Repatriation of Profit a drain on Forex

[ps3linux]

Repatriation of profit exceeds FDI
$138.2m sent abroad by foreign cos in July

RIZWAN BHATTI

KARACHI: Repatriation of profit and dividend by foreign companies operating in Pakistan is higher than Foreign Direct Investment (FDI) arrived in the first month of this fiscal year (FY20).

According to State Bank of Pakistan’s (SBP) statistics, foreign investors repatriated some $ 138.2 million on account of profit and dividend in July of FY20 compared to $ 136.7 million in the corresponding period of FY19, showing a slight increase of one percent or $1.5 million.

The detailed analysis showed that the repatriation of profit and dividend is much higher than the FDI arrived in the country. Pakistan fetched FDI amounting to $ 73.4 million in July 2019 compared to $ 179 million in July 2018.

Economists said that repatriation of profit and dividend by foreign investors always scaled up, when earnings of corporate sector and multinational companies improved. “The repatriation of profit and dividend reflects that despite many challenges Pakistan’s economy is still capable of producing better margins on foreign investments,” they added.

According to the State Bank, major outflow of profit and dividend was witnessed on account of FDI, which contributed 92 percent share in overall repatriated amount.

Foreign investors have sent abroad some $ 126.8 million on account of return on FDI during the first month of the current fiscal year as compared to $ 124.2 million in the corresponding period of last fiscal year.

However, as the Pakistan’s equity market is not performing well, repatriation of profit and dividend on account of foreign portfolio investment (FPI) witnessed a declining trend. Repatriation of profit and dividend on account of FPI stood at $ 11.4 million in July of FY20 down from $ 12.6 million in the same period of last fiscal year.

During the period under review, the major repatriation was made from the oil and gas sector, transport and financial sector. Foreign investors repatriated $ 29.8 million from oil and gas, $ 28.1 million from transport and some $ 27 million were sent abroad from financial sector.
_______________________________________________________________________
While the bureaucrats and politicians cherish FDI, they speak of it as an ultimate achievement of their lives if there is positive FDI, they never seem to understand the other-side of FDI, and that is repatriation of profit.

Let us take the example of Pak Suzuki, they were given free land (worth billions now) invested few hundred million dollars (may be) as a J.V then they took over, have been selling us worst quality/outdated/ without any safety standards cars with the same model for decades, no capacity building, no investment to enhance local manufacturing, no intentions to explore export markets from Pakistan and have transferred billions worth of dollars back to their homeland Japan in the form of repatriation of profit.

There should be structural reforms in this area as well repatriation of profit should be allowed may be 50% of the profit should be allowed to be taken out, rest may be spend in Pakistan for expansion/development purposes, may further 25% should be kept in non-checking accounts for 6 months (like many other countries) and allowed to be repatriated after 6 months. There should be emphasis on capacity building, localization, R&D and above all development of local talent pool.

With Chinese influx I fear all we will be doing is providing cheap labor who could be working in inhuman conditions and a constant pressure of foreign exchange.

@Mangus Ortus Novem

 

[Crusher]

There should be structural reforms in this area as well repatriation of profit should be allowed may be 50% of the profit should be allowed to be taken out, rest may be spend in Pakistan for expansion/development purposes, may further 25% should be kept in non-checking accounts for 6 months (like many other countries) and allowed to be repatriated after 6 months. There should be emphasis on capacity building, localization, R&D and above all development of local talent pool.
@Mangus Ortus Novem

Good suggestions, this crony capitalist Neo-liberal concept of "unlimited repatriation of profits and dividends" generated by multinational companies within Pakistan must be controlled, we cannot afford that there is a rising "net outflow" of foreign reserves by multinational companies compared to "net inflow" of foreign currency by them into the country. These companies are definitely NOT generating any kind of "net wealth" for Pakistan but rather draining Pakistan's existing wealth to abroad. This also points towards the lack of "reinvestment" in Pakistani economy by these multinational companies using their "surplus", no wonder all the multinational companies have their manufacturing plants restricted only to Karachi for many many decades, they seem to have no "concept" or "responsibility" to expand their manufacturing base throughout the rest of the country using parts of the profits they generate inside Pakistan. These greedy multinational companies are clearly taking full advantage of lack of such regulations in Pakistani economy to have a check on extent of profit repatriation and the "necessary conditions" to be forced to "reinvest" parts of their profits generated within Pakistan.

 

[ps3linux]

@Simurgh @Mangus Ortus Novem

Apart from this there is another drain of forex and it is called FIPI (Foreign Investors Portfolio Investment) this is investment into Pakistan Stock market Govt paper.

Our stock brokers, investment companies, research organizations, media houses, bureaucrats and politicians talk about it as something positive.

Let us analyze a foreign investor invest $100,000 in Pakistan stock market, without adding any value to the country, the economy the people made 10% profit and took $100,000 out. What did Pakistan gain $100,000 in our reserves (actually liabilities) which may go out as $200,000 or $50,000 but there is nothing in it for a normal pakistani.

I have taken the simplest example, I have not talked about manipulation of stock market or gains without anything through SCRA accounts. In many other countries the profit is kept in non-checking/non-interest bearing accounts for 180 days that is the cost of profit and the local stock exchanges are less prone to manipulation. Perhaps we too need to look in that direction.

 

[ps3linux]

Anyhow, the so-called foreign companies investing in PakStockExchange are actually Paks..using off-shore accounts/shell companies... save a few instituional investors..

It is the same as Isaq$ EuroBonds..which were bought by Paks i.e. #CriminalEnterprise ... so looting from both ends so to speak!

Bang on target sir.

Another example a billion PKR is transported through sea to our beloved "brotherly country" in mideast where PKR is welcomed with open hands easily converted in Dhs/$ the buyers are of course our brotherly Islamic countries/neighbors and not so friendly eastern gangoo intelligence agencies, somehow the same money finds its way to local terrorist groups, isn't it wonderful?

Now the dollars go to one of the shell companies in DIFC and the same type in wholesale banking accounts (dollar accounts) routed through few companies and invested in Pakistan stock market for manipulation/ currency whitening once the profit is taken out it becomes legitimate, routed through few more shell companies in panama, guersney, iceland, cayman island and then to UK, spain then back to Pakistan via TT as absolute legitimate money.

Funny due to same "harkaat" known as money laundering in rest of the world FATF grey listed us. SECP/MOF/SBP all are accomplices through their bureaucratic ignorance and apathy.

 

[Crusher]

Bang on target sir.

Another example a billion PKR is transported through sea to our beloved "brotherly country" in mideast where PKR is welcomed with open hands easily converted in Dhs/$ the buyers are of course our brotherly Islamic countries/neighbors and not so friendly eastern gangoo intelligence agencies, somehow the same money finds its way to local terrorist groups, isn't it wonderful?

It has to be Uae which is acting as "pimp middleman" for all the corrupt people in Pakistan to abuse our financial system due to this "brotherhood" BS.

 

[ps3linux]

It has to be Uae which is acting as "pimp middleman" for all the corrupt people in Pakistan to abuse our financial system due to this "brotherhood" BS.

Got it in first attempt.

DIFC is in Dubai, an almost regulation free financial supermarket or minimum regulated.

Read money laundering factory.

 

[blueazure]

Got it in first attempt.

DIFC is in Dubai, an almost regulation free financial supermarket or minimum regulated.

Read money laundering factory.

yet our great khan the modi appeaser is falling over himself trying to suck up to FATF and every tom dick 'regulator' out there .

 

[ps3linux]

yet our great khan the modi appeaser is falling over himself trying to suck up to FATF and every tom dick 'regulator' out there .

Bhai these are our unfortunately our realities the plundering successive Govts/politicians/buraeucrats/generals/judges/businessmen have done they have now caught up to us we are in a f**ked up situation we have to s*ck it up to FATF and regulators because these are the realities if FATF blacklists us, the next step is inclusion in the list of countries who are considered terrorist financiers we are done the, truly f***ed. We are in a debt trap both locally and forex and have no way to pay.

Additionally world or uncle sam to be exact doesn't really need us any more, instead we are an eyesore to the world. Not that I am hopeless rather the opposite, the best thing is public awareness and education it has become a constant headache for all Govts current and future, the pressure to perform is now enormous, I meet bureaucrats regularly along businessmen and corporate world and Punjab Govt and many minister will have to be replaced soon otherwise 5 years is a looooooooooooooooooooooong time even for IK.

At times there is requirement that mouth of some people should be replaced with their proverbial and vice versa the results could be much better IK, fawad chaudhry, buffalo ashiq, khusra bhutto, dehshatgard siraj, mulla fazool, sheeda, MNS are some of the best candidate for the procedure.

 

[maithil]

Very good idea. Pakistan desperately needs such laws which restrict profit repatriation. Foreign investors must be made to fall in line.

 

[zip]

Good suggestions, this crony capitalist Neo-liberal concept of "unlimited repatriation of profits and dividends" generated by multinational companies within Pakistan must be controlled, we cannot afford that there is a rising "net outflow" of foreign reserves by multinational companies compared to "net inflow" of foreign currency by them into the country. These companies are definitely NOT generating any kind of "net wealth" for Pakistan but rather draining Pakistan's existing wealth to abroad. This also points towards the lack of "reinvestment" in Pakistani economy by these multinational companies using their "surplus", no wonder all the multinational companies have their manufacturing plants restricted only to Karachi for many many decades, they seem to have no "concept" or "responsibility" to expand their manufacturing base throughout the rest of the country using parts of the profits they generate inside Pakistan. These greedy multinational companies are clearly taking full advantage of lack of such regulations in Pakistani economy to have a check on extent of profit repatriation and the "necessary conditions" to be forced to "reinvest" parts of their profits generated within Pakistan.

If some companies are investing in a system means it wants to take out much more than its investment in long run ..

 

[jamal18]

Many times on this forum I see people jump with joy when they see a foreign firm establishes itself here. They forget what a double edged sword it is. Essentially they are profiting from Pakistani demand, something which a Pakistani firm should be doing.

 

[Kabira]

Many times on this forum I see people jump with joy when they see a foreign firm establishes itself here. They forget what a double edged sword it is. Essentially they are profiting from Pakistani demand, something which a Pakistani firm should be doing.

Other option is even worse, imports. At least in Pakistan they pay wages, taxes other expenses to run business etc Think how many Pakistanis have stashed billions of $ abroad.

 

[Crusher]

Other option is even worse, imports. At least in Pakistan they pay wages, taxes other expenses to run business etc Think how many Pakistanis have stashed billions of $ abroad.

But their financial dealings definitely need to be put under new thorough regulations, otherwise they are doing a good job because multinational companies always introduce "new standards of manufacturing" which are often at a whole other level than the obsolete domestic manufacturing standards of Pakistani indigenous industries.

 

[Kabira]

But their financial dealings definitely need to be put under new thorough regulations, otherwise they are doing a good job because multinational companies always introduce "new standards of manufacturing" which are often at an other level than the obsolete domestic manufacturing standards of Pakistani indigenous industries.

And as I’ve seen with Pakistani industrialists, they need danda from time to time to change themselves. Though they cannot be blamed entirely, since Musharraf toke over Pakistan become import based economy. Terrorism, controlled rupee, energy crisis, all played role.

Few good things have happened. Now after decades of importing cheap items, consumers expectations have risen. 50% devaluation is opportunity for local industrialists to capture that market by substituting imports with quality products. Even foreign firms setting up industries instead of importing like before is better.