Hindrance in profit repatriation to strangle FDI inflow: MD Mondelēz Pakistan

KARACHI: Mondelēz Pakistan’s Managing Director Sami Wahid said Pakistan’s ability to attract Foreign Direct Investment (FDI) will be hindered in a situation where foreign investors cannot repatriate profits they make on their investment.

“One of the main reasons for the historic drop in FDI is our inability to repatriate profits,” Wahid told Business Recorder in a recent interview.

“FDI last year was 0.3% of GDP– the lowest in the past three decades. Inability to repatriate profits is a key driver behind the falling figure along with inconsistent economic policies and regular currency fluctuations.

“Foreign investors have multiple options around the globe to invest in. Without consistency of economic policies and inability to repatriate profits, we will not be able to attract foreign investors.”

Pakistan attracted a meagre $1.456 billion as net FDI last fiscal year (FY23). This year, the two-month amount stood at $234 million, a slight improvement year-on-year, but nowhere near the standards for an economy struggling with dollar reserves and high debt.

Experts have repeatedly stressed that Pakistan’s ability to attract investment will be a key factor as it fights with a chronic boom-and-bust cycle of growth. Additionally, its low level of foreign exchange reserves will also need some push through FDI.

Wahid said Pakistan’s bailout programme with the International Monetary Fund (IMF) – signed desperately by the previous coalition government at the very end of its tenure – is “short-term relief”.

“Agreement with the IMF gives much-needed forex liquidity to the industries to keep their plants running – though it’s a short-term relief, we have to find long-term solutions within.”

Wahid’s remarks come as foreign entities find it difficult to repatriate profits back to their parent companies amid dollar shortage in Pakistan, which also prompted import restrictions earlier this year.

Mondelēz Pakistan Limited is part of Mondelēz International, Inc. which operates in over 150 countries around the world. It is a member of the S&P 500, Nasdaq 100 and Dow Jones Sustainability Index, and remains among the leading producers of confectionery, food, beverage and snack food items.

“Mondelēz in 2022 had a turn-over of $31 billion,” Wahid said.

There are solutions to all our problems. If we fully accelerate our localisation agenda and work on an inclusive and multi-lever exports strategy (not dependent on one to two sectors), we can bridge this gap in a matter of a few quarters: Mondelēz Pakistan’s Managing Director Sami Wahid

The company holds the top position in biscuits (cookies and crackers) and second in chocolate globally. Some of Mondelez’s brands include Oreo, Cadbury, Toblerone, LU and Tang.

In Pakistan, Mondelēz manufactures and distributes brands like Cadbury, Perk, Tang, Eclairs and Soft-mints.

Mondelēz International also has a joint-venture setup with Continental Biscuits that manufactures and distributes LU branded biscuits. CBL is managed by the local partners in Pakistan.

Wahid said the company does rely on imports because of the climate situation.

“Our climate is not suitable for growing cocoa. We have to import around 55% of the materials to produce locally at our plants that provide employment opportunities to thousands. Devaluation (of the currency) impacts our cost of production directly.”

Wahid said the past year in Pakistan has been very tough for businesses due to uncertainties.

“Inflation in the past one year has been the highest in our country’s 76-year history. The consumers’ purchasing power has been impacted hugely.

“Consumer confidence index monitored by Trading Economics touched a record low on April 23, lower than the Covid times. It indicates the sentiment of the public on the general economic situation.”

However, Wahid said Pakistan’s market has the potential to recover with a sustainable economic plan.

“Our regional and global leadership believes in the potential of Pakistan and things will turn around.

“Pakistan is a market of over 240 million people, a GDP of over $300 billion, full of young and competent people, natural resources, with great tourism opportunities. All this country needs is a clear-cut and sustainable economic plan.

“There are solutions to all our problems. We have an approximately 30% shortfall in our current account deficit. If we fully accelerate our localisation agenda and work on an inclusive and multi-lever exports strategy (not dependent on one to two sectors), we can bridge this gap in a matter of a few quarters. The government and the corporate sector need to work closer than ever to fast-track this,” he added.

“The documentation of the economy both at individual and businesses level is required to help the government meet its domestic revenue shortfalls.

“(And) Now is the time (to do it).

“A completely documented economy can help our reported GDP per capita go over $2,000.

“We need consistency in our policies for 5-10 years. We have seen the fruits of stability in our neighboring countries.

“Multinationals can play a huge role to help improve exports, and more and more industries should be part of multiple Free-Trade-Agreements (FTAs).

“Samsung from Vietnam alone exports $60 billion worth of goods. Snacking industry in Pakistan can also increase its exports multi-fold if it’s included in FTAs,” he added.

“Despite inflation, we are still competitive to many other markets on cost of producing goods.

“We as a company are still performing well financially, but clearly we are seeing the pressure growing on less affluent consumers. Many industries have already taken an impact on their financials, the current situation isn’t sustainable, if not reversed this will impact the other industries as well.”

Wahid said the snacking industry is facing challenges from unregulated players as well.

“But Cadbury as a brand has developed a taste in the country for the last two decades and commands high brand loyalty in Pakistan.

“We are now exporting our products to GCC countries, and working to double the amount.”

Wahid said the government needs to introduce and facilitate a localisation policy in the country.

“Machineries required to localise production should get priority for opening letters of credit. We have a blueprint to localise a sizable chunk of our material imports.”