Discusses key economic indicators and trade statistics, which countries are dominant in the market, the U.S. market share, the political situation if relevant, the top reasons why U.S. companies should consider exporting to this country, and other issues that affect trade, e.g., terrorism, currency devaluations, trade agreements.
The United States and Pakistan have a strong economic and commercial relationship, with two-way trade of approximately $6.64 billion in 2018. The United States is one of Pakistan’s largest trading partners and a leading source of foreign direct investment. U.S. exports to Pakistan reached $2.92 billion in 2018, a 4.3 percent increase over $2.80 billion in 2017. The United States was Pakistan’s largest export market in 2018 at $3.71 billion, a 3.9 percent increase over the previous year.
With a largely peaceful political transition in July 2018, the incumbent Pakistan Tehreek-e-Insaf (PTI) led collation government is facing steep economic challenges both at macro and microeconomic levels. On the external front, Pakistan is facing severe challenges of balance of payments and trade deficit. Similarly, the revenue collection target by the Federal Bureau of Revenue (FBR) has also fell short of Rs.350 billion, which has clogged government’s ability to maintain balance of payment position, Rupee-Dollar parity and high inflationary pressure on essential consumer products. This situation has resulted in slowdown of country’s GDP growth rate from 5.8 percent last year to an estimated 3.29 percent this year. The federal government has recently entered a fresh round of negotiations with the International Monetary Fund (IMF) for an estimated $6 billion bailout package. This budgetary support package would be the 19th IMF program in Pakistan since independence.
With a population of approximately 207 million and an overall GDP of close to $305 billion, Pakistan is the seventh-largest market in the Middle East, African, and South Asian regions, as measured in Purchasing Power Parity (PPP). Although, Pakistan has had GDP growth of more than 4 percent each year since 2015, however, due to present economic slowdown, the GDP growth rate is expected to between 3.5-4.0 percent by the end of current fiscal year. Pakistan has a young population and a growing middle class, with English as the main business language, and a highly evolved services sector that contributes 67 percent of GDP. Pakistan has several attributes that make it an attractive market for multinational firms, particularly those in the fast-moving consumer-goods sector, and in infrastructure development. The World Bank’s 2019 Doing Business Report ranked Pakistan 136 out of 190 economies for ease of doing business, compared to India at 77 and Bangladesh at 176.
American firms have a strong presence in Pakistan. Currently, there are more than 80 wholly- or majority-owned U.S. subsidiary firms registered with the Karachi-based American Business Council (ABC) of Pakistan and the Lahore-based American Business Forum (ABF). The U.S.-Pakistan Business Council, an affiliate of the U.S. Chamber of Commerce based in Washington D.C., is another forum for U.S. companies with business and investment interests in Pakistan. There are also hundreds of local firms representing U.S. companies in the market. Some leading U.S. companies doing business in Pakistan include Pepsi-Cola, Coca-Cola, General Electric International, Exxon, Procter and Gamble, Honeywell, NCR, Teradata, Pfizer, Abbott Laboratories, DuPont, Oracle, Microsoft, Dell, 3M, IBM, , McDonald’s, KFC, Pizza Hut, Domino’s Pizza, P.F. Chang’s, IHOP, and Caterpillar.
The U.S. corporate members of the ABC and ABF
play an influential role in Pakistan’s economy by upholding global standards of corporate governance. According to the ABC, these companies have collectively invested over $1.5 billion in Pakistan and their cumulative annual revenue is about $4 billion. ABC and ABF members pay direct and indirect taxes annually, contributing significantly to the national treasury. Despite security threats and familiar emerging market concerns over intellectual property rights, contract enforcement, and economic & governance issues, the Pakistan market offers many attractive trade and investment opportunities. With regard to investment, the market has few restrictions on the movement of capital for foreign companies, no shareholding restrictions (beyond a few sensitive industry sectors), simple work-permit rules, no technology transfer requirements and a large and sophisticated entrepreneurial class.
Pakistan and the United States signed a Trade and Investment Framework Agreement (TIFA) in 2003, which provides a forum for discussion of bilateral trade issues. The most recent TIFA intercessional meeting was held in May 2019.