Overseas Business Risk Report – Pakistan
Political and Economic
The national elections held on 11 May 2013 were a crucial milestone in Pakistan’s democratic history. It is the first time elections were conducted on time and that power was transferred democratically from one civilian government to another after a full (5 year) term had been served. This transition was a vital step on the path to a strong, stable and democratic Pakistan. The newly formed Federal Government, under the leadership of Prime Minister Muhammad Nawaz Sharif, has committed itself to create the environment for economic growth and attracting foreign investment in Pakistan.
Nevertheless, Pakistan faces considerable challenges to its political and macro-economic stability, particularly fiscal and external account deficits. The currency market has been extremely volatile over the past few months, resulting in depreciation of the Pakistani Rupee against a basket of major currencies. The lack of energy, with large parts of the country affected by shortages of up to 16 hours a day, continues to pose a major obstacle to business activity. Other challenges include the law and order situation, infrastructure bottlenecks, shortages in oil and gas supply, insufficient transport systems and a lack of State capacity to provide basic services, such as potable water, healthcare and education, to a growing population (latest estimate is approx. 184m).
The business capital of Pakistan is Karachi, a mega-city covering an area of 1400sq miles with over 22 million inhabitants. The leading stock exchange in Pakistan (the Karachi Stock Exchange) is located here; and the proximity of the country’s two major ports (one in Karachi, the other at Post Qasim, some 20 miles south of the city) means that many Pakistani and foreign businesses are headquartered in the city. Due to fast population growth (which is estimated at 5% per annum) and the consequent pressures this puts on services, land and jobs, Karachi suffers from widespread political, sectarian, religious and ethnic tensions, and violence can erupt at short notice bringing the city to a halt.
More information on political risk, including political demonstrations, is available in FCO Travel Advice.
Business and Human Rights
Despite some recent progress on passing human rights legislation and ratifying key international human rights agreements, we continue to have significant concerns about human rights in Pakistan. Pakistan remains near the bottom of many key international indices for human rights. In many areas there continues to be discrimination against minorities and women.
Recent parliamentary action on human rights include the outlawing of acid attacks and the creation of a National Commission on Human Rights to act as an independent ombudsman with broad powers of investigation of alleged human rights violations. The ratification of the International Covenant on Civil and Political Rights and the Convention against Torture were also important steps. The challenge now will be effective implementation of these human rights agreements.
Bonded labour is prohibited by law. Despite this, there continues to be instances of forced and bonded labour in many industries. The Constitution prohibits the employment of children below the age of 14 in hazardous sectors, although there remains no minimum age for work in non-hazardous sectors.
Pakistan remains a “country of concern” for human right issues. See the FCO’s annual human rights report on Pakistan for more details.
Bribery and Corruption
Bribery is illegal. It is an offence for British nationals or someone who is ordinarily resident in the UK, a body incorporated in the UK, or a Scottish partnership to bribe anywhere in the world.
In addition, a commercial organisation carrying on a business in the UK can be liable for the conduct of a person who is neither a UK national or resident in the UK, or a body incorporated or formed in the UK. In this case it does not matter whether the acts or omissions which form part of the offence take place in the UK or elsewhere.
In 2012 Pakistan was ranked 139 out of 176 countries in Transparency International’s corruption perception index (CPI).
Corruption in Pakistan is widespread and deeply entrenched. It takes many forms ranging from petty bribery, nepotism and misuse of power to large scale bribes being demanded (and given). The main reasons for this high rate of corruption are poverty, low incomes, especially those of Government employees, and a lack of accountability.
In parts of Pakistan there are reports of widespread corruption among service providers. New businesses may be invited to contribute a ‘facilitation fee’ to avoid an uncomfortably long wait for telephone lines and similar facilities. There is also corruption in the public procurement process. The country’s tax and public finance administration system is also marred by corruption.
The Government is making efforts to curb and eradicate corruption in the administration. But completing this task will be a major challenge. A National Anti-Corruption Strategy (NACS) was adopted in 2002.
Visit the Business Anti-Corruption portal page providing advice and guidance about corruption in Pakistan and some basic effective procedures you can establish to protect your company from them.
The terrorism threat in Pakistan is complex, multi-faceted and changes frequently. It is therefore important to remain closely in touch with FCO travel advice. There are a variety of militant groups in Pakistan with varying agendas, connections and targets. These include the Pakistani Taliban (TTP), Al Qaida, Kashmir-focused groups, tribal groups, those seeking independence for Balochistan and others. This leads to frequent terrorist attacks in many parts of the country. These are mostly directed at military, Government or law enforcement targets, but westerners and western targets are also at risk; there have been attacks against them in the past. The majority of terrorism incidents occur in the areas of Pakistan bordering Afghanistan – in the FATA, Khyber Pakhunkwha and Balochistan. But there have been an increasing number of attacks in major cities such as Lahore, Islamabad and Karachi over the past few years. Targets have increasingly included areas inhabited by civilians such as busy marketplaces, mosques and shrines. We therefore recommend exercising caution when visiting such public places, as well as hotels, airports, public transport and other places frequented by westerners.
Violence in Karachi is largely political-ethnic and criminal, and serious outbursts can bring the city to a standstill. Westerners are rarely the focus of such incidents, but can be caught in the wrong place at the wrong time; and some areas of Karachi are better controlled by law enforcement agencies than others.
Kidnapping is common throughout Pakistan. Although the majority of victims are Pakistani, westerners have also been taken. British nationals of Pakistani origin are at particular risk of kidnap for ransom. British nationals should be aware that the long-standing policy of the UK Government is not to make substantive concessions to hostage takers; paying ransoms and releasing prisoners increases the risk of further hostage taking.
The protection afforded to official and diplomatic property and personnel means that attacks may be directed against what are perceived to be ‘softer’ targets, away from seemingly secure sites. We therefore recommend residents and businesses to adopt adequate risk management defences.
Protective Security Advice
The Centre for the Protection of National Infrastructure also provides protective security advice to businesses
Pakistan is more of a transit point for counterfeit goods than a point of origin. A wide range of counterfeit goods from other countries, especially China, passes through Pakistan on its way to other markets. The trade encompasses software, pharmaceuticals, branded clothing and a wide range of other consumer goods.
UK companies and business residents in Pakistan are most likely to come across counterfeit pharmaceuticals which, according to the World Health Organisation, account for an estimated 50% of all medicines sold locally. Counterfeit software is also common, so much so that it is hard to find outlets for genuine software. Counterfeit books, DVDs and CDs are easily available. Retailers make little effort to disguise the fact that they sell counterfeit goods; one way of telling is that the packaging is usually clearly sub-standard, but this is not always the case.
There is no safeguard against Intellectual Property Rights (IPR) violations. Nor is there any clear legislation that covers IPR. However, awareness IPR is increasing in Pakistan and some improvements in this regard have been made. UK and US publishers, pharmaceutical companies and music labels are working in collaboration with commercial organisations, such as Pakistan Intellectual Property Rights Solutions (PiPs), to fight piracy of their products. Forums such as Anti-Counterfeit Infringement Forum (ACIF) have been set up where local and multinational companies are working together to rid Pakistan of the menace of piracy. In 2005, the Government established the Intellectual Property Organisation of Pakistan (IPO) as a focal organisation for integrated management of IPR and enforcement co-ordination, but it is largely ineffective.
Organised crime is rife in Pakistan. This includes smuggling, drug trafficking, money laundering, extortion, fraud, land scams and political violence. Poverty and unemployment is a major issue in the country and leads to increased criminal activity. This is further compounded by bribery and corruption at the Government level.
Smuggling is prevalent in Pakistan, helped by the country’s proximity to Afghanistan, China and India, with good sea links to the Gulf and beyond. The smuggling of consumer goods, for resale in Pakistan or onward transit, is a major industry. Gold, Chinese and Korean electrical goods, Iranian and Afghan carpets, narcotics from Afghanistan, as well as dutiable goods are among the most common smuggled products. Such smuggling affects some British companies involved in the retail sector.
Drug smuggling from Afghanistan via Pakistan and Iran into Turkey (for the European market) or by sea or air is a major business. The Government and law enforcement agencies, with foreign Government assistance, do what they can to crack down on traffickers and interdict shipments, but the challenge, again, is huge.
People trafficking used to be a major problem, with a steady flow of people mainly to the Gulf region. The flow appears to have reduced significantly since a major anti-trafficking operation in 2005.
Like organised crime anywhere, UK companies are unlikely to be directly affected unless the criminals suspect them of being in league with law enforcement agencies.