Pakistan: more than geopolitics

July 30, 2010

RTR2F22R_CompPakistan gets much of its attention at the moment from being at the border of the Afghanistan war. But that would be a pessimistic way of looking at it.

The optimistic view, according to the CEO of Pakistani investment group BMA, is that the country of 170 million is sandwiched between heavily-populated India and China on one side and the oil-rich Gulf on the other.

At the moment though the country is not benefiting much from its strategic location, Mudassar Malik acknowleged.

Actually, the Middle East has been a big source of investment, in areas such as banking and information technology. It also was increasingly buying farmland in Pakistan, a country few know is the world’s 20th largest agricultural economy, Malik says.

But Dubai’s recent debt woes have changed the picture — he says the United Arab Emirates has ceded its position as Pakistan’s number one investor to the United States.

U.S. firms have been investing in Pakistan’s biggest export earner — the textile and garment industry. The largest supplier to U.S. retailer JCPenney is from Pakistan.

And politics have scuppered past plans for oil and gas pipelines traversing Pakistan to supply the giant Indian market, he says, though there are some joint transport projects with China.

Investment does seem to be trickling in, with annual FDI around $7-8 billion and some $80 billion in remittances from its loyal expat community. And the stock market in Karachi <.KSE> is up 11 percent.

Compare that with the near-flat returns an investor would have made in most other emerging markets, including next door India where the stock market has returned 3 percent this year.

Malik says cheap valuations should continue to lure foreign cash as Pakistani stocks trade at around 8 times forward earnings. Most emerging markets are trading in the low to mid-teens.

So what is hindering investment?  Of course, the Afghan war raging nearby is never far from people’s minds.

And Malik says Pakistani politics also have not helped — the country has a democratically-elected government now but it has gone through nearly 10 changes of government in 20 years.

Malik says that while many Pakistani businesses do profit from U.S. military contracts, a total troop pullout from Afghanistan would actually benefit the country’s economy.

“If you reduce the number of troops, you reduce the level of uncertainty and violence. There is a huge cost (from the troops) associated with the social ramifications.” — Eunice Ng

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