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U.S. Department of State
Pakistan Country Commercial Guide
Office of the Coordinator for Business Affairs
COUNTRY COMMERCIAL GUIDE FY'96
PAKISTAN
TABLE OF CONTENTS
I. Executive Summary
II. Economic Trends and Outlook
A. Major Trends and Outlook
B. Principal Growth Sectors
C. Government Role in the Economy
D. Balance of Payments Situation
E. Infrastructure Situation
III. Political Environment
A. Nature of Political Relationship with the United States
B. Major Political Issues Affecting Business Climate
C. Political System
1. Schedule for Elections
2. Major Political Parties
IV. Marketing U.S. Products and Services
A. Distribution of Sales Channels
B. Use of Agents/Distributors: Finding a Partner
C. Franchising
D. Direct Marketing
E. Joint Ventures/Licensing
F. Steps to Establishing an Office
G. Selling Factors/Techniques
H. Advertising and Trade Promotion
I. Pricing Products
J. Sales Service/Customer Support
K. Selling to the Government
L. Protecting Your Product from IPR Infringement
M. Need for a Local Attorney
V. Leading Sectors for U.S. Exports and Investment
A. Best Prospects for Non-Agricultural Goods & Services
B. Best Prospects for Agricultural Products
C. Significant Investment Opportunities
VI. Trade Regulations and Standards
A. Trade Barriers
B. Customs Valuation
C. Import Licenses
D. Export Controls
E. Import/Export Documentation
F. Temporary Entry
G. Labeling, Marking Requirements
H. Prohibited Imports
I. Standards
J. Free Trade Zones/Warehouses
K. Special Import Provisions
L. Membership in Free Trade Arrangements
VII. Investment Climate
A. Openness to Foreign Investment
B. Conversion and Transfer Policies
C. Expropriation and Compensation
D. Dispute Settlement
E. Political Violence
F. Performance Requirements/Incentives
G. Right to Private Ownership and Establishment
H. Protection of Property Rights
I. Regulatory System: Laws and Procedures
J. Bilateral Investment Agreements
K. OPIC and Other Investment Insurance Programs
L. Labor
M. Foreign Trade Zones/Free Ports
N. Capital Outflow Policy
O. Major Foreign Investors
VIII. Trade and Project Financing
A. Brief Description of Banking System
B. Foreign Exchange Controls Affecting Trading
C. General Financing Availability
D. How to Finance Exports/Method of Payment
E. Types of Available Export Financing and Insurance
F. Project Financing Available
G. List of Banks with Corresponding U.S. Banking
Arrangements
IX. Business Travel
A. Business Customs
B. Travel Advisory and Visas
C. Holidays
D. Business Infrastructure
X. Appendices
A. Country Data
Population
Population Growth Rate
Religions
Government System
Languages
Work Week
B. Domestic Economy
Gross Domestic Product (GDP)
GDP Growth Rate
GDP Per Capita
Government Spending As A Percent of GDP
Inflation
Unemployment
Foreign Exchange Reserves
Average Exchange Rate for USD 1.00
Debt Service Ratio
U.S. Economic/Military Assistance
C. Trade
Total Country Exports
Total Country Imports
U.S. Exports.
U.S. Imports
D. Investment Statistics
E. U.S. and Pakistan Contacts
U.S. Embassy Trade Related Contacts
Bilateral Business Councils
Trade And Industry Associations
Government
Market Research Firms
Commercial Banks
F. Market Research
G. Trade Event Schedule
Country Commercial Guide FY'96 - Pakistan
I. Executive Summary
Pakistan, the world's ninth most populous country, is well into a
successful program of market-oriented reform and offers a promising,
although challenging, market for U.S. exporters.
Pakistan's critical need for additional electrical generating capacity
and improved infrastructure afford major opportunities for U.S. exports
and investment. The development of substantial coal reserves recently
found in the Tharparkar Desert of Sindh with the technical assistance of
the U.S. Agency for International Development and construction of power
plants fueled by that coal are additional promising ventures, along with
privatization and upgrading of the telecommunications sector. Pakistan
will also require sophisticated machinery, notably in textile
production, as it upgrades low value-added sectors and develops export
niches.
Pakistan's overall and business attitude toward the United States is
quite positive, and bilateral trade and investment are poised to expand
strongly, despite the suspension of U.S. economic and military
assistance because of differences over nuclear policy. Pakistan and the
United States share a long history of close bilateral relations and
linkages through immigration, travel, education, and close collaboration
in the opposition to the decade-long Soviet occupation of Afghanistan.
Pakistanis sometimes note that U.S. goods are a bit pricey relative to
those of some competitors, and occasionally express surprise that the
United States and U.S. firms do not do more to develop their presence in
the Pakistani market.
Observers offer several explanations for the incomplete development of
the Pakistan market by U.S. firms. U.S. exports are generally perceived
as quite competitive on the basis of quality, but somewhat less so on
financing terms, and there is a sense that U.S. firms generally do not
move as quickly as some competitors. Seemingly paradoxically, U.S.
firms may not be as patient as some competitors in pursuing bids and
projects that take long periods of time to develop. As in many
developing countries, corruption is often a fact of business life, and
U.S. legislation, such as the Foreign Corrupt Practices Act, precludes
U.S. firms from playing on the same terms as some competitors.
Nonetheless, many U.S. firms which have taken the time to familiarize
themselves with the country and the market have found Pakistan a
profitable place to do business. Pakistan is a different and distinct
market, requiring adaptability and persistence. However, increased
investment by U.S. firms already in Pakistan, expanded sales by existing
exporters, and multiplying inquiries from new-to-market firms are a
strong endorsement of this market for U.S. firms willing to take a
carefully prepared plunge.
The best prospects for U.S. exports to Pakistan are analyzed in detail
in Section V. The United States has been, after Japan, the second
largest exporter to Pakistan and there are promising opportunities for
increases in a variety of agricultural and industrial exports.
The following sub-sectors, in descending order of priority, are judged
best prospects in the agricultural sector. Details on these are
available in Section V: wheat, cotton, feed grains, soybeans, non-fat
dry milk, livestock by products, bovine hides & skins, and pulses.
The following sub-sectors are judged best prospects in the industrial
sector. They are grouped in three ranks: I (high), II (medium), and III
(low). Details on these subsectors may be found in Section V: Rank I:
industrial chemicals, agricultural chemicals, electrical power systems,
plastic materials and resins, telecommunications equipment, pollution
control equipment; Rank II: Oil and gasfield machinery and supplies,
iron and steel, computers and peripherals, drugs and pharmaceuticals,
transportation equipment and parts; Rank III: Pumps, valves, and
compressors, paper and paperboard, security & safety equipment.
In general, principal competitors for U.S. businesses in Pakistan are
European, Japanese, and South Korean firms. Japan, France, the United
Kingdom and others offer mixed credits and tied aid credits which often
make it difficult for U.S. suppliers to compete. Country Commercial
Guides (CCG's) were established by recommendation of the Trade Promotion
Coordinating Committee (TPCC), a multi-agency task force. CCG's are
prepared annually through the combined efforts of several U.S.
Government agencies at U.S. Embassies.
II. Economic Trends and Outlook
A. Major Trends and Outlook
Since the late 1980s Pakistan has pursued a program of market-oriented
economic adjustment, reform and development, including strong
encouragement of foreign direct investment. Supported by the
international financial institutions and bilateral donors, this program
has aimed at enhancing macroeconomic stability, instituting structural
reforms to promote private sector- and export-led industrial
development, and reversing past neglect of key social sectors such as
health, education and population planning.
Pakistan has made considerable progress under this program, but the
process has not been entirely even, and key challenges remain for its
$60 billion economy. On the plus side, Pakistani governments have
adopted generally sound policies that should lay the basis for sustained
growth and increased exchange with the international economy.
Specifically, governments have sought to reduce fiscal and external
imbalances, reduce trade barriers, modernize the financial sector,
privatize state-owned industries, reform the tax system, encourage
private investment in the critical energy sector, and offer specific
incentives to attract foreign investment, which is considered critical
to the overall development effort. Moreover, governments from all the
main political parties support these reformist, market-oriented
policies. This program has enjoyed generous support from the IMF, in
the form of an Enhanced Structural Adjustment Facility approved in
February 1994, and both adjustment and project loans from the World
Bank.
At the same time, various problems have kept Pakistan's progress below
its potential. Floods, drought and pests hurt agricultural output in
the early 1990s; given the importance of cotton, these problems have
held back overall economic growth. Domestic political instability has
continued even after the free, democratic elections that brought the
current government of Prime Minister Benazir Bhutto to office in October
1993. Ethnic and sectarian violence has worsened in Karachi, the
country's business and finance capital. Policy implementation has
sometimes lagged pronouncement, and reports of improper official
influence in business and economic decisions have become common.
Mixed recent economic performance reflects the interplay of these
positive and negative trends. Real economic growth depicts a rising
trend, but has been below government targets: output grew 2.3 percent in
1992-93, 3.8 percent in 1993-94, and an estimated 4.7 percent in 1994-
95. Recent annual consumer inflation of 9-15 percent has been above
historically modest rates. Fiscal slippages have led to difficulties in
completing the IMF program. On the other hand, solid progress has been
made in improving external balance, and Pakistan has maintained its
historically excellent record with foreign creditors. New investment
inflows, both portfolio and direct, are at an all-time high, and the
government is considering trying to replicate the success it has had
attracting private, including foreign, investment in the energy field in
other infrastructure sectors. The State Bank of Pakistan has evolved
into a largely autonomous central bank.
Poverty remains a serious problem in Pakistan. Average per capita
income was about $450 in 1994-95, and income and wealth are not
equitably distributed. The population of about 130 million is growing
at almost 3 percent per year. Economic fortunes are closely linked to
cotton and the textile products made from it. Pakistani governments,
however, have made some progress in diversifying the economy, and have
committed to improving the quality of life for poorer citizens through
the Social Action Program, a multiyear effort to raise education, health
and sanitation standards and reduce the population growth rate.
There are significant opportunities for U.S. and other foreign suppliers
and investors in Pakistan. Realizing these opportunities will require
sound economic policies by the government--a critical factor in
Pakistan's access to foreign financing--as well as actions to improve
political stability and better develop human resources.
B. Principal Growth Sectors
- Economic Growth
After growing at an average rate of over 6 percent per year from 1980 to
1991, real GDP increased by only 2.3 percent in PFY 1992-93, in the
context of an external payments crisis and severe political instability.
Growth rebounded to 3.8 percent in 1993-94, despite a poor cotton crop
(damaged by a virus and other pests) and related setbacks in the textile
industry, but fell short of the government's target of 6.5 percent. The
rising trend continued in 1994-95 with growth estimated at 4.7 percent
(target: 6.9 percent). The government's growth target for 1995- 96 is
6.5 percent.
The Pakistani economy is almost evenly divided between the commodity
sector (51 percent of GDP) and the services sector (49 percent), shares
that have held constant for about a decade. Sectoral shares in 1994-95
GDP were estimated by the Federal Bureau of Statistics as follows:
Commodity sector 51.0 percent
of which:
Agriculture 24.0
Manufacturing 18.5
Construction 4.1
Electricity & gas distribution 3.9
Mining 0.5
Services sector 49.0
of which:
Wholesale and retail trade 16.1
Transport, storage & communication 10.2
Public administration & defense 6.5
Ownership of dwellings 5.6
Finance and insurance 2.3
Other services 8.2
- Agriculture
Pakistan has one of largest irrigation systems in the world and its
increasing agricultural production is being tested in meeting the
country's rapidly expanding food requirements. Despite some recent
diversification, agriculture remains the dominant sector of the
Pakistani economy, accounting for about 24 percent of GDP, half the
employed labor force, and a large share of foreign exchange earnings, as
well as providing the base for key industries such as textiles and
sugar. Pakistan is a net exporter of agricultural commodities, despite
annual imports of more than one billion dollars worth of wheat and
edible oils.
Agricultural production recovered somewhat and grew by approximately 5.0
percent in the 1994/95 fiscal year. Record production of wheat, good
output of sugarcane and rice and a better cotton crop boosted the
agricultural sector. The cotton crop for the third consecutive year was
plagued with uncontrolled pests and leaf curl virus. As a result
production did not reach target levels and prices were much higher than
in previous years. 1994/95 cotton production was 8.7 million 375-pound
bales, 8% higher than the previous year (Pakistan measures cotton in 375
pound bales, while the U.S. uses 480-pound bales). Minor crops,
livestock, fisheries, and forestry showed strong growth in 1994-95.
Pakistan has two principal crop seasons: the "kharif", which begins in
April-June and ends October-December; and the "rabi", which begins in
November-December and ends April- May. Wheat, cotton, sugarcane, and
rice continue to be the major crops, accounting for nearly 90 percent of
value added in the agricultural crop sector. On a much smaller scale
Pakistan also grows barley, bajra (millet), jowar (sorghum), maize, gram
(pulses), sunflowerseed, rapeseed, mustard, sesamum, and tobacco.
Agriculture's share in GDP has declined from 53 percent in 1949-50 to
just about 24 percent in 1994-95, despite an average 3.4 percent annual
growth in agricultural output over the last four decades.
Industrialization, in particular the development of the textile sector,
has been the major factor in reducing agriculture's share of GDP.
During 1994/95 the agriculture sector grow by 4.94 percent against 2.86
percent in 1993/94. There have been encouraging increases in the
production of wheat, sunflowerseed, rice and gram.
In an effort to boost rural incomes the GOP has increased the support
prices of many commodities over the last two years. The government has
removed the price subsidies on fertilizers, increased the availability
of agricultural credit, and provided incentives for the import of
agricultural machinery. An imported tractor scheme was launched for
providing 120,000 tractors on concessional rates. Programs to fight the
menace of water logging and salinity and cotton leaf curl virus were
also continued. GOP agricultural priorities include: integrated
development of agriculture and irrigation facilities; better land and
water management practices; improvements in fertilizer use, pest
management, and research; diversification to higher-value crops and
development of agro-industries.
Wheat - Wheat accounts for about 37 percent of Pakistanžs cropland.
During 1994-95 the GOP made consistent efforts to increase acreage under
wheat cultivation. Wheat acreage increased by 1.47 percent and
production increased by 9.8 percent over the previous year. The
favorable weather conditions at sowing time and timely rains throughout
growing season helped in attaining the targeted acreage and also
resulted in higher yields. High yielding varieties, and timely
application of fertilizer have considerably increased the crop yields.
Wheat is a key element in the staple diet of a majority of the
population, its availability at a reasonable price is an important
socio-political objective for the government. The GOP imported more
than two million tons of wheat during 1994-95 to supplement domestic
reserves and to assure a regular supply at stable prices.
Cotton - The cotton crop, which was nearly 13 million bales in 1991-92,
declined to 8.7 million bales in 1994-95. In 1994-95, high infestation
of Helioithis armigera (American bollworm) substantially damaged the
crop. However, the leaf curl virus had less impact than in the
previous two years. These problems have seriously engaged the attention
of the GOP and many control efforts resulted in improvement in cotton
production. In addition to providing raw material to the local textile
industry, lint cotton is a major export item. In the peak period of
1985-86 through 1991-92, Pakistan earned an annual average of $550
million from cotton exports. However, exports decreased to a value of
$76 million in 1994/95, the lowest level in the last decade, due to
disease damaged small crops for three years in a row.
Rice - Rice is the second largest staple food crop in Pakistan and is a
major export item. Pakistan is the third largest rice-exporting country
in the world, after the U.S. and Thailand. The principal export
varieties are long-grained non-glutinous aromatic "Basmati" rice grown
in the Punjab and similar, but non-aromatic Irri-6 rice planted in Sindh
province. Rice exports were valued at to $390 million in 1994-95.
Sugar Cane - Pakistan's sugar production depends almost entirely on
sugar cane, although there is some production of sugar beets in the
NWFP. The 1994/95 sugarcane acreage was 5 percent more than in
1993/94 as land went from cotton to sugarcane and production increased
by 3 percent to 45.7 million tons. Attractive support prices of cane
and favorable weather conditions in Punjab resulted in higher
production. The crop in Sindh was damaged due to heavy rains and the
yield gone down by 1.9 percent.
Tobacco - Pakistan grows tobacco and produces tobacco products, but the
market for domestic products is substantially undercut by smuggled
goods. Despite these major leakages, the cigarette industry is a
significant contributor to excise and sales tax revenues. Acreage
planted in tobacco has increased gradually over the past decade and
1994/95 production totaled 106,837 tons, with about half delivered to
cigarette manufacturers and the remainder sold for rural home use (in
hand-rolled cigarettes called birris in water pipes, and as snuff). The
major tobacco growing region is in the NWFP.
Minor crops - Minor crops account for only 2.2 percent of total
cultivated area; these include oilseeds (sunflower, soybean, safflower)
chilies, pulses, potatoes, and onions.
Fisheries - Pakistan's fishing industry is relatively modest, but has
shown strong growth in recent years. The domestic market is quite
small, with per capita annual consumption approximately 2.0 kilograms.
About 80 percent of production comes from marine fisheries from two main
areas, the Sindh coast east from Karachi to the Indian border, and the
Makran coast of Baluchistan. Although 90 percent of the total marine
catch is fish, the shrimp which constitute the remainder are prized
because of their greater relative value and demand in foreign markets.
Inland fisheries are quite rudimentary.
The annual catch is about 550-600 thousand tons. About one third of the
edible catch is consumed fresh, nine percent is frozen, eight percent
canned, and about 43 percent used as fish meal for animal food.
Pakistan's exports of fish and fish products have grown rapidly, from
$94.4 million in 1989-90 to $125 million in 1993/94. The largest
markets for Pakistan's fish are Japan, Singapore, the UK, and the US.
The GOP is promoting the marine culture of shrimp in ponds, focusing on
the Keti Bundar area of the Thatta district of Sindh in an attempt to
boost production and foreign exchange earnings. GOP is also
strengthening infrastructure facilities, introducing aquaculture
techniques. Packaging and processing technologies are quite basic;
improvements could reduce perishability and increase the attractiveness
and profitability of Pakistani fish exports.
Livestock - Livestock contributes about 34 percent of the value produced
by the agricultural sector. Principal products are milk, beef, mutton,
poultry, and wool. The most notable recent growth has been in poultry
production, following a series of government concessions and incentives.
In an effort to enhance milk and meat production, the GOP recently
launched a comprehensive livestock development project with Asian
Development Bank assistance. In addition, the GOP is broadening
extension and artificial breeding services, rationalizing animal health
services, and introducing high-yielding fodder varieties.
Forestry - Forests cover only 4.8 percent of Pakistan's area. The
principal forest products are timber, principally for house construction
and furniture, and firewood. The growing population and rising
standards of living have led to an accelerating demand for timber, which
is partially met by increasing imports.
- Industry
Pakistan, which had almost no large industrial units at the time of
Partition in 1947, now has a fairly broad industrial base, and
manufacturing accounts for about 18.6 percent of GDP. Industrial policy
in Pakistan has undergone several distinct phases. During the 1950s, it
followed a policy of import substitution backed by high tariffs and
import controls. In the 1960s, Pakistan adopted an export promotion
strategy but did not dismantle the structure of protection for domestic
industry. In 1972, Pakistan made a major policy shift and nationalized
many large industrial establishments and agricultural processing units,
based on the Z.A. Bhutto government's concern about concentrated
ownership. Since the 1970s, Pakistan has returned to its original
policy emphasis on the private sector, although many industrial units
remained under government ownership until the privatization initiatives
which began in the late 1980s. A 1984 industrial policy statement by
the government of General Zia-ul-Haq stated its commitment to a mixed
economy in which the private sector was the engine of growth and the
public sector served as an investor of last resort, preferably in joint
ventures with the private sector. The privatization effort which began
in the late 1980s under the first Benazir Bhutto administration
represents the current phase of industrial policy.
Cotton textile production is the single most important industry,
accounting for about 20 percent of large-scale industrial employment.
Cotton yarn, cotton cloth, made-up textiles, ready-made garments, and
knitwear collectively accounted for over 57.0 percent of Pakistan's
exports in 1993-94, and about 56.7 percent in 1994-95. Other important
industries are cement, vegetable oil, fertilizer, sugar, steel,
machinery, tobacco, paper and paperboard, chemicals, and food
processing. The GOP is attempting to diversify the country's industrial
base and to increase the emphasis on export industries. Small-scale and
cottage industries are numerically significant but account for a
relatively small proportion of the GDP, about 6.0 percent. (Small-scale
industry includes facilities which employ fewer than 50 workers and
cottage industries are industrial units in which the owner works and is
aided by family members but employs no hired labor.)
The performance of the manufacturing sector somewhat slowed in 1994-95
as a result of lower growth in large scale manufacturing (small scale
manufacturing maintained last year's growth of 8.4 percent). The decline
is attributed to inadequate production of cotton, and its downstream
effects on cotton ginning, cotton yarn and fabrics; slower growth of
sugar production due to delayed start of sugarcane crushing; and decline
in the production of some major industries. Other factors include load-
shedding (blackouts to ration available electricity supply) and the law
and order situation in Karachi in particular. Manufacturing's share of
GDP in 1994-95 was 18.5 percent, about the same as last year.
Public Industrial Sector - The public industrial sector, under the
Production Wing of the Ministry of Industries and Production, comprises
eight holding corporations which controlled 74 industrial units. Out of
these, 31 units have been privatized as of March, 1995. The GOP had
announced plans to privatize additional units. The eight holding
corporations include: Pakistan Steel; the State Cement Corporation; the
National Fertilizers Corporation; Pakistan Automobile Corporation
(PACO); Federal Chemical and Ceramics Corporation (FCCC); State
Petroleum Refining & Petrochemical Corporation (PERAC); State
Engineering Corporation (SEC); and the Pakistan Industrial Development
Corporation (PIDC). These public sector units will continue to play a
key role in certain sectors, such as heavy engineering, steel,
automobile, petroleum and defense production.
Textiles - The textile industry is the single most important
manufacturing sector, accounting for an average of 40 percent of
manufacturing employment, 60 percent of manufacturing exports, and 30
percent of manufacturing value added. Pakistan's textile industry
produces cotton yarn, cotton cloth, made-up textiles and apparel. In
order to reduce pressure on the demand for raw cotton, the polyester
fiber and yarn industry has also grown significantly in recent years.
Pakistan also has 14 jute mills with an installed capacity of 42,000
spindles and 2,198 looms. The industry produced 50,623 tons of jute
products in 1994-95.
Deregulation and various government incentives have raised the total
installed capacity to 8.3 million spindles and 130,000 rotors from about
6.9 million spindles and 97,000 rotors a year earlier. Despite recent
efforts to induct high speed spindles, automatic cone winders,
electronic splicers and other high-tech equipment the industry still is
concentrated in the preliminary stages of processing. In general, large
firms concentrate on spinning and weaving leaving garment-making to
highly fragmented small to meium-scale producers. The number of textile
units increased from 342 in 1993-94 to 486 on December 31, 1994. The
textile industry needs to move to higher value-added production and to
rationalize its operations in order to face the challenges and
opportunities of the phased elimination of quotas as part of the Uruguay
Round trade agreement.
In the late 1980s, the GOP focused its industrial development resources
on increasing spinning capacity; cotton yarn production rose
substantially. Exports of cotton yarn in 1993-94 totalled 524 thousand
tons, or $1.1 billion. In 1994-95, cotton yarn exports are expected to
total $1.4 billion. The dominant products are coarse and medium count
yarn. Concern about overcapacity led government-owned development
finance institutions (DFIs) early in 1992 to suspend new loan
commitments to the spinning sector. The spinning industry has a
powerful lobby in the All Pakistan Textile Mills Association (APTMA).
The weaving sector took a substantial time to recover from the impact of
the government policies in the mid-1970s, when large mills were broken
up into smaller entities generally capable of producing only low-quality
goods. In the late 1980s, boom times and easy government credit led to
renewed investment in the weaving sector (2,000 high-quality shuttleless
looms came on stream between 1988 and 1993). The production of cloth
and made-up articles of textiles (including towels, bedsheets, and
similar items) grew rapidly. Exports of cotton cloth totaled $950
million in 1994-95, an increase of 30 percent over the previous year.
Knitwear has been Pakistan's largest single segment of garment exports,
but finished goods have generally lagged yarn and cloth production. The
GOP has proposed a series of measures to upgrade the garment sector,
including modernization of facilities, and market research and sales
promotion. Ready-made garment exports in 1994-95 totaled $560 million.
Sugar - Pakistan is the world's 13th largest sugar producer. Sugar
production in 1993-94 totaled 2.9 mmt, which is expected to reach nearly
3.0 mmt in 1994-95. Installed crushing capacity in the sugar industry
is about 224,000 metric tons per day and the crushing season runs for
about six months. There has been a rapid expansion in the sugar
industry over the last five years; the number of mills has increased
from 45 in 1988-89 to 66 in 1994-95 of which 34 were in the Punjab
Province, 26 in Sindh, and six units in the North West Frontier Province
(NWFP). Sugar beets, grown in the NWFP, account for less than 0.5
percent of sugar production.
The industry's principal product is refined sugar, although it also
produces some liquid glucose, 90 percent of which is used by candy
factories. It also produces gur (cooled, boiled cane juice), which is
popular in the NWFP and rural areas. Annual per capita consumption of
sugar is high, estimated at 20 kgs per annum.
The GOP announces support prices, minimum prices at which the sugar
mills may purchase sugar cane from the growers. China and Brazil have
been major suppliers of sugar to Pakistan. Imports, however, declined
significantly in 1994-95 to about 5,000 metric tons from nearly 47,000
metric tons in 1993-94 as a result of increase in production.
Food Processing and Consumer Products - Major segments include sugar,
tea, aerated water, edible fats, dairy products, concentrates, juices,
tobacco, detergents, and personal care products. Nearly all of these
items are produced for domestic consumption.
Iron and Steel - Pakistan Steel, with an annual capacity of 1.1 million
tons, is Pakistan's only integrated steel plant. It is located near
Port Bin Qasim, just east of Karachi, and its construction began in 1973
with Soviet technical assistance. The plant currently employs about
20,000 workers. Iron ore, manganese, and coking coal for the plant are
all imported. Pakistan Steel produces coke, pig iron, billets, hot and
cold rolled coils and sheets, and galvanized sheets. The facility
notched record production of over one million tons in 1993-94. That
resulted in significant pre-tax profits for Pakistan Steel, which had
been a chronic loss-maker for most of its history. Pakistan Steel has
announced an ambitious expansion program, which would increase
production capacity to three million tons by mid-1999.
Fertilizer - Pakistan has 10 fertilizer units, of which four are in the
private sector. At the end of 1994, they had a total annual capacity of
4,143 thousand tons. In 1994-95, production of nitrogenous fertilizer
remained about the same as in the previous year to 2,583 thousand tons;
by contrast, phosphate fertilizer output dropped by about nine percent
to 218 thousand tons. There is no domestic production of potassic
fertilizers.
Cement - Pakistan has 20 operating cement units, of which 15 in the
private sector. The total annual capacity of the industry is 8,883
thousand tons. Cement production in 1994-95 was about 2.7 percent lower
than the previous year. Pakistan has large quantities of both limestone
and gypsum and a large domestic market. Cement was one of the few
industries with an established base in Pakistan at the time of
independence in 1947, when there were five cement factories. Pakistan
currently produces five types of cement: Portland grey, Portland slag,
Sulphate resistant, Super Sulphate resistant, and White. Since
Partition, demand has outstripped production and Pakistan has become a
regular importer of cement. In 1972, the government of Prime Minister
Z.A. Bhutto nationalized cement factories and consolidated them under
the State Cement Corporation of Pakistan. The current privatization
process has reversed that initiative and by mid-1994 only about one
quarter of capacity remained in the public sector. In order to promote
growth in the cement sector, the GOP has allowed duty-free import of
plant and machinery not manufactured locally. Demand is expected to
remain strong with the continuation of major infrastructural projects.
Chemicals - Pakistan produces some basic chemicals, such as soda ash,
caustic soda, and sulfuric acid. Production of soda ash in 1993-94 was
187,000 tons, and caustic soda 89,000 tons. Caustic soda is used in the
textile, hydrocarbon refining, and soap industries; sulfuric acid is
used in the textile, paper, fertilizer, and steel industries.
Leather - Leather is a major and rapidly expanding export sector;
exports grew at an annual compound rate of 21 percent over a recent
five-year period, boosted by a range of government incentives. The
leather and leather products industry is labor-intensive (directly
employing more than 200,000 workers) and there are over 400 tanneries in
Pakistan. The recent growth of the industry is due in large part to its
successful progression from the export of raw hides and skins and semi-
processed leather towards high value-added finished leathers and leather
products (including leather jackets, gloves, footwear, and sporting
goods). The tanning sector is concentrated in the Punjab, where units
process primarily buffalo and cow hides; tanneries in the Sindh process
primarily goat and sheep skins. The local market for leather is
limited, and about 80 percent of production is exported. Exports of
leather products totaled $354.7 million in 1993-94. More sophisticated
machinery and productivity increases can be expected to further boost
exports. Pollution is a serious problem for this industry.
Electronics and Electrical Goods Industry - The electronics and
electrical goods industry is basically a consumer products industry,
making light bulbs and tubes, air conditioners, fans, refrigerators,
freezers, televisions, radios, and other electrical appliances. The
industry depends heavily on imported parts and components, although
there have been somewhat successful efforts to increase the percentage
of domestic components.
Vegetable Ghee/Cooking Oil - Vegetable ghee, hydrogenated vegetable oil,
is the principal cooking medium in Pakistan. After the market
outstripped the supply of milk-produced ghee, the vegetable ghee
industry has grown rapidly (from two units in 1947 to more than 40 in
1994). The principal raw material is edible oil, the majority of which
is imported palm oil. The GOP nationalized most of the industry in 1973
and consolidated its operations under the Ghee Corporation of Pakistan.
In the 1980s, the GOP permitted the establishment of private sector
units. Through end-1994, 16 of the 26 units of the Ghee Corporation of
Pakistan (with a total installed capacity of 504 thousand tons) had been
privatized and others were slated for sale. Pakistan suffers from a
large and chronic gap between demand and domestic production of edible
oils. Initiatives for the use of other, preferably domestically
produced, edible oils, have been difficult to implement because of the
large price advantage of imported palm oil. The GOP has tried to
promote non- traditional oilseed production; sunflowers, soybeans, and
safflower are grown for edible oils, but their current production
remains minuscule.
Pharmaceuticals - The more than 30 multinational pharmaceutical
companies producing in Pakistan (of which twelve are U.S. firms) command
over three quarters of the domestic market.
Jute Goods - Pakistan's 14 jute mills produced 58.6 thousand tons of
jute products in 1993- 94, a decline of over 20 percent from the prior
year. The principal product is sacking, which is used for packing a
variety of products, such as cotton, yarn, rice, and carpets. Pakistan
was the largest producer of raw jute in the world before the loss of
Bangladesh in 1971; at that time, all but four of its jute mills were in
East Pakistan. In the 1970s, the GOP made an effort to continue the
industry by establishing additional jute mills, which have always been
largely dependent on imported jute, and which form the basis for a
chronically troubled industry.
Engineering Industry - Major engineering goods facilities include a
heavy foundry and forge at Taxila in the Punjab (which produces castings
and forgings for the railway, heavy machinery, and automobile
industries); the Heavy Mechanical Complex at Taxila (which produces
industrial machinery); the Karachi Shipyard and Engineering Works (which
builds and repairs ships as well as produces boilers); and the Pakistan
Machine Tool Factory, established at Karachi in 1968 in collaboration
with a Swiss firm (which produces precision machines, tools and
automotive parts).
- Energy
Pakistan's primary energy supply mix in 1994-95 consisted of oil (42.3
percent), gas (37.9 percent), electricity (12.9 percent) coal (6.6
percent), liquified petroleum gas (0.2 percent) and nuclear (0.1
percent). The average oil production during July 94 - March 95 was
53,665 bpd. The production of natural gas during the same period was
1,709 mmcfd. Development of the energy sector is a high priority.
Pakistan has increased installed power generating capacity, but still
faces chronic energy shortages as domestic energy demand continues to
outstrip supply. The shortfall is particularly acute in electricity
generation, resulting in regular rotating power outages ("load
shedding") and forcing many industries to develop their own alternative
(and more expensive) power sources. Pakistan's installed generating
capacity stood at 11,346 megawatts on March 31, 1994, a 7 percent
increase over the previous year. A series of new petroleum policies,
announced in late 1991, September 1993, and February 1994, have promised
to boost investment in the oil and gas sector.
The demand for power in Pakistan has been growing at the rate of 10
percent per annum during the past two decades. The supply has not been
able to keep pace with the demand due to paucity of development funds in
the public sector.
Pakistan's electricity is supplied by two large state-owned utilities --
the Water and Power Development Authority (WAPDA), with 86.1 percent of
total electricity generated, and the Karachi Electric Supply Corporation
(KESC), with 12.6 percent. WAPDA, headquartered in Lahore, has an
installed capacity of 10,879 MW, consisting of 49.9 percent hydropower
and 50.1 percent thermal. KESC, which generates and distributes
electricity to Karachi, its suburbs, and adjacent parts of Baluchistan,
has 1700 MW of installed generating capacity, all of it thermal.
Hydroelectric Power - WAPDA, the sole operator of hydro projects, has
three large hydroelectric projects: Tarbela, whose units 13 and 14 came
on stream in 1993, adding 864 MW, for a total generating capacity of
3478 MWs; Mangla, with total capacity of 1,000 MW; and Warsak, with 240
MW. Together with 108 MW from scattered small hydro projects, the three
major projects give WAPDA 4,826 MW of hydro power. Hydropower's
drawback is its seasonal fluctuation. There is little rain from October
to May, when the demand for irrigation water is high, reducing the
effective capability of hydroelectric units. Reservoirs can register up
to a 45 percent difference between wet and dry season water levels.
Nonetheless, Pakistan has vast untapped hydro potential suitable for
development in coordination with other generating sources.
Thermal Power - WAPDA had 4,714 MW of thermal generating capacity on
June 26, 1995. Three-quarters of WAPDA's thermal generating capacity
comes from three large complexes: Guddu (1655 MW of steam and combined
cycle units), Kot Addu (1479 MW of gas turbine and combined cycle
units), and Jamshoro (880 MW of oil-fired units). KESC's generating
capacity is concentrated in the five-unit Bin Qasim Power Station (1050
MW) and the Korangi Thermal Power Station (382 MW). Ongoing KESC
projects include additional units at Bin Qasim (210 MW).
Nuclear Power - Pakistan obtains 0.7 percent of its energy supply from
its one operating nuclear power plant, the Karachi Nuclear Power Plant
(KANUPP). KANUPP, which was constructed in the 1970s, uses Canadian
technology, and has a gross generating capacity of 137 MW. A second
nuclear plant at Chashma in the Punjab is under construction with
Chinese technical assistance (gross generating capacity is 325 MW).
Connection to the grid is expected by October 1998.
Demand for Electricity - WAPDA's customer-base has expanded from 311,596
in 1959-60 to nearly 9.0 million in June 1995, an average annual rate of
growth of 10.3 percent. KESC had 1.3 million customers in June 1995.
In 1994, WAPDA electrified a total of 7,552 villages as part of its
village electrification program. By May 1995, 56,353 villages had been
electrified, a significant increase from the 11,350 villages which
received electricity in 1981. The GOP planned to extend its electricity
grid to an additional 5,000 villages during the 1995-96 fiscal year.
Policy Package to Stimulate Private Sector Power Projects -
Pakistan has made the energy sector its highest near-term development
priority. The GOP has decided to confine new WAPDA projects to the
hydro generating sector and has determined that all new thermal power
projects will be developed in the private sector. In February 1994, the
GOP promulgated a policy package intended to attract investment for
private sector power projects. The objectives of the policy are to
offer internationally competitive terms, reduce local currency
investment requirements, simplify procedures, and establish a domestic
market for corporate debt securities.
Specifically, the package provides for:
(1) a bulk power tariff of 6.5 cents/kilowatt hour as an average
over the first ten years;
(2) an additional premium of 0.25 cents/kwh for projects over 100 MW
that are commissioned by the end of calendar 1997;
(3) one-window operation for necessary approvals through the Private
Power Board;
(4) a series of standardized agreements for power purchase,
implementation, and performance guarantees;
(5) exemptions from import duties and taxes and from corporate
income tax;
(6) a guarantee by the Government of Pakistan for payment of WAPDA
and KESC power purchase obligations and for the fuel supply obligations
of public sector entities;
(7) provision of foreign exchange risk insurance by the State Bank
and a guarantee of free repatriation of equity and dividends;
(8) the availability of debt financing through the Private Sector
Energy Development Fund (PSEDF), a World Bank-supported facility; and
(9) permission for private sector import of fuel for power
generation purposes.
Major Energy Projects - Private Sector:
1) Hub Power Plant, Pakistan's first thermal project in the private
sector at Hub River in Baluchistan northwest of Karachi. The project is
a 1292 MW oil-fired five-unit complex sponsored by a group of foreign
investors led by Xenel Corporation of Saudi Arabia. The project, which
is a showcase World Bank project, is scheduled to be commissioned in
late 1996.
2) Uch Power Project, at Dera Murad Jamali, Baluchistan Province. This
586-MW combined cycle project will utilize medium heating value natural
gas for the nearby Uch gas field. It is scheduled to be commissioned in
1997.
3) AES Lal Pir, is a 362 MW oil-fired single steam turbine plant under
construction at Lal Pir in the Punjab province. It is expected to be
commissioned in 1997.
4) Kohinoor Power project near Lahore will have eight diesel engines.
Four are scheduled to be on line by June 1996.
5) Hongpak United Power Generation, which is proposed to consist of two
coal-based power plants of 660 MW each located in the Thar area of Sindh
province.
Public sector:
The top priority public sector energy project is the Ghazi-Barotha
Hydroelectric project, a 1450 MW run-of-the-river project diverting the
water of the Indus River from below Tarbela Dam through a 52-km long
power channel to a generating station, from which the water will be
returned to the Indus.
Additional units are being added to a number of thermal sites.
Coal - Pakistan's coal reserves received a substantial boost from the
recent discovery, thanks to assistance from the U.S. Agency for
International Development (USAID), of deposits estimated at 100 billion
tons in the Thar desert. Although, studies on the physical
characteristics of this coal and its mineability are continuing, initial
data suggest that the coal is minable and suitable for power generation.
As an underground mineral resource, coal (and its extraction) falls
within the jurisdiction of the provincial governments. The Sindh Coal
Authority has taken a leading role in devising a development strategy,
working in conjunction with WAPDA and the relevant federal ministries
(Water and Power, Petroleum and Natural Resources). The policy for
development of Thar coal provides that its primary use will be to fuel
large electric power plants built in tandem with coal mines, and that
development, ownership and operation of both mines and power plants will
be in the private sector. The Thar coal field has enormous economic
potential for Pakistan and its development and exploitation will be a
major infrastructural project in the coming decade.
Pakistan has one operational coal-fired power plant, located near
Quetta, Baluchistan. The Lakhra Coal Development Company (LCDC), a
joint venture of the GOP, WAPDA, and the Government of Sindh, has been
formed to develop large-scale mining of the Lakhra deposit to supply a
proposed WAPDA power plant nearby at Khanote. The LCDC has engaged a
Chinese firm to prepare a study on mine design and in May 1994, the
Sindh Coal Authority signed a Memorandum of Understanding with a U.S.
firm to develop a coal mine and a 200-MW coal-fired power plant fueled
by Lakhra coal.
- Minerals
The mining sector grew 4.6 percent in 1993-94, up from three percent
growth in 1992-93. In 1994-95, however, the sector recorded a decline
of 4.2 percent due mainly to a drop in output of crude oil (8.3
percent), and coal (6.4 percent). In addition to coal, natural gas, and
crude oil, Pakistan produces marble, china clay, chromite, dolomite,
gypsum, limestone, magnetite, sulfur, and rock salt.
In line with the GOP's policy of promoting the privatization of state-
owned assets, recent public sector investment in mining has been
restricted to large projects with high cost and high risk. The
principal example is the Saindak Copper and Gold Project in the Chagai
district of northwestern Baluchistan. The $200 million Saindak Project,
the first large-scale metal mining project in Pakistan, is being
developed on a turnkey basis by the Metallurgical Construction
Corporation of China and is currently scheduled to begin commercial
production in August 1995. Saindak is expected to yield an average
annual production of 15,000 tons of copper, 1.47 tons of gold, and 2.76
tons of silver over its 20- year life.
The GOP is presently revising the existing regulatory and mineral
concessions regime to attract domestic and foreign private investment
and formulating a National Mineral Policy to promote the sector. GOP
entities involved in the mineral sector include the Pakistan Mineral
Development Corporation (PMDC), which operates four coal mines in
Baluchistan and Sindh, three salt mines in the Punjab, two salt quarries
in the NWFP, and a silica quarry in Sindh. The Geological Survey of
Pakistan (GSP) is engaged in geological surveys and mapping. The GSP is
currently formulating a ten-year mineral exploration program with the
assistance of the Asian Development Bank. The Gemstone Corporation of
Pakistan, a joint venture of the GOP and the government of the NWFP, is
principally engaged in mining emeralds at Gujar Killi.
Other significant non-metallic mineral deposits include: gypsum in
the Salt Range of the northern Punjab; sulphur in Baluchistan; marble in
the NWFP; and china clay (kaolin) in the NWFP. Among metallic ores,
chromite is produced on a commercial scale in Baluchistan. The Saindak
project will produce copper and gold. Iron ore deposits are known, but
their small size, the low grade of the ore, and the inaccessibility of
the sites have precluded commercial exploitation.
C. Government Role in the Economy
Since the late 1980s, the GOP has been pursuing a gradual strategy of
deregulation, reduction of the public sector role in the economy, and
opening the economy to international competition. The government has
sought to reduce its direct productive or controlling role, and instead
focus on creating the conditions to foster private sector investment and
activity. While it has made much progress in this effort, the state
remains an important player in the Pakistani economy, especially in the
financial sector. Government-owned industrial enterprises employ almost
46,000 workers and remain important in such key sectors as steel,
engineering and agro-processing. Four state-owned commercial banks
account for over 70 percent of all commercial bank assets. Although
reforms are underway, the state retains near or full monopoly positions
in telecommunications, the power sector and rail and air transport.
- Monetary policy
Recent monetary policy has been reasonably disciplined and has aimed at
encouraging strong growth in the context of price stability. The GOP
and State Bank of Pakistan (SBP, the central bank) are also adopting
structural reforms in an effort to move toward more indirect, market-
based methods of monetary control.
Money supply (M2) growth exceeded the 1994-95 target of 11.9 percent,
largely because of the need to finance the government's higher-than-
forecast budget deficit (see below), and contributed to inflation of
about twice the targeted rate of 7 percent. While the government's bank
borrowing was thus far above target, the GOP also raised interest rates
on its various national deposit schemes in an effort to cover the
deficit partly through less- inflationary non-bank financing. The M2
growth target for 1995-96 is 12.5 percent.
An important reform announced in March 1995 was the elimination of the
ceiling on interest rates. This key step toward market-determined
interest rates will help banks play their financial intermediation role.
Industrialists were less pleased with the move, of course, as their
lending rates jumped to over 20 percent. There were also concerns that
the step would shift funds from the already weak stock market to less
productive savings schemes used largely to finance government deficits.
Other GOP monetary reforms have included efforts to reduce concessional
and government-directed credit schemes, enhance competition in the
banking sector, and improve prudential regulation and supervision.
State-owned development finance institutions, however, continue to make
politically influenced lending decisions and, partly as a result, have
weak balance sheets. Prudential regulations have occasionally been
relaxed in ad hoc fashion to prop up loss-making public or private
industries. The State Bank of Pakistan enjoys considerable autonomy,
and its respected Governor regularly attends meetings of the Federal
Cabinet's Economic Coordination Committee.
- Fiscal Policy
A central element of Pakistan's economic reforms has been the effort to
reduce persistent government budget deficits. But the 1994-95 fiscal
year saw little overall progress, and there is evidence of slackening
commitment to the goal. After reducing the federal deficit from 7.9
percent of GDP in 1992-93 to 5.8 percent in 1993-94, the GOP targeted
further reduction to 4.0 percent in 1994-95. Despite encouraging
increases in tax revenues, these nonetheless fell short of ambitious
targets, and the GOP again registered a deficit of 5.8 percent of GDP.
The 1995-96 budget announced a deficit target of 5.0 percent of GDP,
whereas the GOP had earlier promised international creditors to aim for
steeper fiscal adjustment.
Deficit reduction is constrained by rigidities in spending patterns and
a weak tax base. Defense spending and debt repayments absorb 63 percent
of total federal spending, leaving little for other basic government
functions and improving the long-neglected social sectors. Meanwhile,
the country has a very narrow tax base; perhaps one in one hundred
Pakistanis pays income tax. The country has had to rely on import and
excise taxes for a very high share of revenues, thus protecting
inefficient industries and encouraging smuggling, and on official
transfers from external creditors, primarily the World Bank, the Asian
Development Bank and the Government of Japan. Government bank borrowing
to finance current spending crowds out needed private investment.
The GOP's medium-term adjustment program has aimed to broaden the tax
base through extension to under-taxed sectors and reduction of
exemptions; to shift from taxation of international trade to taxation of
consumption; to move to market determination of administered prices; and
to improve the productivity of public spending. Progress has been
mixed. Agriculture remains very lightly taxed. A sales tax has been
instituted but exemptions, often secured through political influence,
remain common. Maximum import tariffs were reduced from 92 percent in
1993-94 to 70 percent in 1994-95. They were to be reduced to 45 percent
in 1995-96 but, because sales tax revenues have not met expectations,
were reduced only to 65 percent, thus slowing down a key element of the
GOP's structural reform program. Increases in utility charges have
attempted to keep pace with actual costs, but fee collection remains a
serious problem.
The 1995-96 budget has led to difficulties with the international
financial institutions, which had counted on more aggressive deficit
reduction efforts and better adherence to the tariff reduction program.
Disbursements under the IMF's Enhanced Structural Adjustment Facility
have been suspended, and future World Bank adjustment lending could also
be affected if a sounder macroeconomic framework is not re-established.
The GOP insists it remains committed to macro stability and structural
reform but, for political reasons, has had to moderate the pace of
reform. The government and the international financial institutions
remain in contact on these challenging fiscal issues.
- Privatization
Privatization of many state-owned enterprises is another key element of
Pakistan's reform program, and both major political parties support
reducing the state's role in the economy via this process. In the early
1990s the GOP identified a group of 118 state-owned industrial units for
privatization. Almost 70 of these have so far been sold off, and bids
have been solicited on more than 25 others. The GOP has gradually
improved terms in an effort to sell off less desirable units.
Industrial units, including factories producing cement, chemicals,
automobiles, food products, etc., have mainly attracted domestic private
investors.
Meanwhile the GOP is continuing preparations for at least partial
privatization of a few state-owned banks, several energy utilities, and
- the largest item of all - Pakistan Telecommunications Corporation
(PTC), the state monopoly phone company. In most cases, the GOP aims to
find "strategic investors" to buy 26 percent of these firms and gain
management control. These privatizations are very complex undertakings,
since new regimes for regulation of private sector entities in these
sectors must be established, and implementation has been running behind
original schedules. The GOP's implementing agency, the Privatization
Commission, says it is proceeding carefully to ensure a transparent
process. The government is benefiting from World Bank technical
assistance in this effort and has hired several foreign financial
advisors to help with preparation. Foreign investors are expected to
show interest in acquiring stakes in these firms.
The main non-industrial organizations to be privatized include United
Bank Ltd., Bankers Equity Ltd., the Sui Northern and Sui Southern
natural gas pipeline companies, the Kot Adhu and Jamshoro thermal power
plants, Karachi Electric Supply Corporation, and PTC. In September 1994
the GOP made a highly successful sale of vouchers worth 12 percent of
PTC's total equity, raising about $1 billion. The GOP also plans to
corporatize, and perhaps eventually privatize, the Water and Power
Development Authority (WAPDA), Pakistan's main electric utility.
The GOP and public-sector unions have agreed on a generous relief
package for employees of divested state-owned enterprises. Labor
opposition to the privatization program has thus been fairly rare,
though there has been some resistance in the case of the Kot Adhu power
plant.
Besides privatizing existing state-owned enterprises, the GOP has sought
to attract new private, including foreign, investment in formerly state-
monopoly sectors, especially energy. Newly developed private power
plants are expected to supply approximately 3000 megawatts of additional
power by the end of 1997.
D. Balance of Payments Situation
Following the external payments crisis of mid-1993, adjustment efforts
in 1993-94 focused on improving the external balance. This effort was
very successful, largely thanks to sharp constriction of imports, and
the 1993-94 current account deficit was halved as a share of GDP. In
1994-95, Pakistan returned to a situation of strong growth in both
exports and imports. The resulting trade deficit of $2.2. billion was
10 percent up on 1993-94, while the current account deficit is also
estimated to have widened slightly.
Strong export growth in 1994-95 was largely the result of favorable
international price trends for Pakistan. Exports of cotton manufactures
grew 18 percent, rice by 89 percent, sporting goods by 31 percent, and
carpets by 27 percent. Import growth was led by edible oil, 19 percent,
and machinery, 22 percent, the latter portending future increases in
productive capacity.
Despite the success achieved in improvng the balance of payments and
increasing reserves (see below), the external position remains tight.
Foreign currency liabilities of the banking system are substantial, and
Pakistan's foreign debt has risen to 43 percent of GDP. While debt
servicing remains manageable, continued stability requires improvement
in the fiscal balance and sustained high export growth.
- Foreign Exchange Policies and Reserves
The improvement in Pakistan's balance of payments is most vividly
illustrated in the growth of foreign exchange reserves. After dipping
to under $200 million in July 1993 (one week of imports), reserves
peaked in December 1994 at $3.1 billion. At the end of June 1995,
reserves stood at the still-comfortable level of $2.7 billion (17 weeks
of imports). The sale of PTC vouchers was an important source of new
reserves.
The GOP has continued policies to liberalize and deregulate the exchange
and payments regime. The Pakistani rupee has been on a managed float
since 1982. The U.S. dollar serves as intervention currency for fixing
the exchange rate against a trade-weighted basket of currencies. The
central bank sets the daily rate at which it will purchase and sell U.S.
dollars in its dealings with authorized dealers. The rupee was made
convertible on current account in July 1994.
One U.S. dollar was equal to 31 rupees in July 1995. The rupee has
depreciated only 3.3 percent against the dollar since 1993-94, implying,
given a domestic inflation rate at least 10 percentage points higher
than that of America's, real appreciation. With the dollar's
depreciation against other major currencies, the rupee has nominally
depreciated more steeply against them.
- Remittances from Overseas Workers
Remittances from overseas workers have been a major source of foreign
exchange earnings for Pakistan. They peaked at $2.89 billion in 1982-
83, then dropped to $1.45 billion in 1993-94. Workers' remittances
trended upward to $1.56 billion in 1994-95, due to increased economic
activities in the oil-producing countries of the Middle East. The
relative importance of workers' remittances, however, continues to
decline. In the past ten years they have fallen from 10 percent of GDP
to about 5 percent. One contributing factor has been the recent
emergence of resident foreign currency accounts as a partial substitute
for workers' remittances. In mid-1994, assets in these accounts totaled
$3.0 billion, a 51 percent increase from one year earlier; by April 30,
1995, they had risen to $3.2 billion.
- Foreign Trade
Pakistan's foreign trade increased in the first eleven months of the
1994-95 fiscal year. However, a sharper rise in imports led to a higher
trade deficit.
Both exports and imports increased over the corresponding period of the
previous year. Exports for 1994-95 are now expected to total
approximately $7.8 billion compared to $6.7 billion in 1993-94. Imports
in 1994-95 are estimated at $10.1 billion versus 8.5 billion in the
previous year.
Exports, which reached a record level in 1994-95, are attributed mainly
to higher prices of cotton products and growth in exports of non-
traditional items. In 1993-94, the following countries were the largest
recipients of Pakistani exports: the U.S. (14.4 percent); Germany (8.0
percent); Japan (8.0 percent); the UK (7.8 percent); Hong Kong (7.3
percent); United Arab Emirates (6.3 percent); France (4.1 percent);
Saudi Arabia (3.5 percent); The Netherlands (3.1 percent); and Italy
(2.7 percent).
Imports, which are projected at 10.1 billion in 1994-95, increased by
about 18.5 percent over the previous year. Imports of machinery
(excluding transport equipment), petroleum, edible oils, wheat, iron and
steel, synthetic fiber increased, while automotive vehicles, tea,
fertilizer, medical products, milk and milk food for infants, and
synthetic and artificial silk declined. In 1993-94, the following
countries were the major sources of Pakistan's imports: Japan (11.8
percent); the U.S. (10.6 percent), Germany (7.7 percent), Malaysia (5.5
percent); Saudi Arabia (5.4 percent), Kuwait (5.3 percent); China (5.1
percent); UK (4.9 percent), France (4.0 percent), and South Korea (3.7
percent).
E. Infrastructure Situation
Ports - Pakistan has two significant seaports - Karachi and Port Qasim -
and two sites for future facilities - Gwadar and Pasni, both on
Baluchistan's Makran Coast. Karachi is the main port, handling the
majority of all dry and liquid cargo. Port Qasim, located 50 kilometers
southeast of Karachi, is Pakistan's second deep sea port and was built
for overflow from Karachi Port and to handle raw material imports for
Pakistan Steel Mills. Pakistan's dry and liquid cargo is projected to
increase from 25.2 million tons in 1992-93 to 30.1 million tons in 1997-
98, requiring expansion and upgrade of the country's port facilities.
Containerized traffic is projected to increase from 74 percent to 85
percent of general traffic over the same time period, totaling 623,000
TEUs (twenty-foot equivalent units) by 1997-98.
The GOP plans to improve container handling berths at both Karachi and
Port Qasim by constructing specialized container terminals at Port Qasim
and on Karachi's West and East Wharfs. The Port Qasim container
terminal and a new oil terminal are to be constructed by the private
sector. The GOP also plans acquisition of a bucket dredger, and
deepening of the navigational channel and development of a modern
warehousing complex in Karachi and construction of grain and fertilizer
terminals at Port Qasim. In addition, the GOP proposes private sector
development of an entirely new deep-water port at Gwadar on the western
Makran Coast; this port would be suitable for vessels up to 100,000
deadweight tons and would require considerable onshore infrastructural
development.
Railroads - Pakistan Railways, an autonomous agency under the Ministry
of Railways, operates the railroad system. The system is primarily
broad-gauge, but there are also segments of meter-gauge and narrow-gauge
track. Over the past fifteen years, there has been a marked shift in
freight traffic from rail to highways, a trend which the GOP hopes to
stabilize and reverse. Railways carries about 15 percent of freight
traffic and road vehicles 85 percent. The rail system comprises over
800 stations and 46 halts. Rolling stock includes about 650
locomotives, 2,250 passenger coaches, and 28,500 freight cars.
Pakistan Railways will receive nearly $50 million in 1995-96 to improve
railroad's share of long-haul freight traffic, to upgrade track to
permit trains to operate at higher speeds, and to rehabilitate
infrastructure in order to improve capacity utilization. Specific
priorities include double-tracking; rehabilitating 150 traction motors;
manufacturing 25 air- conditioned cars and 50 diesel-electric
locomotives at a newly opened factory at Risalpur in the NWFP, as well
as upgrading telecommunications and signalling systems.
Highways - The World Bank reports that Pakistan's road network is
notable for its poor condition. Fifty-six percent of the road network is
unpaved and over two-thirds of paved arterial roads do not have enough
carriageway width for two lanes. The majority of paved and unpaved
roads are in poor condition. According to the World Bank, on average,
poorly maintained roads can cause 30-40 percent higher transportation
costs. At both federal and provincial levels, Pakistan provides
insufficient funding for road maintenance.
Over 80 percent of Pakistan's freight and passenger traffic travels by
road. In March 1995, Pakistan had 205,304 kilometers of roads. The
major north-south link is Lahore and Rawalpindi to Peshawar and carries
over half of Pakistan's goods and passenger traffic. The road density
of Pakistan is only 0.23 km/sq.km.
The National Highway Authority (NHA), established in 1991, has the major
responsibility to plan, promote, organize and implement programs for
construction, development, operation, repairs and maintenance of
national highways and strategic roads. Plans, policies and budget of the
NHA are approved by the National Highway Council headed by the Prime
Minister. The Council controls, directs and regulates the affairs of the
NHA.
The GOP's key development priority in the highway sector is to upgrade
and fill in gaps in the existing road network so the system can be more
efficiently utilized. Proper maintenance of the network is a newly
emphasized priority. Additional construction projects include
completion of the Indus Highway, completion of the dualization of the
principal route (the N-5 National Highway), construction of several
inter-city expressways and by-passes, and the Lahore-Islamabad motorway.
Air Transport - The GOP has opened the domestic aviation market to
private sector competition. To date, five private carriers have
conducted commercial flights and two of them continue to fly (as of June
1995). The national carrier, PIA, has a fleet of 47 planes (eight
Boeing 747s, nine Airbus 300s, six Airbus 310s, seven Boeing 737s,
fourteen Fokker-27s, two DeHavilland Twin Otters, and two Boeing 707
freighters). PIA serves 36 domestic and 49 international destinations.
The current private sector competition consists of Shaheen Airlines, a
unit of the Shaheen Foundation (a foundation for retired air force
officers), and Aero Asia, part of the Karachi- based Tabani group of
companies.
The GOP plans to continue modernizing and upgrading its civil aviation
facilities. This includes putting the finishing touches on the world-
class Jinnah Terminal Complex at Karachi and the eventual construction
of new international airports at Lahore, Islamabad, and Peshawar (by the
private sector on a build, operate, and transfer basis). The GOP,
through its Civil Aviation Authority, also plans runway improvements at
Islamabad, Karachi, Peshawar, and Multan, and the establishment of four
small regional airports. PIA also projects that it will replace its
early-generation 747s with newer widebodies and its Fokker fleet with
approximately 15 turbo-prop aircraft.
Utilities - Two public utilities, the Water and Power Development
Administration (WAPDA) and the Karachi Electric Supply Corporation
(KESC) are responsible for electric power generation and distribution.
However, the GOP has a policy to bring private firms into the generation
of power (for purchase and distribution by the public utilities). (See
sections on Energy, and Privatization.)
Telecommunications - In December 1990, Pakistan converted Pakistan
Telephone and Telegraph (PTT) Department, which was directly controlled
by the Ministry of Communications, into Pakistan Telecommunications
Corporation, (PTC), an autonomous public company. The GOP plans to
privatize PTC, by first selling 26 percent ownership to a "strategic
investor", and then selling the rest after the firm is on a solid
footing. In June 1993, Pakistan had three "international gateway
exchanges" - two in Karachi and one in Islamabad - with a total of 2,400
international and 3,500 national circuits and direct connections with
125 countries. Several major cities have been connected by an optical
fibre network. Three private companies, Pak-Tel Pak-Com and Mobilink,
provide mobile telephone services in large cities. The GOP has invited
proposals for a communications satellite, to be launched into one of
Pakistan's two geosynchronous orbital slots and supplied on a build-own-
operate (BOO) basis.
III. POLITICAL ENVIRONMENT
A. Nature of Political Relationship with the United States
Pakistan and the United States have had bilateral diplomatic relations
since Pakistan's independence in 1947. Pakistan is a member of the
United Nations, the Organization of the Islamic Conference, and the
Economic Cooperation Organization, among other international
organizations. Pakistan is currently a member of the UN Security
Council where it has worked effectively to promote and support peace-
keeping operations in Somalia, Bosnia, and elsewhere. In 1990, U.S.
economic and military assistance to Pakistan was suspended as required
by U.S. legislation (the so-called Pressler Amendment to the Foreign
Assistance Act) when the U.S. President could no longer certify to
Congress that Pakistan did not possess a nuclear explosive device.
Despite the cutoff of U.S. assistance, the tenor of bilateral relations
has remained good and the U.S. and Pakistan cooperate in many areas,
including joint military exercises and anti-narcotics efforts. The
United States has traditionally been Pakistan's leading trading partner
and largest source of private foreign capital.
B. Major Political Issues Affecting Business Climate
Since 1988, a broad consensus on a liberalizing, market-oriented
economic policy has emerged between the two principal political parties.
At the same time, Pakistan has moved toward a two-party system,
dominated by the PPP and the PML (Nawaz Group). This has resulted in a
continuity of economic policy, even during the six-month period in 1993
when Pakistan had five Prime Ministers. The consensus on economic
policy, together with the macro-economic discipline imposed by the
structural economic adjustment programs adopted with the full support of
the International Monetary Fund (IMF) and the World Bank, has had a
positive impact on the business climate.
Periodic political and civil unrest in the Sindh province has the
potential to dampen foreign investment and trade, although the overall
political climate (i.e., the perception of ineffectual or revolving-door
governments) has a greater ultimate impact.
As in many developing countries, corruption is an unwelcome, but
ubiquitous, part of the business milieu in Pakistan. Recent anecdotal
reports suggest that this problem continues and that, rather than
serving to facilitate transactions, the phenomenon may be having a
sclerotic impact on the economy. Efforts to reduce opportunities for
corruption by improving management systems in, for example, the customs
and tax services are under way. Also, important business organizations,
including the nation-wide Federation of Pakistan Chambers of Commerce
and Industry (FPCCI), have made curbing corruption a principal plank of
their policy agendas, recognizing that corruption not only tarnishes
Pakistan's image, but discourages potential business.
C. Political System
Pakistan is a parliamentary democracy. The parliament consists of two
houses, a National Assembly elected directly through universal suffrage,
and a Senate elected by the provincial legislatures. The Prime Minister
is the head of government and is elected by and from the National
Assembly. The Head of State is the President, who is chosen by an
electoral college consisting of the National Assembly, the Senate, and
the Provincial Assemblies. The Constitution requires that the President
be a Muslim and provides for a five-year term. Pakistan is divided into
four provinces: Punjab, Sindh, Baluchistan, and the Northwest Frontier
Province. Each province has its own directly elected Provincial
Assembly, as well as a government headed by a Chief Minister and a
Governor appointed by the President.
There are two federal legislative houses - a 217-member National
Assembly elected for five-year terms and an 87-member Senate elected for
six-year terms by the appropriate provincial legislature. National
Assembly seats are currently apportioned 115 to the Punjab, 46 to Sindh,
26 to the NWFP, 11 to Baluchistan, 8 to the Federally-Administered
Tribal Areas (FATA) and one to the Federal Capital District of
Islamabad, with ten additional seats reserved for religious minorities.
Each of the four provinces has 19 senators and there are eight senators
from the FATA and three from the federal capital area. Indirect
elections for half the members of the Senate are held at three-year
intervals.
The Constitution of Pakistan guarantees an independent judiciary. The
Supreme Court is the highest court in the country; High Courts in the
provincial capitals of Lahore, Karachi, Peshawar, and Quetta stand at
the head of the provincial judicial systems.
Pakistan came into existence on August 14, 1947 with the Partition and
independence of British India. The creation of a separate Muslim nation
was accomplished largely through the efforts of Mohammed Ali Jinnah
(known as the Quaid-i-Azam or "great leader"). Jinnah served as
Pakistan's first Governor-General until his death in 1948; his picture
graces virtually every official Pakistani office. Pakistan initially
consisted of two areas, East Pakistan and West Pakistan, separated by
1,000 miles of Indian territory. In 1947-48, Pakistan and India fought
the first of their three wars over the Muslim-majority territory of
Kashmir, which both claimed and whose Hindu maharajah opted for India at
Partition. The conflict ended in stalemate and Kashmir remains disputed
territory divided by a heavily-defended Line of Control watched since
1948 by UN observers.
A Constituent Assembly met in 1955 and produced a parliamentary,
federal, and largely democratic constitution which became effective in
March 1956 and proclaimed Pakistan an Islamic Republic. By this time,
the provinces of West Pakistan had been combined into a single unit and
West and East Pakistan made up the two units of the country.
General elections held in December 1970 resulted in a potential rupture
between the eastern and western sections of Pakistan. The Awami League,
which advocated autonomy for the more populous East Pakistan, swept the
East Pakistan seats to gain a majority in Pakistan as a whole. The
Pakistan Peoples Party (PPP), founded and led by Ayub Khan's former
Foreign Minister, Zulfikar Ali Bhutto, won a majority of the seats in
West Pakistan, but the country was completely split with neither major
party having any support in the other area. Negotiations to form a
coalition government broke down and a civil war ensued. India attacked
East Pakistan and captured Dhaka in December 1971, when the eastern
section declared itself the independent nation of Bangladesh. Yahya
Khan then resigned the presidency and handed over leadership of the
western part of Pakistan to Bhutto, who became President and the first
civilian Chief Martial Law Administrator.
A new constitution, Pakistan's third, came into effect in August 1973
and Bhutto became Prime Minister. His government implemented portions
of the PPP's socialist manifesto, restructuring the economy, increasing
the prominence of the public sector, and nationalizing many industries.
Bhutto's centralizing policies and autocratic ways galvanized the
opposition, which challenged Bhutto's sweeping victory in the March 1977
national elections. Bhutto was deposed by his Chief of Army Staff,
General Zia-ul-Haq, in July 1977. General Zia became president in 1978
and a provisional constitution, which retained substantial parts of the
1973 constitution, was imposed in March 1981. In the interim, Bhutto
was executed by hanging in April 1979. Under Zia, the Government of
Pakistan became increasingly Islamicized and benefitted from lending
logistical support to U.S. and mujahideen efforts to counter the Soviet
invasion of Afghanistan. In February 1985, non-party elections were
held for the National Assembly and the four provincial assemblies. In
August 1988, General Zia died in an air crash.
General elections were held in November 1988 and the PPP, headed by
Benazir Bhutto, daughter of the late Prime Minister, won a plurality of
seats and formed a coalition government. In August 1990, President
Ghulam Ishaq Khan exercised his right under the constitution to dissolve
the National Assembly, dismiss the Prime Minister, and call new
elections. In the general election held in October 1990, the Islamic
Democratic Alliance won the largest number of seats and Mian Nawaz
Sharif, leader of its largest component party, the Pakistan Muslim
League (PML), became Prime Minister. Nawaz Sharif, the first
industrialist to lead Pakistan, continued the trend toward
liberalization of the economy and promotion of private sector growth.
In April 1993, President Ghulam Ishaq Khan again dissolved the National
Assembly and dismissed the Prime Minister, but the following month the
Pakistan Supreme Court reinstated the National Assembly and the Nawaz
Sharif government. Continued tensions between the reinstated Prime
Minister and the President resulted in governmental gridlock and the
Chief of Army Staff brokered an arrangement under which both the
President and Prime Minister resigned their offices in July 1993.
Elections in October 1993 overseen by the reformist interim government
of Moeen Qureshi resulted in a plurality for Benazir Bhutto's PPP and
she secured sufficient additional support to be elected Prime Minister
by the National Assembly. Prime Minister Bhutto's hold on power
received a further boost in November 1993, when her PPP ally, Farooq
Ahmad Khan Leghari, was elected President.
1. Schedule for Elections - The most recent elections for
the national and provincial assemblies took place in October 1993, and
national elections are scheduled to be held again in October 1998.
Indirect elections for half of the members of the Senate were held in
March 1994. Indirect elections for the other half of the Senate are
scheduled for March 1997. The indirect election of the President was
held in November 1993 and the next Presidential election is scheduled
for November 1998.
2. Major Political Parties - The two largest political parties
are the Pakistan Peoples Party (PPP), led by the current Prime Minister
Benazir Bhutto, and the Nawaz Sharif group of the Pakistan Muslim League
(PML/N), led by former Prime Minister Nawaz Sharif. Both parties have a
centrist orientation and support private enterprise and the free market.
The PPP espouses a somewhat more activist view of government, especially
in the social sector. It also has a more secular view of Islam in
politics. The PML/N is slightly to the right of the PPP and has a more
traditional view of Islam.
There are several other smaller, but significant, parties. The Mohajir
Qaumi Mahaz (Mohajir National Movement - MQM) is a party that represents
the interests of Pakistan's mohajirs (Urdu-speaking Muslims who migrated
from India following the creation of Pakistan in 1947). The Junejo
group of the Pakistan Muslim League (PML/J) is a breakaway faction of
the larger Muslim League and is a member of the current PPP-led national
government coalition. The Jamaat-i-Islami (JI) is a conservative
Islamic political party that has enjoyed electoral success only when
allied with a larger party. In the 1993 National Assembly elections,
the JI won only three of 217 seats (all other Islamic parties combined
won only an additional six seats).
IV. MARKETING U.S. PRODUCTS AND SERVICES
A. Distribution and Sales Channels
There are approximately 100,000 retail outlets in Pakistan, of which
nearly 20,000 are located in the major cities. About 40,000 of the
total are classified as universal stores/outlets. These are further
subdivided into the following categories:
Category Size No. of Outlets
A Very Large 300-500
B Upscale 3,000-4,000
C Medium 10,000-11,000
D Very Small 25,000+
Stores in the latter three categories are usually owned by a sole
proprietor. Large supermarkets or chain stores for general consumer
items still do not exist in Pakistan. However, the concept of chain
stores for fashion apparel has lately begun to emerge in the larger
cities, where several such chains carrying predominantly locally
manufactured merchandise are currently operating. In addition, hundreds
of government-owned Utility Stores sell food and household items and
serve as a mechanism for restraining inflationary price increases by
following the government line on pricing.
Many consumer retail stores stock general merchandise for everyday use.
There are also large numbers of stores which sell a single commodity,
for example, tires, cooking utensils, textiles, or jewelry. Such stores
are generally located in bazaar areas and tend to be situated near many
other shops carrying similar goods. There are as yet no shopping malls
or large department stores in Pakistan; however, the government has
built a multi- storied shopping plaza in Islamabad with several stores
rented out to retailers. If this concept succeeds, other complexes will
be established in various cities.
Foreign companies considering marketing their products in Pakistan may
choose to use the services of local distributors or may develop their
own distribution chain. Distributors in the urban areas generally deal
on an exclusive basis. Some market consultants estimate that the
services of 100-300 distributors would be required for nationwide
coverage. One very large multinational company selling consumer
products employs 500 distributors to reach a significant portion of
Pakistan's small towns and villages.
As a matter of policy, most companies do not provide credit to
distributors, and distributors in turn generally sell on a strictly cash
basis to retailers. Smaller distributors often do provide credit to
retailers, but the volume of such transactions is relatively
insignificant.
Pakistan's wholesale market is fairly well-developed, with about 1,000 -
1,500 wholesalers constituting this segment of the distribution network.
Karachi is the major distribution center and wholesale terms there are
representative. Approximately one-fifth of the wholesalers in Karachi
sell on a consignment basis. Fewer than one-third of the wholesalers
allow discounts to their customers, but the granting of 30- to 90-day
credit is common. Because of limited financial resources, retailers
generally sell on a cash-only basis. Consumer credit in Pakistan
remains an insignificant portion of the total commercial credit.
Foreign companies selling industrial or capital goods often sell
directly to the end-user or, if the market is fairly large, they appoint
one major distributor, who then sells either to sub-distributors or
directly to end-users.
B. Use of Agents/Distributors: Finding a Partner
Many foreign firms in Pakistan appoint local agents to provide market
intelligence and to facilitate distribution. These agents typically
work on a fixed commission, which can range from two to 10 percent for
plant and equipment purchases and from 15 to 20 percent for spare parts.
Commissions may be computed on f.o.b., ex-factory, or c.i.f. basis, as
mutually agreed. Some agents prefer to have suppliers quote net prices
to them and they, in turn, add the commission to arrive at their selling
price. Other agents operate as consultants on a fixed-fee basis,
receiving their fee regardless of the volume of total sales.
Probably the most common arrangement is the exclusive agency agreement,
under which the supplier agrees to neither appoint another
dealer/distributor, nor to negotiate sales through any other party. In
return, the agent is barred from handling similar items produced by
other companies. Under this arrangement, the agent receives commissions
on all sales of the product regardless of the channels through which the
order is placed. He often imports and stocks the spares most frequently
required by the end-users. Agency agreements typically extend for a
term of one to three years and generally require 30 to 90 days notice by
either party for termination.
Overseas suppliers may look after the interests of their local agents in
various ways. For example, the principal may arrange separate payments
to the local agent for provision of after-sales service during and
beyond the warranty period. The principal often compensates the local
agent for providing technical and administrative support services not
directly related to any specific sales transaction.
The U.S. Department of Commerce (USDOC) can provide assistance in
locating potential agents and representatives abroad through its
Agent/Distributor (ADS) and Gold Key services available through USDOC
district offices in the United States. The USDOC "Foreign Company
Background Report" (FCBR) can provide information on individual
agents.
C. Franchising
The concept of franchising is gradually gaining acceptance in Pakistan,
especially in the hospitality sector. Several major U.S. hotel chains,
a U.S. pizza outlet, and a U.S. car rental company are currently
represented in Pakistan through franchisees.
Franchising provides U.S. companies with a fairly swift way to enter the
market without a major capital commitment. By operating through local
franchisees, U.S. firms can gain access to local expertise and
significantly reduce the problems of adjusting to an unfamiliar business
environment.
However, franchising is not without drawbacks. Potential areas of
tension between franchisor and franchisee include quality control,
intensity of marketing efforts by the local franchisee, and possible
conflict of interest on part of the franchisee. The local affiliate may
end up as a competitor once the franchise agreement expires or is
terminated.
A key consideration in establishing a franchise operation in Pakistan is
quality control, particularly if the enterprise proposes to use locally
produced items. The quality of local items is often inconsistent and
must be closely monitored. Some U.S. franchisors in Pakistan have run
into quality-control problems and have either terminated operations or
allowed the operation to blend into the local economy and let the image
of an international franchise lapse. Importing inputs, especially food
ingredients, also poses problems for franchises. Import regulations are
often vague and interpretations can change with little or no prior
notice. In Pakistan, all imported food items, particularly meat items
must be certifiably "Halal", (killed in the proper ritual Islamic
manner).
Selection of a franchisee is critical because usually it involves a
long-term relationship. Prior to entering an agreement with a local
company, U.S. firms may commission a FCBR on the local company, by
paying the appropriate fee to their local district office of the U.S.
Department of Commerce. U.S. firms are, of course, advised to identify
a number of candidates and evaluate each carefully.
The franchise agreement must be carefully drafted to protect the
interests of the parties. The franchisor must be able to retain some
direct control over operations, even after transfer of business and
technical know-how. Crucial elements of the franchise agreement include
territorial coverage, duration, franchise rate, protection of trade
secrets, quality control, and minimum performance clauses. The U.S.
firm should assure that its patents and trademarks will be registered in
its own name rather than that of the franchisee.
Major U.S. companies with franchise operations in Pakistan include
Marriott, Ramada Inc., Sheraton, Holiday Inn Crowne Plaza, Best Western,
Pizza Hut, and Avis.
D. Direct Marketing
Direct marketing in Pakistan until recently was limited to direct mail
advertising, with leading pharmaceutical firms and large publishing
groups as major users. The pharmaceutical companies were reaching out
to doctors, hospitals, and other medical professionals, and the
publishers were using direct mail to reach out to their existing
subscribers of magazines and publications for repeat business. However,
the inception of telemarketing and greater use of courier services have
recently broadened the scope of direct marketing.
The concept of direct marketing is gradually gaining acceptance in the
Pakistani marketplace, driven by the efforts of several multinational
companies. Low costs for domestic mail and local telephone calls make
this a potentially cost-effective sales medium. The major drawbacks to
direct marketing in Pakistan are the lack of readily available mailing
lists and the paucity of reports on consumer preferences, making it
difficult to target and reach the intended audience. Efficient mail,
courier, and telephone services are generally limited to major urban
areas, confining the current reach of direct marketing to the cities of
Karachi, Lahore, Rawalpindi/Islamabad and Peshawar.
U.S. companies considering direct marketing in Pakistan should take
local customs and cultural values into consideration before launching a
campaign. The use of a local advertising agency is advisable in
implementing the direct marketing option. A few advertising agencies
have separate direct marketing departments.
E. Joint Ventures/Licensing
The three principal routes to entering the Pakistan market are: (1)
formation of a wholly- owned private company; (2) formation of a public
limited company (foreign firm retains majority control, but seeks public
participation through stock flotation); and (3) establishment of a
company in cooperation with joint venture partners, who supply local
expertise, management, and capital.
The joint venture may be either a private or a public company. Joint
ventures can be an attractive option in Pakistan today because there are
many local entrepreneurs who have built a substantial base in their
industrial enterprises and are seeking to combine their knowledge of
local markets with foreign capital and technological know-how. The
foreign joint venture partner limits its initial country exposure while
enjoying the support of a local partner in a new market and Prominent
joint ventures have been established in the automobile, fertilizer,
electronic, financial services, food, and consumer product sectors.
Firms wanting to delay direct entry into the Pakistan market should
consider licensing arrangements with Pakistani firms, an option that
permits them to enter the market in stages if the initial response is
promising.
F. Steps to Establishing an Office
A business in Pakistan may be organized as a sole proprietorship, a
partnership, or as a public or private limited company. Foreign
investors generally establish limited companies as required under the
Companies Ordinance, 1984. They must register with the Registrar of
Companies. Company registration offices are located in each of the
provincial capitals and also in Islamabad and Multan. A company making
any public offer of securities for sale or intending to issue capital
beyond Rs. 100 million is required to obtain approval from the
Controller of Capital Issues (CCI).
After completion of the required formalities, firms should apply for
necessary utilities to the authorities below:
Electric Power: Karachi Electric Supply Corporation (KESC), for the
Karachi area, and Water and Power Development Authority (WAPDA) for the
rest of the country.
Natural Gas: Sui Northern Gas (for Punjab and NWFP) and Sui Southern
Gas Company (for Sindh and Baluchistan).
Telephone, Fax: Pakistan Telecommunications Corporation (and private
cellular phone companies).
Water: Local governmental authorities.
All manufacturing concerns employing more than 10 persons are required
to register with the appropriate provincial Chief Inspector of
Industries under the Factories Ordinance, 1984.
Within 30 days of establishment, foreign companies must file the
following documents with the Registrar of Joint Stock Companies,
Ministry of Finance:
-- a certified copy of the charter, statutes, or
memorandum, and articles of association of the company;
-- the full address of the registered or principal overseas
office of the company;
-- the names of the chief executive and directors of the
company;
-- the names and addresses of persons resident in Pakistan
who are authorized to accept any legal notice served on the company.
U.S. firms may find it advantageous to use the services of a local
attorney in complying with these formalities.
G. Selling Factors/Techniques
Imports - Imports of goods into Pakistan require a Compulsory Letter of
Credit (L/C), unless a special exemption is obtained in advance.
Revolving, transferable, and packing letters of credit are not
permissible. Letters of credit should provide for negotiation of
documents within a period not exceeding 30 days from the date of
shipment.
Payment to the beneficiary (stipulated in the L/C) may be made either in
the country of origin or in the country of shipment of goods. Other
payment terms are subject to approval by the State Bank of Pakistan
(SBP). Remittances may be made soon after goods have been cleared by
Customs.
Pakistan Customs authorities require a commercial invoice and a bill of
lading (or air waybill). Exporters should forward documents separately
if shipment is by sea, but should include them with air shipments.
Certificates of origin are not legally required but may be requested by
the consignee or consignee's bank. When a certificate of origin is not
requested, a statement of country of origin should appear on the
invoice. Consular invoices are not required.
The exporter should also be sure to ascertain from the importer the
precise number of copies of each document which will be required. Other
documents, such as insurance certificates and packing lists, also may be
requested by importers, depending on the specific circumstances.
Customs authorities require special certificates for imports of plants
and plant products and used clothing (e.g. a U.S. Food and Drug
Administration certificate for foods and pharmaceuticals). In order to
expedite the process and to avoid potential delays and penalties,
exporters should request detailed instructions from the Pakistani
importer prior to shipping.
In 1995 Pakistan initiated a system of preshipment inspections (PSI) to
value imports. The inspection, which takes place in the country of
origin, is based on market price, not invoice value. Further
complicating matters, Pakistan Customs is not bound to accept the PSI
figures.
H. Advertising and Trade Promotion
Pakistan has over a dozen major advertising agencies, some with foreign
affiliation. Advertising agency commissions are usually 15 percent of
the cost of the advertisement. Information concerning advertising
agencies may be obtained from the Pakistan Advertising Association, 232
Hotel Metropole, Abdullah Haroon Road, Karachi.
Newspaper advertising is the most widely used method of advertising.
Other advertising vehicles include radio, television, billboards,
periodicals and trade journals, direct response advertising, and slides
and commercial film shorts in movie theaters.
Pakistan has over 115 daily newspapers. The Daily Jang, published in
Urdu, is the single largest newspaper, with an estimated national
circulation of almost 750,000. Combined circulation for the roughly 13
English-language newspapers is approximately 200,000. The principal
English-language daily newspapers are Dawn (published in Karachi), The
News (Islamabad, Lahore, Karachi), The Pakistan Times (Islamabad,
Lahore), The Nation (Lahore), The Muslim (Islamabad), The Frontier Post
(Peshawar, Lahore), and The Business Recorder (Karachi). Although the
English-language press reaches only a small fraction of the population,
it is influential in political, business, academic, and professional
circles. The immediate past editor of The News is the current Pakistani
ambassador to the United States. The two major English-language general
magazines are the monthlies, The Herald and Newsline. The principal
English-language weekly economic magazine is the Pakistan & Gulf
Economist, published in Karachi, and there is also a widely-read english
weekly Friday Times published from Lahore.
Broadcasting outlets in Pakistan are government-owned and operated, but
accept private advertising. Television is broadcast in color on three
channels, using the PAL system. English language programs are broadcast
for about two hours a day on the larger Pakistan Television Corporation
(PTV) and for eight to ten hours a day on the Shalimar Television
Network (STN). A 30-second commercial in prime time currently costs
$3,245 on PTV and $1,670 on STN.
Satellite television broadcasts have also made inroads in Pakistan and
it is estimated that more than 100,000 dish antennas are presently
installed in the country. About a dozen channels are received through
satellites reaching about 2 million viewers.
Radio broadcasting time lasts approximately 17 hours a day. The
standard advertising rate on Pakistani radio for commercial firms and
products is approximately $70 for a 30-second spot.
Pakistan currently allows trade advertising material other than
commercial catalogues to enter duty-free, but levies a 15 percent sales
tax on those items. Samples may be admitted duty free only if they are
representative parts of a complete shipment or are unsuitable for sale.
The duties applicable to commercial shipments apply to samples having a
commercial value.
Trade Shows - The textile and leather industries and the Computer
Society of Pakistan hold annual events for export promotion purposes and
for the local industry, respectively. U.S. Department of Commerce-
sponsored catalogue shows and video catalogue exhibitions can be useful
vehicles for generating sales leads and for locating suitable agents and
distributors. Trade and seminar missions can also provide valuable
first-hand insights into the Pakistani market, as well as serving to
introduce U.S. equipment and technology. Trade missions can educate
government and other end-users about product availability, technical
characteristics, quality, and price, and can establish contacts with key
organizations to promote product awareness.
U.S. firms should also consider participation in regional events
(focusing on either South Asia or the Middle East) in order to reach
potential Pakistani purchasers, agents, and distributors.
I. Pricing Products
Product pricing is often difficult for new entrants to the Pakistan
market, principally due to the country's complex tax structure. Foreign
companies represented by a local agent, distributor, licensee, or other
intermediary generally work closely with their local affiliates in
determining prices.
Relatively high shelf prices frequently include a substantial tax
component, which can add nearly 50 percent to the retailer's purchase
price. High prices for imported consumer items have created a large
market for goods coming into Pakistan through the "informal channel."
Large quantities of goods are brought in by expatriate Pakistanis and
professional couriers from the Gulf region in their personal baggage.
In some segments of the market, goods brought through this channel have
market shares ranging from 50 to 95 percent.
As an illustration of the scale and complexity of various taxes and
duties imposed on imported consumer items, marketers of products in
early 1994 had to build into their final sales price the following
factors: loading charges (approximately 6.0 percent of initial price);
customs duty; sales tax; iqra education tax; flood relief surcharge;
income tax; octroi (a municipal tax); import license fees; bank charges;
and insurance.
Pricing of non-consumer items is based on different parameters. Most
foreign companies in this market segment are also represented by
agent/distributors and give their local affiliates significant latitude
in pricing decisions. Agents often opt for higher sales turnover by
reducing their margins, allowing them to generate more revenue through a
higher volume of sales. In other cases, local agent/distributors may
add up to 30 percent to the list price as their commission, depending on
the nature of the product. For duty and tariff purposes, they quote the
principal's list prices only. On average, retailers mark up imported
machinery and equipment 10 to 15 percent and imported general
merchandise 20 to 30 percent.
Many local agent/distributors now quote their prices in U.S. dollars
because of the gradual but steady depreciation of the Pakistani rupee.
J. Sales Service/Customer Support
In Pakistan, the end-user generally requires comprehensive and reliable
after-sales support on all durable and non-consumer items, accompanied
by good documentation and instructions for product installation,
operation, and repair. Many purchasers choose a complete turnkey
package, which often includes employee training.
Foreign sellers generally require local agent/distributors to maintain a
certain minimum inventory of spare parts. Most agents provide a
warranty and "free maintenance" for one year, building the cost of
maintenance into their overall price.
It is a common practice for end-users to demand a guarantee that the
supplier will respond to questions or rectify faults in the equipment
within a specified period of time. The time period may vary from a few
hours to several days, depending on the nature of the product and the
fault in the equipment.
K. Selling to the Government
Pakistani government agencies and public sector companies allow only
exclusive agents to submit bids for tenders as an assurance that they
receive only one quotation from each supplier. Many firms (especially
Japanese) add a clause on direct negotiation which allows them to deal
directly with the end-user, should the firm believe that the agent may
have difficulty in concluding a sale. On such sales, the commission
payable to the agent, if any, is determined by the principals and is
based on the proportion of services rendered by the agent.
Pakistani law does not prohibit payment of commissions on commercial
procurement of large amounts of military equipment, but it is the policy
of the Pakistan Ministry of Defense that no commission be paid. Parties
to such transactions have adopted creative approaches to ensure
compensation to the agent without payment of "commissions".
Commercial procurement of small to medium amounts of military equipment
is generally made through local agents of overseas manufacturers and
suppliers. The supplier must certify that no agency commission is
included in the quoted prices. The Ministry of Defense then pays the
commission in rupees as follows:
For a Single Order Rate of Commission (%)
Up to Rs. 5,000 7.0
From Rs. 5,000 to 50,000 3.5
From Rs. 50,000 to 100,000 3.0
From Rs. 100,000 to 50,000 2.0
From Rs. 500,000 to 1,000,000 1.5
From Rs. 1,000,000 to 2,500,000 1.0
Over Rs. 2,500,000 0.5
L. Protecting Your Product from IPR Infringement
Pakistan is a member of the World Intellectual Property Organization
(WIPO), the Universal Copyright Convention, and the Bern Copyright
Union, but not of the Paris Convention for the Protection of Industrial
Property. U.S. citizens receive national treatment on patent,
copyright, and trademark matters, but enforcement of the law is weak.
The United States and Pakistan have held a series of official
discussions on intellectual property protection aimed at strengthening
the rights of U.S. companies and individuals.
Pakistan's patent law provides for process but not product patent
protection for pharmaceuticals and agrichemicals. Proving infringement
of a process patent is relatively more difficult and such patents are
more easily circumvented than product patents. Copyright infringement
is an area of great concern. Although Pakistan is a member of the
Universal Copyright Convention, U.S. companies (e.g. book publishers,
video film producers, and computer software companies) have complained
that Pakistan's copyright law enforcement is ineffective and that
penalties for violation are extremely weak. In September 1992, a
statutory amendment, which generally strengthens penalties against
copyright infringement, became law.
In the past, foreign investors had experienced difficulties in obtaining
government approval for royalty and technical fee agreements, but
revised laws and regulations have largely eliminated this problem.
Limits on royalty and technical fee payments have also been abolished.
The United States has proposed a bilateral agreement on protection of
intellectual property rights; the GOP is now considering that proposal.
M. Need for a Local Attorney
For multinational corporations considering capital or industrial
investments in Pakistan, local legal counsel may provide useful insights
into the local laws and business environment, identification of the
appropriate business structure (such as a liaison office, a branch
office or a wholly-owned subsidiary), and advice and assistance in
drafting appropriate agreements and complying with local regulatory
requirements.
After the decision to invest has been made, local legal assistance may
be required to obtain operating licenses, incorporate legal entities,
comply with appropriate corporate formalities, obtain work permits for
expatriate personnel, and negotiate employment contracts for local
staff. For ongoing operations, local counsel can update investing firms
on statutory and regulatory developments and provide day-to-day advice
on matters such as tax compliance and protection of intellectual
property rights.
V. LEADING SECTORS FOR U.S. EXPORTS AND INVESTMENT
This Section lists six sub-sectors in the agricultural sector, and 14 in
the industrial sector. The agricultural sub-sectors are listed in
descending order of importance. The industrial sub-sectors are grouped
into three ranks, beginning with the most promising (Rank I). Data are
in millions of U.S. dollars, unless otherwise noted.
A. Best Prospects for Non-Agricultural Goods and Services
Industrial Export Prospects
Rank: Industrial (I)
Name of Sector: Pollution Control Equipment
ITA or PS&D Code: POL
Comments: The Pakistan market for pollution control equipment is
expected to grow rapidly over the next 3-5 years. The government's
Pakistan Environmental Protection Agency (PEPA) estimates that with the
introduction of the EPA Act emission standards will be enforced,
creating a market for catalytic convertors, marine pollution control
equipment, solid waste disposal systems and pollution control equipment
for leather tanneries.
1993/94 1994/95 1995/96
A. Total market size 6.5 10.0 18.0
B. Total local production - - -
C. Total exports - - -
D. Total imports 6.5 10.0 18.0
E. Total imports from U.S. 3.7 4.5 5.5
Exchange rate (rupees/$) 30.16 30.81 32.0
Note: The above statistics are unofficial estimates.
*********
Rank: Industrial (I)
Name of Sector: Agricultural Chemicals
ITA or PS&D Code: AGC
Comments: Improved government policies and support have spurred
agricultural production during the past ten years. Cotton, rice, wheat,
and tobacco are the major crops. The U.S. is a leading supplier of Di-
Ammonium Phosphate (DAP) and also has a major share of the market for
Malathion. Other major suppliers of insecticides are Germany,
Switzerland, France, and the Netherlands.
The most promising subsectors and estimated market size for 1996 are:
Di-Ammonium Phosphate ($130 million); Pesticides, Herbicides, and
Fungicides (80 million).
1993/94 1994/95 1995/96
A. Total market size 839.0 898.0 951.5
B. Total local production 555.0 605.0 648.4
C. Total exports 1.0 1.5 2.0
D. Total imports 285.0 295.0 305.0
E. Total imports from U.S. 130.0 132.0 134.0
Exchange rate (rupees/$) 30.16 30.81 32.0
*********
Rank: Industrial (I)
Name of Sector: Industrial Chemicals
ITA or PS&D Code: ICH
Comments: Demand for industrial chemicals continues to expand. Although
imports account for most of the market, local production is expected to
increase as new plants come on stream in the next two to three years.
U.S. share of imports has averaged between 8 and 10 percent during the
last several years. Major competitors are Switzerland, the UK, Germany,
China, and Japan.
Most promising sub-sectors and estimated market size for 1996 are:
Organic Chemicals ($140 million); Inorganic Chemicals ($70 million);
Dyeing, Tanning, and Coloring materials ($130 million); Oils, Perfumes,
and Flavors ($30 million); Resins and Plastic Materials ($280 million).
1993/94 1994/95 1995/96
A. Total market size 1,156 1,207 1,263
B. Total local production 167 172 189
C. Total exports 33 36 39
D. Total imports 1,022 1,071 1,113
E. Total imports from U.S. 77 80 83
Exchange rate (rupees/$) 30.16 30.81
32.0
*********
Rank: Industrial (I)
Name of Sector: Telecommunications Equipment
ITA or PS&D Code: TEL
Comments: The telecommunications sector has significant potential for
growth. The private sector now actively participates in its expansion
and development, supplying cellular telephones, paging services, and
card-operated telephones. Despite strong competition from foreign
suppliers (Siemens of Germany, Alcatel of France, and Ericsson of
Sweden), all of whom have had a strong presence in Pakistan for several
years, U.S. firms can increase their market share as Pakistan invests in
fiber optics, digital switching systems, and data-communications
networks. The anticipated privatization of the Pakistan
Telecommunications Corporation (PTC) will offer additional
opportunities.
Most promising sub-sectors and estimated market size for 1996 are:
Telephone Sets ($13 million); Telephone Switching Apparatus ($38
million); Parts for Telecommunications Equipment ($170 million);
Electric Telephone Cables ($75 million).
1993/94 1994/95 1995/96
A. Total market size 218.4 326.0 372.0
B. Total local production 72.0 83.0 94.3
C. Total exports 0.6 1.0 1.5
D. Total imports 210.0 244.0 279.2
E. Total imports from U.S. 4.5 6.0 7.5
Exchange rate (rupees/$) 30.16 30.81 32.0
*********
Rank: Industrial (I)
Name of Sector: Electrical Power Systems
ITA or PS&D Code: ELP
Comments: The government has accorded this sector the highest priority.
Demand has outstripped supply, and the shortage is currently approx.
2,000-MW during peak load hours, resulting in an estimated annual loss
of approx. USD one billion to the economy. The average annual increase
in demand is conservatively estimated at 8-10 pct. per annum over the
next 25 years. The government has thus permitted the construction of
new thermal power generation projects in the private sector, and is
currently finalizing a new policy encouraging private sector
participation in hydel projects as well. Several private sector
projects are under negotiation, and a few are currently being
implemented. In addition, the government-owned Water & Power
Development Authority (WAPDA) has plans to construct several large
hydro-electric generating facilities. The GOP has announced a new
transmission policy opening extra high voltage lines and substations to
private sector investors. Projects, as packages, are offered on a
build, own and operate (BOO) basis. The two government-owned utilities,
WAPDA and KESC, will purchase power generated by the private sector and
distribute it through their grids. WAPDA and KESC are to be privatized
in phases. Major competitors in this market are Germany, Japan, U.K.,
China, Italy and France. While U.S. products are considered
technologically superior, prices and the source of financing will
determine purchase decisions.
Most promising subsectors with estimated market size for 1996: Power
Generation Equipment ($437 million); Transmission Equipment ($173
million).
1993/94 1994/95 1995/96
A. Total market size 742.0 802.0 1,136.0
B. Total local production 447.0 483.0 516.0
C. Total exports 2.0 2.0 2.0
D. Total imports 297.0 321.0 622.0
E. Total imports from U.S. 26.5 28.5 30.5
Exchange rate (rupees/$) 30.16 30.81 32.0
*********
Rank: Industrial (I)
Name of Sector: Plastic Materials and Resins
ITA or PS&D Code: PMR
Comments: With little domestic production, Pakistan depends largely on
imported raw materials to produce a wide variety of plastic products for
consumer and industrial uses. The import of plastic materials and
resins in both primary and non-primary forms has grown by more than 10
percent annually during the last several years. Some domestic
manufacturing facilities are in the planning stages, but until these
plants come on stream Pakistan will continue to depend largely on
imported raw materials.
Most promising sub-sector and estimated market size for 1996 are:
Polyethylene, gravity less than 0.94 ($23 million); Polyethylene,
gravity above 0.94 ($26 million); Polypropylene ($45 million);
Polystyrene ($10 million); Polyvinyl Chloride (PVC) ($35 million);
Polyesters in primary form ($12 million); Silicones in primary forms ($6
million).
1993/94 1994/95 1995/96
A. Total market size 250.5 268.0 283.0
B. Total local production 6.5 7.0 7.5
C. Total exports - 0.5 1.0
D. Total imports 244.0 261.5 276.5
E. Total imports from U.S. 25.5 27.5 29.5
Exchange rate (rupees/$) 30.16 30.81 32.0
*********
Rank: Industrial (II)
Name of Sector: Iron and Steel
ITA or PS&D Code: IRN
Comments: Pakistan both produces and imports iron and steel products.
A large state-owned steel manufacturing facility, Pakistan Steel Mills
Limited, and other manufacturers produce pig-iron, hot and cold-rolled
products, ingots, and galvanized items. Although domestic production
will rise with the expansion of capacity at Pakistan Steel, imports are
also projected to increase due to growth in infrastructural and
industrial development. Major foreign suppliers are the United States,
Japan, Germany, U.K., France, China, Belgium, and Brazil.
Most promising sub-sectors and estimated market size for 1996 are: Pig
Iron and Ferro-alloys ($65 million), Ingots, etc. ($120 million); Flat-
rolled Products ($85 million); Coated Flat-rolled Products ($130
million); Flat-rolled Products of Alloy Steel ($50 million); Iron and
Steel Tubes and Pipes ($60 million); Stainless Steel sheets ($6
million); Iron and Steel Bars, Rods, and Angles ($20 million); Iron and
Steel Wire ($12 million).
1993/94 1994/95 1995/96
A. Total market size 1,302 1,438 1,535
B. Total local production 960 1,059 1,121.5
C. Total exports - - -
D. Total imports 342 379 413.5
E. Total imports from U.S. 32.5 33.5 34.0
Exchange rate (rupees/$) 30.16 30.81 32.0
*********
Rank: Industrial (II)
Name of Sector: Computers and Peripherals
ITA or PS&D Code: CPT
Comments: With virtually no domestic production, Pakistan offers a
highly promising and rapidly expanding market for computers and related
equipment. Growth in the personal computer (PC) market is expected to
continue very strongly. Several U.S. brands are already in the market
and others are being introduced despite strong competition from Japan,
South Korea, Taiwan, and Hong Kong brands. The GOP encourages use of
computer technology in both public and private institutions and
organizations, and has initiated a "Computer Literacy Program" in
several underdeveloped areas of the country.
Most promising sub-sectors and estimated market size for 1996 are:
Analog-hybrid Data Processing Machines ($3.5 million); Digital Data
Processing Machines ($22 million); Printers ($9.0 million); Off-line
Data Processing Equipment ($13 million); Parts ($10 million);
Input/output Units ($11 million).
1993/94 1994/95 1995/96
A. Total market size 73.0 78.0 82.0
B. Total local production - - -
C. Total exports - - -
D. Total imports 73.0 78.0 82.0
E. Total imports from U.S. 15.5 18.0 20.0
Exchange rate (Rupees/$) 30.16 30.81 32.0
*********
Rank: Industrial (II)
Name of Sector: Drugs and Pharmaceuticals
ITA or PS&D Code: DRG
Comments: Pakistan has over 200 licensed pharmaceutical manufacturing
companies; approximately 32 multinational firms account for about 80
percent of the market. Imports are about one-half of local production.
The Government recently lifted some price controls, an action which may
increase demand for imported raw materials for local production.
Most promising sub-sectors and estimated market size for 1996 are:
Antibiotics, not medicaments ($30 million); Antibiotics, NS ($70
million); Medicines Containing Antibiotic Derivatives ($25 million);
Anti-cera Vaccines ($13.5 million); Medicines Containing Hormones ($25
million); Hormones and Derivatives ($8 million); Medicines for retail
sale ($80 million); Vegetable Alkaloids, Natural and Synthetic ($6.5
million); Medicaments, NS ($55 million).
1993/94 1994/95 1995/96
A. Total market size 638.3 688.3 728.0
B. Total local production 437.0 462.3 477.0
C. Total exports 19.5 21.2 22.0
D. Total imports 220.8 247.2 273.0
E. Total imports from U.S. 23.2 25.0 26.5
Exchange rate (rupees/$) 30.16 30.81 32.0
*******
Rank: Industrial (II)
Name of Sector: Oil and Gasfield Machinery and Supplies
ITA or PS&D Code: OGMS
Comments: The government has recently announced new petroleum and
hydrocarbon policies to attract foreign investors and is encouraging
additional oil and gas exploration activities. Several U.S. companies
are actively involved in oil and gas exploration in Pakistan.
Although itemized statistics for sub-sectors are not available, good
prospects exist for drilling machinery, casing, line pipes, and coating
and tubing materials.
1993/94 1994/95 1995/96
A. Total market size 110.0 129.0 148.0
B. Total local production 16.0 19.0 21.0
C. Total exports - - -
D. Total imports 94.0 110.0 127.0
E. Total imports from U.S. 32.0 38.5 42.0
Exchange rate (rupees/$) 30.16 30.81 32.0
*********
Rank: Industrial (II)
Name of Sector: Transportation Equipment and Parts
ITA or PS&D Code: TRN
Comments: With growing Pakistani interest in U.S.-made vehicles,
engines, and components, the U.S. is expected to increase market share
considerably. Good prospects exist for increased sales of aircraft (new
and used), aircraft engines, and parts. The national flag carrier,
Pakistan International Airlines (PIA) plans to upgrade its fleet and
three private sector carriers plan to expand their operations. The
Karachi Mass Transit Project and other projects to improve and expand
port facilities offer additional export opportunities for U.S. suppliers
of transportation equipment.
Most promising sub-sectors and estimated market size for 1996 are:
Aircraft and Parts ($400 million); Buses and their Chassis with Engines
($320 million); Trucks, Trailers, and Engines ($350 million); Ships and
Boats ($95 million); Railway Vehicles ($40 million).
1993/94 1994/95 1995/96
A. Total market size 2,089.0 2,315.2 2,553.2
B. Total local production 1,262.3 1,414.0 1,633.0
C. Total exports 7.3 7.3 7.3
D. Total imports 834.0 908.5 927.5
E. Total imports from U.S. 112.0 118.0 129.8
Exchange rate (rupees/$) 30.16 30.81 32.0
*********
Rank: Industrial (III)
Name of Sector: Pumps, Valves, and Compressors
ITA or PS&D Code: PVC
Comments: The U.S. is one of the leading suppliers of imported pumps,
valves, and compressors. Others are Japan, China, Germany, France, the
U.K., and Italy. Growth in industrial activity and investment should
continue to result in increased demand for pumps, valves, and
compressors.
Most promising sub-sectors and estimated market size for 1996 are:
Centrifugal Pumps ($10 million); Rotary Positive Displacement Pumps ($5
million); Vacuum Pumps ($5 million); Parts for Pumps ($6 million);
Compressors for Refrigeration Equipment ($17 million); Air Pumps, Other
Compressors ($8 million); Parts for Compressors ($3 million); Pressure-
reducing Valves ($1.5 million); Check Valves ($5 million); Taps, Cocks,
Other Valves ($8 million).
1993/94 1994/95 1995/96
A. Total market size 119.5 124.5 131.0
B. Total local production 47.5 50.0 52.5
C. Total