Chinese Money Fueling FDI in Pakistan
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.
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.
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.
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.
Summary:
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
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: FT.com |
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.
Summary:
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
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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.
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
http://atlas.cid.harvard.edu/rankings/growth-predictions/
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.
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.
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.
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.
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.
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.
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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.
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.
India, Afghanistan and Iran have finalised the text of the trilateral agreement of Chabahar (Chabahar Agreement) for developing international transport transit corridor, which will provide India access to Afghanistan through the Iranian port of Chabahar. The text has been finalised, in the 2nd technical meeting between the representatives of the three countries on April 11, New Delhi.
Situated in Sistan and Baluchistan province of the Islamic Republic of Iran, the Port of Chabahar will help in facilitating maritime trade between the countries of the region. The port will also considerably reduce the transportation cost of commercial goods in the region.
Situated in the Gulf of Oman, the route via Chabahar port to Afghanistan will provide India the much-needed access to send goods to Afghanistan and regions of Central Asia, bypassing Pakistan.
The announcement of the finalisation of the Agreement came after the visit of Indian Foreign Minister Sushma Swaraj to Iran, on April 16, where she discussed the participation of India in Chabahar Port and other matters related to connectivity and energy cooperation.
A release by the Ministry of External Affairs of India stated that when the agreement comes into effect it will considerably enhance the use of Chabahar Port, contribute to Afghanistan’s economic growth and facilitate better connectivity between the region, especially India’s connectivity to Afghanistan as well as Central Asia.
“The agreement will be a strategic bulwark for larger flow of goods and people between the three nations and the region,” it added.
The statement said the trilateral agreement to be expedited at a high level after finishing the essential internal procedures in the three countries.
http://indianexpress.com/article/india/india-news-india/india-lacks-the-political-will-to-take-an-initiative-in-balochistan/
Baloch separatist Naela Qadir Baloch, now living in exile in Canada, is touring India for the past several days to talk about Balochstan
"Every other day the construction activities of this corridor (CPEC) come under attack from our boys. The roads which are being built are destroyed and recently a radar station was destroyed due to which the visit of Chinese Prime Minister to Gwadar was cancelled casuing much embarrassment to Pakistan government. China is looting the resources of our province including the gold reserves and turning a blind eye to the genocide of the Baloch"
To Western eyes, building a business in Pakistan seems nearly impossible with the country’s history of political turmoil and bouts of deadly terrorism committed by Islamic extremists.
But there is a long-term growth story in the frontier market, where the economy is expanding at a roughly 4.5% annual pace. As part of a $6.6 billion loan package, the International Monetary Fund got the country to raise taxes and cut subsidies—notably for electric power. But the IMF program expires this year, a key risk. Still, the IMF noted in a recent review that Pakistan has shored up foreign reserves thanks to low oil prices, and it praised the creation of an independent monetary-policy committee. It also acknowledged that restructuring or privatizing ailing public enterprises has been disappointingly slow.
The key to long-term growth is Pakistan’s population. At roughly 190 million, it is the sixth largest in the world. Importantly, more than half of Pakistan’s citizens are under age 25, eager for education and interested in success, says Najeeb Ghauri, CEO and founder of NetSol Technologies (ticker: NTWK), a California software company with a Pakistani campus.
“Contrary to the negative headlines,” says T. Rowe Price frontier markets portfolio manager Oliver Bell, “Pakistan has been slowly progressing on a much more stable path; we saw successful elections and the peaceful handover of power in 2013, and the new government has shown a commitment to adhere to the IMF program.” Bell adds that Pakistan’s aggressive privatization of companies “is creating liquidity and buying opportunities” in its stock market.
ONE OF THE BEST WAYS for retail investors to access this growth—a decidedly long-term bet—is the Global X MSCI Pakistan exchange-traded fund (PAK). The year-old ETF’s total return is negative 11% since inception. But that’s better than the iShares MSCI Frontier Market ETF (FM) and the iShares MSCI Emerging Markets ETF (EEM), which each fell 18%.
Financials account for a third of the Pakistan ETF, and Bell likes banks. A favorite is Pakistan’s largest lender, Habib Bank (HBL.Pakistan), which the government took public last year. A high percentage of Pakistan’s population don’t use banks, and Bell expects expanded loan growth. China’s investment in Pakistan’s infrastructure, especially power plants, should boost long-term growth. Earnings on Friday beat analysts’ expectations. Bell thinks the bank’s return on equity can expand to 25% in 2018 from 17% in 2013. But he doesn’t think the stock is expensive, at 1.4 times book value, given its growth and 8% yield.
Of note: Habib Bank’s New York branch got an enforcement order from U.S. authorities in December, after they found repeated “significant breakdowns” in anti-money-laundering efforts.
Multinationals are taking notice of Pakistan’s strides. Coca-Cola (KO) is expanding its Pakistan operations, which boasted double-digit growth in the latest quarter, says Curt Ferguson, president of Coke’s Middle East and North Africa business. He told Barron’s last week, “Pakistan is growing again. We just made a huge investment near the India-Pakistan border, in Mutan, which has a gorgeous new airport. Pakistan would really surprise people.”
Perhaps, but not everyone wants the risk. Paul Christopher, global strategist at Wells Fargo, told us that Pakistan is among the frontier markets whose volatility makes it “not investible.”
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
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
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.
http://www.dawn.com/news/1259741/pakistan-misses-economic-growth-target
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.
http://www.brecorder.com/br-research/brief-recordings/0:/47533:icbc-is-positive-on-pakistans-economic-future-ceo-icbc-pakistan-operations/?date=2016-05-20
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.
http://seekingalpha.com/article/3978199-asia-frontier-capitals-travel-report-pakistan-investment-conference-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.
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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.
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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.
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.
Pakistan is targeting the fastest growth in more than a decade, proposing cutting taxes to boost exports and support farmers in its spending plan as it wraps up a three-year, $6.6 billion International Monetary Fund loan program.
Pakistan proposed a zero-rated sales tax regime for five export industries, including textiles, leather, surgical instruments, sports goods and carpets, Finance Minister Ishaq Dar said Friday while presenting the government’s 4.89 trillion rupee ($46.7 billion) budget for the fiscal year starting July 1. The fiscal deficit is estimated to decrease to 3.8 percent next year from an estimated 4.3 percent, he said. The spending plan will probably be approved by Parliament this month.
“In three years we have achieved stability, now we will go for growth,” Dar said in Parliament in Islamabad. “We need to increase growth and jobs opportunities.”
Gross domestic product is forecast to expand 5.7 percent in the year starting July 1 on higher infrastructure spending, Prime Minister Nawaz Sharif said this week ahead of the budget presentation.
If Sharif is successful, it will be the first time in at least a decade that any Pakistani government has hit a growth target. Nonetheless, the economy’s accelerating expansion since he took office in 2013 has put Pakistan’s stocks and currency among Asia’s best performers during that time.
For the coming year, Sharif aims to spend 1.68 trillion rupees to build roads, dams and ports, a 14 percent increase. The nation is also looking to add power plants to end electricity shortages in two years, while also maintaining a fight against militants who have killed 60,000 people since 2001.
Investments from China are also set to rise. The $45 billion China Pakistan Economic Corridor is getting under way and will contribute to growth, Sharif said last month.
“Chinese investment will start kicking in that will help end the energy crisis and there is a possibility of a rebound in agriculture,” said Yawar uz Zaman, head of research at Karachi-based Shajar Capital Pakistan Pvt. Even so, the government may struggle to reach its target, he said.
As always in Pakistan, risks are ever present. Sharif’s efforts to privatize entities like Pakistan International Airlines Corp. have also met resistance. A recent tax amnesty to boost government revenues flopped, and an interest-rate cut by the State Bank of Pakistan last month as inflation quickened caught investors by surprise.
‘Looks Difficult’
“There is a disconnect between the State Bank’s narrative and the cut,” said Sakib Sherani, chief executive officer at Islamabad-based research company Macroeconomic Insights Ltd., referring to looser monetary policy at a time when price pressures are seen rising. “There will be growth but a major breakthrough -- as they wish to achieve near 6 percent -- that looks difficult.”
The military also eats up about a fifth of total spending. The defense budget has been increased 11 percent to 860 billion rupees and a separate 100 billion rupees is allocated for a military offensive against militants and to support people displaced by the operations, Dar said.
Even so, analysts see Sharif sticking broadly to the IMF targets as the program concludes. All end-March 2016 quantitative performance criteria, including the budget deficit target and the floor on the central bank’s net international reserves, have been met, the IMF said May 12.
“They will remain disciplined,” said Raza Jafri, director, research and development, at Intermarket Securities Ltd. “The IMF program will be ending but you are still getting a lot of money from Asian Development Bank and World Bank.”
Chinese state-backed firms are frontrunners to buy a $1.5 billion controlling stake in Pakistani utility K-Electric, sources said, as they bet the benefits of a Beijing-led economic corridor will trump the risks of investing in Pakistan.
State-backed Shanghai Electric Power (600021.SS) and China Southern Power Grid are among Chinese firms leading the pack of about half a dozen bidders in K-Electric KELA.KA, one person familiar with the matter said.
Shanghai-headquartered Golden Concord Holdings is also among the bidders, as are some local Pakistani and other companies, according to people who know about the process.
Chinese companies' interest comes after China last year announced energy and infrastructure projects worth $46 billion in the South Asian nation, with a view to opening a trade corridor linking western China with the Arabian Sea.
"The China-Pakistan Economic Corridor (CPEC) is the main driver, with a lot of Chinese funding flowing into Pakistan," said one person aware of the K-Electric deal.
That demand underpins President Xi Jinping's ambitious "One Belt, One Road" initiative, under which Beijing is seeking to open new trade routes and markets as the domestic economy slows.
Under the program, Chinese companies invested nearly $15 billion in participating countries last year, up one fifth from 2014.
If successful, the K-Electric deal would be the biggest M&A agreement in Pakistan in a decade. Large tracts of Pakistan's economy remain nationalized or held by private businessmen with little interest in selling to new investors.
Chinese firms are eyeing new Pakistan power projects, roads and some engineering contracts but investing in a large private company that deals directly with consumers would be a first, a senior Karachi-based financial adviser said.
NO GUARANTEE
Dubai-based private equity firm Abraaj Group, whose 66-percent stake in K-Electric has a market value of about $1.5 billion, is seeking final bids for its stake by the end of August.
Sources cautioned that although talks between the parties are advanced, there is no certainty of a deal being clinched.
The Pakistani government owns about 24 percent, but a spokesman for the water and power ministry said it was not in talks to sell.
CPEC envisages the construction of roads, pipelines and power plants across Pakistan that run south to Gwadar port and should mean more business for distribution companies like K-Electric that sell the electricity to users.
China and Pakistan call each other "all-weather friends" and their ties have been underpinned by long-standing wariness of their common neighbor, India, and a desire to hedge against U.S. influence in the region.
Islamabad wants Chinese funding to reinvigorate an economy hurt by militant violence and weak productivity, to provide new jobs and to ease chronic power shortages.
For China, markets like Pakistan and Malaysia are opening up new frontiers, just as it faces hurdles in countries including Australia.
"CHINESE ARE COMING"
"We are getting a lot more enquiries from Chinese investors about Pakistan in the last couple of years," said Muhammad Sohail, CEO at Karachi-based brokerage Topline Securities.
"Before it was always U.S. and Europe. The Chinese are coming," Sohail added.
Still, foreign investment in Pakistan remains relatively muted as it struggles to shake off a reputation for violence, corruption and instability, and despite the $250 billion economy growing at its fastest pace in eight years.
Inbound M&A into Pakistan has risen more than six times in the past five years, totaling $516 million so far this year, according to Thomson Reuters data.
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.
http://tribune.com.pk/story/1179648/kuwait-wins-approval-setting-oil-refinery-balochistan/
Economic managers of Pakistan have given the go-ahead to Kuwait Petroleum Corporation for setting up an oil refinery in the coastal area of Balochistan – a welcome investment initiative for the largely under-developed province, which will reduce the need for import of refined petroleum products in the country.
The Economic Coordination Committee (ECC), the highest economic decision-making body, took the decision in a meeting held on September 7 in response to Kuwait Petroleum’s interest in pouring capital into setting up a refinery in Balochistan, said an official aware of developments.
Chinese company keen to set up oil refinery
The ECC also decided to seek an extension in the timeframe for oil import credit facility from three to four months in an effort to ease pressure on the country’s foreign currency reserves. It directed Pakistan State Oil (PSO), the state oil marketing giant, to try and persuade Kuwait Petroleum to extend the existing credit facility from 90 to 120 days or even more.
In another decision, the ECC permitted import of furnace oil and jet fuel from Kuwait without resorting to competitive bidding. At present, PSO imports diesel from the Gulf Arab state on 90-day deferred payment.
A representative of the Ministry of Petroleum and Natural Resources, who was present in the ECC huddle, said before the year 2000, Pakistan purchased diesel from Kuwait under a long-term contract with the Gulf state’s government.
However, in the wake of market deregulation, Pakistan government in 2001-02 asked PSO to enter into a fuel supply contract with Kuwait Petroleum. Immediately after that, the two sides inked an agreement for the sale and purchase of high-speed diesel only with payment guarantees from the government of Pakistan. Now, this agreement has been in place for the last around 15 years.
Earlier, Kuwait Petroleum had expressed interest in exporting furnace oil and jet fuel as part of the existing arrangement and was looking to install an oil refinery in the coastal area of Balochistan with storage facilities.
‘Pakistan has received Rs1.6tr as investment in oil and gas sector’
“Pakistan and Kuwait have an old bilateral relationship in terms of oil trade and Kuwait Petroleum is a time-tested supplier, well-reputed for the most economical supplies, product quality and supply security,” an official told the ECC meeting.
The Ministry of Petroleum and PSO suggested that furnace oil and jet fuel could be included in the existing sale and purchase contract by making an addition to it.
This could be done by invoking rule-5 of the Public Procurement Regulatory Authority (PPRA) Rules 2004, which provides for waiving mandatory public procurement procedures in case of an international or inter-governmental commitment of the federal government.
The ministry took up the matter with the PPRA and Law and Justice Division for legal advice.
Later, the PPRA endorsed the proposal. The Law Division, on its part, pointed out that the contract was linked with the agreement between Pakistan government and Kuwait Petroleum and new products could be added. Therefore, it would be treated and read as an integral part of the existing contract.
After examining the proposal from legal point of view, the Law Division cleared it subject to meeting all formalities.
http://energy.economictimes.indiatimes.com/news/power/chinas-shanghai-electric-to-invest-9-billion-in-pakistan-upgrades/55876564
Karachi: China's Shanghai Electric plans to spend $9 billion overhauling electricity infrastructure in Karachi, a minister told AFP, just months after the multinational revealed it was buying a Pakistan power company.
China is ramping up investment in its South Asian neighbour as part of a $46 billion project unveiled last year that will link its far-western Xinjiang region to Pakistan's Gwadar port with a series of infrastructure, power and transport upgrades.
In a presentation made to Pakistani authorities, Shanghai Electric said it would invest an average of $700 million a year until 2030 to increase capacity, improve cabling and target bill defaulters.
"The investment would be utilised in distribution, generation, transmission" and training, Miftah Ismail, minister for state and chairman of Pakistan's Board of Investment told AFP on Wednesday.
The investment would also aim to tackle widespread electricity theft and other losses that cost about $269 million a month in the city, partly by replacing above-ground grid stations with underground ones.
Shanghai Electric announced in August it would buy a majority stake in K-Electric, which is owned by Abraaj Group of Dubai, for $1.7 billion, which would be Pakistan's biggest ever private-sector acquisition.
K-Electric, formerly known as Karachi Electricity Supply Corporation, supplies electricity to more than 2.2 million households and commercial and industrial consumers.
https://www.dawn.com/news/1333101
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.
China To Invest $27 Billion In Construction Of Two Mega Dams In Pakistan-Occupied Gilgit-Baltistan
https://swarajyamag.com/insta/china-pakistan-plan-for-construction-of-two-mega-dams-in-gilgit-baltistan
China and Pakistan have inked a memorandum of understanding (MoU) for the construction of two mega dams in Gilgit-Baltistan, a part of India’s Jammu and Kashmir state that remains under latter’s illegal occupation. The MoU was signed during the visit of Pakistan’s Prime Minister Nawaz Sharif to Beijing for participation in the recently concluded Belt and Road Initiative.
The two dams, called Bunji and Diamer-Bhasha hydroelectricity projects, will have the capacity of generating 7,100MW and 4,500MW of electricity respectively. China will fund the construction of the two dams, investing $27 billion in the process, a report authored by Brahma Chellaney in the Times of India has noted.
According to Chellaney, India does not have a single dam measuring even one-third of Bunji in power generation capacity. The total installed hydropower capacity in India’s part of the state does not equal even Diamer-Bhasha, the smaller of the two dams.
The two dams are part of Pakistan’s North Indus River Cascade, which involves construction of five big water reservoirs with an estimated cost of $50 billion. These dams, together, will have the potential of generating approximately 40,000MW of hydroelectricity. Under the MoU, China’s National Energy Administration would oversee the financing and funding of these projects.
https://www.reuters.com/article/us-pakistan-economy-investment/pakistan-fdi-seen-surging-but-some-western-investors-fret-over-chinese-influence-idUSKBN1GX0QO?il=0
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.”
China's investment of over $60 billion in Pakistan's infrastructure and power projects under the China-Pakistan Economic Corridor (CPEC) is expected to increase Pakistan's economic growth by around 3.5 percentage points, said Standard Chartered Bank (Pakistan) CEO Shahzad Dada on Thursday.
'CPEC projects are estimated to contribute around 3.5 percentage points to Pakistan's GDP (gross domestic product) growth once they are fully delivered,' he emphasised while speaking at an event in Karachi.
Dada noted that most of the Chinese companies investing in Pakistan under CPEC were clients of the bank and Standard Chartered was itself involved in financing some of the projects as well.
Early harvest projects under CPEC are expected to be completed in the current calendar year. Later, short-term projects are anticipated to be completed by 2022, medium-term projects by 2025 and long-term projects by 2030 and beyond.
Pakistan achieved a 13-year high GDP growth of 5.8% in FY18. However, the growth is expected to slow down to around 4.4% in the current fiscal year and 4.1% in FY20, according to Fitch Solutions.
Dada highlighted that China and Pakistan signed a memorandum of understanding for investment of over $60 billion, of which infrastructure and power projects worth over $30 billion were under way. CPEC is part of China's wider Belt and Road Initiative (BRI).
'We have discussed trade amounting to almost $2.5 trillion which is going to be routed through various corridors and Pakistan sits at the epicentre of all this activity,' he pointed out. 'With the Belt and Road Initiative, there is expectation that trade is going to double, quadruple or rise even further.'
https://www.dawn.com/news/1508944
In an interview with the publication, UAE Ambassador to Pakistan Hamad Obaid Ibrahim Salem Al-Zaabi said: "We are going to launch very soon one of the biggest investments in a refinery project in Hub. It is going to be a $5 billion investment between Mubadala Petroleum Company of Abu Dhabi, Pak Arab Refinery Limited (Parco) and OMV [OMV Pakistan Exploration Gesellschaft]."
According to Arab News, Al-Zaabi said the project was a result of "extensive discussions" between Mubadala Petroleum, Pakistan's petroleum ministry as well as Parco and OMV.
"This project will show the strength of UAE-Pakistan relations and how the UAE is focusing on investment in and future of Pakistan," he was quoted as saying, adding that the two nations were moving forward on new projects and investment.
The UAE ambassador said that the two governments were "finalising the minute details of this refinery project".
"Many meetings have taken place regarding this project," he added, sharing that a UAE delegation, headed by the chief executive officer of Mubadala Petroleum, had met with the Board of Investment (BoI) chairman and the petroleum minister during a visit to Pakistan a few months ago.
"They have discussed this project in detail. We are going to launch it very soon," Al-Zaabi said.
https://twitter.com/bilalgilani/status/1677391745112477696?s=20
Bilal I Gilani
@bilalgilani
CPEC projects are creating 192,000 jobs, generating 6,000MW of power, building 510 km (316 miles) of highways, and expanding the national transmission network by 886 km (550 miles),” Foreign Ministry spokesman Wang Wenbin told reporters in Beijing."
Associated Press of Pakistan: On July 5, Prime Minister Shahbaz Sharif while addressing a ceremony to mark a decade of signing of the China-Pakistan Economic Corridor (CPEC), said that CPEC has been playing a key role in transforming Pakistan’s economic landscape. He also said that the mega project helped Pakistan progress in the region and beyond. What is your response?
Wang Wenbin: The China-Pakistan Economic Corridor (CPEC) is a signature project of China-Pakistan cooperation in the new era, and an important project under the Belt and Road Initiative. This year marks the 10th anniversary of the launch of CPEC. After ten years of development, a “1+4” cooperation layout has been formed, with the CPEC at the center and Gwadar Port, transport infrastructure, energy and industrial cooperation being the four key areas. Projects under CPEC are flourishing all across Pakistan, attracting USD 25.4 billion of direct investment, creating 192,000 jobs, producing 6,000 megawatts of electric power, building 510 kilometers of highways and adding 886 kilometers to the core national transmission network. CPEC has made tangible contribution to the national development of Pakistan and connectivity in the region. China and Pakistan have also explored new areas for cooperation under the framework of CPEC, creating new highlights in cooperation on agriculture, science and technology, telecommunication and people’s wellbeing.
China stands ready to work with Pakistan to build on the past achievements and follow the guidance of the important common understandings between the leaders of the two countries on promoting high-quality development of CPEC to boost the development of China and Pakistan and the region and bring more benefits to the people of all countries.
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