While chatting with a friend who lives overseas, I mentioned to him that investing in Pakistan’s real estate market is a better option compared to investing in the US stock market. He laughed at this notion thinking it was another snake oil salesman pitch, since with high rupee devaluation, it would be impossible to make money in dollar terms from Pakistan. The average return from the S&P 500 index, which represents the largest net worth companies of the world with valuations even greater than Pakistan’s GDP, was 14.8 percent from 2012 to 2021. This particular decade was one of the best ones in US stock history as the average annualized return over the past 50 years hovered around 10 percent. This time period also saw the index hit record highs in 2021 during one of the biggest handouts given by the US government through a $2 trillion stimulus package during corona. This time period also doesn’t incorporate the recession that followed in 2022 which wiped out $8 trillion from US stocks and hence reduced the annualized return average from 2012 to 2022. In comparison, the returns from our real estate market on average have been at par in dollar terms despite all the devaluation and socio-economic instability.
There are two reasons for telling this story. One is that we have always undersold ourselves. Countries like Cambodia and Laos market themselves as ideal destinations to invest in real estate for high returns to the US investors despite giving lower returns than us, but we Pakistanis have never even considered this idea as worth pitching to any foreign investor either at government or at individual level.
The countries mentioned above have successfully marketed themselves as the best new frontier markets for overseas investors to invest in. On the other hand, Pakistanis spend more time convincing their own relatives that any investment in Pakistan is a lost cause. The same applies to our successive governments who have never actively pursued foreign direct investment opportunities by providing legal and administrative facilitation and well targeted marketing. Instead the focus has been on state-level large-scale infrastructure projects built on loans, eventually leading us to the crisis we now face.
In contrast, Vietnam in the meantime has grown into an export powerhouse from a country which had less exports than Pakistan in 1995. This was the year when their trade relations with the Western world were fully established and the Vietnamese government started facilitating businesses that wanted to invest in their country from overseas. Ever since, it has ranked highly on ease of doing business global rankings with its status marked as “Easy” and has constantly been in the top five among the Asian economies.
The current crisis presents us with both an opportunity and a set of challenges. The challenges and their short term solutions have been already discussed thousands of time in media by various experts, but should we come out of this current crisis in one piece then we should shift focus to deep rooted structural reforms that are now the need of the hour to ensure we can as a nation grow and come out of our current disposition.
Although cheap labor and lower input costs have also helped, without government facilitation none of those would have counted for anything if the government hadn’t stepped up and opened Vietnam’s doors as a manufacturing haven to overseas companies by offering tax benefits, ease of setting up, removal of red tape, setting up industrial zones with low cost energy inputs to boost output. In 2020 the total export volume of Vietnam was above $300 billion and was roughly equal to the entire GDP of Pakistan.
Secondly this story shows that there is no dearth of necessary startup capital that can come from the private sector and from overseas Pakistanis, to stimulate our economy and growth without relying on expensive foreign loans. The problem is that it is either misdirected or isn’t being properly utilized. Historically all our growth has come in the form of boom and bust cycles with the boom being fuelled by foreign loans and the bust from the inability to repay the same loans or from the massive current account deficit it causes.
At the same time, hardly has this growth translated into a rapid increase in exports like in the case of Vietnam. From 2013 to 2023 our exports have registered only minimal growth whilst debt has surged by tens of billions of dollars highlighting that it is either used on building infrastructure or to finance our budget deficit. Similarly private capital is also extremely focused in particular segments of the economy like real estate and cars which fuel consumption financed through precious dollar reserves but fail to bring any returns.
It also highlights lack of investment in agriculture to ensure food security in the country, hence the need to import billions of dollars of foodstuff. If this same capital was even partially directed towards the manufacturing and IT sectors along with development of the agricultural sector, our trade balance would have shown significant improvement and our reserves would have grown like India’s from $3 billion in 1994 to almost $600 billion in 2023 rather than going from $6 billion in 1994 to $3.6 billion today. The current crisis would have been avoided while we would have been able to build as many motorways as we wanted without begging for foreign loans from China or others. We would also have the money to ensure continuous economic growth financed with reserves and foreign investment rather than the current pattern of three to four years of growth followed by deep recession. Furthermore our human development index would also have fared better since we would have been able to allocate greater resources towards public health, education, social security and dispensing of justice thus making a more prosperous and just society overall.
The current crisis presents us with both an opportunity and a set of challenges. The challenges and their short term solutions have been already discussed thousands of time in media by various experts, but should we come out of this current crisis in one piece then we should shift focus to deep rooted structural reforms that are now the need of the hour to ensure we can as a nation grow and come out of our current disposition.
