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Literature Review Of General Investment Climate Of Pakistan

Analyzing the literature review critically was highly essential for my research in order to find accurate relationships and importance of each particular aspect of the study. In order to do this, I researched a number of articles in order to enhance my knowledge and to fully understand my research topic. I went through many papers, some of them broadly highlighted the investment climate and the cement sector and then there were some important papers that narrowed down my research topic. A lot of data was gathered to theoretically and statistically back my research topic. The overall investment climate is highly important for the success of any sector. That is why the investment climate is emphasized in my research and an effort has been made to show the cause and effect relationship between investment climate and the cement sector. Thus I have tried to find papers that provide evidence for this relationship.

A good investment climate means that the there is a favorable environment for growth. There are many important factors that come into a good investment climate. Availability of basic things required for a manufacturing sector to perform efficiently is necessary. A good investment climate is one in which there is flow of funds both domestic and foreign. The lending rate is low which triggers growth as the cost of borrowing is less and project success is high. The lending rate plays an important role in forming a good investment climate which then facilitates higher production. Currently the general investment climate of Pakistan is not the way we wish it to be. There is low investment in every sector. Investors are not investing in Pakistan because of various reasons. Firstly the political unstability in Pakistan is hampering the growth of manufacturing sector of pakistan. In stable government and political feather firstly result in weak policies in every aspect from economic to social policies. Next it results in the policies to be changed quiete often thus making investment decision difficult. Investors hasitATE IN INVESTING AS THEIR are chances of policy change which can result in losses. Apart from this Pakistan is facing one more major issue that is the terrorism which is making all the investor not to invest in Pakistan and some other country. Secondly the governemt expenditure in development is at its lowest. The government is not able to invest due to limited resources. Very few development projects are being run these days. Expenditure on development project is falling and with it demand of cement. “Despite the enormous potential and attractive business opportunities exist in Pakistan, the potential investors did not come out with money at the desired level due to various reasons especially the unpredictable policies and attitude of the past governments in this country. As the trade rule says, "investment in any business, any area and any country calls for careful judgment".

Recently, the size of the Foreign Direct Investment (FDI) has however inched up slightly as compared to the previous couple of years as the expected size of the FDI at the end of the current financial year was estimated at around $500 million. This amount of FDI however does not reflect the actual depth the economy of this country has. In the year 1998-1999 the size of the FDI was estimated at $472 million, 1999-2000 $472 million, and 2000-2001 $322 million.

The overseas investors doing business in Pakistan view of business environment in Pakistan from various angles. Their major concern seems to be frequent change in policies, lack of follow up for effective implementation of the good decisions, unfriendly attitude of government officials, corruption, international political situation and above all the law and order situation.

The business community, local and foreign investors, is however pinning hopes for stability in the situation that seems in the offing due to repeated assurance held out by the present government for continuation of the policies, level playing field for local and foreign investors and strong signals for improvement at macro-economic level. Energy sector in Pakistan has been the focal point of the investors since last many years and evens in the current scenario the major part of the foreign investment is coming in this sector. Sources in business circles are attaching great importance to the current scenario of economic activity including Chinese investment in the deep-sea Gwadar port, power generating units at Lakhra and Thar coal fields, and political stability in neighbouring Afghanistan as these two factors have every potential to create infinite economic activity not only for Pakistan but in the entire region. The Asian Development Bank (ADB) while commenting on the state of economy has observed that Pakistan's economy seems to have weathered the effects of the post-September developments and global recession well, and agriculture sector has also adjusted to continuing conditions of drought. Price stability observed during the current fiscal year is also likely to continue, and the current fiscal year is expected to end with an annual inflation of about 3 per cent which is substantially below from last year.

The downward trends in exports, particularly in terms of value, observed during the current fiscal of 2001-2002 are likely to continue in the final quarter as well. But the trend should be turning around soon, as increased access to the European Union markets results in higher exports, and the impact of growth in the economics of Pakistan's major trading partners feeds through. The imports may pick up in the remaining part of the current year due to higher petroleum prices, some increase in investment and higher consumer spending. As a result of increasing trend in international oil prices, the improvement seem in the first nine months of the year is unlikely to continue in coming months.

The trade deficit is expected to be around $1.3 billion for the year as a whole. The improvement in the current account balance in the first half of the current year was partly due to exceptional inflows like grant assistance from the USA. Therefore the further improvement in the overall balance of payment is not likely in the second half of the year but the year can end with a current account surplus of about $800 million.

The fiscal balance, which has worsened in the first half of the current financial year is likely to further deteriorate in the second of the year, as expenditure on mobilization of troops on the eastern border with India since December 2001 is reflected in the budget.

Tax collection may improve due to increase in imports and revival of economic activity, but that will only partially offset the impact of higher defense budget. The overall fiscal deficit to exceed 5.5 per cent of the GDP.

The output in the manufacturing sector has not been significantly affected by global recession, and the farming sector also adjusted to continuing conditions of drought, so, the overall economic growth for the year is likely to be 3.5 per cent. The medium term prospects for Pakistan economy have improved recently and the investor confidence has been restored by number of post-September developments. Increased access to European Union markets and rescheduling of debt are likely to have the greatest medium and long-term benefits for the economy. Besides modernization of textile industry under way for the last couple of years has started showing results in the form of substantial increase in the industry's output and in the export volumes despite global recession.

If the government continues to pursue sound macro-economic policies and to implement the planned economic and governance reforms, it could fairly quickly achieve rapid and sustainable economic growth and poverty reduction. The growth target of 5.2 per cent set for the fiscal year now looks achievable, even a higher growth rate of 5.5 per cent seems possible.

On December 13, 2001, Pakistan signed the third debt restructuring agreement with the Paris Club, interest rates to be applied to restructured loans, are to be negotiated between the government of Pakistan and each creditor country. Interest rate on ODA loans will be a below market rate and not higher than the interest of the original credit. Non-ODA loans will be rescheduled at a market interest rate determined on the basis of risk free rates for the concerned currency, plus a management margin. Depending on what the finally agreed rates are, Pakistan will get a saving of $2.7 billion to $3 billion in the three year PRFG period and $8.5 billion to $11.1 billion over the grace period. Expected reduction in the net present value ranges from 27 per cent to 43 per cent.

What Determines Private Investment?

The Case of Pakistan

Sajawal Khan

Pakistan Institute of Development Economics, Islamabad

Muhammad Arshad Khan

Pakistan Institute of Development Economics, Islamabad

This study is an attempt to analyse the determinants of private investment

in Pakistan over the period 1972-2005. The ARDL co-integration approach is

employed to check the existence of a long-run relationship as well as short-run

dynamics of investment. The results show that most traditional factors have little

or no impact on private investment. These results may support the idea that nontraditional

factors such as quality of institutions, governance, entrepreneurial

skill, etc., are prerequisites for private investment to flourish.

The article highlights all the determinant of private investment in Pakistan in two categories, the economic determinants and other factors. The article enables us to see the relation of different variable on the investment mainly private investment but fails to recognize some other variables that do effect private investment. The factors mentioned are a bit general in nature and are appropriate in perfect environment settings. Large sample size and time period is taken to find long run relationships. The paper enables us to understand the fact that how sensitive is investment on different aspects of the economy and thus how difficult is it to maintain a stable investment climate.

Overview of cement Industry of Pakistan

“Cement is one of major industries of Pakistan. Pakistan is rich in cement raw material. Currently many cement plants are operating in private sector. Pakistan Cement Industry has huge potential for export of cement to neighbouring countries like India, U.A.E, Afghanistan, Iraq & Russian States. There has been a robust growth of cement demand seen both in domestic and exports market during the financial year ended June 30, 2007. The industry achieved an overall growth of 32% with domestic demand of cement increased by 24.95% whereas the exports increased by 111.86%. The overall growth achieved by many cement factories for the year under review was 111.29% consisting of domestic and export markets at 71.02% and 335.12% respectively”.Cement industry as per the cement industry update and various articles is one of the most important sector of Pakistan. Pakistan currently has 28 cement sectors. Most of the ones are engaged in export as well to meet local demand. The cement sector is a source of foreign exchange in Pakistan . there is huge market both India and Afghanistan as well as the African continent. The oppurtunities are immense if only we can chanalize are efforts and work toward consistent effort to survive and grow. Cement fact5ories are located at various parts of Pakistan each having certain geographic advantages. If lucky cement is located on karach port and has the advantage of saving transport cost then maple leaf and Pakistan cement are closest to lime stone resources a dn thus benefit from it. Cement Industry is affected by various factors.

Capacity utilization

Having growth in any productive unit is good but it is important to utlize the capacity in a matter to achieve maximum efficiency. For this the capacity utilization is an important variable and the studies show that instability has resulted in fall of this capacity and hence the the sector has under performed. It is important for4 the sector to increase its capacity utilization because only then it per Kg cost will fall ang profit will increase. Currently the sector is a heavily debted one and it is essential that all the factories perform at their optimal level .

Price of cement.

As from the studies and the literature gone through with the data collected from various authentic sources we can see that the one problem or issue for the sector is the price of cement bag. It is unstable, and is unpredictable in nature. Cement prices have been changing very often affecting the performance of the cement sector of Pakistan. We see price changes from an approximate of 420 in 2007 to just rs 235 in 2009 all resulting in hampering ther growth of cement sector. Such low price result in heavy losses for the cement factory and durin g a cartel formation they obtain abnormal profits. So the profit changes a lot. For a consisitent long term performance it is important for us to to have a stable price independent of other factors with a normal profit ratio covering all the cost and benefiting the company. The analysis from the literature tendsa to reflect the importance and give idea of the poor selling price technique which results in the poor performance.

From the literature the cement sector is influenced by other factors like surplus capacity as well as the export sector. Export is a new market of Pakistan which started in early 2000 and is growing immensily. Studies show that Pakistan can export it totlal capacity production if it wants too. This is very important considering the fact that the curre3ntly the economic situation in pakistaqn is not good and there are problems regarding the sale of cement. The construction sector is also not working in the desired manner.

Specific factors that affect the cement industry of Pakistan

Sarah junejo

this papers gives a complete detail condition performance and some future prospects of the cement sector of Pakistan. It highlights various key factors that are related to the performance of the cement sector of Pakistan. It gives the cause and effect of changes in various things on the cement sector for example the growing export sector, exchange rat effect, increase in production capacity with same facts and figures.

Next the paper gives the complete industry overview, demand and supply relations and the trend in consumption of cement locally. Some graphs helps to understand the trend cement sector has seen in the past few years. Effect of import materials like the coal for instance is also highlighted in the paper.

Coal prices, Exchange rate, Interest rate, demand and supply trends, competitiveness, policy favouribility, and investment in cement sector are variables the update report mention with complete backing of theory. The update report lacks to give some qualitative research analysis which is essential for a complete determination of current cement sector and helps the future policies to be tilted toward the cement sector after appropriate addressing. It is very important for us to analyse all these variables in detail and to work effectively. Surplus capacity may seem an un related variable for some but if we go into the the relationships detail we will see that surplus capacity means that the the increase of demand in cement could be easily met up. This is very essential for growth perspective as surplus capacity means that one can look for new market to provide cement and increase its sales. Similarly there are many things that must be taken into account to evaluate the performance of the sector.

Political stability according to the study is also one variable that can have huge consequenxces on the cemnent sector performance. Studies show that a stable environment is one that attracts investment of all kind which inturn results in increasing demand of cement. So political stability is essential for the growth perspective. Stable economic social and political environment is crucial for the success of our industries. Also with political stability comes good relations which can be used to get quotas and enterance in various markets. For example if the governmnet is stable it can a nice policies with india which can result in a huge market availability. India is deffecit in the production of cement and it is very important to tap these sources. Also if we look at the sale perspective we can easily see that currently the price of cement bag in Pakistan is 370 whereas the same cement bag in India is sold for 500 and so we are loosing amazing profit opportunity by not exporting cement to India. Similarly Afghanistan is also a growing economic environment for us.

Variable that determine the investment climate of Pakistan

Investment in Pakistan: A Critical

Review

Zakaria, Muhammad

Department of Economics, Quaid-i-Azam University,

Islamabad, Pakistan

This research paper critically analyses the investment in Pakistan trying to highlight each and every aspect, all the prons and cons backed by mathematical and econometric models. Again the paper mentions all the variables that affect the investment climate of Pakistan. The paper critically evaluates the nature of each variable and explains the cause and effect relation. The critical review of investment is essential to determine the nature of investment, general business climate and based on it the proposed future predictions. The determinants vary to some extent paper to paper. This research paper discusses more of the qualitative variables.

There are various qualitative and quantitative variable that effect the investment climate of Pakistan. Foreighn direct investment, political stability, exchange rate, lending rate are some the variables that effect the investment climate performance. The research paper show that the investment climate is a crucial determinat for the economic performance of the country. Exchange rate is very important variable according to the study. It tells that Pakistan gets large amount of foreighn exchange through remittance and current fiscal it has been around 8 billion dollars. What this show that the exchange rate fluctuation can have serious consequences on the performance of the economy and thus stable rate should be a key matter of concern.

Lending rate is again a very important determinant and according to the study we see that the lower the lending rate more viable it is to install new projects, lesser the risk of default as the cost of borrowing is low and thus there is greater incentive for the investors to invest and thus the investment increases.

Correlation between investment climate and growth of cement industry

Following the literature and finding some facts has enabled me to follow a direction along which I want to look for some relation between the cement sector and the investment climate in Pakistan. It has not been dealt with great detail previously but looking at the literature and the studies I can say that there is a strong relation that we can see. For any sector of the economy to perform effeciencntly there is a need of a stable investment environment. If investment in the country keeps on happening, surely construction, production of goods will also grow2. This will result in all the sector of the economy to work and facilitate the investment. For example if there is huge amount of investment for the construction sector in Pakistan. It means that new roads, houses, flyovers,dams factories and buildings will be made. To make this and meet the demand all the products need for the construction will have greater oppurtuninties and it will be beneficial for them to utilize their capacity. So as the construction sector grows it requirements of all the materials and equipment needed for the this growth will also increase. What this means is that the demand of cement, sand, heavy machinery, building tools will also go up. This will then benefit the sectors related to construction as well. We see that with the growth of construction sector demand for cement wil go up. Thus the cement sector will perform at tis optimal level and will be able to come out of this recessionary periods.

Yes it is true the cement sector has other markets mainly the export sector but that is not enough for complete utilization and thus investment in the country with stable political social and economic condition is necessary for long term sustained growth. So the studies show that there is a clear relationship of investment climate and the growth of cement sector in Pakistan. What the studies show that has to policies that should favour investment and then work on the improvement of varios economic sector. For the cement sector of Pakistan investment is necessary both in the cement sector for achieving efficiency as well as the construction sector.

Some unknown conclusion regarding cement industry and overall environment

With the so much study of the literature review the aim is to be able to find some concluding remarks regarding the cement sector of Pakistan. The study aims to find solution to the problem of the cement companies and be able to find solutions to the problems. The overall environment of Pakistan is crucial for the success of business sectors and it is Important to analyze it and work toward the environment which favours the cement sector of Pakistan.

Pakistan’s Industrial Experience and

Future Directions

R.KEMAL

The research paper highlights the past as well the current industrial experience. Based on it the paper tries to give future industrial directions. This will help the investors to invest in certain or group of sectors. This essential for growth as well as long term sustained growth. Cement is one sector which positively responds to investment of any type.

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