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Profits, dividends of foreign firms help push FDI surge in Pakistan

Some foreign, multinational companies buying Pakistani companies to advance growth

According to the State Bank of Pakistan repatriation of profits and dividends of multinational companies and foreign firms in Pakistan reached close to $1.5 billion during the first 10 months (July-April 2017). The best profits and dividends were going out from the financial business (banking) as the repatriated amount from this sector reached $233 million while the inflow was just $23 million during the 10-month period. The second highest outflow was from the telecommunication sector as the amount of reverse remittances reached $163 million while FDI during this period was $72 million.

The outflow from oil and gas exploration rose $102 million while the inflow as FDI during this period was $234 million. Thermal power, which attracted $123 million as FDI, sent abroad $155 million as profits and dividends. The petrochemicals painted a dark picture as the sector witnessed a net disinvestment of $136 million during this period.

International food chains have shown rapid growth in the country and their profitability is much higher than many countries as they sell their products at comparatively higher prices in Pakistan. Profits and dividends sent abroad from the food sector during the 10 months reached $82 million. This was only repayment on FDI while $2.5 million went abroad from this sector as foreign portfolio investment (FPI). Collectively, the outflow from this sector was about $85.2 million. The FDI pattern showed that the food sector has stopped investing in Pakistan and noted a disinvestment of $16 million in fiscal year 2016.

Foreign direct investment (FDI) private inflows into Pakistan are raising rapidly, as Chinese share goes up and the UAE looks increasingly prominent. UAE and other investors also have an eye open on the big market as the upcoming Pakistani production and export base will feed in the overall context of China-Pakistan Economic Corridor (CPEC). These are some of the lines on which FDI into Pakistan is rising, and going into very productive and high-dividend sectors. This has been indicated in the FDI inflows analysis undertaken by the State Bank of Pakistan (SBP), the central bank, for the just ended fiscal year 2015-16.

A large number of Chinese investors have gone into power generation in the last two years. UAE is increasingly coming in to benefit from Pakistan as their key investment and export base to feed the global market.

FRIESLANDCAMPINA-ENGRO PARTNERSHIP

Dutch company FrieslandCampina Pakistan BV (FC Pakistan) has completed its acquisition of a majority stake in Engro Foods at an estimated price of $446.81 million and the company is expected to bring in expertise and introduce new products. The Netherlands-based dairy company has acquired 51 percent stake at Rs120 ($1.14) per share in Engro Foods. It acquired 47.1 percent (or 361.29 million shares) from Engro Corporation, the parent company of Engro Foods, and another 3.9 percent.

Not only was Engro Foods able to achieve its vision of elevating consumer delight and wellbeing by adding nourishment to the food market but the company was able to enhance the lives of 12 million consumers through its utmost sincerity and motivation each and every day.

The novel partnership with the Royal FrieslandCampina Group will bring growth and prosperity and create a broad-based impact for now and generations to come.

The acquirer had a history of having expertise, which would be brought to Pakistan to develop new products in the foods segment. At present, the packaged milk, juices and ice cream remain some of the leading products of the company.

Engro Corporation Group has a history of bringing foreign direct investment by joint ventures. This historic partnership signifies continued contribution to nation’s economic prosperity and a healthier younger generation. The Royal FrieslandCampina Group shares commitments to community and eradicating malnutrition. The divestment in Engro Foods by its parent company was part of its long-term plans to diversify its investments into energy projects which offered comparatively higher rate of return.

Dutch dairy giant FrieslandCampina acquired 51 percent of Karachi-based Engro Foods Limited, the second largest dairy producer in Pakistan. Pakistan is the third largest milk-manufacturing country in the world, with 38 billion liters on an annual basis, according to Retail Detail of Europe.

FrieslandCampina wants to take advantage of the shift to packaged dairy products in Pakistan. Not even 10 percent of milk consumption comes from processed and packaged milk in Pakistan, but FrieslandCampina expects that to change in the near future.

A growing middle class is switching to processed and packaged milk in Pakistan and Engro Foods provides a platform to build on. Both the companies will also help develop the agricultural industry in Pakistan with extensive knowledge on the dairy manufacturing process.

Engro Corporation will generate cash of around Rs47 billion, part of which will most likely be invested in energy-related projects with a higher rate of return.

TURKEY’S ARCELIK TO PURCHASE DAWLANCE

Pakistan’s $3 billion home appliance market is experiencing double digit annual growth. It has attracted the attention of China’s Haier, a multinational giant that recently acquired American General Electric’s home appliance business.

Turkey’s Arcelik announced purchase of Dawlance, Pakistan’s market-leading home appliance maker. Both cited opportunity for double-digit growth in the emerging market as the main reason for their acquisitions.

Pakistan’s $3 billion home appliance market is experiencing double digit annual growth. It has attracted the attention of China’s Haier, a multinational giant that recently acquired American General Electric’s home appliance business.

Haier has 8 industrial complexes, two of which are foreign–one in the United States, and one in Pakistan, according to Xiaofei Li, the author of “China’s Outward Foreign Investment: A Political Perspective”.

In these Special Economic Zones, Haier does localization to suit the needs of the consumers. For Pakistani market, Haier especially designed a washer that can hold 15 long gowns at one time. Pakistan’s privately-held Dawlance is also a major player in Pakistan’s home appliance market. It is Pakistan’s leading refrigerator and microwave brand, No. 2 air conditioners and No. 3 in the laundry category. In 2015, it reported $221 million in revenue and $45 million in EBITDA (earnings before interest, taxes, depreciation and amortization), according to Nikkei Asian Review.

With the acquisition of Dawlance in Pakistan, Arçelik will employ a total workforce of 30,000 worldwide and will have a global production base of 18 manufacturing facilities including Turkey, Romania, Russia, China, South Africa and Thailand.

The acquisition is a powerful example of south-south cooperation, representing a technology and know-how transfer between developing countries.

 

FLOW OF SMART MONEY

Smart money is starting to flow into Pakistan again as the world recognizes the country’s tremendous economic potential as a growing emerging market. Investors and businesses are looking to profit from expanding Pakistani economy backed by growing middle class consumption and rising Chinese investments in energy and infrastructure.

TRAFIGURA IS SET TO PURCHASE ADMORE OIL

Trafigura, the world’s second-largest private oil trader, is set to purchase Admore oil marketing company of Pakistan in a deal of nearly $40 million. According to reports, the private oil trading company will acquire 51 percent shares in Admore oil marketing company. Admore Co has as many as 471 petrol pumps across Pakistan, with its headquarter in Karachi.

Chinese companies interest in more businesses and land

Chinese companies are in talks to snap up more businesses and land in Pakistan after sealing two major deals in recent months, a sign of deepening ties after Beijing vowed to plough $57 billion into a new trade route across the South Asian nation.

A dozen executives from some of Pakistan’s biggest firms quoted as saying that Chinese companies were looking mainly at the cement, steel, energy and textile sectors, the backbone of Pakistan’s $270 billion economy. Analysts say the interest shows Chinese firms are using Beijing’s ‘One Belt, One Road’ project – a global trade network of which Pakistan is a key part to help expand abroad at a time when growth has slowed at home.

A Chinese-led consortium recently took a strategic stake in the Pakistan Stock Exchange, and Shanghai Electric Power acquired one of Pakistan’s biggest energy producers, K-Electric, for $1.8 billion. The Chinese are looking for major investment in Pakistan. The Chinese charge is in contrast to Western investors, who have largely avoided Pakistan in recent years despite fewer militant attacks and economic growth near 5 percent.

INVESTMENT IN PAKISTAN’S LNG SECTOR

World major players are showing keen interest to invest in Liquefied Natural Gas (LNG) sector of Pakistan after seeing immense business potential of the commodity here. LNG is the cheapest source of fuel and the world’s major players are showing interest to invest in LNG sector of Pakistan by setting up their own terminals and developing transmission network to supply the commodity to consumers.

Currently, the sources said 600 million cubic feet per day (mmcfd) LNG was being imported, which greatly helped in meeting the country’s energy requirements as all gas-based power generation plants were now functioning fully, 1200 CNG stations restarted their operations, industrial and fertilizer sectors getting uninterrupted supply.

Before LNG import, they said Pakistan was importing one million ton fertilizer per year and now it was exporting six million ton fertilizer, adding entire power generation sector was getting smooth gas supply, besides Nandipur power plant had also been converted on LNG.

Pakistan was importing 2.7 million tonnes (mt) of LNG whereas India was importing 9 mt and South Korea, Japan and China were importing 60 mt LNG from Qatar.

Pakistan, the sources said, was already negotiating LNG import deals with countries including China, Turkey, Russia, Malaysia and Oman, adding Pakistan will strike LNG deals with potential exporters.

Chinese companies have shown interest in investing in telecoms and auto sectors. FAW Group and Foton Motor Group is planning to enter Pakistan. FAW said the Pakistan “project is going through internal approvals”, but did not offer more details. Foton declined to comment.

The Chinese government and Chinese companies have dismissed such accusations in the past. Doing business may not be easy for newcomers.

Security remains a concern despite a drop in Islamist militant violence, and in the World Bank’s ease of doing business index, Pakistan ranks 144 out of 190 countries.

Pakistani officials are drafting plans for special economic zones which would offer tax breaks and other benefits to Chinese businesses.

Oxon Partners said Oxon was in talks with two state-run Chinese companies and a wealthy Chinese businessman to purchase and develop land for high-end residential and commercial properties.

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