A growing economy
The Pakistani Government under the Prime Ministership of Yusuf Raza Gilani, whose Government took office in March 2008, came up with a series of action plans to strengthen the economy as well as to restore confidence in the market.
Furthermore, from the end of May to September 2008, the Planning Commission and the Prime Minister’s Economic Advisory Council came up with an assessment of nine areas which they deemed priority areas to address in order to ensure economic growth. These nine areas include macroeconomic stabilisation, social development, agriculture, industrial competitiveness, human capital development, energy, capital markets, public-private partnerships to improve infrastructure, and institutional reforms.
Thanks to the policies of the Government, the situation in Pakistan has shown marked improvements. For instance, the Rupee stabilised in December 2008 after having lost 19.3% of its value against US dollar. Other good news included a growth of 18% in non-textiles exports from July 2008 to February 2009, while food group exports led by rice rose by 47%, and cement, pharmaceuticals, and seafood exports rose by 10%.
In further terms of macroeconomic performance, Pakistan also recorded a current account surplus in February 2009 of US$138m – the first in over five years. In the same period, trade deficit fell by 59.6% while the fall in oil prices since August 2008 also resulted in cost of imports falling by 41%. As such, exports were expected to reach US$18.5b in June 2009, compared to the total amount of US$19.2b for the whole of 2008. Also by June 2009, Pakistan had foreign exchange reserves of US$11.5b compared to just US$3.5b at the end of October 2008.
Without a doubt, this surge in foreign reserves can be attributed to the improved performances of Pakistan’s exports particularly in the agriculture sector. For instance, for the first 11 months of financial year 2009/2010, the total amount of rice exports from Pakistan rose to US$1.8b and is expected to cross US$2b by the end of the year. Another famous Pakistan produce – namely mangoes – have doubled in exports compared to last year. All in all, fruit exports from July 2008 to May 2009 rose by 6.55% while vegetable exports rose by 26.63% respectively. These exports have helped bring US$143.72m
to Pakistan.
The Karachi Stock Exchange also experienced a rally in 2009 when it rose by 10% during the third week of March 2009 – its highest weekly rally in four years. In terms of its financial sector, Pakistan’s banks and finance houses have even outperformed the traditional powerhouses which are still mired in crisis.
This is reflected in the banking sector recording a Rupee50b (US$602m) profit, while the World Bank Report on “Getting Finance in South Asia 2009” has ranked Pakistan first in terms of corporate governance, performance, and efficiency. In a nutshell, Pakistan’s financial sector is becoming a hot favourite for investors. It is also notable that Pakistan is maintaining its attractiveness to dollar bond investors, with an HSBC report showing that Pakistani bonds have given a return of 35% - the best returns in Asia in 2009.
In 2008/2009, Pakistan’s GDP growth rate was recorded at 2% - lower than the 4.1% recorded in 2007/2008 and definitely short of the expected GDP growth rate of 4.5% forecasted. However, the fact that it is able to record a positive growth rate amidst the international economic problems is quite remarkable. Furthermore, the Government is expecting growth rate to be at 3.3% in 2009/2010 and has introduced a Medium Term Budgetary Framework (MTBF) that will provide targets for Pakistan’s GDP growth to be at 4.5% by 2011/2012.
The next hot investment place
With FDIs, excluding portfolio investments, already reaching US$3.3b, Pakistan is proving to be an attractive investment destination. This is evident by the fact that a number of CEOs from top MNCs have visited Pakistan in 2009 to study the country’s vast potential. They included the top brass from companies such as Nestle, Eni (the Italian Oil and Gas company), and China Mobile.
Moves are also underway to shore up Pakistan’s infrastructure with the South Korean Pan Energy Development Company (PEDCO) and the UAE’s Bin Din Group having plans to set up two coal-fired power plants that will produce 100MW of power each. At the same time, a consortium consisting of the EXIM Bank of China, HSBC, BNP Paribas, and Northern Power of Pakistan have reached an agreement to construct a 425MW Power Plan in the
Nandipur region.
The telecommunications sector is also a highly attractive venture for investors. Pakistan is incidentally the 4th highest ranked country in terms of SMS usage with 763 million messages sent during festive seasons. Although it is behind the Philippines, Indonesia, and Malaysia in terms of volume, its growth potential far outstrips these nations.
For instance, Pakistan’s SMS text traffic volume rose by 253% year-on-year from 2008 to 2009. This can be compared to the growth in the Philippines, Indonesia and Malaysia which were 65%, 27% and 13% respectively. Judging by these results, it comes as no surprise that over the last three years, its telecommunications sector has managed to attract US$9b worth
of investments.
A proactive Government
Without a doubt, the policies introduced by the Pakistani Government have proven to be extremely useful in bringing in foreign investments to the country. For instance, foreign investors hoping to set up manufacturing plants need not receive Government permission unless they were involved in the production of arms and ammunition, high explosives, radioactive substances, and security printing such as notes and coins. Those looking to set up in the agriculture, infrastructure and social and services industries only need to acquire the license from the right
agencies concerned.
Furthermore, complete remittance of capital, profits, and dividends are allowed by the Government while equity can be entirely foreign-based. For the manufacturing industry, there is no minimum investment amount whereas the agriculture, infrastructure, and services industries only need a minimum investment of US$300,000, US$300,000 and US$150,000 respectively.
Pakistan has also been making a mark as a destination for outsourcing activities. According to the 2009 A.T. Kearney Global Services Location Index, Pakistan was positioned at number 20 up from number 30 in 2008. Part of the reason for this rise is the fact that the country is well-known for having a well-educated workforce who are proficient in English and – most importantly – cost less than in many other countries.
This rise in the ranks is also significant because it comes when the Pakistani armed forces have wiped out Taliban insurgency in the Swat Valley –which has removed the concerns raised over the socio-political stability of the country. There is, therefore, little doubt that the additional stability achieved will help contribute to further increases in Pakistan’s rankings.
The Malaysian factor
Malaysian companies have been major investors in Pakistan of late, and in July and August 2008, Malaysia was the second largest foreign investor in the country with US$205m. This, according to the State Bank of Pakistan, put Malaysia behind just Singapore – with investments worth US$210m. And then from July to December 2008, Malaysian companies took first place with Malayan Banking investing over US$907m in the banking sector with a purchase of a 20% stake in MCB Bank.
In terms of trade, bilateral trade between Pakistan and Malaysia were valued at around US$1.8b in 2008 compared to US$834m in 2006. Part of this increase can be attributed to the inking of an FTA in 2006, which was followed by the signing of the Malaysia Pakistan Closer Economic Participation (MPCEPA) in 2007. This agreement, which is the first one signed by Pakistan with a foreign country, is a comprehensive agreement on goods, services, investment, and economic cooperation.
In February 2009, customs duty on 5,921 items from Malaysia were included in a tariff reduction schedule as part of the MPCEPA. This resulted in Pakistan cutting tariffs on 23% of imports from Malaysia, while in return, Malaysia will be cutting tariffs on 78% of imports from Pakistan.
Under the terms of this agreement, Pakistan’s exports to Malaysia will be subject to the same tariffs as enjoyed by Asean nations. As such, it is hoped that this will help boost trade between the two countries, which MATRADE envisions to increase from US$1.8b to US$10b by 2015.
At present, Malaysia’s exports to Pakistan consists mainly of raw materials, intermediate goods to be used to create value-add products, and machinery, while Pakistan exports to Malaysia foodstuffs - particularly basmati rice and fruits , gems and jewellery, cotton, textiles, and medical equipment. It should be noted that Malaysia is Pakistan’s largest trading partner in the Asean region.
Apart from the trade in goods; trade in services between the two countries have also been given a boost with Malaysia opening up its computer, IT, Islamic banking, and Islamic insurance sectors to Pakistani investors - who can secure 100% equity. A partnership with regards to education is being formed as well with a framework for the accreditation of education institutions and programmes in the works.
Also during a visit by eight Malaysian and Brunei journalists to Pakistan in November 2008, the Director-General of the Trade and Development Authority of Pakistan (TDAP) expressed hopes that bilateral trade and investment ties between the two countries will be strengthened.
As Nusrat stated, “We (Pakistan) would like to be involved in activities such as the marble industry, textile, handicraft, pharmaceuticals, carpet, fish and fish preparations while Malaysia could export its expertise and investments in palm oil, rubber and tin. Karachi can also be a reservoir and hub for Malaysian investment activities for Malaysian export to other countries.”
Special Economic Zones
In order to further increase the attractiveness of Pakistan to Malaysian investors, the Pakistani Government has also offered a dedicated economic zone for Malaysian companies in Pakistan on a Build-Own-Operate (BOO) basis in February 2009. According to the Pakistani High Commissioner to Malaysia, H.E. Lt. Gen. Tahir Qazi, this zone will also include incentives such as a five-year tax break for investors and a 10-year tax break for developers. Other incentives will also include duty-free import of capital goods, at least 50 acres of land for factory space with a lease of 50 to 100 years, and one-stop approval
of permits.
Opportunities abound
There are certainly plentiful opportunities for Malaysian companies seeking to invest in Pakistan, and this was confirmed by the Honorary Investment Counselor for Pakistan in Malaysia, Datuk Mohd Salim Fateh Din who had made a four-day visit to Pakistan with a high-level delegation from Malaysia.
Datuk Salim noted that during his visit, “he saw the vast potential for consumer demand that cities such as Karachi and Lahore with their large populations of 15 million and 8 million respectively have”. This is evidenced by the increased numbers of international hypermarket brands setting up operations there. As such, he stated his belief that Malaysian investors and developers can help fill up a gap by focusing on the development of medium scale shopping malls in Pakistan. Furthermore, Malaysian firms can bring to Pakistan their expertise in developing high-rise buildings as there is an increased demand for high-rise luxury condominiums in the country.
Of course, trade and investments is a two-way street and Pakistan can provide as much to Malaysia as Malaysia can provide to it. For one thing, Pakistan’s expertise in agriculture and food products can be of great use to Malaysia’s ambitions to set up a Halal hub.
Tourism in Pakistan
One sector in Pakistan that has great potential for investors is that of tourism. Tourism is a growing industry in Pakistan, and the WTO/UNDP in Tourism Development Master Plan has set a target for Pakistan to achieve 720,000
visitors per year by 2010. This however is a target that has good potential of being reached as the number of visitors have been increasing each year. However, much work needs to be done particularly in terms of infrastructure development.
In fact, HE Lt. Gen Tahir Qazi opined in March this year that Malaysian companies should look towards investing in the tourism industry there. As he explained, Pakistan has an abundance of natural landscape and wonders such as mountains and valleys, while Malaysian expertise can be used to help the country improve its infrastructure such as its roads
and hotels.
Religious tourism is also an area that can be looked at in Pakistan, as the country has holy sites for Hindus and Sikhs, and can be a stop-over for Muslims going to or returning from their pilgrimage to Mecca. Interestingly enough, foreign Sikh religious tourists contribute an estimated US$3m to Pakistan’s coffers, which - if added to that contributed by local Sikh religious tourists - amounts to US$6m. According to a report by the Board of Investment, that market should be worth around
US$22m by 2011.
Socio Economic uplift
In his speech during the opening of Parliament in March 2009, President Zardari noted that a number of challenges still face Pakistan, not least of all, the need to bring about reconciliation amongst the people of the country.
One development which have added stability in Pakistan’s economic, financial social sectors was the decision by the Friends of Democratic Pakistan Group to pledge US$5.28b to the country to help in its development which was a reflection of confidence reposed by the international institutions on economic and financial policies of the government. The meeting was held on the 17th of April, 2009 in Tokyo, the Friends are a multilateral grouping of nations which consists of 22 nations that was set up to encourage and support democratic efforts in Pakistan and the socio-economic development of
the country.
During this meeting, the United States and Japan both pledged US$1b over two years; the EU pledged US$640m over four years, while Saudi Arabia agreed to give US$700m. All in all, over 40 countries and multilateral organisations have committed to supporting US$15b worth of development initiatives in Pakistan.
In addition, on the 25th of June,2009 the US Senate approved a request by President Barack Obama for Pakistan to be granted US$1.5b in aid annually, this President Zardari noted is “an endorsement of our call for economic and social uplift as a means to fight extremism.”
Enhancing the role of women
One of the challenges that the Pakistani Government has plunged headlong into is to address the problem of poverty and social inequality. As such it has introduced the Benazir Income Support Program - a welfare scheme named after the assassinated former Prime Minister
Benazir Bhutto.
Under this plan, Rupee34b (US$416.36m) has been allocated to provide relief to 3.5 million poor families in the country, and entitles them to accident and health insurance, and discounts at utility stores. Furthermore, technical training and financial assistance will be given to one person in the family to give them the opportunity of
earning a living.
What makes this scheme all the more noteworthy is that the money would be given to the female heads of the eligible families. This, President Zardari noted, is the fulfillment of one of Benazir Bhutto’s dreams for the empowerment of women in Pakistan. Apart from that, it also demonstrated that women have a respected and important place in a Muslim country like Pakistan.
United Nations Prize in the Field of Human Rights
The late Benazir Bhutto was of course the most famous example of a Pakistani Muslim woman rising to high office. Her courage and her commitment to democracy and human rights which ultimately led to her murder in December 2007 has been recognised throughout the world. As such in 2008, she was named as one of the seven recipients of the United Nations Prize in the Field of Human Rights – an award that is awarded every five years and which boasts the likes of Nelson Mandela, Dr. Martin Luther King, and Eleanor Roosevelt as previous recipients.
However, it would not be entirely correct to think that Mrs. Bhutto was an extremely rare exception. In fact, the present Speaker of Pakistan’s National Assembly – Dr. Fahmida Mirza – is a woman, and by virtue of her position, the second in the line of succession to the President. She is also not only the first woman to be Speaker in Pakistan but also the first woman to be the head of any legislative body in the entire Muslim world.
Dr. Mirza was incidentally a guest to Malaysia in August 2008 when she attended the 54th Commonwealth Parliamentary Association (CPA) session in Kuala Lumpur. During her visit she expressed her admiration for how Malaysia has advanced and stated her belief that Pakistan has much to learn from it, particularly with regards to oil palm plantation.
Another Pakistani woman of note who has recently visited Pakistan is none other than Mrs. Begum Fauzia Yusuf Raza Gilani – the First Lady of Pakistan and the wife of the Prime Minister. Mrs Gilani
paid a visit to Kuala Lumpur in April 2009 as the head of a delegation from Pakistan to attend an International Conference on Early Childhood Care and Education.
Pakistani glamour also paid a visit to Malaysia recently when its most famous and most beloved actress Reema Khan was in Kuala Lumpur to shoot scenes for her film Life Is So Beautiful. Ms. Khan expressed that she hopes to popularise Malaysia to other Pakistani directors and actors.
If she is successful, Malaysia can expect more visits from directors and film companies from Pakistan, and as such will help boost people-to-people relations between the two countries.
After some years of uncertainty, Pakistan is once again coming up in the community of nations. It has great potential for growth - thanks to the proactive economic policies of its Government and the support of the international community. It has a market that has a great capacity and a great capability for growth, and best of all, is relatively unsaturated. In a world where countries are facing negative economic growth, Pakistan’s positive - albeit modest - estimated growth rate of 2% is commendable. As the old saying goes though, “to those who are quick go the spoils”, and thus the best time to venture into Pakistan is now.
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