Sunday, February 3, 2019

Fitch: Pakistan Construction Industry to Grow 8.9% Yearly Over Next 5 Years

Fitch Solutions, a global company focused on credit, economic, and political research, says in its latest report that the China-Pakistan Economic Corridor (CPEC) will drive Pakistan's construction industry in the next decade, as the risks associated with CPEC projects recede. Fitch forecasts that the real annual growth rate of Pakistan's construction industry will average 8.9% over the next 5 years. "We will adjust our forecasts to account for possible positive ripple effects across the economy, including the construction industry, in the event an IMF bailout is secured", the report adds.





Fitch Solutions' report titled "Industry Trend Analysis - CPEC to Remain a Primary Driver of Pakistan's Construction Industry" says: "We expect debt concerns surrounding CPEC projects to ease after financial details are released. In addition, we believe political risks associated with CPEC projects have diminished since the 2018 Pakistani general election. These factors will reduce overall risk profile of CPEC projects."

The Fitch report acknowledges the completion of eleven CPEC projects termed "early harvest". It says that despite major media and political scrutiny regarding CPEC, this progress on projects highlights Beijing’s improving track record in project execution and its commitment to infrastructure development in Pakistan. As a result of CPEC progress, a total of 3,240MW of capacity has been added to the country’s national grid, constituting over 11% of total installed capacity in Pakistan. Also highlighted in the report is the 392 kilometer Multan to Sukkur section of the Peshawar-Karachi motorway, a key CPEC project which is over 80% complete and is slated to finish by August this year.

Fitch believes political risks associated with CPEC projects have diminished. "Previously, we noted that the transition in power from Pakistan Muslim League (Nawaz) to Pakistan Tehreek-e-Insaf (PTI) posed a downside risk to the Pakistani construction industry as new Prime Minister Imran Khan pledged to review Chinese-backed projects, which could potentially have led to project delays and cancellations. However, the political situation in Pakistan has since stabilized and Prime Minister Imran Khan has demonstrated willingness to cooperate with China on multiple issues including CPEC. As such, we are in the view that downside risks stemming from political uncertainty are diminishing, and bilateral projects spearheaded by CPEC, will receive a boost in terms of policy implementation and project continuity," maintained the report.

In another recent report, Fitch's competitor Moody's has acknowledged that rermittances from Pakistan diaspora rose by 10% year on year to $10.71 billion in the first half of fiscal 2019, while goods imports slowed sharply to around 3% year on year as non-energy imports contracted.

Moody's expects "the current-account deficit to narrow to 4.7% of GDP in fiscal 2019 and to 4.2% in fiscal 2020 from 6.1% in fiscal 2018, it will remain sizable and wider than in 2013-16, driving Pakistan’s external financing needs. The government has secured $12 billion in financing from Saudi Arabia and the United Arab Emirates – in each case amounting to $6 billion and divided equally between deposits and deferred oil payments – which is likely to largely cover the country’s net financing needs for fiscal 2019".

Construction industry is a major driver of economies. The sector creates new jobs, builds housing and infrastructure, drives economic growth, and provides solutions to address social, climate and energy challenges, according to the World Economic Forum. The construction industry has important linkages with other sectors such as cement, steel, energy, furniture, household appliances, etc.  The construction industry's impact on GDP and economic development goes well beyond the direct contribution of construction activities.

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16 comments:

Anonymous said...

https://www.dawn.com/news/1461907/sp-downgrades-pakistans-long-term-credit-rating

Jam D said...

Riaz Sb, How can small investors like me participate in this construction boom? Should we invest our savings in real estate or some contractor companies. In you last blog you mentioned about Chinese companies. How can we buy Chinese shares to profit from this boom.

Riaz Haq said...

Jam: "How can small investors like me participate in this construction boom?"

I believe there are several listed KSE listed companies including REITs, construction companies and supply chain companies like cement and steel which will benefit from construction boom. You should research these companies to decide how you want to participate in this boom.

Jam D said...

Thanks for the input. Cement seems a promising case. There is 1 REIT and 2 construction company listed on KSE? Neither of them seem to have any exposure to CPEC based on google search.
http://www.ksestocks.com/ListedCompanies/SortByName

They are not listed on Market Summary as the trading volume seems non-existent. Hence liquidity and small shareholder interest is suspect.
http://www.ksestocks.com/MarketSummary

Seems like CPEC is mostly rich mans game and intellectuals dream.

Riaz Haq said...

Jam: "Seems like CPEC is mostly rich mans game and intellectuals dream."

I strongly disagree. CPEC has already contributed over 3000 MW of power into the national grid and more is expected. This will help Pakistan's industries employ more people and be more productive.

CPEC infrastructure construction is creating hundreds of thousands of direct jobs and employing many times more people in other industries such as cement, steel, transportation etc. supporting CPEC.

Jam D said...

I share your feeling Riaz sb regarding CPEC but have a different opinion. Our markets do not have enough depth for people to participate. Hence when the capital comes and when it disappears, it will happen in the most opaque manner. Sure we will have jobs, of the lowest variety. But what about local entrepreneurs, SMEs, small investors and the multiplier effect? With out those, I humbly agree to disagree with you.

Chinese companies will come, hire us for digging, milk us dry of dollars and vaporize in thin air. You mentioned 3000MW, where do most of the engineers needed to maintain this come from? If we look at number of visas issued, we will get a clue.

Riaz Haq said...

Jam: "what about local entrepreneurs, SMEs, small investors and the multiplier effect? With out those, I humbly agree to disagree with you. "

They all need electricity, communications and roads and other infrastructure to do business. It's very basic.

As to the number of visas, the traffic is both ways. There are lots of Pakistanis traveling to and living, studying, working in China.

Mid-1960s America saw a phenomenon called the "British Invasion". Anecdotal evidence suggests similar phenomenon, albeit on a smaller scale, is occurring in China with about 100,000 Pakistanis arriving there in recent years. While the growing presence of the Chinese in Pakistan gets a lot of press, there has been relatively little coverage of the movement of people in the other direction---from Pakistan to China. Jalil Shaikh, a Pakistani-American tech executive in Silicon Valley, has observed this phenomenon during his frequent visits to Jiangsu province in China. Jalil is often welcomed as "iron brother" by the people he meets during his stays in China.

Jalil saw anecdotal of evidence of "Pakistani invasion" of China in the city of Changzhou in Jiangsu province. Changzhou has a population of about 5 million people which makes it a medium size city by Chinese standards. Changzhou is an educational hub and is home to several universities, including Changzhou University, Hohai University (Changzhou campus), Jiangsu Teachers' University of Science and Technology, Jiangsu Teachers' University of Technology, and Changzhou Institute of Technology. It attracts a large number of foreign students mainly from countries participating in China's BRI (Belt and Road Initiative). China-Pakistan Economic Corridor (CPEC) is a flagship project of BRI. There are an estimated 22,000 Pakistani students studying in China. A significant fraction of these students receive Chinese government scholarships to study in the country.

Jalil has also travelled to the Chinese capital Beijing for business. During one such trips, he stayed at Oak Chateau hotel where he met dozens of Pakistanis working as engineers. They work as IT engineers at German automakers BMW and Mercedes whose Beijing offices are located just across the street from this hotel.

https://www.riazhaq.com/2019/01/pakistani-mini-invasion-of-china.html

Jam D said...

"They all need electricity, communications and roads and other infrastructure to do business. It's very basic. "

You nailed it. But more importantly we Pakistanis need access to contracts. Not a single CPEC tender for work or RFQ is put out in open. Chinese companies list it in Mainland in a language or method not familiar to us. What we see are RFQ for digging, cleaning, house keeping. You look at local news paper. One Chinese company is even getting their uniforms from China ! Have you seen any large civil, electrical or mechanical tender of late in news papers? PTI government must insist all contracts must be open to public in Pakistan. Else it will all end where it started.

Riaz Haq said...

Jam: "But more importantly we Pakistanis need access to contracts."


Let's divide this question in two parts: 1) power plants 2) roads/bridges/tunnels/dams

As far as power plants are concerned, Desscon tried and lost multiple bids to Chinese. Razzak Dawood bitterly complained about it but acknowledged the Chinese were lowest bidders. Chinese power contractors are big and highly competitive globally and local companies lose to them and resent them. The Chinese are very successful not only in Pakistan but also in America, Europe, Africa, Asia and even in India where they are not welcome.

On roads/bridges/tunnels/dams projects, there are several Pakistani firms developing these projects. Examples include FWO, NESPAK, DESCON etc.

Jam D said...

As far as power plants are concerned, Desscon tried and lost multiple bids to Chinese. Razzak Dawood bitterly complained about it but acknowledged the Chinese were lowest bidder"

We cannot compete with them. We have no one to blame but ourselves? We can always insist Chinese to have a 51% or 49% local partner as mandatory condition. Why dont we do it? Chinese do it all the time in their country. Once it a Chinese contractor, we can convince ourselves as much as we want but we will get nothing but housekeeping jobs. Dawood sab and those of his stature should know better.

Riaz Haq said...

Jam: "We can always insist Chinese to have a 51% or 49% local partner as mandatory condition. Why dont we do it?"

Chinese are bringing 100% of capital for most of these infrastructure projects. Besides, I'm not sure the Pakistanis have sufficient human capital to do all infrastructure development.

BTW, here's a Washington Post story of what Chinese workers have done in India:

http://www.washingtonpost.com/wp-dyn/content/article/2010/10/23/AR2010102303956.html


Clad in blue overalls, 1,600 Chinese supervisors, technicians and other laborers work at the 2,000-acre site. The $1.7 billion factory, which also relies on Chinese technology, employs 5,000 Indian workers.

Skilled Chinese workers are helping India expand its infrastructure at a frenetic pace, even as the two Asian giants compete for economic dominance.

Their presence in a nation of more than a billion people with staggering unemployment may appear incongruent. But the government says Indian workers lack the technical skilled needed to transform the country into a 21st-century economic powerhouse.

Until the gap is bridged, companies are relying on the expertise of Chinese workers to build mega infrastructure projects. Chinese workers have worked on ports, highways, power and steel plants in India. Chinese equipment and expertise have also been used in a crude oil refinery, a cable-supported bridge, the telecommunication networks and even the glass facade of the new airport terminal in New Delhi.

"India may be an IT superpower and producing thousands of doctors, lawyers and MBAs every year. But the biggest gap is in the availability of skilled electricians, carpenters, welders, mechanics and masons who can build mega infrastructure projects," said Raghav Gupta, president at Technopak, a consultancy that released a report on skill development last year. "Most of these workers have to be trained on the job. And that often delays the projects and makes it more expensive."

As the center of economic gravity shifts from the Atlantic to the Indian Ocean, analysts say, the world's two fastest growing economies will transfer even more technology and skills.

Fears of displacement

The Chinese workers in labor-surplus India prompted an outcry last year, and India clamped down by making visa rules stricter. About 25,000 workers had to leave dozens of projects midway and return to China because they were on business visas and not worker visas. Construction at 14 power plants was affected.

"We have no problems if . . . Chinese workers skilled in specialized functions come to India. We just don't want them to displace Indian workers by doing the jobs that Indians can do," said G. K. Pillai, India's home secretary, who said there are a little over 15,000 Chinese laborers in India now.

Diplomatic relations between the two nations, who have fought a war and have lingering territorial disputes, have remained testy. In recent years, Indian officials have expressed concerns about China's close ties with Pakistan, India's arch rival.

------------
The Chinese live in a row of air-conditioned pre-fab rooms and have Chinese cooks. Some say they find the Indian heat unbearable; others complain that the Internet speed is too slow for streaming Chinese movies. Sometimes, they go into the villages for an under-the-tree haircut or for the locally brewed toddy.

Riaz Haq said...

JPMorgan, CLSA vie for $2 billion #Pakistan #power sale of National Power Parks Management Co., state-owned firm that owns and runs #LNG-fired 1,230-megawatt Haveli Bahadur Shah plant and the 1,223-megawatt Balloki plant. #Privatization https://www.bloomberg.com/news/articles/2019-02-14/jpmorgan-clsa-said-to-vie-for-2-billion-pakistan-power-sale via @technology

JPMorgan Chase & Co., CLSA and Credit Suisse Group AG are among foreign banks pitching for a role on Pakistan’s biggest privatization in over a decade, which could raise around $2 billion, people with knowledge of the matter said.

The government’s sale of two LNG-fired power plants could draw interest from Chinese and Middle Eastern investors, one of the people said, asking not to be identified because the information is private. Pakistan received about 10 bids from groups seeking a financial advisory role and expects to pick banks by the end of March, another person said.




Citigroup Inc. and Standard Chartered Plc made their own separate proposals, while Lazard Ltd. is pitching with Pakistani brokerage Next Capital Ltd., the people said.

Prime Minister Imran Khan is pursuing a divestment that would rank as one of the biggest-ever mergers and acquisitions in Pakistan, as he seeks to bridge a financing gap of more than $12 billion and avoid a balance-of-payments crisis. The nation has secured loans from Saudi Arabia and the United Arab Emirates and is close to a loan agreement with the International Monetary Fund.

Privatization Push
Pakistan is selling National Power Parks Management Co., the state-owned firm that owns and runs the 1,230-megawatt Haveli Bahadur Shah plant and the 1,223-megawatt Balloki plant. Both plants started operations in the past two years. The government has said it aims to complete the privatization of the power assets in the financial year ending June 30.


The sale would rank as Pakistan’s largest privatization since 2006, when Emirates Telecommunications Group Co. bought a $2.6 billion stake in Pakistan Telecommunication Co. in the country’s biggest-ever M&A transaction, data compiled by Bloomberg show. The power plant divestment is set to become Pakistan’s largest privatization in the energy sector, according to government figures dating back to 1991.

Pak Brunei Investment Co. is also pitching for a role on the power plant divestments in a group with Zeeruk International Pvt, the people said. BMA Capital Management Ltd. and CPCS Transcom Ltd. have submitted a joint proposal, according to Salman Virani, head of investment banking at BMA Capital.

Habib Bank Ltd. and China International Capital Corp. are partnering with JPMorgan, a representative for Habib Bank said in response to Bloomberg queries. CLSA submitted a joint proposal with Bank Alfalah Ltd. and their local brokerage venture, while Credit Suisse is pitching together with Pakistan’s Elixir Securities Ltd., the people said.

A representative for the Pakistan’s Privatisation Commission said the government has no comment. Representatives for CICC, Citigroup, CLSA, Credit Suisse, JPMorgan, Standard Chartered, Elixir Securities and Next Capital also declined to comment. Representatives for Lazard, Bank Alfalah, Pak Brunei and Zeeruk didn’t immediately respond to queries.

Riaz Haq said...

#China Giving #Pakistan $3.5 Billion in #Loans, #Grants. #Beijing will soon deposit $2.5 billion in the State Bank of Pakistan (SBP), raising to $4.5 billion the total amount in commercial loans China has given Pakistan this fiscal year. #CPEC https://www.voanews.com/a/china-giving-billions-to-pakistan-in-loans-grants/4788478.html

Officials say the Chinese government has also promised a grant of $1 billion for education, health, vocational training, drinking water and poverty alleviation projects over the next three years.

Minister for Planning, Development and Reform Makhdum Khusro Bakhtyar said Chinese experts are due to arrive in Islamabad later this month to coordinate socio-economic development under the promised grant.

Pakistan's foreign currency exchange remains under severe pressure, despite receiving around $2 billion from China and $4 billion from Saudi Arabia and the United Arab Emirates in commercial loan deposits.

SBP reserves stood at $8.2 billion last week, barely enough to cover two months' worth of imports.

China's CPEC

In the last six years, China has made significant financial contributions to direct investment, soft loans and commercial deposits to help its close ally, Pakistan, overcome severe economic challenges.

Under its Belt and Road Initiative, Beijing has invested $19 billion in Pakistan to build and improve road infrastructure and power plants and opened the strategic Arabian Sea port of Gwadar. Beijing has also given Islamabad concessional loans for some projects under what is known as the China-Pakistan Economic Corridor (CPEC).

The cooperation deal has created more than 70,000 jobs for Pakistanis and quickly resolved the country's chronic energy crisis. But investments from China had stopped because all major projects under CPEC will be complete by the end of this year.

Chinese and Pakistani officials say preparations are under way to launch the next phase of CPEC in coming weeks to construct nine special economic zones across Pakistan.

Beijing plans to relocate some of its industries by transferring technology to the new industrial zones to help Islamabad increase its exports to overcome its massive trade deficit and shore up cash reserves.

CPEC has "changed the image of Pakistan" and encouraged other countries to invest in the country, notes veteran opposition Senator Mushahid Hussain, who chairs the foreign affairs committee of the upper house of parliament. He praised China for being the only country to bring unprecedented, massive investments to Pakistan five years ago when other nations were reluctant to do so due to terrorism-related security concerns and political considerations.

Riaz Haq said...

Pakistan's top central banker: #Pakistan has come out of financial crisis. Uncertainty in the #economy had ended. #PMImranKhan's government is on the right path and it was capable of meeting all economic challenges. #SaudiArabia #UAE #China #IMF https://www.dawn.com/news/1464714

Governor of the State Bank of Pakistan Tariq Bajwa has said the country has come out of the financial crisis with the help of friendly countries and the economy has been set on the right path.

Speaking at a private university in Lahore on Monday, he said uncertainty in the economy had ended. The government, he said, was on the right path and it was capable of meeting all economic challenges.

Take a look: ‘Tough measures are necessary to rescue the economy,’ says Hammad Azhar

The governor spoke about the current account deficit, which had hit the economy badly during the current financial year.

The current account deficit was the real cause of concern for the new government headed by Prime Minister Imran Khan. Mr Khan visited friendly countries like China, Saudi Arabia, the UAE, Malaysia and Turkey to seek investment and managed to get financial help to bridge the external deficit.

Mr Bajwa said a plan had been prepared to eliminate the current account deficit and the work in this regard was in progress. He said the deficit was the biggest hurdle for the country and the government was still negotiating with the International Monetary Fund for a package to minimise it.

He said the government had not crossed the limit for borrowing from the SBP. It had borrowed Rs3 trillion from the central bank and returned Rs2tr, he added.

Since the beginning of the new financial year, the government has been borrowing from the SBP for budgetary support, while it has retired loans taken from the scheduled banks. It has so far retired about $2.9tr to the scheduled banks.

The policy shows the government wants to keep the scheduled banks liquid so the private sector could borrow more from the banking system.

According to a latest SBP report, the private sector borrowing has more than doubled from July 1 to Feb 8 to Rs571 billion from Rs264bn in the same period of the last financial year.

The SBP governor said the cases involving Rs600bn were pending in banking courts. He said capacity building was being developed to deal with the huge number of pending cases and for their quick decisions.

He said the cases must be decided quickly so that the banks could use the money involved in litigation.

Mr Bajwa said the SBP had offered to bear expenses of training of judges to help the courts decide the pending cases urgently.

He said the policy to depreciate the rupee had been adopted to reduce the trade deficit, which was the main reason for high current account deficit.

Riaz Haq said...

#Malaysian Leader in #Pakistan to Sign $900M #Investment deals in #informationtechnology and #telecom sectors. . #MahathirMohamad will also be the chief guest at the #PakistanDayParade. #technology https://www.voanews.com/a/malaysian-leader-in-pakistan-to-sign-900m-in-investment-deals-/4841609.html

Malaysian Prime Minister Mahathir Mohamad arrived Thursday in Pakistan on an official three-day visit, where his high-powered delegation is expected to finalize investment deals worth nearly $900 million, officials said.

The Malaysian leader will also be the chief guest at the Pakistan Day military parade Saturday, the Foreign Ministry announced.

Pakistani Prime Minister Imran Khan's adviser on commerce told reporters that business leaders accompanying Mahathir would sign three memorandums of understanding on Friday covering up to $900 million worth of investments in information technology and telecom sectors.

The adviser, Razak Dawood, said the deals with Malaysia would also provide Pakistan a new opening toward membership in the Association of South East Asian Nations. He said Malaysian businessmen had also indicated they would like to invest in other sectors, including energy and textiles, to help Pakistan improve its exports.

Officials said that Malaysia's Proton carmaker signed an agreement late last year with a Pakistani partner to set up an assembly plant in the southern city of Karachi that would be its first facility in South Asia. Khan and his Malaysian counterpart are expected to officiate at a symbolic groundbreaking of the Proton plant Friday.

Looking for investors

Since taking office last August, Khan has approached nations that have warm relations with Pakistan, including China, Saudi Arabia, the United Arab Emirates, Qatar and Malaysia, to bring investment and financial deposits to help reduce a widening current account deficit and shore up foreign reserves.

Riyadh and Abu Dhabi have deposited or are in the process of depositing $6 billion in loans in recent months. The two countries have also agreed to allow Islamabad to import oil on deferred payments. China is expected to deposit more than $2 billion in the next few days.

Beijing has invested more than $19 billion over the past six years in energy and infrastructure projects under what is known as the China-Pakistan Economic Corridor, as part of its global Belt and Road Initiative.

Last month, Saudi Crown Prince Mohammad bin Salman visited Islamabad and signed investment agreements worth $20 billion, including a $10 billion refinery and petrochemicals complex in the southwestern port city of Gwadar.

Pakistani officials say they are also close to securing a deal with the International Monetary Fund for a bailout package reportedly of up to $12 billion.

Riaz Haq said...

#Lahore-Abdul Hakeem (near #Multan) Motorway (4-lane 230 Km M3) opens for general public . #Sukkur-Multan Motorway ( 6-lane 395 Km M5) to be operational by August 2019. #Pakistan #Motorways

https://www.pakwheels.com/blog/lahore-abdul-hakeem-motorway-opens-for-general-public/

The Government of Pakistan has finally opened Lahore-Abdul Hakeem Motorway for the general public from 1st April 2019. It was inaugurated by Governor Punjab, Chaudhry Sarwar on 31st March 2019. This new section of the motorway will reduce travel distance between Multan and Lahore making life easy for the commuters.

Note here that the total cost of this M3 section is around PKR 149 billion. It’s a six-lane motorway with eight interchanges over 40 bridges, 60 underpasses, three service stations, etc. The assigned speed at the newly opened motorway is 120 Km/h. It is also being termed as model motorway as Intelligent Transport System (ITS) has been installed on this new section.

It will ensure smooth traffic flow on the motorway, moreover, will handle all the emergencies occurring on the motorway. LED screens have been placed throughout the section, additionally, weigh system, and electronic toll collection has been introduced. Cameras have been deployed for monitoring vehicles.

Previous:

The Government of Pakistan has decided to open Abdul Hakeem-Lahore Motorway (M3) on 31-3-2019.

According to the details, the total length of the motorway is 230 kilometers which will cut down your commute time by two hours from Abdul Hakeem to Lahore and vice versa. PakWheels contacted an official of Motorway, and he confirmed that the Lahore-Abdul Hakeem motorway section would open for vehicles on 31 March 2019. Previously, it was scheduled to open in January; however, due to unknown reasons, it was delayed.

This project was started back in 2015 and was officially inaugurated by previous Prime Minister Shahid Khaqan Abbasi in 2018. According to a security analyst, this particular project is significant keeping in view the objectives of the China-Pakistan Economic Corridor (CPEC).

Read Also: 12 Driving tips to keep you safe on the motorway during fog

Moreover, an official of the National Highway Authority (NHA) while speaking to the local media said that with the completion of over 70 percent of the total work, Sukkur-Multan Motorway (M5) would get operational by August 2019. This 392 km long project started back in August 2016. When completed, this project will be a huge step towards developing a stronger Pakistani economy keeping in line with CPEC goals.