ECONOMIC DIPLOMACY: VISION OF PRESIDENT MUSHARRAF

Pakistan showing a big green light

AMANULLAH BASHAR
July 10 - July 16, 2006

Primarily, it was possible due to personal interest taken by President Musharraf that Etisalat deal for PTCL finalized. That deal was considered as big by the international financial observers especially in the backdrop of sluggish economic movement in the past, and it was a big deal no doubt in the sense that it paved the way for more attractive and significant deals ten times that size of Etisalat, that's pretty astounding.

With earlier successful business ventures in Pakistan, now the UAE companies are feeling more comfortable with the Pakistani economy, and cultural similarities with the Gulf - all contributing to the deals, said Mohsin Khan, Director of the Middle East and Central Asia unit for the IMF, in a report.

Actually, President Musharraf while pursuing his agenda of making Pakistan an economic hub of the region has recently advised Pakistani envoys to proactively pursue economic diplomacy to project the positive developments in the country.

The advice is aimed at building the image of the country as a place to do business by highlighting its geo-political location in the region.

The president also identified four priority areas and asked the envoys to focus on expanding economic, trade and investment opportunities for Pakistan, besides showcasing Pakistan's geo-political location for economic linkages with major regions.

Though the president has not pointed out any particular region to focus for attracting investment or promotion of exports, yet in the current scenario, Gulf countries offer enormous potentials to bring investment in Pakistan especially on the back of a saturated investment climate in the Middle East countries.

Pakistan has many reasons to excel in that region hence focusing economic diplomacy in that region is bound to produce results. Currently, many Pakistanis hold senior positions in UAE firms and are capable to provide local expertise in the Pakistan's business climate.

Pakistan, of course, a burgeoning economy is creating a new affluent class among its 166 million residents, who will be capable to afford these higher-end real estate projects announced by UAE companies. Estimates by Limitless put the Pakistan housing shortage at six million dwellings.

A weakening of the Pakistani rupee would lower the profits Emaar and other companies brought from the UAE.

Nonetheless, most observers give the deals unequivocal thumbs-up, including Brice of Standard Chartered Bank. "Pakistan might not be the easiest place in the world to do business, but the returns should be relatively healthy."

According to a report, UAE'S Emaar and Limitless have announced real estate projects valued at $40 billion (Dh147 billion) in early June, which took many by surprise.

Most people thought the Etisalat deal in 2005 was big and there was no doubt but when you hear deals ten times that size, that's pretty astounding.

A few years ago Pakistan wasn't a popular foreign investment choice for UAE companies. In 1998 the country defaulted on an international loan, and was generally regarded as a risky country to do business.

According to statistics by the State Bank of Pakistan, foreign private investment from the UAE into Pakistan tallied a modest $17.3 million in 2001-02.

But after making impressive strides reforming its banking sector and standardizing business practices, Pakistan is showing a big green light which Dubai companies are finding hard to ignore.

Recently there has been a succession of announcements for multi-billion projects in Pakistan.

In June 2005, a consortium of Etisalat and Dubai Islamic Bank announced it would invest $2.6 billion for a 26 per cent ownership and management rights in PTCL. In May, Emaar said it would invest $20.4 billion in four real estate development projects in Karachi and Islamabad. Limitless, Dubai World's international real-estate arm, followed with news of a $20 billion (Dh73.4 billion) plan to invest in a mixed-use Karachi real-estate project. At about the same time, the Pakistan government also authorized Dubai Islamic Bank to open 50 to 70 branches in Pakistan.

The scale of the deals dwarves all previous foreign investment in Pakistan. Last year foreign investors injected three billion dollars in the country, compared to the more than $40 billion that the Dubai projects will pump into the economy over the next few years equivalent to more than 10 per cent of Pakistan's GDP.

In truth, Dubai companies won't be spending tens of billions of dollars of their own money straight off. Most projects will be mixed-use residential and commercial units that they can pre-sell, using the proceeds to complete construction over a period of five to ten years. Still, Pakistan has emerged as the premier destination for UAE companies aggressively expanding their operations abroad.

Part of the reason lies at home. With the pace of new projects beginning to slow, Dubai is approaching a saturation point with high-profile residential projects. At the same time, companies are trying to diversify their assets. Increasingly, they're looking abroad.

Crude oil prices have nearly tripled since 2002, and the UAE is riding an oil boom that the IMF predicts will last for some time. It forecasts crude prices to remain over $60 a barrel for the next five years.

"Where is the money going?" asks financial analyst Steve Brice of Standard Chartered Bank in Dubai. "Due to high oil prices, the answer is hardly surprising almost anywhere," he wrote in a recent paper. Asia remains the dominant force, he said. "Petrodollars are increasingly going to countries in the emerging world."

IMF Director Khan said Dubai companies are ahead of the game by thinking regionally, and particularly likes the name of Dubai World's international real estate development arm, Limitless. "Everyone says 'so and so, limited," he said. "It really describes Dubai companies in terms of acquisitions."

This audacious investment plan is unfolding all over the Middle East, North Africa and Asia. Emaar is taking a lead role in the $27 billion (Dh100 billion) King Abdullah City development in Saudi Arabia, and is engaged in billion-dollar projects in Morocco and Egypt. Dubai World is also expanding boldly into ports in Djibouti, Vietnam and China.

But more than anywhere else, Dubai companies are showering Pakistan with new projects. An IMF success story, in 2004 the country passed through the latest of several structural adjustments programs. The same year, it raised $500 million through Eurobond. In another progressive step, just months ago it adopted international arbitration standards in business disputes.

These efforts have invigorated the economy and created new business opportunities, says Professor Rodney Wilson, Director of Durham University's Institute for Middle Eastern and Islamic Studies in the UK. He noted its GDP growth rate has surged six to eight per cent during the last few years, creating a new dynamism in the region.

Pakistan is perceived as an under-served market and a friendly place for Dubai companies to do business. The country has undeveloped land suitable for large projects and a cheap labor market.

FREE TRADE AGREEMENT WITH SAARC COUNTRIES

Effective July 1st, SAARC Free Trade Agreement has become operational and the member countries of the SAARC region, including Pakistan, Bangladesh, Sri Lanka, Nepal, Bhutan, Maldives and India would facilitate each member country with reduced tariffs to enhance business interaction in the region.

This free trade agreement also needs effective application of economic diplomacy on the back of enormous economic potential and a huge market being exploited by the developed economies. The SAARC member countries can join hands to share technology expertise and collective marketing campaigns to capitalize the available resources. Pakistan is known as a major textile producer economy around the world. The quality of textile products gives an edge over its competitors in the export market. The textile industry however has to take initiative with the support of our envoys in the SAARC region to grab its due share in the export market.

Pakistani textile manufacturers have to gear up to take advantage of the global trade, especially among SAARC countries.

In fact, the Pakistani industrialists have really not begun to enjoy the fruits of the Free Trade Agreement signed between Pakistan and Sri Lanka.

Manel de Silva, Consul General of Sri Lanka, stated this during her farewell visit to SITE Association of Industry. The Colombo representative, who is a leading expert in FTA negotiations and WTO, pointedly advised Karachi's industrial elite that the success of the Indo-Lanka FTA has brought about prosperity for Sri Lanka and that the bilateral trade will further enhance in the months to come.

Manel de Silva said that Pakistan produces excellent fabrics but the manufacturers have not fully penetrated the Sri Lankan cloth market and thus Chinese and Indian fabrics are in vogue there. She added that focused marketing is missing and the image of Pakistani goods needs to be positively improved. She advised the industrialists that they must make frequent trips to Colombo to market their products and help change the perception that Pakistan is not making quality fabrics.

The Sri Lankan diplomat also said that President Mahinda Rajapakse admires Pakistan very much and his recent trip to Islamabad and Karachi further brought both the countries closer. She said that President of Sri Lanka was given a rousing welcome by the Pakistan Sri Lanka Business Forum in Karachi and this meeting was the catalyst for resolution of issues and also created more camaraderie between both the countries" business community.

Manel de Silva reiterated her desire to facilitate the bilateral business relations between both the countries in her new assignment as Director General of Commerce of Sri Lanka. She said that her successor as Consul General would also be a business-oriented person with deep insight of the business world.

KAZAKHSTAN

Pakistan and Kazakhstan need to activate and develop a mutually beneficial collaboration with each other in order to realize the existing great potential for trade and economic cooperation between the two countries.

These views were expressed by Mr Ghali Shaimakov, Charge d'Affairs of Kazakhstan while speaking at Lahore Chamber of Commerce and Industry.

The trade between Kazakhstan and Pakistan during the last year was at a low level and in the year 2006 the volume also remained stagnant, which is around $ 10 million. The situation demands urgent sector-specific measures for the benefit of the business community in two countries. Giving a break-up of Kazakhstan's trade with other countries, Mr Ghali said that trade between Kazakhstan and India doubled in one-year period and now it is more than $ 300 million.

In 2005 trade between Kazakhstan and China exceeded $ 5 billion and it is being predicted that Kazakhstan-China trade would double by the end of 2006. Speaking on the occasion, the LCCI President Mian Shafqat Ali said that there was a need to identify more tradable items in order to enhance the mutual trade keeping in view the market demands in the two economies. Pakistan can meet a major segment of Kazakhstan's imports and on the other hand iron & steel, cereals, ores, wheat and cotton could be imported from Kazakhstan.

The LCCI President also called for fast, smooth and cheap transport system between the two countries saying that at present, most of the trade is being conducted by air, which is very costly source of transportation. Trade via Afghanistan is the shortest and cheapest land route but it is not yet available due to unstable circumstances in the country. Moreover, efforts could be made to look into the possibilities of using alternative route through Iran and China.

MONTHLY EXPORTS
($ Million)

Month

2004-05

2005-06

July

1183.8

1269.3

August

1187.7

1400.7

September

1113.4

1483.3

October

997.8

1325.0

November

908.9

1113.5

December

1129.9

1455.3

January

1148.2

1229.9

February

1166.1

1274.72

March *

1346.82

1521.20

Monthly Average

1131.40

1341.4