The Foreign Direct Investment in Pakistan-Samples for Students

Question: Discuss about the International Business across Borders. Answer: Introduction The foreign direct investment (FDI) is considered as the investment (form of control of the ownership of the business in one country), which is controlled by another entity located in another foreign location (Bilawal et al. 2014). The foreign direct investments encompass the broad range of mergers, acquisitions and the expansion of businesses in foreign countries. The FDI is one of the main parameters that need to be considered for the investment opportunities. There are several emerging markets in the world which has the capability of meeting the standards of a developed nation but are currently considered as developing nation (Salvatore 2014). These include the markets which have enormous potential for future investments and have rapid growth in their gross domestic product (GDP). The emerging markets do possess a hedge capital of over $121 billion. There is a per capita income between 10% and 75% in the emerging countries (Bilawal et al. 2014).These countries are also characteriz ed by tremendous economic growth, which has reduced their income gap with the advanced countries. The selected emerging country for the purpose of this study is Pakistan. There have been tremendous developments in the business marketplace of Pakistan and there has been an increase in the market inflows of the country (around $ 300- $500 million) (Dabla-Norris et al. 2015). The international entities have the option to invest in the Pakistan market as per their foreign portfolio and weight. This report would discuss the different parameters that would determine the profitability of the country for rapid investment. The general overview of the country would be given along with the different political, economic, technological and other factors. The national resources creating competitive advantages would also be underlined. The foreign currency as well as exchange influences would be discussed along with the existing levels of FDI. General Overview of Pakistan The economy of Pakistan is considered as the 24th largest one in the world as per as the purchasing power parity is concerned and it also occupies the 42nd position as per as the nominal gross domestic product is concerned (Finance.gov.pk 2017). The undocumented economy of Pakistan accounts for 36% of the total economy. Pakistan is considered as a developing country which has high potential of becoming the worlds largest economies soon (Finance.gov.pk 2017). The economy of Pakistan is considered as semi-industrialized and the primary export commodities include the leather goods, sports goods, medical instruments and others. The growth areas of Pakistan are located along the Indus river and the several diversified economies of Punjab, Karachi and others (World Bank 2017). The Foreign Exchange Reserves received steady worker remittances, however, there has been growing current deficit, which needs to be improved upon (World Bank 2017). The country is currently in the process of economi c liberalization which includes the privatization of all the government organizations (Finance.gov.pk 2017). This process is aimed at attracting the foreign investments as well as to decrease the various budget deficits. Pakistan has crucial strategic endowments and tremendous development potential (World Bank 2017). There has been an increase in the Pakistans youth population, who has the potential of demographic dividend and there is a challenge for the country to provide them adequate employment and service (World Bank 2017). The country has achieved macroeconomic stability in the last three years. There has been significant reduction in the fiscal deficit of Pakistan and it has reduced from 8 percent to 5 percent (Finance.gov.pk 2017). There are pressures on both external balances and fiscal consolidation.There has been significant reduction in the poverty levels of the region (World Bank 2017). There has been greater decision-making authority that has been bestowed on the provincial governments. PEST analysis of Pakistan It is important to compare the various components of the external environment of Pakistan in order to gain a clearer picture of the country. The PEST analysis of the country is done as under- Political Pakistan has got democratic system and it has got democratically elected government. The political system of Pakistan is not considered as strong enough and it is a weak government (Hussain et al. 2014). There are cases of commission, corruption, money laundering and others, which the government has close connection. The widespread levying of taxes on several products has cause anger among the citizens of the country. Economic The economic situation of Pakistan is poor and experts opine that there have been net losses for the country. The economic growth of Pakistan is considered as slow and the overall purchasing parity of the consumers is considered as low (Myerson 2014). The government has heavy loans from international financial institutions such as World Bank and IMF. The distribution of the income is not uniform and there is a wide gap between the rich and the poor (Hussain et al. 2014). Social The Government of Pakistan allocates the least amount to educational facilities and the health facilities. The retail outlets of the country give environment efficient fuel and take no additional costs from the customers (Hussain et al. 2014). These kinds of fuels play an important role in reducing the exhaust emissions that are caused in the process of greener environment. Technological Pakistan has witnessed significant technological improvement in the industrial sector including the oil and petrol industry (Hussain et al. 2014). There has been stagnant nature of the industrialization of the country. There has been significant rise in the manufacturing technology of the country (Arshad and Ali 2017). National resources and factor endowments which create competitive advantage in Pakistan Pakistan is known for its competencies in home furnishings, textiles, primary products and others. The country has large deposits of copper/gold ore deposits as well as it has large deposits of rock salt (Sohail et al. 2013). The mineral resources of Pakistan are rich and they comprise of limestone, chromite, rock salt, iron ore, fire clay, silica sand and others (Sohail et al. 2013). This kind of national resources makes the country a lucrative place to invest in and utilize the natural resources. Pakistan has high levels of natural gas production and The Sui gas field is considered to be the largest (Khan et al. 2016). The country has abundance of natural resources and it is a country that is blessed with several kinds of fossil fuels. These resources should be utilized well by the country in order to be a successful one. But, there has been instances of political instability, lack of law and corruption that has led to the lack of utilization of the natural resources (Sohail et al. 2013). The country can use these natural resources to create competitive advantage and attract the foreign investors. The competitive advantage of Pakistan can be analyzed with the help of opportunity costs. The country has this advantage as the cost of producing goods in this country is lower than that produced by any other country (Sohail et al. 2013). There are two kinds of factor endowments that are considered such as production parameters and the advanced factors. The country has considerable land for farming and most important crops in the country are cotton, sugarcane, wheat and wheat (Spate and Learmonth 2017). The country has the largest manpower and labor resources, which derives its source from the large population. Around 43% of the population is involved in agriculture and there is a wide debate on the child labor in Pakistan. The advanced parameters focus on the fact that the country has fairly adequate supply of managerial skills, technological know-how as well as good amount of physical infrastructure. Foreign Currency and exchange influences of Pakistan The exchange rate plays a vital role in the international trade markets. It also plays an important part in the globalization as the lower currency rate would enable cheaper exports as well as a higher currency rate would enable expensive export (Bahmani-Oskooee, Iqbal and Nosheen 2016). There is significant devaluation of the Pakistani currency as compared to the other currencies especially US$ (Bahmani-Oskooee, Iqbal and Nosheen 2016). The currency of the country is Rupee and it is managed by the Bank of Pakistan, which is considered as the central financial institution of the country. This institution is trying to do reform in this area and it is planning to tighten the money policy. There are recurring international worker remittances which would help in the creation of foreign exchange reserves (Bahmani-Oskooee, Iqbal and Nosheen 2016). Pakistan is successful in maintaining the constant nominal exchange rate throughout 1970 (Khan, Sattar and Rehman 2015). The domestic inflation of the country has exceeded the world price inflation. The government of the country has reported to export subsidies and there has been tightening of the licensing procedures (Bahmani-Oskooee, Iqbal and Nosheen 2016). In the past, the Pakistan Government has resorted to delinking of the currency from dollar and the country has adapted to flexible exchange rate policy. Existing trade policies, barriers, systems of Pakistan The trade balance is an important parameter in the determination of the exchange influences. It can be defined as the difference between the exports and imports of the countries (Bahmani-Oskooee, Iqbal and Nosheen 2016). The trade balance of the country includes both the debit items as well as credit items. The various debit items is inclusive of the foreign aid, domestic investments, imports and others (Mashkoor, Ahmed and Herani 2015). The various credit items include the foreign spending in domestic economy and various levels of export. Pakistan has an external debt of about $45 billion and it is expected to reach around $52 billion once the IMF loan is being sanctioned (Mashkoor, Ahmed and Herani 2015). A large part of the reserve is used for debt servicing. An approximate number of 45 percent of the population lives below the poverty line and hence the country needs to formulate policies that focus on privatization and liberalization. Pakistani exports mainly comprise of the agr icultural goods such as sports goods, rice, leather, textiles and others. The export growth rate of Pakistan is 4.06% and the growth rate of the imports is 1.22% (Khan, Sattar and Rehman 2015). There has been considerable growth in the imports sector of Pakistan as compared to the export policy (Mashkoor, Ahmed and Herani 2015). However, there have been trade deficits of the country and the reason for the oil imports cost can be attributed to the various trade imbalances. The trade policy of Pakistan is biased towards the protection of manufacturing goods in the domestic market and the promotion through the process of export subsidiaries in the external markets (Mashkoor, Ahmed and Herani 2015). The imports of the various manufacturing goods have been subsidized through the use of various restrictions such as quotas, tariffs and the various manufacturing goods export (Malik 2014). The effective rates of protection include the sharp decline of food, cigarettes, chemicals, footwear and others. The current tariff system of Pakistan is considered to be high tariff in spite of the steady growth of the economy (Mashkoor, Ahmed and Herani 2015). The tariff levels as well as non-tariff protection have witnessed significant reduction and the country has medium-trade policy measures. Current standards of Foreign Direct Investment The foreign direct investment in Pakistan is important and the country must pay attention to policies that would attract the different foreign investors (Raza 2015). Pakistan has small inflow of FDI and it is concentrated in only few regions, which is mainly in the power areas. The country lacks the implementation of measures that would attract the FDI investment. Since there is a negative effect of the fact that FDI is concentrated in the power sector, there would be an increase in the remittances by IPP. Pakistan was basically an agricultural country at the time of independence in 1947 and its industrial capacity was small to process the locally produced agricultural raw material (Mashkoor, Ahmed and Herani 2015). The country now has liberal as well as market oriented policies and experts opine that the private sector fosters the economic growth of the country. The FDI in Pakistan has three important elements such as cash brought in, re-invested earnings and capital equipment broug ht in. Pakistan government encourages the FDI investment in the country and hence it has set up an Export Processing Zone (EPZ) in Karachi. It provides various concessions and facilities in the industrial projects. The overseas citizens of the country were exempted from disclosure of the funds origin for investment (Mashkoor, Ahmed and Herani 2015). The country has more liberal FDI policies and it is intended to minimize the difficulties faced by the industries when setting up companies here. There has been more number of deregulation, liberalization and privatization policies, which is implemented to attract the foreign investors in the country. Recommendation Pakistan has huge population which implies that there are sufficient market for the durable and consumer goods. The country should encourage more number of foreign investors from entering into the markets of Pakistan and set up new industries. It would not only increase the inflow of cash in the domestic economy but it would also lead to higher number of employment. The government should focus on improving the economic strength of the company, improving the quality of labor force and have a welcoming attitude for the foreign firms. It should also help the investors in setting up of new firms and gaining initial permits and licenses. The government should set up a special cell for FDI investments which would help the investors who are willing to put money in the country. The country should also try to increase the purchasing power of the people so that they are able to be the source of stability. Conclusion Pakistan has enormous prospects when it comes to investments by foreign investors. The foreign direct investment in Pakistan poses lucrative opportunities and there should be an increase in the policies that fosters FDI. This report explained the general overview of the country and the various economical statistics is discussed. The PEST analysis of the country is being performed along with focus on political, economic, social and technological factors. The various natural resources and factor endowments which create competitive advantage in Pakistan are discussed in detail. The foreign currency and exchange influences of Pakistan are being discussed in detail. The currency of the country is Rupee and it is managed by the Bank of Pakistan, which is considered as the central financial institution of the country. The existing trade policies, barriers, systems of Pakistan are discussed and it provides valuable insights. The current standards of foreign direct investment are being explor ed in detail. It is important to focus on formulating investor friendly national policies that would attract the FDI. References Arshad, N. and Ali, U., 2017. An analysis of the effects of residential uninterpretable power supply systems on Pakistan's power sector.Energy for Sustainable Development,36, pp.16-21. Bahmani-Oskooee, M., Iqbal, J. and Nosheen, M., 2016. Commodity trade between Pakistan and the US: is there evidence of the J-curve?.Applied Economics,48(11), pp.957-965. Bilawal, M., Ibrahim, M., Abbas, A., Shuaib, M., Ahmed, M., Hussain, I. and Fatima, T., 2014. 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