South Asia Investor Review

The bulk of Pakistan's exports consist of low value commodities like chadar, chawal and chamra (textiles, rice and leather). These exports have declined from about 15% to about 8% of GDP since 2003. Pakistan's trade deficits are growing at an alarming rate as the imports continue to far outstrip exports. This situation is not sustainable.  What must Pakistan do to improve it? What can Pakistan do to avoid recurring  balance of payments crises ?  How can Pakistan diversify and grow its exports to reduce the gaping trade gap? How can Pakistan's closest ally China help? Can China invest in export oriented industries and open up its huge market for exports from Pakistan? Let's explore answers to these question.  Exports as Percentage of GDP. Source: World Bank East Asia's Experience: East Asian nations have greatly benefited from major investments made by the United States and Europe in export-oriented industries and increased access to western markets ...

Pakistani diaspora bucked the 2016 global decline in remittances with a modest 2.8% increase over 2015, according to a recently released World Bank report . An estimated $19.8 billion remitted to Pakistan amounted to 6.9% of the country's GDP. This is a welcome relief coming on the heels of the State Bank of Pakistan report indicating the country's current account deficit widened to $6.13 billion or 2.6% of GDP in the first 9 months of fiscal 2017. 2016 Remittances to South Asia. Source: World Bank Global Decline: Meanwhile, global remittance flows to developing countries registered a decline for two successive years, said the report.  Remittances declined by an estimated 2.4 percent, to $429 billion, in 2016, after a decline of 1 percent in 2015. India, the largest remittance-receiving country worldwide, led the fall with a decrease of 8.9 percent in remittance inflows. South Asia Region: Remittances to India declined by 8.9 percent in 2016, to $62.7 billion, ra...

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. 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, surp...

This ( China's $46 billion investment in Pakistan ) can not be purely politically driven. Beijing is commercial: CEO’s, not think tank intellectuals, travel with politicians.  Barron's Asia Spurred by  Chinese investment , the smart money is taking notice of Pakistan as an attractive investment destination. The investors are looking at the fact that Pakistani stocks have been outperforming both emerging and frontier markets for several years. The benchmark index of the Karachi Stock Exchange (KSE100) is up more than 20% in the last 12 months, according to  NASDAQ.com . Pakistani Shares in 2015: After a dismal March, MSCI Pakistan rebounded strongly this month, returning 9.1% so far. In April, the iShares MSCI Frontier 100 ETF (FM) rose 4.3%, the WisdomTree India Earnings Fund (EPI) dropped 1.2%, the iShares MSCI India ETF (INDA) fell 1.9%, according to  Barron's Asia . Source: Economist Magazine KSE-100 Performance: In 2014, the KSE-100 Index gained 6,8...

Industrial parks and special economic zones are part of the  China-Pakistan Economic Corridor  memoranda of understanding recently agreed between the leaders of the two countries. The key pre-requisites for  the establishment of these zones are resolution of the energy crisis and building of a competitive infrastructure in Pakistan. Energy and Infrastructure: The first phase of the economic corridor is focused on  $45.6 billion worth of energy and infrastructure projects . China's state-owed banks will finance Chinese companies to fund, build and operate $45.6 billion worth of energy and infrastructure projects in Pakistan over the next six years, according to  Reuters . Major Chinese companies investing in Pakistan's energy sector will include China's Three Gorges Corp which built the world's biggest hydro power project, and China Power International Development Ltd. Under the agreement signed by  Chinese and Pakistani leaders  at a Beijing ...

China's state-owed banks will finance Chinese companies to fund, build and operate $45.6 billion worth of energy and infrastructure projects in Pakistan over the next six years, according to  Reuters . Major Chinese companies investing in Pakistan's energy sector will include China's Three Gorges Corp which built the world's biggest hydro power project, and China Power International Development Ltd. Prime Minister Nawaz Sharif and President Xi Jinping Under the agreement signed by Chinese and Pakistani leaders at a Beijing summit recently, $15.5 billion worth of coal , wind, solar and hydro energy projects will come online by 2017 and add 10,400 megawatts of energy to the national grid.  An additional 6,120 megawatts will be added to the national grid at a cost of $18.2 billion by 2021. Total Foreign Direct Investment Source:  World Development Indicators  Starting in 2015, the Chinese companies will invest an average of over $7 billion a year unt...

Japanese companies have "strong intentions to expand their business for the reasons of “sales increase” and “high growth potential.” in Pakistan.  JETRO 2013 Report Japanese companies doing business in Pakistan have ranked the country second in the world in terms of business growth, according to a survey conducted by the Japan External Trade Organization (JETRO) . Japanese Companies Reporting Profits (Source: JETRO) JETRO surveyed 9,371 Japanese multinational companies operating around the world and reported that Pakistan is ranked number 2 in terms of current profitability and expected sales growth. Taiwan leads with 81.8% reporting profits, followed by Pakistan with 74.1% being profitable in 2013. Japanese Companies' Sales Growth Forecast (Source: JETRO) Pakistan also ranks at number 2 with 81.5% forecasting future sales growth, just behind Myanmar where  84.6% see growth in the next one to two years. Other South Asian nations, including Bangladesh, India a...

Bahria Town and Abu Dhabi Group agreed to invest $45 billion in real estate in Pakistan. After signing the investment deal, Malik Riaz and Shaikh al-Nahyan announced that Karachi, not Dubai nor Shanghai, will soon boast having the world's tallest building. Representing the largest foreign investment to date in Pakistan, there will be $35 billion invested in several  large commercial and residential real estate projects in  Karachi, and another $10 billion in Lahore and Islamabad. It's expected to create 2.5 million new jobs in the country. His Highness Sheikh Nahyan bin Mubarak al Nahyan, Chairman of Abu Dhabi Group, was quoted by Express Tribune as saying, “I am genuinely happy that in this historic project of Pakistan we are working with the visionary Malik Riaz Hussain, this guarantees that not only the project will be delivered beyond our expectations but also before time. We will Inshallah be welcoming first residents in next 3-4 years.” Why is Abu Dhabi Gr...

For at least two years in a row, BRIC has, in the words of SGS's Albert Edwards, stood for Bloody Ridiculous Investment Concept , not an acronym for populous emerging markets of Brazil, Russia, India and China as Goldman Sachs' Jim O'Neill saw it ten years ago. In fact, O'Neill has himself expressed disappointment in India, one of the BRICs, a designation that has boosted foreign investment in India and helped accelerate its economic growth since 2001. "All four countries have become bigger (economies) than I said they were going to be, even Russia. However there are important structural issues about all four and as we go into the 10-year anniversary, in some ways India is the most disappointing," said O'Neill as quoted by Reuters . Noting India's significant dependence on foreign capital inflows , Jim O'Neill went further and raised a concern about the potential for current account crisis. "India has the risk of ... if they're not careful...

Talking about foreign direct investment (FDI) in emerging economies, former US Federal Reserve Chief Alan Greenspan says: “But clearly the Licence Raj (in India) has discouraged foreign direct investment. India received $7 billion in FDI in 2005, a sum dwarfed by China’s $72 billion. India’s cumulative stock of FDI at 6 per cent of GDP at the end of 2005 compares with 9 per cent for Pakistan, 14 per cent for China, and 61 per cent for Vietnam. The reason FDI has lagged badly in India is perhaps no better illustrated than by India’s unwillingness to fully embrace market forces. That is all too evident in India’s often statist response to economic problems. Faced with rising food inflation in early 2007, the response was not to allow rising prices to prompt an increase in supply, but to ban wheat exports for the rest of the year and suspend futures trading to ‘curb speculation’ — the very market forces that the Indian economy needs to break the stranglehold of bureaucracy.” (p. 322 of ...

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. Opreators 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 must be noted that FDI is different from s...