Investment prospects

Published Sep 15, 2012 09:04pm

LAST week, the China Development Research Foundation, a body directly linked to China’s State Council, hosted a roundtable in Beijing on ‘Accelerating China-Pakistan Economic Partnership’.

Uniquely, this unofficially initiated roundtable, for the first time, brought together leading private-sector groups in Pakistan with some of the most prominent Chinese state and private-sector companies and institutions.

There was general consensus that Pakistan’s economy is capable of much higher growth; that there are very promising prospects for profitable investment in Pakistan, and considerable scope for the enlargement of Pakistan-China economic cooperation in both the public and private sectors.

The rationale offered by participants for investing in Pakistan could be summarised as follows: Pakistan is the world’s sixth largest country by population size. With a purchasing power parity per capita income of $2,000, Pakistan’s 190 million people constitute a huge consumer and producer base. The country’s economy is grossly underperforming, cash-starved, with a huge pent-up demand, and unexploited domestic and export potential. Pakistan has the most ‘investment-friendly’ regulatory environment in the region: with a fully convertible currency, possibility for full foreign ownership, unrestricted repatriation of profits, no national personnel requirements, no double taxation and attractive tax breaks on foreign investment. Indeed, historically, foreign investors have enjoyed very high returns in Pakistan.

At the roundtable, references were made to the proposed strategic projects for pipelines, rail and road links between Pakistan and China. It was noted that studies have confirmed the feasibility of these ambitious projects. These could be realised over the long term.

Most participants were, however, focused on the presently available opportunities for lucrative investments, some of which were outlined in documents and statements at the roundtable.

The energy sector is one such opportunity, as is oil and gas exploration and production. Pakistan has one of the largest and least exploited coal reserves in the world; identified but unexploited mineral deposits; huge potential for agricultural expansion and food processing; an enormous unmet demand for housing, transportation, health and education; considerable potential in the IT sector and an urgent need for modernisation (and full or partial privatisation) of state-operated corporations (steel, trade, insurance, rail and airlines). Investment opportunities range from small and medium enterprises to huge infrastructure projects.

Some of the obstacles to investment were mentioned in the discussion. Security conditions in Pakistan are an obvious concern.

Yet, as several speakers pointed out, such concerns have not prevented foreign investment in ‘frontier’ markets, including in Africa, by Chinese companies. Both Pakistani and Chinese participants emphasised that the Western media’s projection of Pakistan’s security environment was far worse than the reality. Scores of foreign companies have operated profitably for decades in Pakistan. (Indeed, Western brand names are reported to have recently taken over some Pakistani companies.)

A full discussion did not take place on the real impediments to investment in Pakistan: its paucity of skilled and qualified human resources; inadequate governance and misgovernance; the lack of energy, transportation and other infrastructure and, most importantly, the structural shortage of finance arising from the government’s budget and trade deficits and the Pakistani private sector’s low-risk appetite.

A large number of participants made a strong case for the creation of a private-sector investment fund for Pakistan. There were several arguments offered in support of a fund. Most importantly, it could provide at least part of the equity or ‘counterpart’ financing for foreign investments and projects in Pakistan that is unavailable at present from government or private sources.

Such a fund could be managed by the best professionals, selected competitively, with investment experience as well as deep knowledge of the Pakistan market. Investment opportunities could be executed through reputable national and foreign companies. Such a Pakistan fund could produce sustainable, high returns by adopting a diversified and balanced investment strategy covering short-, medium- and long-term opportunities. Thus, it could partly overcome the financial, skills and governance impediments to investment in Pakistan.

The fund concept evoked wide support from both the Pakistani and Chinese participants. There were varying views on its initial size. Specific steps were proposed for its realisation.

As was unanimously acknowledged at the roundtable, China has a special place in promoting Pakistan’s investment and growth potential. It was noted that in view of the close official and popular relations between the two countries, Chinese investment would be widely welcomed in Pakistan. Both countries have a strong, mutual interest in Pakistan’s stability, now threatened by rising poverty and declining living standards.

Moreover, there would be economic synergies generated by the simultaneous development of Pakistan and western China. With the world’s largest financial reserves, and globally competitive companies, China has the capacity for significant investment in Pakistan.

Chinese companies also are almost the only ones to be physically able to execute large-scale projects in Pakistan. Last, due to rising wages, some Chinese manufacturing is being transferred to lower-cost neighbours. Pakistan should be a favoured destination of such industrial relocation.

This first organised interaction between the principal Pakistani and Chinese economic actors will need to be consciously promoted if it is to bear the promised fruit. Hopefully, unlike past initiatives, this roundtable will not prove to be a one-off affair.

The commitment of the host, the China Research Development Foundation, to continue and build support for the economic partnership, is a positive portent.

However, this goal cannot be achieved without the commitment and contribution of the economic actors themselves to exploit this avenue to build a Pakistan-China economic partnership that matches the deep strategic relationship between the two countries.

The writer is a former Pakistan ambassador to the UN.

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Comments (5) (Closed)


Abdul Malik
Sep 16, 2012 01:24pm
Looks very rosy and promising in roundtables, meetings and forum discussions. Given Pakistan's chequered past and current security situation who would want to venture into murky waters of Pakistan, be it Chinese or any other foreign entity.
sri1ram
Sep 17, 2012 04:48am
Can Indians invest in Pakistan? Lets forget politics, religion, mutual suspicions and think about mutual growth. Anyone can look up that India currently gives 9% with banks per annum, 10-15% with safe vehicles like treasury bonds p/a, liquid mutual funds and upwards of 20% with the volatile stock market (if you can learn how to play it well). I have always been interested in emerging markets to invest in and if this nation of potential, can get its act together sometime, it looks like a good opportunity to invest in.
Shozab
Sep 16, 2012 06:08pm
Undoubtedly, Pakistan and China have strong political and people to people contact, it must be translated into strong economic relations. The door of Pakistan-India ecomonic cooperation is likely to open and at such juncture Chinese should step forward to promote bilateral cooperation expanding towards a Trilaterl Cooperation between three natural neighbours and build the world largest market. Such arrangement would equally promote regional trade and would be instrumental to reduce the hostilities of most militarily provokative region .
msaj
Sep 16, 2012 06:22pm
A very informative and realistic article... Your article is the only one for today that is giving some hope to pakistan. All others are just portraying the negativity in Pakistan. A critic and healthy discussion is good but you wont get any where if you keep on criticizing only. Thanks
h.mani
Sep 16, 2012 07:03pm
Then what is stopping Chinese Investment from pouring into Pakistan?,I'm not very bright,pl tell me why no investment from there?The answer is,they seldom do direct investment their methods are very well known.You will wait till the proverbial cows come home,may be not even then.