A Letter From Pakistan
Willpower and whisky are still key to success
It’s a country facing challenges, certainly, but for the smart investor there are opportunities aplenty in Pakistan, writes Stewart Langdon
When Pakistan gained its independence in 1947, its leader, Muhammad Ali Jinnah, was described by his physician as seeming to exist entirely on “willpower, whisky and cigarettes”. It was a powerful combination and one that grants Scotland a third of the credit for Pakistan’s very existence. Scots who take the time to visit will find much more that is familiar besides our national drink. Scotland and Pakistan are both underdog nations,whose relationships and rivalries with much larger neighbours have come to define much of their history and modern politics. Demographically, Pakistanis are already the largest ethnic minority in Scotland.
But regardless of such natural affinities, Pakistan has remained a business destination only for those with the most exotic risk appetites. As emerging markets boomed in the early part of this century, Pakistan lurched from one security crisis to another. But now investors are looking for growth and there are credible signals that Pakistan may become a viable option.
The political environment has broadly stabilised, with the 2013 election marking the first transition from one civilian government to another in Pakistan’s history. Prime Minister Nawaz Sharif has wisely focused on long-overdue economic reforms.
The economy is forecast to grow by 5 percent this year. Inflation has been tamed to just 2.9 per cent, aided by falling commodity prices and providing the government with useful monetary flexibility.
As the economy has brightened, the local investment environment has tangibly improved. Karachi has been the third best-performing stock exchange in the world since 2009, gaining 18 percent in 2016 alone and rejoining the MSCI Emerging Market index.
Visiting executives are struck by what they find: highly competent management teams, often Western-trained; a competitive environment from which multinationals are largely absent; and a regulatory regime eager to attract capital and expertise to the country. Perhaps as a consequence of these dynamics, Pakistan has a surprisingly vibrant start-up scene. There is a tangible buzz around the new generation of smiling entrepreneurs, all touting new tech-enabled business models. In 2015 venture capital funding more than doubled. The notion that technology might enable Pakistan to leapfrog traditional growth paths is lent credence by the likes of Easypaisa, a notable mobile money success story with 21 million customers.
All of this matters because of the size of the opportunity. Pakistan could yet become one of the big markets of the future. A population of 194m makes it the sixth largest country in the world.With more than half the people under 25, it stands to benefit from powerful demographic tailwinds. Even today after decades of relative isolation, Pakistan’s GDP is already quadruple that of Burma, currently the darling of the Asian investment community.
Nonetheless, Pakistan’s security record is tragically bad:the country suffers thousands of terrorist attacks every year, and is home to both the Pakistani Taleban and al-Qaeda.
But the Peshawar massacre in 2014 marked a turning point. Public opinion shifted decisively against extremists and in 2015,terrorist incidents fell by 45 per cent. Continued progress on security remains the key to a prosperous future.
Serious challenges remain, but Pakistan has a strong basis for its renewed optimism.
Tomorrow the Asia Scotland Institute welcomes Shaukat Aziz, prime minister from 2004 to 2007, as he provides invaluable first-hand insight into his country’s prospects. Much of the skill of emerging market investing lies in identifying the big opportunities of tomorrow before they become fashionable.Pakistan is on the right course–this time fueled by much more than the willpower and vices of Mr Jinnah. Scottish businesses would do well to keep an eye on a neglected corner of the world with which we share so much.
Stewart Langdon is a Partner at LeapFrog Investments and a Trustee of the Asia Scotland Institute