Pakistan Economy - News & Updates - Archive

[Neo]

Pakistan dropped from FT global stock index​

KARACHI, Sept 20: Pakistan would find it difficult to get strong response for its planned GDRs after the country was dropped out from ‘developed’ status of the Financial Times Stock Exchange Indexes on Thursday, said experts.

Pakistan was dropped from FTSE’s global indexes on the grounds “that it no longer meets the entry requirements.”

This is shocking for both the stock market and the planners, who are preparing to launch GDRs of some prominent companies of Pakistan.

However, bankers and analysts did not find the situation critical for launching of GDRs mainly because of high global liquidity created after unexpectedly high oil prices. The oil boom continues to create wealth, of which 50 per cent goes to United States and ultimately reaches global market for investment in the financial instruments.

Analysts found it difficult to assess the immediate impact but said that the decision would bring some impact on launching of GDRs.

Pakistan has planned to launch GDRs of National Bank of Pakistan, Habib Bank and Kapco during the current fiscal.

“I don’t expect big impact but the new GDRs from Pakistan may not get the enthusiastic response as it got in the case of MCB Bank and the United Bank,” said Mohammad Imran, research head at First Capital Research.

Most of the analysts said FTSE Indexes was not the benchmark. They prefer to consider Morgan Stanly (MSCI) as benchmark to calculate any impact or move in the financial market. An estimated $2 trillion to $2.5 trillion of funds track FTSE Indexes

Analysts consider excess global liquidity as one of the strongest factor in selling of GDRs. The global liquidity glut needs opening to penetrate in the economies, which could offer some return. It was a general consideration among the analysts that high global liquidity will not disappoint Pakistani GDRs.

The FTSE group reviews the status of countries each year and last year the group considered to drop Pakistan out from the developed status but was kept under watch. However, this consideration would not have any impact on Pakistan’s image abroad, which is obvious from the record foreign investment.

Analysts said the drop out of developed status would hurt Pakistan’s image but the global liquidity would mitigate the possible negative impact.

“I have two reasons which will defend any possible impact of FTSE group’s decision to oust Pakistan. First, FTSE is not the benchmark and second the surplus global liquidity seeks opportunity to invest,” said Atif Malik, senior analyst at JS Research.

He also pointed out that the decision to drop Pakistan out would be effective in June 2008, which provides sufficient time for launching of GDRs.

China was dropped from the FTSC last year but the result was reverse and the country received huge investment.

Pakistan dropped from FT global stock index -DAWN - Business; September 21, 2007

 

[Neo]

Rs280.3bn revenue target for next quarter​

ISLAMABAD, Sept 20: The tax authorities have set a target of Rs280.3 billion revenue collection for the second quarter (October-December) to achieve Rs1,025 billion target projected for the current fiscal year.

An official source told Dawn on Thursday that a growth of 23.7 per cent had been projected in the revenue collection during the next quarter. The break up showed that the tax authorities would have to collect Rs66.4 billion in October, Rs69.5 billion in November and Rs144.4 billion in December. Tax wise break up showed that Rs130.6 billion would be collected under the head of direct taxes, Rs91.8 billion under sales tax, Rs34.4 billion under customs and Rs23.5 billion under federal excise duty.

The official was of the view that the target would be achieved easily if the economic growth momentum was maintained during the next quarter. However, due to decline in imports, the customs duty collection had recorded a negative growth in the first quarter.

Rs280.3bn revenue target for next quarter -DAWN - Business; September 21, 2007

 

[Neo]

Textile exports fall by five percent in August ​

KARACHI (September 21 2007): Political uncertainty and law and order situation, besides high cost of doing business have once again pulled down the country's textile exports by five percent during August, exporters said on Thursday.

They said that political crisis since March had badly damaged the country's image making foreign buyers reluctant to place their orders, as they believed that their orders, mostly for Christmas season in the West, would not be fulfilled on time.

In addition, the high cost of production and increasing competitiveness in the international market was another factor to hit the country's textile exports, they added.

"We were hoping that after the revaluation of the Indian and Chinese currency, Pakistani textile export would go up. However, the decline in this sector is not less than a serious shock for us," Federal Minister for Textile Mushtaq Ali Cheema said.

He said that tight international competition and high cost of doing business were the chief reasons behind the recent (five percent) decline. However, the ongoing political uncertainty may also be another reason, he added.

During the first month of the current fiscal (July 2007), the country's textile export registered an upsurge of 8.47 percent to 951.937 million dollar. However, in August, the textile sector once again witnessed a regressive trend, resulting in a decline of 52.176 million dollars.

Official statistics show that during August 2007, the textile export declined by 5.27 percent to 938.436 million dollars as compared to 990.612 million dollars during August 2006.

The textile exports also show a slump of 38.675 million dollars during August against the figure of July. The exporters said that the government was not paying due attention to textile exports, which contributed the largest share of 66 percent of the country's exports.

Statistics indicate that out of 13 textile products, export of nine textile products, including raw cotton, cotton yarn, towels, cotton cloth, bed wear, readymade garments and cotton carded exports have recorded a decline in export during last month.

On the other hand, textile exports during the first two months - July-August - of the current fiscal year witnessed a growth of 1.18 percent to 1.89 billion dollars as compared to 1.86 billion dollars during the same period of the last fiscal year.

"We have already informed the government officials that the present political battle was damaging the country image abroad, which could also hurt the economy, said leading industrialist Zubair Motiwala.

He said that the importers were reluctant to visit Pakistan to put their orders amid political uncertainty going on since March till todate. Letters of credit (L/Cs) for export opened for 90 days and the present export results reflected that the future textile export would further go down, he added.

Exporters pointed out that the "high cost of production" had brought the country's textile industry into severe crisis to put a negative impact on the growth of textile exports.

They said that despite the government's repeated current pledges, no serious action had so far been taken to restore the foreign buyers' confidence, while the textile policy was still in pending for the last few months. In such a situation, they said the exporters were relaying only on six percent research and development (R&D) to boost the exports.

Referring to the major competitors like China, India and Bangladesh, where textile products were available at lower prices, they said that faulty and weak marketing strategies on the part of the exporters in the world markets had also created problems for them.

Business Recorder [Pakistan's First Financial Daily]

 

[Neo]

Petroleum products: Country’s import bill falls 6.53% to $1.344bn​

KARACHI: The country’s import bill of petroleum products declined by 6.53 percent to $1.344 billion in July-August of current fiscal as against $1.438 billion over the same period last year. According to official figures released on Thursday, the import bill of petroleum crude was up by 6.53 percent to $ 689.090 million in July-August 2007 as against $ 646.835 million over the same period last year. However, the import of products manufactured from petroleum declined by 17.20 percent to $655.467 million during the period under review as compared with $791.588 million over the corresponding last year. Figures showed that the decline in import bill of oil was due to decrease in import of petroleum products over the last year. The average per month growth in import bill during 2006-07 was around nine percent. The decline in import bill of petroleum started since the beginning of current financial year and analysts said if the trend continues for the next few months, it is expected that current year’s trade deficit will remain under control.

The second major component of the import bill in value was the machinery group and its imports increased by 10.33 percent in first two months of current financial year to $1.139 billion as compared to $1.032 billion over the same period last year.

The increase in import bill of machinery was mainly driven by an increase of 15.95 percent in power generating machinery to $135.671 million in the period under review over $117.011 million in the corresponding period of last year, construction machinery was up by 28.74 percent to $37.655 million over $29.249 million, electrical machinery and apparatus were up 28.95 percent to $122.336 million as against $94.869 million, agriculture machinery jumped 85.46 percent to $26.235 million as compared with $14.146.

In the telecom sector, imports were up 16.65 percent to $398.596 million over $341.699 million. The import of mobile phones decreased 7.61 percent. However, import of other apparatuses increased 33.39 percent during the first two months of the current fiscal over the same months of last year.

The textile machinery declined 33.51 percent and office machinery 28.52 percent during the months under review as against the same months of last year. Import bill of food group registered negative growth of 5.48 percent to $472.134 million in July-August of this year as compared with $499.515 million in the corresponding period of last year.

Transport group’s import bill was also down 12.59 percent to $251.857 million in the months under review over $288.120 million in the same months of last year. Textile group’s import bill was up by 35.40 percent in the said period.

The imports of agriculture and other chemical group were up 25.80 percent during the period and metal group’s import was up 16.46 percent in the said period of current financial year over the same period of last year.

Daily Times - Leading News Resource of Pakistan

 

[Neo]

Swelling trade deficit, still FDI inflows threaten forex reserves build-up​

KARACHI: Foreign exchange reserves of the country continue to swell thanks to the massive inflows of dollars from abroad in remittances and foreign direct investment (FDI).

According to the figures released by the State Bank of Pakistan (SBP) total liquid foreign reserves held by the country rose by $69 million from September 8 to September 15. The country’s reserves surged to $16,090.7 million on September 15 from $16,021.3 million on September 8.

Net foreign reserves held by banks other than SBP rose from $2,248.4 million to $2,292.6 million. Foreign reserves held by the SBP rose from $13,772.9 million to $13,798.1 million.

However, this trend might not continue for long now because the country has suffered a trade deficit of $2.359 billion in the first two months of the current fiscal only and in the absence of any major foreign investment it would become difficult for the central bank to keep the reserves from declining in the coming months.

Although remittances sent home by overseas Pakistanis surged by 21 percent to over $900 million in these two months, the inflow of FDI has not been substantial. The country received $150 million as FDI in July, which was down by 14.8 percent from $176 million received last year. This level of investment would be far from sufficient for the country.

The central bank has been depending upon remittances and FDI to bridge the country’s trade deficit. Economists say that it is unwise on the part of the central bank to rely on remittances and FDI to cover trade deficits. Both remittances and FDI are something that the government cannot control. Due to their volatility, if their inflow stops or declines due to one reason or the other, the government would be helpless. Citing political and security concerns, economists have already predicted that the inflow of foreign investment is going decline this year. Credit rating of the country has been lowered of late, which is going to affect the investment plans of the foreign companies. Many foreign companies have put on hold their investment plans due to highly uncertain political situation of the country.

If the country continues to suffer large trade deficits every month and there are little inflows of dollars in the form of foreign investment — both very likely — the central bank would have to release dollars in the market from its reserves to keep the rupee from declining. If the government decides to keep the reserves at the present level, it would have to let the rupee slide against the dollar. In any case the job of the central bank is going to be tougher than it has been.

Daily Times - Leading News Resource of Pakistan

 

[Neo]

NFL’s vision of Rs 50bn company by 2020​

KARACHI: The National Foods Limited (NFL) are on course of fulfilling the vision of being a Rs 50 billion food company by the year 2020 due to efforts to unearth customer’s insights and develop products, Chief Executive of NFL, Abrar Hasan said in a statement on Thursday.

Speaking at the 22nd annual sales conference, he said NFL believes in its workforce, as the catalyst for growth and sales growth is the result of great teamwork.

He said NFL is consistently improving its performance due to the research and development, both for new products and for improved packaging that ensures freshness. The company has highly qualified scientists and food technologists on board, which are an integral part of the teamwork that has ensured the company’s success.

The theme of the conference was broadly built around NFL’s Vision 2020 and specifically its four components: re-imagine, strategize, evaluate and lead.

The conference also highlighted issues such as the future direction that sales of the company’s products will take in Pakistan and new sales targets to be achieved in the coming year.

NFL has a portfolio of products spanning over 11 categories, 110 variants and 165 pack sizes for national and international markets.

Daily Times - Leading News Resource of Pakistan

 

[Neo]

Pakistan's forex reserves reach record $16.091 bln​

KARACHI, Sept 21 - Pakistan's foreign exchange reserves rose by $70 million to a record $16.091 billion in the week ended on Sept 8, the central bank said on Friday.

Reserves held by the State Bank of Pakistan rose to $13.798 billion from $13.773 billion a week earlier, while those held by commercial banks jumped to $2.293 billion from $2.248 billion, a central bank spokesman said.

Pakistan's foreign exchange reserves have grown steadily over the past few months because of rising foreign investment inflows and higher remittances from Pakistanis abroad.

Pakistan's forex reserves reach record $16.091 bln - Yahoo! Malaysia News

 

[Neo]

Risk of Pakistan default may double, analyst says​

By Patricia Kuo Bloomberg NewsPublished: September 20, 2007

HONG KONG: Growing opposition to President Pervez Musharraf of Pakistan may double the risk of the country defaulting on its bonds, according to Lehman Brothers.

Credit-default swaps on Pakistan debt may rise to 850 basis points, said Yang-Myung Hong, a credit analyst in Hong Kong with Lehman. The contracts closed Tuesday at 425 basis points, up from a record low of 146 basis points on Feb. 22, according to CMA DataVision in London.

Hong recommends buying protection against a default on the country's $2.7 billion of dollar-denominated bonds as Musharraf seeks re-election next month. Two former prime ministers, Nawaz Sharif and Benazir Bhutto, are rallying opposition to Musharraf, whose policies have helped the $146 billion economy of Pakistan expand at an average of 7.5 percent annual rate over the past four years.

"There is high probability the road to a peaceful resolution would be bumpy," Hong said.

Pakistan bonds may become as risky as those of Ecuador under the most "pessimistic scenario," Hong said. The cost to protect Ecuador debt from default reached 850 basis points on Sept. 12, the highest of any government, CMA prices show. President Rafael Correa said during his campaign last year that Ecuador might not make interest payments on its debt.

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Credit-default swaps are financial instruments based on bonds or loans that are used to speculate on a borrower's ability to repay debt. Higher prices suggest that investor confidence is deteriorating. Each basis point on a contract protecting $10 million of debt from default for five years adds $1,000 to the annual cost. A basis point is one-hundredth of a percentage point.

Credit-default swaps on Pakistan's bonds may fall to 280 to 300 basis points if all parties reach a resolution, Hong said.

The cost of contracts linked to Pakistan's bonds has risen since Musharraf ordered an army raid on the Red Mosque in Islamabad on July 10, ending a challenge by militants who wanted to impose Islamic rule in the capital.

Standard & Poor's cut its outlook for Pakistan's credit rating to "stable" from "positive" on the same day on concern that security was deteriorating. S&P has a B+ foreign-currency rating on the debt, four levels below investment grade. Ecuador is at CCC, or four steps lower. Debt rated below BBB- by S&P is considered high-yield, high-risk, or junk.

"Pakistan's economic fundamentals are still strong enough to deal with this kind of political uncertainty for a while," said Agost Benard, a credit analyst at S&P in Singapore. "But if it doesn't get resolved soon, it will affect investor confidence. It could reach a stage where it could affect the economic fundamentals and the rating."

S&P is unlikely to change the rating for now, he said.

Demonstrations by Islamic parties against the president have escalated since the raid. Sharif returned to the country on Sept. 10 after seven years in exile in Saudi Arabia. Musharraf, who ousted Sharif in 1999 in a military coup, had him deported again.

Bhutto said last week that she intended to return on Oct. 18 to lead her party in elections, after living in self-imposed exile in Dubai and London since 1998. Bhutto heads the Pakistan Peoples Party, the country's largest opposition group, which rejected Musharraf's attempt at a power-sharing agreement.

Musharraf pledged to resign as army chief if he won a new term as president, one of his lawyers said Tuesday. Bhutto's party rejected the move and said it would be unconstitutional for Musharraf to run in the presidential election while he was still army chief.

The Pakistani leader is opposed by both pro-democracy advocates who want him to end control of the army and govern more freely, and Islamic groups sympathetic to Al Qaeda who resist his cooperation with the United States in battling terrorism.

Pakistan needs overseas investments to sustain its economy, which the government forecast could accelerate to 7.2 percent in the year that started July 1 from 7 percent in the previous year. Foreign direct investment increased to $5.12 billion in the past fiscal year from $3.5 billion the previous year, according to government data.

Risk of Pakistan default may double, analyst says - International Herald Tribune

 

[Bushroda]

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[Neo]

July-August foreign investment down 16 percent ​

KARACHI (September 22 2007): Foreign investment, after a long gap, have declined by 16 percent during the first two months of the current fiscal mainly due to portfolio inflows and uncertain political situation in the country for the last few months.

The State Bank of Pakistan on Friday issued latest statistics of foreign investment, including foreign direct investment (FDI) and portfolio investment, showing overall decline of some 60.4 million dollars during the first two months of the current fiscal year.

Overall foreign investment stood at 313.9 million dollars during July-August of the current fiscal as compared to 374.3 million dollars during the first two months of the last fiscal years.

"Major reasons behind this dip is decline in the portfolio inflows, as the foreign investors were reluctant to invest in the equity market due to political uncertainty and negative reports regarding the country's stock markets," economic experts said.

They believed that after the presidential elections, foreign investors might again invest in Pakistan. "Despite the political crisis, the overall inflows of some 313.6 million dollars are a positive sign and it means that still foreigners are interested to invest in Pakistan," they added.

They made it clear that during the current fiscal, overall investment would be lower than the investment of last fiscal year when the country received some extraordinary funding by the foreign investors, besides some government level investments.

Statistics show that FDI during July-August has increased by 22 percent, but the declining portfolio investment has decreased the overall investment by 16.10 percent. During the first two months, the FDI has gone up by 22.6 percent to 460.3 million dollars as compared to 375.5 million dollars during the same period of the last fiscal, while portfolio investment is already in negative position of 146.3 million dollars.

Besides, privatisation proceeds show a decline of 7.7 percent to 375.9 million dollars during July-August of 2008 fiscal year as previously it stood at 407.3 million dollars, depicting a dip of 31.4 million dollars during the first two months of current fiscal year.

Business Recorder [Pakistan's First Financial Daily]

 

[Neo]

Airblue carries 10,000 passengers on Manchester route ​

KARACHI (September 22 2007): Pakistan's fastest growing airline, Airblue on Thursday recognised the 10,000th passenger on its Islamabad-Manchester route with a simple ceremony at Islamabad Airport.

Airblue started the first long-haul operation ever by a private Pakistani airline to Europe with four weekly flights from Islamabad to Manchester on June 1 this year and an additional flight was added in late June to increase capacity on the route to five weekly flights. The convenient scheduled timings from both Islamabad and Manchester, and personalised service has enabled Airblue to capture substantial market share on the route; and in a short span of 14 weeks it has carried more than 10,000 passengers on Islamabad to Manchester sector.

The 10,000th passenger was Sara Latif, a resident of Sialkot, who was leaving to pursue higher studies in Finance at Birmingham University. The surprised lady was presented with two Return Business Class Manchester-Islamabad tickets and a model of the Airblue Airbus A321 aircraft by Airblue Islamabad District Manager Saeed Hassan.

Airblue officials said here on Friday that the airline planned extensive growth in its operations with the purchase of 14 new-generation aircraft providing additional frequencies to existing destinations and opening of new routes in the Domestic, Middle Eastern, and European markets.

Business Recorder [Pakistan's First Financial Daily]

 

[Neo]

6.53 per cent fall in oil import bill​

ISLAMABAD, Sept 21: The country’s import bill of oil declined by 6.53 per cent to $1.344 billion during July-August period of fiscal year 2007-08 as against $1.438 billion over the same months last year.

The negative growth in import of oil bill has been recorded for the last couple of months in the wake of substantial decrease in the import bill of products manufactured from oil during the period under review over the last year.

However, the import bill of crude was up by 6.53 per cent to $689.09 million in July-Aug 2007 as against $646.835 million in the same months last year. The recent surge in oil prices in the international market increased the oil import bill which would further escalate during the upcoming months.

The oil prices surged to $84 per barrel recently, which is anticipated to increase further as there was disruption in supply of oil in international market.

Official figures released here on Friday by the Federal Bureau of Statistics (FBS) indicated that import of products manufactured from oil declined by 17.20 per cent to $655.467 million during the first two months of the current fiscal year as against $791.588 million over the same period last year.

It indicates that the share of oil is still on the higher side, which like last year, would be the prime mover of trade deficit this year because of greater consumption.

The second biggest component of the import bill in value was machinery group.

However, its import increased by 10.33 per cent in July-Aug 2007-08 to $1.139 million as against $1.032 billion over the same months last year.

The import bill of machinery was mainly pushed by an increase of 15.95 per cent in power generating machinery, construction machinery 28.74 pc, electrical machinery 28.95pc and agriculture machinery 85.46 pc.

Statistics showed that more depressing aspect of the current trend in economy was the steady decline in import of textile machinery which declined by more than 33.51 per cent during the July-August period of the current fiscal year over last year. It means textile tycoons have stopped importing machinery.

Food items import dipped by 5.48 per cent to $472.134 million as against $499.515 million in the corresponding months of the last year.

The import of milk products decreased by 1.36 per cent, wheat unmilled 40.84pc, tea 23.22pc, sugar 97.92pc and pulses 44.17pc during the period under review.

The import of palm oil increased by 90.06pc, soyabean oil 1,011pc, spices 2.1pc, dry fruits 330.13pc during the July-August period of the current fiscal year over last year.

6.53 per cent fall in oil import bill -DAWN - Business; September 22, 2007

 

[Neo]

Reconstruction cost in quake-hit areas up by $500m: ERRA​

* Authority deputy chief says 210,000 houses built so far

By Ijaz Kakakhel

ISLA MABAD: The reconstruction cost of the earthquake-affected areas has jumped from $4.483 billion to around $5 billion showing a net increase of about $500 million, Earthquake Reconstruction and Rehabilitation Authority Deputy Chairman Lt Gen Nadeem Ahmed said on Friday.

Addressing a press conference at the Asian Development Bank here on Friday, Nadeem linked this increase in the reconstruction cost to the surge in prices of construction materials, and some other factors. About $2.3 billion has been spent so far on reconstruction works, he added.

Construction of 210,000 houses: Gen Nadeem said that more than 210,000 houses had been constructed in line with international standards. These houses can sustain “any disaster” in the future, he added. The enrolment of students, particularly female students, has increased substantially at educational institutions, he said. He said more than 788 healthcare schemes had been completed. He said 98 percent of the affected people had received Rs 78,000 for reconstruction purposes. The whole construction process will be completed in five years, he said.

ADB Country Director Peter L Fedon said there was a construction boom going on in the quake-hit areas. The ADB has been assisting the ERRA in its reconstruction process and extended $400 million for the purpose, Fedon said, and desired to complete this process as early as possible. Fedon said the ADB had established its sub-office in Muzaffarabad to assist the ERRA in carrying out rehabilitation works.

European Union Ambassador Jan De Kok said the EU had pledged a 100 million Euro aid for the quake-hit areas. Belgium Ambassador Michel Goffin said Pakistan had introduced a new thing: that is to do better than before the October 8, 2005, earthquake. The structure of new schools is better than what it was before the 2005 earthquake, Goffin said, and added that enrollment of students at some schools has increased from 30 to 350 due to better facilities there.

Daily Times - Leading News Resource of Pakistan

 

[Neo]

SPI inflation hits double digitBy Israr Khan ​

Sunday, September 23, 2007

ISLAMABAD: The weekly SPI-based inflation hit double digit at 10.74 per cent for the week ending September 20, 2007 over the corresponding week of the last fiscal, the Federal Bureau of Statistics (FBS) reported Saturday.

The mother of all economic and social evils (inflation) is not only eating away the purchasing power of the fixed income (salaried class), but also adding to the miseries of millions of people living below the poverty line.

Compared with the previous week’s Sensitive Price Indicator (SPI) of 53 daily-use items it showed a sizeable increase. It is worth mentioning that as the holy month of Ramazan came closer and closer the prices of kitchen items went higher and higher.

The prices started increasing on August 23 when hoarders started stocking up ahead of Ramazan and created artificial supply constraints in the market that resulted in high prices that are still increasing.

On the other hand, the government seemed helpless in prosecuting these hoarders responsible for skyrocketing prices of essential kitchen items.

After August 23, SPI turned its beak up and each week it jumped up sizably. On August 30 it stood at 8.13 per cent on September 6 it was 8.38 per cent and just two days before the holy month of Ramazan on September 13 SPI jumped to 10.02 per cent and now during the week under review SPI stood at 10.74 per cent.

The FBS weekly SPI-based inflation bulletin says that year-on-year rise in the prices of some necessities and kitchen items were exorbitant. These commodities were onion, wheat and wheat flour, liquefied petroleum gas, rice, ghee, cooking oil and milk.

The bulletin on SPI, based on data collected from amongst 53 items from 17 centres, showed that 14 items registered increase, and 13 items showed decline, while prices of 26 items remained unchanged.

However, further analysis of the data revealed that on a year-on-year basis nine items are dearer by double digits. These include; rice basmati 56 per cent, rice irri-6 46 per cent, vegetable ghee loose 38 per cent, mustard oil 37 per cent, egg farm 31 per cent, wheat flour 26 per cent, wheat 25 per cent, curd 13 per cent and plain bread prices increased by 12 per cent.

Among these items, in a short span of just one week the prices of wheat flour increased by 5.83 per cent, wheat 5.3 per cent, egg farm 5.27 per cent, L.P.G (11 kg cylinder) 4.68 per cent, bananas 2.87 per cent, mustard oil 1.69 per cent, plain bread 1.6 per cent, vegetable ghee loose 1.21 per cent and rice basmati prices up by 0.84 per cent over previous week.

The figures further showed that though prices of 26 items posted no change during the week, yet compared to the corresponding week of last year, several items are dearer i.e. powder milk, vegetable ghee (tin) and cooking oil (tin) prices increased by 30 per cent over corresponding week of the last fiscal.

SPI inflation hits double digitBy Israr Khan

 

[Neo]

Grinding of wheat much higher than consumption​

KARACHI, Sept 22: Has anyone in the government or the business ever thought why are there about 1,000 flour mills in Pakistan with a total grinding capacity that is about five times the requirement of the country?

Who are these people who invested in flour mills even when they knew that the sector is over-saturated as far as Pakistan market for wheat flour is concerned?

It is an issue that begs for an explanation from the military president, a banker prime minister and from the oversized federal cabinet with 70 members, mostly drawn from business, landed gentry and second generation of families with proven loyalty to military governments in Pakistan.

Needless to say that many owners of the flour mills enjoy close links with businessmen-politicians in the federal and provincial cabinets and in the federal and provincial legislatures.

There are many retired military servicemen having stakes in flour mills.

Obviously, all these gentlemen with stakes in flour mills and wheat trade would not like their investment to go waste.

Efforts were made by this correspondent to seek explanation from the federal ministers of food and agriculture and industries and production.

Repeated calls were made to Mr Hayat Bosan and Mr Jehangir Tareen that failed to evoke any response from them in last three or four days.

Chairman, All-Pakistan Flour Mills Association Sheikh Mohammad Shabbir responded from Islamabad to inform that there were 950 flour mills in Pakistan with a total grinding capacity that is four times the wheat flour requirement of the country.

He ruled out cartelisation of flour mills in the country for creating shortages and pushing up prices.

“Absolutely impossible,’’ he made it clear while responding to an observation that quite a few flour mills have joined to form a cartel to regulate supply and push up prices of wheat and wheat flour in the market.

“The production capacity is much in excess of demand and almost all flour mills operate under their capacities out of compulsion,’’ he said.

But there was no plausible explanation as to how all these flour mills make their business operations viable by operating only on 33 to 50 per cent of the utilisation capacity.

Quite a many of these about 1,000 or 950 flour mills are closed and almost everyone of these flour mills operates on one to one and half shift basis. It means that every flour mill is operating on 33 to 50 per cent capacity utilisation basis and is yet in the business. How?

“An average size flour mill can be set up at an investment of Rs15 to Rs20 million,’’ Murtaza Jatoi, the adviser on Food and Agriculture to Sindh chief minister explained the proliferation phenomenon of flour mills in the country and stressed that there was hardly need of any bank credit as there were many people with such amount of cash with them.

But still the question is why should people put even this “small amount’’ in a business that is already over-saturated in terms of investment.

“My family does not have any flour mills, therefore, I cannot offer any explanation why people invest in setting up a flour mill.”

There are 80 flour mills in Karachi with a total grinding capacity that is three times of the actual wheat flour requirement. In Mumbai, the Indian mega city, with population almost equal to Karachi if not more, has only 22 flour mills. As compared to Karachi, Mumbai is closer to wheat growing areas of Maharashtra.

Like Karachi, Pakistan’s capital Islamabad is also located far away from wheat growing areas and its population is much less. Yet there are about 20 flour mills.

One explanation offered by a market analyst is that flour millers and wheat traders “do not operate for Pakistan market only.”

For years together, Afghanistan gets wheat and wheat flour from Pakistan. Pakistani wheat is said to be reaching Moscow and many countries of Central Asia.

In the current season, when there is a global wheat shortage and flour price is said to have touched Rs22 to Rs25 a kg in some parts of India, as much as two million tons of wheat and wheat flour is said to have been transported across the border.

Only the other day, Punjab Chief Minister Chaudhry Pervez Elahi said in a talk show that Pakistani wheat and wheat flour bags were being seen in Afghanistan and parts of Central Asia.

Way back in 1997, the Punjab food minister after returning home from Russia had disclosed that he saw for himself wheat flour bags of Pakistani mills in Moscow stores.

Millers jokingly call Afghanistan the “fifth province” of Pakistan for which not only wheat and wheat flour but cooking oil, ghee and importable items are indented.

A premature decision to export wheat by the government and a bumper wheat crop set the ideal conditions for speculators and more enterprising millers to go for quick money spinning.

Even a suspension of export in May could not stop outflow of wheat and wheat flour.

An outflow of wheat and wheat flour pushed up prices within domestic market.

“It has all been milk and honey for speculators and millers this season so far,’’ the market analyst said.

What keeps the millers in business despite partial capacity utilisation is the subsidy element that gives good margin in trade.

The Punjab government is giving Rs16 billion subsidy while Sindh is likely to offer anywhere up to Rs6 to Rs7 billion on wheat trading.

The NWFP and Balochistan governments also offer good amount of subsidy on wheat trade.

The Sindh chief minister announced on Friday Rs250 million additional subsidy on wheat and wheat flour trade during Ramazan.

Murtaza Jatoi said this subsidy would be given to millers at the rate of Rs125 on 100 kg bag. The millers will be asked to fix ex-mill price at Rs13.50 during Ramazan.

Millers have been asked to open at least one fair price shop outside their mills. In Karachi, there will be more than 70 such fair price shops.

But these remain cosmetic measures for Ramazan. For round the year, as a market watcher said, the consumers are at the mercy of traders, millers and food bureaucracy.

The flour mills remain a thriving business for many political families and retired armed forces personnel because the government provides a good cushion for exploring market far and wide.

Business circles now openly say that there is a strong caucus of about a dozen persons. This caucus has a few stock brokers, a few brokers and grain merchants who exploit the situation to their advantage and make quick money at the cost of 160 million helpless consumers.

Grinding of wheat much higher than consumption -DAWN - Business; September 23, 2007