DESPITE headwinds, local investors seem keen to plant their stakes in Pakistan in order to avoid corrosion of idle wealth.
A coordinated private sector drive for aggressive investment may not be visible yet but several major business groups have plans for expansion and diversification ready, waiting for an opportune launching time.
“The construction related industry (cement, steel, paints, etc), transport (bikes, cars, trucks, carriers), telephony, fast moving consumer goods and food and confectionary have all been growing at a rate faster than generally imagined,” pressed an excited businessman.
The gentleman’s bubble of hope started to deflate somewhat as soon as the current investment data was presented. It attributes depressed figures of capital formation in the country to investment at unsustainably low levels. Unable to reconcile economic data with his colourful perception, he took refuge in the vibrant informal economy.
“Maybe, somehow, the spurt in activity has not been reported as a lot of business is cash-based, conducted though contracts in small and medium enterprises, in dark alleys and in residential areas,” he laboured to justify his assessment.
Ehsan Malik says the size of the economy has been understated and is actually twice the size declared, with a high propensity for consumption that represents 80pc of the GDP
“I expect the investment to GDP ratio to climb from the current 16 per cent to over 20pc within a year,” said another tycoon.
“People are waiting for clarity regarding the decision to join the International Monetary Fund programme, and its impact on the interest and exchange rate. They also wish the government to move swiftly on special industrial zones proposed under the next phase of the CPEC,” he added.
Dr Rashid Amjad, who is currently associated with the Lahore School of Economics said, talking to Dawn over phone from Lahore, that there is now a greater realisation in investor circles of business opportunities in Pakistan.
“There is considerable interest in Pakistan as an investment destination that has untapped resources, business opportunities and a sizeable middle-class market.
“The trend of seeking quick returns in real estate and the capital market seems to be giving way to a medium-term outlook amongst local investors. If policymakers succeed in managing the external sector vulnerabilities, the country is poised to build on gains of infrastructure investment under the CPEC. Yes, I see investment hiking,” he said.
“Overseas watchers of the Pakistani economy find the growth numbers perplexing. At a regional gathering of economists I was asked how Pakistan manages to grow at the moderate rate of around 5pc with such a low investment rate,” he mentioned.
Ehsan Malik, CEO the Pakistan Business Council is optimistic. “Look at the multinationals’ experience in Pakistan. In 2017 return on equity for Unilever was 345pc, Nestle 234pc, Pakistan Tobacco 64pc and Abbott 29pc which is many times above these companies’ overall average.
“It makes sense that most overseas companies are expanding their business here. Nestle is investing $450 million while Coca Cola is investing $380m.
“In 2013, the Unilever parent company bought out a minority 24pc for $530m and in 2018 invested $150m in capacity. In 2016 Friesland Campina bought 51pc of Engro Foods for about $442m and Arcelik acquired Dawlance Appliances for $250m,” he told Dawn.
Mr Malik did not find the trend surprising in a country with 68pc of the population under the age of 30 and an 80m strong middle class. In his opinion the size of the economy has been understated and is actually twice the size declared, with a high propensity for consumption that represents 80pc of the GDP. He quoted a Bloomberg finding reported in 2017 according to which disposable incomes have doubled since 2010.
The Council’s CEO was particularly inspired by the next generation of foreign qualified local businesspersons willing to look beyond profit in the short run. They’re aiming to transform their family businesses on modern lines, diversifying to create a trusted brand. He dropped names of Lucky, Nishat, Gul Ahmed and House of Habib in this context.
Currently the ratio of investment to GDP in Pakistan is at 16.4pc, about half the Asian average, and lower by over 1pc against the historical national average of 17pc. The ratio was in fact over 18pc ten years back in 2008. It dipped to 14pc in 2011 and has since been inching up.
The historical data of national savings rate, a key determinant of investment, is more disturbing at little over 13pc.
Most business leaders were satisfied with the general direction of the economic policies of the PTI government that has proven to be accommodating towards concerns raised by them. They were upbeat about the future though little worried for security and possible political backlash in wake of widening job deficit and hiking inflation.
“These issues can be addressed to an extent if the business community, flush with investible capital, stretches its risk appetite, treats low investment as its own challenge and launches a campaign of investment,” commented another economist.
“By discouraging exports of non-essential items, giving duty breaks on import of certain machinery and fixing the duty structure by lowering duty on raw versus finished products, the government has tried to improve the framework in favour of manufacturers. The ball is now in the court of the business class to show its skill and muscle,” a top bureaucrat commented.
The World Bank in it its widely covered report ‘Pakistan @100 growth and investment’ advised: “Pakistan needs to focus on increasing investment by attaining macroeconomic stability, enhancing the business environment by removing infrastructure bottlenecks and simplifying and making tax laws more transparent.
“It needs to reform institutions, develop financial markets, increase technological readiness and market access as well as facilitate business development to encourage entrepreneurial activity and maintain consistency in policies.”
The report also recommended improving coordination between federal and provincial departments to create a business-friendly environment.
Higher-ups in the Board of Investment were busy with the Malaysian delegation accompanying Malaysian Prime Minister Mahathir Mohamad and were not able to give their input.
Published in Dawn, The Business and Finance Weekly, March 25th, 2019