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Investment avenues and opportunities in Punjab

Published on 10th Mar, Edition 10, 2014

 

The Punjab Board of Investments is actively involved in finding opportunities for business. Punjab being an agricultural land, needless to say there are numerous investment opportunities in farming. The government has identified potential sectors, which need investments and on the government target list. Many initiatives have been taken to resolve the energy and power crisis including development on Thar coal. The government has set positive examples by keeping law and order issues at bay, development of infrastructure and more recently, the metro bus project.

Pakistan ranks among the top ten producers in the world for at least 25 agricultural commodities. If significant developments are made on the value addition and marketing end, Pakistan will register high exports of agricultural products. Of the total arable area of over 17 million hectares, a vast 1.7 million hectares of prime fertile land is still available for investments in agricultural production and corporate farming. As much as 30 percent or 3.4 MT of horticultural produce that goes waste every year can be converted into economic gain by investing in agribusiness value chain industries like dried fruits and vegetables industry, fruit pulp processing and juice production etc.

Pakistan’s livestock sector has exhibited tremendous growth in the past. Since 1996 to 2011, its share in the agricultural sector has grown from 25 percent to 60 percent. The livestock sector employs more than 35 million people and produces almost US$500 million worth of products. Current annual shortage for milk is 618 million liters. The demand- supply gap is likely to widen further in future years with annual demand i.e. 200 million liters expected to grow by a steady 20 percent, thus requiring investments in milk processing and production. In milk production, Pakistan is ranked to be among the countries with lowest cost of production n the world. This is an important factor for profit in private sector investment.

Pakistan is the fourth largest cotton producer and third largest cotton user in the world. The textile sector is the largest manufacturing industry in Pakistan and contributes one-fourth of the total value added produce of the manufacturing sector. The industry derives its competitiveness from availability of cheap raw material i.e. cotton, a pool of skilled manpower and widespread ancillary support from dyeing, chemical and other industries. In terms of exports, the textile industry is heavily reliant on the markets in the USA and EU. There lies a potential for the textile industry to diversify and export to other markets such as China, Malaysia and Sri Lanka. The GSP Plus status is a plus factor. The sector needs investments in new technologies and machinery to gain more from value addition. The world cotton market is subject to price and supply fluctuations, to cater to which, there is a need to develop wide-spread cotton warehousing especially in Punjab. The textile industry is energy-intensive and thus negatively affected by shortages in energy and power. This presents an opportunity for widening the scope of available alternative energy sources that specifically cater to the needs of the industry.

All economic sectors are directly dependent upon the availability of energy in the form of power or fuel. Primary commercial energy sources in Pakistan include oil, natural gas, coal, hydro and nuclear energy. In Punjab, at present, there is a demand-supply gap of about 4,000 MW, which is increasing at a rate of 6 percent per annum. Punjab has over 500 million tons of coal deposits along with a readily available technical and skilled manpower. Punjab lies in an area of one of the highest solar insulation in the world. The average daily insulation amounts to 5-7kwh/day and with the sun shining a good 6-8 hours daily, 18-25 MJ/M2 of daily energy is available. Pakistan is endowed with significant mineral resources and is emerging as a very promising area for the exploration of mineral deposits. The country’s 600,000 square kms of outcrop area demonstrates potential for a number of mineral deposits. The total value of the output from the mineral industry accounted for 2.9 percent of the GDP in 2009 and recorded a growth rate of 2.7 percent the same year.

Explorations by multinational mining companies, government agencies and various regional geological surveys confirm Punjab’s potential in the production of key minerals including coal, gypsum, rock salt, limestone, iron ore and marble, and granite among others. Although, mining and quarrying output has been constantly on the increase, exploitation of these resources has been slow owing to a lack of capital and sophistication in the sector. Pakistan is the 30th largest manufacturing country in the world. The manufacturing sector constitutes about 20 percent of the output produced in the national economy. Over the last five years, the sector has registered an average annual growth of 3.4 percent.

The sugar industry in Pakistan is the second largest agro-based industry in the world with 83 sugar mills all over the country and a daily crushing capacity of nearly 600,000 tons. Punjab houses 44 sugar mills, and contributes about 57 percent to sugar production in Pakistan. Sugar cane utilization rate for Pakistan stands at 81 percent, in Punjab it stands at 74 percent highlighting room for further expansion in the industry. The annual cement production capacity in Pakistan stands at 44 million tons. Pakistan exports about 9 million tons of cement mainly to Africa, Afghanistan and the Middle East. This indicates a wide room for penetration into the international market with commercial and residential construction including major housing projects. The sector has shown impressive growth which is expected to continue. There remains potential for investments in cement.

Wholesale and retail trade forms the third largest sector in Pakistan after agriculture and manufacturing and the second largest employer, employing around 16 percent of its total labor force. The retail sector constitutes 33 percent of the overall service sector in Pakistan and contributes around 18 percent to its total GDP. The country’s retail industry is valued at US$42 billion. Nearly 73 percent of the Pakistani population is below 35 years of age, increasingly become active income earners of society and expanding the middle income class in the country. Both urban and total population is on the rise in Pakistan, indicating greater demand for goods and services. Retail investment opportunities exist in a range of sectors in Pakistan like food, apparel, footwear, health & beauty, consumer electronics, home furnishings.

The Financial System in Pakistan has grown considerably both in terms of diversification, sophistication as well as in terms of market depth in the past few years. Over the last decade, the sector has registered growth of 43 percent in real terms. The financial market in Pakistan mainly comprises, the banking system, money market, insurance market, and capital markets further divided into the debt and equity market. The sector contributes nearly 5 percent to the GDP. With the population growth and people spread in all parts of the country, it indicates huge potential for mobilization of deposits and improvement of liquidity in the banking system. The KSE market capitalization to GDP ratio stands at 15 percent indicating an immense potential for further deepening of the equity market. The small and medium enterprise sector has been growing at a steady rate of 7 percent annually. To cater to the sector’s needs, diversification of specialized financial products will result in even higher growth of the banking industry.

These are just few sectors identified by the government, however, many more exist requiring investments. Foreign investments are contingent upon law and order issues which the country needs to resolve.

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