In This Article:
Shell Plc SHEL announced its decision to exit Pakistan amid economic crisis prevailing across the country. The company’s intention to sell its stake in Shell Pakistan Ltd., which amounts to 77.42%, as well as its 26% interest in Pak-Arab Pipeline Co., has sent shockwaves throughout the nation. SHEL’s statement revealed that there is considerable interest from international buyers, adding to the gravity of the situation.
Below, we will discuss the reasons behind the exit, the impact on Pakistan's economy, and the implications for both SHEL and the country.
Shell's Presence in Pakistan
Shell has a rich history in Pakistan, having operated in the country for 75 years. The company established a significant presence with more than 600 fuel stations across the nation. Its exit marks the end of an era for the multinational company in Pakistan and raises questions about the future of the country's energy sector.
Strategic Restructuring
SHEL’s exit from Pakistan is part of a broader strategy implemented by the company's new chief executive officer, Wael Sawan. Under his leadership, the company aims to increase shareholders’ returns by divesting from businesses that are not generating sufficient profits. This strategic move also includes selling its stake in a gas project in Australia and withdrawing from its home energy retail unit in Europe. These measures reflect Shell's commitment to prioritizing profitability and optimizing its global portfolio.
Pakistan's Economic Turmoil
The timing of Shell's exit aggravates Pakistan's already precarious economic situation. The country has been grappling with severe economic turmoil, which has resulted in a significant devaluation of its currency.
Over the past year, the Pakistani rupee has witnessed a substantial decline, losing about one-third of its value. Such a sharp depreciation has placed immense strain on the economy, impacting various sectors and intensifying inflationary pressures.
Furthermore, Pakistan is facing concerns regarding its possibility of becoming the next emerging market to default. The country's hopes of securing a bailout from the International Monetary Fund (“IMF”) are fading, as stated by Moody's Investors Service. The combination of a deteriorating economy, declining currency and the looming possibility of default has created an atmosphere of uncertainty and anxiety in Pakistan.
Multinational Companies’ Exit
Shell's decision to exit Pakistan follows a trend of multinational companies choosing to discontinue their operations in the country. While fuel retailer Puma Energy made a similar exit in 2021, the trucking startup Trella decided to wind down its business in April, 2023.