Perspectives on Pakistan
Looking at the positive side of Pakistan’s economy
Amid the conventional wisdom that Pakistan’s economy is falling to pieces — a view reinforced inside the country by soaring food prices and frequent power cuts — it’s interesting to see that someone still sees it as a hot market for foreign funds.
The Melchior Selected Trust Pakistan Opportunities Fund, one of the first funds to target Pakistan, believes the country’s problems have been exaggerated and sees its market as having the potential of “India at half the price”, according to this Reuters story.
It quotes Naz Khan, chief executive officer of KASB Funds in Karachi, as saying there is no reason to be particularly concerned by the tensions along the border with Afghanistan. “We have locked horns with India many times along the border with them in the last few decades,” he says. “This is just a different border and it shouldn’t affect the overall economy.”
The story prompted me to hunt around to see what else is out there painting a positive picture of Pakistan’s economy.
For starters, there is an economic growth forecast of 5.5 percent for the fiscal year starting in July, according to preliminary details on the budget due out next week. That is a level that the recession-haunted west can barely remember, let alone dream about.
Then there are record oil prices swelling the coffers of Gulf Arab states for whom Pakistan is a near neighbour and obvious investment target. The Dubai-based CPI Financial online newsletter says that investors are taking a long-term view on Pakistan’s economic turmoil. Of particular interest is a boom in Islamic banking — a sector relatively insulated from the credit crunch and dominated in the Gulf by Pakistani bankers.
CPI Financial quotes Mansoor Khan, managing director of Lahore-based law firm Khan Associates, as saying that conventional banks would probably be more affected by Pakistan’s economic turmoil than their Islamic counterparts. “The conventional banks are western, risk-averse and do not understand ‘Pakistan risk.’ Islamic banks are primarily Middle Eastern or Asian and have a better understanding of the mentality of Pakistan. They will not be put off.”
It’s also worth reading this blog on the South Asia Investor Review about Gulf Arab investors buying up farmland in Pakistan to increase food security and control inflation.
Pakistan’s economy has proved incredibly resilient in the past, surviving amongst other things, military coups, three wars with India, the division of the country into West and East Pakistan (now Bangladesh) in 1971, and tough economic sanctions after its 1998 nuclear tests. So are reports of its demise premature?
The picture may be clouded by the volatility of Pakistan’s stock market, hanging on every word of the bickering political parties elected in February, and feverishly debating the future of President Pervez Musharraf. But according to the last IMF report, a boom in foreign direct investment into Pakistan (more than $5 billion in 2006/07) was driven not so much by its — until recently — soaring stock market, but primarily by greenfield investment in areas like telecoms, manufacturing and financial services.
I’ll return to the downside risks in another blog, but in the meantime would be interested in hearing whether other people out there think Pakistan still makes it as a hot, or at least warm, emerging markets destination. It’s also worth wondering whether any shift in the origins of foreign investment in Pakistan — still dominated by the United States — towards more Gulf Arab funding would affect the political make-up of the country.