Pakistan

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Pakistans Privatisation and Investment
Policies November 2006
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Agenda

• Pakistan Macro Economic Outlook
• Privatisation Policy Opportunities
• Investment Policy

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Pakistan Macro Economic Outlook
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Background

• Population 155.4 million (2006 est)
• GDP (Nominal)US129bn (FY06)
• GDP per capita US847
• Country Rating SP B/Positive, Moodys Ba3
• FX Reserves (June 30th 2006) US 13.1 billion
• Stock Market Cap. (July 27th 2006) US49.6bn
• Primary exports textiles, leather, rice
• Primary imports petroleum, machinery, chemicals

Components of FY06 GDP
Demographics
81lt40yrs
Source Economic Survey 2005-06
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An Increasingly Attractive Market
Regional Comparison - 2005-06
Population bigger than Vietnam, Egypt and Malaysia
GDP bigger than Vietnam, Egypt and Malaysia
Growth unparalleled
More fiscal space than others
Source Economic Survey 2004-05, 2005-06, IMF
Annual Report 2006 Chapter 1 Prospects for
world growth Annual estimates taken from IMF
Annual Report 2006
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Major Reforms Have Been Delivered
Fiscal Responsibility Debt Limitation Act
Consistency Continuity In Policies
Major Economic Reforms
Tax Reforms
Fiscal Transparency
Governance Reforms
Capital Market Reforms
Agriculture Sector Reforms
Financial Sector Reforms
Industry Investment Reforms
Deregulation, liberalization Privatisation
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GDP and Per Capita Income Growth
Pakistans GDP grew 6.6YoY in FY06, while per
capita income in current dollar terms grew by
14.2YoY to US846 in FY06
Per Capita Income
GDP Growth
Source Economic Survey 2004-05, 2005-06
At current dollar prices
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Middle Class Growing And Growing!!!
CAGR Growth in Selected Consumer Markets Since
June 1999
Household Income Distribution ()
Lowest 20 Middle 60
Highest 20
Source Economic Survey 2004-05, 2005-06 House
Hold Survey 2004-05
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Export Growth Accelerating
Export Growth
Source Federal Bureau of Statistics
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Investment Cycle Gaining Momentum
Investment as a Of GDP
Source Ministry of Finance
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Equity Market Outperforming
KSE-PAK
INAT - Turk
CAS- Egypt
India BSE
Source Benchmarked to 100 Econ-Stats
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Currency Stabilization Reflects Optimism in the
Pakistan Economy
Exchange Rate (PKR/USD)
Source Economic Survey 2004-05, 2005-06
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Inflation and Monetary Flexibility

• Recent pressure in inflation is being managed
  carefully to ensure monetary flexibility

Inflation
Source Economic Survey 2004-05, 2005-06
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Balance of Payments Manageable as
External deficits
Source Economic Survey 2004-05, 2005-06
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Foreign Investment and Remittances Surging
Foreign Direct Investment (US million)
Remittances (US million)
Source Economic Survey 2004-05, 2005-06
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Strong Foreign Exchange Reserves
Foreign Exchange Reserves (US million)
Source State Bank of Pakistan
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Privatisation Policy Opportunities
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Privatisation Policy
The Government has no Business to do Business

• The Governments Role should be confined to
• Making Policy and providing good governance
• Providing a sound and effective regulatory
  framework, to ensure social equity and economic
  justice
• Providing an enabling environment, including
  physical and technical infrastructure and social
  services
• Privatisation Policy to encourage and promote
  private sector as engine of growth to increase
  investment and introduce new technology, improve
  management and increase productivity
• To ensure better quality, lower cost and higher
  profits and increased dividends and tax revenues

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Privatisation Programme Has Been the Cornerstone
of Pakistans Reform Process

• Most successful privatisation agenda in the whole
  of the sub continent
• From 1999, to date over US6.3bn has been
  realized Privatisation transactions

Privatisations Have Gained Significant Momentum
in Recent Years
Source Privatisation Commission
58 Transactions
102 Transactions

• Power Company
• 4 Banks
• 11 Cement Factories
• 7 Engineering Units
• 7 automobile and tractor plants
• 11 Chemical Industries
• 19 vegetable oil and 15 Roti/Bread plants

• Flagship Telecom Company
• 3 Banks
• Karachi Port Utility
• Major Oil Refinery
• 3 Fertilizer Co.s
• 4 Cement factories
• 6 Oil Gas Fields

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Broad Based Privatisation Programme
Key Recent Privatisations
Financial Institutions United Bank Habib Bank National Bank ICP Strategic Sale and IPO Strategic Sale IPO and Secondary Offering Sale of management rights
Telecommunication Pakistan Telecommunication Co Strategic Sale
Oil Gas Working interest in 9 fields National Refinery Oil Gas Development Co Pakistan Petroleum Sui Southern Gas Co Strategic Sale Strategic Sale IPO IPO Secondary Offering
Power Karachi Electric Supply Corp Kot Addu Power Co Strategic Sale IPO
Fertilizer Pak Saudi Fertilizer Pak Arab Fertilizer Pak American Fertilizer Strategic Sale Strategic Sale Strategic Sale
To date the current government has realised over
US5.3bn
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Strong Privatisation Pipeline Upcoming
Privatisations
Sector Company Name Status Total Assets US MM Net Profit US MM
Oil Gas Oil Gas Development Co Pakistan Petroleum Pakistan State Oil Sui Northern Gas Pipelines Sui Southern Gas Co PARCO Secondary / GDR offering Strategic Sale Strategic Sale Strategic Sale Strategic Sale Strategic Sale Strategic Sale 1,909.61 529.81 1,169.52 1,084.61 628.01 N/A3 549.51 143.71 125.42 45.91 16.91 N/A3
Financial Institutions National Investment Trust Habib Bank State Life Insurance United Bank SME Bank Sale of management rights IPO (10) IPO (10) IPO (up to 10) Strategic Sale N/A3 8,814.91 2,200.31 5,784.11 N/A3 N/A3 160.781 2.21 99.11 N/A3
Power Jamshoro Power Co Faisalabad Electric Supply Co Peshawar Electric Supply Co Kot Addu Power Co Strategic Sale Strategic Sale Strategic Sale Secondary Offering N/A3 464.31 N/A3 612.21 N/A3 31.861 N/A3 134.11
Fertilizer Chemical Lyallpur Chemicals Fertilizers Hazara Phosphate Strategic Sale Strategic Sale N/A3 N/A3 N/A3 N/A3
Engineering Heavy Mechanical Complex HEC PMPS Pakistan Steel Strategic Sale Strategic Sale Strategic Sale Sale of management rights N/A3 N/A3 N/A3 598.71 N/A3 N/A3 N/A3 2.31
Minerals Tourism/ Restaurants Salt mines Coal mines Pakistan Tourism Motels Strategic Sale Strategic Sale Sale N/A3 N/A3 N/A3 N/A3 N/A3 N/A3
3. N/A Not Applicable or Unlisted Companies
Source Annual Reports 1. End of FY05 All
figures converted at the rate of US 1 PKR
60 2. End of FY06
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Investment Policy Opportunities
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Liberal Investment Policy

• Equal treatment of local foreign investors
• All economic sectors open to foreign investors
• Foreign equity upto 100 allowed
• No Government permissions required
• Attractive incentives package
• Remittance of capital, profits, royalty,
  technical franchise fee allowed
• Network of Export Processing Zones / Industrial
  Estates
• Import of raw material for export manufacturing
  zero-rated
• Bilateral Agreements
• Investment Protection 47 Countries
• Avoidance of Double Taxation 52
  Countries

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Legal Protection To Investments

• Foreign Private Investment (Promotion
  Protection) Act, 1976
• Protection of Economic Reforms Act, 1992
• Salient Features
• Equal treatment of local foreign investors
• Protection of agreements
• Full repatriation facilities
• Remittance by foreign employees allowed
• Fiscal incentives for investment shall continue
  for the term
• Specified shall not be altered to the
  disadvantage of investors

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Attractive Regulatory Environment -
Liberalization Accelerating Investment Activity

• Liberalization and privatisation have played a
  key role in increasing investment activity
• Investment as a of GDP rose to 18 in FY06
• FDI as a of GDP rose to 2.7 In FY06

Total Foreign Direct Investment
3,521
1,524
949
798
470
485
322
Source SBP Website Net Inflow Of Foreign
Private Investment (Jul-June 2006) The FDI
numbers include privatization proceeds but not
portfolio flows
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Total Foreign Investment Inflows (2001-06)
Source Million Leading Sectors Million
U.A.E. 2,067.8 Communication 2,714.2
USA 1,619.0 Financial Business 1051.8
Saudi Arabia 348.2 Oil Gas Petro Ref 1163.9
Norway 431.0 Power 448.6
UK 739.8 Trade 279.0
Others 2,071.2 Others 1,619.5
Total 7,277.0 Total 7,277.0
Source SBP Website Net Inflow Of Foreign
Private Investment (2001-2006) Total Foreign
Investment Flows Foreign Direct Investment
Portfolio Flows
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Top Investing Countries (2001-06)

• Current, Value in Million US, Percentage

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Leading Sectors (2001-06)

• Current, Value in Million US, Percentage

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Total Foreign Investment Inflows (2005-06)
Source Million Leading Sectors Million
U.A.E. 1,424.5 Communication 1,937.7
USA 516.7 Financial Business 329.2
Saudi Arabia 277.8 Oil Gas Petro Ref 312.7
Norway 252.6 Power 320.6
UK 244 Trade 118.0
Others 805.4 Others 502.8
Total 3,521.0 Total 3,521.0
Source SBP Website Net Inflow Of Foreign
Private Investment (Jul-June 2006) Total Foreign
Investment Flows Foreign Direct Investment
Portfolio Flows
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Top Investing Countries (2005-06)

• Current, Value in Million US, Percentage

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Leading Sectors (2005-06)

• Current, Value in Million US, Percentage

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Investment Highlights Compelling Economic
Proposition

• Rising disposable income
• Growing population
• Compelling size of middle class
• Asset values rising
• Rising remittances

Accelerating Consumerism

• Low cost raw materials manpower
• Educated work force
• Pro investment policies
• Improving infrastructure
• Entrepreneur culture
• Stable exchange rate

Surging Domestic Foreign Investment
Growing Trade Intensity

• Comparable advantage
• Favorable geographical location
• Corporates globalizing
• Low tariff regime

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Investment Highlights Attractive Policy
Regulatory Fundamentals

• Government Strategy
• Infrastructure being brought up to international
  standard power, water, telecom and transport
  networks being overhauled
• Increasing expenditure on education literacy
  rates rising with increasing enrollment in higher
  education
• Business environment being made conducive
  liberalization and deregulation policies
• Access to capital increasing focus on providing
  finance to SMEs
• Leveraging physical location Pakistan being
  converted into Asias trade, energy and transport
  corridor
• Cross party support for reform process e.g
  privatisation

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At The Center of Asian Growth
Pakistan becoming Asias trade, energy and
transport corridor
Land locked energy rich Central Asia
Capital energy surplus Middle East
Pakistan
Booming East Asia
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Priority Sectors
Oil Gas
Power
Mining
IT Telecom

• Hydel
• Thermal
• Coal
• Solar
• Wind
• Biogas

• Offshore
• onshore
• exploration
• Refining
• Pipelines
• Storages

• Call centers
• Cell phone
• E-Commerce
• Software
• IT Parks

• Coal
• Granite
• Marble
• Semi-precious
• stones
• Copper
• Rocksalt

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Priority Sectors
SMEs
Agriculture
Infrastructure
Tourism

• Agri-business
• Corporate farming
• Fruits vegetables
• Livestock dairy
• Fisheries
• Cool chains
• Storages
• Seed production

• Value added
• textiles
• leather
• Electronics
• Sports
• surgical goods
• Furniture
• Gemstones
• jewelry
• Food
• Processing

• Hotels
• Resorts
• Theme parks
• Cultural tourism
• Entertainment
• centres

• Ports
• Roads
• Urban Mass
• Transport
• Water supply
• sanitation
• Housing
• Desalination

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Priority Sectors
Engineering
Privatization
Chemicals

• Pesticides
• Dyes
• Agro Based
• Mineral Based
• Synthetic Fiber
• Pharmaceuticals
• Petrochemical
• Complex/ Naphtha
• Cracker

• Light
• Heavy
• Engineering
• Automobiles
• Auto parts
• Agriculture
• Machinery
• Steel
• Production
• Textile
• Machinery

• Oil Gas
• Infrastructure
• Power
• Industry/ Real
• Estate
• Banking

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Pakistan - Home To Over 600 Foreign Companies
ZTE
Deutsche Bank