Investment in Pakistan December 2016

Agenda

S.

No

Topics

1. Introduction to Pakistan’s Economic Outlook Stability to Prosperity

2. Game-Changing Economic Developments China Pakistan Economic Corridor, Gawadar Port

3. Energy Outlook Moving from scarcity to surplus

4. Investments underway

5. Pakistan’s Business Confidence Index OICCI Outlook

6. Introduction to Linde

2

Short Profile

Area 796,100 km2

Population 192 m growing 2% yoy.

GDP p. capita USD 1,152

Median age 22.5 years

Life Expectancy 65 Years

Literacy rate 60%

Fx BU17 EUR 1 = PKR 119.6

Government Federal government established by

constitution of Pakistan

Agriculture Sector

Industrial Sector

GDP composition

Pakistan

20%

59%

21%

Services Sector 0.23

2

3.6

2.72.5 2.5

-0.19

1.4

2.5

2.1

4.9

5.7

3.9

5

3.2

3.9

4.4

5.1

4.54.3

5.7

-2

0

2

4

6

2014-15 2009-10 2010-11 2011-12 2012-13 2013-14

Services

Manufacturing

Agriculture Sectoral Growth of GDP (in %)

2015-16

Pakistan Economic Outlook – From Stability to Prosperity Leading economic institutions acknowledge recovery and future growth.

21/12/2016 Fußzeile

4

Just three years ago, the country was on the brink of an

economic crisis. (…) thanks to the authorities’

homegrown program of reforms that the IMF

supported, the economy is on a much stronger footing.

Public finances have improved considerably, external

reserve buffers have been rebuilt, and growth has been

gradually strengthening. These are very encouraging

developments.

Christine Lagarde (Managing Director IMF)

Improved Country Risk Ratings in 2016:

• B Stable (Fitch), B Stable (S&P) vs. B negative in 2015, B3 Stable (Moody’s) vs. Caa1 positive in 2015.

• Siemens has upgraded Country Risk rating from 8+ to 7- (equivalent to S&P’s “B”).

Improved security situation, reducing energy deficit

• Military/Government’s tough stance on militants/terrorism/crime has resulted in significant improvement.

Lowest interest Rates in 4 Decades

• Bank Interest Rates: 5.75% (Lowest in 4 decades) leading to higher consumer demand & private sector investment and

improved project feasibility.

Increased Foreign Investment Inflows

• Increased investment is a testament to the improved social/economic/security/power situation.

Pakistan Economic Outlook – From Stability to Prosperity Leading economic institutions acknowledge recovery and future growth.

5

• GDP growth to accelerate to 5.1% by FY18. Investment

expected to increase from 13.4% in FY15 to 14.1% in FY

18 led primarily by CPEC.

• GoP attracted significant investments into electricity

generation, mostly private, complemented by investments

in transmission and distribution, altogether close to US$ 60

billion.

World Bank

• Growth accelerated in Pakistan due to macroeconomic

and structural reform program, sharply lower oil prices,

and improved security. Inflation and the current account

deficit were lower than expected, while foreign

exchange reserves strengthened and the budget deficit

shrank. ADB raises the projection for growth in

FY2017.

ASIAN DEVELOPMENT BANK

• “if all the planned projects are implemented, the value

of those projects would exceed all foreign direct

investment in Pakistan since 1970 and would be

equivalent to 17% of Pakistan's 2015 gross domestic

product. It is further estimated the CPEC project will

create some 700,000 direct jobs during the period

2015–2030 and add up to 2.5 percentage points to the

country's growth rate.”

DELOITTE REPORT ON CPEC

In 2016, BMI Research report named Pakistan as one of the ten

emerging economies with a particular focus on of its manufacturing hub.

• The government has stabilized the economy over

three tough years

World Bank Group (WBG) President Jim Yong Kim.

• Upgraded PK from Frontier Markets status to Emerging

Market status. Likely to generate global portfolio investment

inflows of around $475 million by mid-2017.

MSCI is a leading provider of international investment decision

support tools.

’11 ‘12 ‘13 ‘14 ‘15 ‘16 ‘17 ‘18

= Pakistan

3,6 3,8 3,7 4,0 4,0 4,7

5,7 6,2 7,0 7,0

4,5

2,6

0,7

4,5 4,8

6,8 7,7 7,7 7,7 7,7

13,7 11,0

7,4 8,6

4,5 3,5 6,0 6,0 6,0 6,0

GDP growth (in %)

IP growth (in %)

Inflation (in %)

6

‘19 ‘20

Source:. Pakistan Economic Survey 2015-2016 & Budget Brief 2016,

Political environment

Current civilian administration will remain in

office until 2018.

Focus on transit & energy infrastructure

development (CPEC, CASA 1000, TAPI, IP)

GDP

Real GDP growth 4.7% (FY 2016) highest in 8

years.

Exceptional growth in industrial & services

sectors offsets agricultural decline.

Growth underpinned by economic reform,

improved energy & gas supply, improved

security situation and political stability.

FDI recorded a growth of 5.8% (Jul 15 to Apr

16)

IP

Industrial sector growth at 6.8% during FY16

against the target of 6.4%. (An 8 year high).

LSM grew by 4.6% compared to 3.3% LY

and is expected to grow by 5.9%.

High growth sectors include Automobiles,

Chemicals, Fertilizers, Pharmaceuticals,

Steel, Food & Beverages & Petroleum

products

Inflation

Inflation to remain benign and is expected to

remain well below its FY16 annual average

target of 6%. Current SBP Policy rate is at

5.75%

Pakistan Economic Development - GDP – IP – CPI

Game Changing Economic Developments

China Pakistan Economic Corridor (CPEC)

→ USD 51.5 bn investment in railways, highways, steel, automotive, electricity, engineering,

high technology, and environmental projects. Expected to contribute to the country’s GDP

by 3 per cent.

Gwadar Port

→ Developed under CPEC at a cost of $1.62 billion to link N. Pakistan and W. China to the

deep water seaport. Also to be the site of a floating liquefied natural gas facility that will be

built as part of the larger $2.5 billion Gwadar-Nawabshah segment of the Iran–Pakistan

gas pipeline project. Inaugurated in Nov 2016.

Focus on Energy

→ Turkmenistan Afghanistan Pakistan India Pipeline (TAPI)

Natural gas pipeline developed by the Asian Development Bank to transport NG

from Turkmenistan through Afghanistan, Pakistan and then to India.

Construction started on 13 December 2015. Expected to be operational by 2019.

→ Central Asian South Asian Project (CASA 1000)

$1.16 billion project under construction to allow export of surplus hydroelectricity from

Tajikistan and Kyrgyzstan to Pakistan and Afghanistan.

Groundbreaking on May 12, 2016 and expected completion by end 2018.

→ Iran Pakistan Pipeline (IP)

Under-construction 2,775-kilometre pipeline to deliver natural gas from Iran to Pakistan.

7

Thar Coal-based power plants

to reduce cost of energy.

Focus on renewable energy

sources – Hydel Power, Wind

Corridors, Largest Solar Park in

the World.

Railways, Roads and

Connectivity to improve

Regional trade.

Secondary Industry – Steel,

Cement, Glass, etc growth and

upgradation to serve increased

demand and standards.

8

Industry Outlook

Metallurgy & Glass Steel demand expected to grow 30% to 6Mn MT on back of infrastructure projects

in next 2-3 years.

Annual Steel consumption around 4 Mn MT.

Chemicals Previously constrained on account of Energy availability. LNG import has allowed

full production capacity utilization.

Food & Beverage Population growth + higher PCI + demand for convenience/fast food + busy

lifestyles

Growth in snacks, frozen food industry

Manufacturing Infrastructure project driven growth. Capacity expansion by Steel producers .

Increased durables demand on back of consumer spending/increased per capita

income.

Automotive industry growth through investment and increased consumer demand.

Capacity Expansion/Green fields by cement manufacturers.

Oil & Gas Isomerization projects - Import substitution.

Shift to Euro 2 compliant HSD. DHDS projects

Khalifa Coastal Refinery project.

Increased exploration activity.

Healthcare Population growth and higher HC spending by GoP and donors

Pakistan Sectoral Outlook

9 Source:. *Pakistan Economic Survey 2013-2014, 2014-2015 2015-2016 & Budget Brief 2016.

Energy Outlook Moving from Scarcity to Surplus

The 3 point agenda in this regard is:

- Increase generation capacity.

- Reduce dependence on FO. Reduce cost.

- Improve transparency. Reduce losses.

Source: Ministry of Power 10

FO

12%

LNG

11%

RE

9%

Nuclear

7%

Hydel

37%

Local Gas

8%

Local Coal

8%

Imported

Coal

8%

2022 - 50,194 MWs

FO

14%

LNG

13%

RE

11%

Nucle

ar

8%

Hydel

44%

Local

Gas

10%

2016 - 19,917 MWs

Generation Capacity

Pakistan Security Situation Securing situation improved on back of successful counter-terrorism initiatives

• Security incidents declining vs previous year due to Government/military-led counter operations against

terrorists across country.

• Crimes such as kidnapping, targeted killing, extortion significantly reduced especially in Major cities

through multi pronged government operation.

• Foreigners in general and multi-national interests in Pakistan face no significant direct security threat .

• Business can continue to operate with routine security controls and mitigation in place.

11

Increased Foreign Direct Investments

Young population, high growth rates, low interest rates driving increased investments.

.

12

$46bn investment until 2030. CPEC initiative

includes transport infrastructure projects ($11bn,

mostly public investment) and energy projects ($33bn,

mostly private).

Renault and Ghandara Nissan to invest USD 100

million in car manufacturing unit. Expected to

commence production in 2018.

“(Pakistan is) one of the region’s emerging

economies. With annual population growth of more

than 2 percent, Pakistan has one of the highest

growth rates in Asia. This results in an increasing

number of households, which have a need for home

appliances. We are keen to be part of Pakistan’s rising

growth story. The strongly developing middle class

rising consumer demand and the growth of

manufacturing and automotive sectors are very

positive indicators.”

Gokhan Sigin, Chief Executive Office, Bosch

Arcelik, a Turkish company has acquired Dawlance, a

privately owned company of white goods, for a sum of $258

million.

Dutch Friesland Campi recently agreed to acquire 51%

shares of Engro Food for $448 million.

Shanghai Electric Power finalized KE acquisition at

USD1.8 bn.

Suzuki, considering a further investment of $460

million for a new factory in the country.

Coca – Cola invests USD 380 million in 3 green-field

bottling plants. (1 plant commissioned and ground-breaking

of 2nd plant)

Pepsi sets up new Frito – Lays plant in Multan – expected

commissioning early 2018. (Nitrogen Opportunity)

“due to its growing population, the country cannot be

ignored by MNCs. Pakistan is expected to register a steady

GDP growth of 4.5% over the next 2 years according to the

IMF and lower inflation rate positively affects domestic

purchasing power.”

Ina Lepel, German Ambassador to Pakistan.

Audi has expressed interest to set up an assembly

plant in Pakistan.” Plans to invest nearly over $30

million in order to setup the new assembly plant.

Key Advantages of Pakistan

Location: Connected to South and Central Asia. Borders China and India. Trade corridor

between East & West. CPEC reduces shipping time from 45 days to 10 days.

Population: 6th most populous country in the world. Young Population: Median Age is 22.5

years, driving consumer growth. Growing middle class, rapid urbanization and an increasing

number of women in the workforce has led to an increase in disposable incomes. 10th largest

labour force.

Natural Resources: Bronze, Coal, NG, Crude reserves, Salt, Iron.

Attractive tax policies: 100% foreign ownership of companies and full repatriation of profits

to home country.

Home to all major multinational organisations. Availability of all raw materials.

Local investment partners support FDI – e.g. Kia & Lucky, RENAULT & Dewan,

Mondelez and Continental Biscuits etc

13

21/12/2016 Fußzeile 14

Pakistan Business Confidence Business Confidence Index – OICCI Members vs. Overall

• The confidence level of OICCI members participating in the BCI showed a

significant growth from 22% in November 2015 to 36% in wave 12.

-27% -26% -24%

-25%

-34%

2% 1%

1%

18% 22%

36%

-3%

5%

10%

1%

-3%

32% 31%

16%

48% 41%

55%

June' 10 Nov' 10 Feb' 11 Nov' 11 Aug'12 July' 13 Feb' 14 Sep'14 Apr'15 Nov'15 Apr'16

Overall OICCI Members

Introduction to the Linde Group €18 bn company present in 100+ countries.

15

• History spanning more than 130 years

• Focus on technology and value creation.

• ~65,000 employees working in more than 100 countries worldwide.

• The company’s founder, Professor Doctor Carl von Linde, invented

refrigeration technology and pioneered air separation.

• A global market leader in gases and engineering solutions.

Countries home to operational companies in which Linde holds a direct or indirect shareholding and which belong to The Linde Group.

Americas EMEA Asia / Pacific

Reportable Segments

16

Assets & Facilities Three ASU plants with a capacity of producing about 263 TPD of Air Gases.

Two CO2 plants with capacity to produce 83 TPD of product. (Only 23 TPD operational)

More than 260 Customer Tanks (VIEs) and 34 Road Tankers (VITTs)

Two Hydrogen plants with capacity of 426 M3/hour

CRYOSS GAN plant at PARCO Refinery

Linde Pakistan Highly diversified customer base with contracted business

16

Markets

Market Leader in bulk ASU gases and Tier-1 welding consumables

Largest provider of Medical Gases in the Healthcare sector in all major cities

Business Profile 4 Business areas – Tonnage, Bulk, PGP and Healthcare

Portfolio of Industrial and Special gases, Health care Products and Welding

products

Serves the needs of about 1400 customers across a myriad of sectors e.g.

Manufacturing, Fabrication, Chemicals, Petrochemicals, F&B etc

Pakistan’s largest Air Separation Unit installed at Sunder Industrial Estate

Linde Pakistan A history of on-going investment!

18

2015 – YTD 2016

Investment in upgrading

existing plants.

Investment in ensuring

global healthcare medical

gas standards at all

hospitals.

Conclusion

We are “bullish” on the opportunities presented by Pakistan.

On-going growth and investment in the country by many local and foreign companies.

Security, Energy and Instability related issues are being dealt with and Pakistan is on

a growth trajectory.

Projects afford multiple opportunity for FDI in downstream / upstream.

19

Thank you