Thursday, September 29, 2016

ADB Raises Pakistan GDP Forecast Amid Modi's War Talk

The Asian Development Bank (ADB) has raised Pakistan's economic growth forecast for fiscal year 2017 (from July 2016 to June 2017) from 4.8% to 5.2%. The Bank also sees brighter outlook for the the entire South Asian region. However, the prospects of even a limited India-Pakistan war could derail the economies of the entire South Asia region. I hope that sanity will prevail in New Delhi to tone down its war rhetoric, abstain from escalation and maintain the current economic momentum.



ADB Forecast: 

"...assuming further improvement in energy supply and security, and likely recovery in cotton and other agriculture-the growth forecast (for Pakistan) for FY2017 is revised up to 5.2%", says the Asian Development Outlook 2016 Update released September 27, 2016.

The ADO which is launched annually in March and updated in September provides a comprehensive analysis of macroeconomic issues in developing Asia.

The ADB report says that "growth in Pakistan will outperform the ADO 2016 projection for 2017".  Here's an excerpt  from the ADB report:

"In Bangladesh and Pakistan, estimated growth in the 2016 fiscal year, to 30 June, exceeded the forecasts because robust performance in manufacturing and services more than compensated for unexpected weakness in agriculture. Increased consumption and public investment contributed to the better performance in Bangladesh in 2016. A slower growth forecast for 2017 is retained as agriculture growth is expected to moderate. Growth in Pakistan will outperform the ADO 2016 projection for 2017 on improvements in energy supply, higher infrastructure investment in an economic corridor project, and a better security environment. Improved growth in these two large economies contrasts with Nepal, where the growth estimate for the 2016 fiscal year, which ended on 15 July, is below the forecast following disruption to supply and trade, delayed reconstruction of earthquake damage, and a poor monsoon. The economy is expected to recover in 2017 as forecast in ADO 2016 on markedly accelerated reconstruction spending and a good monsoon able to lift agricultural output."

Impact of US Interest Rate Hikes: 

On the impact of possible interest rate hikes by US Federal Reserve on national debt situation in South Asia, the ADB report says

"Interest rates pose less risk to India and Pakistan, where public debt is held mostly by domestic investors. However, where a significant share of such debt is short term, as in Pakistan, rollover risks are high and debt dynamics remain vulnerable to shocks. For all these economies, staying on course with fiscal consolidation through sound debt management and the progressive expansion of the tax base will help provide the fiscal resources and resilience needed to cope with future domestic or external shocks."

Macroeconomic Indicators: 

ADO 2016 Update says that the planned reduction in Pakistan's fiscal year 2017 budget deficit would enhance funding for private sector credit and better enable it to support rising domestic demand. The federal government budget for FY2017 projects further reduction in the deficit to 3.8% of GDP achieved through new revenue measures and streamlining current expenditure.

 Tax revenues are projected to increase by half a percentage point, raising the ratio of tax to GDP to 12.8% by eliminating more tax concessions and exemptions, expanding the withholding system as part of administrative reform to widen the tax base, and raising some excise taxes and customs duties, the report added.

The report says that Pakistan's current account deficit is expected to widen in FY2017 to about $5 billion, or 1.6 % of GDP, which is higher than forecast in March. The revision reflects rising global oil prices, declining exports and continued expansion in imports stemming from faster economic growth.

Industrial Indicators:

Pakistan's fiscal year 2015-16 saw production of motorcycles soar to a new high of over 2 million units. This represents a 16.5% surge from last year.  At the same time, passenger cars and light trucks sales rose to over 200,000 in fiscal 2016, a 20% jump over the same period last year.



Motorcycle Sales:

Rising motorcycle sales in Asia's developing nations like Pakistan are seen as a barometer of expanding middle class. It is, in part, attributed to rising incomes and availability of bank financing at historic low interest rates in the country.

As many as 2,071,123 motorcycles were manufactured during July-June (2015-16) compared to 1,777,251 units during July-June (2014-15), according to the latest data released by Pakistan Bureau of Statistics (PBS) and reported by Pakistani media.

Car Sales:

In addition to the double digit increase in motorcycle sales, Pakistan also experienced 20% jump in sales of passengers cars, light commercial vehicles (LCVs), vans and jeeps. The total sales of local vehicles increased by 21% to 216,568 as compared to 179,953 units sold in FY15, according to industry data.

Auto Parts Industry:

Rising auto and motorcycle sales are helping boost Pakistan's auto parts industry as well. “We are getting orders and the pace is increasing,” said Sultan and Kamil International CEO Faisal Mahmood speaking to Pakistani media on the sidelines of the 12th Pakistan Auto Show 2016 held at the Lahore International Expo Centre. Mahmood’s company makes more than 350 automotive parts and exports to all major automobile markets in the world.

Other Growth Industries:

Among other industries seeing significant growth are pharmaceuticals (6.54%), cement (17.01%), chemicals (8.13%), non metallic mineral products (10.02%), fertilizers (13.81%), leather products (7.76%) and rubber products (7.16%), according to media reports.

Summary:

Pakistan's economic recovery is in full swing with double digit growth in multiple industries, including auto, pharma, chemicals, cement, fertilizers, minerals, etc.  It is expected to pick up steam over the next several years with new investments on the back of China-Pakistan Economic Corridor related projects. Prospects of even a limited war in South Asia could derail the economies of the entire region. I hope that sanity will prevail in New Delhi to abstain from escalation and maintain the current economic momentum.


Related Links:

Haq's Musings

Is Pakistan Ready For War With India?

India's Israel Envy: Surgical Strikes in Pakistan?

Growing Middle Class in Pakistan

Rising Energy Consumption

China-Pakistan Economic Corridor

Pakistan's Thar Desert Sees Development Boom



16 comments:

Riaz Haq said...

Real Estate is a promising and growing sector of the Pakistani economy. Pakistan spends $5.2 billion on construction in a year and according to the Pakistan Bureau of Statistics, construction output accounts for 2% of GDP.

With the rate of urbanization that Pakistan has been experiencing, there is a growing need for urban planning. Pakistan is home to Asia's largest real estate investors Bahria Town.

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Former chairman and present consultant of Bahria Town, Malik Riaz Hussain has signed an agreement with His Highness Sheikh Nahyan bin Mubarak al Nahyan, Chairman Abu Dhabi Group, Union National Bank and United Bank Limited under which $45 billion will be invested in Pakistan.

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The top players in the real estate industry are undoubtedly the DHA and Bahria Town. The latter has played a pioneering role in commercializing the real estate development and establishing it as a formal sector. Now the real estate investments come under the tax net. Similarly, DHA is also a top notch housing society. It is well-engineered and has state-of-the-art infrastructure facilities such as schools, colleges, universities, hospitals, cinemas, parks, marriage lawns, clubs, security management and traffic control system etc. Furthermore, the earthquakes in Pakistan have brought to the attention of regulatory bodies and the end consumers the need for enforcement of building codes and quality construction practices. According to survey of some Pakistani property portals including lamudi.pk, Homespakistan.com and Pakistan real estate.net interviewed several buyers of residential homes and commercial buildings and confirms that they prefer quality designing rather than cheaper and casually designed units. Hence, this makes it a perfect case to invest in the booming real estate sector of Pakistan.

Real Estate Investment Trust

Investors piled into Pakistan’s first real-estate investment trust, which was launched this year with a public offer that was heavily over-subscribed, the REIT’s lead manager and analysts said on Thursday.

The Dolmen City REIT offered investors a 25% stake in a 22.24 billion rupee ($218.5 million) shopping mall and an office complex at Dolmen City, one of the most prominent real estate developments in Karachi, Pakistan’s largest city and its economic hub. The Arabian Sea-front project includes three other structures not included in the REIT.

Traders and the REIT’s main advisor said the initial offer for 75% of the trust to institutional investors and high net-worth individuals through book building on Monday and Tuesday drew demand of more than 7 billion rupees for an offering of shares worth 4.17 billion rupees at a floor price of 10 Pakistani rupees ($0.10). At the strike price, the initial offer raised 4.59 billion rupees, according to the REIT’s lead manager.

The remaining 25% of the stake was to be offered to the public on Friday at a strike price of 11 rupees ($0.11). Analysts and the REIT’s management expected the Friday offering to be fully subscribed as well, raising another 1.53 billion rupees.

“The interest rate is at a 42-year low, with the discount rate at 7%, so for people who invest in fixed-income instruments, REITs are attractive,” said Muhammad Tahir Saeed, deputy head of research at Topline Securities, a Karachi-based brokerage.


https://www.linkedin.com/pulse/real-estate-pakistan-spends-52-billion-construction-year-safwat-zaki

Happiness for some in Pakistan's gated communities

https://www.youtube.com/watch?v=ZvKOCZuZAiM

Riaz Haq said...

“Doesn’t it just look like Mars?” says a Pakistan Army lieutenant colonel, as laborers toil under the blinding sun, building a road across the barren deserts of Balochistan.

Against a backdrop of scorched mountains, workers cut steel bars and prepare rock for crushing near a viaduct that crosses a dry river bed. In the distance, a truck kicks up dust, bringing materials to the site. Army vehicles patrol the road with signal jammers, while snipers scan the hills—the lair of armed separatists and bandits until a military campaign cleared most of them out a few years ago.

This is Chinese President Xi Jinping’s biggest gambit in his so-called One Belt, One Road project to rebuild the ancient Silk Road, a trading route connecting China to the Arabian Sea that slices through the Himalayas and crosses deserts and disputed territory to reach the ancient fishing port of Gwadar, about 500 miles by boat from Dubai.

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The project includes coal-fired, solar and wind power stations and a network of highways running 3,000 kilometers down the length of the country, from the freezing passes of the Karakoram Highway to the Arabian Sea. They will run through Kashmir, an area claimed by both India and Pakistan that is subject to frequent border clashes, and restive Balochistan, which Pakistan annexed in 1948.
“The energy policy was there for anyone to come and invest, but others were just looking at the political risk,” Planning Minister Ahsan Iqbal said in an interview in Islamabad on July 25. “China took a bet on Pakistan when others were shy.”

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The cornerstone of the project is Gwadar, 30 minutes from the border with Iran, or an eight-hour drive from Karachi along a two-lane coastal highway that twists through jagged weather-beaten hills and across arid dust-blown plains.
Bought from the Sultanate of Oman in the 1950s, Gwadar is not connected to Pakistan’s power grid, using electricity imported from Iran, also a major source of fuel and consumer goods, much of it smuggled across the border.
Kids here play soccer, rather than the cricket that is popular elsewhere in Pakistan, wearing jerseys of European stars like England captain Wayne Rooney and France’s Paul Pogba. For centuries, the city looked to the sea for its wealth. Wooden fishing boats clustered in the bay haul lobsters and jumbo shrimp that now find their way to China and other markets in East Asia.

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For 26-year-old Mohammad Younis, Chinese money has meant an escape from needing to find a job at sea. As a teenager he joined a gang of fuel smugglers, driving pickups from Iran. After the authorities clamped down, he landed a job as a driver at the Pearl Continental, a five-star hotel built in 2006 that hosts Chinese engineers.
The hotel plans to triple capacity within five years and add office and apartment blocks, said General Manager Salman Saeed Khan.
“Development is happening at a faster pace than ever before, now that the Chinese have come,” said Younis. “It’s good. We will get jobs.”


http://www.bloomberg.com/news/articles/2016-09-29/china-s-new-silk-road-hinges-on-a-small-pakistan-port

Riaz Haq said...

Op Ed by Neeraj Thakur from Catch News

wars have never had a constructive effect on any country. Not only are human lives lost, but participating nations' economies suffer as well. Money meant to be spent on development is diverted towards buttressing the armed forces.

Wars also damage the infrastructure within a country - such as roads, highways and ports - as well as telecommunication towers.

Hospitals come under pressure due to casualties at borders, as well as interior areas in case of surgical strikes by opponents.

In this scenario, let's analyse whether India can afford a war with Pakistan, especially at a time when the Indian economy is trying to recover from a slump.

01
The impact on inflation
The Indian economy has been struggling with inflation for quite a few years. Since 2008, the average Consumer Price Index, also known as retail inflation, has been at 8.73%, which is 100% more than the Reserve Bank of India's comfort zone.

India witnessed two consecutive droughts in 2014 and 2015, due to which the prices of food items had skyrocketed, making most food items unaffordable for the lower and middle classes.

To put in things in perspective, the 1971 war broke out in the month of December. The following year, India reported a 109% rise in the average inflation, at 6.42% .

Given that India's current retail inflation is already above 5% , in case of a war, one can expect the inflation to easily go above 10%, making life difficult for people.

02
Job loss
Wars destroy the value of money and the demand for products. This leads to consumer durable, FMCG and automobile companies losing business, which, in turn, forces companies to cut jobs.

So, in case India and Pakistan go to war, apart from those who are working in the government sector, most people will face the threat of job loss. India is already facing its highest unemployment rate in five years, at 5% of the workforce, which is estimated at above 50 crore.

Should there be war, lakhs of people may have to sit at home in the coming years.

03
No salary hikes
As discussed above, when two countries fight, governments divert all their resources towards armed forces expenditure. While this may generate revenue for certain types of companies, the overall economy suffers.

So, in case you don't lose your job, there are chances that you will not get a salary hike next year.

04
Poverty alleviation programmes on the backburner
According to Business Today, the 1999 Kargil War cost India Rs 10,000 crore, followed by an increase in the defence expenditure, which went up from Rs 39,897 crore in 1998-99 to Rs 47,071 crore during the year of the Kargil conflict - 1999-2000 - a jump of 18%.

The increased budgetary support for defence forces results in a cut in expenditure for poor in the country.

India is home to the largest population of poor people in the world. According to a study conducted in 20011-12 by the then-chairman of the Prime Minister's Economic Advisory Council, C Rangarajan, India had an estimated 363 million, or 29.5% of its 1.2 billion population living below the poverty line. According to that study, people living on less than Rs 32 a day in rural areas and Rs 47 a day in urban areas were considered poor.

In case the country's resources are diverted towards war, the suffering for those living below the poverty line would be unimaginable.

05
Long term impact on growth
Growth comes through the development of infrastructure. Wars only lead to the destruction of that infrastructure, be it roads, ports, or oil and gas pipelines. This infrastructure takes decades of investment to be built up, but can be destroyed with one bomb.

Given that Pakistan and India both have long range ballistic missiles, both countries are capable of destroying each other's important infrastructure, which can handicap the economies of both countries.


http://www.catchnews.com/business-economy-news/can-indian-economy-afford-a-war-with-pakistan-here-are-six-startling-facts-1475166605.html

Riaz Haq said...

#China to lend $5.5 B and ADB another $2.5 billion for #Pakistan's $8 B #Rail link project. #CPEC http://ecoti.in/z8wb4Z via @economictimes

About 75 per cent of the country's (rail) cargo and passenger traffic passes through the 1,687 km-long Peshawar-Karachi rail line.

Earlier, China had agreed to provide $3.7 billion out of the $46-billion CPEC program for the ML-I project and "now it has decided to increase its contribution to $5.5 billion," Iqbal said.

The Asian Development Bank (ADB) would provide $2.5 billion t ..


The Peshawar-Lahore section of the ML-I will be built with the ADB loan.

The rail project would be completed in five to six years after which the rail speed would double to 180 kilometres per hour.


Riaz Haq said...

#China and #Pakistan pin hopes on Arabian Sea port of #Gwadar. #CPEC https://www.ft.com/content/06388212-855b-11e6-8897-2359a58ac7a5 … via @FT

From the window of his plush office, Dostain Jamaldini, the moustachioed chairman of the Gwadar Port Authority, looks upon the mostly deserted, three-berth deep seaport that he argues could one day rival Dubai, Hong Kong or Singapore.

Presently, no cargo ship is visible in the tranquil Arabian Sea waters — just the small fishing trawlers.

But Mr Jamaldini says the empty port, built with Chinese financial and technical help at a cost of $248m, finished nearly a decade ago and barely used since, will buzz with traffic by December 2017. By that time, Gwadar should be linked by road to the rest of Pakistan, a key part of the plan to create a vibrant and bustling hub.

“Gwadar has the potential to become one of the world’s biggest ports,” he says. “Once we have connectivity, the port will see traffic. We are now waiting for the road.”

The long-anticipated road is slated to be a modern highway network that seamlessly links Gwadar to China’s Xinjiang province, giving the landlocked Chinese region access to the Indian Ocean. A train should run alongside and Beijing also wants to build oil pipelines from Gwadar to western China, potentially a quicker and easier route for supply from the Gulf.

Yet realising this ambitious vision requires extensive ground infrastructure in Balochistan — one of Pakistan’s poorest, most troubled provinces, with a long history of armed separatist insurgency. Analysts say the region’s volatility could prove an obstacle to realising the $46bn China-Pakistan economic corridor.

In August, Quetta, Balochistan’s provincial capital, was rocked by a sophisticated suicide bomb that killed 70 people, many of them lawyers. Pakistan — which has established a 15,000-man security force to protect the infrastructure and the Chinese engineers — publicly called the attack an attempt to disrupt the massive development.

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Prime minister Narendra Modi electrified Indians — and raised the hackles of the Pakistan establishment — in August when he proclaimed New Delhi’s moral support for residents of Pakistan’s troubled Balochistan province.
Islamabad has long accused its rival, India, of covertly assisting Balochistan’s separatist insurgents. But former US officials say Washington has never found evidence of Indian military aid beyond New Delhi’s hospitality for Baluchi leaders. Speculation is mounting that New Delhi could be poised to do what Pakistan has always suspected — as it seeks a new, more muscular approach to a neighbour that it blames for numerous terror attacks on its soil.
But security analysts say the prospect of Indian aid for Baluchi rebels is limited by its lack of direct access to the territory. “Actual physical assistance is going to be incredibly difficult,” says Sumit Ganguly, an Indiana University professor. “Geography imposes a certain kind of constraint.”
Chinese analysts also play down the likelihood of India deliberately targeting a Chinese-developed infrastructure project. “It is unlikely that India will act to directly disrupt the CPEC,” Mao Siwei, China’s former consul-general in Kolkata, told the Financial Times. “But strained India-Pakistan relations are extremely detrimental.”

Riaz Haq said...

#Pakistan to soon switch on 350 MW of #wind #energy farms - report - SeeNews #Renewables https://shar.es/1E1Ir0

The Pakistani province of Sindh is expected to soon become home to 350 MW of operational wind power capacity.

An official of the Alternative Energy Development Board (AEDB) told the Associated Press of Pakistan (APP) on Sunday that seven 50-MW wind parks along the coastline should be completed by next month. The projects include developments by Yunus Energy, Metro Power Company, Gul Wind Energy and Master Energy.

Meanwhile, Sachal Energy Development Pvt Ltd (SEDL) is building another 50-MW wind farm in Jhimpir, Sindh. It is expected to be finalised by mid-2017, the official has added.

All of the projects are financed by the private sector, he said as quoted by the news agency.

Riaz Haq said...

#Moody's maintains stable outlook for #Pakistan banks reflecting strengthening #economy and high liquidity buffers http://fw.to/SBkib8C

Limassol, October 06, 2016 -- Moody's Investors Service has maintained its stable outlook on Pakistan's banking system, reflecting the rating agency's expectation that the country's banks will continue to benefit from a stable deposit base, high liquidity buffers and an accelerating economic growth under the IMF program, which will create lending opportunities over the next 12-18 months.

Moody's report, entitled "Banking System Outlook -- Pakistan: Economic expansion and ongoing reforms drive our stable outlook" is available on www.moodys.com. Moody's subscribers can access this report via the link provided at the end of this press release. Please note that this report does not constitute a rating action.

"We expect the strengthening economy and the central bank's monetary easing to provide banks with plenty of business opportunities and stimulate loan growth to around 12% over the next 12-18 months," says Elena Panayiotou, an Assistant Vice President at Moody's.

The rating agency expects GDP growth to expand by 4.9% in the fiscal year ending in June 2017, which would be the fastest pace since 2008, as the country completes for the first time an IMF program and implements infrastructure projects under with the China-Pakistan Economic Corridor (CPEC).

Although the strengthening of the domestic economy will contribute to the improvement in Pakistani banks' asset quality, Moody's expects the level of credit risk will remain high as banks are heavily exposed to the low-rated Pakistan sovereign (B3, stable) through holdings of securities and government-related loans, which are equivalent in size to 7.7x Tier 1 capital, exposing banks to event risk.

"We expect problem loans will decline to around 10% of total loans by the end of 2017 compared with 11.1% at the end of June 2016. Banks, however, will remain heavily exposed to the low-rated Pakistan sovereign, linking the banks' creditworthiness to that of the sovereign'' says Ms Panayiotou.

In terms of capital, the rating agency expects buffers will come under pressure due to weakening profitability and loan growth, reducing the banks' ability to absorb losses. The pressure on profitability will stem from declining yields on government securities and lower interest rates, which are eroding net interest margins, while higher lending growth and lower provisioning requirements will only partially offset this pressure.

On the other hand, Moody's expects Pakistani banks to maintain ample liquidity and continue to benefit from large volumes of low-cost and stable customer deposits. "We expect inflows of remittances from workers abroad will grow a lower pace but will remain substantial and continue to drive the growth in bank deposits and support banks' funding bases,'' says Ms Panayiotou.

Moody's expects the sector to also maintain strong liquidity buffers, with cash and interbank placements at 9% of total assets as of June 2016, and liquid securities, mainly in the form of government securities, at another 47% of total assets.

Subscribers can access the full report at http://www.moodys.com/viewresearchdoc.aspx?docid=PBC_1031983

Riaz Haq said...

#Chinese investor eyeing stake in #Pakistan's Dewan Cement Amid Record Growth of Cement Demand. #CPEC

http://tribune.com.pk/story/1187284/potential-new-player-chinese-investor-eyeing-stake-dewan-cement/

In a development that may raise eyebrows in a highly competitive cement industry, a Chinese investor has expressed interest in due diligence of Dewan Cement Limited in order to acquire a stake in the company.

“We have received a request through email from a potential Chinese strategic investor seeking permission for due diligence of Dewan Cement, which may eventually lead to acquisition of shares in our company,” said a company notice sent to the Pakistan Stock Exchange on Friday.

“We intend to permit due diligence; if any material development takes place, we will communicate the same to the (stock) exchange and the Securities and Exchange Commission of Pakistan.”

The development is expected to create an interesting situation in the cement sector where a number of companies are already vying to increase their market share.

“If this due diligence results in some deal, the new investor will most likely install a new plant which may take up to three years to start operations. So this is not an immediate threat to the cement cartel,” Sherman Securities analyst Sadiq Samin told The Express Tribune.

“The due diligence process will itself take two to three months and then we will have to look how it affects the market.”

This would not cause any jitters because cement demand was growing continuously, he said when asked whether the entry of a foreign player would spark fears.

Dewan Cement has a production capacity of around 2.88 million tons per annum, constituting 6.1% of the total installed capacity of 45.6 million tons of the cement industry. It has two manufacturing units including Pakland Cement and Saadi Cement.

Analysts suggest that the situation would have been different if the company had installed a new plant and the Chinese player could immediately start manufacturing cement after taking it over.

Pakland Cement was established in 1981 at Deh Dhando in Malir district, Karachi. The plant was fully operational by 1985 and producing Ordinary Portland Cement.

Anticipating a further growth in demand, cement companies are aggressively engaged in expansion of their plants.

Cherat Cement, Attock Cement, DG Khan Cement and Lucky Cement have already announced expansion plans and these plants will come online over the next three years. The combined investment by these players is expected to be in the range of $700 million to $1 billion.

The construction sector, a major consumer of cement, posted an excellent 13% growth in fiscal year 2015-16 compared to average growth of 4% in the past four years due to economic recovery and the booming real estate sector, according to the Pakistan Economic Survey 2016.

The government expects construction-related activities to pick up further momentum on the back of increasing public sector development spending coupled with massive infrastructure and power projects under the China-Pakistan Economic Corridor (CPEC).

Riaz Haq said...

From Bloomberg: http://www.bloomberg.com/news/articles/2016-10-06/pakistan-seeks-1-7-billion-bids-for-southern-highway-project


Pakistan is seeking foreign investment of $1.7 billion to build a new highway in the southern province of Sindh to supplement a Chinese-funded infrastructure network being laid across the country.
The National Highway Authority will ask for bids next week for the 296-kilometers (184 miles) highway between the cities of Hyderabad and Sukkar, the agency’s Chairman Shahid Ashraf Tarar said in an interview in the capital, Islamabad.
“Other than the Chinese, this time we expect that Turkish, Malaysians and South Koreans will come and bid,” Tarar said.
Pakistan’s economic growth has accelerated to almost 5 percent in the past three years after averting a balance-of-payments crisis in 2013 by submitting to an International Monetary Fund loan program worth $6.6 billion, which ended last month. Along with an easing of inflation and as domestic security threats have abated, China announced last year it would invest in projects worth about $46 billion in Pakistan as part of a so-called economic corridor.

Infrastructure Landscape
Prime Minister Nawaz Sharif is pegging his 2018 re-election campaign on bridging chronic energy and infrastructure gaps as his administration targets a 7 percent economic growth rate within two years. The construction of a six-lane highway on the eastern route of the China-Pakistan Economic Corridor is expected to start in the first quarter of next year.
“There is big gap between the potential and the actual road network,” said Mohammed Sohail, chief executive officer of Topline Securities Pakistan Ltd. in Karachi. “Investors will look into this opportunity” as the economy continues to expand, he said.
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The highway authority has so far started over $9.5 billion worth of projects in the past three years and is hoping to attract another $5 billion investment in the next five, more than half of which will be pegged to upgrade the China corridor routes, Tarar said. The length of the main highway will be tripled to 1,800 kilometers by linking all road arteries with industrial zones on the route, he said.
The 3,000-kilometer-long corridor stretches from Xinjiang in western China to Pakistan’s Gwadar on the Arabian Sea. Of China’s planned investment, $11 billion is allocated for infrastructure projects and big chunk of it will be spent in Balochistan province, home to the deep-sea port in Gwadar.
“The landscape of infrastructure is going to be transformed in the next three years,” said Tarar. “Imagine you travel from Karachi to Peshawar on the motorway, the time and energy it’ll save with security ensured. Unless you have good infrastructure the economy will drag.”

Riaz Haq said...

#Honda’s new plant inaugurated in #Pakistan to produce 1.35 million motorcycles a year in world's 6th largest market

http://www.dawn.com/news/1291204/atlas-hondas-new-facility-inaugurated


LAHORE: Takahiro Hachigo, President, CEO and Representative Director of Honda Motor Co Ltd Japan, on Thursday inaugurated new facility of Atlas Honda Ltd (AHL) in Sheikhupura to expand its motorbike production.

Speaking on the occasion, Mr Hachigo announced that Pakistan has now become the sixth largest motorcycle market in the world.

Saquib H. Shirazi, speaking on the occasion, said with the enhancement of the production capacity, Atlas Honda is now well poised to serve the expanding market.

AHL, Honda’s motorcycle production and sales joint venture in Pakistan, discussed its plans to carry out production enhancement in machining and other fields at the Sheikhupura plant during the next three years.

The annual assembly production capacity of AHL has now become 1.35 million units, with 150,000 units from the Karachi plant and 1.2 million units from the Sheikhupura plant.

Riaz Haq said...

Excerpts of World Bank Report "Making Growth Matter" released November, 2016:

http://documents.worldbank.org/curated/en/935241478612633044/pdf/109961-WP-PUBLIC-disclosed-11-9-16-5-pm-Pakistan-Development-Update-Fall-2016-with-compressed-pics.pdf

The government recently set a new national poverty line that identifies 29.5 percent
of Pakistanis as poor (using the latest available data from FY14). By back casting
this line, the poverty rate in FY02 would have been about 64.3 percent. This means
that poverty has more than halved between FY02 and FY14, even according to this
new and higher metric. The new poverty line was introduced in April 2016 precisely
because of Pakistan's success in reducing poverty over the last decade and a half.
Using the old national poverty line, set in 2001, the percentage of people living in
poverty fell from 34.7 percent in FY02 to 9.3 percent in FY14—a fall of more than
75 percent. Other sources of data corroborate this decline—ownership of assets and
dietary diversity also increased over this period. For example, in the bottom income
quintile, motorcycle ownership increased from 2 to 18 percent between FY02 and
FY14. See Section C1.

When poverty declines, it usually coincides with other gains in household welfare.
Throughout the period under review, Pakistan saw substantial gains in welfare,
including the ownership of assets, the quality of housing and an increase in school
enrollment, particularly for girls. First, the ownership of relatively more expensive
assets increased even among the poorest. In the bottom quintile, the ownership of
motorcycles increased from 2 to 18 percent, televisions from 20 to 36 percent and
refrigerators from 5 to 14 percent (see Figure 29). In contrast, there was a decline
in the ownership of cheaper assets like bicycles and radios. Housing quality in the
bottom quintile also showed an improvement. The number of homes constructed
with bricks or blocks increased while mud (katcha) homes decreased. Homes with a
flushing toilet almost doubled in the bottom quintile, from about 24 percent in
FY02 to 49 percent in FY14 (see Figure 30).

Changes in consumption patterns over time were also consistent with the poverty
decline. It is well-known that increases in income are strongly associated with
households spending less of their budget on food, and more on non-food items
(Engel’s law). In Pakistan, the 25 percentage point decline in poverty between FY02
and FY14 was associated with a 10 percentage point reduction in the share of
expenditure devoted to food (see Figure 31).

In Pakistan, the reduction in poverty led to an increase in dietary diversity for all
income groups. For the poorest, the share of expenditure devoted to milk and milk
products, chicken, eggs and fish rose, as did the share devoted to vegetables and
fruits. In contrast, the share of cereals and pulses, which provide the cheapest

calories, declined steadily between FY02 and FY14. Because foods like chicken,
eggs, vegetables, fruits, and milk and milk products are more expensive than cereals
and pulses, and have lower caloric content, this shift in consumption also increased
the amount that people spent per calorie over time (see Table 12). For the poorest
quintile, expenditure per calorie increased by over 18 percent between FY02 and
FY14.

Overall, this analysis confirms that the decline in poverty exhibited by the 2001
poverty line is quite credible, and that Pakistan has done remarkably well overall in
reducing monetary poverty based on the metric it set some 15 years ago.
------

... there is now a considerable body of
research suggesting that the link between food availability and nutritional status is
weak, and is mediated by the ambient disease environment and the quality of water
and sanitation.

Riaz Haq said...

#Pakistan’s Middle Class Soars as Stability Returns - WSJ. #economy #middleclass
https://www.wsj.com/articles/pakistans-middle-class-soars-as-stability-returns-1485945001

Pakistan, often in the headlines for terrorism, coups and poverty, has developed something else in recent years: a burgeoning middle class that is fueling economic growth and bolstering a fragile democracy.

The transformation is evident in Jamil Abbas, a tailor of women’s clothing whose 15 years of work has paid off with two children in private school and small luxuries like a refrigerator and a washing machine.

For companies like the Swiss food maker Nestlé SA, such hungry consumers signal a sea-change.

“Pakistan is entering the hot zone,” said Bruno Olierhoek, Nestlé’s CEO for Pakistan, saying the country appears to be at a tipping point of exploding demand. Nestlé’s sales in Pakistan have doubled in the past five years to $1 billion.

Although often overshadowed by giant neighbors India and China, Pakistan is the sixth most-populated country, with 200 million people. And now, major progress in the country’s security, economic and political environments have helped create the stability for a thriving middle class.

An unpublished study last year that measured living standards, from Pakistani market research firm Aftab Associates, found that 38% of the country is middle class, while a further 4% is upper class. That’s a combined 84 million people—roughly equivalent to the entire populations of Germany or Turkey.

Such households are likely to have a motorcycle, color TV, refrigerator, washing machine and at least one member who has completed school up to the age of 16, the study found. Official figures show that the proportion of households that own a motorcycle soared to 34% in 2014 from 4% in 1991, and a washing machine to 47% from 13% over that same period. These trends are also attracting international business.

In December, Royal FrieslandCampina NV, a Dutch dairy company, paid $461 million to buy control of Engro Foods, a Pakistani packaged milk producer in a country where most milk is sold unpasteurized from open milk containers.

“What we see is consumer spending is rising and a middle class coming up,” said Hans Laarakker, Engro’s new chief executive.

Late last year, China’s Shanghai Electric Power agreed to pay $1.8 billion for a majority of Karachi’s electric supply company; Turkish electrical appliance maker Arçelik paid $258 million for a Pakistani appliance maker, Dawlance, saying Pakistan has an “increasingly prosperous working and middle class”; and French car maker Renault SA said it was seeking to set up a plant in Pakistan.

Meanwhile, during the past three years, deaths from terrorist attacks have fallen by two-thirds, as the army battles jihadists. Economic growth reached an eight-year high of nearly 5% in the past financial year, and China has begun a multibillion-dollar infrastructure investment program. The Karachi stock market rose 46% last year and continues to soar.

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In the developing world, the ability to purchase durable goods such as motorcycles—which itself can lead to new opportunities in employment, education and leisure—is generally viewed as an indicator of a middle class lifestyle. Motorcycle purchases soared in Pakistan to 2 million a year now from 95,000 in 2000, leading Honda Motor Co. to double its production capacity there. Buyers of Honda’s cheapest motorcycle typically earn between just $200 and $300 a month, which would put them well below the poverty line in the West, but here that gives them disposable income.

“All these big companies globally, if they’re not looking at Pakistan, need to look at Pakistan, because it’s a huge consumption economy emerging,” said Saquib Shirazi, chief executive of Honda’s Pakistan joint venture.


Riaz Haq said...

#Pakistan's #oil demand jumps 13% on low prices, growing #economy - Oil | Platts News Article & Story. #energy http://www.platts.com/latest-news/oil/singapore/pakistans-oil-demand-jumps-13-on-low-prices-economic-27790199 …

Pakistan's oil consumption from July 2016 to February 2017 jumped 13% year on year, owing to lower petroleum product prices and higher economic activity, driven by GDP growth, foreign investment and greater political stability.

Pakistan's economy expanded 4.2% in 2016, foreign investment has continued to grow -- attracted by the multi-billion dollar China-Pakistan Economic Corridor project -- and improvements in the country's security front, following the government's efforts to combat terrorism, have also led to economic gains and additional investment.

Oil sales during the first eight months of the current fiscal year rose 13% year on year to 16.67 million mt, according to data from oil marketing companies and the Pakistan's Oil Companies Advisory Committee. Pakistan's fiscal year runs from July to June.

Motor gasoline sales increased to 4.36 million mt, up 20% year on year, while demand for high speed diesel increased 15% to 5.46 million mt, the data showed.

"Sales of both products moved north due to significantly lower prices and lower availability of compressed natural gas in the transport sector," said Muhammad Saad Ali, research analyst with Karachi-based brokerage Inter Market Securities.

The price of Pakistan's motor gasoline peaked in October 2013 at Rupees 114 ($1.1)/liter compared with Rupees 73/liter currently, while high speed diesel was at Rupees 117/liter versus the current price of Rupees 82/liter.

Sales of furnace oil also increased to 6.21 million mt from July 2016 to February 2017, up 10% year on year, driven by higher consumption by the power generation sector amid lower water levels and weak hydroelectric production.

CONSUMPTION OUTLOOK

Looking ahead, Pakistan's oil products demand is expected to see substantial growth over the next three years because of rising per capita income, higher automotive sales and growing foreign investment, according to data from energy experts and analysts.

"We believe that oil marketing companies' sales will increase in the backdrop of active transportation activity owing to projects near the China-Pakistan Economic Corridor, rising auto-financing loans and higher per capita income," said Ayesha Fayyaz, research analyst at Karachi-based brokerage Shajar Capital Ltd.

Gasoline demand is expected to increase to 10.9 million mt in the fiscal year ended June 30, 2020, from 5.8 million mt in the year ended June 2016.

The forecast is well above earlier estimates made by Pakistan's Oil Companies Advisory Committee, expecting gasoline demand to reach 8.78 million mt by 2019-20.

"Motor gasoline and high speed diesel sales will continue to be driven by improving macroeconomic factors, and rising sales of cars, bikes and rickshaws," analyst Umair Naseer of Karachi-based Topline Securities said.

"Under CPEC, there will be construction of road infrastructure and industrial units. This, we believe, will lead to an increase in transportation activity and higher gasoline and diesel demand," Naseer added.

The outlook seems less promising for furnace oil, Fayyaz said.

"We are conservative about the volumetric growth in furnace oil due to the expansion of the LNG and hydroelectric power sectors," she said.

Riaz Haq said...

#Pakistan Indus Motor Company unveils Rs4bln (US$400m) investment plan to expand production. #Automobiles #Toyota

https://www.thenews.com.pk/print/195925-Indus-Motor-Company-unveils-Rs4bln-investment-plan-to-expand-production

Indus Motor Company Limited (IMC), a country’s leading automaker, on Saturday unveiled four billion rupees investment plan to expand its annual production capacity by 200,000 units in a bid to capitalise on the growing consumer demand.

Currently, IMC holds an annual production capacity of 54,800 units, which are sold under the brand name of Toyota. The planned capacity enhancement would bring the production to 75,000 vehicles a year.

“Pakistan’s auto industry future looks very promising,” IMC Chief Executive Officer Ali Asghar Jamali told media at its third auto workshop.

“I am hopeful that Pakistan will be producing 500,000 cars per year by 2022,” Jamali said.

The demand for local as well as used cars has exponentially been growing for the last three years due to overall improvement in the macroeconomic activities.

Despite being a world’s biggest densely-populated country, Pakistan has, however, not seen rapid motorisation. The country has only 16 cars per 1,000 people. By 2020 the ratio is likely to reach 20 cars per 1,000.

Industry experts are expecting a fast growth in car sales due to growing and young middle-class in the country.

The experts said the country is the third largest growing economy in emerging market and it could benefit from the ongoing $57 billion worth of China-Pak Economic Corridor (CPEC) projects.

IMC recorded five percent drop in sales during the July-February period of 2016/17, but in light commercial vehicle -- vans and jeeps – sales of Toyota Fortuner increased to 568 during the period from 368 units in the corresponding period.

Analyst Sohaib Subzwari at Taurus Securities Limited attributed the fall in sales to “strong demand for Honda Civic and operational issues restricting production.”

Subzwari, however, said the growing construction and road network development activities on account of CPEC would contribute to growth in volumes of heavy and light commercial vehicles.

In July-February, IMC emerged as the second leading player by number of sold vehicles. Pak Suzuki was the first, while Honda was the third.

The government recently announced auto policy 2016-21 containing a number of incentives for Greenfield and Brownfield projects in the country’s Japanese-dominated auto market.

IMC started its operation as a joint venture of House of Habib of Pakistan, Toyota Motor Corporation and Toyota Tsusho Corporation of Japan in 1989.

Analysts said auto industry generally feels comfortable about the new auto policy, which they say has provided a solid road map to the investors to plan investment for a long period.

On premium (own money) and black marketing, Jamali said the government should impose Rs100,000 as a levy per car if the first owner sells it within six months of the purchase. “This will eliminate the middleman and investors who create artificial shortage of cars in the market,” he added.

Car manufacturers said import of used cars poses the biggest threat to the local industry’s survival.

“We purchase local parts of Rs150 million on every working day, which becomes Rs40 billion per year,” said IMC executive.

Pakistan imports more than 46,500 used cars in a year, around 15 percent of the total car sales of 283,000 units in 2016.

Aamir Allawalla, ex-chairman of Pakistan Association of Automotive Parts and Accessories Manufacturers (Paapam) said import of five-year old used vehicles dented the industry as it led to shutdown of several plants.

“New variants to be introduced by local players in the next years would, however, give a tough competition to the imported cars,” Allawalla said.

He said local industry wants long-term auto policies to get return on their investment and in order to avert ‘sudden shocks’. A huge investment in the sector has been planned, he added.


Riaz Haq said...

#Pakistan #automobile #motorcycle parts Industry looks for joint ventures with #Thailand

https://tribune.com.pk/story/1369096/auto-parts-industry-looks-joint-ventures-thailand/

Pakistan auto part makers have met with their Thai counterparts in Bangkok to discuss the planned free trade agreement (FTA) and the possibility of joint ventures between the two countries.

The delegation from Pakistan was led by Pakistan Association of Automotive Parts and Accessories Manufacturers (Paapam) Chairman Mashood Ali Khan.

Khan said he was optimistic that a Thai delegation would visit Pakistan soon to push forward bilateral talks. Paapam had earlier expressed reservations about the proposed FTA with Thailand, fearing it may hurt interests of the local industry in coming years.

The delegation informed Thai auto part manufacturers about the rapidly growing automotive market in Pakistan, according to a press release. Paapam asked them to provide a complete list of their components with HS code and other details and also discussed the possibility of joint ventures.

Riaz Haq said...

#Honda Atlas launches BR-V, first locally produced subcompact SUV, in #Pakistan, starts from Rs2.23m. #automobile

https://tribune.com.pk/story/1390278/honda-atlas-launches-br-v-pakistan-heres-everything-need-know/

Honda Atlas launched its first locally produced subcompact Sports Utility Vehicle (SUV) on Friday, comprising 45% local components, stated the company.


The Bold Runabout Vehicle (BR-V) – which seats seven people – costs about Rs2.23 million and Rs2.33 million for its i-VTEC and i-VTEC S variants, respectively. It features a 1.5litre engine.

According to the company, the low price is courtesy local components used in the manufacturing. Additionally, through this price, Honda is looking to boost its sales by attracting existing as well as new customers who are willing to enter the SUV family.

“SUVs in Pakistan are too costly and are mostly out of range for many customers,” said Honda Atlas Cars Pakistan Limited General Manager Sales and Marketing Nadeem Azam. “With the price range we are offering, about 90% of customers can now afford the new variants, which will attract new as well as existing customers of other companies too.”

The company is also looking to tap rural as well as urban markets with the newly-launched SUV. “We are confident that BR-V will strongly appeal to the urban and rural customers and accelerate our growth while strengthening our brand presence in the country,” said Honda Atlas Cars Pakistan Limited President and CEO Toichi Ishiyama. “Pakistan is a key market for Honda and as part of our business expansion; we are focusing on increasing our customer base and will be bringing a lot of new and innovative products in the future.”