In his recently published book "The Growth Map", Goldman Sachs' Jim O'Neill of BRIC fame has reiterated Pakistan's long term growth prospects as part of the Next 11 (N-11) group of nations which includes Bangladesh, Egypt, Indonesia, Iran, Mexico, Nigeria, Pakistan, Philippines, Turkey, South Korea, and Vietnam.
Goldman Sachs has recently launched an N-11 equity fund (GSYAX) to enable investors to take advantage of growth in the Next-11 group of 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, he 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."
While the primary criterion used by Goldman Sachs for membership of a developing nation in BRIC and N-11 is the size of its population, the firm also considers what it calls Growth Environment Score (GES) of each nation. The 13 variables which make up growth environment score are inflation, fiscal deficit, external debt, investment rate, openness of the economy, penetration of phones, penetration of personal computers, penetration of internet, average years of secondary education, life expectancy, political stability, rule of law and corruption.
Goldman Sachs has given Pakistan a low GES score which puts the country among the bottom third of Next-11 nations. However, this score is rising, and Goldman forecasts that Pakistan will be among the top 20 world economies by 2025.
It seems to me that Goldman Sachs' assessment of Pakistan's growth prospects are too heavily influenced by the current crises the country faces. It is too conservative and does not fully reflect its future potential based on the nation's economic history over the last 64 years. For example, Goldman assumes a future growth rate that is less than the average of over 5% a year which Pakistan has seen over the last 64 years.
My view is that Goldman Sachs' forecast should fully reflect the fact that Pakistan's per capita GDP increased by 60% to $3,000 in the last decade. Even if it is assumed that there is no demographic dividend and the country's gdp growth rate will not accelerate, its per-capita income should still rise to nearly $20,000 by 2050, well above the Goldman Sachs' forecast of $15,066.00.
It is unrealistic to assume that Pakistan's economy will not benefit from its very young population. With half of its population below 20 years and 60 per cent below 30 years, Pakistan is well-positioned to reap huge demographic dividend, with its workforce growing at a faster rate than total population. This trend is estimated to accelerate over several decades. The average Pakistanis are now taking education more seriously than ever. Youth literacy is about 70% and growing, and young people are spending more time in schools and colleges to graduate at higher rates than their Indian counterparts in 15+ age group, according to a report on educational achievement by Harvard University researchers Robert Barro and Jong-Wha Lee. Vocational training is also getting increased focus since 2006 under National Vocational Training Commission (NAVTEC) with help from Germany, Japan, South Korea and the Netherlands.
The fact is that equity markets in Pakistan have already produced much higher returns than BRICs' markets have over the last decade.
Pakistan's main stock market ended 2010 with a 28 percent annual gain, driven by foreign buying mainly in the energy sector, despite concerns about the country's macroeconomic indicators after summer floods, according to Reuters. Although it was less than half of the 63% gain recorded in 2009, it is still an impressive rise in KSE-100 index when compared with the performance of Mumbai(+17%) and Shanghai(-14.3%) key indexes. Among other BRICs, Brazil is up just 1% for the year, and the dollar-traded Russian RTS index rose 22% in the year, reaching a 16-month closing high of 1,769.57 on Tuesday, while the ruble-based MICEX is also up 22%.
Pakistan's key share index KSE-100 dropped about 5% in 2011, significantly less than most the emerging markets around the world. Mumbai's Sensex, by contrast, lost about 25% of its value, putting it among the worst performing markets in the world.
Given the historical economic data I have shared in this post, I remain optimistic that Pakistan can and will easily beat Jim O'Neill's current forecast in the coming decades.