nice article about Pakistan from the Times
THEY call Yasin Lakhani, chairman of Karachi’s stock exchange, the “incorrigible bull”. And last Thursday he was in full charge when the index closed at a record 7,014.
Lakhani is not the only bull in Pakistan’s commercial capital. A new wealthy middle class has been created in the five years since General Pervez Musharraf took over as president after a military coup. Since then the stock-market index has shot up by a factor of almost seven — and all the gains are tax free.
When Musharraf seized power he hired Shaukat Aziz, a former Citigroup investment banker, as his finance minister, and last year Aziz became prime minister.
Having fallen behind India and China in attracting foreign investment, the Pakistani government is going all out to persuade western businesses to use the country’s cheap labour and land to make money.
In an interview with The Sunday Times, Aziz said: “When the world was taking off in the 1980s and 1990s, we were busy with internal politics. This did not provide the continuity that a develop- ing country needs.”
Aziz now argues that Pakistan has a stable political environment, and is a better place for western companies to outsource than India or China.This year Pakistan’s exports are set to hit $14 billion (£7.4 billion) and Musharraf is predicting that GDP growth will rise from 6.7% to 7.5%.
So despite extremist factions and regional violence, Pakistan believes it is on a roll. Its leaders deny that its recovery is underpinned by American support when it threw its weight behind the United States after September 11.
In Karachi, BMW has just opened its first dealership, and if you want any new car you have to wait a year or pay a 15% premium.
The price of an average house for a middle-class professional in Karachi has soared from $80,000 to $350,000 — and because there are only limited mortgages, analysts argue this is not a speculative bubble.
It is little wonder that Ali Ansari, chief executive of Pakistan’s biggest broking house, Aqeel Karim Dhedhi Securities (AKDS), said: “We may not have the Porsches and the red braces, but apart from that it is almost the same. You only have to go to a high-society party or wedding and you will see how elaborate it is. We have never had it so good.”
Many foreign businessmen are still suspicious about Pakistan’s recovery, but last week they came to the country’s first export exhibition. There were delegates from 75 countries. About 100 were from England, including suppliers to Tesco, Asda and all the big high-street clothes stores.
Musharraf, who has faced two attempts on his life, admits that the country has to rebrand itself from what its critics describe as a “Kalashnikov culture”. He said: “There is a perception that you would see extremists firing bullets and exploding bombs all over the place. This is a total misconception.”
The country has just issued its second international bond, this time raising $600m, an issue that was two times oversubscribed. The Karachi stock exchange was the best-performing exchange in 2003 and last year it rose a further 50%. More than 1m individuals now own shares on the Karachi exchange and more will follow with a number of big privatisations in the pipeline. This could include the demutualisation of the stock exchange.
AKDS’s Ansari believes even at today’s level the stock market is not overvalued. He said that after Pakistani’s nuclear blast in 1998, foreign investors, who accounted for up to 20% of the market, dumped their stock. Share prices crashed and in some cases dividend yields rose to 18%. He said the average price/earnings ratio is still only 12.5 and the average yield is about 7%.
Ansari is one of many Pakistanis who have returned to their country to seize the opportunities. Since 2000, his firm has raised its staff from 24 to 300 and is building a new HQ.
AKDS accounts for 18% of the $700m that is traded daily on the Karachi exchange. Overseas investors account for only 1% of the market.
Ansari said: “They have not understood the situation as it has unfolded. There has been a structural change in the economy, we have come out of the debt trap and our interest rates have come down.”
Much of the stock market’s rise is due to privatisations, and now the government is looking to foreign investors to take over the management of assets that were once owned by the state.
The appetite for this is currently being tested. The government is trying to sell 26% of Pakistan Telecommunications, 51% of Pakistan State Oil and 73% of Karachi Electricity Supply Corporation.
Waseem Haqqie, chairman of the government’s board of investment, said: “The government recognises that the private sector is the engine of growth and the government has to wash its hands of running business.”
Musharraf is talking the language that big business likes to hear. Last Wednesday evening, he told delegates to the Expo exhibition that 700 foreign companies were operating in the country, and they were all making double-digit returns — some were making 50%. He said the hourly labour rate is only $0.37 (20p) in Pakistan, lower than India ($0.58) and China at ($0.67). “Pakistan is the venue for the best possible returns on any investment,” he said.
But some overseas investors remain sceptical. Margins may be high but when you strip out security costs and political volatility, they quickly diminish.
However, a growing number of foreign companies agree with Musharraf. A Manchester firm called Drillcorer has just moved production of its drills to Pakistan. The result is that it can now sell them for £15,000 rather than the £65,000 it would have to charge if they were produced in Britain. Honda is moving two motorcycle factories to Pakistan.
For the past two years Pakistan’s manufacturing sector has being growing at more than 15% a year. Foreign investment, led by America and Britain, has been growing at 100% a year.
These are encouraging statistics, but if Pakistan and its population of 150m is going to sit alongside India and China it must make sure it can sustain growth. Critics still recall the days when the country’s government was riddled with corruption. As one British businessman said: “There was a long-standing joke about the minister of mines — so called because he said that’s mine and that’s mine.”
Musharraf and Aziz say they are determined to root out corruption, but this looks a big challenge. A lot of the wealth created in the past five years is said to have come from insider trading.
Charles Jamieson, chief executive of Premier Oil and chairman of the Pakistan Britain Trade and Investment Forum, is one who believes the current government can succeed. He has been operating in Pakistan for 15 years and said: “There is more stability. We had a period from 1989 to 2000 when we had four governments. At that time political stability was poor and we had more corruption at higher levels.”
Textiles are Pakistan’s biggest export and the country’s manufacturers have invested $4 billion in their factories over the past four years, in preparation for the lifting of export quotas at the start of this year. A further $5 billion investment programme is planned. Pakistan will now have to compete on quality and price alone and it will be a big test for its 1,000 textile companies.
Aziz is determined that as many companies as possible will succeed in the new Pakistan. He said: “Use Pakistan as a regional hub for manufacturing and then export, because the location is unique. The challenge now is one of implementation and making things work better. The Pakistan of today and tomorrow is not the Pakistan of yesterday.”
As for Lakhani, he is predicting the Karachi stock market index will hit 8,000 — but he won’t be drawn on where it will go after that.
'Ya of course'