In a country of more than 180 million, there will always be huge potential for a booming economy. Indeed, in 2011 Pakistan was predicted to become a new global economic powerhouse for the 21st century, but social crises and nearby conflict have stifled growth.
As part of a series of in-depth looks at IFC's work in the Middle East and North Africa, take some time to see how we are supporting development in Pakistan by championing entrepreneurs, supporting micro finance institutions, and helping develop infrastructure.
IFC’s strategy in Pakistan is a direct response to the challenges facing the private sector in the country, which limit the growth of micro, small and medium enterprises (MSMEs). IFC has been focusing on mobilizing investments in energy (including renewable power) and infrastructure, expanding access to finance to MSMEs, and helping create jobs.
In a difficult security and economic environment, IFC has played a strong counter-cyclical role in Pakistan in the last five years, reflected in increased commitments and largely driven by short term trade finance facilities and investments in infrastructure, especially power.
To date IFC has made cumulative investments worth $4.5 billion in Pakistan. In fiscal year 2013 we committed $514 million in the country— including mobilization from other investors and lenders. Our current committed portfolio stands at $843 million and represents IFC’s second largest country portfolio in MENA.
IFC’s advisory services program in Pakistan is also one of the largest in the region, with over 40 projects and a funding commitment of over $20 million. Advisory services are particularly active in enhancing access to finance for MSMEs, the capacity building of small businesses, improving corporate governance, creating a better business environment, and promoting clean energy.
For the next few years, IFC is expected to invest about $500 million per year in the country, 50 percent of which will be in trade finance with the remaining focused on infrastructure, especially renewable power, financial markets, agribusiness, manufacturing, and services. We will also continue to support local banks through equity stakes, and risk sharing facilities with a focus on MSMEs. IFC is also looking to actively support the government’s renewed privatization agenda.
IFC has played a significant role in Pakistan’s power sector by contributing to the generation of over 3,500 MW through generation and distribution projects—which has helped approximately 12 million people—and promoting renewable and clean energy.
Recognizing the energy crisis facing the country, IFC has ramped up its investments in the energy sector, especially in renewable power. Since fiscal year 2010, IFC has committed to five power projects worth $230 million, including the country’s first private hydro power project, Laraib, and the first internationally financed wind power project, Zorlu Energy. In addition we have financed the first privatized power utility in the country, KESC. Last year we helped mobilize $168 million, of which $148 million was for Star Hydro Power to support the construction of a private hydro-power project. We also provided a $10 million long-term loan for the first LEED certified green building in the country.
Infrastructure, with a focus on renewable energy, will remain a key focus of IFC’s investment strategy and public private partnership (PPP) transactions are expected to play a big role in this sector, especially in the privatization of state owned enterprises. In addition, we are also helping facilitate the construction of multigrain storage facilities in the provinces of Punjab and Sindh.
Due to the scale of investment and reforms required to address Pakistan’s energy crisis, IFC and the World Bank are pursuing a strategy of coordinated collaboration, and are developing a transformational and high impact program to support the country over the next five years. This collaboration will be articulated in the joint Country Partnership Framework (CPF), expected to be presented by the end of fiscal year 2013. In addition to financing large public sector hydro projects, the World Bank is taking the lead on policy reforms in the power sector; IFC aims to mobilize large private investments in new low-cost power generation and provide support to privatization through its PPP advisory.
Our trade finance program is one of the largest in the region, with cumulative commitments of about $2 billion. The program, which is largely supporting MSMEs, is helping Pakistani companies access new markets. In 2013, we provided $343 million to 12 local banks, and this year we are working on an import finance facility to support the government’s oil imports.
On the advisory side, IFC is working to improve Pakistan's business environment in a number of different ways. Most notably, we facilitated the establishment of Pakistan's first mediation center to help resolve commercial disputes quickly and amicably, lessening the burden on the country’s courts. Under our corporate governance program we have trained 2,135 board directors and senior managers, while the business edge initiative has provided management skills training to 1,069 MSMEs and 6,203 individuals, nearly a quarter of whom were women.
We have worked to integrate the microfinance sector in the country’s credit reporting scheme, part of a wider effort to extend access to finance to entrepreneurs. Furthermore, we have been providing MSME banking advisory so that client banks can improve their outreach to the MSME sector, including low-income farmers, providing them with services tailored to their needs.
Our access to finance investments and advisory services programs are contributing to job creation in the country, as demonstrated in a recent study undertaken with one of our largest client banks—Habib Bank Limited (HBL). The results, based on a sample of over 100 MSMEs who received financing from HBL in 2009, reveal that these businesses were able to create new jobs with a compound growth rate of 9.7 percent, despite the difficult macro-economic conditions prevailing in the country. The overall findings are encouraging, and help endorse IFC's strategy of focusing on increasing access to finance in Pakistan. It also reaffirms that small businesses are vital for employment generation, private sector development, and inclusion.