Pakistan: Preferred Investment Destination

Most of the local and foreign investors often fall prey to tinted media reports about Pakistan. They may also be fully aware that foreign media ignores positive news, but loves to give prominence to items that are not even newsworthy according to international reporting standards. In todays blog effort has been made to put the record straight. 

Many overseas analysts say that foreign investors prefer to stay away from Pakistan, which is not correct. If one looks at the history spread over more than six decades, any company that entered Pakistan never took an exit  due to security reasons or unfriendly working environment. Those who left Pakistan, the decisions were driven by their policies, either pulling out of that particular business or this particular region. Some of the congloramates like Abbott, Glaxosmithkline, Linde, ICI, Siemens, Racket Binkezer, Unilever, Pepsi, Coca Cola and Standard Chartered Bank have been doing thriving business and increasing their stake in Pakistan. Those who have a rather brief history are KFC, Mc Donald, Nestle, Procter & Gamble, Colgate Palmolive and Gillette.

Pakistan enjoys a strategic location, enjoying common borders with China, (second largest economy of the world), India (third largest economy of the world), oil rich Iran, Afghanistan (gateway to energy rich Central Asian countries), more than 1,200 kilometers long coastline with three deep sea ports offering the shortest and most efficient transit facilities to Afganistan, Central Asian countries and even China. It will be correct to say that Pakistan is a natural trade and energy corridor.

Two of the proposed gas pipelines: 1) Iran-Pakistan-India (IPI) and 2) Turkmenistan-Afghanistan-Pakistan-India (TAPI) have to pass through Pakistan. These would not only help in earning millions of dollars as transit fee, but supply of gas to Pakistan will help in containing furnace oil import, an expensive fuel as compared to natural gas. 

Though, India is constructing Chabahar port in Iran and also linking it with central Asia by rail and road, it will be difficult to undermine the importance of Gwadar port and Pakistan. Keeping in view the success of (PARCO) Pak Arab Refinery (often termed mid-country refinery) some other Middle Eastern countries have shown keen interest in setting up three refineries near the coastline. First black and then white oil pipelines have been constructed that link PARCO with ports located in Karachi.

Those investors who decided to invest in Pakistan are fully aware of the real potential of the country. Some of these are: 1) market comprising of nearly 200 million people, 2) country enjoying ‘food security’, 3) having a vast cultivable area with world’s largest man-made irrigation system, 4) country among the top  producers of cotton, rice, sugarcane, wheat, milk and fruits like mango and kinnow (tangerine). 

Manufacturing sector, comprises of textiles and clothing units, sugar mills, fertilizer plants, automobile (four and two wheeler) assemblers, crude oil refineries, polyester staple fiber manufacturers, etc. Most of these industries have been operating below optimum capacity utilization due to failure to undertake timely BMR and shortage of electricity and gas.

In fact Pakistan has around 28,000MW power generation capacity, but output hovers around 16,000MW due to outdated power plants, also suffering from liquidity crunch which does not allow them to buy required quantity of fuel. Expolration and production companies face some difficulties in operating in Baluchistan and northern parts of Pakistan due to the ongoing war on terror, as militants hibernating in Afghanistan often indulge in cross border terrorism.

The average yield of major crops in Pakistan is low as compared to other countries located in the region, but the country has been a major exporter of textiles and clothing, rice, sugar and wheat. Nearly 15 percent of food cereals and 40 of fruits go stale before reaching the market because of inadequate storage and logistics. If modern storage facilities and farm to market transportation could be improved, not only the income of the farmers will be increased, but Pakistan would be able to earn more foreign exchange. Going for value addition will further increase the country’s exports.

If anyone foreign investor still has some doubts, he/she should approach the Overseas Chamber of Commerce and Investors (OCCI), American Business Council (ABC), German Business Forum.  The details may also be respective embassies and high commissions. Think about your business interest first and then about geopolitics. Is is not a fact that some of Fortune-500 companies are stronger than the governments of many Middle East and North Africa (MENA) countries?

Pakistan to issue US$458 million Sukuk

The Government of Pakistan is all set to issue Soverign Ijarah Sukuk up to PKR45 billion (around US$ 458 million) during the first week of May. It will be the country’s first Sukuk issue during calendar year 2014. The three-year Sukuk offers an opportunity to those who are keen in investing Shariah compliant instruments. Backed by the M3 motorway, the issue is aimed at meeting the country’s growing financial needs as well as providing investment opportunities to the Islamic banking industry. To read the details  visit shkazmipk.com

Pakistan: PSO third quarter profit up by 18 percent

Pakistan's largest oil marketing company, Pakistan State Oil (PSO) has released its third quarter results. Though, there is 18 percent increase in quarterly income, it remained below market expectations. Visit shkazmipk.com and read details.

Attock Petroleum to post robust results

Attock Petroleum, Pakistan's rather small oil marketing company,  is scheduled to announce third quarter results on Thursday. Analysts forecast robust earnings growth. What is there for you? Visit shkazmipk.com to see details of forecast.

Pakistan: New Vistas in Agriculture

Pakistan is among the top producers of cotton, rice, sugarcane, wheat, mango, kinnow (tangerine) and some other crops. The country is also among the top ten largest producers of milk. However, nearly 10 percent of food grains and up to 40 percent of fruits produced goes stale before reaching the market. Only 5 percent of total milk produced in the country is packed in tetra packs. This on one hand deprives growers of their rightful return and on the other hand does not allow the country to earn foreign exchange, needed most desperately for the economic growth.

 

In an attempt to help the farmers boost production and yield, the State Bank of Pakistan (central bank) embarked upon ambitious agri lending program. Now the annual disbursement to farmers is inching close to Rs400 billion or US$4 billion. The endeavor is fully supported by insurance companies operating in the country. This initiative has helped Pakistan in joining ‘club of wheat exporting countries’. At the close of current sugarcane crushing season, refined sugar output is likely to touch 4.7 million tons with exportable surplus of 0.5 million tons. The country is also likely to get nearly 13.5 million bales of cotton. Pakistan is already exporting huge quantity of rice, especially ‘Basmati’, with unique aroma. However it continues to import edible oil worth US$2 billion annually.

To further reinforce support to farmers the central bank offers loans for construction of modern warehouses on concessional interest rate. The need for warehousing facilities can be gauged from the fact that Pakistan produces nearly 40 million tons of different cereals, out of this wheat alone accounts for 25 million tons. As against this, the country has warehousing capacity of around 5 million tons. Storage of grains in ‘technical not fit warehouses’ is the single biggest reason of nearly 10 per cent going stale and not being suitable for human consumption.

In yet another initiative the central bank has formed a working group for developing ‘Warehouse Receipt Financing’. The working group will have representatives from leading commercial banks, Islamic banks, International Finance Corporation (IFC). The central bank aims at working closely with Pakistan Mercantile Exchange (PMEX), financial institutions, farmers and other stakeholders to structure and rollout system of warehouse receipt financing in the country on fast track basis. 

Deputy Governor of the SBP, Saeed Ahmad recently chaired a meeting on formulation of the Group. Talking to the representatives of different stakeholders, he said “Adoption of warehouse receipt financing system would facilitate development of efficient and accessible rural financial system. Development of physical trade and marketing system of commodities would improve performance of the agricultural sector. Financial institutions would find it profitable to lend money for the construction of new warehouses”.

This initiative offers tremendous opportunities to companies involved in this trade around the globe. These entities can form joint ventures with Pakistani entrepreneurs by involving IFC; mobilize funds globally or by listing the companies at the Karachi Stock Exchange. Central bank already has a plan for extending soft-term loans for the construction of warehouses. Those interested in construction of warehouses can also approach National Bank of Pakistan enjoying the largest share in lending to farmers for inputs and developmental work.

For details contact Shabbir Kazmi at shkazmipk@gmail.com or call 92-300-8980112

Pakistan awaits foreign investment in sugar industry

Pakistan is an agrarian society and two of its large scale industries, textiles and sugar, are agro based. While textile and clothing industry contributes around 60% to country’s exports, sugar industry remains the driving engine of rural economy.
Two of the leading sugar producing countries, Brazil and India, are likely to face substantial reduction in sugarcane output due to drought like situation this year. As against this Pakistan is expected to get bumper sugarcane crop, especially in Sindh. Historically, the province has been producing sugar much above the demand and also has the potential to export sugar as well as molasses.
It is important to note that Pakistan has an installed capacity to produce 9 million tons sugar annually as against an estimated demand of around 4 million tons. However, the mills have been working at around 50% capacity utilization due to shortfall in sugarcane production.
Pakistan looks forward to those foreign investors who can help in achieving higher sugarcane production by boosting yield. At present the country gets around 55,000tons/per hectare, which is low as compared to the global average. While recovery in Sindh ranges from 8.5% to over 10.5%, recovery in Punjab hovers from 7.5% to around 10.5%.
Ideally, Pakistani millers intend to produce more molasses for export because its local consumption is relatively low. The added advantage is that if the country succeeds in boosting production of molasses and ethanol. Popularizing E-10 use will also enable the mills to crush more sugarcane, which will improve production of sugar in the country. Better capacity utilization will help in optimizing cost of sugar production.
Pakistan also faces acute shortage of electricity and sugar mills can collectively deliver more than 3,000MW electricity. If this option is used not only income of mills will improve but earnings of mills as well as farmers will also improve.

Pakistan: Energy Sector Victim of Incongruous Policies

A closer look at Pakistan’ energy sector reveals that exploration and production activities have remained lackluster, refining sector suffers from underutilization of capacity and country becoming more dependent on imported POL products. This becomes all the more pinching because country has enviable success record but exploration and production activities are being adversely impacted by deteriorating law and order situation. Pakistan's GDP growth has remained subdued mainly because of lingering energy crisis. Only the Government of Pakistan and policy planners can be held responsible for this. For further details visit shkazmipk.com.