Thursday, February 28, 2008

Pakistan Focused US Mutual Funds

Pakistan's Karachi Stock Exchange has been one of hottest stock markets in the world. Backed by strong economic expansion and double digit profit and revenue growths in the major private sector companies, the KSE-100 rose 44% last year. Pakistan has been designated among the "Next-11" emerging economies by Goldman Sachs and called a "safe haven" for investors by Merrill Lynch Asia Chief Strategist Mark Matthews.

There is considerable interest by individual US investors looking for opportunities to invest in Pakistan stocks. Unfortunately, there are no pure-play mutual funds investing exclusively in Pakistan. However, there are at least two companies specializing in Asian economies that invest part of the portfolio in Pakistan along with India, Sri Lanka and other countries in Asia. These companies are Matthews Funds and Eaton Vance Funds.

Eaton Vance has Eaton Vance Greater India A Fund(ETGIX) that describes itself as follows: The investment seeks long-term capital appreciation. The fund normally invests at least 80% of net assets in equity securities of companies in India and surrounding countries of the Indian subcontinent. At least 50% of total assets will be invested in equity securities of Indian companies, and no more than 5% of total assets will be invested in companies located in countries other than India, Pakistan or Sri Lanka. The fund invests in companies with a broad range of market capitalizations, including smaller companies.

Matthews Asia Funds has Matthews Asia Pacific Equity Income Fund (MAPIX) which describes its geographic focus as follows: The Asia Pacific Region, which includes Australia, China, Hong Kong, India, Indonesia, Japan, Malaysia, New Zealand, Pakistan, Philippines, Singapore, South Korea, Taiwan, Thailand and Vietnam.

If the Pakistani economy and markets continue to perform well and the US individual investor interest in Pakistan continues to grow, I see more mutual fund management companies developing focused funds to take advantage of the high investment returns in Pakistan.

Tuesday, February 26, 2008

Another Wheat Crisis Looms For Pakistan

Wheat Price Touches $900 Per Ton
Triggered by wheat export curbs by Kazakhstan and the lowest world inventory in 26 years, wheat price hit a new record at $25 per bushel or about $900 per ton. This translates into Pakistan Rs. 55 per kilo for raw wheat in bulk excluding transportation, milling and bagging. It represents a 400% increase in less than a year. According to the U.S. Department of Agriculture's Foreign Agricultural Service, Kazakhstan is the sixth-largest exporter of wheat, behind the U.S., Canada, Russia, Argentina and the European Union. Kazakhstan is in the belt of wheat production that stretches from Ukraine through southern Russia. It already has exported nearly seven million tons of grain, of the available 10 million tons from the 2007-08 crop, Agriculture Minister Akhmetzhan Esimov said.

Price Doubled Since Dec, 2007
In my January 15, 2008 blog post Wheat Flour Shortage in Pakistan, I wrote as follows: " Former Prime Minister Shaukat Aziz announced in Sept, 2007 that the Pakistani government would import one million tons of wheat, stating that this action was necessary to “maintain a reasonable buffer stock for the future.” The export price for Pakistani wheat during the April-May export window was approximately $225-232 per ton. For December 2007 delivery, Pakistan is now looking at an estimated import price of $380-400 per ton, exclusive of transportation." Well, here we are in February 2008 and the price of wheat has more than doubled yet again since Dec, 2007. In fact, the inflation of wheat prices now exceeds all other commodities including oil, gold, metals etc.

Implications For Pakistan
Like most developing nations, the average person in Pakistan has very low discretionary spending,with the bulk of his or her income spent on food, clothing and shelter. The dramatic increases in commodity prices, particularly food, is very troubling for the vast majority of populations living in the developing countries such as Pakistan, India, China and the African nations. The exceptions, of course, are the nations with their own significant production of food and fuel and other natural resources. The nations producing and exporting food, fuel, and metals actually benefit from this trend of higher commodity prices.
The incoming government in Pakistan will face a very difficult challenge in containing tremendous inflationary pressures on basic commodities such as food and fuel. A failure in this effort can lead to significant instability and has the potential to threaten the future of democracy in Pakistan.

Sunday, February 24, 2008

Pakistan Blamed For Global YouTube Outage

Pakistan is responsible for almost total blackout of YouTube, the popular video site, around the world. The BBC is reporting that the hour-long global outage was almost certainly connected to Pakistan Telecom and Asian internet service provider PCCW.
The BBC News website's technology editor, Darren Waters, says that to block Pakistan's citizens from accessing YouTube it is believed Pakistan Telecom "hijacked" the web server address of the popular video site.

In the last couple of days, the Pakistan Telecom Authority was being attacked by the bloggers and others in Pakistan for attempting to block anti-government video content. Some believed it had to with alleged "election rigging" by MQM. In fact, the motivation was to block access to material deemed offensive to Muslims. It is thought that, unlike the filters in China and Saudi Arabia, Pakistani filters lack the ability to stop content selectively and block the entire domains instead.

A leading net professional told BBC News: "This was probably a simple mistake by an engineer at Pakistan Telecom. There's nothing to suggest this was malicious."
IP hijacking involves taking over a web site's unique address by corrupting the internet's Domain Name Servers (DNS) that resolve domain names to specific IP addresses and direct the flow of data around the world.

Friday, February 22, 2008

Pakistan Stock Index Hits New High

The KSE-100 closed at an all-time high of 14829.58, continuing the bullish trend after February 18 elections. The buying was spurred by hopes raised by the announcement of PPP and PML(N) agreeing on forming a coalition government.

According to Pakistan's Financial Daily "Business Recorder", the overall market capitalization reached an all time high of Rs 4.606 trillion with a net increase of Rs 41 billion. Healthy trading activity was seen at the share market as the market volume significantly increased to 397.695 million shares as compared to 359.151 million shares traded a day earlier. The futures market turnover however slightly declined to 51.615 million shares against 56.592 million shares previously.

The rally witnessed strong institutional buying coupled with foreign buying. The strong earnings announcements brought buyers in the share market. The investors' expectations for better political situation in days ahead encouraged them to take fresh positions.

There were concerns regarding possible confrontation with President Musharraf, causing the KSE-100 index to close well below the session’s high of 14,957.48 .
Pakistan's Dawn newspaper quotes an analyst as saying,“Quit Musharraf demand by the PPP and the PML-N leaders seems to have put a brake on market’s upward thrust, the perception that the president’s denial to oblige them could lead to a showdown triggered selling.”

Thursday, February 21, 2008

Illegal Immigration From India Jumps 125 Percent

There are an estimated 270,000 illegal Indian immigrants in the United States, according to 2006 figures from the US Department of Homeland Security. With 125% percent increase from 2000 to 2006, India represents the fastest growing source of illegal immigrants to the United States, reports San Jose Mercury News, a major Silicon Valley newspaper. In absolute numbers, Central and South American nations account for the bulk of the estimated 11.5 million illegals, with India a distant second with 270,000 in 2006.

The vast majority of the estimated 2.5m Indians in the United States are legal immigrants with about a half of them with citizenship status. Highly educated with many in professionals such as doctors and engineers, Indians are a very affluent ethnic group whose median household income is 62% higher than the national average.

The top three geographies with the highest concentrations of Indians in the US are San Francisco Bay Area at number 1, New York/New Jersey/Connecticut area at number 2 and Chicago at number 3.

As the demand for high-tech workers in Silicon Valley has grown, so has the influx of Indians on H-1B visas. At 44%, Indians accounted for the lion's shares of H1B visas in 2005-06, five times the number from the second-place Chinese.

The estimated number of people of Pakistani origin in the United States is about 500,000. The top three geographies are NY/NJ/CT tri-state area, Chicago metropolitan area and Southern California. Pakistani Americans are the sixth largest Asian American ethnic group after Chinese, Filipinos, Indians, Vietnamese, Koreans, and Japanese communities. The demographics and socio-economic status of Pakistanis in the United States are quite similar to Indians'. Pakistan does not show up in the list of top 10 countries of origin for legal or illegal immigration to the United States.

New York Times estimate of 109,000 Pakistani-born American workers' occupations include salesmen, managers or administrators, drivers, doctors and accountants as the top five categories.

Tuesday, February 19, 2008

Pakistan Investors Positive After Polls

The KSE-100 rose 443 points to close at 14,797, an increase of about 3% after peaceful polls seen as largely free, fair and transparent. People of Pakistan have spoken and handed a resounding defeat to the ruling coalition. The results of Pakistan Elections 2008 indicate that President Pervez Musharraf has delivered on his promise of free, fair and peaceful polls. Sen Tariq Azim and Mr. Shujaat Chaudhry of PML(Q) have both graciously accepted the outcome and indicated their readiness to sit in the Opposition. Musharraf has indicated he is ready to work with the winners. These are history making events for Pakistan.

Another important development is the lackluster performance of religious parties in sharp contrast to the 2002 election held in the aftermath of the US bombing in Afghanistan. There is clearly "Mullah Fatigue" in the NWFP which was until recently ruled by the MMA, the religious party alliance. This vote should set to rest any fears of pro-Taleban, Pro- Al-Qaeda religious extremists taking control of Pakistan.

After the elections, the Stock market investors should be overweight in Pakistan, where election-related uncertainty has overshadowed the country's attractive prospects, said Lochiel Crafter, a strategist with State Street Global Advisors.

While no single party has won enough seats to form a government alone, all eyes are on the leaders PPP and PML(N) who are number 1 and number 2 in terms of seat count in the new parliament. The markets are expecting a smooth transition with continuity of economic policies. "If we get a parliament that is hostile towards President Musharraf, then the celebrations could be very short-lived," said Shuja Rizvi, director of broking operations at Capital One Equities.

The leaders of PPP and PML(N), the victorious parties, deserve to be congratulated. However, as they celebrate these wins, they must prepare for the serious challenges ahead. They must not be vengeful. They must show grace in accepting the responsibilities the nation has placed on them. They should reassure all Pakistanis, their supporters and those who voted against them, that they will work for the benefit of the entire nation. They must demonstrate they have learned from their past mistakes when each got a chance to run the country twice. They must not engage in corruption that marred their previous terms in office. They should not seek confrontation with Musharraf, the military and their opposition parties in Parliament. They must sincerely pursue building democratic institutions without derailing the economy that has experienced robust growth for the last five years.
I sincerely hope the PPP and the PML(N) will set aside their differences and not throw a third chance to help build Pakistan into a powerful, democratic and prosperous nation.

Sunday, February 17, 2008

Worldwide Commodity Boom Or Bubble?

The ongoing rapid economic growth in the BRIC (Brazil, Russia, India and China) countries and emerging economies such as Pakistan has dramatically increased demand for food, oil and metals driving up prices. Here are some of the recent headlines that I find particularly notable:

1. It costs the US Mint two pennies worth of metal to make one penny.
2. One Indian rupee coin is worth Rs. 35 when melted and turned into razor blades.
3. Gold and oil prices hit new highs in the world market in 2007.
4. The price of wheat has nearly doubled from about $200 per ton to $400 per ton in just a few months.

The current worldwide commodity boom began with the genuine increase in demand from the fast growth in emerging economies of the world. However, at least part of some of the recent increases appear to be driven by speculation in the commodities markets with many hedge funds and big investors trying to make a fast buck. One of the downsides of such speculation is that it may fuel worldwide inflation resulting in the central banks throttling growth. If the central banks decide to tighten credit, it will bring down inflation but also dramatically slow growth that has helped lift a large number of people out of poverty around the world. This will hurt the people of South Asia who have been experiencing a boom in recent years. We have already seen the impact of wheat and energy crises in Pakistan and these crises are likely to spread and assume greater significance in the whole region and the world.

Saturday, February 16, 2008

Pakistan Stock Markets Shrug Off Election Jitters

Stock Investors Bullish
As the world holds its breath for the February 18 voting in Pakistan, the stocks continue to surge with major Pakistani companies posting record profits. The KSE-100 rose for the fourth day closing up 70 points at 14,353. Pakistan State Oil Company Limited, the largest state owned oil marketing company in the country has achieved a record profit before tax of Rs 8.2 billion and profit after tax of Rs 5.5 billion in the first half of financial year 2007-08 with 13% increase in sales volume. Shares buyback by a number of listed companies including Ahmad Spinning Mills, Sarhad Cigarettes and Noon Textiles inspires confidence that the share prices are likely to continue the uptrend.

External Debt Rises
Pakistan's external debt rose by US$2.4b to reach a new high of US$42.9 during July-Dec 2007. As a percentage of GDP, however, it declined to 26% from 27% at the end of FY2007 ending June 2007. The total debt-to-GDP ratio is 57%, helping Pakistan maintain its Moody's and S&P credit ratings of B1 and B+, the same as Indonesia's but a notch below India's debt rating of BBB. Pakistan current debt rating is about 5 levels below the top investment grade of AAA but it is the best Pakistan has ever achieved.

Post-Election Scenarios
"Formation of a stable democratic government will be the most important event to consider," said Mark Mobius, executive chairman at Templeton Asset Management Ltd talking with Reuters. "Investors are still keen on Pakistan and there has been no sharp withdrawal of capital from Pakistan despite the recent events as well as the financial turmoil across the world," Mobius said. "In fact, markets in Pakistan have been fairly resilient."
I think investor confidence, company profits, and debt ratings can change dramatically based on the realities on the ground. If the February elections go well, and there's little or no violence in the aftermath, then we can hope for a continuation of the current positive trends. Whoever wins will need to reassure investors on the continuity of economic policies to retain investor interest in Pakistan. If there is post-election violence and it gets out of hand and there is prolonged uncertainty as to the new government, then all bets are off.

Wednesday, February 13, 2008

Is Bombay Bubble Bursting?

In addition to the performance of BSE-30 index, there are two recent reports that seem to suggest that Indian and foreign investors are starting to worry about the bubble in Bombay. The first report indicated that Reliance Power IPO did not meet expectations. While the issue price was Rs. 450, it opened at Rs. 530 but declined soon after closing at Rs.372. The second report said Emaar, the Dubai-based real estate giant, has decided to delay its Indian IPO.

With the impressive growth in the Indian economy and very healthy returns in the stock market for several years, a lot of investors have flocked to Bombay to profit from Indian stocks. This phenomenon has pushed the P/E ratios of Indian shares to new heights. According to the Bombay Stock Exchange which computes PE for its dozen odd sectoral indices, the average PE of BSE Realty Index was as high as 71.55 as on January 4, while the average PE ratio for BSE Capital Goods was second highest at 51.20. The BSE Power Index PE ratio was at 42.94. The P/E ratio for Sensex is 28.31. This compares favorably with Shangai stocks average P/E ratio of 33, which also is considered to be a bubble by many analysts. These PE ratios are about twice the PE ratio of 16.21 for Karachi KSE-100, making it an attractive opportunity for investors willing to accept political risks. Merrill Lynch Chief Strategist Mark Matthews believes that these political risks are worth taking for the bargain basement share prices and high returns based on the KSE track record.

Sources: Bloomberg
IGI Research
Yahoo Finance

Monday, February 11, 2008

Shaukat Aziz Interviewed By Forbes Asia

Pakistan's Aziz: "I Have No Doubt."
Robyn Meredith 02.11.08 Forbes Asia

Musharraf's premier left quietly amid the tumult. Here he says his economic reforms, and nation, will abide.

Fresh from the trauma of opposition leader Benazir Bhutto's assassination, Pakistan is scheduled to hold parliamentary elections Feb. 18. Predictions of the outcome range from not good to worse. Some Asia experts worry that if unpopular President Pervez Musharraf were to engage in transparent vote-rigging efforts, riots would result. In the event of chaos, the army might take charge and remove Musharraf from power. The politics are complex on the surface and even more complex behind the scenes.

If elections go off on schedule, look for a divided parliament, with a coalition government likely led by Bhutto's Pakistan People's Party, which would then name the prime minister. "I see a prolonged difficult future in a country that is quite messy," said South Asia expert Richard Haass, president of the Council on Foreign Relations, on the CFR Web site.

Pakistani media have been buzzing about the departure of Prime Minister Shaukat Aziz, the career Citibank executive to whom Musharraf turned for a series of economic reforms.

But Kamran Bokhari, director of Middle East analysis for, a private U.S. intelligence firm, says the explanation is simple: "Shaukat Aziz is not a politician, he's a technocrat." What Musharraf's party desperately needs now are votes and seats in the parliament, and politicians with more local support are likely to win them. That situation left no more room for Aziz, who left the government when his term expired in November.

As finance minister after Musharraf seized power in a 1999 coup, Aziz confronted an economy in shambles and led the reforms. He became prime minister in 2004. He lives in Karachi, but FORBES ASIA caught up with him while he visited his daughters and grandchildren in London, en route to the Davos economic summit.

FORBES: Is the average Pakistani better off than when Musharraf took charge, and if so, what was the biggest factor behind that?

Shaukat Aziz: Eight years ago per capita income was close to $400. It has more than doubled, and this year we will cross $1,000 per capita. Levels of poverty, which were as high as the 36% area, are down substantially. Still, we have one out of four people living below the poverty line, so we have more work to do. The whole idea was to get economic sovereignty and build a reform agenda. And we have done that.

The challenge in the immediate term is that we want the elections to be held. We are facing the challenge of high oil prices in the international market, and we are seeing a slowdown in the global economy. But Pakistan will stand out as a good model for countries which were in dire straits. Our philosophy was deregulation, liberalization and privatization, coupled with comprehensive reforms.

Forbes: Which reforms did you find most effective, and could those lessons be applied elsewhere in the developing economies of the world?

Aziz: It's not a question of two of those or four of those--our approach was very holistic. For any country to reform it takes a long time. For example, we had a very comprehensive reform of our telecom industry. We went from a subscriber base of 4% to 34%. That sector attracted $5 billion in foreign investment.

Forbes: Should multinationals and investors be worried about doing business in Pakistan now?

Aziz: Whenever any country goes through a democratic election, there is uncertainty about who will win and what the policy will be after that. Long-term investors have learned to live with this, whether it is the U.S. or a developing country. Pakistan has a population of 160 million, with 100 million people below age 25. That makes Pakistan very attractive because these 100 million young people will enter the job market.

Forbes: Let me ask you about the nightmare scenario: Pakistan has nuclear weapons. How safe is the rest of the world if Pakistan's government falls apart?

Aziz: Pakistan is not a banana republic. Its nuclear assets are well secured. We have a strong military which protects these. Discussions about the country falling apart are as ridiculous as they sound. Pakistan's nuclear weapons are a source of strength and assure peace in the region. Both India and Pakistan have nuclear weapons.

Forbes: I suppose it is because the Taliban is in Pakistan.

Aziz: Pakistan has paid a huge price for being a neighbor with Afghanistan and supporting the global coalition.

Forbes: Who do you think killed Benazir Bhutto?

Aziz: The investigations are still going on, and we will have to wait and see.

Forbes: You were Musharraf's right-hand man. Why aren't you running for office in the parliamentary elections in Pakistan, and why have you left the government?

Aziz: I ran in the last elections, as you know. This time we--my wife and I--have decided to take a break. After eight years of 24/7, of not one day off, no holiday for eight years, we thought we'd take a break. We'll see how things develop in the future. These elections, I gave a pass.

Forbes: Do you plan to return to the private sector, perhaps to banking?

Aziz: We've said we'll take three months and then decide.

Forbes: If American companies and investors pull out, would you expect Chinese and Gulf investors to replace them as big investors in Pakistan, much in the way Chinese investors have been active in Africa, where Americans are cautious?

Aziz: No investor has pulled out. Our stock market has come back nicely.

Forbes: How much interest does Pakistan see from Chinese investors?

Aziz: Chinese investment interest is growing. There are special industrial zones, and China is a major source of capital, potentially, for Pakistan. Pakistan is attracting investment from the Far East and Japan. A U.K. consortium has invested in Pakistan.

Forbes: Many Pakistan experts seem to have good things to say about the newly appointed army chief, General Ashfaq Kayani. Is the military likely to remain stable in Pakistan, even as the politics remain unpredictable? And could Kayani someday be Musharraf's successor?

Aziz: Kayani is a professional soldier, and he is very well regarded.

Forbes: Is there anything you'd like to add?

Aziz: Pakistan is a country with a lot of potential. Like any country in the world, it has its challenges. Where it was eight years ago and where it is today is a major change, but we have to persevere and follow a road map that will keep Pakistan improving. It is a country with tremendous human capital. Its location is second to none, and it can play a major part in creating peace in the region. I have no doubt that Pakistan is on the road to peace, progress and prosperity.

Sunday, February 10, 2008

Mobile Internet For Pakistan

With the personal computers and the Internet penetration in Pakistan in single digit percentages and the mobile phone penetration approaching 50%, should Pakistanis still aspire primarily for the Western style PC/Internet access model? The answer to this question is clearly a resounding NO. Here is an opportunity for a strategic leapfrog to ubiquitous Internet connectivity via the most prevalent device owned by the largest number of people--the mobile phone. It makes sense from many perspectives: Device cost, connectivity options, electricity availability, usefulness for the vast majority of people, etc. It seems that the Japanese have already been pursuing the mobile connectivity model with widespread voice and data connectivity through the cell phones, popularity of text messaging, use of cell phone as a gaming/entertainment and payment platform.
While the efforts such as OLPC (One laptop per child) for developing nations including Pakistan are laudable, a similar or even greater focus on robust mobile phones is likely to be a faster and cheaper method to accomplish the OLPC program goals. There is no reason why these robust mobile devices could not be used to help students in their academic pursuits. With new capabilities in mobile phones such as voice recognition, speech-to-text, real time audio, video, and translation , students learning can be enhanced at the same time as higher business productivity
is realized for an increasingly mobile workforce in Pakistan, India, and the rest of the developing world.
The policy makers and planners should initiate public-private partnerships to make mobile Internet a reality in Pakistan. The government should work with the mobile phone companies such as Mobilink and Motorola as well as the Internet giants such as Cisco, Google and Microsoft to ensure that the widespread mobile phones in Pakistan are leveraged to improve education and business productivity.

Friday, February 8, 2008

Does Pakistan Face Debt Crisis?

A number of Pakistani economists and newspaper columnists are fretting about what they call "Pakistan's Debt Crisis". They claim that Pakistan's national debt has risen dramatically over the last 8 year. Putting in perspective, it seems to me that they are raising an unnecessary alarm. While it is true that Pakistan's total external debt has increased by about 10% since 1999, it is also true that Pakistan's GDP has more than doubled.
Here are the facts:
In 1999 Pakistan’s total debt as percentage of GDP was the highest in South Asia – 99.3 percent of its GDP and 629 percent of its revenue receipts, compared to Sri Lanka (91.1% & 528.3% respectively in 1998) and India (47.2% & 384.9% respectively in 1998). Internal Debt of Pakistan in 1999 was 45.6 per cent of GDP and 289.1 per cent of its revenue receipts, as compared to Sri Lanka (45.7% & 264.8% respectively in 1998) and India (44.0% & 358.4% respectively in 1998).
Most recent figures in 2007 indicate that Pakistan's total debt stands at 56% of GDP, significantly lower than the 99% of GDP in 1999. It also compares favorably with India's debt-to-GDP ratio of 59% and Sri Lanka's 85% in 2007. From being the highest debtor nation in South Asia, Pakistan has, in fact, become the lowest debtor nation in its region and achieved economic growth rate of about 7% a year during the last 6 years.

Sources: CIA World Fact Book
Jubilee Research
State Bank of Pakistan

Monday, February 4, 2008

Declining Influence of Pakistan Tribal Elders

The Tribal Elders' Role
During the British rule of undivided India, the tribal elders in the Federally Administered Tribal Areas (FATA) of Pakistan made deals with the British government that were generally adhered to and kept the peace in the autonomous tribal region. This system continued after Pakistan's independence for several decades.
However, as the madrassahs proliferated in Pakistan's tribal areas since the early 1980s, there seems to be a new dynamic affecting the traditional role and influence of the FATA elders. The radical young graduates of these madrassahs are not willing to accept the traditional role of the elders and their decisions in all matters. There have been many instances of tensions reported between the local tribal elders and the Taleban on both sides of the Pakistan-Afghan border. In December 2007, AP reported that suspected Islamic militants fatally shot eight tribal leaders involved in efforts to broker a cease-fire between security forces and insurgents in Pakistan's volatile northwest.Last year, there were also several reports of clashes between the tribal elders and the Al-Qaeda operatives.

Most of these madrassahs are boarding schools that provide free food, clothing, housing and education to the mostly poor kids in FATA, the Frontier and Baluchistan provinces. So, the basic reason for these institutions to exist is really the overwhelming needs for education and social services that the Government of Pakistan is unable to fulfill. The reason these institutions proliferated since the 1980s has its roots in the massive US/Saudi backing of the Afghan resistance against the Soviet invasion. The incentive for the US was to recruit and prepare fighters for "Jihad" in Afghanistan against the Russians. A key part of the education at these madrassahs included indoctrination and military training of the students which continues to this day. It is for this reason that the US now considers these institutions as purveyors of terrorist training. The changes in Pakistan's tribal areas set in motion during the 1980s to fight the Soviets are still affecting the entire South Asian region including Afghanistan, the Middle East and the world. Both Al-Qaeda and the Taleban movements have their roots in the Afghan war and the US support of it against the Soviet Union.

The Taleban & Al-Qaeda
The Taleban and Al-Qaeda have both become part of the tribal society in Pakistan and Afghanistan. They are a second power center after the tribal elders. And, I believe, there is an ongoing power struggle between them. It is this power struggle that is largely responsible for the scuttling of several peace agreements that the Musharraf government made with the tribal elders in Waziristan region. It is this situation that makes it difficult for Pakistan to do what the US has done in Al-Anbar province in Iraq with the support of the tribal sheikhs there.

Ideas for Solution
The real solution has to be political and diplomatic in the long term. It's absolutely essential that the fundamental issues of poverty that attract people to the madrassahs are addressed. This will require massive spending over a relatively short period of time. The US and Saudi Arabia are quite capable of such spending, as they have demonstrated during the Afghan resistance against the Soviets. In the meanwhile, both the Pakistani and the US governments must do everything possible to re-establish the role and influence of the tribal elders that want to make peace. At the same time, the war against the radicals challenging the authority of the elders must be conducted to avoid mass casualties of the ordinary folks in FATA. Indiscriminate bombing will not win any hearts and minds. It will only stoke the fires of revenge for a long time to come.

Pakistan Economy Hits Rough Patch

The recent political turmoil with Bhutto's return and her tragic assassination in Oct-Dec 2005 period is taking its toll on Pakistan's economy. Weaker textile exports, rising food prices, and ongoing energy crisis have caused the government to scale down its growth target for the fiscal year ending June 2008.

Immediately after Benazir Bhutto's death on Dec. 27, rioters from her native Sind province caused an estimated $1.3 billion in losses, according to Karachi's Chamber of Commerce. Power transmission, telecommunications and roads were affected. Among the recent issues exacerbating the larger energy crisis, the two main power transmission lines were blown up in January 2008 in Sind, creating a shortfall of 1,000 MW. The business community complained that lopsided and unplanned shutdowns resulted in closures in almost all industries. Many factories in Karachi, the heaving commercial hub -- including some owned by Colgate-Palmolive Co. and Philip Morris International Inc. -- sustained damage, according to Tasleemuddin A. Batlay, president of Karachi's American Business Council and a director of Colgate-Palmolive's Pakistan unit, as reported in Wall Street Journal. At Italian garment maker Maxco Pvt. Ltd., a fire engulfed several refurbished buildings, killing eight workers; damage was estimated at $25 million, according to a report in Wall Street Journal.

Pakistan's Finance Minister Salman Shah says economic fundamentals remain strong and growth should still exceed 6%, which would outstrip many of Pakistan's peers in Asia. Last year, the Karachi Stock Exchange's benchmark index advanced more than 40%.

Karachi share market on Monday started on a positive note on the back of foreign interest, coupled with increasing oil prices in the international market, and the KSE-100 index breached through 14,000 psychological level to hit 14,053.46 points intra-day high level, reports Business Recorder, Pakistan's Financial Daily.

The Pakistani economy has, so far, shown a lot of resilience in absorbing a number of shocks in the last few years. It is likely that there will be post-election violence in Pakistan regardless of the outcome. We'll have to wait and see if the economy can ride out this potential storm as well.

Sunday, February 3, 2008

South Asia Forecast 2008

Pakistan ended 2007 with the assassination of opposition leader Benazir Bhutto on Dec. 27. Though it is not clear who ultimately ordered the assassination or what they hoped to achieve, the result injected a huge amount of passion and uncertainty into a situation that already stretched the definition of “chaotic.”

In 2008 Strategic Forecasting Inc. (Stratfor) expects the Pakistani army — which is to say, the Pakistani state — to hold together, but just. Political power within the army and governing institutions has become more diffuse as President Pervez Musharraf’s grip has slackened, and Bhutto’s assassination has upended many agreements to share power. With those deals up in the air, Pakistan’s many factions — within and beyond the military — are now competing with each other with few established points of reference.

Yet most of this is simply the sound and fury of internal maneuvering; ultimately, military commanders know that they are the true rulers of Pakistan no matter what elections produce and realize that, should they fall too deeply into infighting, they are only hurting themselves. It will likely take months for this realization to sink in — although general elections currently scheduled for Feb. 18 will serve as an excellent splash of cold water — and the political chaos of 2008 will make 2007 seem orderly in comparison. The United States, of course, stands ready to back nearly whatever actions the military deems necessary to ensure order — if for no other reason than to ensure that the Pakistani military continues to act against the jihadists.

Pakistan’s problems will really only manifest geopolitically where they intersect those anti-jihadist efforts. Though al Qaeda and its allies no longer constitute a strategic threat to the United States, they are a very real and present danger in Pakistan and Afghanistan. Confusion and distractions in Islamabad will greatly reduce the Pakistani government’s ability (and willingness) to rein in those jihadists — especially in concert with American forces. We expect the situation to degrade particularly quickly and deeply in Pakistan’s northwest. Increasing political unrest and instability in Islamabad could lead to the Pashtun regions becoming ungovernable in this coming year.

Beyond Pakistan, the rest of South Asia is obsessed with domestic issues. An upsurge in Sri Lanka’s Tamil insurgency will generate paralysis while Nepal’s Maoist movement — still limping toward the murky world of coalition government — will provide enough ebb and flow to utterly consume any spare bandwidth in Kathmandu. Hotly contested elections in Bangladesh will simply mark the newest chapter in a generation-old power struggle between equally corrupt forces. There will be few changes on the ground in Afghanistan where a resurgent Taliban and a reinforced NATO — while fighting harder than ever — appear positioned to continue the stalemate of the last few years. While there will certainly be successes and failures on both sides, the Taliban is not in a position to drive NATO from the country this year — or likely in 2009. But neither is NATO in a position to impose a military solution of its own.

India will face more international complications than the other South Asian states. New Delhi already faces major problems in its failure to stem insurgent traffic coming in from its border with Bangladesh. With Pakistan in spasms, militants operating along the Indian-Pakistani border will more firmly coalesce under the jihadist umbrella, making the Indian-Pakistani border in the Kashmir region more volatile and thus increasing the ability of Islamist militants to carry out attacks in major Indian cities. The bulk of these attacks are likely to remain focused on triggering and exacerbating communal riots between Hindus and Muslims.

Yet India’s foreign agenda will be held hostage by preparations for another round of elections. The Indian government (currently led by the Congress Party) wants to approve a nuclear agreement with the United States in order to strengthen long-term economic and strategic opportunities.

This is being sabotaged not only by the opposition (currently the Bharatiya Janata Party, whose Hindu nationalist efforts are likely to foment many riots in 2008), but also by leftist elements within the governing coalition. Russia will attempt to capitalize on the government’s failed realignment and reinsert itself into Indian politics, but while the government’s unity is weak enough to not orient toward Washington, it also is strong enough to resist the Russian lure. India, strategically, will stall.

And it may well stall economically as well. In 2007 India experienced myriad economic problems as everything from domestic politics to militants to power outages seemingly took aim at foreign investments. Investors have begun to realize that the miracle of Bangalore is not being repeated elsewhere in the country, even as rising corruption and insufficient infrastructure began to take the shine off of Bangalore.

Despite much talk of “Shining India,” the national, regional and local governments have yet to even begin basic work on battling corruption, coordinating regulations, containing militancy and building infrastructure. In an election year, the ruling government will be even more gridlocked between populist and business interests as the issue of land appropriation for special economic zones continues to flare. The result is that the swarm of investors that has approached India in years past with the hope of using a toehold in one region to launch into others will see its optimism die. The realization is sinking in that doing business in India could be more trouble than it is worth, and 2008 will be the year that foreign direct investment — and with it, India’s hopes of advancing economically — gets a rude reality check.

Source: Strategic Forecasting Inc.

Economic Concerns About Pakistan

While many analysts, CEOs, and investors remain bullish on Pakistan's economy, here's a contrarian view by Lee Hudson Teslik on the dangers ahead for Pakistan:

Pakistan has become a land of what-ifs. Analysts speculate on a wide range of fallout scenarios for the country: suppose President Pervez Musharraf’s regime falls; or Musharraf’s crackdowns disillusion moderate Pakistanis and embolden Islamist extremists; or the country’s nuclear weapons aren’t as secure as official assurances suggest. On the economic front, there’s no need for guesswork—Pakistan’s turmoil has already pinched the country’s economy, stoking inflation and prompting concerns among regional trading partners.

Voice of America (VOA), the U.S.-funded broadcast network, reports on a worsening of endemic economic problems in the country following the assassination of opposition leader Benazir Bhutto in late December. Pakistan’s central bank lowered its growth forecasts (Reuters) for 2007/2008 in early January, but VOA reports that inflation and power shortages pose a more concrete problem in the near term. Bloomberg reports that Pakistan’s inflation spiked in late 2007, ending the year at roughly 8.8 percent. More pressingly for much of the country’s population, the prices of beverages and food items, including basic foodstuffs like wheat products, rose at an even higher rate.

The country’s political turmoil also threatens foreign direct investment, a critical indicator in developing regions. “This is the worst possible scenario for foreign investment,” one emerging markets analyst told Reuters. “This environment of chaos is perfect for Islamic militants.” Less than 10 percent of Karachi’s stock market, which controls more than $70 billion, is owned by non-Pakistanis—yet the Reuters article notes that this number has increased rapidly in recent years. Analysts had hoped Pakistan’s economy might parrot the growth rates seen in neighboring India. As yet, that hasn’t happened. India handily eclipses Pakistan in gross domestic product and other critical economic measures.

Pakistan’s turmoil comes at a particularly bad time in terms of Indo-Pakistani economic relations. Trade between the countries expanded significantly following a 2004 South Asia Free Trade Agreement. The Economic Times, an Indian newspaper, reports that trade between the countries has more than quadrupled since 2001. Yet the space for additional growth remains vast. A 2006 working paper from the Indian Council for Research on International Economic Relations, an Indian think tank, estimates that two-way trade between India and Pakistan could reasonably multiply tenfold. In an interview with, Sumit Ganguly, a South Asia expert, says trade relations between India and Pakistan remain hostage to diplomatic ties.

In the short term, Pakistan’s economic concerns will almost certainly affect the upcoming parliamentary elections, which were delayed from January 8 to February 18 following Bhutto’s death. Agence France-Presse says that basic needs like food carry more political weight for many Pakistanis than headline issues like nuclear security and al-Qaeda. CFR’s Daniel Markey adds in a recent Policy Options Paper that these concerns, which affect basic Pakistani stability, should not be overlooked as the United States seeks to encourage Pakistan to counter Islamic extremism within its borders. The political priorities of Pakistanis are explained more extensively in recent polling data from the International Republican Institute, a research institute founded by Congress and run by prominent Republicans. One question asks Pakistanis what issue they are most likely to vote on in elections. Fifty-three percent say inflation. The second- and third-highest responses are unemployment and poverty, at 15 percent and 9 percent, respectively. Only 6 percent of Pakistanis say they are likely to vote on the issue of terrorism.

Source: Council on Foreign Relations, Jan 2008

Saturday, February 2, 2008

Emaar's Crescent Bay Project Sold Out in Karachi

On January 31 2008, Emmar Chairman Mohamed Alabbar told Erin Burnett of CNBC that a major project in Karachi sold out within hours of its being offered for sale. The project he was referring to is Emaar's Crescent Bay Project in Karachi. Crescent Bay was launched on May 31, 2006 as part of a US$2.4 billion investment in Pakistan by Emaar.

According to Emaar, Crescent Bay is a 75-acre development featuring high- and mid-rise towers for residential and commercial use, a shopping centre and five-star beachfront hotel. The towers will contain approximately 4,000 residential apartments. Crescent Bay is located within Karachi’s DHA Phase 8 and in close proximity to the DHA golf course. Below is an artist's rendering of the completed project:

A friend of mine in Karachi reported via email as follows: "The first phase was overbooked in less than an hour of opening of the counter. Then there was balloting. Those who one were given a piece of paper. That piece of paper is already 10 times its original value.
There is no demarcation. Not even one pick ax has hit the ground. Only leaflets and pamphlets and Emmar's name sells.
It is said that one apartment presently priced at Rs 20 million will change hands much before its completion at more than twice this amount.
There are investors planning to buy a whole tower, to resell later.
One tower would on the average consist of 80 to 160 apartments. The payments would be in instalments according to phases of completion. All payments shall be strictly cash!
All this investment is on account of public enemy number 1 you know who.
The stupid fellow does not take commissions, does not have palaces in Surrey, Paris and Dubai does not own sugar and steel mills in Pakistan. What a shame.
Unless his children study in Oxford how can he feel the pain of children studying in Govt Schools? He can't even gift his wid $80K necklace to his wife paid for through a Swiss Bank issued Credit Card. Shame."

Here's a video clip about Karachi:

Cricket Super Bowl in South Asia?

Super Bowl XLII
As New England Patriots meet New York Giants for Super Bowl XLII tomorrow, there is the usual annual excitement among the football fans planning for Super Bowl parties around the country. In addition to being a great sporting event, Super Bowl has also become a gigantic commercial extravaganza for a whole range of businesses. For example, the media are the big beneficiaries of the multi-million dollar TV commercials by major consumer product giants. The consumer electronics stores sell a lot of large-screen high-definition TV sets and home theater systems. And the grocery giants attract a lot of spending just for this event. That's not all, even the furniture stores benefit from major furniture sales just prior to the event. In short, this event by itself creates a significant stimulus to the economy on an annual basis.

TV Sales
Last year, US retailers sold 61 percent more TVs the week before the Super Bowl compared with the previous week, according to NPD group in Port Washington, NY. Best Buy targets Super Bowl shoppers with 2-3 year no-interest loans and guarantees delivery before the event. The TV buyers usually end up buying more with the TV sets such as the home theater systems. La-Z-Boy goes after the couch potatoes to sell comfortable furniture to go with the new TV sets for the event.

Snacks Sales
Americans are expected to consume about 30.4 million pounds of snack food this year on Super Bowl Sunday. This includes 11 million pounds of potato chips, 8.2 million pounds of tortilla chips, 2.8 million pounds of popcorn and lots of avocados, pizza, and beer.

Annual India-Pakistan Cricket Games
Pakistanis and Indians are probably just as enthusiastic for major cricket games between the two nations. However, the commercial scale is not comparable to the Super Bowl. But my recent experience watching the Indian Cricket League 2020 tournament in 2007 tells me that we are headed in that direction. The tournament seemed like a grand affair with all the elements of speed, excitement, entertainment, glamor, and commerce. As South Asia grows in economic importance on world stage, I would not be surprised to see the cricket scene there become the greatest sports spectacle on earth in the future.

Sources: Denver Post, Associated Press, Other Data.