Saudi Investment Highlights Opportunities
BMI View: In line with stronger Pakistani and Saudi relations, coupled with the latter's eastward economic push, one of Saudi's largest construction companies, Al-Qarnain Group , has pledged a US$1bn five year infrastructure investment in Pakistan. The deal poses great potential for a struggling Pakistani construction sector, and likely a sizeable profit for Al-Qarnain. However, we highlight that the agreement's success rate is seemingly correlated to broader political ties between the two countries.
Saudi Arabia's Al-Qarnain Group recently announced plans to invest up to US$1bn in Pakistan over the next five years, according to the company's CEO Eyad Al-Baaj. The investment would be targeted towards Pakistan's deteriorating construction and infrastructure fleet, with an initial investment of US$400mn in the first phase, increasing it to US$1bn within five years. The 'package' also includes a joint venture with Pakistani cement company Dandore, which will reportedly significantly boost production capacity from 350 metric tonnes per day to 7,500 metric tonnes.
Furthermore, to address Pakistan's significant energy shortfall the firm is also looking to first construct an independent power plant with a production capacity of 150-200MW, as well as production of solar panels, installation and back up services. Pakistan currently largely relies on highly volatile hydropower, costly imports of oil and domestic production of gas for electricity generation. Yet poor infrastructure and insufficient supply has led to persistent power cuts and increasing demand shortages.
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The deal also fits the Saudi mould of a continued eastward economic push. Indeed, since 2006 Saudi has been expanding the ties with both China and India, and by the end of 2010, the Indo-Saudi trade had grown to US$25bn. But moreover, we highlight that the recent strengthening in ties and progress in bilateral energy cooperation comes on the back of a renewed focus on security and intelligence issues between the two countries. With a non-aligned Egypt under President Morsi, continued pressure on US Middle East policy, and an increasingly hostile Iran, Pakistan could potentially offer a minimum deterrent should a tight alliance develop. In July this year Saudi's King Abdullah met with Pakistani Prime Minister Raja Pervaiz Ashraf in Jeddah, and later in September the Saudi ambassador to Pakistan underlined the strong relations between the two countries. Additionally, during a recent visit of the Saudi Foreign Minister, the two countries reportedly agreed to develop a roadmap of collaboration for the above mentioned infrastructure build-up.
Al-Qarnain, one of Saudi's largest construction companies, could stand to make a sizeable profit in targeted areas of interest, including hospitality, energy, building and construction. Likewise, Pakistan's construction industry would benefit greatly and see a sharp increase in growth (though much due to base effects). However, we highlight that the deal is likely much correlated with the outcome of continued political cooperation concerning the rising instability encompassing the wider region.