Wednesday, November 21, 2018

Pakistan Among Top 3 Likely Beneficiaries of US-China Trade War

Nomura Securities strategists believe Malaysia, Japan and Pakistan are expected to be the top 3 beneficiaries of import substitution triggered by US-China trade war escalation. Nomura's analysis is based on detailed study of 7,705 items which will be subject to tariffs and counter tariffs by US and China if the stand-off continues. Nomura developed two indices as part of its research on the subject: NISI (Nomura Import Substitution Index) and NPRI (Nomura Production Relocation Index).

Source: Nomura Securities

The two economic rivals have announced a series of tit-for-tat tariffs on imports in recent months with US set to increase tariffs to 25% on a range of Chinese products in January, unless the two sides reach a trade deal.

Nomura research shows the US list affects 3,477 products imported by US from China valued at $270 billion. Product categories affected are in electrical equipment, appliances and components (29%), machinery and mechanical appliances (22.7%) and furniture and related products (11.9%). China’s tariff list covers 4,228 US products with a combined value of $110 billion, and consists of food, beverage and tobacco, and vehicles.

Malaysia will benefit most, in particular from its exports of “electronic integrated circuits, liquefied natural gas and communication apparatus”. “Vehicles with only spark-ignition internal combustion reciprocating piston engines” will help Japan, according to the analysis, while Pakistan’s cotton yarn exports could rise.

If the trade war between the world's top two economies continues for years, there will also be production relocation of industrial units from China to other countries in the region. The biggest likely beneficiaries of it will be Vietnam, Malaysia, Singapore and India. Pakistan is least likely to benefit from it.

New opportunities are likely to open up for several Asian nations, including Pakistan, to increase industrial production and grow exports if the US-China trade war escalates.

Will the US-China trade conflict escalate? Is Pakistan capable of seizing the opportunity to expand its exports? Will Pakistan's recurring balance of payments crises end?  Will Pakistan manage to avoid repeated IMF bailouts? Only time will tell.

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13 comments:

Anonymous said...

This is the best news for the week. With Malaysia being our strong ally and brother it is doubly good news. As we will gain most in the Product substitution which product exports will likely witness growth?

Anonymous said...

Malaysia, Vietnam, India, Thailand etc. stand to gain both from Production relocation and import substitution (correlation can be understood).

Only Japan and Pakistan seem to suffer Production relocation but gain from Import substituion. How is that possible? because our economies are already in post-industrial age? This could be becuase both Japan and Pakistan will leap front into machine learning, robotics, smart factories. Rapid technological advances being adopted in Pakistan and growing research output could be the cause?

Sikandar N. said...

Very good analysis. Pakistan is uniquely positioned to grab the opportunities for export growth. I had a chance to meet some higher ups in the government. There is no doubt about their desire. The challenge is execution specially after systematic destruction of all institution over the last three decades. But there is hope.

Javed H. said...

Interesting.

I hope Pakistan get some benefit out of this and they leverage this properly.

Riaz Haq said...

Pakistan's tech exports jumped from $75 million in Sept 2018 to $104 million in Oct 2018, according to data from the State Bank of Pakistan

http://www.sbp.org.pk/ecodata/ExportsImports-Goods.pdf

The export receipts from Pakistan stood at $355 million, during the first four months of the current financial year which started July. These receipts show a year-on-year increase in the IT-related exports standing at 5%. The exports value from the same period last year stood at $337 million. During the last year, the Pakistani IT exports had shown a growth of 13% during the whole financial year.

On a rather good note, the IT-related imports showed a decline as more reliance went towards indigenous produce of ICT-related services and products. The imports have decreased from $163m to $147 showing a decrease of 9.8%. It must be mentioned here that the facts presented in this report account for the trades with receipts and apart from this a lot of informal trade also happens between Pakistan and the rest of the world.

Riaz Haq said...

Pakistan's tech exports jumped from $75 million in Sept 2018 to $104 million in Oct 2018, according to data from the State Bank of Pakistan

http://www.sbp.org.pk/ecodata/ExportsImports-Goods.pdf

Pakistan's information technology exports have bucked the nation's declining exports trend with double digit growth to reach $1,065 million in fiscal year 2018, according to the State Bank of Pakistan. It is generally believed that Pakistan's central bank underestimates technology exports. Some have argued that the actual IT exports were closer to $5 billion in fiscal 2018. Some of the differences can be attributed to the fact that the State Bank IT exports data does not include various non-IT sectors such as financial services, automobiles, and health care.

https://www.riazhaq.com/2018/08/state-bank-pakistan-it-exports-surge-to.html

Riaz Haq said...

#Pakistan’s #digital revolution is happening faster than you think. Growth is being accelerated by other major investments in #power and #connectivity #infrastructure, technology and digital infrastructure. #technology #CPEC https://www.weforum.org/agenda/2018/11/pakistan-s-digital-revolution-is-happening-faster-than-you-think/ via @wef

The digital power of China’s Belt & Road Initiative (BRI) is slowly unfolding and shaping into a whole new area of opportunity.

When the BRI took global centre stage in 2013, most conversations revolved around traditional infrastructure: building roads, railways, power sources and linking borders. However, the digital awakening that BRI brings, and the associated development of human capital and innovation, is much more powerful.

The global map is being altered at a much faster rate than anticipated due to the disruption created by digital infrastructure, artificial intelligence, the Internet of Things, and blockchain. Further digital and technological disruption is now set to mend fractures in society – leading to improved living conditions and enhanced economic empowerment.

This disruption has given new life to e-commerce and the start-up scene in BRI countries. In light of the Global Competitiveness Index 4.0, it is extremely important that economies grow in all areas, overcoming challenges and making investment in human capital and innovation. Resilience and agility are key.

Looking at the South Asian region, some of the traditional deterrents to growth have been inadequate transport facilities, patchy power supplies and lack of financial inclusion. As we have seen in the past, industrial revolutions take their time to reach developing countries but the Fourth Industrial Revolution has been quick to reach all corners of the world.

Billions of dollars of investment are bridging the infrastructure and power supply gap while improving technology – the goal is to look past the problems that have hindered the road to progress in countries along the BRI.

The flagship project of the BRI, the China-Pakistan Economic Corridor (CPEC), which is a major collaboration between China and Pakistan, has been rapidly progressing and the impact of the project can be seen in the lives of Pakistani people, as reflected in an improving human development index.

Pakistan, which is emerging from many years of the war on terror, is now on a decent path to progress, with economic growth of 5.8% and improved investor confidence. At the World Economic Forum in 2017, Ebay’s chief executive, Devin Wenig, highlighted Pakistan as one of the fastest growing e-commerce markets in the world. In 2018, Alibaba bought Pakistan’s largest e-commerce platform, Daraz.pk.

..... Ant Financial Services, China’s biggest online payment service provider, recently bought a 45% stake in Telenor Microfinance Bank, in a deal that valued the Pakistani bank at $410 million.

Irfan Wahab, chief executive of Telenor Pakistan, called the deal a “game changer”; while Eric Jing, chief executive of Ant Financial, said it would provide “inclusive financial services in a transparent, safe, low-cost and efficient way to a largely unbanked and underbanked population in Pakistan”.

This kind of investment will benefit from the significant demographic dividend in Pakistan, targeting the largely unbanked young population, and providing not only financial inclusion but also a base on which to build digital businesses.

What the country needs now is to improve its position on the innovation and financial inclusion indices, currently at 89 and 75 respectively, on the World Economic Forum’s Competitiveness Index 2018.

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The rapid completion of CPEC projects and the use of digital technology in the process is disrupting the economy and the lives of people at the same time. The question is whether Pakistan’s leadership will choose to embrace these technologies and take advantage of the biggest project on the road to progress. The future is full of opportunities and promise.

Rekha Hasan said...

FYI

According to the latest IMF World Economic Outlook 2018 October Report, Pakistan GDP growth will slow down in 2019-2023 and will be slowest in South Asia.

https://www.imf.org/external/datamapper/NGDP_RPCH@WEO/PAK/BGD/IND/NPL/LKA


Average %
PAK 3.3%
NPL 4.5%
LKA 4.75%
BGD 7.1%
IND 7.5%

Pakistan will also have the highest growth rate in population, consequently, in per capita terms, Pakistan will fare much worse.

Riaz Haq said...

RK: "According to the latest IMF World Economic Outlook 2018 October Report, Pakistan GDP growth will slow down in 2019-2023 and will be slowest in South Asia."

IMF has poor track record of forecasting. We'll just have to wait and see.

https://www.ft.com/content/60581224-3335-11e8-b5bf-23cb17fd1498

Anonymous said...

IMF is not only poor in forecasting. It is known to use such statistics as a negotiation tool to force countries under loans. Pakistan must not fall into this trap. Other reliable strategists like Chris Woods & Lars Anthonisen (which Riaz sab has highlighted) are private individuals are have no vested interests. They can be relied.

Anonymous said...

I am an Indian who sincerely wishes well on Pakistan and I do read some of your write-ups with genuine interest. My honest question to you is why has Pakistan not improved or lagged relative to others on Human Development. (Of course, I ask that about India as well to my fellow countrymen when it comes to BRICS)


Subhash

Riaz Haq said...

Subash: "why has Pakistan not improved or lagged relative to others on Human Development."

Please read the following for my thought:

https://www.riazhaq.com/2018/09/pakistans-human-development-ranking.html

Pakistan saw average annual HDI (Human Development Index) growth rate of 1.08% in 1990-2000, 1.57% in 2000-2010 and 0.95% in 2010-2017, according to Human Development Indices and Indicators 2018 Statistical Update. The fastest growth in Pakistan human development was seen in 2000-2010, a decade dominated by President Musharraf's rule, according to the latest Human Development Report 2018. Pakistan's newly elected Prime Minister Mr. Imran Khan has laid out an ambitious agenda that could accelerate Pakistan's human development progress to take his country from level 2 to level 3 of socioeconomic development. It is achievable but the odds are against him because he faces stiff opposition from the status quo forces. The powerful dynastic duopoly of PPP and PMLN still dominates Pakistan's Senate whose support will be required for major reforms. The research by Professor Hans Rosling shows: "Of the ten countries with the fastest economic growth, nine of them score low on democracy." It's also supported by Pakistan's economic history where pace of development has consistently been faster under military governments than during civilian democratic rule. Can Prime Minister Imran Khan's leadership change the course of history and deliver faster human progress under democratic rule? Let's wait and see.

Anonymous said...

As part of CPEC package China is expected to also fund major upgrades to social infrastructure including schools and hospitals. The final deliberations of package is in progress as per ambassador in Pakistan. The funds have been cleared by CCP and pending some last minute deliberations.

China will share its experiences in poverty reduction and about 10000 bureaucrats will attend training in China over next five years. Pakistan and China will mutually recognize medical degrees. A visa free access to Pakistanis will be part of future package.