Invest in Pakistan…Really?

Home / FYSA / Invest in Pakistan…Really?

Invest in Pakistan…Really?
By: Sadika Hameed

Pakistan’s internal stability would be a concern for U.S. policymakers even if it was not an important transit route for the U.S. withdrawal from Afghanistan. Between its large population, growing problem with armed militants, historical tensions with India, and a nuclear doctrine now emphasizing tactical weapons, Pakistan is one of the few places where nearly all U.S. concerns come together.

But the story is not entirely grim. One of the most important sources of Pakistan’s woes is its economic crisis. And there are real opportunities to make a dent there if only policymakers and investors would recognize them. The ratio of Pakistan’s young people to its retired people is high enough that its economy has the potential for what is known as a “demographic dividend”: with more jobs for young people, its economy would boom. To create those jobs would require more investment.

Why would anyone invest in a violent, fragile country? Three reasons.

First, as young people move into their late 20s and early 30s, consumer demand increases. Even with underemployment, Pakistan has already seen 7.5 percent compounded annual growth in consumer spending since 2007, and multinational corporations such as Unilever, Colgate-Palmolive, and Nestle have grown faster in Pakistan than their global average.

Second, only 7 percent of Pakistan’s small and medium-size enterprises (SMEs) have bank loans, in contrast to 32 percent in Bangladesh and 33 percent in India. Money saved on interest goes toward growth, with Pakistan’s 100 top-performing companies enjoying 35 percent two-year median compound growth. And these are companies with strong ties to local communities that continue operating despite security threats.

Third, as Western investors diversify into assets with low correlations to existing investments, they have put money into Africa. Yet market correlation between U.S. and European markets to Pakistan’s is even lower than Africa’s, around 0.05.

These economic facts are beginning to make an impression on investors and policymakers, who increasingly see promise in private-sector-led development as a source of stability. Opportunities have been missed in Pakistan before. It would be a shame if, amid shrinking budgets and the departure from Afghanistan, U.S. decisionmakers missed one of the more promising (and less costly) opportunities to contribute to stability in Pakistan.

Other posts by .


Leave a Comment