History of MNC in Pakistan: Multinational Corporations have a long history in Pakistan. The first foreign investment in what is now Pakistan was by the Steel Brothers in 1913 in Morgah, Rawalpindi. This is known as Attock Oil. The Germanic firm Siemens had set up in 1932. ICI invested in Khewra in 1935. Unilever (formerly Lever Brothers), Imperial Tobacco, Shell and Burma Oil, banks came soon after Independence in 1947. From 1947, Pakistan was a fertile ground for investment by MNCs. Companies did well and word got around. The American and European MNCs were lining up to invest in Pakistan.
In fact, the Dulles Brothers of USA (Froster at the State Department and Andrew at the CIA) issued a memo to the Fortune 500 companies that in addition to South Korea and West Germany, Pakistan was the preferred investment destination for American companies. MNC’s in Pakistan: A large number of multinationals have been operating in the country for many years. The multinationals have invested extensively in Pakistan. USA leads with $190 mn, followed by UK $122 mn. Other countries that have brought in investment are in order of FDI: Netherlands, UAE, Switzerland, Singapore, Hong Kong.
China surprisingly appears down the list after these states at number 8, with Japan following. Many European, Korean and Arab companies such as Orascom are active in construction, communications and other fields. Japanese like Toyota, Suzuki, Nissan, and Honda are mainly in the automotive industry. Five major sectors have been earmarked for investment including ‘corporate farming’, agriculture, infrastructure, skill development, minerals and alternative energy such as coal, hydel, wind and solar energy production. Attraction for MNC’s in Pakistan: 1. Geo-strategic location:
Located 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. 2. High consumer demand: Pakistan is a growing economy with a population of 187 million as of 2011. There is a strong middle class of 30 million people. This represents almost 16% of Pakistan. Whereas there are 36 million plus people (about 65%) which are in the age bracket between 20-25 years.
Such kind of a growing population statistics represents a positive indicator for the requirement of an improved life style. Represented by the influx of these young professionals as the potential consumers in the Pakistani Market. Such a towering figure of consumer who has ever increasing demand will not be catered by the local industry alone. This is where the growth of the Multinational companies in Pakistan comes from. These better educated and better aware individual demand for commodities to improve their standard of living. Such an environment becomes favorable for the MNCs in Pakistan.
Recently it was reported that big companies such as Unilever and Nestle with a sizeable investment in Pakistan are hoping the country will be a source of growing profits. Figures suggest that Nestle Pakistan boosted sales by 29% in 2011. This is in line with the Swiss brand owner has a target of deriving 45% of total revenues from the emerging world by 2020. Unilever Pakistan also enjoyed sales growth of 15% over the period of January to June 2011. Globally, the company has set a goal of increasing sales 100% by 2020, with most of the growth coming from outside the USA and Europe. . Cheap Labor: One of the biggest attractions for these Multinational Corporations in Pakistan is the availability of cheap labor. Since Pakistan serves as one of the top 3 countries which have cheap labor, but Quality wise it is better than the rest of the countries in the region (such as India, Bangladesh and Sri Lanka even). Since the financial crisis has brought about a great change in the educational environment of the western countries as well, therefore the local resources are returning from abroad and are influenced to be a part of the MNCs in Pakistan. . Potential market: Expansion of the infrastructure is a policy for the growth of the MNCs in Pakistan. There is a rural population representing about 28% of the total population that present huge potential. Local companies are hard pressed to compete with the incredible economies of scale that these mega corporations (what multinational corporations are called by some detractors) can bring to bear. Countries like Unilver and Nestle have contributed huge invested in expanding the office, distribution network and factories and outlets.
Siemens have invested Euro 2 Million worldwide, out of which a major portion has been dedicated for development in Pakistan especially Sindh. As per a recent survey conducted on the presence and recent trend of the Multinational Corporations in Pakistan, a minimum size for office infrastructure is of 60,000 sq/ft per area. 5. No consumer health body interference: Consumer Health body, designed for the public health protection has little or no interference in the market.
Lack of regulation in the local market makes it easy for the Multinational Companies in Pakistan to experiment with food and flavor of different sorts. As the net effect will be gain in the form on revenue by charging a premium. Another aspect is the ‘Multination Company’ mindset of the people. The middle and upper class prefer to consume product made by an MNC due to its quality and durability. Whereas the local market is largely discouraged based upon cheap quality 6. Exchange rate: Exchange rate is one of the important factors in terms of rating profitability.
The Rupee to Dollar rate is at its peak. They can invest more in Pakistan by exchanging little dollars. Government Incentives for MNC’s in Pakistan: Pakistan today provides an ideal environment for investment by multinationals and other foreign companies and organizations. Pakistan has the most liberal investment policy in the South Asia region. New incentives and further liberalization measures include: •Almost all economic sectors are open for foreign investors. •Foreign equity up to 100% allowed. •No Government permissions required only terms & conditions apply. Attractive incentives package including: o0-5% customs duty on import of machinery. oNo sales tax on import of machinery. oNo withholding tax on import of machinery. •Remittance of capital, profits, royalty, technical & franchise fee allowed. •Equal treatment towards local & foreign investors. •Network of export processing zones / industrial estates. •Import of raw material for export manufacturing zero-rated. Legal Framework to Protect Investment •Foreign Private Investment (Promotion & Protection) Act, 1976 •Protection of Economic Reforms Act, 1992.
Policy Framework for Establishment of Economic Zones •Full exemption of custom duties and taxes strictly on import of capital equipment including plants, machinery & equipment •Corporate income tax holiday for a period of five (5) years existing initial depreciation / allowance of 50% shall be reconsidered to be enhanced to 100%. •Federal government / agencies to provide gas, electricity and other utilities at the zero-point of the economic zones Requirements for establishing a foreign company in Pakistan:
Every foreign company which establishes a place of business in Pakistan has to deliver the requisite documents to the registrar concerned within 30 days of establishment of a place of business in Pakistan. Place of Business: A place of business includes branch, management, share transfer or registration office, factory, mine or fixed place of business but does not include an agency unless the agent exercises a general authority to negotiate and conclude contract or maintains stock of merchandise on behalf of the company. Following are the exceptions: 1.
Company shall not be deemed to have an established place of business in Pakistan merely because it carries on business dealings in Pakistan through a bona fide broker or general commission agent acting in the ordinary course of his business. 2. The fact that a company has a subsidiary which is incorporated, resident, or carrying on business in Pakistan, shall not of itself constitute the place of business of that subsidiary an established place of business of the company. Steps for registration of a foreign company: Registration of a Foreign Company comprises of following two steps: 1.
Seek Availability of Company Name 2. Documentation Step 1. Seek availability of company name: The first step in the process of registration of a Foreign Company is to seek availability of name of the proposed company from the registrar. The name of the proposed company should not be: •Inappropriate •Deceptive •Designed to exploit or offend the religious susceptibilities of the people. •Identical or having close resemblance with already existing company. •Suggesting connection with any Government or its organization or any international organization.
Fees for seeking availability of company name through online processing is Rs. 200 and for offline processing is Rs. 500. Step 2. Documentation: After seeking company name availability, next step is documentation. A foreign company is required to file the following documents, under the provisions of the Ordinance, within thirty days of establishing a place of business in Pakistan, to the registrar concerned: I. Forms (38-43) as prescribed under the Rules • Form 38: Certified copy of the charter, statute or Memorandum and Articles of the company. • Form 39: Address of registered office or principal office of the company. Form 40: Particulars of directors, Chief Executive and Secretary, if any, of the company. • Form 41: Particulars of principal officer of the company in Pakistan. • Form 42: Particulars of person(s) resident in Pakistan authorized to accept service on behalf of the foreign company alongwith the certified copy of the appointment order, authority letter of board of directors’ resolution and consent of the principle officer. • Form 43: Address of principal place(s) of business in Pakistan of the foreign company. II. Authority letter in the name of authorized representative of the foreign company. III.
Fee Challan Certification is required for the documents constituting or defining the constitution of a foreign company: A copy of the charter, statute, memorandum and articles of association, or other instrument, constituting or defining the constitution of a foreign company is required to be duly certified by:- (a) The public officer in the country where the company is incorporated in whose custody the original is committed; or (b) A notary public of the country where the company is incorporated; or (c) An affidavit of a responsible officer of the company in the country where the company is incorporated.
In first two situations, at (a) and (b), certification is required to be authenticated by a Pakistan diplomatic consular or consulate officer, while in third situation at (c) Above, affidavit shall be signed before a Pakistan diplomatic consular or Consulate officer. Rule 22 of Companies (General Provisions and Forms) Rules, 1985] Requirements, if charter, statute, memorandum and articles of association, or other instrument, constituting or defining the constitution of a foreign company, is in language other than English: If the document constituting or defining the constitution of a foreign company, charter, statute or memorandum and articles of association is not in English or Urdu, duly certified translation in English or Urdu language is required to be provided.
Translation of document constituting charter in English or Urdu, is required to be certified to be correct translation of the original. [Rule 23 of Companies (General Provisions and Forms) Rules, 1985] Where translation is made outside Pakistan, it shall be authenticated by the signature and seal of: •The public officer in the country where the company is incorporated; or •A notary public of the country where the company is incorporated. Signature and seal of the person so certifying shall be authenticated by a Pakistan diplomatic consular or consulate officer.
Where translation is made within Pakistan, it shall be authenticated by an affidavit of any person having in the opinion of the registrar, an adequate knowledge of the language of the original and of English or Urdu, as the case may be. Fees for registration of a foreign company: Fees for online submission have been set lower as compared to manual submission, to encourage online services. FeesOffline (Rs. )Online (Rs. ) Registration of a Foreign Company 50,00025,000
Filing of each Statutory Return/ Form 1,500600 Foreign company required to obtain any other permission from any other organization for opening and maintaining of its branch/ liaison office in Pakistan: A foreign company is required to obtain a permission letter from the Board of Investment with a specific validity period for opening and maintaining of its branch/liaison office in Pakistan. Copy of such permission letter is required to be furnished with the documents meant for registration.
Renewal/ extension of the permission to open/maintain a branch/liaison office is also required to be obtained from the Board of Investment on the expiry of the validity period of the permission originally granted. Whenever such renewal/extension is granted, a copy must be furnished to the registrar concerned. Discouraging factors for MNC’s in Pakistan: 1. Unethical practices by local players: One of the biggest concerns is the unethical practices followed by the local players in the market.
Such as fake medicines are causing multinational companies in Pakistan a reputation problem. About half the Pakistan’s population has access to fake medicines as per a report of 2008 by Pakistan Medical Association. 2. Political Factor: Changing political situation cause rapidly change in policies in Pakistan. Each Government setup their own rules and procedures. That badly affect the business of MNC’s. Moreover Political Influence is being exercised at all levels of recruitment process by the local government as well as political office holders.
This is something that hinders the multinationals policy for equal employment opportunity. 3. Poor infrastructure: Low Infrastructure of transportation and technology hinders the progress of the MNCs to reach the untapped market. Poor service quality of railway, aviation and transportation industry is a major issue. Whereas technologically, Pakistan is still far behind as compared to most of the countries in the region (especially India who has a thriving I. T Industry). Both these factor are cause administrative as well as distribution issues at all level. . Law and order situation: The most pertinent factor is Law & Order. The law enforcement agencies in Pakistan are considered the worst in the word. With the latest survey showing that an individual Pakistani does not have a ‘Truth’ factor involved when it comes to dealing with the law enforcement and judiciary. Secondly, the unprecedented level of strikes caused by the shortfall of energy has caused a setback not only to the local but also the existing Multinational companies in Pakistan.