I have been spending an increasing amount of time in “frontier” Asian countries, exploring such fascinating locales as Mongolia and Myanmar. But only recently did I make my first trip to Pakistan.
It is a country that has long piqued my interest and was a last, unexplored frontier for me. Through the years, we have debated the issues of safety and law and order there. For many in the West, the mention of Pakistan instills some fears, and many governments continue to warn their citizens to defer all non-essential travel to the country.
Karachi, Pakistan’s largest city, might be considered a place in which travelers should be cautious. But, upon my arrival, I was immediately struck by a certain ease of life. There seemed to be little tension and I felt fairly comfortable. This clash between a general perception of Pakistan and what I encountered on the ground there mirrors the differences between the country’s official economy and its vast undocumented market.
Pakistan’s official numbers—which show a recent average economic growth rate of 2.9% per annum—are extremely misleading. Under the surface, Pakistan has a vast informal economy, which may actually be equivalent to that of the formal economy, according to local experts. Very few Pakistanis file tax returns or use financial products from formal financial institutions. In my discussions, and anecdotally from what I witnessed, Pakistani consumption is robust, though transactions still tend to favor cash over credit and consumption over investment.
There appears to be much more opportunity in Pakistan than one might expect, and it’s worth noting that its new government takes a solid pro-business stance. From a global investment perspective, I would even argue that Pakistan should not be lumped in the “frontier market” category. For starters, Karachi’s Jinnah International Airport appears to process international travelers efficiently in its modern customs facility, and many of Pakistan’s consumer companies generally show strong topline growth. My colleague and I were impressed by the level of corporate integrity and the skillset of the management teams with whom we met.
In fact, the bulk of consumer companies in Pakistan belong to multinational firms, which typically demand the highest compliance standards. One multinational consumer company told us it considered Pakistan to be among the world’s top 10 emerging countries, alongside such nations as Indonesia and Nigeria. This speaks volumes when you consider that besides having a very large young population (more than half of its roughly 180 million citizens are below age 25), Pakistan’s middle class is rising. About 36.5% of its population rose to middle class between 1990 and 2008, according to the Asian Development Bank. This marked the fourth largest increase of a middle class society in Asia after China, Vietnam and Indonesia. These factors illustrate the importance of Pakistani consumers in the eyes of multinational consumer brands.
Personally, I am looking forward to returning to Pakistan within the year and spending time in the country’s other major cities, such as Lahore and Islamabad, to gain a greater perspective.