Pakistan Economy Recovering: Car Sales Up 72%; Cement Sales Rise 16.89%

[Riaz Haq]

Pakistan auto industry is booming. Toyota, Suzuki and Honda factories are working around the clock in the southern port city of Karachi and eastern city of Lahore -- yet customers can still wait for up to four months for new vehicles to be delivered, according to media reports. At the same time, increased construction activity is visible everywhere in the country.

Local car sales, excluding imported cars, jumped to 54,812 units in the first three months (Jul-Sep) of fiscal year 2016, up 72% from 31,899 units in the same period of last year, according to data released by the Pakistan Automotive Manufacturers Association (PAMA).

Pak Suzuki led the pack with 33,770 units followed by Indus Motors (Toyota) 14,767 cars and Honda Motors 6,184 units. Industry analysts at Topline Securities expect local car sales to reach 203,653 units during the current fiscal year.

Car sales (excluding imported ones) in Pakistan grew at a five-year (FY11-15) compound annual growth rate (CAGR) of just 5.3% to 179,953 units. While volumes surged by 31% in fiscal year 2015 (FY15) on the back of the new model of Toyota Corolla, Punjab taxi scheme and an increase in car financing due to 42-year low interest rates in the country also helped, according to Express Tribune newspaper. “We forecast local car sales to grow at 13% in FY16 to reach 203,653 units,” Topline Securities reported on Monday.

In addition to car sales, domestic cement sales have also jumped by a phenomenal 16.89% to 4.29 million tons during July and August 2015 from 3.67 million tons shipped in the same period last year.

Car sales and construction activity are both believed to be driven by low interest rate financing available from banks and improved security situation across the country. With record low inflation, the State Bank of Pakistan (SBP), the nation's central bank, has cut discount rate to a 42-year low of 6%.

After its September meeting, the SBP said the rise in fixed investment financing in the energy generation and distribution, chemicals and services sectors signal possible increase in their productive activity in coming months. “The implementation of infrastructure development and energy projects under the China-Pakistan Economic Corridor (CPEC) will further enhance the improving investment environment. Therefore, there is anticipation of higher economic activity in 2015-16, which is expected to boost credit uptake,” it said.

Per Capita Cement Consumption Source: Global Cement

A dramatic decline in terrorist violence in the country since the launch of Pakistan Army's Operation Zarb-e-Azb and a big drop in international oil prices have helped drive economic recovery in the country in recent months.

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The Role of Cement Industry in Economic Development of Pakistan

[Riaz Haq]

From Global Cement:

Quoting a recent study, Alam said that the per capita cement consumption in Bangladesh was still low at 107kg, compared to 210kg in India, 265kg in Pakistan, 310kg in Sri Lanka and 570kg in Korea, indicating future growth of Bangladeshi cement consumption.

http://www.globalcement.com/news/item/3426-mi-cement-to-add-new-uni...

http://www.thedailystar.net/business/cement-makers-eye-turnaround-1...

[Riaz Haq]

North India's cement market, which currently accounts for 31 per cent of country's total consumption, is expected to make a recovery only by FY 2017-18 on account of demand revival in the infrastructure sector, according to a report. 

Historically, North India is a well-balanced market with high capacity utilisation, low fragmentation and little inward dispatch threat from other manufacturing regions. But a large proportion of the cement market is dependent on rural or retail sales, Ambit Capital said in a report. 

"A confluence of growth impediments - slowdown in rural sales, weak demand for organised housing and elusive infrastructure recovery - have further deteriorated cement demand/pricing in north India. 

"North India's large share in major infrastructure projects exudes hopes of demand upcycle, but we believe it will take until FY'18 for a meaningful recovery," it added. 

In 2014-15, North India consumed 79 million tonnes or 31 per cent of India's cement consumption, the report said. 

"While 2015-16 was mooted to be a recovery year, demand has worsened, as rural sales decline sharply, real estate inventory has hit an all-time high and infrastructure recovery remains elusive with weak government tendering," it said. 

Increasing prominence of regional manufacturers in a market with limited logistic challenges (largely roads) has led to price wars. Now prices in north India are at a 35 per cent discount to south India, it added. 

Regional players accounted for 51 per cent capacity share in 2014-15 as against 45 per cent in 2006-07. 

North India is facing growth challenges, on account of infrastructure recovery remaining elusive and rural demand deteriorating significantly in the last one year due to poor rainfall, low subsidies, wage growth and paltry MSP hikes. 

Besides, real estate business is facing liquidity constraints due to government's clamp-down on black money, the report said. 

It has projected that North India will be a key beneficiary of the infrastructure ramp up in India, given a majority share in large infrastructure projects (roads, Delhi Mumbai Industrial Corridor, etc). 

"However, a strong and sustained volume growth will take till 2017-18 as retail demand will recover with a few quarters lag to infra demand," the report said. 

Regional manufacturers with scale and cost efficiencies will benefit the most in an infra-led cement demand recovery, it added. 

Pan-India players trade at rich valuations, run earnings downgrade risks and do not have the best cost efficiency to meaningfully improve RoCEs, as volumes might grow but chances of a sharp pricing recovery are scanty, it said. 

http://timesofindia.indiatimes.com/business/india-business/Cement-m...

[Riaz Haq]

Can #Pakistan ride its tailwind to 'emerging country' status?- Nikkei Asian Review http://s.nikkei.com/1LgFSma 

The country is enjoying a tailwind created by lower crude oil prices and growing remittances from overseas Pakistanis. It is also beginning to reap the fruits of the government's efforts to reduce subsidies and increase tax revenues in cooperation with the International Monetary Fund.

Macroeconomic indicators, including the budget deficit and inflation, have improved significantly. Terrorist attacks and organized crime have fallen off sharply thanks to persistent efforts by the military and security forces, drawing foreign companies back to the country.

The government has set an ambitious goal of achieving 5.5% economic growth in the current fiscal year, which runs through June 2016, and 7% growth the following year. It has laid out a road map for improving underdeveloped infrastructure and supporting the energy sector, including expanding the power grid. Insufficient tax revenues, however, mean only half of the projects meant to be underway have been implemented so far. 

Coming back

On the Arabian Sea coast is Karachi, the country's commercial capital. It is not hard to spot signs here that foreign companies are returning. Every day, young people and families flock to Dolmen Mall Clifton, a large waterfront commercial complex that houses famous overseas fashion brands, U.S. fast-food restaurants and other retail outlets. Shiny new Toyota Corollas are not an uncommon sight along the city's major boulevards.

In April, Yamaha Motor resumed production in Pakistan after a seven-year hiatus. "European carmakers are ready to start operating in Pakistan," said Ghulam Murtaza Khan Jatoi, minister for industries and production. "Volkswagen is making contact with the government."

A steel-processing center for Marubeni-Itochu Steel, under construction on the outskirts of Karachi, will soon be operational. In January, German chemical giant BASF opened a new office in Lahore, the capital of Punjab Province. Coca-Cola, the U.S. beverage group, said it will make additional investments in factories and other facilities in Pakistan.

Bright spots

Power supply conditions are also gradually improving. "The government's economic policy is considerably better today than during the previous administration, when we didn't have any bright prospects. Public order has also been appreciably restored," said Shabir, 50, who runs a household goods store in the northern Pakistani city of Rawalpindi.

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"Pakistan can now receive assistance from both the U.S. and China. It is an unprecedented favorable condition," said an executive at a major foreign bank.


Now that it is enjoying some forward momentum, the country is in a prime position to carry out structural reform. There is no disputing that Pakistan, with its population of about 190 million and more than 30 million middle-class citizens, is a major South Asian power. But whether it can finally claim the status of "emerging country" depends on the course it follows over the next several years.

[Riaz Haq]

Reduction in interest rates has caused increase in car financing in the country to 25% as compared to 70% in 2003-07 and 5% in 2008-12.
According to experts, it may not reach to levels that were seen 10-years back because of relatively stringent rules and regulations of banks now but it is expected car financing can reach 40-50% of cars sold.
Besides locally assembled Japanese cars, used and imported cars are also sold in Pakistan. On an average, local assembled cars make up 75%, while used imported cars are 25% of total sales. Imports of used vehicles have declined by 52% to 23,484 units in FY14.
To recall, government relaxed age limit of used imported cars from three to five years in Feb 2011 and amnesty scheme for smuggled cars was also introduced in April 2012. This decision caused a huge influx of used imported vehicles in the local market which affected local sales in FY13 and FY14. The imported figure reveals that major imports of used vehicles were in the category of up to 1000cc (26,525 units in FY13 versus 16,193 units in FY14).
However, after observing significant decline in the sales of local assemblers, Govt. reversed its decision of age limit from five to three years in Dec 2012. Currently, import of used cars is declining due to reduced age limit and increased duties/taxes. This is providing much needed support to the volumetric growth of local auto assemblers particularly to PSMC as major imports were in the category of below 1000cc.
According to data, car sales in March 2015 reached a record of 21,900 units, as Pak Suzuki sold 13,000 units (up 117% YoY), Indus Motor 5,500 units (up 36% YoY) and Honda Atlas Cars 2,400 units (up 22% YoY).
Pakistan has one of the lowest car per thousand of 11 cars providing room for growth with clear signs of economic recovery. Pakistan car sales grew at 5-year (FY10-14) CAGR of 6.6% to 136,888 units. It is estimated that sales of car assemblers will grow at 3-year (FY15-17) CAGR of 10% despite influx of imported used cars (approx. 40,000 cars per annum).
During 9MFY15, car sales are likely to grow 23% YoY to 123,542 units primarily due to the new model of Corolla and Taxi scheme delivery from Feb 2015. INDU is expected to post a significant volumetric growth of 50% followed by PSMC with growth of 20% during this period.

http://www.customstoday.com.pk/used-vehicles-imports-down-by-52-to-...

[Riaz Haq]

Pakistan Telecom Operators add 2.22 mln 3G/4G users in September 2015

The mobile phone operators in the country have added 2.22 million 3G/4G users during last month, taking the total count of mobile broadband users to 18.04 million.

A month back (August), the total number of users, who opted 3G and 4G services, being provided by four operators was 15.76 million, the data issued by Pakistan Telecommunication Authority (PTA) showed.

As per details, 3G and 4G users grew 14.43 % month-on-month during September 2015 i.e. highest in past six months.

The experts on Monday said the growth in mobile broadband subscriptions is due to increased usage of portable mobile broadband devices including MiFi and Wingle.

Mobilink added most number of 3G users with 878,107 new mobile broadband customers that it acquired during the reported month.

Ufone stood second in terms of adding most 3G users as it grabbed 637,131 new 3G users during September 2015.

Telenor acquired 393,969 new 3G users during the month while Zong converted 316,908 of its customers on to 3G network. Zong, at the end of September 2015, crossed 200,000 mark for its 4G users. Warid had some 156,827 4G users at the end of reported duration.

http://en.dailypakistan.com.pk/technology/operators-add-2-22-mln-3g...

http://www.pta.gov.pk/index.php?option=com_content&task=view&am...

[Riaz Haq]

WB projects #Pakistan’s economic growth up at 4.8% in 2015-16 http://www.dailytimes.com.pk/business/02-Nov-2015/wb-projects-pakis... …

The World Bank (WB) has projected Pakistan's economy will grow by 4.5 percent in Fiscal Year 2015-16 (FY16) and then further to 4.8 percent in FY17 supported by strong growth in industry and services, however, the country needs to implement energy and taxation reforms and increase investment.

The WB, in its latest economic outlook report stated that macroeconomic outlook of Pakistan for the next two years projects steady growth recovery-cum-low inflation, supported by fiscal consolidation and an improving external position.

Meanwhile, investment is expected to increase to 15.4 percent of Gross Domestic Product (GDP) by FY17 on account of operationalisation of China Pakistan Economic Corridor (CPEC) related projects, added the report.

Though, WB realizes that a mild recovery is underway, economic stability has largely been restored and key external risks are lower in Pakistan, but, some challenges may upset the projected growth as the slowdown in China, if protracted, could have adverse effects on investment and trade, and Pakistan may not have the ability to absorb external shocks in the absence of strong buffers.

Furthermore, WB mentioned in the report that realization of tax revenue targets largely hinges on steady implementation of tax reform agenda. Fiscal consolidation may also be negatively affected by delayed implementation of the government's privatisation agenda.

Moreover, for the economy to accelerate in the long run, key growth constraints like electricity shortages, cumbersome business climate, complex trade regime, low access to finance and security situation need to be addressed.

According to the report inflation is projected to stay low in view of low commodity prices, exchange rate stability and a prudent fiscal policy. The Pakistan's current account deficit is projected by the WB to increase slightly to 1.0 percent of GDP by FY17 but will remain manageable.

So far, remittances originating from Gulf countries have not been affected by the decline in oil price and are expected to stay robust in the near term. Exports are projected to contract in the first year owing to tapered global demand and then grow marginally the following year. Imports, however, are projected to post moderate growth due to CPEC-related investments and higher domestic demand. Fiscal consolidation is projected to continue over the medium term based on strong tax revenue efforts as well as gradual phasing-out of energy-related subsidies and of contingent liabilities on loss making state-owned enterprises.

Resultantly, the fiscal deficit is expected to decline to 3.5 percent of GDP by FY17. The reduced need for deficit financing should facilitate provision of bank credit to the private sector, leading to increased economic activity, the world financial institution concluded.

Widespread corruption and weak accountability have been long-standing problems, but there have been some improvements, especially in transparency and citizens' access to recourse for maladministration. Such improvements include the adoption of strong legislation on Right to Information in some provinces (KP and Punjab), the publication of increased budgetary information, and the growing role of ombudsman institutions - at both the federal and provincial levels - in resolving citizens' complaints of maladministration.

In terms of outcomes, there are some signs that petty corruption might be declining. The most recent Global Barometer Survey by Transparency International (2013) reports that 34 percent of citizens had paid a bribe in the past year - compared to 49 percent in the 2011 survey. Most survey respondents in Pakistan identified the police and the public administration as the most corruption affected institutions, followed by political parties.

Perceptions of corruption in public services such as education, health care, and the judicial system were considerably lower.

[Riaz Haq]

#Pakistan's new auto policy to boost output- http://www.khaleejtimes.com/business/auto/pakistans-new-auto-policy... …

Government plans to expand, modernise and diversify sector.


Car sales in Pakistan are surging and will get a further boost as the country launches its new Auto Policy 2015-18, which will help it to expand production significantly.

Car sales overshot all records and surged to 151,134 units in FY-15, ended on June 30, from 118,102 units in FY-14, Pakistan Automotive Manufacturers Association (PAMA) said.

To top it all, the car sales spree was another record breaking 44,372 units during July-September - the first quarter of FY-16, PAMA said his weekend. It was a record 60.59 per cent higher as compared to the like quarter of FY-15 when the sale was 27,630 units. The credit for this big boost in Q1 of FY-16 goes to Toyota Corolla which alone sold 13,512 units up from 8,546 units in Q1 FY-15.

In the longer term perspective, the government has been working on a comprehensive plan to expand, modernise and diversify the production plan for the entire range of auto production.

Khawaja Mohammad Asif, Minister for Water and Power, headed the Cabinet's Auto Policy Committee, which took two years to finalise the policy.

The committee consulted all the stake holders, including the existing manufacturers, the potential new entrants, car sales groups, and importers of used cars on behalf of the millions of overseas Pakistanis. Thousands of used cars are annually imported by these Pakistanis as the government-permitted personal baggage for use of their families or for sale.

Key changes have been incorporated in the new Auto Policy. It now lays down: "If the existing players invest in green field production, they will be offered incentives at par witt the new entrants." It will also push the present assemblers to modernise, expand and start production of latest model cars, incorporating new technological innovations. The existing and the new producers will be treated equally in terms of incentives, and provision of bank credit and infrastructure facilities.



Alongside the improved, pro-car policies incentives incorporated in the new policy, auto sales are going up, driving the industry to move ahead.

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But Honda Civic is facing stiff competition from Toyota Corolla's newly launched model. Honda Civic sale was down to 7,806 units in FY-15 from 9,933 in FY-14.

The Industry, market and the financial analysts, going forward, are upbeat about the surge in car production and sales. Topline Securities analyst Muhammad Tahir Saeed said: "Local car assemblers registered an excellent year on year growth of 31 per cent in FY-15 versus just one per cent in FY-14, and a compound annual growth rate (CAGR) of 5.3 per cent during the last five years - FY-11-15." Tahir attributes the higher sales of cars, and of jeeps and light commercial vehicles, to "rising consumer sector dynamics and an increase in car financing due to 42-year low interest rates in the country. Imports of use cars are still hovering around 25,000 to 30,0000 units a year. The imports make around 15 per cent of car sales market in Pakistan."

Tahir and other analysts project "a 13 per cent growth during the current FY-16. The healthy growth in the auto sector reflects increase in the per capita income, improved farmer economics and the overall recovery of the economy." The current foreign currency and trade market situation will also spur auto sector in Pakistan. The growth in production and sales in Pakistan will be helped by weak Japanese Yen against the greenback. "It will positively impact the auto sector profitability," said Tahir.

Who will gain, what? Suzuki is projected to be the biggest gainer in FY-16. A Suzuki spokesman estimates "a growth of 24 per cent to 122,617 units in FY-16."

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The auto sector has been exporting spare parts totalling around $20 million annually. ... 

[Riaz Haq]

#Pakistan on its Way to Growth Recovery: World Bank. Forecast: 4.5% #GDP Growth in 2015-16, 4.8% in 2016-17 http://www.worldbank.org/en/news/press-release/2015/11/11/pakistan-... …

Pakistan’s Gross Domestic Product (GDP) growth will accelerate to 4.5 in the current fiscal year and to 4.8 percent in FY2016/17, supported by strong services growth and a slight improvement in the industry sector, says World Bank’s newreport, “Pakistan Development Update”, launched today at the Quaid-i-Azam University in Islamabad.

The report discusses the important improvements of the external sector in Pakistan over the past few years. The foreign exchange reserves have increased from precariously low levels to appropriate level given the size of Pakistan’s imports. The current account deficit narrowed to US$2.6 billion in FY2014/15 compared to US$3.1 billion in the previous year, a result of record high remittances in the order of US$18.7 billion. External financial inflows continued strong, although lower than in the previous year. As a result, the balance of payments was positive for the second year in a row.

“There is an improvement in Pakistan’s overall economic environment. With macroeconomic stability largely restored, Pakistan can focus now on boosting development outcomes, which are not where one would expect, given the country’s income level”, says Patchamuthu Illangovan, World Bank Country Director for Pakistan. “To improve the country’s competitiveness, it is extremely important that the next phase of reforms is implemented and that Pakistan increases both public and private investment levels, which are among the lowest in the world.”

Several factors are contributing to low investment levels. Constrained fiscal space limits the government’s ability to make the necessary complementary public investments. A weak investment climate also affects private investment negatively. Another reason for the very low investment levels has to do with the low domestic savings rate in Pakistan at below 10 percent of GDP, which compares unfavorably with an average of around 25 percent in South Asia. Limited access to financial markets, high dependency ratio and low returns on financial instruments all contribute to this low rate of savings.

“Low domestic savings do not support higher investment levels”, says Enrique Blanco, Lead Country Economist. “The Government cannot make the required and complementary public investments, partly due to low revenue levels. The Government has embarked on ambitious program to improve tax policy and simplify tax administration, with the ultimate aim of increasing tax collection. There have been some improvements over the past few years – but results so far are not as expected and renewed efforts will be needed to address Pakistan’s very low revenue levels.”

This low saving-low investment trap has reduced Pakistan’s growth potential. The report also discusses the importance of increasing efforts to attract more Foreign Direct Investment from the current low levels of 0.3 percent of GDP, by improving the overall business climate and address regulatory weaknesses at the sectoral level that may be affecting the country’s ability to attract investment. The government is implementing a number of reforms to improve the country’s competitiveness. These include efforts to revive the privatization process, which will increase efficiency in management and improve service delivery, to improve access to and the quality of electricity, to promote financial inclusion and to simplify the trade regime and make it more transparent.

[Riaz Haq]

#Pakistan Keeps Interest Rate Unchanged to Support Sinking #Rupee. #SBP http://bloom.bg/1Sawrp2 via @business

Interest rate at 6% as state bank sees inflation rate rising
Move predicted by 21 of 22 economists in a Bloomberg survey

Pakistan kept its benchmark interest rate unchanged to support the rupee, which is among Asia’s worst performing currencies this quarter.
The State Bank of Pakistan kept the target policy rate at 6 percent, Governor Ashraf Wathra said in a statement in Karachi on Saturday. The move was predicted by 21 of 22 economists in a Bloomberg survey, with one seeing a cut to 5.5 percent.

“Headline inflation is expected to reverse its declining momentum,” according to the bank’s e-mailed statement. Average inflation will still remain below the target of 6 percent for the year ending June 30, with a subdued outlook for prices for oil and other major commodities, according to the statement.
A weaker rupee risks exposing weaknesses masked by Pakistan’s record foreign-exchange reserves, leaving the nation vulnerable to a balance of payments crisis. The currency has tumbled about 1 percent this quarter, extending the year’s loss to 5 percent. Even so, it’s overvalued by as much as 20 percent, the International Monetary Fund said on Nov. 6.
“If the central bank cuts rates now, it will only put excess pressure on the rupee,” Hamza Kamal, an analyst at Shajar Capital Pakistan Pvt., said by phone before the decision. “There is an expectation that the U.S. Federal Reserve will hike up its rate in December and that will have a depreciating effect on the Pakistani rupee.”
Prime Minister Nawaz Sharif needs to gradually start paying back the IMF for a $6.6 billion loan taken in 2013 to avert a balance of payments crisis.

[Riaz Haq]

Finding Value In Frontier & Emerging Markets: #Vietnam, #Pakistan, #India & The #Philippines http://seekingalpha.com/article/3698256-asias-response-to-the-feder... … $EWM $THD $VCVOF $VNMHF
Summary

The increasingly strong USD and China's currency devaluation in August have resulted in substantial FX losses for a large number of countries in Asia.

However, the extremely high level of growth and future potential in Asia can offset this risk in certain cases.

As the Fed may increase interest rates soon, investment in Asia should be a strategic approach of investing in countries with high growth and a strong performing currency.

This article presents Vietnam, Pakistan, India, and the Philippines as superior options for investors.