Pakistan: A Magnet for Foreign Investors

By Riaz Haq
Saratoga, CA

Extreme Investing or Safe Haven? Some call it "Extreme Investing". Call it by any name, but international
investors have discovered Pakistan as an attractive destination.
Referring to the recent upsurge in violence, Bank Muscat CEO Ali Issa said, "We are not worried about our investment in Pakistan, we think it's just a passing phase."
Chief Strategist for Merrill Lynch Mark Matthews is the most bullish about Pakistan, calling it a “safe haven” for investors. Matthews believes Benazir Bhutto's death is "on the whole, largely irrelevant to the economy, which like other places, is what really moves the stock market." He says Pakistan represents the “biggest information arbitrage,” which in its crudest terms, means that body bags are good for stock pickers. He reckons that the slew of bad news from Pakistan is diverting people’s attention from the fact that the Pakistan economy is humming along nicely, with growth forecast to reach 7% this year, a repeat of 2007, and stocks yielding an average of 6% dividend yield. Karachi was up an impressive 40% last year, and would have closed even higher had it not been for the tragic assassination of former Prime Minister Benazir Bhutto in December which trashed the market.

Pakistan’s Telecom Sector Telecom sector is attracting the largest share of foreign direct investment
in Pakistan. Foreign investors pumped in $364m into it during July-Sept 2007 quarter, according to the latest figures released by Pakistan Telecommunications Authority. The total FDI in Pakistan for this 3-month period was $962.5m.
The number of cellular subscribers in Pakistan has crossed 76m in Dec, 2007, from 500,000 in 2004. According to Business Recorder, Pakistan's financial daily, most forecasters believe that the upward trend will continue in the next 5 years because of the huge market potential, particularly in the rural areas where the build-out has yet to happen. Operators such as Wateen (with Motorola) are planning a large Wimax roll-out to improve voice and high bandwidth data access across the country. The biggest mobile operators in Pakistan include Mobilink with 30m subscribers, Ufone with 16m, Telenor with 14m, Warid with 13m and Paktel with 1m. It is estimated that the telecom sector has added at least 300,000 jobs in the last few years.

Financial Services & Infrastructure While Telecom has been the hottest sector, here are some of the recent deals
making the news:
1. Nomura announced it would team up with an Omani bank to buy Saudi Pak Bank for US$200m.
2. Barclay’s Bank received a banking license in Pakistan and will open up 10 branches with US$100m.
3. International Petroleum Investment, a UAE company, announced it would build a US$5b refinery.
4. Hutchison Port Holdings announced it will build a US$1b deep water container port.
5. Singapore’s Temasek, through NIB Bank, is buying PICIC.
6. Philip Morris is building a new plant, and China Mobile is hiring thousands of people, as it doubles its base stations in the country.

Private Equity Funds Recent launch of a private equity fund focused on Pakistan is another indication of continuing investor interest in Pakistan economy as a magnet for
investors. This fund, solely dedicated to investing in Pakistan was closed December 2007, capping a year in which the country was one of the hottest emerging markets despite its political turmoil. This is the fourth or fifth major private equity fund focusing on Pakistan. JS Group, a Pakistani financial services group, is the sponsor and a large investor in this new JS Private Equity Fund, which was closed on Dec. 31 at $158 million.

The Future

While many Pakistanis seem to have a developed a sense of pessimism, even a hint of cynicism, the international investors are telling us that that there’s a bright future ahead for Pakistan. All we have to do is believe in it and not be swayed by all the bad news that media like to play up. A hopeful nation can do wonders, if the hope is backed up by sincere actions to realize that hope. The current continuing growth in the size and strength of the middle class in Pakistan, if continued for another decade, can do wonders in empowering the people and taking the power away from the small elite that has ruled Pakistan since its inception. Let’s be patient. Let’s not ever give up hope.

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Comment by Riaz Haq on December 5, 2012 at 10:24pm

Here are a couple of reports on FDI in Pakistan.

First, a News report on FDI decline:

The World Bank has revealed that foreign investment in Pakistan has declined by $4.13 billion during the four years of the present government. This was revealed in a fresh report — ‘World Investment and Political Risk’ — of the World Bank.

The report said that there was a continuous trend of decrease in foreign investment in Pakistan and a conspicuous decline was recorded in the tenure of the present government. It noted that $4.13 billion investment decrease has been recorded from 2008 to 2011.

The report said that $5.44 billion foreign investment was made in 2008 in Pakistan which is continuously falling, and had reduced to only $1.31 billion in 2011. According to the report, $5.59 billion foreign investment was made in Pakistan which is the biggest ever investment made in the country.

In 2009, the investment reduced to $2.34 billion which further reduced to $2.02 billion in 2010. The report said that the foreign investment had also declined in India, however, there is an upward trend now.

Second, a Business Recorder report on FDI over the last decade:

Pakistan had attracted net Foreign Direct Investment (FDI) inflows of US$ 25.66 billion during the last ten-year.

"Oil and gas, financial business,trade,construction,power,and communications were the major sectors attracting investment", Board of Investment (BOI) sources told APP.

The sources added that the USA,UK,UAE,Hong Kong,Switzerland, germany, Netherlands, Norway,Saudi Arabia, Japan were the major investing partners in the country.

They further said that Pakistan during the financial year 2011-12 had also witnessed an FDI inflows of US $ 1.4 billion.

The said that foreign investment inflows increased 49.6 percent in total foreign investment during July-October 2012-13 as compared to the corresponding period while major FDI inflows in transport sector were $60.7 million in October 2012-13

They added that global economy liberalized during 1980s and the government encouraged private sector business initiatives and FDI and cross borders investment by multinational companies (MNCs) gathered momentum.


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