UNIQUE ECONOMIC OPPORTUNITIES IN THE STORE
INTERVIEW: SYED ALI RAZA, CHAIRMAN & PRESIDENT NBP
Feb 16 - 22, 2009
The collapse of the US and the European financial regime and the acute economic recession has made the future outlook of the globalization of the economy under WTO rules slide in doldrums.
Since the financial crisis has washed away the demand in the export markets Pakistan would be wise to focus on national resources and the huge market of over 170 million plus population is an effective way out to weather the economic storm currently hitting the world.
Pakistan was relatively least affected by the financial tsunami and economic recession faced by the developed economies primarily due to low integration with the international financial regime. In fact, there is a unique opportunity in the store for Pakistan.
These heartening remarks were made by Syed Ali Raza, Chairman and President of National Bank of Pakistan while underlining the significance of capitalizing the home resources including agriculture, human resource, huge mineral deposits which have all the potential to give a sturdy look to the national economy.
Syed Ali Raza has vision and skill to achieve goals which he proved by running National Bank on high profile that helped the bank to perform impressively and bagging many distinctions during last 7-8 years. However the most glaring of them was the profit earnings of the National Bank raised from the level of one billion rupees in 2000 to Rs28 billion in 2007 which speaks loudly about the unprecedented achievements under his leadership.
He led the bank to earn various distinctions including the title of "Best emerging market bank from Pakistan for the year 2006î, "Best foreign exchange Bank" award for the year 2005 and 2006 by world's leading financial journal "Global Finance", "Bank of the year" award for the year 2001, "Bank of the year" award by Banker of Financial Times, "Kissan Times Award" for the year 2005 by the then Prime Minister Shaukat Aziz.
Though Ali Raza basically is a man of the financial world but speaks as a professor of economics by pointing out at such areas, which could enable our economic managers to steer the national economy out of hot waters to safer zone in the days to come.
While giving his expert opinion regarding impact of the global financial crisis he said it was not so harsh on Pakistani banks because our financial system was comparatively not deeply affiliated with the world financial system, in fact it was a blessing in disguise to save our skin in a way.
Our GDP, foreign investment, exports or trade as percentage to the GDP was much less than the other countries because our low affiliation with the international financial world. This low affiliation with the international financial regime was a blessing in disguise in a way helping Pakistan escaping from major financial setbacks other countries with much larger percentage of GDP endured. Pakistan's total trade volume estimated around $50 billion consisting of over 20 billion exports and $30 billion imports forms around 33 percent of GDP of $160 billion. Hence the impact of the financial meltdown was not as severe as suffered by other countries.
In fact the banking system in the United States and western economies suffered heavily because of their excessive household debt percentage to the GDP where as the household debts given by Pakistani banks were merely 1 percent to the GDP as compared to 70-80 percent to the GDP in the United Kingdom and the United States, so it was quite manageable for Pakistan banking system. In fact, the impact of household debts was almost nominal in our financial system as the major portion of advances is basically meant for industries, SMEs and of course for the agriculture.
Our consumer loan portfolio was commenced three four years back and its size was also well within affordable limits while the banks in the United States were irrationally lending rather chasing the customers amidst cut throat interest rates due to excessive liquidity. Similarly, the banks in Iceland also faced the same problem of excessive liquidity.
You just imagine that banks in Iceland with a population of hardly three lakh had a huge deposit base of over $150 billion, having no option to lend in an aggressive fashion. Look at General Motors where pension payments were greater than operational revenues. See the financial woes of the Eastern Europe where the financial meltdown had a crippling effect on the countries like Poland, Hungary, and Romania etc because they attracted heavy deposits like Iceland Model.
The US and other European banks heavily funded companies. Now these countries are facing the dollar denominated debt while their local currencies devalued by more than 50 percent.
Pakistan banking system was smart enough that it did not indulge in irrational lending while our companies, with few exceptions, were not burdened with foreign currency debts and their debts were largely rupee based. In the Eastern Europe every company had a foreign currency denominated debt. In fact due to heavy pressure of excessive liquidity the East European banks even compromised the quality of the borrowers and aggressively lent while in our case the banking system is in the first generation stage, hence we did not indulge in that kind of ventures.
Pakistani banks were lucky to have minimum integration with the international financial regime.
In fact, Pakistan having a huge population of around 170 million plus offers great opportunities within the local market.
The best example for such kind of financing is Mexico where over 50 percent of industrial output is meant for the US market. Since the American market is sinking the Mexican industries are facing the brunt of the US economic recession. That where Mexico would go now to sell its products is a relevant question? Why Japan, South Korea, Thailand, Brazil etc are under heavy pressures? They are not finding outlets for their products. Since they are export based economies they are facing difficulties to sell their industrial out puts naturally due to extremely low demand in the US and the European markets.
Contrary to that we can set up industries focusing more at the local market demand. As far as foreign Direct Investment (FDI) is concerned we don't need to entirely depend on FDIs. Though Pakistan received FDI during last three four years but its share was not so overwhelming.
The NBP Chief was optimistic about the economic future of Pakistan and said in fact it was not as bright as it is today! To substantiate his views regarding bright future of Pakistan, he pointed out the areas like huge domestic market of 170 million population which could lend a strong hand. In fact, Pakistan cannot depend on exports alone in the present global scenario. Look at our textile sector, a large number of textile units are facing problems because of the declining demands in the European or US market. In fact, economies which are excessively depending on exports or those which had attracted huge foreign investment such as Dubai are in problem as both the models i.e. exports based or foreign investment has proved a failure.
So we have come to the conclusion that we can and we should depend on our local market. You know there are only 12 countries in the world, which have strength of 100 million plus population. Pakistan stands at number 6 in terms of population density. We have an indigenous market, which has the potential to attract huge investment especially for building up our infrastructure. Based on huge population we are in need of construction of infrastructure projects while our returns are usually attractive.
Another plus point is the ideal location of Pakistan because we are located in the middle of two greater economies which are the pools of the capital; one is Middle East and the other is China. He predicted that in the next five to ten years there is a great scope for setting up trade and industrial zones in this part of the world. The agriculture is another strong point for Pakistan's economy. The only question is to optimize the potential of this potential area which not only can make Pakistan a self sufficient country but also cater to the export market as food will always be in demand. We did not receive the dent of the world financial disaster because of our position at the low end as compared to those having Hi-Tech export markets.
When asked him to share his views regarding revival of the capital market in Pakistan, Ali Raza said that the regulators are in the process of taking corrective measures to put back the market on the track. One of such steps is the exciting decision of allowing the listed companies to buy back their shares. For example, the NBP scrip was at Rs250 when the index was operating at 15700 points level and dropped to Rs175 at the index level 1200 and now it has come down to the level of Rs55-60 but interestingly even though the yield was dropped those holding the shares are enjoying high yield level.
After the approval of buy back provision National Bank as well as other listed companies would certainly buy back the available shares. This step would certainly give a boost to the market and restore the confidence of the investors.