Multinational Corporations and the Future of Pakistan

Pakistan is a third world state with a agricultural based economy. The nation which has nearly 190 million inhabitants is facing numerous issues and obstacles. Yet it is part of the group of emerging nations after BRIC with a potential for growth.

Pakistan economy outlook

The GDP growth rate in Pakistan is at levels that more developed nations such as the USA and Britain would be eager to have. The nation also enjoys a young population with over 505 of Pakistanis under the age of 25. The economy is growing and the per capita income has increased over the years along with the country’s foreign reserves.  The growth spurt has been somewhat decreased in the recent past due to the worsening situation and political uncertainty.

However an idea of the resilience and strength of the Pakistani economy can be gauged from the fact that the global financial crisis did not impact the nation till about a year or a year and a half after it broke.  The country’s growth is attracting major MNCs –those already in the market are gearing up and putting their money on Pakistan while new companies are eager to set up shop. The companies are ready to meet government requirements such as having an infrastructure of over 60,000 sq ft and face extra regulation especially in the pharma sector.

Recently it was reported that big companies such as Unilever and Nestle with a sizeable investment in Pakistan are hoping the country will be a source of growing profits. Figures suggest that Nestlé Pakistan  boosted sales by 29% in 2011This is in line with the Swiss brand owner has a target of deriving 45% of total revenues from the emerging world by 2020. Unilever Pakistan also enjoyed sales growth of 15% over the period of January to June 2011. Globally, the company has set a goal of increasing sales 100% by 2020, with most of the growth coming from outside the USA and Europe.

The fact that Pakistan has a largely untapped rural market is a great incentive for big MNCs. Local companies are hard pressed to compete with the incredible economies of scale that these mega corporations (what multinational corporations are called by some detractors) can bring to bear.

Issues of sovereignty and transfer pricing as well as the ability of the MNCs to put pressure on the government which sorely requires the advantages they bring will continue to cloud the issue. However it is clear to people who are realistic that the future of Pakistan depends on multinational corporations and the benefits they bring.

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.