World's Tallest Building Proposed in Karachi

Bahria Town and Abu Dhabi Group agreed to invest $45 billion in real estate in Pakistan. After signing the investment deal, Malik Riaz and Shaikh al-Nahyan announced that Karachi, not Dubai nor Shanghai, will soon boast having the world's tallest building.

Representing the largest foreign investment to date in Pakistan, there will be $35 billion invested in several  large commercial and residential real estate projects in  Karachi, and another $10 billion in Lahore and Islamabad. It's expected to create 2.5 million new jobs in the country.

His Highness Sheikh Nahyan bin Mubarak al Nahyan, Chairman of Abu Dhabi Group, was quoted by Express Tribune as saying, “I am genuinely happy that in this historic project of Pakistan we are working with the visionary Malik Riaz Hussain, this guarantees that not only the project will be delivered beyond our expectations but also before time. We will Inshallah be welcoming first residents in next 3-4 years.”

Why is Abu Dhabi Group interested in investing in Pakistan?  Why not put all or most of these $45 billion in GCC or other Middle East nations?  Answering a reporter's question about the growth prospects of GCC (oil-rich nations of Gulf Cooperation Council) at a recent investment conference in Dubai, Golman Sachs' Jim O'Neill said: "Some GCC countries are well placed to be hubs for the BRIC and N-11-influenced world. I often think of Dubai as a kind of N-11 center, even the capital of the N-11 world, given its business adjacency to Egypt, Pakistan, Iran, Turkey, and, of course, India and Russia."

Pakistan is already experiencing a renewed construction boom with cement sales rising by double digits. Domestic cement consumption surged 10.10% in Pakistan in January 2013, according to All Pakistan Cement Manufacturers Association. On top of 8% increase in Fiscal Year 2011-12, it jumped another 8% for the first seven months of Fiscal Year 2012-13.

There is a lot of privately funded real estate development activity visible in all major cities of the country. Big real estate developers like Bahria Town and Habib Construction are developing both commercial and housing projects in Islamabad, Karachi and Lahore. Other cities like Faisalabad, Hyderabad, Larkana, Multan, Mirpur, Peshawar and Quetta are also seeing new housing communities, golf courses, hotels, office complexes, restaurants, shopping malls, etc.

Cement consumption is an important barometer of national economic activity,  according to a research report compiled by a Credit Suisse analyst.  Last year, CS analyst Farhan Rizvi said in his report that "higher PSDP (Public Sector Development Program) spending has led to a resurgence in domestic cement demand in FY12 (+8%) and with increased PSDP allocation for FY13 (+19%) and General Elections due in 2013, domestic demand is likely to remain robust over the next six-nine months".  This latest investment will add to it. It will give a big boost to the national economy.

The Abu Dhabi Group is a major investor in Al-Falah Bank and United Bank in Pakistan. It recently announced acquisition of all of SingTel’s shares in Warid Telecom, a mobile telephone service operator in Pakistan. With the agreement, the group has become the sole owner with equity holding of 100% in the Pakistani telecom company. Abu Dhabi Group said it plans to improve Warid Telecom’s operations in Pakistan by introducing new technologies, services and packages.

Back in 2008, there was a lot of excitement in Pakistan when  Dubai developer Emaar announced a massive real estate project valued at $43b to develop two island resorts near Karachi. That investment never materialized. Let's hope this time will be different. Let's hope Abu Dhabi Group and Bahria Town will follow through on their commitments.

Here's a video of Malik Riaz speaking with Dunya News:



Related Links:

Haq's Musings

Renewed Construction Boom Pushes Cement Sales in Pakistan

DCK Green City in Karachi, Pakistan

Pakistan on Goldman Sachs' Growth Map

Investment Analysts Bullish on Pakistan

Precise Estimates of Pakistan's Informal Economy

Comparing Pakistan and Bangladesh in 2012

Pak Consumer Boom  Fuels Underground Economy

Rural Consumption Boom in Pakistan

Pakistan's Tax Evasion Fosters Aid Dependence

Poll Finds Pakistanis Happier Than Neighbors

Pakistan's Rural Economy Booming

Pakistan Car Sales Up 61%

Resilient Pakistan Defies Doomsayers

The Ailing US Economy: Can Asians & Arabs Rescue It?

As the widening sub-prime crisis and the resulting credit crunch in the US become serious, there are many Asian and Arab sovereign funds coming forward to help major US and European financial institutions. Citigroup, UBS and Morgan Stanley clearly stand out as the recipients of their largess. Here's a brief run-down of these three deals:

Abu-Dhabi-Citigroup Deal
Abu Dhabi Investment Authority agreed to purchase 4.9% stake in Citigroup for $7.5b in convertible debt. It's a rather complicated deal but the interest rate on this investment by Abu Dhabi works out to about 11%, an unusually high interest rate that speaks to both the risk and the reward of this arrangement. Part of the concern by the Oil-rich country is based on the fact that Abu Dhabi's reserve are held in dollar-denominated assets and the US dollar is continuing to lose ground against other major currencies including the Euro. The other concern is the impact of a US economic slowdown leading to worldwide slowdown that causes reduced demand for oil and lower prices.

Singapore-UBS Deal
The Government of Singapore Investment Corporation(GIC) announced it is purchasing 9% stake in Swiss Bank UBS for about $10b. The identity of a second investor, believed to be Saudi, was not disclosed. The rapid Asian growth has helped balloon the size of the Singapore reserves and they are looking for opportunities to invest. The other factor is that the Singaporean wealth is mainly tied to international finance and trade which they would like to support.

China-Morgan Stanley Deal
Chinese government is buying a 9.9% stake for $5b in Morgan Stanley, one of the largest investment banks on Wall Street. China has been accumulating US dollars at an unprecedented rate with its rapidly expanding manufacturing exports to the United States and the rest of the world.

Conclusion
These three deals are likely to spur other, similar deals. As the rapid Asian economic growth and the commodities boom create tremendous wealth in Asia and the Middle East, these regions have a stake in maintaining this phenomenon by making larger investments in their own economies and supporting the consumers in the West.
The Asians and the Middle Easterners are likely to continue this investment/purchase strategy in the foreseeable future in spite of concerns about the growing deficits in the US and the falling value of the US currency. The only uncertainty here is how the US Congress reacts to it.