Country Risk: Pakistan

Official Name: Islamic Republic of Pakistan
Time Zone: Standard Time / National Time is 5 hours ahead Greenwich Mean Time (GMT+5)

Internet Domain: .pk
International Dialing Code: +92

Table of Contents

Location and Size

Pakistan is located in southern Asia, bordering the Arabian Sea, between India on the east, Iran and Afghanistan on the west, and China in the north. Its land area is 803,943 sq. km. (310,527 sq. mi.); almost twice the size of California.

Government

Parliamentary democracy. Pakistan achieved independence from Great Britain in 1947. Pervez Musharraf, who had been chief of state (president) since June 20, 2001, resigned from the presidency in August, 2008.

The prime minister heads the cabinet, but the president chairs the powerful National Security Council, which comprises military chiefs and cabinet members. The president can also dismiss the prime minister, the cabinet and parliament.

According to the Economist, political stability is likely to worsen in 2008, as cracks in the governing coalition deepen and the country’s security problems remain unresolved.

Legal System

Pakistan’s legal system is based on English common law with provisions to accommodate Pakistan’s status as an Islamic state. Pakistan accepts compulsory International Court of Justice (ICJ) jurisdiction with reservations. What does this mean?)

The politicization of the judiciary has been in evidence since mid-2007. Over the longer term, it will further damage the already questionable independence and integrity of the judiciary itself.
The judicial system does not protect property rights effectively because of a serious case backlog, understaffed facilities, and poor security.

People

Although Urdu is an official language of Pakistan, it is spoken as a first language by only 8% of the population. English is the other official language, and is widely used in government, commerce, the officer ranks of the military, and in many institutions of higher learning.

• Population (2018): 207,862,518
• Population growth rate (2018): 1.41%
• Languages: Urdu (national and official), English (official), Punjabi, Sindhi, Pushtu, Baloch, Hindko, Brahui, Saraiki (Punjabi variant)
• Literacy: 57.9%
• Ethnic Make-up: Punjabi, Sindhi, Pushtun, Baloch, Muhajir (i.e., Urdu-speaking immigrants from India and their descendants), Saraiki, and Hazara
• Religions: Muslim 96.4% (85-90% Sunni, 10-15% Shia); small minorities of Christians, Hindus, and others.

Economy

Pakistan, an impoverished and underdeveloped country, has suffered from decades of internal political disputes, low levels of foreign investment, and a costly, ongoing confrontation with neighboring India. After September 11, 2001, and Pakistan’s proclaimed commitment to fighting terror, many international sanctions, particularly those imposed by the United States, were lifted. At that time, Pakistan’s economic prospects began to increase significantly due to unprecedented inflows of foreign assistance. Poverty levels have decreased by 10% since 2001, and Islamabad has steadily raised development spending.

U.S. assistance has played a key role in moving Pakistan’s economy from the brink of collapse to setting record high levels of foreign reserves and exports, dramatically lowering levels of solid debt. However, the economy is very dependent on low value-added sectors (textiles, cotton); thus, subject to intense competition from China. Insufficient levels of investment and spending on education have hampered a move to higher value-added production.

Unfortunately, Pakistan’s western half has a strong current of instability (ethnic and religious conflict, fundamentalists against traditional parties, the army’s role). The necessity of the government’s focus on political problems is undermining its ability to deal with a rapidly worsening economy and with security problems in the north-west.

• Currency: Pakistan rupee (PKR)
• Leading Markets (2017): US 17.7%, UK 7.7%, China 6.0%, Germany 5.8, 4.5%, Afghanistan 5.2%, UAE 4.5%, Spain 4.1%
• Leading Exports – Commodities: Textiles (garments, bed linen, cotton cloth, yarn), rice, leather goods, sports goods, chemicals, manufactures, carpets and rugs
• Leading Suppliers (2017): China 27.4%, UAE 13.7%, US 4.9%, Indonesia 4.3%, Saudi Arabia 4.2%
• Leading Imports – Commodities: Petroleum, petroleum products, machinery, plastics, transportation equipment, edible oils, paper and paperboard, iron and steel, tea
• Top Industries: Textiles and apparel, food processing, pharmaceuticals, construction materials, paper products, fertilizer, shrimp
• Agricultural Products: Cotton, wheat, rice, sugarcane, fruits, vegetables; milk, beef, mutton, eggs

Comparative Economic Indicators – 2018

* 2017 estimates
** PPP ” Purchasing Power Parity

Credit and Collections

Overseas Press & Consultants (OP&C) Evaluation:

• Collection Experience: Fair
• Exchange Delays: 4 months
• Preferred Credit Terms: Confirmed letter of credit
• Minimum Credit Terms: Unconfirmed letter of credit

ABC-Amega’s collection experience in Pakistan

According to our affiliate attorney in Pakistan, Majid Ali Khan, debt collection in Pakistan is difficult and generally handled with a Legal Notice followed by a personal site visit to encourage settlement. Court cases take a long time. He recommends that creditors pay for a credit report and site visit by a reputable, local Pakistani credit reporting company before selling on credit to a Pakistani company. The USD 150-300 cost for such a report is well worth it to prevent larger financial losses from selling to a fraudulent Pakistani importer.

Dispute Resolution

Protection of property rights and contract enforcement is problematic due to the irregularities and corruption of the judicial system. Pakistan has been a member of the 1958 New York Convention of the Recognition and Enforcement of Arbitral Awards since 2005; however, the provisions of this convention are still not included in Pakistani legislation. Until Parliament gives final approval of the convention and passes relative legislation, the government has issued an ordinance to implement the New York Convention for 120 days with continuous renewal of 120 days. Pakistan is also a member of the International Center for Settlement of Investment Disputes (ICSID). In principle, therefore, arbitration should be a valid dispute resolution procedure in Pakistan. However, in reality, companies are reluctant to trust that Pakistan will accept decisions by international arbitration.

Pakistan’s commercial law follows British and British-Indian precedents. Pakistan does have a concept of bankruptcy law, using the British model. Bankruptcy petitions involve corporations and businesses; personal bankruptcy is not currently a widespread concept. In general, the court appoints a liquidator to sell off and account for the property of the bankrupt, but the process can take years.

Risk Assessment

Coface Country Risk Rating: C — A very uncertain political and economic outlook and a business environment with many troublesome weaknesses can have a significant impact on corporate payment behaviour. Corporate default probability is high.

Credendo Political Risk Rating: 2 ” Low risk
Credendo Commercial Risk Rating: C ” Highest risk

Business Climate

Despite its economic and political difficulties, Pakistan has taken steps to liberalize its trade and investment in the context of commitments made with the WTO, IMF, and the World Bank. In recent years, Pakistan has actively been trying to become a more open economy in order to attract more foreign direct investment. The government has tried to implement economic reforms that include privatization, liberalization and deregulation aimed at making the economic system more investor-friendly and less bureaucratic.

In 2000, the government made significant macroeconomic reforms: privatizing Pakistan’s state-subsidized utilities, reforming the banking sector, instituting a world-class anti-money laundering law, cracking down on piracy of intellectual property, and moving to quickly resolving investor disputes.

Cross-border Trade: Imports are subject to a high average tariff rate and burdensome non-tariff barriers.

Transparency of Regulatory System: Pakistan’s financial market, though advanced for the region, is constrained by regulation and bureaucracy. A number of government agencies oversee commercial and financial regulatory regimes, and, while Pakistani law provides for recourse against adverse administrative decisions, the legal system remains backlogged and long court delays are common.

Protection of Property Rights: Pakistan’s legal system offers incomplete protection for the acquisition and disposition of property rights. Pakistan has identified intellectual property protection as a key area for its “second generation” economic reforms. Pakistan has enacted five major new laws relating to patents, copyrights, trademarks, industrial designs and layout designs for integrated circuits in the past few years, but their impact has been limited by weaknesses in the legislation and enforcement.

Other significant problems also remain. Book piracy, weak trademark enforcement, lack of data protection for proprietary pharmaceutical and agricultural chemical test data, and problems with Pakistan’s pharmaceutical patent protection remain serious barriers to trade and investment.

Conversion and Transfer Policies: Pakistan has a liberal foreign exchange regime with few restrictions on holding and transferring foreign exchange. There are no limits on the remittances of profits, dividends, debt service, capital, capital gains, returns on intellectual property, or payments for imported inputs.

Corruption: Business in Pakistan is seriously impeded by corruption. Operating and conducting business can be cumbersome and slow although the government has taken measures towards creating a more efficient business environment. 40% of companies in Pakistan state that corruption is one of their major concerns. In the Global Competitiveness Report 2010-2011, businesses point at corruption as the 3rd most problematic factor for doing business in the country, just after inefficient government bureaucracy and poor infrastructure. The most corrupt public bodies are the police, tax authorities and the power sector. All three demand bribes for routine services and the police also give out bogus fines.

Companies involved in import-export activities are effected by corruption in tax and customs. Foreign investors often use local agents in order to facilitate interaction with Pakistan’s cumbersome bureaucracy. However, investors are legally liable for the corrupt behavior of agents acting on their behalf and therefore companies are generally advised to carry out extensive due diligence prior to committing funds in the country.

Economic Freedom: According to the 2019 Index of Economic Freedom, Pakistan’s economy is 55% free, making it the world’s 131st freest economy. Pakistan scores moderately well in fiscal freedom, business freedom, and labor freedom. Pakistan has weak trade freedom, investment freedom, financial freedom, property rights, and freedom from corruption.

Political Violence: There are significant threats to foreign interests in Pakistan from al-Qaida, the Taliban and domestic terrorist organizations. The U.S. Embassy is operating on reduced staffing with no non-working dependents at post; most other Western diplomatic missions have reduced staff levels. All major Western countries, including the United States, have issued travel advisories recommending against non-essential travel to Pakistan. Continuing tensions in the Middle East also increase the possibility of violence against Westerners in Pakistan.

For more detailed information on these topics, visit the 2017 Investment Climate Statement “Pakistan, of the U.S. Department of State.

Business Protocol

Islam is practiced by the majority of Pakistanis and governs their personal, political, economic and legal lives. Third-party introductions are a necessity as Pakistanis prefer to work with people they know and trust.

Appointments: Appointments are necessary and should be made in writing, 3 to 4 weeks in advance, although meetings with private companies can often be arranged with less notice. The best time to schedule meetings is in the late morning or early afternoon. Arrive at meetings on time and be prepared to be kept waiting. It is not uncommon to have a meeting cancelled at the last minute.

Business Cards: Business cards should include any advanced university degrees or professional honors, as they denote status. Business cards are exchanged using the right hand only or with two hands. Make a point of studying any business card you receive before putting into your business card holder.

Business Attire: Conservative. Businesswomen should wear longer skirts and keep their arms covered.

Conversation: Pakistanis often ask personal questions as a way to get to know you as a person. In general, Pakistanis speak in a circuitous fashion. Direct statements are made only to those with whom they have a long-standing personal relationship. They also use a great deal of hyperbole and go out of their way to find something to praise. Be prepared to flatter and be flattered. Pakistanis prefer to converse in a non-controversial manner, so they will say they “will try” rather than admit that they cannot or will not be able to do something.

Meetings: In general, Pakistanis have an open-door policy, even when they are in a meeting. This means there may be frequent interruptions, or other people may wander into the room and start a different discussion. Business meetings start after prolonged inquiries about health, family, etc.

During the first several meetings, business may not be discussed at all as the relationship is still being developed. Maintain indirect eye contact while speaking.

Negotiations: Companies are hierarchical. Decisions are made by the highest-ranking person and are reached slowly. Do not try to rush things, as that will give offense and potentially jeopardize the business relationship. This society is extremely bureaucratic. Most decisions require several layers of approval. If you change negotiators, negotiations will have to start over since relationships are to the person and not the company that they represent.

Acceptable Public Conduct: Never inquire about a colleague’s wife or daughters.

Sources for further information on doing business in Pakistan

Doing Business, Pakistan – World Bank Group

Embassy of The Islamic Republic of Pakistan in Washington

Pakistan, U.S. Commercial Service, U.S. Department of Commerce

US-Pakistan Business Council

United States Embassy in Islamabad

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This information is provided by ABC-Amega Inc. Providing international receivable management and debt collection services for exporters to more than 200 countries including Pakistan. For further information, contact [email protected].

This report represents a compilation of information from a wide variety of reputable sources.

Economic Indicators: Variety of sources including the CIA World Factbook, Coface Country Rating, Economist Country Briefings, Federation of International Trade Associations (FITA) Country Profiles.

Risk Assessment information: Provided with permission by Coface Country Rating. Also Belgian credit insurance company Ducroire Delcredere

Information on credit terms and the probability of prompt payment are provided, with permission, from Overseas Press and Consultants (OP&C) as published in IOMA’s Report on “Managing Credit, Receivables & Collections,” August 2008.

Historical Exchange Rates: OANDA.com The Currency Site.