punjab economic review
TRANSCRIPT
48,000
93
60%
21
205,344km2
Gross Provincial Product(in PPP Terms)
257,000Million
USD
Industrial units
million market size
National GDP Share
Industrial Estates
PunjabAt a GlancePunjab is the world’s 40th largest
economy. As the most vibrant province of Pakistan, which is the 6th most populated country in the world, it is a melting pot of different cultures and traditions. Its History dates back over 5,000 years, nestling the cradle of civilization and earliest cities of Taxila and Harappa. Punjab has about 60% share in the National GDP totaling over USD 257 billion (in purchasing power parity terms) and has the potential of being the food basket not only for the country but the entire region, given its dense network of the Indus River and the world largest alluvial soil deposit which are fertile and abundant.
Punjab is Pakistan’s most industri-alized economy, which mainly encompasses textiles, chemicals, food processing, agriculture and other similar industries. Possess-ing a massive agricultural set up, with over 16.5 million hectares under cultivation, some of the largest production numbers in horticulture, immense mineral reserves, well integrated rail and road infrastructure, a bourgeon-ing services sector, deepening financial sector, and one of the highest human development indexes in the region, Punjab is fast becoming a focal point for businesses in the South Asia. The challenge remains to bring the FDI inflows in the region reach the mark of its true
potential. Economists link the solution to the port city of Karachi, predicting that this will at least double the annual inflows once the linkages are made more concrete through logistical
supply chain and organizational forces.
Under the leadership of the Chief Minister Punjab investment and trade activities in the province are made though a fast track system, facilitated though the Punjab Board of Investment and Trade (PBIT). For investors and businesspeople interested in doing business in the province this is the single most important contribution to increasing FDI and internal investments. A One-Window operation that PBIT provides saves time-to-market and provides investors with accurate financial advisory for their investments. As the global economy recovers, Punjab continually enjoys new investments in sectors all across the board which are expected to rise significantly. Although immense potential exists in all sectors, the government of Punjab is furthering IMF-approved government policies, bolstered by foreign investment and renewed access to global markets. These policies have generated solid macroeco-nomic recovery in the last decade. Substantial macroeconomic reforms since 2000, most notably the privatization of the banking sector has helped the economy. Despite a dry climate, an extensive irrigation system, which is the largest in the world that is built with world class engineering tactics makes Punjab a rich agricultural region capable of billions of dollars worth of value-addition to not only agriculture and livestock but also manufacturing and light industry. Although the rich water and land resource gives Punjab a head start among developing countries, this
the real trigger for economists. The real catalyst to make Punjab the turn-around economy for Pakistan and the region is the Human Capital in Punjab number-ing 93 million out of which over 50% are under the age of 25, largely literate and skilled in the craft of engineering and health care. Much of the labor for Pakistan’s industrialized cities comes from Punjab given its focus on vocational training advancement. Wheat and cotton are the largest
crops in Punjab in dollar terms, in terms of the area cultivated and in terms of production in tons. Other crops include rice, sugarcane, millet, corn, oilseeds, pulses, vegetables, and fruits such as kinnow. Livestock and poultry production are also key contribu-tions to the economy. Punjab possesses the third largest buffalo population in the world after India and Pakistan respectively, and an equally impressive herd of other ruminants. The rate of middle class growth is
also increasing faster than any other region of the country. The dependence ratio in Punjab is over 47% and its population like everything else is at the take-off stage in its economic develop-ment. It is also a major manpower contributor because it has the largest pool of professionals and highly skilled manpower in Pakistan.
Punjab has a 60% share in the
National GDP totaling over USD 257 billion making
it a 40th largest economy in the
world. Resource
Iron Ore
Coal
Agri Land
Housing
Electricity
Livestock
Metric
Reserves
Reserves
Underoptimised
Units backlog
Unmet demand
Annual Turnover
Measurement
Tons
Tons
Acres
Units
Kw Hrs
Dollars
Volume
1,000,000,000
245,000,000
51,000,000
4,000,000
13,140,000,000
60,000,000
Unit Price
150
82.5
500
10,000
0.12
500
Net Worth of Punjab’s Untapped Resources Value (Billion USD)
150
20.2
25.5
40
1.6
30
Ushering in a modern era of development in Punjab
Source: Punjab Economic Report 2007
Cons
truct
ion
Tran
spor
tatio
n
Who
lesa
le &
Ret
ail
Man
ufac
turin
g
Live
stock
Min
or C
rops
Maj
or C
rops
PBIT makes no warranties or representations about the quality, accuracy or completencess of information contained in this supplement. PBIT is not responsible to the reader or anyone else for any loss or damage suffered in connection with the use of this information or any of the content.
timeNspace
Source: Punjab Economic Report 2007
Punjab Share in Various Sectors in National GDP
%75
60
45
30
15
0
%
%
%
%
%
Harnessing the Resource of 61m Livestock in Punjab
Solving the Housing Crisis Using Incentives
Q: What is the vision for the livestock sector of Punjab? Punjab is an agriculture-based region where farming has always been among the main sources of income, which gives Punjab a home grower’s advantage. In Punjab, rearing animals is a household activity and has been focused on traditionally. The Medium Term Action Plan of the Livestock sector is to focus on general upgradation, animal health improvement, feed resources upgradation, and the marketing and empowerment of women in support of Punjab Vision 2020. This vision aims towards the relentless pursuit of modernization, innovation, a culturally sophisticated, internationally connected and reasonably well-off healthy society in this part of our great nation.
Q: How does the livestock sector impact the economy in terms of value add?About 40% of all agriculture in Punjab is livestock after a steady increase in the past 10 to 12 years. Technological improve-ments have increased cultivable land by 30 thousand acres. Farmers are using new technol-ogy, such as mulch, reducing use of weedicide, ultraviolet techniques, pesticides and growing crops vertically rather than horizontally, all of which have resulted in increased quality and productivity. Q: What would you say is the economic potential of livestock in the province? In Punjab, 70% to 80% of livestock is being used just for subsistence. The farmer has
largely been unable to give commercial value to livestock, as a result of which there is very little marketable surplus. Although the potential is enormous, the livestock market is not developed fully to harness it. The current estimates of the livestock industry are valued USD 30 billion which can spike further if the farmer can enhance its commercial value. The demand for livestock plays an important role in stimulating the profitability of this sector which results in achieving economies of scale.
Non-value added products are being sold as raw products which need to be modified in order to increase there market value. The export potential of livestock is huge, and meeting that potential will be of great benefit for the economy of the country. Currently, we are not exporting substantially, just PKR 100
million this year, which is very small compared to what can be achieved. In terms of the local market the demand for livestock in Punjab is significant and so is the export potential in markets of Middle East and Asia. Another avenue that awaits investment is
mozzarella cheese which Punjab has a competitive edge in because it has a large number of buffalos which can be used to produce this kind of cheese mainly for export at competitive prices. If we do so we would be Italy’s biggest competitor in this sector.
Q: What are the main challenges in this sector? It starts with the need to organize the domestic market, develop a mechanism for avoiding adulterated milk sale and to harness the export potential to its
fullest.
Q: What are the unique competitive advantages that Punjab has in Livestock? In comparison with other provinces, Punjab has three things in abundance:1. Agricultural land2. Water 3. Animal rearing tradition
Other regions of Pakistan have demand for livestock but none of them have abundant agricultural land nor do they have an animal rearing tradition, which keeps Punjab at an advantage compared to other areas.
Q: What potential investment opportunities exist in Punjab?The halal market, including halal meat is a USD 1 trillion industry globally, the potential for Punjab can realistically be a small but significant part of that pie.Incentives and investor friendly policies are there in the form of tax breaks and zero-duties but they can be further tuned to achieve concrete results. Investors look for fairness in corporate prices, quality and transactions.
I feel that currently, there is a positive environment for investment in the high end dairy farming since only 3% of our total milk is processed. One way the government of Punjab is working towards this is by introducing many value-added programs in the University of Veterinary and Animal Sciences which is the largest university for livestock in the Muslim world.
The government of Punjab has introduced three types of investments in livestock which include:1. Animal health coverage with significant numbers of veterinary health workers 2. Breed improvement programs – to increase milk capacity3. Nutrition related research work for investors or corporate farmers. The government is also introducing Cholistan – Land Lease Project, beef breed develop-ment, working on a favorable policy for the industry and developing the market by providing incentives.
Livestock sector provides many
fruitful investment opportunities which include
Halal meat
M. Jehanzeb KhanM. Jehanzab is Secretary of the Livestock Department, GOPn. He has over eighteen years of progressive experience.
Livestock population in Punjab is 61 million
Pakistan is the 3rd largest milk producer in the world
Milk processing potential is 97% of total milk produced
Growing demand for milk is 6% annually
Total meat production is 2.7 million Metric Tons
The global Halal meat Industry is over USD 300 billion
Extensive veterinary infrastructure available all across Rural and Urban Punjab
LIVESTOCKInvestment Positives
Q: How would you quantify the current Housing Crisis in Punjab? There is a shortfall of 400,000 houses every year, all over Punjab. This shortfall prevails among lower and lower-middle class due to expensive land and high cost of housing. The shortfall is not the main problem, the key issue is growing poverty. The real problem is that 40% of our population is below the poverty line. Apart from housing, other needs are also not being met adequately, as a developing country, which include food, education, clean drinking water, good sanitation and drainage. People face environmental issues, especially the poor. An overall enabling environment is missing for the rural poor and people who are living in slums. The things that accentuated the environmen-tal issues are growing population, urbanization and poverty. Q: What contributes to this overall challenge that develop-ing countries have to face?Housing becomes one of those factors that contribute to the cycle of poverty when people leave their houses and come to the cities. Urbanization is one of the
factors that motivate people to move to cities from small towns or villages. The living space becomes very limited for growing populations that desire a better life, employment and improved living standards. The pressure on the cities increases when people start moving into them and live in slums in substandard areas.
Q: What are the reasons for the steep cost of land?After 9/11, the investment in land increased when expatriates invested heavily in it. Currently it is difficult for the salaried class to afford houses. Most housing schemes are catered towards the upper class and there is little private sector focus on providing homes to poor people. Q: What solution has your department devised for this crisis? The problem is that investing in this sector for low income
housing does not guarantee high returns. The solution to the housing crisis is to invest in low-income housing societies which will help provide homes to the homeless by giving subsidies. Low income people do not have the buying power to purchase
homes in high income housing schemes. In order to overcome this housing crisis, the government has established a company, The Punjab Land Development Company (PLDC). PLDC’s portfolio includes catering to the low-income sector, to plan affordable housing sectors and to provide subsidized home loans for people. The private-
sector is encouraged to invest in this housing scheme. As an incentive, the government is providing land as equity to the private-sector for investment in the low cost housing sector. The first scheme of the PLDC will be to subsidize single digit interest home loans which will further help to reduce the housing crisis by making it more affordable.
Q: What is your wishlist for improving investment in this sector? 1. To provide clean drinking water and sewerage treatment, and save water resources from
contamination and misuse. To develop a system where resources are employed on a need basis instead of political basis. To plan for 3-year programs rather than 1-year programs, since we need long-term planning. 2. To save the environment, for which Punjab Horticulture Authority Act has been drafted. Its objective is to save environ-mental resources including trees, water and the air. In Lahore, 80% of transport is private and 18% is public. Buses make up only 5% of transport. Now, it is time to regulate society to save the environment. There is a dire need to invest in public transport and employ maximum restrictions on private transport to mitigate pollution. The environment must not be damaged at any cost. Unnecessary cutting of trees should be forbidden. Develop-ment should go side by side, but the environment has to be safe where possible.
3. The poor person does not have the privilege of basic facilities. To overcome this, there is a need to create standards for housing awareness and to allocate a share for the low income class in housing, health and education in all newly built housing schemes. We also look towards proportion-ate investment balance in both rural and urban areas, which will avoid traffic toward cities with repercussions on the environ-ment.
The development of Punjab Land Devel-opment Company
(PLDC) is one of the initiatives to focus
on the local investor and to facilitate the investment process
for affordable housing
Irfan Ali
Irfan Ali is Secretary of the Housing Department Government of the Punjab. He has more than 20 years of experience in all four provinces of Pakistan in various administrative capacities and diverse subjects like law & order, terrorism, urban and rural development, poppy eradication, primary health care, poverty alleviation and social welfare.
CONSTRUCTIONInvestment Positives
Milk ProcessingProcessed and
Distributed through Formal Channels:
3%
Unprocessed97%
Source: Punjab Livestock Department
Source: Punjab Economic Report 2007
Aging Housing Stock 30%
Remaining Housing Stock 67%
Deficit: 3%
Punjab Housing Stock
Since 2001, sector has grown 23 fold
Housing units needed annually are 400,000
Punjab’s potential to build houses stands at 300,000 units annually
Investment potential in housing is 33% of total stock
Fastest urbanizing province
Punjab accounts for 55% of total transport GDP
Feasibilities are Crucial Conservation is the Solution
Q: What is the mineral resource base available in Punjab?There are 4 minerals that we would like to focus on because they are the most lucrative and the most marketable projects. These include coal, iron ore, rock salt and limestone or dimension stone. Besides these 4 main ones are silica sand, gypsum and fireclay which are important for a variety of industrial products.
Q: What is the main market potential for coal in Punjab? The estimated coal reserves in the Salt Range, Punjab are 235 million tons. (Source: GSP, Geological survey of Pakistan & USGS, United States Geological Survey). SNOWDEN from Australia is a leading company engaged by the Department of Mines and Minerals, and is working on a Techno-Economic feasibility study of coal reserves which will be completed by June 2010. It will strengthen the confidence of the coal power generation investors. The potential of coal in terms of power generation is 400-500 MWs on presently assessed coal production of 2 million metric tones per year. The resources have further potential for more coal production. Power generation of 300 MWs can be achieved through procurement of coal from Chamalang, Balochistan to D.G. Khan. Put simply an investment of USD 1500 million is required for producing a total of 800 MWs
power from coal.
Q: Likewise, what’s the potential for iron ore in Punjab?Substantial iron ore reserves have been found in Chiniot, Rajoa, Kalabagh and D.G. Khan districts. The assessed reserves of iron ore are 110 million tons in Chiniot, 500 million tons in Rajoa, 290 million tons in Kalabagh and 260 million tons in Rakhimum, D.G. Khan. A total of about 1150 million tons of iron ore have been assessed in Punjab.
The proven reserves of iron have over 70% of ferric oxide, which is of magnetite quality in Chiniot area. Once extracted, Pakistan Steel will be a big buyer of these raw materials. One thousand tons of iron (with 70% ferric oxide) will produce 700 tons of steel. The iron ore reserves of Chinnot and Rajoa are extending in Sheikhupura, Sargodha, Lahore, Kasur and Shahkot. A feasibility study to prove the wide spread
iron ore reserves is being worked out.
Iron ore is a more important resource that Punjab has in terms of monetary value. The Department of Mines and Minerals with local experts is making a feasibility study of the extraction of the 13 million tons
of proven iron ore reserves of Chiniot.
Q: Can you also elaborate on the potential of rock salt? The world’s largest and inexhaust-ible deposits of pure rock salt are available in the Salt Range, Punjab. There is an enormous potential to be tapped into, which offers cost competitiveness and maximum revenue generation. There is a significant demand in the local and international markets for rock salt based chemical products.
Q: What is the importance of limestone?
There are 2 broad uses of limestone:
One is for cement, construction and chemical units. Given an abundance of excellent quality calcium limestone deposits across the province, it is used mostly in low-cost production of cement, lime, aggregate and building stones. The products of limestone can be used as fluxes, in glass as raw materials, refracto-ries, fillers and abrasives, soil-conditioning and as an ingredient in a host of chemical processes. Second is the use of limestone as dimension stone. Punjab is bestowed with immense reserves of uniquely textured dolomitize
limestone of fine quality. They are capable of attaining a polished and shiny look on the surface. The limestone has a variety of colors with fossilifer-ous backgrounds giving it a unique ornamental orientation. Fossils embedded with adjoined ground mass have made the marketing of limestone as dimension stone more attractive for the domestic and commercial construction industry. The dimension stones can be developed using benching and slicing techniques of viable dimensions on scientific and commercial scales.
Q: What would your wish list for investment be?Mineral resources found in Punjab require proper exploration and assessment through feasibil-ity studies which although are expensive and need to be outsourced are the prerequisite to any real trade and investment in the province. Investors are allowed to conduct such activities on their own as well to assist them in making specific investments in viable projects.No development work can occur without the proactive support and cooperation from all line departments of the province as per the fast track policies under the direction of the Chief Minister of Punjab. We are working toward a well integrated government setup to give an investor immediate assistance. Mineral resource-based project investments can either be a joint-venture with the Govern-ment Company (PCMC) on mutually agreed terms and conditions, or be awarded for direct investment to the individu-als by the Department of Mines and Minerals.
The world’s largest and inexhaustible deposits of pure
rock salt are available in the Salt
Range, Punjab
Saif Ullah Chatta is Secretary of the Mines & Minerals Department, GOPn. He has over 20 years of experience in Civil Service of Pakistan and has held various administrative, staff and secretariat assignments in Pakistan.
MINES & MINERALS Investment Positives
Q: What are the numbers for total power production and consumption in Pakistan? We have installed capacity of 19,980 MWs (excluding KESC) and available capacity varies from season to season. Available capacity ranges from 8000 MWs – 14,500 MWs which includes Hydel (6464 MWs), private power IDPs (6500 MWs), Ex WAPDA generation (3600 MWs), and nuclear energy (425 MWs).
Q: What is the total production and consumption for Punjab?In Punjab, the electricity consumption is 61.3% of the total. We are facing a crisis akin to a sinking ship where people are boring holes in it to make it sink faster. There are some other factors that are making the situation worse, such as non payment by provinces, no subsidies from federal government, and a WAPDA debt of PKR 120 billion. It stems from WAPDA having no money to pay its gas bill and a 12 billion dollars per year expense for importing oil which is used for electricity generation.
Q: What should be expected in terms of power generation projects in the next decade?There are new projects focused on achieving the goal of a self sustained Punjab. The government has drawn a feasibil-ity report of natural reserves which are potential resources for electricity generation. These natural reserves include coal, which can generate 550 MWs (235 billion tons) and is mostly available in the salt range
(Chakwal, Khushab, Mianwali), Solar energy, which has unlimited potential and can generate 1 million MWs, Hydel energy potential, which is untapped but can also generate 600MWs including the plant in Kalabagh with 3600 MWs potential, and Wind energy potential, which is not identified yet but can produce an estimated 1000 MW. It is the end use of energy that counts, that is how much heat or cooling is produced. If we focus on just the generation, the demand and supply gap can never be filled. The focus should be on demand management through energy conservation (reducing dependency on energy) and efficient use of energy (making better use of 1 KW of energy or getting efficiency by using energy savers). Buildings are the source of inefficiency as 35% of energy is utilized in buildings. Q: What are the causes of this gap in power?The major reasons for the power gap are money motivation at the
supply side. What we need to do to rectify the situation is ensure good governance, power policies that need to be consistent, a broad vision, improvement in security and risk perception in the country and a cut down in the conspicu-ous consumption by consumer-
ism. Developing countries like ours need to perfect a zero-tolerance policy on corruption and need to win over of the lobby that hinders hydel resources to generate power, such as in the case of Kalabagh dam.
Q: How can this power gap be filled?Conservation of energy is the solution. Specifically because conservation doesn’t need any major investment and will also give us immediate results: 25% of our energy needs will be met if we begin to implement conserva-tion of energy. By educating users of electricity about energy
savers and efficient use of ACs, energy conservation can be made an effective phenomenon. During the post war period of 1965, there was a power shortage in Pakistan. There was an electricity ordinance which was followed by an electricity conservation campaign, which resulted in an effective solution to the electric-ity crisis at that point of time.Domestic energy utilization in Pakistan is 40% and it is the domestic sector that wastes a huge chunk of the energy that is recovered though dire steps such as load shedding. By providing awareness and education to households, an effective effort can be made to conserve energy. For example, Spain and Cuba
have had a huge turn-around in energy conservation because of planning and new power plants. They had faced a worse crisis than ours. Q: What is the effect of the water crisis on Power genera-tion?Climate change is getting severe due to which rain predictions are affected. Monsoons are not predictable anymore and there is a shift in rainfall. Sever glacier melting can either lead to floods or draught, putting us in a water crisis situation and ultimately affecting the generation of power. There is a need to develop consistent policies to smooth the flow of power planning and energy generation. And there is a need to design a load shedding plan for the next 5 years and separate industrial feeders from domestic feeders in Punjab, which can be done at a very low cost while equally dividing the shortage.
Q: How do you plan to bring about change thorough conservation alone? The best thing that a government can do is to minimize uncertainty, align provincial and federal policies, develop a strategy to remove conflict among policies, mitigate the negative role of media, appoint a PR or media department of the power sector and educate media and tell them that Mega Watts are not important, but the use of energy is important. Cuba and Spain are the best examples of those countries which are successful in energy conservation. In Pakistan, 25% of energy can be saved through energy conservation. Marginal cost of energy could be Rs. 30 in households. Energy awareness and education is the primary step towards energy conservation.
Zubair Javed is Chief Executive Officer at PPDCL. He has 40 years of experience in Pakistan’s power sector, 20 years in teaching, 10 years in dealing with private power IDPs and 5 years in research and testing.
ENERGYInvestment Positives
Saif Ullah Chatta
150 Billion USD
20.2 Billion USD
0
50
100
150
200
250
Iron Ore Coal
Valu
e (B
illio
n U
SD)
Source: Punjab Economic Review 2007
Major Minerals
Source: PEPCO, 2010
Punjab Power Density
81353
5772
Electrified up to 2010
Capacity
35% of energy is being used in
buildings. Build-ings are mere
envelopes which we use to house
our activities
Zubair Javed
Iron ore reserves are 1 billion MTs Punjab has the world’s largest deposits of rock salt
Punjab government is actively seeking feasibility studies in mines and minerals sector
Given that Pakistan has the 5th largest gemstone reserves in the world, value-addition facilities in Punjab represent a sales potential of over USD 5 billion
Total power generation (Punjab) is 15,055 MWs
Consumption is increasing at 8-9% annually
Investment gap is 500 MWs
Coal reserves ideal for power generation are valued at 235 million MTs
Highly incentivized public-private partnerships terms exist
timeNspace
Why Livestock?
Unique Competitive Advantage
Punjab has the most fertile land
which is supported by the largest irrigation
system
Total size of industry is USD 30 billion
Total land utilized for cultivation is 69%
Immense opportunity in value addition
Cotton contribution to export earnings is USD 8.3 billion
Potential growth of horticulture export is 50%
AGRICULTUREInvestment Positives
Q. What is the size of the agriculture industry in Punjab?A. In Punjab, the agriculture industry is 23% of GDP. It is equally divided between crops and livestock. 90% of the crop sector is comprised of major crops such as cotton, wheat, sugarcane, rice and maize. The estimated value of crops is USD 30 billion.
Q. What is the importance of the agriculture sector for the economy?A. Agriculture is the primary sector of the economy. Growth of 2-3% in agriculture in the province results in overall economic growth of 6-7%, which creates million of jobs. There is a huge number of young laborers who are joining the workforce annually with the public sector and private sector accounting for 15% and 85% respectively. The challenge is of sustainability to meet the employment requirement of the young labor force. In agriculture, cotton or wheat crop growth of 2-3% results in economic growth of 6-7%, so when a crop fails to grow or growth slows down, the number of jobs reduces and then economic sustainability becomes a challenge.
Q. How can the agriculture sector take the lead?A. By investing in value addition crops and horticulture, the
agriculture sector can yield maximum returns. We have concentrated little on horticulture and value addition crops, which are important sources of job creation. The cereal crop creates 2-3 jobs per acre and horticulture creates 7-8 jobs per acre. Capital-izing on value addition crops like horticulture provides the added advantage of creating jobs. Other than capitalizing on horticulture, we should also focus on the correct marketing system to make agriculture more successful in Pakistan. Markets create positive pressure on farm gates, ensure certifications, traceability and results through linkages in the supply chain. So we need to correct the market system.We have remarkable seasonal and soil variation in our country. We have different day and night temperatures which also support our quality agricultural production.
Q. What is the main source of value addition in agriculture?Among value addition crops are the mango pulp and processing, the storage industry, citrus pulp and processing industry. Creating backward integration for the market is the real value addition in agriculture. In Pakistan, Pepsico grows potatoes in the sandy soil of Thal for Lays quality chips. Pakistan Tobacco Company is also doing the same by growing tobacco in Mianwali
which is supporting the rural economy by bringing in virus free, top-of-the-line tobacco seeds. It is a win - win situation as it borders DG Khan, creating employment for the rural population. Excellent processors give the farmer access to the
market without any wastage. Wherever a good processor is in place, it creates backward pressure at the farm gate. So, we need good investment at the farm gate. A good processer brings quality seeds, holds the farmer’s hands and creates linkages in la sustainable fashion. Processors like Rafhan Maize, Pepsico, Metro and Pakistan Tobacco Company are creating backward pressure on the farm gate and introducing new productive mechanisms in the agriculture. Q. What are the competitive strengths of agriculture sector for the investor?A. The agriculture industry is private-sector driven. Its role is to incentivize areas favorable to private-sector investment and remove barriers to investment. The agriculture industry doesn’t
create unnecessary restrictions; it has created a monopoly and market committee ordinance out of which 134 regulations are operative in Punjab for the facilitation of investment.
Q. What is the competitive advantage that Punjab has in agriculture? First it is an undisputed fact that Punjab has the most fertile land which is supported by the largest irrigation system. Second, it has day /night temperature variations which are a huge advantage. Third, a geographically good market, located near East, Far East and Middle East, which are incidentally dependent for food supplies on many countries. But in order to be competitive, we need to improve the standards and quality after which the sky is the limit for Punjab’s production numbers.Q. What is your message to the cautious investor?A. We would like the private sector to invest in agricultural research and marketing and various agricultural projects that we can highlight and customize for the investor based on his requirements. We are ready to offer incentives though Joint Ventures, with clear exit strategies and final handing over of the projects to the private sector.
Arif Nadeem is Secretary of the Agriculture Depart-ment, GOPn. He has held various roles including Provincial Coordinator Social Action Programme, Planning & Development Department, Deputy Commissioner (Lahore and Jhang) and Secretary to Government of the Irrigation & Power Department.
Arif Nadeem
Rizwan KhanCountry Manager Coca-Cola Pakistan
Asad UmerPresident Engro Corporation Ltd.
Muhammad Shahbaz Sharif Chairman PBIT / Chief Minister Punjab
Pir Saad AhsanuddinVice Chairman / CEO PBIT
Mohammad Mian ManshaChairman Nishat Group
Syed Babar AliChairman Packages Limited
Roshaneh ZafarPresident Kashf Foundation
James ScottInternational Operating Officer Metro
“I started with a textile mill and further moved on to many projects and differentbusinesses including banking, cement, textile and power generation. Punjab has treated us very well. There is a proper administra-tive system here and a good legal system. Also, the infrastructure here is the best in the region.”
“If you look at the expanse ofthe province, I think one ofthe most amazing things onerealizes by starting the workof microfinance in Pakistan isthat Punjab is the cradle ofentrepreneurship. It is anarea where through the agesentrepreneurship has thrived.Punjab has a lot to offer interms of infrastructure,human resources, andcreativity.”
“I am a strong believer thatPunjab presents severalun-explored and underex-plored opportunities forbusinesses all over the world.We have a massive youngpopulation, a growing middleclass, growing per capitaincome and the availability of resources and labor at farlower prices which makes usone of the most attractiveinvestment destinations.”
“Engro’s own experience demonstrates how Punjab’s fundamentals offer attractive opportunities. Our company is currently one of the largest private sector investors and is involved in projects like fertilizer, petrochemicals, power generation and food processing. Favorable investment climate has contributed significantly in achieving this feat for the company.”
“We were very welcomed as aforeign investor. We also feltthat we found a good source ofintelligent people so we knowthat this is an environmentwhere people were entrepre-neurial with a businessmindset. This was an environ-ment where peoplewere looking to grow andlooking to learn. These werethe main reasons why wechose Punjab as our centerand why we came to Pakistan.”
“Punjab offers a very goodbase to set up industry. Also forthe consumption of yourproduce, provided it is relatedto what people want, the consumer industry is verypowerful here. There isa very large agriculture base,we produce cotton yarn, clothand garments and Punjabprovides the basic rawmaterial for export purposes.”
“The combinations that an intuitive investor looks for are all here in Punjab – The province has a large untapped market with a skilled and cost competitive labor force and a GDP in excess of USD 257 billion. A liberal investment infrastructure and rich fertile land have produced a thriving agricultural industry that supports over a quarter of the population of Punjab.”
Services Industry Agriculture
60%
50%
40%
30%
20%
10%
0
Punjab’s GPP Break-up
22%
53%
25%
Transport &Communication
Public Administration
Ownership &Dwelling
Finance
Trade & Other
Services Contribution: USD 136 billion (at PPP)
Source: Punjab Economic Report 2007 Source: Punjab Development Statistics 2009 Source: Punjab Development Statistics 2009 Source: Punjab Development Statistics 2009
Manufacturing
Mines &Minerals
Power & Energy
Construction
Industry Contribution: USD 64 billion (at PPP)
ForestryFishery
Major Crop
MinorCrop
Livestock
Agriculture Contribution:USD 57 billion (at PPP)
Perspectives on Punjab
0
Mill
ion
Tons
5
10
15
20
25
Wheat Pulses Rice CottonSeed
Sugarcane Mangoes
Demand Supply
Major Agricultural Products
Source: Punjab Agriculture Department
“This government has thepolitical will and the politicalsense to provide full supportto investors who can promotepublic-private partnerships,private-private partnershipsand attract investment inareas that were consideredunprofitable in the private sector, such as coal-based and hydel based power generation.”
The Steel Sector: Key to Urban Development
Metals have played the most important part in both the industrial and technological revolution. Use of metals is unavoidable in industry, from capital to consumer goods and all commodities use metals; from needles to ships. The main advancement has been in the area of invention and development of alloys at the industrial level. In the midst of the industrial revolution, industry concentrated on iron-alloys instead of copper-alloys, making a giant leap ahead from their predecessors. Among many, there are three prominent Iron-Alloy categories: Carbon Steel, Ferro-Alloys and Alloyed Steel.The main products of these alloys are primarily, long products, flat carbon steel products and stainless steel products. Long products include reinforced steel bars, railroad tracks, wires, girders, H and I beams, and all section and bi-section bars. All these long products are mainly used in the erection of mega-structures, infrastructures, buildings and bridges. Carbon steel products are used in manufacturing appliances, magnetic cores and body shells of automobiles, trains, ships etc. whereas stainless steel is used in
manufacturing delicate products like surgical instruments, cutlery and wrist watches etc. Today we are able to get the desired strength and usage of steel.The period of the nineteenth century has been a golden age for contemporary people when the world turned and progressed in what is known as the industrial revolution. The inhabitants of the subcontinent were in a deep slumber. The year 1857 turned out to be a blessing in disguise and the subcontinent was given an infrastructure of communica-tion and resource mobility. The subcontinent then started to enjoy the fruits of the industrial revolution that had been benefitting the entire world. However, 95% of the industry that had been set up at that time was established in the area which is now India. In 1947 with the existence of Pakistan this problem was realized by the founding fathers
but unfortunately no concrete measures were taken till 1968. The Government of Pakistan founded the very first and the only steel project in Pakistan by the name of Pakistan Steel Mills Corporation (Pvt.) Ltd. A lot of deliberations took place and it was for the first time in the history of Pakistan that the government went on a spree of exploring its mineral resources. Many leading international corporate enterprises were engaged for the surveys at certain designated geological sites all over Pakistan. One of the most important discoveries for the province of Punjab was the discovery of 100s of MMT of iron ore reserves at Chichiali /Kalabagh /Mianwali in such a huge magnitude that a feasible
steel project could be set up. In lieu, a detailed study was conducted by a reputable German company, Krupps International, to devise a technology to utilize its ore, from the beneficiation process to steel manufacturing, covering all the aspects of the industry. Due to economic and other significant considerations,
the domestic iron ore could not be exploited and Pakistan had to rely on Russian technology, compel-ling the government to set up a port-based plant as Russian originated and imported iron ores were being utilized, thus PSM was established at Karachi.In the 1960s, the steel industry in the private sector started flourish-ing in smaller units in the form of foundries, furnaces and rolling mills. PSM was the first integrated mega project. The seeds sowed in the late 1960s blossomed in the form of an organized private steel sector. The steel sector in Punjab has flourished along with the world steel sector during the last two decades. The private steel sector of Punjab has developed itself by investing in the latest technolo-
gies to produce internationally certified quality products. During this time, the production, consumption and export of steel from Punjab has risen radically. In the period of 1990 to 2007, it went from 1.8 M.M.T.Y to 4.5 M.M.T.Y. In the last five years, an investment of US $500 million was made in the private steel sector alone. The latest technol-ogy based induction furnaces worth US$ 120 million were established and upgraded. As a result of the current investment, large enterprises are coming into play. Large integrated units have and are being set up to produce products at economies of scale. For the domestic and international markets, internation-ally certified long products are being manufactured such as TMT reinforced steel bars of ASTM: Gr-400 (60), Gr-500(75). The private steel sector in Pakistan has evolved in a pragmatic manner over the last few years. More than 80% of the production houses reside in Punjab. A large network of markets exist all around Punjab concentrating in the main metropolitan cities like Lahore, Gujranwala, Islamabad, Sheikhu-pura, Multan, D.G. Khan. This is due to the logistical value and developed infrastructural advantages. All these markets and industry clusters have distinct significance. Lahore itself is the biggest market and producer of steel in Punjab and the second largest in Pakistan. In southern Punjab, D.G Khan plays an important role. The steel scrap from Iran enters Punjab through D. G Khan and likewise the value added products leave the Punjab through the same. Similarly, the raw material from Russian states comes through Torkham border and reaches Lahore and Islamabad. These markets cater to the needs of almost entire northern Pakistan and Afghani-stan. In Pakistan, Punjab is blessed with more iron ore reserves than the world’s annual steel production. A detailed explora-tion and evaluation work on the Iron Ores in Chiniot and Rajoa was carried out by Punjab Mineral Development Corpora-tion (PUNJMIN), during 1996-1999. The studies conducted in the said area show proven reserves of 109.83 MMT. The study reflects that there are 12.5 MMT of smelting grade iron ore reserves, containing more than 85% of Fe2O3 content. The remaining reserves are Hemitite and Magnatite. Australian
of such magnitude will cost us around $70 per ton, thus proving it to be a highly lucrative project. In Pakistan, we already have two large scale consumers who are ready to procure high grade and medium grade iron ore. Both PSM and Al-Tuwwairki have annual demand of 1.6 M.M.T.Y and 1.6 M.M.T.Y, respectively. Both parties have shown great interest and willingness to even sign an MOU with PCMC. Since both of these are port-based plants, we can easily overcome the logistics by transporting the goods by way of railway carriage. This will ensure a continuous secure supply line at nominal cost of carriage.For the extraction of iron ores a pilot project, which is in progress has been devised by PCMC. As soon as the survey report is received, the pilot project will get operational.Faisalabad industrial estate development management company (FIEDMC) is develop-ing an industrial park at M-3 Motorway near Faisalabad which is in close proximity to the iron ore reserve sites. As soon as the extraction project is operational, it will be the right time for investors to set up their steel mills and start producing value added products at minimal cost of production. One of the biggest advantages for investors is that they can start procuring the raw material at substantially low cost. The logistical advantage is that Faisalabad is located at the center of Punjab and the value added product can easily be delivered to the domestic markets of the country, catering to the national demand. It can also easily be transported by way of railway carriage to Karachi and Gawadar ports for the purposes of export to the world at large. KALABAGH STEEL MILLPilot Project
Following the visionary leadership of the Honorable Chief Minister of Punjab, PBIT is developing a mega integrated project of steel manufacturing at Kalabagh/Chichiali.According to the studies carried out by Krupps international in 1968, a steel manufacturing plant using the iron ore at Chichiali is viable. The iron ore reserves at Chichiali confirm the presence of more than 300 MMT of medium grade iron ore. The Kalabagh project is undergoing a three stage process. The first stage is acquiring the latest bankable feasibility document. Second, a pilot project to devise the beneficiation process and to formulate the most apt and latest technology for steel manufactur-ing. The third is to establish a steel producing plant. At present, there are two technologies being used for steel manufacturing in Pakistan, one is the orthodox blast furnace (BFI) method and the other is Directly Reduced Iron (DRI). A lot of deliberation has taken place at the national level by think tanks and experts to use the latest and most cost effective technology. The developed economies, like America and Japan, are moving towards the latest technology in steel manufac-turing from iron ore, by the name of ITmK3. Pakistan is planning to use the same technology. To cater to its energy, needs a local coal based thermal power plant of 200 MWs is also being planned. The advantage of Kalabagh project is that for the first time steel shall be produced using indigenous iron ore thus reducing the cost and for manufacturing quality products. The logistical advantage of Kalabagh project is that it is located in the centre of Pakistan, hence the transport and carriage of the value added product is very cost effective. Another advantage of this
location is that the Iran-Pakistan border at Taftan, Afghanistan-Pakistan at Turkham border and Karachi and Gawadar ports are very easily accessible through road links and railway.
INVESTING IN PUNJAB As the world is getting out of recession, domestic steel demand is growing gradually as real estate development projects are being reinitiated. The business environ-ment for investors is well established in the form of infrastructure, banking system, legal framework, telecommunica-tions, communication systems, human resource, cheap skilled labor, open markets and ample natural resources. The Govern-ment of Pakistan has not fixed any upper or lower limit of FDI in Pakistan. Investors enjoy many privileges, such as tax credit.
CONCLUSION Since 1947, the steel sector of Pakistan has come a long way. From importing steel products to exporting value added products like complete sugar mill plants to developed countries like the USA, the steel sector of Pakistan holds an extraordinary amount of potential. The Chief Minister of Punjab wants to ensure the self reliance and development of the industry by exploiting the indigenous iron ore reserves for a steady supply of raw materials for the steel sector.
The steel sector in Punjab has flourished along with the world
steel sector during the last two decades.
The private steel sector of Punjab has
developed itself by investing in the
latest technologies to produce
internationally certified quality
productsServing on the Board of Directors of Punjab Board of Investment and Trade (PBIT). Currently working at Andas. The Chief Operating Officer at Rehman Steel Furnace (Pvt.) Ltd. and Siddique Iron Industries (Pvt.) Ltd. Previously worked as an Associate at Salman Akram Raja Law Associates. He is an LLM (University of Northumbria) & LLB (HONS) University of London.
Rehman Aziz Chan
4%
6%
79%
11%Lahore
Faisalabad
Rawalpindi
Others
Population by City
Nepal Bahrain Jordan Yemen Kenya Sri Lanka Qatar Luxembourg Syria Bangladesh Morocco PUNJABVietnam
PUNJAB VS. WORLD: GDP in Billion (USD)Source: World Bank, World Development Indicators 2008
timeNspace
Australian Geological Survey (AGS) and RDC were later engaged to further elucidate the potential of the instant reserves. It is estimated that these reserves exceed more than 500 MMTs.
IRON ORE EXTRACTION PROJECT AT CHINIOT/RAJOA
Pilot ProjectPBIT, in the visionary leadership of the Chief Minister of Punjab, for a long lasting progress and self reliant Pakistan, has developed a project to put the full potential of the iron ores to use. A project is being developed to extract the iron ore. The Govern-ment of Punjab already has a mining company by the name of PCMC. This company is going to take equity in a joint venture with an international expert mining company on the basis of Public Private Partnership (PPP) and Build, Operate Transfer (BOT) module. This method allows us to develop an interest of a technically sound, international expert mining company of a strong background to come and be a private partner among other domestic mining companies. Such formation of equity partners has various benefits. Firstly, PCMC will safeguard the public interest along with revenue generation. Secondly, the International Private Partner will bring investment and technologi-cal support into Pakistan, hence increasing the FDI and in return enjoying lucrative returns on the project. Thirdly, the domestic mining sector will have a chance to learn, develop and grow in line with the latest international mining techniques. In accordance with the vision of the Honorable Chief Minister, this method serves multiple long term goals. For this purpose the negotiations for a bankable feasibility report by well reputed international companies, Snowden and IMC- Montan Consulting GmbH is well underway. After the submission of the report we plan to invite potential investors to participate in the project.At present when the world is facing an economic recession, metal prices have crashed down to their lowest levels. Even in the current economic crisis the FOB price of medium grade iron ore at Karachi port is around $100 per ton. The quantum of extraction of iron ore we are planning is 4 M.M.T.Y. The only cost incurring on the extraction of iron ore will be its mining cost. Using the latest technology on production
Investing in Pakistan’s most industrialized province
77.8
9.316
2021
25
92
4
Source: CIA World Factbook 2009
PUNJAB VS. WORLD: Population in Millions
PUNJAB Turkey Australia Sri Lanka Sweden Switzerland Israel UAENetherlandsSaudi Arabia
100% Foreign Equity is allowed
Advanced tax ruling
International arbitration enforcement available in local courts
All economic sectors in Pakistan open to FDI
Equal Treatment of local and foreign Investors
No government sanction is required
Only 5% custom duty on import of parts not available in Pakistan
Zero sales tax on import of machinery
Initial depreciation allowance at 50% of plant, machinery and
equipment cost
Wide network of export processing zones and industrial estates
Bilateral investment treaties with 48 countries
Avoidance of double taxation treaties with 52 countries
Import of raw material for export manufacturing zero-rated
Remittance of royalty, technical and franchise fee, capital,
profits and dividends allowed
Investment Incentive Highlights
Policy Parameters
Royalty & Technical Fee
Government Permission
Remittance of capital, profits, dividends, etc.
Upper Limit of foreign equity allowed
Minimum Investment Amount (M $)
Customs duty on import of PME
Tax relief (IDA, % of PME cost)
Manufacturing Sector
No restrictionfor payment of royalty & technical fee
Not required
Allowed
100%
None
5%
50%
Agriculture
$100,000 initial investment with
max 5% of net sales for a period 5 years
Allowed
100%
0.3
None
50%
50%
Infrastructure& Social
$100,000 initial investment with max
5% of net sales fora period 5 years
Specific agency permission
100%
0.3
5%
50%
50%
Services includingIT & Telecom
$100,000 initialinvestment with max 5% of net sales for a period of 5 years
Specific agency permission
100%
0.15
0-5%
50%
50%
Investment Incentive Grid for Punjab
WHY PUNJAB ?
Punjab has the following key advantages as an investment destination
1. STRATEGIC LOCATION
This untapped investor-hub is located between the vibrant Gulf economies, land-locked energy rich Central Asia and it borders the two major emerging economies of India and China.
2. UNSATURATED INDUS-TRY
Booming Agriculture SectorPunjab’s resilience comes from half of its economy being subsistence based and financially shock-proof in the international setting. Despite slow economic growth, the main crops in Punjab have yielded a steep growth contributing to approximately 42% of FY2008-2009 GDP. This sector employs 44% of the province’s labor force. This sector can support a multi-billion
dollar value-added industry in food processing, textiles, dairy and meat as well as leather tanning and horticulture, all have tremendous export potential.
Untapped Iron Ore ReservesUSD 180 billion is the total monetary value for investors to tap into the mining of iron ore found mostly in the region of Chiniot, Rajoa, Jhang and Mianwali with estimates of over 1.1 billion metric tons. The World production averages 1 billion metric tons of raw ore annually.
Edge over India and ChinaAs the most industrialized province of Pakistan, Punjab has largely the same cost competitive labor, the same skilled workforce as India and China. It also has a 5 decade long infrastructure development focus though all administrations that has created a largely viable infrastructure. Although early adopters in Retail, Food Processing, Textiles and Services have set up in Punjab and have seen tremendous growth, there still remains a large piece of the investment pie that is unexplored. Punjab has room for more brands in all sectors and is not yet saturated.
Power Sector PotentialPunjab has a power consumption of 21,000 mega watts with increase in demand of 9% per annum, whereas production remains at 15,055 mega watts. Punjab possesses one of the longest river runs of over 2000 km through the Indus plains and yet over 70% of its water is wasted into the sea without it being recycled or converted to energy through mega hydro electricity plants.
3. Large Market SizePunjab is the most populous
province of the 6th largest country in the world with over 92 million people, with GPP of over USD 104 billion and over 3 million English daily newspaper subscribers.
Rising GDP Per Capita value
Pakistan’s Purchasing Power Parity (PPP) is at about $2700 in 2009 and between 2003 and 2008 per capita income increased by 77.8% from $586 to $1042.
Transitional economyIn Punjab, consolidated land wealth is on the decline, and both the industrialists and SMEs are on the rise. It also has a relatively large middle class, significantly larger than most other destinations in Asia.
4. COST COMPETITIVE RESOURCES
Punjab offers investors cheap land, utilities and labor cost as compared to regional economies.
5. FDI SUPPORTIVE STRUCTURE
Huge FDI Potential Pakistan has received over USD 3.72 billion in Foreign Direct Investment in FY2008-2009, and an overall inflow of about $50 billion since 1993. Punjab has a share of about 23 billion since 1993.
Viable InfrastructureAmong the South Asian Economies, Punjab has one of the best infrastructures and an efficient network of roads connecting all of Punjab and other provinces, a reasonably developed rail network and at least 3 airports of international standards. It also has the world’s largest canal irrigation network.
High Capacity for Job CreationThe general unemployment rate
deregulation, privatization and facilitation.
Democratic DividendPunjab is set firmly on the path of democratic reforms with strong participation from all sectors of government.
Enhanced international collabora-tion due to the strengthening of democracy creates a compounded effect on the investment opportu-nities in the region, boosting employment and alleviating poverty.
1. Contact PBIT
2. Explore relevant MOUs signed in the past
3. Select most efficient mode of business operation
4. Determine financial feasibility
5. Incorporation of the Company 7. Acquire necessary permissions
8. Registration of IPRs which are secure from the date of filling the application
9. Commencement of operations
These are the typical steps a company follows when setting up a business in Punjab
Doing Business in
Punjab
World Bank ‘Starting a Business’ Indicator 2010
Pakistan rated higher than all BRIC countriesBrazil, Russia, India and China
Punjab Board of Investment and Trade, PBIT, is an Investment Promotion Agency (IPA) for Punjab created in August 2009 under the Compa-nies Ordinance, 1984. It is an organization formed in the true sprit of Public Private Partnership, with 80% of its staff comprising of private sector emoployees of the highest caliber and is headed by a prestigious Board of Directors under the chirman-ship of the Chief Minister of Punjab.
About PBIT
has remained stable between 6 to 8% in the past 10 years despite population pressures. In 2007-2008, the economy created another 1.44 million jobs, mostly in the private sector, which interestingly were more pronounced in the rural sectors.
High Women EmpowermentSignificant in the indicators for a stable economy is the integration of women in the workforce, and in Punjab this figure is higher than in most South Asian economies because most women in the agrarian setups are the primary field workers. Punjab also has a high number of women in the parliament and in ministries.
Good GovernancePunjab takes the lead on good governance in Pakistan, being the first province to launch an international standard Investment Promotion Agency, PBIT, closely aligned with the government to create a pro-business economy.
6. Liberal Trade Policy
Investment friendly structuresOne of the fastest growing economies is in this region, with Pakistan’s GDP growth rate of 8.4% in 2005 and an average growth rate of 7% since 2003. Economic policies of Punjab have particularly been tailor-made to suit investor needs in a changing investor climate, and the policies have been consistently fine-tuning economic liberalization,
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