‘Fragile situation’ in a ‘resilient’ economy: British International Investment CEO

KARACHI: British International Investment (BII), which was called the CDC Group till 2022, made its first investment in Pakistan in 1987. The UK’s development finance institution (DFI) recently celebrated 35 years of its presence in the South Asian country.

But like most investors, currently twiddling their thumbs, it is aware of Pakistan’s current economic situation, which Chief Executive Officer (CEO) Nick O’Donohoe described as “very fragile” in an interaction with journalists at the British Deputy High Commission in Karachi recently.

“As an investor in the country, it’s a concern, and makes a difference when you think about what you might be able to do in the future,” said O’Donohoe, who spent nearly three decades of his career at JPMorgan and Goldman Sachs and got attracted to the concept of impact investing before landing in his latest role at BII in 2017.

“It strikes me that people know what needs to happen– it’s a question of executing on that,” said O’Donohoe, stressing what Pakistan is going through is like the situation in many countries where high inflation, monetary tightening and distressed debt levels are wreaking havoc.

Any investor will tell you they hate uncertainty. There needs to be some sort of clarity around how we go forward: British International Investment CEO Nick O’Donohoe

Pakistan is currently undergoing one of its most severe economic crisis in history, with foreign exchange reserves at less than one month of import cover being the standout worry for a nation also grappling with the after-effects of devastating floods last year.

Policymakers have been unable to revive a stalled bailout programme with the International Monetary Fund (IMF), which has seemingly also put other creditors on edge and fanned concerns over Pakistan’s ability to meet its financing needs.

O’Donohoe, however, added that the current situation does not chip away at BII’s investment mandate, which includes three specific areas of focus including climate finance, financial inclusion, and venture capital.

“Our role is that of a long-term patient investor. In the short-term, Pakistan is obviously in a fragile position. In the medium to long-term, it can show it can be very resilient.”

BII currently has a committed capital of around $350 million in Pakistan with a little over half concentrated in renewable energy projects. Roughly 45% is invested in financial inclusion, while less than 5% has been put in venture capital (VC). The overall capital is divided into 48% equity and 52% debt, according to the most recent breakdown shared by BII.

Among its notable investments are Daraz.pk (September 2015), Jhimpir Power (Private) Limited (August 2016), and KASHF Foundation (December 2020).

Its last investment was made February 2021 in Zhenfa Pakistan New Energy Company (Pvt) Ltd, according to information on the BII website.

“These three (renewable energy, financial inclusion, and VC) remain the areas of focus. We expect to continue and look for opportunities here.”

O’Donohoe said he was impressed by the emerging VC market in Pakistan. “It looks similar to the other places in Cairo, Lagos, Nairobi with a vibrant VC ecosystem.”

The BII chief said it would definitely help that the VC funds it assesses would have exposure in areas like climate and financial inclusion.

However, he was quick to recap the topic of economic certainty.

“Any investor will tell you they hate uncertainty. There needs to be some sort of clarity around how we go forward,” he said, adding that investments such as the ones made by BII take a long time to structure.

Habib Yousuf, regional director (South Asia) for BII Pakistan, also highlighted the manufacturing and services space as the ones that had opportunity.

On a question by a journalist on the role of western economic powers in setting up big-ticket infrastructure projects in Pakistan, British Deputy High Commissioner Sarah Mooney said Pakistan’s economy has changed significantly over the last few decades.

“Its current issues aside, it is becoming much more of a classic lower-, lower-middle income country. The needs of the economy are different. The judgement on these big-ticket items is very difficult.

“(But) one of the most beneficial ways to invest in an economy is to grow its private sector. I am not certain if this is a consequence of these major investments,” she said.

She stressed that UK has had its own economic issues over the last couple of years. “We are moving beyond ‘classic aid’ and into a partnership model,” she said, bringing to the fore a widely popular current theme that Pakistan would need to pitch itself as much more than a country reeling from economic disaster to attract dollar inflows.