DEVELOPING A CAPITAL MARKET IN BALOCHISTAN
July 14 - 20, 2008
The capital market provides the people with the investment opportunities and the companies to raise funds for expansion and development for further investments.
Though the government has an important role to play in shaping the legal, institutional and business environment but major responsibility rests with the corporate sector to achieve a higher level of corporate governance. The high standards of corporate integrity and excellence are of key importance for the development of any capital market.
Balochistan is rich in natural resources. It has a rich mineral endowment. It has presently come on the radar screen of foreign investors for vast opportunities in mineral sector. Mining business has witnessed a steady growth due to the rising prices of minerals in the international metal markets. Copper, coal, marble, chromite, zinc and lead are presently being mined in different districts of Balochistan. It is expected that if the present government succeeds in improving law and order situation in the province through the process of political reconciliation it has yet initiated, the province would attract a sizable foreign investment due to its geo-strategic location and rich mineral endowment.
Unfortunately, Balochistan lacks the presence of a vibrant private sector, which is considered as engine of growth for any economy. There is no industrial infrastructure and hence no activity and no investment opportunities for the private sector in the province. It is because of these ground realities that the idea of launching a Stock Exchange in Quetta, the provincial capital, has not been encouraged so much or warmly hailed by the local investors and business community in the country. Though the province undoubtedly has the enormous potential in all its economic sectors and a geo-strategic location, yet the growth and diversification of the local economy will take a long time. The government needs to develop necessary infrastructure and offer attractive packages in order to mobilize the private sector for its active participation in development activities in the province.
Presently, Pakistan has three stock exchanges based in Karachi, Lahore and Islamabad.
The country's capital markets have played important role in the development and expansion of the economy. Capital market witnessed rapid progress through structural reforms in both its institutional set-up and operational matters. Last year the country had attracted about $1 billion dollars in stock exchanges. The KSE-100 index has been the best stock exchange in the Asia's emerging economies. It has so far produced higher returns to investors seeking to gain maximum value for their investments. During the last five years, the high gross domestic product (GDP) growth, FDI flows, and rising export targets continued to stimulate growth of the economy and the equities market in Pakistan.
The role of capital markets in mobilizing domestic and foreign resources, and channeling them to the most productive medium, can not be denied. Balochistan is the country's least developed and poorest province. Development of corporate sector and capital market, based on sound regulatory principles, will provide an impetus for high economic growth in the province. There is a need to develop an efficient and transparent regulatory framework for the protection of investors and growth of a robust corporate sector and broad based capital market in Balochistan. An efficient regulatory body at provincial level may be developed to ensure proper risk management procedures in the capital market.
The help and services of Central Depository Company of Pakistan Limited (CDC) may be sought for the development of capital market in Balochistan. The CDC was incorporated in 1993 to manage and operate the Central Depository System (CDS) which was implemented by an IBM led consortium along with the management of the CDC in the country. The CDC operates as a central securities depository on behalf of the financial services industry so as to contribute to the country's ability to support an effective capital market system which will attract institutional and retail level investors from the country and abroad. CDC is committed to provide secured and dependable services to the capital and financial markets in an efficient and cost-effective manner comparable to best international practices.
Operationalization of Gwadar port will brighten prospects for lucrative business and profitable investment in Balochistan. International investors are eyeing Gwadar as emerging investment centre on the confluence of South, West and Central Asia. After the completion of mega seaport project, a share market in Gwadar would have a greater scope as a platform of choice in the region. It would provide its members a range of equities, bonds, funds and index products. As an organization, Gwadar Stock exchange would facilitate the brokers and traders to trade their companies' stocks and securities. The securities may include the companies' shares, bonds and unit trusts. The proposed bourse would provide the financial instruments and facilities to the stock traders for the issue and redemption of securities. It would provide the companies a primary market for listing or at least for record keeping. It can become a part of national or global market for securities. It would provide an opportunity for the investors to invest in South Asia, Western China, Central Asia and the Middle East. A financial free zone needs to be established in Gwadar port city first and the proposed bourse should be established in the financial free zone. The entire operations of the stock exchange with all other financial activities could be regulated by constituting a Gwadar Financial Services Authority. There are expectations that multi-national companies from across the world would transact their trade at Gwadar and provide the country much-needed foreign exchange.
There is absolute shortage of stock of well-run companies in the province. The government should take all possible steps to develop corporate sector in the province. Appropriate mechanisms need to be developed for the protection of both broker and investor in order to promote share buying habit and channel savings into the financial markets in Balochistan. There is a need to focus on achieving the highest standards of corporate governance, transparency and professionalism in order to strengthen investors' confidence. The companies need to be encouraged to raise capital through fresh equity offerings, which will serve to deepen the market and develop the retail investor base.