Pakistan’s $185B land grab
The race for one of the richest blue ocean digital real-estate plays you’ve likely never heard of is happening right now
Pakistani alpha — A celebration of Idiosyncrasy
Since 2011, Pakistan’s has been a star economic performer. It has provided one of the highest dollar adjusted returns in the world. Participants quickly come to understand that Pakistan befuddles conventional thought. Alpha in Pakistan lies deep within web upon web of overwhelming economic idiosyncrasy; these span right across its unpredictable regulatory framework to its loosely and informally dis/organised labor markets, its unusual supply, manufacturing and distribution chains.
Pakistan’s traditional rich and powerful have levered these hard to understand value-chains. Unchallenged, as the go to engines for economic activity, they have been raking oversized dividends for generations. The opportunity to partake in such spoils, with IRR’s, and ROI’s routinely above 20–30% is precisely what’s historically been interesting to investors about Pakistan.
Hello Pakistan and good-bye conventional wisdom
The investment thesis in Pakistan and its ensuing market performance stand testament to rebuke conventional valuation models. Pakistan’s negative externalities alone, fundamental to the ‘normal’ modelling assumptions elsewhere, defy predicted capital implosions. Astonishing returns are realised in the face of existential adversity. Value creation is neither one-off nor the result of monetary bubbles prevalent in so many other markets. Thus far, investment participation for those within, and especially investors outside of Pakistan, has been exchange traded companies, which also happen to be the very largest companies. These targets, with excellent returns notwithstanding, miss huge swaths of domestic economic opportunity due to a lack of market access. That’s about to change.
Data, Households and Start-ups
The traditional beneficiaries in Pakistan’s economy are at risk of a truly disruptive event. In particular, the availability of high-speed broadband 3/4G made available on mobile devises is growing explosively. Over the next 3 years data penetration will achieve critical mass to warrant changes in consumer behaviour. Within 5 years this disruption will most impact household consumption in a young demographic where 5o% today are under 35. The impact will be seismic. In Pakistan household consumption governs 80% of PPP adjusted GDP. By comparison, the much-touted US consumer, accounts for 68% of PPP adjusted GDP and the Indian household 58% of the same.) A plethora of burgeoning Pakistani start-ups is beginning to form a cohesive ecosystem in Pakistan’s urban centres. It is no surprise that Google, Facebook and Samsung are all taking key interest in this .
Yes CPEC, but the economic engine is really within
One Belt, and in particular, China’s much lauded $46B investment in Pakistan has captured the imaginations of reporters and portfolio managers the world over. In context, by the time China’s infrastructure is realised, the penetration of a few of the fledging start-ups that exist today, will already be addressing a much larger investable market — the Pakistani consumer.
The way in which goods and services will be produced and delivered in Pakistan is really a $185B mega-economic event.
20% of consumer economic activity occurs over the Internet in the West. Comparable adoption rates in Pakistan are going to be much faster than Western economies, just like Pakistan’s cell phone penetration. One underestimates the burden of inconvenience as an impediment to consumption in Pakistan. The case for digital consumption of goods and services becoming ubiquitous on 4-inch handheld smart screens is strong.
As a result, Pakistani digital and mobile real-estate land grab is firmly on. The winners will be business that leverage technology to dismantle and re-organise the “idiosyncratic webs’ that traverse Pakistan’s factors of production and/or distribution. Stealing alpha from Pakistan’s incumbent elite is going to happen, but not without a fight. Therefore, investments which focus on models that radically re-define labor and production dynamics for Pakistani SME’s, and not in extinguishable valley styled IP focused start ups is the long term path to take.
All figures rounded to the nearest units