The writer of this article has spent over 40 years in the accounting firm that, at one time, was almost the sole financial advisor, auditor and consultant to the foreign companies/branches operating in Pakistan. There was a period when almost all the members of Overseas Investors Chamber of Commerce and Industry (OICCI) were the clients of this firm and of another firm having the same background.
Otherwise there are very few empirical studies on the subject of evolution, operations and exit of foreign companies in Pakistan. Whatever has been stated is the first-hand knowledge and experience on this subject.
In the last four or five years negativity has been perceived in relation to ‘change in the ownership’ of businesses earlier held by multinationals. It is being seen as if such multinationals have exited on account of economic problems and environments in Pakistan. This perception is based on totally incorrect information, incomplete background information about the change of ownerships and a substantial misunderstanding about the status of Pakistani entrepreneurs. In almost all the cases, there is ‘change of ownership’ not being the closure of business. This matter is clarified with facts and background, in the following paragraphs:
A list of famous multinationals that used to operate in Pakistan and that have transferred the ownership of their assets (operations) in Pakistan. They can be named as under: Banking: Citi Bank, the Bank of America, Hong Kong & Shanghai Bank, Bank Indosuez, Societe Generale etc; Oil Explorations: Exxon; Burmah Oil; Eni; Union Texas; Shell, Chevron, etc; Pharmaceuticals: Pfizer, Novartis, Roche, Wyeth, Sanofi Aventis, etc.; Industrial Chemicals and others being ICI, Akzo-Nobel, Rafhan Maize, etc.
It may be interesting to note that the author has been directly or indirectly involved in almost all the aforesaid cases and it can be candidly stated that in all such cases there was a ‘transfer of ownership’ to Pakistani entrepreneurs and business groups which is beneficial for the country and its people. Each particular industry and specific cases have been discussed in the following paragraphs.
Let us first take up the case of the banking industry. It is a fact that after the 1970s all the people working in these foreign owned bank branches in Pakistan were Pakistanis. There was no need to have an expatriate in Pakistan as Pakistani bankers were reasonably refined and qualified. It is so that almost all the senior people in these foreign banks were placed by such entities outside Pakistan in very reasonable positions. The examples are Shaukat Aziz and Saleem Raza of Citibank. Thus, there was no reason to have branches of foreign banks in Pakistan. The correct decision was to ask these banks to incorporate as Pakistani entities. For example, Standard Chartered Bank Limited, which wanted to carry on with their brand in Pakistan, was asked to be incorporated in Pakistan with foreign ownership. This is the correct model being adopted by India and China, which are large economies requiring penetration of banking in villages and small cities. Pakistan is neither Hong Kong nor Dubai or Singapore. Foreign banks are not expected to have branches in such areas. On the other hand, it has been demonstrated that the Pakistani banking sector without foreign names has developed in a very reasonable manner in Pakistan. A glaring example is Meezan Bank Limited in comparison to Faysal Bank having a foreign name. In fact, Pakistan-origin brands such as Habib Bank AG Zurich is operating internationally.
The second interesting case is Exxon. This multinational was engaged in production of urea fertilizer. Exxon internationally is no longer involved in the fertilizer business and the technology developed by Italian and other countries in this field is better than that available at Exxon. Exxon was acquired by a very successful employees’ buy-out and has been converted into a very successful brand ‘Engro’ with many diversified businesses such as chemical, terminals, etc. Subsequently, this company was bought by the Dawood Group and now it represents one of the best performing industrial groups of the country.
Thus it was a change of ownership and there was no loss of available technology. In the case of Burmah Oil, there has been an acquisition by the government when the Burmah Group decided to disassociate from oil exploration business. The case of Shell and Chevron is also very interesting. Both these names were engaged in the oil marketing business. In the present days, oil marketing is a purely ‘commodity’ business and there is effectively no brand value attached to any particular company.
In any case, almost all the pumps were operated on contract basis by these companies. Union Texas Pakistan Limited has been bought by a Chinese group and the activities are being conducted in the same manner as they were done earlier. Furthermore, Union Texas is not a brand in the oil industry. Oil exploration business requires investment and technology, not the brand.
The most important case is that of a big multinational, being Imperial Chemical Industry (ICI) of the UK and the Netherlands. Their company ICI Pakistan Limited had been engaged primarily in the soda ash business from the 1950s. Soda Ash is no more a patented or sophisticated technology. The best equipment is internationally available. Furthermore, the entity that owned that business had disposed of their line of business outside Pakistan. This big company was acquired by a very progressive Pakistan industrial group being wholly owned by Pakistanis. In this case there was a one-time outflow of a certain amount in USD at the time of acquisition.
The company has multiplied by many folds after acquisition by Pakistanis. There have been huge profits in the company. The whole value-addition in the equity of the company lies with the ownership of Pakistanis. If it would not have been the case the value-addition would have been repatriable outside Pakistan on account of foreign ownership. Those people who mourn that a multinational has left Pakistan are actually not aware of full facts and they may not be sincere with the overall economics of Pakistan.
The same is the case with the recent sale of the paint plant located in Lahore by a Dutch multinational Akzo-Nobel. Paint is not a specialised industry. This plant at Lahore which was owned by the multinational has been acquired by the Packages Group. This means that the Packages Group has diversified in a growing business line and dividend from that company would not be required to be remitted. The quality of management of the Packages Group cannot be challenged. In the case of paint business there is no economic rationale to pay dividends out of Pakistan for a brand name.
The most interesting case is that of pharmaceutical companies. This exit is actually a blessing in the sense that there was huge profit repatriation and almost all the raw materials (being active ingredients) were imported from China or India. For this purpose it is necessary to understand the primary economics of pharmaceutical business in Pakistan. In the pharmaceutical industry there is a concept of patents which are generally for ten years.
The product cannot be produced anywhere in the world during the tenure of that patent. The patent is for the active ingredient. The first investment in Pakistan in this sector was by Glaxo Laboratories in 1951. They installed some plants for manufacturing basic material, including infant milk. However, it is a fact that in the last 70 plus years there has been no effective increase in the manufacturing capability of any active ingredients. The same is the case with the company ‘Wellcome’, which became part of GSK Group. Almost all the plants are in a secondary stage starting from the use of active ingredients not having any technology or research for promotion of industry for active ingredients. In short, in the case of almost all the companies which have exited out of Pakistan, the patents of main products had expired and the Pakistan operations had already started acquiring active ingredients not manufactured by their parent company.
These parents ‘exploited’ Pakistani people at the time when such products were patented as there was huge ‘transfer pricing’. In the taxation matters we were aware that there is a heavy ‘transfer pricing’ on account of non-arm’s length purchase of raw materials; however, international conventions protected developed countries and countries like Pakistan remained silent spectators. Now that exploitation has partly stopped. After the expiry of patent the method of business of the multinationals changed domestically (in Pakistan), and, in some cases, internationally.
Chinese and Indian raw materials which are substantially cheaper are used. Thus after the expiry of the patent in over 95 percent of the cases the active ingredients were being imported from China or India. If it is so then there is no rationale both for Pakistan as well as multinationals to operate in Pakistan in their name in Pakistan. In these circumstances, a multinational has exited out of Pakistan and the company has been sold to efficient Pakistani entrepreneurs. The particular ‘brand’ may stay on account of public memory with royalty for some time when they will be rightly taken over by Pakistani brands.
Our objective is to attract investment by an entity anxious to invest in the manufacture of active ingredients. The author has the opinion that some Chinese companies are interested in the same. That would be the FDI in Pakistan. Nobody remembers ‘Aspro’ now. The same may happen to ‘Panadol’ some day. What we need is a simple Pakistani pain-killer or analgesic. Otherwise, generically, the product is the same. Almost similar is the case of the recent exit by a multinational in the case of Rafhan Maize Products Limited.
As against the exit there are interesting industries where there have been entries. This represents foreign multinationals involved in cigarette, aerated beverage business and white goods. In all the three cases, a multinational has invested in Pakistan instead of getting out of the country. The first case is the complete acquisition of all the bottlers of Coca Cola Beverages Pakistan Limited by Pakistani owners. The second case is the acquisition of Philip Morris from the Pakistani owners. Pepsi Cola is also investing.
This means that these multinationals find reasons to be in Pakistan as the return in Pakistan is economically viable. The most important case is the acquisition of the ‘Dawlance’ brand of Bashir Dawood by Koch Group of Turkey. The biggest Turkish industrial group paid a very high price for a Pakistani brand on account of their product and brand. ‘Dawlance’ is a brand developed in Pakistan.
In short, it is stated that misconception about the changing environment which is positive is being reflected as a negative subject on account of lack of knowledge and understanding of facts. It is therefore suggested that such kind of literature be avoided.
Pakistan took the right decision to stop foreign branches in 1970s and 1980s. It is about time the country decided whether or not 100 repatriable foreign investments are to be allowed in the purely consumer goods industry such as confectionery, cooking oil, marketing of oil, marketing of textiles, etc.
This is a separate chapter which will be dealt with through a separate article; however, the primary question at this stage is whether or not we as a country require foreign-owned entities to make and sell ice-cream or biscuits for the reason that we want to use a particular brand of ice-cream.
Firstly, the foreign brand is not required; however, if there is a desire for foreign brands the better way is to acquire the brand under the royalty agreement as is done throughout the world. If we examine the quality of the confectionery industry in Pakistan then it transpires that quality has substantially improved. Almost all the companies are majorly owned by Pakistanis and operated by Pakistani management. The same is the case with pharmaceuticals. The quality of the plants, equipment, staff, etc, is measurable to those operated under a multinational entity. Accordingly, the ownership, as far as possible, should be with the Pakistanis to save foreign exchange out of profits generated in Pakistan. The ‘Bretton Wood’ system for investment in the then colonies which prevailed after the end of Second World War has naturally died down.
In Pakistan, the subject of FDI has been severely confused. FDI does not only mean inflow of foreign exchange into Pakistan. The same can be done by way of acquisition of shares in already listed companies by foreigners under SCRA account. This is effectively not an FDI. It is effectively a loss in the long run. It is a fact that SBP’s reserves increase by the amount received by the acquisition by a foreigner, but the economic output of the entity remains the same as the funds are not invested in the company. It, at times, reflects speculative transactions in PSX. For example, if OGDC’s shares are acquired by a foreign fund there is no increase in cash available with OGDC. The apparent loss is that the dividend from ODGC, which was required to be paid to Pakistanis in PKR would now be required to be paid in USD. This is not a FDI. It is an inward flow of foreign exchange for balancing the current account. We are not recommending any control over that. What we are suggesting is that this kind of foreign inflow be completely distinguished with investment such as that made by Barrick Gold. In that case USD is coming to Pakistan for the development of Reko Diq mines, and it is not a loan to the government of Pakistan. The investor will take 50 percent of the product; however, 50 percent lies with Pakistan and the assets lie in Pakistan. After the expiry of the concession term the rights will be with Pakistan. FDI effectively means increase in the assets of the company, not being acquisition of assets at their fair value.
It is therefore considered that all the misconceptions about the Pakistani industrial environment be cleared and wrong notions in relation to FDI be removed. We expect a huge FDI in the post-Iran war for which a conducive environment is needed.
Copyright Business Recorder, 2026
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