February 13, 2012
It was possible to see this potential before 2007. Ranked highly for the openness of its markets, the country drew billions in foreign investment in the mid-2000s while chalking up growth rates of seven percent per year. Its equity markets were one of the best performers worldwide. The middle class was expanding rapidly, reaching into the tens of millions. Goldman predicted in 2007 that Pakistan could “ultimately have the potential to become similar to the smaller of today’s G7 in terms of size.”
Of course, much has changed since 2007. Or has it?
But except for spikes in terrorist attacks and drone strikes—and a concomitant deterioration in sentiment towards and within the country—all of Pakistan’s other problems existed five years ago.
Many of the problems the country faces can be found in some form in other emerging markets such as India, Indonesia, Mexico, and Nigeria, all of which are increasingly targeted by international investors. Nigeria, for instance, has suffered from terrorism, attacks on churches and mosques, and nationwide strikes—all in the last few weeks. It also has a long history of military intervention into politics. Mexico’s war against the country’s drug cartels has produced nearly 40,000 deaths over the past five years—roughly the same number as Pakistan’s troubles (in a country that has far fewer people).
It also is a much less violent country than commonly believed. The homicide rate per year per 100,000 inhabitants is one-third of Brazil’s, on par with Estonia, and lower than Costa Rica, Kazakhstan, and Indonesia, none of which are known as especially violent places. As Pakistani ambassador to China Masood Khan told the China-Pakistan Cooperation Conference in Beijing in October:
However, this is certainly not how the country is perceived. Indeed, “You tend to hear the worst 5% of the Pakistan story 95% of the time,” as Pakistani entrepreneur Monis Rahman explained.
Changing the narrative—returning it to where it was half a decade ago—may not be easy, but offers very high returns. After all, Pakistan’s economy will determine the long-run path for the country, making it a more critical issue than many of the immediate crises plaguing the state.
Possibly the best way to do this would be to open up trade with India. As Dr. S. Akbar Zaidi has noted,
The recent decision by Pakistan to grant Most Favored Nation (MFN) status to India could be extremely significant, but it remains unclear whether the deal will actually go through.
Donors such as DFID and USAID, both of which have made the country one of their top priorities, have a lot at stake here. The effectiveness of their programs for Pakistan depend to a great extent on whether this narrative can be changed such that investors return, growth rates pick up, and a virtuous cycle that eases many of the country’s ailments can be started.
They therefore should be emphasizing programs that can change this narrative. Besides indirectly aiding efforts to open up trade with India, they ought to consider what might change perceptions about Pakistan. What initiatives might ensure enough security for investors so they factor it more out of their thinking? What projects might make people (inside and outside the country) think differently about Pakistan’s prospects? How might the country’s positives be better broadcast to those (such as the diaspora) with the greatest possibility of putting their money at risk? How might the country’s burgeoning remittances be better channeled towards development? How might the legions of small businesspeople that matter so much to the economy be encouraged to believe more in its future (and thus invest more)?
As the recent financial crisis made vividly clear, investors often choose between greed and fear with a herd mentality. Right now everyone is scared of Pakistan. Those outside of the country stay away. Those inside are risk adverse. These concerns are not completely unwarranted, but they are immensely exaggerated. Whatever can be done to break this bubble of pessimism promises to have a large impact on the country’s future.
The above is based on my work chairing the working group on State Building in Pakistan during the 2011 Global Economic Symposium
Pakistan an emerging market for investment
Pakistan, rich with exciting opportunities, is an emerging market for Chinese investment in diverse sectors. These views were expressed by VP SAARC Chamber of Commerce and Industry, Pak chapter Iftikhar Ali Malik,a veteran trade leader and SVP,LCCI Meher Kashif Younis on Sunday while talking to APP.
They said “Pakistan is now open to Chinese businessmen with best atmosphere of investment which provide significant possibilities for Chinese and other foreign investors.” With Chinese investment, Pakistan would achieve sustained growth in key sectors,including increase in per capita income and improvement in micro-economic in the years to come, they added.
Iftikhar Ali Malik said current visit of Prime Minister Syed Yusuf Raza Gilani to China at Boao Forum will not only further strengthen bilateral relations but also boost trade ties between the two countries.
He observed that Pakistan is ideally located which has geographically immediate access to the Central Asian Republics and has a competitively affordable and expanding work force of 36 million. He said Pakistan’s foreign investment policy was open and liberal, which was a good news for Chinese companies interested in doing business here.
Meher Kashif said Lahore Chamber and all other chambers across the country including Federation of Pakistan Chamber would help Chinese corporate sector to identify opportunities in Pakistan’s vast resource based industries, such as oil, gas and petrochemicals, a fast growing infrastructure sector and other industries such as power and water, IT, garments, Agriculture, livestock, communication, software and automotive manufacturing.
