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7/30/2019 Pak Turnaround
1/13
September 2006
Pakistan An Economic Turnaround
7/30/2019 Pak Turnaround
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1
International
isolation
- Exports doubled- FX risen five fold- Stable currency- Annual FDI doubled
Pakistans Turnaround Synopsis
Historical Bottlenecks Late 1990s
Highly
sanctioned
Near-zero
GDP growth
Threat ofsovereign
default
Deep
recession
A Reinvigorated Tiger
- Sanctions removed
- Increased integrationwith global economy
- Growth quadrupledto 78%
- Increased wealthlevels
- Growing middle class
- Fiscal deficit halved- Inflation contained
- Recent internationalsovereign bonds
issues oversubscribed- KSE: one of the best
performing markets
7/30/2019 Pak Turnaround
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2
5.7
4.7
5.4
6.6
Pakistan ASEAN Latin America MENA
142
161
207
96
125
7282
111
182
3.1
8.2
8.4
6.4
5.1
6.68.07.87.4
2002 2003 2004 2005 2006 2007E 2008E 2009E 2010E
Nominal GDP (US$ billion) Real GDP Growth (%)
Source: Pakistan Ministry of Finance, Economist Intelligence Unit, Abraaj Analysis
The Growth Story
Nominal GDP (US$ billion) & Real GDP Growth (%)
Pakistan witnessing rapid and sustainable economic growth
One of the fastest growing economy in Asia
Expected to surpass the US$ 200 billion mark by 2010
Real GDP Growth 06 (%)
7/30/2019 Pak Turnaround
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3
45.048.6
49.341.7
9.75.7
1991 2002
2,5902,780
2,9803,200
3,420
2,0702,210
1,980
2,410
2002 2003 2004 2005 2006 2007E 2008E 2009E 2010E
Source: Economist Intelligence Unit, Pakistan Federal Bureau of Statistics
Lowest 20% Middle 60% Highest 20%
The Growth Story (contd)
Wealth levels have increased and a large middle-class is emerging
GDP per Capita (US$ PPP) Household Income Distribution (%)
Rising disposable income
Increasing income distribution largely a result of decreasing unemployment
Accelerating income growth across lower and middle segments of population
7/30/2019 Pak Turnaround
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4
9.2 9.1
11.2
12.3
14.4
16.5
2001 2002 2003 2004 2005 2006
Source: Economic Intelligence Unit
13.2
36.229.7
106.1
Pakistan China Indonesia Malaysia
The Growth Story (contd)
Exports have become competitive and almost doubled in last five years
Exports (US$ billion) Exports (% of GDP), 2006
Low cost advantage spurring exports
Broadening geographical reach and more access to US, EU and UAE markets
Potential to increase and diversify target countries
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5Source: Pakistan Ministry of Finance, Economic Intelligence Unit
322485
798
1,524
3,521
949
2001 2002 2003 2004 2005 2006
The Growth Story (contd)
International investors have begun to take notice of the Pakistan story, however significantupside remains as FDI flows are still far below regional levels
Foreign Direct Investment (US$ million) Foreign Direct Investment (% of GDP), 2006
2.8
13.9
1.1
9.1
Pakistan Singapore India UAE
Opening up of economy leading to strong foreign interest
FDI inflow more than doubled in 2006
Broad based inflow across sectors
7/30/2019 Pak Turnaround
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47
46
44
36
34
38
2001 2002 2003 2004 2005 2006
Source: Pakistan Ministry of Finance, Economic Intelligence Unit
The Growth Story (contd)
Significant decline in external debt
External Debt (% of GDP)
Consistent decline in external debt / GDP ratio
Concerted effort to move away from poorly structured high-interest debt
Allowing increasing government expenditure on value-added projects
External Debt (% of GDP), 2006
34.0
19.1
16.0
30.8
Pakistan Singapore India UAE
7/30/2019 Pak Turnaround
8/137Source: Pakistan Ministry of Finance, Economic Intelligence Unit
2.1
4.8
9.8
12.613.1
12.3
2001 2002 2003 2004 2005 2006
The Growth Story (contd)
Rapidly increasing foreign exchange reserves and a stable currency
Foreign Exchange Reserves (US$ billion)
61.159.859.157.258.5
60.9
2001 2002 2003 2004 2005 2006
Exchange Rate (Year-end, PKR:US$)
Strong remittance flow and growing exports leading to accumulation of foreign reserves
Reserves providing currency stability
Standard & Poors upgrade long-term local and foreign rating
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Fiscal Deficit (% of GDP)
4.3 4.3
3.7
3.2
3.4
2.4
2001 2002 2003 2004 2005 2006*
6.16.3
4.8
3.2 3.1
4.0
2001 2002 2003 2004 2005 2006
* Excluding earthquake-related spending
Source: Pakistan Ministry of Finance, State Bank of Pakistan
The Turnaround Strategy
External debt re-profiling and fiscal reforms were at the centre of the multi-faceted strategy
Interest Payments (% of GDP)
Restructuring and debt write-off leading to reduction in interest payment
Improved stability of economy; manageable fiscal deficit
Recent hike largely due to absorption of high oil prices
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A dynamic privatization program
Strong political support
3,598
34317818
558671
33
21
7
9
12
2001 2002 2003 2004 2005 YTD2006
Value of Privatization (US$ million) Number of Deals
Company Sector Company Sector
Pakistan Petroleum Oil & Gas Morafco Industries, Fais Industry &Real Estate
Pakistan State Oil Oil & Gas Lyallpur ChemicalFertilizer
Chemicals
Sui Southern Gas Co Oil & Gas Hazara Phosphate Ferter Industry &Real Estate
Sui Northern Gas Pipeline Oil & Gas Tomato Paste Plant Industry &
Real Estate
National Investment Trust Financial Pakistan TourismDevelopment Corp.
Tourism
State Life Insurance Co. Financial Sindh Engineering Construction
Faisalabad ElectricSupply Co
Utilities Heavy MechanicalComplex, Taxila
Industry
Genco 1 (Jamshoro) Utilities Heavy Electrical Complex,Hattar
Power
Peshawar Electric SupplyCo
Utilities Pakistan Machine ToolFactory, Karachi
Industry
National Power Con Co Utilities Service InternationalHotel, Lahore
Sale of Land
Source: Privatization Commission of Pakistan
Privatizations (US$ million) Current Privatization Pipeline
The Turnaround Strategy (contd)
Privatizations was another key focus
7/30/2019 Pak Turnaround
11/1310Source: Pakistan Ministry of Finance, Economic Intelligence Unit
67.863.964.9
40.5
Pakistan Singapore India UAE
17
47
30
46
10
9.7x
9.2x7.7x
12.9x
4.4x
2002 2003 2004 2005 YTD 2006*
Market Capitalization
Trailing P/E Ratio
The Turnaround Strategy
Financial sector reforms catalyzed economic transformation
Bank Lending (% of GDP), 2006 Market Capitalization (US$ billion) & P/E Ratio (times)
Financial sector transformation was the main driver of economic growth
Increased availability of credit for all segments of the economy
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InvestmentPolicy &Environment
RegulatoryFramework
Strengthening of the institutional capacity of a number of independent regulatory bodies in Pakistan thathave developed management structures, technical expertise, technology and enforcement capacitycompatible with international best practices
Government is playing an effective role to transparently execute and institutionalize regulations designedto win the confidence of investors and general public
All sectors are open to FDI with equal treatment of local and foreign investors
100% foreign equity allowed, and royalties, franchise fees, capital, profits, dividends etc all fully repatriable
Attractive tax / tariff incentives package
Low cost of doing business, one-window facilitation
Reduction in corporate tax rate from 39% in 2005 to 35% by 2007 for private companies
PowerDevolution
Source: Pakistan Board of Investment
The Turnaround Strategy
Creation of an enabling and governed economic framework
Policy Description
Transferring powers and responsibilities, including those related to social services from the federal andprovincial governments to local levels
Strengthening governance by increasing decentralization, transparency, accountability of administrativeoperations, and peoples participation in their local affairs
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Tel. 971 4 319 1500 Fax 971 4 319 1600
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