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Archive for category Economy

Forget India, profit from ‘quiet rise’ of Pakistan, S Lanka, BD: Barron’s Asia & Pakistan: An Undiscovered Land Of Opportunities by Bader Al Hussain

Sri Lanka-BD-Barrons-AsiaForget India, profit from ‘quiet rise’ of Pakistan, S Lanka, BD: Barron’s Asia

Forget India, profit from ‘quiet rise’ of Pakistan, S Lanka, BD: Barron’s Asia

ISLAMABAD: Investors should forget India and instead profit from the ‘quiet rise’ of Pakistan along with Sri Lanka and Bangladesh, Barron’s Asia said.

“Forget India. Investors looking for the next big thing should look to its South Asia neighbours instead — Pakistan, Bangladesh and Sri Lanka,” America’s financial magazine in an article said.

According to the article, the three countries with a combined 390 million people represent what Morgan Stanley chief global strategist Ruchir Sharma calls “the quiet rise of South Asia” as opposed to India which has been “flattered by spasms of hype for years”.

While overshadowed by their larger neighbour, the trio is enjoying fast-paced growth, embracing much needed reforms, and look set to enjoy a demographic dividend over the long term. “A substantially higher economic growth rate than in many other economies globally, coupled with fantastic demographics that will continue supporting growth for many years ahead,” East Capital fund manager Adrian Pop tells Barron’s Asia.

The article mentions that Pakistan is the flag-bearer of the positive changes taking place in the South Asian nations. Since coming to power five years ago, Prime Minister Nawaz Sharif has got inflation under control, cut the budget deficit and reined in the current account deficit. But more importantly, terrorism finally appears to be on the backfoot given more assertive action by the army. Chinese investment has also poured in: $50 billion will be spent on new roads, transport links and energy projects.

“More power capacity is key for Pakistan to move to an even higher economic growth rate,” says Pop. That will benefit stocks in materials and energy.In December, the Pakistan Stock Exchange sold 40 percent of itself to a consortium of Chinese investors.

The Karachi stock index is up by about 50 percent since the start of last year, propelled by index compiler MSCI’s decision to bump up the country to emerging markets status. That will bring in hundreds of millions of dollars from passive funds into the Pakistani benchmark. The rally in stocks has arguably left the market looking a little pricey as the KSE 100 index trades at over 12 times earnings, its heftiest valuation since late 2009. That’s still about a 15 percent discount to the MSCI emerging markets index, however, plus Pakistani stocks yield an attractive 4 percent-plus dividend.

Bangladesh benefits from a growing working age population and rising labour costs elsewhere in Asia. Garment manufacturing for Western clothing companies has increasingly moved from China to places like Bangladesh, where wages are lower.

The article said in August it tipped downstream firm Pakistan State Oil (PSO.PK), which has since risen 10 percent. It’s worth hanging onto that stock, but we’d add upstream exploration player Oil & Gas Development (OGDC) to the mix too.

Shares in the Islamabad-based company have powered up 45 percent in the last year, and could rise by a further 30 percent.Oil & Gas Development will benefit from any further recovery in oil prices, which have roughly doubled since hitting their nadir last February.

Earnings per share should rise by 17 percent in full-year 2017 and 20 percent in full-year 2018. Oil & Gas Development trades at eight times forward earnings, which is toward the higher end of its historical valuation. That multiple is more compelling than exploration peer Pakistan Petroleum (PPL), however, which trades at 10 times next 12 months’ earnings.

About Lahore’s DG Khan Cement (DGKC), which is one of the country’s largest cement producers, with a capacity of more than four million tons a year. The stock also makes a good foundation for a Pakistan portfolio.

At the end of December, the countries jointly announced a $14 billion dam project close to DG Khan’s HQ in northern Pakistan. The dam will need about a million tons of cement.

Shares in the company have returned a solid 50 percent over the last year. DG Khan’s valuations looks a bit less stretched than that of rival Lucky Cement (LUCKY), which investors were told to pour into their portfolio over summer.

DG Khan trades at 10 times forward earnings, compared to Lucky’s 16 times. Its dividend yield of 2.6% is also bigger than its rival. Brokers think DG Khan can rise by as much as 25 percent.

Reference

Pakistan: An Undiscovered Land Of Opportunities

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Includes: NTWK, PAK, PKKKY

Bader Al Hussain

Growth, long-term horizon, research analyst, long/short equity

Summary

Lowest market P/E in the region with the highest return.

Macroeconomic stability.

Upgradation of Moody’s rating of the country.

Pakistan is the 26th largest economy according to PPP (Purchasing Power Parity), and the sixth largest populous country in the world with a burgeoning middle class, having 54% of the population below the age of 24 years. In news, Pakistan has been presented as the turbulent nation embroiled in militancy and political violence. However, the landscape of the country has been changing since the past two years, with an improving macroeconomic situation, steady political outlook and substantial improvement in law and order, and the upgradation of its bond ratings from Caa1 to B3, a stable outlook.

On 9th June 2015, the MSCI stated about a potential reclassification of the MSCI Pakistan Index into Emerging Markets from the current classification of Frontier Markets in its 2016 Annual Market Classification review. This categorization would trigger a large flow of emerging market funds to return to Pakistan as the MSCI Emerging Market Index is tracked by global funds worth $1.7 trillion, according to Bloomberg.

Further, in one of the lectures at the Aga Khan University, the Chief Investment Strategist of Morgan Stanley said that Pakistan’s rise is just a matter of time. This was due to the favorable demographics and the lower P/E of the stocks – performing better in terms of return – when compared to the markets of the developed world.

The KSE 100 Index, which tracks the top 100 companies out of the 557 listed on the stock exchange had a five-year US dollar CAGR of 25% (highest among its peers) and net profit margins 60% above the five-year average of the peer group whose margins are 10.2% lower than its five-year average. The Bourse has an average ROE of 19.2% against the peer average of 10.2%.

Pakistani stocks are cheaper when compared to their regional peers. Consider the following graph for further details:

As the above graph illustrates, Pakistani stocks have a lower P/E, P/B and higher dividend yield relative to its peers.

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India afraid of Pakistan’s economic stability: Swedish Think Tank

India afraid of Pakistan's economic stability: Swedish thinktank

Swedish think-tank has pointed out that India is afraid of Pakistan’s economic stability through China-Pakistan Economic Corridor (CPEC).

According to the report titled “Silk Road Economic Belt considering security implications and the EU-China cooperation prospects”, India does not want China to perform as a mediator in the disputes, a private news channel reported.

“There is considerable concern within India that China, which has been neutral on Kashmir since 1963, can no longer be so now that its economic and security interests in these territories are growing in stake,” says a report by the Stockholm International Peace Research Institute (Sipri) – a Sweden-based think tank.

It further stated that China’s involvement after implementation of CPEC would possibly make it a stakeholder in Kashmir dispute as India does not want to internationalize this matter.

The report stated that India is depressed over the chances of employment in Pakistan after CPEC project.

Reference

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Pakistan amongst World’s fastest growing e-commerce markets: CEO eBay

Pakistan amongst World’s fastest growing e-commerce markets: CEO eBay

Pakistan amongst World's fastest growing e-commerce markets: CEO eBay

In a Facebook Live session on the page of the World Economic Forum (WEF), Wenig was asked a question regarding his thoughts on Pakistan and emerging markets.

“It’s the fastest growing markets we have around the world. Anywhere where wealth is growing and technology is being adopted, e-commerce is being adopted like crazy,” said Wenig.

 

According to the eBay CEO, the perfect opportunity for e-commerce was in countries where people were growing in wealth and do not have access to goods. “People use e-commerce to get access to those goods”.

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STOP NAWAZ SHARIF’S WILD SPENDING: PAKISTAN’S DAUNTING DEFICITS

PAKISTAN’S DAUNTING DEFICITS

DR.ISHRAT HUSAIN 

 Former Governor
State Bank of Pakistan

 

 

 

 

The writer is dean and director at the Institute of Business Administration, Karachi.
The writer is dean and director at the Institute of Business Administration, Karachi.
Pakistan’s daunting deficits The government of the day has to answer these questions and satisfy its critics.

But this excessive preoccupation with short-term issues leads to the neglect of long-term issues that responsible governments must address. It is hard to predict where we would be in the next 10 to 20 years but evolving global trends do leave some pointers. Action will follow only if the gravity of the situation is realised. Benchmarking Pakistan of 2015 with other countries at the same level of development in the past and taking stock of the future determines that a few big deficits are critical for our future development.


Action will follow only if the gravity of the situation is realised.


Coping with climate change

The risks to energy, water and food security arising out of patterns of climate change are now well documented and substantiated by strong scientific evidence. The vast network of irrigation canals, barrages, headworks etc. has allowed us to be self-sufficient in food. But the global warming that will melt the Himalayan glaciers — the source of our rivers — would result in floods and then prolonged droughts. Already a water-stressed country, the non-availability of irrigation water for our major food and cash crops would be simply devastating. Population growth by that time would add another 100 million mouths to feed. International trade in food would be minuscule as the extreme weather would hurt the harvest in the surplus countries also. Pakistan has hardly done any preparatory work to develop drought-resistant, high-yield varieties of major crops that can be grown in a highly water-scarce environment.

Governance deficit

Underpinning most of the challenges and crises facing Pakistan is the deep-rooted governance deficit. Energy shortages are not due to inadequate generation capacity but to theft, losses, non-recovery of dues, and mismanagement by electric and gas companies. Low-tax revenues accrue due to inefficiency, lack of effort and connivance between taxpayers and tax collectors. Public enterprises incur heavy losses subsidised by the exchequer because of nepotism and favouritism in the appointments of chief executives. Poor law and order, arms, drug smuggling, terrorist hideouts all owe their sustenance to the auction of thanas to the highest bidders. A neutral, competent civil service imbued with a sense of public service can alone fill this deficit.

Trust deficit

Pakistani society has become more fragmented, highly divisive, excessively polarised and stubbornly intolerant. Mistrust, intolerance, sectarian rivalries, religious and ethnic divides have gradually eroded social capital, the glue that binds diverse communities. In a deeply divided, suspicious and insecure society the transaction cost becomes high and the speed of the economic vehicle is slowed down. Post-9/11 events have exacerbated these cleavages and nurtured new forces of violence, extremism, radicalism and terrorism throughout the country.

Skill deficit

The average schooling years of the labour force in Pakistan is low and the demographic dividend is unlikely to be cashed if the present educational policies and management practices continue to persist. Thousands of unemployable graduates produced by the universities are either attracted to terrorism, crime or suffer misery and deprivation.

Conversely, garment factories are looking for stitchers and construction companies are short of welders. Technical and vocational enrolment is less than 1pc while the country needs five times more technicians, mechanics, welders, HVAC operators, nurses, paramedics. These can be absorbed not only in the country but also abroad. Internet penetration, mobile phone, broadband wireless and fibre optic backbone have not been used for training or upgrading the skills of the existing workforce or others living in the country’s remote areas.

Gender deficit

Gender disparity (only 20pc of women participate in the labour force, most of them unpaid family workers in rural areas) has sapped the economy’s vitality. Bangladesh which was lagging behind until the early 2000s has been able to overtake Pakistan in key economic and social indicators. High rates of female literacy and female labour force participation explain much of the variance. Unless one half of the population is empowered to take part in production and services sectors, economic stagnation is likely to persist.

Technology deficit

Japan, Korea and China have been successful because of technology diffusion and application in their production processes. They went through a cycle of learning by doing, by reverse engineering, imitating and adapting the techniques of production to their factor endowment and selling them at competitive prices. New firms and start-ups replaced old firms. In Pakistan, the industrial production base has remained unaltered for several decades. Rent-seeking and extracting concessions by existing firms have become commonplace. Innovation, new start-ups and entrepreneurship are sadly missing. R&D institutions are mired in red tape and academic-industry interactions are almost non-existent.

Competitiveness deficit

Pakistan inherited one of the world’s finest irrigation systems covering 80pc of arable land. The Indus Basin Works, dams and reservoirs, barrages and link canals and a large reservoir of groundwater added to our capacity. Any other country would have utilised such a scarce resource for producing high-value crops and their industrial derivative for exports. But we are contented with producing low-value crops. Water losses, neglect of maintenance and desilting of canals, the poor state of barrages, absence of lining water courses, waste and inefficient utilisation, inadequate assessment and weak recovery of water charges have eroded the natural resource-based comparative advantage. Cotton yields in India have more than doubled in the last decade while our national average has remained stagnant. The productivity gap between the average farmer and the progressive farmer, if narrowed, could restore this advantage. Pakistan’s export structure has remained unaltered since 1990. Consequently, our share in the markets is declining while that of India and Bangladesh has doubled and tripled.

The writer is dean and director at the Institute of Business Administration, Karachi.

Published in Dawn, January 16th, 2016

Additional Reading

Pakistani Elites Must Pay Fair Share of Taxes For National Independence

 
As Pakistan’s ruling elite and its ghairat brigade, led by PML’s Sharif brothers, engage in loud empty rhetoric about infringement of their national sovereignty by the United States, here is something to ponder:

Pakistan runs chronic budget deficits of around 5% of its GDP, and its government collects less than 10% of GDP in tax revenue which is among the lowest in the world. A big share of these deficits is funded by foreign aid and loans, making Pakistanis beholden to the interests and whims of major foreign donors and lenders.

Pakistan’s tax policies are among the most regressive in the world. Direct taxes make up less than 3.5 percent of GDP, with wide ranging exemptions to powerful segments of society coupled with governance issues at Federal Board of Revenue, according to former finance minister Shaukat Tarin. The bulk of the tax receipts are collected in the form of sales tax, placing the heaviest burden on the lower-income people who spend almost all of their income on their basic needs.

The other major weakness in public finances is the lack of fiscal effort by the provinces. With some of the largest segments of economic activity such as agriculture, real estate, and services in the provincial domain, the provincial tax receipts total an abysmal 0.7 percent of GDP.

Farm income, mostly earned by the nation’s feudal ruling elite, accounting for about 20% of the GDP is entirely exempt from any income tax under the law. Only about2 million of 180 million Pakistanis pay income tax. Of them, 1.8 million are salaried and paid Rs.27.37 billion in taxes during ended fiscal 2008-09, according to a report to the Senate by Minister of State for Finance and Economic Affairs Hina Rabbani Khar. The government runs large current account deficits, forcing it to beg and borrow to meet the budget needs. The budget deficit for2008-09 was 4.3%of GDP and it is likely to grow with lower revenue amidst slowing economy in 2009-10. The tax evasion in Pakistan is estimated atRs500 – 600 billion a year, almost half of the total tax collection of about Rs1200 billion during 2007-08. The untapped amount is almost equivalent to the country’s annual budget deficit.

In a country where majority of the transactions, including purchase of big ticket items, occur in cash, there is widespread tax evasion and a sizable informal economy. The estimates for Pakistan’s underground economy vary from 25% to 50% of the formal economy. A recentWorld Bank (WB) report concluded that every Pakistani citizen evaded tax amounting to Rs 4800 in the year 2007-08, while the total tax evaded in the period stood at Rs 796 billion.

Food prices have dramatically increased since the current PPP government took power in 2008. These higher food and commodity prices are resulting in the transfer of additional new tax-free farm income of about Rs. 300 billion in the current fiscal year alone to Pakistan’s ruling party’s power base of landowners in small towns and villages in Southern Punjab and Rural Sindh, from those working in the the economically stagnant urban industrial and service sectors who pay bulk of the taxes. The downside of it is an even bigger hole in Pakistan’s pubic finances which is being funded with increased foreign aid and loans.

During the height of corruption under Bhutto-Zardari-Sharif governments in the 1990s, the size of the underground economy rose to almost 55% in 1999, by one estimate. As the military regime of President Musharraf cracked down on tax cheats, the nation’s revenue collection doubled from Rs. 500 million in 2000 to to Rs. 1.04 trillion in 2007-08.

While the income, assets and taxes of the president and top government officials are publicly disclosed and heavily scrutinized by all in the US, no such transparency exists in Pakistan. In fact, tax cheating in Pakistan starts at the top. The richest and the most powerful politicians in the ruling elite pay little or no taxes, setting a horrible example for the rest of the nation.

For example, Benazir Bhutto, Asif Zardari and Nusrat Bhutto declared assets totaling $1.2 million in 1996 and never told Pakistani authorities of any foreign bank accounts or properties, as required by law in Pakistan. Zardari declared no net assets at all in 1990, the year Bhutto’s first term ended, and only $402,000 in 1996, according to a report in the New York Times.

Bhutto’s family’s income tax declarations were similarly modest. The highest income Bhutto declared was $42,200 in 1996, with $5,110 in tax. In two of her years as prime minister, 1993 and 1994, she paid no income tax at all. Zardari’s highest declared income was $13,100, also in 1996, when interest on bank deposits he controlled in Switzerland exceeded that much every week. In June 2008, a senior PPP leader and president of Pakistan’s Supreme Court Bar Association, Mr. Aitzaz Ahsan, who was interior minister in Benazir Bhutto’s first government, told James Traub of the New York Times that most of the corruption and criminal cases against PPP Co-Chairman Asif Ali Zardari which were dropped recently in Pakistan were justified, and that the PPP was a feudal political party led by a figure (Zardari) accused of corruption and violence. After a moment’s reflection, Ahsan further added, “The type of expenses that she had and he has are not from sources of income that can be lawfully explained and accounted for.”

It was only in 2007 that President Asif Ali Zardari returned to Pakistan under an amnesty, euphemistically called National Reconciliation Ordinance (NRO), sponsored by the Americans. However, the Americans know that the corruption charges against  Zardari were credible and he, along with his late wife, was convicted in at least one case by a Swiss judge. The conviction was under appeal in Switzerland when Pakistan government withdrew all charges pursuant to the NRO signed by then President Musharraf under pressure from the Americans.

The PPP leadership is not alone in evading taxes. The PML leadership appears to be just as guilty. The entire Sharif family paid a nominal income tax of Rs 250,000, wealth tax of Rs 550,000 and agriculture tax of Rs 130,000, considering their vast assets and properties of at least 23 sugar and textile mills and huge agricultural land, according to the News. The tax evasion by the Sharif family was the reason that the donor agencies giving aid to Pakistan in late 1990s insisted on publishing tax records of all lawmakers and senior bureaucrats, The News said, adding that for this reason, the donor agencies insisted on broadening the tax net to prop up government revenues.

As Pakistan faces a severe economic crisis and the current leaders appear ready to mortgage the nation’s future, the chances of the ruling elite setting a good example by paying their taxes in full appear rather remote. In fact, the feudal politicians are fighting the current IMF condition for even a modest tax on farm income. The only hope for a fairer tax system and improved collection from the rich and powerful to fund education and health care lies in serious and sustained pressure on Pakistan’s ruling elite from the donors and lenders, backed by the United States.

To conclude this post, let me quote former finance minister who said the following in a recent op ed: “At the heart of it, these issues are related to governance. This state of affairs is a manifestation of a broader challenge that Pakistan has grappled with virtually since independence– the shifting of the burden of responsibility by a small, self-serving and venal elite to the rest of the population.”

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We are the problem and none else Asif Haroon Raja

 
 
 
 
 
 
 
 
 
 
 
“The fault, dear Brutus, is not in our stars / But in ourselves, that we are underlings.” (Julius Caesar, Act I, Scene III, L. 140-141)

 

We are the problem and none else

Asif Haroon Raja

 

Pakistan suffers from multiple ailments. None care to carry out an appraisal as to what is wrong with Pakistan and why Pakistan is perpetually sick and not getting cured. Over a period of time, we seem to have lost our direction and have gone astray. The society as a whole is sunk in the pool of moral degeneration. High morals, principles, ethics, values, respect, brotherhood, affections and honesty are all stories of the past. Lies, deception, crookery, thuggery and corruption have become norms. Majority has chosen dishonesty as a way of life. In the past these traits were mostly found among the elites but now these have permeated down to the lowest class of people. All prefer to live in hypocrisy, mendacity, and squalor. People are averse to speaking the truth since telling the truth requires courage and character. Afraid of consequences, we go the easy way and in the process we have become addicted to lying. Those who say that these characteristics are found in every country of the world, and each human being has these tendencies may not be speaking the whole truth since these collective diseases are in abundance in Pakistan and are not seen anywhere else.

 

It is hard to get food items free of adulteration. Pure ghee is made out of fats of dead dogs and donkeys. Meat of donkeys and dead cows/buffaloes are sold in meat shops. Drugs including lifesaving drugs are spurious. We consume contaminated spices, cooking oil, milk and soft drinks. Fakery in all our dealings is rampant. Child labor, child abuse, human trafficking, hoarding, black marketing, smuggling, kidnapping for ransom, extortion are common. Lower courts and police can easily be swayed or bought. Police instead of catching the culprits and criminals gets in league with them. Hand of law fall upon the poor only. Our law makers are the biggest violators of rule of law. They either break or bend laws to suit their convenience. We indulge in them rather than striving to overcome them. We may deny it but the world perceives us that way. Instead of working hard to overcome our weak areas we lament and blame others for our failings.  

 

Sickness is within ourselves. The students choose to plagiarize and cheat. Men and women enter into marriage under false pretenses. Pompousness and vulgar show of wealth by the rich is in fashion, and so is nepotism and sycophancy. Suffering from superiority complex, the elites look down upon the poor. Problem lies with those who allow religion to give them a sense of false complacency. And those who pander to the powerful and the mighty, and ignore the weak and the frightened.

 

May I hazard to ask them who their gods are? Not Allah, surely. Their gods are flawed beings whom they admire and worship, and their own base selves. Parents who chastise their children, but never spend time with them, explaining right from wrong, the problem lies with them. And they try to assuage their children with toys and electronics, cars and jewels. Problem lies with the teaching community in schools and colleges who fall much short of acting as role models for the students.

 

Undoubtedly, Pakistan suffers from leadership crisis and is saddled with corrupt leaders and legislators who care a lot for their vested interests but little for national interests, but we are responsible for electing them again and again. We get swayed by their false promises and forget their past follies. We think in terms of political party affiliations, ethnic, linguistic and caste basis and pay little heed to national interests.  As a result, we are a divided nation and despite being a nuclear power and blessed with strong armed forces, everyone whips Pakistan. While Corruption is eating into the vitals of the country like a termite, terrorism is jolting the very foundations of Pakistan.    

 

Isn’t it high time to stop thinking that the problem is the army, the politicians, the mullahs, the nation? The problem is us. We are the problem. The same students who plagiarise their papers, who cheat in their exams, are clamoring at rallies screaming for “Inquilab”. The same women and men who point fingers at the immoral leaders are cheating on their spouses. The same men who lambast the feudals and industrialists are cheating on their taxes and not paying their electricity bills. The same people who donate so much money to the poor are underpaying their servants. 
Each and every person in Pakistan contributes to this system. We are the problem. 
And each person who says, “Not me, I’m honest” is the biggest liar of all. 

Nuclear might, strong army, and full coffers will neither make us a strong nation, nor will help in making us morally strong and virtuous. Each one of us will have to carry out self-accountability and put his/her own house in order rather than finding faults in others. Home is the best training centre followed by the educational institute to guide the youth towards constructive channels. These two reformatory laboratories need to play their role effectively. Once we bridge the societal divides and get united, improve our moral fibre and follow the righteous path as inscribed in the Quran and taught by Prophet Muhammad (pbuh), only then will Allah shower His blessings, and grant us an upright, honest, pious and bold leader who will cure the diseases of Pakistan and make it healthy and prosperous. Only then we as a nation will be able to confront the internal and external challenges squarely and lead an honorable life.    

 

 

The writer is a defence analyst, columnist, and author of five books. asifharoonraja@gmail.com

 

 

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