Thursday, January 7, 2010

Goldman, Franklin-Templeton Bullish on Pakistan's Economy

Pakistan's KSE-100 stock index surged 55% in 2009, a year that also saw the South Asian nation wracked by increased violence and its state institutions described by various media talking heads as being on the verge of collapse. Even more surprising is the whopping 825% increase in KSE-100 from 1999 to 2009, which makes it a significantly better performer than the BRIC nations. BRIC darling China has actually underperformed its peers, rising only 150 percent compared with energy-rich Brazil (520 percent) and Russia (326 percent) or well-regulated India (274 percent), which some investors see as a safer and more diverse bet compared with the Chinese equity market, which is dominated by bank stocks. This is the kind of performance that has got the attention of some of the top investors and investment firms around the world. Not only has Goldman Sachs reaffirmed Pakistan's place on the list of its top 15 emerging economies for 2010, smart international investment gurus are investing in Pakistan. For example, Mark Mobius of Franklin Templeton International Funds recently said he is "overweight compared with everyone else" in Pakistani stocks.

Ron Rowland, a researcher at Weiss Research, believes that the world is going to hear a lot more about the "Next 11", a group of 11 nations beyond the four "BRIC" nations of Brazil, Russia, India and China. Goldman Sachs "Next 11" group includes Mexico, Nigeria, Egypt, Turkey, Iran, Pakistan, Bangladesh, Indonesia, Vietnam, South Korea and Philippines. Like BRICs, the rationale for the selection of N-11 is a good-size and growing population with a modern industrial base for a critical mass: The ability to produce consumer goods, and the consumers who can afford to buy them. Having natural resources, such as oil, in your back yard helps too. All of this creates the potential for major consumer and business growth. And the investment opportunities — for those who are patient and do their homework — could be enormous!

However, except for population and good economic potential, the N-11 are a diverse group in terms of their level of economic and market development as well as integration in the world economy. As in the case of BRICs, the authors of the concept, Goldman Sachs Consulting Group, have used variables grouped under Macroeconomic stability, Macroeconomic conditions, Technological capabilities, Human capital and Political conditions to determine the speed with which N-11 will be able to converge or catch up with the developed economies. Indonesia, Mexico and Turkey are three of the N 11 nations are already members of the Group of 20 (G20) nations. The rest of the N11 have the potential to join the group of the twenty largest economies of the world in the next few decades.

Comparing Pakistan with other N-11 countries in 2009, we find that it is only second to Indonesia in terms of population. However, in terms of the size of GDP, it is in the middle of pack, ahead of Bangladesh, Egypt, Nigeria, Philippines and Vietnam. All of this points to the potential Pakistan has to become a major economy based on its population size and demographics in the years to come.

Goldman Sachs report on "Next 11" projects Pakistan's rank moving up from the 26th largest now to the 18th largest economy in the world by 2025. In this context of Pakistan's tremendous economic potential as outlined in the report, there is considerable interest among individual US investors looking for opportunities to invest in Pakistan stocks. Unfortunately, there are no pure-play mutual funds investing exclusively in Pakistan. However, in addition to Franklin Templeton Funds, there are at least two other companies specializing in Asian economies that invest part of the portfolio in Pakistan along with India, Sri Lanka and other countries in Asia. These companies are Matthews Funds and Eaton Vance Funds.

Eaton Vance has Eaton Vance Greater India A Fund(ETGIX) that describes itself as follows: The investment seeks long-term capital appreciation. The fund normally invests at least 80% of net assets in equity securities of companies in India and surrounding countries of the Indian subcontinent. At least 50% of total assets will be invested in equity securities of Indian companies, and no more than 5% of total assets will be invested in companies located in countries other than India, Pakistan or Sri Lanka. The fund invests in companies with a broad range of market capitalizations, including smaller companies.

Matthews Asia Funds has Matthews Asia Pacific Equity Income Fund (MAPIX) which describes its geographic focus as follows: The Asia Pacific Region, which includes Australia, China, Hong Kong, India, Indonesia, Japan, Malaysia, New Zealand, Pakistan, Philippines, Singapore, South Korea, Taiwan, Thailand and Vietnam.

It is heartening to see that top international investment professionals and firms continue to have faith in Pakistan's growth potential. To sustain and increase investor interest, it is absolutely essential that Pakistanis strive for a measure of peace and stability. The nation must also continue to increase the necessary investments in developing its human capital and infrastructure to support continued expansion of the economy and to realize the full potential of the country.

Related Links:

Goldman Sachs "Next 11"

Emerging Markets Expert Investing in Pakistan

Who Are the Next 11?

Is Pakistan Too Big to Fail?

GS Next 11 and Pakistan in 2050

Karachi Stock Exchange

Pakistan FDI Survey Report 2009

Emerging Markets: Brazil, China---and Pakistan?

Templeton's Asian Growth Fund

Pakistan Economic Survey 2008-2009

Pakistan's Infrastructure

Karachi Fashion Week

Is Pakistan Too Big to Fail?

How To Invest in Pakistan?

Karachi Fashion Week Goes Bolder

More Pictures From Karachi Fashion Week 2009

Pakistan's Foreign Visitors Pleasantly Surprised

Start-ups Drive a Boom in Pakistan

Pakistan Conducting Research in Antarctica

Pakistan's Multi-billion Dollar IT Industry

Pakistan's Telecom Boom

Pakistan Telecom Sector Investment Prospects

ITU Internet Data

Eleven Days in Karachi

Pakistani Entrepreneurs in Silicon Valley

Musharraf's Economic Legacy

Infrastructure and Real Estate Development in Pakistan

Pakistan's International Rankings

Foreign Direct Investments in Pakistan 1999-2009

Video: Who Says Pakistan Is a Failed State?

Pakistan's Financial Services Sector

Assessing Pakistan Army Capabilities

Pakistan's Auto Industry

Pakistan is not Falling

Jinnah's Pakistan Booms Amidst Doom and Gloom

Pakistan's Higher Education Reform

The Next 11 Emerging Economies--Euromonitor

Karachi Stock Exchange Presentation


Anonymous said...

Mujtaba said...

I do read always your optimistic views on Pakistan furture based on some authentic references, however reality on ground is totally different as i stayed two years there 2007-2009 but i saw is downward spiral,all the way,currency has lost its value by approx 20% in two years, jobless are increasing in thousand every day, price hike is steep for every commodity, law and order is terrible,corruption is at his peak,education standrads are going down,power cut off four times a day for hours, custruction industry is at stand still ,i put money on Emaar project which is almost but stop, no major projects.

Tell me i am wrong, so i can go back, i love the country but just cant survive there

Riaz Haq said...


I can not disagree with you about your own experience in the last two years. I saw some of the same things when I was there in July, and the big long-term investors know these facts, too. And yet the KSE-100 did rise 50% in 2009. And the direct and portfolio investors have made a killing in banking, telecom, real estate and other sectors during the last decade, because the asset prices are much lower than in other countries, reflecting the risks in Pakistan. The price-earnings ratios of the shares of good companies in Karachi is about half or less than the P-E ratios in Mumbai or Shanghai markets. So there is greater potential for further gains in KSE-100.

Here's what Mark Bendeich of Reuters wrote on Jan 10, 2008:

"A little more than six years ago, immediately after the Sept. 11 attacks on U.S. cities, few sane investment advisers would have recommended Pakistani stocks.
They should have. Their clients could have made a fortune.
Since 2001, the nuclear-armed South Asian country, blamed for spawning generations of Islamic militants and threatening global security, has been making millionaires like newly minted coins.
As Western governments have fretted about Pakistan's nuclear weapons falling into the hands of militants, the Karachi Stock Exchange's main share index has risen more than 10-fold."

And in spite of the 50% drop in KSE-100 2008,, those who invested and held their shares made a 5X return at the end of 2008, not bad.

The fact is that the economy never grows in a straight line, particularly in developing countries like Pakistan experiencing great turmoil. But the long-term trends are positive. It's a huge country with a lot of young people and lot of consumers that the investors see.

Like BRICs, the rationale for the selection of N-11 is a good-size and growing population with a modern industrial base for a critical mass: The ability to produce consumer goods, and the consumers who can afford to buy them. Having natural resources, such as oil, in your back yard helps too. All of this creates the potential for major consumer and business growth. And the investment opportunities — for those who are patient and do their homework — could be enormous!

Goldman Sachs report on "Next 11" projects Pakistan's rank moving up from the 26th largest now to the 18th largest economy in the world by 2025.

Salman said...

Like other areas,there are are stories about ups and downs of stock markets in Pakistan.Most here beleive that it i manipulated by few famous names who really control
them.As such I never see the stock market here as a bench mark for any confidence of investors.Yes ,these manipulations have benefitted many outside the ring/network as well on their lucky day.

However for those living here without having a choice to leave the country,please continue with your optimistic mails to keep the morale high.But honestly speaking,as I said earlier,I dont see the light at the end of the tunnel as it is too dark to see the tunnel either.Yes
we see some lights after sunset when torch bearers put the shops on fire or as a daily routine tyres are burnt on the streets.

Riaz Haq said...


I know it's hard to be optimistic when you are in a dark tunnel with no visible light at the end of it. But let me try and shine a little light for you.

All stock markets are manipulated to various degrees, the KSE much less so than the NYSE or LSE. KSE does not trade most of the speculative securities like exotic derivatives traded on many exchanges in Europe and America.

The stock market indexes (New York, Mumbai, Karachi, Shanghai etc) are followed and considered by most investors as barometers of a country's prospects. Why?

Because of the following reasons:

1. Professional investors and analysts do basic calculations of parameters such as price-earnings ratios and revenue and profit growth rates over several years for key companies' with shares on the major indices. It's not difficult for them to see if the market is being manipulated.

2. Most investors, direct (FDI) or portfolio (shares) investors take the movement of the share indices into account when deciding where to invest.

3. No economy, company or country can grow without infusion of capital which comes from investors.

So when KSE-100 does well, Pakistan attracts both direct investors in plants/equipment and securities investors in Pakistani shares, infusing capital, creating jobs and growing the economy. I see it as a hopeful sign for the future, in spite of all of the genuine problems that you see everyday now.

Rashid said...

Riaz, I need to call you on something that you wrote here..

The Efficient Capital Market Theory (which I had to study) - is a bunch of crap. At least we agree on that. You say that when you say that all markets are manipulated.

But to make a finer distinction regarding the presence or absence of fancy financial products as the only determinant - is incorrect.
If I understand it correctly, you are saying that KSE is better off because of the absence of derivatives. Here we agree.

But please get to the crux of the issue. The same damn western manipulators are entering the KSE because their own playing grounds are muddy. These are the same people who caused the fall of the capital markets. Why should their valuation of KSE have any validity? Why should their "investment" be beneficial to Pakistan?

Let me throw an analogy - Tea was not the "national" drink of the subcontinent. The British-India Tea Company handed out free tea at every street corner for years. Now Tea is the national drink of India and Pakistan. Now you have books written about the Three Cups of Tea. Caffeine addiction is still an addiction.

What if the KSE were to achieve the heights of the NYSE and all the other exchanges? I foresee the same thing happening to KSE eventually as happened to the western markets. A bubble growing - then bursting. Only this time an already shaky economy will become even more shaky.

It is my contention that the only reason for glamorizing the KSE by western writers is for nefarious purposes. They want to legitimize gambling and make it appear as a legitimate and worthy cause of utilizing Capital at its best usage. (Isn't that the premise of all Capital markets?)

You state that all Capital Markets are manipulated - yet you think that the end result is the betterment of mankind. My analogy is this - two thieves trade stolen goods - and mankind is benefited??? No way. Similarly, two speculators bid up the price of XYZ stock - and the entire economy is benefited? How? Why? Just because some poor sucker thinks he too can enter and depart from the bidding war at the exact right moment? You wish!!! The poor sucker can't even call the correct heads or tails in a totally unbiased coin toss - where the odds are fifty-fifty. It is downhill from there in everything in life.

I see the entrance of western capitalists into KSE as a very bad sign. It is a capitulation. If the Pakistani society can accept McDonalds and Kentucky Fried - then why not Goldman Sachs and Weiss Research and the remaining group of money-lenders? My usage of the term "money-lenders" is very deliberate.

Riaz Haq said...


You say "These are the same people who caused the fall of the capital markets. Why should their valuation of KSE have any validity? Why should their "investment" be beneficial to Pakistan?"

I think you are overgeneralizing when you paint all investors by the same brush. There is a huge difference between long term stock investors like the mutual funds managed by Franklin-Templeton's Mark Mobius and the hedge funds that use heavy leverage (debt) in the US market to sell shorts or engage in derivatives sch as mortgage backed securities,mcredit default swaps that brought down the US market. They even allow naked shorts in America, that's a non-no in Pakistan.

But you can not, nor can India and China, escape the fact that the whatever happens in NY or London also affects Mumbai, Shanghai and Karachi. The reality of capital is that it is globalized just like labor and goods, and services. So unless you create a "bubble" and live it it isolated from the outside world, you are not going to be insulated from what happens in the US or Europe, or elsewhere in Asia.

And to create a "bubble" to live in, you need your own capital which is scarce. Pakistanis save only 15% of the GDP versus Indians' 30% and the Chinese 40%. We need capital from elsewhere to invest. It won't come unless we play in the global markets, and trade with other nations, and allow foreign investors into our markets.

As former Musharraf finance adviser Salman Shah put it in an interview with Wall Street Journal last year, Pakistan has "to globalize or Talibanize". Pakistan needs to attract both FDI and portfolio investments from abroad. All those millions of youths on the farms or in the tribal belt of Pakistan have to either be in schools or working in factories or offices. Otherwise, they'll be potentially recruited as fighters by the terrorists to continue to cause death and destruction on the streets of Pakistan and elsewhere.

Najam said...

Atleast ,since the day Pervez Musharraf (and Salman Shah) surrendered on a phone call 10 years back,Pakistan is well and truly on the course of Globalization and not Talibalization.The results are there for all to examine.

a)Streams of Milk and Honey are flowing throughout the country.
b)Law and order is so good that Lion waits for the Goat to drink water and a woman travels from Karachi to Peshawar throwing Gold in the air and no one dare look at her.
c)Shops are full of buyers,having high buying value.The factories are operating 24 hours with extremly high production out put.
d)There is no interruption in Electric Power anywhere in the country and clean drinking water comes from the Taps.
e)Transportation is of highest class.Bullet trains,Air conditioned buses and at very nominal fare.
f)People struggle from day to night to find a poor person ,a beggar to whom they can give Zakat and Sadqah ,but can not find any.
g)Pakistan has become a major Donor nation.

The list is unending ,the merits of last 10 years policies are enormous.

Riaz Haq said...

Your comment dripping with sarcasm would be really funny if it wasn't so tragic. The picture you paint is a Utopia that doesn't exist anywhere in this world.

If you really want someone to blame for Talibanization, why stop at Musharraf or Salman Shah? You really have to go further back to your hero Zia ul Haq in the 1980s, who sought out American CIA's help and sowed the seeds of 911 terrorist attacks that forced Mush and the rest of the world to acquiese to American aggression in the aftermath of Sept 11, 2001. After 911, it wasnt just Mush that accepted the US demands. There was a UN reolution endorsing the American invasion of Afghanistan, supported by India, China, Russia, Europe and the Muslim nations.

What we are now reaping is the bitter harvest of terror from the al Qaeda, Taliban, the Lal Masjid gang and their allies today. Their ideology of hate is consuming all of us as never before. Muslims are their biggest victims in Pakistan and elsewhere. All actions have consequences, and what we do now will have consequences now and ten, twenty or thirty years later.

It's time for us to stop the blame game and come to our senses. Each of us needs to accept responsibility for our own mistakes. We need to start thinking about the real problems of poverty, illiteracy, malnutrition and unemployment that our people suffer from, and learn from our neighbors India and China how they are solving their problems by selectively cooperating with rather than confronting the Americans and the West to get the capital and the export markets they need to increase their economic self-sufficiency and achieve a degree of true sovereignty in the future.

As they often say, a crisis is a terrible thing to waste.

Anonymous said...

Riaz Sb. Thanks for the good news. The moment I saw your article I knew some pathetic loser from our eastern neighbor will be here and find some bad news to post. Well they never miss a chance to make a fool of themselves.

Anonymous said...

Riaz Sb. Thanks for the good news. The moment I saw your article I knew some pathetic loser from our eastern neighbor will be here and find some bad news to post. Well they never miss a chance to make a fool of themselves.

Anonymous said...

It is difficult to be optimistic about countries like India and Pakistan in the long run. How will the teeming hordes be fed? Where will the water to wash and drink come from? How to avoid indulging in pointless bloodshed instead of solving bigger problems together?

Only systematically applied science may provide an answer - and for now that can only come from the US, Europe, Japan or South Korea.

Reader from India

Riaz Haq said...

Here's a report on Goldman Sachs assessment of BRIC and N11 at the end of 2009:

MANILA, Philippines - Global investment bank Goldman Sachs said the Philippines performed better than most of the next 11 emerging economies (N-11) during the global crisis.

"Within the N-11, Indonesia and the Philippines have positively surprised," Goldman Sachs said in its latest Global Economics Paper.

The N-11 and the BRIC (Brazil, Russia, India, and China) are 2 terms coined by Goldman Sachs several years ago. The investment bank considers the BRIC as the fastest-growing developing economies, and the N-11 as the ones "worth keeping an eye on" outside of the BRIC.

Aside from the Philippines and Indonesia, other members of the N-11 include Bangladesh, Egypt, Korea, Turkey, Nigeria, Vietnam, Iran, Pakistan, and Mexico.

Goldman Sachs said the Philippines exceeded growth expectations, along with China, Brazil, India, and Indonesia. On the other hand, countries which performed in line with the investment bank's projections include Bangladesh, Egypt, Korea, Turkey, Nigeria, and Vietnam.

Meanwhile, Goldman Sachs said Iran, Pakistan, and Mexico have "largely disappointed" its expectations.

Stronger rebounds

While the BRIC and N-11 saw sharper contractions than developed countries in general, Goldman Sachs said these economies also posted stronger rebounds. The investment bank grouped the BRIC and the N-11 in terms of the differentiation, with the Philippines still at the top tier.

"This group of winners includes Brazil, China, India, Egypt, Indonesia, and the Philippines. They have experienced a relatively mild slowdown, and have shown an impressive rebound in growth and activity this year."

In the middle group are Korea, Nigeria, Turkey, and Vietnam, which have also seen impressive rebounds despite relatively sharp contractions, Goldman Sachs said.

Meanwhile, Iran, Mexico, Pakistan, and Russia belong to the bottom level given the depth of their recessions and sluggishness of recoveries.

"While overall the BRICs and N-11 saw much sharper contractions than the developed countries, they also saw much stronger rebounds," Goldman Sachs said.

World growth

Since 2007, Goldman Sachs said the BRIC has contributed 45% of world growth, while the N-11 countries account for 11%. The Group of 7 (G7), on the other hand, only contributed 20% in the past 2 years.

The G7, a group of industrialized nations, includes Canada, France, Germany, Italy, Japan, United Kingdom, and the United States.

"While the 2000-2006 contribution to global growth was almost equally split between the developed and developing world, the last 2 years saw the trend change sharply, with the divergence mainly driven by the BRICs," Goldman Sachs said.

On an individual country basis, Goldman Sachs said all of the BRICs and 7 of the N-11 (Bangladesh, Egypt, Indonesia, Iran, Nigeria, Philippines, and Vietnam) contributed more to world growth in 2007 to 2008 than from 2000 to 2006.

Anonymous said...

riaz, you keep believing that Pak is at the same level as India when it comes to science and technology.

today's WSJ
BANGALORE -- General Motors Co.'s research center in India will be ready to develop a global car platform by 2012, a senior executive said Monday.

"By 2012, we will have the full capability to design, develop and build a global platform," Karl Slym, who is General Motors India Pvt. Ltd.'s president and managing director, told a news conference.

He didn't say what type of vehicle the R&D center will develop.

The center in the southern city of Bangalore employs 1,600 engineers, said P. Balendran, vice president at General Motors India.

Write to Rumman Ahmed at

NEW DELHI--The Indian unit of Huawei Technologies Co. plans to manufacture telecommunications equipment in the country and invest about $500 million in its research-and-development center in five years, the unit's chief executive, Max Yang, said late Friday.

Huawei Technologies India has yet to decide on partnering with Indian state-run telecom equipment maker ITI Ltd., Mr. Yang told reporters.

"[Partnering with] ITI is one of the ways [to manufacture equipment in India]. ... We have some other choices [like contract manufacturing] also," he said. In June, ITI had invited initial bids from investors interested in buying a stake in three of its six manufacturing plants in the country.

Huawei's team from China visited ITI's plants in November to decide on whether to participate in a bid for majority stakes in the three joint ventures the Indian telecom-equipment maker plans to form.

Mr. Yang said manufacturing in India will also protect the company from steep antidumping duties levied by India on imports of some telecom equipment from China. In December, India said it would levy antidumping duties of up to more than three times the value on synchronous digital hierarchy, or SDH, telecommunication transmission equipment imported from China. It said ZTE Corp. will need to pay a duty of 236% and Huawei Technologies of 50% on such equipment sold in the country.

Huawei's Indian unit plans to add 5,000 employees to its current 2,000-strong staff working at its research-and-development center in Bangalore in the southern Indian state of Karnataka.

Huawei Technologies India expects revenue "to be stable" in 2010, but sees growth for 2011, Mr. Yang said without elaborating. The company's revenue in 2009 was slightly more than $1 billion, he said.

Mr. Yang said the Indian unit hasn't yet received an order from state-run Bharat Sanchar Nigam Ltd., which had earlier issued tenders for sourcing telecom equipment to add 93 million lines to its mobile-phone network.

In June, BSNL had shortlisted Sweden's Telefon AB L.M. Ericsson and Huawei for parts of an estimated $6 billion contract to supply telecom equipment.

"[The order is] on hold... [BSNL] didn't formally communicate with us," Mr. Yang said.

India's junior telecommunications minister, Gurudas Kamat, said in July that Huawei's bids for equipment supply to BSNL's western and eastern regions hadn't been opened due to security guidelines.

The federal home ministry and the intelligence bureau have raised concerns over the presence of foreign companies "especially from certain countries in the critical and sensitive border areas, that may have national security implications," Mr. Kamat said.

Write to R. Jai Krishna at

Riaz Haq said...

anon: "General Motors Co.'s research center in India will be ready to develop a global car platform by 2012, a senior executive said Monday."

GM is a loser. It's not interested in R&D in India. It just wants to sell its crap there, because it can't sell it in other places, including its own backyard.

As to the capabilities comparison on autos, Pakistanis are just as capable of building old-tech autos as Indians. There is no magic to designing and building autos. It's old hat.

If Pakistanis can design and build airplanes, rockets, UAVs, tractors and tanks and high-tech firearms, they can also design and build autos. Auto parts business in Pakistan already exceeds a billion dollars. Pakistan is one of the largest manufacturers and major exporter of auto CNG kits in the world.

Riaz Haq said...

Here's a relevant opinion by Soutik Biswas of BBC:

Has India's "Deciding Decade" begun? A study, done by a Delhi-based economic research firm along with a leading newspaper, thinks so. It says that India's GDP can grow at an average annual rate of 9.6% for the next 10 years even if there were no reforms. Incomes will double, the middle class will burgeon and urbanisation will proceed at breakneck speed.

Now the bad news. Even with this scorching growth, more than 250 million people of a total population of 1.3bn will still be "very poor" in 2020, the study says. That's not all: not even 100 million Indians will be graduates or post graduates despite the growth. Clearly, without radical reforms in education and infrastructure taken up with missionary bipartisan zeal, millions of Indians will still be hungry, poor and illiterate. Are India's politicians and bureaucrats up to the task? On present evidence, hardly. But we all live in hope.

The decade has also begun with a rash of good news stories. The government is planning to give out passports within three days of verification, make compulsory baby seats in cars and provide cheaper food for the poor. At least one state is launching madrassas or religious schools where English will be the medium of instruction. The government is also promising to introduce more women-friendly laws, harsher punishment for sexual crimes and fast track courts. All this just proves how much ground India has to cover. And Indian governments are famous for making announcements that take months, sorry, decades to implement. So we will wait and see.

But there is a piece of truly good news that holds out hope for India. Bihar, India's basket case state - poorest, most lawless, underdeveloped - appears to have clocked the fastest rate of growth during 2008-2009. If the Bihar government is to believed, the state's growth rate - 11.4% - is higher than India's industrially developed states. It is being attributed to good governance, buoyant revenues, increased government spending and a swelling unorganised private sector. If this is true then Bihar has all the makings of a miracle economy.

Bihar's remarkable "turnaround" shows the way for India, in a way. It also proves, as political philosopher Pratap Bhanu Mehta says, that "for the first time in modern Indian history, Indians, including the very marginalised, have a sense that change is possible: our destinies are ours to shape".

A sobering thought to keep in mind though. Impressive growth figures are unlikely to stun the poor into mindless optimism about their future. India has long been used to illustrate how extensive poverty coexists with growth. It has a shabby record in pulling people out of poverty - in the last two decades the number of absolutely poor in India has declined by 17 percentage points compared to China, which brought down its absolutely poor by some 45 percentage points. The number of Indian billionaires rose from nine in 2004 to 40 in 2007, says Forbes magazine. That's higher than Japan which had 24, while France and Italy had 14 billionaires each. When one of the world's highest number of billionaires coexist with what one economist calls the world's "largest number of homeless, ill-fed illiterates", something is gravely wrong. This is what rankles many in this happy season of positive thinking.

Riaz Haq said...

Here's an optimistic assessment of Pakistan's economy by PM Gilani at Karachi Expo 2010, as published by The Nation newspaper:

KARACHI - Prime Minister Yousuf Raza Gilani has said that the economic condition of the country despite international and domestic adversities has improved significantly and Pakistan’s real Gross Domestic Product (GDP) growth is likely to remain close to the target of 3.3 per cent during the fiscal year (2009-10).
“Foreign exchange reserves have risen from $6 to $15 billion and exports are expected to achieve target of US$ 20 billion. Remittances from overseas Pakistanis have reached $4.531 billion which is 25 per cent higher than last year,” he added.
Speaking at an inauguration ceremony of Expo 2010 at the Governor House here on Thursday, he said that Pakistan’s private sector was very enterprising and has repeatedly demonstrated its dynamism and resilience even in adverse circumstances. It goes to the credit of the ingenuity and enterprise of our private sector that in the face of severe global recession, were able to reduce its impact on Pakistan’s economy compared to the much severe impact suffered by the economies of several other countries in the region.
He said that the government strongly believes in market forces to open opportunities and create a competitive environment in the country. “We have continued to liberalise the economy. The reforms in the trade and investment fields stem from our conviction that the private sector of Pakistan is the engine of economic growth and should be facilitated to play its role to the fullest in creating new businesses, opening new jobs and adding value to Pakistani goods and services for the export markets.”
Gilani said that the Ministry of Commerce through its “Strategic Trade Policy Framework (STPF) 2009-12” has successfully addressed major issues like falling exports competitiveness, lack of sophistication, diversification of products and markets. STPF, a medium term plan, provides assurance for continuation of Trade Policy for three years and the businesses can plan their production and export orders accordingly. The policy has been set in motion and the initiatives are at various stages of implementation.
He said a comprehensive Textile Policy 2009-14 had also been announced to revive the textile sector through Textile Investment Support Fund (TISF) of Rs40 billion. He said that more than 500 buyers from 50 countries were attending the show this year and around 350 producers and exporters from all over Pakistan were displaying a wide variety of their products.

Riaz Haq said...

Here is a recent Dawn report on Karachi stocks performance:

Foreign investment in the staggering sum of $57 million in two weeks, an unusual phenomenon, is acknowledged by brokers and analysts as the engine that has driven the market to the height.

Broker-turned-industrialist Arif Habib said that foreign funds had recognised Pakistan as a lucrative destination because of improved corporate profitability; a respite in internal political feuds, attractive valuations and high yields.

“The Pakistani stocks give out a yield of 5.5 per cent and the shares of profitable companies are trading on price-to-earnings multiple of seven times the forward earnings. That compares well with the yield of two per cent and p/e ratio of 17 times in the regional markets including India,” Mr Habib said.

Riaz Haq said...

KSE-100 closed at 1408 on Dec 31, 1999. Then, exactly 10 years later on Dec 31, 2009, it closed at 9386. In between, it hit a peak of 15125 on March 31, 2008 around the time of the elections.

Using a 10-year window with year-end closes in 1999 and 2009, it comes to about 21% CAGR. If you discount it for Pak currency decline from 55 to 85 rupees to a dollar (most of which occurred since 2008), then the CAGR return is still a whopping 16% a year....clearly beating all of the BRIC nations' stock performance in this period.

If any one insists on making KSE-100 look bad by using the March 31, 2000 peak (2000 points) at last week's close (on 10138 points), then 17.82% before currency discount, and 13% after it...still beating all of the BRICs.

Riaz Haq said...

Improvement in macro imbalances: KSE-100 records 8% return in 1Q 2010, says Daily Times:

By Tanveer Ahmed

KARACHI: Robust foreign investment and gradual improvement in macro imbalances propelled the Karachi stock market to record eight percent return in the first quarter of 2010.
Following dismal performance in the fourth quarter of 2009, Pakistan’s benchmark equity index posted 8 percent return (8 percent in dollar) during the first quarter (January to March 2010) despite the political and security issues, whose intensity increased in recent weeks especially the deadlock on 18th Amendment.
“This is the second highest quarterly gain during the last one year, thanks to robust foreign activity and gradual improvement in macro imbalances,” Topline Securities analyst Farhan Seth stated.
Because of strong performance of equities, overall market capitalisation reached $34 billion whereas average volume during the first quarter of the current year stood at $76 million.
In March alone the equity prices rallied 5 percent led by $100 million net buying by foreign investors, after $32 million net inflow in the first two months of this year that inched up the index by 3 percent.
The comparison of the first quarter returns of the last 10 years show that, the last quarter gains are lower than the average gains. Interestingly, during the last decade, market average in the first quarter in any current year’s return was 14 percent.
The lower return this time is mainly due to exceptional gains of 60 percent (51 percent in dollar terms) in 2009 coupled with severe liquidity crunch being faced by local investors. Only local mutual funds’ net selling was at $54 million until March 30 due to continuous redemption pressure.
The sector-wise performance of the capital market indicates that fertilizer companies performed impressively due to robust earnings in the last quarter of 2009 and handsome payouts. FFBL was the star performer with 30 percent return, outperforming the index by 22 percent followed by Engro with 21 percent return while FFC outperformed the index by 2 percent.
On the other hand, OMCs (PSO and APL) and refineries’ (ATRL and NRL) remained laggards due to growing circular debt and lower refinery margins. Subdued refinery margins and lower capacity utilisation haunted refinery earnings, whereas despite better earnings circular debt remained the major issue for OMCs’. ATRL posted negative returns of 16 percent while NRL posted nominal 2 percent return where as PSO and APL posted 4 percent and 5 percent, respectively.
OGDC, the largest state-owned company with capitalisation of $6.3 billion, posted 17 percent return mainly led by huge foreign buying. Out of $132 million net buying so far in the first quarter of 2010, 30-40 percent is parked in OGDC, the analyst noted.

Riaz Haq said...

Here's a Bloomberg report about Pakistan's stocks being cheapest in Asia, and poised to rise by 23% by Dec this year:

" April 9 (Bloomberg) -- Pakistan’s stocks, the cheapest in Asia, may advance by 23 percent in the next eight months, buoyed by overseas funds and improved company earnings, according to National Investment Trust Ltd.

“All the fundamentals indicate that the market will pare most of its losses of the past two years” and reach 13,000 by end-December, Manzoor Ahmed, who manages the equivalent of $857 million as head of asset management at state-owned National Investment, Pakistan’s largest equity fund, said in an interview yesterday. “The economy is in a good recovery phase.”

Pakistan’s benchmark Karachi Stock Exchange 100 Index trades at 8.75 times future earnings, the lowest in Asia, according to Bloomberg data. A Taliban guerilla offensive has killed hundreds in a nation that’s been ruled by the army for half of its existence since 1947, when it gained independence.

The KSE100 rose 0.5 percent to 10,589.26 as of 12:13 p.m. in Karachi, from yesterday’s close of 10,533.57. Still, its 41 percent lower than its record in April 2008.

Oil companies, power generators and lenders may lead gains in Pakistan’s stocks this year, said Ahmed, without naming any.

The KSE100 index sank as much as 69 percent from its peak after the Karachi Stock Exchange restricted trading for four months from August 2008 to prop share prices up.

The gauge has climbed 13 percent this year, extending last year’s 60 percent advance as overseas investors bought more equities in South Asia’s second-largest economy. Gross domestic product may grow 3.4 percent in the financial year ending June 30, after a 2 percent gain in the previous year, according to the Finance Ministry.

Inflation, Politics

Stock gains may be limited if accelerating inflation prompts the central bank to raise borrowing costs, while a struggle between the nation’s top politicians, President Asif Ali Zardari and opposition leader Nawaz Sharif, a former prime minister, may limit the government’s ability to implement policies aimed at buoying the economy, Ahmed said.

Foreign investors bought net $176.6 million of Pakistan stocks between Jan. 1 and April 8, after selling a net $237.4 million in the same period last year, according to stock exchange’s National Clearing Company of Pakistan Ltd.

The KSE100 Index plunged 58 percent in 2008, its first annual decline since 2001. Pakistan needs to expand at an average 6 percent pace over the next five years to cut poverty, according to the government."

Riaz Haq said...

Here's a London trader Manraj Singh talking about Pakistan's KSE stocks potential:

Taliban and credit crunch or not, I expect to uncover some absolute bargain investments in this country. Three Pakistani companies that I have had my eye on have shares that trade in London. I think that they are worth a closer look.

Two long-term plays on Pakistan’s turnaround

United Bank(ticker:UBLS) is one of Pakistan’s top commercial banks. It focuses on servicing the corporate sector and has more than 1100 branches across the country. It has the big advantage of being backed by the colossally rich royal family of Abu Dhabi, the Al-Nahayans. The bank’s chairman, Shaikh Nahayan Mabarak Al Nahayan, is also the United Arab Emirates Minister of Higher Education and Scientific Research. So there doesn’t seem much chance of United Bank running into funding problems even if credit conditions in Pakistan stay tight.

Then there is MCB or Muslim Commercial Bank(ticker: MCBS). This is one of Pakistan’s biggest banks. It focuses on retail customers and has an impressive network of over a thousand branches and some 4 million customers. That makes it a good proxy for the long-term growth of the country’s middle class.

MCB is a highly professional organisation and it has attracted a big international shareholder base. Its biggest shareholder is the Malayan Banking group, which owns a 20% stake. And the Templeton emerging markets funds headed by investment bigwig Mark Mobius are also major shareholders.

Neither of these banks is dirt cheap right now. MCB’s share price has more than doubled since February and United Bank is up by some 80% over that period. They now trade at about eight times earnings. Not expensive, but not cheap either. But they are big, liquid companies and they will be among the first to benefit when international investors start looking at Pakistan seriously again.

Major banks are a good proxy for the performance of emerging markets. So as longer-term investments over the next 3-5 years, these two could pay-off massively.

And one punt for the brave…

On a completely different note is Lucky Cement(ticker:LKCS). Thisis Pakistan’s biggest cement producer. It is also a major exporter to countries in the surrounding region. It ships cement to neighbouring Afghanistan and India as well as to Ceylon and the Middle East. The region is still seeing strong economic growth and that has helped this company.

Lucky Cement has delivered impressive financial results . Despite the credit crisis, political upheaval and Taliban uprisings, profits have more than doubled this year. Its share price has risen by 148% since the start of the year. But it still trades at a reasonable five times earnings. It’s an interesting company, but not without risk. Its major cement production plant is located in the volatile North West Frontier Province where the Pakistani Taliban is active. Appropriately, its shares in Karachi trade under the ticker symbol LUCK. Here in London, its GDRs trade under the less ominous ticker symbol LKCS.

There’s more work to be done and I have other candidates I’m looking at. But I believe Pakistan will be an outstanding investment opportunity in the next few years. The time to get in is when investors fear to go there. That’s now.

I’ll get back to you when I have decided the best way to profit from Pakistan’s undervalued markets.

Till then, good investing.

Manraaj Singh
For The Right Side

Riaz Haq said...

Seeking Alpha webite is reporting that a Pakistan ETF is in the works.

Global X, the developer of several sector-specific China funds, has filed for several new country-specific funds, continuing its push to develop a line of innovative international funds. Among the most interesting of the batch are funds targeting Norway, Pakistan and the United Arab Emirates. While most details are still not available for these proposed funds, a look at the outline provided in the prospectus of the economies on which they will reportedly focus provides some insights into the risk and return profiles (it should be noted that not all funds for which a prospectus is filed are eventually launched, so it’s entirely possible these ETFs never make it to market).

Riaz Haq said...

Here's an interesting except from analysis of Pakistan, calling it the Next BRIC, by

...much like Russia, Pakistan also has been one of the top-performing stock markets over the past decade. Had you been able to invest in the Karachi Stock Exchange at the turn of the millennium, you'd be sitting on a much bigger pile of profits than, say, if you had invested in the “China miracle.” Pakistan offers yet another lesson in how gleaming skyscrapers offer little guidance in predicting future stock market performance.

Investing in Pakistan: Surprisingly Big

Teeming with 169 million souls, Pakistan is the world's sixth-largest country by population. That makes it smaller than Brazil , but larger that Russia, as well as the “Next BRIC” candidates, Turkey, Mexico, South Korea and Egypt. Bordered by Afghanistan and Iran in the West, India in the East and China in the far Northeast, Pakistan is just about the size of France and the United Kingdom combined.

Pakistan's real per capita GDP of about $1,250 makes your average Pakistani slightly poorer than his counterpart in India -- and far behind the average in booming China. One third of Pakistan's population lives in poverty, and only half of the population is literate. Yet, Standard Chartered bank estimates that Pakistan has a middle class of 30 million that now earns an average of about $10,000 per year. And adjusted for purchasing power parity (PPP), Pakistan's per capita GDP approaches $3,000 per head. But take away that bit of economic affirmative action, and Pakistan's economy drops from the size of New Jersey's down to that of Alabama.

Investing in Pakistan: Edgy Relations with Uncle Sam

In the bad old days of the Soviet Union, Pakistan was a major U.S. ally. That relationship soured after the United States imposed sanctions on Pakistan after it refused to abandon its nuclear program. The “War on Terror” changed all that. After Pakistan ended its support of the Taliban regime in Kabul, American economic and military aid to Pakistan soared to more than $4 billion within three years of the 9/11 attacks. Indeed, American aid has played no small part in helping Pakistan's economy flourish over the past decade or so.

But as with most forms of handouts, gratitude is the least heartfelt of emotions. Anti-Americanism in Pakistan’s free media is just about as virulent as neighboring Iran. The Wall Street Journal’s Pakistan correspondent was ejected from the country after being charged with spying for the United States and Israel. The U.S. State Department advises U.S. citizens not to visit the country and has forbidden the families of its diplomats in Pakistan to visit since 2002.

Investing in Pakistan: A Solid Start to the Millennium

Economically, the first decade of the 21st century has been good to Pakistan. Thanks to economic reforms introduced in 2000 by the former Musharraf government, Pakistan has privatized $5-billion worth of assets, simplified its tax system and attracted large amounts of foreign direct investment (FDI) compared to its GDP. By mid-2005, the Pakistani economy was growing by 8.6%, and the World Bank named Pakistan as the top reformer in its region and among the top 10 reformers globally.

That changed abruptly with the onset of the “Great Recession.” Pakistan's ensuing balance-of-payments crisis and runaway inflation forced the IMF to step in, and offer a $7.6-billion emergency financing package in late 2008. To its credit, the Pakistani government kept its side of the bargain, maintaining its foreign exchange reserves above target and its fiscal deficit below. The Pakistani economic crisis has eased substantially, and in 2010, the economy is expected to grow at least 4%.

... The stock market index in Karachi has risen by more than 1,000% since 1999. And in 2002, Pakistan was the top-performing stock market in the world.

Riaz Haq said...

Here's an interesting commentary by Sudha Ramachandra about India's future prospects:

The populations of Europe and Japan are already graying, and the working-age populations of the United States and China are projected to shrink too in the next two decades. By 2020 the US will be short 17 million people of working age, China 10 million, Japan 9 million and Russia 6 million. However, India will have a surplus of 47 million people, giving the country a competitive edge in labor costs, which will be sustainable up to 2050, according to a study by Goldman Sachs.

Economists say India will catch up with the Chinese economy beginning in 2030, when the latter could cool off as the result of an aging population. "The window of opportunity offered by a population bulge has clearly opened for India," points out noted economist C P Chandrasekhar of Jawaharlal Nehru University in New Delhi. After decades of evoking despair, India's demographic profile is finally beginning to stir hope.

But not everyone views the population bulge with such optimism. Some analysts say it is not enough to have a young population. The working-age population needs to be healthy and literate.

India's score on this, while improving, is certainly not inspiring. About 50% of all Indian children are undernourished, a large percentage of them born with protein deficiency (which affects brain development and learning capacity, among other things). This is hardly the ideal foundation for a productive workforce, as the likelihood of a malnourished child growing up to be an able adult is rather dim.

There is also the question of whether the population has the skills and knowledge to take on India's future work. Literacy has improved dramatically over the years - just 14% of the population was literate in 1947 versus about 64.8% today - but many who are classified as literate can barely read or write. And 40% of those who enroll in primary schools drop out by age 10. The curriculum in the schools, especially the government-run ones, does not prepare the child for the domestic job market, let alone the global one. The huge "workforce" might not be qualified to do the work.

Moreover, India's rich and educated classes are preferring to have small families, so the additions to the population are coming largely from the poor, illiterate sections in society. Nicholas Eberstadt, who researches demographics at the Washington-based American Enterprise Institute, points out that while India's overall population profile will remain relatively youthful, "this is an arithmetic expression averaging diverse components of a vast nation. Closer examination reveals two demographically distinct Indias: the north that stays remarkably young over the next 20 years, and a south already graying rapidly due to low fertility."

Riaz Haq said...

Here's an interesting excerpt from a piece about the use of technology in Pakistan written for CNET by a visiting Pakistani tech journalist Zamir Haider at Stanford University:

According to the Ministry of Finance's Economic Survey of Pakistan for fiscal 2005-2006, computer use in urban households is high. In comparison with the literacy rate--53 percent--at least 40 percent of Pakistanis are computer literate or have access to computers.

Mostly, these are Pentium II or Pentium III PCs, since laptops are expensive. PCs are now widely available at good prices, thanks to Chinese computers flooding the markets. Most of these machines are not big brands, but they do say "Intel Inside." As for laptops, they come from various brands like Dell, Toshiba, Compaq, Sony and Apple. Wireless Internet connections, on the other hand, are still rare.

Dialing up through the phone lines
In Pakistan, 99 percent of Internet connections are still over phone lines. Wi-Fi is generally seen only at five-star hotels and now at a few restaurants. People at home usually use Internet cards of various denominations starting from 10 rupees per hour (16 cents) to 100 rupees per 10 hours ($1.60). Connection speeds through Internet cards are generally poor.

Getting permanent Internet connections from an Internet service provider is expensive, but most businesses do get connections from these companies.

Mobile phones are the most common form of personal technology seen in Pakistan. Connecting to the Internet through mobile phones is getting popular now, but it probably will still take another a year or more to be as popular as it is here in California.

People here are excited about the coming of the Apple iPhone. That's what I hear people talking about when I go to any of the mobile phone outlets in San Francisco.

In Pakistan, people aren't that much different when it comes to mobile phones. They're fond of buying expensive cell phones not for technology purposes alone, but also largely to show off.

Riaz Haq said...

Here's Maplecroft risk warning for investing in India, according to Times of India:

LONDON: The United Kingdom-based Global Risks Atlas 2011 on Friday described India as the 16th riskiest country to invest in for the security hazards it poses and rather embarrassingly clubs it with Niger, Bangladesh and Mali. The Atlas is published by Maplecroft, a consultancy founded by Alyson Warhurst, chair of strategy and international development at Warwick Business School.

The evaluation is structured on seven key global risks including macroeconomic risk and threats around security, governance, resource security, climate change, social resilience and illicit economies.

Maplecroft assessed India faces simultaneous threats of terrorist attacks from Islamists and Maoists. It also points at India's lack of social resilience despite a robust economic growth and cites its poor human rights record. It says large sections of the population lack access to basic services such as education, healthcare and sanitation, and highlights its less productive workforce, greater susceptibility to pandemics and susceptible to social unrest.

A press release by Maplecroft lumps Pakistan with Russia on investment risk:

Dynamic political risks constitute immediate threats to business and Maplecroft rates 11 countries as ‘extreme risk.’ Most significantly, the emerging economy of Russia has moved up five places from 15th to enter the top ten for the first time, whilst Pakistan has also moved two places up the ranking to 9th.

The ‘extreme risk’ countries now include: Somalia (1), DR Congo (2), Sudan (3), Myanmar (4), Afghanistan (5), Iraq (6), Zimbabwe (7), North Korea (8), Pakistan (9), Russia (10) and Central African Republic (11).

Russia’s increased risk profile reflects both the heightened activity of militant Islamist separatists in the Northern Caucasus and their ambition to strike targets elsewhere in the country. Russia has suffered a number of devastating terrorist attacks during 2010, including the March 2010 Moscow Metro bombing, which killed 40 people. Such attacks have raised Russia’s risk profile in the Terrorism Risk Index and Conflict and Political Violence Index. The country’s poor performance is compounded by its ‘extreme risk’ ratings for its business environment, corporate governance and the endemic nature of corruption, which is prevalent throughout all tiers of government.
Jim O’Neil, Chairman of Goldman Sachs Asset Management, states: "Growth is happening where political risk is most challenging. So, meticulous monitoring and mitigation now will enable business to flourish and benefit from the opportunities presented by the future growth economies of the BRICs and Next 11".

Looking to the longer term, the BRICs countries are witnessing increasingly worse structural political risk trends for 2011. China (25), India (32) and Russia (51), rated ‘high risk’ and Brazil (97) medium risk, have all seen risks increase compared to scores from last year’s Atlas.

Riaz Haq said...

Here are a few excerpts from a Credit Suisse press release after a recent investment conference in London:

Speaking on the sidelines of Credit Suisse’s first Asean and Pakistan Conference in London last week, Credit Suisse analysts covering Malaysia, Indonesia, the Philippines and Pakistan outlined the case for investing in a group of Asian emerging markets that are not as well known as China or India, but which boast compelling growth and valuation stories.

“Southeast Asia offers investors remarkable opportunities,” commented Stephen Hagger, Credit Suisse’s Country Head and Head of Equities for Malaysia. “These opportunities are created by common themes that apply across many of the markets in this family – themes like infrastructure investment, the increasing spending power of domestic consumers and the growth of financial services.”

“We held this pioneering investor conference in London to draw attention to this story, which has real scale and momentum, and to offer our clients insight into allocating capital to the region,” added Mr. Hagger. Nine corporates from Southeast Asia and Pakistan participated in the conference along with around 40 UK-based investors from 28 funds.

Farhan Rizvi, Credit Suisse’s Head of Research for Pakistan, focused on the banking sector in this South Asian country of 187m people, arguing that Pakistan’s market offered some of the most attractive valuations in Asia for banking stocks. Mr. Rizvi said that the banking sector had de-levered since the 2008 crisis, adding that loan-to-deposit ratios had eased to 60% from a 74% high and that Pakistan’s loan-to-GDP ratio of 22% was the lowest in non-Japan Asia. He added that asset quality had improved as a result and that net interest margins should remain positive at 6.7% in 2011 because of expected tightening and static deposit costs. Rising government appetite for fiscal financing, on the other hand, will drive growth in earning assets. “Pakistan is largely ignored by investors, but we believe its banking sector can achieve average annual earnings growth of 18% between 2011 and 2013,” commented Mr. Rizvi, who upgraded Pakistan’s banking stocks to Overweight on June 27. Beyond the banking sector, Mr. Rizvi said there were also attractive valuations and growth potential in the oil and fertilizer sectors.

Riaz Haq said...

South Korea's Posco (PKX, 005490.SE) is looking to invest in steelmaking projects in Africa and Pakistan to capture the growing demand in those parts of the world, an executive told MarketWatch:

Posco Executive Vice President Sung-Kwan Baek told Dow Jones Newswires on the sidelines of a business conference in Bali Friday the company hasn't decided on the location of the planned project in Africa, but he mentioned some possible countries such as Ghana, Mozambique, South Africa and Zimbabwe because those countries hold abundant iron ore reserves, the basic steel raw material.

Baek said that the African plant will also serve the Middle Eastern market.

"At the same time we are thinking about Pakistan and India because of their big population," Baek added.

In India, the company has started to build downstream production facilities such as coating lines, cold-rolling mills and silicon-steel lines in the Maharashtra state, he said.

Meanwhile, for the upstream projects, Posco is planning three projects, one of which is expected to come through next year. The projects will be located in Karnataka state with six-million tons of annual production capacity, in Orissa, which will have eight million tons capacity. The other one will be developed with India's state-owned Steel Authority of India Ltd., which will have three million tons in production capacity.

The company's offshore investment is part of the plan to boost its total production capacity to 70 million tons by 2020, with 40 million will be produced by its plants in South Korea.

Posco is currently also developing a plant in Indonesia, which will have a six-million-ton annual capacity and a similar project in Brazil.

"Outside the two countries, we need 20 million tons in production capacity. Our goal is in 2020, we have 30 million tons [in production capacities] in foreign countries," the official said.

He added that the company will try to finance future projects with its own cash, but it doesn't rule out any fundraising activities if necessary.

Baek said that the company will closely watch how the global economy will affect China in determining its offshore investment for next year.

"If China survives, we will still have room to invest in foreign countries," Baek said.

China currently produces half of the global steel supply. Baek said that if China's economy slows down the country will likely boost its steel exports, making competition tougher.

Riaz Haq said...

KARACHI: The German parliament has ratified the Bilateral Investment Treaty (BIT) signed by Germany and Pakistan in the year 2009 and has sent it to the European Commission for its final approval, Pakistan’s Ambassador to Germany Shahid Kamal told PPI.

Under the Bilateral Investment Treaty, investors of both the countries will be given protection and there will be more German investment in Pakistan in next 3 to 5 years, Kamal added.

Pakistan’s exports to Germany during 2011 calendar years will be around $1.5 billion, with the balance of trade in favour of Pakistan, as against $700 million in the last year.

Quoting official German statistics, Kamal said the trade between the two countries from January to July 2011, was $800 million, 45 percent more than in 2010.

Germany - the largest economy in Europe - was the fifth largest investor in Pakistan in the years 2009 and 2010.

“We are trying to set up German Pakistan Chambers of Commerce, which will enhance connectivity between the private sectors of both the countries,” Kamal stated.

He spoke of immense prospects to export rice, fruits, and vegetables to Germany, where prices of these items were rising. He said Germany was supporting Pakistan for greater market access to EU member states.

He said under an agreement signed recently, German government will provide economic assistance of $58 million for training in electronics, mechanics to Pakistanis over five years.

Shahid Kamal said another $85 million worth of German economic cooperation was underway in renewable wind and solar energy, which will help overcome load shedding in the country. He also said that 340 PhD Pakistanis were working in German universities. German Consul General in Karachi Dr Tilo Klinner, who was also present during the discussion, said that under German economic cooperation program, people in Khyber Pakhtunkhwa and Sindh provinces will get Pakistanis will get vocational training under the Public Private Partnership. Dr Klinner said German government will co-host an International Conference on Afghanistan in Bonn on December 5, 2011.

Riaz Haq said...

Goldman Sachs' Jim O'Neill, who coined BRIC, says India's performance most disappointing, according to Economic Times:

LONDON: Growth in all four BRIC economies has surpassed expectations in the decade since the term came into existence but India's record on productivity, FDI and reform has been the most disappointing, the chairman of Goldman Sachs Asset Management Jim O'Neill said on Tuesday.

O'Neill, who coined the term, BRIC, in December 2001 to jointly describe the four biggest developing economies, Brazil, Russia, India and China, was speaking at the London leg of the Reuters 2012 Investment Outlook Summit.

"All four countries have become bigger (economies) than I said they were going to be, even Russia. However there are important structural issues about all four and as we go into the 10-year anniversary, in some ways India is the most disappointing," said O'Neill who oversees almost a trillion dollars in assets at Goldman.

Just this week, India's government caved in to opposition pressure and put on hold a landmark reform of the retail sector that was seen opening the doors to billions of dollars in foreign direct investment in the supermarket sector.

The long-awaited measure, passed earlier this month, had been hailed as ending the government's economic reform paralysis that is widely seen as the root cause of high inflation, shrinking capital inflows and a wider current account deficit.

"India has the risk of ... if they're not careful, a balance of payments crisis. They shouldn't raise people's hopes of FDI and then in a week say, 'we're only joking'," O'Neill said. "India's inability to raise its share of global FDI is very disappointing," he said.

United Nations data shows that India received less than $20 billion in FDI in the first six months of 2011, compared to more than $60 billion in China while Brazil and Russia took in $23 billion and $33 billion respectively.

The glacial reform pace has hit India's hopes for double-digit economic growth, O'Neill said, adding: "India is as bad as Russia is on governance and corruption and, in terms of use of technology, Russia is in fact much higher than India."

On the other BRICs, O'Neill said Brazil's main problem was an overvalued currency which puts the country in danger of "Dutch disease" - a term first used to describe how North Sea oil discoveries in the 1960s triggered a surge in Dutch energy exports but also in the Dutch currency, pummelling much of the country's manufacturing. China's challenge was to effectively manage a transition to a higher-consumption economy with slower growth, he said.

O'Neill remains positive on Russia but said much depends on what Prime Minister Vladimir Putin can deliver in terms of reform following an election at the weekend that left his ruling party with a much reduced parliamentary majority.

Riaz Haq said...

Here's an Express Tribune report tiled "Nokia Sees Pakistan Becoming a High-Growth Market":

KARACHI: Foreign delegates and local entrepreneurs discussed challenges facing businesses, sought greater industry-academia collaboration and highlighted business models to succeed in an emerging market at the 12th Management Association of Pakistan (MAP) Convention on Leadership Challenges for Business Success here on Wednesday.

Emerging markets will account for 80% of the world’s growth the next decade and Pakistan will be an important emerging market in future, Senior Vice President of Nokia India, Middle East and Africa Shivakumar said in a speech titled “Winning in emerging markets”.

Speaking to a conference packed with businessmen, Shivakumar – who is also the senior vice president of All India Management Association (AIMA) – said growth in developed economies has slowed down dramatically and the world is now looking at emerging markets, which account for 42% of population and 13% of income.

Pakistan is listed in four categories of emerging markets including Dow Jones 35 and emerging and growth level economies (EAGLES), he said. “Pakistan will be an important high-growth emerging market.”

In order to succeed in an emerging economy, he said, it is important to understand its segments and consumers. The emerging market consumers – most of whom live under $2 a day – are value-sensitive and not price-sensitive, he said and added entrepreneurs have to work on their business models to accommodate that segment of consumers who believe in the doctrine of “pay more, get more” and “pay less, get less”.

Sharing his experiences, he said, there are three things that he applied and succeeded. “Always put the country’s interest first, keep fixed costs very low and turn as many cost variables as possible,” he said.

“Never cut the features and offer your product at half the price. Consumers don’t want an incomplete product.”

Speaking to the participants earlier on, event’s chief guest and State Bank of Pakistan Governor Yaseen Anwar said it is time for all business leaders and managers to take the lead. Leaders must be more aware of the challenges facing the country – inflation, unemployment and power crisis.

There are no shortcuts to sustained economic development, Anwar said. “We need to develop the right strategies and then translate these strategies into action.”

AIMA President Rajiv Vastupal also addressed the event, saying IMF has lowered growth projection for both 2011 and 2012. “Today’s corporate leaders must focus on innovation to counter the global economic challenges,” he said. He elaborated the successful example of Apple’s iPad, which was launched during recession and earned a great success.

Riaz Haq said...

Goldman Sachs' Jim O'Neill has reaffirmed his optimism about N-11 group of countries which includes Pakistan. Here's an excerpt from a Vancouver Sun story:

In his book, The Growth Map, O’Neill attempts to look beyond the original concept and expand on it. Hence his “Next 11”: Bangladesh, Egypt, Indonesia, Iran, South Korea, Mexico, Nigeria, Pakistan, the Philippines, Turkey, and Vietnam. However, O’Neill is quick to point out that not all of these countries are equally primed for investment.

This is a group of “very, very diverse countries,” he says. “On one level, I’m always quite embarrassed about the acronym N-11 because all it is ... is a phrase to describe the next 11 population countries after the BRICs, and that’s it.”

Indeed. The N-11 ranges from stalwarts of emerging-market investing, such as South Korea, Turkey, and Mexico, to countries that even the boldest investors tend to be wary of, such as Pakistan and Iran.

O’Neill posits that countries with huge populations and low gross domestic products per capita will be able to catch up to the developed world more quickly than they could have 50 or 100 years ago, as the economic centre of gravity shifts away from the West.

In order to assess countries’ capacity to generate sustainable growth, O’Neill has come up with a set of 13 variables (from education to rule of law to fiscal health to internet penetration) that combine to make what he calls a “growth environment score.” On this measure, the highest-scoring country, South Korea, tops every G8 country except one – Canada.

Read more:

Another excerpt from UAE's The National:

Mr O'Neill, as one of the world's top economists and global chairman of Goldman Sachs' asset management business, has detailed answers for all the critics, although he does concede: "Maybe I'm too proud of my creation".

He was speaking in Dubai ahead of the Goldman Sachs Asset Management conference on the Middle East and North Africa, an annual gathering designed to work out the bank's broad investment approach to the region.

Whatever the critique of the Bric concept, there is no doubt it has become one of the guiding principles of economic and financial theory of the past decade, and has helped to change the way businessmen and financiers view the world.

He recently updated the concept to take in what he calls the Next 11 or N-11 economies: Bangladesh, Egypt, Indonesia, Iran, South Korea, Mexico, Nigeria, Pakistan, the Philippines, Turkey and Vietnam.

His visit took in the UAE and other GCC states, and prompted some typically down-to-earth observations on the region's potential.

"From the broad Middle East region, there are two countries that have the population size to eventually become big enough, or N-11: Egypt and Iran. Both are in our list already," he says.

"No individual GCC country could reach their potential. If you thought of the GCC collectively, then you might think of them as having Bric-like potential, but not alone."

Even the biggest GCC country, Saudi Arabia, with its population of an estimated 25 million, is not a candidate for the lists currently, mainly because it lacks the basic criterion of having an economy that is more than 1 per cent of global GDP, Mr O'Neill argues.

Riaz Haq said...

A recent book "The Growth Map" features Goldman Sachs' Jim O'Neill's personal account of the BRIC phenomenon, how it has evolved, and where those four key nations currently stand after a turbulent decade.

And the book also offers an equally bold prediction about the "Next Eleven" countries: Bangladesh, Egypt, Indonesia, Iran, Mexico, Nigeria, Pakistan, Philippines, South Korea, Turkey, and Vietnam. These developing nations may not seem exceptional today, but they offer exciting opportunities for investors over the next decade, just as BRIC did before them.

Riaz Haq said...

Here's an excerpt on Pakistan from a recent Worth magazine piece posted on Goldman Sachs website:

PROMPTS MEMORIES OF OSAMA BIN LADEN and worries about current instability more readily than it does investment opportunity. “But a large portion of Pakistan is relatively stable, and it’s a country that’s growing rapidly almost in spite of itself,” says Paul Herber, portfolio manager of the Forward Frontier Strategy Fund.
Pakistan’s local oil and gas companies are a promising investment play. Unlike other N11 nations, where these resource companies are government-owned and give investors little access, “a lot of Pakistan’s oil and gas companies are public,” Herber says. The country is by no means a big global oil producer, but with 170 million people—more than Russia— growth in domestic demand is likely to boost the domestic industry, Herber says.

Riaz Haq said...

Here's Pak Observer report on South Korean investment in Pakistan:

Ambassador of South Korea, Choong Joo Choihas has said that Tuwairqi Steel Mill (TSML) potentially rich to serve as a catalyst for industrial growth in Pakistan.

During a visit to TSML, the Korean diplomat said “South Korean steel giant POSCO, has so far invested US$ 15 million in this project, and contemplating to invest more. Owing to the strategic geographical location of Pakistan, in central and south Asia, this joint venture appears to be vital initiative in the global business operations of POSCO,” he said.

Choong Joo also said that South Korea is willing to invest in different sectors, particularly steel sector, which offers huge growth opportunities spurred by government’s investment-friendly policies

He said, that scores of South Korean companies are operating in energy, petrochemical and infrastructure industries, while many more have plans to invest in future, provided law and order situation improves in Pakistan. He further informed, that around 10,000 workers from Pakistan are currently serving in Korea.

Young-Ho Yoo, the Resident Director of POSCO said that the new plant is now on the verge of completion and is expected to commence operations by the end of the second half of the current year. “After completion of the first phase, we are looking forward to examine the feasibility for the second and third phase of the project, as its forward and backward integration,” he remarked.

Earlier, Zaigham Adil Rizvi, Director (Projects), TSML gave a detailed presentation about the project and shared statistics about the global steel industry. “There is a consistent growth in the production of DRI over the years, owing to environment-friendly production process and consistent quality of the product,” he said.

He was of the view that currently, Pakistan was among the countries that relied mostly on imports, when it comes to heavy mechanical structures and engineering goods. “By producing high-quality steel within Pakistan, we can manufacture such equipment locally by value addition, with the help of downstream industries,” he concluded.

Tuwairqi Steel Mills Limited (TSML) is Pakistan’s first private sector integrated environment-friendly steel manufacturing project of Al Tuwairqi Holding.

The plant spreads over an area of 220 acres at Port Qasim, Karachi and employs the world’s most advanced DRI (Direct Reduction of Iron) technology of the MIDREX process, owned by Kobe Steel of Japan. The first phase of the project, that constitutes a DRI plant, to produce 1. 28 million tons of high-quality DRI, is now on the verge of completion.

POSCO is the world’s third-largest steel maker, by market value, and Asia’s most profitable steelmaker. It has been the bedrock of Korea’s industrial development over the past 40 years. The Korean shipbuilding and automobile industries primarily are dependent on POSCO for their steel requirements. POSCO produces some 33.7 million tons of steel products each year. Currently, POSCO ships those products to over 60 countries around the globe, satisfying some of the world’s most quality-sensitive manufactures.

Riaz Haq said...

Here's Pak Observer report on South Korean investment in Pakistan:

Ambassador of South Korea, Choong Joo Choihas has said that Tuwairqi Steel Mill (TSML) potentially rich to serve as a catalyst for industrial growth in Pakistan.

During a visit to TSML, the Korean diplomat said “South Korean steel giant POSCO, has so far invested US$ 15 million in this project, and contemplating to invest more. Owing to the strategic geographical location of Pakistan, in central and south Asia, this joint venture appears to be vital initiative in the global business operations of POSCO,” he said.

Choong Joo also said that South Korea is willing to invest in different sectors, particularly steel sector, which offers huge growth opportunities spurred by government’s investment-friendly policies

He said, that scores of South Korean companies are operating in energy, petrochemical and infrastructure industries, while many more have plans to invest in future, provided law and order situation improves in Pakistan. He further informed, that around 10,000 workers from Pakistan are currently serving in Korea.

Young-Ho Yoo, the Resident Director of POSCO said that the new plant is now on the verge of completion and is expected to commence operations by the end of the second half of the current year. “After completion of the first phase, we are looking forward to examine the feasibility for the second and third phase of the project, as its forward and backward integration,” he remarked.

Earlier, Zaigham Adil Rizvi, Director (Projects), TSML gave a detailed presentation about the project and shared statistics about the global steel industry. “There is a consistent growth in the production of DRI over the years, owing to environment-friendly production process and consistent quality of the product,” he said.

He was of the view that currently, Pakistan was among the countries that relied mostly on imports, when it comes to heavy mechanical structures and engineering goods. “By producing high-quality steel within Pakistan, we can manufacture such equipment locally by value addition, with the help of downstream industries,” he concluded.

Tuwairqi Steel Mills Limited (TSML) is Pakistan’s first private sector integrated environment-friendly steel manufacturing project of Al Tuwairqi Holding.

The plant spreads over an area of 220 acres at Port Qasim, Karachi and employs the world’s most advanced DRI (Direct Reduction of Iron) technology of the MIDREX process, owned by Kobe Steel of Japan. The first phase of the project, that constitutes a DRI plant, to produce 1. 28 million tons of high-quality DRI, is now on the verge of completion.

POSCO is the world’s third-largest steel maker, by market value, and Asia’s most profitable steelmaker. It has been the bedrock of Korea’s industrial development over the past 40 years. The Korean shipbuilding and automobile industries primarily are dependent on POSCO for their steel requirements. POSCO produces some 33.7 million tons of steel products each year. Currently, POSCO ships those products to over 60 countries around the globe, satisfying some of the world’s most quality-sensitive manufactures.

Riaz Haq said...

Here's a Reuters' report on Templeton and Goldman Sachs bullishness on Pakistan:

After 18 years as a banker at firms such as Citigroup and Nomura, Shaheryar Chishty took a different direction in late 2011, starting an investment firm that, among other things, helped guide Chinese and South Korean money into Pakistan.

While Pakistan is probably not the first place the average investor would choose to park cash, Chishty's timing was spot on. The country's stock market surged 49 percent last year to become one of the five best performing markets in the world.

The victory by former prime minister Nawaz Sharif in Pakistan's general election lifted the stock market to an all-time high on Monday, in a sign that investors, which include Goldman Sachs (GS.N) and Mark Mobius of Templeton, are betting on the prospect of further market gains through a stable government.

"I'm not under-estimating the challenges, but we have one party with a simple majority," Chishty, the Pakistan-origin chief executive of Asiapak Investments Ltd, told Reuters in an interview in Hong Kong on Monday. "A lot of the market's rise happened despite the previous government."

Risks, especially violence by Islamic militant groups, remain constant, yet Pakistan's market is up another 21 percent this year, behind only Japan and the Philippines as Asia's top gainers, according to Thomson Reuters data.

Pakistan's uncertain security environment and a deteriorating economy have failed to keep emerging market fund guru Mobius and Goldman Sachs Asset Management out of the country.

Mobius invested 4.6 percent of his $18.5 billion Templeton Asian Growth Fund's assets in Pakistani shares as of the end of March, more than his exposure to shares in Hong Kong, Singapore or Taiwan, according to data from Thomson Reuters Lipper.

"Pakistan is not a small country and it is strategically significant. However, with the negative press surrounding the country, it has tended to be ignored by investors," said Mobius, executive chairman of Templeton Emerging Markets Group.

Last year, 15 equity funds from Pakistan were among the world's top 100 performers, the Thomson Reuters Lipper data show....

Riaz Haq said...

Here are a few excerpts from a recent book "Street Smarts" by Hedge Fund Manager Jim Rogers:

"Many Asians say that the Asian Way is first to open your economy, to bring prosperity to your country, and then, only after that, to open up your political system. They say thar the reason the Russians failed is that did it the other way around. Russia opened up its political system in the absence of a sound economy, everybody bitched and complained, and chaos inevitably ensued. As an example of the Asian path to political openness, they point to South Korea and Taiwan, both of which were once vicious dictatorships supported by the United States. Japan was at one time a one-party state supported by the US military. Singapore achieved its current status under one-party, authoritarian rule. All these countries have since become more prosperous and more open.

Palto,in The Republic, says that the way societies evolve is by going from dictatorship to oligarchy to democracy to chaos and back to dictatorship. It has a certain logic, and Plato was a very smart guy. I do not know if the Asians ever read The Republic, but the Asian way seems to suggest that Plato knew whereof he spoke."

Not only is the Asian model different from that of the Soviets, it stands China in marked contrast to those thirty-year dictatorships previously mentioned. Chinese leaders have put a high premium upon changing the country's economy, presumably to seek prosperity for the 1.3 people who live there."
"And yet,in 1947, when it achieved independence, India was one of the more successful countries in the world, a democratic country. But despite democracy, or maybe because of it, India has never lived up to its potential. China was a shambles as recently as 1980. India was far ahead of it. Bt since then China has left India, literally in the dust....As China rises, India continues to decline relatively. Its dent-to-GDP ratio is now 90 percent, making a strong growth rate virtually impossible."

Riaz Haq said...

A stock market that has about tripled in value in the last four years is not usually the first thing that comes to mind when global investors and business people think of Pakistan. The stock market has made great strides and some still consider it significantly cheaper value than its peer markets. Meanwhile, outsiders looking for signs that Pakistan is politically stabilizing will find mixed messages at the surface of the news.


Mr. Mohammed Sohail, CEO of Topline Securities Pakistan, says:

The sit-in [that began in Islamabad on August 15] is gradually diluting because the two parties which started the gathering [the PTI and PAT] are there more than six weeks. The media coverage is declining. Investor focus has also shifted away and returned to business as usual. There was an initial correction of 8% to 9%, but now the market has recovered, and is where it was when these protests started. This shows the market is resilient.

The market stabilized in part because the military clarified they don’t intend to intervene or engage in any unconstitutional matter. These protests are democratic, as everyone in a democracy has a right to protest.

The government is now more transparent and more careful as a result of the protests. This is the beauty of democracy: the opposition criticizes the government in power and the government in power improves themselves. For example, the PTI has criticized Prime Minister Nawaz Sharif for having too many family members in important posts and I think this has been accepted as an issue the government will try to improve. Effective opposition criticism is a side of politics we expect to see more of in the future.

Frankly speaking, I see these protests as a major development. In 60 to 70 years, Pakistan has not seen pure proper democracy. If you look at other democracies, these type of protests and political exchange is normal. It is only six or seven years now that we have this proper democracy. This is really the first time in Pakistan’s history that we can have this kind of democratic interaction. When the opposition protests, it provides a lesson for the rulers to be more active, to think about all people.

Mr. Faisal Shaji, a research analyst at Standard Capital Securities in Pakistan, offers a different view:

The protests are in a way positive for real democracy in the country since it has created lot of awareness among the masses. The incidence of rigging is on a wide scale and accepted by all political groups. These protests were previously unthinkable. People think that the overall system is rotten and hence protestors are gaining strength.

The military handled the protests very wisely as the current chief of the army staff [COAS] is pro-democracy. The military wants political parties to resolve the issues politically. But we think the situation is going towards new elections that will use a biometric system of thumb impression which is the ultimate solution to the problem.

Mr. Sohail of Topline Securities maintains confidence in Pakistan’s capital markets moving forward:

Things that were held up due to the protests – IPOs, privatizations, reforms, the $800 million share sell of our largest oil and gas company OGDC – have now resumed. When the OGDC deal is executed, I think that will give a very clear signal to the international business community that the protests may still be going on, but investment and business already are operating as usual.

Pakistan is an unexplored market by most outside investors that is not marketed properly. Compared to peers, the market is very cheap. Pakistan’s markets trades at a price/earning multiple of 7.5 times; a 30% to 40% discount to Sri Lanka, Bangladesh, Nigeria and Vietnam. For me, from an investor’s point of view, the next 24 months look very positive for the equity markets.

Riaz Haq said...

#PWC’s ‘brave’ report predicts #Egypt and #Pakistan will surpass #Canada’s #economy by 2050. #GDP … via @financialpost

The economies of emerging market minnows Egypt and Pakistan could surpass the Canadian economy by 2050, according to a “brave” new report by management consultancy PricewaterhouseCoopers.

“By 2050, emerging economies such as Mexico and Indonesia are likely to be larger than the UK and France, while Pakistan and Egypt could overtake Italy and Canada,” PWC said in a report published Tuesday.

The findings — based on gross domestic product purchasing power parity (PPP) terms — also forecasts India will replace the United States as the world’s second largest economy after China by 2050.

Riaz Haq said...

Pakistan will be 16th largest economy by 2050: PWC report

Pakistan will become the 20th largest economy among 32 peers by 2030 and will further grow to become the 16th largest by 2050, stated a report by PricewaterhouseCoopers (PwC), one of the world’s largest professional services firms.

The report titled, ‘The Long View: How will the global economic order change by 2050?’ said that emerging markets will dominate the world’s top 10 economies in 2050 with China continuing to lead the pack. It projected GDP for 32 of the largest economies in the world, which together currently account for around 85% of global GDP.

Pakistan and Egypt are set to overtake Italy and Canada by 2040, it said.

Fitch affirms Pakistan at ‘B’; outlook deemed stable

“By 2050, emerging economies such as Mexico and Indonesia are likely to be larger than the UK and France, while Pakistan and Egypt could overtake Italy and Canada (on a purchasing power parity basis). In terms of growth, Vietnam, India and Bangladesh could be the fastest growing economies over the period to 2050, averaging growth of around 5% a year.”

According to the report, by 2030, Pakistan will improve its rank from 24th to 20th and will see a further improvement of four places in the next 20 years, based on projected GDP (at PPP).

India will overtake the US to become the second-largest by 2050, it added.

“China has already overtaken the US to become the world’s largest economy in PPP terms, while India currently stands in third place and is projected to overtake the US by 2040 in PPP terms.

“When looking at GDP measured at market exchange rates, we do not see quite such a radical shift in global economic power, reflecting the lower average price levels in emerging economies.

“But China still emerges as the largest economy in the world before 2030 and India is clearly the third largest in the world by 2050, so there is still a considerable shift in economic power towards Asia in particular whichever measure we use.”

‘Pakistan’s economy will collapse in the next 10 years’

According to the GDP at PPP measure, Canada is currently ranked as the 17th largest economy, but by 2030 the country will slip to the 18th position and by 2050 to the 22nd spot.

Egypt will move to the 15th place with Pakistan at 16th.

Despite the Canadian economy’s diminished status, the country’s GDP will roughly double to $3.1 trillion by 2050 from its current level.

While PwC’s findings show some of the same countries near the top of the list in 13 years, they also have numerous economies slipping or rising massively by 2030.

Riaz Haq said...

The Economic Growth That Experts Can’t Count

As the economy has shifted from one that primarily produced things — refrigerators and cars, guns and shoes — to one that now deals largely in services and information, economists have grown more and more skeptical that the traditional measure of gross domestic product — the nation’s total output — is accurately capturing much of the economy’s innovation and improvements.

“I think the official data on real growth substantially underestimates the rate of growth,” said Martin Feldstein, an economist at Harvard.

These calculations may seem to be the esoteric domain of number crunchers, but the yearly growth figures — fairly or not — end up being used to answer several essential questions. Is the country getting richer? Are standards of living rising? Are businesses and workers more productive? Is the economy improving?

Indeed, the measure was initially created to back up President Herbert Hoover’s overly buoyant claim in 1930, based solely on sprinkled anecdotes of improvements, that “the Depression is over.”

Gross domestic product has always been an imperfect answer to such questions. It is designed to measure production and just production — not welfare or happiness.

Since the end of the recession in 2009, the government has estimated that G.D.P. has trudged forward at an average annual rate of roughly 2 percent. Last year, as the Commerce Department reported on Jan. 27, growth amounted to a disappointing 1.6 percent. That’s certainly better than the shrinkage that occurred during the recession, but nowhere close to the typical yearly gains of 3-plus percent or more that undergirded American prosperity for decades after World War II.

Such ho-hum performance has become both an emblem of and explanation for the anxiety that smears the economic outlook like a bathtub ring. And every day, decisions about government policy, investment, regulations, taxes, trade and more are based on such measurements.

At its most basic, G.D.P. is calculated by looking at prices — the price of materials, workers, overhead and so on that it costs to make a product and the price that consumers in turn pay for that product.

And while prices can be measured, they don’t necessarily reflect the value of quality and experience. As far as G.D.P. is concerned, a delectable $20 meal that would wow Julia Child is equal to a rubbery, tasteless one that costs the same amount.

The growing suspicion, however, is that in a digital world overflowing with free services like Facebook, Google and YouTube, price is an increasingly ill-suited proxy for value.

What is the worth of a free software update that protects against a nasty virus? Of the streaming service that enables you to watch shows on your computer instead of on a television? Of the hours and hours saved by looking up a fact on Wikipedia rather than having to go to a library? All have productive value but no price.

Trying to measure an economy as large and complicated as the United States’ is daunting even under the best of circumstances. Ever since the Nobel Prize winner Simon Kuznets helped create the government’s first estimate of the national income in 1934, the comprehensiveness and accuracy of the measure have been debated. Kuznets, for example, wanted to include the value provided by mothers taking care of their children and the home, which would cost a sizable amount if it were paid labor.

Kuznets lost that battle, but economists and statisticians have continually struggled to compensate for the measure’s shortcomings — like qualities not reflected in price and the constant cavalcade of new goods and services.

Riaz Haq said...

Jim O’Neill, ex Goldman Sachs investment banker who coined "BRICs", praises #China government’s #coronavirus response: ‘Thank God this didn’t start in somewhere like India’. His comments anger #Indian officials. #India #Modi #BJP #CowUrine #COVIDー19|twitter&par=sharebar

Jim O’Neill, the chair of U.K. think tank Chatham House, on Wednesday commended the “fast, aggressive” Chinese response to the coronavirus outbreak, suggesting western countries should follow suit.

“Thank God this didn’t start in somewhere like India, because there’s absolutely no way that the quality of Indian governance could move to react in the way that the Chinese have done,” O’Neill, the former Goldman Sachs chief economist, told CNBC’s “Squawk Box Europe” on Wednesday.

“That’s the good side of the Chinese model, and I think you could probably say the same about Brazil too,” he added.


On one hand, O’Neill acknowledged that the dominance of President Xi Jinping and the diminished responsibility of officials in Wuhan, where the virus originated, may have enabled COVID-19 to initially spread quicker.

“That said — and it’s often like a lot of other things when China got hit with a crisis over the last 30 years — once they realized the scale of it, the system seems to be capable of dealing with it pretty quickly, relative to other places, and pretty decisively,” O’Neill contended.

Chinese authorities suppressed early warnings from doctors and citizens in Wuhan and forced them to apologize for spreading “lies” and in turn failed to contain the outbreak in its infancy. The government has been widely criticized for its delayed response at the outset, with Raymond James analysts likening the situation to the Soviet Union’s handling of the Chernobyl nuclear disaster.

Ophthalmologist Li Wenliang sounded the alarm in December when he told a group of doctors on Chinese social media about seven cases he saw. He and seven other whistleblowers were reprimanded by the Wuhan police in January for spreading “illegal and false” information.

Chinese authorities shut down vast swathes of the country’s travel infrastructure and industrial production last month, causing a profound short-term shock to the Chinese and global economy. However, new cases of the virus in greater China have now slowed to a trickle, while Italy deals with a rapid escalation in new infections and a spiking death toll.

Negi highlighted that the Indian government supplied 15 tons of medical assistance comprising masks, gloves and other emergency medical equipment to China on 26 February 2020.

The outbreak is now a global pandemic while new cases in China have begun to slow, and Beijing is now attempting to cast doubt over whether the virus actually originated in China at all.

A ‘globalized people’
O’Neill, the former commercial secretary to the U.K. Treasury suggested that western governments dealing with outbreaks of their own, such as Italy and the U.K., should look to emulate China, South Korea and Singapore in the swift deployment of aggressive containment measures.

He also argued that finance and economic policymakers must begin treating health policy more seriously and think of it in the same way as other investment spending, and criticized the protectionist agenda of the U.S. and other nations on international trade.

“Unless we get rid of all forms of communication, we are globalized people and we need to think and learn from each other about the right solutions at any moment in time for all of us,” O’Neill concluded.