20120430 Pakistan Inclusive Business Financing Facility Feasibility Study FINAL

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Market Scoping Study for Pakistan, De Jongh, 2012.

Text of 20120430 Pakistan Inclusive Business Financing Facility Feasibility Study FINAL

  • Developing the Business Case forInvesting in Inclusive Business

    in Pakistan

    A Market Scoping Study

    December 2012

    Asian Development Bank

  • Developing the Business Case for Investing in Inclusive Business

    in Pakistan:A Market Scoping Study

    Asian Development Bank

    in partnership with SNV - Netherlands Development Organization

  • 2012 Asian Development Bank and SNVWritten and/or edited by W. Robert de Jongh (team leader), Daniel Oporto, and Manuel Fer-nandini with support from Semiotics Pakistan and ADB Consultant, Noah Beckwith.

    All rights reserved. Published 2012. Printed in the Philippines.

    ISBN XXX-XX-XXXX-XXX-XPublication Stock No. RPTXXXXXX

    Cataloging-In-Publication Data

    Asian Development Bank and SNV. Developing the Business Case for Investing in Inclusive Business in Pakistan: A Market Scoping StudyMandaluyong City, Philippines: Asian Development Bank, 2012.

    1. Inclusive Business. 2. Pakistan. I. Asian Development Bank. II. SNV

    The views expressed in this publication are those of the authors and do not necessarily re-ect the views and policies of the Asian Development Bank (ADB), its Board of Governors, or the governments they represent or of SNV. ADB and SNV do not guarantee the accuracy of the data included in this publication and accept no responsibility for any consequence of their use.

    By making any designation of our reference to a particular territory or geographic area, or by using the term country in this document, ADB and SNV do not intend to make any judge-ments as to the legal or other status of any territory or area.

    ADB and SNV encourage printing or copying exclusively for personal and noncommercial use with proper acknowledgement of ADB, SNV and the authors. Users are restricted from resell-ing, redistributing, or creating derivative works for commercial purposes without the express, written consent of ADB and SNV.

    Note: In this publication, $ refers to US dollars.

    Asian Development Bank SNV6 ADB Avenue, Mandaluyong City Dr. Kuyperstraat 51550 Metro Manila, Philippines 2514 BA, The Hague, The NetherlandsTel + 63 2 632 4444 Tel +31 70 344 0244Fax + 63 2 636 4444 Fax +31 70 385 5531www.adb.org www.snvworld.org

    For more information on the ADBs inclusive business initiative, please visit: http://www.adb.org/themes/poverty/inclusive-business-base-pyramid

    Printed on recycled paper.

  • Contents

    List of Figures vi

    Abbreviations viii

    Acknowledgements x

    Summary 11

    I. Background 15

    The ADBs Inclusive Business Initiative 15

    The ADBs Denition of Inclusive Business 16

    Purpose, Methodology and Approach 21

    II. Poverty Analysis and Private Sector Interest 22

    Key Features of Poverty and Implications for Inclusive Growth 23

    The BoP as a Market in Pakistan 26

    Conclusion 28

    III. Macro-Economic Analysis 29

    Preliminary Sector Opportunities with Potential Poverty Impact 36

    Conclusion 38

    IV. The Inclusive Business Market 39

    How Companies Perceive and Engage with the BoP in Pakistan 40

    Key Challenges and Risks in Pakistan 44

    Inclusive Business Proposals and Potential in Pakistan 46

    Conclusion 49

    V. Financing Inclusive Business 50

    The Market Opportunity for Impact Investing 51

    Experience of Fund Managers with IB Finance 53

    Preliminary Suggestions for Financing Inclusive Business in Pakistan 54

    Developing the Business Case for Investing in Inclusive Business in Pakistan: A Market Scoping Study Page iv

  • Recommendations for Technical Assistance 59

    VI. Conclusions and Recommendations 63

    VIII. Appendices 66

    Bibliography 66

    Plum Qinggi Motors Limited - BoP as Consumer 73

    RL Enterprises - BoP as Consumer 74

    Unilever Pakistan - BoP as Distributor 75

    Nestl Pakistan - BoP as Suppliers 76

    VITA Pakistan - BoP as Consumer 77

    Al Hamd Foods Limited Ltd - BoP as suppliers 78

    Ferozsons Laboratories Ltd - BoP as Consumer 79

    Tameer Micronance Bank Ltd - BoP as consumer 80

    Capital Marketing Services Ltd - BoP as Employees 81

    Agrow Ltd - BoP as consumers 82

    Dalda Foods - BoP as distributor 83

    Shakarganj Food Products Ltd - BoP as supplier 84

    Engro Foods Ltd - BoP as Suppliers 85

    Companies and Private Equity Funds Interviewed 86

    Condential Assessment of Top 3 Fund Managers 88

    Detailed Methodology 91

    Developing the Business Case for Investing in Inclusive Business in Pakistan: A Market Scoping Study Page v

  • List of Figures

    Figure 1: Pathways toward Inclusive Business 19

    Figure 2: Human Development Index Ranking (2010) by District 23

    Figure 3: Pakistan HDI Progression 1980 - 2011 23

    Figure 4: Pakistan HDI 2011as compared to selected countries in the region 24

    Figure 5: Pakistans HDI Progression and Comparison 1980 - 2011 24

    Figure 6: Costs of Pakistans War on Terror 25

    Figure 7: Percentage of Poverty of Total Population 27

    Figure 8: Pakistans BoP Purchasing Power by Expenditure 27

    Figure 9: Pakistans Access to Selected Basic Services 28

    Figure 10: Pakistans Main Economic Indicators 30

    Figure 11: Pakistans GDP Annual Growth Rate 30

    Figure 12: GDP by Industries 31

    Figure 13: Avenrage Annual Growth Rate from 2000 - 2011 by Industry 32

    Figure 14: Diong Business Ranking for Pakistan (2010) 32

    Figure 15: Pakistan Unemployed Persons 33

    Figure 16: Exports by Industries 34

    Figure 17: Competitiveness Challenges facing Pakistan 35

    Figure 18: The Most Problematic Factors for Doing Business in Pakistan 36

    Figure 19: Agriculture Growth Percentages 2005 - 2012 37

    Figure 20: Industry Sectors of the Market Scoping Company Sample 41

    Figure 21: Size of the Companies in terms of Sales/Revenues 41

    Figure 22: Size of Companies by Labor Force 42

    Developing the Business Case for Investing in Inclusive Business in Pakistan: A Market Scoping Study Page vi

  • Figure 23: Size of Company by BoP Employees 42

    Figure 24: Companies and Perceptions about the BoP 42

    Figure 25: Assessment of Focus of Company CSR Programs 43

    Figure 26: Rationale for Including the BoP in a Companys Value Chain 44

    Figure 27: Alliances for Social Impact 44

    Figure 28: Barriers to BoP Projects within the Company 45

    Figure 29: Non-Financial Risks to BoP Projects 45

    Figure 30: Mitigation Strategies for Non-Financial Risks 46

    Figure 31: Current Access to Financial Services 46

    Figure 32: Potential Interest in Financing BoP Models 47

    Figure 33: Type of Financing Companies Prefer 47 Figure 34: Intended Purpose of Financing 48

    Figure 35: Expected Revenue Growth by Industry 48

    Figure 36: Expected Interest Rate to Pay for Debt or Borrowing Loan 49

    Figure 37: Sector Investment Focus among BoP impact investors Globally 52

    Figure 38: Instruments Used to Invest and State of Investee Development 52

    Figure 39: Overall Portfolio Performance vis-a-vis Expectations 53

    Figure 40: Prospective Pipeline of BoP Projects in Pakistan 58

    Figure 41: TA Facility Key Features 61

    Developing the Business Case for Investing in Inclusive Business in Pakistan: A Market Scoping Study Page vii

  • Abbreviations

    ABC American Business Council of Pakistan

    ADB Asian Development Bank

    BoP Base of the Pyramid

    CPRGS Comprehensive Poverty Reduction and Growth Strategy

    CSS Corporate Social Responsibility

    DB Doing Business Report

    FBS Federal Bureau of Statistics of Pakistan

    FDI Foreign Direct Investment

    FMCG Fast-moving consumer goods

    GDP Gross Domestic Product

    GIIN Global Impact Investing Network

    GIIRS Global Impact Investing Rating System

    GOP Government of Pakistan

    HDI Human Development Index

    IB Inclusive Business

    IFAD International Fund for Agricultural Development

    IFC International Finance Corporation

    ILO International Labor Organization

    IMF International Monetary Fund

    IRIS Impact Reporting and Investment Standards

    BOP Low-Income Populations (interchangeable with BoP)

    MFI Multi-lateral Financial Institution

    Developing the Business Case for Investing in Inclusive Business in Pakistan: A Market Scoping Study Page viii

  • NGO Non-Governmental Organization

    ODA Overseas Development Assistance

    PKR Pakistan Rupee

    PPP Purchasing Power Parity

    PSM Private Sector Mapping

    PSMR SNV Private Sector Mapping Report

    SECP Securities and Exchange Commission of Pakistan

    SME Small and Medium Size Enterprise

    SMEDA Small and Medium Size Development Authority of Pakistan

    SNV Netherlands Development Organization

    UNDP United Nations Development Program

    WBCSD World Business Council for Sustainable Development

    WRI World Resources Institute

    WTO World Trade