Why Saudi Arabia matters to Pakistan

As the crown prince Muhammad bin Salman completed his two day Pakistan visit, the debate about Pakistan joining the Riyadh’s camp, against Tehran, for financial largesse dominated the public discussion. Pakistanis are vying cost and benefits of Saudi financial assistance. Both countries are linked by financial assistance, religious ties, energy markets, and defence agreement. Pakistan needs Saudis for various reasons.

Enhancing CPEC image
During the visit the crown prince announced a 10 billion$ refinery and an oil city in Gawadar, Baluchistan under CPEC. The city will have facilities for storing oil for its onward transport to China.

In fact, the prospect of Saudi investment has already helped divert global attention from the controversy regarding Chinese debts incurred by Pakistan, its economic crisis, and the possible connection with ongoing CPEC projects. Saudi investment can project Gwadar as an investment destination, encouraging Arab African and Asian nations to become part of CPEC.

The investment is an effort by crown prince to diversify Saudi economy and reduce its dependence on oil under vision 2030. Saudi Arabia is still largest oil exporter and rules the oil markets with its ability to drill oil at lowest cost in the world i.e. 4 $ per barrel.

Sovereign wealth fundThe public investment fund of Saudi Arabia has planned to increase its size to 2 trillion dollars till 2030. The country is hungry for investment opportunities especially in the field of science and technology, petrochemical and refining, mining, and entertainment.

Overseas Pakistanis
Saudi Arabia hosts 2.6 million workers from Pakistan, who send remittance worth 4.5 billion dollars every year. These remittances prove to be a valuable support for cash starved Pakistani economy.

Balance of payment (BoP) crisis
Pakistan frequently faces balance of payment crisis and therefore needs foreign support. Saudi Arabia has frequently helped Pakistan in dealing with its foreign payment difficulties. Though, critics claim this easy to get support held Pakistan away from taking hard measures to rectify its recurring BoP crisis.

Help deal with international powers
Saudi Arabia with its deep pockets, massive oil reserves, and considerable investment clout has say at international fronts and can help Pakistan sway international opinion in its favour e.g. In the midst of Kargil saga, at the time when New Delhi was blowing hot and cold, Pakistan asked Bandar bin Sultan for arranging US pressure on India. Bandar bin Sultan, erstwhile Saudi Ambassador to USA, was most powerful foreigner in US at that time.

Middle East influence
Millions of Pakistani labourers work in Middle Eastern countries. Saudi Arabia through tribal connection and religious ties hold considerable influence in Middle East and help Pakistan deal with these countries.

Religious clout
Saudi Arabia wields enormous influence on people among religious class through its huge investment religious institutions, mosques and madrassas related to Wahabism doctrine. Moreover, Hajj visas also offer an opportunity to Saudi Arabia to develop a rapport with Pakistani religious class.

Rare Earth Metals: From America's dominance to Chinese hegemony

The recent discovery of rare earth metals in Japanese deep sea proves that rare earth metals are not that rare as their name signifies.

Today’s modern life is impossible without rare earth metals. Rare earth metals are 17 elements including 15 separately presented lanthanides as well as scandium, and yttrium.

These metals are used in manufacturing batteries, vehicles, LCDs, plasma screens, fiber optics, medical imaging, hybrid vehicles, wind turbines, microphones, speakers and other green technology devices. This group of metals is indispensable for high performance optics and lasers and key to the most powerful magnets and superconductors in the world.

Their various applications have given rise to western powers’ fear of Chinese dominance in high technology. China currently has near monopoly in Rare earth metals supply.

  "The Middle East has oil; we have rare earths ... it is of extremely important strategic significance; we must be sure to handle the rare earth issue properly and make the fullest use of our country's advantage in rare earth resources." Deng Xiaoping, a Chinese politician from the late 1970s to the late 1980s.

China is rapidly reducing export quota of rare earth in order to strategically move Chinese manufacturers up the supply chain so that they may sell valuable finished goods to the world rather than lowly raw material.

This presented America with a challenge in keeping its dominant position in high tech but also its hegemony over developed nation, who are in dying need of the elements.

The significance of the metals can be gauged from the fact that many geopolitical experts consider these metals to be the sole reason of U.S. stay in Afghanistan. United States, according to them, wants to make European powers their ally, against China, by controlling the supply of Afghanistan’s rare earth metals.

In 2010, Pentagon estimated Afghanistan’s mineral deposits to be worth 1 trillion $, once mined. The New York Times reported that White House officials are looking at Afghanistan’s mineral resources as compelling reason to extend their stay in the country.

“We live in a different world than the past, where commodity prices mattered because a monopoly allowed sometimes a single nation or a group of nations to charge an extremely high price for that material, and people are still thinking along those lines,” Michael Silver said. “That’s not the world we live in today, particularly with rare-earth metals, which is kind of what got me involved in the Afghanistan situation.” Michael Silver head White House Initiative and CEO of American Element

Critics on the other hand points to the fact that Afghanistan is a war zone moreover; mining and refining these metals from the mountain is costly. Another factor which goes against America is Afghanistan has no coast of its own and the only cost effective route for the metals is through Pakistan’s pushtun belt.

Who owns PSL cricket teams

Pakistan is a cricket loving nation. The cricket matches between Pakistan and India are biggest sports event and therefore good business opportunity for sponsors.

Pakistanis use to spend a lot of time on watching the game as it is long game unlike football.

Pakistan Cricket Board in its effort to reintroduce international cricket in Pakistan, established Pakistan Super League (PSL). PSL is a single entity and has five cricket teams as its franchises. The commercial rights to the initial franchises were sold for PKR 9.85 billion ( 91.4 million $) for a span of 10 years in December 2015. The first session, held in 2016, yielded 2.6 million $ in profit.

Owners of these teams are:-

Karachi Kings is owned by ARY Media Group. ARY Media Group is owned by  Salman Iqbal, whose net income for year is 90 million$.¹ Karachi King was sold to ARY Media Group for a period of 10 years, from December 2015, for 26 million$, thus making it the most expensive PSL team.                                                                                                                                                                                                                                   

Lahore Qalandars are owned by Qatar Lubricants Company limited (QALCO). QALCO is the only state-of-the-art lubricants blending plant in Qatar. This company is headed by Rana Fawad. It is the second most expensive team after Karachi Kings and was priced at 24 million $ in December 2015.

Peshawar Zalmi was sold to Haier Paksitan for 10 year period against 16 million US dollars. Javed Afridi is the CEO of Haier Pakistan. Haier Pakistan is subsidiary of Haier Group Corporation based in China.

Quetta Gladiators is owned by Omar Associates, a Karachi based company. The company was founded in 1969. Nadeem Omar is presently the CEO of the company. The group was basically a construction company but now the group is planning to enter into mining sector. The group acquired the franchise for 11 million$.

Islalmabad United Leonine Global Sports won the bid for franchise rights of Islamabad United for a decade against 15 million$. Leonine Global Sports is owned by venture capital firm Leonine Global which is based in UAE. The sports entity Leonine Global Sports also owns a franchise team in Hong Kong T20 League. The venture capital firm is owned by Ali Naqvi.  Ali Naqvi is a renowned businessman having business interests in different countries.

Related links

1. Salman Iqbal

2.    Islamabad United 

3. Ali Naqvi

Foreign investment in Pakistan: boon or bane?

In the last couple of days, Pakistan has witnessed an increase in foreign investment. Many local companies were acquired by foreign multinationals. Dawlance, Pakistan’s white goods manufacturer was acquired by Turkish group Arçelik . Furthermore, in the same week a Dutch based dairy cooperative FrieslandCampina acquired stakes in Engro for around $460 million.

This shows that international investors are viewing Pakistan as a growing market. Its huge population provides huge consumer base. The rise in middle class along with young population makes it attractive location for investment.  Many European countries are having population as much as Pakistan has graduates.

But is there any benefit to the nation of these huge investments from multinationals. In a nutshell we would say yes. But on a deep analysis we would say it is hard to say anything precise unless we take into account other factors.

Let us assume that Turkish group would enhance the quality of the products, manufactured by Dawlance, and would make them attractive to export markets. Definitely, in this case it would be good for Pakistan. Multinational companies have huge research and development departments with billions of dollars in budget which helps them in developing new and better products. Small companies like local ones cannot expend that much on research and development. Furthermore, small companies have issues with protecting patent rights. Hence, from this particular angle it is good that foreign companies are making inroads into Pakistani market.

With better quality and increased foreign clients’ satisfaction, country would be able to earn foreign exchange. This would also help Pakistan to move from exporter of low-tech to exporter of high-tech products.

The ability of multinationals to get a better deal from Govt. in matters of tax rebates is another thing to ponder. In countries like Pakistan, Govt. rules are more favorable to foreign big investors rather than local small investors. The exemption of duties and taxes extended to Chinese companies working on CPEC is one such example.

Exemptions in taxes make it more likely for these companies to earn heavy profits and pay high salaries to its employee. This would mean more and high paying jobs for locals as well as better employee retention for the multinational companies.

But there are more cases in which these companies hire foreign people than local ones. This would mean snatching jobs which could be provided by local companies to local people. Moreover, huge portion of profit earned, through getting tax rebates, by these companies is repatriated back to their country of origin.

Thus foreign investment is good for host country if it leads to transfer of technology; increase in exports, provides employment to local ones, pays taxes and duties to host country Govt. and improves quality of manufactured goods.

Growing importance of Sovereign Wealth Funds (SWFs)

Surplus wealth of many oil rich countries is managed by SWFs

Sovereign Wealth Fund (SWF) is state owned pool of money invested in various financial assets.  This investment fund is established by current or capital balance of payment surplus and budget surplus. Sovereign wealth funds can be distinguished from foreign exchange reserves. Sovereign wealth funds aim to maximize long-term returns while foreign exchange reserves promote short term currency stability. Recent years has seen a rapid rise in number of sovereign wealth funds. Rise in oil and gas prices led this rapid surge.

The primary purpose of SWF is to diversify economy and generate wealth for future generations.

Sovereign wealth funds invest in various financial assets

SWFs can be categorized in two types depending upon their financing.

1.       Commodity

2.       Non commodity

Commodity funds are those financed by commodity exports, the most common of which is oil export. This type of fund is usually set up by those economies that are dependent on single commodity exports. When the price of commodity in international market rises the exporting nation will see greater surplus. Conversely when export driven economy sees the fall in commodity price it faces a huge current account deficit. Therefore a sovereign wealth fund is established to stabilize the economy by diversifying the country’s wealth in other industries.

Non commodity funds are those financed through surplus foreign currency reserves.

Political motives

Sovereign wealth fund may have political/strategic motives like gaining control of strategic industries for political reasons. Many politicians criticized the investment by SWFs as security risk. On January 15th, 2008 Hillary Clinton said: “We need to have a lot more control over what they [sovereign-wealth funds] do and how they do it.” The huge size of these funds can make an impact on global economy. Some experts claim that all these funds combined to hold 5 trillion dollars in assets in 2012.

Extension of state

These funds can be thought of as extension of state therefore they are not necessarily driven by profit and loss. Hence these funds can act as a tool of Government policy.

As Arab countries faced the problem of food inflation their Governments started to negotiate for land lease through these sovereign wealth funds. This land will be used to produce food which then will be exported back to the investing country. This investment is in fact resource seeking instead of market seeking. Land grabbing by these institutional investors in Africa and Asia has occurred often to the prejudice of local population. Investing in agribusiness helps investors take control of not only producing but also of distributing the produce.

Investment in Dubai realty market

After 2008 Dubai property market learned a lot from the crisis. Laws and regulations were improved. Property transfer fee has been raised to sideline speculators. Escrow account added another layer of security for investors. The payment to developers is released when the developer presents certificate that certain stage in construction has been reached. This ensures safety of investors from delay and cancellation of project.

Dubai night view

These new laws have brought stability to Dubai property market. Property market again bounced back.  According to Dubai land department Indian investors led the realty investors list by investing 18.123 billion dirham during 2014. The total transactions by Indians totaled 7353 during the period.

Pakistani investors were ranked second as they transacted 5079 times amounting to 7.588 billion dirham. These investors included entrepreneurs, professionals, civil and military officials, overseas Pakistanis and other high net worth individuals. Pakistan, according to wealth report 2013, had 415 ultra high net worth individuals. The average wealth of these ultra high net worth individuals was 120.5 million dollars. After economic recovery in 2014, number of super rich may have gone up.

British investment came third at 9.318 billion dirham. Iran and Canada came fourth and fifth respectively. Investment from Iranians stood at 4.5 billion dirham while from Canadians it was 3.157billion dirham.

The huge interest of Indo-Pak investors is due to following reasons. Investment outlets in home country like that offered by Dubai is lacking. Furthermore realty market in Dubai has been developed and matured since its opening in 2002 to foreign investors.  Secondly the proximity of Dubai to sub continent is another reason for Indo-Pak investors to invest in Dubai. Thirdly Dubai market offers unique opportunity of earning tax free rental income and capital gains.

The total non-Arab investment in Dubai during 2014 amounted to 64 billion dirham through 29,098 transactions. This constitutes more than half investment in the real estate. The balance is expected to remain in favor of non-Arab investors if oil prices remained dip.

Jordan topped the list of Arab realty investor in Dubai. 

Tycoon once again spells the magic.

Malik Riaz signed an agreement with His Highness Sheikh Nahyan to construct world’s tallest building in Karachi. The project will be worth 45 billion us dollars. Of the total 45 billion US dollars 10 billion US dollars will be invested in Lahore and Islamabad and other 35 billion US dollars will be invested in Sind. In addition to the tallest building sports club, educational and media city will also be constructed. The project also includes construction of miniature of Seven Wonders of the World. Construction project will boost 55industries including cement industry, bricks industry, electrical industry, iron and steel industry and glass industry. The project also encompasses generation of electricity from sea water. According to the statement the project will provide employment to 2.5 million people.

Nahyan is Chairman Abu Dhabi group, which is largest foreign investing group in Pakistan. The group has its investment tin many sectors of the economy. Bank Al Falah, Warid and Wateen Telecom companies etc are some big names that are owned by the Abu Dhabi group. Sheikh Nahyan is also recipient of Pakistani highest civilian award hallal e Pakistan.

Malik Riaz is a Pakistani tycoon who is the founder of Bahria Town. Malik Riaz has completed this project as an example for the country’s real estate developers. As much as 100000 families are dependent on bahria town for their livelihood. He belonged to a business family. At a young age the Business of his family was collapsed and he was forced to start his practical life as a clerk in Military Engineering Service. Then he started his entrepreneurial career as a small government contractor and achieved unprecedented success as a businessman.

Malik riaz is famous for his remarkable quality of maintaining good relations with many important political personalities even when they are at daggers drawn with each other. He also enjoys cordial relationship with many in military and civilian establishment of Pakistan.

Malik Riaz is a great philanthropist as well. He helped flood affectees and provided ransom for the freedom of Pakistani hostages from Somali pirates. 

According to the Newsweek the net worth of the tycoon is around 6 billion us dollars. These days his son takes care of the Bahria Town as its CEO.

Malik Riaz has started and completed many projects ancillary to Bahria Town in collaboration with many international and foreign contractors in order to provide world class residential facilities to the residents of Bahria Town. Malik riaz has brought Thomas Kramer as well as Sultan Nahyaan to invest in Pakistan along with him.

Thomas Kramer is leading global networker and an entrepreneur, who has to his credit major construction projects around the world, including Miami Beach, in USA. He has a net worth of 90 million us dollars. He is working on many large scale projects including a mixed use tower in Germany, mega development project in Brazil including a five star hotel etc.
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Acquisition by Abu Dhabi Group

Abu Dhabi group has reacquired 100 percent stakes in Warid Telecom. The group has expanded its operation by buying Singapore telecommunication limited’s share. Earlier According to SingTel, Warid would be sold for a loss of approximately186 million us dollars. SingTel acquired 30 percent shares in warid, in 2007, at the price of 758 million us dollars. 

Warid started its operation, in Pakistan, in 2005. Bashir Tahir led the team for bidding and acquiring license for operating telecom network.

By acquiring 30 percent shares in phone operator the group has become the sole owner of the telecom company. The group has the owner of being single largest foreign investor in Pakistan. Abu Dhabi group already has diverse and huge investments in different sectors of Pakistan’s economy. The group has heavy stakes in banking, agriculture, energy, real estate, hospitality and health care. Investments by the group include Bank Alfalah, Warid telecom, Wateen telecom, Alfalah Securities (Pvt.) ltd, Alfalah GHP investment management limited, United Bank Limited, and Al Razi healthcare.

The group is led by Sheikh Nahayan Mabarak al Nayhan, member of the royal family of Emirate.