Investment opportunities in Pakistan

Pakistan, located in South Asia, is the second largest market in the region. Low competition and a rapidly growing economy are just some of the advantages to attract the interest of foreign investors. However, despite its size, it is still relatively unknown among foreign companies and investors.

Agriculture

Pakistan's agricultural sector is the backbone of the economy. In fiscal year 2021–2022, the agricultural sector contributed 22.7% to the country's GDP and employed 37.4% of the total workforce. According to local industry sources, the total area of cultivated land is about 48 million hectares. Also, the total size of the farm equipment sector is about US$1.0 billion and consists of tractors, combines, irrigation equipment and other small farm equipment. According to the Economic Survey, agricultural machinery is one of the most important and decisive factors in the overall growth and sustainability of the local agricultural sector. To better develop the agricultural sector, the Government of Pakistan, both at the federal and provincial levels, has launched several programs and incentives to modernize and expand the existing capacity. These initiatives include concessional and long-term loans, farmer training programs and input subsidies. In addition, the government, through budget support programs, offers low taxation programs for agricultural machinery to stimulate agricultural modernization.

Technique and equipment

There is a significant shortage of tractors and other farm equipment in Pakistan, according to local industry experts.

Locally produced tractors are under licensing agreements with a number of foreign companies from the USA, Belarus, Turkey and China. In addition to tractors, the US and EU export used agricultural equipment to Pakistan, including fertilizer application equipment and smart irrigation systems. The domestic industry has its own potential for the production of agricultural machinery and equipment, providing only 15% of the country's total needs.

Most of the locally produced equipment is based on outdated technologies and its efficiency is significantly low. A wide range of more sophisticated equipment is imported, but local farmers prefer locally produced replacements and spare parts due to the relatively low cost of domestically produced equipment.

Opportunities

With approximately 48 million hectares of arable land, there is significant potential to improve the efficiency, yield and productivity of the agricultural sector through improved agricultural equipment and machinery. The Government of Pakistan is committed to supporting this sector in the hope that the country will be able to increase yields and exports of key crops, fruits and vegetables, poultry and dairy products — and at the same time will become an important supplier for the region. To achieve this goal, the government is encouraging increased private sector intervention and investment by offering several direct and indirect assistance programs. Both the public and private sectors have already taken advantage of these incentives or are in the process of taking advantage of them, creating small and large-scale projects, strengthening distribution channels, after-sales service centers and training centers. According to industry experts, the local market will continue to offer significant business opportunities for local and foreign companies over the next few years.

Computer software

Pakistan's computer software market has witnessed steady growth over the past few years. According to local industry sources, the total size of the software sector is approximately US$3.0 billion and is expected to grow despite challenges caused by business practices in the wake of the global pandemic and domestic macro- and microeconomic fluctuations. Pakistan's ICT sector consists mainly of software development and IT services (ITeS) for data centers, technical service centers/call centers and telecommunication services. 60% of ITeS serve international clients. Much of the growth is driven by freelancers who have received low-quality certifications from local institutions and support specialized areas in the local market. Other freelancers use outdated ICT curriculum as a push to self-teach software development. Pakistan is currently the fourth largest supplier of freelancers after India, Bangladesh and the US, with gaming software development leading the way in services provided. Much of Pakistan's ICT sector is export-oriented. The Pakistan Software Export Board (PSEB) has over 19,000 ICT companies in Pakistan, of which around 6,000 export ICT products and services to over 120 countries.

In addition, there is growing interest from local businesses and freelancers in online social networks and cellular applications, especially after the launch of 3G and 4G cellular communications in Pakistan. Much of this development activity includes consumer applications on Android or Apple platforms, website development, e-wallets/fintech, e-commerce and gaming categories. Foreign firms operate either through appointed local distributors or have their own office with a fully equipped technical support and support team to meet the needs of their clients.

The Government of Pakistan at both the federal and provincial levels places high priority on the development of the IT industry, including the software development sector. According to the Pakistan Software Export Board (PSEB), the government has launched a number of measures aimed at encouraging local and foreign companies to invest in Pakistan.

Some of these incentives include:

• 100% equity ownership
• exemption from income tax on income from IT exports
• 100% profit repatriation
• tax holidays for venture funds until June 2024
• accelerated 30% depreciation of computer equipment
• The State Bank of Pakistan (SBP) has allowed banks to open trading accounts online; development of special technological zones
• availability of instant, reliable and high-speed Internet connection

Additionally, the federal government and the private sector have made a concerted effort to improve existing Internet availability and connectivity throughout the country. According to official statistics, about 85% of the local telecommunications infrastructure is built on fiber optic lines, which provide Internet access to more than 3,000 cities and towns. In addition, the government and the private sector have initiated an aggressive strategy to develop new IT educational institutions and introduce new curricula and short-term training programs to continuously maintain the local talent pool.

The most promising sub-sectors in the computer software sector in the country are:

• E-commerce
• Acquisitions and mergers
• IT parks
• Incubators
• Venture funds
• Software development companies
• Call centers
• Game and animation studios
• Data centers
• Cloud computing
• Cybersecurity applications and services
• Training centers
• Virtual and augmented reality
• Consulting centers

Opportunities

The local software market offers significant business opportunities for foreign companies offering products for the enterprise sector, including financial management and business forecasting, online IT training portals, e-commerce, electronic payments, embedded tools and other web applications . Increased use of mobile wallets coupled with cheaper and more accessible smartphones has helped increase the user base of Pakistan's e-commerce industry.

Telecommunications sector

The recent liberalization of the telecommunications sector has made telecommunications one of the most promising sectors in the country. Currently, the private sector is actively involved in the expansion and development of telecommunications services. It provides cellular telephone services, card payphone, Internet and broadband services, and after the privatization of Pakistan Telecommunications Company (PTCL), also provides fixed telephone services.

Pakistan's telecom industry has witnessed remarkable growth over the past few years, driven by the rise of e-commerce, which has increased the demand for connectivity. This capability has helped develop the infrastructure and network for the industry, but operational challenges such as power outages, stability and security issues, rising fuel prices and operating costs are still inevitably high.

Seeing the potential for growth, the government has unveiled the 5G roadmap, which includes testing of 5G technology and related services. With telecom operators rolling out 3G/4G services, the number of broadband subscribers has grown rapidly. This surge has created a huge demand for smartphones, which are the top-selling category across all major e-commerce platforms.

Telecommunications infrastructure

Pakistan's telecommunications infrastructure includes microwave radio relays, coaxial cable, fiber optic cable, cellular and satellite networks. International communications links include landing points for the SEA-ME-WE-3 and SEA-ME-WE-4 submarine cable systems, which provide connections to Asia, the Middle East and Europe; as well as terrestrial fiber optic cable from China to the city of Rawalpindi. About 44,000 cell sites cover the longitude and latitude of Pakistan.

Telecommunications equipment

The current volume of the import market for telecommunications equipment (including mobile phones) is estimated at more than 800 million US dollars. Leading global telecom infrastructure providers such as ZTE and Huawei have established branches in Pakistan and are engaged in the design, development, installation, configuration and maintenance of telecom installations. Other telecom equipment and service providers in Pakistan include — Advance Digital, Inc., GD Satcom, iDirect, Comtech EF Data Corp., NEC Corporation, Conexant Systems, Agere Systems, Cambridge Silicon, Panasonic, Catecom, Quanta, Ruckus, Computational Systems, Tellabs, Symbol Technologies and Emerson Process.

Leading sub-sectors:

• Telecommunication switches
• Radio communication lines
• Fiber optic cables
• Towers, supports, ducts and pits used in conjunction with other infrastructure.
• Tower sharing services
• Broadband services
• Backup power for telecommunications towers

Opportunities

Pakistan's telecommunications sector has witnessed very rapid growth for over a decade. With 3G/4G licenses in place, investment in this sector will continue. Pakistan is interested in adopting the latest technologies along with the rest of the world and is making special efforts to migrate to 5G technology.

In addition to this, Pakistan has also implemented the world's first full-fledged open source Device Identification, Registration and Blocking System (DIRBS) to counter the menace of the mobile gray market and its negative impact on the mobile ecosystem. With the introduction of DIRBS, legal imports increased significantly and local production also increased. Considering this trend, the government has decided to introduce a comprehensive mobile manufacturing policy to encourage and attract mobile manufacturing players to Pakistan and set up their factories there.

Computers and peripherals

Pakistan's computer and peripherals market has shown a strong growth trajectory over the past year. Having virtually no domestic production, the country is largely dependent on imports.

The information technology (IT) industry in Pakistan has seen overall healthy growth over the past year. Despite general macroeconomic pressures, the computers and peripherals sector has maintained its position as a major growth sector for foreign companies. Pakistan's public and private sectors place high priority on the adoption, availability and use of computers and other IT equipment in routine and mission-critical work processes. The Government of Pakistan (GOP) National Information Technology Policy emphasizes computer accessibility, usage, connectivity and skill development. In addition, several projects and incentive schemes have been launched to ensure widespread availability of computers to local consumers. Some of the initiatives include the development of software technology parks; special technological zones; provision of demand-based training; increasing Internet penetration through various media, including broadband, wireless broadband and fiber optics; Research and development; digitization of public sector records, technology incubation centers; and training and development centers. According to industry expectations, demand for IT equipment related to the cybersecurity sub-sector will also grow by at least 3% in the next few years.

The main users of computers and peripherals in Pakistan are private enterprises; IT services companies, software development companies, call centers, business process outsourcers (BPOs), internet service providers, public and private sector incubation centers, educational institutions, freelance developers and private users. There are more than 3,000 IT companies and IT companies in the country employing more than 100,000 qualified IT professionals. Over the past few years, software development, including custom application development, has become a major business sub-sector. According to the latest statistics, this sub-sector employs around 25,000 skilled professionals and this number is expected to grow by 3-4% per annum in the coming years.

According to industry experts, the growing demand for computers and peripherals in Pakistan is also due to widespread access to the Internet and access to information through social media platforms.

The most promising sub-sectors of computer hardware and peripheral devices for 2024 are:

• Personal computers (new/used)
• Computer laptops and tablets (new/used)
• Computer network equipment
• Servers/gateways
• Wireless and broadband modems
• Power supplies/chargers
• Wires, cables and connecting equipment
• Liquid crystal display (LCD)/light emitting diode (LED) monitors

Healthcare and medical equipment

In Pakistan, public and private healthcare systems operate in parallel. The public sector, which until recently was led by the Ministry of Health, has delegated the provision of health care to the population to the provinces. The administrative and financial space of the provinces has increased many folds with a simultaneous increase in their responsibilities, but there is still a shortage of medical personnel and medical facilities in relation to the population.

The private sector also plays a vital role in the provision of health services in the country. Most private hospitals, clinics and medical facilities are located in urban areas and are well equipped with modern diagnostic equipment. These private healthcare options are in greater demand than the services available in the public sector.

Public health services are provided at the federal, provincial and district levels through a well-developed network of rural health centers, basic health facilities and allied health professionals. Pakistan's health profile is characterized by high population growth rates. Increasing public pressure on public health facilities has enabled the private sector to bridge the gap associated with growing demand and limited public health facilities.

Similarly, the expansion of the Pakistani government's universal health insurance program has led to an increase in demand for health infrastructure as the government provides health services to the public in both public and private hospitals.

According to a well-designed study, the medical device market in Pakistan is valued at US$500-600 million with an estimated growth rate of 15 times.

The government does not impose restrictions on foreign direct investment in health care and allows the import of medical equipment in accordance with its “open common” regulations, but import of radioactive equipment requires approval from the Pakistan Nuclear Regulatory Authority. Import duties range from 0-25% depending on the category, but some medical devices are exempt from sales tax.

Price, quality and after-sales service are the main factors when deciding to purchase medical equipment. In the case of public procurement, government tenders can take a long time, while in private hospitals decision making is usually faster. A letter of credit is usually a method of payment for imports when supplying equipment for any project, public or private.

The key regulatory authorities in this sector are the Drug Regulatory Authority of Pakistan (DRAP) and the Ministry of National Health Services Regulation and Coordination (MNHSRC). Since 2015, DRAP has also overseen the regulation of medical devices. These new regulations include new medical devices and in vitro diagnostic (IVD) products, as well as requirements for conformity assessment, quality management systems, classification guidelines, authorized representation of foreign manufacturers and related registration steps. These rules cover procedures for registration of medical devices and conformity assessment bodies, licensing of enterprises, classification and grouping of products, post-market surveillance, import and export, labeling requirements, advertising and ancillary issues. To further simplify the process of registration of medical devices, DRAP has made certain amendments to the Medical Devices Rules 2017, but international companies still see bottlenecks. in indentations of rule clauses and lengthy registration processes.

Market demand for the following medical equipment is expected to increase:

• Respirators (HS 9019)
• Monitors, fans and related tools
• Personal protective equipment, veterinary dental instruments and supplies (HS 9018)
• Orthopedic devices, hearing aids (HS 9021)
• X-rays, radiographic/radiotherapy devices (HS 9022)
• Used and used X-ray machines, dialysis machines, anesthesia machines
• Health IT/telemedicine/e-health

Opportunities

Public sector spending on health care facilities is progressive throughout the country. The upcoming construction of new hospitals in Pakistan will also open up opportunities for medical equipment suppliers.

Energy sector

Pakistan's energy sector remains one of the main obstacles to economic growth. Although Pakistan has been able to increase power generation and mitigate the impact of the blackouts that the country has suffered over the past decade, expensive fuel sources, dependence on imported energy, chronic shortages of natural gas, large debt in the power sector, and an aging and insufficient transmission and distribution system have not allow this sector to grow and modernize. Weak governance, uncoordinated energy policy development and lack of long-term energy planning are only exacerbating Pakistan's current energy problems. According to the National Electric Power Regulatory Authority (NEPRA) annual report 2021, the total installed power generation capacity in Pakistan is 39,772 MW, of which 63% of the energy comes from thermal power (fossil fuel), 25% from hydroelectric power plants and 5.4% from renewable sources (wind energy, solar energy and biomass) and 6.5% from nuclear energy. In the current scenario, renewable energy resources (RES) can play an important role in bridging the gap. Under the revised Renewable Energy Policy, the Government of Pakistan aims to source 60% of its energy from renewable sources, including hydropower, by 2030, which will reduce Pakistan's dependence on imported fuel products.

Wind energy

Pakistan has significant wind energy potential in the coastal belt of Sindh and Balochistan (in the south of Pakistan). The Government of Pakistan has developed a wind energy corridor along the southern coastal regions of Sindh and Balochistan. Wind data provided by the Pakistan Meteorological Department shows that the country's coastal strip is 60 km long (Gharo Keti Bandar) and 180 km long and has a power generation potential of 50,000 MW from wind turbines. There are currently 26 private wind power projects operating with a total capacity of approximately 1,335 MW. In addition, 10 wind power projects with a combined capacity of 510 MW are under construction.

Small hydroelectric power station

In addition to large hydropower plants, there are prospects for the development of small, mini-micro-hydroelectric power plants with a revised RES Policy. The government views small hydropower projects as a clean and inexpensive source of energy. They are mainly located in remote areas of Pakistan, especially in the north of the country.

Solar energy

Pakistan has an average of 9.5 hours of sunshine every day. Solar energy entered Pakistan's mix in 2013 after the government introduced a series of support measures aimed at promoting the development of renewable energy sources. According to the Pakistan Economic Survey, in the last 5 years, six solar power projects with a total capacity of 430 MW have entered commercial operation and are currently supplying power to the grid. With rising electricity prices in Pakistan and unreliable power supply, more industries and commercial organizations are turning to solar energy solutions. Large cities are seeing a surge in the installation of photovoltaic panels on rooftops.

To expand the use of renewable energy in Pakistan's energy mix, the World Bank has provided US$100 million in financing to the Sindh Solar Energy Project to support independent power producers to develop 400 MW of new solar power projects and provide partial grants to private sector firms for commercial provision of solar energy.

Opportunities

• Solar panels/Photovoltaic panels
• Dry batteries
• Inverters
• Equipment for wind power plants (especially turbines)
• Biomass boilers
• Transmitting equipment
• Distribution equipment
• Biogas equipment
• Technical consultation

Housing and construction

Out of the total population of Pakistan, 36.38% lives in urban areas, and 63.62% — in the countryside. The demand for real estate is growing due to annual population growth. According to the Pakistan Economic Survey, the country's construction industry accounts for 2.53% of the GDP. This sector employs 7.61% of Pakistan's workforce.

The China-Pakistan Economic Corridor (CPEC) has given a boost to the construction sector with an influx of infrastructure projects including highways, power plants and dams.

Pakistan's construction sector contributes up to PKR 380 billion to its GDP. Fitch Solution projects the industry to be worth Rs 2,705.5 billion by 2028, representing huge potential for housing construction.

Government incentives

• The Income Tax Ordinance has been amended to declare the construction sector an industrial enterprise, making it eligible for benefits available to other industries.
• From tax year 2020 onwards, an additional “flat tax regime” was introduced for eligible builders and developers. in respect of income received from the sale of buildings or land from a new or uncompleted existing project. Previously, tax was levied on the basis of net profit.
• Eligible developers and builders are exempt from withholding taxes on the purchase of building materials. Dividend income paid to a person by a developer or developer from the profits and income generated from the project is exempt from tax as well as from withholding tax obligations.
• Capital gains received by an individual from the sale of residential real estate (personal/family) house or apartment are exempt from income tax.
• Banks will increase lending to finance the housing and construction sector

Logistics

Pakistan is the sixth most populous country in the world and continues to grow at a high rate — about 2.4% per year. Transport itself accounts for 22.3% of the services sector's GDP and provides approximately 6% of total employment in the country.

International transport connects Pakistan through border crossings, ports and airports with neighboring countries and foreign countries. Pakistan's economy relies on these international connections, including a large Pakistani workforce in the Gulf countries flying back and forth. In addition, increasing attention is being paid to increasing trade with the Central Asian region.

Opportunities

Local businesses strive to maximize the value created by the organization and therefore turn to logistics companies to outsource their supply chains to free up their resources.

The railway network is 7791 km. Given the continued strong domestic economic growth and ongoing reforms in Pakistan's railways, there is great potential for the railway sector to play an important role in the sector. It has been proposed to create a Bureau of Infrastructure Development (BID) that will coordinate and oversee the private sector participation program in infrastructure development.

Located at the crossroads of Afghanistan, Central Asia, the People's Republic of China, India and Iran, Pakistan has enormous potential to become a hub for regional transport and trade.

Areas for investment:

• Storage
• Cold chain logistics
• Air freight and transportation
• Road transportation
• Urban transport

Food sector

Population growth, coupled with an increase in urban lifestyles, has become the main driving force behind the growth in demand for frozen food products. In addition, the promising phenomenon of retailing is finding its way into urban markets. This factor was supplemented by the emergence of shopping centers and supermarkets.

Pakistan is one of the largest producers of industrial crops such as rice and wheat. Such crops can be used in the production of various products such as cereals, pasta, spaghetti, etc. Newer food processing methods such as extrusion are used in several developed countries and are now finding their way into Pakistan.

The total availability of edible oil from all sources in Pakistan is estimated to be approximately 3 million tons. 23% of oilseeds are produced domestically, while the rest is largely imported, providing enormous scope for increasing domestic production. These oil seeds are widely used in the production of ghee and cooking oil by one of the largest manufacturing industries in the country. There are about 160 small and medium sized vegetable ghee and vegetable oil manufacturing units scattered across Pakistan.

The beverage processing industry's main products include fruit juices/beverages, canned fruits and carbonated beverages. In general, the industry can be divided into two sectors: production of juices and purees. syrups and production of carbonated drinks. Both the sectors have recorded impressive growth with major players like Pepsi, Coca Cola, Nestle, Mitchells, Shezan, Maza, etc. Their manufacturing units are mainly located in Punjab namely Lahore, Sargodha and Bahawalpur.

Pakistan is the fourth largest milk producing country in the world, which provides huge opportunities for the production of products  in the dairy sector.

More than 25 processing enterprises operate in the fruit and vegetable sector. Most are citrus based due to their abundant acreage. Following citrus fruits are mangoes, which are abundant in Southern Punjab and Sindh. The main processing plants are located in Peshawar, Lahore and Karachi.

Agricultural food processing (primary technological products)

This sector includes all agricultural food products (primary). This sector alone accounts for 21% of Pakistan's GDP and includes primary processing of fruits, vegetables, flour, sugar, pulses and grains. Pakistan produces more than 22 varieties of vegetables and has about 1,400 flour mills. The country ranks 5th in the world in terms of cane cultivation area and 9th in sugar cane production. Pulses are the most important source of vegetable protein in Pakistan and are grown on 5% of the total cultivated area.

Any foreign investor wishing to invest in the food industry of Pakistan can use the trade routes and special economic zones created as a result of CPEC (4 zones). This will lead to competitive advantage by reducing domestic overhead costs coupled with reduced transportation costs. Moreover, China's growing population is a huge target market for food exports.

Tourism sector

Pakistan is rich in tourist destinations offering a wide variety of options for different types of tourists. The country is home to one of the oldest civilizations in the world, has countless scenic spots, the highest mountains in the world, many religious and historical sites, unique arts and crafts, and a rich culture and heritage.

The country is home to several UNESCO World Heritage Sites, such as the archaeological ruins at Mohenjodaro, the Buddhist ruins of Takht-i-Bakhi and the ruins of the neighboring city at Sakhr-i-Bahlol, Shalamar Fort and Gardens in Lahore, historical monuments at Makli, Thatta , Fort Rohtas and Taxila.

Trekking, mountaineering, rafting, jeep safaris in the mountains and deserts, camel and yak safaris, trout fishing and bird watching — Here are just a few of the activities that lure adventure and nature lovers to this country.

Pakistan is endowed with rich and diverse flora and fauna. The high Himalayas, Karakoram and Hindu Kush ranges with their alpine meadows and permanent snow line, coniferous forests in the foothill scrub, the vast Indus plain merging with the great desert, coastline and wetlands — all this offers an amazingly rich diversity of vegetation and fauna, including avifauna, both endemic and migratory. Pakistan has 10 of the 18 orders of mammals.

The country has 108 peaks above 7000 meters. 5 of the 14 highest peaks in the world (eight-thousanders) are in Pakistan.

The government is also actively promoting “religious tourism”, since it is one of the most profitable types of business in the world. Data from a recent survey showed that 83% of Sikhs in the diaspora living outside India expressed interest in visiting Pakistan. The Pakistani government is working with the World Bank to create a Buddhist trail to attract Buddhists, and in particular monks, from around the world.