Pakistan a ticking bomb or does it just have any problem?

Daily Times Monitor

Western investors that have poured billions into Pakistan must be wondering: Is the country a ticking bomb or does it just have any problem.

Pakistan is not only a foreign policy imbroglio for the US, particularly, but also a potential investment agony for Americans if the tumult following Benazir Bhutto’s assassination deteriorates into a decidedly anti-Western and anti commercial rabble.

President Pervez Musharraf’s policies may not be doing much to promote political stability and democracy, but they’ve been pushing growth and investment. “Pakistan has had economic stability for the last seven years,” says Reza Rahim, head of JPMorgan Chase in Karachi. Investment from abroad almost doubled in the year ending June 30. GDP was racing ahead 7% a year, and the stock market has surged 900% since 2000.

But since political opponents of Musharraf took to the streets in March to protest the suspension of the country’s top judge, most arrows have been pointing down. Foreign inflows into the stock market plunged by 88% from July through November last year, the Pakistani central bank said, just as suicide bombings emerged and the political rhetoric got inflamed. Standard & Poor’s put the country on credit watch late last month If further privatizations stall, that will discourage the multinational banks.

But it’s not so easy to pull out of a power plant or move a factory. American companies have poured more than $1 billion into Pakistan and contribute 8% to the country’s exchequer, according to the US Department of Commerce. Pfizer, Abbott, Wyeth and Merck all have plants in Pakistan. These are some of Pakistan’s earliest investors; some have been in the country for decades and have subsidiaries listed on the Karachi Stock Exchange. So does Colgate-Palmolive, which makes and sells toothpaste and detergent with a Pakistani partner. Philip Morris bought out its joint venture partner last year. AIG underwrites property and auto insurance policies there. Coca-Cola bottles and distributes soft drinks through a wholly owned subsidiary.

AES, the Arlington, Virginia power company, has two power plants in Pakistan where increased production was largely responsible for a 23% boost in Asia revenues in the third quarter. The company, one of the largest US investors in the country, says Pakistan is “one of our greatest success stories” and is in discussion to build another coal-burning plant there.

The instability in Pakistan might dent plans of a few other U.S. companies, even the ones that don’t own many Pakistani-based assets. General Electric (GE), for example, sold more than 500 gas turbine generators in the country, but GE does not maintain much of a presence on the ground there. Kentucky Fried Chicken and Caterpillar also sell from a distance, franchising or distributing products through local partners.

But for the heartiest investors, eventual domestic peace could reopen opportunities in a market of 165 million customers. And if Western companies refrain from investing, Chinese and Middle Eastern companies will. They have already bought most of Pakistan’s telecom assets.

Rahim insists things are not as bad as they look overseas. “The extremists are coming in from Afghanistan, far away from the urban centers where most businesses are located.”

“There are no tanks on the streets here in Karachi. But the government is not organized enough to go out and portray the softer side of Pakistan.”, he added.

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