Strong growth in Pakistan construction investment - report

Strong growth in Pakistan construction investment - report
Published: 28 October 2010



The Pakistan government said that Foreign Direct Investments (FDI) in the construction sector have been impressive over the last five years (2006-10).  In FY10 alone, foreign investment PKR8bn (US$94m) was invested in Pakistan against PKR7bn in FY09, a central bank annual report released this week noted.



According to the State Bank of Pakistan’s (SBP) annual report for the last fiscal year (2009-10) which makes a fair assessments of the cement sector (investment, production, capacity utilisation, sales and exports) - the rapid expansion in construction activities triggered growth in a number of allied industries including cement, metal, paints and varnishes, and home appliances.



But the report pointed out that FDI in cement sector during July- June 2009-2010 was nil compared to an investment of US$32.6m in last fiscal year. SBP attributed the fall in investment to the decline in profitability, increased financial losses at some major companies, a lack of mergers and acquisitions, poor law and order situation, power shortages etc. 



However, on a positive note central bank stated: “Construction sector in Pakistan exhibited a strong 15.3 per cent growth in FY10 compared with a contraction of 11.2 per cent in FY09.  This remarkable performance was driven mainly by a decline in building material prices, which, in turn, was caused by reduction of duty on cement sales, and decline in global prices of coal, iron, and wood. Anecdotal evidence suggests that most of the construction growth was led by the private sector”.   



In terms of cement exports, volumes continued to grow for the fifth consecutive year, although witnessing a slight decrease this year on the back of falling volumes to the UAE. Overall, high external demand, the entry into new markets and an increase in domestic production provided impetus to exporters. For its part, the government also allowed an inland freight subsidy to foster cement exports.

Exports to traditional markets such as Afghanistan Bahrain, Egypt and Iraq increased. Along with the rising share of these established Pakistan export markets, new markets like South Africa, Somalia, Sri Lanka and Sudan boded well for exporters. 



The fall in export volumes to the UAE is attributed to low demand in the country or may be due to the fact that Saudi Arabian authorities lifted a ban on cement exports. Going forward, due to its geographical location Saudi Arabia is well placed to capture Pakistan’s share in Middle Eastern countries going forward, the report noted. 
 


During FY10, Pakistan’s capacity utilisation stood at 70.50 per cent compared to 65.50 per cent in corresponding period last year.

Domestic production increased 10 per cent during Jul-June FY10 compared with a growth of 6.1 per cent in FY09.  Domestic cement demand registered a sharp increase as price of cement and other complementary building materials declined during the year.  As a result, cement sales increased 9.3 per cent during FY10 compared to a weak increase of 3.3 per cent in FY09.