Thursday, December 4, 2008

Multinational Companies (MNCs) in the Pakistani Economy


Pakistan today provides an ideal environment for investment by multinationals and other foreign companies and organizations.  The investment friendly climate in terms of government regulations--there are no restrictions on remitting back the profits- is drawing them in droves. Facilities for maintaining foreign currency accounts concessions have also been allowed to foreign firms in respect of rules for borrowing, etc. A large number of multinationals have been operating in the country for many years.

USA leads the way
The multinationals have invested extensively in Pakistan. USA leads with $190 mn, followed by UK $122 mn. Other countries that have brought in investment are in order of FDI:  Netherlands, UAE, Switzerland, Singapore, Hong Kong. China surprisingly appears down the list after these states at number 8, with Japan following. 

The Germanic firm Siemens is perhaps the oldest in the industrial field in Pakistan, having set up in 1932, while ICI is the second. Unilever (formerly Lever Brothers, Imperial Tobacco, Shell and Burma Oil came soon after Independence in 1947. Many European, Korean and Arab companies such as Orascom are active in construction, communications and other fields. Japanese like Toyota, Suzuki, Nissan, Honda are mainly in the automotive industry.

Agriculture as a base
Pakistan's industry is mainly agro-based. Exxon (now Engro in the country) came first in this field in 1960, establishing the urea factory. Hercules of USA were next to arrive, soon big names in the agriculture field Massey Ferguson, Fiat and Belarus established joint ventures. In the infrastructure development as well, the French firm Sogea was involved in the construction of Karachi airport terminal.

Financial institutions such as banks always play a very key role in the development. Presently foreign banks are functioning in the country and have taken the lead in developing the services sector as well as mobilizing deposits and promoting credit card culture. Over 33 per cent of the trade handled by the MNCs was through the foreign banks. The foreign banks facilitated the flow of foreign currency. The burgeoning Islamic banking trend was started off not by any local bank but by Standard Chartered. Islamic options are a viable way for banks and DFIs to circumvent the concerns of people about interest and its usage.  

Multinationals and government
Many complaints are leveled against the presence of MNCs .However multinational corporations in the pharma and health sector are subject to the Ministry of Health. MNCs also are watched over by the regulatory bodies such as the Securities and Exchange Commission of Pakistan. Many MNCs that compete against local companies in key sectors are restricted from competing in a fair way as the state favors the local company- companies facing off against PSO are not allowed to open as big stations. Other stipulations such as the requirement of having an infrastructure over 60,000 sq ft to be considered as an MNC are also criticized.

Multinationals and the stock market
These multinational companies are operating in different sectors like pharmaceuticals, fertilizers, food products, including milk and tea and engineering, consumer products, polyester fiber, chemicals etc. They lead the stock market in the same way as they dominate the economy. Out of the total companies on the list of Karachi Stock Exchange, over 50 companies are multinationals. The leading companies include Shell, Unilever Pakistan, PnG etc.

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