Pakistan: A Magnet for Foreign Investors?
By Riaz Haq
www.pakalumni.com
Saratoga, CA
Extreme Investing or Safe Haven?
Some call it "Extreme Investing". Call it by any name, but international investors have discovered Pakistan as an attractive destination.
Referring to the recent upsurge in violence, Bank Muscat CEO Ali Issa said, "We are not worried about our investment in Pakistan, we think it's just a passing phase."
Chief Strategist for Merrill Lynch Mark Matthews is the most bullish about Pakistan, calling it a "safe haven" for investors. Matthews believes Benazir Bhutto's death is "on the whole, largely irrelevant to the economy, which like other places, is what really moves the stock market." He says Pakistan represents the "biggest information arbitrage," which in its crudest terms, means that body bags are good for stock pickers. He reckons that the slew of bad news from Pakistan is diverting people's attention from the fact that the Pakistan economy is humming along nicely, with growth forecast to reach 7% this year, a repeat of 2007, and stocks yielding an average of 6% dividend yield. Karachi was up an impressive 40% last year, and would have closed even higher had it not been for the tragic assassination of former Prime Minister Benazir Bhutto in December which trashed the market.
Pakistan's Telecom Sector
Telecom sector is attracting the largest share of foreign direct investment in Pakistan. Foreign investors pumped in $364m into it during July-Sept 2007 quarter, according to the latest figures released by Pakistan Telecommunications Authority. The total FDI in Pakistan for this 3-month period was $962.5m.
The number of cellular subscribers in Pakistan had crossed 76m in December 2007, from 500,000 in 2004. According to the Business Recorder, Pakistan's financial daily, most forecasters believe that the upward trend will continue in the next five years because of the huge market potential, particularly in the rural areas where the build-out has yet to happen. Operators such as Wateen (with Motorola) are planning a large Wimax rollout to improve voice and high bandwidth data access across the country. The biggest mobile operators in Pakistan include Mobilink with 30m subscribers, Ufone with 16m, Telenor with 14m, Warid with 13m and Paktel with 1m. It is estimated that the telecom sector has added at least 300,000 jobs in the last few years.
Financial Services & Infrastructure
While Telecom has been the hottest sector, here are some of the recent deals making the news:
1. Nomura announced it would team up with an Omani bank to buy Saudi Pak Bank for US$200m.
2. Barclay's Bank received a banking license in Pakistan and will open up 10 branches with US$100m.
3. International Petroleum Investment, a UAE company, announced it would build a US$5b refinery.
4. Hutchison Port Holdings announced it would build a US$1b deepwater container port.
5. Singapore's Temasek, through NIB Bank, is buying PICIC.
6. Philip Morris is building a new plant, and China Mobile is hiring thousands of people, as it doubles its base stations in the country.
Private Equity Funds
Recent launch of a private equity fund focused on Pakistan is another indication of continuing investor interest in Pakistan economy as a magnet for investors. This fund, solely dedicated to investing in Pakistan was closed December 2007, capping a year in which the country was one of the hottest emerging markets despite its political turmoil. This is the fourth or fifth major private equity fund focusing on Pakistan. JS Group, a Pakistani financial services group, is the sponsor and a large investor in this new JS Private Equity Fund, which was closed on December 31 at $158 million.
The Future
While many Pakistanis seem to have a developed a sense of pessimism, even a hint of cynicism, the international investors are telling us that that there's a bright future ahead for Pakistan. All we have to do is believe in it and not be swayed by all the bad news that media like to play up. A hopeful nation can do wonders, if the hope is backed up by sincere actions to realize that hope. The current continuing growth in the size and strength of the middle class in Pakistan, if continued for another decade, can do wonders in empowering the people and taking the power away from the small elite that has ruled Pakistan since its inception. Let's be patient. Let's not ever give up hope.
(www.pakalumni.com PakAlumni Worldwide, created and launched by NEDian Riaz Haq, is a global social network designed for all Pakistanis and their friends to connect, share and collaborate. It serves Pakistan Alumni at home and abroad. Riaz Haq's Blogs: http://riazhaq.blogspot.com and http://southasiainvestor.blogspot.com)
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