Pakistan Economy - News & Updates - Archive

[Neo]

Fruit production in Balochistan​

WITH four agro-ecological zones, Balochistan is endowed with a unique environment for the production of a great variety of quality fruits. The province is known as the fruit-basket of the country producing 90 per cent of grapes, cherry and almonds, 60 per cent of peach, pomegranate, apricot, 34 per cent of apple and 70 per cent of date.

The province, with diverse climates ranging from temperate to sub-tropical and tropical, produces various fruit crops. While apple, apricot, cherry and peach are high delta fruits, grape, olive, pistachio and pomegranate belong to the low delta of the province. While mango is a tropical fruit, date palm is a sub-tropical one.

The province produces 130 varieties of date. According to one estimate, Mekran produces about 0.5 million tons of dates annually. Some of the famous date varieties grown in Turbat and Panjgur include Begum Jangi, Kaharaba, Mozawati, Berni, Helini and Sabzo. The province produced over 6,625 tons of mango during fiscal year 2003-04 contributing 0.6 per cent to the total national production.

Fruit crops are grown over an area of 1,49,726 hectares in the province with a yield of about 0.9 million tons annually. Fruit production in highland Balochistan, which contains south-western region, depends on the availability of groundwater. The region is famous for production of commercial varieties of grape such as Kishmishi and Sundarkhani.

While talking to this scribe Raza Tareen, the horticulturist in Agriculture Research Institute (ARI) in Quetta, said: “Zoning is essential for growing different fruit crops in Balochistan, as each agro-ecological zone presents specific agro-climatic condition for production of different kinds of fruit”.

Grape, the low delta crop, is grown in bulk in Quetta, Pishin, Kalat, Zhob, Loralai and Mastung districts. It may be grown in all types of climates and soils, but the experts believe that the province should be divided into zones for quality fruit production. For instance, for high delta fruits of apricots and plums, an “apricot zone” or ‘plum zone’ should be set up in upland Balochistan.

Another expert Muhammad Naseem in ARI said Balochistan’s tremendous yield potential of high quality fruits can efficiently be tapped by establishing ‘crop specific zone’ and “fruit processing units” in the province. The fruit farmers needed to be properly educated about the techniques of growing fruit crops, and pay attention toward zoning for growth of different fruit crops. Efficient crop management could increase the profit of local farmers by reducing the production cost.

The experts in ARI are working on the production of cultivars of different fruits in Balochistan. As a result of agriculture research, cultivars of different fruits have been introduced. For instance, local cultivars of grapes, which have been introduced so far, include Kishmishi, Sundarkhani, Haita, Hussani, Askari, Khal Chini and Khalili. The cultivars of apple include the early-season cultivars, mid-season cultivars and late-season cultivars. So far 52 varieties of apples, 22 of grapes, 14 of peaches, 15 of cherry, 30 of plums, 32 of apricots, 11 of olive, five of almond and four varieties each of pistachios and pomegranates have been introduced.

Muhammad Shakeel, deputy director planning in the Directorate General of Agriculture Research in Quetta, said that research studies had also been conducted on tropical fruit production in the province. New techniques for production of tropical fruits, and cost-effective practices and packages for improvement in production, and new high-yielding and pest-resistant varieties of tropical fruits had also been introduced.

In Lasbella district, a project for improving production of tropical fruits is under way under PSDP schemes. The ARI is also working on insect pest control in Balochistan and it had established the codling moth control on apple and reduced number of sprays from eight to two times.

Farmers’ problems: Local farmers face a plethora of problems from planting, harvesting to marketing of their fruit crops. Shortage of irrigation water, non-availability of groundwater in highland, lack of marketing infrastructure and facilities like farm-to-market roads and sale centress, dearth of skilled labour and lack of technical knowledge and expertise, are the main problems that prevented long-term investment in fruit production. Moreover, the absence of cold storages and air-conditioned transportation facilities for fruits like grapes also increase the risks of damage to fruits.

“Growing fruit crops has become an expensive venture for local farmers, as they lack the essential facilities and infrastructure in the province to market their products and earn profits”, said Muhammad Hassan Panizai, a small farmer of Khanozai area of Pishin district in Northern Balochistan. He said,” Today, only a financially stronger farmer with well-established market links can survive in fruit growing business.” There is no charm for small farmers in this field”, he added.

The small farmers have also no access to bank loans to meet their working capital requirements. For the local farmers, obtaining loans is also a complicated process. They need finance at all stages of crop activity from sowing to spraying and harvesting and for making different types of improvements in the land, farm implements, machinery, tube-wells and so on. Fertilisers are essentially used by the growers of fruit crops, but their prices have soared to 30 to 35 per cent. Panizai said: “We cannot afford buying fertilisers at the current price.”

This year the fruit crop is likely to be affected, as the farmers have not used fertilisers as per their requirement”, he added.

Soil test also needs to be conducted on regular basis at the time of planting a fruit crop. For instance, planting season for apple crop in Northern Balochistan commences from February 15 to March 15. The ARI experts should visit the cropping areas during the season and conduct soil tests and educate the local farmers about the deficient element of the soil and recommend them the required fertilisers and its quantity. There is also a need to ensure supply of fertilisers to the fruit growers at subsidised rates.

Local farmers particularly the growers of apple feel extremely worried about attack of mites on the crop. The mites attack the leaves of the fruit plant damaging the chlorophyll and within a short period, the entire crop is affected. The local farmers spray pesticides on the crop four to eight times in a month. The affected plants do not bear quality fruits, and hence the fruits are sold at lower prices. The local farmers also complained the adulterated pesticides were available in bulk in the local market.

Pre-harvest contractors and commission agents largely benefit from the fruit production and the poor farmers continue to reel under the miserable socio-economic conditions.

The small farmers have no option but the pre-harvest sale of their orchards to contractors, as they have no cold-storage facilities to save their produce. Moreover, they are unable to bear the high costs of entire marketing operation for their fruit crops. Only a few farmers with sound financial position have direct contacts with the commission agents to market their produce.

“What is direly needed is to enable the farmers to sell their produce directly eliminating the role of middlemen in the marketing channel” a local farmer said.

Some farmers suggested that like wheat crop the government should fix support price for fruit crops setting a procurement target for the ex-harvest year and the government agencies should directly purchase the produce from the farmers at the fixed price.

Suggestions: The government should provide relief to the local growers of fruit crops by providing them essential infrastructure facilities like farm to market road, cold-storage houses, and regular and sustainable supply of electricity in order to enhance production and export of quality fruits.

There is a need to overcome the scarcity of water through construction of check/delay action dams in suitable areas of the province. The micro-irrigation systems need to be introduced widely to cope with problem of water shortage in fruit growing areas of the province.

Steps should be taken to check adulteration of pesticides, as the adulterated pesticides adversely affect the quality of fruits.

The ARI should organise regular visits to the orchards and provide guidelines to local farmers on the problems, which arise during various stages of production. The experts should also introduce high yielding, and drought and disease resistance varieties of fruits.

Balochistan has tremendous potential for development of horticulture, particularly the fruit farms. Serious efforts needed to be directed for bringing about a shift from traditional to a technology-based farming system.

The government should extend credit to small farmers for horticulture development. The lack of finance does not enable the cash-starved small farmers to harvest and market their fruit crop. The small farmers’ access to loan facility should be ensured.

Fruit production in Balochistan -DAWN - Business; March 17, 2008

 

[Neo]

Investing in agriculture​

The World Bank has advised the developing countries to place agriculture at the centre of their development agenda , make huge investments in farming and deliver urgently needed agrarian reforms. The advice has come in the wake of soaring world food prices and absence of modern farming that could boost agriculture production.

Agriculture is the foundation of many of the developing economies and provides raw materials and market for their nascent industries. And yet the vast majority of the people living in rural areas are worst hit by poverty. Pakistan is no exception to the problems arising out of the outdated farming practices and stagnant agriculture.

If the agriculture produce is to be increased to widen rural prosperity, make essential food items available to the urban people at affordable prices, and cut on food imports, expected to touch $2.5 billion this year, massive investment has to be encouraged in farming. Too much money is going into shares market and other non-productive pursuits which needs to be curbed through taxation.

lf you have to eliminate abject poverty from our midst and reduce the number of the poor according the UN millennium goal of half the present number by 2012, the agriculture sector should not be starved of investment and bank credit. . The poor farmers have to be liberated from the grip of the money lenders, middle men and feudal cultural practices.

It is landless farmers and share- croppers who are worst affected by poverty. They are so poor and culturally backward that they imitate the cultural values of the feudal lords and become more indebted and poorer in the process. Some of them and their families end up as bonded labour. They are not able to free themselves from their debt even when their whole family works for the landlord all the year round. The nature of the inequity of the bonded labour system has been exposed time and again but it continues because of the might of the feudal lords in their areas and the helplessness of the borrowers. The poor farmers are unable to raise loans from banks. If the banks charge 14 per cent interest, the money lender charges 50 -100 per cent at compound rate.

The batai or crop sharing system needs to be replaced by cash contract system to facilitate corporate farming for local farmers before attracting foreign investment in agriculture. A simple legislation can do the job.

The banks have been advised time and again to lend more to the small farmers but they are reluctant to do that because of lack of collateral. Some beginning has however been made by extending micro-credit to peasants but not to the poorest of the poor.

Grameen banks founder Mohammed Younus has gone all the way to New York to lend to the American poor who have no bank accounts..

If anyone breaks out of the system, he does not have the opportunity to market his products , much less export them as the government agencies serves big business. In such a context, the Asian Development Bank has come up with a fund for small loans of $320 million in rural areas. The bank finds that when the money is given to the government for lending to the farmers it is used in its own way and the poor farmer does not truly benefit. The intermediaries also grab a share of the money so the bank has come up with a scheme for all kinds of small loans including postal loans through the banks. If the scheme works well, it will help a large number of farmers.

In democracy, there is equality of opportunity and economic rights to improve the lot of every citizen. The elected government has to work for the common good. So if more such lending schemes come up, it will be good for the farmers.

The basic problem with a small land holding is that it is not viable. As the families expand, the land gets divided further and further . Fragmentation of small parts of land has to be discouraged and larger more viable holding encouraged. If the 320 million dollar loan helps in this process in the rural areas, it will be a very beneficial step.

The government of India has decided that commercial banks write off $15 billion given to poor farmers as part of its policy of rural debt relief. The banks will be compensated by the government.

The small farmers need to be encouraged through co-operatives. With the help of a real co-operative system they can buy what they need collectively and cheaply and sell what they produce at competitive prices. Loans and common services like provision of tractors, seeds etc can also be provided by it. They can have supplementary income from cattle farming, chicken breeding, raising flowers and fruits. The crop yield will go up appreciably..

It all begins with the ownership of the land and the family staying together instead of the sons migrating to cities and staying in Katchi Abadi in cities. The need of the hour is that the land be given to the tillers and surplus government land to the landless farmers. Too many people are afloat now and that number has to reduced.

Investing in agriculture -DAWN - Business; March 17, 2008

 

[Neo]

Economic choices for the new government​

People have voted for a new government to have a clear break from the economic policies of the past eight years.

The predominant concern in the recent past was economic growth rate with the ruse of trickle down that is an obsolete and an archaic premise. The trickle-down thesis stands refuted empirically. The state-of –the-art borne out in late developers is growth-with-equity. If it can happen there, why can Pakistan not have growth-with-equity too?

As the previous government boasted of high rates of GDP growth, food and other prices soared, current account deficit widened, energy shortages worsened despite the pet prescription of privatisation, unemployment increased as people were ruthlessly retrenched, GDP grew but not job opportunities, and poverty, as measured by incomes, education and health facilities and living conditions showed no signs of abatement for bulk of the population.

Surplus continued to flow from the lower to the upper income groups that stood better off. As food became scarce, incomes of the farmers increased, as this remained the prime concern of policy makers. While there are other factors that also feed into higher agricultural output, focus was on farmers’ income. Clearly, the past government’s decision-making was heavily tilted towards the rich farmers and the rich investors who acquired public enterprises. It was the lower tier that suffered by losing out on jobs, food, and living conditions.

This lower tier was asked to wait for their trickle of benefits. Instead of waiting, they voted that government out to bring in a new one. The previous government had, therefore, bet on the wrong horse. While the upper echelons served as their political base, they did not have power enough to retain the then incumbents in the office. As it turned out in the general elections, power was with the common people. The commoners’ concerns should be dominating the next economic agenda if the mandate of the electorate is respected..

One of the issues, however, is that, once in power, the office lobbies get crowded by the influential asset owners in various segments who alone are provided access by the system of governance. The electorate gets shunted out and away from the government that has actually been thrown up by the ones who can no longer or with extreme difficulty access their representatives holding position of power.

The agenda is thus dominated by the haves who wish to have more. The decision-makers play to the tunes they hear in the vicinity. Since human memory is short, the tunes of the common electorate begin receding into the background. Once out of active memory and amidst the splendour of high government offices, they are likely to be forgotten. The concerns of the “crowd”(electorate) thus get crowded out of the agenda.

Even before the next government would take charge, the concerns of the farmers have been trumpeted a lot more than the concerns of the ones who are behind the victory of the winners in this election. It is being demanded that the wheat support price should be increased by more than 100 per cent as the international prices are rising. So, it is said that unless support price is brought up significantly, farmers will not have incentive to produce more. While more production also depends upon inputs and techniques, emphasis only on the support price makes the entire issue of wheat output underspecified.

The question is that when oil prices decreased in the international markets, did our petroleum prices also move in the downward direction? Have our sugar and cotton prices always moved in tandem with international prices for the same? Do people, in general, get international level salaries? Since, for sure, wages and salaries are nowhere near and cannot be at the international level, people can certainly not afford to pay a price of wheat determined in the light of international price for this basic food item. They will be further impoverished if wheat price goes further up as increase in wheat price has a ratchet effect on the overall price level.

Also, to jack up wheat support price for reasons of efficiency is to neglect the issue of equity. In the interest of equity, there should be a trade-off between efficiency and equity. Responsible elected governments determine the extent of surplus that must flow to the consumers most of whom are poor or around it. Support price should then be fixed accordingly and in line with the promises of equity made during the election campaign. Overall price level in general and wheat price in particular will be a significant distributive factor in this tension between the producers and consumers.

The new government will also need to pull out of the GDP growth rate hang-up. In the recent past, much of it was fuelled by creating credit-financed demand for consumer durables. In our country, higher production through better capacity utilisation is deemed as satisfactory growth. Strictly speaking, we should aim at economic growth that takes place when the production possibilities grow beyond what is being produced with full utilisation of resources a country is endowed with.

As far as we are concerned, full resources are far from full utilisation. Our land, human capital, machinery and equipment are all grossly under-utilised as is evident from the land mass that is not cultivated, labour power unemployed or under-employed, and installed machinery that does not operate at capacity. Yet, there is a tendency to be jubilant over growth rates when despite growth the economy remains inside the production possibility frontier. Real growth is to pull the production possibility frontier outwards after all the resources have been deployed.

So, the pre-occupation ought not to be only with figures and quantities. Rather, pre-occupation ought to be with ideas for utilisation of the resources that exist but remain un-/under-utilised. This will generate output and employment. The quality and character of growth need to be targeted so that the goal of growth-with-equity is approached. Who benefits is the key question here.

Lasting solutions to the issue of employment need to be sought failing which the symptom will re-appear. Infrastructure projects provide employment only during the life of the project. Yes, this route was taken in the US and China. It worked there because the economies were ready to absorb the workers freed from infrastructure projects. It is not likely to work here unless the economy generates the same labour-absorbing capacity.

This will happen only if decision-making weighs boldly in favour of the deprived in both the rural-agricultural setting as well as in the urban-industrial areas. If surplus labour is expected to be absorbed in the urban informal sector, the policy will continue to be dualistic instead of being integrative and inclusive. Discontent and resentment will continue to simmer beneath the surface.

Exports will follow as a logical consequence when existing human and material resources are intensively utilised. Equally important will be to build the values of honesty and hard work that under-girded the capitalist revolution in the past. Only then will good managements be found in public, private, and agricultural set-ups. In the absence of these basic values, a case cannot be made for less government yet. For, most economic activity requires the visible hand of the government for supervision and regulation failing which the tendency to hog the resources might exacerbate thus leaving the electorate worse off.

Economic choices for the new government -DAWN - Business; March 17, 2008

 

[Neo]

Strengthening electronics manufacturing base​

While robust GDP growth has been witnessed over the last few years, this growth did not translate into improving the economic security of its people due to high rate of inflation and unemployment. The increasing trade deficit-- a cause of concern- needs to be addressed by policies that facilitate growth of export-related industry while at the same time reliance on imports should be reduced. This will require enhancing the power generation capability, strengthening the manufacturing base, and investing in alternate fuel to reduce dependence on imported oil.

But Pakistan seems content exporting textile products, while the rest of the upcoming economies are investing in high growth and high technology industries and human capital development. This has to change for broadening the middle class and raising the standard of living of the populace. Investment in alternate fuel (e.g., ethanol) and electronic equipment production should be the two prime targets for strengthening the manufacturing base. The focus in this article will be on the need for establishing local electronic manufacturing industry and the ways to achieve this.

According to the Economic Survey of Pakistan, the country spent $1.8 plus billion in importing telecom equipment during July-April of FY2006-07, a growth rate of 17.3 per cent over the same period of 2005-06. With the increasing use of mobile phones and the number of subscribers growing north of 100 million within a few years, the country will be doubling its imports of telecom equipment within a few years. Imports of telecom products will most likely become the second highest ticket item after petroleum if nothing is done to change this now.

If all of these electronic products are produced locally, this will not only provide new employment opportunities in direct and ancillary industries but will also help reduce the trade imbalance. Once Pakistan gets on the map of the world of electronic manufacturing, new opportunities will sprout up where local companies can provide outsource services in RF and ASIC design; printed circuit board design; and electrical, thermal, and mechanical simulations. This may seem optimistic, but having worked in this industry for close to 20 years, I have seen the transfer of electronic manufacturing and design industry from higher cost to lower cost regions of the world. New markets and cost reduction are the constant drivers for this industry and the Nokias, the Samsungs, and the LGs of the world are looking to provide better and cheaper products to the consumers and compete with each other.

There are two distinct models that the industry follows for electronic products manufacturing; the in-house manufacturing model and the fabless model. In the in-house model, the original equipment manufacturers (OEMs) like Nokia and Samsung have their own manufacturing facilities. On the other hand, companies like Sony Ericsson and Cisco follow the fabless model, outsourcing almost all of their manufacturing to electronic manufacturing services (EMS) providers to reduce cost. These EMS houses, such as Foxconn and Flextronics, have seen tremendous growth during the last few years and are opening new facilities all over the world. The EMS model is also attractive because these companies can manufacture any type of electronic products (mobile phones, laptop, desktop, printers, flash drives, and so on) and are not just dedicated to one product type such as a mobile handset.

Given that the consumers prefer name brand such as Nokia and SonyEricsson, Pakistan needs to attract investments from both types of companies to make sure that the electronic manufacturing grows beyond just mobile phone handsets. However, for these companies to make investments, the local conditions must be right. These conditions include factors such as market size – captive or export oriented – as well as investment climate. With a potential of $5 billion the local market within a few years, the assessment would largely be based on the following four factors and it is incumbent upon the new government to work concurrently on all four aspects to be successful in attracting new investments:

*Law and order: The lack of security of a company’s investment, properties, and personnel is probably the biggest obstacle that must be overcome. The growth of industry and employment will make it difficult for the militant organisations to recruit new suicide bombers.

*Incentives: Everywhere in the world where companies have re-located or established manufacturing facilities, the host country’s government has offered attractive economic incentives. The Board of Investment must do exhaustive analysis of these incentives – especially the ones offered by India and the countries in Asia-Pacific region - and offer something better.

Special Economic Zones (SEZ) must be developed, dedicated to a particular industry. For electronic industry which depends on ‘just-in-time’ manufacturing and multiple suppliers, incentives must include duty-free imports of raw material, tax holidays, fast transportation and competitive freight fees, and swift clearance from customs.*Infrastructure: Although headway is being made in improving roads and transportation infrastructure, Pakistan must increase its electrical power generation capacity to meet industry’s demand. No company, domestic or foreign, would make investment in a region where constant power outages are the norm. This is one of the main reasons Intel chose Vietnam over India for its new chip assembly plant. A dedicated power generation facility for an SEZ should be considered as it will cut the cost of distribution, reducing the operating expenses.

Solar thermal power generation is becoming more attractive as the cost is coming down and must be considered in the mix, especially with the abundant availability of sunlight.

*Skilled labour force: Although Pakistan does not have the trained labour force to serve the needs of electronic industry, the assembly of electronic systems is not a rocket science either. Special operator and technician training centres can be established in SEZs to provide this training. Also engineers can be trained rather rapidly in the process and quality engineering skills required for this industry.

Many Pakistani engineers are working in the US in electronic industry with extensive experience. They can be tapped to provide training, and many of them will gladly offer their services. At the same time, engineering schools in close proximity to these SEZs would need to modify their curriculum to prepare engineers with the technology and skills necessary for this industry. Local engineering universities and industry partnership should also be encouraged as part of general incentive package to conduct R&D, thus providing a constant stream of trained engineers.

Pakistan has the potential to be at par or better than India in providing low cost manufacturing and engineering resources to the world of electronic products design and manufacturing. Much time has been lost, but sound policies and flawless execution at highest priority can still yield desired results.

Strengthening electronics manufacturing base -DAWN - Business; March 17, 2008

 

[Neo]

Political legacy and the trade with India​

The Commonwealth Games 2010 in India could do for Pakistan what Olympics 2008 did for India: provide an opportunity to enter a massive market next door in a big way.

Over the last five years, dynamics of India-China relationship — one an economic tiger and the other the gigantic economic dragon of Asia — at long last has succeeded in shedding the legacy of embittered history of political relations to realise the benefits that could accrue from closer economic interaction.

The private sector, particularly that of India moved fast to pounce on the opportunity that the changing political scenario threw up and trade picture between the two nations changed dramatically.

The volume of formal trade experienced a metamorphosis when its quantum multiplied several folds from a few hundred dollars in 2002 to around $15 billion currently.

The business leaders of India told Dawn that besides amazing growth in Chinese prosperity the major spur in construction activity in Beijing in a run up to the prestigious international sports event opened new vistas of multifarious businesses for Indian industry.

Manish Mohan of the Federation of Indian Chamber of Commerce and Industry was optimistic that the industry in Pakistan would closely work with Indian industry to complement each other, to feed the stimulus that the sport event of 2010 has generated in the economy.

The leaders of Indian industry felt that necessary framework to back the Pakistan-India economic partnership is in place in form of South Asian Free Trade Agreement (SAFTA) which could play its role in cementing the economic relations between the two countries.

The apex trade body representatives mentioned cement in this regard. “As India moves ahead on several mega public works and infrastructure projects, its domestic demand has gone much beyond the current capacity of its cement industry. The quality of Pakistani cement is also of international standard and we are willing to make up for our cement deficit by importing this key ingredient from our neighbour”.

Tariq Saeed, a business leader of Pakistan who heads Safta was highly optimistic about the prospects of economic cooperation among major South Asian nations.

“My interaction with businessmen on both sides of the border and the deliberations at Safta meetings has helped me in changing my position on trade with India. A few years ago I believed that the issue

of Kashmir needs to be settled first, but today I think that the economic relations must not be kept hostage to lingering political disagreements. Let the industry and trade pave the way for moving closer to resolution of contentious issues”.

“The money does not sit pretty in coffers. It tends to flow towards avenues with a promise of good returns. The political goodwill is essential but economic integration could play its role in forcing the political leadership to restrain from blowing up controversial issues out of proportion to gain political mileage”, a business leader of Pakistan commented requesting anonymity.

The quantum of trade between India and Pakistan increased from $251.01 million in 2002-03 to $1672 million in 2006-07. The more interesting feature is the fact that Pakistan exports have swung from measly $44.5 million in 2002-03 to $323.26 million over the same period.

The balance of trade is still loaded in favour of India as Pakistan’s imports from the Asian tiger touched $1349.60 million in 2006-07 from $206.16 in 2002-03.

“The situation is bound to transform as Pakistani manufacturers have developed an interest to look eastward”, said a leading tycoon of India.

“The rural economy of the two countries continue to be dependent on vagaries of nature and therefore farm production is not so predictable.

With dependable transport infrastructure in place between India and Pakistan, they can help each other out in situation of distress- in case of short crops of one another other, and even in perishable items”, a FICCI functionary told Dawn in Delhi making a case for closer economic relations.

“The trade in agriculture has helped the two countries to bridge the short-term supply shortages caused by seasonal crop fluctuations”, said another leader.

India’s export basket for Pakistan featured mainly agri-based products like sugar, vegetables, meat, cotton and petro-chemical products.

Whereas items which have witnessed significant jump in import in India from Pakistan include leather, pearl and semi-precious stones, non-ferrous metals, machinery except electronic and electric. ( The writer is currently on a visit to New Delhi)

Political legacy and the trade with India -DAWN - Business; March 17, 2008

 

[Neo]

Investors wait for power transfer​

SELECTIVE support last week prominently figured on the high-growth shares apparently to realise quick gains but instances of long-term investment were not many as investors were not inclined to go all out until the new political set up is in place. The next week could be crucial for the future direction of the market as the new assembly would be in session and signals from its proceedings were expected to be readily picked up by the prospective investors.

How to react to the new political setup and its economic and financial policies would have positive or negative bearing on the capital market, analysts said.

The market, therefore, failed to establish any definite price pattern as investors were not inclined to make long-term commitments even on the blue chip counters till the new political setup was in place.

After having fluctuated either-way between the barrier of 15,000 plus and below it, the KSE 100-share index finally ended at 15,087.47 points, fractionally higher by 2.39 points. But the finish was well below the week’s highest at 15,171.42.

The mid-week witnessed the return of some foreign investors on the oil and banking sectors at the lower levels but later they too followed the general market perception owing to political uncertainty amid conflicting news about the possible standoff between the victors and the presidency on some core issues.

With the dividend news from the leading companies being one of the major stimulants during the last two months, the market’s sustained run-up have dried up and investors are looking for smooth transition of power and return of foreign investors, which could boost stock trading, analyst predict.

The volatility of the KSE 100-share index, which hit the high and low of the week at 15,171 and 14,912.78 indicates that investors are still in two minds about smooth sailing on the political front.

“The investors closely followed a combination of positive and negative news pouring from Islamabad in each session about the future political setup and generally played to the tune without taking risk,” market sources said.

The future direction of the market will be guided by events in Islamabad and there may not be a major breakthrough until process of transition is completed, they said.

Leading base shares, mainly MCB, National Bank, PTCL, OGDC, Engro Chemical and some others came in for active support and led the market advance.

Selective support on the blue chip counters figured prominently as the market made decisive breakthrough as investors resumed their normal activity though played on both sides of the fence.

Although NA session has been called on March 17, conflicting news about the rigid positions taken by both the political parties and the presidency on some issues including restoration of the apex court judges continue to worry investors, floor brokers said.

“There may be a long legal battle on the issue but it is not a no-win situation and the truth will finally prevail,” they said adding “the speculation about a major standoff on some of the issues may keep the buying interest at a low key”.

The market has given a volatile performance during the week, but the next week could be crucial for its future direction based on the loud whispering from the assembly session, some others said.

However, foreign investors are expected to wait for further developments on the political front before resuming their normal trading activity mostly on the ‘safe havens’ for the time being.

Despite higher exports, analysts were worried over the steep fall of 95 per cent in the interim profits of the cement sector, at only Rs65 million as compared to Rs1.347 billion during the same period a year ago.

There are some exceptions too as some of the leading among them, notably Lucky Cement and D.G. Khan Cement maintained their winning stream but based on the entire sector the earnings are terribly low and could have negative fallout on the other counters, they fear.

Forward counter: Price movements on this counter was highly erratic as investors played on both sides of the fence, leading losers being MCB, National Bank, Bank of Punjab and some others. But on the other hand Engro Chemical, PSO, Bank Alfalah, Lucky and D. G. Khan cement and some other managed to finish higher.

Investors wait for power transfer -DAWN - Business; March 17, 2008

 

[Neo]

National unit vulnerable on dollar demand​

Strong demand for dollars by importers because of costlier payments after the higher oil prices in the international market has made the rupee vulnerable against the dollar and European single common currency. Currently the oil prices are hitting a record near $110 in the Asian trading. Gold prices have also touched record highs. Most currency experts fear that the rupee will continue to remain under pressure and weaken further against leading currencies in coming weeks.

The rupee weakness versus the dollar persisted in the inter-bank market this week. The rupee commenced the week on a dismal note as mounting demand for dollar continued to exert downward pressure on the rupee. On March 10, the rupee suffered fresh losses against the US currency. The rupee/dollar parity shed 12 paisa on the buying counter and another 14 paisa on the selling counter, changing hands at Rs62.78 and Rs62.82 against the previous week close of Rs62.66 and Rs62.68.

The rupee attempted to recover some of its overnight losses against the dollar on the second trading day of the week in review moving both ways.

While it managed to pick up one paisa on the selling counter, it further slid by one paisa on the buying counter to trade at Rs62.79 and Rs62.81 against the dollar on March 11.

However, higher dollar demand from the importers to cover up their payment needs pushed the rupee down further against the dollar. The rupee posted fresh losses of 7 paisa and traded at Rs62.86 and Rs62.88 on March 12.

Modest improvement in dollar supplies on March 13 helped the rupee to come out from downward pressure against the dollar in the inter-bank market, gaining 12 paisa to trade at Rs62.74 and Rs62.76.

However, the rupee failed to hold its overnight firmness on March 14 as high demand for dollar to meet import payments requirement exerted downward pressure on the rupee, which shed four paisa and traded at Rs62.78 and Rs62.80 against the dollar. This brings cumulative fall in the inter bank rupee value this week to 12 paisa.

In the open market, the rupee shed five paisa in terms of dollar on the opening day of the week and traded at Rs62.75 and Rs62.85 against previous week close of Rs62.70 and Rs62.80. The rupee, however, failed to hold its overnight firmness versus the dollar on March 11, when it shed 10 paisa, changing hands at Rs62.85 and Rs62.95. It further extended its overnight decline against the dollar on March 12, losing 7 paisa on the buying counter and five paisa on the selling counter to close the day at Rs62.92 and Rs63.00.

On March 13, the rupee continued its decline versus the dollar, posting fresh losses of three paisa at Rs62.95 and Rs63.05. On March 14, however, the rupee managed to recover its overnight losses by gaining five paisa against the dollar. At close, the dollar was at Rs62.90 and Rs63.00. During the entire week in review, the rupee in the open market suffered cumulative loss of 25 paisa against the dollar.

Against the European single common currency, the rupee overnight weakness persisted on March 10, as it sharply shed 20 paisa over the previous week end’s Rs95.80 and Rs95.90 touching new lows to trade at Rs96.00 and Rs96.10 on the first trading day of the week. The rupee continued unchanged versus euro on the second day of trading but shed 10 paisa more on the third day trading at Rs62.86 and Rs62.88.

On the fourth trading day of the week, the rupee touched record lows against the euro after falling sharply by Rs1.35 to trade at Rs97.55 and Rs97.65 amid modest trading. However, it managed to recover five paisa on the fifth day and traded at Rs97.50 and Rs97.60 on March 14. This week, the rupee posted a cumulative loss of Rs1.70 against the European single common currency.

On the international front, the yen and Swiss franc firmed broadly as US stocks fell on credit-related worries on the week’s opening day, prompting investors to reduce exposure to risky assets and unwind trades funded by the Japanese and Swiss currencies’ low rates.

The yen approached eight-year highs against the dollar while the Swiss franc rose to roughly two-year peaks against the euro and was within striking distance of its record high against the greenback.

The dollar, meanwhile, steadied against the euro after Europe’s top monetary officials expressed concern about excessive movements in currency exchange rates.

On March 10, the greenback hit a session low of 101.57 yen in New York late trade, just shy of last weekend’s eight-year low around 101.40 yen, before edging back to 101.75 yen, down 0.9 per cent on the day. The dollar dropped 0.6 per cent against the Swiss franc to 1.0192 after hitting a record low at 1.0136 Swiss francs last week close. Against the euro, the dollar traded at $1.5347, slightly up from last weekend levels. The euro had hit a record peak against the dollar on March 8 at around $1.5459. The pound was steady at $2.0161, having earlier risen as high as $2.0220.

On March 11, the dollar surged against the yen and Swiss franc, on pace for its largest daily gain in six and a half months and more than three years respectively, after the Fed said it would lend primary dealers up to $200 billion in Treasury securities and allow them to use agency and mortgage debt as collateral. The dollar also rebounded from a record low against the euro following the announcement of the liquidity measures, which will be co-ordinated with other central banks.

In New York, the dollar hit a session high of 103.54 yen, well off an eight-year low around 101.40 hit last week. It last traded at 103.35 yen, up 1.6 percent on the day, its best daily performance since late August 2007. The euro retreated from an all-time high just short of $1.55 earlier in the session and fell as low as $1.5283 before edging back to $1.5316, down 0.1 per cent from previous day’s close. The dollar also rose 1.3 percent to 1.0333 Swiss francs.

High-yielding currencies rallied sharply against the dollar and yen, with the New Zealand dollar rising 1.6 percent to US $0.8017. Sterling eased 0.3 per cent to $2.0027, tracking a sharp retreat in euro/dollar from record highs set earlier in the day.

On March 12, the dollar plunged to a record low against the euro and a basket of currencies amid uncertainty about the long-term impact of the Federal Reserve’s recent efforts to inject money into cash-starved credit markets.

The euro hit a record peak of $1.5559, according to Reuters data, before easing to around $1.5552, up 1.5 per cent from a day earlier. It was the largest daily gain for the euro in more than two years.

The euro has risen 6.5 per cent against the dollar so far this year and is up 18 percent over the past 12 months. Against the Swiss franc, it was 1.9 percent weaker at 1.0143 francs, just shy of a record low at 1.0136. Sterling gained ground against the dollar. It was up 0.6 per cent on the day at $2.0189.

On March 13, the dollar plunged below 100 yen for the first time in more than a decade and hit a fresh lifetime low against the euro as worries deepened on Wall Street that the United States had entered a recession. The dollar traded near parity with the Swiss franc, dropping to a record trough, as data showed a surprising drop in US retail sales, which heightened concern that American consumers were cutting back on spending. The dollar fell to 99.77 yen, its lowest level since October 1995, before easing to 100.67 yen, 0.8 per cent weaker on the day.

The euro hit a fresh lifetime high at $1.5624, before trading back down to $1.5614, up 0.2 per cent on the day. The dollar fell 0.3 per cent to 1.0104 Swiss francs after plumbing a record low of 1.0047 francs. Sterling rose against the dollar on a wave of dollar selling that pushed it to historic lows against many currencies on the view the Federal Reserve’s recent actions to ease market strains won’t work. But the pound emerged as the biggest gainer against the dollar. It was up 0.2 per cent on the day at $2.0310, having traded as high as $2.0391 earlier.

At the close of the week on March 14, the dollar hit a record low against the euro and fell back towards a 12-year low versus the yen. It fell 0.4 per cent from late US trade to 100.30 yen and sank as low as 99.84 yen close to the 12-year low of 99.77 yen hit on the previous day. So far this year, the dollar has shed 10 per cent against the yen. Sterling edged up to three-month highs versus a dollar battered by news of trouble at US banking heavyweight Bear Stearns. It rose as high as $2.0397, its strongest since mid-December.

National unit vulnerable on dollar demand -DAWN - Business; March 17, 2008

 

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Three new saving schemes shortly ​

ISLAMABAD (March 17 2008): The government has decided to launch multipurpose three new saving schemes of short duration for general public, which are aimed to minimise reliance on bank borrowing by the government, sources in Central Directorate of National Savings told Business Recorder on Saturday.

"We are introducing papers of short duration--of three months, six months and one year--on which general public will be given return in proportion to periods of Treasury Bills rates determined by the market," they said.

Currently, CDNS has been issuing papers for three years and 10 years but now the government is going for short duration papers, sources added.

While counting the benefits of new schemes, they said that most of the people maintain their deposits in current accounts but they do not get any return on their deposits. "Banks have nearly one trillion rupees deposits, of which current account deposits range from Rs 400 billion to Rs 450 billion," sources said.

On the one hand, they said, depositors were given zero return by banks on their money and, on the other, rate of prevalent return is very unattractive.

Banks are also investing depositors' money into T-Bills at 9-10 percent interest, but accountholders are getting nothing on their deposits.

The State of Bank of Pakistan Governor, Dr Shamshad Akhtar, has repeatedly stressed on the banks to increase the returns so that the spread should decline, but banks have not paid any heed to her advice.

"We are expecting very encouraging response from the public who will get 8 percent or 9 percent return on their dead amounts to be deposited in current accounts," sources said.

With the launching of this scheme, majority of current accountholders, the government believes, would draw their amounts from banks to invest in new schemes.

However, if the banks want to retain the amount of accountholders, they would have to improve their rate of returns to mobilise deposits, sources said. "Either the banks will lose their deposits or increase the rates of return on deposits," they added.

Analysts are of the view that with this scheme, not only the spread would automatically come down but would also serve the purpose of the SBP. Since the GoP's bank borrowing has also reached its peak, this instrument would pull the money out of the banks and put into the non-banking channels, hence fulfilling the government needs. When contacted, the Director General of CDNC, who was in Karachi, said that he would announce the scheme at a press conference after its formal approval by Finance Ministry.

Business Recorder [Pakistan's First Financial Daily]

 

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Load-shedding to continue till 2010: Pepco ​

LAHORE (March 17 2008): Power load shedding in the country will continue till 2010 due to its rapidly increasing demand as well as sharp shortfall, well-informed sources in the Pakistan Electric Supply Company (Pepco) told Business Recorder.

There will be no change in the current 4-6 hours power load-shedding daily in urban and 8-10 hours in the rural areas. However constant and uninterrupted supply to the industrial units will be the top priority of Pepco instead of domestic consumers, the sources added.

They also said the country is facing 1,500 MW shortfall currently, while the total demand for electricity stands at 11,700 MW against the present availability of 10,200 MW. The sources said that demand was increasing 12 percent annually against its zero percent generation.

Sources said that Pepco was getting 2,400 MW from hydropower projects against the capacity of 6,400 MW because of severe shortage of water in the dams. At present, Pepco is receiving 3,000 MW from the Independent Power Producers (IPPs), they added.

The water situation in the dams as well as in the canals would improve after the snow starts melting, which would help get more power generation in the hydro sector. Sources said that basic reason of constant load shedding in the country was that the government could not timely execute the power projects.

The caretaker government took the initiative to execute new power generation projects like Chichoki Malian Power Project having capacity of 450 MW and Nandipur 450 MW, which would be accomplished in 2010, the sources added.

High officials, working on the Chichoki Malian and Nandipur power projects, said: "There will be some delay in the completion of these projects because unsatisfactory law and order situation in the country." They also said since foreign engineers were working on these projects, therefore, due to the security threats to their lives, the development work had been stopped many a time in the past.

Business Recorder [Pakistan's First Financial Daily]

 

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Mutual funds industry recorded 88 percent growth in 2007 ​

KARACHI (March 17 2008): The mutual funds industry performed very well and witnessed a growth of some 88 percent during the calendar year 2007, attaining the size of Rs 330 billion from Rs 175 billion in December 2006.

In an exclusive interview with Business Recorder, Muhammad Ali, chief executive officer of UBL Fund Managers Limited, said that growth in the mutual funds industry was continuing to rise and was likely to touch the mark of Rs 400 billion by the end of December 2008.

Muhammad Ali is a prominent banker. He did MSc in Finance from the University of Strathclyde in Glasgow, Scotland, funded by British Council Scholarship. He is MBA of the Institute of Business Administration (IBA) Karachi with Gold Medal for overall First position in 1988-89 and holds CFA charter.

He have 15 years experience in fund management and investment banking with institutions like Asian Development Bank, United Bank Limited, ANZ Grindlays Bank and Pakistan Kuwait Investment Company.

In fund management industry he has credit of setting up of UBLFM in 2001-02 and launch of UMF. He also managed equity portfolio of UBL (Rs 3 bn) and Pak Kuwait (for a brief period), while turnaround initiated at UBLFM resulting in enhanced market image.

He said that presently some 35 mutual fund companies are working in Pakistan, out of which National Investment Corporation is leading with around 30 percent share. However in the private sector, UBL is the second largest fund manager with a share of 10 percent share.

The industry is rapidly expanding. However, it faces some serious issues including unavailability of human resource and lack of investors' awareness, he said, and added that to meet this challenge some steps had been taken by industry stakeholders for continuous supply of trained manpower.

Ali said that despite the fact that the industry is growing very well, it is still in initial stage and would be mature in the next two or three years.

He said that Pakistan's mutual funds industry's size is not enough "if we compare with our neighbour country, whose mutual funds industry size stands at five trillion Indian rupees.

"The industry has planned some special program for training of new human resource, and we are expecting that this would help further extend the industry," he said.

About UBL fund, he said that presently the UBL Fund Managers is managing some Rs 33 billion worth of funds, which have grow by some 266 percent during the calendar year 2007 and would reach Rs 50 billion by December 2008.

"The funds of UBL stood at Rs 9 billion at the end of the 2006 as compared to Rs 33 billion as of January 31, 2008 all in open-end category, out of which some Rs 3.5 billion has been received under the Islamic fund", he said.

He said that UBL Fund Managers Ltd is a wholly owned subsidiary of United Bank Limited making it the first Asset Management Company to be launched by a bank in Pakistan.

"We have been awarded Management Quality Rating of 'AM2' by JCR-VIS Credit Rating Agency, which has been upgraded by two notches from 'AM3' signifying a strong team of qualified personnel and the management's initiatives to streamline operations,' he said.

Huge flows of funds have made UBL FML the largest private asset management company (AMC) with respect to assets under management (AUM) in open-end mutual funds, he said.

He said: "Performance and achievements in the past year are an indication of our determination to become the leading asset management firm in the country."

Ali said that UBL Fund Managers collaborates closely with UBL in providing high quality investment services on countrywide basis through its wide network providing existing and prospective customers easy access, through a toll free 24x7 call centre and investment information through 'short messaging service' (SMS).

"We offered tax-free returns, no corporate or withholding tax, as per existing laws, and tax rebate on investment of up to Rs 300,000 for individuals', he said.

Low minimum investment amount Rs 5,000 is required to open account and Rs 1,000 for subsequent investments with an encashment period of 3 to 5 days depending on the type of fund, he said.

He said that systematic investment plan is available which will allow employees to invest on monthly basis through standing instructions to HR or through direct debit if he or she has a UBL account.

"We also offer free investment advisory services for individuals for developing portfolios suitable to their risk tolerance and return requirements," he said.

He said that presently UBL Fund Managers is managing six funds, including United Money Market Fund (UMF), United Growth & Income Fund (UGIF), United Composite Islamic Fund (UCIF), United Stock Advantage Fund (USF), United Islamic Income Fund (UIIF) and recently launched UBL Capital Protected Fund-I (UCPF-I).

UBL funds during the last year, he said, had performed well and distributed some 10.26 percent pa return on the UMF; 11.51 percent pa on UGIF, 29.7 percent on USF and 14.9 percent on UCIF.

"We launched operation in 2002 and have some 6,000 investors in the growing industry of Pakistan, which have overall some 0.2 million investors.

Business Recorder [Pakistan's First Financial Daily]

 

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Skyrocketing cotton prices endanger $1 billion apparel exports ​

KARACHI (March 17 2008): After energy crisis, the skyrocketing prices and shortage of cotton have endangered the dollar one billion export orders of apparel products scheduled for June this year, exporters said on Sunday. They held the local cotton traders responsible for increase in the commodity prices and its shortage in the local market bringing the manufacturing of value-added textile products to a suspension.

Whereas the caretaker textile and commerce ministries are mute and apathetic to respond to the rising crisis that is going to hit the local industry and cause shortfall in the current fiscal year's exports target, they criticised.

Talking to Business Recorder, Ijaz Khokhar, former chairman of Pakistan readymade garment manufacturers and exporters association (Prgmea) said that soaring prices of cotton and yarn have caused severely negative impact on textile garments exports this year.

"Exporters are losing buyers in the world market for not meeting the export shipment targets due to increasing cost of production," he said, adding that when they booked orders from foreign buyers the prices of the raw material were lower than now.

"In June 2007, yarn was available at Rs 480 per 10 pounds which has surged to Rs 630 per 10 pounds, mounting by 30 per cent and cotton was available at Rs 2600-2700 per kg which went up to 3637 per kg in this period," he said.

Expressing fears, he said that local buyers are concerned over losing existing buyers and have completely failed to add new foreign buyers in their business lists. "Future market strategy is still vague to most of the exporters as to what may happen to them in the world market if the prevailing crisis continues," he maintained.

Regarding the closure of foreign buying houses, he said that it is against the national interest and will increase the cost of production by five per cent, as exporters will have to travel to neutral venues to seal deals with the foreign buyers.

Ijaz said that 30 per cent increase in these commodities prices have come from world markets while the local traders drive 70 per cent rise. He accused the local traders of creating an artificial shortage of these commodities so that they could extract maximum profits out of the crisis.

Increasing tariffs of utilities will also give rise to textile garment production cost by 10 per cent, as a result the international buyers will turn towards other countries like India, Bangladesh and China, he maintained.

The country, he said, will not only fall short of the fiscal export target but also fail to generate revenues through export levies, in case exports are reduced significantly due to soaring production costs.

To a question, he said that new orders are not coming to the local exporters due to increasing cost of production. There is a serious shortage of raw material in the local market for future export orders, former Prgmea chairman said.

Appealing to the Trade Development Authority of Pakistan (TDAP), he said that it should immediately set up commercial offices in the world markets to issue guidelines to foreign buyers about Pakistan's local products. "It should also set up mini display centres in the major world markets where local products could be exhibited to attract foreign buyers," he added.

Business Recorder [Pakistan's First Financial Daily]

 

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PAKISTAN: Textile exports fall by 3.4% in seven months​

Pakistan's textile and garment exports fell by 3.44% in the first seven months of the current financial year according to the latest figures released by the Federal Bureau of Statistics.

Total textile and clothing exports were $6.028bn in July 2007 to January 2008, down from $6.242bn in the same period last year.

By category, exports of cotton yarn were down 12.8%, cotton fabric fell by 6.0%, and knitwear exports slipped 11.2%. However, ready-made garment exports rose 7.2%.

Political turmoil and rising production and raw material costs are being blamed for the decline.

PAKISTAN: Textile exports fall by 3.4% in seven months: Apparel and textile News & Comment

 

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Major economic issues stare new coalition govt in Pakistan​

Islamabad, Mar 17 : The three major coalition partners of the to-be-formed federal government in Pakistan, namely the PPP, the PML-N and the ANP, are said to be devising their future strategy to tackle major economic issues and take practical steps to control the ongoing inflationary trend.

If a prominent official from one of these parties is to be believed, the three parties have agreed to continue the privatisation process and also to take short-term and long-term steps to ensure a quantum leap for boosting the dwindling exports and to avoid fiscal and external vulnerabilities.

The economic wizards of the three parties are also discussing steps to control the yawning trade deficit by minimising the imports of luxury items, he said.

"Yes, all the three parties, including the PPP, PML-N and ANP, are evolving a consensus namely the minimum common agenda, which includes achieving improved macro-economic situation and controlling the galloping prices, especially of food items," The News quoted the person, said to be involved in the consensus-building exercise, as saying.

He further said that the future coalition also agreed to refrain from further burdening the masses by jacking up the POL prices, at least, in the remaining three months of the current fiscal year.

The official said another challenge for the next government would be the consistent cash-bleeding of major public sector institutions such as Wapda, Pakistan International Airlines (PIA) etc as these two institutions were going to cause losses to the national kitty of over Rs 100 billion in the current financial year.

According to the paper, Pakistan's economy is facing numerous challenges, including twin deficits - current account deficit and fiscal deficit - as well as stagnant exports, tax revenues and almost a halted privatisation process. Inflation is another big challenge for the upcoming economic managers and improving the supply side coupled with better management can reduce woes on this front.

The coalition partners are working out a strategy for tackling difficult and complex issues, keeping in view their own manifestos and striving hard to evolve a consensus among the ruling coalition partners.

Official sources in the country's federal Finance Ministry said that the economy could not be put back on the track without bringing our house in order. According to them, the pattern of the 90s could not be followed to run this huge economy on which international investors had invested their money by subscribing to bonds issued by Islamabad.

Major economic issues stare new coalition govt in Pakistan @ NewKerala.Com News, India

 

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Pakistan's Textile Sector Facing Intense Competition: Report​

KARACHI, March 17 Asia Pulse - Since the removal of quota regime, Pakistan's textile sector has been facing intense competition from neighboring countries on the export front. Moreover, rising input and energy costs coupled with higher financial charges have deteriorated the overall sector's performance in the last couple of years.

According to a report prepared by the JS Global, textile sector in the 1st half of FY08 witnessed 10 per cent growth in the top line. However, squeezed gross margins due to higher input and energy costs completely negated the impact of this growth on the bottom line of textile companies. Gross margins in this period stood at 13 per cent versus 14 per cent in the same period last year. Moreover, a 6 per cent growth in the financial charges also limited the bottom line growth to 1 per cent with net margins at just 4 per cent.

In the 1st half of FY08, composite segment remained the out performer amongst three textile sub sectors. Net sales of this segment posted 11 per cent Year-on-Year growth. Gross margins, however, remained flat at 15 per cent. On the contrary, financial charges depicted a growth of 8 per cent and stood at Rs2.5 billion (US$40 million). As a result, net profit of the composite sector registered a growth of 10 per cent and stood at Rs2.4 billion. For 1HFY08, profits of the spinning sector declined by 40 per cent. Net sales surged by 11 per cent, whereas, gross margins stood at 11 per cent depicting a significant decline of 200bps versus 1HFY07. Moreover, financial charges went up by 3 per cent and stood at Rs1.3 billion in the period under review.

The weaving sector remained in losses in 1HFY08 as net loss of the segment stood at Rs156 million. Revenues of our sample declined by 5 per cent and stood at Rs4.9 billion. However, gross margins of the sector were maintained at 7 per cent. Financial charges, on the other hand, rose by 8 per cent to Rs0.3 billion.

Analyst said since the removal of quota regime, Pakistans textile sector has been facing intense competition from neighboring countries on the export front. Moreover, rising input and energy costs coupled with higher financial charges have deteriorated overall sectors performance in the last couple of years.

Pakistan's Textile Sector Facing Intense Competition: Report - Yahoo!7 News

 

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Emphasis on structural reforms to address weaknesses of the economy ​

EDITORIAL (March 17 2008): Some of the top most economic managers of the country, who would continue to serve in the new government, are deeply concerned about the fate of Medium-Term Macroeconomic Stabilisation Programme and the implementation of reform process in order to address the emerging weaknesses of the system.

Delivering her keynote address on "Policy Tradeoffs and Structural Issues" on the occasion of Golden Jubilee Ceremony of the Pakistan Institute of Development Economics (PIDE), State Bank Governor Shamshad Akhtar dwelt at length on the current issues of the economy, with particular reference to the need for structural reforms to address fiscal and external account deficits in the context of the changing global economic environment.

Talking about the foreign sector of the economy, she said that until FY07, capital inflows funded completely the external current account deficit and the residual helped in building foreign exchange reserves. Now the country is faced with global shocks created by international financial market turmoil and unprecedented increase in world commodity prices, which has generated widespread increases in financial costs and other undesirable economic consequences.

The Governor was of the view that "even if the oil prices come down and the growth in foreign inflows is restored, the balance of payments sustainability will still be under stress as export growth may be impacted by global slowdown."

Domestic vulnerabilities triggered by rising twin deficits in the fiscal and external sector accounts have resulted in pressure on exchange rate/foreign exchange reserves and heavy government borrowings from the SBP.

International shocks and domestic deficits, according to the Governor, were inter-related and entail stringent trade-offs when it comes to devising and implementing well-co-ordinated, timely and enduring policy responses. "Tightening of monetary stance and flexible exchange rate management are the two key central bank policy responses.

These, however, will have a more distinct impact if the government reverts to fiscal prudence and efforts in this respect are visible through recent reduction in oil and other subsidies." Accelerating the implementation of structural reforms will be crucial to reinvigorate growth and strengthen economic resilience. Policy advice has also been offered on certain other issues. The new government's broader economic strategy for the next few years should include increasing domestic resource mobilisation to raise revenue/GDP ratio by at least 5 percentage points.

There is also a need to restore the momentum of privatisation of state-owned enterprises. The government had sold off cumulatively about $7 billion worth assets over FY2000-FY2007 and there are around 61 state entities still in the pipeline. Public sector organisations should be given more autonomy, with effective leadership and management, to improve their operational and financial efficiencies.

Besides, there is a need to conduct counter-cyclical policies to curb demand pressures reflected in the widening twin deficits and achieve well-defined short-to-medium term objectives. The enduring solution would be not only how to finance these deficits but more importantly how to introduce structural changes to improve the deficit situation itself.

In our view, what the SBP Governor has said at the Golden Jubilee Ceremony of the PIDE, a premier institute of public policy and economic research, makes eminent sense. The economy of the country, which was on the verge of bankruptcy and facing great challenges a few years ago, was rehabilitated by the Musharraf government by initiating wide-ranging reforms in key areas.

As a result of these reforms, fiscal deficit was brought down substantially, appropriate monetary policy was followed, inflation was contained within reasonable limits, current account turned into surplus, exchange rate stability was restored, foreign exchange reserves were built up and GDP growth rate increased to respectable levels. Credit rating of the country improved and foreign investors' confidence was restored. Back-tracking on reforms coupled with unprecedented increase in international commodity prices in the last one year or so has eroded some of these gains.

The Governor is right in stressing that if the pace of reforms is not maintained, the country could face the risk of losing the benefits of the past few years, particularly when the global economic environment is adverse and calls for accelerating the reform process.

For instance, if the past government had strictly followed the reform agenda of adjusting domestic oil prices with the international market trends, many of the problems now being faced could have been avoided to a certain extent. We feel that the Governor's advice is also timely. The new government needs to be told in clear terms that, instead of talking about providing relief to the public and increasing subsidies, it should first address the basic issues of the economy which were ignored by the previous government for political expediency.

Also, fundamental issues of the economy cannot be resolved by ad hoc measures. The news about the plans of Asif Zardari-Nawaz Sharif visit to Saudi Arabia to request for the supply of oil on a deferred payment basis could provide breathing space but certainly not a solution to the basic problem of rising oil prices. The country has to adjust to the new situation by sticking to the reform agenda, though it would entail a certain degree of pain due to stringent demand management.

However, the Governor's advice in certain other areas needs to be further assessed and reviewed. For instance, she has urged the new government to restore the momentum of privatisation of PSEs which has slowed considerably in the recent past. Although there can be no disagreement on the privatisation policy as such due to the anticipated efficiency gains, the new government should be careful in following such a strategy. The experience of KESC in this regard has been woeful, to say the least.

Its privatisation has brought misery to the residents of Karachi, adversely affected the industrial activity in the city and civil administration should be prepared for a chaotic situation and possibly eruption of riots in the streets in the coming summer. Therefore, the government needs to first devise a proper mechanism to check the credentials of the investors thoroughly before privatisation to ensure better standards of service to the consumers, otherwise economic and political cost of privatisation would be heavy.

Also, there is no denying the fact that national savings have to be increased to reinvigorate growth but, in our view, it is the State Bank which has to play a crucial role in this regard. The State Bank's inability to ensure a reasonable rate of real return to savers because of high spreads between deposit and lending rates of banks has been partly responsible for depressing the saving rate in the economy. The unfair treatment to depositors needs to be reversed by the central bank itself by moral pursuasion or any other means at its disposal.

Business Recorder [Pakistan's First Financial Daily]