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Auto, E-commerce & FMCG sector ripe for investment in 2018

Pakistan is, and has been, a highly consumption-oriented society. The much lower level of investment in Pakistan reflects, in large part, a much lower level of national savings. The ratio of gross investment to GDP has averaged 15percent since 2010 and is actually somewhat lower than it was in the previous four decades. In contrast, gross capital formation in India has risen very sharply and has been well above 30 percent of GDP during the last decade. Improving the security situation, more effective rule of law and better relations with its neighbors would greatly strengthen faith in the future of Pakistan. It would also help to revive private investment, reduce defense spending and certainly bring down the level of outflow of savings abroad.

Pakistan falls in the bottom quarter of the world with regards to ‘ease of doing business’ and perhaps 2018 can be the year where the government unleashes a new plan to resurrect a struggling industrial environment. The new rules should spell out a plan to develop more business-friendly policies with a clear objective to spur job creation. The idea is to remove all difficulties in doing business in Pakistan and to ensure that Pakistani manufacturing sector not only sustains itself but also expands to capture a wider global share.

If 2018 is to be any better than previous years, we need to continue with an economic growth rate of above 5% for next 10 years, which would require putting social and economic development in the doctrine of ‘national interest’. Foreign entrants, such as Hyundai, Kia, Renault, Puma Energy, Alibaba and Uber have, through their entry, acknowledged the economic potential of a nation with a young population. What is required from the policy makers is a vision to lead forward, similar to China’s five-year political, social and economic plans. And this, invariably, requires continuity in the policies and keeping the interest of the nation – the infamous ‘national interest’ – above political and personal interests.

Careem & Uber

Careem, a Dubai-based company, started its operations in Pakistan in 2015, while the world renowned company, Uber, launched its services in Pakistan a little later in 2016. Uber is operating in more than 536 cities of the world while Careem is operating in 32 cities of the world. In Pakistan, Careem and Uber are not only providing safe, convenient and inexpensive rides but are also providing an alternate way to earn. It is a general belief that drivers of these services are earning Rs70,000 to 80,000 per month, which is a decent income for any average Pakistani. Furthermore, Careem also went a step ahead and included female drivers in its fleet. In a country like Pakistan, where the job market is tough and employment is low, these app-based taxi services have opened the door of self-employment to otherwise unemployed or under-employed youngsters. At the moment, there is no other industry or service in the country that has created close to 10,000 new, well-paying jobs in a matter of just over a year.

Renault to produce cars in Pakistan

Renault, a French car manufacturing company, is expected to start assembling cars in Pakistan by 2018. This will be the first time that a European car manufacturer will set up a plant in Pakistan. Established in 1899, the automobile company produces a range of cars and vans, and has also manufactured trucks, tractors and tanks, among others vehicles in the past.

Renault would initially make an investment of $100 million to produce 6,000 vehicles per shift at the plant set up by Ghandhara Nissan Motors in Karachi. The company already has an alliance with Nissan since 1999, making it the longest running transnational partnership between two major manufacturers in the automotive industry. In 2013, Renault was the eleventh biggest automaker in the world by production volume. Renault intends to manufacture 16,000 vehicles (both SUVs and sedan) in three shifts and to raise the production capacity to 50,000 in two phases.

This investment might bring the much-needed diversity in the stagnant, locally manufactured vehicles line-up. It is being speculated that the company will bring the Duster in Pakistan; expected to be priced at PKR 2.5 million. The company will also introduce 1200 cc cars, which will be aimed to cater the requirements of middle class consumers.

 

Lucky cement to assemble KIA vehicles

Lucky Cement will invest up to Rs12 billion to set up an assembly plant for Kia vehicles. Lucky Cement will invest by way of equity in the proposed associated company to manufacture, assemble, distribute and export all types of Kia vehicles, parts and accessories. This is the second time that Kia, a South Korean company, will roll out vehicles in Pakistan. Its previous joint venture agreement was with Dewan Motors, which produced a limited number of vehicles following an unenthusiastic response from consumers.

Hyundai to assemble cars in Pakistan in venture with textile group

Hyundai Motor Company plans to set up a car assembly plant in Pakistan in a joint venture with local textile firm Nishat Mills. Hyundai’s return to Pakistan will boost the government’s efforts to shake up the Japanese-dominated car market and loosen the grip of Toyota, Honda and Suzuki, who assemble cars in Pakistan with local partners. Millat Tractors Limited has also announced that the company had decided to explore the option of joining the upcoming joint venture between Hyundai Motor Company and Nishat Mills Limited for the production of passenger cars and light trucks.

Apart from CPEC related investments, other examples of investment in Pakistan are:

  1. Acquisition of Engro Foods by Dutch company Friesland Campina for $460 million.
  2. Norway’s telecom giant, Telenor partnered with financial institutions in Pakistan resulting in pioneering branchless banking through Easypaisa.
  3. Turkish firm Arcelik acquired Dawlance for $243 million.
  4. Several key UAE companies such as Emirates National Oil Company, International Petroleum Investment Company, Etisalat, Al Ghurair, Abraaj Capital, Dana Gas, Emirates Investment Group, Emaar, DP World, Julfar, Arabian Packaging Company and others have invested in Pakistan.
The writer is a Karachi based freelance columnist and is a banker by profession. He could be reached on Twitter @ReluctantAhsan

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