Mass corporate exodus a myth

With reforms and SIFC creation, Pakistan is preparing for fresh foreign investment

KARACHI:

Contrary to the assumption of exodus of global companies from Pakistan, the fact check suggests the number of foreign firms that began business in the county remained higher than those that quit over the past 18 months.

A comprehensive report titled "Pakistan Economy: Exodus of Foreign Investment, Myth not Reality", jointly authored by Arif Habib Limited CEO Shahid Ali Habib and Head of Research Tahir Abbas, said "reality check (suggests) over the past 18 months, while 11 companies exited or signaled their intent to exit, what really is striking is that around 16 fresh foreign firms are in the process of taking over stakes in local businesses."

"The narrative of a mass corporate exodus is not only misleading but also completely contrary to the reality of growing interest from international investors."

They said with the government introducing reforms and the establishment of the Special Investment Facilitation Council (SIFC), the country is preparing for fresh foreign investment.

The future of foreign direct investment (FDI) looks increasingly positive. Several global players are focusing on tapping into sectors like energy, mining, refineries, corporate farming, and exploration.

"As Pakistan's macroeconomic conditions improve, we anticipate acceleration in inflows of foreign investment."

With the population reaching 241.5 million in 2023, up 31% from 184.4 million in 2013, the consequent surge in demand for commodities is expected to continue, drawing even more foreign companies to the market.

Moreover, the government has recently deregulated non-essential medicine prices and is considering similar moves for petroleum pricing. In the technology sector, plans for several IT parks and tech cities are underway.

These measures are likely to ignite foreign interest and investment in pharmaceuticals, oil marketing companies (OMCs) and technology.

During FY24, net FDI inflows rose by 17% to $1.9 billion compared to inflows of $1.6 billion in FY23. Country-wise, China emerged as the leading contributor to the net FDI, with $568 million, followed by Hong Kong at $359 million.

Sector-wise, the power sector attracted the most significant investment during FY24, totaling $800 million, while the oil and gas exploration sector attracted $304 million.

OMCs and refineries

The report suggests that the oil marketing industry is thriving, marked by an exciting transformation driven by a series of mergers and acquisitions.

While some established foreign players like Shell Petroleum and TotalEnergies are transitioning out, this shift opens the door for new entrants engaged in capturing the space created in the sector.

Prominent newcomers such as Wafi Energy Holding, Gunvor Group, and Saudi Aramco are stepping in to fill the gaps as well as bring in fresh investment.

In May 2024, Saudi Aramco, with market capitalisation of $2 trillion and one of the most influential energy companies in the world, made its first investment in Pakistan, by acquiring a 40% stake in Gas and Oil Pakistan Ltd (GO) for approximately Rs56 billion ($200 million).

Wafi Energy successfully purchased a 77% stake in Shell Pakistan for Rs118/share, totaling 166 million shares, and is now looking to expand further with an additional 11.29% stake at Rs155.11/share.

TotalEnergies is collaborating with Gunvor Group to sell 50% of its stake in Total Parco Pakistan, highlighting the dynamic nature of foreign investment in the region.

The existing local refineries are currently unable to meet domestic demand; the new refinery policy is set to enhance investment in state-of-the-art refining capacity.

Saudi Arabia has indicated its intention to set up a modern refinery, which is likely to take about five to six years to come online, allowing for a significant reduction in imported petroleum products over time.

Pharmaceutical sector

Over the past two years, the old pharmaceutical companies working on imported ingredients have been exiting, with the domestic companies taking over the space.

Recently, Pfizer Pakistan (a subsidiary of Pfizer Inc) has sold six of its assets to Lucky Core Industries including Ansaid, Ponstan, Ponstan Forte, Basoquin, Deltacortril, Lysovit, Corex-D, and Mycitracin.

Moreover, Japanese-based pharma company Eisai Co Limited has sold off two product categories such as Methycobal and Myonal.

Furthermore, Bayer Pakistan (a subsidiary of German company Bayer AG) has also sold its assets along with rights to produce and distribute 12 of its products to OBS Pakistan for Rs7 billion.

IT sector

Since January 2023, foreign investors have shown keen interest in the IT sector, especially the fintech segment. Turkish fintech company Papara has acquired 100% of SadaPay.

Moreover, a microfinance bank Advans Pakistan Microfinance Bank, owned by a Luxembourg company in Pakistan, was sold off to the Netherlands company, MNT Halan. Norwegian company Telenor is selling off Telenor Pakistan to UAE's Etisalat-run Pakistan Telecommunication Co Ltd. It is important to mention that Telenor has already exited from nine countries over the last seven years.

With the imminent introduction of 5G, the country is expected to attract further foreign investment going forward. Such transactions were also seen in the personal care product segment and power sector, the report highlighted.