Pakistan Economy - News & Updates - Archive

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KARACHI (April 17 2006): The automobile industry witnessed yet another month of extraordinary performance, posting sharp improvement in production and sales figures in all categories in March 2006.

Customised nature of auto financing by banks on soft and easy terms, coupled with introduction of new brand of cars by the locals, and reduction in premium on cars have paved the way towards an unimaginable growth in the sector. All these factors resulted in a jump of 29 percent and 26 percent in the overall local production and sales of cars to 112,478 units and 111,155 units, respectively.

Production and sales figure of tractor manufacturers also shot up by 16 percent and 22 percent to 36,383 units and 33,305 units, respectively. Almost a cent percent rise in the production of trucks was registered as the manufacturers anticipated its demand to rise on the back of a surge in the road trade and better relations of Pakistan with its neighbours and provisioning of food rations to remote earthquake affected areas. The influx of more and more second-hand buses under different schemes continued to submerge the local bus manufacturers.

"As the budget-making process sets in motion, the local automobile assemblers feel panicked over the proposed government's decision of duty withdrawal on import of CKD and CBU," Hettish Karmani, research analyst at Atlas Investment Bank said. The auto assemblers fear that the proposed policy would discourage new investment, create unemployment and would hamper expansion of their business. Also causing them worry is the increased imports of reconditioned cars and buses under the gift and transfer of residence scheme.

According to industry sources, the Engineering Development Board (EDB), along with the customs department, vendors and auto-assemblers have worked out a comprehensive tariff regime to be applicable on import of parts and accessories for automobiles. In the meeting it was decided to move away from a penalty-driven localisation policy, to a policy which would give incentives for local value-addition and export of auto-parts and completely built units (CBUs) from Pakistan.

In the proposed new policy, any new entrant who introduces new models, or if the original equipment manufacturers (OEM) bring new platform, they will have the relaxation on the localisation by way of import of 100 percent CKD at the CKD duty rate as an incentive for three years, after which, TBS will apply. As a consequence, in the absence of any reward for localisation, the new entrant will continue with a strategy of least localisation for three years, and may subsequently phase out the model. Such policy negates the basic premise of Tariff Based System, which is transparency and uniform application of rules.

Hettish said that after witnessing phenomenal growth in the demand and production of automobiles in Pakistan during the last few years because of ultra-liberal bank loans and lease, a considerable number of investors (foreign and local) who too are keen to grab a share from the growing market have entered the industry. Porsche and Rolls Royce, to say, are the initiators. Porsche returns to Pakistan after less than a year.

Porsche, 'Cayman's' would be the first in a series of new Porsche models to hit the Pakistani roads. Soon the second-most powerful road car ever built by Porsche after the Carrera GT, the Cayenne Turbo S, will follow in addition to the legendary new 911 Turbo and 911 GT3 in summer of 2006.

Porsche's next step in Pakistan will be relocation to a permanent facility scheduled to take place during 2007. Rolls Royce has signed its pact with Dewan Motors for distributing its state-of-the-art cars in Pakistan.

Automobile imports constitute single largest segment of the machine category as in the eight-month (July 2005 to February 2006) they witnessed a rise of over 44 percent. Total imports of vehicles in the last eight months, amounting to 16,000 units, claimed about $852 million, which are expected to exceed $1 billion figure by the end of this fiscal year. At the present level, imported cars have 8 percent share of the market, which is expected to go up to 12 percent--13 percent in the coming year.

 

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ISLAMABAD (April 17 2006): The government is spending Rs 306 billion on the development of social sector during the current fiscal year and it will help alleviate poverty and generate employment opportunities in the country.

The Minister for Petroleum and Natural Resources Amanullah Khan Jadoon stated this while addressing a big public gathering at the Union Council Bohi, Dalola and Adora some 70 km away from here.

The Minister inaugurated road projects and telephone exchange and announced provision of gas facility to the areas.

He said under the directives of President General Pervez Musharraf and Prime Minister Shaukat Aziz, the government was taking concrete measures for raising the living standards of the people of remote areas on priority basis. Jadoon said the provision of electricity, gas and drinking water by 2007 was being ensured.

The Minister said rehabilitation of quake affected was in full swing and all out efforts were being made to stand them at their own feet so they could live a comfortable life.

He called upon the people to forge unity in their ranks and cooperate with the government in its efforts for completion of masses weal oriented development schemes as early as possible.

NWFP Assembly MPA Al-Haaj Qalandar Khan Lodhi on the occasion lauded the government steps for the development of remote and backward areas on priority basis.

He said the completion of mega socio-economic projects would usher in a new era of progress and prosperity in the country.

Earlier, Nazmeen and councillors of Bohi and Dalola Union Councils called on the Minister and apprised him of the basic problems being faced by the people of the area.

They appreciated the government's steps for speedy rehabilitation of the earthquake affected.

 

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SIALKOT (April 17 2006): The International Labour Organisation (ILO) has claimed as many as 50 percent reduction in child labour from the export-oriented surgical instruments manufacturing industry here.

Underage workers, hazardous situations and exploitative working conditions in the different targeted areas of Sialkot district through the provision of education and other support services to the children indulged into the child labour in Sialkot`s surgical industry.

ILO Sialkot's Project Manager Muhammad Binyameen stated this, while giving a briefing to the visiting team of independent evaluators during a recently held special meeting here at Surgical Instruments Manufacturers Association (Sima) of Pakistan.

He said that the International Labour Organisation (ILO) has also successfully raised the awareness of child labour issues raised among the Sialkot-based stakeholders of surgical industry and partners and initiated action to address health and safety problems in the work places in Sialkot district under ILO`s special programme regarding combating hazardous and exploitative child labour in surgical instruments manufacturing industry of Sialkot through preventive, withdrawal and rehabilitation.

He said that the ILO and Sima were contributing towards the progressive elimination of child labour in Sialkot's surgical industry. He said that under Phase-II of this programme of ILO, as many as 1,000 working children in various processes of surgical instruments manufacturing would be withdrawn, 200 siblings would be targeted for prevention from work and 180 (15 percent) would be mainstreamed.

He said the child labour monitoring component of the project would verify such withdrawal of prevention from work through an established monitoring system., adding that as many as 400 older children (aged 13 years and over) from Non-Formal Education (NFE) centers would be given pre-vocational training by ILO in Sialkot, while, more than 170 children enrolled in under Phase-I would benefit.

Muhammad Binyameen said that ILO in active collaboration with Sima would soon establish Village Education and Action (VEA) Clusters in Sialkot district to provide non-formal education, practical skills training, recreation and linkages to health services for child workers of surgical industry.

He said that ILO was analysing the local job market and provides pre-vocational training to young workers.

He said that the establishment of a reliable and transparent child labour monitoring system is considered vital to ensure a measurable impact of the project, and also considering that only social protection may not be very effective in elimination of child labour in the surgical instruments manufacturing, a monitoring component has additionally been developed in collaboration with Sima.

Now, the ILO-IPEC has started the process of external monitoring of child labour elimination programme from Sialkot's surgical industry. An agreement to combat child labour in the surgical industry was signed between ILO and Sima , which is collecting data on vendor-workshops and has developed internal monitoring system in consultation with ILO-IPEC, he added.

Former Sima's chairman Chaudhry Muhammad Ikram and vice chairman Mian Shehbaz Akhtar told the meeting that Sima has established a child labour cell at its offices for facilitating the internal monitoring system, developing co-ordination between ILO-IPEC and surgical instruments manufacturers, creating awareness among members of Sima and vendors through the development of computerised data-base, besides, compiling and disseminating information on child labour.

Earlier, a high-powered team of independent evaluators led by Ms Saima Saghir evaluated the pace of ILO's child labour elimination programme in surgical industry. The team expressed satisfaction and stressed the need for developing mutual close working relationship between the manufacturers, vendors and surgical exporters to purge Sialkot's export-oriented surgical industry of child labour.

 

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FAISALABAD (April 17 2006): Muhammad Ashraf Gandhi, Vice Chairman Standing Committee on Sales Tax and Taxation Committee and former Chairman Pakistan Yarn Merchants Association (Punjab and Sarhad Zone) has demanded that the exemption in the utility bills of all those industries who have been Zero Rated (Sales Tax) should be granted automatically on the verification of Chambers so as to prevent them from on going cumbersome procedures.

Talking to newsmen, while welcoming the decisions of the government to put various trade and industry in the Zero Rated, he said that business community feel yearly sales tax returns be made mandatory rather than monthly returns to facilitate the traders and industries falling in the Zero Rated Net.

Ashraf Gandhi said that it has been proved that refund culture has eroded the national exchequer and the Zero Rating of the Textile Industry and Trade has also proved this.

He said that such pragmatic act by the government (by getting rid of refund culture and placing various sectors in the Zero Rated net) has also helped in the improvement of social economic fabrics of the country. He suggested that all raw materials used in the manufacture of goods placed in Zero Rated net be also placed in the Zero net.

In order to benefit from globalisation of trade, Ashraf Gandhi suggested that input cost be taken care off to make Pakistanis products competitive. The hike in the interest rate has also made Pakistani products uncompetitive. It is irony of the fact that we had not been able to work on the Human Resources. Thus necessary funds should be allocated in this sector, he demanded.

Ashraf Gandhi said that the philosophy of Trade Police should be promote medium and small entrepreneurs so as to reduce unemployment and help poverty alleviation programme and discourage formation of cartels in the country. Measures be taken to improve environmental compulsions under WTO, he added.

He said that the elimination of "Deletion Programme" in the Auto Sector is a major blow to the vending industry. It would also hurt the growing engineering industry in the country. It would also hurt the growing engineering industry in the country. It would also facilitate monopolistic trend, he added.

Ashraf Gandhi further demanded that the potential in the export of marble should be properly exploited so as to benefit from the abundance of marble in the country.

He said that the import of agricultural machinery be encouraged to improve agriculture sector. Necessary know-how be provided to the existing engineering industry manufacturing agricultural implements so as to save precious foreign exchange. The import of spare parts manufactured in Pakistan for the Textile Industry be banned and the local manufacturers be encouraged to set up and manufactures the desired parts in the country. Textiles, the largest industry, do not fabricate spinning and weaving plants in the country should have an indigenous, he added.

Ashraf Gandhi said that dyes and chemicals play major role in the export of value added textile. Steps be taken to produce the same in the country to be able to compete with the neighbouring country. The major component of trade deficit, which has up-surged to $7.80 billion is import of luxury items which be restricted and the indigenous industry be encouraged to fill the gap, he added.

Ashraf Gandhi pointed out that it is interesting to note that the import duty on cars is far less than the motorcycle which is common man's vehicle.

The duty on the import of cars above 1300 cc may be increased and the duty on motorcycles be reduced so as to make the common man's vehicle more cheaper. He demanded that the import of juices, soft drinks etc should be banned to save hard earned foreign exchange.

 

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MULTAN (April 17 2006): Oil prices may be increased to 120 dollars per barrel in the world market if United States attacked Iran which would badly hit the Pakistan's economy and PIA, now oil is available at 70 dollar per barrel in world market.

While it was only 15 dollar per barrel in July 1998, said Chairman of Pakistan International Airlines Tariq Kirmani while addressing the executive committee of Multan Chamber of Commerce and Industry here on Sunday chaired by Khawaja Muhammad Abdullah.

He disclosed that PIA was the first airline, which had introduced ticket booking on mobile phone in the world, which had achieved the 97 percent punctuality. He said that direct flights for Quetta and Peshawar would be introduced from Multan very soon and new scheme would be introduced to highlight the culture of Multan while two more flights would be added on Multan-Karachi route.

He ruled out the possibility of any reduction in the fare and said that PIA was spending 43 percent of its revenue on the oil because prices had climbed to 70 dollar per barrel. He assured that better facilities would be provided to the mango growers and exporters. He highlighted the improvements in per-seat revenue, passengers traffic, and market share.

The chairman said that 29 aircraft were being inducted in the PIA's fleet to provide the best air-travel facilities. General Manager/SVP Human Resource Waseem Bari, General Manager Public Relations Captain Hassan Rizvi (Retd), Public Relations In-charge (Lahore) Yasmeen Haroon were accompanied by him.

 

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KARACHI (updated on: April 17, 2006, 16:12 PST): Pakistan expects to receive offers soon from foreign companies, including Saudi and Kuwaiti firms, to build a $2 billion oil refinery that could double the country's refining capacity, officials said on Monday.

Sited at Khalifa Point in the Hub district of Balochistan, about 15 km (9 miles) west of Karachi, the refinery will have a refining capacity of around 200,000 to 300,000 barrels per day (bpd) of middle distillate products, said Ahmad Waqar, permanent secretary at Pakistan's Petroleum Ministry in Islamabad.

"Our estimate is that the proposed refinery would cost around $2 billion, and it would be completed by 2010," he said.

International groups will soon be invited to submit offers for the project, being marketed on a build, own and operate (BOO) basis.

Land is being made available free of cost, and a cabinet minister said, on condition of anonymity, that Saudi and Kuwaiti firms were among the interested parties.

Previous plans for a joint-venture refinery with Iran at the same site were stillborn.

Pakistan consumes around 15 million tonnes of oil products annually.

At present, the country has an installed refining capacity of 12.82 million tonnes a year (just over 250,000 bpd). But last year, its refineries produced 11.33 million tonnes, official figures show.

Another refinery, the Indus Refinery, is under construction in Karachi. It will have the capacity to process 4.2 million tonnes of crude oil a year (around 84,000 bpd), and will be completed by December 2007 at a cost of around $250 million, industry officials said.

Pakistan imports 85 percent of its oil needs -- both crude and products.

Analysts expect the oil import bill for the 2005/06 fiscal year (July-June) to exceed $6.0 billion, compared with $4.4 billion in the previous fiscal year.

Pakistan's economy grew 8.4 percent in fiscal year 2004/05, and is forecast to expand by about 7 percent in the year ending June 30.

 

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Sunday April 16, 2006

RAWALPINDI: Leader of the House in the Senate, Waseem Sajjad has said that difference between the developed and underdeveloped countries was the education and scientific education and it could be eliminated by getting success in the field of education.
He pointed out that educated women could play vital role in any country‘s development.

Speaking at the last day of the Golden jubilee ceremony of Waqrun Nisa Higher Secondary School as chief guest he said that education could create political and national awareness and the spirit of progress among the women.

But he said it depends on the system. "If the system is right, the institutions correct themselves," he added.

He hailed the role being played by graduate students of the Waqarun Nisa Higher School in the education, social and economic development of the country.

Earlier, principal of the school, Suraya Khalid highlighted the progress of the school.

 

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By Dr Sardar Riaz A. Khan

DESPITE flawed policies of successive governments, the agriculture still constitutes 23 per cent of the GDP and engages 44 per cent of the total labour force.

The GDP growth rate was 8.4 per cent last year and its target was originally fixed at seven per cent for the present fiscal. It was revised to 6.5 per cent subsequently and even this may not be achieved due to substantial reduction in agricultural production during this year.

As a result the targeted agricultural growth rate of 4.8 per cent will also fall sharply. The main reasons are lower crop production, mismanagement, and defective marketing system. Fixing higher crop production targets and then not achieving these has become a routine of the policy makers.

Cotton production this year was about 12.5 million bales against the 15 million bales target. Of various reasons, spurious pesticides, high cost of urea, DAP, lack of quality seed, poor weed control, partly unfavourable growing season during flowering and boll formation stages, flood damage and earlier planting in most areas encouraged the attack of American boll worm.

The textile industry may face problems as it requires about 14 million bales to meet its requirements. This may not only increase import of lint cotton but also import of edible oil due to reduction in cottonseed production which contributes nearly 70 per cent domestic edible oil production.

It may further increase the trade deficit which was already at $5.5 billion during the first eight months of the present fiscal year and is estimated to increase to an stipulated 9-10 $10 billion by the end of the year.

Similarly, sugarcane serves as major source for the production of white sugar and gur. Its production of 53.4 million tons in 2003-04 declined to 47 million tons in 2004-05 and further to nearly 41 million tons this year as reported in the national press against the government fixed target of 45.88 million tons.

The minister has stated recently that the production of sugarcane was 44.23 million tons this year as against the target of 48 million tons. Even if this statement is accepted, it shows continued declining production.

This scribe has already written about technical limitations of low yield and production of sugarcane and how to increase it. Again, policy makers were warned that due to deliberate late starting of cane crushing, late payments to growers, under weighing, poor support pricing etc., may force the growers to shift to other crops.

Besides shifting to gur and brown sugar (Shakkar) making by the cane growers instead of selling to mills, and smuggling of these to Afghanistan at much higher profit will further complicate the situation but no action was taken. As a result the price of one kg of sugar has increased from Rs21 in December 2004 to Rs42-45 and even higher in some areas during March–April 2006.

Hoarding was another factor for compounding the problems. For instance 17 sugar mills owned by ministers and parliamentarians of the present government released only 14 to 17 per cent of their production and hoarded the rest to sell at higher prices.

Both, President and the Prime Minister directed the ministry of finance and other concerned agencies to ascertain facts before taking action against these mill owners. The National Accountability Bureau (NAB) was asked to inquire into the scandal and take action against those creating sugar problems. However, due to political influence and power, the NAB closed investigations of these influential people. This reflects that the law of land is different for the politically-powerful and the common man.

Nevertheless, the government is planning to import 1,50,000 tons of sugar through the Trading Corporation of Pakistan, while the private sector has opened letters of credit for import of 4,00,000 tons of sugar since January this year. Out of which 2,50,000 tons has already arrived and 1,50,000 tons is expected to reach by the middle of April this year.

Wheat is the leading food grain crop. Its target was fixed at 22 million tons due to the expectations of a bumper crop. However, this target may fall short by 1.5 million tons due to late sowing of wheat in the rice and cotton belts of Punjab and late cane crushing further delayed the sowing of the following wheat crop.

The rising cost of inputs and grabbing big part of agricultural loans by the powerful feudal landlords and influential politicians may further affect wheat production of small, subsistent and below subsistent level farmers cultivating nearly 50 per cent of the total area. This 20.5 million ton of wheat production and nearly three million tons of stock lying with the food department and Passco should be more than enough to meet domestic requirements. It is not understandable that when the country had sufficient stock and was expecting a bumper crop then why one million tons of wheat was imported.

Delayed purchase of wheat by the food department and the unavailability of gunny bags to farmers not only facilitated the private sector and flour mill to get bags from the corrupt officials but also purchase wheat from the farmers at Rs940 against the government fixed price of Rs1,037 per bag. Thus, common growers were the major sufferers.

Hoarding by private dealers and influential flour mill owners could create wheat flour problems for common man as was done by hoarding sugar by the mill owners. Again, smuggling wheat and wheat flour by the politically influential people across our porous western borders to earn huge profits could compound the situation.

The Prime Minister has announced that the government will not allow wheat prices to fall. Such claims appear only for public consumption as despite all this, the prices of sugar, pulses, food grains, vegetables, fruits, edible oil, petrol, diesel, gas, electricity, cement etc., are increasing and the common man is the ultimate sufferer.

Rice is a high value cash crop and a major export item. It accounts for 5.7 per cent of the total value added and 1.3 per cent to the GDP. But its export declined to around 1.7 million tons by 2004-05 as the targets could not be achieved due to poor planning.

The paddy prices have gown down both in Punjab and Sindh due to delayed announcement by the government. Rice farmers were the major sufferers as exporters and traders deliberately delayed purchase of paddy, especially Irri-6 mostly grown in Sindh. As a result most farmers were forced to sell their paddy at lower price than its cost of production as they had to prevent late planting of the following wheat crop which would have seriously reduced it production thus causing further loss to farmers.

It is interesting to note that due to better marketing and trade policies of India, the price of fine basmati rice of India is much higher in the international market than that of the Pakistani.

The aforementioned review portrays the dismal policies of the government which is more interested in the development of manufacturing and industrial sector at the expense of agriculture sector. This view is supported by the statement of President made at the latest opening ceremony of a steel mill that the government will now pay greater attention towards the development of industrial sector than the development of agricultural sector as the former will be more profitable due to increase in export of its products.

The government should realize that the increase in export of industrial products will be greatly nullified due to the increased import of food items due to uncontrolled population increase and the neglect of agriculture sector. For example, earlier the country was generally self-sufficient in most of the food items and agriculture contributed 53 per cent of the GDP. Subsequently, with the development of manufacturing and industrial sector, the share of agriculture to the GDP declined now to 23 per cent.

Despite increase in the export of products and bye-products of industrial and manufacturing sector, the trade deficit is increasing due to greater import of food items. The policy makers should seriously consider developing both these sectors on sound economic parameters rather than on political basis

 

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India and Pakistan: the inflation differential


By Sarah Jafri
AS Pakistan struggles to bring its’ inflation down to eight per cent in FY06, its’ Indian neighbour has managed to contain inflation in the 4-5 per cent range. Although ostensibly, India began its policy of tightening a full year before Pakistan, their monetary policy is not the only reason why Indian inflation is much lower than Pakistani inflation.

In fact, the composition of the consumer price index (CPI) and wholesale price index (WPI) basket, the food supply situation and the oil subsidy in India are the more important reasons for Indian inflation levels being lower than the Pakistani inflation levels.

The CPI basket in Pakistan assigns higher weights to the house rent, fuel and lighting group and transport group than the Indian CPI. Interestingly, the Indian CPI measure assigns a higher weight to ‘pan, supari, tobacco, and intoxicants’ than to transportation. This partially explains why rising fuel prices do not seem to have had the same impact on the Indian economy that they have had on Pakistan’s.

Since the food group constitutes the majority of India’s CPI it is also relevant to point out that in recent years Indian agricultural output has been such that food shortages have not pushed prices upwards, year on year (remember the base effect matters when measuring inflation).

However, in India it is not the CPI index but the WPI index which matters and if we compare the two (i.e. Pakistani CPI with Indian WPI) the disparities in weights are greater.

On the other hand, the WPI inflation rate in both countries is hardly similar, a fact that can be accounted for largely by looking at weights. To illustrate, Indian food inflation has risen by 6.83 per cent as of the end of February and Pakistani food inflation has seen a rise of 6.9 per cent by the end of February, which is not a significant difference.

However, because of the discrepancy in weights, the Pakistani index overplays (relative to India) the impact of food prices. India assigns a 15.4 per cent weight to food in its’ WPI whereas Pakistan assigns a 42 per cent weight to the same. Within the food group weights vary as well, as India assigns less than two per cent to wheat and wheat products and Pakistan’s WPI weights are assigned on the basis of the value of marketable surpluses.

Given that wheat prices in India are 20 per cent higher than those in Pakistan, the difference in weights assigned to wheat will undoubtedly impact the numerical value for food inflation. The Indian WPI also gives a much higher weight to manufactures and it is worth noting that in Pakistan year on year WPI inflation for the manufactures group stands at 3.05 per cent in Feb 6, which is close to India’s 2.3 per cent. Close, but not the same as India’s with its’ sustained manufacturing sector growth that has been better able to meet domestic demand. That aside, if we had the same weights as the Indian indices, then Pakistans’ inflation levels would be significantly lower.

The question still stands that when oil prices began to skyrocket, why did Pakistan’s WPI rise at an alarming rate, when its’ Indian counterparts actually fell. There are four reasons for this. One is an easing of food inflation relative to a high base, the second is the effect of monetary tightening, and the third is the fact that the Indian WPI assigns a much lower weight to fuel than the Pakistani one. The fourth, and most important, one by far is the role of subsidies in keeping India’s domestic oil prices low (refer to inset).

To give credit where credit is due, the Reserve Bank of India has been much more proactive in their inflation fighting than their counterparts on this side of the border. Recognizing the significant lag between monetary tightening and an easing of inflationary pressures they have conducted ‘pre-emptive strikes’ of sorts, raising key rates before inflation rears its’ ugly head and not after. Therefore, despite the fact that annual inflation in India is below five per cent they revised their key rate (reverse repo rate) upwards by 25bps to 5.50 per cent.

However, at the end of the day, weights also matter. If the Pak WPI or the Pak CPI were composed in the same manner as our illustrious neighbours’, then the value assigned to domestic inflation would be quite different. Does this mean that we should recompose our inflation indices along Indian lines? No, it does not. All it means is that in cross country comparisons, numbers should always be interpreted with caution.

 

[Neo]

17 April 2006


ISLAMABAD — Pakistan government has been advised by the World Bank to immediately improve legal, regulatory and institutional framework of the ministry of petroleum and natural resources as the issue is blocking sizable foreign investment in the country's mineral sector.
Informed sources said that the World Bank also wanted the government to ensure uniformity of procedures, mineral concession rules & regulations and incorporation of social and environmental aspects in manners satisfactory to the foreign investors.
The government has been proposed to urgently go for "institutional strengthening" of the ministry of petroleum to lure foreign investors to invest in the mineral sector of the country.
"The government was also asked to rationalise fiscal/taxation regimes with a view to help small-scale minerals including coal, gemstones and dimension stones," a source said.
He said that considerable capacity improvements are needed to help establish mineral frameworks that are consistent at federal and provincial levels.
The government has been informed that lack of institutional arrangements has impeded progress to attract any substantial foreign investment in the mineral sector.

 

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LAST week’s explosion in Karachi’s Nishtar Park which killed 57 and injured over 100 has had particularly painful implications for business.

The expected happened: commercial activity was virtually shut down for most of the week, industrial production dwindled to just 20 per cent of normal levels, and daily wage earners had to scrape by on just three working days out of seven.

Petrol stations across the city remained closed, compounding the chaos. The unexpected also happened this time around. The Karachi Stock Exchange did not open for business on Wednesday, the day after the explosion. This decision by the KSE was an especially bad idea.

Karachi is accustomed to violence on a regular basis. Business always suffers as wholesale and retail trade comes to a standstill and industrial activity takes a blow. Almost always, however, the KSE remains open no matter how thin trading volumes are.

According to the KSE’s own statistics, the last time trading was shut down for a full day on account of security concerns when General Pervez Musharraf staged a military coup in 1999. There has certainly been no paucity of violent incidents or law and order problems in the city since that time. Then why this decision?

The management of the KSE defends their decision on several counts. First, that this was the biggest incident of violence in recent years which killed several prominent religious leaders.

Second, that the funeral prayer for Haji Hanif Blue, one of the Sunni leaders slain in the Nishtar Park attack, was to take place at the Memon Masjid near the KSE building. Moreover, Billoo was from the nearby Kharadar area of the city and his funeral procession was to pass through the Mereweather Tower area en route to Mewa Shah graveyard. This, the management said, left the KSE vulnerable in the face of possible violence after the funeral prayer.

Third, was the fear of reaction from the band of green turbans who are in a significant majority among the trading community at the KSE.

Fourth, worries about the several hundred cars that are parked in the KSE’s parking lot each day. This could have attracted violent protestors looking for cars to set fire to, the management says.

This combination of factors led to a telephone discussion among the broker members of the KSE board on Wednesday morning. The decision to remain closed was communicated to the chairman of the Securities & Exchange Commission in Islamabad. Ultimately, barely minutes before trading was scheduled to begin, the management announced that the exchange would remain closed for the day.

This was a bad decision on several counts. First, the tension and panic already prevalent in the city from Tuesday evening’s bomb blast was compounded on Wednesday morning with news of this announcement by the KSE. The business community suffered an additional ripple of jitters, unaccustomed as they are to this one trading centre closing for business.

Second, the closure of the KSE significantly worsened the country’s image problems. As it is, treacherous headlines made the rounds the world over on Wednesday. But when international investors found out that even the stock market was closed, it led to a moment of pause.

As some stock brokers put it, the embarrassment for Pakistan was doubled by the KSE’s decision. Indeed, Pakistan’s market is now much more closely watched than ever before. Foreign portfolio investors have turned active in the country this fiscal year with $470 million in net portfolio inflows coming in between July 2005 and February 2006, compared to just $82 million in the same period last year. Most of this, over three-fourths has come from the US, where investors are especially sensitive to reports of violence.

Additionally, with the launching of a third sovereign bond by the Pakistan government last month, the country’s politics, economics and stock market are now closely and routinely scrutinized by investors who snapped up the long-term bond.

Bad news like the Nishtar Park incident are enough to rattle their confidence. They don’t need to see closed share markets along with that. Stock brokers dealing with major international investors say that they spend a good amount of time convincing their clients that Pakistan gets a raw deal from the international media and things on the ground are not as bad as they may seem. But when an incident leads to a closed share market, that argument is severely diluted.

Moreover, this level of severity that leads to the closure of markets also tests the nerves of local fund managers. Some of them have said this week that they plan to minimize the risk of investing in Pakistan by diversifying into other markets now that they have the legal permission to do so.

So why did the KSE not take a more prudent approach? For example, the government could have been requested to provide additional security in and around the KSE to ensure trading could continue. The KSE could also have coped with thinner volumes had that been the case.

The SECP chairman could also have exercised his authority and insisted the market open for business. Clearly, the fine line between micro management and effective oversight at critical times has not yet been entirely understood.

The KSE’s decision was proven wrong in share trade the very next day on Thursday when volumes ended the session at a perfectly decent level of 350 million shares and the index even crossed the 12,000 points level.

If security concerns alone were severe enough to prevent the market from being opened on Wednesday, why was it safe to open for trade on Thursday or Friday, both equally critical days for the city?

As brokers, exporters and businesses struggled to cope with the fallout of the Nishtar Park incident on their clients’ willingness to do business with Pakistan, the federal government did not help to improve the situation. The day after the explosion President Musharraf held a meeting in Rawalpindi with two Latin American mineral exploration companies and the press reports issued by the state-run news wire service the following day carried this headline: Musharraf assures safety to foreign investors. This is enough to make even government supporter cringe with embarrassment.

The president’s assurance of “full protection” to foreign investors included a level playing field with local investors, vibrant economic growth and the prospect of strong returns. That’s all very well. But it is worrying when the country’s leader does not even allude publically to the most obvious worries any foreign investor would have.

These problems are much more serious today when foreign investors of all kinds have finally put Pakistan on the radar screen. Foreign portfolio investors have been forced to look at the country given the strong rally in share prices, foreign direct investment has been picking up pace, the sovereign bond issues have led to more investors tracking developments in the country, and the privatization process has also led to greater interest. The internal losses are also significant.

The tangible financial losses of days without industrial and commercial activity and the resultant reduction in tax revenues are obvious. But there are also the longer term implications of domestic investors reconsidering their investment plans in the face of growing unrest.

While it is unlikely that any of the top leaders will satisfactorily address the fallout of this major incident in the country, the negative impact could have been restricted to the bad press alone. If the availability of petrol had been better managed, the KSE had remained open as always and acted to improve security rather than close for business, perhaps the embarrassment caused by the attack could have been a little less. At time likes this, every bit counts.

 

[Neo]

ANALYSIS BY M.AFTAB

16 April 2006


ISLAMABAD — Large credit expansion and import financing is boosting profits and breaking other financial targets.
The private business credit target burst on March 18, when it reached a historic high of Rs.330.4b in just the first eight a half months of current fiscal 2006. The credit volume rose further to a record Rs.340.204b March 31— the first nine months of the current fiscal.
The State Bank of Pakistan (SBP), the central bank had set the Rs.330b target for whole of fiscal 2006 that ends June 30, but it was overshot nearly three and a half months ahead March 18.
Critics of the SBP’s monetary policy were already quite apprehensive of the original target of Rs. 330b in view of the prevailing and developing inflationary pressures.
Advances during the first nine months of 2005 were Rs.247.573b, which means a rise of Rs.92.631b in the like period of this year. The full-year lending in 2005 was Rs.428b, after the SBP had to revise its Rs.300b credit target, first, from Rs.300 to Rs. 350b, and then to Rs.400b.
The total bank advances on March 18 had climbed to Rs.2.112 trillion, up from Rs.1.274 trillion in 2004, and Rs.1.712 trillion (t) in 2005.
This extraordinary credit expansion has the governments’ nod to ensure a high growth rate, in view of the likely fall in GDP in 2006. SPB, uncaring for the citizens and the poorer sections of the society already badly hit by high cost of living and a rapid rise in the inflation rate, has signaled the commercial banks to deploy their maximum liquidity to provide credit.
The tight monetary policy (TMP) launched a year ago by SBP to check rising inflation has virtually failed in its objectives, as the cost of living, particularly food and housing, is spiralling. In normal circumstances, it should be a worrying scenario for any government. But, the present growth-centric military-civil administration and the central bank, have failed to come up to the citizens’ expectations.
This is despite the fact that national elections are just around the corner in 2007. Even the official inflation estimates are around nine per cent but in the capital of Islamabad it is 11.5 per cent, although expert estimates are much higher.
As the annual credit, monetary growth and other financial targets have already been reached in the first eight months, their growth in the remaining three to four months will be inflationary.
The inflationary pressures are likely to worsen in view of the government’s estimates of a 1.9 per cent lower production of the farm sector, including key commodities like cotton, wheat, and sugar cane and refined sugar. Prices of some of these items have already reached record highs, forcing the government to order imports to partially improve supplies, but without much success.
The farm sector contributed 23 per cent to the GDP in 2005 when the overall GDP growth was claimed by the government to be 8.4 per cent. The official target for GDP growth in 2006 has been revised downwards from 7.3 to 6.5 per cent, but the government and multilateral lenders like the Manila-based Asian Development Bank (ADB) are already projecting it to be 6.3 per cent or lower.
The poor performance of the farm sector has pushed the government to expand credit for other sectors to boost growth, unmindful of the inflationary nature of this growth, as well as lower farm supplies which itself will push food prices up.
Consumer financing is one of the areas, which will receive more credit as it boosted production of autos, and consumers durables, besides housing loans.
As the current credit momentum goes on with a monthly average expansion of Rs. 37.8b — fiscal 2006 is likely to actually end with Rs. 453b. That will be Rs.123b, or 37.2 per cent, higher than the target. Contrary to the SBPs’ moderately tight money policy (MTM), the credit growth suits both the business and the banks whose profits have reached record levels. The business is funding part of their plant modernisation, up gradation and expansion with borrowed money, and financing hugely rising imports. Imports include machinery and capital goods, but more recently ever increasing numbers of completely built units (CBU’s) and in the form of completely knocked down units (CKD).
Overall imports in the first eight months —July, 2005-February 2006 — rose an extraordinary 46 per cent. Oil imports, at the same time rose 56 per cent to $ 3.86b — up from $ 2.48b in the like period of fiscal 2005.
High government borrowing to meet its budget deficit and fund part of the relief and rehabilitation work in the wake of October 8 earthquake, is also fomenting monetary growth. The government had set a target of Rs. 98b borrowing for full-2006.
But, its actual borrowing so for this year has already shot to Rs 155.9b. It was merely Rs.15.4b in the like eight months of 2005.
The government borrowing by June 30, is projected by financial analysts at Rs. 200b.
SPB data available this week indicates that as a result of the current high, and rising, credit expansion by the banks, the central bank’s annual target of 12.81 per cent monetary growth will be exceeded, too.
Already a 9.5 per cent growth has been recorded. The monetary growth in the like period of 2005 was 12.6 per cent.
While the present growth has helped the business, and the government which wishes to move the economy on a fast track of 6.3 per cent, after its claim of 8.4 per cent GDP growth in 2005, the banks have profited from using their growing liquidity to lend, rising lending rates, greater credit off take, and continuing to pay extremely low deposit rates.
Most of the banks’ profits were derived from interest-based income last year, while a large portion of their 2004 income had accrued from investments in stocks and shares at the booming Karachi Stock Exchange.
The banks’ profits have been the highest ever over the last two years. Their advances to deposit ratio is now averaging 77 per cent.
Their spread between the deposit rates they pay to savers and the lending rates they charge had risen to 7.2 per cent in December, 2005 from 5.45 per cent, a year earlier.
The average deposit rates are 27.41 of the inflation rates, which are not only eating into savers’ money and eroding its value in real terms, but also discouraging savings. Dr. Shahid Hassan Siddiqi, head of Research Institute of Islamic Banking & Finance says, "this is exploitation, in which SBP is supporting the banks rather than the savers."
Dr. Shamshad Akhtar, Governor SBP soon after taking up her job, earlier this year, had described the deposits rates as too poor, and had advised the banks to share part of their profits with savers.
But, it has not happened, as the country continues to have one of the lowest rates of personal savings in the world.
A good part of the high bank profits also owe themselves to a substantial rise in bank fees leading to growing fee-based income.
Pakistan’s 21 banks listed with SBP have 72 per cent of total assets, and 75 per cent of total deposits of the banking system. Their profit rose to Rs. 47.5b in 2005.
This high profitability made banks the most lucrative of 33 other sectors listed on the country’s key bourse — Karachi Stock Exchange.
Jahangir Siddiqui Capital Markets Research, a prominent company in the financial sector, lists 17 listed banks, out of 21, made large profits in 2005.
Three declared a loss and one did not announce the its results.
Among the highest net profit makers were: MCB Bank, Allied, My Bank, National, Bank Al Habib, Union, Faysal, Alfalah, United, Meezan, Prime, Soneri, Punjab, and PICIC.
​

 

[Neo]

17 April 2006


ISLAMABAD — Pakistan government has decided to revive the grading system of agricultural and livestock products to enhance Pakistan's credibility as an exporter of good quality produce and meet requirements of the World Trade Organisation (WTO).
Informed sources said that the grading to agricultural products had been held in abeyance under a cabinet decision as part of Trade Policy 2000. The cabinet had directed to redesign the existing system under the Agricultural Produce (Grading and Marketing) Act.
However, the recommendations finalised by a special cabinet committee were not fully reflected in the Trade Policy 2004-05 and 2005-06. The ministries of commerce, food, agriculture and export promotion bureau have been discussing the revival of standards and grading system of agricultural products for the last two years and are hoping to restore it in the next year's trade policy, these sources said.
The grades and standards of quality of agricultural produce would be provided to commercial attaches in Pakistan embassies abroad for wide coverage.
These would also be provided to various agricultural inspection agencies and importers of agricultural produce so that they could enter in contracts for supply of goods on basis of these standards.
So far, compulsory grading and quality control of 41 items of both agriculture and livestock has been enforced before export.
These products include chillies, fish, citrus fruits, fish meal, lime and lemon, animal hair and bones.​

 

[Neo]

Sunday, April 16, 2006javascript:;
KARACHI: The president and chief executive officer of the Samsung Middle East and Africa Headquarters (MEAHQ) Chiwon Suh is visiting Pakistan to establish the company’s firm commitment in a growing and emerging market. Samsung Electronics is the global digital technology innovator.

Mr Suh is a Samsung veteran of over 23 years and spearheads all aspects of the company’s business in the Middle East region that comprises: the GCC countries (UAE, Saudi Arabia, Kuwait, Oman, Qatar and Bahrain), Levant, as well as Egypt, Iran, Pakistan, Turkey, Nigeria, Algeria, Tunisia, Kenya and South Africa.

“In the last few years, the Middle East market, including Pakistan has gained unprecedented importance on the global business map. This is one of the fastest emerging regions in the world, and I am excited to lead Samsung’s next phase of growth in the region,” Mr. Suh said. “Globally the Samsung brand enjoys an extremely positive reputation. One of my top priorities is to continue to build on our previous regional successes, while bringing in new digital innovation, efficient business processes and unrivalled marketing strategies. staff report

 

[Owais]

LPG Prices surges up to Rs. 40 per Kg
ISLAMABAD: LPG manufacturers companies have increased the prices of LPG by Rs. 3210 per ton. The LPG prices remained till Monday as Rs. 17,000 per ton.

The PPL, OGDC, and PARCO have increased the prices after two years. Now LPG prices in retail market has surged to Rs. 40 per Kg from Rs. 32 per Kg.

LPG Dealers Association was reviewing the situation for any reaction in this connection.