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2017 in review: 5 key business developments that dominated headlines this year

Year's business stories dominated by CPEC, exchange rate, PSX's ups and downs and the long-awaited arrival of LNG.
Updated 31 Dec, 2017 12:10pm

The year 2017 will be marked as the year in which the PML-N managed economy took a long-feared turn for the worse. With the government desperate to show off its performance in time for general elections in 2018, its policies greatly impacted the course of Pakistan's economic growth.

While the China-Pakistan Economic Corridor (CPEC) dominated front pages in Pakistan, the particulars of the agreements governing the project remained opaque. Other issues arose as Pakistan pivoted sharply from using furnace oil to imported LNG for power generation, and as the State Bank of Pakistan buckled under rising pressure to allow the rupee/dollar exchange rate to depreciate.

Here, Dawn.com looks at the five most prominent themes that dominated headlines over the course of 2017.

China's increasing footprint through CPEC

According to the Long-Term Plan, the core CPEC area includes “Kashgar, Tumshuq, Atushi and Akto of Kizilsu Kirghiz of Xinjiang” from China, and “most of Islamabad’s Capital territory, Punjab, and Sindh, and some areas of Gilgit-Baltistan, Khyber Pukhtunkhwa, and Balochistan” from Pakistan.
According to the Long-Term Plan, the core CPEC area includes “Kashgar, Tumshuq, Atushi and Akto of Kizilsu Kirghiz of Xinjiang” from China, and “most of Islamabad’s Capital territory, Punjab, and Sindh, and some areas of Gilgit-Baltistan, Khyber Pukhtunkhwa, and Balochistan” from Pakistan.

Though the China-Pakistan Economic Corridor (CPEC) became a key focus of the news cycle, its details remained (and remain) shrouded in the mystery. The fog around the CPEC only cleared around mid-year when its Long-Term Plan was exclusively revealed by Dawn. According to the report, agriculture, industry, connectivity, tourism and finance are to see major changes over the coming decade.

Read: China’s road through Pakistan

The plan and later revelations also pointed to China's footprint experiencing a massive increase on Pakistan. Amid rumours about the use of the Renminbi in Pakistan, Minister for Planning and Development Ahsan Iqbal said a proposal for trade between Pakistan and China to be conducted in the Yuan was in order.

It also emerged that Pakistan would get only a 9 per cent share from the income generated by the Gwadar Port for the next 40 years, with China bagging the rest.

However, despite repeated assurances, the minister for planning and development has yet to shed light on some of the most critical questions concerning the deal.

The Rupee slides

Finance Minister Ishaq Dar termed the Rupee slide in July as being "artificial" following a meeting with Pakistan's top bankers. —DawnNews/File
Finance Minister Ishaq Dar termed the Rupee slide in July as being "artificial" following a meeting with Pakistan's top bankers. —DawnNews/File

Despite Ishaq Dar and the government single-mindedly sticking to a policy of maintaining a stable exchange rate despite downward pressure from economic forces, the rupee experienced a sudden decline in July, sliding over 3pc in value over the course of a single day.

Read: What's up with the Rupee?

While Dar claimed the fall was artificial, financial analysts said the government's flawed policy was clearly starting to fail.

The concerns solidified as the rupee took another tumble to over Rs110 per dollar — this time following the government's talks with the International Monetary Fund (IMF) in December. With Dar forced into virtual exile, the incumbent government seems to have shunned his policies as no correction followed the most recent fall.

The PSX's roller-coaster journey in 2017

KSE-100 index broke the 50,000 barrier for the first time ever in 2017.
KSE-100 index broke the 50,000 barrier for the first time ever in 2017.

The Pakistan Stock Exchange (PSX) entered 2017 as one of the best-performing stock markets in the region. The year began on a high note, as the benchmark KSE-100 Index breached the 50,000 barrier for the first time ever in January alone, eventually going over 53,000.

Know more: PSX closes above 50,000 for first time; market cap hits record Rs10tr

However, political turmoil and uncertainty over the finance minister's tenability saw the benchmark slide to unprecedented lows, even dipping below the 38,000 barrier at one point towards the end of the year.

KSE-100 index fell below the 38,000 barrier after touching 53,000 earlier in the year.
KSE-100 index fell below the 38,000 barrier after touching 53,000 earlier in the year.

In the first half of 2017, American provider of stock market indices and analysis tools, MSCI, had confirmed to much fanfare that the PSX had been reclassified from its Frontier Markets category to Emerging Markets in its semi-annual index review.

The promised positive impact of this decision on the PSX, however, never really materialised. The subsequent underwhelming performance of benchmarks post the reclassification added another damper on market sentiment amidst the noise over Panamagate.

In the November 2017 MSCI review, the MSCI Pakistan Index was also forced to pare some weight as Engro Corporation was removed from the basket.

Take a look: PSX-China deal like a dream come true: Dar

The PSX also saw two other milestones in the outgoing year.

In January, authorities from the PSX signed a Sale and Purchase Agreement (SPA) of a 40 per cent strategic equity stake of the exchange with a Chinese consortium and local financial institutions. It also became the first self-listed capital market in South Asia.

Know more: Pakistan Stock Exchange becomes first self-listed stock market in South Asia

Mir MAK was caught in the act by SECP.
Mir MAK was caught in the act by SECP.

The PSX also saw its fair share of scams and scandals. In the first quarter of 2017, a multi-billion-rupee scam rocked the PSX when it emerged that at least four stockbrokers had allegedly misappropriated around Rs7bn from their clients over a period of few months.

Read more: PSX rocked by Rs7bn scam, authorities vow decisive action

The gravity of the scam prompted the Securities and Exchange Commission of Pakistan (SECP) to investigate the matter. Initial reports suggest that the accused brokers had lured investors with returns of up to 20 per cent on their investments. A source in the PSX had told Dawn.com that the incident occurred because the investors had agreed to deal with brokers while remaining out of regulatory oversight.

The SECP also sparked another financial scandal involving a self-styled investment guru currently on the lam from American regulators. Mir Mohammad Ali Khan — also known to his hundreds of thousands of followers on Facebook as 'Mir MAK' or simply 'MAK'— was alleged to have misled Pakistani investors for his own gains.

Read: The story of MAK, the flamboyant Khan from Wall Street

MAK was accused of defrauding small investors through a ‘pump and dump’ scheme run from Facebook which netted him close to Rs58 million over the course of six months, the regulator said.

LNG (finally) comes to the rescue

PM Abbasi speaks at the inauguration of first LNG terminal in August. —APP/File
PM Abbasi speaks at the inauguration of first LNG terminal in August. —APP/File

The year had started off with the government holding a bid for contracts for the import of liquefied natural gas (LNG), which became a hot button issue in the second half of the year as erstwhile petroleum minister Shahid Khaqan Abbasi rose to the highest office in the country following Nawaz Sharif's ouster.

Abbasi eventually inaugurated two LNG terminals in the country — in August and December — taking the overall supply of LNG to 1.2 billion cubic feet per day — 30pc of the overall gas shortage. But even as he held out LNG as the long promised panacea to Pakistan's energy crisis, his plan began hitting its first hurdles.

Exxon Mobil's exit jolted Pakistan's LNG plans, while a top executive of te Pakistan LNG Terminal Limited (PLTL) was sacked later in the year. These developments were followed by the newly-inaugurated terminal facing a major fault that disrupted gas supply.

Things only got back on track towards the end of December, as the LNG terminal came back online right in time for a demand surge in the coldest period of winter.

Furnace oil in hot water

The government decided to shift from furnace oil to LNG in 2017. File
The government decided to shift from furnace oil to LNG in 2017. File

After taking office as prime minister of the countrty, Shahid Khaqan Abbasi extensively expedited the process of converting furnace oil-based power plants to natural gas — a decision termed too "abrupt" by critics.

The move created immense challenges for the furnace oil sector.

Take a look: Oil supply chain disrupted, OCAC warns

Following a decision to close down oil-based plants to facilitate the maximum utilisation of LNG, almost all domestic refineries were forced to run on sub-optimal capacity. The Oil Companies Advisory Council (OCAC) vehemently protested the decision, while the country’s largest refinery — Byco Refinery — was compelled to shut down its major refining plant of 120,000 tonnes capacity.

Also read: Fallout of short-sighted policies begins

OCAC also reported that Pakistan Refinery Limited (PRL) was being forced to “recycle” furnace oil to keep its machines functioning.

Know more: Industry raises red flag over imminent oil crisis

The PSO also warned the government that its upcountry airports — Lahore, Islamabad, Sialkot, Multan, Faisalabad and Peshawar — were on a dry-out position — i.e., they were about to run out of fuel for airplanes.

Finally, in the second week of December, the government decided to ensure the simultaneous lifting of domestic and imported furnace oil for power plants to ease the jet fuel shortage.