Saturday, March 12, 2016

Pakistan FDI Soaring With CPEC Energy & Infrastructure Projects

Pakistan is seeing soaring foreign direct investment (FDI) with improving security and the start of several major energy and infrastructure projects as part of China-Pakistan Economic Corridor (CPEC), according to the UK's Financial Times business newspaper.

A New High in FDI:

The year 2015 was a bumper year for foreign investment  pouring into Pakistan, says the Financial Times. The country saw 39 greenfield investments adding up to an estimated $18.9 billion last year, according to fDi Markets, an FT data service. This is a big jump from 28 projects for $7.6 billion started in 2014, and marks a new high for greenfield capital investment into the country since fDi began collecting data in 2003.

Pakistan FDI Source:

The number of projects in 2015 is the largest since Pakistan attracted 57 greenfield projects back in 2005 on President Musharraf's watch.  China is now the top source country for investment into the country, surpassing the second-ranked United Arab Emirates, primarily due to its investments in power.

Top 10 Destinations of Chinese FDI 2012-14. Source: UNESCAP

Major CPEC Projects: 

China's Shanghai Electric, a power generation and electrical equipment manufacturing company, announced plans last year to establish a 1,320 megawatt coal-based power project in Thar desert using domestic coal, scheduled to launch in 2017 or 2018. Traditional energy and power projects made up two-thirds of last year’s total greenfield investment into Pakistan at $12.9 billion with alternative energy bringing in a further $1.8 billion.

CPEC Projects

Among the more notable projects, UAE-based Metal Investment Holding Corporation announced plans to partner with Power China E & M International to invest $5 billion to build three coal-fired plants at Karachi’s Port Qasim. In addition, the transportation sector is also showing promise, with 12 projects totaling $3 billion being announced or initiated last year.

Special Economic Zones:

Beyond the initial phase of power and road projects, there are plans to establish special economic zones in the Corridor where Chinese companies will locate factories. Extensive manufacturing collaboration between the two neighbors will include a wide range of products from cheap toys and textiles to consumer electronics and supersonic fighter planes.

The basic idea of an industrial corridor is to develop a sound industrial base, served by competitive infrastructure as a prerequisite for attracting investments into export oriented industries and manufacturing. Such industries have helped a succession of countries like Indonesia, Japan, Hong Kong,  Malaysia, South Korea, Taiwan, China and now even Vietnam rise from low-cost manufacturing base to more advanced, high-end exports.  As a country's labour gets too expensive to be used to produce low-value products, some poorer country takes over and starts the climb to prosperity.

Once completed, the Pak-China industrial corridor with a sound industrial base and competitive infrastructure combined with low labor costs is expected to draw growing FDI from manufacturers in many other countries looking for a low-cost location to build products for exports to rich OECD nations.

Key Challenges:

While the commitment is there on both sides to make the corridor a reality, there are many challenges that need to be overcome. The key ones are  maintaining security and political stability, ensuring transparency, good governance and quality of execution. These challenges are not unsurmountable but overcoming them does require serious effort on the part of both sides but particularly on the Pakistani side. Let's hope Pakistani leaders are up to these challenges.


Pak-China economic corridor is a very ambitious effort by the two countries that will lead to greater investment and rapid industrialization of Pakistan. Successful implementation of it will be a game-changer for the people of Pakistan in terms of new economic opportunities leading to higher incomes and significant improvements in the living standards for ordinary Pakistanis. It will be in the best interest of all of them to set their differences aside and work for its successful implementation.

Related Links:

Haq's Musings

Chinese to Set New FDI Record For Pakistan

Pak Army Completes Half of CPEC Western Route

IPPs Enjoy Record Profits While Pakistan Suffers 

Can Pakistan Say No to US Aid?

Pak-China Defense Industry Collaboration Irks West

President Musharraf Accelerated Human & Financial Capital Growth in Pakistan

China's Investment and Trade in South Asia

China Signs Power Plant Deals with Pakistan

Soaring Imports from China Worry India

China's Checkbook Diplomacy

Yuan to Replace Dollar in World Trade?

China Sees Opportunities Where Others See Risk

Chinese Do Good and Do Well in Developing World


Ustad said...

That is good news because many countries compete for the FDI pie. How does the country compare with others?

Anonymous said...

If your only investor is China that speaks volume about you. When China sinks due to its own debt internal bubble which is huge so will your stupid projects like cpec which are too much dependent on interests of one country namely China.

Riaz Haq said...

Anon: "If your only investor is China that speaks volume about you. When China sinks due to its own debt internal bubble which is huge so will your stupid projects like cpec which are too much dependent on interests of one country namely China. "

Wishing ill on others will not help you.

First, read the post again to see if it says China is the only investor? Did you see the mention of UAE anywhere in it?

Unlike your country India (I'm pretty sure my guess is right) that depends on massive western money inflow, China has over $3 trillion in reserves and massive exports.

Read below:

Shahid said...

Wrong data. FDI in Pakistan was about 700 million in 2014-2015 and it is still under 600 million in 2015-2016. Actually net FDI is about Zero, because more money is going out then coming in.

2014-15: Foreign direct investment shrinks by 58.2%

KARACHI: Pakistan received foreign direct investment (FDI) of $709.3 million in 2014-15, which is 58.2% less than the FDI received in the preceding fiscal year.

According to data released by the State Bank of Pakistan (SBP) on Wednesday, FDI decreased by $989.3 million year-on-year in July-June, as it amounted to almost $1.7 billion in 2013-14.
The huge year-on-year difference in FDI is mainly on the back of the auction of the telecom spectrum, as the one-time sale of 3G/4G licences had fetched the government $610.9 million in May 2014.
Largest contributor to the FDI during 2014-15 was the United States ($238.7 million), followed by China ($229.5 million) and United Arab Emirates ($222.4 million). source

Riaz Haq said...

Shahid: "Wrong data. FDI in Pakistan was about 700 million in 2014-2015 and it is still under 600 million in 2015-2016. Actually net FDI is about Zero, because more money is going out then coming in."

FDI Markets is considered a reliable source of cross-border investments data. It relies on real project investment data, not what the central banks report.

Maqbool said...

Advise you to look at AT Kearney which is a forward looking analysis. The Foreign Direct Investment Confidence Index®, established in 1998, examines the overarching trends in FDI. The top 25 ranking is a forward-looking analysis of how political, economic, and regulatory changes will likely affect countries' FDI inflows in the coming years. Over its 17-year history, there has been a strong correlation between the rankings and global FDI flows. Since its inception, countries ranked in the Index have consistently received at least half of global FDI inflows roughly one year after the survey.

- See more at:

Kadeer said...

Are we talking about CapEX or FDI? There is a difference. Please clarify.

VIP said...

People are getting excited by just watching the top of the ice berg. Give till the end of 2018, and then see how fast the FDI's grow, the US, the Brits are lining up certain investments to put their multinational companies in there for major competition as higher quality products (yet more expensive. People in Punjab should already start to see more custom local and Western brands being pouring out to all major cities.

By 2018, some deals in offshoring IT and other areas like Healthcare, will start to take place too. Post 2018, there will be investments well in excess of $ 75-100 billion a year going in.

Shahid said...

On a second thought, the difference may be as SBP measure on dollars pouring in.
While all Chinese projects have no financial transactions. They just send machinery and builders. And no money crosses the borders.

Hamid said...

Cpec is 45 billion plus remittances of about 20 billion and exports is 20 billion so it is 85 billion today. In 2018 we will have over 100 billion God willing. Humsahi India will try to stop that as you can see in the posts but we will succeed and be stronger economic country than India

Unknown said...

fudging of Data is not
just an Indian phenomena,we Pakistanis can play with the best of them

Riaz Haq said...

SQA: "fudging of Data is not just an Indian phenomena,we Pakistanis can play with the best of them"

Unlike India's fudged GDP data, the source of the data in my post is not Pakistani government or its institutions. It's fDI Markets, a Financial Times data service.

Unknown said...

Riaz Haq:"India's fudged GDP data"
If Indian GDP numbers are fudged, then, other countries won't be investing so much in India too make it biggest recipient of FDI in entire world last year (ahead of both China and United States)

Nor a failing economy can invest too much in huge construction, R&D development projects in own and other countries unlike India.

There's no advantage of any government in faking numbers which can harm their bid later.

A faking country can't maintain at position where India is.
If Pakistan wants, they can try it. :-)

Riaz Haq said...

MoA: " If Indian GDP numbers are fudged, then, other countries won't be investing so much in India too make it biggest recipient of FDI in entire world last year (ahead of both China and United States)"

If the Indian GDP revisions by Modi govt are so credible, why is it that even the RBI governor Rajan doesn't believe them?

The GDP revisions have surprised most of the nation's economists and raised serious questions about the credibility of government figures released after rebasing the GDP calculations to year 2011-12 from 2004-5. So what is wrong with these figures? Let's try and answer the following questions:

1. How is it possible that the accelerated GDP growth in 2013-14 occurred while the Indian central bankers were significantly jacking up interest rates by several percentage points and cutting money supply in the Indian economy?

2. Why are the revisions at odds with other important indicators such as lower industrial production and trade and tax collection figures? For the previous fiscal year, the government’s index of industrial production showed manufacturing activity slowing by 0.8%. Exports in December shrank 3.8% in dollar terms from a year earlier.

3. How can growth accelerate amid financial constraints depressing investment in India? Indian companies are burdened with debt and banks are reluctant to lend.

Riaz Haq said...

Civil nuclear deal helps #Pakistan overcome energy crisis: #China Daily. #loadshedding via @ePakistanToday

China’s civil nuclear power support to Pakistan is meant to help the time-tested friend to overcome its energy crisis, said Chinese scholar in an article published in China Daily.

While setting aside the misperception and unfounded allegations in regard to Sino-Pak nuclear deal, an associate professor at Peking University’s School of International Studies said that some vested interest groups were pointing a finger at China over the two-country cooperation in nuclear field issue.

He clarified that the sale of nuclear reactors to Pakistan was part of their long-term nuclear cooperation agreements reached in the late 1980s. Chinese companies joined Pakistani side to build a nuclear plant at Chashma in 1991, he said. By 2000, the first reactor at Chashma was ready to generate electricity. Five years later, Chinese companies began building Chashma 2, which is scheduled to be operational next year.

China and Pakistan both assert that the proposed sale is not only in line with the Nuclear Suppliers’ Group (NSG) rules, but it is also transparent and peaceful in nature. It has already been clarified officially that the “China-Pakistan cooperation on civilian nuclear energy is consistent with the two countries’ respective international obligations, and is for peaceful purposes and subject to IAEA (International Atomic Energy Agency) safeguard and supervision”.

The article further said: “India, seen as a long-time foe of Pakistan, seems to be using diplomacy to block the Sino-Pakistani deal, even though it signed a similar deal with the US in 2006. Most China-baiters, particularly in the US, allege Chashma 3 and 4 violate NSG guidelines, which prohibit nuclear states from exporting nuclear technology and materials to non-nuclear states which, like Pakistan, are not signatories to the Nuclear Non-proliferation Treaty (NPT) and have not adopted IAEA safeguards for nuclear establishments.”

Ever since China joined the NSG in 2004, some critics have been saying it has to fulfill its non-proliferation commitment and comply with the group’s rules and guidelines. And because Chashma 3 and 4 were initiated after 2004, they have to be approved by NSG, most probably by seeking an “exemption” solution from its 46 member states as the US-Indian nuclear deal did in 2008.

Non-proliferation proponents have expressed concern over the Sino-Pakistani nuclear deal. But some doubt whether it could be blocked like the 2006 US-Indian nuclear deal was for setting “a dangerous precedent”, because if Washington opposes it openly, it would face charges of exercising “hypocrisy” in non-proliferation.

Ashley Tellis, a senior associate at Carnegie Endowment, who as part of the George W Bush administration played a key role in negotiating the nuclear deal with India, draws a line between the US-Indian and Sino-Pakistani nuclear deals, saying the latter is not the outcome of a public debate in Washington or in NSG. But the fact is that “integrity” of the shattered global non-proliferation regime was already breached when India, which is outside NPT, NSG and other non-proliferation regimes, was “exempted” and the US-Indian nuclear deal was allowed to go ahead.

Pakistan faces severe electricity shortage leading to economic difficulties. The BBC, citing Pakistani government sources, said Pakistan faced an energy shortfall of 3,668 MW per day. Expanding the nuclear energy industry is one way Pakistan can meet its electricity shortfall, which in turn causes social unrest and extremism. At present, nuclear power comprises just 2.34 per cent of Pakistan’s total energy generation, it said.

Majumdar said...

Prof sb,

Once completed, the Pak-China industrial corridor with a sound industrial base and competitive infrastructure combined with low labor costs

Sometimes you argue that Pakiland has been one of the most successful Asian countries in creating a large and vibrant middle class. At the same time, in this article, you tout low labour cost as a cost advantage, even over other poor countries like Vietnam. Both cant be simultaneously true, can they. Or is it that Pakiland's middle class is willing to work for even less than other poorer Asian nations?


Riaz Haq said...

Majumdar: "At the same time, in this article, you tout low labour cost as a cost advantage, even over other poor countries like Vietnam. Both cant be simultaneously true, can they. Or is it that Pakiland's middle class is willing to work for even less than other poorer Asian nations?"

ADB data shows that Pakistan has been quite successful relative to its neighbors in terms of providing upward mobility to its people. Removing barriers to investment such as access to plentiful energy and better infrastructure will make it even more successful.

Riaz Haq said...

#India’s #trade deficit with #China swells to $51.9 billion in 2015 via @timesofindia

India's trade deficit with China increased to $51.86 billion in 2015, Parliament was informed on Monday.
"Increasing trade deficit with China can primarily be attributed to the fact that Chinese exports to India rely strongly on manufactured items meeting the demand of fast-expanding sectors like telecom and power while India's exports to China are characterized by primary products, raw material and intermediate products," commerce and industry minister Nirmala Sitharaman said in a written reply to the Lok Sabha.
She said India's trade deficit with China stood at $51.86 billion, with a bilateral trade of $71.22 billion in 2015. During this period, India's exports to China came in at $9.68 billion while imports were $61.54 billion.

Riaz Haq said...

Three Gorges Corp (TGC), #China's leading #hydropower company, to invest in #Pakistan via @ePakistanToday

A consortium, led by China’s Three Gorges Corp, the world’s largest hydropower producer, plans to invest in Pakistan, building both state-owned and private hydropower stations.

” We want to take an active part in the expected auction of the state-owned hydropower stations in the brotherly country,” said Wang Shaofeng, executive vice-president of China Three Gorges International Corporation, the Beijing-based unit of CTG.

There are several large hydropower projects in Pakistan with a total installed capacity of about 3,000 MW, Wang said in an interview with China Daily.

“These could be our top choices for acquisition, but we will also consider acquiring small and newly built private hydropower projects,” said the senior executive, who has previously worked in Pakistan for more than a decade.

The projects that the group has in Pakistan are worth $9 billion. It has signed an agreement with Pakistan for a series of projects that can increase the figure to $50 billion.

The Chinese company chose Pakistan as the first stop of its overseas investment due to close ties between China and Pakistan, a country that faces great challenges in meeting its energy demand. Wang said the 1,100-MW Kohala hydropower station, the group’s biggest project in Pakistan at the moment, is expected to start construction this year and will be completed in six years.

The Chinese company also plans to set up a facility jointly with Dongfang Electric Corporation in Pakistan to support the local market as well as other neighbouring countries.

The company is also preparing to bid for a contract to build and operate an 8,000-MW power station in Brazil.

When bidding opens for the hydropower dam on the Tapajos River, the Chinese consortium will be a strong contender. Wang said his group’s participation in the project would involve capital investment.

The Tapajos dam will become one of the world’s 10 largest hydropower projects after completion, he said.

The builder of the world’s largest dam has also set up a Hong Kong-based company named Hydro Global Investment Ltd with the Portuguese power company EDP – Energias de Portugal – as a platform to explore business opportunities of small and medium-sized hydropower projects in the region.

“When we are doing global projects, we are looking at the long-term development and investment, so we are very careful in selecting the projects and conducting them,” Wang said.

The executive said the biggest challenge the company faces right now is to deal with the exchange rate fluctuations to prevent risk and increase profit in overseas countries.

China itself has embarked on an ambitious plan of dam building to combat air pollution. The Three Gorges Power Plant, the world’s largest hydropower project, has generated more than 800 billion kilowatt-hours of electricity since its first turbine was connected to the grid in 2003.

The world’s largest energy consumer possesses more than half the large-scale hydroelectric plants on earth – that is more than all the plants in Brazil, the United States and Canada combined.

nayyer ali said...

I think the FDI totals represent the full value of the projects, but the cash will be spent over several years. I would find it hard to imagine that this much could be invested in a 12 month period in Pakistan's economy. This does not minimize the importance of CPEC, a massive upgrade of electric power and transportation links in Pakistan will play a huge enabling role in the growth of the overall economy. These investments will come to fruition over the next couple of years.

Riaz Haq said...

Pakistan’s predicted annual growth rate for the next 10 years is 5.07%, according to the Center for International Development at Harvard University (CID) research published recently.

Pakistan's projected growth rate of 5.07% over the next 10 years is the 12th highest in the world, according to Harvard CID.

Pakistan’s two giant neighbors – China and India – are predicted to grow by 4.28% and 6.98% respectively.

Egypt (5.83%) and Philippines (5.68%) are the only economies among Goldman Sachs' group of Next 11 countries that will grow faster than Pakistan's.

Pakistan’s 5.07% growth rate is above China, which is set to grow by 4.28%.

Except for India, Pakistan will beat all regional economies in growth.

Here are some:

Malaysia 4.89%

Indonesia 4.82

Turkey 4.66

Bangladesh 3.27

UAE 2.16

Saudi Arabia 2.20

Sri Lanka 3.57

Riaz Haq said...

#China leases #Australia Darwin port, making it part of 2 doz China leases overseas, #Pakistan's #Gwadar among them

DARWIN, Australia — The port in this remote northern Australian outpost is little more than a graying old wharf jutting into crocodile-infested waters. On a recent day, there was stifling heat but not a ship in sight. “Our pissy little port,” as John Robinson, a flamboyant local tycoon, calls it.

The financially hurting government of the Northern Territory was happy to lease it to a Chinese company in October for the bargain price of $361 million, raising money for local infrastructure projects.

“We are the last frontier; you take what you can get,” said Mr. Robinson, who is known as Foxy. “The Northern Territory doesn’t have the money for development. Australia doesn’t have it. We need the major players like China.”

But the decision has catapulted the port of Darwin into a geopolitical tussle pulling in the United States, China and Australia.

This month, the United States said it was concerned that China’s “port access could facilitate intelligence collection on U.S. and Australian military forces stationed nearby.”

It may not look like much, but the scruffy port is a strategic gateway to the South China Sea, where China is challenging the United States, and it serves as a host base for the United States Marines, who train here six months a year.

Critics contend that the Chinese bought a front-row seat to spy on American and Australian naval operations.

“There is a deep Chinese interest, driving interest, in understanding how Western military forces operate, right down to the fine details associated with how a ship operates, how it is loaded and unloaded, the types of signals a ship will emit through a variety of sensors and systems,” Peter Jennings, a former Australian defense official who is now the executive director of the Australian Strategic Policy Institute, told a parliamentary inquiry.

China has invested in more than two dozen foreign ports around the world, including a port in Djibouti adjacent to an American military base. But the 99-year Darwin lease was the first time the Chinese had bought into a port of a close American ally hosting American troops.

The Australian government did not consult with Washington, and the parliamentary inquiry showed that the corruption-plagued and unpopular government of the Northern Territory, of which Darwin is the capital, had rushed to lease the port to raise money for new projects before an election.

Riaz Haq said...

#India seeks consular access to #RAW agent arrested in #Balochistan #Pakistan…/102903-India-seeks-consular-access-to-R… …

India’s foreign ministry on Friday said it has sought consular access to an undercover agent of the country’s intelligence agency RAW arrested by Pakistan from Balochistan.

In a statement issued today, the Indian Ministry of External Affairs admitted that the officer was an officer in the Indian Navy, but claimed that he had taken an early retirement from service.

“He (alleged RAW officer arrested in Pakistan) has no link with the government since his premature retirement from the Indian navy,” the Indian Ministry of External Affairs said in the statement.

“We have sought consular access to him. India has no interest in interfering in internal matters of any country,” said the statement.

Pakistan summoned the Indian ambassador on Friday to protest against the illegal entry of the Indian spy.

"(Pakistan) conveyed our protest and deep concern on the illegal entry into Pakistan by a RAW officer and his involvement in subversive activities in Baluchistan and Karachi," Pakistan’s foreign office said in a statement, referring to the message conveyed to India’s ambassador.

The capture of the RAW agent is the latest evidence of Islamabad's claim that the neighbouring country is actively trying to destabilize Pakistan.

In a media statement here today, Balochistan Home Minister Mir Sarfaraz Bugti said that the captured agent is an active Indian serviceman who was active in Balochistan with an aim to destabilise Pakistan.

According to details obtained by Geo News, RAW agent Kul Bhashan Yadav was arrested by a Pakistan’s intelligence agency in Balochistan three days ago and he was later shifted to Islamabad for investigation.

The arrested agent of RAW had contacts with separatist groups operating in Balochistan, sources said, adding that he is a commander in the Indian Navy.

During preliminary investigations, the undercover Indian agent revealed that his main agenda was to sabotage the China-Pakistan Economic Corridor (CPEC) through propaganda and to create disharmony among the Baloch nationalist political parties.

Riaz Haq said...

#Pakistan #China to interconnect national grids as Pak becomes #electricity surplus nation in next 3 years. #CPEC …

The Ministry of Water and Power and the State Grid Corporation of China are working closely to build an interconnecting electricity grid between the two countries to enable them to utilise each other’s energy potential.

Water and Power Secretary Muhammad Younus Dagha stated this at the Global Energy Interconnection Conference in Beijing where more than 700 delegates were present.

According to a statement issued by the ministry, the secretary said the building of the interconnecting grid would allow Pakistan to meet its growing energy demand according to the requirement.

On the other hand, China will benefit from the clean energy potential in Pakistan, especially the hydroelectric power generation along the Indus River cascade, which is on the route of the China-Pakistan Economic Corridor.

Dagha said Pakistan was very much positioned to become an energy corridor for the region and facilitate the exchange of clean energy in South Asia, Central Asia, the Middle East and China. Speaking about the Central Asia-South Asia (Casa) 1,000 power supply project, Dagha stressed that Pakistan had a unique geographical position as it was strategically located at the confluence of South Asia, Central Asia, the Middle East and China.

He noted that Pakistan was moving fast to bridge the deficit and become an energy-surplus country in the next three years.

“We hope to become self-sufficient in power generation by 2018, still we will be left with an untapped potential of more than 60,000 megawatts of hydroelectric power,,” he said.

Pakistan also has an untapped potential for more than 90,000MW of wind power in its south and an unlimited solar power potential across 850,000 square km of its area.

Riaz Haq said...

Report: #Pakistan Sees 40 Percent Drop in Violence in 2015. #Terrorism …

A leading rights group in Pakistan says deaths due to violence-related incidents, including bombings and other militant attacks in the country, fell 40 percent in 2015.

In its annual report released Friday, the independent Human Rights Commission of Pakistan (HRCP) documented 4,612 deaths compared to 7,622 fatalities in the previous year.

The findings support official claims of a reduction in casualties because of successes in the army's counter-militancy operations against bases of the anti-state Pakistani Taliban near the Afghan border.

The report comes after Sunday’s suicide bombing in a park in Lahore that killed at least 72 people, including members of the minority Christian community, who were celebrating Easter.

Speaking to reports at the launch of the report in Islamabad, HRCP’s Kamran Arif told reporters his organization recorded 706 militant attacks in Pakistan, the lowest number since 2008.

Riaz Haq said...

#China-#Pakistan logistics complex construction. #CPEC #Internet #Ecommerce #Warehouse #Transport #Manufacturing …

Construction on a logistics complex that will deepen bilateral trade between China and Pakistan began in Xinjiang on Friday.

According to the government, the project that began in Tashkurghan Tajik county covers an area of 883 mu (about 58 hectares) and will take a total investment of 3 billion yuan ($464 million), Xinhua reported.

The first stage of the three-stage project includes an internet service administration centre, a cross-border e-commerce enterprise incubator, and a modern warehousing and logistic centre, Xinhua reported.

In the meantime, a comprehensive transportation system, especially for cross-border and cold-chain logistics, will be further developed. RMB settlement will be introduced as well.

Further stages will see the completion of a commodity exhibition centre, manufacturing and assembly factories, hotels, entertainment facilities and vehicle maintenance station.

The county of Tashkurghan sits 3,200 metres above sea level in the Pamirs, linking Xinjiang's Kashgar and the port city of Gwadar in Pakistan.

The county's Karasu Customs, China's only land port open to Tajikistan and an important post along the planned China-Pakistan Economic Corridor, officially opened last year after 10 years of preparation.

Riaz Haq said...

#Pakistan economy picking up, inflation low, says State Bank of Pakistan. #LSM #CPEC …

SBP says strong LSM output to bolster growth

KARACHI: Pakistan’s economy will pick up further during the second half of the current fiscal year thanks to the stable growth in large scale manufacturing sector on the start of multibillion rupees resource projects and a good winter rains this season that will bolster agriculture production, the central bank said on Thursday.

“Despite challenging global economic conditions, Pakistan’s overall macroeconomic outlook appears stable,” the State Bank of Pakistan said in its ‘Second Quarterly Review on the State of Pakistan’s Economy’. “Growth is likely to pick up… fiscal position is strong; inflation is likely to stay low and ricks on the external front have been moderate to a large extent.”

The bank, however, kept its growth forecast unchanged at 4-5 percent for the current fiscal year of 2015/16. The SBP’s growth forecast is still below than the government target of 5.5 percent. The economy grew at a rate of 4.2 percent in the last fiscal year ended June 2015.

The central bank said a stable macroeconomic environment means that the economic growth would maintain the momentum.

“We expect GDP growth during the FY16 to be higher than the last fiscal… We are optimistic on the industrial sector’s performance but cannot firmly assess the final outcomes in agriculture and services,” the SBP said.

It said the growth momentum in large scale manufacturing (LSM) continued to remain strong in the first half of the current fiscal year, supported by better energy supplies, lower commodity prices and accommodative polices.

The LSM sector grew 3.9 percent in the first half of the current fiscal against 2.7 percent in the previous year of the same period. Major contribution to LSM growth came from auto, fertiliser and construction allied industries.

On the agriculture sector performance, the central bank said the prospects of surpassing targets in wheat and value addition in livestock are strong. “While initial estimates suggest a decline in area under wheat cultivation, a marked improvement in yields has increased hopes for a bumper for a third year in a row; timely rains and better input availability have reported improved the per-acre harvest,” the bank said.

The SBP, however, also said overall growth does not portray a very encouraging picture in agriculture sector. “Preliminary estimates suggest that all Kharif crops have missed their respective targets; cotton and rice did not achieve last year’s production level.”

The central bank highlighted the public debt servicing obligations, which were not more than six billion dollars per annum until 2020. “Debt servicing of $5 billion due on 2016 are well within manageable level considering the present level of foreign exchange level,” the central bank said.

The SBP estimated the current fiscal year’s inflation at 3-4 percent below the target of six percent. “The global commodity prices are not expected to recover anytime soon, and on the other, a stable Pak Rupee is likely to keep inflation expectations further at bay,” it added.

The central bank maintained the lower inflation estimates on the government move to reduce domestic petrol prices by 6.6 percent and 11.9 percent in February and March 2016, respectively, following the freefall of oil prices to a 12-year low level in the international market.

The bank said measures taken by the government in October 2015 would help the Federal Board of Revenue to maintain revenue collection growth. Expenditures will remain within target, it added.

It said that the decline in oil prices allowed a 39.8 percent fall in the country’s oil import bill, helping reduce the trade deficit by 1.6 percent in the first half. Furthermore, the pass-through of low prices by the government has contributed in pushing down the consumer price index inflation to a multi-decade low.

Riaz Haq said...

Privatization & #US support put #Pakistan on track towards 50,000 MW goal. #loadshedding #energy … via @theworldfolio

Pakistan’s power sector has hampered growth for many years. The combination of new government initiatives, a revitalized private energy sector and cooperation with international partners – namely the U.S. – is going a long way to not only deal with the issues that Pakistan faces, but also to make it one of the most dynamic and geopolitically important energy players in the world

One of the ma-in challenges Pakistan’s eco-nomy faces to-day is power supply. Prime Minister Nawaz Sharif’s government has said that it plans to improve Pakistan’s power sector through reform and investment to boost growth, and hopes to end chronic power shortages that have crippled the economy for years. So, it has made real strides to tackle this issue head on.

Federal Minister for Finance Ishaq Dar has been praised for undertaking structural reforms to create an investment friendly environment, especially in the energy, infrastructure development, large-scale manufacturing and agricultural sectors. The showpiece of this policy is the Integrated Energy Plan, which aims to achieve self-sufficiency by generating 50,000 megawatts (MW) of power within the next 25 years.

While addressing the recent National Energy Conference on Prospects of Power Generation, organized by South Asian Strategic Institute University in Islamabad, Minister of Water & Power Khawaja Muhammad Asif said that to develop a concrete road map for a secure energy vision for the future, the nation must work at developing indigenous scientific and industrial capacities to explore domestic energy reserves.

“The government is making every effort to increase electricity supply to the national grid through all possible avenues, private sector being one of them,” said Mr. Asif.

He also explained that the geographical position of Pakistan not only makes it a potential energy exporter, but also a trade and energy corridor for South and Central Asia. And due to this advantage, Pakistan can maneuver itself in a way that significantly increases its bargaining power in the region and beyond, thus signifying the importance of the reform of the sector.

Key to the success of this policy is energy diversification. The aim is to maximize the use of indigenous resources to achieve a more diversified energy mix (hydel 20%, coal 15%, LPG 2%, nuclear 3%, renewable 12%, domestic gas 21%, imported gas 7%, oil 20%).

As President and CEO of General Electric (GE) Pakistan, Sarim Sheikh, recently noted, “Pakistan’s energy started developing mainly with hydro. Then they diversified into gas and in the late 90s, they invested quite heavily on heavy fuel oil as a source of power. I think what Pakistan needs to do is to continue to diversify its energy needs and also, particularly, to keep an eye on energy security and cost.”

Much progress towards this goal has already been made, with the Pakistan’s Ambassador to the U.S. Jalil Abbas Jilani recently quoted as saying: “I have no doubt that by 2017, we will not only be able to overcome the energy shortfalls, but also we will have surplus energy, as we’re going to add about 10,000 MW of power in the national grid.”

“$1.2 billion has been invested in the company and both the distribution and transmission capacity has improved to bridge the gap between the demand and supply of electricity. Our privatization stands as a success case and has helped the company get back on the track of growth”

Tayyab Tareen, CEO of K-Electric Limited


Riaz Haq said...

Privatization & #US support put #Pakistan on track towards 50,000 MW goal. #loadshedding #energy … via @theworldfolio

Indeed, U.S.-Pakistani relations are vital to the success of this development. When Mr. Dar met with U.S. Under Secretary of State Catherine Novelli they both agreed that energy remains the vital area that holds immense potential for enhanced cooperation. The U.S. has continuously stressed the importance of continuing to build momentum on expanded trade, investment and economic cooperation with Pakistan.

“We are grateful to the United States for the economic cooperation as well as its assistance in the energy sector. Pakistan-U.S. cooperation in the energy sector has added 1400MW of electricity to our national grid. The U.S. is also supporting large hydroelectric projects like Dasu and Diamir Bhasha dams, initiated by Pakistan,” Mr. Jilani has stated.

U.S. firms, namely GE Pakistan, have had a huge role to play in the Pakistani energy revolution. As the Chairman of the Pakistan’s Board of Investment, Dr. Miftah Ismail, says: “Some companies that are already present in the country are doing a great job, such as GE. A third of all power generation in Pakistan comes through GE turbines. The U.S. obviously has unbeatable technology, therefore we want to use their expertise.” The relationship is amicable on both sides, with GE more than happy to assist the development of the Pakistani energy sector.

“We are proud to have been a partner of Pakistan in its development story; we have been involved in building dams, we have been involved in gas power plants, so almost a third of Pakistan’s power is generated using GE technology,” said Mr. Sheikh at a recent conference.

GE established its roots in Pakistan with the country’s independence and has had a direct presence through its subsidiaries since 1980. GE has expanded its portfolio to support other GE businesses in addition to GE Power Systems (now GE Infrastructure Energy) located at Lahore, and has since been working actively with national companies and private businesses. Today, GE is a key player in supporting the development of the power sector, having signed a Memorandum of Understanding (MoU) to develop Pakistan’s energy resources to meet the projected demand of 54,000MW by 2020.

In May 2015, GE reiterated its commitment to Pakistan when a high-level business delegation representing GE and M/s American Ethane Company visited Islamabad to show interest in setting up a new 6000MW ethane gas power plant in the country. Ethane – a smart, cost-effective and environment friendly fuel – burns up to 80% fewer emissions as compared to oil & coal and is suitable especially for areas not served by natural gas lines. Along with American Ethane, GE Pakistan is now considering setting up the large scale plant in order to help Pakistan further reduce its energy deficit.

The announcement comes on the back of a MoU that GE signed last year with Pakistani firm Sapphire Electric Company Limited. The MoU is for the creation of ‘GE Predictivity’ solutions that will play an integral role in delivering more power to Pakistan, and help close a gap between the country’s power capacity and ongoing electricity demand.

“The government is making every effort to increase electricity supply to the national grid through all possible avenues, private sector being one of them.”

Khawaja Muhammad Asif, Minister of Water and Power

Riaz Haq said...

From United Nations Industrial Development Organization (UNIDO):

Pakistan Manufacturing Value Added (MVA):

MVA per capita at constant 2005 prices increased from US$135.03 in 2005 to $143.84 in 2014

MVA as percentage of GDP at constant 2005 prices in US$ decreased from 18.05% in 2005 to 17.41% in 2014

India Manufacturing Value Added (MVA):

MVA per capita at constant 2005 prices increased from US$155.73 in 2005 to $168.42 in 2014

MVA as percentage of GDP at constant 2005 prices in US$ decreased from 15.10% in 2005 to 13.85% in 2014

China tops the list of world's 10 largest industrial producers. It is followed by the US, Japan, Germany and South Korea, according to United Nations Industrial Organization (UNIDO).

India ranks 6th in the world in terms of total manufacturing output in 2013, up from 9th place in 2008,

India's manufacturing value added (MVA) per capita of 161.7 in 2013 is among the lowest in the world. It's up from 131.9 in 2008.

In fact India's 2008 MVA per capita of 131.9 was lower than Pakistan's 141.1. Since 2008, Pakistan's MVA per capita has slipped to 139.1 in 2013 while India's has increased to 161.7 in this period.

Bangladesh's MVA per capita has jumped from 82.2 in 2008 to 118.3 in 2013.

On UNIDO’s industrial competitiveness index, most industrialized countries lost ground in the last three years. Among the five most competitive are four high-income countries (Germany, Japan, the Republic of Korea and the United States), along with China ranking fifth. The four are among the world’s most industrialized countries and, with China, account for 59 percent of world MVA.

Riaz Haq said...

SeekingAlpha on Pakistan:

Terrorist attacks are coming down.

Reclassification into Emerging Markets is highly probable.

Growth rate is on an upward trajectory.

In this article, I would apprise investors about the latest developments in Pakistan's economy, effecting NYSE: PAK ETF. Further, I would also give my opinion and analysis based on that development.

One of the biggest news items that poured out of Pakistan was the suicide attack in Lahore, the second largest city of Pakistan, killing more than 70 people and rendering more than 100 injured. In my view, attacks like these are desperation on the part of militants as they are being denied space from all quarters within Pakistan. I believe, after the successful completion of on-going military operations in FATA (Federally Administered Tribal Area), the security environment will become much more conducive as compared to current situation.

if we compare the number of bomb blasts to those which occurred during 2008-2013 era, then the security environment has improved remarkably. As the above graph shows, the trend is on downward trajectory. However, it is incumbent on the law enforcement apparatus of Pakistan to halt even sporadic incidents that have been happening lately.

Granted, Pakistan has a law and order issue, which is largely limited to its western border but global financial markets have already incorporated its turbulent situation by jacking up the CRP (country's risk premium). I assume Pakistan's CRP would come down, given improving security landscape.

Further, MSCI has started discussions on possible reclassification of MSCI Pakistan index from frontier to emerging markets. Market participants expect $500 million of foreign investment to flow into Pakistani equities, if Pakistan reclassifies into an EM index. I think, the market has started factoring in the highly probable reclassification as there is a sudden surge in the volumes and index points. On Friday, the benchmark index broke the psychological barrier of 33,000 points with a rebound in volumes which clocked in at ~204 m against the CYTD (Calendar year to Date) average of ~125 m.

Riaz Haq said...

#Pakistan's #Habib Bank granted #Chinese licence to operate in #China. #CPEC #Gwadar …

The Habib Bank Limited said on Monday it had won a licence to operate a branch in the Chinese city of Urumqi, the first South Asian bank to be granted such a licence.

The opening of the Pakistani bank in Urumqi, the capital of the violence-prone far-western region of Xinjiang, which borders Pakistan, will deepen ties between the two countries that last year signed a $46 billion agreement for infrastructure and energy projects.

“HBL will be establishing banking operations in Urumqi, the largest city of the province of Xinjiang, which borders Pakistan along the traditional Silk Route,” the bank said in a statement.

Up until April Pakistan’s government held a 42.5 percent stake in Habib, the country’s oldest bank.

But it sold off its shares as part of Prime Minister Nawaz Sharif’s plan to privatise 68 public institutions, bringing in more than $1 billion.

Pakistan last year signed an agreement for projects worth $46 billion with China to set up a China-Pakistan Economic Corridor (CPEC), in a boost to Pakistan’s crumbling infrastructure and energy sector.

In return, China will get a free trade zone in Pakistan’s Gwadar port and access to the Arabian Sea.

New Pakistani roads will open up routes for Chinese goods into Europe and the Middle East from landlocked Xinjiang, which borders Pakistan.

Riaz Haq said...

#Pakistan's rising volume of lending a positive sign- all economic indicators up except exports down double digits

The latest trend of rising volume of commercial lending to the private sector coupled with larger industrial output and better energy supply and rising FDI inflows are now signalling a significant uptick of the Pakistani economy in FY-2017 that starts from July 1. Commercial banks' lending to the private sector rose by Rs352.3 billion so far in FY-16 as compared to Rs222.3 billion in the same period of FY-15, the latest statistics by Stat Bank of Pakistan (SBP) showed.

"A significant part of this credit was availed by the private sector businesses. There was a high credit off-take in December 2015 which was enough to compensate for the lower cumulative flow during the earlier months of FY-16," the SBP said. The demand for the private sector credit was high due to lower cost of credit and better market conditions. The cost of borrowing declined to six per cent - an all time low in last 12 years - as a result of SBP's easy money policy.

At the same time, there was a "high deposit growth, and a lower government budgetary borrowing," which created a surplus with the banks that was lent to the private sector. "The improvement in credit to the private sector over the previous year, primarily, was due to larger borrowing by the manufacturing sector, followed by commerce and trade, construction and electricity."

The SBP also reported that with the exception of ship breaking which received Rs13.4 billion credit that was lower than the sectors past borrowing, the improvement in larger credits to other sector was broad-based. While credit for working capital and fixed investment categories, showed higher growth. But credit for trade financing was lower. One of the reasons for larger lending to the private sector was that government borrowing to cover its big budgetary deficit was lower than last year. In fact, government was funding its requirements by launching its longer - term investment bonds, rather than short-term and more expensive borrowing from the commercial banks which also had squeezed the bank credit for the private sector.

That covers the broad spectrum of the commercial lending. Does it also indicate in which direction is the economy moving?

Another key factor for a potentially good omen for the economy to grow faster is expansion of the large-scale manufacturing (LSM) sector. Its output growth rose 4.35 per cent year-on-year in the first eight months July-February of FY-16. In February, 2016 alone the LSM sector growth was 2.83 per cent higher as compared to the like month of FY-15, according to the SBP report. The key sub-sectors which contributed to the LSM growth in the first eight months of FY-16 were: automobiles 27.67 per cent, fertiliser 16.95 per cent, chemicals 11.26 per cent, leather products 11.51 per cent, rubber products 11.64 per cent, and non-metallic mineral products 8.61 per cent.

In the same period, iron and steel sector produced 19.76 per cent more billets and ingots. The capacity of the sector also expanded in this period in order to feed lager exports. The automobiles sector expanded as production of trucks rose 44.23 per cent, buses 77.54 per cent, cars and jeeps 37.10 per cent, light commercial vehicles (LCVs) 104.45 per cent, and motorcycles was up 17.1 per cent. However, tractor production was down 44.65 per cent.

In the electronics sector, production of air conditions rose 28.05 per cent, switch gear by 28.14 per cent, electric transformers 1.8 per cent, TV sets 1.74 per cent and storage batteries 2.89 per cent, besides various rises in production of other electronics.

Riaz Haq said...

#McDonald's Opens in #Quetta — But #Taliban Not Lovin' It. #Pakistan #Balochistan via @nbcnews

All menu items are halal, and there's even a shawarma-meets-gyro type of wrap to get local tastebuds interested: Behold, the McArabia.

You can get a McArabia for just under $3.00. Add a drink and some fries, and you're still at under $5.00.

In a country where pork is banned for religious reasons, Sausage and Egg McMuffins are on the menu — but the sausage is made from chicken.

Senior militant commander Ehsanullah Ehsan, who is a spokesman for one of the Taliban factions in Pakistan, laughed when asked Friday for his thoughts on the hamburger chain.

"Hahahaha, so you are asking me about McDonald's food," the TTP-JA fighter said. "Yes, I know McDonald's and its food but we will never eat it. We don't even consider it as a food. This isn't our food ... We live in the rough, tough mountainous areas and need energy and power to fight against the enemy."

A senior member of the Afghan Taliban told NBC News he had once tasted McDonald's food in the Pakistani city of Karachi but it was "too expensive" and tasteless. He said that Taliban fighters preferred mutton and rice.

However, he conceded that it was "good when you are in a hurry and have no access to proper food."

"We know it's an American food company and our religious scholars have forbidden us from consuming any Western food and beverages," the militant added, saying that he intended to visit the Quetta outlet with friends but would not eat there.

Quetta needs a break. Since the Soviet invasion of next door Afghanistan in 1979, it has morphed from a well-manicured city to a violent, refugee-laden hideout of some of the region's most dangerous militants.

The capital of the insurgency-ridden Pakistani province of Balochistan has has slowly been stabilized and terror incidents have decreased by more than 60 percent since last year, according to the paramilitary Frontier Corps, which is in charge of the city's security.

The new McDonald's is in Millenium Mall, which is located in the highly secured Police Lines neighborhood.

Quetta's under-fire cops have been targeted many times near the fast-food restaurant.

Riaz Haq said...

#China to finance 90% of #Sukkur-#Multan Motorway in #Pakistan. #CPEC | DailyTimes - via @Shareaholic

China will provide 90 percent of the financial assistance for the 393-kilometre Sukkur-Multan Motorway, whereas remaining cost of the project will come from the Public Sector Development Programme (PSDP).

An official of the National Highway Authority Thursday said that physical work on the Sukkur-Multan Motorway costing Rs 294 billion had been started.

It is also a part of eastern route under the China-Pakistan Economic Corridor (CPEC), which will be completed within three years costing Rs 294 billion, the official said.

This motorway passing through Multan-Jalalpur Peerwala Ahmedpur East, Ubaro, Panno Aqil will terminate at Sukkur. Total 54 bridges will be constructed, including one major bridge on Sutlej, he added.

The official further said Karachi-Hyderabad Motorway (M-9), which connects Karachi to Hyderabad, is going to be 136-kilometre long with 16 exits and is going to cost about Rs 24 billion.

He said the M-9 would later be linked to the Karachi-Lahore and Karachi-Gwadar motorways to constitute the longest tract in the motorway network.

The National Highway Authority (NHA), the official said, is taking all possible measures to ensure the timely completion of the China-Pakistan Economic Corridor (CPEC).

"The CPEC project comprises modern highway and railway transportation system linking Kashgar in West China to Khunjerab in the north and onwards to Karachi and Gwadar in the south of Pakistan through multiple routes," he added.

He said that a number of sections of this mega project had been completed and remaining sections were under construction. He said that the 784-kilometer segment from Khunjerab to Burhan consists of Karakoram Highway (KKH), out of which 335 kilometre from Khunjerab to Raikot had already been upgraded.

The official said that the remaining part from Raikot to Islamabad was divided into three sub sections of Raikot-Thakot, Thakot-Havelian and Havelian-Burhan.

He said the construction work on 120-kilometre Thakot-Havelian section of the road has started after its ground breaking by Prime Minister Nawaz Sharif recently. He said that the work on 59-kilometre Burhan-Havelian section also known as Hazara Motorway was going smoothly and it would be completed by end of 2017 at a cost of Rs 34 billion.

The official said that work on 288km section of the western corridor from Burhan to Dera Ismail Khan would start within weeks. He said the project had been divided into five smaller sections so that work could be completed according to the given time frame. He said that Rs 13 billion PC-1 for acquiring the land required for the project had been approved.

The project envisages construction of 285km four-lane expressway from Hakla on M-1 to DI Khan near Yarik on N-55 as part of western route of the CPEC, he said.

Riaz Haq said...

Pakistan’s economy has come a long way since it started a structural reforms programme three years ago, bringing back stability and discipline to the economy while restoring confidence in the financial system, State Bank of Pakistan (SBP) Governor Ashraf Wathra told Gulf News in an exclusive interview.

The overall inflation remained contained to less than 3 per cent during the period July to April in the current financial year as compared to 8.62 per cent in 2014 and 4.53 per cent in 2015. “Our year on year inflation for the current fiscal year ending in June will be 3 per cent. We believe that is a good number considering our original target of 6.5 per cent,” said Wathra.

The country’s foreign exchange reserves are close to $21 billion (Dh77 billion) as of May 9, 2016 of which SBP reserves stood at $16.125 billion and that of scheduled banks at $4.802 billion.

According to a recent World Bank report, workers’ remittances and lower oil prices contributed most to the accumulation in foreign reserves. Remittances of $9.7 billion in the first half of fiscal year 2016 more than compensated for the trade deficit, and oil prices delivered a 9.1 per cent fall in the import bill.

The current lending rate of commercial banks is at about 6 per cent, the lowest in 12 years, in a country where the businesses have borne the brunt of the rate even as high as 18 per cent. Analysts say, in the context of low inflation, the Independent Monetary Policy Committee that sets the interest rates has enough elbow room to keep the rates at the current low or event take it lower.

According to Wathra, the aggregate loan growth numbers of the banking sector are very encouraging at the current lending rates. “With a low inflation that is below our target and considering the fact that an emerging economy like Pakistan can accommodate a slightly higher inflation rate, the lending rates could remain low. But it is not inflation alone, rather the overall economic data that will be considered by the Monetary Policy Committee in making adjustments to the lending rates,” he said.

In the current and the previous quarters, the overall banking sector credit growth surged in excess of Rs300 billion (Dh10.5 billion) with most of that accounting for long term credit. “Clearly the private sector’s long term credit offtake is picking up momentum, indicating growing demand for industrial credit that leads to higher economic growth prospects,” said Wathra.

Pakistan’s Ministry of Finance expects the country’s GDP to grow in excess of 6 per cent in the next financial year, starting this July. While the country achieved 4.2 per cent growth in 2015, it is expected to be 5 per cent this year.

Riaz Haq said...

#China-#Pakistan railroad will help curb extremism: Ex-Pakistan PM Shaukat Aziz. #CPEC

The China Pakistan Economic Corridor (CPEC), a railroad which will traverse western China through Pakistan, will help job creation as well as help to curb terrorism as people grow more prosperous, Pakistan's former prime minister told CNBC on Wednesday.

The $46B deal agreed upon between China and Pakistan will allow China to avoid its current maritime sea routes to bring products into the Middle East and Europe.

It will develop connectivity and create economic activity in Pakistan, former Pakistani Prime Minister Shaukat Aziz said.

"When you build a road or a highway through an area where there is none, you create economic activity, you create jobs, secondly new cities come up along that route , thirdly you have industrial estates coming so a lot of job creation takes place," said Aziz.

Despite a warning from the Pentagon that China is looking to set up a naval base in the country, the Pakistani army chief visited Beijing earlier this week to further discuss the project and the Pakistani army's involvement.

The Pakistani army will provide 15,000 special security forces to protect the investment in Pakistan, which has suffered greatly over the years due to security and terrorism issue.

"Whenever you have empty bellies, people get more vulnerable and subject to extreme behavior. If you create economic activity and give them a reason to live, if you give them a better tomorrow than yesterday, people tend to be more peaceful," said Aziz.

"We have seen over the years that in areas that have grown fast and where economic growth is strong, extremism and terrorism reduces," Aziz told CNBC.

"This is a serious initiative and we will do all what it takes to provide security and leverage this linkage between the warm waters of the Arabian sea all the way up to China."

Riaz Haq said...

#Pakistan #ETFs In Focus On Growing Prospects. #CPEC #China #FDI #FII … $FM $FRN $PAK

Pakistan represents an untapped Asian market for U.S. investors. The country's equity market had a bad start to 2016, thanks to the global sell-off and foreign investment outflow primarily from the oil & gas sector.

However, the country is working on a turnaround. Its economy is growing at a decent rate of approximately 4.5% per annum. As per a California software company, NetSol Technologies (NASDAQ:NTWK), the country's 190 million population, with more than 50% being under 25 years of age, could also act as a key catalyst to long-term growth.

In a review of Pakistan's economic program, the IMF positively stated that the country is on a growth trajectory and is expected to benefit from low oil prices and strong investment due to the implementation of the China-Pakistan Economic Corridor (CPEC). The aim of CPEC is to boost Pakistan's infrastructure and its industrial sector.

However, as a caveat, we would like to remind investors that like many other frontier markets, Pakistan is also fraught with political tensions, which might hurt the stock market's potential to outperform at any given time. Additionally, stocks in frontier markets in developing countries generally have smaller market capitalization and lower levels of liquidity than those in large emerging markets. So, investors planning to invest in this market should have a relatively high risk tolerance.

Keeping these points in mind, we highlight the sole ETF tracking Pakistan - the MSCI Pakistan ETF (NYSEARCA:PAK). This ETF looks to track the MSCI All Pakistan Select 25/50 Index, which holds about 37 securities in its portfolio. The fund charges 92 basis points a year. The portfolio is heavy in financials, at 31% of assets, while basic materials (28%) and energy (20%) round off the top three. The top three companies of the fund have almost one-third exposure. The fund has total assets of $5.4 million, with paltry volumes of 3,000 shares. It has gained 6.3% so far this year as of April 29, 2016.

Investors can also consider other ETFs like the Guggenheim Frontier Markets ETF (NYSEARCA:FRN) and the iShares MSCI Frontier 100 Index ETF (NYSEARCA:FM) having significant exposure of 10.2% and 10%, respectively, to Pakistan (see Broad Emerging Market ETFs here).


FRN seeks to match the performance of the BNY Mellon New Frontier DR Index. BNY Mellon defines frontier market countries based on GDP growth, per capita income growth, inflation rate, privatization of infrastructure and social inequalities. With 62 stocks in its basket, the fund has about 43% of assets in the top 10 companies, while financial services has the highest exposure at 42%. With total assets of $38.8 million, it has average volume of 25,000 shares and an expense ratio of 71 basis points. FRN has returned 4.6% so far this year.


FM, holding 107 stocks, is based on the MSCI Frontier Markets 100 Index. The fund has AUM of $16.9 million and trades in average volumes of 388,000. The fund is well diversified, with none of the stocks holding more than 4.7% weight except the top one with 6.3%. Financials dominates in terms of sector exposure, accounting for a whopping 50.2% of total assets. The fund charges an expense ratio of 79 basis points. It has lost 1% in the year-to-date period.

Riaz Haq said...

Bonds of Brotherhood: #Pakistan, #China Mark 65th Anniversary of Friendship #CPEC … via @SputnikInt

Pakistan and China are celebrating 65 years of diplomatic relations. A number of ceremonies and activities have been scheduled to mark the occasion, starting on May 19 and continuing throughout the month.

The celebration began on Thursday in Pakistan's Punjab Province. Seminars on the strong ties of friendship between Pakistan and China and a pictorial exhibition have been arranged at the direction of Punjab Chief Minister Muhammad Sheba Sharif.

In line with the 65th annual celebrations, Pakistan's National Institute of Folk and Traditional Heritage, Lok Virsa, has planned a two-day "Chinese Mela" festival that will start on Saturday. Organized in collaboration with the Chinese Embassy, it will become "part of the on-going efforts of promoting a relationship of love and brotherhood between the people of two countries." The Mela will highlight Chinese culture, and cuisine along with Pakistani artisans, music and a photo exhibition, the institute's website said.
Pakistan-China friendship has become a model for the world, said Federal Minister for Planning, Development and Reforms Ahsan Iqbal in an interview to APP. "China has been supporting Pakistan unconditionally for the last 65 years, while Pakistan has reciprocated to its time-tested friend's gestures positively," he added. "That's why, friendship between the two countries is considered higher than the Himalayas, deeper than the sea and sweeter than honey."

Read more:

Riaz Haq said...

#Pakistan misses GDP goal for 2015-16. Actual 4.7% vs target 5.5%. #Service sector grows 5.7%. #Agri shrinks 0.19%

The country missed the economic growth target for the current financial year by a wide margin mainly because of widespread dismal performance by the agriculture sector. The gross domestic product (GDP) grew by 4.7 per cent against the target of 5.5pc.

At a meeting on Friday of the national accounts committee comprising senior representatives from the four provinces and regions and technical experts, the performance of all economic sectors was added up that showed higher than targeted growth by the industrial sector. The services sector achieved its growth target of 5.7pc.

But the most worrying aspect of the year was a 0.19pc negative growth by agriculture as a whole against the target of 3.9pc.

Cotton output led the freefall in the agriculture sector, considered the backbone of the national economy, as it posted a negative growth of 27pc. The cotton output stood at 10.1 million bales against the target of 13.96m bales. Last year, its output stood at 13.9m bales with a 9.5pc growth.

As a result, cotton ginning declined by 21pc against the target of 5pc. Important crops output fell by 7.18pc against the target of 3.2pc, while other crops fell by 6.2pc against the target of 4.5pc.

Wheat production grew by a meager 0.61pc to 25.47 million tonnes.

The livestock sector grew by 3.63pc, but remained short of the 4.1pc target, while fisheries increased by 3.3pc, surpassing the 3pc target. Forestry was the only saving grace in the agriculture sector as it grew by 8.8pc against the target of 4pc.

On an overall basis, industry grew by 6.8pc against the target of 6.4pc. It was supported by the construction and electricity sectors — the linchpins of the Pakistan Muslim League-Nawaz government’s development focus.

Last year, industry had grown by 3.6pc.

The mining and quarrying sector grew by 6.8pc against the target of 6pc, but the overall manufacturing sector could not meet growth expectations. The manufacturing sector posted a growth of 5pc, but remained short of the 6.1pc target. It had grown by 3.2pc last year.

The most important sector in industrial domain — large scale manufacturing (LSM) — also could not meet its growth target of 6pc. It grew by 4.6pc. LSM had improved by only 2.4pc last year. Small and household manufacturing grew by 8.2pc against the target of 8.3pc.

The construction sector grew by 13.1pc as it went beyond the 8.5pc target, while electricity generation and gas distribution improved by 12.2pc against the target of 6pc.

The services sector could meet the target of 5.7pc, but this was mainly supported by an increase in the salary of government employees. This was evident from an 11.13pc growth in general government services against the target of 6pc.

Transport, storage and communication services grew by 4.1pc against the target of 6.1pc, while wholesale and retail trade improved by 4.57pc against the target of 5.5pc.

The finance and insurance sector exceeded the target of 6.5pc with a 7.1pc growth. Housing services stood at 3.99pc against the target of 4pc.

Likewise, other private services improved by 6.64pc against the target of 6.4pc.

Riaz Haq said...

'ICBC is positive on #Pakistan's future,' CEO, Industrial & Commercial Bank of #China #CPEC | Business Recorder

BRR: How important will CPEC be for ICBC?

HS: CPEC is the landmark of trade and economic cooperation between China and Pakistan. We cannot praise more of its significance to the governments and commercial sectors of both countries. As the only Chinese commercial bank that has set up branches in Pakistan, ICBC of course plays an indispensable role in the development of CPEC. Firstly, CPEC brings mega infrastructure and energy projects to Pakistan and ICBC, with its global financial capacity, is undoubtedly the natural partner for the finance of these big projects.

Secondly, along with CPEC, more and more Chinese enterprises are coming to Pakistan and seeking for business opportunities. ICBC, as the local Chinese commercial bank, will serve as an important channel for such clients to understand better the environment of investment in Pakistan. In addition, CPEC also sets a sound foundation for the usage of cross-border RMB settlement and ICBC is an incomparable expert in providing quality services to our customers in this area.

As a matter of fact, ICBC is already playing an indispensable role in CPEC, being one of the major finance providers to the major projects. During Chinese President Xi's visit to Pakistan last year, ICBC signed four contracts worth $4.5 billion. So far, the international syndications led by ICBC for projects such as Thar Coal mine and Power station, Dawood Wind Power and Sachal Wind Power have reached financial closure and started drawing down. Other projects such as SK Hydropower Station and Sahiwal Coal Power Station are also soon to reach financial closure. In the mean time, ICBC are also acting as agent bank and custodian bank for many projects of CPEC, ensuring the safety and convenience of the fund management.

BRR: What is your view on Pakistan's economy?

HS: Pakistan is one of the major developing economies with great geographical advantages and her importance as an economy in South Asia cannot be exaggerated. It is of great significance to maintain fast and sustainable economic development of Pakistan for the overall regional economy. ICBC holds a firm and positive view on the future development of Pakistan economy.

A country with the sixth largest population in the world, Pakistan shows huge potential for economic development and is drawing greater attention from international investors. As we shall see, with CPEC going further, Pakistan will benefit a great deal from future investment and infrastructure construction. It is based on such a positive view that ICBC has adopted a long term strategy for the business in Pakistan. ICBC Lahore Branch, the third ICBC branch in Pakistan, was formally inaugurated with the witness of Chinese President Xi Jinping and Pakistani prime minister Mr Muhammad Nawaz Sharif in April 2015, as a high praise of ICBC's presence in Pakistan as well as an indicator of the level of friendly commitment between the two nations. The set-up of Lahore Branch also proves ICBC's long term view and commitment to the local market.

BRR: Will your bank have a role to play with the CPEC investment coming in?

HS: As I have mentioned above, as the largest commercial bank in China, ICBC will primarily focus on facilitating and boosting the trade and economic cooperation between China and Pakistan. It is not just our commitment but also our business foundation to give support to the smooth development of CPEC related projects. With the fast development of local economy, ICBC will be more confident in business operation in Pakistan. For the mutual benefits of China and Pakistan, ICBC will continue to bring her global advantages to Pakistan, give funding and advisory support to local and Chinese enterprises, and make memorable contributions to CPEC.

Riaz Haq said...

#Pakistan stock exchange expects $1 bln of #power IPOs in 2017 and 2018. #loadshedding #energycrisis via @MailOnline

Pakistan's stock exchange could see initial public offerings of power sector projects amounting to some $1 billion in 2017 and 2018, the bourse's managing director said on Monday.
He also said he also expected Pakistan to regain its stock index emerging market status this year.
Referring to IPOs in the power sector, Nadeem Naqvi told Reuters in an interview:
"The projects that have had financial close and are under construction now, the tendency is that - once they get commissioned - that is the time they come onto the market to restructure their debt-equity ratio, so about $1 billion will come in."
Index provider MSCI said in March it was seeking feedback from investor on reclassifying Pakistan stocks to emerging market status from its current frontier market status - a less liquid and riskier subset of stocks.
The decision to move Pakistan back to the emerging category - from which it was dropped in 2008 - is due in June 2016.
Naqvi said he expected Pakistan to regain its emerging market status soon, if not in June then in December, adding he expected to see money coming in from abroad in anticipation of the decision.
"We saw that in the case of Qatar or the United Arab Emirates, approximately $400 million came in within 6-8 months of the announcement, and the market there is relatively narrow," he said, speaking on the sidelines of a Renaissance Capital investment conference.
"Our market is much more broader, but given Pakistan's risk factor ... I will be very happy if we get about $200-250 million to come in - now this would be the initial arbitragers which would position themselves for the index flows."
Currently, around 30 percent of the freefloat listed on the country's stock exchange was held by international institutional portfolio investors, said Naqvi, adding this would inevitably rise once Pakistan was reclassified.
"Anywhere between 40-45 percent (of foreign ownership) would be a number I would be comfortable with, anything beyond that it becomes risky because the volatility will increase."
He also expects the market capitalisation, currently at $71 billion, to rise above $100 billion in the next five years, thanks to IPOs and share valuations.
"Pakistan's discount against emerging markets is huge, and I think we will be seeing a narrowing of that discount, so even though the global valuations are not going to expand, Pakistan's discount is going to narrow, and there we are going to see that in the market cap."

Riaz Haq said...

Excerpts of Seeking Alpha travel report on meeting Pakistani companies at investors conference in Dubai:

We met a diverse set of thirteen companies across the auto, banking, cement, consumer staple, insurance, media and power sectors and the mood amongst the corporates and other investors regarding the Pakistani economy in general was positive.

The CPEC is a part of China's One Belt One Road initiative and it consists of investing a total of USD 45 billion over a fifteen year period in power, road and port projects. The majority of investment is expected to be in the power sector with a total of ~USD 34 billion to be spent on putting up new power capacity primarily using coal-based power plants. These new power projects are expected to lead to an increase of ~17,000 megawatts in generation capacity and this can go a long way in resolving the power deficit that Pakistan currently faces. Any improvement in the power situation will only be a positive for economic growth as there is a power deficit at present due to the mismatch between generation capability and demand.

The other CPEC-related investments are linked to infrastructure projects such as highways, rail networks and ports. An important infrastructure initiative within the CPEC is the Gwadar port related project which besides further developing the port also includes an international airport and a highway. The CPEC could be a big positive for the Pakistani economy and though there is execution risk, the project is expected to be geopolitically important to both China and Pakistan.

Some of the companies we met were existing holdings and some we were meeting for the first time. From our existing holdings, the company which we like and which we met with is "The Searle Company Ltd.," a pharmaceutical company which focuses on generic products. It is amongst the Top 10 pharmaceutical companies in the country in terms of revenue and it has a strong presence in the cardio vascular, gastro and cough syrup space. Revenues and profits for the company have grown at a CAGR of 17% and 30% over the last five financial years respectively. ...

Another interesting company we met was "Shifa Intl. Hospitals," a hospital chain company which currently operates a hospital in Islamabad and Faisalabad and plans to expand capacity into Lahore. Besides this, the company also has a laboratory business which it could expand in the future. The fund is currently invested in this company. There was one bank present at the conference and the outlook for the Pakistani banking sector is soft as their margins are expected to come under pressure due to the reinvestment risk they face as a large portion of their government bonds are expected to mature in 2016. Having said that, most Pakistani banks are fundamentally sound in terms of loan loss coverage ratios and capital adequacy ratios.

We also met with one of the leading auto companies in Pakistan, "Indus Motor Company Ltd." and their sales growth over the past year has been in double digits leading to capacity constraints which they plan to overcome in the short run but they would need new capacity in the long run. The Pakistan automobile market does hold a lot of potential as car penetration in Pakistan at 13 per 1,000 people is lower than India which is 18 per 1,000 people. A new auto policy recently passed by the government could bring more investment into the country and may also lead to more competition which could possibly lead to new model launches by the existing players and this can be positive for overall growth of the industry.

We recommend to invest via MSCI Pakistan ETF (NYSEARCA:PAK) or through the AFC Asia Frontier Fund, which has currently 20.6% of the fund invested in Pakistan.

Riaz Haq said...

#Pakistan Per capita income up 2.9pc to $1561 in 2015/16 …

The country’s per capita income rose 2.9 percent to $1,561 in the current fiscal year, a document revealed on Monday, as the stable exchange rate kept the growth nominal.

“As the exchange rate largely remained stable so the per capita income also showed a nominal growth in the current fiscal compared to the last year,” said a source.

The document, available with The News, said the per capita income was calculated at $1,517 for last fiscal year.

The ministry of finance will release the figure of per capita income along with the upcoming Economic Survey (2015-16) before the announcement of the budget for the fiscal 2016-17.

The per capita income grew 9.4 percent to $1,513 in 2014/15 over the preceding fiscal year.

The latest per capita income was based on the population growth rate of 1.94 percent in the current fiscal year as compared to 1.98 percent in the previous fiscal year. The document further showed that investment to GDP ratio slightly declined in the outgoing fiscal year despite significant investment inflows from China under the $46-billion China-Pakistan Economic Corridor (CPEC).

The investment to GDP ratio came down to 15.2 percent from the revised figure of 15.5 percent a year ago. This was mainly due to a downtrend in private investments. “The private sector investment dropped to 9.8 percent of GDP in the current fiscal year of 2015/16 from 10.2 percent in 2014/15,” said an official. “This also indicated that the private sector is still reluctant to go for the new investments in modernising.”

The State Bank of Pakistan (SBP) said foreign private investment in the country fell 64.7 percent to $635 million in July-April. It was $1.8 billion in the corresponding period of the last fiscal year. Foreign direct investment (FDI) and portfolio investments are the major components of the total foreign investment. In July-April 2015/16, the portfolio investment outflows amounted to $381.2 million as compared to inflows of $836.8 million in the same period a year ago.

Chinese investment in the country jumped one-and-half time to $550 million, more than half of FDI in the first 10 months of the current fiscal year. The SBP said the FDI inflows from China amounted to $218 million in the corresponding months of 2014/15.

The overall FDI posted a growth of 5.4 percent to $1.016 billion in July-April 2015/16 over the same period a year earlier.

Sector-wise analysis revealed that power sector was the main recipient of FDI during the period under review. The inflows of FDI towards the sector posted a sharp growth of 208 percent to $518 million.

The country is attracting foreign companies in various sectors. It attracted substantial amount of foreign investment in mid 2000s in banking and telecommunication sectors.

The official data showed that the public sector investment was up to 3.8 percent of GDP in 2015/16 from 3.7 percent in 2014/15. It further showed that the savings to GDP ratio also declined slightly as it was down to 14.5 percent in 2015-16 from 14.7 percent.

Riaz Haq said...

#Pakistan achives 4.7% #GDP growth in 2015/16, misses target by 0.8%, sets 5.7% target for 2016/17 via @ReutersIndia

Pakistan achieved GDP growth of 4.7 percent in the fiscal year ending in June 2016, missing its target of 5.5 percent, the prime minister's office announced on Monday.

The government has set a growth target of 5.7 percent for the next fiscal year, according to a statement. Pakistan's financial year runs from July to June.

Nawaz Sharif's announcement comes ahead of Friday's presentation of his government's budget for the 2016-17 financial year.

The government has set a growth target of 3.5 percent for the agricultural sector, 7.7 percent for the industrial sector and 5.7 percent for the services sector for the coming year.

Friday's budget will include 1,675 billion rupees ($15.98 billion) in National Development Outlay, including 800 billion rupees ($7.63 billion) in federal funds and 875 billion rupees ($8.35 billion) in funds to the provinces, the statement said.

Pakistan's economy, despite its missed targets, grew at its highest rate for eight years this year. It remains plagued by chronic power shortages, poor infrastructure and flagging exports, however.

On May 21, Pakistan's central bank cut its key policy rate by 25 basis points to 5.75 percent, mainly over concern at the missed GDP growth target.

In April 2015, China announced it would invest $46 billion in the China Pakistan Economic Corridor, a project that would link western China to the Arabian Sea through Pakistan, creating a major new trade route.

"CPEC has the capacity for further contributing to GDP and will have far-reaching effect in consolidating the economic outlook of the country in years ahead," said Monday's statement.

Riaz Haq said...

A newer and increasingly common option in conventional power projects involving Chinese contractors is a project finance structure
such as a BOT (build-operate-transfer). Under a BOT, developers set up and arrange loans to a special purpose vehicle (SPV) in the host country. Some 70-80% of the capital costs of construction will come from these loans, and the remainder will be provided by the developers through equity and / or other loans.

The SPV then enters into all the contracts needed for the project, including an engineering procurement construction (EPC) contract with the contractor. If the funding is from China, this EPC contract will almost always be with a Chinese contractor.

Conventional power projects are seen as particularly 'bankable' BOT projects, because the technology is usually tried and tested and there is a high likelihood that performance requirements will be met. These projects also do not generally require significant land acquisitions, or need extensive underground works, reducing the risk of delays and unforeseen problems. Many jurisdictions, in fact, now have standard form power purchase agreements and implementation agreements that offer to allocate project risks between the offtaker, the government and the developers in a split that is attractive to many lenders.

It has taken Chinese contractors some time to get used to EPC contracts under project financed structures, as these tend to be tough on the contractor. Rates of delay and performance liquidated damages, and the caps on these, are generally much higher, and the contractor's rights to additional time and cost are limited. Many of these rights have to match the power purchase agreement that the SPV has negotiated with the offtaker. However, the upside for the contractor is that the developers are often willing to pay a higher contract price in return for the contractor taking on these additional risks.

Where the finance for the project is coming from Chinese banks, the Chinese contractor may enjoy stronger bargaining power, although that is not always the case. There are plenty of Chinese contractors with the skills needed to build these power stations, and developers will often use the threat of switching negotiations to a competing contractor to get their way in negotiations.

Evolution to investment

Even before the launch of OBOR, the larger and more experienced Chinese contractors had begun the transition from a traditional contractor business model to a 'contractor plus investment' model. Now, the signs are that a significant proportion of OBOR projects will involve Chinese contractors making investments in the projects that they are engaged to construct, and conventional power projects have been among the first to use this structure.

The China Pakistan Economic Corridor (CPEC) has been among the first to see innovative project structures. The Thar Coal Block II project involves the development of an open pit coal mine and 660MW mine mouth power station through two SPVs set up by a consortium of Pakistani and Chinese investors, including a major Chinese contractor who will act as both EPC contractor and SPV equity participant. Project finance loans, including conventional RMB and Rupee Islamic tranches, are provided by syndicates of Pakistani and Chinese lenders including Habib Bank, United Bank, China Development Bank, Industrial and Commercial Bank of China and Construction Bank of China.

- See more at:

Riaz Haq said...

#Pakistan budget targets #tax revenue rise to $37.8b, hold deficit at 3.8% of #GDP, down from 4.3% now. via @Reuters

Pakistan is targeting a 16 percent rise in tax revenues in the year ending June 2017, Finance Minister Ishaq Dar said on Friday as he unveiled a budget aimed at shoring up the South Asian country's finances.

Dar said Pakistan would target a fiscal deficit of 3.8 percent of gross domestic product for the coming financial year, down from the 4.3 percent envisaged for this year.

He told parliament that the aim was to push Pakistan's persistently low tax-to-GDP ratio to above 10 percent and raise revenues from taxation to 3.95 trillion rupees ($37.8 billion)from 3.42 trillion this year. Pakistan's financial year runs from July to June.

Pakistan's economy grew at an estimated 4.7 percent in the year to June 2016 - short of the government's 5.5 percent target but the highest rate for eight years - after a slide in oil prices and growth in industry and services boosted demand.

Investor confidence has slowly returned to a country that was battered by the global financial crisis.

But the economy remains structurally weak, hamstrung by poor infrastructure, the threat of militant violence and narrow tax base.

Successive governments have promised to rein in tax evaders and boost revenues but face fierce resistance to change, including from the many politicians and businessmen believed to be among those dodging their taxes. ($1 = 104.6000 Pakistani rupees)

Riaz Haq said...

Standard Chartered Bank Aims to Double #Pakistan Profit on Loan Demand in Growing #Economy via @business

The bank is targeting an advance to deposit ratio of at least 45 percent in 12 months from 35 percent in the first quarter, according to Shazad Dada, chief executive officer of Standard Chartered Bank Pakistan Ltd. The industry as a whole will see the same trend, he said, with ratios rising to as much as 70 percent in three years from 46 percent in 2015.

“The economy has opened up” and there is demand from private-sector borrowers, Dada said in an interview in Karachi, the commercial capital. “Putting money to work is the easy part. It’s finding the right quality, right sponsors, right business ideas.”
Pakistan’s Prime Minister Nawaz Sharif is seeking to boost economic growth to its fastest pace in more than a decade after achieving stability through an International Monetary Fund loan program that averted an external payments crisis in 2013.

Suspicious Money
South Asia’s second-largest economy may prove to be a bright spot for Standard Chartered, which posted its first annual loss in more than a quarter of a century last year and is seeking to restructure or jettison about $100 billion of assets. The company declared $1.34 billion of impairment losses on loans in neighboring India last year, a legacy of its now-abandoned policy of rapidly expanding in emerging markets.
In Pakistan, finding quality assets and exercising discipline in extending credit will be key to driving the business, Dada said. His unit’s operating profit climbed to 15.4 billion rupees ($147 million) last year, almost triple the amount in 2010, data compiled by Bloomberg show.
For Pakistan, the risks for banking are associated with “suspicious money” being put through lenders for illicit purposes such as terrorism financing, corruption and human trafficking, Dada said. The country placed in the lower half of Transparency International’s 2015 Corruption Perceptions Index with a ranking of 117th out of 168 countries tracked by the organization.
Standard Chartered had boosted its scrutiny of money flows, Dada said. The unit he oversees has more than doubled financial-crime compliance staff to 57 this year from 23 in early 2015, he said.
Lower Rates
The London-based lender has been enhancing controls on money laundering, bribery and other offences and has been operating under deferred prosecution agreements with U.S. authorities since 2012, when it settled cases related to money-laundering failures and breaches of U.S. sanctions against Iran.
The bank’s Pakistan shares have fallen 15 percent this year, compared with the benchmark index’s 9.5 percent gain. Standard Chartered’s stock in London lost 3 percent in that time.

Pakistan’s private sector is being tempted to borrow after the country cut its discount rate by the most in Asia last year, and by 375 basis points in the past two years, after the drop in oil prices. The nation’s central bank unexpectedly cut its benchmark interest rate to 5.75 percent this month before the government presented its budget for the new financial year last week. Pakistan’s consumer confidence level rose to the highest level in eight years in the March quarter, according to New York-based Nielsen, which tracks the data.
Outstanding private-sector loans in Pakistan climbed about 9 percent to $35.4 billion as of April from a year earlier, central bank data show.
“The rise in loans tell you the economy is picking up steam and banks mean real business after heavily investing in government securities for years,” said Yawar uz Zaman, head of research at Karachi-based Shajar Capital Pakistan Pvt.

Riaz Haq said...

#Pakistan, #China discuss increased collaboration in #vocational #training & #education #CPEC

Pakistan and China have agreed to increase collaboration in the field of vocational education and teacher training programmes.

The agreement came during a meeting between a delegation from China’s Tianjin University of Technology and Education (TUTE) and National Vocational and Technical Training Commission (NAVTTC) Executive Director Zulfiqar Ahmad Cheema here on Monday.

Cheema briefed the delegation about the working of NAVTTC and its recent initiatives such as establishment of job placement centres for its graduates.

He said the under-construction China-Pakistan Economic Corridor (CPEC) would open new vistas of prosperity and development and would create employment opportunities in Pakistan.

Cheema said the two countries should enhance their collaboration to reboot the TVET system in Pakistan.

Riaz Haq said...

#China eases rules for #Pakistan’s banks. #CPEC #FDI

After successful negotiations by the Ministry of Commerce, Chinese authorities have eased the regulations for Pakistan’s financial sector which will make it easier for Habib Bank Limited (HBL) to establish a branch in China.

HBL will be the first South Asian commercial bank to open a division in China. It will be located in China’s northwest city of Urumqi.

“The bank has received formal approval from the Chinese authorities and will open its branch by the end of this year,” announced Commerce Minister Khurram Dastgir, accompanied by the president and CEO of HBL, at a press conference on Monday.

HBL to open branch in China

The minister said after successful negotiations with the Chinese authorities under the Trade and Investment Agreement 2009, they relaxed their criteria for Pakistan’s banking sector by curtailing the currency reserves limit from $20 billion to $15 billion.

The banking channels will be opened under the Trade and Investment Agreement signed by the two countries. Under the agreement, both sides have agreed to provide concessions to each other in 11 sectors including the banking sector.

Dastgir was optimistic that the step would enhance trade facilitation between the two countries and they would now be able to open letters of credit with HBL instead of a foreign bank.

“This initiative will also help Pakistan’s banking channel to reach the Central Asian countries bordering Urumqi.”

China cuts cost estimate by another $200 million for Gwadar LNG pipeline

Replying to a question, the minister said availability of Pakistan banking channels in China would also be helpful in overcoming the challenges of over and under-invoicing in bilateral trade as most of the businessmen conducted trade through cash.

HBL President Sultan Ali Allana said HBL’s initial plan was to cover the China-Pakistan Economic Corridor trade route and it would then expand its branches to other cities of China.

He said they had got approval from the Chinese authorities and the first branch would be opened in Urumqi before the end of current year.

“HBL has a long-term strategic plan in China and will broaden its channels in other cities in future with appropriate investment,” said Allana.

Riaz Haq said...

#China-Led #Infrastructure Bank AIIB Starts With $509M in Loans 4 Projects: #Bangladesh #Indonesia, #Pakistan #CPEC

BEIJING — A new Chinese-led international development bank announced its first four loans on Saturday, pledging to lend $509 million for projects to spread electric power in rural Bangladesh, upgrade living conditions in slums in Indonesia, and improve roads in Pakistan and Tajikistan.

At the first of the annual general meetings of the institution, the Asian Infrastructure Investment Bank, the bank’s president, Jin Liqun, said the projects were financially sound and environmentally friendly and had been accepted by the people in the project areas.

The projects of the 57-member bank, founded last year as an effort by China to both challenge lending institutions and cooperate with them, are relatively modest.

The road in Tajikistan is just three miles long, but it will help clear traffic congestion on an important trading route near the capital, Dushanbe. A $100 million loan to Pakistan is for 40 miles of highway in Punjab Province that would complete the last section of a national artery, the M-4, the bank said.

Three of the projects are being financed with other institutions — the Asian Development Bank, the World Bank, and the European Bank for Reconstruction and Development — an approach that allowed the new bank to begin the projects quickly. The bank’s $165 million loan to expand electricity in rural areas of Bangladesh is its only stand-alone project.

By financing projects with long-established institutions, the Beijing-based bank was able to move quickly because work on meeting environmental standards and procurement policies had been completed, staff members at the bank said.

Although the new bank was China’s idea, it is intended to operate as an international bank dedicated to improving the basic structures and facilities needed to stimulate development across Asia, Mr. Jin said at a news conference on Saturday. Unlike the World Bank and the Asian Development Bank, the Asian Infrastructure Investment Bank places less emphasis on the reduction of poverty, he said.

The bank “was born with the birthmark of China, but its upbringing is international,” Mr. Jin said. Referring to the three other institutions that will finance the projects, he said, “We can work wonderfully together.”

Riaz Haq said...

#China’s #Shanghai Electric to buy majority stake in #Pakistan’s K-Electric. #Karachi #CPEC via @WSJ

hina’s state-owned Shanghai Electric Power Co. plans to acquire a controlling stake in Pakistani power utility K-Electric Ltd., in a deal that could be one of the biggest foreign investments in Pakistan’s history.

In a notification filed with the Pakistan Stock Exchange Tuesday, Shanghai Electric said it intends to purchase the 66.4% stake in K-Electric currently held by The Abraaj Group, a Dubai-based investment firm. K-Electric shares, included in the Pakistan Stock Exchange’s benchmark 100-index, closed at 9.21 Pakistani rupees ($0.09) Tuesday, valuing Abraaj’s stake in the utility at 168.9 billion rupees, or $1.6 billion.

K-Electric supplies power to Pakistan’s largest city and economic hub, Karachi, home to around 20 million people. The company has a customer base of 2.2 million, and 11,000 employees.

The acquisition would be the largest investment in a Pakistani company by a Chinese firm, and a boost to Prime Minister Nawaz Sharif’s government, which considers increasing foreign investment a key component of its economic policy.

If completed, Shanghai Electric’s purchase will be the third major foreign investment this year in Pakistan, dwarfing the $258 million acquisition of Pakistani appliance maker Dawlance by Turkey’s Arçelik A.Ş. in June, and Netherlands-based Royal FrieslandCampina N.V.’s acquisition of a 51% stake in Engro Foods Ltd. for an estimated $450 million in July.

Work is also under way in Pakistan to build the China-Pakistan Economic Corridor, a $46 billion, multiyear Chinese investment program connecting the two countries. A bulk of the investment will be in Pakistan’s energy sector, and the government hopes the new power plants will help end electricity shortages that have hampered economic activity for years. Pakistani officials also hope the corridor will help the country industrialize and boost growth.

Riaz Haq said...

#China’s #Pakistan project: a geopolitical game-changer. #CPEC #eurasia #India #OBOR via @east_asia_forum

David Brewster, ANU

China’s One Belt One Road (OBOR) initiative is carving out new pathways across the Eurasian continent, signifying Beijing’s ambitions to remake the world around it. This project, if implemented, will fundamentally change China’s role and relationships in South Asia, perhaps in some ways that are not intended.

In the Indian Ocean region, OBOR has two aspects. One is the Maritime Silk Road, a series of linked port projects aimed at facilitating trade and new production chains linked with China by sea. The other is a series of planned north–south pathways from China to the Indian Ocean, including the China–Pakistan Economic Corridor (CPEC) and the Bangladesh–China–India–Myanmar Economic Corridor. These projects come with huge price tags and would involve the construction of roads, railways, pipelines and other major infrastructure in corridors stretching for hundreds and even thousands of kilometres.


But these new overland pathways also have the potential to fundamentally alter China’s role in South Asia and the entire strategic make-up of the region. Geopolitically, South Asia has long functioned more or less as an island rather than as part of a bigger continent. Any overland connections that South Asia has with the rest of the continent are, at best, tenuous and excepting a tiny proportion of trade that is carried overland to and from Eurasia, essentially all of South Asia’s connections with the rest of the world are by sea or air.

These geographic constraints have had considerable political, economic and strategic consequences for the region. One is in underpinning India’s role as South Asia’s predominant power. The relative lack of landward connections into the Eurasian continent also amplifies the importance of control over the maritime trade routes across the northern Indian Ocean.

Geography has also caused Eurasian states, such as China, to have very limited contact with their South Asian neighbours. Sitting on the other side of the Himalayas, China may as well have been on the other side of the world. While it has been a strategic player in South Asia for some time, it has been from far away. China’s virtual remoteness allowed it to keep its hands clean of domestic political and security problems, even while it provided substantial military and diplomatic support to the Pakistani government. This has helped China to project itself as a benevolent partner that does not ‘meddle’ in internal affairs.


Pakistan has sought to address CPEC security risks by forming a special army corps of 12,000 personnel devoted to protecting the project. But, at least until recently, China has been surprisingly sanguine about these risks and its ability to rely on the Pakistan Army.


In August 2016, in a national Independence Day speech, Indian Prime Minister Modi sent a clear message that India may begin to publicly support Balochistan’s separatist insurgents. This represents a big shift for India and was directed almost as much at Beijing as at Islamabad. A senior and well-connected Chinese scholar responded that China will have ‘to get involved’ if India seeks to disrupt the CPEC. On 21 September, in the wake of the deterioration in Indo–Pakistan relations over Kashmir, Chinese Premier Li Keqiang publicly warned his civilian Pakistani counterpart, Nawaz Sharif, that he ‘hoped’ Pakistan can continue to provide safety protection to the program construction and Chinese personnel in Pakistan. These may well be the opening moves to a whole new strategic dynamic in South Asia driven by China’s great OBOR ambitions.

Riaz Haq said...

Foreign Direct #Investment #FDI in #Pakistan Crosses $1 Billion in first 6 months of Fiscal Year 2016-17. #CPEC

Foreign investment in the country flourished after a long pause and a growth of 10 percent to $1.080 billion was recorded in the six months of the current fiscal year, the State Bank of Pakistan data showed.
The economic measures according to an analyst started paying some dividends as after a long gap in the first six months the barrier of $1 billion has been crossed. However, the stock market was on the losing side as the foreign fund managers repatriated their investment during July to December period. Outflow from the Pakistan Stock Exchange stood around $254 million as against $236 million of the same period last year or 2015.
There has been general tendency among the foreign fund houses to pull out from the emerging markets as they felt that with the rising interest rates and hope of further rise in the US in 2017, the best option to park their funds would be the US treasury or bonds.
Another analyst said that foreign direct investment recorded increase because of one time arrival of payment received from the Netherland as they bought majority of stakes of Engro Foods amounting to $464 million. Another factor which increased the net foreign investment climbing by 52.5 percent to $1.804 billion was the issuance of the Euro Bonds by the government during the period.
The government and economists mostly bet on China Pakistan Economic Corridor (CPEC) as the project would yield around $5 billion dollars year in the coming years.

Riaz Haq said...

Exclusive: CPEC master plan revealed

In any plan, the question of financial resources is always crucial. The long term plan drawn up by the China Development Bank is at its sharpest when discussing Pakistan’s financial sector, government debt market, depth of commercial banking and the overall health of the financial system. It is at its most unsentimental when drawing up the risks faced by long term investments in Pakistan’s economy.

The chief risk the plan identifies is politics and security. “There are various factors affecting Pakistani politics, such as competing parties, religion, tribes, terrorists, and Western intervention” the authors write. “The security situation is the worst in recent years”. The next big risk, surprisingly, is inflation, which the plan says has averaged 11.6 per cent over the past 6 years. “A high inflation rate means a rise of project-related costs and a decline in profits.”

Efforts will be made, says the plan, to furnish “free and low interest loans to Pakistan” once the costs of the corridor begin to come in. But this is no free ride, it emphasizes. “Pakistan’s federal and involved local governments should also bear part of the responsibility for financing through issuing sovereign guarantee bonds, meanwhile protecting and improving the proportion and scale of the government funds invested in corridor construction in the financial budget.”

It asks for financial guarantees “to provide credit enhancement support for the financing of major infrastructure projects, enhance the financing capacity, and protect the interests of creditors.” Relying on the assessments of the IMF, World Bank and the ADB, it notes that Pakistan’s economy cannot absorb FDI much above $2 billion per year without giving rise to stresses in its economy. “It is recommended that China’s maximum annual direct investment in Pakistan should be around US$1 billion.” Likewise, it concludes that Pakistan’s ceiling for preferential loans should be $1 billion, and for non preferential loans no more than $1.5 billion per year.

It advises its own enterprises to take precautions to protect their own investments. “International business cooperation with Pakistan should be conducted mainly with the government as a support, the banks as intermediary agents and enterprises as the mainstay.” Nor is the growing engagement some sort of brotherly involvement. “The cooperation with Pakistan in the monetary and financial areas aims to serve China’s diplomatic strategy.”

The other big risk the plan refers to is exchange rate risk, after noting the severe weakness in Pakistan’s ability to earn foreign exchange. To mitigate this, the plan proposes tripling the size of the swap mechanism between the RMB and the Pakistani rupee to 30 billion Yuan, diversifying power purchase payments beyond the dollar into RMB and rupee basket, tapping the Hong Kong market for RMB bonds, and diversifying enterprise loans from a wide array of sources. The growing role of the RMB in Pakistan’s economy is a clearly stated objective of the measures proposed.

Riaz Haq said...

#Pakistan #FDI surging. Expected to reach $3.7 billion in fiscal year 2017-18 ending in June 2018. #CPEC #China #Investment

Pakistan expects net foreign direct investment (FDI) to jump about 60 percent in 2017/2018, the chairman of Pakistan’s Board of Investment said, but some Western investors appear to be put off by China’s growing influence in the South Asian nation.

Chinese companies are building roads, power stations and a deep-water port in Pakistan after Beijing offered more than $50 billion in funding for Pakistani infrastructure as part of China’s vast Belt and Road initiative.

Chinese investment has helped spur Pakistan’s economic growth to more than 5 percent, its highest in a decade, while also increasing Beijing’s clout in Pakistan at a time when Islamabad’s relations with the United States, an historic ally, are fraying over Pakistan’s handling of Islamist militants and the conflict in Afghanistan.

Naeem Zamindar, a state minister responsible for promoting foreign investment in Pakistan, said some Western investors appeared reticent because of an incorrect perception that Chinese companies would get “exclusive advantages” and concessions that would not allow for an even playing field.

“A perception was created that the Chinese are taking over. The fact of the matter is that this is not true,” Zamindar told Reuters in his office in Islamabad.

“Pakistan’s government is very clear about it: we want investors of all hues to come in and participate in building this economy - whether American, English or Japanese.”

Zamindar said some Chinese companies building power stations had obtained soft loans but that was because the money was provided by Beijing, which made such terms a condition of its financing for projects that were part of the China-Pakistan Economic Corridor (CPEC), a key leg of the Belt and Road infrastructure network.

But for the second phase of CPEC, in which a series of Special Economic Zones (SEZs) will be set up to boost Pakistan’s industries, Chinese companies will not receive preferential treatment, Zamindar added.

“That is completely non-discriminatory,” he said, adding that Pakistan’s Special Economic Zones Act stipulates no country or company will get preferential treatment within the SEZs.

“The (SEZ) concessions are published and are on the website, open to all.”

Zamindar said net FDI for the financial year 2017/2018 (July-June) is expect to reach about $3.7 billion, with Chinese companies providing up to 70 percent of the new investment.

Net FDI has been gradually rising since 2014/2015, when it plummeted to less than $1 billion. It rose to $2.3 billion last year, according to central bank data.

Foreign direct investment is separate from the China-Pakistan Economic Corridor investments. More than 20 CPEC projects worth nearly $27 billion are currently being implemented, a senior government official told Reuters, meaning either work has begun on the projects or financing deals have been completed.

Zamindar said militant attacks were sharply down in recent years and security was much improved, but some investors are unaware of this and had an outdated “negative image” of Pakistan.

Yet overall interest in Pakistan had jumped, Zaminder said, and he would tour Britain, the United States, France and Saudi Arabia in coming weeks to promote the opportunities available in the country of 208 million people and a fast-expanding middle class.

“We are open for business.”

Riaz Haq said...

#IMF Official: #CPEC #energy #infrastructure projects have helped #Pakistan deal with acute shortages of power. She said the #debt sustainability analysis showed that CPEC loans were manageable, but the country’s overall debt situation was not sustainable.

The International Monetary Fund (IMF) said on Monday that it had full access to borrowing and maturity terms of the China-Pakistan Economic Corridor (CPEC) projects and its loans were manageable.

Addressing Senior Journalists’ Forum at the National Press Club, IMF resident representative in Islamabad Teresa Daban Sanchez counted issues relating to the Financial Action Task Force (FATF), provincial spending behaviours and insufficient parliamentary strength of the government as key risks to its $6 billion 39-month bailout programme.

She said Pakistan had shared full details of CPEC loans with the IMF, adding that CPEC was mostly private sector investment in energy and infrastructure. In reply to a question, the IMF official said energy projects had no doubt helped the country deal with acute shortages of power and this was a very positive aspect. She said the debt sustainability analysis showed that CPEC loans were manageable, but the country’s overall debt situation was not sustainable.

Responding to a question, Ms Sanchez said fiscal consolidation and revenue mobilisation, market-based exchange rate and social sector protection were three basic pillars of the new IMF programme, adding that fiscal consolidation should be revenue-oriented to deal with the problems of fiscal deficit because the country had a very low tax-to-GDP ratio and needed to increase revenue which was being done through removing tax exemptions and privileges.

The IMF official said there was a strong need for greater coordination with the provinces to ensure that they spent less and provided budget surplus to the federal government. She said the IMF did not place any condition to bring changes in the National Finance Commission’s resource distribution formula, but it did get a commitment of fiscal federalism under a memorandum of understanding signed by the federal and provincial governments on revenue surplus and harmonisation of taxes for improved revenue collection.

Ms Sanchez said one of the most important pillars of the IMF programme was the market-based exchange rate, with the central bank in the background, to achieve price stability through forward looking actions to deal with inflation.

Speaking about key reforms in the programme, she enumerated implementation of financial management to instill fiscal discipline in the public sector, autonomy to the central bank, energy sector improvement, strengthening of anti-corruption agencies and compliance with the FATF.