MNCs in Pakistan: expect to do even better.

Byline: AROOJ ASGHAR

Like other developing countries, foreign investment in Pakistan is widely considered an important vehicle for its economic growth. Pakistan provides numerous opportunities with attractive returns for multinational companies; fully protects foreign investment under the law and has also signed double taxation treaties with various countries to give benefits to foreign investors. The legal framework for foreign investment is provided through Foreign Private Investment (promotion and protection) Act, 1976, and the Protection of Economic Reform Act, 1992. Most of the existing multinational companies are more or less satisfied with the concessions and regulations especially related to the repatriation of dividends, whereas such benefits are not available even in India.

However, in recent months, State Bank has started creating a lot of delays in making foreign payments so as to keep US dollar in the country. This has created a lot of stress on the multinational companies as they are not able to declare dividends and also not able to make payments to their suppliers, vendors and contractors.

Few MNCs came to Pakistan immediately after independence in 1947 such as Unilever, today all the cellular and auto companies being in operations in Pakistan are foreign companies. Cellular companies paid the high fee to the Government of Pakistan a couple of years back for obtaining the license of 3G and 4G, which shows Multinational Corporation's (MNCs) confidence in the country. Currently, MNCs are operating in Pakistan's telecom and IT, electronics, auto, banking and insurance, food and beverages and energy sectors.

So far Pakistan has benefited from the following modes of foreign investment through MNCs;

1. Agreement with local firms for sale of products: This is one of the most common modes of participation of foreign companies in Pakistan where a local partner through agreement imports and sells goods in Pakistan. We see such trend particularly in sale of cell phones, consumer products, auto parts, and electronics. This mode of the contribution of MNCs is not a preferred option because it put stress on cash outflows of the country and imbalances the current account;

2. Setting up of subsidiaries: Pakistan has always allowed multinational companies to open their offices and install their manufacturing facilities in Pakistan. Local corporate laws allow multinational firms to expatriate dividends through banking channel freely, this...