Foreign investors have blasted the Board of Investment and other “relevant ministries” for ignoring their problems, including the holdup in dividend repatriation.
The 200+ big-name multinationals operating in Pakistan wrote a letter to Prime Minister Shehbaz Sharif saying they’ve not been able to send dividends to overseas shareholders for the last 10 months which is causing reputational damage to the country.
The country’s foreign exchange reserves are barely enough to cover one month’s import bill, forcing the government to halt large dollar outflows, including those from overseas investors.
The letter, which was co-signed by Overseas Investors Chamber of Commerce and Industry (OICCI) President Amir Paracha (CEO of Unilever Pakistan Ltd), read: “The unremitted local currency dividend is continuously shrinking in the currency of the major shareholders, making the return on investment of foreign investors even less attractive”.
Pakistan has a liberal foreign investment policy that allows for-profit repatriation in full. In the fiscal year 2021, multinational corporations repatriated $1.6 billion to their overseas headquarters. The repatriated amount fell 78.3 percent year on year to $220.1 million in the first seven months of 2022-23.
The widespread scarcity of dollars has also caused banks to refuse to open letters of credit (LCs), resulting in a shortage of critical spare parts and key raw materials for multinational corporations. Many of our members have been forced to close, some partially, their manufacturing operations and lay off workers, read the letter.
It also said, “The agreed oil marketing companies’ margin (OMC) increase on Diesel remains outstanding since September 2022. Moreover, OMC margins still do not account for cost heads like demurrages to be implemented resulting in serious financial loss to the industry. The recent levy of additional taxes (e.g., Sales tax 18%, etc.) on the existing taxpayers, while may be necessary under the ongoing IMF negotiation, negates the principle of fairness as the FBR has failed to broaden the tax base, especially from the Retail and wholesale trade and many other similar sectors”.
Investors are of the view that the export of non-traditional sectors like IT and services has not been supported to boost the FX income of the country to its potential. OICCI has recently issued its “Digital Transformation Recommendations 2022” indicating that the contribution of the IT sector towards the economy has the potential to increase to US$ 60 Billion by 2030, from the current level of US$ 3.5 billion only.
According to the letter, the OICCI’s pharmaceutical sector members are unable to survive in the face of high inflation. Many international pharmaceutical companies have already left Pakistan’s market, where all prices are fixed by the government. Remaining companies are also struggling to stay in business, it added.
The letter added that most OICCI members’ confidence is shaken. Unless immediate confidence-building measures are implemented, there is a risk of a direct hit to the government’s revenue, as well as other negative implications for the economy.