Banker fears flow of Chinese goods on Silk Road in Pakistan

As Pakistan opens itself to China’s Silk Road plan and billions of dollars worth of investment projects, the head of the bank owned by the Abu Dhabi Group is warning of an influx of cheap goods that may leave millions in the South Asian nation jobless.

While the Chinese investments and loans worth more than $46 billion will bring new industrial activity and a need for services, Pakistan may be unprepared for a rush of wares from its larger neighbour that it can’t compete against, said Atif Bajwa, chief executive officer at Bank Alfalah Ltd, the country’s sixth largest lender.

“There is going to be an influx of cheap goods coming in which will negatively affect our own industry, so what is our policy to address that?” Mr Bajwa said in an interview in Karachi, Pakistan’s commercial hub.

“If we don’t compete effectively through our industrial policy with that then we are not certain of our own future,” he said.

The administration of Pakistan’s Prime Minister Nawaz Sharif is targeting a growth rate of about 5.7 per cent in 2017, the fastest pace in a decade, riding on the wave of Chinese projects in new power plants and roads as part of a so-called China-Pakistan Economic Corridor. More than three quarters of the investments in Pakistan will be implemented this year.

Planning Minister Ahsan Iqbal in an interview in the capital Islamabad late on Friday dismissed Bajwa’s doubts.

“These are misfounded fears,” Mr Iqbal said. “We will build up Pakistan’s industrial zone capacity so we can increase our exports.”

Despite his concerns, Mr Bajwa believes there is every reason to be optimistic if the world’s sixth most populated nation can protect local industry, with the bank focusing on small and medium sized businesses.

“Along these new roads and along these new industrial activity that will be developed, there will be a need for services,” he said. “Meaning you will need hotels, restaurants, logistics and various other service industries to support this whole activity.”

The small- and medium-sized enterprises segment contributes to more than a quarter of the bank’s total loans and that share is expected to increase in the next two years, Mr Bajwa said, without disclosing exact details.

The bank, which started operations 19 years ago, has a large consumer business and is the largest credit card provider in Pakistan.

“Small and medium sized enterprises is one segment that generally is the core of any growing economy or strong economy,” Mr Bajwa said. The bank’s shares have gained 50pc in the past year, compared with a 59pc gain in the nation’s benchmark index.

With elections looming next year, the government is expecting new power plants to end blackouts which have plagued Pakistan for years.

Mr Bajwa expects the growing economy and new projects to help them double deposits from 641bn rupees ($6.1bn) and advances from Rs328bn in the next five years. The bank will also increase branches to as many as 800 in three years from a current 650 outlets.

“The whole structure of this economy is beginning to change because of the CPEC dynamics,” said Mr Bajwa. “Once the infrastructure is laid out, the road network, the rail network, power plants, the port and the economic zone, one is expecting there will be significant spill over effect in the economy.”

Mr Sharif is also appealing to farmers after he intervened this month to extend a subsidy for fertiliser after funding ran out. The prime minister also removed some taxes to boost the country’s dwindling exports this month.

“There may be more government spending in the next year and a half, or two years, which will probably not be significant, but there will be some pressure on interest rates to inch up,” said Mr Bajwa.

The State Bank of Pakistan has kept its key rate unchanged at 5.75pc for the past three meetings, after lowering the discount rate by 375 basis points to 6.25pc since 2014.

“I don’t anticipate that there will be any pressure on interest rates to move up this year,” Mr Bajwa said. “If it happens it will be 25 basis points, not more than that.”

Bloomberg-The Washington Post News Service

Published in Dawn, January 22nd, 2017