I warmly welcome the new Managing Committee which has taken charge after the election results were announced in the AGM held on February 1, 2016. The profiles of the newly elected office bearers can be viewed in our Managing Committee section.
In many ways 2015 was a benchmark year for Pakistan, with several positive developments providing stability to the economy and boosting the confidence of the business community, including the foreign investors. The combination of better management by the government and external factors, including the vastly improved security, law and order situation, especially in Karachi, a relatively more conducive political and regional environment, reduction in international oil prices, record low level of inflation and consequential reduction of the discount rate by the State Bank of Pakistan and bank borrowing rates, contributed to the improved GDP growth of 4.2% achieved in the past year. Moreover, despite continuing reduction in exports due to depressed international commodity prices, the foreign exchange reserves of the country which rose to US $ 21 billion at the end of 2015 provided stability to the local currency.
Various initiatives by the government to reform the taxation system, improve the ‘Ease of Doing Business’ and fast track the energy projects are providing hope of further economic stability in the near term. China Pakistan Economic Corridor (CPEC) projects also add a new dimension to the positivity in the business environment. The overall improved economic environment failed to boost the Foreign Direct Investment (FDI) during the year, which recorded a net inflow of only 50 percent of the already low FDI of US $ 1.67 billion in the previous year. The FDI of $ 851 million in the last fiscal year, was less than 0.5 percent of the country’s GDP and considerably below the full potential of the economy. Moreover, Pakistan’s regular decline in independent surveys like World Bank’s 2016 “Ease of Doing Business” where Pakistan ranks at 137 position out of 189 nations does not help in attracting FDI in the country. This is very unfortunate considering that Pakistan, which has a significantly large middle class population, offers one of the best incentives to investors, and existing investors, including OICCI members, continue to perform well in Pakistan. While EODB primarily reflect views of the SME sector, and not necessarily of large investors like members of OICCI, it does point towards an urgent need for the authorities to rapidly improve the regulatory structure, simplify the compliance process and facilitate doing business to the satisfaction of all business segments in the country.
During the year under review, OICCI conducted a number of important surveys based on research, and shared its findings with all the significant stakeholders. The Business Confidence Index surveys (BCI), waves 10 and 11 conducted by OICCI during the year, recorded a growth of 17 percent and 4 percent in the confidence of the respondents from across the country. The business confidence of OICCI members included in the above surveys went up by 32 percent in wave 10 but came down by 7 percent in wave 11 which was due to a number of factors, including the imposition of the so called “super tax” on organizations earning more than PKR 500 million taxable profit and the still unresolved issues of the pharmaceutical sector. BCI results were extensively shared with the authorities and were widely reported in the print media and some government communications.
Besides the two Business Confidence Index surveys mentioned above, the Perception and Investment survey, 2015, based on feedback from OICCI members was conducted during the last quarter of the year and the report released in January 2016. Here I shall briefly mention that the survey highlights a number of positives, available to investors in Pakistan which resulted in respondents identifying Pakistan as a better investment destination than some other regional countries. The survey however, also highlights investors’ concerns on persistent delays in settling large tax refunds of members, as well other policy issues by the Federal and Provincial government authorities, lack of clarity in laws and regulations, inconsistency in implementation of policies, the need to strengthen Intellectual Property Rights (IPR) regime and a few other matters. The survey also identify issues which, according to existing foreign investors, impede the growth of FDI in Pakistan.
Throughout the year the OICCI Managing Committee had several constructive interactions with the key government functionaries highlighting not only immediate issues of the members but also recommending measures to facilitate inflow of FDI in the country.
We appreciate the support of the Minister of Finance and also the Chairmen FBR, PRA and SRB for engaging with OICCI before the presentation of the Federal and Provincial Budgets and incorporating quite a few of our recommendations in the respective Finance bills for 2015-16.
We are also thankful to the Minister of Finance for accepting our regular urgings for a comprehensive review of the taxation system, including documentation and broadening of the tax base and for inviting OICCI as a member of the Tax Reforms Commission (TRC) formed in September 2014 and also as a member of the Committee to make recommendations for broadening the tax base (BTB), where I represented your Chamber. The TRC report incorporating significant recommendations, including input of OICCI members, has already been submitted and we remain hopeful that the government will soon implement most, if not all, of the recommendations given in the TRC report. OICCI has also submitted comprehensive proposals to the BTB Committee, which is expected to finalize its report in early 2016.
As the collective voice of the large foreign investors, the Chamber plays a significant role in facilitating the growth and well-being of existing investors operating in Pakistan and attracting new Foreign Direct Investment (FDI) in the country. In doing so, we regularly engage with key Government functionaries to proactively remove impediments to the flow of FDI to Pakistan.
As you may already be aware, OICCI, established in 1860, is the oldest Chamber of Commerce and Industry in South Asia, and one of the oldest in Asia. Its nearly 200 members, represent some of the world’s leading multinational companies belonging to 35 countries and operating in 14 key sectors of Pakistan’s economy. Our members contribute over one third of the total tax revenue of Pakistan and provide direct and indirect employment to a large number of people throughout the country.
It is noteworthy to share with you the experience of OICCI members who are already invested in the country for a long time and are doing good business in Pakistan, except for few hardship sectors. Based on an analysis of the financial performance of OICCI’s 57 members who are listed on the Pakistan Stock Exchange, whose financial statements are available to public, we noted that collectively these 57 members have shown a healthy double digit compound (CAGR) growth in sales and profitability over the past four year period.
In line with the desire for rapid economic and investment growth, OICCI has consistently stressed upon key government functionaries on the need to develop a comprehensive and structured action plan to regain Pakistan’s position in the World Bank’s EODB and other similar independent measures. We thank the Minister of Finance for setting up the ‘Committee on Improving Rating on ‘Ease of Doing Business’, and including the OICCI nominee in this committee. At the time of writing this report two meetings of the committee have already been held and a plan of action is expected to be finalized in the first quarter of 2016.
We are also thankful to the Secretary Board of Investment for organizing an OICCI exclusive round table meeting at the BOI head office in Islamabad in October, 2015, where senior officials from the FBR, Ministry of Science and Technology and Ministry of Climate Change had a face to face interaction with representatives of OICCI member companies to understand and help resolve key issues. This meeting was attended by 22 representatives of OICCI member companies.
Looking ahead, we anticipate stability and relatively improved business operating environment in 2016. We expect the Government to take bold measures and introduce growth oriented economic and trade policies to accelerate the economic activities in the country. There is a need for focused attention on economic and investment issues supported by good governance, close public private partnership and, above all, a strong accountability and monitoring mechanism to build up confidence, both with the local and foreign investors. This together with comparatively controlled cost of doing business, improving security environment and positive investment incentives available in Pakistan augers well for increasing level of interest and FDI by our members and new foreign investors.
M. Abdul Aleem