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FY 1998 Country Commercial Guide: Pakistan

Report prepared by U.S. Embassy Karachi, released August 1997*.

I. EXECUTIVE SUMMARY

This Country Commercial Guide (CCG) presents a comprehensive look at Pakistan's commercial environment, using economic, political and market analysis. The CCG's were established by recommendation of the Trade Promotion Coordinating Committee (TPCC), a multi­agency task force, to consolidate various reporting documents prepared for the U.S. business community. The CCG's are prepared annually at U.S. embassies through the combined efforts of several U.S. government agencies.

Pakistan is in a period of major economic structural reprogramming and should offer a promising, although challenging, market for U.S. exporters.

Pakistan's critical and controversial need for additional electrical generating capacity and improved infrastructure afford opportunities for U.S. exports and investment. A major privatization effort as well as upgrading in the telecommunication sector should offer additional markets for our services, products and investors. Pakistan will also require sophisticated machinery, notably in textile production, as it upgrades low value­added products and develops additional export markets.

Pakistan's overall and business attitude toward the United States is quite positive, and bilateral trade and investment are poised to expand strongly, despite the suspension of U.S. economic and military assistance because of differences over nuclear policy. Pakistan and the United States share a long history of close bilateral relations and linkages through immigration, travel, education, and close collaboration in the support of peacekeeping operations in Somalia, Bosnia, Haiti and elsewhere. Pakistanis sometimes note that U.S. goods are a bit pricey relative to those of some competitors, and occasionally express surprise that the United States and U.S. firms do not do more to develop their presence in the Pakistani market. Observers offer several explanations for the incomplete development of the Pakistan market by U.S. firms. U.S. exports are generally perceived as quite competitive on the basis of quality, but somewhat less so on financing terms, and there is a sense that U.S. firms generally do not move as quickly as some competitors. Seemingly paradoxically, U.S. firms may not be as patient as some competitors in pursuing bids and projects that take long periods of time to develop. As in many developing countries, corruption is often a fact of business life, and U.S. legislation, such as the Foreign Corrupt Practices Act, precludes U.S. firms from playing on the same terms as some competitors.

Nonetheless, many U.S. firms which have taken the time to familiarize themselves with the country and the market have found Pakistan a profitable place to do business. Pakistan is a different and distinct market, requiring adaptability and persistence. However, increased investment by U.S. firms already in Pakistan and expanding sales by existing exporters are a strong endorsement of this market for U.S. firms willing to take a carefully prepared plunge.

The best prospects for U.S. exports to Pakistan are analyzed in detail in Section V. The United States has been, after Japan, the second largest exporter to Pakistan and there are promising opportunities for increases in a variety of industrial and agricultural exports.

The following subsectors are judged best prospects in the non­agricultural sector. They are grouped in three ranks beginning with the most promising. Details on these subsectors may be found in Section V: Rank I: Pollution control equipment, agricultural chemicals, industrial chemicals, electrical power systems, telecommunications equipment; Rank II: Plastic materials and resins, iron and steel, drugs and pharmaceuticals, oil and gas field machinery and supplies, pumps, valves and compressors; Rank III: Computers and peripherals, transportation equipment and parts, paper and paperboard, and security and safety equipment.

The following subsectors, in descending order of priority, are judged best prospects in the agricultural sector. Details on these are available in Section V: wheat, cotton, soybeans, non- fat dry milk, consumer oriented food products, pulses, livestock by­products, bovine hides & skins, feed grains.

In general, principal competitors for U.S. businesses in Pakistan are European, Japanese, and South Korean firms. Japan, France, the United Kingdom offer credits and may use business practices which often make it difficult for U.S. suppliers to compete.

II. ECONOMIC TRENDS AND OUTLOOK

A. Major Trends and Outlook

Since the late 1980's Pakistan has pursued a program of market oriented economic adjustment, reform and development, including strong encouragement of foreign direct investment. Supported by the international financial institutions and bilateral donors, this program has aimed at enhancing macroeconomic stability, instituting structural reforms to promote private sector and export­led industrial development, and reversing past neglect of key social sectors such as health, education and population planning.

Pakistan has made considerable progress under this program, but the process has not been entirely even, and key challenges remain for its $65 billion economy. Specifically, governments have sought to reduce fiscal and external imbalances, reduce trade barriers, modernize the financial sector, privatize state owned industries, reform the tax system, encourage private investment in the critical energy sector, and offer specific incentives to attract foreign investment, which is considered critical to the overall development effort. Moreover, governments from all the main political parties support these reformist, market oriented policies. These efforts have enjoyed generous support from the IMF, in the form of an Enhanced Structural Adjustment Facility approved in February 1994 (subsequently suspended in February 1995 after the GOP reneged on its commitments) and a Stand-By Arrangement (SBA) in November 1995, which also was suspended in July 1996 due to non-compliance. The interim government of PM Meraj Khalid managed to resume the suspended SBA, but in March 1997, the GOP decided to end the SBA when it was clear it could not meet agreed targets. The new government elected in February 1997 is currently negotiating a fresh ESAF which it hopes will be signed in September 1997.

Various problems have kept Pakistan's progress below its potential. Floods, drought and pests hurt agricultural output in the early 1990s, and in the current fiscal year as well. Domestic political instability throughout the Bhutto administration and continuing ethnic and sectarian violence under the caretakers and the government of Nawaz Sharif who was elected February 3, 1997, has stunted foreign investment. And finally, policy inconsistency and weak implementation has, along with reports of improper official influence in business and economic decisions, dampened investors interest and economic growth in Pakistan.

Pakistan's mixed economic performance reflects the interplay of these positive and negative trends. Real economic growth has been positive, but below government targets: output grew 3.8 percent of GDP in 1993-94, 4.4 percent in 1994-95, and 6.1. percent in 1995-96. In FY 1996-97, real GDP growth is expected to fall to 3.0 percent, substantially below the target of 6.3 percent. Recent annual consumer inflation of 10-14 percent has been above historically modest single-digit rates. Fiscal slippages have led to difficulties in completing the IMF programs, however, Pakistan has maintained its historically excellent record with foreign creditors. New investment inflows, both portfolio and direct, at an all time high in 1995-96, have nevertheless dropped substantially this year.

Poverty remains a serious problem in Pakistan. Average per capita income was only $495 in 1995-96, and income and wealth are not equitably distributed. Given the low rate of GDP growth, per capita income will be flat or decline slightly this year. The population of 135 million is growing at almost 3 percent per year. While Pakistanns economic fortunes remain closely linked to cotton and the textile products made from it, Pakistanns government has made some progress in diversifying the economy, and is committed to improving the quality of life for poorer citizens through the Social Action Program, a multi-year effort to raise education, health and sanitation standards and reduce the population growth rate.

There are significant possibilities for U.S. and other foreign suppliers and investors in Pakistan. However, realizing these opportunities will require sound economic policies by the government as well as actions to improve political stability and better develop human resources.

B. Principal Growth Sectors

Economic Growth

After growing at an average rate of over 6 percent per year from 1980 to 1991, real GDP growth has slowed in the 1990's. Growth was 3.8 percent in 1993-94 due to a poor cotton crop and related setbacks in the textile industry. In 1994-95 growth hit 4.4 percent (target: 6.9 percent), and in FY 1995-96 GDP growth rate was 6.1 percent against a target of 6.5 percent. In FY 1996-97 GDP growth is estimated to drop to 3.0 percent against a target of 6.3 percent, as both agriculture and industrial production have been substantially lower than anticipated.

The Pakistani economy is almost evenly divided between the commodity sector (51 percent of GDP) and the services sector (49 percent), shares that have held constant for about a decade. Sectoral shares in 1995-96 were estimated by the Ministry of Finance as follows:

Commodity sector	51.3 % of which:
Agriculture	24.8
Manufacturing	18.0
Construction	3.9
Electricity & gas distribution	4.1
Mining	0.5
Services sector	48.7 % of which:
Wholesale and retail trade	16.5
Transport, storage & communication	9.8
Public administration & defense	6.3
Ownership of dwellings	5.5
Finance and insurance	2.4
Other services	8.2

Agriculture

Pakistan has one of largest irrigation systems in the world and its increasing agricultural production has been tested in meeting the country's rapidly expanding food requirements. Despite some recent diversification, agriculture remains the dominant sector of the Pakistani economy, accounting for about 24.8 percent of GDP, half the employed labor force, and a large share of foreign exchange earnings, as well as providing the base for key industries such as textiles and sugar. Pakistan is a net exporter of agricultural commodities, despite annual imports of more than one billion dollars worth of wheat and edible oils.

Pakistan has two principal crop seasons: the "kharif", which begins in April­June and ends October­December; and the "rabi", which begins in November­December and ends April­May. Wheat, cotton, sugarcane, and rice continue to be the major crops, accounting for nearly 90 percent of value added in the agricultural crop sector. On a much smaller scale Pakistan also grows barley, bajra (millet), jowar (sorghum), maize, gram (pulses), sunflowerseed, rapeseed, mustard, sesame, and tobacco.,

Agriculture's share in GDP has declined from 53 percent in 1949­50 to just about 23 percent in 1996­97, despite an average 4.3 percent annual growth in agricultural output the last decade. Industrialization, in particular the development of the textile sector, has been the major factor in reducing agriculture's share of GDP. During 1996-97 agriculture sector has grown by 0.9 percent only against 6.7 percent in 1995-96. This was due to falling production of wheat, cotton, sugarcane and other minor crops.

In an effort to boost rural incomes the GOP annually reviews and increases the support prices of many commodities. The government has removed the price subsidies on fertilizers, increased the availability of agricultural credit, and provided incentives for the import of agricultural machinery.

The GOP announced Agricultural Package on April 3, 1997 and introduce measures to ensure adequate return on crop production to the growers, provide relief in the prices on inputs and guarantee the availability of agricultural credit on easy terms to the small farmers. The GOP agricultural priorities include: integrated development of agriculture and irrigation facilities; better land and water management practices; improvements in fertilizer use, pest management, and research; diversification to higher­value crops and development of agro-industries.

Wheat: Wheat accounts for nearly 37.8 percent of the cultivated area. During 1996-97 the GOP has made consistent efforts to increase acreage under wheat cultivation but Wheat acreage decreased marginally and production decreased by 4.7 percent over previous year. The decrease in production is attributed to decreasing yields because of low level of fertilizer applications and prolonged drought during the crop growing season. The support price of wheat was not announced until April 1997. On April 3, 1997 the Prime Minister of Pakistan at the Kissan Conference announced the support price of wheat at Rs. 240 per 40 Kgs. Which would have a positive impact for the coming crop. GOP has imported about 2.3 million tons of wheat during 1996/97 to supplement the domestic supplies.

Cotton: Cotton is an important cash crop for the farmers and a source of foreign exchange for Pakistan. Cotton harvested areas has been increased 4.6 percent to 3.205 million hectares during 1996/97. The production of cotton have gone down 13.4 percent to 7.1 million bales. Decline in production is attributed to the attack of white fly in most of the cotton growing areas of Punjab province. There has also been damage from the Leaf Curl Virus (LCV) and some damage from floods. Cotton exports during 1996/97 are estimated at only 100,000 bales because of lower domestic production and relatively higher domestic prices. To maintain cotton quality and increase production of cotton per unit of land, the GOP has also exempted the certified cotton seed from General Sales Tax.

Rice: Rice is the second largest staple food crop in Pakistan and is a major export crop. In the late 1980's, Pakistan became the third largest rice­exporting country in the world, after the U.S. and Thailand. The principal export varieties are long­grained non­glutinous aromatic "Basmati" rice grown in the Punjab and similar, but non­aromatic Irri­6 rice planted in Sindh province. Rice exports during 1995/96 increased about 12 percent to $510.6 million compared to 1994/95. In 1996/97 rice exports are likely to increase to $550 million. Area under rice during 1996/97 was up 3.1 percent to 2.23 million hectares, while the production was up 8.4 percent to 4.26 MMT compared to last year. This increase was attributed to favorable weather conditions during the crop growing season, early start of monsoon in Punjab , timely water availability and normal rains in Sindh province.

Sugar Cane: Pakistan's sugar production depends almost entirely on sugar cane, although there is some production of sugar beets in the NWFP. Area under sugarcane cultivation in 1996/97 was marginally lower at 0.956 million hectares compared to last year. This decrease was due to a decline in area under ratoon crop because of late harvesting in the last crushing season. During 1996/97, sugarcane production decreased 2 percent to 44.165 million tons compared to 1995/96. The decrease in sugarcane production was due to a marginal decrease in area and yield levels.

Tobacco: Pakistan grows tobacco and produces tobacco products, but the market for domestic products is substantially undercut by smuggled goods. Despite these major leakages, the cigarette industry is a significant contributor to excise and sales tax revenues. Tobacco cultivation in 1996/97 was down 3.54 percent to 45,767 hectares compared to the year before. This was due to lower demand from cigarette companies and rising margins for sugarcane and potato. In 1996/97 tobacco production was marginally down to 80,760 MT compared to last year. Lower tobacco production was due to 3.53 percent decrease in area under tobacco cultivation. About half of the total production is used for cigarette manufacturing and the remainder used in traditional ways of smoking (in hand rolled cigarettes called birris, in water pipes, and as snuff). The major tobacco growing region is in the NWFP.

Minor crops: Minor crops account for only 4.9 percent of total cultivated area; these include oilseeds (sunflower, soybean, safflower) chilies, pulses, potatoes, and onions.

Fisheries: Pakistan's fishing industry is relatively modest, but has shown strong growth in recent years. The domestic market is quite small, with per capita annual consumption approximately 2.0 kilograms. About 80 percent of production comes from marine fisheries from two main areas, the Sindh coast east from Karachi to the Indian border, and the Makran coast of Baluchistan. Although 90 percent of the total marine catch is fish, the shrimp which constitute the remainder are prized because of their greater relative value and demand in foreign markets. Inland fisheries are quite rudimentary. During 1996-97 fisheries sub­sector contributed about 1 percent in the GDP, about 4 percent in the agriculture sectors production and 1.6 percent in the total exports of Pakistan. During 1996-97, total production is estimated at 563 thousand tons of which 430 thousand tons is marine and remaining 143 thousand tons is inland . About one third of the edible catch is consumed fresh, nine percent is frozen, eight percent canned, and about 43 percent used as fish meal for animal food. Pakistan's exports of fish and fish products have grown rapidly, from $94.4 million in 1989-90 to $140 million in 1996-97. The largest markets for Pakistan's fish are Japan, Singapore, the UK, and the US. The GOP is promoting the marine culture of shrimp in ponds, focusing on the Keti Bundar area of the Thatta district of Sindh in an attempt to boost production and foreign exchange earnings. GOP is also strengthening infrastructure facilities, introducing aquaculture techniques. Packaging and processing technologies are quite basic; improvements could reduce perishability and increase the attractiveness and profitability of Pakistani fish exports.

Livestock: Livestock contributes about 33 percent of the value produced by the agricultural sector. Principal products are milk, beef, mutton, poultry, and wool. The most notable recent growth has been in poultry production, following a series of government concessions and incentives (poultry meat production rose by 4 percent, to 321 thousand tons, in 1995-96). In an effort to enhance milk and meat production, the GOP recently launched a comprehensive livestock development project with Asian Development Bank assistance. In addition, the GOP has broadened extension and artificial breeding services, rationalized animal health services, improved slaughterhouses, and introduced high-yielding fodder varieties.

Forestry: Forests cover only 4.8 percent of Pakistan's area. The principal forest products are timber, principally for house construction and furniture, and firewood. The growing population and rising standards of living have led to an accelerating demand for timber, which is partially met by increasing imports. The GOP has banned forest cutting to protect depleting reserves. However, duty on timber and wood import has been lowered to 10 percent only to encourage reliance on imports.

Industry

Pakistan, which had almost no large industrial units at the time of Partition in 1947, now has a fairly broad industrial base, and manufacturing accounts for about 18.0 percent of GDP. Industrial policy in Pakistan has undergone several distinct phases. During the 1950's, it followed a policy of import substitution backed by high tariffs and import controls. In the 1960's, Pakistan adopted an export promotion strategy but did not dismantle the structure of protection for domestic industry. In 1972, Pakistan made a major policy shift and nationalized many large industrial establishments and agricultural processing units, based on the Z.A. Bhutto government's concern about concentrated ownership. Since the 1970's, Pakistan has returned to its original policy emphasis on the private sector, although many industrial units remained under government ownership until the privatization initiatives which began in the late 1980's. A 1984 industrial policy statement by the government of General Zia-ul-Haq stated its commitment to a mixed economy in which the private sector was the engine of growth and the public sector served as an investor of last resort, preferably in joint ventures with the private sector. The privatization effort which began in the late 1980's under the first Benazir Bhutto administration represents the current phase of industrial policy.

Cotton textile production is the single most important industry, accounting for about 18 percent of large scale industrial employment. Cotton yarn, cotton cloth, made-up textiles, ready-made garments, and knitwear collectively accounted for over 56.0 percent of Pakistan's exports in 1994-95, and about 62.0 percent in 1995-96. Other important industries are cement, vegetable oil, fertilizer, sugar, steel, machinery, tobacco, paper and paperboard, chemicals, and food processing. The GOP is attempting to diversify the country's industrial base and to increase the emphasis on export industries. Small scale and cottage industries are numerically significant but account for a relatively small proportion of the GDP, about 6.0 percent. (Small scale industry includes facilities which employ fewer than 50 workers and cottage industries are industrial units in which the owner works and is aided by family members but employs no hired labor.)

Manufacturing's share of GDP in 1995-96 was 18 percent, about the same as last year. The manufacturing sector registered a higher growth, 4.8 percent in 1995-96 compared to 2.9 percent achieved last year, mainly due to higher growth in large scale manufacturing and a good cotton crop. However, the growth in 1995-96 is still lower than the average growth of 6 percent achieved during the past 10 years.

Public Industrial Sector: The public industrial sector, under the Production Wing of the Ministry of Industries and Production, comprises eight holding corporations which controlled 74 industrial units. Majority of these units have been privatized under the GOP's privatization program and the rest are to be sold off by June 1998. The eight holding corporations include: Pakistan Steel; the State Cement Corporation; the National Fertilizers Corporation; Pakistan Automobile Corporation (PACO); Federal Chemical and Ceramics Corporation (FCCC); State Petroleum Refining & Petrochemical Corporation (PERAC); State Engineering Corporation (SEC); and the Pakistan Industrial Development Corporation (PIDC). These public sector units will continue to play a key role in certain sectors, such as heavy engineering, steel, automobile, petroleum and defense production.

Textiles: The textile industry is the single most important manufacturing sector, accounting for an average of 40 percent of manufacturing employment, 62 percent of manufacturing exports, and 30 percent of manufacturing value added. Pakistan's textile industry produces cotton yarn, cotton cloth, made-up textiles and apparel. In order to reduce pressure on the demand for raw cotton, the polyester fiber and yarn industry has also grown significantly in recent years. Pakistan also has 14 jute mills with an installed capacity of 42,000 spindles and 2,198 looms. The industry produced 54,400 tons of jute products in 1995-96.

Various government incentives have raised the total installed capacity to 8.5 million spindles and 135,000 rotors from about 8.3 million spindles and 132,000 rotors a year earlier. Despite recent efforts to induct high speed spindles, automatic cone winders, electronic splicers and other high-tech equipment the industry still is concentrated in the preliminary stages of processing. In general, large firms concentrate on spinning and weaving leaving garment-making to highly fragmented small to medium-scale producers. The number of textile units increased from 336 in 1994-95 to 351 in 1995-96. The textile industry needs to move to higher value-added production and to rationalize its operations in order to face the challenges and opportunities of the phased elimination of quotas as part of the Uruguay Round trade agreement.

In the late 1980's, the GOP focused its industrial development resources on increasing spinning capacity; cotton yarn production rose substantially. Exports of cotton yarn in 1995-96 totaled 531 thousand tons, or $1.5 billion. The dominant products are coarse and medium count yarn. Concern about over capacity led government-owned development finance institutions (DFIs) early in 1992 to suspend new loan commitments to the spinning sector. The spinning industry has a powerful lobby in the All Pakistan Textile Mills Association (APTMA).

The weaving sector took a substantial time to recover from the impact of the government policies in the mid-1970's, when large mills were broken up into smaller entities generally capable of producing only low quality goods. In the late 1980's, boom times and easy government credit led to renewed investment in the weaving sector (2,000 high quality shuttleless looms came on stream between 1988 and 1993). The production of cloth and made-up articles of textiles (including towels, bed sheets, and similar items) grew rapidly. Exports of cotton cloth totaled $1.3 billion in 1995-96, an increase of 20 percent over the previous year.

Knitwear has been Pakistan's largest single segment of garment exports, but finished goods have generally lagged yarn and cloth production. The GOP has proposed a series of measures to upgrade the garment sector, including modernization of facilities, and market research and sales promotion. Ready-made garment exports in 1995-96 totaled $637 million.

Sugar: Pakistan is the world's 13th largest sugar producer. Sugar production in 1995-96 totaled 2.4 mmt, a decline of over 11.2 percent over last year. Installed crushing capacity in the sugar industry is about 253,000 metric tons per day and the crushing season runs for about six months. There has been a rapid expansion in the sugar industry over the last five years; the number of mills has increased from 45 in 1988­89 to 70 in 1995-96 of which 37 were in the Punjab Province, 27 in Sindh, and six units in the North West Frontier Province (NWFP). Sugar beets, grown in the NWFP, account for less than 0.5 percent of sugar production.

The industry's principal product is refined sugar, although it also produces some liquid glucose, 90 percent of which is used by candy factories. It also produces gur (cooled, boiled cane juice), which is popular in the NWFP and rural areas. Annual per capita consumption of sugar is high, estimated at 20 kgs. per annum.

The GOP announces support prices, minimum prices at which the sugar mills may purchase sugar cane from the growers. China and Brazil have been major suppliers of sugar to Pakistan. Imports, however, declined significantly in 1994-95 to about 5,000 metric tons from nearly 47,000 metric tons in 1993-94 as a result of increase in production. -

Food Processing and Consumer Products: Major segments include sugar, tea, aerated water, edible fats, dairy products, concentrates, juices, tobacco, detergents, and personal care products. Nearly all of these items are produced for domestic consumption.

Iron and Steel: Pakistan Steel, with an annual capacity of 1.1 million tons, is Pakistan's only integrated steel plant. It is located near Port Bin Qasim, just east of Karachi, and its construction began in 1973 with Soviet technical assistance. The plant currently employs about 20,000 workers. Iron ore, manganese, and cocking coal for the plant are all imported. Pakistan Steel produces coke, pig iron, billets, hot and cold rolled coils and sheets, and galvanized sheets. The facility notched record production of over one million tons in 1993-94. That resulted in significant pre-tax profits for Pakistan Steel, which had been a chronic loss maker for most of its history (in 1995-96, however, production of all major items declined by an average of 7.5 percent). Pakistan Steel has announced an ambitious expansion program, which would increase production capacity to three million tons by mid-1999.

Fertilizer: Pakistan has 10 fertilizer units, of which four are in the private sector. At the end of 1995, they had a total annual capacity of 4,143 thousand tons. In 1995-96, production of nitrogenous fertilizer increased 10.8 percent to 2,882 thousand tons; by contrast, phosphate fertilizer output dropped by about five percent to 206 thousand tons. There is no domestic production of potassic fertilizers.

Cement: Pakistan has 20 operating cement units, of which 16 in the private sector. The total annual capacity of the industry is 9,907 thousand tons. Cement production in 1995-96 was about 12.4 percent higher than the previous year. Pakistan has large quantities of both limestone and gypsum and a large domestic market. Cement was one of the few industries with an established base in Pakistan at the time of independence in 1947, when there were five cement factories. Pakistan currently produces five types of cement: Portland grey, Portland slag, Sulphate resistant, Super Sulphate resistant, and White. Since Partition, demand has outstripped production and Pakistan has become a regular importer of cement. In 1972, the government of Prime Minister Z.A. Bhutto nationalized cement factories and consolidated them under the State Cement Corporation of Pakistan. The current privatization process has reversed that initiative and by mid-1994 only about one quarter of capacity remained in the public sector. In order to promote growth in the cement sector, the GOP has allowed duty free import of plant and machinery not manufactured locally. Demand is expected to remain strong with the continuation of major infrastructure projects.

Chemicals: Pakistan produces some basic chemicals, such as soda ash, caustic soda, and sulfuric acid. Production of soda ash in 1995-96 was 1161,000 tons, and caustic soda 81,000 tons. Caustic soda is used in the textile, hydrocarbon refining, and soap industries; sulfuric acid is used in the textile, paper, fertilizer, and steel industries.

Leather: Leather is a major and rapidly expanding export sector; exports grew at an annual compound rate of 21 percent over a recent five year period, boosted by a range of government incentives. The leather and leather products industry is labor intensive (directly employing more than 200,000 workers) and there are over 400 tanneries in Pakistan. The recent growth of the industry is due in large part to its successful progression from the export of raw hides and skins and semi-processed leather towards high value added finished leathers and leather products (including leather jackets, gloves, footwear, and sporting goods). The tanning sector is concentrated in the Punjab, where units process primarily buffalo and cow hides; tanneries in the Sindh process primarily goat and sheep skins. The local market for leather is limited, and about 80 percent of production is exported. Exports of leather products totaled $555 million in 1995-96. More sophisticated machinery and productivity increases can be expected to further boost exports. Pollution is a serious problem for this industry.

Electronics and Electrical Goods Industry: The electronics and electrical goods industry is basically a consumer products industry, making light bulbs and tubes, air conditioners, fans, refrigerators, freezers, televisions, radios, and other electrical appliances. The industry depends heavily on imported parts and components, although there have been somewhat successful efforts to increase the percentage of domestic components.

Vegetable Ghee/Cooking Oil: Vegetable ghee, hydrogenated vegetable oil, is the principal cooking medium in Pakistan. After the market outstripped the supply of milk­produced ghee, the vegetable ghee industry has grown rapidly (from two units in 1947 to more than 40 in 1997). The principal raw material is edible oil, the majority of which is imported palm oil. Pakistan suffers from a large and chronic gap between demand and domestic production of edible oils. Importing edible oil is an important task. It consumes a big portion of valuable foreign exchange. Pakistan remains a major importer of palm oil followed by soybean oil and sunflower oil. In MY 1995/96, edible oil imports were down 11 percent to 1.14 MMT compared to last year.

Pharmaceutical: The more than 30 multinational pharmaceutical companies producing in Pakistan (of which twelve are U.S. firms) command over three quarters of the domestic market.

Jute Goods: Pakistan's 14 jute mills produced 54.4 thousand tons of jute products in 1995-96. The principal product is sacking, which is used for packing a variety of products, such as cotton, yarn, rice, and carpets. Pakistan was the largest producer of raw jute in the world before the loss of Bangladesh in 1971; at that time, all but four of its jute mills were in East Pakistan. In the 1970's, the GOP made an effort to continue the industry by establishing additional jute mills, which have always been largely dependent on imported jute, and which form the basis for a chronically troubled industry.

Engineering Industry: Major engineering goods facilities include a heavy foundry and forge at Taxila in the Punjab (which produces castings and forging for the railway, heavy machinery, and automobile industries); the Heavy Mechanical Complex at Taxila (which produces industrial machinery); the Karachi Shipyard and Engineering Works (which builds and repairs ships as well as produces boilers); and the Pakistan Machine Tool Factory, established at Karachi in 1968 in collaboration with a Swiss firm (which produces precision machines, tools and automotive parts).

Energy

Pakistan's primary energy supply mix in 1995-96 consisted of oil (27 pct.), natural gas (24 pct.), firewood (20 pct.), other biomass (16 pct.), hydel/nuclear (9 pct.), and coal (4 pct.). The average oil production during July 95 to March 96 was 56,606 bpd. The production of natural gas during the same period was 1,806 mmcfd. Development of the energy sector is a high priority. Pakistan has faced chronic energy shortages and domestic energy demand has outstripped supply. In 1996, the largest sectoral energy demand was from industry (39 pct.), transport (32 pct.), domestic (23 pct.), agriculture (3 pct.), and commercial (3 pct.). A series of new petroleum policies, announced in late 1991, September 1993, and February 1994, have promised to boost investment in the oil and gas sector. The energy shortfall has been particularly acute in electricity generation. This resulted in regular rotating power outages (load shedding) and forced many industries to develop their own alternative (and more expensive) power sources. In early 1994, the electrically shortage was estimated at 2,000-MW during peak load hours. At that time, the Government of Pakistan (GOP) announced a policy inviting private sector participation in power generation projects. By December 1996, Pakistan's installed power generating capacity stood at 13,957-MW, a 7 pct. increase over the previous year. The increase included the generation capacity installed at that time in a thermal power plant in the private sector.

Current Situation: The demand for power in Pakistan has grown at the rate of 10 pct. per annum in recent years. Although demand was expected to grow by 8 pct. per annum in the 1990's, it is estimated to have fallen to 3-4 percent per annum in PFY-1997, as approximately 4,000 industrial units are either sick or have closed down owing to the previous government's policies which discouraged industrial investment. Pakistan's electricity has been supplied by two large state-owned utilities, the Water and Power Development (WAPDA), which until recently supplied as much as 85.6 pct. of total electricity generated, and the Karachi Supply Corporation (KESC), which supplied 13.4 pct. WAPDA, with headquarters in Lahore, has an installed capacity of 9,625- MW, consisting of 50 pct. thermal, and 50 pct. hydel. KESC, which generates and distributes electricity to Karachi and its suburbs as well as to the adjacent parts of Baluchistan, has an installed generating capacity of 1,525­MW. All of KESC's power is thermal.

Hydroelectric Power: WAPDA, the sole operator of hydro projects, has three large hydroelectric projects: Tarbela, with a total generating capacity of 3,478-MWs; Mangla, with total capacity of 1,000-MW, and Warsak with 240-MW. Together with 107-MW from scattered small hydro projects, the three major projects give WAPDA 4,825-MW of hydro power. Hydropower's drawback is its seasonal fluctuation. There is little rain from October to May when the demand for irrigation water is high, reducing the effective capability of hydroelectric units. Reservoirs can register up to a 45 pct. difference between wet and dry season water levels. Nevertheless, Pakistan has vast untapped hydro potential suitable for development in coordination with other generating sources.

Thermal power: WAPDA had 4,800-MW of thermal generating capacity in December 1996. Most of WAPDA's thermal generating capacity comes from two large complexes: Guddu (1655-MW of steam and combined cycle units), and Jamshoro (880-MW of oil-fired units). WAPDA's third large thermal unit, Kot Addu (1600-MW), was privatized in March 1996. KESC's generating capacity has been concentrated in the five-unit Bin Qasim Power Station (1050-MW) and the Korangi Thermal Power Station (382-MW). While a sixth unit (210-MW) is currently being added to the Bin Qasim station, two units at the Korangi station and units at other thermal stations have been retired, reducing KESC's generating capacity from 1,738-MW in 1996 to 1,525-MW in 1997.

Nuclear Power : Pakistan obtains approximately 1.0 pct. of its energy supply from its one operating nuclear power plant, the Karachi Nuclear Power Plant (KANUPP). KANUPP, which was constructed in the 1970's, uses Canadian technology, and has a gross generating capacity of 137­MW. A second nuclear plant of gross generating capacity 325­MW, is under construction with Chinese technical assistance at Chashma, Punjab province. Connection to the grid is now expected in Pakistan Fiscal Year (July 1 - June 30) 2000.

Demand for Electricity: WAPDA's customer base has expanded from 311,596 in 1959­60 to 9.8 million in February 1997, an average annual compound growth rate of approximately 10.47 pct. KESC presently has 1.36 million customers. Electricity is still, however, available to only 40 pct. of the population. By June 30, 1996 WAPDA had electrified a total 62,125 villages under its village electrification program. The Government of Pakistan plans to extend its electricity grid to an additional 5,000 villages during the 1996-97 fiscal year. By February 1997 a total 1,912 villages had already been electrified. WAPDA plans for Pakistan Fiscal Year 1997-98 include the electrification of another 5,000 villages.

GOP Plans to Stimulate Private Sector Participation in Power Projects: In 1994 Pakistan made the energy sector its highest near­term development priority. In March of that year, the GOP promulgated a policy package intended to attract investment for private sector power projects. The objectives of the policy are to offer internationally competitive terms, reduce local currency investment requirements, simplify procedures, and establish a domestic market for corporate debt securities. The GOP additionally decided to confine new WAPDA projects to the hydro generating sector and has determined that all new thermal power projects will be developed in the private sector. One of WAPDA's thermal power plants, a 1600-MW project at Kot Addu, has already been privatized and 36 pct. of equity and management control has been given to the successful investor. Plans for the privatization of WAPDA's second thermal power unit, the 880­MW Jamshoro power plant, are currently in abeyance. The GOP is now reportedly analyzing the viability of privatizing this and other units. KESC's privatization is on a "fast track", and is planned for 1997.

In response to the 1994 energy policy, the GOP received applications for over 7,000-MW capacity. It later imposed a ceiling of 3,000-MW to be on line by the end of CY-1998. The GOP is now revising both its thermal and hydel policies. The policies, which are expected to be announced by July 1997, will be based on international competitive bidding. Only projects utilizing indigenous fuel will be allowed.

Major Energy Projects -Private Sector: The first of Pakistan's thermal power projects in the private sector is the Hub Power plant. Sponsored by a group of foreign investors led by Xenel Corporation of Saudi Arabia, this 1,292-MW oil-fired four unit complex is located at Hub river in Baluchistan, northwest of Karachi, and is a showcase World Bank project. The plant commenced full operation in March 1997, and has begun supplying 1,200-MW of power to the national grid.

There are several thermal power plants being established under the current energy policy. Two of them, Kohinoor Energy, a furnace oil-based 131-MW capacity thermal plant near Lahore, Punjab province and Tapal Energy, a 119.5MW net capacity plant near Karachi, are currently being tested for reliability. Two, and possibly three other private sector thermal power plants are expected to be commissioned prior to the end of 1997. Together these plants will add 761-MW to the installed generation capacity.

Plants expected to be commissioned prior to the end of 1997 are:

1. AES Lal Pir ­ This is a 362­MW oil­fired single steam turbine plant of 337­MW net capacity, at Lal Pir, Punjab Province. 2. Gul Ahmed Energy ­ A 135­MW project of 125.3­MW net capacity, using diesel engines based on furnace oil, at Karachi. The project is expected to be commissioned in Oct. 1997. 3. Altern Energy ­ This is a 14­MW power plant based on flared gas, to be established in District Attock, Punjab.

The following are plants which are expected to be commissioned during CY-1998. They will together add another 2,144­MW to Pakistan's total installed generation capacity:

1. AES Pak Gen ­ A 365­MW oil­fired power plant of 337­MW net capacity, in Muzaffargarh district, Punjab province. 2. Japan Power ­ A 120­MW power plant of 107­MW net capacity using diesel engines on residual fuel oil. The plant is being established on the Lahore­Raiwind Road, Punjab province. 3. Rousch Power A 412­MW combined cycle power plant based on residual fuel oil at Sidhnai, near Multan, Punjab province. 4. Uch Power ­ A 586­MW combined cycle power project based on medium heating value natural gas from the nearby Uch field. 5. Habibullah/Coastal Power ­ A 140­MW design capacity and 136­MW net capacity combined cycle power plant based on natural gas to be established at Quetta, in Baluchistan province. 6. Power Generation Systems ­ A 116­MW oil­fired diesel engine power plant of 110­MW net capacity in District Kasur, Punjab province. 7. Sabah Shipyard ­ This is a barge­mounted combined cycle 288­MW design capacity, and 273­MW net capacity. 8. Southern Electric Power ­ A 117­MW residual furnace oil­ based diesel engine power plant of 112.5­MW net capacity, at Raiwind, near Lahore, Punjab province.

The following projects are expected to be commissioned by the end of CY­1999. They will add another 314­MW to the national installed capacity, bringing to a total 3,219­MW of generation capacity installed by the private sector by the end of CY­99. In addition, Hubco, another private sector power plant already in operation, has an installed power generation capacity of 1,292­MW. Liberty Power, a 470­MW combined cycle power plant based on low BTU gas which was to be established at Dharki, Sindh province is presently in litigation: 1. Saba Power ­ A furnace oil­fired steam power plant of 125­MW net capacity to be established in District Sheikhupura, Punjab province. 2. Eeshatech Power ­ A 20­MW coal­fired power plant based on indigenous coal, to be established in District Chakwal, Punjab province. 3. Davis Energen ­ A 12­MW power plant using gas turbines on flared gas to be established in district Chakwal, Punjab province. 4. Kabirwala Power ­ A 157­MW combined cycle gas­fired power plant of 144­MW net capacity, to be established in District Khanewal.

Both WAPDA and KESC need to develop, reinforce and augment their transmission lines to meet the requirements of the upcoming power stations. Their distribution networks too are old and inadequate, and suffer from high line losses and power theft. KESC's transmission and distribution line losses are currently 35 pct., with an additional 5 pct. loss from power theft, while WAPDA's losses are about 27 pct. In addition, the collections on bills by both utilities are extremely poor, resulting in a severe liquidity crunch. Constrained as well by a lack of financial resources, the GOP in early 1995 announced a new transmission policy inviting private sector participation. The policy opens EHV lines and substations to private investment and offers incentives to private investors. The contract for two packages totalling 1,450 kms. of transmission lines and associated grid stations for approximately USD 700 million was awarded in early 1995 to a foreign company. The project contract has now been terminated for its failure to achieve financial closure by the stipulated date.

WAPDA now plans to privatize its distribution network, commencing with the privatization of one of its area electricity boards. The privatization of the board is on a "fast track" basis. The management control for two of WAPDA's remaining seven distribution boards is to be awarded to the private sector.

Public Sector

The top priority public sector energy project is the Ghazi-Barotha hydroelectric project, a 1,450-MW run-of-the-river project diverting the water of the Indus River from below Tarbela Dam through a 52­kms long power channel to a generating station, from which the water will be returned to the Indus. Civil works for the barrage and the power channel have commenced. The contract for the power complex has been awarded to a Chinese company. Work on the associated substations and transmission network was scheduled to commence during the fourth quarter of 1996, but has been delayed for lack of funds. A total of over USD 300 million are required for the execution of the transmission portion of this project. WAPDA has so far received a commitment for approximately USD 100 million. The entire project is expected to be completed by the mid-2001.

Although WAPDA has plans for two other major hydel projects, namely, the 2,400MW Kalabagh Dam and the 3,360MW Basha Dam, as well as several smaller dams, only one other hydel project, that is, the Chashma Hydropower Project, can realistically be expected to be executed over the next five years. This will be a 184MW project comprised of 8 units of 23MW each. It is to be established on the right side of the Chashma Barrage on the River Indus. Its commissioning dated is PFY 19992000.

Coal: Pakistan's coal reserves received a substantial boost from the recent discovery, thanks to assistance from the U.S. Agency for International Development (USAID), of deposits estimated at more than 100 billion tons in the Thar desert. Although, studies on the physical characteristics of this coal and its mineability are continuing, initial data suggest that the coal is minable and suitable for power generation. As an underground mineral resource, coal (and its extraction) falls within the jurisdiction of the provincial governments. The Sindh Coal Authority has taken a leading role in devising a development strategy, working in conjunction with WAPDA and the relevant federal ministries (Water and Power, Petroleum and Natural Resources). The policy for development of Thar coal provides that its primary use will be to fuel large electric power plants built in tandem with coal mines, and that development, ownership and operation of both mines and power plants will be in the private sector. The Thar coal field has enormous economic potential for Pakistan and its development and exploitation will be a major infrastructure project in the coming decade.

Minerals: The mining sector grew 8.3 percent in 1995-96, after a negative growth of 4.3 percent in 1994­95. In addition to coal, natural gas, and crude oil, Pakistan produces marble, china clay, chromite, dolomite, gypsum, limestone, magnetite, sulfur, and rock salt.

In line with the GOP's policy of promoting the privatization of state-owned assets, recent public sector investment in mining has been restricted to large projects with high cost and high risk. The principal example is the Saindak Copper and Gold Project in the Chagai district of northwestern Baluchistan. The $200 million Saindak Project, the first large scale metal mining project in Pakistan, has been developed on a turnkey basis by the Metallurgical Construction Corporation of China. The project started commercial production in August 1995, and is expected to yield an average annual production of 15,000 tons of copper, 1.47 tons of gold, and 2.76 tons of silver over its 20 year life.

The GOP announced its first ever national mineral policy in September 1995. The policy aims at increasing the contribution of the mineral sector by reducing the cost of exploration through a reduction of duties and taxes on imported machinery. GOP entities involved in the mineral sector include the Pakistan Mineral Development Corporation (PMDC), which operates four coal mines in Baluchistan and Sindh, three salt mines in the Punjab, two salt quarries in the NWFP, and a silica quarry in Sindh. The Geological Survey of Pakistan (GSP) is engaged in geological surveys and mapping.

Other significant non­metallic mineral deposits include: gypsum in the Salt Range of the northern Punjab; sulphur in Baluchistan; marble in the NWFP; and china clay (kaolin) in the NWFP. Among metallic ores, chromite is produced on a commercial scale in Baluchistan.

C. Government Role in the Economy

Since the late 1980's, the GOP has been pursuing a gradual strategy of deregulation, reduction of the public sector role in the economy, and opening the economy to international competition. The government has sought to reduce its direct productive or controlling role, and instead focus on creating the conditions to foster private sector investment and activity. While it has made much progress in this effort, the state remains an important player in the Pakistani economy, especially in the financial sector. Government­owned industrial enterprises employ almost 46,000 workers and remain important in such key sectors as steel, engineering and agro-processing.

Monetary Policy

Recent monetary policy has been reasonably disciplined and has aimed at encouraging growth in the context of price stability. The GOP and State Bank of Pakistan (SBP, the central bank) are also adopting structural reforms in an effort to move toward more indirect, market-based methods of monetary control along with greater autonomy for the SBP.

In 1994-95, the growth of monetary assets (M2) at 16.6 percent exceeded the year's target of 11.8 percent, largely due to higher than budgeted borrowing by the government sector, and contributing to double digit (12.9 percent) inflation. In 1995-96, M2 increased 14.9 percent against a target of 12.1 percent. Government's borrowing for budgetary support exceeded the year's target by over 90 percent, while credit to the private sector increased 10.6 percent and inflation at 10.8 percent over the same period of the previous year.

An important reform announced in March 1995 was the elimination of the ceiling on interest rates. This key step toward market-determined interest rates will help banks play their financial intermediation role. Industrialists were less pleased with the move, of course, as their lending rates jumped to over 20 percent. There were also concerns that the step would shift funds from the already weak stock market to less productive savings schemes used largely to finance government deficits.

Other GOP monetary reforms have included efforts to reduce concessional and government directed credit schemes, enhance competition in the banking sector, and improve prudential regulation and supervision. State owned development finance institutions, however, continue to make politically influenced lending decisions and, partly as a result, have weak balance sheets. Prudential regulations have occasionally been relaxed in ad hoc fashion to prop up loss-making public or private industries. The State Bank of Pakistanns autonomy was considerably strengthened with the passage of new banking laws in and the amendment of the State Bank Act by the PML government in May 1997.

Fiscal Policy

A central element of Pakistan's economic reforms has been the effort to reduce persistent government budget deficits. However, little overall progress has actually been made so far. After reducing the federal deficit from 7.9 percent of GDP in 1992-93 to 5.8 percent in 1993-94, the GOP targeted further reduction to 5.0 percent in 1995-96. Despite increases in tax rates, the GOP ended up registering a deficit of 6.3 percent of GDP. The 1996-97 budget announced in June 1996, envisaged a budget deficit of Rupees 100 billion equivalent to 4 percent of GDP. However, the deficit has slipped above 6 percent of GDP.

Deficit reduction is constrained by rigidities in spending patterns and a weak tax base. Defense spending and debt repayments absorb 63 percent of total federal spending, leaving little for other basic government functions and improving the long neglected social sectors. Meanwhile, the country has a very narrow tax base; perhaps one in one hundred Pakistanis pays income tax. The country has had to rely on import and excise taxes for a very high share of revenues, thus protecting inefficient industries and encouraging smuggling, and on official transfers from external creditors, primarily the World Bank, the Asian Development Bank and the government of Japan.

The GOP's medium-term adjustment program has aimed to broaden the tax base through extension to under-taxed sectors and reduction of exemptions; to shift from taxation of international trade to taxation of consumption; to move to market determination of administered prices; and to improve the productivity of public spending. Progress has been mixed. Agriculture remains very lightly taxed. A sales tax has been instituted but exemptions, often secured through political influence, remain common. Maximum import tariffs were reduced from 70 percent in 1994-95 to 65 percent in 1995-96, and to 45 percent in March 1997. Increases in utility charges have attempted to keep pace with actual costs, but fee collection remains a serious problem.

The 1995-96 budget led to difficulties with the international financial institutions, which had counted on more aggressive deficit reduction efforts and better adherence to the tariff reduction program. So disbursements under the IMF's Enhanced Structural Adjustment Facility were suspended. The GOP subsequently entered into and fell off a Standby Program and is currently preparing for negotiations with the Fund on a new ESAF.

Privatization

Privatization of many state-owned enterprises is another key element of Pakistan's reform program, and both major political parties support reducing the state's role in the economy via this process. In 1991 the GOP identified a group of 118 state-owned industrial units for privatization. Of these, 90 units have been sold off. Industrial units, including factories producing cement, chemicals, automobiles, food products, etc., have mainly attracted domestic private investors.

The GOP is continuing preparations at a much slower pace for at least partial privatization of a few state-owned banks, several energy utilities, and ­ the largest item of all ­ Pakistan Telecommunications Corporation (PTC), the state monopoly phone company. In most cases, the GOP aims to find "strategic investors" to buy 26 percent of these firms and gain management control. These privatization are very complex undertakings, since new regimes for regulation of private sector entities in these sectors are still being established. The GOP's implementing agency, the Privatization Commission, says it is proceeding carefully to ensure a transparent process. The government is benefiting from World bank technical assistance in this effort and has hired several foreign financial advisors to help with preparation. Foreign investors have shown interest in acquiring stakes in these firms but note that reliable independent audits would speed the bidding process.

The GOP and public sector unions have agreed on a generous relief package for employees of divested state-owned enterprises. Labor opposition to the privatization program has thus been fairly rare, though there has been some resistance in the case of the Kot Adhu power plant.

D. Balance of Payments Situation

Pakistan's balance of payments has deteriorated since FY 1994-95. Higher growth in both exports and imports resulted in trade deficit of $2.2 billion and the current account deficit of $ 2.4 billion, up 13 percent and 22 percent, respectively over FY 1993-94.

In FY 1995-96, the external account worsened again due to a decline in exports and a higher than expected increase in imports. In order to reverse this trend, the GOP implemented a set of corrective measures in October 1995. The Rupee was devalued by 7 percent against the U.S dollar, and a 10 percent regulatory duty was imposed on imports. Even so, exports grew only 6.9 percent while imports rose 16.2 percent in FY 1995-96. The trade deficit rose to $3.7 billion and the current account deficit at $4.2 billion was 96 percent higher over last year and the highest in 15 years. The current account deficit is estimated at 6.6 percent of GDP in FY 1995-96. According to the latest trade data on Pakistan's trade performance at the end of first ten months (July-April) of 1996­97, the trade deficit rose to $2.9 billion, up 2.4 percent over the same period of the previous year. Exports and imports grew only 1.1 percent and 1.5 percent respectively. The year end trade deficit is expected to be in the range of $3.5 billion, while the current account deficit may reach as high as $5 billion.

Foreign Exchange Policies and Reserves

Pressure on Pakistan's balance of payments is also reflected in the decline of its foreign exchange reserves. The reserves which stood at a comfortable level of $2.7 billion (equivalent to 17 weeks of imports) at the end of June 1995, were down 22 percent to $2.1 billion (10 weeks of imports) on June 30, 1996. IN the current fiscal year forex reserves have dropped nearly 50 percent to $ 1.1 billion on May 10, 1997, which was still enough to finance about 5 weeks worth of imports.

The GOP has continued policies to liberalize and deregulate the exchange and payments regime. The Pakistani rupee has been on a managed float since 1982. The U.S. dollar serves as intervention currency for fixing the exchange rate against a trade weighted basket of currencies. The central bank sets the daily rate at which it will purchase and sell U.S. dollars in its dealings with authorized dealers. The rupee was made convertible on current account in July 1994.

One U.S. dollar was equal to 40.33 rupees on May 19, 1997. The rupee has depreciated 14.9 percent against the dollar since FY 1995-96.

Remittances from Overseas Workers

Remittances from overseas workers have been a major source of foreign exchange earnings for Pakistan. They peaked at $2.89 billion in 1982-83, then dropped to $1.8 billion in 1994-95. In FY 1995-96 workers' remittances further dropped to $1.5 billion. The relative importance of workers' remittances, however, continues to decline. In the past ten years they have fallen from 10 percent of GDP to about 5 percent. One contributing factor has been the recent emergence of resident foreign currency accounts as a partial substitute for workers' remittances. In March 1996, assets in these accounts totaled $3.9 billion ­­an increase of 14.7 percent over June 1995.

Foreign Trade

According to the most recent trade data released by the GOP, countryns trade performance remained disappointing at the end of first ten months (July-April) of 1996-97. The trade deficit at $2.9 billion was up 2.4 percent over the same period of previous year and exports and imports grew only 1.1 percent and 1.5 percent respectively.

In 1995-96, Pakistan's foreign trade increased 12.8 percent. However, a sharper rise in imports led to a higher trade deficit of $3.6 billion. Both exports and imports increased over the corresponding period of the previous year. Exports for 1995-96 totaled $8.3 billion compared to $7.7 billion in 1994­95. Imports in 1995-96 were $11.9 billion versus $10.3 billion in the previous year.

Export growth in 1995-96 was attributed mainly to higher prices of cotton products and growth in exports of some non-traditional items. In 1995-96, the following countries were the largest recipients of Pakistani exports: the U.S. (15.5 percent); the UK (6.4 percent); Germany (6.8 percent); Japan (6.6 percent); Hong Kong (9.1 percent); United Arab Emirates (4.7 percent); France (3.1 percent); The Netherlands (3.0 percent); Italy (2.8 percent); Saudi Arabia (2.4 percent).

Imports, at 11.9 billion in 1995-96, increased by 16.2 percent over the previous year. Imports of petroleum products, chemicals, iron and steel increased, while edible oils, tea, and synthetic fiber declined. In 1995-96, the following countries were the major sources of Pakistan's imports: Japan (10.7 percent); the U.S. (8.9 percent); Malaysia (7.2 percent); Germany (5.8 percent); Kuwait (6.4 percent); UK (4.4 percent); Saudi Arabia (5.9 percent); China (4.6 percent); South Korea (2.8 percent); France (1.9 percent).

E. Infrastructure Situation

Ports: Pakistan has two significant seaports ­ Karachi and Port Qasim ­ and two proposed sites for future facilities ­ Gwadar and Pasni, both on Baluchistan's Makran Coast. Karachi is the main port, handling the majority of all dry and liquid cargo. Port Qasim, located 50 kilometers southeast of Karachi, is Pakistan's second deep sea port and was built for overflow from Karachi Port and to handle raw material imports for Pakistan Steel Mills. Pakistan's dry and liquid cargo increased from 30.2 million tons in 1992­93 to nearly 33.1 million tons in 1995-96. Similarly, containerized traffic is also projected to increase to more than 623,000 TEUs (twenty foot equivalent units) by 1997-98.

To facilitate this expansion, the GOP plans to improve container handling berths at both Karachi and Port Qasim by constructing specialized integrated container terminals at Port Qasim and on Karachi's West and East Wharfs. The Port Qasim container terminal and a new oil terminal are to be constructed by the private sector. The GOP also plans acquisition of a bucket dredging plant, development of a modern warehousing complex in Karachi, and construction of a liquid products marine terminal at Karachi. In addition, the GOP proposes private sector participation in contract dredging to deepen navigational channels, and the construction of a water desalination plant and power station at the Karachi port.

Railroads: Pakistan Railways, an autonomous agency under the Ministry of Railways, operates the railroad system. The system is primarily broad gauge, but there are also segments of meter gauge and narrow gauge track. Over the past fifteen years, there has been a marked shift in freight traffic from rail to highways, a trend which the GOP hopes to stabilize and reverse. Railways carries about 15 percent of freight traffic and road vehicles 85 percent. The rail system comprises 808 stations and 45 halts. Rolling stock includes about 650 locomotives, 2,250 passenger coaches, and 28,500 freight cars. Pakistan Railways plans to improve railroad's share of long haul freight traffic, to upgrade track to permit trains to operate at higher speeds, and to rehabilitate infrastructure in order to improve capacity utilization. Specific priorities include double-tracking; rehabilitating about 381 traction motors; procurement of diesel-electric locomotive engines; and manufacturing air conditioned cars and diesel electric locomotives at a recently opened factory at Risalpur in the NWFP, as well as upgrading telecommunications and signaling systems.

Highways: The World Bank reports that Pakistan's road network is notable for its poor condition. About fifty percent of the road network is unpaved and over two-thirds of paved arterial roads do not have enough carriageway width for two lanes. The majority of paved and unpaved roads are in poor condition. According to the World Bank, on average, poorly maintained roads can cause 30-40 percent higher transportation costs. At both federal and provincial levels, Pakistan provides insufficient funding for road maintenance.

Over 80 percent of Pakistan's freight and passenger traffic travels by road. In June 1995, Pakistan had 205,304 kilometers of roads. The major north­south link is Lahore and Rawalpindi to Peshawar and carries over half of Pakistan's goods and passenger traffic. The road density of Pakistan is only 0.23 km/sq.km.

The National Highway Authority (NHA), established in 1991, has the major responsibility to plan, promote, organize and implement programs for construction, development, operation, repairs and maintenance of national highways and strategic roads. Plans, policies and budget of the NHA are approved by the National Highway Council headed by the Prime Minister. The Council controls, directs and regulates the affairs of the NHA.

The GOP's key development priority in the highway sector is to upgrade and fill in gaps in the existing road network so the system can be more efficiently utilized. Proper maintenance of the network is a newly emphasized priority. Additional construction projects include completion of the Indus Highway, completion of the dualization of the principal route (the N­5 National Highway), construction of several intercity expressways and by-passes, and the Lahore-Islamabad motorway.

Air Transport: The GOP has opened the domestic aviation market to private sector competition. As of June 1996, three private carriers operate commercial flights. The national carrier, PIA, has a fleet of 47 planes (eight Boeing 747's, nine Airbus 300's, six Airbus 310's, seven Boeing 737's, thirteen Fokker­27's, two DeHavilland Twin Otters, and two Boeing 707 freighters). PIA serves 34 domestic and 49 international destinations.

The current private sector competition consists of Shaheen Airlines, a unit of the Shaheen Foundation (a foundation for retired air force officers), Aero Asia, part of the Karachi­ based Tabani group of companies, and Bhoja Air.

The GOP plans to continue modernizing and upgrading its civil aviation facilities. This includes construction of a new international airport at Lahore. New airports and improvements in runways are also planned for Islamabad, Peshawar, Karachi and other cities. PIA also projects that it will replace its early generation 747's with newer wide bodies.

Utilities: Two public utilities, the Water and Power Development Administration (WAPDA) and the Karachi Electric Supply Corporation (KESC) are responsible for electric power generation and distribution. However, the GOP has a policy to bring private firms into the generation of power (for purchase and distribution by the public utilities). (See sections on Energy, and Privatization.) Telecommunications ­ In December 1990, Pakistan converted Pakistan Telephone and Telegraph (PTT) Department, which was directly controlled by the Ministry of Communications, into Pakistan Telecommunications Corporation, (PTC), an autonomous public company. The GOP plans to privatize PTC, by first selling 26 percent ownership to a "strategic investor", and then selling the rest after the firm is on a solid footing. The GOP has deregulated and privatized selected telecommunication services. At present there are three cellular mobile phone licensees; one radio paging company; five card­phone operators; seventy telex, facsimile and PABX service providers; two manufacturers of large digital exchanges; and seventeen data network operators in the private sector.

III. POLITICAL ENVIRONMENT

A. Nature of Political Relationship with the United States

Pakistan and the United States have had bilateral diplomatic relations since Pakistan's independence in 1947. Pakistan is a member of the United Nations, the Organization of the Islamic Conference, the Economic Cooperation Organization, and the South Asian Association for Regional Cooperation, among other international organizations. Pakistan has worked effectively to promote and support peace keeping operations in Somalia, Bosnia, Haiti and elsewhere. In 1990, U.S. economic and military assistance to Pakistan was suspended as required by U.S. legislation (the so called Pressler Amendment to the Foreign Assistance Act) when the U.S. President could no longer certify to Congress that Pakistan did not possess a nuclear explosive device. The Brown Amendment enacted in 1996 has provided some relief from the Pressler sanctions. The tenor of bilateral relations remains good and the U.S. and Pakistan cooperate in many areas, including joint military exercises and anti­narcotics efforts. The United States has traditionally been Pakistan's leading trading partner and largest source of private foreign capital.

B. Major Political Issues Affecting Business Climate

Since 1988, a broad consensus on a liberalizing, market oriented economic policy has emerged between the two principal political parties. At the same time, Pakistan has moved toward a two­party system, dominated by the PML (Nawaz Group) and the PPP. This has resulted in a continuity of economic policy, even during the six month period in 1993 when Pakistan had five Prime Ministers. The consensus on economic policy, together with the macro­economic discipline imposed by the structural economic adjustment programs adopted with the full support of the International Monetary Fund (IMF) and the World Bank, has had a positive impact on the business climate.

Periodic political and civil unrest in Sindh province and elsewhere has the potential to dampen foreign investment and trade. The law and order situation in Karachi has improved greatly since the last report, but sectarian violence in the Punjab has worsened.

As in many developing countries, corruption is an unwelcome, but ubiquitous, part of the business milieu in Pakistan. Recent anecdotal reports suggest that this problem continues and that, rather than serving to facilitate transactions, the phenomenon may be having a sclerotic impact on the economy. Efforts to reduce opportunities for corruption by improving management systems in, for example, the customs and tax services are under way. Also, important business organizations, including the nation­wide Federation of Pakistan Chambers of Commerce and Industry (FPCCI), have made curbing corruption a principal plank of their policy agendas. Since November 1996 the government has made a special effort to root out official corruption.

C. Political System

Pakistan is a parliamentary democracy. The parliament consists of two houses, a National Assembly elected directly through universal suffrage, and a Senate elected by the provincial legislatures. The Prime Minister is the head of government and is elected by and from the National Assembly. The Head of State is the President, who is chosen by an electoral college consisting of the National Assembly, the Senate, and the Provincial Assemblies. The Constitution requires that the President be a Muslim and provides for a five­year term. Pakistan is divided into four provinces: Punjab, Sindh, Baluchistan, and the Northwest Frontier Province. Each province has its own directly elected Provincial Assembly, a government headed by a Chief Minister, and a Governor appointed by the President, upon recommendation by the Prime Minister. There are two federal legislative houses ­ a 217­member National Assembly elected for five­year terms and an 87­member Senate. Senators are elected for six­year terms by the provincial legislatures. National Assembly seats are currently apportioned 115 to the Punjab, 46 to Sindh, 26 to the NWFP, 11 to Baluchistan, 8 to the Federally­Administered Tribal Areas (FATA) and one to the Federal Capital District of Islamabad, with ten additional seats reserved for religious minorities. Each of the four provinces has 19 senators and there are eight senators from the FATA and three from the federal capital area. Indirect elections for half the members of the Senate are held at three­year intervals.

The Constitution of Pakistan guarantees an independent judiciary. The Supreme Court is the highest court in the country; High Courts in the provincial capitals of Lahore, Karachi, Peshawar, and Quetta stand at the head of the provincial judicial systems. Pakistan's press is free and aggressive in pursuing a story.

Pakistan came into existence on August 14, 1947 with the Partition and independence of British India. The creation of a separate Muslim nation was accomplished largely through the efforts of Mohammed Ali Jinnah (known as the Quaid­i­Azam or "great leader"). Jinnah served as Pakistan's first Governor­General until his death in 1948; his picture graces virtually every official Pakistani office. Pakistan initially consisted of two areas, East Pakistan and West Pakistan, separated by 1,000 miles of Indian territory. In 1947­48, Pakistan and India fought the first of their three wars involving the Muslim­majority territory of Kashmir, which both claimed and whose Hindu maharajah opted for India at Partition. The conflict ended in stalemate and Kashmir remains disputed territory divided by a heavily­defended Line of Control where since 1948 UN observers have investigated reported violations.

A Constituent Assembly met in 1955 and produced a parliamentary, federal, and largely democratic constitution which became effective in March 1956 and proclaimed Pakistan an Islamic Republic. By this time, the provinces of West Pakistan had been combined into a single unit and West and East Pakistan made up the two units of the country.

General elections held in December 1970 resulted in a potential rupture between the eastern and western sections of Pakistan. The Awami League, which advocated autonomy for the more populous East Pakistan, swept the East Pakistan seats to gain a majority in Pakistan as a whole. The Pakistan Peoples Party (PPP), founded and led by Ayub Khan's former Foreign Minister, Zulfikar Ali Bhutto, won a majority of the seats in West Pakistan, but the country was completely split with neither major party having any support in the other area. Negotiations to form a coalition government broke down and a civil war ensued. India attacked East Pakistan and captured Dhaka in December 1971, when the eastern section declared itself the independent nation of Bangladesh. Yahya Khan then resigned the presidency and handed over leadership of the western part of Pakistan to Bhutto, who became President and the first civilian Chief Martial Law Administrator.

A new constitution, Pakistan's third, came into effect in August 1973 and Bhutto became Prime Minister. His government implemented portions of the PPP's socialist manifesto, restructuring the economy, increasing the prominence of the public sector, and nationalizing many industries. Bhutto's centralizing policies and autocratic ways galvanized the opposition, which challenged Bhutto's sweeping victory in the March 1977 national elections. Bhutto was deposed by his Chief of Army Staff, General Zia­ul­Haq, in July 1977. General Zia became president in 1978 and a provisional constitution, which retained substantial parts of the 1973 constitution, was imposed in March 1981. In the interim, Bhutto was executed by hanging in April 1979. Under Zia, the Government of Pakistan became increasingly Islamicized and benefitted from supporting mujahideen efforts to counter the Soviet invasion of Afghanistan. In February 1985, non­party elections were held for the National Assembly and the four provincial assemblies. In August 1988, General Zia died in an air crash.

General elections were held in November 1988 and the PPP, headed by Benazir Bhutto, daughter of the late Prime Minister, won a plurality of seats and formed a coalition government. In August 1990, President Ghulam Ishaq Khan exercised his right under the constitution to dissolve the National Assembly, dismiss the Prime Minister, and call new elections. In the general election held in October 1990, the Islamic Democratic Alliance won the largest number of seats and Mian Nawaz Sharif, leader of its largest component party, the Pakistan Muslim League (PML), became Prime Minister. Nawaz Sharif, the first industrialist to lead Pakistan, continued the trend toward liberalization of the economy and promotion of private sector growth.

In April 1993, President Ghulam Ishaq Khan again dissolved the National Assembly and dismissed the Prime Minister, but the following month the Pakistan Supreme Court reinstated the National Assembly and the Nawaz Sharif government. Continued tensions between the reinstated Prime Minister and the President resulted in governmental gridlock and the Chief of Army Staff brokered an arrangement under which both the President and Prime Minister resigned their offices in July 1993. Elections in October 1993 overseen by the reformist interim government of Moeen Qureshi resulted in a plurality for Benazir Bhutto's PPP and she secured sufficient additional support to be elected Prime Minister by the National Assembly. Prime Minister Bhutto's hold on power received a further boost in November 1993, when her PPP ally, Farooq Ahmad Khan Leghari, was elected President. In November 1996, President Leghari dismissed the Bhutto government, charging it with corruption, mismanagement of the economy, and implication in extra­judicial killings in Karachi. Elections in February 1997 resulted in an overwhelming victory for the PML/Nawaz and President Leghari called upon Nawaz Sharif to form a government. In March 1997, Sharif proposed and parliament passed a constitutional amendment removing the president's power to dissolve parliament and making his power to appoint military service chiefs and provincial governors contingent on the "advice" of the prime minister.

1. Schedule for Elections: The most recent elections for the national and provincial assemblies took place in February 1997, and national elections are scheduled to be held again in February 2002. Indirect elections for half of the members of the Senate were held in March 1997. Indirect elections for the other half of the Senate are scheduled for March 2000. The indirect election of the President was held in November 1993 and the next Presidential election is scheduled for November 1998.

2. Major Political Parties: The two largest political parties are the Nawaz Sharif group of the Pakistan Muslim League (PML/N), led by Prime Minister Nawaz Sharif, and the Pakistan Peoples Party (PPP), led by Benazir Bhutto. Both parties have a centrist orientation and support private enterprise and the free market. The PPP espouses a somewhat more activist view of government, especially in the social sector. It also has a more secular view of Islam in politics. The PML/N is slightly to the right of the PPP and has a more traditional view of Islam.

There are several other smaller, but significant, parties. The Mohajir Qaumi Mahaz (Mohajir National Movement ­ MQM) is a party that represents the interests of Pakistan's mohajirs (Urdu­speaking decendents of Muslims who migrated from India following the creation of Pakistan in 1947). It is allied with the current PML/N led government. The Awami National Party (ANP) is a Pushtun nationalist party in the NWFP and an ally of the PML/N in the national government. The Jamaat­i ­Islami (JI) is a conservative Islamic political party that has enjoyed electoral success only when allied with a larger party. The JI boycotted the 1997 National Assembly elections.

IV. MARKETING U.S. PRODUCTS AND SERVICES

A. Distribution and Sales Channels

There are approximately 120,000 retail outlets in Pakistan, of which nearly 25,000 are located in the major cities. About 45,000 of the total are classified as universal stores/outlets. These are further subdivided into the following categories:

Category	Size	No. of Outlets
A	Very Large	300­500
B	Upscale	3,000­4,000
C	Medium	10,000­15,000
D	Very Small	25,000+

Stores in the latter three categories are usually owned by a sole proprietor. Large supermarkets or chain stores for general consumer items still do not exist in Pakistan, though the trend may catch on soon, as one large supermarket has been established in Lahore in collaboration with a British chain of supermarket and has become a major point of attraction there. However, the concept of chain stores for fashion apparel has lately begun to emerge in the larger cities, where several such chains carrying predominantly locally manufactured merchandise are currently operating. In addition, hundreds of government owned Utility Stores sell food and household items and serve as a mechanism for restraining inflationary price increases by following the government line on pricing.

Many consumer retail stores stock general merchandise for everyday use. There are also large numbers of stores which sell a single commodity, for example, tires, cooking utensils, textiles, or jewelry. Such stores are generally located in bazaar areas and tend to be situated near many other shops carrying similar goods. There are as yet no shopping malls or large department stores in Pakistan; however, the government has built multi-storied shopping plazas in Islamabad and Karachi with several stores rented out to retailers. If this concept succeeds, other complexes will be established in various cities.

Foreign companies considering marketing their products in Pakistan may choose to use the services of local distributors or may develop their own distribution chain. Distributors in the urban areas generally deal on an exclusive basis. Some market consultants estimate that the services of 100-300 distributors would be required for nationwide coverage. One very large multinational company selling consumer products employs 500 distributors to reach a significant portion of Pakistan's small towns and villages.

As a matter of policy, most companies do not provide credit to distributors, and distributors in turn generally sell on a strictly cash basis to retailers. Smaller distributors often do provide credit to retailers, but the volume of such transactions is relatively insignificant.

Pakistan's wholesale market is fairly well developed, with about 1,000 to1,500 wholesalers constituting this segment of the distribution network. Karachi is the major distribution center and wholesale terms there are representative. Approximately one-fifth of the wholesalers in Karachi sell on a consignment basis. Fewer than one-third of the wholesalers allow discounts to their customers, but the granting of 30 to 90 day credit is common. Because of limited financial resources, retailers generally sell on a cash only basis. Consumer credit in Pakistan remains an insignificant portion of the total commercial credit. Foreign companies selling industrial or capital goods often sell directly to the end-user or, if the market is fairly large, they appoint one major distributor, who then sells either to sub-distributors or directly to end-users.

B. Use of Agents/Distributors: Finding a Partner

Many foreign firms in Pakistan appoint local agents to provide market intelligence and to facilitate distribution. These agents typically work on a fixed commission, which can range from two to 10 percent for plant and equipment purchases and from 15 to 20 percent for spare parts. Commissions may be computed on f.o.b., ex-factory, or c.i.f. basis, as mutually agreed. Some agents prefer to have suppliers quote net prices to them and they, in turn, add the commission to arrive at their selling price. Other agents operate as consultants on a fixed-fee basis, receiving their fee regardless of the volume of total sales.

Probably the most common arrangement is the exclusive agency agreement, under which the supplier agrees to neither appoint another dealer/distributor, nor to negotiate sales through any other party. In return, the agent is barred from handling similar items produced by other companies. Under this arrangement, the agent receives commissions on all sales of the product regardless of the channels through which the order is placed. He often imports and stocks the spares most frequently required by the end-users. Agency agreements typically extend for a term of one to three years and generally require 30 to 90 days notice by either party for termination.

Overseas suppliers may look after the interests of their local agents in various ways. For example, the principal may arrange separate payments to the local agent for provision of after-sales service during and beyond the warranty period. The principal often compensates the local agent for providing technical and administrative support services not directly related to any specific sales transaction.

The Commercial Service of the U.S. Department of Commerce (USDOC) can provide assistance in locating potential agents and representatives abroad through its Agent/Distributor (ADS) and Gold Key services available through USDOC district offices in the United States. The "International Company Profile" (ICP) can provide information on individual agents.

C. Franchising

The concept of franchising is gradually gaining acceptance in Pakistan, especially in the hospitality sector. Several major U.S. hotel chains, two major U.S. restaurants, and a U.S. car rental company are currently represented in Pakistan through franchisees. Other leading U.S. fast-food companies are looking into the prospects of entering this market, and have done some major groundwork.

Franchising provides U.S. companies with a fairly swift way to enter the market without a major capital commitment. By operating through local franchisees, U.S. firms can gain access to local expertise and significantly reduce the problems of adjusting to an unfamiliar business environment. However, franchising is not without drawbacks. Potential areas of tension between franchisor and franchisee include quality control, intensity of marketing efforts by the local franchisee, and possible conflict of interest on part of the franchisee. The local affiliate may end up as a competitor once the franchise agreement expires or is terminated.

A key consideration in establishing a franchise operation in Pakistan is quality control, particularly if the enterprise proposes to use locally produced items. The quality of local items is often inconsistent and must be closely monitored. Some U.S. franchisors in Pakistan have run into quality-control problems and have either terminated operations or allowed the operation to blend into the local economy and let the image of an international franchise lapse. Importing inputs, especially food ingredients, also poses problems for franchises. Import regulations are often vague and interpretations can change with little or no prior notice. In Pakistan, all imported food items, particularly meat items must be certifiably "Halal", (slaughtered in the proper ritual Islamic manner).

Selection of a franchisee is critical because usually it involves a long-term relationship. Prior to entering an agreement with a local company, U.S. firms may commission an ICP on the local company, by paying the appropriate fee to their local district office of the U.S. Department of Commerce. U.S. firms are, of course, advised to identify a number of candidates and evaluate each carefully.

The franchise agreement must be carefully drafted to protect the interests of the parties. The franchisor must be able to retain some direct control over operations, even after transfer of business and technical know-how. Crucial elements of the franchise agreement include territorial coverage, duration, franchise rate, protection of trade secrets, quality control, and minimum performance clauses. The U.S. firm should assure that its patents and trademarks will be registered in its own name rather than that of the franchisee.

Major U.S. companies with franchise operations in Pakistan include Marriott, Ramada Inc., Sheraton, Holiday Inn Crown Plaza, Best Western, Pizza Hut, Kentucky Fried Chicken and Avis

D. Direct Marketing

Direct marketing in Pakistan until recently was limited to direct mail advertising, with leading pharmaceutical firms and large publishing groups as major users. The pharmaceutical companies were reaching out to doctors, hospitals, and other medical professionals, and the publishers were using direct mail to reach out to their existing subscribers of magazines and publications for repeat business. However, the inception of telemarketing and greater use of courier services have recently broadened the scope of direct marketing.

The concept of direct marketing is gradually gaining acceptance in the Pakistani marketplace, driven by the efforts of several multinational companies. Low costs for domestic mail and local telephone calls make this a potentially cost-effective sales medium. The major drawbacks to direct marketing in Pakistan are the lack of readily available mailing lists and the paucity of reports on consumer preferences, making it difficult to target and reach the intended audience. Efficient mail, courier, and telephone services are generally limited to major urban areas, confining the current reach of direct marketing to the cities of Karachi, Lahore, Rawalpindi/Islamabad and Peshawar.

U.S. companies considering direct marketing in Pakistan should take local customs and cultural values into consideration before launching a campaign. The use of a local advertising agency is advisable in implementing the direct marketing option. A few advertising agencies have separate direct marketing departments. Now, a major U.S. bank has also begun to offer this service.

E. Joint Ventures/Licensing

The three principal routes to entering the Pakistan market are: (1) formation of a wholly-owned private company; (2) formation of a public limited company (foreign firm retains majority control, but seeks public participation through stock flotation); and (3) establishment of a company in cooperation with joint venture partners, who supply local expertise, management, and capital.

The joint venture may be either a private or a public company. Joint ventures can be an attractive option in Pakistan today because there are many local entrepreneurs who have built a substantial base in their industrial enterprises and are seeking to combine their knowledge of local markets with foreign capital and technological know-how. The foreign joint venture partner limits its initial country exposure while enjoying the support of a local partner in a new market and prominent joint ventures have been established in the automobile, fertilizer, electronic, financial services, food, and consumer product sectors.

Firms wanting to delay direct entry into the Pakistan market should consider licensing arrangements with Pakistani firms, an option that permits them to enter the market in stages if the initial response is promising.

F. Steps to Establishing an Office

A business in Pakistan may be organized as a sole proprietorship, a partnership, or as a public or private limited company. Foreign investors generally establish limited companies as required under the Companies Ordinance, 1984. They must register with the Registrar of Companies. Company registration offices are located in each of the provincial capitals and also in Islamabad and Multan. A company making any public offer of securities for sale or intending to issue capital beyond Rs. 100 million is required to obtain approval from the Controller of Capital Issues (CCI).

After completion of the required formalities, firms should apply for necessary utilities to the authorities below:

Electric Power: Karachi Electric Supply Corporation (KESC), for the Karachi area, and Water and Power Development Authority (WAPDA) for the rest of the country.

Natural Gas: Sui Northern Gas Pipelines (for Punjab and NWFP) and Sui Southern Gas Company (for Sindh and Baluchistan).

Telephone, Fax: Pakistan Telecommunications Corporation (and private cellular phone companies).

Water: Local governmental authorities. All manufacturing concerns employing more than 10 persons are required to register with the appropriate provincial Chief Inspector of Industries under the Factories Ordinance, 1984.

Within 30 days of establishment, foreign companies must file the following documents with the Registrar of Joint Stock Companies, Ministry of Finance:

• a certified copy of the charter, statutes, or memorandum, and articles of association of the company;
• the full address of the registered or principal overseas office of the company;
• the names of the chief executive and directors of the company;
• the names and addresses of persons resident in Pakistan who are authorized to accept any legal notice served on the company.

U.S. firms may find it advantageous to use the services of a local attorney in complying with these formalities.

G. Selling Factors/Techniques

Imports - Imports of goods into Pakistan require a Compulsory Letter of Credit (L/C), unless a special exemption is obtained in advance. Revolving, transferable, and packing letters of credit are not permissible. Letters of credit should provide for negotiation of documents within a period not exceeding 30 days from the date of shipment.

Payment to the beneficiary (stipulated in the L/C) may be made either in the country of origin or in the country of shipment of goods. Other payment terms are subject to approval by the State Bank of Pakistan (SBP). Remittances may be made soon after goods have been cleared by Customs.

Pakistan Customs authorities require a commercial invoice and a bill of lading (or airway bill). Exporters should forward documents separately if shipment is by sea, but should include them with air shipments. Certificates of origin are not legally required but may be requested by the consignee or consignee's bank. When a certificate of origin is not requested, a statement of country of origin should appear on the invoice. Consular invoices are not required.

The exporter should also be sure to ascertain from the importer the precise number of copies of each document which will be required. Other documents, such as insurance certificates and packing lists, also may be requested by importers, depending on the specific circumstances. Customs authorities require special certificates for imports of plants and plant products and used clothing (e.g. a U.S. Food and Drug Administration certificate for foods and pharmaceutical). In order to expedite the process and to avoid potential delays and penalties, exporters should request detailed instructions from the Pakistani importer prior to shipping.

H. Advertising and Trade Promotion

Pakistan has over a dozen major advertising agencies, some with foreign affiliation. Advertising agency commissions are usually 15 percent of the cost of the advertisement. Information concerning advertising agencies may be obtained from the Pakistan Advertising Association, 232 Hotel Metropole, Abdullah Haroon Road, Karachi.

Newspaper advertising is the most widely used method of advertising. Other advertising vehicles include radio, television, billboards, periodicals and trade journals, direct response advertising, and slides and commercial film shorts in movie theaters.

Pakistan has over 115 daily newspapers. The Daily Jang, published in Urdu, is the single largest newspaper, with an estimated national circulation of almost 750,000. Combined circulation for the roughly 13 English-language newspapers is approximately 200,000. The principal English-language daily newspapers are Dawn (published in Karachi), The News (Islamabad, Lahore, Karachi), The Nation (Lahore), The Muslim (Islamabad), The Frontier Post (Peshawar, Lahore), Financial Post (Karachi) and The Business Recorder (Karachi). Although the English-language press reaches only a small fraction of the population, it is influential in political, business, academic, and professional circles. The former Ambassador of Pakistan to the United States is the current editor of the News. The two major English-language general magazines are the monthlies, The Herald and Newsline. The principal English-language weekly economic magazine is the Pakistan & Gulf Economist, published in Karachi, and there is also a widely-read English weekly Friday Times published from Lahore. The Dawn (http://xiber.com/dawn/), The News (http://www.jang-group.com/thenews/thenews/index.html) and the Nation (http://www.brain.net.pk/nation/) are now also available on the Internet.

Almost all broadcasting outlets in Pakistan are government-owned and operated, but accept private advertising. Television is broadcast in color on three channels, using the PAL system. English language programs are broadcast for about two hours a day on the larger Pakistan Television Corporation (PTV) and for eight to ten hours a day on the Shalimar Television Network (STN). A 30-second commercial in prime time currently costs $716 on PTV and $732 on STN.

Satellite television broadcasts have also made inroads in Pakistan and it is estimated that more than 150,000 dish antennas are presently installed in the country. About a dozen channels are received through satellites reaching about 2 million viewers.

Radio broadcasting time lasts approximately 17 hours a day. The standard advertising rate on the Radio Pakistan network for commercial firms and products is approximately $117 for a 30-second spot. The government has recently allowed a private company to operate an FM broadcast service. The FM- 100 is Pakistan's first FM stereo music channel, available round the clock, in Karachi, Islamabad and Lahore. The license granted by the government does not permit them to do new and current affairs programs.

Pakistan currently allows trade advertising material other than commercial catalogues to enter duty-free, but levies a 12.5 percent sales tax on those items. Samples may be admitted duty free only if they are representative parts of a complete shipment or are unsuitable for sale. The duties applicable to commercial shipments apply to samples having a commercial value.

Trade Shows - The textile and leather industries and the Computer Society of Pakistan hold annual events for export promotion purposes and for the local industry, respectively. U.S. Department of Commerce-sponsored catalogue/product shows and video catalogue exhibitions can be useful vehicles for generating sales leads and for locating suitable agents and distributors. Trade and seminar missions can also provide valuable first-hand insights into the Pakistani market, as well as serving to introduce U.S. equipment and technology. Trade missions can educate government and other end-users about product availability, technical characteristics, quality, and price, and can establish contacts with key organizations to promote product awareness.

U.S. firms should also consider participation in regional events (focusing on either South Asia or the Middle East) in order to reach potential Pakistani purchasers, agents, and distributors.

I. Pricing Products

Product pricing is often difficult for new entrants to the Pakistan market, principally due to the country's complex tax structure. Foreign companies represented by a local agent, distributor, licensee, or other intermediary generally work closely with their local affiliates in determining prices.

Relatively high shelf prices frequently include a substantial tax component, which can add nearly 50 percent to the retailer's purchase price. High prices for imported consumer items have created a large market for goods coming into Pakistan through the "informal channel." Large quantities of goods are brought in by expatriate Pakistanis and professional couriers from the Gulf region in their personal baggage. In some segments of the market, goods brought through this channel have market shares ranging from 50 to 95 percent.

As an illustration of the scale and complexity of various taxes and duties imposed on imported consumer items, marketers of products build into their final sales price the following factors: landing charges (approximately 1.0 percent of initial price); customs duty; sales tax; octroi (a municipal tax); bank charges; and insurance. Pricing of non-consumer items is based on different parameters. Most foreign companies in this market segment are also represented by agent/distributors and give their local affiliates significant latitude in pricing decisions. Agents often opt for higher sales turnover by reducing their margins, allowing them to generate more revenue through a higher volume of sales. In other cases, local agent/distributors may add up to 30 percent to the list price as their commission, depending on the nature of the product. For duty and tariff purposes, they quote the principal's list prices only. On average, retailers mark up imported machinery and equipment 10 to 15 percent and imported general merchandise 20 to 30 percent.

Many local agent/distributors now quote their prices in U.S. dollars because of the gradual but steady depreciation of the Pakistani rupee.

J. Sales Service/Customer Support

In Pakistan, the end-user generally requires comprehensive and reliable after-sales support on all durable and non-consumer items, accompanied by good documentation and instructions for product installation, operation, and repair. Many purchasers choose a complete turnkey package, which often includes employee training.

Foreign sellers generally require local agent/distributors to maintain a certain minimum inventory of spare parts. Most agents provide a warranty and "free maintenance" for one year, building the cost of maintenance into their overall price.

It is a common practice for end-users to demand a guarantee that the supplier will respond to questions or rectify faults in the equipment within a specified period of time. The time period may vary from a few hours to several days, depending on the nature of the product and the fault in the equipment.

K. Selling to the Government

Pakistani government agencies and public sector companies allow only exclusive agents to submit bids for tenders as an assurance that they receive only one quotation from each supplier. Many firms (especially Japanese) add a clause on direct negotiation which allows them to deal directly with the end-user, should the firm believe that the agent may have difficulty in concluding a sale. On such sales, the commission payable to the agent, if any, is determined by the principals and is based on the proportion of services rendered by the agent.

Pakistani law does not prohibit payment of commissions on commercial procurement of large amounts of military equipment. However, the Directorate General Defense Purchase (DGDP) requires that the foreign principal provide the following: ex-factory value of items supplied; FOB value of these items; and percentage or amount of commission/or any other fee for services provided by the local agent. Commercial procurement of small to medium amounts of military equipment is generally made through local agents of overseas manufacturers and suppliers.

L. Protecting Your Product from IPR Infringement

Pakistan is a member of the World Intellectual Property Organization (WIPO), the Universal Copyright Convention, and the Bern Copyright Union, but not of the Paris Convention for the Protection of Industrial Property. U.S. citizens receive national treatment on patent, copyright, and trademark matters, but enforcement of the law is weak. The United States and Pakistan have held a series of official discussions on intellectual property protection aimed at strengthening the rights of U.S. companies and individuals.

Pakistan's patent law provides for process but not product patent protection for pharmaceutical and agrichemicals. Proving infringement of a process patent is relatively more difficult and such patents are more easily circumvented than product patents. Copyright infringement is an area of great concern. Although Pakistan is a member of the Universal Copyright Convention, U.S. companies (e.g. book publishers, video film producers, and computer software companies) have complained that Pakistan's copyright law enforcement is ineffective and that penalties for violation are extremely weak. In September 1992, a statutory amendment, which generally strengthens penalties against copyright infringement, became law.

In the past, foreign investors had experienced difficulties in obtaining government approval for royalty and technical fee agreements, but revised laws and regulations have largely eliminated this problem. Limits on royalty and technical fee payments have also been abolished. The United States has proposed a bilateral agreement on protection of intellectual property rights; the GOP is now considering that proposal.

M. Need for a Local Attorney

For multinational corporations considering capital or industrial investments in Pakistan, local legal counsel may provide useful insights into the local laws and business environment, identification of the appropriate business structure (such as a liaison office, a branch office or a wholly-owned subsidiary), and advice and assistance in drafting appropriate agreements and complying with local regulatory requirements.

After the decision to invest has been made, local legal assistance may be required to obtain operating licenses, incorporate legal entities, comply with appropriate corporate formalities, obtain work permits for expatriate personnel, and negotiate employment contracts for local staff. For ongoing operations, local counsel can update investing firms on statutory and regulatory developments and provide day-to-day advice on matters such as tax compliance and protection of intellectual property rights.

V. LEADING SECTORS FOR U.S. EXPORTS AND INVESTMENT

This Section lists 14 sub-sectors in the non-agricultural sector, and 9 in the agricultural sector. The non- agricultural sub-sectors are grouped in three ranks beginning with the most promising (Rank I). The agricultural sub- sectors are listed in descending order of importance. Data are in millions of U.S. dollars, unless otherwise noted.

A. Best Prospects for Non-Agricultural Goods and Services

Industrial Export Prospects

I. Title: Pollution Control Equipment
Rank of Sector: (I)
Name of Sector: Pollution Control Equipment
ITA Industry Code: POL II.

Comments: The pollution prevention/control equipment market is growing at the rate of ten percent annually as a result of recent legislation and demand for eco-labelling from foreign buyers of Pakistan products (leather and textiles).

The best sales opportunities are in the following industry sectors: (i) leather tanneries: primary treatment plants for individual units as well as combined secondary effluent treatment plants for clusters of units; (ii) textile mills: primary and combined treatment plants for wastewater; (iii) chemical industry: water pollution from pesticides and insecticides; (iv) fertilizer industry: water pollution. Government and municipal authorities are also looking at ways to control motor vehicle pollution and at solid waste management.

There is a preference for used equipment and plants; importers also require back up services for equipment/plant maintenance. The main competitors to U.S. products are Holland, Japan (both governments have given Pakistan substantial aid-tied-to-trade in the POL sector) and Korea.

III. Data Table:
USD MILLIONS                   1995/96   1996/97   1997/98
A.   Total market size           17.14     25.00     25.00
B.   Total local production       ­         ­         1.25
C.   Total exports                ­         ­         ­
D.   Total imports               17.14     25.00     23.70
E.   Total imports from U.S.      0.86      1.16      1.16
     Exchange rate (rupees/$)    33.6      39.1      43.0
Note: The above statistics are unofficial estimates.

I. Title: Agricultural Chemicals
Rank of Sector: (I)
Name of Sector: Agricultural Chemicals
ITA Industry Code: AGC

II. Comments: Agriculture is the backbone of Pakistan economy. Agricultural production is the single major contributor to the Gross Domestic Product (GDP), the contribution being one-third. Forty percent of Pakistan's total area of 197 million acres is cultivable land and produces a wide variety of crops including cotton, rice, wheat, sugarcane and tobacco. Improved government policies and support have spurred agricultural production during the past ten years. The U.S. is a leading supplier of Di­Ammonium Phosphate (DAP) and also has major share of the market for Malathion. The average import market for agricultural chemicals is about U.S. $272 million which is expected to grow by 10 percent in view of the greater emphasis on raising agricultural production. Other major suppliers of insecticides are Germany, Switzerland, France, and the Netherlands.

Most promising subsectors and estimated market size for 1998 are: Di­Ammonium Phosphate ($122 million); Pesticides, Herbicides, and Fungicides ($80 million).

III. Data Table:
     USD MILLIONS             1995/96   1996/97   1997/98
A.   Total market size          906.2     856.9     849.4
B.   Total local production     609.5     593.5     598.5
C.   Total exports                1.5       2.0       2.0
D.   Total imports              298.2     265.4     252.9
E.   Total imports from U.S.    134.0     128.0     128.0
     Exchange rate (rupees/$)    33.6      39.1      43.0

Note: The above statistics are unofficial estimates.

I. Title: Industrial Chemicals
Rank of Sector: (I)
Name of Sector: Industrial Chemicals
ITA Industry Code: ICH

II. Comments: Pakistan's market for Industrial Chemicals is expanding gradually, offering good sales opportunities for U.S. exporters. For FY 1996 the total market is estimated at about U.S. $1,171.5 million, including imports estimated at U.S. $1,036.5 million. Local production of chemicals largely is confined to soda ash, caustic soda, sulfuric and hydrochloric acid, sodium bicarbonate, liquid chlorine, aluminum sulfate, carbon black, acetone and acetic acid. Although imports account for most of the market, local production is expected to increase as new plants come on stream in the next two years. U.S. share of imports has averaged between 8 and 10 percent during the last several years. Major competitors are Switzerland, the UK, Germany, China, and Japan.

Most promising subsectors and estimated market size for 1998 are: Organic Chemicals ($125 million); Inorganic Chemicals ($68.5 million); Dyeing, Tanning, and Coloring materials ($103 million); Oils, Perfumes, and Flavors ($25 million); Resins and Plastic Materials ($238 million).

III. Data Table:
     USD MILLIONS             1995/96   1996/97   1997/98
A.   Total market size        1,207.0   1,171.5   1,181.5
B.   Total local production     172.0     172.0     180.0
C.   Total exports               36.0      37.0      38.0
D.   Total imports            1,071.0   1,036.5   1,039.5
E.   Total imports from U.S.     80.0      75.0      75.0
     Exchange rate (rupees/$)    33.6      39.1      43.0

Note: The above statistics are unofficial estimates

I. Title: Telecommunications Equipment
Rank of Sector: (I)
Name of Sector: Telecommunications Equipment
ITA Industry Code: TEL

II. Comments: The telecommunications sector has significant potential for growth. The private sector now actively participates in its expansion and development, supplying cellular telephones, paging services, and card­operated telephones. Despite strong competition from foreign suppliers (Siemens of Germany, Alcatel of France, and Ericsson of Sweden), all of whom have had a strong presence in Pakistan for several years, U.S. firms can increase their market share as Pakistan invests in fiber optics, digital switching systems, and data communications networks. The anticipated privatization of the Pakistan Telecommunications Corporation (PTC) will offer additional opportunities.

Most promising subsectors and estimated market size for 1998 are: Telephone Sets ($16 million); Telephone Switching Apparatus ($45 million); Parts for Telecommunications Equipment ($185 million); Electric Telephone Cables ($85 million).

III. Data Table:
     USD MILLIONS           1995/96   1996/97   1997/98
A.   Total market size          310.5     321.5     349.0
B.   Total local production      86.5      87.5      89.5
C.   Total exports                0.5       1.0       1.5
D.   Total imports              224.5     235.0     261.0
E.   Total imports from U.S.      7.0       7.5       8.5
     Exchange rate (rupees/$)    33.6      39.1      43.0

Note: The above statistics are unofficial estimates.

I. Title: Electrical Power Systems
Rank of Sector: (I)
Name of Sector: Electrical Power Systems
ITA Industry Code: ELP

Comments: Pakistan has faced chronic energy shortages as demand has outstripped supply. In March 1994, the Government of Pakistan (GOP) promulgated a policy package to attract investment in private sector projects. As a consequence it received several applications from private sector power developers. Seventeen independent plants are to be commissioned before the end of the century, adding a total of 3,219-MW to the country's installed generation capacity. Liberal agreements signed with private sector thermal power developers, the paucity of funds, the lack of supporting infrastructure and the relatively higher rates for thermal power have now compelled the government to seriously consider the establishment of hydel projects in the private sector, and to rethink its thermal policy. New policies for both thermal and hydel power generation are expected to be announced in July 1997. In an effort to develop an accompanying transmission network for the independent power plants, the GOP announced a new transmission policy in early 1995, which opened EHV lines and associated substations to the private sector. Further, all of WAPDA's thermal units are to be privatized, as is its distribution network. KESC is also slated for privatization.

Most promising sub­sectors and estimated market size for 1998 are: Power generation equipment (USD 691.6 million); transmission equipment (USD 264 million).

III. Data Table:
     USD MILLIONS           1995/96   1996/97   1997/98
A.   Total market size        1,132.6   1,215.3   1,141.6
B.   Total local production     514.5     513.4     550.0
C.   Total exports                2.0       1.9       2.0
D.   Total imports              620.1     703.9     593.6
E.   Total imports from U.S.     30.4      67.8      73.0
     Exchange rate (rupees/$)    33.6      39.1      43.0

Note: The above statistics are unofficial estimates.

I. Title: Plastic Materials and Resins
Rank of Sector: (II)
Name of Sector: Plastic Materials and Resins
ITA Industry Code: PMR

II. Comments: Pakistan offers a good and expanding market for plastic materials and resins. With little domestic production, Pakistan depends largely on imported raw materials to produce a wide variety of plastic products for consumer and industrial uses. The import of plastic materials and resins in both primary and non­primary forms has grown by more than 10 percent annually during the last several years. Some domestic manufacturing facilities are in the planning stages, but until these plans come on stream Pakistan will continue to depend largely on imported raw materials. Major international companies and brands represented in Pakistan include BASF, Bayer, Hoechst, ICI, Rhone Poulenc and Himont. The United States, with a market share of about 15 percent in 1996, is one of the leading suppliers. Saudi Arabia and Germany are its major competitors. Other suppliers include Japan, the U.K., Belgium, South Korea, Singapore, the Netherlands, Italy, China and France.

Most promising subsectors and estimated market size for 1998 are: Polyethylene, gravity less than 0.94 ($18 million); Polyethylene, gravity above 0.94 ($20 million); Polypropylene ($35 million); Polystyrene ($9 million); Polyvinyl Chloride (PVC) ($35 million); Polyesters in primary form ($10 million); Silicones in Primary forms ($5 million).

III. Data Table:
     USD MILLIONS           1995/96   1996/97   1997/98
A.   Total market size          269.5     257.5     258.0
B.   Total local production       7.0       7.5       8.0
C.   Total exports                0.5       1.0       1.0
D.   Total imports              263.0     251.0     251.0
E.   Total imports from U.S.     28.0      28.5      29.0
     Exchange rate (rupees/$)    33.6      39.1      43.0

Note: The above statistics are unofficial estimates.

I. Title: Iron and Steel
Rank of Sector: (II)
Name of Sector: Iron and Steel
ITA Industry Code: IRN

II. Comments: Pakistan both produces and imports iron and steel products. A large state-owned steel manufacturing facility, Pakistan Steel Mills Limited, and other manufacturers produce pig-iron, hot and cold-rolled products, ingots, and galvanized items. Although domestic production will rise with the expansion of capacity at Pakistan Steel, imports are also projected to increase due to growth in infrastructural and industrial development. Major foreign suppliers are the United States, Japan, Germany, U.K., France, China, Belgium, and Brazil.

Most promising subsectors and estimated market size for 1998 are: Pig Iron and Ferro-alloys ($58 million), Ingots, etc. ($107 million); Flat-rolled Products ($75 million); Coated Flat-rolled Products ($116 million); Flat-rolled Products of Alloy Steel ($47 million); Iron and Steel Tubes and Pipes ($55 million); Stainless Steel sheets ($7 million); Iron and Steel Bars, Rods, and Angles ($18 million); Iron and Steel Wire ($12 million).

III. Data Table:
     USD MILLIONS              1995/96   1996/97   1997/98
A.   Total market size        1,461.5   1,392.5   1,390.5
B.   Total local production   1,070.0   1,036.0   1,036.0
C.   Total exports            ­         ­         ­
D.   Total imports              391.5     356.5     354.5
E.   Total imports from U.S.     34.0      34.0      35.0
     Exchange rate (rupees/$)    33.6      39.1      43.0

Note: The above statistics are unofficial estimates.

I. Title: Drugs and Pharmaceutical
Rank of Sector: (II)
Name of Sector: Drugs and Pharmaceutical
ITA Industry Code: DRG

II. Comments: There are over 400 licensed pharmaceutical companies in Pakistan, including 35 multinationals who have over 60 percent of the market share. Approximately one­third of Pakistan's total consumption of pharmaceutical is imported, but only a small percentage of this comes from the U.S. imports of finished drugs are expected to increase. There is good market potential for antibiotics, vaccines, therapeutic medicines, analgesics, tranquilizers, hormones and derivates, blood pressure control drugs, anti-ulcerants, drugs for the treatment of cardiac conditions, cancer, psychiatric drugs, contraceptives and birth control prescriptions.

Government policy categorizes drugs into essential and non- essential categories. Essential drugs can be imported freely but their prices are fixed by the government. The prices of non­essential drugs are not fixed but these can be imported only for a period of up to three years provided the local importer commits himself (a) to creating a local market for the drug and (b) to manufacture locally after the initial import period has expired. At present, ninety percent of the drugs imported are non-essential.

Though local production of drugs increased in recent years, the pharmaceutical industry is now routed by new taxes and tariffs: In 1996, the government imposed ten percent customs duty on both raw and finished pharmaceutical products, and ten percent sales tax on imported raw materials (four percent of the sales tax was later allowed to be passed on to the consumer). The prices of essential drugs were not allowed a corresponding increase. This inequity, compounded by devaluation of the rupee, has affected market growth and is reflected in the figures listed below:

III. Data Table:
     USD MILLIONS           1995/96   1996/97   1997/98
A.   Total market size          896.0   1,023.0   1,089.0
B.   Total local production     658.0     767.0     871.0
C.   Total exports               36.3      27.5      22.0
D.   Total imports              270.0     222.0     218.0
E.   Total imports from U.S.     22.0      15.5      17.5
     Exchange rate (rupees/$)    33.6      39.1      43.0

Note: The above statistics are unofficial estimates.

I. Title: Oil and Gasfield Machinery and Supplies
Rank of Sector: (II)
Name of Sector: Oil and Gasfield Machinery and Supplies
ITA Industry Code: OGM

II. Comments: Oil and gas account for over 80 percent of the total commercial energy supply in the country. The average oil production during July 95 to March 96 was 56,606 bpd. The production of natural gas during the same period was 1,806 mmcfd. The government attaches high priority to energy sector. A series of new petroleum policies, announced in late 1991, September 1993, and February 1994 which offers attractive incentives to upstream and downstream petroleum industries to develop an indigenous base in exploration and production. It is expected that oil and gas field machinery and supplies will grow by an average annual increase of 15 percent for the next three years. The total import market during FY 1996 is about U.S. $120 million. The import from the United States is estimated at U.S. $40 million. The major competitors are Australia, Japan, Singapore and China.

The sale of field machinery and services for oil and gas sector is an erratic. In some years when there are various projects under implementation the sale and supplies of machinery may be very high, but in other years it may be very low due to slackness in activities. Several U.S. companies are actively involved in oil and gas exploration in Pakistan.

Most promising subsectors and estimated market size for 1998 are: Oil Recovery and Process Equipment ($52 million); Drilling Equipment for Oil & Gas ($25 million); Separation plant: Oil & Gas ($17 million); Pipeline Equipment ($8 million); Pipeline Corrosion Control ($5 million); Pipeline Construction Equipment ($5 million).

III. Data Table:
     USD MILLIONS           1995/96   1996/97   1997/98
A.   Total market size          141.0     141.0     145.4
B.   Total local production      19.0      21.0      21.0
C.   Total exports                ­         ­         ­
D.   Total imports              122.0     120.0     124.4
E.   Total imports from U.S.     38.5      40.0      42.0
     Exchange rate (rupees/$)    33.6      39.1      43.0

I. Title: Pumps, Valves, and Compressors
Rank of Sector: (II)
Name of Sector: Pumps, Valves, and Compressors
ITA Industry Code: PVC

II. Comments: The U.S. is one of the leading suppliers of imported pumps, valves, and compressors. Others are Japan, China, Germany, France, the U.K., and Italy. Growth in industrial activity and investment should continue to result in increased demand for pumps, valves, and compressors.

Most promising subsectors and estimated market size for 1998 are: Centrifugal Pumps (