With a population of more than 200 million people, Pakistan may be a growing market for foreign electronic goods and mobile phones. But a host of issues relating to the business environment, taxation and low purchasing power of consumers continue to keep them from investing in the manufacturing industry here.

“Pakistan is a strategic market for us… but it still remains a very small market for electronic goods because of the low purchasing power of consumers,” TCL Pakistan General Manager Sunny Yang said in response to a question whether her company planned to invest in TV parts manufacturing in Pakistan. She went on to list problems that foreign companies have to take into account when the time for making such a decision comes up.

“A small market size or the low purchasing power of consumers isn’t the only issue… a company has to consider the country situation as well,” added the executive of the world’s third largest LED TV manufacturer from China, which entered the Pakistan market back in 2013. Before that, it marketed LED TVs in Pakistan as a vendor of the Nobel brand 2006 onwards.

‘Customs duty on TV assemblers rose from 5pc to 30pc in five years’

“The ever-changing customs tariffs, exchange rate volatility leading to economic instability and a growing grey market of illegal and under-invoiced goods hurt a manufacturer’s pricing structure and its ability to plan for future,” she argued. “On top of these, there is this issue of inconsistency in policies. Every (foreign) investor wants to have a reliable policy environment and tax and other incentives for the next 20 or 25 years to plan for the long term.

“Just consider the example of the customs duty for TV assemblers in Pakistan. When we came here five years back, it was five per cent. Today it is 30pc, including 10pc regulatory duty (RD). Similarly, the dollar was priced at Rs99. Today it has fallen to Rs140. Can we pass on the full impact of higher tariffs and exchange rate depreciation to consumers? No, we cannot. The presence of illegal, grey market makes it even more difficult for a company like ours to recover the cost. These things don’t affect us alone. Every business in Pakistan is facing these problems,” she says.

Although total investment as a percentage of GDP has increased slightly in the last five years — from 14.6pc in 2014 to 16.4pc in 2018 — it is half the investment-to-GDP ratio of 30pc in India and Bangladesh. On top of that, private gross fixed investment (GFI) has decreased by 10 basis points from 9.9pc to 9.8pc during the same period.

TV sales by different foreign and local brands are believed to be around 1.2m a year. Their demand is growing at an annual rate of 10-12pc

Similarly, foreign direct investment (FDI) inflows have also risen slightly to $2.7 billion a year during the last two financial years on the back of Chinese investments in power and other infrastructure projects.

Board of Investment (BoI) Chairman Haroon Sharif agrees with Ms Sunny’s assessment of the factors impeding fresh (foreign) investment in Pakistan. “We are aware of these issues… foreign investors need protection and we’re making decisions that are required to improve the business environment to attract FDI flows,” he told this correspondent recently.

Ms Sunny said the demand for high-end electronic goods was growing in the country as Pakistani consumers became more aware of global brands and technology. “For the last few years, the market has been shifting towards bigger-sized panels and smart and 4K TVs. This is a positive development for our company because we already have a strong presence in this market.”

TV sales by different foreign and local brands, for instance, are believed to be around 1.2m a year. Their demand is growing at an annual rate of 10-12pc.

“Pakistan is a tough market, but has a lot of potential. We think Pakistan’s TV sales volume should have been three to four times bigger than its current size given the country’s large population. In view of this potential, we are looking for increasing our presence in this market and introduce our white goods and mobile phones,” she said.

She was hopeful about a spike in the demand of electronic goods in Pakistan once economic growth picked up pace and the China-Pakistan Economic Corridor completed. “Going forward, we are hopeful that the problems (facing foreign investors) will be taken care of and an environment conducive for doing business created.”

Published in Dawn, The Business and Finance Weekly, December 3rd, 2018