Japanese investment in Pakistan

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The way to progress

Pakistan has a great potential for growth, development, attracting business investment, and making profit out of international business. By 2050, Pakistan would be having a GDP touching down to US$ 3.3 trillion, equal to the size of today’s Germany. Inter-regional infrastructural projects and transnational energy pipelines would change the economic landscape of Pakistan. Soon Pakistan is going to be converted into a’ tiger’ economy like other prosperous countries of East Asia.

For Japanese multinational companies, Pakistan has been regarded as a high-sale and high-growth country for enhancing their business. This has been revealed in a survey report released by the Japan External Trade Organisation (JETRO) recently. JETRO started such a survey just from last year. Around 9,371 Japanese firms have been doing business across the world.

Pakistan ranked second and drawing 74.1 percent in terms of profit earning for Japanese companies operating in Pakistan last year. Taiwan ranked as the top destination for profitability for Japanese companies, with 81.8 percent profit. Myanmar and Cambodia are expected to make more profit for Japanese companies next year. India, Bangladesh, and Sri Lanka ranked much lower in generating profit for Japanese companies.

Pakistani data has been collected from 27 Japanese companies operating in Pakistan. Japanese transport machinery equipment makers carried the bulk of this business.

Pakistan, however, has been facing terrorism since 2001. There has been flight of capital. International sanctions have damaged its economy particularly after 1998-2005. Business confidence shattered, so did the image of the country. While Americans, Europeans, and Australians wound up their business in Pakistan after 9/11, South Koreans continued their retail business of transportation (Daewoo) without fear. This was a sign of great confidence in doing business in Pakistan.

Apart from terrorism, electricity shortage negatively impacts upon Pakistan’s growth. Had these weaknesses not been there, Pakistan’s economy and profitability of the Japanese companies would have increased. With a strong and transparent legal system in Pakistan working in the last few years, business positivity has been taking place.

Peace negotiations are underway between the government and the Taliban. With the end of terrorism and restoration of normal security, investment confidence and profitability are further expected to grow. The present government is determined to tackle the issue of corruption and governance.

The return of Japanese business after 2005 witnessed many positive changes, which the above JETRO report has acknowledged.

With an increasing growth of 5.1 percent within the last six months under the present government, projections of Japanese business profitability will further increase in the next couple of years. The Karachi KSE 100 jumped to 49.4 percent in 2013 as fifth best performer in the world. This bullish trend indicates the growth of financial market and attraction of investment in Pakistan.

Japanese Foreign Direct Investment (FDI) increased to US$ 31 million or just 2 percent of the total FDI fetched by Pakistan in 2012-13. This needs to be increased. Looking at JETRO’s survey, FDI by Japanese companies should be increased to convert Pakistan as a competitive market.

After Japanese economic recovery in the 1950s, Japanese investment has played a lead role in making ASEAN miracle. Taiwan, South Korea, and China also received huge Japanese investment.

Japan entails a good image in Pakistan. It is always a welcome country. JETRO established its office in Karachi in 1954. It was second JETRO office after Bangkok and the fourth established by Japan at that time. At that time Japan used to import cotton from Pakistan. Textile was the main industry in Japan those days.

It is quite safe to say that in Japanese post-war economic recovery, Pakistani cotton has played a major role. Now in bolstering Pakistani economy, Japanese investment in autos, textiles, manufacturing, infrastructure, and energy could play the lead role. Both countries have already signed the Bilateral Investment Treaty (BIT) in 1989.

In enhancing intra-SAARC trade, Japanese investment could play a role. For instance, Suzuki motor company has been planning to import Suzuki auto parts from India, which are imported from Japan at present. The scheme will be cost-effective and time-saving.

For Japanese, the scheme tends to transfer technology to Pakistani vendors through India. From Pakistan, Japanese autos could also be sold to Afghanistan and Central Asia. Prospects of Japanese business are fairly bright in Pakistan. Trade unionism is on the rise in India. Many Japanese companies are considering shifting their businesses to Pakistan. At present, there are around 76 Japanese companies operating in Pakistan.

Some institutional measures are also needed to be adopted to facilitate investment. The ‘Visa on Arrival’ facility should be extended to Japanese nationals in Pakistan. India has already offered such facility to Japanese nationals. With these arrangements, Pakistan could attract more investments.