Good Port Growth Expected
We continue to forecast moderate-to-strong throughput growth at Pakistan's main ports in the fiscal year ending June 2015, with volumes growing by 3-8%. Growth will be marginally down on the previous year, reflecting a slowdown in foreign trade expansion.
In headline terms, Pakistan's economy currently has two factors working in its favour and one against. Positive momentum is provided first, by lower international oil prices, and second by the process of economic reforms. The negative factor remains the poor security and high political risk environment, which continues to cause concern among investors. Despite a degree of political turmoil the economy has remained firm. Prime Minister Nawaz Sharif's popularity remains strong. This suggests the reform process will continue, supporting accelerating real GDP growth. Indeed, the Pakistan Muslim League party nearly doubled its seat total in a Senate election in early March, increasing Sharif's ability to pass legislation in a bid to strengthen the reform process. We are upgrading our real GDP growth forecast for fiscal year 2014/15 (July-June) to 4.2% from 4.0% previously, and from 4.1% in FY2013/14.
Headline Industry Data
2014/15-tonnage throughput at the port of Karachi is forecast by BMI to grow by 4.9% to 43.376mn tonnes.
2014/15-container throughput growth at the port of Karachi forecast to increase by 4.0% to 1.654mn twenty-foot equivalent units (TEUs).
2014/15-tonnage throughput at the port of Muhammad Bin Qasim forecast to grow by 3.0% to 26.553mn tonnes.
2014/15-container throughput at the port of Muhammad Bin Qasim forecast to grow by 7.6% to 918,904TEUs.
Pakistan's total trade forecast to see real growth cooling to reach 4.0% in 2014/15, down from an estimated 8.0% in the preceding year.
Key Industry Trends
Xi Confirms Port and Transport Investments: On an official visit to Pakistan in April, China's President Xi Jinping announced investments of approximately US$46bn in a series of infrastructure projects designed to build a China-Pakistan Economic Corridor. The corridor will take about 15 years to complete and involves the construction of road, rail, and pipeline links running inland from Gwadar port, also built with Chinese investment. The package includes a further US$0.66bn worth of spending to complete Gwadar port installations. The overall aim of the corridor is to link China with markets in Central Asia and South Asia. Pakistan's planning minister Ahsan Iqbal was quoted by the Wall Street Journal saying: 'This is going to be a game-changer for Pakistan. If we become the bridge between these three engines of growth, we will be able to carve out a large economic bloc of about 3bn living in this part of the world ... nearly half the planet.'
Karachi Expansion Work: According to retired Vice Admiral Shafqat Jawed, chair of the Karachi Port Trust (KPT), an elevated expressway will be built to reduce road traffic congestion around the port. He said a four-to-six lane expressway of some 9km would be built to connect to the Pakistan Deep Water Container Port (PDWCP), which is under construction. The KPT also says that by the end of this year the port will be able to handle larger post-Panamax ships as the first phase of the PDWCP comes into operation. Recent dredging had increased the draught of the port to 13 metres.
China Does 40-Year Deal in Gwadar: The government of China has secured the rights to operate a deep-water port in Gwadar, Pakistan, for 40 years, reports Phoenix TV. Construction of port infrastructure is almost complete. The port is expected to be operational by end-2015, according to Gwadar Port Authority Chairman Dostain Khan Jamaldini. Construction will also soon start work on a 1,200m long container terminal and a 300m long cargo terminal with four berths at Gwadar.
Key Risks to Outlook
High political risk is the major threat to our predictions. Three militant groups in Pakistan have recently announced that they have joined forces in their campaign against the government, and the ongoing fight against terrorism shows no sign of abating. This will necessitate a high level of military spending, to the detriment of development spending, and will also keep the security situation tense for the foreseeable future, to the detriment of foreign investment. The risk is that any intensification of the security threat will lead to lower-than predicted GDP growth, lower trade, and ultimately lower port and shipping activity levels.