Over the next few decades there are major global trends which provide great opportunities for Pakistan. Two significant ones are: (i) infrastructure and (ii) environment. Both will spawn host of industries and require massive investment.
It is estimated that Asia alone will need US $1.0 trillion per year in infrastructure finance if it is to move to the next level of economic development. Further, to cope with the challenges of climate change, several trillions of dollars will be needed on environment friendly and sustainable development projects. In both the above instances, overarching policy initiatives and incentives, as well as significant public-private partnerships will play a crucial role, from designing the sustainable developmental roadmap, generating political consensus nationally and internationally, to providing incentives for investment and engaging with national, supra-national and private investors in order to source the funding required to implement projects related to infrastructure and sustainable development.
It is in the above context that the capital market will be required to play a crucial role. The integration of Lahore and Islamabad stock exchanges into Karachi stock exchange and renaming the integrated entity as Pakistan Stock Exchange Limited (PSX) is a fundamental step in preparing Pakistan's Capital Market for its due role in future economic development of the nation.
The integrated PSX will facilitate growth and development of the capital market in several ways. Domestic investors will now have a single national platform, with a deep liquidity pool available, served by over 400 securities brokers. Over the last ten years KSE-100 Index has demonstrated an average return of over 20% per annum. Savers from all over the country, looking for viable long term yet liquid investment venues, can benefit from such attractive returns if they are guided properly regarding the risk-return characteristics of stock market investments. For the corporate sector, a single integrated securities market will allow it to access a large pool of savings for funding future growth with just one listing cost. In last ten years, listed companies have raised over Rupees 1.16 trillion from the capital market through debt and equity issues. If the above amount, over Rs 400billion was raised by the Government of Pakistan via privatisation through domestic and international capital markets. Furthermore the integrated Exchange will allow the Apex Regulator (SECP) to monitor overall market participants' compliance while focusing on transparency, governance and efficiency of the securities market.
This is just the start of the process of preparing the capital market to play its due role in helping the country attract funding for sustainable development. There is an enormous burden of responsibility for key constituencies if this role is to be actualised fully.
It will be the responsibility of PSX, its brokers, market participants and listed companies to ensure that there is transparency, good governance and compliance with rules and regulations of the capital market. Management of PSX will need to continuously upgrade the technological infrastructure, systems, and operational processes to provide efficient and effective service to investors and listed companies. In addition, both the brokers and the Exchange must make an all out effort to substantially enhance the meager investor base in the country. The responsibility of the Regulator will be to ensure fair play, transparency and strong compliance of all aspects of capital market operations while performing its developmental role equally strongly. There has to be product innovation (eg derivatives, debt market instruments, new asset classes) as well as induction of the next tier of market players such as investment advisors & market-makers who can guide investors and develop the depth and breadth of the capital market.
Finally, these is a great responsibility on the Government at policy level to encourage growth of the capital market in a manner that enables it to play a major role in accelerated, investment driven economic growth of Pakistan. This will require the Government to take a lead in launching infrastructure bonds/sukuks through the capital market, mandating listing of large infrastructure related companies which are part of the China-Pakistan Economic Corridor and multilateral institutions' initiatives, to allow transparency and domestic investor participation in infrastructure development, forming mortgage finance / guarantee company that can raise long term funding for housing development from the capital market, enabling provincial and municipal governments to issue revenue bonds for development purposes backed by tax revenues, and encouraging public sector enterprises to seek funding from the capital market rather than the banking system for financing requirements of over one year, as Malaysia has successfully done. Besides these, the Government can provide tax incentives for equity listing including that for the SME sector, as the PSX will soon be launching a dedicated Board for SME's. These are just a few pointers of how each constituency can play its role in preparing PSX for encashing upcoming opportunities for Pakistan's economic growth created by the global mega trends of today and tomorrow.
Comments
Comments are closed.