistan - Commercial banks

NATIONALIZED COMMERCIAL BANKS PRIVATE SCHEDULED BANKS FOREIGN BANKS
First Women Bank Ltd Askari Commercial Bank Ltd ABN Amro Bank N.V.
Habib Bank Limited Bank Alfalah Limited Al-Baraka Islamic Bank B.S.C.(E.C.)
National Bank of Pakistan Bank Al-Habib Limited American Express Bank Limited
United Bank Limited Bolan Bank Limited Bank of Cylon
DE-NATIONALIZED BANKS Faysal Bank Limited Credit Agricole Indosuez
Allied Bank of Pakistan Ltd Meezan Bank Limited Citibank N.A.
Muslim Commercial Bank Ltd Metropolitan Bank Limited Deutsche Bank AG
SPECIALIZED SCHEDULED BANKS PICIC Commercial Bank Ltd Doha Bank
Agricultural Development Bank of Pakistan Platinum Commercial Bank Ltd Habib Bank A.G. Zurich
Federal Bank for Co-operatives Prime Commercial Bank Ltd International Finance Investment & Commerce Bank Limited (IFIC)
Industrial Development Bank of Pakistan Soneri Bank Limited Mashraq Bank psc
Punjab Provincial Co-operative Bank Ltd Union Bank Limited Oman International Bank S.O.A.G.
PROVINCIAL BANKS Rupali Bank Limited
The Bank of Khyber Standard Chartered Bank
The Bank of Punjab Standard Chartered Grindlays Bank Limited
MICRO FINANCE BANKS The Bank of Tokyo-Mitsubishi Limited
The First Micro Finance Bank Limited The Hongkong and Shanghai Banking Corporation Limited
Although, as of March 2003, foreign banks are operating only 75 branches as compared to 7150
branches of domestic banks, they are very important in trade finance, with 30% of total trade being
transacted through them. Moreover, they play a significant role by introducing new technologies and
providing better quality services.
One of the main developments in the banking sector in FY 2002 was the considerable increase in
deposits. The growth of deposits by14%, corresponding to Rs 173.3 billion, would have been even
higher if the foreign currency accounts had not dropped by 13.7%. The surge in Rupees’ deposits
resulted from the State Bank purchasing foreign currencies and thus injecting Rupee liquidity into the
market as well as higher remittances from overseas. The fall in foreign currency accounts was the
result of the appreciation of the Rupee during the year and hence reflects the disappointment of
depreciation speculation. The deposits are still growing at a good pace. In the first three quarters of FY
2003 they went up by 11.6%.
Pakistan's Government has also encouraged the creation of special financial institutions concentrating
on small and medium sized enterprises (SMEs). This policy has led to the foundation of the SME
Bank, the Khushali Bank and the First Micro Finance Bank Limited; the latter two providing loans to the
micro sector and individual business enterprises.
Among the non-banking financial institutions are the development financial institutions which provide
project financing and deal with underwriting equity and debt issues. These institutions presently face
major problems due to a large amount of non performing loans and defaults after non performing loans
increased by 9.4% during 2002-03, hindering growth and profitability.
Another major group of non-banking financial institutions comprises investment banks. There are 14
investment banks in Pakistan which are primarily active in corporate and trade finance as well as
securities underwriting and merchant banking. Table 16 presents an overview of non-banking financial
institutions in Pakistan.
Table 16: Pakistan – Non-banking financial institutions

DEVELOPMENT FINANCIAL INSTITUTIONS VENTURE CAPITAL
Investment Corporation of Pakistan Pakistan Venture Capital Limited
National Investment Trust Limited Pak Emerging Venture Limited
Pak Kuwait Investment Company(Pvt) Limited INVESTMENT BANKS
Pak Libya Holding Company (Pvt) Limited First Standard Investment Bank Limited
Pak Oman Investment Company (Pvt) Limited Asset Investment Bank Limited
Pakistan Industrial Credit & Investment Corp. Ltd. Atlas Investment Bank Limited
Saudi Pak Industrial & Agricultural Investment Company (Pvt) Limited Crescent Investment Bank Limited
SME Bank Limited Escorts Investment Bank Limited
DISCOUNT HOUSES Fidelity Investment Bank Limited
First Credit & Discount Corporation (Pvt) Limited First International Investment Bank Limited
National Discounting Services Limited Franklin Investment Bank Limited
Prudential Discount & Guarantee House Limited Islamic Investment Bank Limited
Speedway Fondmetal (Pak) Limited Jehangir Siddiqui Investment Bank Limited
HOUSING FINANCE COMPANIES Orix Investment Bank (Pak) Limited
Asian Housing Finance Limited Prudential Investment Bank Limited
Citibank Housing Finance Co. Limited* Security Investment Bank Limited
House Building Finance Corporation Trust Investment Bank Limited
International Housing Finance Limited
Page 63
Liability of non performing loans of the whole banking system amounted to 106.13 billion Rupees in
December 2002.
1.22.2 Other financial institutions
Besides the banking system, there are some other institutions which provide funding especially for
SMEs, such as leasing which has become a very popular way of financing operations. Leasing
Companies finance a wide range of equipment, products and appliances such as machinery, motor
vehicles, office and computer equipment. In mid-2002 there were 30 leasing companies in Pakistan
and investment in leases increased by 9% to 37.5 billion rupees in 2001-02.
A very specific way of financing is facilitated by Modarabas. The Modaraba is basically the Islamic
version of a mutual fund (also see Box 16). One party, the Modaraba management company,
contributes its skill and efforts while the other party, the Modaraba certificate holder, provides the
required funds. The profits earned in the project are shared between the management company and
the certificate holders on a predetermined basis. Modarabas may be for a specific purpose or multi-
purpose and may be perpetual or floated for a specified period. At the end of June 2002, 46
Modarabas existed in Pakistan with a total of 8.3 billion rupees of paid-up capital. The authors have
not been able to estimate accurately the extent of Islamic banking in the country, deemed to be less
than 10% of the total.
Box 16: Islamic banking and financing

As a Muslim country, Pakistan's banking system is also influenced by regulations contained in the Islamic Code of Operation
including guidance from the Koran. The Sharia, which is the guideline or set of doctrines a Muslim has to obey, imposes certain
rules on banking and financing, which has become generally known as Islamic Banking. The most influential of these rules is the
prohibition of interest. Under the Koran it is forbidden to pay or charge interest on deposits or loans. Money is seen as a medium
of exchange but has no value in itself. Therefore making money out of money (for example via interest payments) is not
acceptable. Islam rather encourages Muslims to invest their money and become partner in order to share profits and risks in the
business instead of becoming creditors. Hence, the ideal mode of financing under the Islamic banking system is financing on a
profit and loss basis.
There are several financial instruments which are in line with the Sharia and are therefore available to Muslims. The above
described participation financing (Modaraba) and leasing (Ijarah) are such allowed financial means. Another widely used
instrument is called Murabaha. In this mode, the bank, at the request of its client, purchases the specified goods from a third
party against payment. Immediately on the transfer of ownership of the goods, the bank sells these goods to the client at cost
plus an agreed fixed profit margin. The client then takes physical possession of the goods and undertakes to pay the price to the
bank either in instalments or in lump sum, at an agreed later date. This technique is usually used for financing trade, but
because the bank takes title to the goods, and is therefore engaged in buying and selling, its profit derives from a real service
that entails a certain risk, and is thus seen as legitimate.
Musharaka is another form of finance under the rule of Islamic Banking. It is a partnership, normally of limited duration, formed to
carry out a specific project. It is therefore similar to a western-style joint venture, and is also regarded by some as the purest
form of Islamic financial instrument, since it conforms to the underlying partnership principles of sharing in, and benefiting from,
risk. Profits are divided on a pre-determined basis, and any losses shared in proportion to the capital contribution.
Islamic banking is dominated by equity financing and consequentially mainly deals with small to medium scale financing.
Therefore, it is one important feature of funding SMEs.
1.22.3 Capital market
Capital market reforms were also an integral part of the overall financial sector liberalisation
programme. The objective was to facilitate the channelling of investment funds to the most productive
uses since the efficient allocation of capital is the main purpose of a capital market. Governance,
institutions, regulations and supervision were strengthened leading to more transparency. Moreover,
market infrastructure have been modernised and improved. All these steps resulted in a growing
capital market.
Pakistan has three stock exchanges located in Karachi, Lahore and Islamabad with Karachi being the
most important, accounting for 65% of the total shares traded and listing more than 700 companies.
The trend of the Pakistani stock market can be extracted from the KSE-100 Index, which is displayed
below. The KSE-100 Index is the most widely followed measure of stock performance in Pakistan. It
was launched in November 1991 as a capital weighted index and represents more than 80% of the
total market capitalisation.
As can be seen from Figure 20, Pakistan's stock market experienced an impressive performance since
2001, which is the result of a significant turnaround in the economy in general and external account in
particular. In fact Pakistan was declared the best performing market in the world in 2002. In the period
August 2002 to August 2003 the market soared by 125%.
Page 64
Figure 20: Pakistan: Turnover of shares at KSE and KSE-100 index
14000 5000
12000
KSE-100 Index
4000
10000
Turnover
8000 3000
6000 2000
4000
1000
2000
0 0
Se 01
N 01
Ja 01
M 02
Se 02
N 02
J a 02
M 03
3
M -02
Ju 2
M -03
Ju 3
l0
-0
-0
ov
p
l
p
ov
l
n
n
ay
ay
ar
ar
Ju
Turnover (in million shares) KSE-100 Index

Besides equity, corporate debt is also traded at Pakistani stock exchanges. With the issuance of
corporate bonds of Packages Limited which were listed on the stock exchange in February 1995, the
corporate debt market came into existence. Since then, over 60 different bonds have been issued.
Accordingly, the volume has increased from 2 billion Rupees in 1999 to 10 million Rupees in 2002.
The country has already achieved a moderate level of capital mobilisation through the bond and the
equity markets at 25 and 11% of GDP respectively, at the end of FY2002. However, bond markets are
driven by governmental issues with the corporate bond market accounting only for 0.6% of GDP.
Additionally, several risk management tools like options and futures have been successfully
developed, providing business with the necessary tools for efficient financial management.
1.23 Market and distribution channels
Despite the large number of inhabitants and a growing middle class, the size of the domestic
consumer market remains relatively small. It is difficult to gauge its actual size, but indications tend to
concur on about seven million people with an estimated income of USD 7000 or more, on a
Purchasing Power Parity basis. On similar criteria, the middle class from China is presently estimated
at about 290 million people while India’s middle class would number about 90 millions.
1.23.1 Distribution structure
Pakistan has a well-established distribution network in most parts of the country, especially for non-
perishable products. The network consists of C & F agents, stockist/ warehouses, regional distributors,
wholesalers, and retail sellers. It is common to find many companies in unrelated/non conflicting
product lines sharing the network in a territory.
Typically, the larger cities and metros have up to four levels in the distribution network until the final
point of sale. Distributors often work for more than one brand, but rarely in the same or competing
product lines.
1.23.2 Retailer profile
The average size of retail outlets even in cities is 40 sqm. Generally, retailers receive supplies from
distributors appointed by companies. However, as a means of direct contact with the outlets,
companies also depute their own sales persons to book orders from retail outlets, which are then
supplied by distributors.
1.23.3 Commercial terms
The average margin is reported to be between 14-18% for all products. Payment terms vary
considerably between companies/suppliers, depending on the brand strength and market standing of
Page 65
the products. However, most commonly, the supplier collects payment at the time of next supply,
which is equivalent to an average 1-2 week’s credit. The most popular promotional schemes are in the
form of cash discounts/incentives linked with sales quantity, attractiveness of display, shelf space etc.
Increasingly, companies are adopting different distribution networks for rural and urban areas given the
stark differences in logistical needs and the off take levels.
Rural distribution sees coverage through rural super distributors or super stockists in charge of several
stockists, including mobile ones that carry products in vans to all villages in their territories, and
leverage a large product range (including several brands) over the circuit costs.
1.23.4 Organised retail
Pakistan has a highly fragmented retail industry; however there appears to be some development
towards more modern types of retailing, targeting the emerging middle class, especially in Karachi,
such as the Park Tower, The Forum or The Plaza Shopping Malls. The fact that Carrefour, the French
retail distribution chain is contemplating a sizable investment in Karachi points to the importance of this
new market segment.
The driving factors behind the emergence of retail as a new social phenomenon are: growing incomes,
the changing role of women and a demand for ‘shop entertainment’. It must be stressed however that
this phenomena is still limited and very recent.
Investments of overseas Pakistanis seem to target the retail sector.
1.23.5 Government intervention
In retail food sales, the Government has used pricing in its several hundreds-unit Utility Stores
Corporation chain to nominally subsidise prices of essential foodstuffs. Utility Stores are under the
administrative control of the Utility Stores Corporation under the Ministry of Industries. Utility Stores are
spread all over Pakistan and the prices of almost all the items are lower than the normal market prices.
SUMMARY: INTERNATIONAL COMPETITIVENESS OF PAKISTAN

The main drawback affecting Pakistan’s attraction of foreign investments arises from the negative
security perception by westerners due to the Kashmir conflict, the Afghan situation as well as the
internal sectarian violence. However reality has been improving fast on all three fronts recently.
The present political situation should comfort investors as to the sustainability of the political process
and the democratic commitments of the Government.
The macro-economic and financial “miracle” of the last three years, due for a significant part to the
financial support offered by the international finance community, mostly through debt rescheduling and
soft loans appears now to favourably impact on micro economic development.
The streamlining of the regulations is already alleviating a still bureaucratic environment, while the
commitment of the Government should improve in due course the still weak enforcement of litigation,
arbitration and property rights and the contentious enforcement of the tax regulation. Poor
infrastructure which adds to the cost of doing business is being improved.
Time should confirm hopefully the recent good performance on all above points which still has to
translate into micro-economic successes and poverty alleviation.
The main positive points cover the very liberal business regulations, the recent booming performance
of the country as well as the improved profitability of the companies in most sectors.
For the last three years, the International competitiveness of Pakistan, based on its macro economic
situation has improved dramatically. It now stands in a very competitive situation compared to the
countries in the region.
Its competitiveness based on business regulation and administrative environment, appears

progressing, while implementation through the Government administration might not yet have reached
Page 66
a satisfactory level. Cost of finance which was mentioned as a drawback for business as recently as a
year ago, is now very reasonable, with bank interest rates on corporate loans in single digits.
Table 17: Pakistan's investment climate compared to India and China

Investment Climate at a glance
China, India and Pakistan
GNI per cap, PPP $

Macro environment China India Pakistan
/1 /1 /1
1995 2000 1995 2000 1995 2000 4000
GNI per capita (US$, PPP) 2650 3920 1850 2340 1730 1860
Population, mid year (millions) 1205 1262 929 1016 122 138 3000
GDP growth (1991-95 and 1996-2000, avg %) 12.1 8.2 5.2 5.7 4.8 3.1
2000
Openness (Imports+Exports/GDP) 45.7 49.1 25.7 30.5 37.1 34.6
Private Investment (% GDP) 18.6 17.3 18.2 17 9.4 10.1 1000
Public Investment (% GDP) 22.2 19.9 8.4 7.3 9 5.5
1995 1996 1997 1998 1999 2000
FDI inflows (net, % GDP) 5.1 3.6 0.6 0.5 1.2 0.5
China India Pakistan
Micro environment
Inputs
Labor force education (avg years educ, manufact.) 10 10 9
Excess labor force, % 17.3 3.6
Suppliers availability (used for main input), median 20 4
Stock of inventories of inputs (days of production) 28
R&D (% sales) 2.0 0.2
Governance
2
Control of corruption -0.3 -0.39 -0.79
2
Rule of law -0.19 0.23 -0.74
2
Political Stability 0.39 -0.05 -0.39
Number of visits by gvnt officials, avg per year
% of senior manager time with gvnt officials
Infrastructure
PC per 1,000 people
Share of firms with own generator, % 30 69 42 20
Excess cost of private electricity, % of public
Days to clear imports, longest in last year 12 21 30 15
3
Cost of shipping, % 5.4 8.5 5.0 10
Telephone lines in largest city (per 1000 people) 294 131 62
Personal computers (per 1000 people) 16 5 4 5
Paved roads, % of total 22 46 43
0
1995 1996 1997 1998 1999 2000
China India Pakistan
Finance Credit to Priv. Sector (% gdp)

Cost of capital (lending interest rate, %) 5.85 12.29 14.8 150
Share of credit from financial institutions, %
Credit to private sector (stock, % of GD P) 125 29 29 100
50
0
1995 1996 1997 1998 1999 2000
China India P akistan
Source: WDI, ICU firm surveys

1/ or most recent available year
2 Scale of -2.5 to 2.5. Higher values correspond to better outcomes
3 Transport cost as share of value of export to US, textiles, 1998.
4 Ratio of average wage to average value added, median value
5 % variation of avg expectations
Source: http://rru.worldbank.org/doingbusiness/SnapshotReports/Country.aspx?regionid=147
Page 67
PART II: PRACTICAL BUSINESS INFORMATION
SETTING UP A BUSINESS IN PAKISTAN

In recent years, the Government of Pakistan has substantially simplified the regulatory environment for
the setting up of a business operation. Although the one-stop-shop approach is not yet a reality the
Board of Investment (BOI) and the Security and Exchange Commission of Pakistan (SECP) have strict
guidelines to process applications within set time limits. Delays in the provision of fixed line
telecommunication, power and water supply depend on the location, but have been improving
substantially over the years. Mobile communication and internet access is efficient.
Incentives for investment are limited to high front end depreciation of equipment, holiday income tax as
well as duty drawbacks on imported equipment.
1.24 Business regulatory environment
In the past, investment in Pakistan was the subject of numerous approvals, permits and licenses which
have been thoroughly streamlined recently. Administration of investment is now concentrated with the
BOI and the SECP in a kind of one stop shop system. Requirements such as the registration of foreign
investors with the BOI have been removed, no more screening from the Government on foreign
investment is required, unless special incentives are involved, and no requirement to obtain provincial
Government clearing for project location other than for a few specified sensitive areas of operation.
The recent reduction in the number of days to set up a business in Pakistan is significant and ranks the
country among the best in this regard in Asia (see Table 18).
Furthermore, the 1976 Foreign Private Investment Promotion and Protection Act, as well as the 1992
Economic Reforms Act offer statutory safeguards for the rights of the foreign investor, on the basis of
non discriminatory treatment. However, enforcement of such rights through the legal system can
sometimes be problematic (see Box 22 further below).
Table 18: Starting a business in Pakistan and selected other countries, 2002
Country Number of Time (N° of Cost -% per capita Minimum capital (%
Procedures days) income per capita income
Pakistan (2002) 10 53 70 0
Pakistan (2003) 10 27 47 0
India 10 88 55 458
Bangladesh 7 29 75 0
Sri Lanka 8 73 15 323
Nepal 8 25 189 0
China 12 55 13 4,330
Thailand 8 45 7 0
Malaysia 7 56 27 0
United Kingdom 5 4 1 0
Australia 2 6 2 0
Source: World Bank 2003
1.24.1 Types of investment and foreign shares allowed
http://www.pakboi.gov.pk/html/investment_policies.html
Although investment in all sectors is open, certain sectors require approvals. Table 19 presents an
overview of the foreign investment allowed per sector.
Page 68
Table 19: Summary of foreign investment regulations

Manufacturing Sector Non-Manufacturing Sectors
Priority Industries
V.A + Hi-Tech Engg+ Chem, Agri Other Agriculture Infrastructure Services including
Export & IT business, housing & Indus- & Social IT & Telecom
Cat (A) Cat(B) construction, tourism tries Services
Cat(C&D)
Govt. Permission Not required except 4 specified industries * Not required except specific licenses from
concerned agencies.
Remittance of Allowed Allowed
capital, profits,
dividends, etc.
Upper Limit of 100% 60% 100% Initially 100% but to
foreign equity be diluted to 60%
allowed within five years.
Minimum No 0.3 0.3 0.3
Investment
Amount (M $)
Customs duty on 5% ** 5%** 10%** 5-25% 0% *** 10%*** 0-10%***
import of PME
Tax relief (IDA,% 50% 50%
of PME cost)
Royalty & No restriction for payment of royalty & technical fee.Allowed as per guidelines - Initial lump-sum up to
Technical Fee $100,000
- Max Rate 5% of net sales - Initial period 5 years
* Specified Industries: Arms and ammunitions; High Explosives; Radioactive substances; Security Printing, Currency and Mint.
No new unit for the manufacturing of alcohol, except, industrial alcohol
PME= Plant, Machinery and Equipment IDA= Initial Depreciation Allowance V.A. = Value Added
** Special Regulatory Order (SRO): 439(I)/2001 dated 18-6-2001 ***SRO: 358(I)/2002 dated 15-6-2002
Source: BOI
1.24.2 Types of legal forms for doing business
There are three main forms of business in Pakistan, defined as follows:
– Sole Proprietorship. In a sole proprietorship, an individual on his/her own account carries out the
business or profession. No formal procedure or formality is required for setting up a sole proprietary
concern.
– Partnership. A partnership is a business relationship entered into by a formal agreement between

two or more persons or corporations carrying on a business in common. The capital and profit
sharing and other terms of partnership including liability for debts of the firm are usually contained
in the partnership agreement.
Partnerships (other than banking companies) are generally limited in size to twenty partners. The
interest of a partner is transferable only with the prior consent of the other partner(s). However, a
partner's right to a share of the partnership income may be received in trust for another person.
Such partnerships are created under the Partnership Act of 1932 and if needed is registered with
the Registrar of Firms.
– Company. A company is a legal entity formed under the Companies Ordinance, 1984. It can have
share capital or can be formed without share capital.
1.24.3 Type of companies
A company having share capital may be formed as:

- unlimited company. a company having unlimited liability of its members.
- company limited by guarantee. a company having the liability of its members limited by
memorandum to such amounts guaranteed in the event of the company winding up. A company
limited by guarantee is usually formed on a 'non profit basis'. Companies limited by guarantee use
the words (Guarantee) Limited" as the last words of their name.
- company limited by shares. The liability of its members is limited to the extent of their shares in the
paid-up capital of the company
Companies limited by shares may further be classified as public limited and private limited companies:
– Public Limited Companies can be formed by at least three persons by subscribing their names to
the 'Memorandum and Articles of Association' of the company. The word 'Limited' is used as the
last word of its name. Public Companies may be listed and unlisted with the Stock Exchanges.
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– Private Limited Companies may be formed by at least two persons by subscribing their names to
the 'Memorandum and Articles of Association' of the company. A private limited company is
required to use the words "(Private) Limited" as the last words of its name. A private limited
company, by its Articles of Association:
- Restricts the right to transfer its shares;
- Limits the number of its members to fifty;
- Prohibits any invitation to the public to subscribe for shares or debentures of the company.
With effect from late 2003, a new provision for setting up of a Single Member Company (SMC) has
been introduced. This is a private company with only one shareholder. All provision of the Companies
Ordinance or rules, which apply to a private company limited by share, apply to a single member
company. Such entities have been permitted to enable single owners to incorporate into a company.
SMCs need to register with the registrar through a form identifying the one or more persons who have
the right to inherit the shares of the SMC in the event of death of the owner. A single member company
is required to use the words "(Private) Limited - SMC" as the last words of its name.
1.24.4 Business regulations for company registration
http://www.pakboi.gov.pk/html/company_registration.html
http://www.secp.gov.pk/ns/index.asp
Companies are formed under the Companies Ordinance. Any three or more persons associated for
any lawful purpose may, by subscribing their names to the Memorandum of Association form a public
company, and any two or more persons may form a private company, while for SMCs only one person
can register a company.
Prior approval of the authorities is required for the following types of companies:
1) Banking Company: Ministry of Finance/State Bank of Pakistan.
2) Insurance Company: Ministry of Commerce.
3) Investment Finance Company (Investment-Bank): (i) Ministry of Finance, (ii) State Bank of
Pakistan.
4) Leasing Company: Securities and Exchange Commission of Pakistan.
5) Venture Capital Company: Securities and Exchange Commission of Pakistan.
6) Asset Management Company: Securities and Exchange Commission of Pakistan.
The following sectors require clearance at a higher level from the Ministry of Industries and the Board
of Investment. Before such permission is granted no application for registration can be filed:
– Arms and Ammunition
– Security Printing, Currency and Mint
– High Explosives
– Radio Active Substances
For the convenience of the general public, promoters and directors of companies, SECP has
established eight regional offices in Islamabad, Karachi, Lahore, Peshawar, Faisalabad, Multan,
Sukkur and Quetta. Besides support in setting up operations, these offices provide services and
guidance in other compliance requirements as well. The records of companies maintained by these
offices are public. Investors, shareholders, creditors and other stakeholders may inspect them record
of any company whenever they need and they may also obtain certified copies of any specific
document.
The procedures involved in registering either a private or public company are relatively similar.
However there are visible differences after incorporation.
1.24.4.1 Availability of name of the company

http://www.secp.gov.pk/ns/index.asp
The first step in the incorporation of a company is to confirm the availability of the name of the
proposed company from the SECP on payment of a fee of Rs 100. The name should not be
inappropriate, deceptive or designed to offend religious feelings, and it should neither be identical nor
have a close resemblance to the name of any existing company.
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1.24.4.2 Required documents

Most forms required for the registration are available on the BOI web site at
http://www.pakboi.gov.pk/html/required_documents.html.
A foreign company incorporated outside Pakistan is required to submit the following documents to the
concerned agencies within 30 days of establishing presence in Pakistan:
- A certified copy of the charter, statute or Memorandum and Articles of the company, in English or
Urdu, accompanied by prescribed Form 38;
- Address of the registered or principal office of the company on Form 39;
- A list of Directors, the Chief Executive and Secretaries (if any) of the company on Form 40;
- Particulars of the principal officer of the company in Pakistan on Form 41;
- Particulars of person (s) resident in Pakistan authorised to accept services on behalf of the foreign
company on Form 42;
- Address of the principal place of business in Pakistan of the foreign company on Form 43 (Section
451)
Any change or alteration with regard to the above data must be filed on Form 44 with the registrar
concerned within 30 days of such change or alteration (section 452). Furthermore, a foreign company
is required to file annually with the registrar concerned annual accounts in respect of its operations
within Pakistan as well as its global accounts together with the list of Pakistani members and
debenture holders and particulars of places of business of the company in Pakistan within the
prescribed period (Section 453).
A foreign company is required to give notice on Form 46 to the registrar concerned at least 30 days
before it intends to cease to have a place of business in Pakistan and to publish a notice of such
intention at least in two daily newspapers circulating in the province or provinces in which such place
or places of business are situated.
1.24.4.3 Liaison / branch offices

A foreign company can establish a place of business in Pakistan (which includes a branch, share
transfer or registration office, factory, mine or other fixed place of business) without formally creating a
separate legal entity.
A liaison office can be established by a foreign company for the purpose of marketing activities in
Pakistan and to acquire contracts from Government and private the private sector. A liaison office is
converted into a branch office whenever the foreign company gets a contract in Pakistan in any field of
economy.
Permission for opening of branch/ liaison office may be granted by the BOI for a period of 3 to 5 years.
Further extension will be granted by the BOI after reviewing and examining the past performance of
foreign companies. Request for renewal or extension will be processed by the BOI with two weeks
provided the requests are supported with complete documentation.
Companies who wish to open their branch / liaison or representative offices in Pakistan may apply to
BOI for permission on prescribed forms. The BOI will process and decide such cases within 2 to 3
weeks. Once the permission is granted by BOI, the foreign entities are required to register with the
Securities and Exchange Commission of Pakistan under the Companies Ordinance 1984. The
following documents must be submitted with the BOI and SECP for permission and registration of
Branch/Liaison Offices of a foreign company in Pakistan:
i. Application on a prescribed form duly completed and signed by the Principal Officer of the
proposed branch/liaison office in Pakistan
ii. Minutes of the meeting of the Board of Directors of company regarding the opening of office in
Pakistan
iii. Article of Association of Company
iv. Certificate of Incorporation of the Company in the country of origin.
v. Letter of appointment of Branch Manager/Principal Officer of Company for Pakistan Office.
vi. Letter of acceptance by Branch Manager/Principal Officer for accepting his position as Branch
Manager/ Principal Officer of Pakistan Office of foreign company.
vii. Power of attorney in favour of an individual or firm to act as consultant for providing such
professional services.
viii. Copy of the contract awarded (in case of Branch/Project Office)
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All the aforementioned documents are required to be filed in original and if these are in any language
other than English then they should be translated into English and duly attested by the Pakistani
Embassy in the country in which the Foreign Company is originally incorporated.
Foreign company branch and liaison offices are required to file annually with the Registrar concerned
annual accounts in respect of its operations within Pakistan as well as its global accounts together with
the list of Pakistani members and debenture holders and particulars of places of business of the
company in Pakistan within a prescribed period.
Foreign company branches and / or liaison offices are required to give notice to the Registrar
concerned at least 30 days before it intends to cease to have a place of business in Pakistan and to
publish a notice of such intention at least in two daily newspapers circulating in the province or
provinces in which such place or places of business are situated.
1.24.4.4 Modaraba Companies

Apart from companies incorporated in the Companies Ordinance, there is also the facility of setting up
an incorporated entity under the Islamic modes of business conduct called the Modaraba for which the
regulation is contained in the Modaraba Companies Ordinance. Such Modarabas are structured to
enable business in which a person participates with his money and another with his efforts and / or
skill. Modarabas can be set up for a multipurpose requirement or a specific purpose. This is a two tier
set up having a Modaraba Company which carries out the business and a Modaraba Management
Company which is engaged in the business of floating and managing the Modaraba.
To register the Modaraba, the essential requirements are the same as that of a company but with
certain specific differences which are defined in the Modaraba regulations.
1.24.4.5 Other permission to be obtained

Besides the general approvals required by foreign companies to invest in Pakistan, including the
registration processes, the following other clearances and permissions are required for setting up
commercial ventures:
- Tax registration – a tax registration number for registration with the Income Tax Authorities is to be
obtained.
- Import export registration – a registration as an importer and in case exports are involved as an
Exporter, is required to be made with the Export Promotion Bureau.
- Sales tax registration – a sales tax registration has to be obtained in case the business entity is
involved in activity involving sales tax.
- Registration under various labour regulations – in certain cases, certain labour and manpower
related registrations need to be obtained.
- For foreign companies participating in engineering / contract execution, there is a requirement to
register with the Pakistan Engineering Council.
1.24.5 Acquisition of a Pakistani company
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.
1.24.6 Dealing in shares
http://www.secp.gov.pk/stockbrokers.htm
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. In addition, the listing
regulations of the Karachi Stock Exchange impose the following conditions for listing:
- Allocation of share capital to overseas Pakistanis shall not exceed 20% of the public offer.
- Allocation of share capital to employees of a company shall not exceed 5% of the public offer.
- Minimum number of subscribers to the issue will be 500.
Furthermore, Section 67 of the Insurance Ordinance, 2000 imposes that acquisition of more than 10%
in an insurance company should get prior approval from the SECP. Similarly, in case of transfer of 5%
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or more shares of any bank or financial institution by foreign investors, the permission of the State
Bank of Pakistan is required.
1.24.7 Protection of investor interest
The SECP has successfully implemented broad based market reforms in the fields of risk
management, governance, transparency and investor protection. Furthermore, the observance of
enhanced accounting standards, reliable audits, as well as institutional strengthening and capacity
building of the SECP, have been critical features of the capital market reform programme. The stock
exchanges in Pakistan are now largely compliant with the 30 IOSCO principles of Securities
Regulation that constitute the International Standards adopted by the Financial Stability Forum. In this
regard, the Commission has been actively co-operating with regulators across the globe in pursuit of a
safe, transparent and dynamic international financial environment.
Some of the significant reform measures introduced by the SECP to safeguard the investor interests
are:
- The Investor Protection Fund (IPF) and Clearing House Protection Fund (CHPF) have been set up
to ensure effective risk management in the secondary market and to protect investors’ interests in
case of default by the members of the exchange. The Commission observed that these funds were
not fully funded by the exchanges and therefore directed the stock exchanges to ensure that their
IPF and CHPF are fully funded by June 30, 2007. By June 30, 2002, the exchanges shall fund at
least 50% of the actual contribution towards the IPF and CHPF. This%age will increase to 75% in
2003 and 100% from 2004 onwards. By June 2007, both funds should be fully funded.
- The SECP promulgated the Brokers and Agents Registration Rules in May 2001 to establish a
direct regulatory nexus with brokers and agents for ensuring investor protection. Section 5-A of the
Securities and Exchange Ordinance, 1969 provides that no person can act as a broker or agent to
deal in the business of effecting transactions in securities market unless registered with the
Commission. The registration of brokers and agents has brought about a positive impact in stock
market by creating awareness among brokers to exercise high standards of integrity and to
exercise skill and care in the conduct of business.
- The implementation of new two-tier Arbitration Procedure at KSE and ISE for the expeditious
resolution of investor complaints provides for swift redress of investor complaints. Under the new
procedure, all claims/disputes over Rs. 0.5 million arising out of transactions made subject to the
Rules and Regulations of the exchange, which are not otherwise amicably settled, shall be
referred to the Advisory & Arbitration Committee for their resolution/decision. However,
claims/disputes up to Rs. 0.5 million shall be referred for arbitration to the Managing Director of the
exchange. All claims/disputes exceeding Rs. 0.5 million forwarded to the Advisory and Arbitration
Committee will be referred to a panel of arbitrators appointed for arbitration proceedings. Also, all
claims and disputes referred to the panel of arbitrators shall be resolved / decided by majority and
such decisions shall be deemed to be the award in the arbitration.
The primary objective of the SECP is to have a fair, transparent and efficient stock market to attract
capital and restore investor confidence.
The Commission has granted approval for registration of the National Commodity Exchange Limited
(NCEL). In this regard it may be noted that single stock futures have already been introduced on June
9, 2001. The NCEL will be dealing in derivative products, mainly in futures contracts in commodities
and the specific approval of the Commission will be required for each type of futures contract traded on
the Exchange. Promoting the growth of new products such as options, futures and other derivatives,
will provide the necessary means to hedge risk and deepen the stock market. Hence, the emergence
of trading in futures contracts in commodities in Pakistan would add greater depth to the capital
market, providing investors/stakeholders with basic hedging instruments as well as enabling economic
players to lock in costs, and would provide stimulus to the investment climate of the country. The Rules
governing trading of futures contracts in commodities are in the process of being drafted by the SECP.
1.24.8 Other standards
Pakistani nationals, firms and companies generally do not require any prior approval for purchase of
property unless its use is for a restricted purpose involving specific approvals such as setting up of
infrastructure projects etc. However, there are restrictions on foreign nationals and foreign companies
registered outside Pakistan on acquiring immovable property in Pakistan.
Page 73
The broad provisions in this regard are that foreign banks operating as branch offices in Pakistan are
allowed to acquire immovable property in accordance with specific provisions under the banking
regulations. Similarly foreign oil exploration companies can acquire land but to the extent and the
manner permitted under their concession agreement.
1.25 Business opportunities
1.25.1 Privatisation to date
http://www.privatisation.gov.pk/Adds/News.htm
Privatisation efforts began in earnest after the creation of the Privatisation Commission (PC) in 1991.
Although the PC’s mandate was initially restricted to industrial transactions, by 1993 it had expanded
to also include power, oil and gas, transport (aviation, railways, ports and shipping),
telecommunications, and banking and insurance.
In the financial year 2002/2003 the PC sold 51% of the Government of Pakistan stake in UBL, 28% of
Bank Alfalah, additional 10% shares of Pak Saudi Fertiliser Limited and has concluded eight Capital
Market Transactions, amounting to Rs. 20.65 billion. By the end of May 2003, the Government of
Pakistan had completed or approved 132 transactions at gross proceeds of Rs 99.71 billion. The
sources of the proceeds are presented in Figure 21.
Figure 21: Privatisation proceeds

Industrial & other
Finance & Banking
22%
26%
Energy
Telecom
21%
31%
Source: State Bank of Pakistan Report
While almost all transactions were settled in local currency, about 60% of the proceeds were received
in foreign exchange from transactions pertaining to the 2nd tranche of PTCL vouchers, Kot Addu
Power Company (KAPCO), six Oil & Gas concessions, Habib Credit & Exchange Bank, and United
Bank Limited. Table 20 provides the number and amount of transactions.
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Table 20: Summary of privatisation transactions by sector, 1991- June 2003 (values in RS
million)
1991 to Jun 2001 Jul 2001 to Jun 2002 Jul 2002 to Mar 2003 Total to date
Sector No. Amount No. Amount No. Amount No. Amount
Banking 4 5,644 2 12,970 6 18,614
Capital Market Transaction 1 563 2 737 8 6,866 11 9,721
Energy 4 9,549 8 11,349 12 20,904
Telecom 2 30,558 2 30,558
Automobile 7 1,102 7 1,102
Cement 11 7,790 11 7,790
Chemical / Fertiliser 14 2,045 2 7,338 1 815 17 10,197
Engineering 7 187 7 187
Ghee Mills 19 646 2 122 21 768
Rice / Roti Plants 23 326 23 326
Textile 2 87 2 87
Newspapers 5 270 5 270
Tourism 3 594 3 594
Others 4 44 1 110 5 154
Total 106 59,405 15 19,656 11 20,651 132 101,272
Source: Privatisation commission
1.25.2 Privatisation plans
The Government is pursuing the privatisation process with a flexible approach, using all types of
opportunities to reduce the Government involvement in the public companies, i.e. selling regularly
small stakes through the stock market, selling significant minority of majority portions, or full equity as
per the circumstances.
Among the upcoming transactions, a further divestiture of the Habib bank, the Pakistan Telecom Co
Ltd. and the Pakistan State Oil are scheduled. Despite the ambitious goals, the privatisation process
has generally been slow, which might be attributed to the lack of investor confidence and of a
substantive regulatory framework, opposition of those with vested interests and public misconceptions
of the objectives and processes of privatisation. However, the Government is addressing these
barriers and tries to improve the environment for further privatisation, for instance by introducing more
transparency and the development of a responsive regulatory framework such as the setting up of the
National Electricity Regulatory Authority (NEPRA), the Pakistan Electronic Media Regulatory Authority
(PEMRA) and the Oil and Gas Regulatory Authority (OGRA) with others to follow.
Table 21: List of Upcoming Major Transactions (as of December 2003)

Sector/Company Type of Sale Envisaged Expected Bidding Date
Telecommunications
Pakistan Telecom Co Ltd (PTCL) 26% strategic sale 1st qtr 2004
Oil and Gas
Oil and Gas Development Corp Ltd (OGDCL) 2.5% Initial Public Offering November 2003
51% strategic sale 1st qtr 2004
Pakistan State Oil (PSO) 51% strategic sale 4th qtr 2003
Sui Southern Gas Corp Ltd (SSGCL) 5% Public Offer December 2003
Pakistan Petroleum Ltd (PPL) 51% strategic sale 2nd qtr 2004
National Refinery Ltd. (NRL) 51% strategic sale 4th qtr 2004
Banking and Finance
Habib Bank Limited (HBL) 51% strategic sale December 2003
National Investment Trust (NIT) 58% shares 1st qtr 2004
Power
Karachi Electric Supply Corp (KESC) 51-74% shares 2nd qtr 2004
Faisalabad Electric Supply Co (FESCO) 56% shares 4th qtr 2003
Genco 1 (Jamshoro) 51% strategic sale 4th qtr 2003
Industry and Real Estate
Pakarab Fertiliser Ltd. 90% sale 1st qtr 2004
Pakamerican Fertiliser Ltd. 90% sale 3rd qtr 2004
Faletti’s Hotel To be determined 2nd qtr 2004
Malam Jabba To be determined 2nd qtr 2004
Karachi Shipyard & Engineering Works Ltd To be determined 3rd qtr 2004
National Construction Ltd. (NCL) To be determined 1st qtr 2004
Koh-e-Noor Oil Mills Asset sale 4th qtr 2003
Source: Privatisation Commission
Page 75
1.26 Foreign investment conditions
Previously only the manufacturing sector was open to foreign investment. Now, the policy regime is
much more liberal with most other economic sectors open for foreign involvement.
http://www.pakboi.gov.pk/html/investment_policies.html
1.26.1 Manufacturing/industrial sector
Foreign Investors are permitted to hold 100% of the equity of industrial projects without any permission
of the Government. No Government sanction is required for setting up any industry, in terms of field of
activity, location, and size, except for the following:
- Arms and Ammunitions
- High Explosives
- Radioactive Substances
- Security Printing, Currency and Mint
- Alcoholic beverages or liquors
There is no requirement for obtaining No Objection Certificates (NOC) from the provincial
Governments for locating the project anywhere in the country, except in areas that are notified as
negative areas.
1.26.2 Services sector
Investment in the Services Sector is allowed subject to the license of the operation prior to investment
for those areas which warrant such requirement, such as the telecommunications or the banking
sectors.
This requirement is also applicable to local investors. However the following conditions need to be
adhered to:
- The amount of foreign equity investment in the company/project shall be at least USD 0.3 million.
- Foreign investors are allowed to hold 100% of the equity subject to the condition that the
repatriation of profits will be restricted to a maximum of 60% of total equity or profits and that a
minimum of 40% of the equity is held by Pakistani investors (including sale of shares in stock
exchange) within five years
1.26.3 Infrastructure sector
Foreign investment in infrastructure projects is permitted with up 100% equity on repatriable basis,
including the development of industrial zones. However, investment is subject to a minimum equity of
USD 0.3 million.
1.26.4 Social sector
Foreign investment in Education, Technical/Vocational Training, Human Resource Development

(HRD), Hospitals, Medical and Diagnostic Services are permitted with permission to hold 100% equity
provided initial investment is at least USD 0.3 million.
1.26.5 Agriculture sector
Foreign investment in agricultural activities (including land development and reclamation, crop farming,
development of irrigation facilities, forestry, horticulture, dairy, small ruminants and livestock breeding,
farming and fisheries) is permitted with up to 100% of the equity. However the repatriation of profits will
be restricted to a maximum of 60% of total equity or profits and a minimum of 40% of the equity is to
be held by Pakistani investors (including sale of shares in stock exchange) within five years.
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1.26.6 Others
Tourism has been given the status of Industry in accordance with Ministry of Industries and Production
Circular No. 1-129/99-INV-IV dated 2nd August, 1999. It has been designated as a priority industry
(Category "C" of the Investment Policy).
Housing and Construction has also been declared as an Industry and has been designated as a
priority industry. Local and foreign companies involved in real estate projects will not be allowed to
market these projects unless the title of the property is transferred in the name of a locally incorporated
company and the "Commencement of Business" certificate is issued by the SECP.
Information Technology has been declared as Industry. Foreign investment in IT sector is permitted
with up 100% equity on repatriable basis. Custom duty exemption is available on import of machinery
& equipment used in the field of IT. Computers software and other items related to IT can also be
imported at zero rate of import duty.
1.26.7 Investment incentives
Since 2000, Pakistan has liberalised its investment code and created various incentives for investors.
A number of priority industries (added value, high tech, agro-based and export sectors) benefit from
significant concessions, mostly based on low import duties and a high front end depreciation of assets.
1.26.7.1 Incentives for priority industries

Incentives are granted to enterprises in defined priority industries. Priority Manufacturing / Industrial
activities have been designated as follows:
- Category A: Value Added or Export Industries;
- Category B: Hi-Tech Industries;
- Category C: Priority Industries; and
- Category D: Agro-based Industries.
Units that annually export a minimum average 50% of their production or more in the first ten years are
classified as Export or Value Added Industries. In case of expansion of existing units they should
export at least 50% of the additional capacity created under expansion, to avail the incentives of export
industries.
The lists giving details of the industries falling in Categories A, B, C and D are available on the BOI
web site http://www.pakboi.gov.pk/html/policies_incentives.html.
Government policies strongly favour investment in the priority industries, with a provision for increased
local content, as per the Government “deletion policy”. In exchange for favourable tax treatment, this
policy requires assembly industries to substitute, over time, local materials or semi-processed local
components for imported parts. Such programmes are determined by the Pakistan Engineering
Board’s Indigenisation Committee, in consultation with concerned industries.
Also the deletion policy was to have ended by 2000 under the WTO Trade Related Investment
(TRIMS) agreement. Pakistan obtained an extension to 31 December 2003. The Government’s
deletion phasing out is apparently on track, except for the car industry for which Pakistan might
request a further extension from the WTO.
The incentives offered to priority industries are concessional tariffs and tax relief. Table 22 presents
the concessional tariffs for priority industries.
Page 77
Table 22: Concessional tariffs

Sector Customs
Duty
Customs duty on imported raw materials used in producing for exports. Zero Rated
Customs duty leviable on imports of plant, machinery and equipment (which is not 5%
manufactured locally) for the industries falling under Categories 'A' and 'B', i.e. Value-
Added Export and Hi-Tech Industries.
Customs duty leviable on imports of plant, machinery and equipment (which is not 10%
manufactured locally) for industries falling under Categories 'C' and 'D'.
Other Sectors (Non-manufacturing)
Imported plant, machinery and equipment (not manufactured locally). 10%---25%
The Custom duty on import of agriculture machinery (not manufactured locally) as per Zero%
the list of specific machinery and equipment notified vide SRO No.358(I)/2001, dated
15-6-2002. (Annex VII)
Source: Pakistan Board of Investment
First year tax relief is available on plant and machinery, up to 90%, for value added, export and high
tech industries, 75% for other priority industry, infrastructure and agriculture, and 50% for the services
and social sector.
1.26.7.2 Other incentives for companies investing in Pakistan

In order to attract foreign investment, the Government of Pakistan grants tax exemptions in the
following areas:
- Interest income on foreign currency accounts;
- Profit from educational institutes;
- Profit from computer training and educational centres;
- Capital gains on sales of shares of listed companies;
- Income from pioneer industrial undertakings;
- Income from manufacture of electronics;
- Income from manufacture of solar energy equipment;
- Income from industrial undertaking in Export Processing / Special Industrial Zones ;
- Income from fruit processing;
- Income from manufactures of soft and stuffed toys.
1.26.7.3 Technology transfer

The investment regime has been liberalised to ease the transfer of technology as follows:
- No restriction on payment of royalty and / or technical services fees for the manufacturing sector,
subject to registration of agreement with the State Bank and compliance with the withholding tax
requirements;
- The payment of franchise, royalty or technical fees for the non-manufacturing sector is allowed
subject to the following conditions:-
o In case of lump sum fee, fees should not exceed USD 100,000;
o A maximum cap of 5% of net sales is allowable as franchise fees;
o Agreements are permitted for 5 years initially, extendable subsequently;
o Agreements need to be registered with the State Bank of Pakistan.
1.27 Location decision
1.27.1 Regional strengths and weaknesses
Pakistan has a diversified potential for investment both geographically and economically. On the one
hand, it has an abundance of raw materials: mineral, oil & gas, coal, precious and semi-precious
stones, and other natural resource deposits and on the other hand, a manufacturing industrial base
spread all over the country. Pakistan also has a fairly reasonable network of industrial estates/zones
spread in all the four provinces. However, the quality and standing of the Industrial zones is unequal,
as well as the quality of the transport network.
Punjab stands out as the best province for industrial manufacturing, despite its distance from the ports
and the state of the road network to be improved.
Page 78
1.27.1.1 The port city of Karachi

Karachi (14 million inhabitants) is the industrial and commercial centre of the country with the biggest
export processing zone, two sea ports, and more than 4 industrial estates. The industrial units situated
in Karachi cover the whole range of industrial activities, from automotive parts, textile and food
processing to the large Pakistan Steel Mills. The city has the highest literacy rate in the country and
stands out in the availability of skilled labour and good management expertise. Being a port city,
transportation costs of imports or exports are minimal compared to other industrial centres of the
country.
However, the main negative point of doing business in Karachi comes from a deteriorated law and
order situation which implies the (costly) need to set up specific security arrangements when
establishing a venture.
The second issue is the bad management of the city with a very poor garbage collection system and a
deteriorated road network (Access to the KEPZ is very poor, while the fishing port environment,
outside the guarded area, is particularly filthy). Noise and air pollution is touching limits. Public
transport and traffic congestions are problematic.
It is worth noting however, the developments being implemented to improve the situation, such as the
construction of important road by-passes to alleviate traffic congestion. Also, there has been notable
progress in the development in the western part of the city, to facilitate access of this very important
industrial area to the port or the rest of the country. If and when these improvements are achieved,
Karachi should regain its attractiveness, being a very concentrated and large industrial base with easy
access to the main port of the country and an efficient service sector namely in finance and insurance.
1.27.1.2 Punjab (Lahore, Faisalabad, Sialkot, Gugrat, Gugeranwala etc.)

Lahore is the second largest city of Pakistan (8 million inhabitants) with a wide variety of industries.
The city appears organised and clean compared to Karachi. It is a livelier city with business activities
continuing late in the evening. It has a new international airport and a dry port which is extensively
used by international traders. Skilled labour and management expertise are easily available. The
majority of the industry in Lahore is either agro-based or textile.
Punjab has the largest number of industrial zones and is host to the “export triangle” Sialkot-
Gujeranwala-Gujrat. Sialkot is known for its exports: more than 95% of the goods manufactured in
Sialkot are exported. Major items include sports goods, especially footballs, surgical goods, leather
goods (especially gloves), sports wear, and some textile value-added products.
Gurat and Gujeranwala are known for light engineering goods, light agriculture machinery, electric
fans, washing machines, ceramics, and sanitary wares.
There is no shortage of skilled labour or management skills in the region. The infrastructure is of
reasonable quality, but the road link with Lahore and the port city of Karachi is long, perilous and
expensive. Indeed, the main problem faced by the export triangle is the poor maintenance of roads
that link these cities with the capital of the province. Transport costs of a full container from Lahore to
Karachi port is Euro 800; return empty is Euro 200.
Following extensive discussions with Government, the Sialkot business community has started
construction of their own airport which is planned to be functional in 2004. Sialkot also has its own dry
port. A projected motorway linking the north of the country to Karachi is at the planning stage.
The industry in Punjab, especially in Sialkot, has successfully overcome the issue of child labour with
the help of the donor countries and agencies, particularly UNICEF. Child labour, which was extensively
used in the sports goods industry, has been substantially reduced if not eliminated, through education
programmes.
Faisalabad is the textile city of Pakistan, contributing 65% of the total textile exports. Very recently, a
motorway has been opened linking Faisalabad to Lahore and Islamabad. The city itself can be very
congested, while the infrastructure appeared in good shape.
1.27.1.3 NWFP and Balochistan

NWFP and Balochistan are less developed in terms of volume of business and industrial activities.
Both NWFP and Balochistan have the advantage of geographical proximity to Afghanistan.
Page 79
NWFP has vast deposits of natural/mineral resources, like marble and granite, gems and semi-
precious stones (except for diamonds, it is claimed that the NWFP has deposits of most gemstones in
abundance). Other notable industrial activities are the production of wooden furniture, small scale
hydel power generation, dry fruits, and fresh fruits and vegetables.
The infrastructure within the Peshawar city is of reasonable quality. The city is also linked by air, rail
and road to the other major industrial cities of Pakistan (Lahore, Islamabad, Karachi etc). The road link
to Lahore is satisfactory, with a dual carriage way and motorway.
Since Peshawar is bordering Afghanistan (Jalalabad), some security and law and order issues exist.
Although Government is doing its best to keep things under control the long border with Afghanistan
and the more than 2 million Afghan refugees presently staying in NWFP make it difficult to maintain an
acceptable level of security in the province at all times.
Balochistan is the least developed province of Pakistan with very little industry or even agriculture
because of the lack of water. The only notable products from the province are fruits and vegetables.
The province though have a good industrial estate with good number of industries in the city of Hub,
but since that city is very close to Karachi (only 40 minutes drive), it is for all practical purposes
considered as part of Karachi.
1.27.2 Cost of industrial land
Table 23 presents an overview of the cost of industrial land in various locations of Pakistan.
Table 23: Cost of Industrial Land

Province Location Cost of Land
Rupees per sq.ft. EUR* per sqm
from to from to
Federal territory Islamabad 35 135 5.28 20.35
Punjab Lahore (Sheikhupora Road) 80 140 12.06 21.11
Gujrat 35 80 5.28 12.06
Sialkot 45 90 6.78 13.57
Taxila 25 30 3.77 4.52
Faisalabad 45 90 6.78 13.57
Sindh Karachi 50 150 7.54 22.62
Hyderabad 62 100 9.35 15.08
NWFP Peshawar 25 35 3.77 5.28
Hattar 20 25 3.02 3.77
Balochistan Quetta 20 25 3.02 3.77
* Exchange rate of December 2003: 66.327
Source: Pakistan Board of Investment
1.27.3 Industrial zones
http://www.pakboi.gov.pk/html/industrial_zones1.html
http://www.eac.gov.pk/webinfrastruct/WEBS/main/infrainvidx.htm
To promote industry, the Provincial Governments have established a total of 69 Industrial Estates
based on the model of the Trading Estates in the United Kingdom. The objective was to establish
planned industrial areas, where prospective industrialists could obtain all required facilities and
infrastructure.
There are three categories of industrial estates in Pakistan: industrial estates, medium industrial
estates, and small industrial estates. These industrial estates are spread over all the four provinces of
the country. Punjab has the highest number (26) of industrial estates, followed by Sindh (21), NWFP
(13) and Balochistan (9 industrial estates).
Sindh Industrial Trading Estates Ltd. situated in Karachi is the largest industrial estate of the country.
Federal ‘B’ industrial Area, Korangi Industrial Area, Landi Industrial Area, and Bin Qasim Industrial
Area are the major industrial areas operating in Karachi.
Page 80
The quality of services provided in the industrial estates across Pakistan varies considerably and each
estate needs to be thoroughly checked and evaluated before taking any location decision.
In addition to the industrial estates small industrial corporation zones exist in Sindh and Punjab.
1.27.4 Export processing zones (EPZ)
The Government of Pakistan has been developing EPZ in addition to the existing Karachi EPZ (KEPZ)
as a means to increase exports.
However, it appears that the rationale for EPZ has become less convincing as a result of the
rationalisation of import and export regulations, the improved efficiency of the dry ports (import and
export facilities extended in special area inland), as well as the improved efficiency to collect
drawbacks on import tariff paid on goods/components re-exported. Furthermore, operating in an EPZ
creates some hurdles to sell in the domestic market.
The Export Processing Zones Authority (EPZA) was established in 1980 with the mandate to plan,
develop and operate Export Processing Zones in Pakistan.
Despite plans to expand EPZ throughout country, at present only Karachi EPZ is operational. The EPZ
in Sialkot and Rialpur, both in Punjab, are expected to be operational soon. A number of other EPZ are
at the planning stage (see Figure 22).
Figure 22: EPZ location map
Source: EPZA
http://www.epza.gov.pk/
1.27.4.1 Incentives for investors in EPZs

1. 100% ownership rights.
2. 100% Repatriation of capital & profits.
Page 81
3. No minimum or maximum limit for investment.

4. Duty free imports of machinery, equipment & material
5. No sales tax on input goods including electricity & gas bills
6. Obsolete/old machinery can be sold in domestic market of Pakistan after payment of applicable
duties & taxes.
7. No excise duty, no Custom duty on cement, steel & any other material used in construction of
buildings.
8. Freedom from National import restrictions.
9. Foreign Exchange control regulations of Pakistan not applicable.
10. Defective goods/waste can be sold in domestic market after payment of applicable duties,
maximum up to 3% of total value of export.
11. Duty free vehicles allowed under certain conditions. After 5 years of use, vehicles can be disposed
off in domestic market on payment of duty.
12. Domestic market of Pakistan available on same conditions as for imports from other countries.
13. Units operating in EPZs can undertake sub-contracting for units of tariff area subject to payment of
duty and taxes on value addition only.
14. Only the EPZA is authorised to collect the Presumptive and Development Taxes (1.25 to 1.75% of
turnover) at the time of export of the goods which would be the final tax liability. There shall be no
other tax, such as income tax.
15. EPZ units are allowed to supply goods to Custom manufacturing bonded areas.
16. Production oriented labour laws to be solely regulated by the Authority.
17. EPZ manufacturers shall be treated at par with bonded manufacturers in tariff area for any future
incentives to be announced for exporters.
18. Relief from double taxation subject to bilateral agreement.
1.27.4.2 Eligibility for investment

Any investment in an EPZ is made in convertible foreign currency. A foreign investor and a non-
resident Pakistani can invest up to 100% of the equity. A joint venture between a foreigner or foreign
company and a non-resident or resident Pakistani is possible in any proportion. However, not more
than 40% of equity of a resident Pakistani would be covered by SBP for providing foreign exchange.
1.27.4.3 Karachi EPZ

The Karachi Export Processing Zone (KEPZ) is located adjacent to the Landhi Industrial Area
(Extension) within a distance of 18 kilometers from the Quaid-e-Azam International Airport, 20
kilometers from Port Qasim and 35 kilometres from the Karachi Seaport. The Zone is linked with the
National Highway network. It offers effective and convenient approach to the markets of the Middle
East, Far East, Africa, Europe, America and to the new markets of the Central Asian Republics.
KEPZ has been planned on 500 acres of land, out of which 211 acres have been developed.
Additional 100 acres are being considered for development as Phase-II programme. Further 200 acres
are being acquired from the Government of Sindh for KEPZ future expansion programme. The 211
acres of land developed for industrialisation have full infrastructure facilities, providing all necessary
utility services like electricity, gas water and telephone etc (Box 17). There are 330 industrial plots, 70
plots for the commercial sector (warehousing and trading) and 33 plots for the financial sector.
Presently the industrial sector is reaching saturation point and very few plots are available in this
sector.
Page 82
Box 17: Available Infrastructure and conditions at KEPZ

Telecommunication Digital electronic exchange of 3000 lines international subscribers dialling (ISD), linked with communication
satellite.
*Gas: Availability: 600,000 cu ft/day; Charges: Commercial – USD 9.52 per 100 cbm; Industrial – USD 8.43 per 100 cbm
*Electricity: Availability: 11 KV and 400 v (3 PHASE 50 HZ AC SYSTEM); 132 KV Grid Station with a capacity of 40 MW of
Electricity built in the Zone.
Charges: Approximately 10 Cents per unit of connected load at 100 KW (Low tension Industrial B). The unit rate would differ in
case of high tension & low tension connected load & would depend on consumption.
*Water: Availability: 500,000 gallons per day. In addition, two underground reservoirs of 0.65 million imperial gallons each and a
water tower 30 meters high (capacity: 0.125 million imperial gallons) and an underground water pumping station are in
operation. Charges: USD1.26 per 1000 gallons
* The above rate payable as per prevailing Rs-USD conversion rate. Rate effective October 2000.
Land initial sublease for a period of 30 years (renewable by mutual agreement). Developed land is available as:
* Plots of 1000 sqr. meters each in the industrial sector and warehousing/trading sector.
* Plots of 96 to 216 sqr. meters each in the financial sector.
Payment for land is to be made at the following rates before execution of agreement: USD 12.00/sqm for industrial plots and
USD 35.00/sqm for warehousing/trading sector plots and financial/insurance sector plots.
Annual Ground Rent: USD 2.5/sqm/year for industrial plot and USD 3.0/sqm/year for trading and commercial plots.
(Registration fee of USD 1000/- is to be paid along with the payment for land).
EPZA Charges:
Development surcharge @ 0.5% of FOB value of exports
Presumptive Tax
EPZA itself collects income tax on behalf of Income Tax department at the following rates specified in the Eighth Schedule in
Part – I of the first schedule of income Tax Ordinance.
Part – I 0.75% of exports
Part – II 1.00% of exports
Part – III 1.25% of exports
Source: Karachi Export Processing Zone
The total export value of goods produced in KEPZ in fiscal year 2003 was USD 130 million, which low
by international comparison: the EPZ of Bangladesh export about USD 1 billion per year, while the
Zhenzen EPZ, created at the same time as KEPZ, exports about USD 30 billion annually. Competition
comes also from the Santa Cruz EPZ in Bombay, as well as the Jordan EPZ facilities and Dubai
industrial area.
At present, there is no significant international investor in the KEPZ.
1.27.4.4 EPZ under development

Sialkot EPZ, comprising 238 acres, is located at Sambrial at a distance of 20 km to Sialkot-Wazirabad
road. Out of 900 plots about 95% already stand booked. Enterprises in the EPZ will mainly come from
the surgical instruments, sports and leather garments sectors.
At present, 149 project proposals involving an envisaged investment of USD 122 million, estimated
annual exports of USD 193 million and an expected employment of 15904 persons have been
sanctioned by EPZA.
Risalpur EPZ, comprising 200 acres, (100 acres in phase 1 fully developed) is located about 50 km
from Peshawar near the Mardan interchange on the Islamabad-Peshawar motorway section. The area
has potential for trading and warehousing business, mineral, fruits & vegetable processing, carpet and
furniture industry due to availability of respective raw material and cheap skilled labour. Out of 100
acres fully developed (phase one) about 30% of plots have been booked.
1.27.4.5 Planned zones

The following zones are presently at the planning stage:
– The Saindak zone (Dist. Chagai): The project has a capacity to produce 20,000 tons of blister
copper per annum containing about 1.5 tons of gold from indigenous ores, generating foreign
exchange revenue to the tune of USD 40 to 45 million / year. Activities are due to commence
shortly.
– The Rawalpindi zone: A joint venture between EPZA and the Rawalpindi Chamber of Commerce
and Industry (RCCI). The EPZ Rawalpindi, comprising 200 acres (semi developed), is located in
Rawat.
– The Reckodek EPZ: The Saindak gold & copper mine and the Reko Dek copper mine area in
Chaghai (Balochistan) and Rawalpindi have also been notified as EPZs.
– Finally, the EPZA plans to open a special Gem EPZ at Karachi airport, along lines similar to Indian
Gem EPZ.
Page 83
1.28 Business support institutions
1.28.1 The Small and Medium Enterprise Development Authority (SMEDA)
http://www.smeda.org.pk/fsmeda.html
The Small and Medium Enterprise Development Authorities (SMEDAs) were created under the Act of
the provincial legislature. The tasks of the Punjab, Sindh, Balochistan and NWFP SMEDAs are to
defend the interests of SMEs and lobby for the improvement of regulations and promote technical and
market research and development for SMEs. To achieve these objectives SMEDA’s work plan is
based on the following major activities:
1. Remove all regulatory barriers;
2. Assist SMEs with:
- Technical up-gradation ;
- Marketing support, especially in export markets;
- Human Resource development through training & organisation structure development;
- Access to capital.
1.28.2 The Board of Investment
http://www.pakboi.gov.pk
In order to streamline and co-ordinate the process of investment and to create an investor friendly
culture in Pakistan, the Government established the Board of Investment (BOI) as the central
investment promotion and facilitation agency. The Board of Investment is chaired by the Head of the
Government, and overseen by the Minister for Industries and Production (see Figure 23).
The main functions of the BOI are to promote investment opportunities in all sectors of the economy
and to provide investment facilitation services to local, foreign and Overseas Pakistani investors. The
BOI acts as the focal point of contact between potential investors and all the agencies of the
Government concerned with investment proposals and responsible for providing infrastructure and
other facilities. To strengthen the leverage and effectiveness of the BOI and to benefit from their
experience, Ministers and Secretaries of critical Economic Ministries are actively associated with all
activities of the BOI.
Figure 23: Organisation Chart of The Board of Investment.
Source: BOI
Page 84
1.28.3 The Export Promotion Bureau
http://www.epb.gov.pk
The Export Promotion Bureau (EPB) is the primary agency of the Government of Pakistan engaged in
the promotion of the country's exports. Since its inception in 1963 as an attached department of the
Ministry of Commerce, the EPB continues to facilitate the exporters in overcoming difficulties on the
supply and demand side of exports.
On the demand side, the EPB helps exporters to participate in exhibitions abroad and sends
delegations to explore new markets and develop the traditional markets. On the supply side, the EPB
has established over 32 training institutes and projects in various export sectors to train the necessary
manpower to manage the export trade and industry, professionally, meeting the requirements of the
export markets. Export promotional activities are carried out in co-ordination with trade bodies at home
and Pakistan's trade missions abroad. The EPB has its head office in Karachi.
OPERATING A BUSINESS IN PAKISTAN

The main difficulties of operating a business in Pakistan have been largely streamlined over the last
few years, through the dynamic involvement of the administration. Business regulations have been
simplified and the Government agencies tend to be supportive of foreign investments.
The legal situation, arbitration schemes and protection of rights issues are being improved.
Labour is usually very cooperative while skills depend a lot on sectors concerned.
The banking system is efficient and liquidity is not presently a problem. There are practically no foreign
exchange controls on capital and dividend repatriation.
The main issue which usually affects entrepreneurs and investors is excessive bureaucracy and slow
procedures, notably in relation with the Board of Revenue, but also in this field progress has been
made (e.g. refunds of duties on imports related to exports are now usually paid within a month).
1.29 Labour issues
Most of the business people met during the preparation of this guide book have mentioned the good
relationship maintained with the workforce, its dedication, hard working behaviour, as well as the
absence of conflict in general. It appears, however, from various studies that the Labour productivity in
Pakistan is inferior to similar countries in the region. The main weakness seems to be a lack of efficient
management and organisation skills.
Pakistan's labour force is estimated at 43 million persons as of June 2003 and unemployment was
officially estimated at 7.8% during the fiscal year 2003. The real unemployment rate is commonly
accepted as being much higher.
Labour is represented through a number of Unions, the most important being the Pakistan Workers
Confederation (PWC) which regroups a nine-federation front of industrial workers.
1.29.1 Trade unions
Trade unions are generally organised on the basis of individual enterprises or at plant level. Firm level
trade unions join hands to form a federation of trade unions and such federations are organised at
various levels including the national level. Some of them also have an international affiliation. In
Pakistan an individual enterprise or establishment (there is no limit on the employment level) may have
more than one registered trade union, in which case only one trade union is determined as the
"collective bargaining agent” (CBA) for two years in respect of that establishment. If there is only one
trade union in an establishment it is necessary for such trade union to enjoy a membership of at least
one third of the total number of workmen employed before such trade union can be certified as CBA
for such establishment.
The Industrial Relation Law puts a limit on the number of office bearers up to 15, including persons
who can form the Executive committee of a trade union, and further provides that they shall include not
less than 75% from amongst the workers actually engaged or employed in the establishment. This
particular provision has enabled trade unions which mostly comprise of a less educated work force to
Page 85
seek the assistance of professional labour leaders in organising the trade union activities on
professional and progressive lines in some organisations.
1.29.2 Hiring and firing of labour
According to the labour laws of Pakistan, workers subject to a contract termination or dismissal can
seek redress from labour courts. The employer who has the option to terminate the services of a
worker, shall indicate reasons for such termination; his action is open to judicial adjudication by the
labour court. The issue may entail long drawn litigation, which is definitely a check on the employer’s
prerogative.
Usually, a compromise is reached through the payment of compensation equal to several months’
wages when the service of a workman who does not suit the need of an employer is terminated.
1.29.3 Minimum conditions of employment
Table 24 presents a summary of minimum employment conditions in Pakistan.
Annual leave for workers is clearly defined and codified in the Labour Code. However, its
implementation is not extremely strict. Usually, the leaves of a worker other than those covered by the
Labour Code such as the Factory’s Act, are decided at the time when the contract is signed between
the employers and employee. Usually, a worker is given 22 days holidays and about 15 sick leaves a
year. However, there are few standardised practices that are applicable in all the sectors of the
economy.
Table 24: Overview of minimum employment conditions

Paid maternity leave (max.) 90 days
Normal work hours 7 – 8 hours daily
Paid holidays (Gazetted) 11 days /Annum
Paid Annual Leave for Employees 33 days /Annum
Paid Sick Leave for Employees 15 days/Annum
Minimum wage for unskilled worker (48h.p.w.) Euro 40.00 equivalent per month
1.29.4 Wages rates
Average wage rates for different categories of employees are presented in Table 25.
Table 25: Salaries & Benefits

Rupees per month
from to
Executives
Managing Director 250,000 500,000
General Manager 125,000 275,000
Senior Manager 75,000 150,000
Manager 50,000 90,000
Deputy Manager 30,000 70,000
System Analyst 30,000 70,000
Programmer 20,000 50,000
Employees
Foreman 10,000
Supervisor 6000 8000
EDP Supervisor 8000 10,000
Boilerman 6000 8000
Electrician 6000 7500
Clerk/Typist 5000 6000
Data Entry Operator 5000 6000
Source: BOI
Page 86
1.29.5 Statutory contributions
1.29.5.1 Employees Provident Fund

Employers 8.3% Min.
Employees 8.3% Min.
Workers Welfare Fund (WWF) 2% on pre tax profit
Workers Profit Participation Fund (WPPF) 5% on pre tax profit
1.29.5.2 Employees old-age benefits

The old age benefits Act-1976 covers industrial, commercial & other establishments where employees
are ten or more in number.
Contribution: 5% of wages of insured workers getting up to Rs.3000/- p.m. payable by Employers.
1.29.5.3 Provincial employees social security scheme

The Provincial Employees Security Ordinance 1965 covers industrial, commercial & other
establishments where employees are ten or more in number.
Contribution: 7% of wages of secured workers getting up to Rs.3000/- p.m. payable by Employers.
1.29.6 Labour Productivity
A 2003 study on the investment climate in Pakistan undertaken by the World Bank in co-operation with
SMEDA summarises labour productivity as follows: “The proximate source of Pakistan’s
competitiveness problem is that its wages are broadly similar to wages in China or India, but it has
much lower factor productivity; it has about the same factor productivity as Bangladesh, but its wages
are nearly 50% higher. As a result, it has trouble competing with any of these neighbours”.3
This assessment is confirmed by the Chief of the National Productivity Organisation, who has stated
that "the domestic productivity growth is slower in Pakistan than that recorded for Malaysia, Philippines
and India [...]. Similarly, Dr. Memoona Rauf Khan, an Associate professor at the National University for
Sciences and Technology (NUST), Institute of Management Sciences laments that the country ranks
sixteenth in productivity among the members of the Asian Productivity Organisation (APO), lower than
Bangladesh, Nepal, and only higher than Mongolia.”4
However, it must be stated that in recent years the labour force has not entered into any severe
conflict with employers. The Ministry of Labour reports 2 work stoppages involving 59 workers during
2002. During 2001, there were 4 work stoppages involving 711 workers, resulting in the loss of 7,078
man-days (as per the Ministry of Labour). These rates are low by international comparison.
1.30 Costs and prices
http://www.pakboi.gov.pk/html/cost_of_doing_business_.html
1.30.1 Efficiency costs
A significant cost of doing business in Pakistan is the result of unreliable infrastructure or inefficient
public suppliers.
The transport system has obvious weaknesses. Examples include the highway infrastructure linking
the industrial zones of Punjab to the ports, the roads linking Karachi to the nearby Industrial Economic
Zones or even the KEPZ, the roads linking the main industrial areas of Sialkot to the Dry port, or the
road from Lahore to Sialkot. Similarly, the Overseas Investors Chamber of Commerce and Industry
(OICCI), which represents overseas investors, reports that Karachi port is significantly more expensive
than Bombay, and Dubai.
3
Improving the Investment Climate in Pakistan, An investment climate assessment prepared by The World Bank Group in
collaboration with The Small and Medium Enterprise Development Authority of the Government of Pakistan, 30 May 2003 (to be
published).
4
Dawn Economic and Business review, 13 October 2003.
Page 87
On the positive side, one must note the exceptional motorway linking Islamabad to Lahore and
Faisalabad, with very limited traffic, or the airport in Sialkot developed by the Sialkot Chamber of
Commerce and Industry.
The OICCI also mentions other inefficiencies in the Public sector, such as the expensive price of the
steel supply by the public owned steel industry, or the unreliability of electricity supply which requires
companies to invest in private generators.
Another extra cost of doing business in Pakistan originates from the security issue, whereby special
security guards have to be employed to patrol the premises.
Finally, it was pointed out that smuggling is a penalising issue in certain sectors. The smuggling of
goods originates mostly through the long and porous border with Afghanistan, as well as Iran. The
Customs Authority of Pakistan estimates that out of the Rs 10 billion of transit trade bound for
Afghanistan, about 25% is smuggled back to Pakistan, causing a significant prejudice to the local
industries. Products mentioned as subject to such smuggling are the betel nuts, electronics, cosmetics,
tyres and industrial raw material. From Iran, smuggling mostly concerns fuel oil.
However, it is worth noting that significant progress has been made in the regulatory environment in
recent years, and that the cost of finance has reached an all time low. Also, the performance of the
financial sector has improved with the privatisation of banks, while the telecom industry offers a rather
satisfactory service (period to obtain fixed telephone lines is usually less than one month, depending
on the area).
1.30.2 Energy costs
1.30.2.1 Gas and fuel costs
Table 26: Energy costs (gas & fuel costs, as of July 2003)
Fuel
Rupees / Litre Gas Rupees / kg.
Petrol (87 RON) 32.19 LPG 29
Hi-Octane (97 RON) 36.59 CNG 25 (Approx.)
Diesel 15.63
Medium Quality Fuel Oil 135 – 140
Kerosene 14.97
Source: BOI
1.30.2.2 Electricity prices

http://www.pakwapda.com/htmls/customer-index.html
Table 27: Water and Power Development Authority (Wapda) tariff schedule
SURCHARGE
FIXED ENERGY ADDITIONAL
TARIFF FAS @10.4% of
CHARGE CHARGE SURCHARGE
CATEGORY (Rs/KW) Supply
(Rs/KW) (Rs/KW) (Rs/KW)
charges**
A. General Supply Tariff A-1 (including FATA)
i) Upto 50 Units 0 0.61 0 0 0.73
For First 100 units
0 0.41 0.49 0 1.31
(1-100)
For Next 200
0 0.58 0.49 0 2.02
units (101 - 300)
For Next 700
0 1.51 0.49 0 3.28
units (301 - 1000)
Page 88
Above 1000 units. 0 1.88 0.44 0 4.15

MINIMUM| Rs.45/- For Single Phase Connection
CHARGE | Rs.100/- For Three Phase Connection
B. General Supply Tariff A-2 ( including FATA )
MINIMUM| Rs.150/- For Single Phase Connection
CHARGE | Rs.300/- For Three Phase Connection
C. Industrial Supply Tariffs
MINIMUM| Rs.70/- For first 20 Kilowatts of Load
CHARGE | Rs.90/- For load between 20-40 KW
Source: Wapda
Electricity prices in Pakistan are considered on the expensive side in the region (see Figure 24) and
Wapda is not always regarded as most efficient. In December 2003, the authority was criticised by the
the ruling parties' senators "for its poor performance, high power tariffs and overcharging through
defective electricity meters” (The Nation, 09 December 2003)
Figure 24: Electricity prices, a comparison in Asia, 1999.

Industrial Electricity Prices
0.12
0.1
US$/KWH
0.08
0.06
0.04
0.02
0
ia
ia
ia
a
a
ea
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an
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es
or
an
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In
on
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A
al
Pa
Th
S.
d
M
Sr
In
Industrial Electricity Prices US$/KWH

S. Arabia Malaysia Thailand China Sri Lanka India Indonesia Korea Pak
0.03 0.056 0.058 0.07 0.075 0.0825 0.09 0.1 0.11
Source: Planning Commission, 1999 Annual report on the working of State Electricity Boards and Electricity Departments, New
Delhi, Power and Energy Division, Government of India
1.30.3 Price level
Prices in Pakistan are not regulated except for the pharmaceutical industry, the petroleum industry as
well as some agricultural goods such as the sugar cane, while the principle of independent agencies to
monitor public service prices has been established (see Box 18).
The independence of these specialised authorities is sometimes questioned, and the Government
tends to influence the prices of some items, such as fertilisers or basic food items.
Page 89
Box 18: Price control of public utilities

The Pakistan Telecommunications Authority (PTA) has rejected Pakistan Telecommunication Company Limited (PTCL) an
astounding 3,000% tariff surge on co-location services and has forthwith stopped implementing its order.
The PTA reached the decision on Saturday in Islamabad after hearing complaints from numerous PTCL customers, mostly the
Internet service providers, sources close to the authority said.
An official in the PTA while confirming the decision said that the PTCL could not take any unilateral decision without duly
informing the regulator.
"The PTCL about three months back increased co-location tariff by almost 3,000%. The ISPs and other PTCL customers
approached the authority against such decision and today (Saturday) the PTA rejected the PTCL decision and asked the
company to charge according to the old rate," said a source who attended the hearing. He said the PTA called the PTCL high
ups, ISPs representatives and other stakeholders to deliberate on the issue. Conclusively, it was decided that the 3000%
increase in tariff is totally unjustified and must be stopped, he added. "According to the Pakistan Telecommunications Act 1996
the telecom company could not pass any order even for cut in charges of any service without informing us (PTA)," said the
official and added: "It is an abject violation of rules by the PTCL."
This was the second rejection by the PTA on the PTCL decision since November 2002, when the telecom regulator termed the
ban over Internet telephony illegal and asked the company to remove it.
However, instead of heeding to the PTA decision the PTCL moved the court and took a stay on the authority’s decision. PTCL
officials argue that under the Pakistan Telecommunication (Re-organisation) Act 1996, basic telephone services are the
prerogative of the phone utility.
According to the increased tariff, the ISPs and other PTCL customers would have to pay Rs198 per square feet as co-location
charges, against the previous rate of Rs2 per square feet.
Source: The News, 28 September 2003
1.31 Insurance
Almost all Insurance Companies operating in Pakistan provide insurance cover to all types of
businesses owned by Pakistani nationals or foreign nationals provided the operations fulfil all the legal
and moral requirements. There is no limit on the value, assets, turnover, or size of the Company to be
insured.
The procedure to get the business insured is normal and simple. Once the Insurance Company is
selected, the company personnel will inspect the site of the business and the equipment installed in
the company. The next step is to verify and validate the value of the business. The premium is
negotiated and the insurance policy is prepared.
There are a number of risks that can be covered through an insurance policy. Generally the following
types of risks are covered:
- Fire in the factory caused by natural calamity or short circuit;
- Theft or robbery of equipment in the factory;
- Malicious damage;
- Atmospheric damage (e.g. floods, earth quakes etc.);
- Accidental damage;
- Damage done during riots or strikes.
In addition to these the company could have its employees insured (e.g. health, life, children
education, wedding etc.).
http://www.pakboi.gov.pk/html/insurance_companies.html
1.32 Financing and bank accounts
For Pakistani registered companies, whether locally or foreign controlled, opening a bank account
(current or check in accounts) requires a board resolution, a reference, and the legal documentation of
the company such as its charter etc. However, for foreign company branch offices and liaison offices,
the requirement of having a BOI registration is a prerequisite for opening the bank account.
Contracting foreign private loans (which does not involve any Guarantee by the Government of
Pakistan) is available to all foreign investors who make investment in sectors open to foreign
investment, to finance the cost of imported plant and machinery required for setting up the project.
However, loan agreements should be registered / cleared by the State Bank of Pakistan.
Foreign controlled manufacturing concerns are allowed unlimited domestic borrowing according to
their requirements for working capital. For foreign controlled semi-manufacturing concerns, the
borrowing entitlement is 75% of paid-up capital including reserves, and for foreign controlled non-
manufacturing concerns (trade/services) it is 50%.
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There exist also a number of administered loans to support specific ventures or exports. Such a
scheme for example could be a Rupee loan at 4% per annum under the concessional loan for locally
made machines (LMM).
Lending by banks in Pakistan has traditionally been short term, with little medium term finance.
Recently, the depth of the market has improved due to the liquidity situation of the banking sector. The
Government, which used to issue bonds with a maximum tenor of five years, has decided in October
2003 to issue bonds with a tenor of fifteen and twenty years duration.
In line with the improvement of the macro economic figures, interest rates have decreased
substantially throughout 2003. First class borrowers can draw short term funds at around 5%, while
borrowings up to 3 to 5 years, when available, reach 8 to 12%.
Transfers of funds with the rest of the world have become more expeditious since the abolition of a
requirement for banks to pre-notify the SBP before issuing foreign exchange prior to transfer of funds.
Delays for such transfers have therefore been reduced from four weeks to less than a week.
http://www.sbp.org.pk/
http://www.pakboi.gov.pk/html/financial_institutions.html
1.33 Import and export procedures, tariffs
Export is freely allowed except for certain items such as intoxicant and intoxicating liquors, certain
wildlife species, wood and timber, antiques, certain chemicals etc. Certain petroleum products are only
exportable through the public sector while wheat, cotton, rice, metals, small arms, certain defence
projects, nuclear energy equipment, precious stone and gold jewellery, poppy seeds, urea, pet dogs
and cats and wild boar meat and skin are only exportable after complying with special conditions
attached to these commodities.
The Government continues to provide a 25% freight subsidy on certain products to support their export
growth.
1.33.1 Tariff rates
Import tariffs have been reduced significantly in recent years (see Table 28), while the rate structure
has been streamlined considerably. Rates are now 5%, 10%, 15% 20% or 25% maximum, with the
exception of the car industry, protected by rates ranging from 75% up to 125%, depending on the car
size. The weighted average rate is 16.5%, while the average rate is 12.5%.
Table 28: Import tariffs and their dispersion

Description 1997 1998 1999 2000 2003
Number of rates 13 5 5 5 4
Maximum rate (%) 65 45 35 35 25
Average rate a (%) 23 21 18 18 16.5
Average rate b (%) 17 16 14 12 12
a Duty collected divided by value of dutiable imports.
b Duty collected divided by value of total imports.
Source: The Government of Pakistan
http://www.cbr.gov.pk/default.htm
1.33.2 Procedures
http://www.epb.gov.pk/epb/jsp/ebook/epb.html
1.33.2.1 Export clearing procedure

Once the consignment to be exported arrives at the port or dry port, usually a clearing agent’s services
are sought so as to facilitate the procedure of clearing the consignments. The documents to be
provided by an exporter to the clearing agent are as follows:
a) Packing list
b) Invoice
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c) Form ‘E’ 1(State Bank form)

d) Letter of Credit or Contract
e) Certificate of Origin
However if the exporter is exporting for the first time, then the following documents have to be provided
in addition to those mentioned above:
a) Sales Tax Registration Certificate (copy)
b) National Tax Number (NTN) Number (certificate).
Provided the above mentioned documents are complete, the clearing agent prepares the shipping bill
and files the documents with the Customs department. A “machine number” is allotted to the Shipping
Bill, and the case is forwarded to the Port Gate. The consignment is allowed to enter the port vicinity,
and is registered at the gate according to the allotted number. The Deputy Superintendent (D.S.)
marks the consignment for examination to the inspector of the examination hall. Once the inspector
has examined the consignment, the case is marked to the D.S. for approval.
2% Export Development Surcharge (EDS) of the invoice value shall be deducted through the receiving
banks upon remittance of the export proceeds against the Export Development Fund (EDF). However,
EDS has been waived for small exporters and those who exceed their exports by more than 10%
compared to the previous year.
Provided the D.S. approves the case, it is forwarded to the Superintendent with the examination report
for final approval. The case if approved by the Superintendent is marked to the D.S. for “Out of
Charge”. The container is given a final physical check and is sealed by the bonded carriers or the port
customs authority.
The loading programme is obtained from the shipping firm/cargo carrier for the country to which the
consignment is being exported. Loading programme lists the schedule of various ships leaving port for
the export destination along with the availability and 4 copies of Form E are issued by the intermediary,
one copy is handed to the exporter and one copy is retained by the bank. The remaining two copies
are required to be sent to the State Bank of Pakistan and the Customs department respectively.
1.33.2.2 Duty and Tax Remission for Exporters (DTRE)

In order to make Pakistan’s exports more competitive in the international markets, the Government of
Pakistan brought in a new set of rules in 2001 called the DTRE Rules. The basic objective of these
rules are to over come the delays in sales tax and custom duty refunds that has become a big issue in
the recent years with exporters.
Under the DTRE rules, an exporter does not have to pay up front any duty or sales tax on imported
raw material that he uses in export production. Instead the Revenue Division of the Government of
Pakistan, with the help of industry specialists, work out the raw material requirements of the exporter
against the export order and then the exporter is allowed to import the raw material without paying any
duty or sales tax. The Customs department later on carries out a post shipment audit to verify that the
amount of imported raw material was actually used in the export production. In this manner, the funds
of the exporters avoid being blocked with the Government in the form of duties and sales tax.
1.33.2.3 Import procedures

There is no restriction on imports of any goods except for those prohibited due to security, religious,
health and other reasons. The list of items under these categories is available on the website of the
CBR. Anything else can be imported after paying the duties and sales tax, the rates of which at the 8-
digit HS Code level are published and also available on the CBR website
(http://www.cbr.gov.pk/default.htm).
In practice, import procedures can cause substantial delays. Although efforts are being made by the
authorities to reduce import clearance times, by international comparison import procedures are still
slow (see Figure 25).
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Figure 25: Customs delays on imports
Longest Time (Days) to Clear Imports in

Last Year
25
20
Median Value
15
10
5
0
nd
a
na
sh
n
di
di
a
hi
la
e
st
In
bo
ad
Po
C
ki
am
gl
Pa
an
C
B
Source: World Bank; Investment Climate Surveys
1.34 Foreign exchange control
http://www.sbp.org.pk/fe_manual/index.htm
Full repatriation of capital, capital gains, dividends and profits, is allowed, except in the service sector
where a 60% limit on repatriation of profit is in place (see 1.26.2 above).
1.34.1 Local currency
The local currency is the Pakistan Rupee (PKR). The exchange rate at the end of 2003 was
approximately 67 PKR / 1 EUR.
The Pakistan Rupee is issued in the following denominations:

Notes: 1000, 500, 100, 50, 10, 5;
Coins: 2, 1.
1.34.2 Repatriation of capital and foreign currency accounts
Pakistan has a liberal foreign exchange regime with few restrictions on holding foreign exchange and
bringing it in or out of the country. There are no limits on the inflow or outflow of funds for remittances
of profits, debt service, capital, capital gains, returns on intellectual property or payments for imported
inputs.
However, investor remittances shall only be made against a valid contract or agreement which has to
be registered with the State Bank of Pakistan within 30 days.
Corporate and individual foreign currency accounts can be opened in commercial banks.
1.34.3 Technical assistance (Fee remittance)
There is no restriction on payment of royalties / technical fees etc., in the manufacturing sector. For the
non-manufacturing sector, the initial lump sum fee should not exceed USD 100,000. The maximum
rate will be 5% of net sales. The initial period for which such fees may be allowed should not exceed 5
years.
1.35 Accounting and auditing
Pakistan has adopted international accounting standards, with comprehensive disclosure requirements
for companies and financial entities. The professional bodies involved in the accounting and auditing
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are the Institute of Chartered Accountants of Pakistan and the Institute of Cost and Management
Accountants of Pakistan.
While Pakistan adheres to 38 of 41 international accounting standards it does not yet apply IAS 15
(information reflecting the effect of changing prices), IAS 29 (financial reporting in hyperinflation) and
IAS 41 (accounting treatment of agricultural activities).
Cross shareholding and stable shareholding agreements (to control management) are restricted to
30% of equity, excluding subsidiaries, but it does not apply to foreign investors.
1.36 Taxation
Pakistan's tax system distinguishes between two categories of taxes:

- Direct taxes: Income tax
- Indirect taxes: Customs Duty, Central Excise Duty, Sales Tax, Stamp Duty and Property Tax etc.
which relate to commercial transactions.
In Pakistan taxes are considered as Federal levies. The Federal Government regulates all direct taxes
including income tax and indirect taxes such as Customs Duty, Central Excise Duty and Sales Tax.
However, provincial Governments levy taxes which include land revenue, tax on agriculture income,
property tax and other local taxes including local sales tax.
Box 19 presents an overview of taxes and tax rates.
Box 19: Taxes in Pakistan, an overview

Direct taxes
Banking Companies 44%
Public Companies 35%
Other Companies 41%
Personal Income Tax
Resident and Non-Resident Individuals 7.5% - 35%
Indirect taxes
Withholding Tax
¨ Interest on Securities 20%
¨ Profit on debit (on Bank Account / Fin.Inst.) 10%
¨ Fees for Technical Services 15% of Gross Fee
¨ Royalty 15% of gross royalty
.. Services Rendered 5%
Execution of contracts
a) Value not exceeding 30 million rupees 5%
b) Value exceeding 30 million rupees 6%
c) Supply of Goods 3.5%
¨ Profit or Interest on Bonds, Certificates etc. 10%
¨ Commission or Brokerage 5%
Sales Tax
This tax is imposed at the import and manufacturing level 15 – 20%
Supplies by registered person to registered persons 15%
Supplies by registered person to un-registered persons 18%
Specified items (Mentioned in SRO 389(I)2001 dt. 18-6-2001 20%
Turnover Tax 2%
1.36.1 Direct taxation
Pakistan’s direct tax code is called the Income Tax Ordinance, 2001. Forms and Statements and
certain procedures are contained in the Income Tax Rules, 2002. Taxes on income are usually
charged with regard to 5 income classifications which include (i) Salary; (ii) Income from Property; (iii)
Income from Business; (iv) Capital Gains; and (v) Income from Other Sources [residuary clause].
“Tax year” means a period of 12 months and generally ends on 30 June. However the Government
willingly allows December 31 or any other date as the financial year end, provided justification is
furnished for such change. A Tax Year is denoted by the calendar year in which such year-end falls,
e.g. if the financial year ends on, say, June 30, 2004 or March 31, 2004, it will be termed as “Tax Year
2004”.
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For Pakistan tax purposes, a taxpayer can be either an Individual or an Association of Persons (AOP)
or a Company. AOPs are usually formed when business entities collaborate to form a consortium or a
joint venture between a local and a foreign contractor.
General and administrative provisions of law are applicable to both, the resident and non-resident
persons. Provisions relating to basis of taxation, computation of income and calculation tax are
separately provided for resident and non-resident persons In other words residency in Pakistan (i.e.
resident or non-resident) largely effects computations. The residency requirements for each type of
person are presented in Table 29.
Table 29: Residency status

Tax Status Residency Requirements
Individual a. is present in Pakistan for a period of, or periods amounting in aggregate to,
one hundred and eighty-two days or more in the tax year;
b. is present in Pakistan for a period of, or periods amounting in aggregate to,
ninety days or more in the tax year and who, in the four years preceding the
tax year, has been in Pakistan for a period of, or periods amounting in
aggregate to, three hundred and sixty-five days or more; or
c. is an employee or official of the Federal Government or a Provincial
Government posted abroad in the tax year.
Association of An association of persons shall be a resident association of persons for a tax
persons (AOP) year if the control and management of the affairs of the association is situated
wholly or partly in Pakistan at any time in the year.
Company a. it is incorporated or formed by or under any law in force in Pakistan;
b. the control and management of the affairs of the company is situated wholly or
almost wholly in Pakistan at any time in the year; or
c. it is a Provincial Government or local authority in Pakistan.
For tax years ending June 30, tax returns are to be furnished by following December 31 and require
attachment of different information including Profit & Loss Account, Balance Sheet, etc. if the taxpayer
has chosen net income basis as his basis of taxation (see 1.36.1.1). Taxpayers choosing the
presumptive basis however are not required to furnish return, rather they shall file a simple Statement
on the prescribed form containing brief detail (see 1.36.1.2).
1.36.1.1 Taxation of business income

Taxable business income includes income from property, income from business, capital gains and
income from other sources such as dividends, interests, deposits, etc. Usually taxable business
income is computed after deduction of allowable expenditure against business income. The following
expenditures are considered allowable:
- Interest on borrowing;
- Depreciation in respect of business assets other than land;
- Cost of repair, maintenance and insurance;
- Research and development cost (charged through amortisation);
- Expenditure on technology, know-how, patents, copy rights etc. (charged through amortisation);
- All other expenditures incurred wholly for business;
- Donations to registered charities and welfare institutions.
However, there are special regulations relating to expense provisions with regard to insurance,
petroleum exploration and production as well as the exploration and extraction of mineral deposits.
Corporate tax is applicable to all business enterprises including foreign companies operating in
Pakistan as branch office or liaison office. The tax rates applicable vary with regard to the type of
business entity between banking companies, public companies (quoted or majority held by
Government) or private companies. The tax rates with regard to banking and private companies are to
be reduced as described in Table 30.
Table 30: Corporate tax rates evolution

Tax Year Banking Company Public Company Private Company
2003 47% 35% 43%
2004 44% 35% 41%
2005 41% 35% 39%
2006 38% 35% 37%
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2007 35% 35% 35%
1.36.1.2 Presumptive basis of taxation

There also exists a system of presumptive taxation applied on the principle of assumed profits, as
a%age of gross receipts. This scheme concerns mostly the income of contractors, rentals, shipping,
dividends, royalties and fees for technical services. Especially for non-residents, this scheme is
available for taxation in the following areas:
- Shipping;
- Air transport;
- Fees for technical services;
- Royalties;
- Dividends from a resident company;
- Turnkey contracts;
- Contracts (or sub-contracts) for the design, construction or supply of plant & equipment under a
Power Project;
- Contracts (or sub-contracts) under a construction, assembly or installation project in Pakistan,
including contracts for the supply of supervisory activities in relation to such project;
- Any other contract for construction or services rendered, other than a contract for royalty or fee for
technical services.
The second Schedule to the Income Tax Ordinance (2001) contains provisions for opting for the
presumptive tax regime in respect of certain incomes of non-residents without a permanent
establishment in Pakistan. An option once exercised, is valid for at least three succeeding years.
The rates applicable for taxation on presumptive basis are presented in Table 31.
Table 31: Presumptive rates of income tax

Source of Presumptive Income Tax Rate
Turnkey contracts @ 8%
Contracts or sub-contracts for design, supply of plant and equipment and @4%
transmission line project, other than hydel power projects
Contracts or sub-contracts for design, supply of plant and equipment, and @ 5%
construction of hydel power project
Execution of contracts other than above
- where the value of contract is up to Rs. 30 million @ 5%
- where the value of contract exceeds Rs. 30 million @ 6%
Dividend received by a public company or an insurance company 5% of the gross
amount
Dividends received in any other case. 10% of the gross
amount
Fee for Technical Services and Royalty 15%
Shipping income 8% of the gross
amount
Air transport income 3% of the gross
amount
1.36.1.3 Taxation of non-resident entities

Business income of non-residents is considered as Pakistan-source income to the extent it is directly
or indirectly attributable to:
- A permanent establishment of the non-resident person in Pakistan;
- Sales in Pakistan of goods, merchandise of the same or similar kind as those sold by the person
through a permanent establishment in Pakistan;
- Other business activities carried on in Pakistan of the same of similar kind as those effected by the
non-resident through a permanent establishment in Pakistan; or
- Any business connection in Pakistan.
Under Pakistan tax law a Permanent Establishment (PE) is a place of business by a non-resident
entity established in Pakistan including various office sites, building site, construction site as well as
rendering of services through employees or having any asset in Pakistan yielding income. The
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existence of a PE is a main factor in determination of the taxability of a non-resident’s income in

Pakistan.
1.36.1.4 Taxation of gains

The difference between the consideration received on disposal of a Capital Asset and the cost of such
asset is liable to Capital Gains tax in Pakistan; when the asset being disposed off has been held for
more than one year, only ¾ of such gains are liable to tax.
Capital asset does not include any stock-in-trade, consumable stores or raw material for the purpose
of business. Depreciable assets, amortisable intangibles, immovable property are also excluded from
the definition of Capital Asset.
Loss on disposal of a Capital Asset cannot be set off against income under any other head, except
capital gains. Capital gains arising in the following cases are exempted from tax:
- Gains on disposal of shares companies listed in Pakistan are exempt from tax up to tax year 2005.
- Capital gains arising from sale of shares of a public income derived by any foreign institutional
investor approved by the Government of Pakistan.
- Capital gains arising from an industrial undertaking set up in an area declared as Export
Processing Zone.
1.36.1.5 Taxation of salaries

Salary is taxable under Pakistan Tax Law:
- to the extent received from any employment exercised in Pakistan, wherever paid;
- when paid by, or on behalf of, the Federal Government, a Provincial Government, or a local
authority in Pakistan, wherever the employment is exercised.
Remuneration for rendering of independent services is also taxable in Pakistan (including professional
services and the services of entertainers and sports persons) when paid by a resident person or borne
by a permanent establishment of a non-resident in Pakistan.
1.36.1.6 Individual taxes

Tax on salaried individuals is computed on taxable income (Computed by allowing certain deductions
or allowances from gross income) according to Table 32.
Table 32: Personal Income Tax Rates

1. UP to Rs. 80,000 No tax
2. Rs. 80,001 – Rs. 150,000 7.5% of the amount exceeding Rs. 80, 001
3. Rs. 150,001 – Rs. 300,000 Rs. 5,250 + 12.5% of amount exceeding Rs. 150,001
4. Rs. 300,001 – 400,000 Rs. 24,000 + 20% of amount exceeding Rs. 300,001
5. Rs. 400,001 – 700,000 Rs.44,000 + 25% of amount exceeding Rs.400,001
6. Over Rs. 700,000 Rs.119,000 + 35% of amount exceeding Rs. 700,001
1.36.1.7 Relief from double taxation

Pakistan has signed avoidance of double taxation treaties with 51 countries. Relief from double
taxation is available by way of credit in respect of foreign tax paid in any other country. This credit is
allowed at the average rate of tax of Pakistan or the average rate of tax of the other country, whichever
is lower.
Box 20: List of countries with double taxation agreements

Austria Greece * Korea Republic Poland Tunisia
Azerbaijan Hungary Kuwait Oman Turkey
Bangladesh India * Lebanon * Qatar Turkmenistan
Belgium Indonesia Libyan Arab Jamahuria Romania United Arab Emirates
Canada Iran * Malaysia Saudi Arabia * United Kingdom
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China Ireland Malta Singapore United States of America
Denmark Italy Mauritius Sri Lanka Uzbekistan
Egypt Japan Netherlands Sweden
Finland Jordan * Nigeria Switzerland
France Kazakhstan Norway Syria
Germany Kenya * Philippines Thailand
* Limited Purpose Agreement (e.g. for income from Shipping or Airlines etc.)
Source: Central Board of Revenue
Concessional tax rates are specified in Tax Treaties with members including new members and
applicant countries of European Union as at the end of 2003. Summary is as under:
Table 33: European Union rates under the tax treaties

Rates as per DTT (%)
S. No Country DTT
Royalty Dividend FTS Interest
Member states
1 Austria Yes 20 10 & 20 25 Taxable
2 Belgium Yes 20 & 15 10 & 15 15
3 Denmark Yes 15 15 12 15
4 France Yes 10 10 & 15 10 10
5 Germany Yes 10 10 & 15 10 10 & 15
6 Greece Air & Shipping Treaty
7 Ireland Yes Exempt 10 Exempt
8 Italy Yes 30 15 & 25 30
9 Luxembourg No
10 Portugal No
11 Spain No
12 Sweden Yes 10 15 10 15
13 Netherlands Yes 5 & 15 10 & 20 10 / 15 / 20
14 UK Yes 12.5 15 12.5 15
New Member states
1 Cyprus No
2 Czech Republic No
3 Estonia No
4 Hungary Yes 15 15 / 20 15 15
5 Latvia No
6 Lithuania No
7 Malta Yes 10 15 10
8 Poland Yes 15 / 20 15 Exempt
9 Slovakia No
10 Slovenia No
Applicant countries
1 Bulgaria No
2 Romania Yes 12.5 5 & 10 10 10
3 Turkey Yes 10 10 & 15 10
Source: Central Board of Revenue
Cases of Companies originating from Countries without Non Double Taxation treaties:
As a consequence of a recent tax reform, tax credit is also available in situations of double taxation
where the foreign company is from a non-treaty country. The principle of such relief is that for all
foreign entities which are tax resident in Pakistan, credit for tax paid outside is available at the lower of
tax chargeable in Pakistan or tax paid outside subject to certain considerations. For non-resident
foreign entities, the regulation on taxation is principally the same as those governing entities of treaty
countries in which a tax rate has been specified for fee for technical services at 15%.
http://www.pakboi.gov.pk/html/avoidance_of_double_taxation_.html
1.36.2 Indirect taxes
The most important types of indirect taxation are sales tax, central excise duty and customs duty (see
1.33.1).
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1.36.2.1 Sales Tax

Sales tax is an indirect tax on the supply and import of goods (except those which are exempt from
levy of sales tax under section 13 of the Sales Tax Act, 1990) made by an importer, manufacturer,
wholesaler, dealer, distributor or retailer. The rate of sales tax is 15% on the value of supply for
registered persons and 18% on the value of supply for unregistered person. Taxable entities are
required to get registered under the Sales Tax regime including manufacturers, retailers, importers and
wholesalers.
Supply of agricultural products, live animals, unprocessed food stuff for human consumption, eggs,
drugs, Holy Koran, newspaper, books, journals, currency notes, coins, defence store items, computer
software, import of artificial kidney, eye corneas etc., and most services are exempt from sales tax.
1.36.2.2 Excise Duty

Excise duty is levied and collected on excisable goods produced, manufactured or imported into
Pakistan and excisable services being rendered. The excisable services are basically those that are
rendered by food caterers, hotels advertising agencies and telecommunication companies. The excise
duty is levied also on the telecommunication sector at a rate of 15%. Rates of excise duty range
predominantly from 5% to 15% of the value applicable for the duty. However, in certain cases it can be
higher up to 90% ad-valorem for certain products. In respect of certain goods, the value of duty is
based on the quantity of such goods; e.g. certain petroleum products, cement, cigarettes etc.
1.36.3 Investment protection treaties
http://www.pakboi.gov.pk/html/bilateral_investment_treaties.html
Pakistan has signed Bilateral Agreements on Promotion and Protection of Investment with 40
countries (see Box 21). The general features of these agreements are as follows:
- The term investment includes all assets of the individual investors and companies for the purpose
of business investment. This includes: shares, moveable and immovable assets, intellectual
property rights, licensing and know-how agreements, goodwill, and concessions to cultivate,
extract, or exploit natural resources.
- The Contracting Parties shall encourage investments in their respective territories by investors of
the other Contracting Parties.
- Non-discrimination vis-à-vis local investors and foreign investors of third countries.
- Nationalisation shall be applied exclusively for the reasons of public interest, pursuant to the law,
and shall in no case be discriminatory. Countries adopting such measures shall pay to investors an
adequate indemnity without undue delay according to the market value of the investment
nationalised.
- Equal/non-discriminatory treatment in case of compensation for losses owing to war, other armed
conflicts, a state of national emergency, requisitioning measures, etc.
- The free transfer of investments, and income deriving there from, including, particularly but not
exclusively, profits, dividends, interest income, proceeds of sales or liquidation, repayments of
loans, salaries, wages and other compensation received by foreigners employed on the
investment.
- Subrogation.
- A dispute settlement mechanism to settle any dispute between the countries with respect to the
interpretation of the respective agreement.
- A dispute settlement procedure to settle any dispute between a host country and an investor of the
other country. If the dispute is not settled through mutual consultation, the investor concerned can
take his case to the competent court of the respective country or ad hoc court of arbitration
established under the rules of the UN Commission on International Trade Law or the International
Centre for Settlement of Investment Disputes (ICSID) or the Court of Arbitration of the International
Chamber of Commerce (see 1.38).
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Box 21: List of Countries / Organisations with which Pakistan has Bilateral Investment Treaties
S.No. Name of Country S.No. Name of Country S.No. Name of Country
1. Australia 15. Kyrgyz Republic 29. Spain
2. Azerbaijan 16. Lebanon 30. Switzerland
3. Bangladesh 17. Malaysia 31. Syria
4. Belarus 18. Mauritius 32. Sri Lanka
5. Belgium 19. Netherlands 33. Tajikistan
6. China 20. Oman 34. Turkmenistan
7. Egypt 21. OPEC FUND 35. Turkey
8. France 22. Portugal 36. Tunisia
9. Germany 23. Philippines 37. Uzbekistan
10. Iran 24. Qatar 38. United Kingdom
11. Indonesia 25. Romania 39. U.A.E.
12. Italy 26. Sweden 40. Yemen Arab Republic
13. Japan 27. South Korea
14. Kuwait 28. Singapore
1.37 Government procurement
1.37.1 Pakistan regulatory authority
The Public Procurement Regulatory Authority (PPRA), created in 2002, is an autonomous body
endowed with the responsibility of prescribing regulations and procedures for public procurements by
the Federal Government owned public sector organisations, with a view to improve governance,
management, transparency, accountability and quality of public procurement of goods, works and
services.
It is also endowed with the responsibility of monitoring procurement by public sector agencies /
organisations and has been delegated necessary powers under the Public Procurement Regulatory
Authority Ordinance 2002
The PPRA website http://www.ppra.org.pk/ (under construction) lists the different procurement bodies
within the public sector and should make available, in due course, each entities rules and
requirements. At present each entities follows its own regulations with little coordination.
The main purchasing entities of the Government are in the oil and gas sector, the telecommunication
sector as well as the Public Works department.
Although international competitive bidding is the norm, some people complain that the process is not
always transparent. There have been allegations that recent telecommunication have not been
decided on technical factors and price only.
1.37.2 Government purchasing and tenders
The central purchasing, storage and supplies organisation for the Pakistan Government is the
Government Supplies Department (GSD), which is responsible for more than 80 departments,
agencies and non-governmental bodies, including the Hospital Authority.
Tenders are advertised in the Pakistan Government Gazette and other leading Pakistan newspapers.
Some tender information is also relayed through TradeUK.
The GSD keeps a list of suppliers who are occasionally contacted with information about future
tenders. Companies are also free to register their interest with the GSD. For further information
contact:
Department of Supplies, Government of Pakistan (GSD)

12 Oil Street
North Point
Tel: + 92 2802 6290
Fax: + 92 2807 2764
Late bids are not considered. Cheques are the most common form of payment, usually within 30 days
of receiving the goods, although terms are negotiable.
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So far, Pakistan has not signed the WTO Government Procurement Agreement.
1.38 Litigation and arbitration
Litigation and arbitration is probably the most contentious area for any prospective foreign investor in
Pakistan. Resolution of litigations and arbitrations is not satisfactory at present, as exemplified by very
visible recent cases, despite the existence of a domestic law, and Pakistan's signing of the New York
convention (not yet ratified).
1.38.1 Domestic arbitration
The law of arbitration in Pakistan is contained in the Arbitration Act, 1940 (a pre-partition enactment,
which is still in force). The Act provides for three classes of arbitration:
– arbitration without court intervention (Chapter II, sections 3-19);
– arbitration where no suit is pending, (but through court) (Chapter III, section 20) and
– arbitration in suits (through court) (Chapter IV, sections 21-25).
The Act also contains further provisions, common to all the three types of arbitration (Chapter V,
sections 26-38):
– Arbitration agreement: Whatever the class of arbitrations, there must be an arbitration agreement.
As defined in the Arbitration Act, 1940, it means a written agreement to submit present or future
differences to arbitration, whether an arbitrator is named therein or not [section 2 (2)].
– Arbitrators: The number of arbitrators can be one, two, three or even more. In the case of an even
number of arbitrators, an umpire is to be appointed according to the procedure given in the Act
[First Schedule. Where the arbitration agreement does not specify the number, the arbitration shall
be by a sole arbitrator (First Schedule). An arbitrator may be named in the arbitration agreement or
may be left to be appointed by a designated authority (First Schedule).
Where the arbitration agreement is silent about the mode of appointment of arbitrators and the
parties cannot agree about the choice of the arbitrator, the Act gives power to the court to make the
appointment, after following the prescribed procedure (sections 8-10).
An arbitrator who does not diligently conduct the proceedings, or who is guilty of misconduct, can
be removed by the court after due inquiry (section 11).
The arbitrator has got certain statutory powers, including the power to administer oaths to
witnesses, power to “state a case” for the opinion of the court etc.
1.38.2 International arbitration (private/private)
The New York Convention (about arbitration in international disputes) was prepared by the United
Nations and adopted in 1958. The Convention achieves its aim by requiring courts in contracting
states:
– to refer to arbitration any disputes brought before them that are covered by an arbitration
agreement;
– to recognise and enforce foreign arbitral awards provided that certain conditions relating to proof
and validity are met.
A country's accession to the New York Convention has to be accompanied by the amendment of the
existing arbitration statute. However, legal reform is only truly effective if the courts put the reforms into
practice. Pakistan is a signatory to the New York Convention; however this agreement has not been
ratified and is not implemented easily through the courts (see the example described in Box 22).
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Box 22: Arbitration and legal dispute in Pakistan, the Siemens-Westinghouse case
In March of 1996, WAK entered into an Engineering Procurement Construction Contract ("EPC Contract") with a Consortium of
Raytheon-Ebasco Overseas Limited ("REOL"), and Westinghouse International Service Company, Limited, a predecessor in
interest to Siemens Westinghouse Service Company Limited ("SWSC"). (Partial Award, §2.5). The contract set forth terms for
design and construction work by the consortium. (Id.). The EPC Contract also required that any dispute arising from the contract
be resolved through binding arbitration. Specifically, it stated:
"Any dispute, controversy or claim of any nature whatsoever arising out of or relating to or in connection with this Contract (the
"Dispute"), or the breach, termination or invalidity thereof, shall be referred to arbitration and finally settled in accordance with
the Rules of Conciliation and Arbitration of the International Chamber of Commerce ("ICC"). The parties hereby consent to
arbitration there under."
On August 19, 1998, Plaintiffs SWSC and REOL, pursuant to the arbitration provision of the EPC contract, filed a request for
Arbitration in London with the International Chamber of Commerce's Court of Arbitration, claiming that WAK had defaulted on
payments that were owed to SWSC and REOL. (Partial Award, §2.21).
On September 7, 1998, aware of its agreement to arbitrate all claims related to the EPC contract, WAK filed a civil suit in Lahore,
Pakistan against SWSC, REOL, and CBS. There, it claimed, among other things, that the EPC Letter of Credit constituted a
pledge by SWSC, REOL, and CBS to provide the eleven million dollar KESC letter of credit for the benefit of WAK.
On October 12, 2000, the Lahore High Court vacated the Lahore trial court's judgment, including the $1.4 billion dollar award in
favour of WAK. The Lahore High Court determined that the lower court erred when it struck SWSC, REOL, and CBS's defences.
That court also determined that those parties had not been given the opportunity to file a written statement. (Lahore High Court
Judgment Sheet, p. 8). Further, statements by the civil trial judge regarding SWSC, REOL, and CBS's delinquency in filing
written statements seemed to the High Court to be erroneous. The High Court noted:
"After hearing the learned counsel for the parties and perusing the available record it has become clear to us that the impugned
judgment and [illegible] is not sustainable. In the impugned order it was observed by the Civil Judge that 8/9 opportunities had
been given to the appellants [SWSC, REOL, and CBS] to file the written statement but they have failed to do so. These
observations are contrary to record which shows that only at one occasion i.e. 23.12.1998 the suit was adjourned at the request
of appellants to file the written statement. On all other dates of hearing there were miscellaneous applications pending before the
court which were to be disposed of (Id. at p.3)." Accordingly, the Lahore High Court remanded the case to the trial court "for
decision afresh after giving sufficient opportunity to the appellant to file the written statement." (Id.)
On December 18, 2000, the International Court of Arbitration issued its Final Award. It found in favour of SWSC, REOL, and
CBS on all claims. The Award 1) ordered WAK to pay SWSC and REOL two million dollars, plus specified interest, 2) dismissed
WAK's counterclaims on the merits in their entirety, 3) declared that SWSC, REOL, and CBS have no liability concerning
construction financing or obtaining the KESC letter of credit, and 4) ordered that WAK pay SWSC, REOL, and CBS $762,000 in
arbitration costs, plus specified interest. (Final Award, §§16-16.5).
On January 15, 2001, SWSC, REOL, and CBS filed the instant motion to confirm the Final Award pursuant to 9 U.S.C. § 207.
WAK opposed the motion on February 9, 2001. Since that time, SWSC, REOL, and CBS have filed a reply and WAK has filed a
sur-reply.
1.38.3 International arbitration (private/public)
Pakistan is a member of the International Centre for the Settlement of Investment Disputes (ICSID)
which provides for conciliation and arbitration of investment disputes between contracting states and
nationals of other states under the Convention for the settlements of Investment Disputes. However,
here also implementation remains difficult (see Box 23).
Box 23: The Hub Power Company Ltd. case

Another example with negative repercussions was the Hub Power Company Ltd Co's dispute with the Government. Following a
'regime' change, the Government reneged on a long-term contract to take up electricity from the power plant on the basis of US$
0.06 per Kwh. The dispute lasted more than three years before it was finally resolved through a compromise, having caused
substantial damage to Pakistan's image of reliability and legitimacy.
1.39 Environmental issues and quality controls
http://www.pakboi.gov.pk/html/mstq_-_assurance_system_.html
Due to the importance of the export sector in relation with FDI, due consideration has been given by
the Government to environmental and quality issues. Most of the exporting firms are ISO 9000
qualified. Still, improvements are to be made, especially in relation with the food and food processing
industries where the phyto-sanitary conditions are particularly important to gain access to the EU and
US markets.
The European Commission has designed a programme, scheduled to start in early 2004, to further
strengthen the capacity of PSQCA and PNAC to function as internationally recognised quality control
and accreditation organisations, notably in the fisheries and agro-food sector.
To provide one-stop shops for standardisation and quality control, the Government of Pakistan has
established the Pakistan Standards and Quality Control Authority (PSQCA) by Act-VI of 1996,
combining three previously existing institutions. PSQCA is a member of the International Organisation
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for Standardisation (ISO), the International Electrochemical Commission (TEC) and the International
Organisation for Legal Metrology (IOML).
The Government of Pakistan is involved:

- in the setting up of standards on quality and dimensions, preparation and promotion of general
adoption of Pakistan Standard Specifications, operation of the Certificate Marks System and co-
ordination of the efforts of producers and users for the improvement of standardisation and to
provide assistance in the manufacture of quality products.
- in testing and assessment of industrial raw materials and finished products to establish their
quality, grade and composition with reference to national and international standard specifications
of quality in various fields like chemical, chemical products and formulations, textile, food items etc.
- in co-ordination and co-operation with other national, regional and international organisations,
associations, societies, institutes or council and dissemination of technical information through
seminars, workshops, symposia, press print and electronic media and to develop a quality
conscious culture in Pakistan.
PSQCA works through three centres, the Standards Development Centre (SDC), the Quality Control
Centre (QCC) and the Technical Services Centre (TSC). These are described in the following sections.
1.39.1 Standards Development Centre (SDC)
About 4700 standards have been developed by eight divisions (Agriculture & Food, Chemical, Civil
Engineering, Electro-Technical, Electronics, Textile, and Weights & Measures) of SDC related to the
many manufactured products and services.
The Government of Pakistan has issued a notification that all the ISO standards (about 13500) have
been directly adopted as Pakistan Standard Specifications. All Pakistan Standards developed earlier
are being reviewed to be re-designated as ISO standards and only those standards will be retained
which are specific to Pakistani products and services. The adoption of ISO standards means that
Pakistan Standards Specifications have increased (at least temporarily) to about 15000. Pakistan
Standard Specifications are, thus, available now on a wide range of products and services.
The adoption of most of the Pakistan Standards by the local industry is voluntary, but it is mandatory to
manufacture some items as announced by the Government of Pakistan from time to time. The present
list contains 46 items, including edible oils / banaspati ghee, margarine, biscuits, cement, electric
bulbs, tube-lights, safety razor blades, PVC pipes, natural mineral water bottled drinking water and two
wheeler/ three wheeler auto vehicles.
Under the PSQCA Act. VI of 1996, the manufacturers of items under the Certification Marks Scheme
need licenses to manufacture. These licenses are issued only after ascertaining that proper quality
control facilities are available with the manufacturers. The primary responsibility for quality is of the
manufacturers and PSQCA monitors the quality by periodical checks of quality control, collection of
samples from manufacturers and random collection of samples of the products from the market.
1.39.2 Quality Control Centre (QCC)
The Quality Control Centre (formerly Central Testing Laboratories) undertakes testing and assessment
of industrial raw materials and finished products to establish their quality, grade and dimensions with
reference to national and international standard specifications of quality in the field of chemical,
mechanical, engineering, electrical goods and appliances, building materials and textile materials.
QCC also provides scientific advice to industrial units with regard to product quality.
1.39.3 Technical Services Centre (TSC)
The TSC provides additional technical services including failure analysis, metallurgical evaluation of
metallic materials and chemical, as well as physical testing.
1.39.4 Pakistan National Accreditation Council (PNAC)
The Pakistan National Accreditation Council (PNAC) has been established as an autonomous body
under the administrative control of the Ministry of Science & Technology to regulate the Accreditation
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and Registration System in the country. The PNAC is a national body assigned to assess, qualify and
supervise certification agencies, laboratories, training course provider and personnel in the relevant
fields.
The PNAC is seeking membership of the International Accreditation Forum (IAF) and International
Laboratory Accreditation council (ILAC), the apex international agencies in relevant fields, and would
also act as focal point for co-ordination with relevant international, regional and national organisations.
This will ensure that all ISO certification in Pakistan will have international recognition and thus save
cost and time spent by local companies on testing and inspection by the buyers.
PNAC has accredited various foreign certification bodies.
To create awareness among all the stakeholders about the standards and quality practices, the "Crash
Awareness Raising & Training Programme in the field of Quality" has been launched. Under this
programme, more than 500 seminars and courses are being held in Pakistan on different quality and
certification topics, e.g. ISO 9000, ISO 14000, HACCP, SA 8000, ISO17025, etc.
1.40 Regulation and bureaucratic control
The impression collected by the authors of this Guide based on their visits to a number of operations in
Pakistan contradicts the result of the World Bank study quoted hereafter. The impression of the
authors is that the burden from the administration regarding enforcement of various rules, including the
tax authority is much lighter than ever. It was never mentioned as a significant problem. The authors
still wanted to quote the World Bank study given that it draws on a much larger sample than the
authors of this Guidebook had time to consult.
The main entities involved with commercial and financial regulations are the Securities and Exchange
Commission of Pakistan (SECP), the Board of Investment (BOI), the Central Board of Revenue (CBR)
and the State Bank of Pakistan (SBP). While Pakistani law provides for recourse against adverse
administrative decisions, the legal system remains backlogged and long court delays are common.
The SECP under the 1984 Companies Ordinance regulates the securities market, supervises the
insurance sector and administers the companies’ incorporation rules and regulation.
The SBP supervises and regulates the banking sector, as well as takes care of the money supply
policy of the country.
The CBR regulates through Special Regulatory Orders (SROs) the taxes and duties to be levied per
sector, so as to give special relief in exceptional circumstances.
A 2003 World Bank report5 finds that management time and, hence, the cost of Government
inspections "seems to be particularly heavy in Pakistan. Firms report spending 10% of management
time dealing with Government officials, much more than in China (7%) or Bangladesh (4%). China and
Pakistan both average 36 inspection visits per year, well above the levels in Bangladesh or India.”
It is the performance of the CBR which appears the most controversial, as reported by The Nation on
10 December 2003: “In a tone of admission on behalf of the Government, the Minister for Privatisation
and Investment, Dr Abdul Hafeez Shaik said that the Central Board of Revenue’s (CBR) working was
cumbersome and a big hurdle in attracting investment. However, he rushed to add that the difficulties
and the bottlenecks were being removed not only to attract investors but also to facilitate them […].
Earlier, the participants of the conference had raised the points that the tax officials were to discharge
the investors instead of attracting them. For instance, one participant cited a case where CBR had
caused delay of over one and a half years in release of machinery.”
1.41 Social accountability of Investments (child labour, bonded labour)
The child labour issue could have been very damaging for Pakistan exports, especially in the carpet
and sports good exports. Dedicated action undertaken by the authorities, together with the Sialkot
5
Improving the Investment Climate in Pakistan. An investment climate assessment, prepared by The World Bank Group in
collaboration with The Small and Medium Enterprise Development Authority of the Government of Pakistan, 30 May 2003, to be
published.
Page 104
Chamber of Commerce and backed up by NGOs and the International Labour Organisation has
addressed the issue.
Pakistan has signed and ratified the Convention on the Rights of the Child in 1990 and the ILO
Convention 182 in 2001. At the national level, Pakistan passed the Employment of Children Act in
1991, although this has been criticised for not covering all sectors (such as agriculture) and for weak
enforcement.
In the mid-1990s, the Government and the private sector have had to respond to international pressure
exerted on Pakistan for its child labour practices by international human rights groups and trade
unions. The threat of an export boycott on goods that involve children in the manufacture or production
processes has existed for some time. The soccer ball industry's response led to the signing of an
agreement, in Atlanta, Georgia, USA, in February 1997, between ILO, UNICEF and the Sialkot
Chamber of Commerce and Industry (SCCI). In view of the seriousness of the problem of child labour,
the Government has taken several steps. Among these is the establishment of rehabilitation centres
for working children by the Pakistan Bait-ul-Mal, a Government welfare agency established in 1992.
Following the constitution of the National Steering Committee on Child Labour to guide the
International Programme on the Elimination of Child Labour (IPEC Programme), several committees
and bodies have been constituted by the Government and the private sector to deal specifically with
the child labour issue from different perspectives. Among these are: the National Committee on
Protection of Rights of Children, established in the context of the Convention on the Rights of the Child
by the National Commission for Child Welfare and Development (NCCWD) of the Ministry of Women's
Development, Social Welfare and Special Education; and the Advisory Committee on Child Labour,
established by the Ministry of Commerce and Industries. An NGO, the Child Care Foundation of
Pakistan (CCF) has been established with support from the private sector and the Government to
address child labour in the export sector. ILO-IPEC's technical assistance is being provided for
research and development of the monitoring system under the CCF.
For the first time in Pakistan, an NGO Coalition against Child Labour was formed, comprising more
than 45 NGOs, at national and provincial level, in September 1997.
Any potential investor should by no means try to circumvent the existing legislation on child labour.
Box 24: Child labour and education in 2003

Some 13 million children are currently being left out, perhaps never to see the inside of a classroom, a UNICEF report said. This
month millions of families will not share in the pride of sending their children off to school, said Carol Bellamy, Executive Director
of UNICEF. This is a disheartening reality in a world where education is the right of every child. And it is a major impediment to
any effort to reduce poverty. The more children we leave out of school today, the more adults we leave behind a few years down
the road. We need some new math.
Pakistan has approximately 27 million children in the primary school age bracket (5-10 years) but as many as 13 million are not
enrolled in primary school; seven million of these children are girls. Fifty% of those children who do enrol drop out before they
complete a full primary education, the majority is girls. For those who complete primary school, learning achievements are low:
just seven% achieve expected competency levels in literacy and 18% in numeracy.
Public expenditure on primary education has not increased significantly for a decade. At present the country spends less than
three% of its Gross Domestic Product (GDP) on the education sector as a whole. In Pakistan, where girls’ education is a
particular problem, UNICEF has spearheaded a strategic effort to get girls into school by focusing on the specific barriers that
prevent girls from accessing and completing an education. Ignoring the children who are not in school translates into huge
losses in this generation and the next, Bellamy said."
Source: The News, 21st September 2003
The bonded labour issue seems to afflict part of the workforce mostly in the countryside, as frequently
reported by newspapers. Heavy indebtedness is usually the reason for the bond. The International
Labour Organisation together with the Government is in the process of tackling the issue.
http://www.ilo.org/public/english/region/asro/bangkok/arm/pak.htm
LIVING IN PAKISTAN
Expatriates have to adjust to the social environment, and take into consideration values based on the
Koran, gender issues and restrictions on entertainment. However, the daily family life of expatriates
benefits from substantial domestic help, while the education system provides quality international
schools (including a French school in Islamabad, and a British school in Karachi).
Page 105
The security issue has recently attracted considerable attention from the international media. Although
some degree of caution is advisable in the present circumstances it should be noted that a number of
expatriates have continuously been living in Pakistan with their families, and a substantial number of
expatriates who had left the country in the aftermath of 9/11 have been returning to Pakistan since the
beginning of 2003.
1.42 Visa and residence requirements
To facilitate travel to and staying in Pakistan for foreign businesspersons and investors, business visa
policies have been considerably relaxed. The bona fide businesspersons and investors from the
countries listed in Table 34, which include all EU Member States, can be issued business visa of up to
3 years with multiple entries by Pakistan Missions abroad.
Table 34: List of 45 countries with substantial investment in Pakistan
1. Australia 16. Indonesia 31. Qatar
2. Austria 17. Iceland 32. Russian Federation
3. Bahrain 18. Iran 33. Saudi Arabia
4. Belgium 19. Ireland 34. Singapore
5. Brunei 20. Italy 35. Slovakia
6. Canada 21. Japan 36. South Africa
7. China 22. Kuwait 37. South Korea
8. Czech Republic 23. Luxembourg 38. Spain
9. Denmark 24. Malaysia 39. Sweden
10. Finland 25. Netherlands 40. Switzerland
11. France 26. New Zealand 41. Thailand
12. Germany 27. Norway 42. Turkey
13. Greece 28. Oman 42. U.A.E.
14. Hong Kong 29. Poland 44. United Kingdom
15. Hungary 30. Portugal 45. USA
Note: The facility of landing permits has been suspended temporarily and all foreigners are required to obtain prior proper visa
from Pakistan Missions abroad.
Pakistani industrialists and businesspersons interested to invite foreign entrepreneurs from countries
other than those listed, for promotion of trade and industrial co-operation, are allowed to sponsor, on
their own guarantee, the granting of a business visa for one month through the Chambers of
Commerce and Industry at Lahore, Karachi, Peshawar, Quetta, Islamabad, and the Federation of
Pakistan Chambers of Commerce and Industry. They may apply to the Ministry of Interior for business
visa.
http://www.pakboi.gov.pk/html/immigration_procedures.html
1.42.1 Business visa
Pakistani Missions abroad can issue multiple entry visas for up to 3 years to businesspersons and
investors from the 45 listed countries with substantial investment in Pakistan.
Multiple entry resident visas for up to 3 years will be issued to businesspersons of all countries, except
those not recognised by Pakistan, who bring in an amount of USD 200,000.
1.42.2 Work visa procedures
A uniform facility has been extended to exempt technical and managerial personnel from work permits
for the newly opened sectors of the economy, including the agriculture, service and social sectors, in
addition to exemption already enjoyed by such personnel for working in the manufacturing/industrial
and infrastructure sectors. Staffs are now only required to obtain work visas.
Work visas will be granted to foreign technical and managerial personnel for the purpose of
transferring skills and know-how. These visas will be granted subject to a constructive plan to train
Pakistani personnel to take over the technical and managerial responsibilities over a reasonable period
of time.
A Committee under the Chairmanship of the Secretary of BOI periodically considers and decides the
cases of granting or extending work visas to foreign personnel. Companies requiring employment of
Page 106
foreign nationals or extension in their visa should submit the request on the prescribed application form
to the Board of Investment (FTP Wing) Islamabad. The prescribed form can be obtained from the
offices of the Board of Investment Islamabad, Karachi and also from the website of BOI
(www.pakboi.gov.pk).
Work visas will be authorised and issued by the Ministry of Interior on the basis of the decision of the
Committee.
The work visa may be issued for a period up to 5 years or for the life of the applicant's passport. The
concerned Pakistani Mission abroad will grant work visas to the applicant whereas extension in work
visa will be endorsed by the Regional Passport Office of the city where the expatriate is working upon
authorisation by the Ministry of Interior.
In case of multiple entry visas, the number of entries will not be restricted.
For the purpose of changing the category of visa of foreign national employees and investors from
business visa to work visa, the condition to go out of Pakistan to any third country and get it converted
from the Pakistani Mission in that country has been withdrawn. The Ministry of Interior will process
such requests simply upon receiving verification from the BOI.
1.42.3 Registration of foreigners with the police
The Government has decided to exempt all foreigners who have been issued work visas from
registration with the police, except for nationals of countries on the negative list.
Even in the case of countries on the negative list (except for Indians and foreigners of Indian origin),
foreign nationals in the managerial category who are issued work permits/visas will also be exempted
from police registration.
1.43 Housing
Rental rates for houses or apartments in Pakistan are lower than in EU countries. Indicative rental
rates for different types of accommodation in major cities, e.g. Karachi, Lahore, Islamabad, Peshawar
and Quetta, are presented in Table 35.
Table 35: Rental for private accommodation

Rupees per month EUR per month*
from to from to
Bungalow (2, 3 bed rooms) 30,000 40,000 452.30 603.07
Semi-detached 10,000 15,000 150.77 226.15
Apartments (Unfurnished)
One bedrooms 3000 5000 45.23 75.38
Two bedrooms 5000 7000 75.38 105.54
Three bedrooms 8000 10,000 120.61 150.77
Four bedrooms 12,000 18,000 180.92 271.38
1.44 Living costs
Compared to prices in most of the EU Member States, living in Pakistan is inexpensive, with the
exception of imported goods. Table 36 presents typical prices of consumer goods in Rupees, as well
as their equivalent in Euro at the end of 2003.
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Table 36: Prices of consumer goods

Rupees EUR*
Item from to from to
A Tin of Coke 25 0.38
A bottle of Coke (disposable) 12 0.18
A bottle of Mineral Water (1.5 litre) 25 28 0.38 0.42
A pack of 20 cigarettes (Premier) 30 45 0.45 0.68
A box of Corn Flakes 75 80 1.13 1.21
A loaf of wholemeal Bread (800 gms) 20 25 0.30 0.38
Tetra Pack of Milk 32 0.48
A bottle / tin of local Beer 60 0.90
A bottle of local Whisky / Vodka / Gin / Rum etc. 400 6.03
Durable goods
Shirt 400 800 6.03 12.06
Trousers 600 1,000 9.05 15.08
Coat + Pant (Suit) 5,000 8,000 75.38 120.61
Track Suit 500 2,000 7.54 30.15
Dress Shoes 800 1,500 12.06 22.62
Jogger Shoes 1,000 2,500 15.08 37.69
Tennis Shoes 300 600 4.52 9.05
Hand Bag 500 1,500 7.54 22.62
Brief Case 1,000 5,000 15.08 75.38
Suit Case 1,500 5,000 22.62 75.38
Calculator 700 1,500 10.55 22.62
Computer P-III 40,000 45,000 603.07 678.46
Tape Recorder 2,500 6,000 37.69 90.46
CD Player 8,000 15,000 120.61 226.15
T.V. Set 20" 20,000 25,000 301.54 376.92
Bed Sheet 500 1,000 7.54 15.08
1.45 Personal security
Personal security in Pakistan has been an issue especially since 9/11. In October 2003, the Foreign
and Commonwealth Office country advice was as follows: “There is a serious threat from terrorism
throughout Pakistan. While British nationals of Western origin are particularly likely to be targeted by
terrorists, anyone is at risk from indiscriminate attacks. There is also a serious threat from criminal
violence. We advise against holiday travel unless you have family contacts there. If you are travelling
to Pakistan for professional or holiday reasons, you should be very careful about, and confident of,
your personal security arrangements throughout your visit”.
Nevertheless it should be noted that a number of expatriates, with their families, are living in Pakistan.
It appears that Punjab is the safest province of Pakistan for foreigners.
Since early 2003, an increasing number of expatriate families have returned to Pakistan. Also, the
French school has recently reopened in Islamabad and counts about 30 children.
1.45.1 Terrorism
In October 2003, the British High Commission advised that there "is reliable evidence that terrorists are
targeting western interests throughout Pakistan. Although the major cities are particularly vulnerable to
indiscriminate bombing and other attacks, no part of Pakistan is immune. Types of attack have
included suicide bombings, kidnap and execution, hand grenade attacks, vehicle bombs and
shootings. Many attacks have injured or killed innocent bystanders, including foreign nationals and
Pakistani citizens. Targets in 2002/3 included the US consulate, a Christian hospital in Taxila, a
Christian school near Islamabad, a bus in Karachi carrying French nationals, a church in the diplomatic
enclave in Islamabad, Daniel Pearl, the American journalist who was kidnapped and subsequently
murdered, assassination of a Sunni extremist parliamentary and Sunnite extremist leader, further to
killings of Shiite by Sunnites, and finally, two failed attempts on the life of President Musharraf in
Page 108
December 2003. There is also a risk posed by militant and military activity along the border with
Afghanistan and near to the line of control in Kashmir, especially the Neelum Valley.
We therefore advise against holiday travel to Pakistan unless you have family contacts there. If you
are travelling to Pakistan for professional or holiday reasons you should be very careful about and
confident of your personal security arrangements throughout your visit. Visitors of visibly western origin
should not linger in public places, especially those frequented by foreigners, and avoid public transport
and cheap hotels”.
1.45.2 Crime
On criminal risks and violence, the British High Commission advised in October 2003 that there is “a
risk of sectarian attacks, tribal killings and other criminal violence e.g. armed carjacking, robbery,
kidnapping and murder as well as bombings in public areas such as markets, offices and public
transport e.g. buses. Although sectarian, tribal and criminal violence is not usually aimed at foreigners,
there is always a risk of being caught up in such attacks.
There has been recent sectarian violence between Shia and Sunni communities, including attacks in
Quetta in July 2003 (which killed more than 50 people), in Karachi in August and September, and in
Islamabad in early October. Each attack has been followed by street disturbances, in some cases
involving further deaths”.
1.45.3 Political situation
Large-scale demonstrations, which can become violent, occur throughout Pakistan at short notice. You
should monitor the local media for information about any demonstrations or gatherings and avoid
them.
1.45.4 Local travel
To travel to certain areas, such as the Federally Administered Tribal Areas and parts of Kashmir, you
will need a No Objection Certificate issued by the Pakistani Ministry of Foreign Affairs. The provision of
consular assistance is limited in remote areas.
1.45.5 Health
You should get medical insurance (including against medical repatriation costs) and seek medical
advice before travelling. Outside the major cities, few hospitals are of western standards. Malaria
exists in parts of Pakistan.
1.46 Holidays, time difference etc.
1.46.1 Time difference
The local time is GMT + 5.
1.46.2 Office hours and days worked
Office hours are usually 9 am to 3 pm with public offices. Private companies usually operate from 9 am
to 5 pm daily.
Days off are usually Friday afternoons and Sundays.
1.46.3 Holidays
The following public and official holidays will be observed during the year 2004.
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Box 25: Holidays in 2004

Feb 2 Eid ul-Azha (Feast of the Sacrifice).
Mar 2 Ashoura.
Mar 23 Pakistan Day.
May 2 Eid-e-Milad-un-Nabi (Birth of the Prophet).
Aug 14 Independence Day.
Nov 9 Allama Muhammad Iqbal Day.
Nov 14-16 Eid al-Fitr (End of Ramandan).
Dec 25 Quaid-e-Azam’s Birthday.
Note: Muslim festivals are timed according to local sightings of various phases of the moon and the dates given above are
approximations. During the lunar month of Ramadan that precedes Eid al-Fitr, Muslims fast during the day and feast at night and
normal business patterns may be interrupted. Most restaurants are closed during the day and there is a restriction on smoking
and drinking in public places. Eid al-Fitr and Eid ul-Azha may last from two to four days, depending on the region.
Bank holidays in 2004 are presented in Box 26. On these days, the banks are closed to public but not
for their employees.
Box 26: Bank holidays

1st January 2004
1st July 2004
3 October 2004, 1st day of Ramzan 1425 (subject to appearance of moon)
A number of optional holidays can be granted on a discretionary basis by management, mostly based
on the Hindu or Christian faith.
1.47 Adjusting to the cultural environment
Being a former colony of the UK, most people involved in business do speak English. It may happen in
some remote part of the country, or in the bazaars, that English will not be understood, but to conduct
business, the language barrier should not present a problem.
Pakistan is a conservative, traditional society strongly influenced by Islam, which pervades every
aspect of life.
You should consult a reputable travel guide before travelling. Pakistan is a Muslim state and local
customs, such as dress and behaviour, should be respected. Importation of alcohol and pork products
is forbidden by law. Homosexuality is illegal, as is co-habitation of unmarried couple. Possession of
even small quantities of illegal drugs can lead to imprisonment. Drug smuggling can attract the death
penalty.
1.47.1 Introductions
Men commonly greet with a handshake; women greet each other with a handshake or hug. Foreign
men should not shake hands with a Pakistani woman unless she offers her hand first. It is appropriate
for Western women to initiate handshakes with Pakistani men.
Pakistani names have up to four basic parts - a first name, a patronymic, a caste name and an
honorific. Pakistanis introduce themselves using all their names. Mr. or Mrs. are both expressed with
Sahib.
In trying to locate someone under a local directory, be sure to try all their names. For example, for
Mian Abdul Latif, search under M, A and L.
When greeting someone, it is always best to ask someone what they would like to be called. For
Western business people, it is appropriate to use Mr., Mrs. or Ms. and a last name. Physicians should
be referred to as Doctor.
As much as possible, when you are introduced to somebody, present your business card with your
right (clean) hand only. Receive your counterpart's card in the same way.
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1.47.2 Build a solid relationship before talking business
Developing a strong personal relationship is the real key to doing business with Pakistanis. Personal
contacts make things happen. It is very important to get to know your counterpart before starting to
discuss business. Socialising is a good way to build and maintain good rapport.
The exchange of mutual favours and gifts is the cornerstone of any relationship as in most parts of the
world. If you are asked for a favour, agree to do it even if you think you may not be able or willing to do
it. Your Pakistani friend will understand that circumstances later make it impossible to fulfil his request
and will appreciate the fact that you agreed to try to help.
Entertaining and being entertained is an essential part of building a close relationship with your
counterpart. If invited to dinner at a Pakistani businessman's home expect to eat a great deal as a way
of showing your appreciation. Your host will press you to eat more than you really want to. Eat as
much as you can. When you have reached your limit, you may have to decline further helpings three
times, emphatically, in order to make the point.
Similarly, when hosting Pakistanis you must keep pushing them to eat and drink. But remember that
alcoholic beverages and pork products are forbidden to Muslims.
1.47.3 Orientation to time
Many Pakistanis look at time differently than people from the west. People and relationships are more
important than the clock. So your counterpart may keep you waiting while he deals with unscheduled
visitors and family emergencies. He may be late for any number of pressing reasons.
1.47.4 Business customs & etiquette
The atmosphere in the Pakistani work place is for the most part casual. The foreign national working in
Pakistan, however, may be expected to be prompt when going to an appointment with a Pakistani
businessman. One precept of the Pakistani business area which may prove beneficial to Westernised
businesspersons is the concept that fellow workers are viewed as friends. The Pakistani businessman
may not do business with someone he does not consider a friend. It is very important to be patient,
and above all, very friendly when doing business in Pakistan.
The boss in Pakistan plays a very important role. They hardly ever command, instead, they suggest.
High-ranking individuals tend to arrive at work and leave work when they desire. It is customary for all
employees to stay at work as long as the boss does.
When being introduced to a business colleague, or when being introduced to anyone in Pakistan, take
careful note of the name used. It may be considered disrespectful to call someone in Pakistan by their
first name. When being introduced to a co-worker, try to have a business card with you. Your business
card should clearly state your position in the company.
1.47.5 Meetings
When conducting either a small or large meeting, make sure to have tea available. It is considered
much more enjoyable to do business over a cup of tea. This is true even if the meeting consists of the
person in the next cubicle stopping by to say hello. This is an important feature of Pakistani hospitality;
it is impolite not to accept.
Remember also that Pakistan is officially an Islamic country and alcohol is forbidden. At no time would
it be appropriate to serve alcohol at meetings. When scheduling meetings, be sure to do so months in
advance, and do not be upset if people are late. Avoid scheduling appointments during Ramadan or
the tropical storm season.
1.47.6 Business dress
Appearance is very important to the Pakistani businesspersons. Business attire is substantially

influenced by western dress code especially in the service sector. Also, it is important to appear calm
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at all times. Losing one’s temper is seen as a lack of intelligence and is viewed as a negative
characteristic.
1.47.7 Negotiating style
Because Pakistani negotiators try to avoid confrontation, they usually avoid saying no to you in your
face. Avoid blunt language.
Pakistani negotiators tend to expect their counterparts to grant major concessions on price and terms
during the course of the negotiation. For this reason it is wise to build plenty of margin into an initial
offer, leaving room for manoeuvre during the lengthy negotiating process.
Be prepared for bazaar haggling - hard bargaining. Take care to make each concession with great
reluctance and only on a strict "if...then," conditional basis. Always demand something equivalent in
return for each concession in price, terms or other issues.
Negotiating in Pakistan tends to proceed at a leisurely pace. It would be a tactical error to press hard
for a quick decision. Go with the flow. Decisions take time, so adjust your expectations accordingly.
1.47.8 Further hints
A Pakistani's honour, dignity and reputation are precious to him and must be protected at all cost.
Loyalty to the family is a paramount value. Family needs often come before individual needs.
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PART III: SECTOR ANALYSES, INVESTMENT AND MARKET

OPPORTUNITIES
INTRODUCTION AND SECTOR OVERVIEW

The sectors presented in the following sections have been identified as being particularly interesting
for potential European investors:
– Textile and garment manufacturing with the sub-sectors Spinning, knitting and weaving; Dying and
printing; Ready made garments (including made ups such as towels and bed-linen: This is the
traditional sector of the Pakistan industry, representing 70% of the country exports. The planned
suppression of the Multi Fibres Agreement on the 1st January 2005 will likely translate into a
number of opportunities and challenges for the sector, in view of its world competitiveness.
The main opportunities should be in the processing and designing where Pakistan’s expertise can
be improved.
– Food processing and packaging, specifically the sub-sectors Milk and dairy products; Fruit and
vegetable processing (Conservation, Phyto-sanitary concerns - Wiper heat treatment technology to
access the US market); Fish and sea food processing. The main argument in favour of this industry
is the general expertise of EU companies in this sector, especially made up of SMEs. Also,
Pakistan is a large food producing country with a significant export potential and a local market still
very primitive in its approach, while the middle class is growing with expectations closer to the
western habits.
It is reported that significant portion of the harvest is lost every year due to poor processing
facilities. The importance of the Phyto-sanitary regulations in the export markets makes it a
precondition to improve the processing expertise and capacity of the industry to tap these markets.
The packaging industry forms an integral part of the food processing process, and is therefore
considered as an integral part of this sector development.
– Light engineering, including the sub-sectors Auto-parts; Power related components and parts (for
power transport, power metering and controls, etc.); and Textile related machinery and parts.
The automobile sector is growing fast, further to the explosive growth in consumption, fuelled by
excellent macro economic figures, which translate into very low interest rate, large surplus funds in
the banking system channelled towards consumer lending. The main auto assemblers are
Japanese which have not been accompanied by there usual subcontractors. Improvement of the
quality and technology of existing auto part manufacturers for the local market as well as for exports
seems to have a future.
Similarly, the privatisation of the telecommunication sector, as well as the power sector (electricity,
oil & gas, water, etc.) is creating a very dynamic environment for growth with the resulting needs in
better performing services, and industry parts. The local market and exports shall provide a very
supportive environment. Comparative export growth statistics over the last year show that this
sector is the best performing among South Asian countries6.
Finally, there is hardly any need to justify the choice of the textile related equipment sector in view
of the textile industry dominance in the country.
A number of niche sectors are also briefly presented:

– Information Technologies;
– Surgical and dental equipment;
– Gems and jewellery; and
– Marble production.
Naturally, investment opportunities exist in other sectors as well. The selection of sectors presented
below is not to be understood as exclusive. The purpose of the sector presentation below mainly is to
provide some first sector-specific insights to a large number of potential investors. Enterprises
considering investments in other sectors should by no means discouraged from studying the potential
project in detail.
6
COMTRADE database export statistics re the General Industrial Machinery sector (74), the Road Vehicles
sector (78) and the Electrical Machinery and Parts sector (77).
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As an indication for the success of projects in diverse sectors, Table 37 presents examples of the cost
structure and profitability of selected investment projects in Pakistan, including some in sectors which
are not presented in the following sections. Likewise, Box 27 presents reasons for investing in
Pakistan which are valid for any sector.
Box 27: Six Reasons to Invest in Pakistan as presented by the BOI

1. Abundant Land and Natural Resources
- Extensive agricultural land
- Crop production (wheat, cotton, rice, fruit and vegetables)
- Mineral reserves (coal, crude oil, natural gas, copper, iron ore, gypsum, etc.)
- Fisheries and livestock production
2. Strong Human Resources
- English speaking work force
- Cost-effective managers and technical workers
3. Large and Growing Domestic Market
- 140 million consumers with growing incomes
- A growing middle-class moving to sophisticated consumption habits
4. Well-Established Infrastructure and Legal Systems
- Comprehensive road, rail and sea links
- Good quality telecommunications and IT services
- Modern company law
- Long-standing corporate culture
5. Strategic Location as a Regional Hub
- Principal gateway to the Central Asian Republics
- Strong and long-standing links with the Middle East and South Asia
- Comprehensive duty-free facilities for investors
6. Incentives and Liberalisation Measures
- Reducing minimum foreign equity from USD 0.5 million to USD 0.3 million,
- Remittance of royalty, technology and franchise fee allowed to projects in social, service, infrastructure, agriculture and
international chains food franchise;
- Zero import duties on capital goods, plant and machinery and equipment not manufactured locally. CBR can supply a list of
locally manufactured good. In case of doubt the investor is invited to consult the BOI.
- Enhanced FYA from 50% to 75% of PME for infrastructure and agriculture projects
- The import tariff on agriculture machinery (not manufactured locally) for registered corporate agricultural projects will be
zero-rated
- The investors who invest in the newly opened sectors can import plant, machinery & equipment (not manufactured locally)
at concessional rate of customs duty which is 10% and also avail first year allowance @ of 50% of the cost of plant,
machinery & equipment.
- Zero import duties on raw materials used in the production of exports.
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Table 37: Selected SME Projects in Pakistan - Cost Analysis

No. Sector / Projects Project Capital Working Land Work Capacity IRR % Payback
Cost Cost Capital (Sq. ft) Force (Years)
(mill. Rs) (mill Rs.) (mill. Rs)
Agriculture Livestock & Fisheries
1 Abattoir (Slaughterhouse) 20.23 18.17 1.14 66000 2750 animals/day 52.79% 3.13
2 25-Animal Dairy Farm 1.5 0.1 0.18 370,262 5 250 litres/day 22.00%
3 50-Animal Dairy Farm 2.94 0.19 0.28 32 acres 7 552 litres/day 30.00% 5.5
4 Broiler Farm (7500- Birds) 0.41 0.06 0.34 7830 2 7500 birds / clock 43.03% 3.94
5 Layer Farm (5000-Birds) 0.35 0.06 0.29 10718 2 8463 eggs 34.69% 6.84
6 Calve Fattening Farm 0.89 0.63 0.26 6510 5 390 calves p.a 35.66% 4.26
7 Shrimp Farming 21.35 4.55 13.24 871200 19 251.06 kg
8 Cut Flower Farm (Rose) 1.27 0.09 0.5 217801 7 4538 flowers 27.00% 3.59
9 Flower Shop 2.01 0.1 0.59 217801 11 3028 flowers 68.00% 2.15
10 Seed Processing (Wheat & Rice) 17.69 8.79 8.9 8 Kanals* 17 2000 tons/ season 24.89% 4.5
11 Greenhouse (Fresh Cut Roses) 9.76 9.16 0.6 10 Kanals 13 25000 Plants 190%
Textiles
12 Circular Knitting - Commercial 12.05 10.5 0.72 1750 15 1550 kgs/day
13 Collar Knitting - Commercial 4 3.62 0.28 1150 9 3900 collars/day
14 Label Manufacturing Unit 15.1 12.25 2.59 2250 10 67500 Labels/day 17.00% 2.97
15 Denim Jeans - Stitching 5.38 4.3 0.39 3800 47 500 gmts/day 40.06% 5.18
16 Fabric Dying (Knitted) 50 31.79 5.44 8 Kanals 60 3200 Kg/day 19.90% 5
17 Fabric Weaving (Auto Looms) 10.38 9 1.38 9200 34 693000 mtrs pa 23.00% 4.2
18 Work Wear - Stitching 6.3 4.37 1.4 3300 55 400 gmts/day 91.22% 2.01
19 Polo / T-Shirts - Stitching 7.5 5.38 0.69 13640 96 2,000 gmts/day
20 Embroidery Unit - Commercial 7.75 6.75 0.74 1950 14 26.4 mill. Stitch
21 Lingerie - Stitching 2.21 0.78 1.34 1221 15 25 dozens/day 29.00% 3.84
22 Yarn Dying & Finishing 66 46.54 6.65 8Kanals 62 2960 Kg/day 19.80% 5
23 Men's Undergarments -Stitching 2.06 1.41 0.66 1440 8 100 dozens/shift 61.20% 3.32
24 Tents & Canvas 4.2 1.41 2.81 10050 39 16000 tents/year 39.30% 4.62
25 Boutique (Women Designer Wear) 1.45 0.88 0.57 3050 12 500 dresses 40.20% 3.87
26 Bed Linen Stitching Unite 3.6 1.22 2.38 4500 20 1000 per day 14.00% 5.33
27 Cotton Bags Manufacturing Unit 2.78 2.06 0.73 4500 54 4280 per day 53.00% 3
Light Engineering
34 Bicycle Parts (Handles) 2.4 0.36 0.57 2250 16 230 handles/day 33.00% 4.6
35 Bicycle Parts (Stand) 1.5 0.13 0.14 1125 7 115 units/day 29.00% 6.41
36 Bicycle Parts (Carrier) 1.5 0.16 0.17 1125 7 230 units/day 31.00% 5.43
37 Bicycle Parts (Crank & Sprocket) 2.13 1.77 0.36 4500 16 6000 per month 29.85% 6.74
38 Motorcycle Gearshift Lever 1.53 0.26 0.03 1125 4 92 units/day
39 Fan Guards Mnfg. Unit 8.29 4.09 1.47 7000 39 380 units/day 33.00% 3.09
40 Electrical Goods (Bakelite Products) 1.3 0.78 0.52 816 13-16 10200 Gurs pu**
Food
41 Kinnow Processing 18.87 3.8 11.27 6575 34 80 tons 50.06% 2.04
42 Milk Pasteurisation 13 10.29 2 9000 5 72000 Litres/day
43 Animal Casing Processing 3.34 2.29 1.05 1500 19 500 hanks/shift 31.17% 6.69
44 Mango Processing 21.4 16.12 4.12 44000 44 3 Tons / day 18.00% 2.55
Service Industry
45 CNG Filling Station 27 24.39 0.38 9000 14 170 cars/day 18.90% 5
46 Internet Café 1.3 1.12 0.16 880 2 144 hours/day 29.91% 2.48
47 IT College 2.1 1.1 0.57 1346 18 54.00% 3.47
48 Medical Transcription 3.88 2.84 1.04 18750 66 110.00% 1.67
49 Subcontract Workshop 0.89 0.87 0.03 1.15 13 12 hours/day 49.00% 2.87
50 Beauty Clinic 2.51 0.86 0.49 5400 14 28 customers/day 24.59% 7.79
51 High School 9.84 9.48 0.36 13500 19 750 Students 24.94% 6.3
Chemicals
52 Essential Oils Disti. Unit 3.8 1.48 0.12 1089004 11 4.583 litres 34.00% 4.01
Gems & jewellery
53 Gemstone Lapidary 1.67 1.37 0.28 1000 15 3300 units p a 44.75%
Source: BOI Pakistan
* 1 kanal = 500 sq meter approximately
** 1 Gur = 144 pieces
THE TEXTILE SECTOR

The textile sector is the back bone of the Pakistan’s Economy. Over the years it has grown to cover
the full range of the production process for cotton products, from the farming and growing stage up to
the garment industry as well as retailing of the finished products.
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Non cotton textile such as synthetic fibre remains small compared to the cotton industry (about 20% in
terms of volume), while the growth of the polyester fabric is significant.
It is the largest industry in the country, while Pakistan is ranked first in the world, as per the World
Bank Balassa index, in terms of competitive advantage.
1.48 Sector overview
Pakistan is blessed with various advantages which have placed it amongst the world leaders in the
textile industry, including availability of cotton, skilled labour and consistent development. The textile
industry’s significance in Pakistan is highlighted in Box 28.
The All Pakistan Textile Mills Association (APTMA) is the largest textile business association, and it
plays an important role in the sector.
Box 28: Textile sector overview

Total turnover : Rs. 315bn / USD 5.44 billion
% in GDP : 8.5%
% of total exports : 61%
Sector employment : 15 million with 70% considered as skilled
Total sector investment : Rs. 146 billion
No. of Units and their capacity
Ginning : 1221 units servicing 20 million bales
Spinning : 452 units with capacity of 1818 million Kgs of yarn
Weaving : 565 units of which 190 are large units + 2600 power looms with capacity of 4897 million sq meters of fabric
Finishing : 731 units of which 106 are large units with capacity of 4600 sq meters
Garments : 5100 units of which 600 are large units with capacity of 685 million pieces
Knitwear : 700 units with capacity of 550 million pieces
Towels : 400 units with capacity of 55 million KGs
Source: Board of Investment
1.49 Main sub-sectors within the textile industry value chain
1.49.1 Cotton ginning and fibre production
Fibre production is the initial stage in the textile value chain. There are 3 types of fibres, cotton, man-
made and wool. Given Pakistan’s leading position as a cotton producer, cotton plays a key role in the
textile sector, contributing 39% of total fibre consumption. Wool accounts for some 3% while man-
made fibres which include polyester, acrylic, nylon, and rayon, account for some 58% and in this 80%
is polyester.
The process of ginning involves processing of cotton through separating lint from seed to facilitate the
availability of cotton fibre through a mechanical process. The machinery used by and large is local, old
and inefficient leading to low productivity. Therefore, at present the very start up process requires
upgrading to ensure better quality output.
1.49.2 Yarn spinning
This is the process of converting fibre into yarn. It is the first process in the value chain. The various
processes involved in spinning include blowing (main process), carding, drawing, combing, simplex
(Roving), spinning, winding and doubling/reeling. Spindles as well as rotors are the main production
facilities.
In the worldwide market estimated at around 163 million spindles Pakistan has more than 8 million
accounting for more than 5% of the total market and classified as the 3rd largest player. This market is
growing at 5% per annum.
The world market of yarn is estimated at around USD 30 billion out of which Asia provides more than
40%. Cotton yarn accounts for 25% of the global market. Pakistan’s share in the global yarn market is
around 4% to 5%, estimated at more than 1550 million tones. It consists mainly of course and medium
cotton count leaving considerable opportunity in the higher value added final count substantially
unexploited. Only 18% of the spindle utilisation is on man-made fibres as against the desired 40% to
be in line with global trade patterns.
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1.49.3 Fabric weaving & knitting
These processes relate to the creation of fabric from yarn through either the process of weaving or
knitting. Of the total global market of around USD 18 billion, Pakistan has a market share in fabrics of
7%. More than 25% of the textile and clothing exported from Pakistan comprise of woven fabric
including both pure cotton and blended fabrics. Pakistan is the 4th largest producer of cotton fabrics in
the world with approximately 4 billion sq meters of fabric being produced. The overall fabric production
has registered a growth of approximately 6% per annum over the past decade.
The weaving industry is broadly categorised into 3 sectors, composite weaving units, independent
shuttleless weaving units and power looms. While the composite weaving units comprise of integrated
textile mills having their own spinning and dying facilities, the shuttleless weaving units are those
comprising of shuttleless looms. With more than 300 units and a production capacity of around 1.2
billion sq meters, they account for 40% of total exports. The power looms sector is the one which
dominates the fabric production accounting for 63% of total fabric production estimated at 2.8 billion sq
meters through some 215,000 power looms.
Within the weaving process the various activities include warping, sizing, weaving and finishing. The
weaving process has witnessed various options including shuttleless looms, projectile, rapier, air jet,
water jet, terry towel looms etc.
1.49.4 Finishing sector including fabric processing, dying, printing & finishing
This sector relates to the activity through which grey cloth is processed into finished fabric. It depends
on the requirement for utilisation in production of the final outputs, including garments, hosiery, made
ups etc. The capacity of this sector is around 4.6 million sq meters. The various processes involved
include bleaching, dyeing, printing and finishing with each process having different variations to suit
different requirements. The total production of finished cloth during 2002-03 was approximately 200
million sq meters.
1.49.5 Garments, hosiery, knitwear and made ups including bed-linen, towels etc.
This sector is the pinnacle in the textile production chain. It represents the fastest growing sector in
textile globally with Asian countries as the leading players and China having 40% of the total share.
Pakistan’s production in this sector through more than 4500 units of which 80% are cottage based
small units, is approximately 700 million pieces providing employment to more than 700,000
individuals. Exports in this sector are around USD 1.8 billion, representing approximately 1% of the
overall global market. The main markets are the USA and the EU accounting for 92% of Pakistan’s
exports in this sector. The main processes are the cutting, stitching and finishing processes.
1.50 Type of businesses by size and category
1.50.1 Large companies (More than € 1 million turnover)
The textile sector in Pakistan is rather concentrated, with the larger companies representing a
significant part of the industry mostly in the first stages of the production process such as spinning and
weaving.
Table 38: Pakistan large textile companies

Sub-sector No. of units Capacity Production
9.06 Mn.Spindles
1. Spinning Units 452 1,818 million kgs
15,016 Rotors
2. Composite Units 50 9,898 Looms 577 million sqm
3. Independent Weaving Units 140 23,652 Shuttleless Looms “
4. Finishing Units 106 - “
5. Garment Units 600 - -
Source: Textile Commissioner’s Organisation
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1.50.2 Small & Medium sized companies (Less than € 1 million turnover)
Table 39: Pakistan small and medium size companies

Sub-sector No. of units Capacity Production
1. Independent Weaving
425 50,000 Looms -
Units
2. Power Looms Sector 20,600 175,253(Conventional 4,897 (577+4,320)
Looms) million sqm*
3. Finishing 625 4,600 million sqm**
4. Terry Towels 400 7,602 (Looms) 55.00 million kg
5. Canvas 2,000 (Looms) 35.00 million kg
6. Garment Manufacturing 4,500 Sewing Machines
200,000 (Industrial) 685.0 million Pcs.
450,000 (Domestic)
7. Knitwear 700 Knitting Machines 15,000 5.50 million Pcs.
*Include large/small scale independent weaving units & Power Looms Sector
**Include large/small scale Sector
Source: Textile commissioner’s organisation
1.51 Break-up of Investment in Textile Sector
As can be seen from

Table 40, the sector is still concentrated in the primary stages of the industry, providing fewer added
values, while the present trends privilege the last stages of the process with more added values such
as Garments, Hosiery or Knitwear.
It is worth noting the importance of the investment in the sector which makes it one of the most modern
one in the world with state of the art machinery.
Table 40: Breakdown of investment in the textile sector by sub-sector (total investment = USD
1.4 billion over the last 3 years)
Spinning 54.0%
Weaving 14.1%
Textile Processing 9.8%
Knitwear 5.4%
Garments 4.4%
Synthetic Textiles 14.0%
Source: Textile Commissioner’s Organisation
1.52 Value addition
The value chain in the textile sector can be gauged from the value addition from fibre to the end
product in terms of garments. Starting with one bale of cotton, the final output creates the following
value addition:
Table 41: Pakistan value addition in textile

One Bale of 170 Kgs of Cotton is worth* ……
Products USD
Raw Cotton 119
Cotton Yarn 253
Towels 434
Cotton Fabric (Grey) 579
Finished Fabric 603
Bed Wear 618
Knit Wear 1,401
Woven Garments 1,561
* Based on Actual Unit values of 2001-2002
Source: Experts Advisory Cell, Ministry of Industries
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1.53 Growth of the textile industry in Pakistan
The growth of the textile industry in Pakistan has followed the macro economic situation of the country
over the years. The recent improvements in the fundamental macro economic situation of the country
in the last three to four years have been accompanied by increased investment in the industry.
Table 42: Pakistan growth of cotton textile industry

INSTALLED CAPACITY (in 000) WORKING CAPACITY (in 000)
Period Units Spindles Growth% Looms Growth% Spindles Growth% Looms Growth%
1997-98 442 8,368 1.68 10 0 6,631 1.42 4 -20
1998-99 442 8,392 0.48 10 0 6,671 0.57 5 25
1999-00 443 8,477 1.01 10 0 6,825 2.31 4 -20
2000-01 444 8601 1.46 10 0 6913 1.29 4 0
2001-02 450 9060 6.88 10 0 7440 9.01 5 25
2002-03 453 9233 7.35 10 0 7624 10.28 5 0
Source: All Pakistan Textile Mill Association (APTMA)
1.54 Main raw material and components
The total requirement of cotton is mostly sourced locally, but for the production of some counts of
cotton and blended yarn, cotton is sometimes imported from Central Asian Republics, Egypt or even
the USA. The other significant raw material is the polyester staple fibre which is fast replacing the
acrylic staple. The total installed capacity of Polyester Staple Fibre is more than its local consumption
but it is occasionally imported from Far-Eastern countries due to price differentials.
Table 43: Pakistan consumption of raw material ('000 kg)

RAW MATERIAL GROWTH% % OF TOTAL
Period Cotton Fibre Total Cotton Fibre Cotton Fibre
1998-99 1,441,923 407,686 1,849,609 -2 28 78 22
1999-00 1,566,348 404,008 1,970,356 9 -1 79 21
2000-01 1,673,280 405,038 2,078,318 7 0 81 19
2001-02 1,755,669 409,557 2,165,226 5 1 81 19
2002-03 1,858,727 412,342 2,271,069 6 1 82 18
Source: APTMA
Table 44: Pakistan consumption of man made fibre ('000 kg; '000 Rs)
Polyester Staple Viscose Staple Acrylic Staple Synthetic Staple
Years Quantity Value Quantity Value Quantity Value Quantity Value
1998-99 8,793 446,783 28,657 1,816,061 16,996 956,984 69 4,427
1999-00 10,372 510,805 24,000 1,539,576 10,299 555,461 45 3,043
2000-01 17,616 918,691 25,626 2,074,139 6,234 478,102 48 3,037
2001-02 19,938 1,044,827 26,741 2,372,193 4,935 374,210 51 3,031
2002-03 22,566 1,188,177 27,904 2,713,077 3,907 292,894 54 3,025
Annualised Growth% 11 18 5 16 8 11 -20 -17
Source: APTMA
1.54.1 Main machinery and equipment
The recent evolution of the interest rates, down from high and discouraging levels to very low rates,
below 5%, is encouraging the industry to further increase its investments. Even more, it induces the
industry to target more efficient machinery, mostly from Europe, even if the equipment is more
expensive, since the higher cost at such interest rate is more than compensated by the higher
efficiency and quality of the machines.
The majority of the equipment is imported, the details of which are presented in Table 45.
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Table 45: Pakistan import of textile machinery (in Rs million)

2001-02 2002-03 % CHANGE
ITEM Value Value .P.Y
Ginning Machinery, Cotton 14 - -
Carding Machinery, Cotton 152 783 414
Combing Machinery 35 164 371
Drawing or Rowing Machinery 145 1,087 651
Machinery for preparing Textile Fibres 2,605 2,345 -10
Textile Spinning Machines 837 2,849 240
Textile Doubling or Twisting Machines 78 257 230
Cone Winding Machine 863 - -
Weft Winding Machine 31 394 1159
Textile Winding Throwing & Reeling Machine 2,319 1,785 -23
Spindles __ _ (Qty. in Kg) 210 330 58
Spinning Ring (Qty. in Kg) 15 513 3350
Card Clothing (Qty. in Kg) 121 225 86
Looms 3,875 52 -99
Circular Knitting Machine 401 430 7
Flat Knitting Machine 217 128 -41
Hand Knitting Machine 27 - -
Machine for Making Gimped Yarn 1,107 2,751 149
Machines for Preparing Textile Yarn 1,563 1,971 26
Shuttles 4 5 24
Part & Accessories of Weaving Machine (Qty. in Kg) 477 513 8
Needles Hosiery (Qty. in Kg) 89 161 80
Part & Accessories of Knitting Machine (Qty. in Kg) 103 126 23
Drawing Machine 100 112 12
Bleaching Machine 8 134 1626
Dyeing Machine 1,320 872 -34
Dressing & Finishing Machine 11 97 758
Coating or Impregnating Machinery for Yarn 0 89 20448
Textile Printing Machines 73 542 641
Machinery for Pressing Bleaching Ns 2,061 2,992 45
Ironing & Textile Pressing Machinery 6 33 424
Weaving Machine 3,877 6,590 70
Other Machines (not Specified) 2,340 2,336 0
TOTAL 25,084 30,668 22
Source: APTMA
The above stated machinery is being imported mainly from Japan, Germany, Switzerland, Belgium and
China.
1.54.2 Main products manufactured
The different types of textile products exported do reflect closely the manufacturing production of the
country, most products being exported. The table below gives a clear idea of the relative importance of
each category of products manufactured and exported.
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Table 46: Textile exports – core categories (values in USD million)

COMMODITIES 1999-00 2000-01 2001-02
Raw cotton 72.55 139.28 24.73
Yarn 1,162.04 1,145 980.5
Cotton fabrics 1,096.23 1,032.53 1,130.82
Knitted Fabrics 67.39 71.41 72.42
Apparels 771.72 826.77 874.95
Hosiery 886.82 911.40 845.94
Bed wear 709.92 744.88 918.55
Towels 195.62 241.688 267.71
Tents & Canvas 52.92 49.23 49.67
Textile Synthetic 457.64 544.60 410.02
Other Textile & Made-ups 386.10 407.46 421.55
Total 5,858.86 6,115.07 5,996.91
Source: Export Promotion Bureau
1.55 Cost factor analysis
The main constraints on productivity have been significantly alleviated over the recent past. The
production of reasonable quality cotton (being steadily improved) is an advantage to the industry, while
import of other types of cotton from the rest of the world is easy.
Labour is hard working, co-operative and productive.
The cost of finance which was a drag on the industry has been reduced to very low levels for the last
year, allowing the purchase and refinance of higher priced equipment from Europe, the better
productivity of which largely compensate for the higher price, the more so that the cost of money is
low.
Logistic is not an issue despite a large part of the industry in Punjab is far from a sea port, and the
road network could be improved.
The main draw back would stem from the electricity cost and reliability (see section 1.30.2.2).
The cost structure of different textile products with details of each component is not available. It is
therefore difficult to conduct a meaningful cost factor analysis.
1.55.1 Labour
- Cost-effective technical and managerial workforce available.

- The level of skill required is medium to high.
- Pakistan does enjoy an advantage as far as textile related labour is concerned but due to the
inclination of the Pakistani textile industry towards value addition as well as increased quality
requirements from buyers, the quality of the workforce needs further improvement.
- Pakistan lacks expertise in textile designing, branding issues and formulation of modern marketing
strategies.
- The Government, with the involvement of the private sector, is establishing modern Textile
Engineering and Fashion Designing Institutes to counter the challenge imposed by other regional
textile exporting countries.
1.55.2 Raw-Material
- Cotton and Man-Made fibre (see Table 43 and Table 44)

- Area wise sourcing of raw materials is available on www.aptma.org.pk. The main growing are in
Southern Punjab and Sindh.
- Local and international prices of cotton and polyester staple fibre are pegged to the New York
Cotton future Market. For PSF, international prices are dictated by the major parties to the industry
world wide.
- The figures for import of machinery are presented in Table 45.
- Imports of polyester staple fibre are as follows:

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Table 47: Import of polyester staple fibre (values in USD million)

Item 2001-02 2002-03
Polyester Staple Fibre 63.10 97.40
Source: State Bank of Pakistan Annual Report 2002-03
1.55.3 Energy Cost
Energy costs in Pakistan are deemed on the high side as discussed in § 1.30.2.2 of the report.
1.55.4 Financing
- Debt/equity ratio: 70:30 required to obtain favourable bank financing.

- Export Re-Finance available at concessionary rates of approximately 3.5% p.a. at pre and post
shipment stages. This incentive is available to exporters only in order to meet their working capital
requirements. The financing limits are based on export sales and performance.
- Project financing available at around 8-9% p.a., while short term bank facility is below 5% p.a. for
prime borrowers.
1.55.5 Logistics
- Machinery installed in the sector is at par, if not better than the technological standards of other
competing textile exporter countries;
- Comprehensive road, rail and sea links is available;
- Good quality telecommunications and IT services.
1.55.6 Research and development
The large Industrial concerns have realised the need for research and development to handle quality
and price competitiveness issues, especially in the wake of post WTO regime. A number of the
companies visited have developed such departments. R & D expenses for the industry are
unfortunately not available.
1.55.7 Government policies and incentives
The following incentives are available to the textile industry:

– No restriction on import and export of cotton.
– Duty drawback allowed.
– Duty concessions on import of Plant, Machinery and Equipment.
– Tariffs have been reduced on import of raw materials to 5% and 10%.
– Zero% import duty on raw materials used in production of exports.
– Bank financing for textile sectors available.
– Enhanced Market access in Europe and the USA through improved preferential agreement
negotiated notably with the EU by the end of 2001.
– Access to concessional Rupee loan at 4% for buyers of textile machinery manufactured locally,
provided they have a minimum local content of 20%.
1.56 Analysis of export flows
The major characteristic of the textile sector exports is its reliance on the western world, whereby
Europe represents about 60% of the total, and the USA 30%.
Items produced and exported cover mainly the basic material such as yarn and cloth, however on a
declining trend, while the more Value Added items grow moderately over the years. Main successes in
this matter concern the bed linen and the towels.
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Table 48: Breakdown of Pakistani textile exports by destination country

2001-02 2002-03 Change
COUNTRIES TEXTILE EXPORTS TEXTILE EXPORTS 2003/2002
value % of Total Value % of Total (%)
USA 1,855,816 31 2,187,454 29 18
DUBAI 325,211 5 536,492 7 65
U.K 458,129 8 574,535 8 25
GERMANY 265,453 4 378,330 5 43
HONG KONG 375,315 6 430,509 6 15
SAUDI ARABIA 230,909 4 354,300 5 53
ITALY 147,498 2 199,484 3 35
AFGHANISTAN 2,147 0 12,796 0 496
FRANCE 147,044 2 190,474 3 30
NETHERLANDS 142,729 2 189,152 3 33
CHINA 168,565 3 161,702 2 -4
BELGIUM 133,521 2 165,537 2 24
SPAIN 105,643 2 150,400 2 42
SOUTH KOREA 185,571 3 158,505 2 -15
CANADA 139,277 2 161,398 2 16
TURKEY 62,316 1 107,742 1 73
JAPAN 89,021 1 71,872 1 -19
AUSTRALIA 80,226 1 91,349 1 14
BANGLADESH 71,778 1 83,574 1 16
KENYA 12,253 0 36,145 0 195
SUB-TOTAL 4,998,422 83 6,241,750 84 25
OTHER COUNTRIES 998,488 17 1,215,998 16 22
TOTAL 5,996,910 100 7,457,748 100 24
1.57 Analysis of the main trends
The impression from the authors of this guidebook is that the Punjab area seems the best location to
envisage an investment, despite its distance from the Karachi ports, due to a better general
environment in this region.
The pressure brought over the manufacturing sector by international buyers as well as the WTO rules
will favour the large and efficiently managed groups, more able to invest and adapt to the evolving
environment.
Agreements with international textile groups are sought after by the local industry to gain improved
manufacturing process, design, brand (toll producing) and marketing.
It does not appear that financial involvement of foreign investors is eagerly sought by the local firms in
view of their present liquid situation as well as the low cost of borrowings.
1.57.1 Location
The production facilities of all the segments of the textile sector are concentrated around Karachi
(about 45%), Lahore, and Faisalabad.
1.57.2 Trends, possible evolution
The main evolutions noted through the visits made by the mission to various textile companies,
concern the following points:
- Improvement of the technology, with increased reliance on IT integrated manufacturing and
management processes, including for the most advanced companies, direct tele-video access by
clients to follow the manufacturing process of their commands, access to the shipping documents
on line, etc.
- Improved quality and environmental concerns, backed up by certification processes, certified in
house laboratories;
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- Improved social concerns with regards to fair working conditions for the staff;
- Improved designs, manufacturing processes, brands and toll manufacturing;
- Development in the Garment and Hosiery markets, as representing more value added products.
1.57.3 Role of local exporters, foreign agents
Large numbers of reputable and well organised buying houses and principal agent offices like Home
Textile of the IKEA group are operating in Pakistan, which provides the local exporters access to
international market. The small and medium sized exporters do need the services of these houses and
agents to fetch good prices and get introduced to prestigious foreign companies.
Also, a number of private quantity & quality surveyors provide services to the foreign buyers, the main
ones being SGS or Bureau Veritas.
Many popular international brands are produced under license in Pakistan such as Levis, Pierre Cardin
etc.
1.58 EU GSP, WTO rules and regulations
Changes implied by the WTO on going negotiations are only a part of the necessary adjustments to be
faced by the industry. A number of important evolutions are in fact demanded by the large international
clients for these industries. The changes are not that different from the usual evolution faced by
industries in general, and they represent as much an opportunity as a threat to operating businesses.
The main evolutions which will affect more and more textile companies in Pakistan are the following:
- Disappearance of the MFA and related quotas from the end of 2004;
- Social compliance regarding child labour, gender issues and workers piece meal employment
contracts;
- Environmental compliance as far as gas emission, water pollution, noise levels…
Proper auditing of these new rules will have to be organised, which has already started as far as the
best enterprises are concerned (ISO 9001, ISO 14000 EMS, SA 8000).
It is obvious that the large and efficiently managed groups within the industry, well aware of the WTO
implications are the ones which stand to benefit more from these increased regulations, having the
means to invest and adapt to the norms.
Specific concession obtained from the EU in 2001 is being contested by India through the WTO as
discussed in the following press article which might jeopardise the successes achieved recently by
Pakistan in its export drive to Europe. Another point being discussed at the moment concerns dumping
charges pressed against Pakistan export of bed linen. These issues are presently reviewed by the EU.
Page 124
Box 29: GSP negociations with the EU

KARACHI: Pakistan may lose additional tariff concession under the Generalised System of Preference (GSP) given by the
European Union (EU) two years ago owing to a case filed by India before the WTO’s appellate body, industry sources said here
on Thursday.
"Despite the fact that under these arrangements the EU had been allowing such tariff concessions to many countries for the last
many years, but India filed its complaint immediately after the EU decided to add Pakistan to its list", chairman of a textile
association commented.
According to sources, a World Trade Organisation panel issued a preliminary ruling on September 5, upholding a complaint by
India against a provision under the EU’s GSP system.
Pakistan was given this special status under GSP in recognition of its efforts for plugging drug trafficking and its implementations
of labour laws in various industries.
"If the tariff concession under GSP is revoked or India is given the same concession, Pakistan would definitely lose its edge of
10% duty reduction and consequently the Pakistani exporters’ would become in-competitive in the EU markets" sources said.
Trade circles familiar with the ruling said; that the panel backed India’s claim that the special tariff preferences are inconsistent
with article 1.1 of the WTO’s General Agreement on Tariff and Trade (GATT), which ensures that any advantage or privilege
granted to the imports of one WTO member to be automatically extended to all members.
The panel also backed New Delhi’s argument that the special treatment to Islamabad and other developing countries violated
provisions under the GATT’s so-called "enabling clause", which calls on WTO members to provide "nonreciprocal and non-
discriminatory preferences" to the developing countries under their GSP schemes.
In addition, the panel rejected the EU’s claim that the special tariff preferences qualified as an exemption from WTO rules under
article XX (B) of the GATT, which allows members to implement trade-restrictive measures under their GSP schemes.
Trade sources, however, said that there was an unusual dissenting opinion by one of the three panel members who sided with
the EU by arguing that the other panellists want beyond the GATT agreement in their interpretation of enabling clause.
It is more likely that the EU would appeal once the ruling is finalised and made public.
Although the panel’s decision is only preliminary, no WTO panel to date has subsequently altered its interim conclusions in a
final ruling. The panel is expected to circulate its final ruling to the two parties later this year.
If maintained, the ruling would have important implications not only for the EU but also for the Unites States, which submitted
third party arguments in favour of Brussels.
The US offered preferential tariff treatment for drugs eradication programme under the Andean Trade Preference Act.
Approximately $1.7 billion in imports from Bolivia, Columbia, Ecuador and Peru received preferential US tariff treatment under
this GSP programme in 2001.
The EU’s current GSP rules are set out under Council Regulation by European Commission, which entered into force from
January 2002.
The current beneficiaries include Bolivia, Columbia, Costa Rica, Ecuador, El Salvador, Guatemala, Honduras, Nicaragua,
Pakistan, Panama, Peru, and Venezuela.
India filed its complaint after the EU decided to add Pakistan to its list, the sources added.
Source: The News, Friday September 19, 2003-- Rajab 21, 1424 A.H.
1.59 Exports and quotas
As can be seen from Table 49 and Table 50, the exports subject to quota grew more slowly than the
non quota exports, except for the EU where special increases in the quota references were granted
from early 2002, as well as zero duty on clothing exports under a special GSP drug regime (see
paragraph 1.11.4.2).
Table 49: Pakistan Textile export (USD million)

2002 2003 Growth%
Non-quota exports 3,613.5 4,541.4 25.7
Quota exports 2,197.2 2,722.2 23.9
US 1,047.8 1,227.4 17.1
EU 1,053.1 1,352.6 28.4
Turkey 49.8 86.5 73.8
Canada 46.5 55.7 19.7
Table 50: Textile export market analysis

Growth % 2003/2002 Contribution in Growth% to overall textile exports
Growth pattern of Major quota Exports
US 17.1 3.1
EU 28.4 5.2
Growth pattern of major non-quota exports
US 18.9 2.6
EU 18.1 1.5
Asia 27.4 7.7
Others 26.5 13.2
Total 25.0 25.0
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1.60 Local and regional competition
1.60.1 Competition from imports
Competition from imports is mostly restricted to polyester-cotton and blended fabrics and yarns. Textile
products made only out of cotton are not imported.
1.60.2 Competition in the export markets
Further to the mission visits to a number of companies in the sector, impression is that major players
shall be in a position to benefit from the larger “playing field”, probably at the expense of the smaller
firms and less advanced countries. Also, the advantage for Pakistan shall be in the more industrialised
first stages of production (spinning and weaving) where it has a definite comparative advantage, rather
than the more value added stages of garments manufacturing.
Agreements with European companies helping Pakistan firms to achieve the required standards are
therefore eagerly looked after by the major groups.
Pakistan faces fierce competition from neighbouring and regional countries such as China, India,
Bangladesh, Thailand and Korea etc. This competition is on the rise and will create tough challenges
for Pakistani exporters in post WTO regime.
The main competitors of Pakistan in the spinning industry worldwide are the following (2001):
Table 51: Pakistan Competitor countries in the textile industry

Countries Spindles ‘000’ Share in world Share in Asia
China 41,710 25.5% 38.6%
India 31,835 19.5% 29.5%
Pakistan 8,159 5.0% 7.6%
Indonesia 7,050 4.3% 6.5%
Source: APTMA
The Yarn main world markets (€ 27 billion) are in Hong Kong, China, Japan, Italy, Germany, Korea,
UK and the USA. The Yarn exported by Pakistan is mostly cotton (about 80% of total) against a world
share of 40% in man made fibre.
In the Fabrics sub sector, Pakistan ranks fourth as far as production is concerned, with the highest
growth in the blended and man made fabrics.
1.60.3 Domestic competition
The textile sector offers huge export potential for international investors; however, the local market is
not attractive for such investor because of low per capita incomes and very large number of small local
players.
1.61 Identification and assessment of major business co-operation, project and investment
opportunities
A major Pakistani quoted company recently signed a co-operation agreement with a French powerful
textile group which exemplifies where the future lies as far as joint business opportunities are
concerned. This agreement did not imply any joint venture process or joint investment, but a
straightforward co-operation agreement covering the following points:
- Assistance in the manufacturing process, the design and the quality improvement of the products;
- Marketing of the Pakistan Company’s products to the French company non-clients worldwide, with
a non competition clause from the Pakistani firm;
- A “toll manufacturing” agreement, whereby the Pakistani firm can manufacture products under
certain brand name of the French group, for certain markets/clients.
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As discussed in a number of the paragraphs above, the areas of development for the local textile
manufacturers concern the following:
- Development and improvement of the manufacturing process through technical agreements,
especially related to the quality of the products, the IT systems as well as the certification
processes;
- Development of new product lines especially in added value productions such as the Garment and
Hosiery sectors;
- Development of the design of the products;
- Co-operation for the marketing of the products through the major developed markets, while the
less developed markets such as Central Asia, the Middle East or Africa is left under the
responsibility of the local company;
- Co-operation for Toll manufacturing under specific guidelines.
1.62 Analysis of the most interesting forms of co-operation in addition to direct investments
such as joint ventures, transfer of know-how, subcontracting etc.
The mission feels that the most promising area for co-operation should be with large and modern
Pakistani textile firms re technical assistance (manufacturing process, quality and environment norms
as well as IT), coupled with design development and toll manufacturing especially in the finished
product markets.
Advantages for the European partner would be to secure low cost products under its brand name and
design, as per its quality standards while receiving over the long term royalties over its contribution to
the local operation.
Advantages to the Pakistan firm would be in the improvement of all aspects concerned by the
agreement.
1.62.1 Subcontracting
Simple contracting of orders by international firms, satisfied with the quality and ability to produce of
the local manufacturer, along certain specifications, is of course the simplest arrangement for
business. Providing more detailed specifications such as the design, the raw material to be used, or
even the process to be utilised are just more sophisticated kind of trading contract, common in
Pakistan.
Risks, as usual, concern the property rights to the design, or the processing know how which can be
easily copied and duplicated, unless contract is done with a reliable and long term minded supplier.
1.62.2 Technical agreements
Based on certain available expertise in Europe, technical co-operation agreements could be

implemented without the need for investment by the international partner. These technical co-operation
agreements would normally be of a limited time frame, based on a specific technical development. Due
to the limited protection granted to property rights in Pakistan, long term royalties on technical co-
operation is not an avenue to be considered, unless there is a long term interest for both parties to
work together on a permanent basis through larger general agreements.
Such technical agreements should concern all size of operations in Pakistan.
1.62.3 Co-operation agreements
This appears to be the most promising area of co-operation, whereby the local firm requires support to
gain access to the developed markets, through a general and permanent improvement of its
manufacturing and marketing capacities, on a long term basis. Advantages to the European partner
should arise from royalties, access to goods manufactured under its trade mark as per its
specifications, at a competitive price.
These co-operation agreements should concern mostly large textile companies, already active in the
finished products or eager to enter such added value markets.
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1.62.4 Joint Venture agreements
As already mentioned in this report, investment finance is not an issue in Pakistan at the moment for
most companies. Therefore, demand for such form of agreement would normally come only from
middle sized companies which would want to go through an aggressive expansion policy, whereby
they would need not only the technical and marketing support of the international partner, but its
financial support as well.
Definitely, such type of investment would be the most risky for the foreign partner, and should only be
envisaged after both parties fully understand each other, and are sure that their strategy offers
common goals over the long term.
1.63 List of major local companies
Gadoon Textile Mills Ltd. Product Line: GREY CLOTH

CEO: Mr. A Razzak A Aziz Tabba
APTMA House, Tehkal Payan, Jamrud Road, Crescent Textile Mills Ltd.
Peshawar CEO: Mr. Mian Muhammad Anwar
Phone: +92-111-786-555 Fax: +92-021-4382436 Sardhoda Road Faisalabad
E.mail: gadoon@cyber.net.pk Phone: +92-041-111-105-105 Fax: +92-041-111-103-104
City: Peshawar. State: N.W.F.P E.mail: crestex@ctm.com.pk
Country: Pakistan URL: nil City: FAISALABAD State: Punjab
Brands: Peach, Koel Country: Pakistan URL: www.ctm.com.pk
Production Capacity: 128,160 Spindles Turnover: Rs. 4 billion
Product Line: Spinning Yarn
Turnover: Rs. 6 billion Mahmood Textile Mills Ltd.
CEO: Mr. Khawaja Muhammad Iqbal
Nishat Chunian Ltd Mehr Manzil, Lahori Gate, PO Box 28, Multan, Pakistan
CEO: Mr. Shahzad Saleem Phone: 92-061-511158-59-511260, 0303-631200
31-Q Gulberg,II Fax: 92-061-511262, 549711, 061-511262-570400
Lahore. Cable: Qadri Multan E.mail: mtm@mul.paknet.com.pk
Phone: +92-042-5761730-9 Fax: +92-042-5878696-7 Brands: Engine, Zaitoon, Palm, Cotton King
City: Lahore State: Punjab Production Capacity: Spinning: 65,280 Spindles
Country: Pakistan URL: www.nctex.com Weaving: 103 Shuttleless Loom
Production Capacity: 450 Airjet Looms Product Line: Cotton Yarn & Fabric
Product Line: cotton yarn
Gul Ahmed Textile Mills Ltd.
Nishat Mills Ltd CEO: Mr. Bashir Alimohomed
CEO: Mrs Naz Mansha Plot No. 82 Main National Highway, Landhi Karachi.
7, Main Gulberg Lahore Phone: +92-021-5015702- 5018095 Fax: +92-021-
Phone: +92-042-5716351-59-111-332-200 Fax: +92-042- 5082625-5080071
5716350 E.mail: gulahmed@gulahmed.com
E.mail: nishat@mishatmills.com City: Karachi State: Sindh
City: LAHORE State: Punjab Zip code: 74000
Country: Pakistan Country: Pakistan URL: www.gulahmed.com
Turnover: Rs 12 billion Brands: Gul-Light, Princess, Gul Ahmed, Chairman,
Production Capacity: 140,000 Spindles, 550 Airjet Cotton Club
Looms, 140 Shuttlless looms Production Capacity:
Product Line: Made-ups (Home Textiles, Apparels) Spinning: 81,024 Spindles
Weaving: 297 Shuttle Loom, 108 Shuttleless Loom
Kohinoor Weaving Mills Ltd. Processing: Dyeing, Printing
CEO: Mr. Aamir Fayyaz Sheikh Stitching: Yes
42-Lawrence Road, Lahore. Product Line: Bed lines, Curtains & Accessories
Phone: +92-042-6304181-82 Fax: +92-042-6367671 Turnover: Rs.5 billion
City: Lahore
URL: www.kmlg.com Al-Karam Textile Mills (Pvt) Ltd.
Production Capacity: 228 Shuttleless Looms CEO: Mr. Anwar Haji Karim
Product Line: Cotton Fabric 3rd Floor, K.D.L.B Building, 58-West Wharf Road, Karachi.
Phone: +92-021-2313031-35, 2313036, 0300-225550
Kohinoor Textile Mills Ltd. Fax: +92-021-2310625
CEO: Mr. Taufique Sayeed Saigol E.mail: headoffice@alkaram.com
42 Lawrence Road, Lahore. URL: www.alkaram.com
Phone: +92-042-6302261, 6302262,-0300-8551934 Fax: Brands: AK, Supernit, lgloo, Superman
+92-042-6368721 Production Capacity: Weaving: 308 Shuttle Looms 324
City: Lahore State: Punjab Shuttleless Looms
Country: Pakistan URL: www.kmlg.com Spinning: 66568 spindles
Brands: Super Taj Mahal, Taj Mahal, King Product Line: Yarn Counts: 21/s, 22/s, 30/s, 36/s, 60/s,
Production Capacity: 65,984 Spindles 80/s & 100/s, Fashion Garments,Textile Madeups,
Product Line: Cotton and Blended Yarn Bedlinen
Chenab Limited Fazal Textile Mills Limited

CEO: Mr. Mian Muhammad Latif CEO: Mr. Sohail Tabba
Nishatabad Faisalabad L-A-2/B, Block 21, Fedral B Area, Karachi
Phone: +92-041-75447-76 Fax: +92-041-752400-752700 Phone: +92-021-6321311, 6322048, 0320-220984
City: FAISALABAD State: Punjab Fax: +92-21-6313372
Country: Pakistan URL: www.chenabgroup.com Cable:
Page 128
E.mail: info@fazaltextile.com Brands: Twin Star Cuckoo, Jugnoo
City: Karachi State: sindh Production Capacity: 55,320 Spindles
Zip code: 74000 Country: Pakistan Product Line: Cotton Yarn / Blended Yarn Knitted Fabric.
URL: www.fazaltextile.com I.S.O 9909720
Tunover: Rs. 1 billion
1.64 Listing of European and other foreign companies present in the sector
ICI Pakistan Limited

Polyster Fibres Business
ICI House, 63 Mozang Road
PO Box 6368805
Tel: 6311272
Fax: 6368805
UAN: 111-100-200
1.65 Main sources of information
All Pakistan Bedsheets & Upholstery Manufacturers Fax: 021-2851429

Association
20, block t, Masoom Shah road Pakistan Chemicals & Dyes Merchants' Association
P.o.box no. 268 Chemical dye house
Multan Tel: 061-552909/564811 Rambharti street, jodia bazar
Fax : 061-552981 Karachi TEL: 021-2432752/2439124/2430170
E.mail: apbuma@mul.paknet.com.pk FAX: 021-2430117
Pakistan Canvas and Tents Manufacturers and All Pkistan Coth Eporters Asociation
Exporters Association (regd.) 30/7, civil lines, near Sate Bnk
15/63, Shadman commercial market Faisalabad Tel: 041-644750-51/644754/615563
Afridi mansion Fax: 041-617985/644773
Lahore Tel: 042-7577572 E.mail: apcea@fsd.paknet.com.pk
Fax: 042-7577572
E.mail: pctmea@wol.net.pk Pakistan Commercial Exporters of
Towels Association
Pakistan Cloth Merchants' Association Pceta house, 7-h, block 6, pechs
4th floor, Hasan Ali centre Karachi Tel: 021-4535757/4535759/4222507/4522636
Hussaini market, new m. W. Tower Fax: 021-4522372
M. A. Jinnah road E.mail: pceta@cyber.net.pk
Karachi Tel: 021-2444274/2444053/2444393 Url: www.towelword.com
Fax: 021-2401423
E.mail : pcma@digicom.net.pk Karachi Cotton Association
The cotton exchange
Pakistan Knitwear & Sweaters Exporters Association I. I. Chundrigar road
1014, 1015 & 1016, 10th floor Karachi TEL: 021-2425007/2412570/2416497/2410336
Dirpark avenue, block 6, p.e.c.h.s. Fax: 021-2413035/2412580
Karachi Tel: 021-4544035-38 E.mail: karachi@kca.khi.brain.net.pk
Fax: 021-4544039 Url: www.kcapak.org
E.mail : paksea@cyber.net.pk
Url: www.paksa.com.pk Pakistan Cotton Fashion Apparel Manufacturers &
Exporters Assn.
Pakistan Second Hand Clothing Merchants 2nd floor, Amber court
Association Shaheed-e-millat road
Jehangirpura bazar Karachi Tel: 021-4522936/4533936/4521614
Peshawar Tel: 091-211565 Fax: 021-4546711
Fax: 091-272788 E.mail: faf@pcfa.khi.brain.net.pk
Pakistan Leather Garments Manufacturers & Exporters Pakistan Cotton Fashion Apparel Manufacturers &
Association Exporters Assn.
Plot no. 92 c, 1st floor 2nd floor, Amber court
Khayaban-e-Ittehad, dha phase ii Shaheed-e-millat road
Karachi Tel: 021-5388799/5387365/5387366 Karachi Tel: 021-4522936/4533936/4521614
Fax: 021-5388799 Fax: 021-4546711
E.mail: info@plgmea.org E.mail: faf@pcfa.khi.brain.net.pk
Pakistan Hosiery Manufacturers Assn. All Pakistan Textile Mills Association

P. H. M. A. House Aptma house, 44-a, lalazar
37-h, block 6, p.e.c.h.s. Moulvi Tamizuddin Khan road
Karachi Tel: 021-4522769/4522685/4544765 Karachi Tel: 021-5611961/5610547/111-700-000
Fax: 021-4543774 Fax: 021-5611305
E.mail: nfo@phmaonline.com E.mail: aptma@cyber.net.pk
Url: www.phmaonline.com Url: www.aptma.org.pk
Pakistan Bedwear Eexporters Asociation Towel Manufacturers' Association of Pakistan

245-1-v, block 6 Tma house, 77-a, s.m.c.h.s.
P.e.c.h.s. #1206, 1212, 1218, Kashif Center, 12h Floor,
Karachi Tel: 021-4541149/4541192/2851311-13 Shahra-e-Faisal, Karachi-75530, Pakistan
Page 129
Tel: (92-21) 566-1953, 567-7278
Fax: (92-21) 567-7132
Karachi Tel: 021-111-360360/4382801-6
Fax: 021-4551628
E.mail: tma@towelassociation.com
URL: www.towelassociation.com
Pakistan Vanaspati Manufacturer's Assn.

House no. 5-b, sector f-7/3
College road
Islamabad Tel: 051-274358
Fax: 051-272529
Pakistan Woollen Mills Association

2nd floor, Republic Motors building
87, shahrah-e-quaid-e-azam
Lahore Tel: 042-6308398
Fax: 042-6306879
E.mail: pwma@brain.net.pk
www: www.lcci.org.pk/pwma
PakistanYarn Merchants Association

802-3, 8th floor
Business centre, Dunolly road
Karachi Tel: 021-2410320/2424896
Fax: 021-2424896/4547843
E.mail: pyma@cubexs.net.pk
Pak Readymade Garments Manufacturers & Exporters

Association
Shaheen view building, 18-a
Block vi, p.e.c.h.s, Sharea Faisal
Karachi Tel: 021-4533327/4535394
Fax: 021-4536686/4539669
E.mail: prgmea@cyber.net.pk
Page 130
1.66 Textile export statistics for Pakistan
Table 52: Yarn trade statistics (SITC 651), values in USD '000
1997 1998 1999 2000 2001 1997-2001
Total export value 1,457,785 1,118,660 1,097,814 1,188,501 1,097,407 5,960,167
Total import value 45,937 43,737 55,245 53,390 78,084 276,393
2001 1997-2001
Exports by country Value % Value %
China, Hong Kong 297,532 27.10% 1,587,570 26.60%
Japan 82,753 7.50% 834,996 14.00%
Rep. of Korea 183,668 16.70% 706,135 11.80%
China 134,532 12.30% 454,328 7.60%
USA 73,991 6.70% 346,862 5.80%
Portugal 46,575 4.20% .. ..
Italy 11,322 1.00% .. ..
others .. .. 2,030,276 34.10%
Source: PC&A Calculations Source: Based on COMTRADE database
Table 53: Cloths trade statistics (SITC 652, 653, 654, 655, 656, 657), values in USD '000
1997 1998 1999 2000 2001 1997-2001
1997-2001
SITC 652-657
Exports by country Value %
USA 1,345,589 15.00%
China, Hong Kong 874,373 9.80%
United Arab Emirates 689,080 7.70%
United Kingdom 669,305 7.50%
Italy 321,566 3.60%
others 5,063,954 56.50%
2001
SITC 652-657 SITC 652 SITC 653 SITC 654 SITC 655 SITC 656 SITC 657
Exports by country Value % Value Value Value Value Value Value
USA 275,586 16.60% 190,338 58,346 57 6,962 2,257 17,626
United Arab Emirates 153,409 9.20% 46,863 86,181 1,258 16,258 933 1,916
United Kingdom 110,684 6.60% 58,193 44,062 164 2,199 1,123 4,943
China, Hong Kong 101,997 6.10% 97,122 4,186 11 178 464 36
Italy 66,330 4.00% 42,912 19,449 524 334 3,111
China 58,040 3.50% 55,244 2,654 101 28 13
Spain 55,925 3.40% 18,430 36,335 32 742 103 283
Belgium 51,451 3.10% 28,998 20,642 91 27 1,693
Bangladesh 44,496 2.70% 35,350 8,004 5 1,043 28 66
Germany 36,006 2.20% 23,413 8,564 10 316 589 3,114
Source: PC&A Calculations based on COMTRADE database
Page 131
Table 54: Garments trade statistics (SITC 841, 842, 843, 844, 845), values in USD '000
1997 1998 1999 2000 2001 1997-2001
1997-2001
SITC 841-845
USA 4,034,902 55.80%
Germany 721,700 10.00%
France 309,961 4.30%
Netherlands 303,017 4.20%
others 1,308,541 18.10%
2001
SITC 841-845 SITC 841 SITC 842 SITC 843 SITC 844 SITC 845
Exports by country Value % Value Value Value Value Value
USA 881,105 56.60% 234,762 60,387 416,135 57,163 112,658
Germany 133,904 8.60% 66,480 14,911 19,460 4,993 28,060
United Kingdom 130,945 8.40% 55,523 9,696 26,481 7,475 31,770
Canada 59,108 3.80% 19,783 6,798 18,254 4,484 9,789
Netherlands 58,759 3.80% 21,994 11,949 8,991 5,414 10,411
France 52,938 3.40% 25,869 6,882 6,227 1,633 12,327
Belgium 43,391 2.80% 15,997 3,341 12,860 1,331 9,862
United Arab Emirates 29,660 1.90% 4,507 10,974 4,699 849 8,631
Italy 29,120 1.90% 18,346 761 3,816 1,005 5,192
Spain 23,694 1.50% 11,092 2,252 3,134 1594 5,622
Saudi Arabia 19,032 1.20% 3,160 3,911 1,446 726 9,789
Sweden 9,308 0.60% 4,295 1,866 1,089 486 1,572
Australia 8,077 0.50% 3,508 201 2,289 12 2,067
Ireland 6,331 0.40% 3,658 1,780 284 81 528
Table 55: Towels trade statistics, values in USD '000

2001-2002 % SHARE 2000-2001 % SHARE 1999-2000 % SHARE
Top 10 Buyer Countries
1 U.S.A. 126,151 47.1 120,079 49.7 94,675 48.4
2 DUBAI 19,155 7.2 12,161 5.0 8,057 4.1
3 U.K. 14,703 5.5 10,388 4.3 10,947 5.6
4 GERMANY 11,549 4.3 12,815 5.3 10,936 5.6
5 NETHERLANDS 10,204 3.8 9,193 3.8 7,347 3.8
6 SAUDI ARABIA 9,128 3.4 7,509 3.1 3,892 2.0
7 CANADA 7,710 2.9 7,147 3.0 7,219 3.7
8 BELGIUM 7,390 2.8 4,826 2.0 4,095 2.1
9 ITALY 6,906 2.6 7,754 3.2 6,669 3.4
10 FRANCE 6,840 2.6 6,070 2.5 5,789 3.0
SUB TOTAL 219,736 82.1 197,942 81.9 159,626 81.6
Next Top 10 Buyer Countries
11 AUSTRALIA 5,695 2.1 5,521 2.3 4,577 2.3
12 SPAIN 4,598 1.7 4,033 1.7 4,108 2.1
13 GREECE 4,237 1.6 3,064 1.3 2,373 1.2
14 SWEDEN 4,026 1.5 5,448 2.3 3,673 1.9
15 NEW ZEALAND 3,958 1.5 3,702 1.5 2,704 1.4
16 NORWAY 3,498 1.3 4,177 1.7 3,680 1.9
17 S.AFRICA 2,349 0.9 888 0.4 1,076 0.6
18 CHILE 1,958 0.7 1,616 0.7 1,113 0.6
19 DENMARK 1,876 0.7 2,026 0.8 1,887 1.0
20 HUNGERY 961 0.4 787 0.3 598 0.3
SUB TOTAL 33,156 12.4 31,262 12.9 25,789 13.2
SUB TOTAL OF TOP 20 252,892 94.5 229,204 94.8 185,415 94.8
OTHERS 14,823 5.5 12,484 5.2 10,212 5.2
TOTAL 267,715 100.0 241,688 100.0 195,627 100.0
Page 132
Table 56: Bedwear and linen trade statistics (SITC 65841, 65842, 65843), values in USD '000
1997 1998 1999 2000 2001 1997-2001
Total export value 486,781 567,460 681,008 744,859 831,467 3,311,575
Total import value 4 30 0 54 34 122
1997-2001
SITC 65841-65843
USA 837,373 25.30%
Germany 348,489 10.50%
France 272,617 8.20%
Netherlands 260,801 7.90%
others 1,175,548 35.50%
2001
SITC 65841-65843 SITC 65841 SITC 65842 SITC 65843
Exports by country Value % Value Value Value
USA 241,397 29.00% 2,235 187,504 51,658
United Kingdom 116,195 14.00% 431 71,334 44,430
Saudi Arabia 74,030 8.90% 116 48,124 25,790
Germany 61,747 7.40% 718 49,726 11,303
France 55,794 6.70% 52 46,144 9,598
United Arab Emirates 42,628 5.10% 1,495 25,765 15,368
Netherlands 40,832 4.90% 130 30,457 10,245
Australia 32,504 3.90% 85 16,708 15,711
Canada 24,415 2.90% 394 14,374 9,647
Belgium 16,489 2.00% 63 11,176 5,250
Sweden 14,736 1.80% 79 11,650 3,007
Italy 13,103 1.60% 83 8,341 4,679
New Zealand 8,222 1.00% 209 3,914 4,099
Tanzania 6,237 0.80% 136 4,563 1,538
Table 57: Made-up textile articles trade statistics (SITC 658), values in USD '000
1997 1998 1999 2000 2001 1997-2001
Total export value 957,241 1,088,304 1,204,799 1,354,150 1,497,526 6,102,020
2001 1997-2001
Exports by country Value % Value %
USA 2,216,631 36.30% 597,706 39.90%
United Kingdom 664,528 10.90% 174,559 11.70%
Saudi Arabia 351,214 5.80% 103,688 6.90%
Germany 507,152 8.30% 90,738 6.10%
France 341,710 5.60% 69,194 4.60%
United Arab Emirates .. .. 66,011 4.40%
Netherlands .. .. 55,289 3.70%
Australia .. .. 41,891 2.80%
Canada .. .. 40,678 2.70%
others 2020785 0.331 .. ..
Page 133
Table 58: Bedwear trade statistics, values in USD '000

2001-2002 % SHARE 2000-2001 % SHARE 1999-2000 % SHARE
Top 10 Buyer Countries
1 U.S.A. 290,237 31.6 203,829 27.4 184,561 26.0
2 U.K. 134,209 14.6 93,500 12.6 89,233 12.6
3 SAUDI ARABIA 79,535 8.7 65,627 8.8 44,213 6.2
4 GERMANY 62,520 6.8 59,860 8.0 69,912 9.8
5 FRANCE 55,815 6.1 55,904 7.5 63,410 8.9
6 DUBAI 50,338 5.5 37,080 5.0 24,415 3.4
7 NETHERLANDS 40,247 4.4 42,230 5.7 53,604 7.6
8 AUSTRALIA 31,658 3.4 38,818 5.2 28,214 4.0
9 CANADA 25,493 2.8 21,782 2.9 19,548 2.8
10 BELGIUM 19,066 2.1 13,729 1.8 18,781 2.6
SUB TOTAL 789,118 85.9 632,359 84.9 595,891 83.9
Next Top 10 Buyer Countries
11 SWEDEN 15,327 1.7 12,202 1.6 13,204 1.9
12 ITALY 12,733 1.4 12,869 1.7 13,014 1.8
13 SPAIN 7,816 0.9 4,944 0.7 4,725 0.7
14 NEW ZEALAND 6,880 0.7 9,407 1.3 8,164 1.1
15 DENMARK 6,376 0.7 4,182 0.6 5,600 0.8
16 AUSTRIA 4,908 0.5 2,265 0.3 1,768 0.2
17 SINGAPORE 4,754 0.5 3,877 0.5 3,581 0.5
18 TANZANIA 4,676 0.5 4,457 0.6 775 0.1
19 IRISH REPUBLICS 4,354 0.5 2,011 0.3 1,999 0.3
20 NORWAY 4,313 0.5 4,581 0.6 3,839 0.5
SUB TOTAL 72,137 7.9 60,795 8.2 56,669 8.0
SUB TOTAL OF TOP 20 861,255 93.8 693,154 93.1 652,560 91.9
OTHERS 57,303 6.2 51,729 6.9 57,364 8.1
TOTAL 918,558 100.0 744,883 100.0 709,924 100.0
Page 134
THE FOOD PROCESSING AND PACKAGING SECTOR

The head of the Pepsi Cola Company described Pakistan as “the best kept secret”, with reference to
the business environment for the food and beverage industry. Pepsi Cola, with a 70% market share
achieved a seven month pay back on its concentrate production plant.7
Agriculture is the key sector of Pakistan’s economy, contributing around 25% to the GDP. The
agriculture sector is dominated by the Crops sub-sector with a share of 60% (major crops 41% and
minor crops 19%), followed by the Livestock sub-sector with a share of 36%, Fishery with a share of
3.5% and Forestry with a share of 0.5%
1.67 The dairy sector of Pakistan
Despite having a sizable herd of around 45 million dairy animals and ranked fifth largest milk
producing nation in the world, only 3% of over 27 million tons of the milk produced in the country is
industrially processed.
The opportunities for foreign involvement in this sector are mostly directed at the local market and the
nearest export markets, contrary to the textile sector. The development of a middle class, as well as
growing awareness of the phytosanitary constraints creates favourable opportunities for development
in the country as exemplified by the successes of the major companies in the sector.
1.67.1 General description of the sector
Total Turnover: Rs. 289.12 Billion

% in the GIP 8.3%
Cattle population Cows: 22.86 million; Buffalos: 24.03 million; Dairy Plants: 38;
Operational: 13; Daily rated capacity: 2.18 million litres
No of employees Accurate no of employees not available but an estimated 5.5
million households are engaged in the dairy sector.
Total Turnover/volume 95 million litres of milk per day 55% consumed at source; 45%
traded in urban centres.
Total Investment N/A
1.67.2 Main industrial processes
Apart from the processing of the products themselves, two of the main points in the development of
this industry concern the collection of the products in a quality/phytosanitary acceptable way, as well
as the distribution of the finished products for the local market through a retail network which is still
primitive.
The production of raw milk in Pakistan is mostly achieved through family farms with no more than five
animals, either cows or buffaloes. The milk from buffaloes usually warrants a better price, up to 20%
over cow’s milk, because of its higher tenor in fat, its higher density and its stronger taste. Commercial
farms exist with the aim of supplying the milk processing industry or directly the markets, but they still
represent only a tiny minority.
7
According to the Pepsi Cola Company in Pakistan
Page 135
Figure 26: Milk processing chart
1.67.2.1 Pasteurisation
It is achieved through the heating of the milk up to a specific temperature for a specific time, without
recontamination of the milk during the process. There are two basic methods for pasteurisation, either
through Batch pasteurisation (within a container), or through the Continuous method (through flowing
milk). The pasteurisation process allows a shelf life for the milk of a few days at chilled temperature.
1.67.2.2 Ultra High Temperature (UHT)

This method is a quasi sterilisation of the milk through heating and packaging in air tight containers.
The method used is usually through flowing milk with either direct or indirect heating. This method
allows a long shelf life to the product of several months. Obviously this method is more complex due to
the sterilisation environment which must be maintained. Clarification is also used to separate the
fat/cream from the milk, or even to eliminate impurities. It helps to standardise the milk and to clarify it.
1.67.2.3 Milk Powder Plant

The final moisture targeted in the powder ranges between 2.5% and 4%. Drying is an energy intensive
process usually carried on in three stages. Following operational plants are used to make it energy
efficient:
- Multistage Evaporator
- Spray Dryer
- Vibro Fluid Bed Dryer as second stage dryer
1.67.3 the dairy processing industry
Table 59: Annual production of milk and milk products (2001-02)

Item Unit Annual Production
Milk (Fresh and Boiled) (Ltr.) 10.08 billion
Milk (packed) (Ltr.) 50.04 million
Butter (Kgs.) 110 million
Ghee (Kgs.) 67.20 million
Yogurt (Kgs.) 806.40 million
Source: Agricultural Statistics of Pakistan 2001-02
Page 136
Table 60: Per capita consumption (kgs.) of milk and milk products (2000)
Country Fluid milk Cheese Butter
France 68 23.2 8.8
Germany 63 12.8 6.7
India 33 N/A 1.9
Pakistan 72 N/A 1.11
Japan 39 1.8 0.6
China 2 N/A -
Source: Agricultural Statistics of Pakistan 2001-02
1.67.3.1 Cold storage chain in the collection process

Fresh milk has a shelf life of four hours. To preserve the collected fresh milk, it has to be chilled to 4°C
within this time. The collection and delivery process is therefore very important. The situation in
Pakistan is not efficient in this regard, conducting to almost 30% of the milk produced being wasted.
The development and streamlining of the collection process as done by Nestle Pakistan is one of the
main areas where development is required. Milk producing regions need to be connected through a
speedy transportation network and chilling stations should be established along the routes where milk
from the farms can be chilled on its way to the milk plants or markets.
1.67.3.2 Dried milk, pasteurised milk, UHT, packing

The “first generation” milk plants established in the 70s focused on pasteurised milk production. They
were not successful at the time due to poor acceptance of the recombined milk and the short term
shelf life of pasteurised milk.
The “second generation” plants concentrated on ultra high temperature treated milk (UHT) with a long
shelf life. These units have been successful, and the number of such processing plants has increased
over the years, surpassing demand.8 Distribution of these products implies relying on specific
packaging which is mostly supplied by Tetra Pack in Pakistan. The packaged milk market is estimated
at 200 million litres per annum, valued at about 6 billion Rs, with a yearly growth rate close to 20%
over the last few years.9
Of the ten milk powder plants established in the country, two have been closed, six operates below
50% and two have delayed production due to the lack of supply, especially in the low summer season
as well as to the competition from subsidised low price imports in the past. Imports have reduced from
about 12,000 tons in 97-98 to about 5,000 tons in 2001-02, confirming the import substitution of the
local industry.
1.67.3.3 Yogurts, cheese, butter, other milk based products, packing

Butter and yogurt manufacturing in an industrial way has been developed and promoted by few
modern plant in the last ten to fifteen years. The production is starting to achieve some diversity
alongside the traditional “dahi” (yogurt) made at the cottage level. Imports of butter and butter oil have
been reducing regularly in the last 4 years.
Khoa is an important specific ingredient in the manufacturing of milk based sweets. Three types of
Khoa are available in the market:
- Danedar (granular texture, 20 - 25% fat and 35-40% moisture) used for the preparation of
kalakand and granular burfi.
- Dhap (20-23% fat and 37-44% moisture).
- Pindi (moisture content about 19%, fat 37% , protein 18%, lactose 22% and ash 3.6%).
The packing industry, important as far as consumer products are concerned will have to be developed
to accommodate the anticipated growth of these sectors. No specific statistics are available on the
packaging facilities in the country.
8
As per Unilever Pakistan Report: Modern Dairy Technology and Prospects for Growth.
9
As per the Experts Advisory Cell of the Ministry of Industries and Production, Islamabad: Dairy Sector Profile, August 2003.
Page 137
Cheddar and mozzarella cheese is being processed in Pakistan along side imports of cheese which
has tended to increase regularly over the last few years, growing from 244 tons p.a. in 1997-98 to 515
tons in 2001-02.
1.67.3.4 Cold storage distribution

In Pakistan to day, the milk reaches the city markets after a long chain of middlemen from the point of
production to the point of sale. During this long chain of trade, many operations are done like addition
of water or ice, skimming, churning, etc. which implies a low price paid to the producer, and
deficiencies in the quality of the milk provided to the end consumer.
The commercial farms (less than 10% of total milk production) have a more direct access to markets,
meaning better quality products and better profit for the producers, while the processed milk (about 3%
of total production) is sold through the usual retail network thanks to its long shelf life.
1.67.4 Main raw material and components
Productivity of cows and buffalos is still limited at about 3 to 8 litres per day. Efforts are made to
improve productivity which is a long term issue.
Table 61: Pakistan number of cattle per type

Figures in ‘000 97-98 98-99 99-00 00-01 01-02
A. Cattle
Female Cattle 3yrs and above 10398 10648 10796 11002 11216
i. In Milk 6564 6688 6815 6945 7080
ii. Dry 2471 2517 2565 2614 2665
iii. Not yet Calved 1363 1389 1416 1443 1471
B. Buffalo
3 years and above 12904 13271 13656 14056 19375
i. In Milk 8253 8488 8734 8990 9258
ii. Dry 2571 2644 2721 2801 9884
iii. Not yet calved 2080 2139 2201 2265 233
C Sheep
Female One year & above 13435 13512 13595 13681 13775
D Goats
Female one year & above 23994 24858 25755 26686 27651
Source: Ministry of Agriculture, Forest and Livestock, Agricultural Statistics of Pakistan (ASP), 2001/2002
Table 62: Pakistan – number of cattle per region type (in millions)
Cattle Buffalo Sheep Goat
N.W.F.P. 4.94 1.50 3.30 9.00
Punjab 9.74 14.40 5.84 18.90
Sindh 6.72 7.80 4.60 12.12
Balochistan 1.46 0.30 10.68 10.88
Pakistan 22.86 24.00 24.42 50.90
Source: Ministry of Agriculture, Forest and Livestock, Agricultural Statistics of Pakistan (ASP), 2001/2002
1.67.4.1 Main machinery and equipment

Milk pasteurisers, Chillers, Refrigerating equipment, storage tanks, transportation system, tetra
packaging machinery, sterilisers.
Majority of the equipment used is sourced locally but machines used for packaging and pasteurising
are imported mostly from Germany and Korea.
1.67.5 Main cost factors
The main issue facing the industry at the moment is the availability of the raw milk to be collected from
farmers in satisfactory conditions. This appears contradictory in view of the very low amount of milk
Page 138
formally processed, but is explained by the poor infrastructure in the country (lack of adequate
refrigerated transport and electricity in small villages) as well as the very low productivity of the cattle
at about 3 to 8 liters of milk per animal.
1.67.5.1 Labour
- Self employed work force
- High level of skill not required
- Easily and cheaply available specially in Punjab
- Uneducated work force resulting in low productivity and hygiene issues
1.67.5.2 Raw Material

- Abundant/low cost Dairy Animals
- Packaging material used is local as well as imported from USA, Germany etc.
- Milk in powder form is imported from EU Countries and Australia. Milk powder is mostly consumed
by infants and confectioners
1.67.5.3 Energy
- Energy cost is not significant in this sector due to low usage, except that the supply unreliability
presents a cost burden when back up generators have to be provided.
1.67.5.4 Finance
- Financing is available at very low cost but only to the organised sector. As the dairy sector mainly
consists of the unorganised sector, the Government of Pakistan through SMEDA and micro
finance banks is providing working capital to the small players.
1.67.5.5 Logistics
- A large number of villages and rural areas have to be connected through unsatisfactory road
networks;
- More villages will have to be electrified, which is of concern as far as the possibility of chilled
storage of milk is concerned.
1.67.5.6 Productivity
- 30% of 95 million litres of daily milk production is wasted; only 2.7% of total production is
processed.
1.67.5.7 R&D, quality controls and certification

- R & D is mostly carried out by the Packaged Milk Industry in the organised sector.
- The Government is sponsoring a campaign for promoting packaged milk, and awareness is being
created for maintaining clean and hygienic conditions.
- The major players in the industry are involved in the upgrading of the cattle performance.
- The missing link in the country comes from duly accredited laboratories, qualified to conduct
satisfactory testing of the products, as will be more and more required for export, as well as
locally.
1.67.5.8 Government incentives

- In order to bring about greater mechanisation in the livestock and agricultural sector for the
production of higher quality value added exportable goods, Machinery import in this sector is
exempt from General Sales Tax (GST).
- The dairy and dairy products are subject to 25% custom duty, while the raw-material used in this
industry attracts an import duty of 10%.
1.67.6 Analysis of import & export flows
For detailed statistics see section 1.67.14.
Page 139
1.67.6.1 Analysis of the main imports, per type of imports, per country of origin
The import statistics do confirm our analysis whereby Pakistan is self supporting as far as milk and
dairy products are concerned. Imports represent a small amount and are sourced from a number of
countries in Europe including Poland and Russia.
1.67.6.2 Analysis of main exports, per type of exports, per country of origin
Similarly, the export figures are small which confirms that this industry is essentially a domestic market
related activity, as far as production and marketing are concerned. The only significant exports
concern Afghanistan, which is easily understandable.
The Government has identified this industry as a promising sector with a view to develop export
towards the Middle East, Central Asia and other South Asian countries.
1.67.7 Analysis of the main trends
There is no doubt that the area most suited for the dairy industry is Punjab, in view of the
concentration of the dairy cattle.
1.67.7.1 Location
70% of the total milk production is obtained from Punjab mostly from Sahiwal, Lahore, Gujeranwala,
Faisalabad etc
1.67.7.2 Trend, possible evolution

Some ideas which were floated around during the numerous meetings with various parties in the
industry mentioned the importance of producing / supplying pasteurised milk as opposed to the
existing UHT facilities.
Other investments mentioned concerned the setting up of flavour manufacturing plant as well as
colouring for the food industry in general.
Finally, packaging facilities were often mentioned as a sector where improved capacities and quality is
required, not only for the liquid sector but also for the rest of the sector. Such developments would
facilitate the development of “toll manufacturing” for the foreign markets.
1.67.7.3 Role of local importers, foreign agents

Only milk powder is imported in this sector, it is sourced from Australia and Europe.
1.67.8 WTO rules and regulations
Major market for dairy products is heavily subsidised in countries like the EU and the USA. In the long
term, and depending on the developed countries attitude towards subsidies, export opportunities might
increase, however, subject to stringent quality concerns.
1.67.9 Local and regional competition
1.67.9.1 Competition from imports

The seasonal nature of demand for milk powder from bakeries, confectionaries and the dairy plants
have necessitated the import of powder milk to fill the gap between the requirement of urban
consumers and the available supply. Milk is imported as skimmed milk powder and vegetable fats-
filled milk powder. In addition, other milk products including butter, cream, yogurt, etc. are also
imported in limited quantities. Heavily subsidised imported milk from the USA and the EU is the key
reason for closure of local units and reduction in capacity utilisation of the powder milk units in
operation.
Page 140
1.67.9.2 Competition in the export markets

The dairy sector offers some potential for exports from Pakistan. However, it has not been successful
so far. The main reasons being the lack of quality controls and quality certification capacities coupled
with the large subsidies to the milk producers in the developed world.
1.67.9.3 Domestic competition

The packaged milk industry is highly competitive mainly dominated by CDL and Nestle with market
share of 39% and 44% respectively. Other brands include Halla by Idara-e-Kissan with market share
of 5%, Candia 4% and Dairy Queen 4%.
Competition extends not only in the retail market but also in the supply of the raw milk from farmers.
1.67.10 Success stories
Two of the main success stories in the industry have gone through different routes.
Box 30: NESTLE MILKPAK

Summary of Operations
Production:
The joint venture between Milkpak Ltd. And Nestle S.A. came about in 1988 and the company was renamed as Nestle Milkpak
Ltd. Prior to that, Milkpak Ltd., produced UHT milk, butter, cream, desi ghee and fruit drinks at Sheikhupura factory. 21 branded
product lines were added during 1990 to 1998.
Milk Collection:
Nestle Milkpak operates the largest and an extremely efficient milk collection system in the country, which enables it to collect
the highest quality milk for production of UHT and powder milks as well as other milk based products. The company voluntarily
provides extension services of farmers in the area of animal husbandry and livestock breed improvement.
Exports:
Nestle Milkpak entered the export market in 1993 with exports of Rs.3.2 million to Afghanistan. Growing steadily over the years,
its exports stood at Rs.321 million by June, 1998. Currently, its overseas markets include the UAE, UK, USA, Sri Lanka,
Malaysia, Bangladesh, Afghanistan and Central Asian States.
Contribution to other Sectors:

In the social sector, the company provides over 1,100 job opportunities for skilled, unskilled and professional manpower. It plays
a remarkable role in vitalising the rural economy by disbursing over Rs.1.37 billion annually against milk purchases, benefiting
over five million household members of the dairy farmers.
The Environment:
In line with its universal commitment, Nestle Milkpak fully complies with its responsibilities forwards the protection of the
environment. By making available the processed and packaged dairy products to urban consumers, it helps in arresting urban
environmental degradation caused by the influx of cattle into towns. Within it's own production facilities, the company takes
pains to operate an elaborate water treatment system to cleanse its industrial wastewater before releasing it for irrigation.
Source: BOI
The Nestle Pakistan joint venture is a very prominent case of a foreign controlled company’s success
in the country with an extremely profitable record and fast expansion. The JV format of the company
tends to justify our reasoning that in the food sector, contrary to the textile sector, JV are justified by
the lack of sufficiently matured enterprises with which to set up technical co-operation agreements.
CDL is the counter example, being a very successful local company with a technical agreement with a
major French company. However, this type of co-operation reinforces the point: CDL being as large as
the Nestlé operation, it could enter into such technical agreement with a foreign partner.
1.67.11 Listing of major local companies
CDL Foods Limited Producer of Pasteurised milk, yogurt

135 Ferozepur Road, Lahore 54600 Capacity: 80,000 litres / day
Tel: +92 42 111 135 135, Fax +92 42 759 0376
Production: UHT milk, sterilised milk, milk powder, UHT Lahore Milk Plant
cream Lahore
Capacity: 230,000 litres / day Production: Pasteurised milk, UHT milk, yogurt, butter,
desi ghee
Idara-e-Kissam Capacity: 300,000 litres / day
Pattoki
Page 141
Kabirwala Dairy Ltd.

Kabirwala Dairy Food Industries (Pvt) Ltd.
Production: UHT milk Plot-I-6/8,Sector-5,
Capacity: 50,000 litres / day Korangi Industrial Area
Karachi Tel: 92-021-5060386
Millac Food (Pvt.) Ltd. Fax: 7720637
Lahore
Production: Dry milk powder Kissan Dairy Farm
Shop No. Ratan Talaw
Noon Pakistan Ltd. Gawali Lane No.3
Bhalwal Karachi Tel: 92-021-7765109
Production: Dry milk powder, butter, chees, pasteurised Mob: 0321-236502
milk, desi ghee
Capacity: 80,000 litres / day New Lyallpur Kissan Dairy Farm
#10, Frere Market
Pakistan Milk Food Manufacturers Ltd. Shahrah-E-Liaquat
Jhang Karachi 74200 Tel: 92-021-7724167
Production: Condensed milk, milk powder, desi ghee Fax: 7760487
Capacity: 30,000 Web: www.jamals.com/layapur
Prime Dairies Ltd. Pakistan Dairy Products (Pvt) Ltd. (igloo)

Manga Plot No.1,Sector-24
Production: Yogurt Korangi Industrial Area
Capacity: 8,000 Karachi Tel: 92-021-5062623
Fax: 5062624
Royal Dairy Products Ltd. E.mail: care@igloofun.com
Karachi
Production: UHT milk Shahnawaz Dairy Farm
Capacity: 100,000 B-219,Nazimabad No.4
Mujahid Colony
Ravi Dairies Karachi Tel: 92-021-6341464
Jaranwala
Production: UHT Halla Dairy Products
Capacity: 80,000 40,Shahrah-e-Roomi,Walton Road
Lahore Tel: 92-042-5824632, 5725772
Yummy Milk Products (Pvt) Ltd.
124/4, Industrial Area Pakistan Dairy & Livestock Complex
Kot Lakhpat, Lahore. 5-A,Ferozepur Road
Tel: 92-042-5112753 Lahore Tel: 92-042-7576849
Fax: 5113813
1.67.12 Listing of European and other foreign companies present in the sector
Nestle Pakistan 2nd Floor, Avari Plaza Falima Jinnah Road

308, Upper Mall Lahore. Karachi
Tel: (042) 571 28 59 Tel: (021) 5660062-65. 5660067-69
Fax: (021) 5680918, 5681705, 56873 17
Cadbury Pakistan Limited
4th Floor, Tower- B World Trade Centre. Lever Brothers Pakistan Ltd.
st
Block Clifton, Karachi - 75600 SNC Centre, 1 Floor, 12/4 East, Blue Area
Tel: (021) 5865281-3, 5865284 Islamabad
Fax: (021) 5865285 Tel: 92-051-2826457-8
Fax: 2201162
Unilever Pakistan Limited
1.67.13 Main sources of information
Pakistan Dairy Association Live-stock Farmers Association of Pak

11/19-b, link Shami road Karachi house
Lahore Tel: 042-6680041/6850653 i. I. Chundrigar road
Fax: 042-6682042 Karachi Tel: 021-2417186-88
E.mail: pakdairy@yahoo.com Fax: 021-2417184
Dairy Farmers Association Pakistan Agricultural Machinery and Implements Manf.

Street No.4,Plot No.90,Malir Association
Landhi Catlle Colony 6/21-26, Nazar bagh
Karachi Tel: 92-021-5083108 G. T. Road
Peshawar Tel: 091-211835
Fax: 091-216723
Page 142
1.67.14 Import and export statistics on the food and dairy sector
Table 63: Food processing and packaging trade data - SITC 0 (excl. 00 live animals except fish
and 08 animal feed), values in USD '000
1997 1998 1999 2000 2001 1997-2001
Total export value 857,453 1,121,818 1,071,386 942,680 964,671 4,958,008
Total import value 2,099,541 1,828,263 1,550,694 1,359,749 1,096,204 7,934,451
1997-2001 1997-2001
Exports by country Imports by country
Value % Value %
United Arab Emirates 697,066 14.10% Malaysia 2,325,560 29.30%
India 358,682 7.20% Australia 946,198 11.90%
United Kingdom 314,193 6.30% USA 917,890 11.60%
other Africa 310,910 6.30% Kenya 669,497 8.40%
Afghanistan 269,732 5.40% Indonesia 433,863 5.50%
others 3,007,425 60.70% others 2,641,443 33.30%
Page 143
Table 64: Milk and dairy products (excl. eggs) - SITC 022, 023, 024, values in USD '000
1997 1998 1999 2000 2001 1997-2001
Total export value 455 1,104 625 1,113 1,429 4,726
1997-2001 1997-2001
Value % Value %
Afghanistan 3,782 80.00% Ireland 36,474 36.30%
Iran 420 8.90% Poland 13,652 13.60%
Uzbekistan 177 3.70% Netherlands 7,150 7.10%
Kazakhstan 89 1.90% United Kingdom 5,528 5.50%
Kenya 66 1.40% New Zealand 4,779 4.80%
others 192 4.10% others 32,939 32.80%
2001
Afghanistan 1,295 90.60% 1,295
Kenya 66 4.60% 66
Rep. of Korea 52 3.60% 52
Turkmenistan 30 2.10% 30
Kyrgyzstan 29 2.00% 29
Germany 27 1.90% 27
USA 16 1.10% 8 8
Bangladesh 3 0.20% 3
2001
Imports by country Value % Value Value Value
Ireland 910 12.50% 910
United Kingdom 858 11.80% 818 40
Poland 819 11.20% 819
Russia 602 8.30% 602
France 536 7.40% 408 66 62
Netherlands 505 6.90% 505
Singapore 485 6.70% 359 19 107
Germany 482 6.60% 419 63
Australia 422 5.80% 42 380
United Arab Emirates 391 5.40% 305 57 29
New Zealand 367 5.00% 203 48 116
Denmark 283 3.90% 38 122 123
Sweden 184 2.50% 184
Belgium 149 2.00% 149
Page 144
1.68 Fruits and vegetables
The agriculture sector being the lynchpin of the country’s economy continues to be the single largest
sector and dominant driving force for growth and development of the economy. It accounts for 25% of
the GDP and employs 48% of the total workforce.
Pakistan is endowed with fertile land, good quality water, favourable weather and industrious labour
which are capable of producing a variety of agriculture products in which fruits and vegetable
constitute an important portion.
Due to a lack of processing facilities and limited cold storage capacity, a large part of the harvest is
lost every year. Further more, in the absence of modern harvesting methods, inadequate
phytosanitary concerns and inappropriate packing facilities, export to the European or North American
markets is not yet possible.
However, given proper investment in the required equipment and process, significant successes could
be ensured, as demonstrated by the Nestlé Joint Venture in the milk, water and fruit juice sector.
Total Turnover: Fruits Rs.69,150 million and vegetables Rs.26,507 million

Share of GDP 2.5%
No of companies Fruit & vegetable cultivation is mostly done by small farmers.
Approximately 25 firms are engaged in canning, preservation and
bottling of fruit juices. There is no regular fruit and vegetable canning
industry in Pakistan. Pakistan currently has 24 fruit juices and pulp
processing plants in the organised sector and a number of small units
in the un-organised sector, with an installed capacity of around
400,000 metric tons per annum.
Fruits and Vegetable Processing

Capacity 25 units
30,000 m tons
Confectionery Capacity 23 units
30,300 tons
Cereals Capacity 1 unit
350 M. tons Corn Flakes
325 M. tons Rice Cereals
100% Production Capacity
Beverages Capacity 100 units
600 million liters
Utilisation 90%
Fruit Juice/ Pulp Capacity 25 units
400,000 M. tons
Biscuit and BreadCapacity 42 units
46,830 M. tons
Utilisation 80%
Source: Experts Advisory Cell, Ministry of Industries & Production
No of employees Almost 67.5% of the country’s population is directly or indirectly linked

with the agriculture production system. The same labour force on part
time or full time takes care of vegetable or fruit fields.
Total Turnover/volume Fruits : 5.9 million tonnes, vegetables : 28.73 million tonnes
Total Investment N/A
1.68.2 Main industrial process
Apart from the processing of the products themselves, two main issues in the development of the
industry are improvements in quality and phytosanitary standards as well as upgrades of the
distribution system of finished products through development of an organised retail network.
Page 145
No statistics are available to determine the size of the fruit and vegetable processing industry. It has
only been possible, through various contacts, to ascertain that there is a very big potential to improve
the fruit and vegetable conservation after harvest, as well as processing, based on the production
statistics, the wastage due to poor handling, the low figures of exports compared to the production as
well as the limited number of processing plants in the growing areas.
Year Fruits % of total cultivated area Vegetables % of total cultivated area

1998-99 646 3 334 1
1999-00 658 3 331 1
2000-01 672 3 323 1
2001-02 664 3 329 1
1.68.3 Growth of the fruit and vegetable processing industry
1.68.3.1 Cold storage collection process

This is an area where the situation has to be improved. The cold storage chain is totally insufficient, as
far as the country is concerned, relying mostly on freezing containers when transport of perishable
goods is concerned. However, freezing facilities do not exist as far as fruit or vegetables are
concerned except for a handful of units such as the Venus Distributors group which operates a
freezing unit for salads, exported to the Middle East.
For example, there are no cold storage facilities at any of the airports in the country, including Karachi
airport, and such an investment, including refrigerated air containers, should prove a worthwhile
investment. Such project was mentioned as a possible avenue for a Joint Venture project in view of
the necessary capital and technical outlay.
1.68.3.2 Fruits and vegetables washing, waxing, grading, canning, freezing, packing
Upon reception of the products, washing has to be undertaken after reception control as quickly as
possible to avoid unnecessary delays, damaging the products freshness. Sorting, trimming and
eventually peeling and cutting the products are the next steps in the process. Certain fruits like
peaches or citrus fruits have to go through a “waxing” process and grading.
No statistics are available on the extent of such processes in the industry.
1.68.3.3 Fruit juices canning, concentrate, packing

According to a study conducted by Mitchells Pakistan Ltd., 4 - 5% of the vegetable production is
preserved and canned or processed. These vegetables include tomatoes, peas, potatoes, mushrooms
etc.
Around 10% of the total fruit production is processed into juice or other food items such as squashes,
jams, marmalade etc.
1.68.4 Main raw material and components
Pakistan has no shortage of supplies in the agro business sector. However, the main challenge arises
from the organisation of the collection system which is not rationally organised. This shall prove one of
the main drawbacks of any food processing plant.
Table 65: Pakistan surface under cultivation, ‘000 hectares

Source: Agricultural Statistics of Pakistan
Page 146
Table 66: Production of major fruits and vegetables in Pakistan, 2001-02, in tonnes
Fruits Vegetables
Citrus 1,830,276 Potato 1,721,645
Mango 1,037,145 Tomato 294,112
Dates 630,281 Turnip 267,440
Guava 5,838,459 Cauliflower 200,792
Apple 367,125 Carrot 195,034
Apricot 124,695 Reddish 155,935
Source: Agriculture Statistics of Pakistan (ASP)
1.68.4.1 Fertiliser
The Government ensures the availability of fertilisers throughout the country. Fertilisers are being
produced locally, some types are imported but in very small quantities. Major fertiliser producers are
Fauji fertilisers and Engro Chemicals.
1.68.4.2 Seeds
The Federal Seed Certification & Registration Department regulates the quality during flow of the
seeds from breeder to grower. To provide certified crop seeds to the grower, the Public sector Seed
Corporation in Punjab and Sindh, the Department of Agriculture in Balochistan and NWFP and 394
seed companies in the private sector, including 5 multinationals, have been entrusted with the task of
seed production, processing and marketing.
1.68.4.3 Irrigation
The mode of irrigation is flood irrigation which is inefficient as it results in huge loss of water. Modern
irrigation systems, like drip irrigation, should ensure uninterrupted supply of water round the year.
Water shortages throughout the country, dependant on the weather, are an area of concern to the
Government, which is developing the construction of dams for irrigation.
1.68.4.4 Pesticides
Government ensures availability of pesticides throughout the country. Mostly imported pesticides are
used.
1.68.4.5 Equipment and machineries

It has not been able to evaluate the quantities of equipment used in this industry in Pakistan. The main
equipments used in the fruit and vegetable conservation processes are the following:
– Extractors-Fruits & Vegetable juice Depositors- Food processing
– Filters- Fruit Juices Slicers
– Waxers Blenders
– Grating Machines Food Coating Machines
– Fruit Washing Machines Blanchers
– Beverage Mixers Canning Machines/Sealers/ Labelling Machines
– Bottling machines Lab equipment/ Quality Control
– Liquid Solid Separators Peelers/ Presses
– Sorters/ Graders Filling machines
– Chilling Plants Freezing tunnels
The majority of equipment is imported from the USA, China, Germany and other EU countries by the
companies in the organised sector. Some medium and small units in the unorganised sector are using
local equipment as well.
1.68.5 Cost factor analysis
1.68.5.1 Labour
- Low paid educated/ uneducated industrious labour is available in rural areas of Sindh & Punjab
- mostly unfamiliar with productivity/ quality issues
Page 147

- Certified seeds are available throughout the country;
- Packing material for export is also available locally, however in limited supply compared to the
potential needs of the industry; quality and design is often not up to western standards.
- Fertilisers are being produced locally, some types are imported but in small quantities.
1.68.5.3 Energy
- Energy cost is not significant in this sector due to low usage. However its unreliability might prove
a burden in view of the necessity of back up generating power for the processing as well as the
storage facilities.
1.68.5.4 Finance
- Financing available at very low cost but only to the organised sector. As the fruits and vegetable
sector mainly comprises of the unorganised sector, the Government of Pakistan through SMEDA
and micro finance banks is providing working capital to the small players.
- It should be considered however that collection of the basic products from the farmers shall be
organised on a cash or quasi cash basis.
1.68.5.5 Logistics
- Satisfactory rail, road and sea links. However, a large number of villages and rural areas are not
well connected through road networks
- More villages will have to be electrified.
1.68.5.6 Productivity/ price evolution

- Due to the perishable nature of the crops and the lack of proper facilities, nearly 50% of the fruit
and vegetable production is lost during harvesting, transportation preservation and storage. Lack
of proper conservation facilities explains the present high ratio of wastage, with farms distant from
the consumption centres.
- Exports of fruits stand at 4 to 5% of total production.
- Only 3% of the total fruits and vegetables pass through the processing channel.
1.68.5.7 R&D
- The Pakistan Agriculture Research Council and provincial agricultural departments are in charge.
Also, it is worth mentioning that the agricultural sector does not appear very well organised,
lacking efficient Associations to represent the interest of its members.
1.68.5.8 Quality and certification

- The promotion of Organic Farming, to minimise the usage of pesticides and fertilisers, is being
developed, together with the promotion of EM (effective micro organism), which enhances the
crop yields, without the use of pesticides and fertilisers.
- The development of the Quality and Certification requirements when exporting to the western
markets, especially the Hazard Analysis and Critical Control Points (HAACP) will have to be
developed for the food processing industry. At present, analysis is often done through foreign
laboratories when specific requirement are involved.
1.68.5.9 Government Incentives and policy towards the sector

- Foreign Equity
100% for first 5 years, 60% afterwards
- Investment
No minimum / maximum limit
- Gains Repatriation
Remittances of capital, profit and dividends are allowed
- Credit Facilities
Credit available for Corporate Agricultural Farming (CAF).
- Land Holdings
Page 148
No Maximum Limit, - State Land leaseable for 50 years and extendable for further 49 years
- Custom Duty
Zero
- Tax Relief
50% depreciation of Plant Machinery and Equipment (PME) in the first year
- Dividends
CAF Dividends not subject to tax
- The Ministry of Science and Technology plans to launch a project for production of dried fruits at
a total cost of Rs. 38million in collaboration with the private sector. The project aims to add value
to the fruits by processing and preserving for longer shelf life. The project is expected to generate
USD 600,000 in foreign exchange earnings in the first year of its operation.
- The institution engaged in dehydrating vegetable is the Pakistan Council for Scientific and
Industrial Research (PCSIR), having a capacity to dehydrate 1.5 M tons per day. National Food
and Icepak Limited, Lahore are other significant processors of vegetables. The units claim to
export 40% of their total production.
1.68.6 Analysis of Import & Export Flows
1.68.6.1 Analysis of the main imports

Imports of vegetables originate mostly from Australia, Canada and China on a more or less equal
footing.
Imports of Fruits originate mostly from Indonesia (52%) and Afghanistan (14%). For more details, see
import and export statistics in 1.68.13.
1.68.6.2 Analysis of main exports per type of exports, per country of origin
The main buyer of Pakistan vegetable exports is Sri Lanka (40%), followed by Saudi Arabia, while
Europe comes only afterwards for a smaller amount.
Exports were heavily directed to India in the past, representing up to 30% of the total exports.
However, due to the recent problems between the country, exports have been redirected with India
share being much reduced10. The Middle East countries represent now the largest importers with more
than 30% of the total while Europe exceeds 10% and the USA around 5%. For more details, see
import and export statistics in 1.68.13.
1.68.7 Regional production structure
Table 67 presents a regional breakdown of fruit and vegetable production. The NWFP is suitable for
the production of deciduous fruits, southern Punjab, i.e., Multan and Rahim Yar Khan for mango,
Sargodha and Bhalwal for citrus fruits, while Okara and Sailkot for potato production.
Table 67: Pakistan, regional production of fruits and vegetables, in tonnes

Fruits Vegetables
Region Production % Share Production % Share
Punjab 3,580,196 60.67% 2,082,008 72.45%
Sindh 917,013 15.54% 202,603 7.05%
NWFP 461,932 7.83% 358,741 12.48%
Balochistan 941,740 15.96% 230,389 8.02%
Total 5,900,881 100.00% 2,873,741 100.00%
Source: ASP
10
Such trend may change depending on the improvement of the relationship between Pakistan-India
and the progress of the newly agreed SAFTA under SAARC.
Page 149
Elimination of subsidies in the western countries should open up new markets with great export
potential.
Consumer choice and preferences will be dictating the trends in the domestic and international market.
It is understood that hygiene market oriented processing activities will be the trend in the future, not
only for exports to the developed markets, but also in the local market.
Availability of testing laboratories, quality surveyors in the agro business shall be an area for
development along side the growth of the industry.
Quality agricultural products, with diminishing use of fertilisers and pesticides, will be the hallmark of
post WTO scenario.
Table 68: Pakistan, export of major fruits and vegetables in Pakistan in 2001-02
Fruits Vegetables
Item Quantity Value Item Quantity Value
(tons) (Rs '000) (tons) (Rs '000)
Kinnow 121,692 1,278,673 Potato fresh 56,987 373,575
Mango (Fresh & Dried) 47,561 861,757 Onion fresh/chilled 53,379 332,887
Dates (fresh and dried) 77,471 1,694,851 Vegetable dried 3,609 44,493
Banana fresh 3,689 11,330 garlic 2,479 94,575
Apple fresh 818 18,359 Brinjal 2,346 5,593
other fresh fruits 25,676 430,465 Other 8,884 59,535
Source: ASP
Table 69: Pakistan, major export markets of Kinnow (mandarin and oranges) – global exports in
USD million
Europe 2,002
Africa 570
North America 495
Asia 289
Oceania 101
Pakistan 140
Source: Small & Medium Enterprises Authority (SMEDA)
Table 70: Pakistan, major orange and mandarin producing countries (1999 figures)
Country Area harvested (000Acres) Production (000MT)
World 13,343 75,181
Brazil 2,615 20,079
USA 886 9,442
China 3,318 8,316
Spain 525 4,731
Mexico 818 3,788
Italy 343 2,544
Iran 384 2,476
India 321 2,000
Pakistan 473 1,990
Egypt 294 1,950
Source: SMEDA
Page 150

- Fruit and vegetable in Pakistan are only graded for exports; this practice seems to be very weak in
the domestic market. Organised sector operating in Pakistan with proper grading appears to
ensure high profits.
- Demand for Dehydrated Vegetables exists with the defence forces, Pakistan International Airlines
and hotels. Consumers demand will have to be created through marketing development.
- Availability of tomatoes in the shape of tomato paste during off peak seasons for both export and
local consumption.
The Mitchells and the Shezan groups are the market leaders in squashes with 44% and 31% share
respectively.
The Fruit juice sector is dominated by Nestle with around 55% market share followed by Shezan
International with 28% share.
The major players in the jam, tomato ketchup and marmalade segments are Mitchells, Shezan
International, Salman’s (Pvt.) Ltd., and National Foods ltd.. The market share is not available but
Mitchells is the clear leader.
The Vegetable Powder market is dominated by National Foods. Here again, market size and share are
not available.
Mitchell's Fuit Farms Ltd. Fax: 7590376

Block No.1-A,Sector G-7/4 E.mail: info@cdl.com.pk
Street No.40
Islamabad Ph: 92-051-8122669 Tops Food & Beverages Ltd.
E.mail: rson@mitchells.com.pm 3-National Park Road
Rawalpindi Ph: 92-051-5567047
Ahmed Fod Idustries (Pvt) Ltd. Fax: 5565461, 5584420
D-112,Naurus Road,S.I.T.E. E.mail: murbr@isb.compol.com
Karachi 75700 Ph: 92-021-2563524, 2563520
E.mail: sfipkltd@cyber.net.pk A.M.K. International
12,Sami Chambers,2nd Floor
Bambino Food Industries (Pvt) Ltd. Corner Aram Bagh
75-K,Block-6,PECHS M.A. Jinnah Road
Karachi 74400 Ph: 92-021-4543266 Karachi Ph: 92-021-2621623
Fax: 92-021-4545232 Fax: 2628290
Hamdard Laboratories (Waqf) Pakistan Al-Hamd Establishment

III-E 5/8,Al-Majeed C-746,1st Floor,Block-2,PECHS
Hamdard Centre,Nazimabad-III Tariq Road
Karachi 74600 Ph : 92-021-6620945, 6616001 Karachi Ph: 021-92-4939747
Fax : 661755 Fax: 4939747
E.mail : hlpak@paknet3.ptc.pk
Scintilla International
Popular Juice Industries SD-160,Askari Housing Complex
311-313,Chapal Plaza Gulberg-III
Hasrat Mohani Road Lahore 54660 Ph: 92-051-5867014
Karachi 74000 Ph: 92-021-2420222-3 Fax: 5867057
Fax: 2426518 E.mail: sintila@brain.net.pk
E.mail: popular@cyber.net.pk
Shelta International
Shezan Iternational Ltd. 130-E-1,Main Boulevard
L-9/22,F.B Industrial Area Gulberg-III
Karachi 75950 Ph: 92-021-6349222-3 Lahore Ph: 92-041-5759831
Fax: 6313790 Fax: 5752903
E.mail: shezan@cyber.net.pk E.mail: www.jamals.com/shelta
Benz Industries Limited Subhani Trading Co.

10-K.M.Multan Road Ground Floor,Umer Plaza
Lahore Ph: 92-021-5412413 1-Mozang Road
Fax: 7226901 Lahore Ph: 92-042-7122009
Fax: 7122010
Cdl Foods Limited E.mail: justme@brain.net.pk
135,Ferozepur Road
Lahore 54600 Ph: 92-042-7581556-8 United Freshways
Page 151
#2,Sheikh Inayatullah Building Fax: 4529740

1st Floor,Liberty Market E.mail: king@cyber.net.pk
Gulberg
Lahore Ph: 042-5750446 Pak Exports Traders
Fax: 5750518 Flat No.208,2nd Floor
E.mail: uniways@brain.net.pk Data Appt.137 Garden West
Karachi 74550
M.A. Links
2583-E,Nishter Road Icepak Ltd.
Zakaria Medical Centre Bldg. 720 Landmark Plaza, Jail Road,
Multan Ph: 543524 Lahore, Pakistan
Fax: 543524 Mansoor ARIFEEN Chief Executive
E.mail: mhhrehman@paknet4.ptc.pk Tel: + 92 42 571 46 90
King Citrus Trade Fax: + 92 42 571 22 31
1 K-14,Nazimabad icepak@wol.net.pk
Karachi 74600 Ph: 92-021-4313494
Nestle Milkpak Ltd. Ph: 92-051-2271875, 2271874

st
1 Floor, Yasin Plaza Fax: 92-051-2821899
74-W, Blue Area, Islamabad
Pakistan Agricultural Machinery and

Implements Manf. Association Pakistan Beverage Manufacturers' Assn.
6/21-26, Nazar bagh M-318, Model town extension
g. T. Road Lahore Tel: 042-5167316/021-2569801-5
Peshawar Tel: 091-211835 Fax: 042-5167306/021-2563119
Fax: 091-216723
All Pakistan Fruit & Vegetable Exporters
Pakistan Agricultural Pesticides Assn. Importers & Merchants Association
909-910, Park avenue, p.e.c.h.s. 8/2 new onion & potatoes market
Block 6, Shahrah-e-Faisal University road
Karachi Tel: 021-4541562 Karachi Tel: 021-4937132/4937125
Fax: 021-4546131 Fax: 021-4937126
Croplife Pakistan Pakistan Metal Containers

909-910, Park avenue,block 6, p.e.c.h.s. Manufacturers Association
Shahrah-e-Faisal d-114, Hill street
Karachi tel: 021-4541562 Manghopir road
Fax: 021-4546131 s.i.t.e., industrial area
E.mail : croplife-pak@cyber.net.pk Karachi Tel: 021-2571951
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1.68.13 Import and export statistics
Table 71: Vegetables (fresh, chilled, frozen, preserved, preparated), values in USD '000
1997 1998 1999 2000 2001 1997-2001
Total export value 10,569 34,410 55,594 37,233 36,740 174,546
1997-2001 1997-2001
Value % Value %
Sri Lanka 69,732 40.00% Australia 106,574 20.20%
United Arab Emirates 36,727 21.00% China 92,807 17.60%
India 17,013 9.70% Canada 87,761 16.60%
France 12,695 7.30% Myanmar 50,131 9.50%
Switzerland 8,846 5.10% India 26,853 5.10%
others 16.90% others 31.00%
2001
SITC 054; 056 SITC 054 SITC 056
Exports by country Value % Value Value
Sri Lanka 9,207 25.10% 9,198 9
India 8,364 22.80% 8,356 8
United Arab Emirates 7,523 20.50% 7,422 101
Afghanistan 3,132 8.50% 3,108 24
Saudi Arabia 1,552 4.20% 1,458 94
Switzerland 1,468 4.00% 1,468
France 968 2.60% 968
Malaysia 672 1.80% 672
United Kingdom 456 1.20% 283 173
Oman 446 1.20% 443 3
Canada 402 1.10% 364 38
USA 401 1.10% 389 12
Iran 336 0.90% 336
Qatar 315 0.90% 300 15
2001
SITC 054; 056 SITC 054 SITC 056
Imports by country Value % Value Value
Canada 30,479 22.20% 30,453 26
Australia 30,175 22.00% 30,174 1
China 26,509 19.30% 26,342 167
Myanmar 11,459 8.30% 11,459
Singapore 8,913 6.50% 8,908 5
Iran 7,829 5.70% 7,767 62
Thailand 4,111 3.00% 3,883 228
Afghanistan 3,355 2.40% 3,353 2
India 3,064 2.20% 3,064
Netherlands 2,649 1.90% 2,031 618
USA 2,137 1.60% 1,685 452
Indonesia 1,108 0.80% 1,080 28
Italy 926 0.70% 926
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Table 72: Fruits (fresh, dried, preserved, preparated, including juice), values in USD '000
1997 1998 1999 2000 2001 1997-2001
1997-2001 1997-2001
Value % Value %
India 110,504 28,5% Indonesia 152 399 51,9%
United Arab Emirates 71,971 18,5% Afghanistan 40 631 13,8%
Saudi Arabia 24,870 6,4% Iran 26 257 8,9%
United Kingdom 20,512 5,3% Sri Lanka 21 782 7,4%
USA 17,322 4,5% Thailand 17 115 5,8%
others 143,015 36,9% others 35 493 12,1%
2001
India 23 331 29,9% 23 331
United Arab Emirates 15 976 20,5% 15 850 70 56
Indonesia 5 118 6,6% 5 118
United Kingdom 4 923 6,3% 4 834 12 77
Saudi Arabia 4 895 6,3% 4 847 18 30
Germany 3 600 4,6% 3 402 198
Philippines 2 378 3,0% 2 378
Sri Lanka 1 952 2,5% 1 903 49
Afghanistan 1 724 2,2% 1 498 226
USA 1 499 1,9% 1 385 114
Singapore 1 400 1,8% 1 364 2 34
Malaysia 1 049 1,3% 1 035 14
2001
Imports by country Value % Value Value Value
Indonesia 23 729 44,7% 23 694 29 6
Afghanistan 10 010 18,8% 10 010
Sri Lanka 4 319 8,1% 4 319
Iran 4 167 7,8% 4 166 1
United Arab Emirates 4 091 7,7% 3 884 15 192
Thailand 3 102 5,8% 1 894 1 124 84
Malaysia 1 025 1,9% 887 55 83
India 540 1,0% 540
Singapore 374 0,7% 295 31 48
Philippines 207 0,4% 174 33
Yemen 203 0,4% 203
Myanmar 182 0,3% 182
Germany 133 0,3% 133
United Kingdom 114 0,2% 64 50
China 105 0,2% 90 15
Australia 105 0,2% 17 88
1.69 Fisheries
1.69.1 Overview
Pakistan has a total coastal line of 1,050 km and a territorial water area of approximately 300,270 sq
km. Pakistan’s fishing grounds are termed rich in marine life with a vast variety of species having
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commercial value. However, Pakistan’s consumption of fish is one of the lowest in the world: 1.6 kg
per person per year, and thus, about 30% of the total production is exported, representing around
USD 150 million, during the last decade. The stagnation of the production and export is mainly
attributed to the highly unorganised nature of the sector, lack of focus in Government policies and little
institutional investment in the sector.
The exports are mainly dependent on a few basic species, with very little value addition. Most of the
fish catch is marine which comprises 71% of total fish exports. Pakistan’s main export markets are the
EU, the USA, Japan and the Middle East countries.
There are important post fishing losses due to the handling of the fish catch on board and long voyage
time, including reaching the export facilities at Karachi airport for fresh fish from non Karachi fishing
ports. Also the airport does not have cold storage facilities. Another drawback is the congestion at the
Karachi Fish Harbour with more than 16,000 fishing boats operating in Sindh zone. Finally, the boats
are not equipped with flaking ice machine, therefore damaging the fish through the pouring of heavy
blocks of ice on the catch.
Marine aquaculture is non-existent contrary to India and Bangladesh.
There are 38 fish processing units in Pakistan having a freezing capacity of 800 tonnes per day and
storage capacity of 10,000 tonnes. Out of these, most are located in Karachi and two in Pasni and
Gwadar.
Total turnover Rs. 30 bn Exports: Rs. 5.2 bn

% in GIP 0.80%
Total No. of Companies Overall N/A
38 Processing units- 27 used for refrigeration
Total Processing Capacity- 450 tonnes/day
Summary of registered fishing vessels is given below:
YEAR 2001 SINDH BALOCHISTAN

Sail Boats 6312 278
Trawlers 2610 -
Gill Netters 3702 -
Row boats Mostly unregistered -
Total No. of Employees Indirect- Over 1 mn

Direct- Marine – 120,000
Inland - 240,000
Total turnover 620,000 tonnes p.a.(2001)
Total Investment Rs. 10 bn (Industry Estimate)
1.69.2.1 Industry Structure

This sector offers employment to over one million people, most of which work as fishermen. There are
38 processing units out of which 27 are used for refrigeration. Their total capacity is about 450 tones
per day. The main fishing ports are Karachi, Gwadar and Pasni.
The Karachi harbour is the biggest and most important harbour for fishing in Pakistan. Infrastructure
facilities available include 10 floating piers with a berthing capacity of 32 vessels on both sides. There
is also an ice/ oil supply bunker available the for future accommodation of a 300 tons / day flake ice
plant and an oil dispensing station. This harbour is handling over 2000 vessels.
The Korangi fish harbour was constructed to promote deep-sea fishing. It has a 709-meter long jetty.
The Gwadar fish harbour is the third important harbour in Pakistan and has a 416-meter long and 65-
meter wide jetty.
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Table 73: Pakistan fish production (in '000 tons)

1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003
MARINE 499 419 405 395 422 433 475 475 480 482 485
INLAND 123 140 136 160 168 164 180 180 185 172 170
TOTAL 622 558 542 555 590 597 655 655 665 654 655
Source: Karachi Chamber of Commerce and Industry (KCCI)
Table 74: Pakistan Exports of Fish & Fish Preparations, values in USD million
1997 1998 1999 2000 2001 2002 2003
171.6 122.6 138.9 137.8 125.6 106.8 110
Source: KCCI
1.69.2.2 Main industrial processes

In line with the commonly used processes in the fisheries industry, in Pakistan, various processes are
used including freezing which involves storage after decreasing the temperature of the fish product
from 5 degrees to – 40 degrees.
Fish processing consists of the following processes:

- Value Addition Process
- Freezing
- Packaging
1.69.2.2.1 Value Addition Process

Based on the end markets for the fish products, selection of the fishes is done upon landing of the
catch in the port.
The market trends suggest that there is strong demand for quality oriented ready to eat fish products.
Fresh and quality fish enjoys a premium market rate and sales are virtually guaranteed.
1.69.2.2.2 Freezing
There are three major forms of freezing:
- Nitrogen Freezing: Nitrogen freezing technique is a very recently developed technique and is
currently under experimental phase. The process preserves the quality and freshness of the
product within a minute and the shelf life of the product is about 1 year. As the technique is in the
experimental phase the operating costs are high and it is not used in Pakistan.
- Individual Quick Freezing (IQF): Individual quick freezing technique commonly known as IQF is
the most cost effective and the most widely used method of freezing. The IQF process takes only
3 to 8 minutes (depending upon the product) to bring down the product temperature from 5
degrees to – 40 degrees and the shelf life of the product increases from a few days to about 6 to 8
months. IQF is the most recommended form of freezing and several countries, including the EU,
are now planning to make IQF a pre requisite for imports. The final customer of an IQF product is
the household individual who purchases it for his consumption. Such freezing method is not used
in Pakistan, while a number of the people met did consider entering into this process eventually.
- Blast Freezing: Blast freezing technique is the most basic form of processing which is only used in
developing countries. The process takes about 8 hours to freeze the product and is rather
expensive. Furthermore, such product sells at a discount. Most customers for this kind of products,
overseas, are re-processors who treat it through an IQF process. Blast freezing is the method
presently used in Pakistan.
It is also worth mentioning that Pakistan is not equipped for Peeled, Deveined glazing (PUD Glazing),
mostly applied to the individual freezing of small shrimps of which there are a very large supply locally.
This hinders substantially the exports of these shrimps at added value. At present, most is exported
frozen to Dubai, which has such PUD facility.
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1.69.2.2.3 Packaging
Packaging is as important as processing. The products have to be packed in food grade, convenient,
attractive, economical and market oriented packs with proper brand names on it. The broad packing
requirements vary from product to product but some of the major types of packaging are:
- Canning
- Vacuum Bag Packing
- Shrink Wrapping
- Jumbo Packing
In Pakistan, there is only one canning factory specialising in crab meat, with the tin boxes imported
from the USA. Most of the other deliveries are done through pack freezing, in plastic bags within
carton boxes.
1.69.2.3 Current Status of the processing industry

The fish-processing sector of Pakistan is in a far better shape than the fishing sector. But still the
processing sector has not kept pace with the International technological advancements, the change in
demand patterns and customer preferences, with as a consequence, lower prices and loss of market
share.
Except for Blast freezing plants (so called processing units), there are no modern value added fish
processing plants producing products like breaded filet, buttered shrimps, fish fingers, fish cakes, fish
paste, fish sauce or surimi products.
The three major categories of exports oriented fish processing activities in Pakistan are freezing,
canning (only one plant is operational for crab meat) and fish meal production.
In the traditional sector, curing is the most popular method of fish preservation which accounts for
considerable quantities of finfish, fish maws and shark fins.
1.69.2.4 Main Raw Material/ Major Products
Table 75: Types of fish catch in Pakistan

No F.A.O Group Percentage
1 Herrings, Sardines, Anchovies 33.3
2 Red fish, Bass, Congers 17.5
3 Tuna, Bonito, Bill fish 12
4 Jack mullet, Sauries 11.4
5 Shark, Ray, Cimaeras 6.3
6 Shrimp, Prawns 7
7 Squid, Cuttle fish, Octopii 1.2
8 Mackerel, Snoek, Cutlass fish 0.8
9 Flounders, Halibuts, Sole 0.4
10 Shads 0.2
11 Lobsters, Spiny, rock Lobsters 0.1
12 Sea Spiders, Crabs 0.1
13 Diadromous fish 0.1
14 Miscellaneous marine fish 9.6
TOTAL 100
Source: FAO reports
Nitrogenous Chemicals used for freezing and processing are imported from China, Korea, Japan and
USA.
1.69.2.5 Main Machinery and their origin

The following type of vessels are currently operating in the fishing sector:
– Trawlers
– Gill netters
– Long liners
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– Howra for fresh trash fish

– Mechanical sail boats
– Row boats
Most of the trawlers are equipped with modern electronic instruments like GPS, sonar and satellite
telephones. The sanitary conditions have been improved further to a European Union mission, and the
conditions are deemed satisfactory by the EU.
The Karachi Fishing port has been given the A grade by the EU, whereby, India has only a grade B
rating.
Table 76: Summary of registered fishing vessels, 2001

SINDH BALOCHISTAN
Sail Boats 6312 278
Trawlers 2610 -
Gill Netters 3702 -
Row boats Mostly unregistered -
Source: ASP
The vessels are locally made or sometimes imported as scrap and then refurbished in Pakistan. Local
shipyards are fairly active, with a number of the wooden fishing trawlers exported to Iran.
The refrigeration and freezing plants also use machinery which has mixed components (imported as
well as local). The machinery installed is inadequate and somewhat obsolete with relatively high
energy consumption.
Industry sources their freezing equipment from various European countries, China being mentioned as
a new potential supplier of equipment.
1.69.3.1 Labour
- High level of skill not required
- Easily and cheaply available, especially in Karachi, Gwadar, Pasni and other coastal areas of
Sindh and Balochistan
- Uneducated work force resulting in low productivity.

- Abundant/low cost fishing vessels
- Packaging material used is local as well as imported from USA, Germany etc.
- Nitrogenous Chemicals used for freezing and processing are imported from China, Korea, Japan
and USA.
1.69.3.3 Energy
- Fuel costs are high for old and outdated fishing vessels. Fuel is easily available around the coastal
fishing areas.
- Electricity supply reliability also remains an issue like in most part of the country, implying added
cost through the necessity of back up power generation.
1.69.3.4 Logistics
Satisfactory equipment is available for the export of fresh fish. Refrigerated containers are in ample
supply to accommodate sea transport. It is worth noting that there is no cold storage facility at the
airport, while there are no export facilities for the fishing ports outside Karachi, with long road transport
delays. This represents an important draw back for the export of these ports’ catches.
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1.69.3.5 Productivity
The Fishermen Co-operative Society (FCS) has embarked upon an aggressive plan to upgrade the
quality of the fishing vessels. Boats' fish holds have been modified with poly-urethane insulation and
glass reinforced plastic (GRP) lining besides structural changes to accommodate fish crates. These
boats are already registering a 40% saving in expenditure on ice. In terms of value, it is a saving of Rs
25,000 per month. Modification of the boats has helped reduce post harvest losses and increased
exportable quantity of landed catch. These boats have been upgraded as per EU's recommendations,
and to meet global quality standards.
Exports are mainly dependent on a few basic species, with very little value addition.
Finally the absence of fish farming implies a great dependence on the seasonality of the catches, with
best months being August, September, as well as May and June.
1.69.3.6 R&D, quality controls and certification

Due to better hygienic conditions at the harbour and improved seafood processing procedures, the
number of certified seafood units allowed to export to the EU, has increased from seven at the end of
1999-2000 to 11 by the end of December, 2000, 14 by the end of 2001 and 16 at present.
- R & D is mostly carried out by exporters in the relatively organised segment of the fisheries sector.
- The Government is sponsoring a campaign for promoting packaged and branded products, and
awareness is being created for maintaining clean and hygienic conditions.
- Quality controls and certification regulations has been regularly monitored by the EU and is
deemed acceptable (Category A has been granted by the EU) and individual processing plants are
regularly inspected and given EU accepted grading. There are sixteen approved plants at the
moment.
1.69.3.7 Government incentives

- Plant, Machinery and Equipment (PME), not manufactured locally can be imported subject to a 5%
custom duty under SRO 439(1)/2001 dated 18.06.2001.
- The tax relief (first year allowance) on investment in Plant, Machinery and Equipment (PME) is
90% of the Cost of the PME.
The following measures have also been taken for the fisheries sector:
- Fishing/catching stage operators are being given the status of indirect exporters to facilitate duty-
free import of machinery and equipment like navigational equipment, fish finders, storage and
handling equipment.
- A committee of stakeholders is being set up to pursue the commercial plan developed by the
export promotion bureau, and implement its recommendations for the fisheries policy.
- To promote aquaculture, suitable lands next to sea can be made available.
- Duty-free import of shrimp’s meal and baby shrimps should be allowed.
- To promote export of sea foods products (as against commodity), lowest withholding tax (0.75%)
will be applied for fish and fisheries products packed in retail packs of 500gm to 2Kg.
1.69.4 Analysis of import and export flows
The European Union is the largest importer of fish/seafood from Pakistan, and its share in the
Pakistan's total exports, is around 55%. Pakistan's total production of both marine and inland fish is
approximately 650,000 tonnes out of which 73% is harvested from the marine resources and 27%
from the inland sector.
Pakistan is the 27th largest producer of fish/seafood in the world with about Euro 150 million exports
per annum.
India fish exports are estimated at about Euro 2 billion while Bangladesh exports reach Euro 300
million
For details, see section 1.69.11.
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There are quasi no imports of fish and sea food into Pakistan which reflects the fact that the country
local market is not very attractive. Pakistanis are among the people with the least consumption of fish
per head.
Exports are rather evenly distributed among the following countries: UK (17%), Japan (14%) and a
number of countries in the 10% range like China, The Netherlands, Sri Lanka, and the USA. This shall
provide a good base for export development when and if the processing capacity of the country is
improved.
The coastal areas of Sindh and Balochistan, Karachi, Gwadar, Pasni are the most suitable for the
fisheries sector due to the concentration of players and their strategic location.
1.69.5.1 Location
Major part of the fish catch in Pakistan is Marine, which forms about 73% of the total catch. The
Arabian Sea, which washes the coast of Sindh and Balochistan, has rich fish deposits of commercial
significance in close proximity. Pakistan has a very long range of coast-line with a number of bays and
a broad continental shelf lying in front of the Indus delta and which prove ideal for growth of marine life
in general and fisheries of commercial importance in particular.
The harbours and main landing points with their provincial location and relative importance are as
follows:
Table 77: Pakistan main fishing ports

No. Harbour Province Relative Importance
1 Karachi Sindh **** H
2 Korangi Sindh *** H
3 Ibrahim Haidery Sindh **
4 Shams Peer Sindh *
5 Lath Basti Sindh *
6 Hawks Bay Coast Sindh *
7 Manjhar Sindh *
8 Sonari Sindh *
9 Mubarrak Village Sindh *
10 Kaitee Bandar Sindh **
11 Shah Bandar Sindh **
12 Kharo Chaan Sindh **
13 Jatthi Sindh **
14 Jhungi Sur Sindh **
15 Badeen Sindh **
16 Gwadar Balochistan *** H
17 Pasni Balochistan *** H
18 Ormara Balochistan ***
19 Gaddani Balochistan **
20 Bhunda Wari Balochistan *
21 Beroo Balochistan *
22 Sonmiani Daam Balochistan **
Notes: * meets local users requirements ** Important *** Very important **** Most important H = Fishing Harbour
Source: Smeda
It was observed that all the four fish harbours are under different administrative control. For example,
the Karachi fish Harbour falls under the Government of Sindh, Korangi fish harbour falls under the
Ministry of Fisheries and Agriculture, Gwadar is under the Ministry of Communication, and Pasni under
Page 160
the Balochistan Govt. This causes a lack of coordination and consistency in the Government policies
towards harbour management.
An important factor common to three fish harbours namely Korangi, Gwadar, and Pasni is the lack of
electricity connection from main transportation lines of KESC or WAPDA. The electricity obtained
through generators is not sufficient for the needs of the harbours. The private sector is reluctant to
construct processing plants due to shortage of power and other utilities.
There is no direct export facility from the Gwadar and Pasni harbours, the catch is brought to Karachi
for export through poor road conditions and transportation takes 30 to 40 hours.
The Korangi port presents a very special case in the sense that it was developed at great cost through
grants from the World Bank, and offers very modern and clean facilities. Unfortunately, the port
remains idle in a catch 22 situation whereby nobody wants to settle processing facilities since the
fishermen do not unload their fish there because of no takers and vice versa.
1.69.5.2 Trend, possible evolution

The main investments which were regularly mentioned for possible co-operation with European
investors have been the establishment of a glazing plant for small shrimps, the implantation of a
canned plant with buy back agreement as well as quality processing plant/technological agreements to
achieve the quality required by the developed markets.
Installation of a Surimi plant was also mentioned as a potential investment, as well as a facility to
prepare scuttle fish rings.
Finally, shrimp farming was mentioned several times as an avenue for development, in view of the
good performance of India and Bangladesh in the sector.
The installation of a cold storage depot at the airport is obviously a necessity to be also considered.
Several parties involved mentioned the very conservative attitude and low education of the people in
the industry, hinting at their lack of entrepreneurship vision.
Major markets for sea-food and agricultural products are subsidised in countries like the EU and the
USA and selected far-eastern countries. In the long term, and depending on the developed countries
attitude towards subsidies, export opportunities might increase, however, subject to stringent quality
concerns.

The fisheries sector has an enormous potential for exports. However, this potential is not reflected in
the export earnings from the fisheries sector which has stagnated around USD 150 million, during the
last decade. This scenario is mainly attributed to the highly unorganised nature of the private sector,
the absence of required infrastructure and facilities, the lack of modern techniques, the lack of focus in
Government policies and the absence of institutional investment in the sector. The products of the
sector enjoy a great natural taste absent in fish products of many exporting countries around the
globe.

There are no real entry barriers as far as domestic competition is concerned and a very large
untapped potential is available for investors. Any new foreign investor can fully exploit this potential by
using state of the art vessels, machinery and modern fishing techniques. Investment in related
infrastructure appears also viable.
Page 161
1.69.8 Co-operation with foreign investors
Box 31: Britain to invest in seafood processing

KARACHI: British investors are interested in setting up seafood processing plants and a modern shipbuilding yard at the Karachi
Fish Harbour in joint ventures with local investors.
A two-member delegation of traders from the United Kingdom visited the harbour on Saturday and held a meeting with seafood
exporters and officials concerned.
"Dr Muhammad Nawaz Baloch, MD Karachi Fisheries Harbour Authority along with Anwar-ul-Islam, Director Operations briefed
the delegation about the ongoing and planned development projects of the authority," said a KFHA press release.
The delegation comprising Stephen J Akelester and Rafael D Ory of Macalister Elliot and Partners UK also visited seafood
processing plants at the harbour.
"The delegation expressed satisfaction over working conditions at the harbour. The British traders really showed confidence in
Pakistan’s seafood quality," said the release.
Meanwhile, seafood exporters look confident that the visit of British entrepreneurs would prove fruitful in near future as both the
visitors were keen to invest in processing plants and a modern shipbuilding yard.
"They were quite satisfied and interested in setting up joint ventures as far as processing plants are concerned," said exporter
Abrar Ahmed of Seagreen Enterprises when reached over telephone. "We had a detailed meeting during their (Britons) visit to
our plant," he informed. However, he said it was too early to give an accurate figure of investment and time to materialise the
project. "It is not decided yet. They will hold further meetings with local processors in this regard," Abrar said.
Source: The News, Monday December 08, 2003
1.69.9 List of major local companies
Fauji Fish Farms B-1,Fish Harbour,West Wharf

Near Khoski Sugar Mills,Khoski Karachi Tel: 92-021-2200200, 2200200
Badin Tel: 261694, 263663 Fax: 2312476
A.g. Fisheries (pvt) ltd. Seagreen enterprises (pvt) ltd.

B/5,Fish Harbour,West Wharf A/2,Fish Harbour
Karachi 74000 Tel: 92-021-2312605-6 West Wharf
Fax: 2310318 Karachi Tel: 92-021-2201866, 2310324
E.mail: agfish77@hotmail.com Mob: 0300-8232541
Fax: 2310939
Kanpa International Sales E.mail: emiles@fascom.com
D-3,Fish Harbour
West Wharf Road,P.O.Box: 6026 Seavita Fisheries
Karachi Tel: 92-021-2312879, 2312290 B-1,Fish Harbour,West Wharf
Tel: 2310044 Karachi Tel: 92-051-2202802
E.mail: kanpa@cyber.net.pk Fax: 2316206
E.mail: seavit@cyber.net.pk
M.A. Mohamedi & co. Spectrum Fisheries ltd.

15-/A,Pak Chambers E-1,Fish Harbour,West Wharf
7,West Wharf Road P.O.Box: 6111
Karachi 74000 Tel: 92-021-2201668 Karachi 74000 Tel: 92-021-2313335, 31, 32
Fax: 2310962 Fax: 2314444
E.mail: spec@super.net.pk
Marcon international (pvt) ltd. Web: www.jamals.com/spfish
No Joint Ventures have been reported in this sector.
Deep Sea Fishing Trawlers Operators Pakistan Seafood Industries Association

Association a-2, fish harbour, west wharf
above Manchester house Karachi Tel: 021-2311117
Hotel Asia building, Zaibunnisa st. Fax: 021-2310939
Karachi Tel: 021-5214567/5211931 E.mail: psiapk@hotmail.com
Fax: 021-2310601
Page 162
1.69.11 Statistics on Pakistan fish imports and exports
Table 78: Fish and seafood (SITC 03), values in USD '000
1997 1998 1999 2000 2001 1997-2001
Total import value 31 119 93 27 26 296
1997-2001 1997-2001
Value % Value %
United Kingdom 119,205 16.40% Thailand 79 26.70%
Japan 102,194 14.00% United Kingdom 59 19.90%
Netherlands 80,958 11.10% China, Hong Kong 48 16.20%
China 64,912 8.90% India 44 14.90%
Sri Lanka 58,533 8.00% South African Customs U. 33 11.10%
others 302,966 41.60% others 33 11.10%
2001 2001
Value % Value %
United Kingdom 18,236 14.10% Thailand 20 76.90%
Japan 15,896 12.30% Malaysia 3 11.50%
Netherlands 13,340 10.30% China 1 3.80%
USA 12,663 9.80% China, Hong 1 3.80%
Sri Lanka 9,607 7.40%
China, Hong Kong 7,268 5.60%
China 7,148 5.50%
United Arab Emirates 7,078 5.50%
Rep. Of Korea 5,406 4.20%
Belgium 5,237 4.00%
1.70 Business co-operation in the food sector (dairy, fruit & vegetable, fisheries)
1.70.1 Identification and assessment of major business co-operation, project and investment
opportunities
Pakistan seems to be a golden country for Food Processing operations as mentioned by most of the
persons met by the mission. Cross references to the Indian situation where often mentioned to
enhance the attractiveness of Pakistan, compared to its neighbour.
The main investment opportunities were identified as follows:

- Development and improvement of the collecting process, namely through the development of cold
warehouses and transport chain;
- Improvement of the manufacturing process (washing, waxing, grading, packing) through technical
agreements, especially related to the quality of the products, the phyto sanitary constraints as well
as the certification processes;
- Co-operation for the marketing of the products through the major developed markets, while the
less developed markets such as Central Asia, the Middle East or Africa shall be left to the
responsibility of the local company;
- Co-operation for brand manufacturing under specific guidelines.
1.70.2 Analysis of the most interesting forms of co-operation in the food processing sector
Contrary to the textile sector, the mission feels that the most promising form of co-operation in the
Food Processing and Packaging sector shall be the establishment of joint ventures. This
recommendation is based on the limited number of independent large local companies in the sector,
Page 163
its growth prospects, not only in the export markets but also in the local market to which a foreign
partner would want to participate.
Contrary to the Textile sector which has a number of well established companies with which to enter
into co-operation agreements, the Food Processing and Packaging Industry is a relatively new sector
with only a limited number of companies, at this stage.
1.70.2.1 Subcontracting
Simple contracting of orders by international firms, satisfied with the quality and ability to produce of
the local manufacturers, along certain specifications, is of course the simplest arrangement for
business. Providing more detailed specifications such as the packing design, the raw material to be
used, or even the process to be utilised are just more sophisticated kind of trading contract, common
in Pakistan.
However, the main drawback of this approach is the lack of independent suppliers with the ability to
provide the quality products usually required in the developed markets.
1.70.2.2 Technical agreements

Based on the available expertise in Europe, technical co-operation agreements could be implemented
without the needs for investment by the international partner. These technical co-operation
agreements would normally be of a limited time frame, based on a specific technical development.
Due to the limited protection granted to property rights in Pakistan, it is thought that long term royalties
on technical co-operation in this sector is an avenue to be considered, in view of the limited technical
sophistication of this industry.
Such technical agreements should concern all size of operations in Pakistan on a short term basis.
1.70.2.3 Co-operation agreements

This should be the best avenue when the local firm requires support to gain access to the developed
markets, through a general and permanent improvement of its manufacturing and marketing
capacities, on a long term basis. Advantages to the European partner should arise from royalties,
access to goods manufactured under its trade mark as per its specifications, at a competitive price.
These co-operation agreements should concern mostly large companies, already active in the sector
or eager to enter such added value markets. The main draw back of this approach is that there are
only a handful of companies with such profile in this sector.
1.70.2.4 Joint Venture agreements

This appears to the mission as the most promising form of development for the Food Processing and
Packaging Industry in Pakistan, either with existing companies of a limited size eager to develop or
with reputable firms interested to enter this market.
The advantage to the Foreign party will not only rest with the ability to source products for exports to
the developed markets, but will also allow the Foreign investor a share of the domestic market which
appears to present huge opportunities for development.
Advantages to the local partner are obvious in terms of obtaining, collecting and processing know how,
quality and phytosanitary support as well as packing design and marketing expertise over the long
term.
Despite the fact that investment finance is not an issue in Pakistan at the moment for most companies,
it is felt that the important growth envisaged should provide an incentive for the local partner to accept
a foreign equity in the Company.
Page 164
THE LIGHT ENGINEERING INDUSTRY

Traditionally the engineering sector in Pakistan is divided into:
- Heavy Engineering
- Light Engineering
The Heavy Engineering sector in Pakistan is engaged in producing cement and sugar plants, industrial
boilers, construction equipment and transmission towers etc. This sector is mainly dominated by
companies in the public sector.
The Light Engineering industry encompasses a wide range of product categories ranging from surgical
instruments to bicycles. For our analysis, the following sectors have been chosen, on the criterion of
having the highest potential for foreign investment:
- Automotive
- Power transmission/energy related equipment
- Textile related engineering
1.71 The Auto part sector
Contrary to India, Turkey or other countries in the region, Pakistan has a car vendor industry only
capable of manufacturing simple component parts. Pakistan has neither gear box nor engine
producing facilities. In view of the huge recent increase in the local car market and the projected
performance, consideration for such production should present opportunities for the local market as
well as for exports.
However, three significant drawbacks might arise from the fact that:
1- Major car assemblers in Pakistan are Japanese, which may favour Japanese backed technology
in their sourcing of auto parts;
2- The industry benefits from high tariff protection and local contents rules which might disappear
soon due to WTO regulation;
3- The relatively low volume of production for the local market so far.
TOTAL TURNOVER Automobile Sector

Assemblers – Rs. 59 billion (Exports USD6.5 million)
Auto Vendors- Rs.10.9 billion (Exports USD 31 million)
% IN GIP Assemblers- 1.6%
Auto Vendors – 0.2%
NO. OF COMPANIES Assemblers – 22
Auto Vendors-
Organised and Tier one – 780
Tier Two – 380
Unorganised and after market suppliers
840 TOTAL – 2,000
NO. OF EMPLOYEES Assemblers- 5,600
Auto Vendors- 140,000
TOTAL TURNOVER (Volume) ASSEMBLY (no. of Units)
Cars - 62,893
LCVs – 12,548
Buses – 1,346
Trucks – 1,954
Tractors – 26,501
Motorcycles – 176,591
AUTOPARTS – Individually N.A
TOTAL INVESTMENT USD 1.5 billion (Assembly & Auto Parts)
Auto Parts – Rs. 50 billion
Page 165
Local- USD 1 billion

Foreign – USD 500 million
1.71.1.1 Description of main industrial processes

A typical transport vehicle comprises about 2,200 various components, most of which are produced by
subcontractors.
1.71.1.1.1 Material and processes involved to produce a typical auto part component:
- Designing
- Mould and Die manufacturing
- Forging, Casting and Machining
- Sheet metal, fabrication and Press work
- Plastic & Rubber Mouldings
- Electrical or Electronic components
- Assembly
- Sub Assembly
- Raw Materials 1. Iron & Steel; 2. Copper & Aluminium; 3. High & Low Density Polypropylene
1.71.1.1.2 Functional / non functional / cosmetic components:

- Trims – Plastic / Seats and allied
- Engine Components including oil, Water Pumps and Gears
- Suspension & Axles
- Electrical, Electronic and Allied
- Brake and Allied Mechanisms
- Radiators including cooling and Heating Mechanisms
- Air conditioning
- Add-on and accessories
- Navigation Devices including Radar detection
The majority of the above stated materials and components is manufactured in Pakistan and used as
OEM (Original Equipment Manufacturers).
The after sales market is catered by local as well as imported parts and components. These parts and
components are being imported in large quantities from China, Korea, Japan, USA, Germany,
Belgium, Saudi Arabia etc.
A Customs General Order (CGO), dated March 2003, detailing the auto parts manufactured in
Pakistan, is available with the Central Board of Revenue.
1.71.1.2 Main machinery and equipment and their origin

- Mould and die manufacturing machines
- Forging and casting machines
- Metal fabrication machines
- Plastic injection machines
- Rubber moulding machines
- Lathe machines
- Electronic or electrical assembly and sub assembly
The machinery and equipment is imported from USA, Germany, Belgium, France, Korea, Japan,
China, and Thailand. Many a machines such as injection moulding and lathe machines etc. are being
manufactured locally.
Page 166
1.71.2 Main parts manufactured locally
The problems confronted by the industry in Pakistan, among others, stem from the low quality of the
steel produced locally (non High Strength Low Alloy), which implies that most of the steel required has
to be imported. The plastic based industry is more advanced, while it depends on moulds being
fabricated outside the country. On the electrical engineering side, the industry is still primitive with a
lack of satisfactory production of generators, starters or distributors.
The parts most often mentioned as worth of development in partnership with a foreign partner are the
metal and plastic components which lack in quality and reliability. Alloy wheel rims as well as rubber
components seem to present good opportunities for development. Gearboxes, transmission and
engines, while mentioned as potential area for development should come in a second stage when the
industry is more established.
The “engine” behind the growth of the vendor industry in Pakistan is the vehicles’ assembly plants
which consist of three Japanese car assemblers: Suzuki, Honda and Toyota, the Korean JV Hyundai
Kia as well as the two truck assembly plants JV Nissan and Hino. It seems that Volvo is also involved
in truck assembly through a technical agreement. Ford and Massey Ferguson are also present
through technical agreement for the manufacturing of farm tractors.
It is worth noting the presence of a tyre JV with Continental tyres, as well as two JV with Japanese
partners in the manufacturing of air con for cars.
Generally speaking, the country is producing rather non sophisticated equipment, a number of those
through technical agreements with various Japanese, Korean or European firms.
The main recent developments in the industry have been the following:
Announcement of two Technical agreements with Chinese truck manufacturers for the assembly of
trucks; during President Musharraf visit to china in November 2003, seven technical agreements were
signed related to the car industry;
Dewan Farooque, a large local group, already a partner of Mitsubishi Corporation of Japan as well as
of Sam Yang Company, Hyundai Motor Company and Kia Motor Company of Korea, for the
manufacturing of cars, truck and SUV just announced an agreement with BMW for the production of a
series 3 vehicle as well as a Jeep.
Finally it may also be worth noting the closure of the Fiat JV, after three years of operations, in 2002,
due to the weakness of the local partner as indicated by local sources.
Cost factor comparisons are not available for the auto part industry in the region. A 2002 price
comparison established by the Japanese car manufacturers for India and Pakistan is attached
hereafter. It shows that Pakistan has a slight cost advantage in the manufacturing of similar cars.
Page 167
Table 79: Pakistan / India Japanese cars price comparison

India (Annual Car Production: 750,000) Pakistan (Annual Car Production: 100,000)
Model in On Rd. Price NOGL Price Equivalent On Rd. Price NOGL Price
India Indian Rs USD Model in Pakistan Rs USD
Pakistan
Honda Honda Atlas
City 1.3 LXI 727,000 10,414 City EXI 729,000 9,033
City 1.3 EXI 732,000 10,486 City EXI-S-MT 779,000 9,652
Maruti (Suzuki) Pak Suzuki
800 Euro-II 237,000 3,395 Mehran 800 297,000 3,585
Toyota Indus Motor
Corolla J 1,065,200 15,259 Corolla GLI 939,000 11,635
Corolla G Auto 1,241,433 17,783 Corolla SE 1,169,000 14,484
Auto
NOGL: Net of Government Levies (excluding taxes and duties)
1 USD = Pak Rs 58.00, Indian Rs 45.33
Source: Japanese External Trade organisation (Jetro)
1.71.3.1 Cost breakdown for different automotive segments
Table 80: Pakistan auto part cost breakdown

Cost Factor Cars% CVs% Tractor% Motor Cycle%
Raw- Material & Parts 53 60 57 49
Overheads 15 19 14 13
Labour 5 3.5 10 9.5
Utlities 2 0.5 3.5 3.5
Sales & Marketing, Advertising 1.5 1.5 1 2.5
Research &Dev. 0.5 0 0.5 0.5
Financial Cost 2 2 1 2
Profit 4 2 8 4
Govt. Levies 17 12 5 15
Source: Engineering Development Board, Ministry of Industry
1.71.3.2 Installed capacity and production of vehicles/automobiles

The production of cars has exceeded all expectations in the last two years, to achieve about 100 000
units in the year 2003. This is causing a strain on the industry, as well as the local vendor industry
which has difficulties in meeting the demand.
Table 81: Pakistan auto manufacturing installed capacity

Automobile Installed Capacity 1999-00 2000-01 2001-02 2002-03
Cars 100,000 32,461 39,573 40,601 62,893
LCVs 23,000 5,502 6,924 9,055 12,548
Buses 1,900 1,460 1,296 1,086 1,346
Trucks 12,500 913 512 1,134 1,954
Tractor 40,000 34,559 31,635 23,801 26,501
Motor Cycle 340,000 86,959 108,850 120,627 176,591
1.71.3.3 Forecasted Production
Table 82: Pakistan auto manufacturing forecasts

Automobile Installed Capacity 2003-04 2004-05
Cars 100,000 92,149 115,186
LCVs 23,000 17,779 21,335
Buses 1,900 2,640 3,168
Trucks 12,500 1,473 2,210
Tractor 40,000 28,864 30,307
Motor Cycle 340,000 277,905 416,857
Source: Ministry of Commerce of Pakistan
Page 168
1.71.3.4 Estimated required Investment
Table 83: Pakistan auto manufacturing required investments

Rs. In billion Assemblers Vendors Total
Current Investment 14.8 50.0 64.8
Estimated Investment in 2 yrs 4.0 15.0 19.0
Total after 2 yrs. 18.80 65.0 84.8
Current direct Employment 5,600 140,000 145,600

Additional direct employment 3,000 110,000 113,000
Total after 2 yrs. 8,600 250,000 258,600
Source: Ministry of Commerce of Pakistan
1.71.3.5 Research & Development

The research and development is mostly restricted to OEMs as they have to achieve high quality
targets. The vendor industry is feeling a dire need of research and development facilities as they have
to successfully achieve the quality targets set by the OEMs, which is a prerequisite to be able to
compete with imports.
Due to technological advancement in the automobile industry, the absence for skilled and educated
workforce is strongly felt, though the Government has introduced automobile engineering in the major
universities. However, there is still a long way to go to fulfil the demand of the rapidly growing sector.
More information in this regard can be sourced from the Pakistan Industrial Training & Automation
Corporation (PITAC), the Automotive Training and Testing Corporation (AT&TC), Lahore, and the
Pakistan Machine Tool Factor (PMTF), Karachi.
1.71.3.6 Regulatory Framework/Government Policies

Up to the year 1995, the Deletion Cell of the Ministry of Industries was formulating and monitoring the
Deletion Programmes for the car and automobile industry. These deletion programmes were product
specific, that is one deletion programme for each make and model.
Otherwise, import duties have been kept extremely high ranging from 100 to 350% till 2002. Only
recently in the financial bill 2002-03, the tariff has been brought down to 75% for up to 1000cc to 200%
for above 1800cc. The import duty on CKD has been retained at 35%. Thus, since its inception, the
automotive industry has enjoyed heavy protection. This protection was granted to the assemblers in
return for the commitment to indigenise up to a 75% level in five years from the inception of each
product. Unfortunately this undertaking has not been fulfilled.
Table 84: Pakistan auto manufacturing local content

Automobiles Car Motorcycles Tractors Trucks/Buses 3-Wheelers
% deletion level achieved 53-70 80-85 50-85 42-65 80-85
* The% deletion level is given in range for different categories of the Automobile Sector
Source: Engineering Vision 2010, EDB
In 1995, the Government constituted the Engineering Development Board (EDB) under the Ministry of
Industries, to form a long-term Engineering policy leading to transfer of technology, human resource
development and management of transparent deletion programmes. The EDB later chalked out a road
map for the automotive industry: “VISION 2010” which outlined the growth strategy for the industry.
Specific tariff as far as import of raw material for auto parts is concerned can be obtained from CBR
and Pakistan Customs CGO March 2003.
Page 169
Imports of Auto parts are mostly sourced from Japan which is understandable in view of the quasi
exclusive set up of the car assembly plants through Japanese joint ventures.
The other main suppliers are other Asian countries. European countries are not represented in a big
way, but there exist, up to a limited extend, imports from Europe which could serve as a base for
further development (see section 1.71.12 for details).
Exports are limited in amount (about € 4 Millions) but have been growing fast over the last few years.
Main destinations of exports are the USA, Europe and the Middle East.
It is therefore confirmed that the main reason for any investment in Pakistan would be to serve the
domestic industry with a view, when quality reaches international standards, to target exports. Also,
statistics confirm that one of the main draw back for investment in this sector might be the difficulty to
achieve rapidly, economies of scale.
1.71.5.1 Location
Most of the auto vendors are located around Karachi and Lahore due to their proximity to assemblers,
urban commercial markets, seaport and raw material sourcing centres.
1.71.5.2 Role of local importers

Apart from supplying parts to assemblers, a large after sales market for existing and discontinued
vehicles offers a huge potential to the auto vendor industry. It is reported that the size of the after sales
market is estimated at over Rs. 36 billion, mostly catered by imports and smuggled auto parts.
Many authorised dealers and distributors operate in big urban markets in Karachi, Lahore, Faisalabad,
Multan, Rawalpindi, Gujranawala. The network of these auto part vendors is fairly organised.
Manufacturers like Honda, Toyota, Nissan etc. have their presence in the market through these
representatives.
The assemblers too are involved in the sale of imported spare parts through their service centres.

The auto parts industry faces a tough competition from imports, but there are examples where a few
locally manufactured products are successfully competing with imported parts both in terms of quality
and price. However, the auto parts industry faces a serious threat from smuggled and misdeclared
imports. The estimated amount of such imports is reported to be around Rs. 18 billion per annum.
The concerned Government authorities are doing their best to curb such practices but still a lot has to
be done.
The following parts are currently imported:

– Fuel injection equipment including pumps and injectors
– Gear box
– Crankshafts
– Piston & rings
– Ball, roller and plain bearings
– Miscellaneous hardware items including springs
Page 170
1.71.5.4 Auto-Part Pakistan after sales market

The market represents a total of Rs. 36 billion, as estimated by the Pakistan Association of Automotive
Parts and Accessories Manufacturers (PAAPAM).
Total Documented Imports represented Rs. 10 billion as per the Federal Bureau of Statistics (FBS) in
2002 and the locally manufactured portion around Rs.4 billion, while the balance according to the
industry would be misdeclared/smuggled imports.
Figure 27: Market share of local manufacturers
12%
88%
Local production Imported Smugled & Misdeclared
Source: Industry estimates/PAAPAM
1.71.5.5 Competition in export markets

As the Pakistani auto parts exporters are up against exporters from developed countries which have
far more advanced technological resources, they are only able to compete in basic and low-end parts.
The local vendors desperately need technological know-how to improve upon their quality and hence
penetrate into higher-end markets. However, it appears that a number among them manage to
achieve exports, which should reach nearly Euro 60 million in 2003, according to Indus Motor.
The list of auto parts exported from Pakistan can be sourced from the Pakistan Association of
Automotive Parts and Accessories Manufacturers (PAAPAM: www.paapam.com ).
1.71.5.6 Competition in the domestic market

As the auto parts sector is not well organised, the technological know-how and expertise is only
available to a few large exporting vendors. This should offer a huge potential for new entrants with
technological know-how and modern production facilities.
1.71.6 WTO
Conformity to the WTO rules and regulations in term of protective tariffs and local components
requirements are the main issues facing the industry. The ensuing competition which would affect the
domestic market further to the potential reduction of the tariffs, increases the needs for improved
technology, know how and productivity, for the industry to remain competitive. This is the main draw
back of this sector as far as a foreign investor is concerned.
The post WTO regime is a major threat for the automotive industry as the industry / assemblers and
the auto vendors enjoy Government protection (Tariff and Deletion) since its inception.
Pakistan is currently violating WTO rules No. 1 & 6, mostly concerned with the required local content.
The situation is similar to India which is also in violation of a number of clauses.
Page 171
At present, the deadline for the elimination of TRIMs was December 31st, 2003. The Automobile
Industry is unanimous in asking this date to be extended to December 31st, 2005. The Government of
Pakistan is seeking this extension from the WTO. It is not clear yet, what kind of measures should be
taken by Pakistan to continue to protect a much needed and strategic Automobile Manufacturing
industry. Negotiations are going on between the manufacturers and the Government in this regard.
opportunities
Millat Tractor, under an old technological agreement with Massey Ferguson is a very successful
example of such possible co-operation between a local group and a foreign enterprise. This local
group is very keen in developing further into the auto part sector, or even in the car assembly, and it
has held discussions with important European potential partners in these sectors. It appears however
that due to the reluctance of advanced countries potential partners, the group might settle for a
technological agreement with a less advanced country counterpart.
A number of other large groups are also interested in joining forces with European technology to enter
the vendor industry, such as the Habib Group, already a partner in the Toyota JV.
Apart from the existing car, truck or tractor assemblers, all linked to a foreign partner, either through
Joint Ventures or technical agreements, there does exist a number of technical agreements with auto
parts manufacturer in the country (see list here after).
Most of these existing technical agreements are linked to the main car / truck / tractor / assemblers’
sub contractors; therefore, the importance of the Japanese technical agreements.
The car industry, based on the much improved general situation of the country is enjoying very active
developments, with new entrants, such as Hyundai and Kia recently, and BMW in the near future. To
accompany these developments, local components are required in increasing number and quality. The
vendor industry at present is facing difficulties to supply the requirements.
In such context, the mission is of the opinion that there are a number of opportunities to co-operate
with local enterprises with a view to increase production and quality, in the following fields:
- Special alloy wheel rims;
- Rubber components, such as door seals, etc.;
- Plastic components, such as inside door panels, etc.;
- Steel components such as feet plate, etc.
Opinion has been expressed by the industry that due to the existing technicality of the industry as well
as the volumes assembled, it appears somehow premature to consider transmission, gearbox or
engine manufacturing. A time frame of 5 years was mentioned as the time when such complex part
manufacturing should be envisaged.
Commercial fairs to establish contacts are a fairly new phenomenon in Pakistan. Let us mention
however the AUTOMEX 2004 which is to be held in March 4-6 at the Karachi Expo Centre and which
shall focus on automobile, motorcycles, auto parts manufacturing and use of CNG, particularly popular
in Pakistan.
1.71.8 Analysis of the most interesting forms of co-operation in addition to direct investments such as
joint venture, transfert of know-how, sub-contracting etc.
In view of the size and technicality of the industry, both technical co-operation and joint ventures
should be the best avenues for FDI in the country.
Evidently, the local market shall be the main target of the investment, with a view to gain market share
from competitors thanks to better quality products, as well as import substitution.
Page 172
In a second stage, when the quality reaches international standard, exports shall complement the
domestic activity.
Agriauto Industries Ltd Manan Shahid Forgings Private Limited

th
5 floor, Siddique sons tower, Mominpura Road, DaroghaWala off GT Road Lahore-
3 j.c.h. Society, block 7/8, Karachi 54920
Tel: 92-21-4541540-43 Tel: 92-42-6550330
E.mail: agrato@digicom.net.pk E.mail: forging@nexlinx.net.pk
Manufacturers of: shock absorber & struts (all vehicles) Manufacturers of: connecting rods, axles, hubs, gear,
sleeves (hard chrome plated), camshafts, gaskets, hydraulic lift arms, lock bars.
steering box.
Synthetic Products Enterprises
Alsons Industires (Pvt) Ltd. 127-S, SIE Township, Kot Lakhpat, Lahore.
S/18, s.i.t.e. Karachi-75730 Tel: 92-42-5115506-7
Tel: 92-21-2562060 E.mail: almas@spel.lcci.org.pk
E.mail: alsonsind@nettlink.net.pk Manufacturers of: steering wheels, door handles, radiator
Manufacturers of: speedometer, assembly for two grills & wheel trims etc.
wheelers as well as four wheelers, fuel, temp battery
gauges, instrument clusters for four wheelers and tractors, Thermosole Industries Pvt Ltd.
brake assembly for automobile. 140 main industrial area, Kot Lakhpat, Lahore
Tel: 92-42-5117859, 5118512
Allwin Engineering Industries Ltd. E.mail: thermosole@usa.net
National highway landhi Karachi-75120 Manufacturers of: air ducts, washer tank, grills, bumpers,
Tel: 92-21-5015527 plastic injection and blow mouldings auto parts.
Emali: aeil@atlasgroup.pk.com
Manufacturers of: pistons, pistons pins, cylinder liner Thal Engineering
sleeves, radiator cores, radiator assemblies and cast iron, Plot 1-2, sector 22, Korangi, Karachi.
fully machined parts. Tel: 92-21-5885696-8
E.mail: thalengg@fascom.com
Balochistan Wheels Limited Manufacturers of: Denso Car A/c, wire harness.
st
1 floor, State life building, #3 Dr. Ziauddin Ahmed Road,
Karachi-75530 Rastgar Engineering Company Pvt Ltd.
Tel: 92-21-5682528 307 street no. 3, sector I-9/3, Industrial Area Islamabad
Manufacturers of: automotive steel wheels for all type of Tel: 92-51-4-433544-5
vehicles. E.mail: iar@rastgar.com
Manufacturers of: Wheels, hubs, brake disks and tractor
Bolan Casting Ltd. components.
F-1 SITE, Hub River Road Karachi-75730.
Tel: 92-21-2579891 Exide Pakistan Ltd
E.mail: bolha@cyber.net.pk 40-K. Block-6. P.E.C.H.S Dr Mahmood Hussain Road.
Manufacturers of: cylinder block, center hosing, axle Karachi-75400
casing, axle support, brake drums. Tel: (021) 4536750-52. 4536759 Fax: (021) 4538948
1.71.10.1 Vendor industry -Technical Collaborations
Table 85: List of technical agreements in the vendor industry

Components Vendors in Pakistan Collaborating Partners
Shock absorbers M/S Honda Atlas Ltd Showa, Japan
Radiators M/S Allwin Engg. U.E. Radiators, Japan
Car A/C M/S Sanpak Sanden, Japan
Shock Absorber M/S Agri Auto Ind. Kayaba, Japan
Radiator M/S Loads Pvt. Ltd Toyo Radiator, Japan
Radio Cassette Player M/S Automate Ind. Panasonic Thailand
Car A/C M/S Thal Engg. Denso, Japan
Lamps M/S Techno Pak Koito, Japan
Spart Plugs M/S Shaigan Electric NGK, Japan
Air conditioners M/S Thal Engg. Denso, Japan
Glass M/S NGS Pak NGS, Japan
Steering case set M/S Polymer & Precision I.S. Seiseki, Japan
Brake Drum Assembly M/S Alsons Auto Ltd. Nissin Kogyo, Japan
Page 173
Source: BOI
1.71.10.2 Car assembly plants

Assembly plants have been setup through joint ventures with the leading auto manufacturers of the
world e.g. Toyota, Honda, Suzuki, Hyundai, Kia etc. Complete list of these companies is available and
can be sourced on www.paapam.com
1.71.10.3 Others
Millat Tractor Ltd (Massey Ferguson) Fax: 021-5689387
Sheikhupura Road
P.O Box 12023 M/S Sigma Motors (Pvt.) Ltd. (Land Rover, Discovery)
Shahdara. Lahore 1-B, Street 55, F/8-4,
Tel: (042)7925383-7911021-5 Islamabad.
Fax: (042)7924166, 7925835 Tel: 2264243,
E-mail: sml@discovery.isb.sdnpk.org
Al-Ghazi Tractor Ltd. (Fiat Tractors)
Manufactruing Plant at Dera Ghazi Khan. M/S Adam Motors Ltd. (Chrysler Jeep)
Fiat Tractors Model 480 (48HP) Fiat Tractors Model 640 DSU-10, Pakistan Steel Downstream Industrial Estate,
(65 HP) Bin Qasim, Karachi.
11TH Floor, NIC building Abbasi Shaheed Road Tel: 0201-4750777
Tel: 021-5660881-5
Pakistan Agricultural Machinery and Implements Manf. Pakistan Association of Automotive

Association Parts & Accessories Manufacturers
6/21-26, Nazar bagh 894-circular road
G. T. Road near Nigar cinema
Peshawar Tel: 091-211835 Lahore Tel: 042-7312452
Fax: 091-216723 Fax: 042-7237613
E.mail: secypaapam@hotmail.com
All Pakistan Tyres Importers and
Dealers Association The Pakistan Automobile Spare Parts
7/12, Rimpa plaza Importers & Dealers Association
M. A. Jinnah road 4/18, Rimpa plaza, plaza square
Karachi Tel: 021-7729129/7722366 M. A. Jinnah road
Fax: 021-7722815 Karachi Tel: 021-7721883/7728774
Fax : 021-7761938
Pakistan Automotive Manufacturers E.mail: paspida@super.net.pk
Association
11, Ilaco house All Pakistan Two/tri Wheelers Assemblers
Abdullah Haroon road Cum-progressive Manufacturers Assn.
Karachi Tel: 021-5662493/5672349 129/130, Murree road
Fax : 021-5687247 Rawalpindi Tel: 051-5532301
E.mail: pamauto@cyber.net.pk Fax : 051-5556804
Page 174
Table 86: Auto parts import and export statistics (SITC 784), values in USD '000
1997 1998 1999 2000 2001 1997-2001
Total export value 1 518 3 175 1 943 2 579 4 747 13 962
Total import value 38 968 44 044 39 655 56 581 67 465 246 713
1997-2001 1997-2001
Value % Value %
USA 2 284 16,4% Japan 97 462 39,5%
Bangladesh 2 184 15,6% Thailand 18 709 7,6%
United Arab Emirates 1 937 13,9% other Asia 17 293 7,0%
Nigeria 1 280 9,2% Rep. of Korea 16 846 6,8%
United Kingdom 978 7,0% United Kingdom 10 907 4,4%
others 5 299 38,0% others 85 496 34,7%
2001 2001
Value % Value %
USA 1 252 26,4% Japan 23 565 34,9%
United Arab Emirates 763 16,1% Thailand 10 555 15,6%
Bangladesh 540 11,4% Rep. of Korea 6 847 10,1%
Saudi Arabia 437 9,2% other Asia 3 310 4,9%
Oman 404 8,5% China 2 858 4,2%
United Kingdom 375 7,9% United Kingdom 2 692 4,0%
Germany 271 5,7% Philippines 2 439 3,6%
Morocco 203 4,3% United Arab Emirates 1 788 2,7%
Sri Lanka 168 3,5% Italy 1 662 2,5%
Tanzania 137 2,9% Malaysia 1 644 2,4%
Belgium 132 2,8% Indonesia 1 504 2,2%
Kenya 122 2,6% Singapore 1 329 2,0%
Japan 106 2,2% USA 1 216 1,8%
Turkey 1 059 1,6%
Hungary 923 1,4%
Germany 871 1,3%
Brazil 578 0,9%
Australia 433 0,6%
Page 175
1.72 Textile related engineering
The Pakistan’s textile engineering sector is underdeveloped and under utilised. The major engineering
developments in the past years have been concentrated into:
- Spinning Frames
- Conventional Weaving Looms
- Conventional Wet Processing Machines.
The sector currently caters for spares, components for modernisation and parts for machines used in
cottage or small scale enterprises.
TOTAL TURNOVER Rs. 55-60 billion
% IN GIP 1.6% ( Import Substitution of USD 1 bn)

NO. OF COMPANIES 500 Companies
80% Small workshops
15% Medium engineering units
5% Large units
The large units are mainly in the public sector.
NO. OF EMPLOYEES 50,000
TOTAL INVESTMENT Rs. 18-20 billion
It is very difficult to have a precise overview of the sector structure and capacity. No significant
association does exist and the sector is not well organised.
1.72.2 The Industry in Asia
The rate of investment in the textile industry is the highest for Pakistan (in Asia) mainly in the spinning
and weaving sectors. Most of the new investments went into replacement of old machinery rather than
enhancing capacity11
1.72.2.1 Spinning machinery

The spinning machinery is the most important machinery segment in the industry.
Among the three major categories of spinning machinery, the short staple (cotton-type) is for
producing ring spun cotton yarns and yarns made from other fibres. The long staple (wool-type) is for
producing ring spun wool yarn and yarns made from other fibres. Open end is the newest technology
perfected over the last 25-30 years giving higher productivity and a more even yarn. It is however
more capital-intensive and has limitations in terms of finer count yarns. Short staple machinery
therefore continues to maintain a market share nearly five times that of open-end machinery.
World shipment of short staple spindles totalled 3.56 million, of which 82.5% were shipped to Asia. A
cumulative shipment estimate over the last decade (1993-2002) shows a predominantly large share of
India in total shipments (36%). China lags behind India, accounting for 8.9% share of total shipments,
while Pakistan represented 5% and Bangladesh 3.4%.
Shipments of technologically advanced open end spinning machines have picked up from all over the
world though Asia remains the largest destination with a 70% share.
11
Quoted from a paper by Dr Sanjay Gupta, an Associate Professor at the National Institute of Fashion Technology, New Delhi,
India.
Page 176
In spite of the high growth in machinery shipments, the installed capacity in spinning (net of total
installations and closures), did not register an impressive growth in Pakistan. This implies that most of
the fresh investments have gone into replacement of old machinery and the rate of replacement is
high. On the other hand, installed capacity for China showed a remarkable 12% growth indicating
massive re-equipping happening in spinning capacity.
1.72.2.2 Weaving machinery

In weaving, the changeover to the faster and more productive shuttleless loom technology has been
far more pronounced than the shift in spinning to open end technology. In 2002, shuttleless looms
accounted for 81.5% of the total number of looms shipped. Asia accounted for 87.5% of all shuttleless
and 98.9% of all shuttle looms shipped. Shuttleless technology is further categorised into four different
weft insertion methods, i.e. air jets, water jets, rapier (rigid and flexible) and projectile. The preference
patterns are somewhat erratic; however, the Asian countries tend to prefer water jet looms owing to
the prevalence of filament weaving using synthetic yarns.
India and Pakistan show a high growth rate of installed capacity of 13-16% indicating growing
investments in shuttleless machines. The ratio of shuttleless loom to total installed loom (the
"technology quotient") gives a fair idea of the level of technology. Korea and Taiwan have a quotient
well over 80%, Pakistan around 6% and India 0.6%.
An estimate of the number of looms to be replaced in Pakistan in the coming years was estimated by
one of the industry participant at about 200 000 looms, which represents a substantial investment
requirement on the part of the industry, and probably a significant business opportunity for FDI.
1.72.2.3 Knitting machinery

The growth in shipment of knitting machines continued in 2002. The increase was however mainly due
to the increase in shipments of hand knitting and semi automatic flat knitting machines. Shipments of
larger circular knitting machines actually registered a drop.
1.72.2.4 Impact of domestic machinery manufacturers

Most of the modern mills in Pakistan are equipped predominantly with textile machinery imported from
Japan, Western Europe or North America. The impact of the local industry is not easy to estimate,
being mostly concerned with parts rather than complete machinery.
1.72.3 Material and processes involved to produce a typical textile part /component
The different steps in the manufacturing process are no different from the usual techniques used to
manufacture steel based components. The process uses similar techniques like the one employed for
the manufacturing of certain auto parts:
- Designing
- Mould and Die manufacturing
- Forging, Casting and Machining
- Sheet metal, and Press work
- Plastic & Rubber Mouldings
- Electrical or Electronic components
- Raw Materials 1. Iron & Steel; 2. Copper & Aluminium; 3. High & Low Density Polypropylene
These parts, components and raw-materials are being imported in large quantities from China, Korea,
Japan, USA, Germany, Belgium, Saudi Arabia etc.
1.72.4 Main machinery and equipment and their origin
Similar remarks as above; machinery utilised is fairly standard.

- Mould and Die Manufacturing machines
- Forging and Casting machines
- Metal Fabrication machines
- Plastic Injection Moulding machines
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- Rubber mouldings machines

- Lathe Machines
The machinery and equipment is imported from the USA, Germany, Belgium, France, Korea, Japan,
China, and Thailand. Many a machines such as injection moulding and lathe machines etc. are being
manufactured locally.
1.72.5 Main parts manufactured locally
List of parts manufactured in Pakistan are attached here after in paragraph 8.7.4. Details about such
list can be sourced from the Central Board of Revenue, Customs General Order N° 10/2003 dated
October 7, 2003. Unfortunately this big document is not available electronically.
1.72.6.1 Labour
It must be stated here that any improvement in the quality of the machines manufactured shall imply
an important training effort of the workforce.
- Skilled labour is mostly required, it is available but at relatively higher price.
- Skilled labour concentrates around urban centres.
- Links by the industry are being developed with specialised educational institutions for sourcing
skilled labour. These links have to be further strengthened to keep abreast with the modern
advanced technologies in the industry.
- More engineering universities are being established or restructured.
1.72.6.2 Raw-material
- Iron & Steel;
- Copper & Aluminium;
- High & Low Density Polypropylene.
These raw-materials are being imported in large quantities from China, Korea, Japan, USA, Germany,
Belgium, Saudi Arabia etc.

The research and development is mostly restricted to large public sector units as they have to achieve
high quality targets. The textile engineering industry is feeling a dire need of research and
development facilities as they also have to successfully achieve the quality targets set by the large
state of the art composite units. These quality standards are essential in order to be competitive vis a
vis imports.
Due to technological advancement in the textile industry, the absence of skilled and educated
workforce is really felt, though the Government has introduced textile engineering in the major
universities but there is still a long way to go to fulfil the demand of the rapidly growing textile industry.
1.72.6.4 Quality control

- There are few units which have their own material testing facilities or have access to any such
facilities externally. Although “reverse engineering technology” is practiced, such copying is used
without adequate material testing facilities, which results in sub-standard quality.
- The products manufactured locally appear of low quality, primarily because of improper finishing of
welding seams, electroplating, paintings and other surface treatments.
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1.72.7.1 Analysis of the main imports per type of imports, per country of origin
The statistics show clearly the huge investments which have been undertaken in the Pakistan textile
industry in the last three years, with import figures of textile machinery nearly multiplied two fold and
reaching about USD 450 million per annum.
The main suppliers of machinery have been Germany and Japan, followed by China, Switzerland and
Italy (for details see section 1.73.11)
1.72.7.2 Analysis of main exports per type of exports, per country of origin
The export markets for the textile engineering industry are not the engine of growth that it could be if
the technology was up to standard. This is reflected in the low amount of equipment exported (USD 3
million) mostly to Bangladesh and the Middle East (for details see section 1.73.11).
1.72.8.1 Location
Most of the textile engineering industries are located around Karachi, Lahore and Faisalabad due to
their proximity to the textile manufacturing units, urban commercial markets, seaport and raw material
sourcing centres. It has been indicated that the industry is moving towards Punjab over the years to
the detriment of Karachi.
1.72.8.2 Role of local importers

Apart from supplying parts to newly set-up manufacturing units, a large market exists in the Power
Loom sector. The textile parts sector is mostly catered by imports and smuggled spares and parts, as
reported.
Many authorised dealers and distributors operate in big urban markets in Karachi, Lahore, Faisalabad
and Multan. Manufacturers like Sulzer, Toyoda, NGK etc. have their presence in the market through
these representatives. The network of dealers involved in supplying machinery and spares is fairly
organised.

The textile engineering industry faces a tough competition from imports, but there are examples where
a few locally manufactured products are successfully competing with imported parts both in terms of
quality and price. But the textile engineering industry faces a serious threat from smuggled and
misdeclared imports as reported by some of our contacts.
One of the main sources of such competition is routed through the Second Hand Machinery imports
where there is little or no check at all.
1.72.9 WTO
Conformity to the WTO rules and regulations in term of protective tariffs and local components
requirements are the main issues facing the industry. The ensuing squeeze on the domestic market
further to the potential reduction of the tariffs increases the needs for improved technology, know how
and productivity, for the industry to remain competitive.
Page 179
opportunities
In the future, the mission is of the opinion that attractive opportunities exist to upgrade existing
facilities for the textile engineering industry, in terms of technology and quality, based on a long-term
strategy. It is recommended that such co-operation should start either as an assembly plant,
incorporating increased local components as and when the local supplies are available, or as a
technological transfer, with geographical market restriction for the local company. Such agreement
would be eventually followed when quality is recognised as satisfactory by a more significant
involvement of the foreign partner, possibly through a joint-venture, the aim being then to expand
exports.
The main textile engineering parts which were mentioned during the mission visits as worthy of FDI
were the spinning frame, the industrial sowing machines as well as the cutting machines.
However, it has been mentioned several time that competition from Chinese imported machinery might
be difficult to face since more and more Chinese and Indian companies benefited from European
technology transfers which rendered there products more and more technologically competitive.
The future of the industry will therefore be difficult unless there is an active involvement of the players
to secure co-operation agreements with more advance countries.
1.72.11.1 Machinery Manufacturers - Public Sector

Pakistan Machine Tool factory Pakistan Engineering Co. Ltd. (temporally closed)
PMTF Rd., off National Highway, Karachi 75030 Shahrah-e-Quaid-e-Azam
Tel: 92-21-508 24 51/4 Lahore, Pakistan
Contact: Javaid Sahibzada, Managing Director
Tel: 92-42-7356292; 7324338; 7320225-6
Fax: 92-42-7323108
1.72.11.2 Loom Manufacturers - Private Sector
Siddiq Brothers Engineering Works Contact: Maqsood Ahmed, Managing Director

Bea WAODA Steam Power Station Tel: 92-41-754141; 751111
Sheikhupura Road Fax: 92-41-751119
Faisalabad, Pakistan
Contact: Abdul Waheed, Chief Executive Bashir Engineering Works
Tel: 92-41-750594; 754668 Jinnah Road
Fax: 92-41-754921; 754669 Gujranwala, Pakistan
Contact: Muhammad Bashir, Managing Director
Mumtaz Foundry and Engineering Works (Pvt.) Ltd. Tel: 92-431-214758; 216196
Nishatabad, Sheikhupura Road Fax: 92-431-222893
Faisalabad, Pakistan
No Joint venture has been identified in this sector, while it appears that a number of technical
agreements are in force.
All Pakistan Cotton Power Looms Assn. E.mail: apcpa@phone.net

P-107, st. No. 5, first floor
Montgomery bazar Pakistan Small Units Powerlooms Assn.
Faisalabad Tel: 041-612929/639383 2nd floor, Waqar plaza
Fax: 041-613636
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Aminpura bazar, p.o. box 8647

Faisalabad Tel: 041-714371 All Pakistan Textile Processing
Fax: 041-33567 Mills Association
E.mail: psupla@hotmail.com 213-main Soosan road, 1st floor
Ibrahim motor plaza, Madina town
All Pakistan Solvent Extractor's Assn. Faisalabad Tel: 041-721013-14
C-38, Estate avenue, s.i.t.e. Fax : 041-718982
Karachi Tel: 021-2561724 E.mail : pktexpro@fsd.paknet.com.pk
Fax: 021-2564536
1.72.14 List of textile parts manufactured in Pakistan
Table 87: List of Textile machinery parts/components manufactured in Pakistan
Spinning
Name of machine Details of locally manufactured components % in value % in value
(imported) (local)
1 Blow room 1. Conveyors 70% 30%
2. Transportation pipes (raw mat)
3. Fans
4. Dust extraction
5. Humidification
6. Gears
7. Shafts
8. Motors (not specialised)
2 Carding 1. Card wire (tops only) 60% 40%
2. Dust extraction & waste collection
3. Web belts
4. Card coilers
5. Under casings
6. Stationary flats, c.r.c. Rollers
7. Crush rollers
8. Gears
9. Shafts
10. Stop motions
11. Motors (not specialised)
12. Chains
3 Draw frames 1. Creels 90% 10%
2. Rubber cots
3. Gears
4. Chains
4 Combers Rubber cots 98% 2%
5 Ring frames Spinning machinery corporation. 40% 60%
1. Head stock parts - 350
2. Tail stock parts - 41
3. Section assembly - 113
4. Drafting system - 11
5. Creel assembly - 20
535
additionally - pmtf 105
accessories like costs, aprons, bobbin, etc. are
also available locally
6 Winding: 80% 100%
(6a) manual manual cone winders 20%
(6b) automatic bobbing conveyors + drums+ other accessories
7 Humidification plant+ chilling All parts manufactured locally except controls 20% 80%
which are imported
Weaving
No Name of machine Details of locally manufactured components %in value % in value
(imported) (local)
1 Warping machine All guide rollers 40% 60%
gears
pumps
frame
comb (expanding) +
accessories including:
tie rods-(comb holders
oscillating fans - chains
tension device, cutters.
Motors (not specialised)
2 Sectional warping machines Specialised design-full machine. Parts almost as above 20% 80%
and accessories
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3 Multiple cylinder 1. Creel 30% 70%

sizing machine 2. Size boxes
3. Squeezing rollers
4. Guide rollers
5. Drying cylinders
6. Frame work
7. Rubber rollers
8. Exhaust fan
9. Pneumatic control parts
4 Pirn winders Complete local machine exchine except critical parts 20% 80%
5 Semi & automatic cop 1. Automatic cop change mechanism & cutter - 100%
change looms 76" - 126" 2. Temple cutter
reed width 3. Feeler motion
4. Take up motion
5. Positive warp let-off motion
6. Back rest sensitivity control
7. Drive & brake arrangement
8. Weft stop motion
9. Warp stop motion
10. Reeds + healds
11. Picking system
12. Beams
13. Shuttles
14. Electric motors
6 Semi automatic terry towel All above parts/components + terry motion and pile - 100%
looms 76"-116" reed width beating system
7 Shuttleless looms type 170-180 rpm, reed space 76 (26 inches) total assemblies 30% 70%
rapier locally manufactured except rapiers, stop motions,
specialised motors, panels.
8 Cloth inspection Full machine-rollers, guiding rollers, light box, plaiter, 30% 70%
welding cutting, cloth inspection machines-cloth rolling
machines - except inverters, cloth guiders, meter counter
gear boxes, roller felt/rubber coverings, ultra-violet
lighting systems.
9 Cloth folding & palleting All components manufactured locally except - selvedge 30% 70%
guide, inverters, panels, specialised electrical equipment
10 Cloth rolling All components are manufactured locally - 100%
11 Humidification plant All components except controls manufactured locally. 20% 80%
Textile wet processing (conventional)

Pre treatment
Name of machine Details of locally manufactured components %in value % in value
S.no. (imported) (local)
Singeing Complete singeing machine with brushing units
1 machine (cloth) except control & panels 30% 70%
High pressure 1. Pressure vessel
kiers 2. Circulation system
3. Spreading guides
4. Pumps
2 5. Motors, except control panel & valves 30% 70%
Rope washing 1. Squeezing mangles
machine 2. Washing chambers
3. Guiding rollers
4. Pumps
3 5. Motors (except control) 20% 80%
1. Washing chamver
2. Entry system squeezing mangle
3. Guiding
4. Batch forming system
5. Roles
Open winding 6. Pumps
washing & 7. Motor
4 soaping machine except sel vedge guides, control panels, expanders 30% 70%
5 Chainless mercerising machine 1. Entry frame
2. Expander unit
3. Mercerising com
4.bottom rollers
5. Top rollers
6.squeezing unit with rubber rules
7.sted rollers
8.drainage pipe
9. Stabilising composcaling separator
10.caustic soda dissolving device
11.oscilsating separator
except, compressor, liquor filter, valves cooling 40% 60%
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plant, thermostat, expansion valve, switch cabinet,

diaphragm shut off valves , lye - pump
6 Desizing machine (rope type) Except controls, special motors 10% 90%
Dyeing
S.no. Name of machine Details of locally manufactured %in value % in value
components (imported) (local)
1 Jt-10type jigger machines Except control panel, special motors 10% 90%
2 Jumbo dyeing jigger machine Except control panel, special motors 10% 90%
3 Open jigger Except control panel, special motors 10% 90%
4 Close jigger machine Except control panel, special motors 10% 90%
5 Dyeing paders Except control panel, special motors 20% 80%
6 Jet dyeing machine (double tube) Except control valve, control panel, jets 30% 70%
7 Jet dyeing venture a type Except control valve, control panel, jets 10% 90%
8 Continuous/ thermosal dyeing machine Except infra red light plc control panel 10% 90%
9 High pressure chamber rotary jigger Except control valve, control panel, jets 10% 90%
10 Cone dyeing machine - 100%
Drying section
1 Vertical/horizontal drying range - 100%
2 Closed high heat drying range - 100%
3 Centrifugal hydro extractors - 100%
4 Steam ager 20% 80%
5 Mini boilers - 100%
6 Cone dryer machines 30% 70%
Finishing section
1 Felt calender - 100%
2 Cotton calender - 100%
3 Stentering machine 9 pin & clips 50% 50%
4 Comfit machine - 100%
5 Shrinking machine - 100%
6 Sanforizing machine - 100%
Hosiery and towel

1 Hosiery kier Bleaching of fabric - 100%
2 Dyeing winches Except control valve, control panel, jets 10% 90%
3 Hosiery rope washing machine 100%
4 Sample winches 100%
5 Calendering machine Except control valve, control panel, jets 10% 90%
6 Hydro extractors - 100%
7 Hi-temperature dyeing machine Except control valve, control panel, jets 10% 90%
8 Dryers Except control valve, control panel, jets 20% 80%
9 Soft flow Except control valve, control panel, jets 10% 90%
Section: textile wet processing (conventional)

High tech machines
S.no. Name of machine Details of locally manufactured components % in
% in value value
(imported) (local)
1 Shearing/ cropping Sophisticated machine in order to remove bars from cloth before going
machine in for wet finishing process. It requires burners, cloth guiding rollers,
temperature control, etc. This process lays the foundation for smooth &
quality processing. Only few quality manufacturers all over the world. 80% 20%
2 Cloth singeing Entry frame, beating & suction can be made locally. Also impregnation
machine & tanks, batcher and plaited is possible. Brushing unit, complete singeing
desizing unit dry fire extinguisher, panels and controls are imported. 60% 40%
3 High pressure kier Pressure vessel stainless steel with jacket - circulation system,
spreading - guide rollers, pumps, motors locally manufactured except
controls, panels, valves. 30% 70%
4 Rope washing Squeezing mangles, washing chambers, guiding rollers, pumps, motors,
machine locally made. Except controls and panel which are imported. 20% 80%
5 Open width Various roller widths required entry frame - take up rollers, washing
washing and chambers- padding mangles, squeezing mangles etc. Batch formation -
soaping machine pumps - motors, all mechanical parts can be locally made except
squeezing rollers, guiding rollers, selvedge guiders, expanders, tension
controls, panels, controls. 75% 25%
6 Dyeing jiggers Through - guide rollers - heating system - mechanical parts - general 50% 50%
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motors, locally manufactured. Except controls - guiding system - digital

drive - plc controls & panels.
7 Vinches for dyeing All parts local - raw material stainless steel except special drives and
controls. 25% 75%
8 Dyeing padders Specialised manufacturers for specific application. Only 4/5
manufacturers in the world like "kusters" - monforts" etc. 90% 10%
9 Jet dyeing Raw material is stainless steel all chambers - tubes ad mechanical parts
local manufactured except pumps - control - pneumatic valves -
reduction gear motors. 90% 10%
10 Continuous Highly sophisticated - works on infrared system.
thermosole dyeing Few specialised manufacturers like "monforts" & "bruckner"
machine 90% 10%
11 Cone dyeing and Very specialised and sophisticated. Only very few manufacturers in the
hydro extractor world.
plus drying range 95% 5%
Table 88: Textile/leather machinery (SITC 724), values in USD '000

1997 1998 1999 2000 2001 1997-2001
Total export value 2 713 2 602 972 2 409 2 871 11 567
Total import value 174 891 235 390 180 424 333 908 465 036 1 389 649
1997-2001 1997-2001
Value % Value %
Bangladesh 2 882 24,9% Germany 245 828 17,7%
United Arab Emirates 1 695 14,7% Japan 245 330 17,7%
Bahrain 1 554 13,4% China 134 649 9,7%
Brunei Darussallam 1 414 12,2% Switzerland 120 418 8,7%
Singapore 735 6,4% Italy 112 781 8,1%
others 3 287 28,4% others 530 643 38,2%
2001 2001
Value % Value %
Bangladesh 767 26,7% Germany 85 734 18,4%
United Arab Emirates 455 15,8% Belgium 81 498 17,5%
Tanzania 380 13,2% Japan 79 444 17,1%
Bahrain 187 6,5% China 37 973 8,2%
Iran 168 5,9% Netherlands 29 458 6,3%
Turkey 166 5,8% Italy 27 603 5,9%
Saudi Arabia 114 4,0% Switzerland 23 121 5,0%
USA 20 460 4,4%
Page 184
1.73 Electrical capital goods
1.73.1 Description of the size and nature of the sector
- Yearly market volume averages Rs. 8,250 million.

- Share in the GIP is 0.02%.
- Direct/Indirect Employment in this sector is about 6000 persons
- Total investment in the sector is about Rs. 10.3 billion.
1.73.2 Main products and manufacturers in the market
Box 32: Main products and manufacturers in the market

Products Key Players Key Players Market Share
Siemens
Transformers
Distribution
Pel } 75%
Siemens
Power
HEC } 100%
Siemens
Switchgears Alstom
PEL } 75%
Siemens
Motors
PECO
Chinese } 45%
(Imported)
D.G. Sets Siemens 14%
Pakistan Cables
HM Cables
Pioneer Cables
Cables/Conductors 45%
Age Cables
Newage Cable
Atlas & Others
PEL
Energy Meters Escorts 90%
Syed Bhais
Source: Market estimates
The box above shows the strong presence of large European groups in the industry, notably Siemens.
However, the less sophisticated a product is (e.g. cables or electrical engines) the more local groups
are present in the sector. Often these groups have technical agreements with Western suppliers.
It is also worthwhile to note the increasing presence of the Chinese suppliers, mostly through imports
in the medium range of the market, starting to represent a severe competition for the European
industry.
1.73.3.1 Labour
- Level of skill involved is high. It is available at a relatively higher price
- Skilled Labour is concentrated around urban centres.
- Links by the industry are being developed with specialised educational institutions for sourcing
skilled labour. These links have to be further strengthened to keep abreast with the modern
advanced technologies in the industry.
Page 185
1.73.3.2 Raw material/Imports

Major raw material/components of the industry are imported as described hereafter:
- Distribution Transformers : Electrical steel, transformer oil, insulating material;
- Power Transformers : Electrical steel, special copper, insulating material & components;
- Switchgear : Major components, copper bus bar, steel sheet;
- D.G. Sets : Engine, electrical steel, insulating material & components;
- Cable / Conductor : Copper rod and AL rod.
1.73.3.3 Energy
As already discussed, the energy costs are high but available at all locations for the setting up of the
industry, subject to a reliability problem.
1.73.3.4 Finance
- Debt/equity ratio requirements: 70:30
- Project financing is available at around 8-9% p.a., while short term bank facility is below 5% p.a.
for prime borrowers.
1.73.3.5 Logistics
Rail, road and sea links are satisfactory; transportation of every type is available at very low rates.

The companies mentioned above have internal R&D departments but with limited facilities. The
Government is trying hard to enhance R&D in every field, through the establishment of Industry/
University linkages.
1.73.3.7 Government Policy towards the Sector

Duty Structure for the industry is covered under SRO-357
- Raw material 5%
- Sub-Components 10%
- Components 20%
SRO 435(I) 2001 defines the benefits to the Industries:
The Raw material, Sub Components and Components imported for the Electrical Capital Goods (ECG)
will attract Zero Rate of duty if supplied to:
- Projects with International Tender;
- Electric Power Generation;
- Export Sector or Exporting Purpose;
- Exempted Industrial Units, Projects, Agencies (e.g. Tax Free Areas, Industrial Processing Zones
etc.).
Since growth in the ECG sector is directly linked with the growth in the Power Generation Sector,
extracts of the present Power Policy, and incentives offered to the private sector is quoted below:
Salient Features of the Power Policy 2002

- Scope of the Policy covers private, public-private and public sector projects;
- Invitation of bids through International Competitive Bidding (ICB);
- Encourage exploitation of indigenous resources including hydel, coal, gas and renewable
resources through active involvement of the local engineering, design and manufacturing
capabilities;
- Customs duty at the rate of 5% on the import of plant and equipment not manufactured locally;
- To enhance share of Renewable Energy Sources, hydel and fuels other then oil-based fuels, full
levy of income tax is imposed on oil-fired power projects;
- For projects above 50 MW One – Window support to be provided at the Federal level. For projects
below and up to 50 MW One Window support to be provided at the respective Provincial/Azad
Jammu and Kashmir (AJK) level.
Page 186
- Ministry of Water and Power (through the Private Power & Infrastructure Board (PPIB) to remain
the focal point at the Federal level).
- To develop raw sites whose feasibility studies are not available, unsolicited bids are welcome. The
sponsors of feasibility studies on raw sites will have first right of refusal.
- Two-part tariff structure consisting of fixed capacity and variable energy component is
recommended with the proviso that fixed capacity payment for hydel projects would fall between
60% to 66% of the total tariff;
- Hydrological Risk to be borne by the power purchaser: WAPDA, the National Transmission &
Despatch Company (NTDC) or the Karachi Electrical Supply Company (KESC).
1.73.4 Analysis of the Import and Export Flows
1.73.4.1 World export market

- 40 billion $ world market growing at an annual average rate of 4.5%;
- Niche markets such as Africa growing at an annual average rate of 9% (currently at USD 1.1
billion);
The industry has envisaged the following growth and investment in the sector:
Table 89: Pakistan power generation equipment sector

Description 2001/02 Short Term Mid Term
2006/07 2011/12
Export(Value/Volume) USD 7.0 M USD 80.0 M USD 170 M
Domestic production capacity (80% of utilisation) Rs.15,650 M Rs. 20,000 M Rs. 35,000 M
Investment Rs.1,000 M Rs.1,500 M
Source: Industry estimates
1.73.4.2 Imports of power generating equipment

At around USD 200 million per annum, and on a reducing trend, imports originate mostly from the USA
(20%), Japan (16%), Germany (13%), China and Italy. However, the share of China in these imports
has been growing strongly recently.
1.73.4.3 Exports of power generating equipment

Exports are still small at USD 20 million on average per annum with the EU being the main importer,
notably Holland.

Due to the growth of the local industry, the import of ECG is consistently falling and local customers
are shifting towards locally manufactured items (see Figure 28).
Page 187
Figure 28: Import of ECG, 1995-2001
450
400
350 Transformers
300 Switchgears
US $ Millions Electric Motors
250
200 Gensets
150 Energy Meters
100 Cables
50
0
95-96 96-97 97-98 98-99 99-00 2000-01

Export in ECG has seen a sustainable growth during the last six to seven years, with annual growth
rate of around 4.4%. Competition however is significant, especially from China which appears to have
an advantage in securing know how transfers and technological agreements with more developed
industries.
Figure 29: World export trends in ECG, 1995-1999
40
7.44 6.47 6.32
6.11
30 5.78 Transformers
8.25 8.5 8.41
8.24 Switchgears
US billion
7.57
Elec. Motors
20 9.59 10.44 10.29
9.02 9.64 GenSets
Elec. Meters
4.6 4.66 4.75 5.24
10 4.64 Cables
6.98 8.11 8.33 8.46 8.54

0
1995 1996 1997 1998 1999
Page 188
Figure 30: Pakistan – ECG exports, 1995-2002
5
Millilon US $
4 Total
Transformer
3
Switchgears
2 Electric Motors
GenSets
1
Energy Meters
0
95-96
96-97
97-98
98-99
99-00
2000-01
Source: Industry estimates 2001-02

To meet the future electricity requirements, an estimated USD 2 billion is likely to be invested in
generation, transmission, expansion and distribution.
Competition in the industry is mostly between the main European suppliers and cheaper imports from
China. Local production through technical agreements is usually efficient and eventually exports
successfully to a number of markets, as exemplified by the Syed Bhais Group manufacturing Electrical
Meters, lighting and liaison controls under the G.E. Company technology. This group appears
successful in exporting its products even to the USA.
1.73.4.7 Market development

In line with the needs to fulfil existing shortfall in the power generation industry, as well as to
accompany the increasing needs of the country, the following investment projections in the growth of
the industry has been estimated by the Government.
Table 90: Pakistan power generation equipment market

Description 2001/02 Short Term Mid Term
2006/07 2011/12
Domestic Market (Avg) Rs.8,250 M Rs.14,000 M Rs.18,000 M
Source: WAPDA
For each additional load of 100 MW, the following equipment is required:
Table 91: Pakistan power generation equipment projected per 100 MW

Quantity Value (Rs.)
Power Transformers 8 Nos. 100 M
Distribution Transformers 1,000 Nos. 90 M
MV Switchgear 100 Panels 60 M
LV Switchgear 1,000 Panels 200 M
Electricity Meter 50,000 Nos. 60 M
Cable / Conductor 100 M
Total (for 100MW) 610 M
Source: WAPDA
ECG requirement for 1000 MW of power requirement represents Rs.6.1Billion.
Page 189
Table 92: Average additional power required per year

Period Additional Power/ Year
2000-2007 1000 MW
2008-2012 3500 MW
Source: WAPDA
1.73.5 Identification and assessment of major business co-operation project and investment
opportunities
Opinion has been expressed through the various meetings held with companies and sector
associations that the industrial components linked with the energy production, the transmission and
the distribution sector are the most promising.
However, it was mentioned several time that up to date technology was offered by Chinese firms in an
aggressive way, which might present an attractive venue for local companies to improve their
technology. Chinese technology was best for the smaller generator, up to 50 Kw, while Europeans
retained an advantage on the larger units, with good after sale service. Similarly, competition from
China was mentioned as significant in the lighter features like circuit breaker, switch gears, etc.
Opportunities have also been mentioned in the metering industry, for electricity, but also for the gas
and water delivery, in the area of automatic controls for buildings and industry, such as close circuit
TV, card access controls and fire alarm systems, as well as a niche market in the area of alternative
energy such as solar cells and wind farms (Pakistan Council for Renewable Energy Technologies,
PCRET).
Finally, Uninterrupted Power Supply equipment was also mentioned as an area worth investigating.
1.73.6 Analysis of the most interesting forms of co-operation in addition to direct investments such as
joint venture, transfer of know-how, sub-contracting etc.
It is considered that the easiest form of co-operation in the sector shall be through technical
agreement with existing enterprises in the form of a quality assistance programme. Further to such
confidence building relationship, establishment of a joint venture could be envisaged to start the
manufacturing of a new product range, starting with a simple assembly plant which would in due
course increase the sourcing of local components.
In view of the size of the market, exports should be made a significant part of the strategy. As
discussed previously in this report, the Middle East, Central Asia, and South Asia should be the
privileged export markets left to the responsibility of the local partner, while the OECD countries
should be the foreign partner responsibility.
Page 190
1.73.7 Siemens, a success story
Box 33: SIEMENS PAK LTD.

Summary of Operations
Siemens Pakistan Engineering Company Ltd., was founded in 1953 as a private limited company. In 1963 the company was
converted into a public limited and in 1978 it was listed in the Stock Exchange. Siemens Aktiengesellschaft (Siemens AG)
Germany holds 64% of the total shareholding.
The Company manages its business and manufacturing activities through its head office in Karachi and two regional branches
at Lahore and Islamabad, contributing to the local economy through substantial indigenous content and transfer of state-of-the-
art know how in several engineering fields and in many other ways.
It operates through four functional divisions:
Power Engineering Division,
Telecommunication Division,
Systems and Project Division,
Products and Services Division
In Pakistan, Siemens' sphere of activities covers the major fields of Power Engineering, Telecommunication Engineering,
Medical Engineering and Transport System Engineering, Engineering, Supply and Installation of Electrical Equipment, Complete
Plant Electrification including instrumentation and control systems and Information Technology. A large manufacturing complex
at Karachi, provides support to the company's marketing and engineering activities, turning out a vast range of high quality
electrical engineering.
Management Report
Although the Government's economic reforms have resulted in some improvements in key economic indicators like the
appreciation of the rupee, significant increase in foreign currency reserves and check on inflation, the regional tension and
political uncertainty kept the investors confidence low. The infrastructure projects in the public sector remained at a low priority
due to expected privatisation of public entities. In the private sector, textiles remained active though not at the level of last year.
The oil and gas sector received an encouraging boost from the overseas investors.
With intensified competition in the challenging environment Siemens Pak Ltd. continued their efforts in diversification through
exports and service business. Their exports increased by 21% over the previous year.
New Orders increased by 19%. The main contribution comes from orders for PTCL and other private operators in the field of
Information and Communication, orders for transformers from local utilities and from abroad as well as orders for large oil and
gas installations
Profit before tax, however, was adversely affected by exchange losses suffered on export business due to appreciation of the
rupee against major currencies.
Capital investment of Rs.117 million was made for modernisation and for keeping the facilities at the highest standard to
maintain their competitive edge.
Human Resource
Their success depends in part on their continued ability to recruit, assimilate and retain qualified management and other
technical personnel. To attract and retain their personnel, Siemens Pak Ltd. maintains intensive contact with universities through
university liaison programme and offer scholarships within and outside of the country. Siemens Pak Ltd. provides continued
educational support as well as technical and managerial training programmes for personnel development and better job
placements within the company.
Several training programmes were attended by their employees during the year. These programmes covered technical,
commercial and managerial training as well as seminars on topics covering quality systems, safety and health etc.
Quality
Adherence to Quality in every facet of their activities ensures customers' satisfaction and is the cornerstone of all their corporate
policies. Periodic and continuous surveillance audits coupled with management's commitment and employee’s participation
ensure that all their processes and their output are in full conformity with their Quality Management System.
Steps have been taken to further model their Quality Management System in line with the current and future market demands
and to meet and exceed the requirements of the new relevant ISO standards. Setting the objectives of higher productivity,
accelerated innovation, optimisation of various process and growth, their company wide top+ programme resulted in a
considerable savings directly reflecting in profit.
Awards
(a) Top 25 Companies Awards, (b) Export Trophy Award, (c) Best Presented Accounts
Environment, Safety and Health
Siemens Pak Ltd. works continuously towards reducing the burden on environment and use of energy and resources, above
and beyond the legal requirement and take appropriate precautions to prevent damage to the environment by controlling and
monitoring emission to air, water and land reducing or eliminating safety and health hazards and minimising the generation of
waste to a practical level.
Financial Performance of The Company (2 (Rupees ‘000)
Net profit for the year 390,882
Unappropriated profit b/f 410
Available for appropriation 391,292
Source: BOI
PEL Pak Elecktron Ltd. Fax: 4529553

507 & 508 Fortune Centre
45-A/6. PECHS, Sharae Faisal
Karachi 754000
Web Site: http://www.pel.com.pk/
Tel: 4548728, 4548725
Page 191
Pakistan Cables Ltd

B/21, SITE Newage Cables (Pvt) Ltd
PO Box 5050 Newage Mansio, Macload Road
Karachi 75700 Lahore
Tel : 2561175, 2561170 Tel: 6312153, 6312150
Fax : 2564614 Fax: 6363081
Email : pakcables@cyber.net.pk
1.73.9 Listing of major foreign companies
Siemens Pakistan Engineering Co. Ltd Alstom Pakistan Ltd.

B/72, Estate Avenue, S.I.T.E D163, SITE, Karachi 75700
P.O. Box 7158 Tel: 2576005-9
Tel: 2574919, 2574910 UAN : 111777888
Mob: 0300-8224987 Fax: 2560449
Fax: 2577790 Email: apkho@cyber.net.pk
Email: ccs@siemens.com.pk
Pakistan Electrical & Electonics Pakistan Steel Smelters Association

Merchants Association (peema) 30-s, Gulberg centre, 84-d/1
3/10, Arkay square Main boulevard, Gulberg iii
Shahrah-e-Liaquat Lahore Tel: 042-5759284/5712028
Karachi Tel: 021-2425933 Fax: 042-5712028
Fax: 021-2427496 E.mail: steelmelters@angelfire.com
E.mail : muhh@cyber.net.pk
The Pakistan Steel Re-rolling
Pakistan Electric Fan Mills' Association
Manufacturers Association Rashid chambers
Pefma house (gorali), p.o. Box 53 6 - link Mcleod road
G. T. Road Lahore Tel: 042-7227136
Gujrat Tel: 04331-521429/520301-3 Fax: 042-7231154
Fax: 04331-521427
E.mail: khalid03@gjr.paknet.com.pk Pakistan Electrical Manufacturers Assn.
84-Shadman colony
Pakistan Electronic Manufacturers Lahore Tel : 042-7569201/7569202
Association Fax: 042-7569203
1st floor, Rizvi chambers
Akbar road
Karachi Tel: 021-7766912
Fax: 021-5874546
Engineering Components & Machinery

Manufacturing Association of Pak.
10 Nargis block, Iqbal town
Lahore Tel: 042-7841300/6364065
Fax: 042-7832456/7632456
E.mail: grand@lcci.org.pk
All Pakistan Cables & Conductors

Manufacturers Association
103, Uni centre
i. I. Chundrigar road
Karachi Tel: 021-2414065-66/2417052/2419275
Fax: 021-2412014
Pakistan Petroleum Exploration and

Production Companies Association
House no 1, street 49
Sector f-6/4
Islamabad Tel: 051-823928/826105
Fax : 051-276084
E.mail : ppepca@isb.comsats.net.pk
Pakistan Iron & Steel Merchants Assn.

Corner house, second floor
Preedy street, Saddar
Karachi Tel: 021-519994/5660270-71
Fax: 021-5682724
Page 192
Table 93: Trade statistics SITC 71 (power generating equipment), 771 (power transmission
equipment), values in USD '000
1997 1998 1999 2000 2001 1997-2001
Total export value 19 076 6 675 20 677 16 275 12 663 75 366
Total import value 1 039 226 287 169 218 124 188 845 197 105 1 930 469
1997-2001 1997-2001
Value % Value %
Netherlands 28 323 37,6% USA 377 475 19,6%
Kuwait 10 287 13,6% Japan 319 367 16,5%
United Kingdom 7 058 9,4% Germany 255 918 13,3%
Germany 5 584 7,4% China 194 418 10,1%
United Arab Emirates 4 886 6,5% Italy 184 350 9,5%
others 19 228 25,5% others 598 941 31,0%
2001
SITC 71; 771 SITC 71 SITC 771
Exports by country Value % Value Value
Kuwait 6 313 49,9% 6 313
Saudi Arabia 1 681 13,3% 1 331 350
United Arab Emirates 901 7,1% 509 392
Bangladesh 747 5,9% 624 123
Germany 718 5,7% 686 32
Italy 356 2,8% 356
Netherlands 353 2,8% 353
China, Hong Kong 291 2,3% 291
Spain 244 1,9% 244
Oman 142 1,1% 142
Philippines 141 1,1% 35 106
United Kingdom 139 1,1% 135 4
Sri Lanka 136 1,1% 136
Libya 136 1,1% 136
2001
SITC 71; 771 SITC 71 SITC 771
Imports by country Value % Value Value
China 31 194 15,8% 30 316 878
Japan 26 315 13,4% 24,040 2,275
USA 24 942 12,7% 24 823 119
United Kingdom 21 172 10,7% 20 570 602
Germany 18 134 9,2% 16 733 1 401
Switzerland 14 861 7,5% 14 797 64
Italy 11 635 5,9% 11 472 163
Sweden 5 450 2,8% 5 413 37
Belgium 4 780 2,4% 4 760 20
Canada 4 701 2,4% 4 562 139
Netherlands 3 915 2,0% 3 532 383
Brazil 3 634 1,8% 3 625 9
Finland 3 447 1,7% 2 876 571
United Arab Emirates 3 123 1,6% 2 732 391
Singapore 2 968 1,5% 2 738 230
France 2 408 1,2% 2 014 394
Bulgaria 1 979 1,0% 16 1 963
Iran 999 0,5% 999
Page 193
NICHE SECTORS
1.74 Surgical and dental equipment
The industry is a major world exporter for a number of metal surgical instruments for the USA and
Europe with about USD 150 million exports per annum. The number of pieces produced annually
reaches about 100 million. It is felt that there is clearly an opportunity for expansion of production in
instruments to be identified. Quality, brand name as well as technology are required for expansion of
export markets. However, it is still a low technology and labour intensive industry. Opportunities for
Joint Ventures would be in the forging, milling and grinding process. The final steps in the process
should also provide opportunities for investment: Heat treatment, Ultrasonic cleaning and final grading.
Certification has been a problem in the past but it has been addressed successfully with a number of
companies obtaining ISO 9000 certification.
Production is spread among 40 to 50 large companies (employing about 200 people), 130 medium
size companies with an average of 75 people and about 180 small companies considered as “cottage
industry”.
The USA absorbs about 50% of the exports, and the EU about 40%. Most exports to the USA concern
low priced bulk orders of disposable items such as Operating/Bandage Scissors, Haemostat Forceps,
Towel Clamps, Needle Holders, Dressing Forceps and Probes etc.
Exports to Europe, of which Germany represents about 50%, are made of higher quality and higher
priced items.
1.74.1 Pakistan surgical industry structure
The total number of surgical instruments manufacturers including traders, registered with the Surgical
Instrument Manufacturers Association (SIMA) is more than 1500 but the Association does not have
detailed information regarding its members. The individual industrialists, due to severe competition
within the industry have limitations to share any kind of information. It is therefore difficult to classify
the industry on the basis of investments in plant and equipment, number of employees, etc. The only
other variable that can be used to classify the industry is the sales turnover. Usually the sales figure is
directly related to the size of the manufacturing units.
1.74.2 Classification of Pakistani surgical instruments
The surgical instruments manufactured in Pakistan (mainly in Sialkot) can be classified into three
broad categories:
1.74.2.1 Disposable instruments

This particular category represents instruments, which are for a single use. These instruments
constitute around 50% of the total export volumes of surgical instruments from Pakistan. Being single
use instruments, they are manufactured from low quality stainless steel, which is produced locally and
is available at nearly half the price of imported stainless steel. America is the largest market of these
single use instruments that are packed in sets.
1.74.2.2 OR (Operating Room) instruments

This category of surgical instruments represents the instruments, which are used in operating rooms to
carry out complex surgical procedures. This segment includes over 30,000 different types and
varieties. The OR instruments have to be reused and to maintain a desired level of sterility they are
sterilized very frequently. This requires that the raw material used in the manufacture of OR
instruments should be of proper grade so as to sustain the rigor of sterilization process. For Pakistani
made OR instruments, Europe is the biggest market. Most of the manufacturers of OR instruments
use imported stainless steel. Due to the nature of the usage, special skills and precision is needed to
produce an instrument, especially in the finishing process.
Page 194
1.74.2.3 Manicure, pedicure and veterinary instruments

Another category of instruments, which is also exported as surgical instruments, is the manicure,
pedicure and veterinary instruments.
1.74.3 Global trade of surgical instruments
According to the domestic industry sources, surgical instruments are only manufactured in Germany or
Pakistan and a few other countries such as Japan, United Kingdom, etc. Among these, Germany is
considered to be the market leader considering all the attributes such as range of instruments, quality,
innovation, etc. The Pakistani surgical instrument manufacturers consider only Germany to be their
competitor. This perception is somewhat contradicted, however, by UNIDO statistics, according to
which Pakistan is not a major global player in the industry (see Figure 31).
Figure 31: World export share 2000 of surgical and dental equipment
Source: UNIDO
The world total import market for the Medical Instruments is around USD 30 billion, 40% of which is
taken by Surgical Instruments. Syringes and Catheters, and Other Optical Instruments have 22% and
16% share respectively (Figure 32).
Page 195
Figure 32: Global import market for medical instruments
other breathing
Other optical
appliances medical,dental &
instru
Therapeutic 2% surgery furniture dental drill engines
16%
respiration 3% 0.5%
apparatus Lasers
4% 3% other dental instru
4%
mechano-therapy
appl. syringes,catheters
other medical
3% opthalmic instru etc
instru
3% 22%
40%
Source: UNIDO
1.74.4 Pakistan's exports of surgical instruments
Pakistan started exporting surgical instruments in the late 1940s. At that time Pakistan’s exports
comprised of only a few thousand dollars. In 2000-01, Pakistan’s export value of surgical instruments
amounted to USD 124 million (Figure 33), increasing to USD 150 million in 2003 (Table 94). Surgical
instrument exports contribute 1.35% to the total export earnings of the country.
Figure 33: Pakistan and world exports, surgical and dental equipment, 1993-2000 (USD million)
Source: SMEDA
Table 94: Pakistan exports of surgical and dental equipment

Product 2000 2001 2002 2003
Surgical Instruments & Medical Instruments 120.2 138.7 141.7 145.6
Dental Equipment 3.8 2.90 3.3 3.4
Total 124.0 141.6 145.0 150.0
Source: State Bank Annual Report
Pakistan's surgical exports are dominated by surgical instruments reported under SITC 87229,
followed by the dental instrument category reported under SITC 87219. The share of traditional
surgical instruments (such as surgical scissors forceps, scalpel, bone rongers, etc.) comes to around
97%. Only 1% of other items such as stethoscopes, sphygmomanometers, etc. are also being
exported from Pakistan.
Page 196
Figure 34 presents the major destinations of Pakistan's exports in surgical instruments. The low-cost
market segment (surgical instruments with a value of less than USD 1), which constitutes 50% of the
total market, is basically the disposable instruments, the majority of which are exported to the USA.
The major destination of the USD 1-2 market segment, which consists mainly of OR instruments, is
the European countries.
Figure 34: Pakistan export destinations of surgical instruments

(a) all exports
Others
20%
Denmark
1%
Australia
2%
USA
Netherlands
46%
2%
Brazil
2%
Japan Italy
3% 4%
France
4%
UK Germany
5% 11%
(b) product value Rs <50 (c) product value between Rs 50 and Rs 100
Others
Australia,
Others 21%
South
2% East Asia
Korea &
Hongkong 6%
6%
USA
92% South
Europe
America
63%
10%
Sources: Federal Bureau of Statistics and Experts Advisory Cell
Page 197
Box 34: SWOT analysis of surgical instrument manufacturing in Pakistan

STRENGTHS OPPORTUNITIES
– Geographical Concentration in Sialkot – Diversification of Product range
– Economies of Scale – Manufacturing Flexibility
– Availability of Inputs locally – Unexplored Markets
– Skilled Labour Force- cheaply available – Joint Ventures
– Technical Expertise – Use of modern manufacturing techniques
– Concentration on Core Competencies
– Wide Product Range catering the lower end
market
WEAKNESSES THREATS
– Minimal Involvement of Brand Names – Child Labour
– Branding – Stiff regional competition
– Marketing and Distribution – Increasing quality awareness amongst major
– Management buyers
– Lack of proper training facilities
1.74.5 Tax Structure for Surgical Instrument Industry
1.74.5.1 Income Tax

As 95% of the total production of the surgical instrument industry is exported, the industry is exempt
from income tax. The exporters, according to the Eighth Schedule of the income tax ordinance, pay
only a token tax. The range of the token income tax varies from 0.50% to 1.00% depending on the
level of value addition in the products.
1.74.5.2 Export Development Fund (EDF)

The export development fund contribution is made by every exporter at the rate of 0.25% of the total
value of goods exported.
1.74.5.3 Sales Tax

Sales tax has been levied on all the sectors at the rate of 15%. It is not applicable to exported goods.
1.74.5.4 Rebate
Rebate is the amount that is reimbursed by the government to the exporter as compensation for the
duty paid by him on imported components used in manufacturing a product. The rate of rebate, to be
paid on different products, is determined by the Ministry of Production and Industries.
The Surgical Instrument Manufacturers

Association of Pakistan
Kutchery road,
Sialkot Tel: 0432-263016/266240
Fax : 0432-265978/554217
E.mail : sima@brain.net.pk
1.75 Gems and jewellery
Pakistan has a considerable quantity of naturally available gems including an unmatched quality of
Emerald, Ruby, Pink Topaz, Lapis Lazuli, Roze Quartz, Tourmaline, Moonstone, Zircon, Aquamarine,
Garnet, Kunzite and Peredot. Most of the precious stone mines in Pakistan are located in the badly
accessible Northern areas, which provides conducive conditions for smuggling (Table 95). Jade is
found in Gilgit, Florite in Chitral and Kohat, with most expensive Ruby deposits in Hunza producing
blood Red Ruby. The Mingora Emerald is transparent sea green making it the most precious gem of
Pakistan. Topaz and Pink Topaz as well as the other previous stones are found in various northern
regions.
Page 198
Table 95: Gemstone productive areas

Gemstones Occurrences /Showing Areas
Emerald Swat, Gilgit, Mohmand & Bajour Agency
Ruby Hunza, Neelam Valley(Azad Kashmir) and Upper Hunza
Pink Topaz Mardan
Light Pink Topaz Mardan
Peridot Kohistan
Spinel Hunza Valley
Aquamarine Eastern Part of Gilgit, Chitral
Tourmaline Neelum valley-Azad Kashmir, Chitral, Bulechi – Nortern Tribal areas
Feldspar Skardu, Gilgit, Chitral
Quartz Skardu, Lasbela, Nagarparkar, Azad Kashmir, Gilgit, Chitral
Topaz Shingus and Bulechi in Gilgit District Dusso in Skardu District
Zircon Chilas, Gilgit
Agate Nagarparkar - Sind, Dir Kohistan
Garnet Swat, Malakand Agency, Targhao - Bajaur Agency, Skardu
Turquoise Chagai Hills - Baluchistan
Actual export statistics for gems show a total value of aroung USD 2 million (Table 96); actual export
values, i.e. including the value of smuggled gems, are estimated to be sugnificantly higher. It is
estimated that the export market for gems if properly exploited can be very significant. Gem exports
can be categorized into two categories i.e. precious stones worked and un-worked. In the period 1998-
2002 the export share of un-worked gems was 90%. Some of the leading importers from Pakistan
include Hong Kong (40% of Pakistan’s gem exports in 2001) the USA (20%) and Germany (Table 97).
Table 96: Pakistani exports of gems and precious stones 2000-2002, USD 000
2000 2001 2002
Gems and Precious stones 2,871 1,636 1,748
Source: Experts Advisory Cell (MOI & P)
Table 97: Pakistan's gem exports by destination

Country % share in total exports
HONG KONG 41
USA 20
GERMANY 18
INDIA 5
UAE 4
THAILAND 4.5
FRANCE 3
UNITED KINGDOM 2
Source: Experts Advisory Cell (MOI & P)
In Pakistan most of the jewellery is produced manually using expertise of skilled workers and mostly
relying on the lost wax casting procedure as opposed to more modern techniques. This causes
substantial waste levels. Likewise, processing of gems is based on outdated procedures.
Various capacity building initiatives have been launched including cluster development under a project
being executed with the help of UNIDO. Also the Export Promotion Bureau has taken initiatives to
organise training in this sector. It has established three training institutes in Karachi, Lahore and
Peshawar. Currently the Export Promotion Bureau is working on the idea of establishing a Dazzle Park
in Karachi where all modern facilities will be provided to the jewellers.
It remains however a low technology, labour intensive industry.
Page 199
Box 35: SWOT Analysis of the gem and jewellery sector

Strengths/Opportunities Threats/Weaknesses
– Abundance of raw materials specially gems – Uneducated entrepreneurs
and semi precious stones. – Cut throat regional competition.
– Skilled labour – Rudimentary Methods.
– Comparative advantage in the studded – Modern techniques not being implemented
Jewellery. – Labour is skilled but relatively costly.
– State’s liberalized policies i.e. Zero percent – High rate of utility charges and tax
duty on Import of Gold, and export regulations
facilitation. – High Entry barriers
– Availability of Finance, which can be utilized – Traditional Designs and no innovations
by SMEs. – Export is nominal as compared to the
– Availability of Technical Skill through potential
training Institutes. – Absence of any affiliation with International
– Large number of Entrepreneurs. Gold Organization.
– Wide local market for consumption. – Smuggling
– Use of Information Technology in the – Under invoicing
industry. – Lukewarm response of Association.
– Easy Access to International markets. – Law & Order situation
– Recognition in the Global market.
All Pak Commercial Exporters Association

of Rough & Un-polished Precious & All Pak Gem Merchants & Jewellers Assn.
Semi-precious Stones Gems & jewellery trade centre
2, al-Jalil market, Nimak Mandi 1st floor, Blenkin street
Peshawar off Zaibunnisa street, Saddar
Tel: 091-213396/2568801 Karachi Tel : 021-5210400/5657777/5678888
Fax: 091-213520 Fax : 021-5682970
E.mail: apceap@psh.brain.net.pk
1.76 Marble production
Existing quarries are operating on the basis of explosion, which does not allow large marble pieces to
be exploited. Specific expertise and know how should prove very useful, with a view to the local
construction market, booming at present, as well as exports. The main drawback for the successful
implication of a foreign investor is the small size of the existing operations. However, demand for
foreign partnership has been expressed by some of the contacts made during the course of this study.
All Pakistan Marble Industries Assn.

Flat # 6, block 16/a
i/9 Markaz
Islamabad Tel: 051-430519/433508
Fax: 051-435002
E.MAIL: apmia@hotmail.com
Pakistan Mine Owners Association

Barnas road
Quetta Tel: 081-64792/75171/821792
Fax : 081-821802
1.77 IT software, call and financial services centres, specific software development (animated
films, video games…)
Despite the efforts made by the Government to develop this sector through the improvement of IT
education, this sector shall be retained as a niche market only, in view of its emerging situation
compared to India. Still, call centres seem to have been created in numbers recently while statistics
are not available. Similarly, a handful of companies are being created in the software industry, with
more value added than call or service centres. There may be a future for some, while it cannot yet be
considered as a full fledged sector development.
Page 200
PART IV: SOURCES OF INFORMATION
USEFUL ADDRESSES
1.78 Addresses in Member States
Business associations, trade and export credit Swedish Trade Council

agencies Infocenter
Storgatan 19
GEPCI Box 5513
European Group for International Trade Promotion SE 11485 Stockholm
World Trade Centre Tower Tel: 46 8 783 8500
Boulevard General Jacques 162/36 Fax: 46 8 783 8550
B 1040 Brussels E-mail: infocenter@swedishtrade.se
Tel: 32 2 206 36 44 Website: http://www.swedishtrade.com
Fax: 32 2 206 3645
E-mail: gepci@obcebdh.be Italy - Istituto Nazionale per il Commercio Estero
Website: http://www.obcebdbh.be/en/Services/gepci.html (ICE)
Via Liszt,
Orgalime (Engineering Industry Federation) 00144 Roma
Diamant Building, Blvd Reyers 80B Tel: 39 06 599 292 02
1030 Brussels Fax: 39 06 596 474 41
Tel: 32 2 706 82 35 E-mail: Ice@ice.it
Fax: 32 2 706 82 50 Website: http://www.ice.it
E-mail: Secretariat@orgalime.org
Website: http://www.orgalime.be OAV (German Asia-Pacific Business Association)
Neuer Jungfernstieg 21
CEFIC, European Chemical Industry Council D20354 Hamburg
Avenue Van Nieuwenhuyse, 4 box 1 Tel: 49 40 357 559 15
B 1160 Brussels Fax: 49 40 357 559 25
Tel: 32 2 676 7211 E-mail: Funk@oav.de
Fax: 32 2 676 7300 Website: http://www.oav.de
E-mail: Mail@cefic.be
Website: http://www.cefic.be Austria WKOe – Austrian Economic Chamber
Tel: 43 1 501 05 43 11
Confederation of Food and Drink Industries of the EU Fax: 43 1 501 05 240
(CIAA) E-mail: awo.maerkte@wko.at
43, avenue des Arts Website: http://wko.at/awo
B-1040 Brussels
Tel: 32 2 514 1111 Belgium OBCE/BDBH – Belgium Foreign Trade Board
Fax: 32 2 511 2905 Tel: 32 2 206 35 11
E-mail: ciaa@ciaa.be Fax: 32 2 203 18 12
Website: http://www.ciaa.be E-mail: info@obcebdbh.be
Website: http://www.obcebdbh.be/
Eurochambres
Rue d’Archimèdes 4 Denmark MFA – Danish Trade Council / Danish
B 1000 Brussels Ministry of Foreign Affairs
Tel: 32 2 231 0715 Tel: 45 33 92 00 00
Fax: 32 2 230 0038 Fax: 45 33 54 05 33
Website: E-mail: um@um.dk
http://www.eurochambres.be/3members/ec0030.htm Website: http://www.um.dk
Union of Industrial and Employers Confederation of Finland Finpro

Europe (UNICE) Tel: 358 204 6951
Rue Joseph II 40 Bte 4 Fax: 358 204 695 535
B 1000 Brussels E-mail: info@finpro.fi
Tel: 32 2 237 65 11 Website: http://www.finpro.fi
Fax: 32 2 231 14 45
Website: http://www.unic.org France CFCE – Centre Français du Commerce
Extérieur
Denmark DI – Confederation of Danish Industries Tel: 33 1 40 43 38 88
Tel: 45 3377 3377 Fax:
Fax: 45 3377 3300 E-mail: orientation@cfce.fr
E-mail: di@di.dk Website: http://www.cfce.fr
Website: http://www.di.dk/
Germany BFAI – German Office for Foreign Trade
Tel: 49 221 2057-359
Page 201
E-mail: presseinfo@bfai.com Fax: 39 06 678 9835

Website: http://www.bfai.com E-mail: relazioni@isace.it
Website: http://www.isace.it
Greece HEPO – Hellenic Foreign Trade Board S.A.
Tel: 30 1 99 82 100 ECGD-Export Credits Guarantee Department
Fax: 30 1 99 69 100 2 Exchange Tower
E-mail: infocenter@hepo.gr Harbour Exchange Square
Website: http://www.hepo.gr London E14 9GS
Tel: 44 20 7512 7000
Ireland Enterprise Fax: 44 20 7512 7649
E-mail: client.service@irish.trade.ie E-mail: buecgd@ecgd.gov.uk
Website: http://www.enterprise-ireland.com/ Website: http://www.ecgd.gov.uk
Italy ICE – Italian Institute for Foreign Trade CREDITO Y CAUTION-Compania Espanola de
Tel: 06 59 921 (Roma) Seguros de credito y Caution S.A.
E-mail: ice@ice.it Paseo de la Castellana, 4
Website: http://www.ice.it E-28046 Madrid
Netherlands EVD – Netherlands Foreign Trade Agency Tel: 34 91 432 6300
Tel: 070 37 988 11 Fax: 34 91 432 6511
E-mail: evd@evd.nl E-mail: internacional@creditoycaution.es
Website: http://www.evd.nl Website: http://www.creditoycaution.com
Portugal ICEP – Investment,Trade and Tourism of OND-Office National du Ducroire

Portugal 40 square de Meeus
E-mail: informacao@icep.pt 1000 Brussels
Website: http://www.portugalinbusiness.com Tel: 32 2 509 42 11
(under construction) Fax: 32 2 513 50 59
E-mail: bu-ondd@ondd.be
Spain ICEX – Spanish Institute for Foreign Trade Website: http://www.ducroire.be or
Tel: 91 349 61 00 http://www.delcredere.be
Fax: 91 431 61 28
E-mail: icex@icex.es FINNVERA-Finnvera Plc
Website: http://www.icex.se PO Box 1010
FIN-00101 Helsinki
Sweden STC – Swedish Trade Council Tel: 358 204 6011
Tel: 46 8 783 85 00 Fax: 358 204 607 220
Fax: 46 8 662 90 93 E-mail: bu-finnvera@finnvera.fi
E-mail: info@swedishtrade.com
Website: http://www.swedishtrade.com HERMES-Hermes Kreditversicherungs-
Aktiengesellschaft
United Kingdom TPUK – Trade partners UK D-22746 Hamburg
Website: http://www.tradepartners.gov.uk Tel: 49 40 8834-0
Fax: 49 40 8834 9175
Major export credit agencies in EU member States: E-mail: bu-hermes@hermes-kredit.com
Website: http://www.hermes-kredit.com
OeKB – Oesterreichische Kontrollbank
Aktiengesellschaft NCM-Nederlandsche Creditetverzekering
Export Guarantee Department / International Relations & Maatschappij
Cover Policy Postbus 473
Postfach 70 NL 1000 AL Amsterdam
A-1011 Vienna Tel: 31 20 553 9111
Tel: 43 1 53127 – 0 or Ext. Number Fax: 31 20 553 2811
Fax: 43 1 53127 – 693 E-mail: ncm-mtb@ncmgroup.com
E-mail: bsburny@oekb.co.at Website: http://www.ncmgroup.com
Website: http://www.oekb.co.at
COSEC-Companhia de Seguro de Creditos S.A.
EKN – Exportkreditnämnden Avenida da Republica 58
Box 3064 1069-057 Lisbon Codex
S-103 61 Stockholm Tel: 351 21 791 3700
Tel: 46 8 788 0000 Fax: 351 21 791 3720
Fax: 46 8 411 8149 E-mail: internacional@cosec.pt
E-mail: angela.montenegro@ekn.se Website: http://www.cosec.pt
Website: http://www.ekn.se
EKF-Eksport Kredit Fonden
COFACE-Compagnie Française d’Assurance pour le Dahlerups Pakhus
Commerce Extérieur Langeline Allé 17
92065 Paris La Défense Cedex 2100 Copenhagen
Tel: 33 1 4902 2000 Tel: 35 46 6100
Fax: 33 1 4902 2741 Fax: (45) 35 46 61 11
E-mail: Jean-Paul_Doppia@coface.com E-mail: bu@efs.dk
Website: http://www.coface.com Website: http://www.ekf.dk
SACE-Istituto per i Servizi Assicurativi del credito

all’Esportazione
C.P. 253 Roma Centro
Tel: 39 06 67 361
Page 202
EU supporting facilities and contact in Europe FMO (Nederlandse Financierings-Maatschappij voor

Ontwikkelingslanden n.v.)
Asia-Invest Programme Tel: +31 70 314 96 96
European Commission, Fax: +31 70 324 61 87
EuropeAid Co-operation Office, Asia, Economic E-mail: fmo@wxs.nl
cooperation Website: http://www.fmo.nl
Rue de la Loi / Wetstraat 200
B 1049 Brussels IFU (Industrialisation Fund for Developing Countries)
Tel: 32 2 299 1111 IO (Investment Fund for Central and Eastern Europe)
Fax: 32 2 299 1062 IFV (Investment Fund for Emerging Markets)
E-mail: asia-invest@asia-invest.com Tel: +45 33 63 75 00
Website: http://www.asia-invest.com Fax: +45 33 32 25 24
E-mail: ifu-cph@inet.uni2.dk
European Investment Bank or io-cph@inet.uni2.dk
100 Boulevard Konrad Adenauer Website: http://www.ifu.dk
L 2950 Luxembourg
Tel: 352 4379 3122 NORFUND (Norwegian Investment Fund for
Fax: 352 4379 3189 Developing Countries)
Website: http://www.eib.org Tel: +47 220 19 393
Fax: +47 220 19 394
Europe Venture Capital Association E-mail: svein.ove.faksvag@norfund.no
Tel: 32 2 715 00 20
Fax: 32 2 725 07 04 PROPARCO (Société de Promotion et de Participation
E-mail: evca@evca.com pour la Coopération Economique)
Website: http://www.evca.com Tel: +33 1 53 44 37 37
Fax: +33 1 53 44 38 38
EDFI E-mail: boisseletb@afd.fr
21 Rue d’Arlon Website: http://www.afd.fr
1050 Brussels
European Development Finance Institutions SBI (Société Belge d’Investissement International) -
Tel: +32 2 230 23 69 BMI (Belgische Maatschappij voor Internationale
Fax: +32 2 230 04 05 Investering)
Website: http://www.edfi.be Tel: +32 2 776 01 00
Fax: +32 2 770 66 38
APAD (Agencia portuguesa de apoio ao E-mail: sbi-bmi@skynet.be
desenvolvimento) Website: http://www.bmi-sbi.be
CDC (CDC Capital Partners)
Tel: + 44 171 828 44 88 SIMEST (Societa Italiana per le Imprese all’Estero
Fax: +44 171 828 65 05 SpA)
E-mail: depcr@cdc.co.uk Tel: +39 06 686 35 1
Website: http://www.cdcgroup.com Fax: +39 06 686 35 220
International Business & Marketing Strategy Dept.
COFIDES (Compania espanola de Financiacion del Mr. Carlo Barbieri
Desarrollo, SA) E-mail: c.barbieri@simest.it
Tel / Fax: (+525) 280 95 77 Ms. Luisella Picciaia
Contact person: Mr. Abelardo de la Torre E-mail: l.picciaia@simest.it
E-mail: cofides@cofides.es Website: http://www.simest.it
Website: http://www.cofides.es
SWEDFUND (Swedfund International AB)
DEG (Deutsche Investitions und Tel: +46 8725 94 00
Entwicklungsgesellschaft mbH) Fax: +46 8 20 30 93
Tel: +49 221 49 86 0 E-mail: kurt.karlsson@swedfund.se
Fax: +49 221 49 86 290 Website: http://www.swedfund.se
E-mail: BusinessRelations@deginvest.de
Website: http://www.deginvest.de
FGG (Finanzierungsgarantie-Gesellschaft mit

beschränker Haftung – Ost West Fonds)
Dept. for Corporate Development and External Relations
Mr. Matthias Bischof
Tel: +43 1 501 75 0
Fax: +43 1 501 75 360
E-mail: fgg@fgg.at or m.bischof@fgg.at
Website: http://www.fgg.at
Finnfund (Teollisen yhteistyön rahasto Oy)

Tel: +358 9 34 84 34
Fax: +358 9 34 84 33 46
E-mail: finnfund@finnfund.fi
Website: http://www.finnfund.fi
Page 203
1.79 Web sites about Pakistan
1.79.1 Web sites of multilateral organisations
United Nations Economic and Social Commission for Asia and the Pacific (UNESCAP) http://www.unescap.org
Website abstract: The website presents information about the UNESCAP and its projects. A few reports and surveys on the
economic and social development can be downloaded. No specific country information.
Asian Development Bank (ADB) http://www.adb.org/Pakistan/default.asp

Website abstract: The website provides a range of relevant information including economic trends, key indicators, projects and
news releases.
Investment Promotion Network (IPAnet) http://www.ipanet.net/index.cfm

Website abstract: The website provides an extensive searchable database of over 10,000 web-based documents which include
research on economies and product markets, investment-related laws and treaties to specific investment opportunities.
International Trade Centre (ITC) http://www.intracen.org/index.htm

Website abstract: The website gives detailed information on ITC’s development programmes and contains a searchable country
database presenting trade specific statistics.
United Nations Conference on Trade and Development (UNCTAD) http://www.unctad.org/

Website abstract: The website presents a wide range of general information about investment and trade as well as statistical
data. UNCTAD’s Division on Investment, Technology and Enterprise Development (DITE) publishes the World Investment
Report, for which a link is provided.
United Nations Industrial Development Organisation (UNIDO) http://www.unido.org/

Website abstract: The website provides information about UNIDO’s services and programmes. Downloadable documents and
reports as well as country information are also available.
International Labour Office www.ilo.org/childlabour

Website abstract: The website provides information about the child labour issues in the worl and in Pakistan. Downloadable
documents and reports as well as country information are also available.
The European Union http://www.europa.eu.int

Website abstract: The website provides information about the EU services and programmes. Downloadable documents and
Asia Invest http://www.europa.eu.int/comm/europeaid/asia-invest

Website abstract: The website provides information about Asia Invest involvement with Asia. Downloadable documents and
The World Bank Group http://www.worldbank.org/

Website abstract: The website presents information on projects and programmes of the World Bank as well as general country
information. It also includes news items and press releases and a wide range of publications and economic and social data.
International Finance Corporation (IFC) http://www.ifc.org/

Website abstract: The website contains information about IFC projects and how to apply for IFC financing as well as press
releases and publications.
Foreign Investment Advisory Service (FIAS) http://www.fias.net/index.html

Website abstract: The website presents information on the services and projects of the FIAS and includes useful links to other
providers which offer economic data and assess the investment climate of many countries.
SAARC(South Asian Association for Regional Cooperation Secretariat) http://www.saarc-sec.org/

Website abstract: Provide information on the development of the cooperation among the member states.
Economic Cooperation Organisation http://www.ecosecretariat.org

Website abstract: The website presents information on the cooperation achieved among the members of the ECO, agreements
measures taken to increase trade.
1.79.2 Web site of U.S. official sources of information
CIA World Factbook http://www.cia.gov/cia/publications/factbook/geos/pk.html

Website abstract: The website presents an overview of the country and gives general information about various aspects like
geography, people, economy, etc.
Overseas Private Investment Organisation (OPIC) http://www.opic.gov/

Website abstract: The website contains information for U.S. firms which want to invest overseas in less developed countries.
There is an interesting section called Investors’ Info that provides a wide range of useful country specific links.
Page 204
1.79.3 Web site providing information on investment promotion/FDI in general
Multilateral Investment Guarantee Agency (MIGA) http://www.miga.org

Website abstract: The website presents an overview of MIGA and its activities, provides guidance for potential applicants of the
Guarantee scheme, and offers recent studies and activity reports for download.
MIGA was created in 1988 as a member of the World Bank Group to promote foreign direct investment into emerging
economies to improve people's lives and reduce poverty. MIGA fulfills this mandate and contributes to development by offering
political risk insurance (guarantees) to investors and lenders, and by helping developing countries attract and retain private
investment.
For investors, MIGA provides investment guarantees against certain non-commercial risks (i.e., political risk insurance) to
eligible foreign investors for qualified investments in developing member countries. MIGA's coverage is against the following
risks:
Transfer Restriction
Expropriation
Breach of Contract
War and Civil Disturbance
1.79.4 Websites of EU and EU Member State representations in Pakistan:
Delegation of the European Commission to Pakistan http://www.delpak.cec.eu.int

Website abstract: The website presents information related to the bilateral relationship of Pakistan and the EU.
Embassy of Belgium http://www.economist.com/countries/Pakistan/index.cfm

Website abstract: The website presents the services offered by the embassy. No country information on Pakistan contained.
General Consulate of France http://www.consulfrance-karachi.org.pk/

Website abstract: The website provides information on services offered by the consulate. No English version of the website.
Embassy of Germany http://www.german-embassy.org.pk/de/home/index.html

Website abstract: The website presents information on bilateral relationship between Germany and Pakistan. Some press
releases are available in English.
Embassy of Greece http://greekembassy.netfirms.com/index.html

Website abstract: The website offers information only on Greece except from some links to Pakistani institutions.
Embassy of Italy http://www.italia.com.pk/

Website abstract: The website contains information on the Italian embassy like staff and opening hours. No specific information
on Pakistan available.
British High Commission http://britainonline.org.pk/

Website abstract: The website provides information on Britain. No specific information on Pakistan.
1.80 Internet sources in Pakistan
1.80.1 Pakistan Government entities web sites
Pakistan Development Gateway http://www.pdg.org.pk/index.asp

Website abstract: Pakistan's first and only development gateway - envisioned as a one-stop website for all significant
development information about Pakistan on the Web. Information is indexed in 25 categories, including "industry", "trade and
development" and other business relevant categories.
• The Official Web Gateway to the Government of • Pakistan Council of Research in Water
Pakistan Resources
http://www.pakistan.gov.pk/ http://www.pcrwr.gov.pk
• The Official Government of Sindh Web Site • Privatisation Commission

http://www.sindh.gov.pk/index.shtml http://www.privatisation.gov.pk/
• UN Pakistan Page • Private Power and Infrastructure Board

http://www.un.org.pk/ http://www.ppib.gov.pk/
• The Government of Pakistan Home Page • Pakistan Trade Office

http://www.pak.gov.pk/ http://www.paktrade.org/
• The Constitution • National Reconstruction Bureau

http://www.pakistani.org/pakistan/constitution/ http://www.nrb.gov.pk/
Page 205
• Pakistan Software Export Board • Ministry of Petroleum and Natural Resources

http://www.pseb.org/ http://www.mpnr.gov.pk/
• Pakistan Post Office • National Highway Authority

http://www.pakpost.gov.pk/ http://www.nha.gov.pk/
• Overseas Employment Corporation • Pakistan Institute of Quality Control

http://www.oec.gov.pk/ http://www.piqc.com.pk
• Sustainable Development Policy Institute • National Accountability Bureau

http://www.sdpi.org/ http://www.nab.gov.pk/
• Sustainable Development Networking • NADRA

Programme http://www.nadrapk.com/
http://www.sdnp.org/
• Ministry of Women Development, Social
• State Engineering Corporation Welfare & Special Education
http://www.sec.gov.pk/ http://www.most.gov.pk/
• Space and Upper Atmosphere Research • Ministry of Science and Technology

Commission (SUPARCO) http://www.most.gov.pk/
http://www.suparco.gov.pk/
• Ministry of Information Technology
• Securities and Exchange Commission of http://www.moitt.gov.pk
Pakistan
http://www.secp.gov.pk/ • Ministry of Foreign Affairs
http://www.forisb.org/
• Pakistan Sports Board, Ministry of Sports
http://www.sports.gov.pk/ • Ministry of Finance
http://www.finance.gov.pk/
• Pakistan Tourism Development Corporation
http://www.pta.gov.pk/ • Export Promotion Bureau
http://www.epb.gov.pk/epb/index.jsp
• Pakistan Telecommunication Authority
http://www.pta.gov.pk/ • Ministry of Environment, Local Government &
Rural Development
• Pakistan Meteorological Department http://www.environment.gov.pk/
http://www.met.gov.pk/
• Geological Survey of Pakistan (GSP)
• National Tariff Commission http://www.gsp.gov.pk/
http://www.ntc.gov.pk/
• Central Board of Revenue
• Pakistan Computer Bureau http://www.cbr.gov.pk/
http://www.pcb.gov.pk/
• Board of Investment
• Pakistan Agricultural Research Council http://www.pakboi.gov.pk/
http://parc.gov.pk/
• Ministry of Industries and Production, Experts
• National Savings Organisation Advisory Cell
http://savings.gov.pk/ http://www.eac.gov.pk
1.80.2 The Pakistan web directory
www.webs.com.pk/
1.80.3 Commercial information providers web sites
The Economist http://www.economist.com/countries/Pakistan/index.cfm

Website abstract: The website presents basic information about the political and economic structure and includes the latest
country related article from the print edition.
The Institute of Chartered Accountant http://www.icap.org.pk

Website abstract: The website presents a list of quality controlled chartered accountants in Pakistan. The Institute of Chartered
Accountant is the industry’s association.
Designerz (Pakistan Law firms) http://pakistan.designerz.com/pakistan-lawyers-corporate
Page 206
Website abstract: The website presents a list of Pakistan lawyers with their respective area of expertise. The provider is an
international private organisation.
Associated Press of Pakistan (APP) http://www.app.com.pk/

Website abstract: The website presents national, international, business and sports news items. The Associated Press of
Pakistan is the country’s premier news agency. APP was taken over by the Government in 1961 for financial reasons.
Online International News Network http://www.onlinenews.com.pk/

Website abstract: The website provides news items on politics, business and sports. Online International News Network is an
independent news agency.
World Trade Review http://worldtradereview.com

Website abstract: The website provides business news, especially related to trade and investment. Fortnightly The World Trade
Review is the only newspaper, which exclusively provides coverage to WTO, Globalisation, Intellectual Property Rights,
Investment, Regional trade, Development, Environment and other allied matters. It was launched on 1st March 2001 and since
then it is regularly published on 1st and 15th of each month.
News Network International http://www.nni-news.com/current/main/index.html

Website abstract: The website presents national, world, business and sports news. The News Network International is
Pakistan’s largest independent news agency.
Pakistan News http://www.paknews.com/

Website abstract: The website offers news items on national and international issues, business and sports. The Pakistan News
is an independent online news agency.
Business Recorder http://www.brecorder.com/

Website abstract: The website provides detailed business and finance related news on a wide range of sectors. It also contains
an archive covering the last 90 days. The Business recorder is a daily business newspaper from Karachi.
The Dawn http://www.dawn.com

Website abstract: The website offers sections for national and international politics, business, capital markets and sports. The
Dawn is a daily newspaper printed in English
The News International http://www.jang.com.pk/thenews/index.html

Website abstract: The website presents the internet edition of the newspaper covering politics, business, capital market, sports
and local themes. The International News is an English daily newspaper from Karachi, Lahore and Islamabad.
The Frontier Post http://www.frontierpost.com.pk

Website abstract: The website presents the internet edition of the newspaper covering politics, business, sports and local
issues. The Frontier Post is a national daily newspaper from Peshawar.
The Nation http://www.nation.com.pk/

Website abstract: The website presents the internet edition of the newspaper covering national and international topics,
business and sports. The Nation is an English daily newspaper from Lahore and Islamabad.
Daily Times http://www.dailytimes.com.pk/

Website abstract: The website presents the internet edition of the newspaper covering national and international news, business
and sports. The Daily Times is a daily newspaper printed in English.
The Daily Mail http://dailymailnews.com/

Website abstract: The website presents the internet edition of the newspaper covering local and international news and sports.
No business section included. The Daily Mail is an English daily newspaper from Islamabad that started its publication in 2002.
Pak Tribune http://paktribune.com/

Website abstract: The website presents updated news on a wide range of topics including business. The Pak Tribune is an
independent online newspaper.
The Times http://www.times.com.pk

Website abstract: The website provides the latest Pakistan news and updated news and views from Pakistan and Kashmir. The
Times of Pakistan is an independent web newspaper.
Herald http://www.dawn.com/herald/
Website abstract: The website presents some articles about politics and business which originate from the printed version. The
Herald is Pakistan’s most widely read and respected monthly news magazine.
The Pakistan & Gulf Economist http://www.pakistaneconomist.com/

Website abstract: The website comprises articles and information on various economic and business topics. The Pakistan &
Gulf Economist is Pakistan’s leading business magazine.
Page 207
1.80.4 Business associations web sites
1.80.4.1 Chambers of commerce

The Federation of Pakistan Chambers of Commerce & Industry (FPCCI) http://www.fpcci.com.pk/
Website abstract: The website presents statistical data on trade. It also contains a virtual marketplace where offers to buy or sell
goods can be posted.
Provider: The Federation of Pakistan Chambers of Commerce & Industry is licensed by the Government. Its primary aim is to
promote, encourage and safeguard the interest of private sector in Pakistan and to serve as a bridge between the business
community and the Government.
Lahore Chamber of Commerce & Industry (LCCI) http://www.lcci.org.pk/

Website abstract: The website gives an overview of the chamber’s services, economic sectors and business opportunities and
presents economic data
Provider: LCCI is committed to making an effective contribution to the nation’s economic development through the promotion of
trade and industry.
Karachi Chamber of Commerce & Industry (KCCI) http://www.karachichamber.com/

Website abstract: The website provides the key economic and social indicators and facilitates trade by presenting
Provider: The Karachi Chamber of Commerce and Industry was founded in 1959 and aims to protect and promote trade,
commerce and industry in Karachi.
Sarhad Chamber of Commerce & Industry (SCCI) http://www.scci.org.pk/

Website abstract: The website promotes business by displaying trade enquiries. No specific information.
Provider: The Sarhad Chamber of Commerce & Industry.
Gujranwala Chamber of Commerce & Industry (GCCI) http://www.gcci.org.pk/

Website abstract: The website informs about the chamber in general and offers trade opportunities.
Provider: The Gujranwala Chamber of Commerce & Industry was founded in 1978 in order to promote the interests of Pakistan
in general and of those engaged in industry, agriculture, commerce, trade, banking and insurance.
Islamabad Chamber of Commerce & Industry (ICCI) http://www.icci.com.pk/

Website abstract: The website contains information about commerce and trade.
Provider: The Islamabad Chamber of Commerce & Industry
Gujrat Chamber of Commerce & Industry (GTCCI) http://www.gtcci.com.pk/

Website abstract: The website offers information about the chamber.
Provider: The Gujrat Chamber of Commerce & Industry.
1.80.4.2 Sector associations

All Pakistan Textile Mills Association (APTMA) http://www.aptma.org.pk/
Website abstract: The website presents detailed information on the textile industry including many statistical data.
Provider: The All Pakistan Textile Mills Association, established in 1959, is comprised of more than 400 members of the whole
Pakistani textile industry. The association serves as a central platform that can assure a liaison between all the sectors of the
textile industry.
Pakistan Readymade Garments Manufacturers & Exporters Association (PRGMEA) http://www.prgmea.org/

Website abstract: The website provides some information on the industry and a list of the association’s members.
Provider: The Pakistan Readymade Garments Manufacturers & Exporters Association is recognised by the Government and
aims to provide guidance and generate supporting services in order to encourage exports.
Pakistan Knitwear and Sweater Exporters Association (PAKSEA) http://www.paksea.com.pk/

Website abstract: The website provides basic information on the sector and offers lists of successful exporters.
Provider: The PKSEA, founded in order to promote and protect the business interests of Pakistan’s Knitwear and Sweater
Exporters, has over 300 members.
Towel Manufacturers Association of Pakistan http://www.towelassociation.com/

Website abstract: The website contains press releases and information on the members of the association.
Provider: The Towel Manufacturers Association is recognised by the Government and affiliated with the Federation of Pakistan
Chambers of Commerce and Industry.
Pakistan Hosiery Manufacturers Association (PHMA) http://www.phmaonline.com/default.asp

Website abstract: The website offers member services and a list of the members.
Provider: The PHMA is a trade organisation representing the hosiery and knitwear industry.
Karachi Cotton Association http://kcapak.org/

The Karachi Cotton Association (KCA) has launched this web site containing information regarding the KCA, cotton policy,
cotton crop estimates and spot rates. The Web site provides information about raw cotton prices, domestic and international
prices. Market reports, cotton statistics, brokers information are also present at the site.
Page 208
1.80.4.3 Bilateral chambers

Pakistan German Business Forum (PGBF) http://www.pgbf.com.pk
Website abstract: The website provides information about PGBF and offers some trade opportunities and the member’s list.
Provider: The Pakistan German Business Forum is comprised of about 140 members from both Pakistan and Germany and
aims to encourage and promote German investment in Pakistan and vice versa as well as German-Pakistani business
cooperation.
Pakistan France Business Alliance (PFBA), http://www.pfba.org

307 marine Point, Block 9, Schon Circle, Clifton, Karachi 75600.
Tel: + 92 21 58 66 363; Fax: + 92 21 58 31 713
Website abstract: The website provides information about PFBA and offers some trade opportunities and the member’s list.
Provider: The PFBA comprises about
1.80.5 Private consulting firms
Associated Consultancy Center (Pvt) Ltd., Pakistan ahmir@comsats.net.pk

Coopers & Lybrand Consulting (Pvt) Ltd., Pakistan alliya.haidar@pk.pwcglobal.com
Engineering Consultants Iinternational (Pivate) Lmited, Pakistan info@ecil.com
Financial Consultants, Pakistan smyusaf@finbyte.com
Rowbotham & Company Llp: International Accounting and Consulting www.rowbotham.com/affiliatescontent.html
KPMG Pakistan (Services) www.kpmg.com.pk
1.80.6 Foreign banks in Pakistan
ABN Amro Bank N.V. www.abnamro.com

Al-Baraka Islamic Bank B.S.C.(E.C.) www.albaraka.com.pk
American Express Bank Limited www.aexp.com
Credit Agricole Indosuez (to close by end 2003) www.ca.indosuez.com
Citibank N.A. www.citigroup.net
Deutsche Bank AG www.db.com
Habib Bank A.G. Zurich www.habibbank.com
Mashraq Bank psc www.mashreqbank.com
Oman International Bank S.O.A.G. www.obioman.com
Standard Chartered Bank www.scb.com
Standard Chartered Grindlays Bank Limited www.scb.com
The Bank of Tokyo-Mitsubishi Limited www.btm.co.jp
The Hongkong and Shanghai Banking Corporation Limited www.hsbc.com.pk
1.81 Useful addresses of public entities in Pakistan
Ministry of Commerce Fax: 92-51-9202108

Pak Secretariat,
'A' Block, Islamabad Board of Investment (BOI)
Tel: 92-51-9203999, 9202257 Ataturk Avenue,
Fax: 92-51-9205241 Sector G-5/1,
Islamabad
Ministry of Foreign Affairs Tel: 92-51-9221826
Constitution Avenue, Fax: 92-51-9206160, 9203281
Sector G-5, Islamabad
Tel: 92-51-9210971, 92004365 Small & Medium Enterprises Development Authority
Fax: 92-51-9213795 (SMEDA)
43-T, Gulbderg-II,
Ministry of Labour & Manpower Lahore
Pak Secretariat, Tel: 92-42-111-111-456
5th & 6th Floors, Fax: 92-42-5753545, 5753587
"B" Block, Islamabad
Tel: 92-51-9209223, 9203167 Export Promotion Bureau
Fax: 92-51-9201823 Finance & Trade Centre,
Block-A, FTC Bldg.,Shahrah-e-Faisal,
Ministry of Industries & Production Karachi
'A' & 'D' Blocks, Tel: 92-21-111-444-111
Pak Secretariat, Fax:92-21-9206497
Islamabad
Tel: 92-51-9201992, 9203427 State Bank of Pakistan
Fax: 92-51-9205130, 9202165 Main Building,
Experts Advisory Cell (EAC) I.I. Chundrigarh Road, Karachi
House No. 25, Street 26, Tel: 92-21-9212400-09
Sector F-6/2, Fax: 92-21-9212436, 9212433
Islamabad
Tel: 92-51-9206372, 9205595 Security & Exchange Commission of Pakistan
Page 209
NIC Building, House No. 25, Street 13,

Jinnah Avenue,Islamabad Sector F-7/2, Islamabad
Tel: 92-51-9204841, 9205310 Tel: 92-51-9204074
Fax: 92-51-9205692 Fax: 92-51-9204075
Federation of Pakistan Chamber of Commerce & Pakistan International Airlines

Industries PIA Head Office Building,
Federation House, Karachi Airport,
Shahrah-e-Firdousi, Karachi-75200
Main Clifton, Karachi Tel: 92-21-4572011
Tele: 92-21-5873694,5873691 Fax: 92-21-4570419, 4572225
Fax: 92-21-5874332
British Airways
National Insurance Corporation of Pakistan Marriott Hotel,
NIC Building, Abdullah Haroon Road
63, Jinnah Avenue, Karachi
Blue Area, Islamabad Tel: 92-21-5686076-7
Tel: 92-51-9216421, 9216429 Fax: 92-21-5684302
Fax: 92-51-9216424
Air France
Water & Power Development Authority Marriott Hotel,
WAPDA House, The Mall, Abdullah Haroon Road, Karachi
Lahore Tel: 92-21-5681071-5
Tel: 92-42-9202211-60 Fax: 92-21-5684815
Fax: 92-42-920200
Pakistan Post Office Department
Sui Northern Gas Pipelines G-8/4,
Gas House No.21, Islamabad
Kashmir Road, Tel: 92-51-9261571
P.O. Box. 56, Fax: 92-51-9261577
Lahore
Tel: 92-42-9201451-60, 9201490-99 DHL Pakistan (Pvt) Ltd
Fax: 92-42-9201314 8-BangloreTown,
Shahrah-e-Faisal,
Pakistan Railways Karachi
Pakistan Railways Headquarters, Tel: 92-21-4542470-89
Empress Road, Fax: 92-21-4547871, 4543261
Lahore
Tel: 92-42-9201700, TCS
Fax: 92-42-9201669 I-E/37, Block-6, PECHS,
Shahrah-e-Faisal,
Pakistan National Shipping Corporation (PNSC) Karachi
PNSC Building, Tel: 92-21-4541000
Moulvi Tamizuddin Khan Road, Fax: 92-21-4546639
P.O. Box. 5350, Karachi
Tel: 92-21-9203980-99 OCS
Fax: 92-21-9203974, 9204018 World-wide House, C-17,
Korangi Road,
KarachiPort Trust (KPT) Karachi
P.O. Box. 4725, Tel: 92-21-5803201-11
Karachi Fax: 92-21-5880606
Tel: 92-21-9214530-40 (10 lines)
Fax: 92-21-9214329-30 Pakistan Standards and Quality Control Authority
(PSQCA)
Pakistan Telecommunication Corporation Block # 77
PTC Headquarters, Pakistan Secretariat
G-8/4, Islamabad Karachi 74400
Tel: 92-51-4844463, 2251939 Pakistan
Fax: 92-51-4843991 Tel : +92 21 920 62 61
Fax : +92 21 920 62 63
Internet Service Provider (Paknet) Email : psqcadg@super.net.pk
85-West Rizwan Centre,
Islamabad Pakistan Institute of Quality Control
Tel: 111-222-117 304, Eden Centre
Fax: 92-51-2873057 43 Jail Road
LAHORE
Internet Service Provider (COMSATS) Pakistan
H. No. 30, Attaturk Avenue, Tel : +92 42/ 756 3645/+92 42/ 756 2260
G-6/4, Islamabad Fax : +92 42/ 755 2656
Tel: 92-51-9206604-7 E.mail : piqc@brain.net.pk / piqc@fibre.net.pk
Fax: 92-51-9214124 URL : http://www.piqc.com.pk
UAN: 111-700-800
Pakistan Software Export Board
Page 210
1.82 Recent relevant publications
1.82.1 Practical guides for investment in Pakistan
Pakistan Investment Guide, Ministry of Industries and Production, 2003

Pakistan Investment Policies, Incentives & Facilities, Board of Investment, January 2003
Pakistan Investment Guide, Research & Economic development Cell, Chamber of commerce & Industry, Karachi, 2002
Physical Infrastructure, Pakistan, Ministry of Industries & Production, September 2003
Privatisation Commission, Annual Report, 2002
Securities and Exchange Commission of Pakistan, Annual Report 2002
US Commercial Service 2002: Country Commercial Guide Pakistan
ADB publication: Financial Management and Governance Issues in Pakistan, 2000.
1.82.2 Pakistan – general country/economic analyses
Global Economic Prospects, Realising the Development Promise of the Doha Agenda, the World Bank, 2004
Trade Policies in South Asia: An Overview, the World Bank, June 2003
1.82.3 Pakistan – investment climate/investment environment
Improving the Investment Climate in Pakistan, an investment climate assessment prepared by the World Bank Group in
collaboration with The Small and Medium Enterprise Development Authority of the Government of Pakistan May 30, 2003
Pakistan: Selected Issues and Statistical Appendix, November 2002, IMF (International Monetary Fund), Washington, D.C.
Pakistan Development Policy Review: A New Dawn? April 2002, World Bank, Washington D.C.
Pakistan Trade Sector Assistance Strategy Note, June 2002, World Bank, Washington, D.C.
Pakistan Investment Climate: Statement US Commercial Service Pakistan 2002
Labour force Situation in Pakistan (Based on labour survey, 1999-00), International Labour Organisation, Area Office,
Islamabad
Page 211

Opportunities For Pakistan

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NEW BUSINESS OPPORTUNITIES IN PAKISTAN

NEW BUSINESS OPPORTUNITIES IN PAKISTAN

LIST OF TABLES ................................................................................................................................. VIII

LIST OF FIGURES .................................................................................................................................. X

LIST OF ACRONYMS ........................................................................................................................... XII

PART I: PAKISTAN GENERAL INFORMATION ................................................................................... 8

MAP OF THE COUNTRY........................................................................................................................ 8

PAKISTAN AT A GLANCE ...................................................................................................................... 9

1 GENERAL COUNTRY INFORMATION ...................................................................................... 12

2 ECONOMIC OUTLOOK .............................................................................................................. 21

2.3.1 Economic growth trends ...................................................................................... 29

4 SUMMARY: INTERNATIONAL COMPETITIVENESS OF PAKISTAN....................................... 66

PART II: PRACTICAL BUSINESS INFORMATION............................................................................. 68

5 SETTING UP A BUSINESS IN PAKISTAN................................................................................. 68

6 OPERATING A BUSINESS IN PAKISTAN ................................................................................. 85

6.8.1 Direct taxation...................................................................................................... 94

7 LIVING IN PAKISTAN ............................................................................................................... 105

PART III: SECTOR ANALYSES, INVESTMENT AND MARKET OPPORTUNITIES........................ 113

8 INTRODUCTION AND SECTOR OVERVIEW.......................................................................... 113

9 THE TEXTILE SECTOR............................................................................................................ 115

9.3 Type of businesses by size and category........................................................................117

10 THE FOOD PROCESSING AND PACKAGING SECTOR ....................................................... 135

10.1.13 Main sources of information............................................................................... 142

11 THE LIGHT ENGINEERING INDUSTRY.................................................................................. 165

11.2.10 Identification and assessment of major business co-operation, project and

12 NICHE SECTORS..................................................................................................................... 194

PART IV: SOURCES OF INFORMATION.......................................................................................... 201

13 USEFUL ADDRESSES ............................................................................................................. 201

OICCI The Overseas Investors Chamber of RIA Reportable Injury Accident

Overview of the Economy and Foreign Trade

Foreign investment in Pakistan

Recommendations for potential investors

High potential Sectors for Foreign Direct Investment

Textiles and garments

Food processing and packaging

Light engineering and automotive parts

- Gems and jewellery

- IT (call centres, service centres, software development, etc.)

PART I: PAKISTAN GENERAL INFORMATION

MAP OF THE COUNTRY

GENERAL COUNTRY INFORMATION

1.1 General environment

1.3 Political environment

Box 1: Recent political developments

1.4 Foreign affairs

Box 2: The Kashmir conflict

1.5 Human resources and social environment

1.5.1 Social infrastructure

1.5.2 Social security

1.6 Cultural environment

1.7 Physical infrastructure

1.7.1 Road network

1.7.2 Railway network

Table 1: Pakistan Traffic volume, road vs. rail, 2002-03

1.7.4 Airport and international links

Figure 1: Reliance on power generators

Source: World Bank, Investment Climate Surveys

1.8 Economic structure

Figure 2: Pakistan Structure of GDP by sectors, 2002-2003

Ownership of Dwellings (6.2)

Publin Admin. (6.6)

Transport & Storage