Pakistan is a developing country with a population of over 220 million people. The economy is based on agriculture, manufacturing, and services. Agriculture accounts for about 25% of GDP, manufacturing about 20%, and services approximately 55%. The main exports of Pakistan are textiles, clothing, rice, and leather. The main imports are petroleum, machinery, and chemicals. Moreover, Pakistan has enriched natural resources and the best strategic location, which has increased its importance among the sight of foreign investors to invest in business in Pakistan.
The economy of Pakistan has been growing steadily in recent years. In 2022, GDP growth was estimated to be 6.5%. However, the economy faces several challenges, including high inflation, a large fiscal deficit, and a weak balance of payments. Despite these challenges, some positive economic trends in Pakistan exist, like a growing economy and tourism industry, increasing foreign investment, rising remittances, and expanding middle class.
This blog will discuss the economic potential, critical sectors of investment, challenges, risks, incentives, and policies offered to local and foreign enterprises to invest in a business in Pakistan.
We will start with the economic potential of Pakistan to give in-depth information about the economic prospects of Pakistan so; you might get enough knowledge and think about investing in a business in Pakistan.
Economic Potential of Pakistan
Pakistan is a country with a vast population and diverse demographics. The economic potential of a nation is strongly linked to its population size, demographic characteristics, growing middle class, consumer market, natural resources, favorable geographic location, and government’s incentive to attract local and foreign business in Pakistan. In this account, we will get into the details of Pakistan’s economic potential.
Pakistan’s population and demographics
Pakistan is the world’s fifth-most populous country, with an estimated population of over 220 million. A growing population fuels the demand for goods and services, creating opportunities for developing businesses and industries. In addition, increased domestic market size can attract locals and foreigners to invest in a business in Pakistan.
One of Pakistan’s vital demographic features is its youth. Over 60% of the population is under 30, making it one of the youngest countries. This youthful demographic dividend presents several economic advantages:
- Workforce Potential: The youth bulge provides a large and dynamic labor force
- Consumer Market: A significant proportion of the population comprises young individuals with increasing purchasing power, thereby increasing the consumer market. Increased youth drives demand for various industries, including retail, technology, and entertainment.
- Technological Innovation: The youth’s familiarity with technology and digital platforms opens a path for innovation and entrepreneurship.
Growing middle class and consumer market
In recent years, there has been a significant expansion in the middle class of Pakistan. The middle class is now estimated to account for over 30% of the population. This middle-class expansion is due to several factors, including economic growth, rising incomes, and increasing urbanization.
The growth of the middle class is positively impacting Pakistan’s economy. The middle class is a significant source of consumption, leading to change in many sectors, including retail, housing, and education. The development of the middle class is also creating new opportunities for businesses like retailers, restaurants, banks, and insurance companies.
In addition to the growing middle class, Pakistan has a large consumer market. The country’s consumer market is estimated to be over $100 billion. The growth of the consumer market is creating new opportunities for businesses like retailers, restaurants, banks, and insurance companies. The consumer market is a significant source of demand for goods and services.
So, the middle class and consumer market growth are helping to drive economic growth and create new opportunities for businesses to invest in a business in Pakistan.
Abundant natural resources and favorable geographic location
Pakistan has the best strategic location and abundant natural resources, making her an attractive trade destination. It is located at the crossroads of South, Central, and West Asia. So, the geostrategic location gives Pakistan access to major markets in China, India, and the Middle East. In addition, Pakistan has abundant natural resources, including coal, natural gas, and copper. These resources can be used to fuel economic growth and create jobs.
Government initiatives to attract foreign investment
Pakistan’s government has undertaken several initiatives to promote foreign and local investment. These efforts aim to create a business-friendly environment, attract capital inflows, and generate employment opportunities. The below-mentioned list contains steps the government took to promote business in Pakistan.
- One of the initiatives is the establishment of special economic zones (SEZs) throughout the country. These SEZs offer attractive incentives, such as tax breaks and duty exemptions, to encourage local and foreign investors to invest in a business in Pakistan.
- To facilitate foreign investment, Pakistan has introduced investor-friendly policies and reforms. The government has implemented a “One-Window” operation to make it easier for investors to start and operate businesses in Pakistan.
- To facilitate foreign investment, Pakistan has introduced the Board of Investment (BOI), a central facilitation body that provides information, guidance, and assistance to local and foreign investors.
- The government has signed bilateral investment treaties (BITs) and double taxation avoidance agreements (DTAAs) with various countries to create a clear legal framework for investment and to minimize tax-related hurdles.
- Various financial incentives, such as tax concessions and subsidies, are provided to local industries, particularly in priority sectors such as agriculture, textiles, manufacturing, and information technology.
- The government has launched skill development programs to promote innovation and technology-driven startups.
By going through this account, we have gained apt knowledge regarding the economic potential of Pakistan. So, the government of Pakistan pays serious attention to dealing with the challenges faced by the economy. In that case, Pakistan can easily stand among the list of well-developed countries worldwide.
We know that Pakistan has excellent economic potential; now we will go through the key sectors where investors can invest their money and gain maximum from Pakistan’s economic potential.
Critical Sectors for Investment in Business in Pakistan
Manufacturing and industrial sector
Pakistan’s manufacturing and industrial sector is an essential driver of the country’s economy. It accounts for about 28% of GDP and employs approximately 30% of the workforce. Pakistan’s manufacturing and industrial sector is attracting local and foreign investors to invest in a business in Pakistan. The government’s efforts to promote investment and Pakistan’s economic potential have created a conducive environment for companies to progress. The government has taken several measures to encourage manufacturing and industrial sector investment. These initiatives include
- The establishment of special economic zones (SEZs)
- Tax incentives
- Infrastructure development
- Introduction of “the ease of doing business” reforms
These efforts have played a vital role in encouraging domestic and foreign investors to explore opportunities in various industries.
The real estate sector of Pakistan is a significant contributor to the country’s economy. It accounts for about 5.4% of GDP and employs approximately 10% of the workforce.
Several factors are leading to the growth of the real estate sector in Pakistan. These include a growing population, rising incomes, low-interest rates, and Government policies.
Another factor contributing to the growth of the real estate sector is the government’s focus on infrastructure development. The China-Pakistan Economic Corridor (CPEC), a flagship project under the One Belt and One Road Initiative, has boosted the real estate sector by attracting foreign investors to invest in business in Pakistan.
The real estate sector in Pakistan is a promising investment destination. However, there are several risks that investors should be aware of, such as price volatility, lack of transparency, and fraud.
Information technology (IT) and services
The information technology and services (IT&S) sector is one of the fastest-growing sectors in Pakistan. The industry is valued at $3.5 billion and is expected to reach $20 billion by 2025.
The growth of the IT&S sector is caused by several factors, like a young and educated workforce, a favorable investment environment, and growing demand for IT&S services.
The IT&S sector in Pakistan offers several investment opportunities for foreign investors to invest in a business in Pakistan. Some potential investment areas include software development, IT consulting, IT outsourcing, and IT education.
Energy and infrastructure
The energy sector is another crucial area of investment in Pakistan. The country has a growing energy demand, but its current infrastructure cannot meet it. So, the government of Pakistan is working to improve the energy infrastructure.
There are some investment opportunities in the energy sector in Pakistan. Some potential areas for investors to invest in a business in Pakistan include power generation, transmission, distribution, and Renewable energy Infrastructure.
In this section, we have discovered the critical sectors for investors investing in a Pakistan business. Now we will move on to the policies of Pakistan’s government to attract local and foreign investors.
Investment Incentives and Policies
The government has launched business-friendly policies to attract local and foreign business traffic to invest in a business in Pakistan. Various authorities and laws govern investment policies and regulations in Pakistan. The essential regulatory bodies include:
- The Securities and Exchange Commission of Pakistan (SECP)
- The State Bank of Pakistan (SBP)
- The Board of Investment (BOI)
The Secretary of the Board of Investment, Mr. Asad Rehman Gillani, opened up about the policies of Pakistan’s government for investors in his below-mentioned words:
To meet the global challenges and international competitiveness effectively, the Government of Pakistan has created a Special Economic Zones (SEZs) scheme in Pakistan, which has become a basic tool to assist investment policy. The establishment of SEZs will help to attract FDI. The SEZs law will allow the creation of industrial clusters with liberal incentives, infrastructure facilities, tax reliefs, and investment facilitation services to enhance productivity and ease in doing business through the one-window operation.
Now, let’s discuss some of the policies imposed by the government of Pakistan to create a comfortable and friendly environment for business.
- Foreign Investment Policy Act: Pakistan allows foreign investment in most sectors without prior approval, except for a few restricted sectors. The Foreign Investment Policy aims to create a favorable environment for foreign investors by offering incentives, protection, and repatriation of profits.
- Special Economic Zones (SEZs): Pakistan’s government has established several SEZs. These zones offer many incentives to investors to invest in a business in Pakistan, including tax breaks, duty exemptions, and land and factory space at subsidized rates.
- One-Window Facilitation Center: The OWFC is a government agency that assists foreign investors. The OWFC can help investors with various tasks, including obtaining visas, registering businesses, and obtaining permits.
- Intellectual Property Rights: Pakistan has legislation to protect intellectual property rights, including trademarks, patents, copyrights, and industrial designs. Investors are encouraged to register their intellectual property to safeguard their rights.
Now we know that the government is doing everything in hand to promote business in Pakistan still, there are many potential risks and challenges the investors face. In the next section, we will review the problems enterprises face in Pakistan.
Potential Challenges and Risks
- Political instability: Pakistan has a history of political instability, which makes it difficult to do business in Pakistan.
- Weak legal system: Pakistan’s legal system needs to be stronger and make it easier to enforce contracts.
- Terrorism: The location of Pakistan has exposed her to severe threats of terrorism. Pakistan was and is the target of many terrorist acts. So, this threat makes it difficult for businesses to thrive in Pakistan.
- Corruption: The highly corrupt bureaucracy and government system make it difficult to do business. Companies may be asked to pay bribes to get things done. Moreover, there is a risk of government officials taking advantage of foreign investors.
- Infrastructure: As Pakistan is a developing country, the infrastructure required by the businesses could be better, which hinders investors from investing in her.
In this blog post, we have discussed in detail all those factors which can be pros and cons of investing in Pakistan. So, factors like high population, increased middle class, consumer market, natural resources, and geostrategic position of Pakistan have made her suitable for investors to invest in the business in Pakistan.
Moreover, along with the factors mentioned earlier, the business-friendly policy and major developmental projects like China Pakistan Economic Corridor have reduced the potential risks and challenges of investing in Pakistan and gained the attention of investors.
In addition to it, the success of many local and foreign enterprises like Unilever, Nestle, and Microsoft, and entrepreneurs like Sadrudin Hashmi, Jehan Ara, Mian Muhammad Mansha, etc., proved Pakistan as an attractive business site for investors to invest in a business in Pakistan.