Banker fears flow of Chinese goods on Silk Road in Pakistan

Pak may be unprepared for a rush of wares from its larger neighbour that it can't compete against

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 neighbor that it can’t compete against, said Atif Bajwa, chief executive at Bank Alfalah, the country’s sixth-largest lender.

The administration of Pakistan’s prime minister Nawaz Sharif is targeting an economic 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.

Despite his concerns, 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-sized and medium-sized businesses.

SME 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, Bajwa said, without disclosing details. 

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

More spending

“Small and medium sized enterprises is one segment that generally is the core of any growing economy or strong economy,” Bajwa said. The bank’s shares have gained 50 percent in the past year, compared with a 59 percent gain in the nation’s benchmark index. On Friday the stock rose 1.2 percent to 41.24 at 9:38 a.m. in Karachi.

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

Bajwa expects the growing economy and new projects to help them double deposits from 641 billion rupees ($6.1 billion) and advances from 328 billion rupees 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 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.”

‘Inch up’

Sharif is also appealing to farmers after he intervened this month to extend a subsidy for fertilizer 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 Bajwa.

Pakistan’s central bank has kept its rate unchanged at 5.75 percent for the past three meetings, after lowering the discount rate by 375 basis points to 6.25 percent since 2014.

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