CONTENTSI&M Special Coverage: PSX Holds Pre-Budget Media Briefing

I&M Interview: Sohail Jaffer, Deputy Chief Executive, FWU Global Takaful Solutions, Dubai

I&M Special Feature: Capital Markets in Developing Countries

Asian Development Bank Institute – Organization of Economically Developed CountriesRound Table on Capital Markets Reform in AsiaCenter for Financial Markets – Milken InstituteCapital Markets in Developing Countries – The State of Play

I&M Special Impressions from WEF - DavosPresentation by: Nadeem Naqvi, Managing Director, PSXI&M Special Feature: CPEC & South AsiaI&M Visits GwadarCPEC – Adnan Gilani – Team Lead, Prime Minister’s Delivery UnitSouth Asia: Corridor of Opportunities – SAFA Conference 2016South Asia Trade & Investment: Opportunities & ChallengesCA. J. Venkatewarlu, Central Council Member, ICAI

Sindh Agricultural Growth ProjectAgriculture, Irrigation, and Natural Resources Unit, The World Bank

Company News & EventsGermany and Pakistan Renewable Energy CooperationGerman Pakistan Chamber of Commerce & Industry3rd Global Awards Ambassador of Peace & Development-FPCCI & Institute of Cost & Management Accountants-Pre-Budget Seminar

H.E. King Willem-Alexander of The Netherlands-Banquet Hosted by H.E. Jeannette Seppen, Ambassador of Pakistan; Tarek Khan, Honorary Consul General of The Netherlands and Mrs. Adeela Tarek KhanAl Meezan Investments Ltd – Presentation at Karachi GymkhanaSenator (r) Javed Jabbar’s Book “Pathways” is Launched at Karachi Gymkhana

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Pakistan Stock Exchange (PSX), held a pre-budget media briefing to discuss the contribution of Equity Market to the economy. PSX represents tax payers

who are fully documented and are contributing over PKR 670 billion, i.e. over 20 percent of FBR revenues. A number of taxes are collected from the Stock Exchange namely, Corpo-rate Tax, Super Tax, Dividend Tax, Capital Gains Tax, Capi-tal Value Tax and Sales Tax. To achieve rapid GDP growth, Capital Market requires some tax measures in the forthcom-ing budget. The Chairman informed that the Government remains the biggest beneficiary of the Stock Market’s perfor-mance citing that in addition to tax contributions of over PKR 670 billion, the Government since 2003 has raised PKR 453 billion and PKR 170 billion over the last two years through privatization deals. In addition to above, the Government also received PKR 14 billion in investment profits from NIT in FY14. Keeping in view the importance of the Capital Mar-ket as a revenue generator for the Government, the PSX has presented a number of proposals to the Government which if accepted will further bolster the Stock Market’s performance and will not impact the Government’s revenue collection. Additionally, it will help in achieving higher value of listed shares comparable to regional countries with possible in-crease of PKR 1.8 trillion in Market Capitalization resulting in increase in value of Government’s shareholding in listed companies by PKR 340 billion as the Government holds 20% of the Market. The package, if approved in the budget, will help in raising equities of approximately PKR 250 billion for privatization, CPEC projects and expansions. This will also help in rapid growth of GDP by making available necessary financial resources for investments in the economy by provid-ing job opportunities to its people and higher revenues with

lower tax rates for the Government as the size of economy increases. Giving background on the preparation of budget proposals by the PSX it was mentioned that rationalization of taxes like Bonus Tax, Capital Gains Tax, Capital Value Tax, exclusion taxes on REITs and Listing Tax incentives having a combined revenue impact of 0.4 percent of the PSX’s total tax have been taken up amounting to a mere PKR 3 billion of the total PKR 670 billion. It was proposed that tax on issue of bonus shares be removed since it has no significant impact as it is only an accounting entry and has discouraged companies from issuing bonus shares since its introduction. Rationaliza-tion of Capital Gains Tax (CGT) was also proposed as at the time of introduction the Government had communicated that it will abolish Capital Value Tax and CGT the rate will be determined after mutual agreement, however that is currently not the case. A tax rebate of 20% for one year on the listing of new companies was also introduced during the last bud-get. The PSX has proposed this rebate be extended for five years to encourage more companies to list. Leading indus-trialist Mr. Arif Habib expressed his opinion that tax propos-als by the Pakistan Stock Exchange (PSX) for the 2016-17 budget will help raise equities of approximately Rs250 bil-lion for privatisation and China-Pakistan Economic Corridor (CPEC) projects. He said that implementing the tax propos-als will lead to rapid growth in GDP by mobilising neces-sary financial resources for investments in the economy. Arif Habib went on to say that the rationalisation of taxes, such as bonus tax, capital gains tax and capital value tax as well as the taxes on Real Estate Investment Trust (REIT) schemes and listing tax incentives, will have a combined revenue impact of 0.4% of the PSX’s total tax contribution estimated to be Rs670 billion.

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PSX HOLDS PRE-BUDGET MEDIA BRIEFINGKarachi, May 26, 2016 -- PSX Auditorium

Mutual Funds Growth:International Perspective

1.You were one of the Ace speakers in the session on mutual funds sector. How do you assess the growth in the mutual fund sector since its inception?

The total mutual fund assets under management (AUM) in Pakistan are relatively small, at US$ 4.4 billion, however there is significant scope for growth. By comparison, countries such as Malaysia have US$ 82.2 billion in mutual fund AUM.The combination of several initiatives could spur higher growth of Pakistan’s mutual fund industry, the foremost in my mind are:• A joint Government / industry-wide national cam-

paign that raises awareness of the benefit of saving• Banks, insurance companies and financial brokers

need to be engaged in the distribution and servic-ing of the end customer

• Advisers need to be qualified and certified; additionally,a critical element that cannot be un-derestimated is a proper customer fact find/risk profiling

• In addition, tax incentives and subsidies for certain customer segments may also help in convincing customers to start saving (e.g. as part of pension reform in Turkey, a tax subsidy, of a maximum of US$ 85 per month, resulted in a 200% increase over 2 years in pension fund assets and 1 million new joiners in the first year alone)

2.There has always been a question of lack of diver-sity of products offered by mutual fund / asset man-agement companies. Do you have some positive sug-gestion in this regard?

Diversification opportunities are hindered when mu-tual fund / asset management companies are restrict-ed from investing in diverse asset classes, which in-cludes geographical diversity within the portfolio.As a result, diversity can be improved by flexibil-ity that allows managers to allocate a certain agreed percentage of AUM to offshore foreign assets (e.g.

GCC region). In countries such as Malaysia, mutual funds are permitted to invest up to 50% of AUM in offshore foreign assets. Diversification opportunities can also be improved through development of the local capital markets in Pakistan (more IPOs and debt issuances),thereby en-larging the universe of potential asset classes avail-able to managers.Improving diversity and growth of the mutual funds sector can also be achieved, in part, by offering in-vestors deeper choices with more focused funds, for example:• Real Estate Investment Trusts (REITs)• Exchange Traded Funds• Balanced and Income Funds

3.Has 2015 proved to be a good year for mutual fund industry of Pakistan? Can you point to the conditions that are leading to the fund’s future performance?

According to the Mutual Funds Association of Paki-stan 2015 Yearbook, during 2015, the mutual fund industry in Pakistan grew Total Net Assets by 6.5% to US$ 4.4 billion. In addition, at the end of 2015 there were 12 more open-ended funds (164 FY2015) and 4 more pension funds (17, FY2015).In terms of broad performance by fund strategy,

Mr. Sohail JafferDeputy Chief ExecutiveFWU Global Takaful Solutions Dubai.

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I&M Interview

Arif Amiri, CEO, DIFC Authority, met a delegation from Toronto, led by Councillor, Michael Thompson, the Chair of Toronto’s Economic Development & Culture Com-mittee, Councillor for Ward 37 Scarborough Centre, and Emmanuel Kamarianakis, Consul General of Canada in the UAE

only commodity focused funds yielded negative returns (-5%), while many fund strategies yielded returns in excess of 14% p.a..While past performance can never be a good in-dication of future performance, the mutual fund industry in Pakistan does seem to be displaying signals indicating a healthy future ahead.

4.Can you delve into some of your own profes-sional experience and how that will come to ben-efit investors in the fund?

Customer / investor focused solutions are key to providing long term value. In this regard, several

attributes are key, including:• After-sales service• Deployment of digital applications• Full transparency of terms and charging struc-

ture• Full transparency of the underlying portfolio

composition• Redemption flexibility• Liquidity and publication of fund NAVs on a

regular basis

5.Give us some glimpses as to what products your firm will be rolling out and what type of investor you’re targeting?

Our focus is on customer solutionsthat help inves-tors save for key life events, such as children’s education or retirement.Customer solutions include long term savings and retirement plans with regular monthly contribu-tions and life protection benefits.

6.In regard to the rapid pace at which the finan-cial services industry is changing, what are some

of the biggest positives you are seeing and what areas of the fi-nancial advisory market still need improvements?

The SECP is performing an ex-emplary role of guiding the finan-cial services industry, which has meant that corporate governance and accountability of managers is improving; however the bar for quality of advice and after-sales service needs to be raised.

7.Will you kindly summarize in brief the expansion of the market & diversification of products in mutual funds and asset manage-ment during the last five years in Pakistan & in neighboring coun-

tries & in the developed financial market?

Universally, the past five years has seen a prolif-eration of Exchange Traded Funds (ETFs), which today has grown to US$ 2.6 trillion AUM. Addi-tionally, 78% of firms surveyed by PWC forecast, the AUM of ETFs to reach US$ 5 trillion by the year 2020.Several features contribute toETFs being an in

vestment instrument highly favoured by investors, most notably are their low total expense ratios and tax efficient structures. Additionally,investors are still mindful of the 2007/8 financial crisis, with many prioritising-capital preservation above higher returns. As a result,Structured Products that offer capital pres-ervation with a predefined upside or minimum yield are also in high demand.

8.Which incentives do you propose to offer to in-vestors from small & medium enterprises, so that they are attracted to invest in mutual funds?For SMEs (Small & Medium Enterprises), Group Savings Schemes, where both the employer and employee make contributions (known as Defined Contribution Plans); provide important attractions for employers and employees.At the level of the employer, Group Savings Schemes represent a mechanism that helps retain valued employees (using a vesting period, follow-ing which the employer’s contributions belong to the employee).In countries, such as Pakistan, where companies are taxed on their income, there is a fiscal incen-tive to provide a Group Savings Scheme, since the employer’s contribu-tions would constitute tax credits.Importantly, Group Sav-ings Schemes provide employees with a cost effective way to save and have been known to improve employee pro-ductivity.

9.What are the factors you suggest to create awareness to popular-ize investment in mutual funds / asset manage-ment?

Raising awareness of the necessity to in-

vest / save for the future is best achieved by national campaigns; and the medium used for coordinated messages should include National TV, Radio as well as National newspapers / digital media.In addition, a prime focus should be promoting a savings culture among the youth / younger adults entering the workforce. As such, de-ployment of digital media, including the use of social media channels such as twitter and facebook are essential.

10.Any other issue related to Capital Markets & Non-Bank Financial Sector that you would like to add?

Capital markets can always benefit from inves-tors (customers) being better informed about financial products, as well as new avenues to engage with investors.As a result, future initiatives should include encouraging the development of independent financial advisors (IFAs); as well as the de-velopment of NBF distribution channels in-cluding: cooperatives, associations and other affinity groups.

Arif Amiri, CEO, DIFC Authority, met a delegation from Toronto, led by Councillor, Michael Thomp-son, the Chair of Toronto’s Economic Development & Culture Committee, Councillor for Ward 37 Scarborough Centre, and Emmanuel Kamarianakis, Consul General of Canada in the UAE

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I&M Interview

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ADBI-OECD Roundtable on Capital Market and Financial Reform in Asia

Non-Bank Financial Intermediaries and Capital Markets Development: Supporting Economic Growth in Emerging Economies

Andre Belelieu Associate Director, Financial Services Industries, World Economic Forum

The World Economic Forum• Established in 1971 and headquartered in Geneva,

Switzerland• International institution committed to improving

the state of the world through public-private coop-eration

• Engages political, business, academic and civil so-ciety leaders to shape global, regional and industry agendas

• Through a multi-stakeholder approach, works to define challenges, identify solutions, and catalyze actions

• Not-for-profit; operates independently and impar-

tially with no ties to any special interests Initiative on “Accelerating Capital Markets Devel-

opment in Emerging Economies”• Launched in 2014• Seeks to reframe the discussion around how local

capital markets can be developed more effectively and / or efficiently

• Recommendations based on insights developed at roundtables, stakeholder interviews, case studies, and extensive review of existing work and litera-ture

• Key findings from Phase 1, focused on corporate bond markets, will be summarized in a report to be

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published later this month• Upcoming phase will focus on bringing ideas to

practice and catalyzing country-specific initiatives for accelerating capital markets development.

Domestic capital markets play an important role in the financial system and in supporting private sector and economic growthSupports private sector and economic growth•Efficiently channels capital into productive invest-ments • Empirical studies support the correlation between

financial market development and GDP per capita.

Provides diversified sources of financing• Reduces concentration of credit risk away from

bank lending alone.• Provides alternative channels to access capital, par-

ticularly important when other sources of financing are tightened.

• Prevents excessive reliance on foreign capital.

Encourages long-term investments• Helps facilitate the maturity transformation of

short-term savings into long-term investments, which is critical for the funding of innovation and longer-tenured projects such as infrastructure.

• Supports accumulation of private wealth and low-ers population’s dependency on publicly-funded welfare.

Promotes greater market discipline and transparency• Participation in capital markets requires informa-

tion disclosure / information distribution and abid-ing by a uniform set of market standards.

• Capital markets serve as signal of expected eco-nomic conditions.

Key question addressed as part of the initiativeHow can emerging markets efficiently and effectively

develop their capital markets?.

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Key outcomes of the initiativePolicy actions that EMs can take to facilitate NBFI growth and in turn, capital markets development

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EMERGING ASIA-ECONOMIC OUTLOOK

Capital Markets in Developing Countries: The State of Play

Capital markets for development Economists have repeatedly demonstrated a relation-

ship between financial sector sophistication and economic growth. “Hesitantly and with ample qualifications, the pre-ponderance of theoretical reasoning and empirical evidence suggests a positive, firstorder relationship between financial development and economic growth,” Ross Levine asserted in 1997. By 2009, in a review of recent literature, researchers from the Asian Development Bank produced a more confi-dent conclusion: “There is now a consensus that financial sector development plays a vital role in facilitating economic growth” (Zhuang et al., 2009).While developing countries have often emphasized estab-

lishing a sound banking sector, as economies grow and be-come more sophisticated, capital markets are increasingly important for providing the long-term capital that firms need to invest and expand. Deep, liquid capital markets channel domestic savings into projects and companies based on mar-ket principles, not political motives. Furthermore, as Dan-iel Mminele, deputy governor of the South African Reserve Bank, recently noted, capital markets can provide real-time

feedback on the merits of policy decisions as perceived by the economic actors driving a country’s growth (Mminele, 2013).Across developing regions, businesses have identified ac-

cess to finance as the largest barrier to their success. Accord-ing to the World Bank’s Enterprise Survey, this concern out-weighs corruption, access to electricity, political instability, and tax rates, suggesting capital-market development merits greater attention among policymakers (World Bank, 2014, “Enterprise…”).This document briefly surveys recent capitalmarket activ-

ity in developing countries. It focuses on the experiences of three regions in particular: Southeast Asia, Latin America, and Sub-Saharan Africa. The sections that follow examine developments in public equity markets, private equity, bond markets, and efforts to integrate capital markets at the re-gional level.Developments in public equity marketsSoutheast Asia: New players emerge alongside strong stan-

dard-bearers From 2003 to 2012, the market capitalization of listed companies in the Association of Southeast Asian

By Center for Financial Markets - Milken Institute

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EMERGING ASIA-ECONOMIC OUTLOOK

Nations (ASEAN) grew from $597 billion to $1.967 bil-lion (World Bank 2014, “World Development…”), a com-

pound average growth rate (CAGR) of 12.7 percent. Malay-sia continues to have the largest market capitalization as a percentage of GDP, reaching over 150 percent in 2012, as a result of a strong capitalmarket planning process in the 1980s and 1990s. In the same year, the Philippines, Singa-pore, and Thailand also had market caps as a percentage of GDP higher than 100 percent, while for Indonesia this mea-sure equaled 45 percent. Other developments in Southeast Asia include the rapid growth of Vietnam’s Ho Chi Minh Stock Exchange, which launched in 2000. In 2005, the HC-MSE had 33 listed companies, with market cap at 1 percent of GDP; in 2014, it has around 300 equity listings and a mar-ket cap of over $48 billion, roughly a third of GDP (Ho Chi Minh Stock Exchange, 2014). The region’s two newest stock exchanges opened in Cambodia and Laos in 2011. Each cur-rently lists three companies.

Latin America: Record IPO year in 2013 even as stock prices fallOver the last decade, Latin American’s stock market capi-

talization grew more rapidly than ASEAN’s, as market cap rose from $450 billion in 2003 to $2,217 billion in 2012 (CAGR of 17.3 percent). Brazil, Mexico, Chile, and Co-lombia represented the largest markets. 2013 was a record year for initial public offerings (IPOs) in Latin America, with 22 IPOs raising over $16 billion (Bamrud, 2014). The big-gest was in Brazil, where the insurance firm BB Seguridade raised nearly $6 billion. Mexico had the highest number of IPOs, with 10, compared with Brazil’s eight. Dispite these offerings, 2013 was a dismal year for Latin America’s stock

exchanges. In 2013, the Peruvian IGBVL Index fell by 23.6 percent, Chile’s IPSA index by 14 percent, and Colombia’s IGBC by 11.2 percent. The loss of 2.2 percent for Mexico’s IPC index was considered a bright spot (Lewis, 2014).

Sub-Saharan Africa: Thin trading despite proliferation of new exchangesIn Sub-Saharan Africa (SSA), the market cap of listed

companies has grown over the last decade, but more slowly than in other regions. From $295 billion in 2003, market cap reached $732 billion in 2012 (CAGR of 9.5 percent). South Africa’s Johannesburg Stock Exchange (JSE) accounts for almost all of this activity. Excluding South Africa, the capi-talization of listed companies stood at $123 billion in 2012, with the Nigerian Stock Exchange and Nairobi Securities Exchange weighing in respectively at $56 billion and $15 billion (World Bank, 2014, “World Development…”). Since 1990, 16 new stock exchanges have appeared in Sub-Saharan Africa. Half of them list fewer than 20 companies. The new-est, the Rwanda Stock Exchange, lists five, three of which are cross-listed Kenyan firms. In general, African stock mar-kets remain small and illiquid. Even the relatively advanced exchanges in Nigeria and Kenya have turnover ratios below 10 percent. Still, stock prices on these two exchanges have seen large, steady gains over the past several years.

Developments in private equitySoutheast Asia: Rebound from the global financial crisis

driven by the consumer and financial sectors Private equity (PE) activity in Southeast Asia dropped noticeably during the global financial crisis. Precrisis, 2007 saw 128 deals for a total value of $12.1 billion, according to McKinsey, but by 2010, the private equity market had contracted to $5.6 bil-lion (Ahn et al., 2011; Bhagat et al., 2012). In 2011, though, the market turned upward, with 73 deals, totaling $9 billion. Since 2010, notable deals have included CVC’s buyout of the Matahari retail company for $616 million; Stanley Black & Decker’s purchase of Infastech in Singapore for $850 mil-lion; and Mitsui & Co.’s purchase of Integrated Healthcare in Malaysia for $1.1 billion. Last year, 95 percent of inves-tors and bankers surveyed by Ernst & Young anticipated in-creased deal-making in 2014. Investors see opportunities in the growing consumer sector and financial services (Ernst & Young, 2013, “Asia-Pacific…”). Trade sales and IPOs are the most common exits from positions in the region.Latin America: Deals in Brazil drive record year As with

IPOs, 2013 set records in Latin America for private equity. PE funds closed 233 deals in the region (Latin America Pri

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EMERGING ASIA-ECONOMIC OUTLOOK

vate Equity and Venture Capital Association, 2014). These deals were worth just under $9 billion in total. Roughly $6 billion went into deals in Brazil, where the financial markets are more sophisticated. Across the region, investors put over $3 billion into infrastructure, with roughly half of that figure targeted at the oil and gas sector. In a $1.1 billion transac-tion, Advent International acquired a minority stake in the Oscensa pipeline in Colombia. Interestingly, Latin Ameri-can pension funds are becoming more important PE actors, as countries such as Peru relax regulations on pension fund investment abroad and in alternative assets, including PE (Ernst & Young, 2013, “Private equity roundup...”).

Sub-Saharan Africa: Impressive 2013 due to two large deals in NigeriaPrivate equity deals in Africa totaled $4 billion in 2013 (Pri-

vate Equity Africa, 2014). While still less thanpre-crisis figures of around $6 billion to $7 billion annually,

the total value was up from $1.1 billion in 2012. Over 60 deals closed, but two accounted for more than 60 percent of the total value. Helios and BTG Pactual invested $1.5 billion in Petrobras Africa, a Nigerian energy firm, and Emerging Capital Partners and Investec Management placed $1 billion in IHS, a telecommunications infrastructure firm, also in Ni-geria. Other recent large transactions include $284 million from the Carlyle Group, Standard Chartered Private Equity, and Pembani Remgro for Export Trading Group in Tanzania in 2012 and Deutsche Investitions and Duet Capital’s $90 million infusion into Dashen Brewery in Ethiopia the same year. One recent study documented 118 PE exits from posi-tions SSA between 2007 and 2012 (Ernst & Young and Af-rica Venture Capital Association, 2013). Half of exits were trade sales, mostly to local and regional buyers.

Developments in bond marketsSoutheast Asia: Stronger markets in the wake of the Asian

crisis One lesson that Asian countries learned from the 1997 Asian crisis was that a heavy reliance on banks for financing increased vulnerability to shocks. After the crisis, countries in ASEAN made considerable efforts to develop bond markets as alternatives for financing. The progress varies depending on the country. From 1997 to 2012, the share of bonds rela-tive to total financial system assets increased the most for Thailand, from 14 percent to 27 percent. For the size of do-mestic bond markets relative to GDP, the largest market in ASEAN is Malaysia’s, with total bonds outstanding of 127 percent of GDP in 2012, up from about 70 percent in the late 1990s. Indonesia has the smallest bond market size relative

to its own economy, at 20 percent of GDP in 2012. At a wider regional level, in 2003 and 2004, the Executives’ Meeting of East Asia-Pacific Central Banks (EMEAP) dedicated small percentages of their foreign reserves to the Asian Bond Fund (ABF) Initiative. In 2003, ABF1 invested in U.S. dollarde-nominated bonds from Asian sovereigns, and in 2004, ABF2 put $2 billion into local currency sovereign bonds. This ac-tivity occurred alongside the Asian Bond Market Initiative of ASEAN+3 (ASEAN plus Japan, China, and South Korea), which was initiated in 2003 to develop local currency (LCY) bond markets. From less than $1 trillion in LCY bonds in 2001, emerging Asian countries had attained an aggregate of over $5 trillion in LCY bonds by 2010 (Asian Development Bank, 2012).

Latin America: Healthy appetite for bonds, but Bra-zil dominates marketThe demand for Latin American bonds has been strong

over the past few years, with bonds mostly oversub-scribed. According to the Economist Intelligence Unit, Latin American bond issuances reached $120 billion in 2013, and the market is anticipated to grow even larger in 2014 (Economist Intelligence Unit, 2014). Brazil is likely to continue leading the market, accounting for over 55% of the total raised by Latin American issuers in the first half of January. Mexico and Colombia are the other major players.Similar to Sub-Saharan Africa, the majority of the mar-

ket is composed of government bonds, with corporate bond markets constituting a small portion compared to GDP. Latin American corporations continue to be attract-ed to issuing bonds in the United States, instead of do-mestically, due to the abundant liquidity in the U.S. mar-ket and the number of sophisticated investors interested in Latin American debt securities. In 2013, Latin American firms raised over $80 billion in U.S. markets (Rodrigues, 2013). Meanwhile, Latin American sovereigns have taken advantage of recent low yields to tap international credit markets. Both Bolivia and Paraguay issued $500 million in U.S. dollardenominated bonds with yields-at-issue of under 5 percent. Honduras has also issued a $500 million Eurobond, and Costa Rica has recently made its own $1 billion Eurobond debut (Rodriguez, 2014).

Sub-Saharan Africa: Growing Eurobond market for sovereigns, but little corporate activityDomestic debt markets remain shallow in Sub-Saharan

Africa. While the banking sector still dominates the finan-

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cial structure of many African countries, the amount of local debt securities issued has increased from $11 billion in 2005 to $31 billion in 2012, according to data from the African Financial Market Initiative (African Develop-ment Bank, 2014). Growth, though, is led by government securities, which constitutes about 75 percent of the total market. The majority of government securities have short-term maturities, which create a frequent debt refinancing risk. South Africa, Nigeria, and the Republic of Congo are the only countries that have had a surge in corporate bond issues, the latter two primarily because of strong growth in the oil industry (Masetti, 2013). Sub-Saharan African countries have also recently been successful in attracting foreign capital through Eurobond issuances, with $5 bil-lion raised in 2013. Kenya is likely to be the next country to tap the international market with a $1.5 billion-$2 bil-lion Eurobond issuance in 2014. Developments in region-al integration of capital markets. Southeast Asia: Escaping marginalization through

integrationDatuk Ranjit Ajit Singh, managing director of the Se-

curities Commission of Malaysia, has written that the “threat of marginalisation,” whereby investors choose more developed, liquid markets over ASEAN exchang-es, should spur an effort to integrate ASEAN capital markets, adopting international standards in the pro-cess (Ranjit, 2009). Integration efforts have included the ASEAN Capital Markets Forum, a semiannual meeting of market regulators focused on harmonizing capital-market rules and regulations.The Capital Markets Forum recently put forward the

“ASEAN Disclosure Standards,” an “opt-in” disclo-sure regime. To date, Singapore, Malaysia, and Thai-land have adopted the standards. In 2006, ASEAN also launched the FTSE ASEAN 40 index leading to a USD-denominated exchange traded fund listed on the Singapore Exchange. Annual returns over the past five years, from January 2009 to January 2014, have aver-aged 19.8 percent. In addition to the regional efforts in bond market development described above, ASEAN+3 created the Asian Bond Market Forum in 2010 to drive harmonization and integration efforts across the region.

Latin America: New integrated market, but more work neededAfter what The Economist has called two decades of

“endless talk,” Latin America took its most significant

step yet to integrate its capital markets (The Economist, 2011). In 2011, Chile, Colombia, and Peru formed the Mercado Integrado Latinoamericano (MILA). MILA links Chile’s Bolsa Comercio Santiago, the Bolsa de Valores de Colombia, and Peru’s Bolsa de Valores de Lima on a single trading platform. Mexico may join the platform soon. At present, around 600 companies are listed, and while MILA had a market capitalization of $772 million at the start of 2013, this figure had fallen to $602 million by the end of the year. The S&P MILA 40 Index fell by 22.6 percent during the year. Analysts have pointed to differing tax and tariff regimes, lack of a common currency, and the cooling emerging market environment globally as ongoing challenges to facing MILA (Oxford Business Group, 2012).

Sub-Saharan Africa: Regional economic commu-nities driving various integration effortsAfrica’s regional economic communities are all pursuing

regional integration initiatives, mostly focused on boost-ing intra-African trade and infrastructure development. One prominent example of capitalmarket integration is West Africa’s Bourse Régionale des Valeurs Mobilières (BRVM), a regional stock exchange founded in 1998, with 38 listed companies and €9 billion in market capitalization as of early 2014. The BRVM serves the eight countries of the West African Economic and Monetary Union that share the euro-pegged CFA franc as a common currency. WAEMU’s neighbors, the West African Monetary Zone (WAMZ), are currently working toward a common cur-rency, to be called the Eco. The East African Community (EAC) on the other side of the continent is also pursuing a monetary union. Relying on the relative sophistication of the Nairobi Securities Exchange, the EAC also takes a crosslisting approach to financial integration, whereby Kenyan firms have cross-listed on other EAC country exchanges. Cross-listing has been a common practice in SSA since 1992, when the Johannesburg Stock Ex-change cross-listed Nictus Ltd, a holding company, on the Namibia Stock Exchange (Adelegan, 2009).In 2012, the Common Market for Eastern and

Southern Africa (COMESA), a 19-country block, in-troduced the Regional Payment and Settlement Sys-tem (REPSS), a platform for cross-border payments and settlements, primarily used by central banks, with the Bank of Mauritius operating as the settle-ment bank.

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Impressions from WEF- DavosPresentation by: Nadeem Naqvi, Managing Director, PSX

Rotary Club of Pakistan, District 3271

Where in the World is the World Going – 2016……?• Learning to live in slow growth world with rising un-

certainty • Challenges are usually Opportunities• Megatrends for the next two decades & opportunities

therein • The Pakistan perspective• What can we do – you and I

What we said in 2014 - IAround the world, the level of uncertainty – whether po-litical or socio-economic – and thus risk, has increased significantly:• Shift in political positioning amongst major powers as

manifested by US, UK & EU stand-off with Russia over Ukraine

• Increasing assertiveness of China in its sphere of in fluence in East Asia and its challenge to traditional west-ern influence over African and Latin American mineral and natural resource sectors

• Rise in the power of non-state extremist actors in the Middle East and Africa generating instability through-out the region

• Profound rethinking about internet security and global information flow, after revelations of hacking into pub-lic and private information networks by public and pri-vate groups.

What we said in 2014 - IIContinued subdued economic activity around the world relative to pre 2008 financial crisis levels:• Divergence in growth within G-7 countries with the

U.S. economy gradually finding traction while the E.U. and Japan still unable to break-out of low-to-stagnant growth trend and ‘liquidity-trap’, despite unprecedent-ed monetary easing by the central banks

• Industrial and construction overcapacity in China, along with huge debt overhang in the country’s shad-ow banking system, creating serious drag on economic growth which is much below last two decades’ trend.

• Slowdown in growth in other major emerging econo-mies from Russia, Brazil and Turkey to South Africa, India and Indonesia reflecting the slump in commodity

prices and subdued domestic demand.

What we said in 2014 - III• The implications of above dynamics: Real possibility of reversal of globalization and rising protectionism and nationalism, thus negatively impacting global trade and flow of people, ideas and innovations that provided the tail-wind for economic growth worldwide over the last two decades. Without growth the universe of investment opportunities begins to shrink, leading to what Allen Greenspan and others have called a global ‘SAVINGS GLUT”. Left to itself and combined with the demo-graphic realities of major economies and the 2008 crisis induced high public debt levels (e.g. 70% of GDP for the U.S., over 200% of GDP for Japan), it appears that a vast swathe of the global economy is trapped in a low-growth environment at least in the foreseeable future.

The Pakistan PerspectivePakistan Macro Dynamics - I• China Pakistan Economic Corridor (CPEC) – $ 47bn

Chinese Investment for development mega projects and connecting Gwadar port to West China.

• Rising consumerism and urbanization – 75%+ demand domestically driven. Pakistan’s urbanization growth of 3.5% is more than population growth of 2.3%. This

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represents significant growth potential across a broad spectrum of industries ranging from financial services, telecom to FMCG, real-estate, to name a few

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• Reducing the Energy Crisis : The prolonged energy cri-sis will likely be reduced following the CPEC culmi-nation, as a major part of the plan is energy infrastruc-ture development.

• Improving Law & Order Situation - With the launch of Operation Zarb-e-Azb. and National Action Plan, reported acts of violence against civilians and security forces are down 43% YoY in FY15TD

Pakistan Macro Dynamics - II• Decline in Oil Prices: Being a net importer of crude oil

and petroleum products, the decline in oil prices has come as a welcome relief for the country on multiple fronts.

• Improving Current Account Deficit (CAD) : Decline in overall imports by 17% YoY, helping reduce the Current Account Deficit (CAD) to 0.1% of GDP in 1QFY16 compared to 2.4% last year.

• Decline in inflation: 4.6% in FY15 versus 8.7% in FY14. 1QFY16 inflation at historic low of 1.6%

• Lowest ever Discount Rate: Benchmark policy rate at 6.0% should stimulate growth in both business and consumer spending and credit off take.

• F/X Reserves over USD20bn: 3G/4G auction, Eu-robonds & Sukuk issues, privatization proceeds and higher inward remittances from overseas Pakistanis

• Improving Credit Rating’s: Moody – B3, with stable outlook; S&P – B, with positive outlook.

Pakistan: Large domestic demand baseTotal consumption is 68% of GDPPrivate Sector Consumption is 75% of Total Consumption Between 2009-14, consumer spending grew @20% p.a. vs. about 10% for Asia*This has been driven by (i) substantial rise in rural incomes and govt. support to agriculture; (ii) sharp rise in remittances sent back by overseas Pakistanis; (iii) significant penetra-tion of mobile phone and electronic media raising consumer awareness about products & servicesConsumer companies have been main beneficiaries, with listed consumer sector earnings rising by over 22% p.a. be-tween 2010 and 2015 and expected to grow by 18% in 2016*Source: Euromonitor International

China National Day Celebration 2015 Karachi

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I&M Visit to Gwadar to Discuss Progress of CPEC with GPA and GDA Officials.

Munir Ahmad Jan, DG, GPA; Ashraf Iqbal Baloch, Vision Gwadar; Salman Hassan, VP, I&M; Capt. A. Raziq Durrani, T. St., DG (Ops.), GPA

Salman Hassan, VP, I&M, visits Gwardar Port Authority (GPA)

I&M Special : CPEC & South Asia

China Pakistan Economic Corridor

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South Asia remains one of the least integrated regions in the world.CPEC via Gawadar Port will act as a funnel for Western China, Northern India, Central Asia and Afghanistan.

Pakistan is falling behind in all social indicators in South AsiaLiteracy Rate 2014

Adnan Gilani- Team Lead Prime Minister’s Delivery Unit

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Pakistan’s GDP and GDP per Capita is among the worst in South Asia

Investor Confidence via FDI

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Why is Pakistan here?Unavailability of electricity is a barrier to growth

Pakistan’s political instability over the years has hurt the confidence of investorsPolitical Instability

Energy Crisis- Electric Power Consumption

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What is CPEC

CPEC Portfolio

Panama Canalhandles 5% of all seaborne trade Panama Canal Authority earns over 2.5 billion USD per annum

Suez Canalhandles 10% of all seaborne trade.Egypt earns over 5 billion USD per annum directly from tolling revenues.

CPEC focuses on building the necessary infrastructure and energy self sufficiency for Pakistan’s economic take-off

Total CPEC Investment Net FDI over the years

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Platinum Sponsor Lunch Sponsors Conference Producer

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South Asia Trade and InvestmentOpportunities and Challenges

CA. J. Venkateswarlu Central Council Member, ICAIBrief

The South Asia Region, is among the developing regions of the world, accounting for about 24% of world’s popula-tion(40% of Asia’s population). The region falls short on

most accounts like poverty, health, human development and edu-cation.

Trade and investments are tools to make the region take long strides for the development of education, health infrastructure, reduction of poverty, prosperity among the region. The trade pro-vides opportunity for people to people interaction, employment to youth, collaborate in sectors like infrastructure, energy, technology development etc.

The regional trade has remain beyond its potential, which is and essential ingredient to the prosperity of the region. The Govt.’s, must work together to enhance the trade and investment across South Asia region …..

Trade & Investment Key to Fulfilling Billion Dreams, Billion Aspirations.

Sustaining rapid growth in south AsiaSouth Asia which includes eight countries - Afghanistan, Ban-

gladesh, Bhutan, India, Maldives, Nepal, Pakistan and Sri Lanka, has made good progress on liberalizing trade regimes and cutting tariffs since the early 1990s when most of the countries started with reforms.

The countries have also undertaken considerable industrial de-regulation and other structural reforms.

The governments and the private sector recognize that strong exports are critical for overall economic growth and poverty re-duction and export-led growth has become a key thrust in each country.

Each country has been integrating with the global economy, as evidenced by the significant increases in the merchandise trade [(exports plus imports)-GDP] ratios.

According to the World Bank report, in the last quarter of 2014, South Asia was already the fastest-growing region in the world.

According to the twice-a-year South Asia Economic Focus re-port, regional growth is projected to steadily increase from 7 per-cent in 2015 to 7.6 percent by 2017 through maintaining strong consumption and increasing investment.

Regional Economic Integration in South AsiaFormation of SAARC, 1985Recognition of complementarities – Committee on Economic

Cooperation – Trade, Manufactures and Services study, 1991Trade liberalization: SAPTA, 1994SAFTA, 2004: Implementation time frame 2006-16

Bilateral FTAs: India-Sri LankaUnilateral preferences: India-Nepal, India-Bhutan, India-Af-

ghanistan.

Regional Trade Agreements & Industrial Restruturing in South AsiaEncouraging results from limited experiencesSAPTA: trade gains by smaller countriesIndia-Sri Lanka FTA: expansion of trade with narrowing of trade

deficit + diversification of SL export basket;Indian companies shifting production to Sri Lanka depending

upon the comparative advantage for exports to South Asia and rest of the world » e.g. Tyre industry

Substantial FDI inflows from India to Sri LankaSpurring third country investments in Sri LankaNow upgrading FTA to CEPA

ChallengesThe cost of trading across borders in South Asia is one of the

highest in the world.Cross-border trade is especially important for smaller countries

and for landlocked provinces / countries, including Afghanistan, Bangladesh, Bhutan, Nepal, Northeast India and Northwest Paki-stan.

Regional integration in South Asia has remained weak on all fronts. Even in the face of pressing needs, regional cooperation on water and energy, for instance, barely gets the kind of attention that it deserves.

On trade, the story is even worse. Intra-regional trade in Asia (as a geographic block) constitutes around 56 percent of the total trade, whereas the South Asian intra-regional trade-share hovers below the five percent mark. If you consider the fact that about 40 per-cent of the total Asian population actually resides in South Asia, the scale of the anomaly becomes clearer. The mammoth bureaucra-cies of South Asia, the political leaders who rule the halls of power in South Asia, as well as the highly-organized yet helpless business associations in the South Asian capitals all agree that more needs to be done.

It takes on average more than 33 days to export from South Asia compared to 12 days from OECD countries and more than 46 days to import into South Asia compared to 14 days for OECD.

South Asian countries have maintained a higher level of protec-tion within the region than with the rest of the world.

Major barriers for intraregional trade in South Asia Poor supply capabilities and infrastructure

I&M Special: CPEC & south Asia

Poor transport connectivity and trade facilitationLead to high trade costs within the sub-region Trade costs for intraregional trade same as for trade with EU =>

benefit of geographical proximity not being exploitedPoor banking links Vand capital market contactsMovement of Skilled Professionals.South Asia remains much less integrated into global manufac-

turing supply chains due to the low value-added nature of much of their exports and their lack of competitiveness with East Asian manufacturing hubs.

This reflects a broad range of problems, including political uncer-tainties as well as the weak business climate and poor infrastruc-ture.

Individual South Asian nations have not been fundamentally averse to global and regional trade agreements. Beginning from South Asia’s own South Asian Free Trade Agreement (SAFTA) to global regimes such as WTO, the South Asian states have signed on the dotted line faster than they have mustered the commitment required to trade freely, including with their immediate neighbors.

While the agreements themselves remain stuck at various stages of implementation, there almost appears to be an industry on over-drive dedicated to devising non-tariff barriers (NTBs) in all South Asian countries.

That also lead to informal trade and third country trade Political tension in the region amongst the nations has hampered

the growth of the internation as well as intra region trade.

OpportunitiesTrade within South Asia can be more than doubled if appropriate

regional agreements on roads, rail, air, and shipping are put in place enabling seamless movement.

Garments exports remain a key contributor to the country’s eco-nomic growth, despite challenges faced by the industry due to in-creased regulatory standards by international textile manufacturers.

In order to boost the investment climate further, the government will need to further strengthen regulatory and safety standards for key sectors such as garments, as well as improving key infrastruc-ture such as power, airports and railways.

The development of effective bilateral and multilateral trade will not only allow an increase in trade but also diversification of the types of goods traded.

It will improve export competitiveness by allowing producers in one country to obtain unique, less costly, or better quality inputs from suppliers in neighboring countries.

Annual trade between India and Pakistan, the bulk of which is routed through Dubai, is currently estimated at US$1 billion, but could be as great as US$9 billion if barriers are lifted.

South Asian countries will benefit substantially from greater inte-gration through energy trade, commerce and river basin manage-ment.

The most obvious gains are in the power sector, with connectivity enhancing system reliability, lowering costs and carbon emissions,

and relieving debilitating shortages in all countries by enabling the sustainable development of the enormous hydro and gas-based power generation potential of the Himalayas – the “water tower” of Asia – and of Central Asia.

Afghanistan and Nepal have water resources that could poten-tially generate around 24,000 and 83,000 megawatts of electricity respectively. Transmission infrastructure, clean energy generation, and fair pricing agreements across borders hold the key to realizing this potential.

Trade between South Asian countries would likely grow substan-tially if they were to just open the borders to each other on a genu-ine Most Favored Nation (MFN) basis.

Momentum for economic cooperation has been building in recent years and months. India and Pakistan have revitalized ministerial-level negotiations on expanded trade including through granting Non-Discriminatory Access – a similar status to Most Favored Nation (MFN) – to India, reciprocating India’s granting of MFN status to Pakistan a decade ago.

India has modernized its Attari border post with Pakistan and has offered to export 500 megawatts of power. India and Bangladesh have enhanced their bilateral ties, including in power trade, and India has extended tariff-free access to its market to all Least De-veloped Countries in the region. Afghanistan and Pakistan have started implementing a transit and trade treaty which they signed in 2011. Indian investment in Sri Lanka has risen significantly, as has cross-country trade, following a 2001 Free Trade Agreements.

World Bank ProjectCentral Asia –South Asia (CASA) 1000 Electricity Trans-

mission Project ($526.5m; Regional SARIDA: $280M) :CASA-1000 will facilitate electricity trade of 1,300 mega-

watts (MW) of existing summertime hydropower surplus between Kyrgyz Republic and Tajikistan in Central Asia and Afghanistan and Pakistan in South Asia. The project will generate valuable foreign exchange revenues to the Kyrgyz Republic and Tajikistan, and alleviate electricity shortages in Afghanistan and Pakistan during the peak summer sea-son. It will also help establish Afghanistan’s role as a viable transit country.

India Mizoram Road II Regional Connectivity Project (US $107m; Regional IDA $ 71.3m):

The project is designed to increase transport connectivity along regional trade corridors in Mizoram. With road trans-port being the only mode of transport within the state of Mizoram, improvements to the network will reduce freight and passenger transport costs, and provide quicker and safer access to all parts of the state and to neighboring states and countries (Bangladesh and Myanmar).

Nepal – India Regional Trade and Transport Project (US $ 99m;Regional IDA $59.3m):

The Project will facilitate efficient goods trade between Nepal and India by removing current policy, procedural,

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I&M Special: CPEC & south Asia

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systems, and capacity and infrastructure constraints along the Kathmandu-Kolkata Corridor. The expected outcome as a result of project interventions is a reduction of transport time and logistics costs for Nepal’s international trade.

The Nepal –India Electricity Transmission and Trade Proj-ect (US$99m approved in FY11 with AF for US$39m in FY1; Regional IDA $66m) :

The Project will support construction of a high voltage electricity transmission line between Nepal and India, capa-ble of transmitting up to 1,000 MW of power and paving the way to relieving Nepal’s crippling power shortages and fa-cilitating the development of Nepal’s hydropower potential.

To be completed in 2016, this Nepal-India interconnection will complement a 500 MW interconnection between India and Bangladesh and, together with existing and planned con-nectivity between Bhutan and India, will create the physical infrastructure for sub-regional power trade.

Strengthening Regional Cooperation in Wildlife Protection APL Program (APL1: US$39m & APL2: US$2.25m; Re-gional IDA: $24.5m):

The Project will assist participating governments in build-ing shared capacity, institutions, knowledge and incentives to protect regional wildlife. Participating countries include Bangladesh and Nepal (APL1), and Bhutan (APL2).

Collaboration with India, Sri Lanka and neighbors in East Asia in this partnership is being explored.

Beyond SAFTAExpediting full implementation of SAFTAServices and investment liberalizationRoadmap or a vision for further deepeningSouth Asian Customs Union, and eventually to an econom-

ic community An integrated South Asia could be an important building

bloc of an emerging broader Asian regional grouping.New salience in the post-crisis world

In every CHALLENGE lives a great OPPORTUNITY - Jeffrey BenjaminConcluding RemarksReimagining South Asia as an economic gateway to Pros-perity and Peace

Thinking of South Asia as an economic gateway between East and Central Asia can bring large dividends. To do so, South Asia first has to connect within itself, and significantly reduce intra-regional trade costs which, on average, are 85% higher than those in East Asia.

Improving internal connectivity means that trucks travel seamlessly between countries, using the most economical route between destinations with minimal waiting time for border clearance, among other things.

Current rules require most trucks to transfer loads at the

borders. There are no major transit agreements across the region and most border check-posts enforce tedious inspec-tions on both sides of the border. The Motor Vehicles Agree-ment signed between Bangladesh, Bhutan, India and Nepal in June 2015, intended to pave the way for a seamless move-ment of road traffic, is a very good initiative in this regard.

Implementing a genuine free-trade agreementAn effective free-trade agreement can unleash the power of

a market of 1.7 billion people. The South Asian Free Trade Agreement (SAFTA) contains too many ‘sensitive lists’ that allow countries to impose high import tariff restrictions on neighbours.

A well-functioning SAFTA and reduced costs of trade can lead to a 250% increase in intra-regional trade (simulation estimates).

A unified market can unleash a powerful dynamic by at-tracting large and small investors, which would foster an even larger market and generate a more efficient and power-ful distribution of production across the region, as countries and sub-regions begin to specialize.

Addressing real and perceived non-tariff barriersDoing so can reduce the non-quantitative costs of trade,

which typically run quite high. These barriers include, but are not limited to, over-zealous regulations (or implemen-tation of these) that aim to ensure quality and food safety, environmental protection, animal and plant health. If not addressed, they would shape misperceptions and exacerbate the trust deficit between countries.

A transparent and impartial redress mechanism, drawing from Africa, can be very useful.

Catalysing private investment in the regionGiving a boost to private investment, including intra-re-

gional investment, can help realise the complementarities between trade and investment. Trade and investment go hand in hand. Foreign investment, in particular, can help improve technology and allow export diversification, and help cre-ate regional value chains (for example, one country supplies buttons, another the fabric, yet another the assembly of the garment, before it is finally shipped from a fourth country).

In South Asia, on average, foreign investment is well be-low potential, and intra-regional investment even more so. For example, Indian Firms have invested over $75 billion in equity overseas, but only a small fraction of this has gone to the region.

South Asian countries should improve their investment cli-mate and pro-actively seek large anchor investors, including those from within the region. By doing so, they will realise their economic potential, catalyse export diversification and develop regional value chains.

I&M Special: CPEC & south Asia

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I. STRATEGIC CONTEXTA. Country Context1. Starting in the late 1960s, the Green Revolution

introduced unprecedented technological and economic transformation and growth in Pakistan’s agriculture sector; however, that growth has steadily declined for the past two decades–from 5.4 percent in the 1980s to

3.2 percent in the 2000s. The aggregate numbers hide extreme volatility—e.g., 6.5 percent growth in 2004

compared to only 0.6 percent in 2010. Agriculture in Pakistan has reached a point of diminishing mar-ginal returns from the technologies and resources at its disposal, and insufficient investment in agriculture research and extension has left the sector ill-equipped to cope with climate shocks, reduce rural poverty, or compete in the marketplace.

2. In recent decades, agriculture’s contribution to Pak-istan’s GDP has declined; however, it still accounts for 21.6 percent of value added. Agriculture GDP consists of 32.8 percent major crops, 11.1 percent minor crops, 53.2 percent livestock, 2.9 percent fisheries and forest-ry.1 Through its production, agriculture contributes 60 percent to the country’s export earnings, and, despite strong urban growth, 64 percent of the population still lives in rural areas and 45 percent of the nation’s labor force still work in agriculture. Despite declining pro-ductivity growth, Pakistan is among the top 20 global

producers in over 48 different agricultural commodi-ties. The country produces over 108 million tonnes of agricultural commodities worth over US$13 billion

annually.3. In July 2011, the 18th Amendment of Pakistan’s

Constitution introduced devolution of many govern-ment services, including agriculture, to the provinces.

With this, many national programs either ended or moved to each province, as did the responsibility for areas like policy development and food security. The provinces now face significant challenges in taking on additional roles that were previously under federal re-sponsibility in addition to the research, extension, and marketing support challenges they already managed.

4. The top agriculture producing provinces in Pakistan are Punjab and Sindh, which account for 81 percent of agriculture GDP, most of which comes from rice and wheat production. The pattern which largely accounts for recurring costs including overheads and operation-al budget costs. Program development is limited with little to no expenditure allocated for sector policy deve opment and implementation. A detailed public expendi-ture review of the agriculture and its subsectors is much needed to not only determine the level and composition of public spending in the sector but also define contours of Bank’s dialogue and engagement with provincial au-thorities on enhancing efficiency and efficacy of public

Pakistan: Sindh Agricultural Growth Project

Project Appraisal DocumentSouth Asia Region: Agriculture, Irrigation and Natural Resources Unit, The World Bank

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sector’s sectoral expenditures. This project will focus on Sindh Province, which contributes 23 percent to ag-riculture GDP, has a high unmet productive potential. The project will also promote the role of private sector participation in the agricultural development and sector growth through public-private models for agribusiness development and support services.

B. Sectoral and Institutional Context5. Sindh Province has 23.8 percent of Pakistan’s pop-

ulation, 18 percent of its land area, and 14 percent of its total cropped area.2 About 30-35 percent of Sindh’s population lives below poverty line, and a majority of the poor are rural. Landholding patterns in Sindh are highly skewed from national norms, with a median farm size of around 11.33 hectares, as compared with 2.83 hectares in Punjab. According to one estimate in 2005, wealthy landlords in Sindh, who held farms in excess of 100 acres and who accounted for less than 1 percent of all farmers in the province, owned 150 percent more land than the combined holdings of 62 percent of small farmers with landholding less than 5 acres. Large land-owners dominate production of the four major crops in Sindh—rice, wheat, sugar cane, and cotton. These crops are heavily regulated and receive extensive gov-ernment subsidies through price support structures that often favor one segment of the value chain over another. There is currently no overall sectoral strategy, however the Government has developed some sub-sector strate-gies and plans and have held a series of dialogues with development partners including the Bank for preparing its sector strategy.

6. The SAGP will focus on horticulture—particularly chilies (92 percent of national production), onions (33 percent), and dates (about 50 percent)—and milk pro-duction because they have a small farmer focus, have significant involvement of women in production and processing, and, from a national perspective, Sindh en-joys the greatest competitive advantage in these pro-poor production value chains. Horticulture is largely unregulated, includes more private sector actors than the major crops, and has received little donor attention in the past.

When donors have invested, they have focused largely on mangos and bananas—the two most profitable horti-culture crops, which are often grown by large landown-ers. Investing in horticulture is seen to offer the best potential for increased small producer incomes, new

employment opportunities in production and process-ing, improved resource productivity, and enhanced mi-cronutrient availability in the market.3 The one excep-tion to this strategy is the planned intervention in the rice value chain, which will target a cluster of small and medium sized producers to help them reduce the post-harvest damage and loss from poor practices.

7. The first order constraint identified in the analysis of the targeted value chains is the quality of produc-tion and the high level of post-harvest losses, so SAGP will first focus on improving that quality. The interac-tion between producers and other actors along a value chain varies by commodity. In milk, producers gener-ally produce directly for processors. In horticulture, they may link with either traders or processors. In all of targeted value chains, there are several private sector actors (traders and processors) who are actively seek-ing high-quality products for domestic and internation-al markets. Despite the presence of many value chain actors, 25 percent of Pakistan’s fruits and vegetables produced annually go to waste between the farm and the consumer. Only four percent of Pakistan’s total fruit and vegetables are exported and at far lower prices (less than 41% of the world average) due to poor quality and the reliance on traditional low end markets. In milk pro-duction, losses climb to about 30 percent in the summer due to lack of infrastructure and equipment. Since milk production declines by 50 percent in the summer, this lead to huge shortages and high prices.

8. The introduction of good agricultural practices and modest investments in relatively simple technology could substantially increase the quality of production and the potential for increased trade and higher incomes. For example, chili exports from Pakistan are banned by the European Union (EU) due to unacceptable levels of aflatoxin. In dates, only 20-30 percent of the produc-tion is in high value table dates (khajoor) and only 10 percent of those are Grade A, 60 percent are Grade C. The majority of dates grown are dried dates (chuhara), the majority of which are exported to India to be used in religious ceremonies, where they are thrown into the Ganges. Improved tissue culture, orchard management, and harvesting practices, could increase the production of Grade A table dates, thus increasing income.

C. Higher Level Objectives to which the Project Con-tributes

9. The Government of Pakistan (GoPak) and Govern

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ment of Sindh (GoSindh) have both highlighted com-mercial agriculture and market linkages as priority in-vestments for the sector. GoSindh has also prioritized investments in support of small and medium farmers and in value chains that will positively impact women. This project responds to the 2010-13 Country Partner-ship Strategy (CPS) (Report No. 53553 approved on July 30, 2010) which stated that the Bank will engage in providing technical assistance to help Pakistan in its agricultural policy analysis and design with a view to increasing agricultural competitiveness and expand-

ing rural livelihoods. The project is also well aligned with the new 2015-2019 Pakistan Country Partnership Strategy (Report No. 84645) that was approved on May 1, 2014. The project directly contributes to Re-sult Area 2: private sector development – in particular to outcome 2.2: increased productivity in farms. Un-der this Result Area, the Bank proposes to complement continued support for irrigation investment programs with investments to boost agricultural productivity and value addition.) The project will improve private sector participation in marketing infrastructure and facilitate reform in local marketing regulations and policies to enhance competitiveness. Collaboration with agribusi-nesses and International Finance Corporation (IFC) will be actively explored to boost the sector growth and build comparative advantage for small and medium farmers. The Sindh Agricultural Sector Development Strategy will form a key contribution to longer-term sector growth and setting priorities for investment and future programming for Government as well as devel-opment partners including the Bank.

10. The project contributes to Pillar III: Improving Infrastructure to Support Growth in the 2010-2013

Pakistan Country Partnership Strategy and the Progress Report (CPS-PR). Under this pillar, the Bank proposes to complement continued support for irrigation invest-ment programs with investments to boost agricultural productivity and value addition. It also fits with the key principles of engagement, in particular focusing limited resources on strategic areas, engagement with the provinces, and leveraging partnerships for shared objectives. The project will complement the activities of the following on-going Bank-supported operations: Pakistan Poverty Alleviation Fund; Sindh Water Sec-tor Improvement Project Phase I; Sindh On-farm Water management Project; Sindh Skills Enhancement Proj-ect.

11. The project will also address the need for a ho-listic vision and planning process to improve the per-formance of the agriculture sector by facilitating the formation and operation of an interdepartmental Proj-ect Steering Committee, which will include the Secre-taries of Agriculture, Livestock & Fisheries, Finance, and Planning, as well as representatives of farmer or-ganizations, the private sector, and civil society. The Project Steering Committee (PSC) will be facilitated by a Project Coordinator to manage impact evaluation, third-party monitoring, and feasibility studies.

II. PROJECT DEVELOPMENT OBJECTIVESA. Project Development Objective12. The proposed Project Development Objective

(PDO) is to improve the productivity and market access of small and medium producers in important commod-ity value chains. This will be achieved by: (i) invest-ing in knowledge and technology for producers, sub-sectors of crops and livestock; and (ii) strengthening public sector institutions to enhance the enabling envi-ronment for sustained sectoral growth.

B. Project Beneficiaries13. The proposed project would contribute to more

inclusive growth by prioritizing support to small and medium sized producers who are trying to compete in horticulture markets. The project would reach to ap-proximately 112,000 farmers covering over 66,000 ha. A substantive number of these farmers would be women involved in the agricultural processes on-farm for preand post-harvest practices for the selected com-modities. The project will use a value chain approach

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to provide direct investment support to the farmers and producers groups for: (i) development of more effective and efficient farming systems; (ii) introduc-tion of technology packages for increased productivity and value addition, and; (iii) improved market access. These services will be made available with a defined focus on how they reach the women in agriculture. The project will be provincial in scope but specific activi-ties may be concentrated geographically based on agro-ecological conditions or natural clustering of economic activities.

It is expected that beneficiaries will be able to estab-lish effective and efficient production systems and cre-ate market linkages.

C. PDO Level Results Indicators14. The key performance indicators for the SAGP in-

clude:* Average yields for selected commodities by targeted

beneficiaries yields.* Percent increase in aggregate sales of selected com-

modities for targeted beneficiaries.* Number of beneficiaries disaggregated by gender.

III. PROJECT DESCRIPTIONA. Project Components15. The SAGP would contribute to more inclusive

growth by prioritizing support to small producers with commercial potential. The project would be imple-mented over a period of five years and would have the following components:

16. Component A: Capacity Building and Institution-al Development (US$ 18.6 million): The project will finance capacity building of producers through tech-nology development, technology dissemination, train-ing and exposure. The project would also provide in-stitutional development for the implementing agencies and support strategic planning for Sindh’s agricultural sector.

17. Sub-component A.1: Capacity Building of Pro-ducers (US$ 6.7 million). The project will finance train-ing and capacity building for farmers, which will be based on training needs assessment carried out by the departments and their technical assistance providers. Training topics will include, but not limited to, good agricultural practices, agribusiness management, nego-tiating in the market, basic accounting, record keeping, etc. This will be done through interalia demonstration

plots, public information campaigns, face-to-face train-ing, and farmer-tofarmer study tours, and exposure visits. For each value chain, the respective department will sponsor stakeholder forums to facilitate dialogue with and among value chain actors that will increase the market orientation of departmental activities as well as build capacity of the departments to carry out stake-holder engagement for other crops in the future.

18. Sub-component A.2: Modernization of Extension Services and Agricultural Research (US$ 8.9 million). This subcomponent will finance: (a) technical assis-tance to the implementing departments; (b) moderniza-tion of extension services and facilities; and (c) com-petitive fund for adaptive research.

19. Technical assistance and capacity building. The project will finance the extended presence of a techni-cal assistance consultant/firm who will (a) assist with the planning and management of implementation of investments in Component B, and (b) designing and delivering effective capacity building components. Additional technical assistance and training will be financed through twinning arrangements with interna-tional agencies.

20. Modernization of programs and facilities. Both the Agriculture Department and the Livestock & Fish-eries Department have facilities that were affected by the 2010 and 2011 floods, and the project will provide a modest amount of financing to facilitate their reha-bilitation. In addition, it will provide support to estab-lish and/or rehabilitate facilities critical to fulfilling the requirements of the project including, the agricultural research centers, artificial insemination training center, and semen production units.

21. Modernization of extension services by introduc-ing ICT-based technologies. The project will finance in-formation and communication technology (ICT)-based technologies and services for delivery of agriculture extension and marketing for farmers/producers. These would include information going out to small producers and other stakeholders through the use of mobile phone and other ICT tools including 24/7 call center and inter-active websites and other communication tools.

22. Competitive research fund. The project will fi-nance a program of competitive research grants sup-porting research on crop agriculture, livestock, and fisheries. The program would be managed Department of Agriculture, in collaboration with Sindh Agriculture

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University at Tando Jam. The research proposals will be reviewed based on agreed criteria outlined in the Operational Manual. Recipients of grants would ensure that adequate financial management arrangements are in place for the grant funds. million): The project will finance the: (a) development of Sindh Agricultural De-velopment Strategy; and (b) preparation of feasibility studies for future investments.

24. Sindh Agricultural Development Strategy. The project will finance development of the provincial Strategy to set the long-term development and growth vision for Sindh’s agricultural sector. To more accu-rately forecast needs of the sector relative to pricing, climate smart agriculture, competitiveness and con-sumer demand, etc. The project will finance economic modeling, public expenditure review, private sector development, and sectoral results framework to inform future investment planning as part of preparing back-ground studies. The Strategy development process will be managed by the office of the Project Coordinator (see Component C) and guided by the Project Steering Committee (PSC).

25. Preparation of feasibility studies for future in-vestment plans. The project will finance preparation of studies on additional crop and livestock value chains including, but not limited to, fisheries and aquaculture, meat production and marketing, seed production and food storage, etc.

The studies will feed into discussions for future in-vestment project preparation. The approval of topics to study will be accorded by the PSC and the Project Coordinator will manage the implementation and dis-semination feasibility studies.

26. Component B: Investment for Agricultural Growth (US$ 47.8 million): This component finances specific investments in the horticulture and dairy value chains and a targeted investment to reduce post-harvest loss among small-holder rice growers. The component would also finance a demand driven innovation fund to support farmers and producers with technology innova-tions in the selected value chains. Selection criteria for farmers and producer groups to receive project inter-ventions and detailed procedures for funds transfer and managing contributions are included in the Operational Manual.

27. Sub-component B.1: Horticulture Value Chains (US$ 23.2 million). The project will finance invest-ments in three (3) horticulture crops – dates, onions and

chilies. The key focus will remain on adopting good agricultural practices for production and post-harvest handling of the selected crops.

28. Dates crop. The project would finance investments for increased productivity through good agricultural practices for improved crop husbandry, tools for pre- and post-harvest processes including, mats for spread-ing dates in the sun, disease control kits, moisture test-ing meters, conductivity meters, tree pruner, pollinator guns, harvesting tool, solar dryers, hand carts, plastic crates, tarpaulin sheets, etc. would be provided to small and medium growers on a 30-70 percent cost sharing basis. To support market access, technology would be provided on a 70-30 cost sharing basis with the farmer or farmer group providing their 30 percent of the cost to Department of Agriculture, which would then notify a supplier in close proximity to the farmer/farmer group to deliver the implement/tool. The kind of technology to be provided along with the eligibility criteria is in-cluded in the Operations Manual.

29. Onion crop. The project would provide extension services for increased productivity through correct plant husbandry, both as a pure stand and an intercrop, fertil-izer application, spraying techniques, weed and disease control, harvesting, curing and drying. The integrated pest management extension would focus on develop-ing an environmentally sensitive approach to pest man-agement. Under pest and disease management, thrips, damping off, bulb rotting and downy mildew would be of primary concern. The project would also finance technology packages for increase market access which may include, but not limited to, onion diggers, curing and storage facilities to increase shelf life, mechanical dryers, seed threshers, and ancillary equipment, etc.

The financing of the tools and equipment will be pro-vided on cost sharing where growers will contribute 30 percent.

30. Chili crop. The project will focus on increased productivity through improving agricultural practices including introduction of polyester drying mats, along with similar sheets to cover the crop to prevent dew formation on the harvested crop would be provided to famer and grower associations on 30 percent cost shar-ing bases. The reduction in aflatoxins is directly in re-sponse to improving market access by addressing the urgent need of improved food safety of the chili crop for domestic market as well as for facilitating opening of exports to more desirable markets, thus boosting

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farmer incomes and foreign exchange earnings. Rehabili-tation and up gradation of the Kunri chili research station in district Umerkot would also be financed.

The project would facilitate a public-private partnership involving the Chili Growers Association to establish a com-mon facility center in Kunri, which will house equipment and other implements to improve post-harvest handling of chil-ies. Project financing of the facility will be contingent on an approved business plan and secured cofinancing. Depending on the size of the facility, IFC support would be sought during implementation.

31. Sub-component B.2: Rice Post-harvest Loss Manage-ment (US$ 7.0 million). To increase productivity and stem the loss of 30-40% of the rice crop due to poor processing practices, this subcomponent will finance threshers for farm-ers and paddy dryers for small mill operators. In addition, the project will provide soil and moisture testing kits, conductiv-

ity meters, etc. Financing for the threshers and dryers would be provided on 50 percent cost sharing basis (in accordance with current government practice) to groups of farmers, small mill operators, and individual medium-scale farmers. The re-maining smaller technology inputs would be provided on a 70-30 cost sharing basis. To support the market access, the project would also promote knowledge sharing and learning from other rice producing countries for potential market link-age for Sindh’s rice.

32. Sub-component B.3: Dairy Value Chain (US$ 15.0 million): The project will increase productivity of milk com-modity through introducing improved animal health and husbandry practices, nutritional services, hygienic milk col-lection and testing of milk quality, milk quality monitoring and recording, and storage. Approximately 153 milk pro-ducers groups (MPGs) will be formed in 8 districts to im-prove their market access. The project will target small and medium milk-producing households, but since women are

involved in at least 80 percent of production management, the project will provide services exclusively targeting women (e.g., extension messages, female extension agents, etc.). The number of MPGs per district will vary according to the ani-mal population and market linkage. Essentially, each MPG would have a production capacity of 1,000 liters each day. Initial targeting will focus on identified “milk pockets” in the 8 districts. Through meetings in these targeted areas, produc-ers will be informed of the project and given the rules for forming an MPG. The mobilization of MPGs will be done by the private sector milk processors and the district level project implementation unit. In addition, arrangements for produc-ers to access markets will vary based on the existence of a competitive field of private sector actors. They could include, direct tie-ups with traders or processors that allow the MPG to negotiate with different actors on a competitive basis.

33. Sub-component B.4.: Demand Driven Innovation Fund

(US$ 4.0 million). The project would establish a demand driven innovation fund to respond to the needs for small in-puts that supplement the project objectives of improved pro-ductivity and market access. The identification, planning and selection criteria along with procedures for financial manage-ment arrangements to implement the Fund are included in the Operational Manual. The idea behind the fund is that there are equipment/technologies that are needed by select indi-viduals or groups, but not all; that there are innovative ideas that the project designers have not thought of; and that there are local enterprise opportunities that can provide services to farmers on a sustainable basis if they are helped in meeting the capital costs of setting up their business. The Fund will focus on co-financing technologies that are not suitable for all producers, but rather could be used by a group of producers or by an entrepreneur who can use the technology to provide services to the local producer population.

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Germany and Pakistan Renewable Energy CooperationA high profiled German delegation led by the Head of Division Afghanistan/Pakistan of the Federal Ministry for Economic Cooperation and Development (BMZ), Dr. Stefan Oswald, visited the secretariat of the Pakistan German Renewable Energy Forum (PGREF) to meet with the Government of the Punjab, Department of Energy representatives. Dr. Oswald inaugurated the first secretariat of PGREF at the premises of the Department of En-ergy. The PGREF is a cooperation initiative between the Governments of the Islamic Republic of Pakistan and the Federal Republic of Germany supported by Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ) on behalf of the German Federal Ministry for Economic Cooperation & Development (BMZ) to create a

network between their respective industries, public sectors and innovation networks in the Renewable Energy (RE) and Energy Efficiency (EE) field. Dr. Asad Rehman Gilani, Secretary Ener-gy, Government of the Punjab in his initial statements welcomed the delegates and gave an introduction to the PGREF along with upcoming goals and activities. In addition, topics such as ener-gy efficiency and renewable energy in Pakistan were discussed. The German Government has been supporting the energy sector in Pakistan through GIZ’s Renewable Energy and Energy Effi-ciency project (REEE) since 2005. With the aim to reducing the power shortage in Pakistan and moving towards an optimal en-ergy mix by incorporating more renewable energy sources, the PGREF intends to promote cooperation and knowledge transfer in the fields of renewable energy and energy efficiency inPakistan.

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German Pakistan Chamber of Commerce & Industry Inaugurated in Karachi, Pakistan

Marriott Hotel Karachi - May 17, 2016

A high-ranking delegation from Germany inaugurated the newly created German Pakistan Chamber of Com-merce and Industry (GPCCI) at the Marriott Hotel, Karachi tonight. German Ambassador Ina Lepel, Dr. Stephan Oswald, Division Head of the German Ministry for Economic Cooperation and Development (BMZ), Rainer Schmiedchen, Consul General of the Federal Republic of Germany in Karachi and prominent business leaders were present. The guests enjoyed the Sindhi music played on the traditional instruments aloghoza, sitar and chung as well as Pakistan’s first and only sand artist Ameer Mukhtar’s show.“This is an important step to further deepen our bilateral business ties,” ambassador Lepel stated. “The German-Pakistan Chamber of Commerce and Industry (GPCCI) will provide a new and permanent home for all German companies in Pakistan, Pakistani companies working with German products and Pakistani companies trading

Folk Musical PerformancePakistan - German Chamber of Commerce & Industry

Sand CanvasPakistan German Business forum

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with Germany.”Chairman GPCCI, Mr. Qazi Sajid Ali, thanked the German missions in Pakistan, the Commerce Ministry, as well as the bodies of GPTI and PGBF for extending their unabated and selfless support during the process of building this concept and bringing it to fruition.GPCCI is the first European bilateral chamber in Pakistan. It will support its members by offering an ever-increasing range of services aimed at facilitating bilateral trade and direct investment. The inaugural ceremony ended with the signing of a Memorandum of Understanding between the GPCCI and the Pakistan German Re-newable Energy Forum (PGREF) whereby GPCCI will provide a secretariat for PGREF in Karachi and will help promote German expertise in renewable energy as part of the PGREF program.

Mr. Nadeem Kazmi presented shield by Dr. Stephan Oswald Ms. Ines Chabbi presented shield by H.E. Ana Lepel and Mr. Qazi Sajid Ali

Mr. Sohail Yasin Suleman presented shield by Ms. Ines Chabbi Mr. Kalim Farooqui presented shield by Mr. Rainer Schmiedchen

Mr. Wahid Hussain Junejo presented shield by Mr. AdamMs Maira Junejo presented shield by H.E. Ana Lepel

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MoU Signing between GPCCI and Pakistan German Renewable Energy Forum (PGREF)

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Events

Pre- Budget Conference 2016Thursday, May 12, 2016

Venue: FPCCI Auditorium, Clifton Karachi

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Events

Birthday of H.E. King Willem Alexander of The NetherlandsBanquet Hosted by H.E. Jeannette Seppen, Ambassador to Pakistan;

Tarek Khan, Honorary Consul General of The Netherlands and Mrs. Adeela Tarek Khan

2009: Prof. Hassan greets Princess Maxima of The Netherlands at the Annual Metetings of Worlde Bank in Istanbul, Turkey

2015: H.E. Marcel Vink, Ambassador of The Netherlands visits Balochistan Economic Forum seminar in Karachi.

I&M Historical Photographs

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Senator (r) Javed Jabbar’s Book “Pathways” is launched at Karachi GymkhanaTuesday, April 26, 2016

Al Meezan Investments Ltd. Presentation at Karachi Gymkhana Awareness on Islamic Investments - May 16, 2016

Talha Anwar, EVP, Head of Sales & Marketing, Al Meezan; Muhammad Asad, SEVP & Chief Investment Officer, Al Meezan; Dr Muhammad Nafees Qureshi, Convener, KG Library Committee; Senior Member, KG; Prof S.B. Hassan, President & CEO, I&M