ACKNOWLEDGEMENT

WE ARE HEARTILY THANKFUL TO OUR PROFESSOR “MR. SHAHID MEHMOOD”, WHOSE ENCOURAGEMENT, GUIDANCE AND SUPPORT FROM THE INITIAL TO THE FINAL LEVEL ENABLED US TO DEVELOP AN UNDERSTANDING OF THE SUBJECT (BANKS AND FINANCIAL INSTITUTIONS) AND OUR PROJECT.

FOREIGN DIRECT INVESTEMENT

Honorable Professor Shahid Mehmood

PRESENTED TO:

Presented By Hafiz Naveed Ahmed(1132)

Umair M. Awan(1112)

Muhammad Umer Rafique

(1246)

Presented By

DEFINITION • Foreign direct investment (FDI) is investment directly into production in a country by a company located in another country, either by buying a company in the target country or by expanding operations of an existing business in that country.

FDI

FDI Concepts

• Foreign direct investment (FDI) plays an extraordinary and growing role in global business. It can provide a firm with new markets and marketing channels, cheaper production facilities, access to new technology, products, skills and financing. For a host country or the foreign firm which receives the investment, it can provide a source of new technologies, capital, processes, products, organizational technologies and management skills, and as such can provide a strong impetus to economic development.    Foreign direct investment, in its classic definition,  is defined as a company from one country making a physical investment into building a factory in another country. 

•  In the past decade, FDI has come to play a major role in the internationalization of business. Reacting to changes in technology, growing liberalization of the national regulatory framework governing investment in enterprises

• For small and medium sized companies, FDI represents an opportunity to become more actively involved in international business activities

• Many governments, especially in industrialized and developed nations, pay very close attention to foreign direct investment because the investment flows into and out of their economies can and does have a significant impact

FDI

• Investment in the same industry abroad as a firm operates in at home.

Horizontal

• Backward Vertical• Forward VerticalVertical• Industry abroad provides inputs for a firms domestic production processes.

• Industry abroad sells the outputs of a firm’s domestic production processes. 

* Backward Vertical

* Forward Vertical

TYPES of FDI

Pros of FDI

Inflow of equipment &technology 

Financial  resources for expansion

Contribution  to  export  growth  

Competitive  advantages & innovation 

Employment generation 

Access to global  marketplace  for  domestic player  

Crowding of local industry 

Conflict of  law 

Effect  on local culture 

Loss of control 

Possible expansion of resources  wages  

Effect on  natural environment 

Cons of FDI

• Avoiding foreign government pressure for local production. 

• Circumventing trade barriers, hidden and otherwise. • Making the move from domestic export sales to a locally-based national sales office

• Capability to increase total production capacity. • Opportunities for co-production, joint ventures with local partners, joint marketing arrangements, licensing, etc; 

Why is FDI important for any consideration of going global?

WHO CAN BE A FOREIGN INVESTOR?

FOREIGN INVESTORS

An individual

A group of related individuals

An incorporated or unincorporated entity

A public company or private company

A group of related enterprises

A government body

• By incorporating a wholly owned subsidiary or company, by acquiring shares in an associated enterprise 

HOW CAN A FOREIGN INVESTOR INVEST HIS FUNDS?

• Through a merger or an acquisition of an unrelated enterprise

• Participating in an equity joint venture with another investor or enterprise 

Assessment of internal resources 

Competitiveness

Market analysis 

Market expectations 

WHAT WOULD BE SOME OF THE BASIC REQUIREMENTS FOR COMPANIES CONSIDERING A FOREIGN INVESTMENT?

Why Invest in Pakistan

Five Key Reason to Invest in Pakistan

Reasons

Geo Strategic location

Investment Policy

Economic Outlook

Trained Workforce

Financial Markets

Geo-strategic LocationLocated in the heart of Asia, Pakistan is the gateway to the energy rich Central Asian States, the financially liquid Gulf States and the economically advanced Far Eastern tigers. This strategic advantage alone makes Pakistan a marketplace teeming with possibilities.

Five Key Reason to Invest in Pakistan

Trained Workforce A large part of the workforce is proficient in English, hardworking and intelligent. Pakistan possesses a large pool of trained and experienced engineers, bankers, lawyers and other professionals with many having substantial international experience.

Economic Outlook  Pakistan is one of the fastest growing economies of the world having touched a GDP growth rate of 8.4% in 2005. Today Pakistan has over 170 million consumers with an ever growing middle class. Foreign Direct investment has risen sharply from an average of $300 million in the 1990s to over $3.7 billion in 2008-09. Fiscal deficit has declined from an average 7% of GDP in the 1990s to around 3% in recent years. And FOREX reserves have increased from $3.22 billion in 2000-01 to $11.6 billion in June 2009.

Five Key Reason to Invest in Pakistan

Financial Markets The capital markets are being modernized, and reforms have resulted in development of improved infrastructure in the stock exchanges of the country. The Securities and Exchange Commission of Pakistan has improved the regulatory environment of the stock exchanges, corporate bond market and the leasing sector. 

Five Key Reason to Invest in Pakistan

Investment Policies Current investment policies have been tailor made to suit investor needs. Pakistan's policy trends have been consistent, with liberalization, de-regulation, privatisation, and facilitation being its foremost cornerstones.

Foreign Investment inflows in Pakistan ($Million)

Year Greenfield Investment

Privatization Proceeds

Total FDI Private Portfolio Investment

2001-02 357.00 128.00 485.00 -10.002002-03 622.00 176.00 798.00 22.002003-04 750.00 199.00 949.00 -28.002004-05 1,161.00 363.00 1,524.00 153.002005-06 1,981.00 1,540.00 3,521.00 351.002006-07 4,873.20 266.40 5,139.60 1,820.002007-08 5,276.60 133.20 5,409.80 19.302008-09 3,719.90 0.00 3,719.90 -510.302009-10 2,150.80 0.00 2,150.80 587.902010-11 1,573.6 0.00 1,739.40 344.52011-12 (Jul-June) 812.6 0.00 741.5 (71.1)

Total 23,277.7 2,805.60 26,178.0 2,689.8

Avoiding foreign government pressure for local producti on. Making the move from domesti c export sales to a locally-based nati onal sales offi ce. Capability to increase total producti on capacity. Opportuniti es for co-producti on, joint ventures with local partners, joint marketi ng arrangements, licensing, etc; Low corporate tax and income tax rates in Pakistan Tax concessions/exempti ons to parti cular businesses Special economic zones developed by the government of PakistanCheap labour in PakistanJOB training & employment subsidies Infrastructure subsidies Research and Development support

WHAT ARE THE FOREIGN DIRECT INVESTMENT INCENTIVES IN PAKISTAN?

Investment Policy of Govt. of Pakistan

Manufacturing Sector No Go Areas Service Sector Infrastructure

Sector

Investment Policy of Govt. of Pakistan

• MANUFACTURING SECTOR

• The entity must be a company incorporated under the Companies Ordinance, 1984. 

• 100% foreign equity is permissible on the basis of repatriation of capital and profits (dividend).

•  The amount of foreign equity investment must not be less than US $ 0.3 million

SERVICE SECTOR• The entity must be a company incorporated under the Companies Ordinance, 

1984. • The amount of foreign equity investment must not be less than US $ 0.15 million. • 100% foreign equity is permissible on the basis of repatriation of capital and profits 

(dividend). 

Investment Policy of Govt. of Pakistan

Investment in Infrastructure Sector in Pakistan

• Foreign Direct Investment in an infrastructure sector is allowed for infrastructure projects which may include development of an Industrial Zone(s).

• Foreign investors may hold 100% equity allowed on repatriation basis and the minimum amount of foreign equity investment in the project shall be 0.30 million dollars.

Investment Policy of Govt. of Pakistan

NO GO AREAS • Government  of  Pakistan  prohibit  the 

following areas for investment:• Arms and ammunition • High explosives • Radioactive substances • Security printing, currency and mint • Alcoholic beverages or liquor 

Investment Policy of Govt. of Pakistan

Successful foreign investment Companies

Political Instability

Protection of Property rights 

Labor Force

High Business Cost

Local business environment

Law and Order

Economic strength 

Government Bureaucracy

Infrastructure

Tax structure

Child Labor

Judicial System

Reasons Behind Low FDI

Conclusion

 FDI is more than an external resource inflow. FDI can modernize industry and better integrate the economy into international production. FDI has become an important growth factor in the globalization of the world economy. Pakistan have taken effective policy and aggressively pushing economy reforms to attract foreign investment including FDI. FDI has not contributed much to the economy growth in Pakistan from the time period 1980-2011, as compared to domestic capital and labor, therefore it is imperative for the government to make a policy for attracting FDI to be a significant contributor to  economic growth,  Pakistan would be better by focusing on improving infrastructure, human resources, developing, creating a stable macroeconomic framework and conditions conductive for productive investments to speed up the process of development .

Recommendations and Suggestions 

Political Instability

Labor Laws

Confidence- Building  

Law and Order Policy Infrastruct

ure

Anti-monopoly Restrictions

Credit Facilities

Recommendations and Suggestions 

AIM OF RESEARCH

“To promote foreign direct investment to enhance Pakistan's 

international competitiveness and to contribute to economic and social 

development ”