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SAZH-TAF Report on FDI

Political - Security Clearance

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Members of our Round Table pointed out that one of the most common issues, in particular with the barrier to entry that a foreign investor faces in practice, is the security clearance requirement.


In our conversations with various senior law firms and accountants from the big four accounting firms, who represent foreign investors, it became clear that the requirement of a No-Objection Certificate (NOC) for foreign investors, creates a disturbing perception of Pakistan and its regulatory environment. There appears to be no transparency, nor communication with the investors about the process and progress of an application for such an NOC. While the SECP is the front-facing organization with whom the lawyers engage for the NOC, it is obvious that various other ministries and agencies play a role in granting security clearance. In practice, that translates to uncertainty as to the progress and timeframe of an NOC application, which if denied, after however, many years, would necessitate that the foreign investor resign as a director and immediately sell his shares. The sale of shares is also a difficult matter, as the barrier to exit discussed below causes further complications.


In addition to that, through our conversations with officials from the BOI, we were told that they receive several requests where foreign investors want to come to Pakistan. The barrier to the initial stage of investment is that investors are uncertain if their investment will be safe as getting approval or rejection can take a couple of years. As per our legal experts, the only way investors find out about approval is when the SECP allows them to take certified copies of forms pertaining to the company in which the investor has invested. So, if the SECP allows them to make copies then they know that they have been officially cleared. Again, the key concern remains that they do not get an actual letter or notification from the Ministry, resultantly the entire process seems thoroughly arbitrary and opaque. This leaves an embarrassing and concerning level of uncertainty, which the experts advising the investors do not have answers to, nor do they know when or how these answers will come. Hence, this uncertainty with regards to security clearance heavily dissuades foreign investors.


It was insisted in our Round Table, that resolving the security clearance matter to allow greater transparency and procedural consistency is paramount to solving one of the biggest hidden issues of entry of FDI in Pakistan.

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