Pakistan Economy - News & Updates - Archive

[Neo]

BALOCHISTAN has formulated a “medium-term development strategy” (MDS) to create an enabling environment for private investment, develop human resources and to improve the water management to boost agricultural production.

For implementation of the MDS, the provincial government needs Rs1.5 billion. The policy document has been submitted to the federal government for approval.

The core objective outlined in the strategy is empowerment of the people to tackle widespread poverty. The MDS recognizes the people as stakeholders in the decision-making process and places their interests at the top of the list of priorities.

The poverty in the province is attributed to several factors including its geography and quality of human capital that increase the cost of social services. Presently, the poor are recovering from the devastating drought that plagued the province for the last five years. The ground water is being rapidly depleted. Only six per cent of the land is cultivable and productivity is low because of the arid conditions. The multiple indicators related to income and wealth, housing, transport and communication, education, health, gender equality etc. indicate widespread poverty.

The Human Rights Commission of Pakistan (HRCP) has observed that development plans must be focused on building civil society, including establishing press clubs, bar associations and community radio and television networks. This would bring its population to the main stream.

“The concern of the people of Balochistan over demographic balance in the province must be considered when making decisions. This is especially crucial with regard to mega projects, such as Gwadar port, and acquisition of land by those based outside the province,” the Commission observes.

Water development: The provincial Poverty Reduction Strategy Paper (PRSP) recognises water as a threatened resource in the province which is blessed with extensive groundwater resource. According to the hydrological map of Pakistan, out of total three main units, two are located in Balochistan. These units are: Indus River basin, Kharan desert basin and Mekran coastal basin.

The strategy calls for managing groundwater on a sustainable-use basis, recognizing the need for a great deal of planning, besides evaluating current practices such as the use of delay action dams. It is also aimed at improving the management of deficient water resources by reducing the overall impact of the water crisis.

The groundwater tables are on decline due to mismanagement. Streams and other sources of water are facing risk of over exploitation. . The provincial government is planning to undertake a number of new projects. To begin with, it has firmed up Balochistan Small Scale Irrigation Project which covers the Pishin Lora Basin (PLB), and includes entire districts of Pishin, Quetta, Mastung and partial coverage of districts of Killa Abdullah and Kalat.

The long-term water management programme will meet a long felt need for adequate quantity of water for agriculture, especially the expanding acreage of fruit orchards. Fruits are major source of income in areas where water is scarce. Trickle irrigation system is now a recognised method of irrigation which provides maximum possible water efficiency, claimed up to 90 per cent.

Agriculture development: The objective of the strategy is to increase farm output and raise per capita income with focus on raising productivity and improving natural resource management which are “critical” for redefining the future water needs of the province.

The agricultural development is linked to the development of water resources. The lands are canal irrigated, Karezat irrigated, tube well irrigated and rain fed(or barani). About 229,824 hectares of area in the province is irrigated by tub-wells. Except Naseerabad district, there is no perennial system of irrigation. The crops contribute about 62 per cent of gross agriculture income which employs 67 per cent of province’s total workforce. About 75 per cent of the population lives in the countrywide.

Farmers are presently facing difficult times as frequent load -shedding and power breakdowns have created an artificial drought-like situation. Many rural areas are facing 8-12 hours load-shedding. And fluctuation in power supply has inflicted additional losses to farmers.

The power shortage in rural areas has severally affected food crops like onions, potatoes, zeera, and garlic besides green vegetables. There are many districts and tehsils like Mastung, Kalat, Khad Kocha, Manguchar, Gidar, Naushki, Abad, Kanak, Dulai, Ahmadwal, Diringar, Mal, Dasht, and Spilinji, which are hard-hit by water crisis. Fruit crops in northern Balochistan are similarly affected.

In order to obtain maximum irrigation efficiency, new water management techniques need to be introduced. It is envisaged to determine the ground-water potential plus the availability of surface water to attain optimum water resource utilisation. This can be achieved by adopting trickle irrigation system and lining of water distribution network to minimise conveyance losses.

Human development: Human development indicators here are the weakest among the four provinces and improvements will need concerted efforts over the long- term. The predominantly patriarchal social structures are a traditional challenge to human development and gender equality. The rugged and inaccessible terrain, limited water resources for irrigation, large illiterate population, ethnic diversity, and traditional women’s status are added challenges to economic growth and human development in the province.

 

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THE government faces the twin challenge of reducing poverty and at the same time reducing the high population growth rate. Though the macroeconomic situation has been improved and official poverty figures have come down from about 34 per cent in 2001 to about 24 per cent in 2005— a decline of 10 per cent in four years— the poverty rate is still very high.

This state of affairs is certainly unacceptable. Better performance is needed on this front. A sustained economic growth rate plus more state spending to alleviate poverty should obviously be the official goal. The problem is that the government is not able to collect enough taxes to be spent on meeting the poverty challenge.

The tax revenue has grown over the years. For the last financial year it was Rs700 billion. Economic growth and tax reforms have pushed up the collection by CBR – 81 per cent over the past half decade. But this is still not enough because notwithstanding the improved CBR collection over the last few years, the tax-GDP ratio at 10.4 per cent is much lower than the average 17 per cent for developing countries.

In other words, the government is not collecting enough taxes and is unable to meet its escalating expenditures. The budget deficit has touched 4.2 per cent of the GDP and government must create a more efficient taxation system to collects more taxes. Also, the rich must pay more taxes.

The issue of fair distribution of the tax burden among various segments of the economy is equally significant. All incomes regardless of source should be taxed. No exemptions be given for any segment as is the case now. For example, income from agriculture is not taxed adequately. The sheer wastage in state spending needs to be curtailed by improving the delivery system.

The amount of money spent on defence is very high and unsustainable. Last year it was Rs241 billion. If we add Rs35 billion of military pensions in the given figure, it goes up even higher. For that matter, even the amount for this year is higher.

Given the low level of development, more money needs to be spent in improving the quality of life of the people step by step by increasing health and educational facilities and by providing them gainful employment. Focus on an efficient and cost-effective physical and social infrastructure is also vital to sustain the growth momentum.

Although the “trickle down effect” may well occur, the state has to inject money directly to help the poorest of the poor. They cannot wait for other slow moving government programme to yield the desired outcomes.

The many official welfare schemes are simply not enough to make an immediate and significant dent in poverty. The responsibility of providing assistance to the poor is that of the state and it cannot be allowed to shrug off its responsibility that easily. Another glaring failure of the government is that it is not able to reduce the high population growth rate.

Pakistan’s population is 160 million. While the earlier growth rate was a high 3.1 per cent, it has come down and is now estimated about 2.3 per cent. The infant mortality rate was very high— 126.7 per thousand in 1984-1985—, has come down to 77 per thousand which is still a high figure. Measures are needed to control our population explosion.

Better job opportunities, proper education and health services plus population control measures have yet to deliver. In the two very significant areas of poverty reduction and population control, government has failed to deliver.

 

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HAVING achieved a record rise in remittances of overseas Pakistanis to $4.6 billion in the last fiscal year, Pakistan now faces a prospect of falling inflows because of a big drop in the number of workers going abroad for employment.

And that can hurt the country in a global environment when the world oil price has touched $78 a barrel and Pakistan’s balance of trade last year ran a deficit of almost $11 billion. And it suffered a balance of payment deficit of $4.1 billion in the same year.

While the remittances have been steadily rising during the last five years, particularly after 9/11, the number of senders of the money is declining because of the shrinking numbers of overseas Pakistanis.

Disturbing too is the fact that the ‘hawala’ system of remittance which went down after 9/11, has assumed a new vigour.

The number of new departures for working abroad is said to have declined by 50 per cent over the last three years. The number has come down from 0.223 million departures in 2003 to just 91000 in 2005.

A number of factors have contributed to that, including substantial changes in the quality and the qualifications sought by overseas employers. And the Gulf states prefer to provide employment to their own people rather than employ expatriate workers.

The global war against terrorism has also affected overseas employment of Pakistanis, as the employing countries have become cautious about Muslims, sometimes too arbitrarily.

The remittances which had touched almost $3 billion in the 1980s when a great many construction workers from Pakistan went to the Gulf states ,had fallen to $1 billion by 2001-02, when they rose to $4.236 billion and stayed at that level for three years, touching the record $4.6 billion last year.

But soon to come for Pakistan is the decline in the number of workers going abroad. It is not only that the Gulf countries including Saudi Arabia are prefer their own workers because of the possible political consequences of having too many expatriate workers in countries with small populations, but also the complaints against Pakistani workers are increasing.

A Kuwaiti minister on a visit to Pakistan last month was asked by Prime Minister Shaukat Aziz to employ more Pakistanis. He said that Kuwait had not employed any Pakistani worker last year and was not preparing to do this year.

Recently there was a shocking instance in Malaysia of some Pakistanis mistaking the South African Deputy High Commissioner in Kuala Lumpur for a rich tourist, kidnapping him, looting him and holding him under restraint for a week.

There have been cases of ‘karo kari’ murders in Denmark among Pakistanis resulting in large scale arrests and trials.

There have been karokari murders in Britain as well, where some Pakistanis behave as if they are back home and are free to do what they do at home to punish their relations. There have been cases of Pakistanis staying abroad with wrong passports.

Sometime back, Norway expatriated 20 Pakistanis who were living there as Afghan nationals. Sometime ago a Pakistani killed his wife at a railway station where she had sought refuge in a home for battered wives. He was also suspected of killing four of their six children.

Such crimes get a great deal of publicity in the local press if not in the national press abroad and that is not helpful to get more overseas employment for Pakistanis when too many Muslims are mistaken for terrorists.

The number of Pakistanis overseas in between three and four million which is a floating population, as those whose terms of contract expires usually return home, but some disappear from their address the moment their contract expires and the local police have to track them down and expatriate them.

And they are a very small part of the overall migrant workforce in the world which is 200 million in size or three per cent of the population of the world. Pakistanis remit a small part of the global remittances of $400-450 billion. The average earnings of the Pakistanis is very low as compared to the Pakistanis and other skilled workers.

The Pakistan government has appointed community welfare attaché in world centers with large number of Pakistani workers to help them with their problems, but they are not always able to prevent them from committing crimes.

The international organisation for migration last week held a workshop attended by officials of ten Asian nations to discuss and share the experience and best practices of labour migration polices . They were discussing mostly the problems of migration between the European Union and the Asian states. Among the countries participating at the Islamabad workshop were Bangladesh, China, Indonesia, Pakistan, Philippines, Sri Lanka, Thailand and Vietnam. Pakistan is trying hard to check illegal immigration or overstay of Pakistani workers abroad who then face expulsion as from Oman in large numbers periodically.

But the government cannot be too vigilant and spend vast sums in checking such illegal migration and overstaying.

Meanwhile the prime minister wants a taskforce to find ways of bringing the earnings of Pakistanis from countries where there are no Pakistani banks and no Pakistani foreign exchange agencies. Such a step is regarded essential when the ‘hawala’ is tending to come back to full life.

The government is also increasing by about 700 items which the Pakistanis overseas can bring in with no or partial taxation. That should improve the supply position in the country substantially without adding to the foreign exchange liabilities.

Pakistan can ill- afford a reduction in the home remittances when the world price of oil rises to $78 a barrel and the trade deficit targeted this year is $9.6 billion. So, it has to redouble its efforts to send more Pakistani workers abroad and collect their remittances through formal channels.

 

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KARACHI (July 25 2006): Mapak Edible Oils (Private) Ltd (MEO), a $14 million (Rs 840 million) Pak-Malaysia joint venture, will be commissioned at Port Qasim on July 25. At the same time, unveiling ceremony of the plaque for construction of another Pak-Malaysia joint venture, $16 million (Rs 960 million) Liquid Cargo Terminal (LCT) will also be held at the same venue.

Felda Westbury Qasim Enterprises (Pvt) Limited (FWQ) will be handling the LCT at Port Qasim. Both companies the MEO and FWQ are headed by Datuk Abdullah Yusoff as Chairman while Pakistan's leading industrialist M Basheer Janmohammed is the Deputy Chairman and Abdul Rasheed Janmohammed is Chief Executive.

MEO's modern edible oil refinery has been put up at Port Qasim's backup area in the port's operational zone. The Malaysian joint venture partners in this project are Felda Group, of Kuala Lumpur, headed by Tan Sri Dr Mohammad Yusof Noor (an autonomous Malaysian government body) and K L Kepong, Berhad, Ipoh, Malaysia.

The joint venture partners have rich experience of operating refineries in Malaysia. Pakistani partners are Westbury Group of companies, Karachi, headed by Basheer Janmohammed. The company has brought foreign direct investment (FDI) by creating value-addition in the edible oil sector in the country.

The refinery project has been instrumental in bringing modern technology of processing edible oil through continuous oil refining, termed as 'physical refining process' as compared to the process of conventional batch refining known as 'chemical refining', which has its own demerits, particularly higher process loss and higher input of utility consumption besides comparatively poor quality of the end product. Therefore, the 'physical refinery' project would add to the industrial development in the country. The establishment of this refinery would help local vanaspati/oil industry by making fresh and good quality refined palm oil locally available at people's doorsteps and would ultimately replace the import of RBD palm oil.

The project, based on latest technology, comprises 'physical refining' unit for processing 800 tons per day of crude palm oil and 200 tons per day of other crude soft oils (like canola/rape seed/soya bean/cottonseed oils etc). The company has acquired the most modern continuous refining plant from the internationally recognised manufacturers Alfa Laval. Based on installed capacity, 240,000 tons crude palm oil would be processed annually, besides other refined soft oils. The project has recently been completed and is being commissioned for commercial production of refined oils, particularly RBD palm oil.

In the field of liquid cargo terminal, FWQ was incorporated under joint venture agreement with Malaysia specifically for handling the project of LCT at Port Qasim. The Malaysian joint venture partners are Felda Palm Industries Sdn Bhd, Kuala Lumpur (an autonomous public sector body), which has major equity share in the company. Here again, the local joint venture partners are Westbury Group of Companies, Karachi, headed by Basheer Janmohammed.

The company has been awarded the project of LCT to be constructed on BOT basis. The agreement for the project executed with Port Qasim Authority (PQA) is now being implemented. The civil contractor, STFA Marine Construction Co, of Turkey, has mobilised resources at the project site to commence construction work after the plaque unveiling ceremony.

 

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ISLAMABAD (July 24 2006): The proposed 'Federal Board of Revenue (FBR) Act, 2006' would be submitted to the World Bank (WB) and the Board-in-Council for studying the viability of creating an independent revenue organisation, with maximum financial and operational autonomy.

The proposal of establishing 'Federal Board of Revenue' (FBR) is under review, and top CBR officials have expressed serious reservations over the draft of the proposed law.

Most of the senior tax officials have opined that the proposed 'FBR Act, 2006' is sketchy and poorly drafted, with overlapping provisions. Therefore, no CBR Member bothered to comment on it.

The Board-in-Council would discuss the draft in its meeting on Monday, July 24, and may give its comments to ensure its smooth implementation.

The viewpoint of the WB would also be considered for putting in place an independent revenue collecting agency.

Information collected by this correspondent shows that the proposed FBR Act 2006 is merely a copy of CBR Revenue Authority Act, 1998 chalked out during the tenure of a former chairman, Moin-ud-Deen Khan, in the late 1980s. The CBR has several models of autonomous organisations, like Securities and Exchange Commission of Pakistan (SECP) and State Bank of Pakistan (SBP).

Sources said that CBR under the previous Act had been working smoothly since its promulgation. However, need to introduce a new 'Act' arose considering the reforms and automation.

Sources said that the draft of FBR law should not be a bulky compendium, but it should carry comprehensive and easy to implement rules to make the organisation efficient and taxpayer-friendly.

The 'FBR Act, 2006' was formulated before the 2006-07 budget for enforcement from new financial year. But it was not cleared by the Board-in-Council due to legal formality of presentation before the Parliament.

Many provisions of 'FBR Act, 2006' are already available under the Income Tax Ordinance 2001, Sales Tax Act, 1990 and Customs Act, 1969.

Under the proposed 'FBR Act', the Board would be empowered to prosecute any person, who allegedly commits an offence under Customs Act 1969, Sales Tax Act 1990, Federal Excise Act 2005; or any other offence under Prevention of Corruption Act 1947 or National Accountability Ordinance.

The powers to take action against tax evaders are already available under the above said laws. Similarly, the powers of enforcement and investigation are also available to tax officials. But 'FBR Act' has incorporated new provisions to examine the taxpayer record and prosecution against delinquent taxpayers.

Sources said that 'FBR Act' is also against the new organisational structure duly approved by the World Bank and the Board-in-Council. Under the new organisational structure, 21 directors-general would head different taxes/departments under the tax administration reform plan. They would report to six members including Member Customs, Member Sales Tax, Member Direct Taxes, Member Revenue Services, Member Management Services, Member Policy and Reforms and Member Internal Audit. On the other hand, 'FBR Act' says that the Board would comprise at least seven members, without referring to the new organisational structure.

Tax officials have strongly objected to the provision of 'FBR Act' to create companies. According to 'FBR Act', the CBR would get incorporated and maintain companies for training needs of its employees; research and development; educate taxpayers; upgrade skills of the employees and automation purposes.

The FBR may transfer or post or place any of its employees to work for the company. The management of such companies will be with the serving or retired members or officers of the Board. The CEO will be appointed from senior serving or retired officers with suitable qualification.

Sources said that establishment of companies for appointment of experts from the private sector is not a feasible idea. The proposed 'FBR' would be a government organisation where the concept of outsourcing the functions is not acceptable.

In case of Pakistan Revenue Automation Limited (PRAL), the company is working with CBR on the basis of a contractual agreement, sources said.

They said that 'FBR' proposes to levy reasonable penalty on government departments which refuse to give information about taxpayers to the Board. The departments covered under 'FBR' are government's divisions and its attached departments or corporations; provincial governments departments and corporations; banks, investment companies, or the other companies; commissions, regulatory bodies; housing societies; Wapda; Nadra; utility companies; corporations and withholding agents.

The 'FBR Act' provision of penalising government departments is not appropriate. Certain departments have legal backing to maintain confidential data on Pakistan's citizens. The 'Federal Board of Revenue' would create a national database of taxpayers, which would require information from these government departments, sources said.

 

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KARACHI (July 25 2006): Pierres Siellan, French Consul General here, has said that French investors may set up joint ventures with their Pakistani counterparts in agricultural sector, hotels, etc.

Speaking at the Karachi Chamber of Commerce and Industry (KCCI) here on Saturday, he said that bilateral trade between the two countries has reached $1 billion. France has a liberal policy towards issuance of visas to businessmen, he added.

Responding to questions, the French diplomat said that four experts have been appointed to study the Pakistan market and the Consulate would soon be organising a seminar on textile machinery here and these experts would be invited to make presentations.

Pierres Siellan said that there exist vast opportunities for investment by foreign investors. If invited or given opportunity to visit Karachi, they could come without any reluctance, as the city is safe and peaceful.

Walid Otari, Commercial Counsellor of France, who was also present at the meeting, advised Pakistani industrialists, seeking water effluent treatment plant, to contact French companies' offices in Dubai.

Haroon Farooki, President, KCCI, in his address said that Pakistan is the genuine gateway to South Asia and Central Asian Republics as it is integrated with two regional arrangements, namely Saarc and ECO. France could take advantage of Gwadar port to establish production base in Pakistan and tap the huge, largely untapped market of South Asia, Central Asia and Middle East.

Abrar Ahmed, Chairman, Diplomatic Affairs Committee, KCCI, and Majyd Aziz also spoke on the occasion.

 

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ISLAMABAD (July 25 2006): Overseas Pakistanis should make huge investments in the country to help the government compete with India economically. This was stated by the Federal Minister for Population Welfare Shahbaz Hussain during his visit to Derby to attend "Kashmir Awareness Movement".

He said that conducive environment will be provided to overseas Pakistanis to divert their investments for developing the country's industrial base. "We assure you and the international community that we are for peace in the subcontinent, but the atrocities in the Indian-occupied Kashmir are continuing".

The minister said Pakistan offered help in Mumbai bombing investigations. "We share the pain of the victims", he said. Shahbaz said Pakistan is looking forward towards Britain and America to play their role in peaceful solution of the Kashmir dispute.

He said that Pakistan had taken the initiative and offered a hand of friendship to India but recently the Indian government had halted the peace process.

Pakistan has taken all the confidence building measures seriously but in return Pakistan did not receive positive response from Indian side, he said. The minister said that the Kashmiris of British origin must not rely on British government alone to resolve Kashmir dispute. They should be granted their right to self-determination as per the United Nations resolutions, he said. He said that pressure must be exerted on India to come to the negotiation table and resolve the Kashmir dispute according to the UN resolutions.

 

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BEIJING (July 25 2006): China sees connecting rail link with Pakistan a feasible project to serve their common interest, stepping up trade and business activities between the two countries.

This project could also be of great importance to provide easy access of their goods to Central Asia, Middle East and African countries. China will soon hold a feasibility study, exploring ways and means to undertake this project.

According to the official sources in Beijing, the Chinese side is actively considering, strengthening their communication links with Pakistan through rail and road. " We welcome Pakistan's proposals in this connection, and wish to extend support for optimism use of Gwadar seaport developing bilateral trade," said a senior Chinese official while talking to APP.

The technical and financial matters involved in the construction of the rail link up to Kashgar and the Sust check post, will be considered at the experts' levels.

The sources hoped that the rail link would open vast opportunities for Pakistan and China to deepen their trade and business interactions both at bilateral and regional levels.

According to the sources, China welcomes joint ventures that help enhance their mutually beneficial co-operative partnership. This rail-link project could be another milestone in the development of their economic ties.

The China's Xinjiang autonomous region has already expressed its willingness to undertake necessary spadework, connecting China with Pakistan through rail. The Governor Xinjiang Region Ismail Tiliwaldi has stated early this year, during his meeting with a delegation of Pakistan Muslim League that his government will soon start necessary work to find out possibilities of operating a rail network between the two brotherly countries through Kashgar.

The two sides agreed that the China's western region has rich potential to emerge as hub of Sino-Pak business activities. Pakistan and China have already started a regular bus service between Kashgar and Gilgit.

China enjoys rich potential and technical know-how to expand its rail link to the country's mountainous regions. It proved its worth, by connecting China's Qinghai province with Tibet last month. In accomplishing this task, China solved three major difficulties to rewrite the world's history of railway construction. The difficulties were frozen tundra, high altitude and plateau environmental protection, said Zhu Zhensheng, vice director of the Ministry of Railways office in charge of the new line.

About 550 kilometres of the tracks run on frozen earth, the longest in the world's plateau railways, posing great challenges for designing and construction, he said.

The oxygen content along the railway is only 50-60 percent of that at sea level as 960 km of tracks are located at more than 4,000 meters above sea level, Zhu said.

The annual average temperature on the Qinghai-Tibet Plateau is below zero degree Celsius with the minimum temperature at 45 degree Celsius below zero.

None of the hundreds of thousands of workers died of altitude sickness in the past five years, making a medical miracle, said Professor John West with the School of Medicine, University of California, San Diego.

More than 600 doctors and nurses served for the construction project and there was one clinic every 10 kilometres along the line, making sure that any sick worker could get medical treatment within 30 minutes.

However, when the country built a highway between Qinghai province and Tibet in early 1950s, almost the construction of every one kilometre of the road would claim one death.

The 1,956-kilometre-long Qinghai-Tibet railway is the world's highest and longest plateau railroad and also the first railway connecting the Tibet Autonomous Region with other parts of China.

 

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LAHORE (July 25 2006): Punjab government will spend an amount of Rs 14 billion to expand the existing road network in the province during current fiscal 2006-07. The said amount will be utilised by district governments, official sources said, adding the government had embarked upon a strong road infrastructure developing plan focusing both on inter-city express ways and intra-city road network.

The main Sialkot-Lahore Motorway project, to be completed this financial year, would reduce the travel time between Lahore and Sialkot to 45 minutes.

Linkages would be provided to this Motorway from Gujrat, Wazirabad and Gujranwala to extend the benefits of this motorway to a large regional population. The said motorway would be connected to the Lahore Ring Road project, which has already been initiated by the government.

In Punjab, sources said, the communication by road was the predominant mode of transport. It carries more than 90 percent of the passengers and freight traffic with an average growth rate of 4.5 percent and 10.5 percent respectively.

In 2002, the Punjab's roads network was 40,000 kilometres, which increased to 67,000 kilometres by end 2005. Since 2003-04 the expenditure on road sector in the Punjab has been in excess to Rs 30 billion, benefiting the entire population of the province and creating project related temporary jobs in excess of 800,000.

To maintain the present tempo of infrastructure development, sources said, Rs 14,000 million would be used in running fiscal under the Medium Term Development Framework (MTDF).

The main features of government's road sector development policy are to sustain and promote economic activities, provide province wide north-south and east-west corridors linking national motorways to address emerging national and international travel and trade demands.

 

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KARACHI (July 25 2006): The City District Government Karachi (CDGK) is going to install a biogas plant in collaboration with a New Zealand firm at an estimated cost of $135 million on a 3-acre plot in the metropolis.

District Co-ordination Officer (DCO) Fazl-ur-Rehman on behalf of CDGK singed the Memorandum of Understanding (MoU) with Tony Woods of Empower Consultants Limited of New Zealand, while the City Nazim Syed Mustafa Kamal was also present on the occasion here at the DCO Camp Office on Monday.

Later, addressing the press conference the City Nazim Syed Mustafa Kamal said that the proposed plant would have the capacity to generate 30MW to 35MW electricity besides generating CNG gas and 15 tonnes of fertiliser per day. Around 3000 jobs would also be created through the proposed project, he maintained.

The project would be installed in the cattle-colony on around a 3-acre plot, he said and added that the firm would undertake the installation job from now and would also bear all expenditures of the project.

He was of the view that the manure had been wasting and was being flushed into the sea, therefore it was felt necessary to utilise it for energy purposes, he said and added that fertiliser produced in the proposed plant would also be exported to other countries.

He said the plant would function as a model project for one-year, however its results would come out within six months.

Tony Woods apprised the newsmen of their continued strive for last 10 years and now in this CDGK they managed to get the approval for the project. He said Empower Consultants were providing services in 26 countries around the world.

 

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ON July 18, the SBP finally adopted a regulatory measure to tighten monetary policy that many observers expected as early as June 2004. Better late than never!

It has come against the backdrop of monumental expansion in bank credit and currency in circulation witnessed during the past three years, and the credit overhang it gave rise to, which has accentuated the economy’s vulnerability to shocks.

Hike in cash reserve requirement (CRR) and statutory liquid ratio(SLR) (belatedly being supported by the IMF, as well) became necessary because banks seemed to disregard the SBP advice on areas including the credit growth (especially unsecured credit), equity trading, maintenance of liquidity, return on deposits and offering attractive term-deposit products to retain savings for commercial lending, project finance, mortgage lending, etc.

An impression was created that the SBP can’t ‘dictate’ pricing mechanisms. Surely it didn’t, but it got around this ‘free market’ taboo without upsetting the applecart; rise in the reserve requirements was engineered to penalize banks with excessive holdings of volatile (and therefore unfairly priced deposits) and reward those that have built deposit bases of longer-term (and therefore fairly priced) deposits.

The distinguishing feature of the regulation is that the reserve requirements are based on deposit tenors rather than on their maturities. Even a six-month deposit that is not cashed prematurely will continue to attract right up to its maturity the lower cash reserve requirement of three per cent and not seven per cent that now applies to volatile deposits. The message is clear: banks should offer realistic profit rates on deposits so that they revive a savings culture.

The estimated level of bank deposits is Rs2.8 trillion of which only 13 per cent (Rs360) billion have maturities exceeding six months (shocking, isn’t it?) and the remaining 87 per cent (Rs2.440 trillion) have maturities of less than six months (even more shocking, isn’t it?). This maturity profile shows large tenor mismatches between loans and the liabilities funding them. It doesn’t inspire too much confidence in banks’ management of their internal liquidity.

We are now experiencing the consequences of de-regulating the financial services sector without putting in place mechanisms that promptly check mis-allocation of national savings to marginally or counter-productive sectors. An example thereof is consumer finance (a staggering 23 per cent of the total outstanding credit in a resource-starved country) that pushed up consumption, imports and trade deficit to a record level.

For any developing country, consumer lending to this level is inadvisable, especially if it leads to higher imports, a large part of which are funded by volatile bank deposits. In Pakistan, even the entire stock of long-term deposits (13 per cent of total) is well below the level of consumer credit that constitutes 23 per cent of total bank credit. This scenario depicts over-aggressive and risky lending that borders on lack of professional responsibility.

On July 22, increase in cash reserve requirement (CRR) will suck out Rs49 billion from the banking sector. Banks already hold enough approved securities to take care of the three per cent rise in the Statutory Liquidity Requirement (SLR). Therefore, the overall impact of rise in reserves on the market liquidity will be more or less that on account of the rise in the CRR, and will suck out what the banks hold in their un-utilized liquid asset portfolios.

One view is that the move will up interest rates by two per cent. Firstly, even if such a hike takes place, it shouldn’t apply to secured-commercial credit; it should apply to consumer and unsecured credit. Secondly, believing that demand for credit will stay at its current level is unrealistic. With fewer rupees to lend, banks will re-think their consumer and lending strategies. But the illogically high profits banks had gotten used to making will certainly be squeezed.

Logic suggests that consumer and unsecured credit will become dearer and would also be curtailed bringing down the demand for credit. This is necessary for containing un-productive imports at the expense of starving the local industry. But it does pose the risk of delinquency of these portfolios.

Surely, while extending these loans banks knew the consequences of a rate hike on their borrowers. It is too bad if they didn’t. Hopefully, we will not hear sad stories about the star performers of the recent years.

An important benefit would be banks’ partial liquidation of their equity investments, which had a role in distorting the country’s stock markets of which the March 2005 meltdown has become a dangerously contested issue. Some banks got used to earning up to 70 per cent of their profits from stock trading, which was bad. This is another aspect that the SBP had hinted at but which banks decided to ignore. Now banks will have to re-think their niches in stock trading.

As far as the impact of a fractional rate hike on lending to industry is concerned, let us not forget that, recently, both the MoC and the SBP announced large packages of financial incentives, which should suffice for the moment. Industry must also realize, that the bill for the concessions it keeps demanding, is eventually footed by the ordinary Pakistanis, who have had a bad deal for decades at a stretch.

Hikes in reserve requirements are warranted by imbalances that continue to grow in spite of the central bank’s warnings. This is precisely what happened. During the past five years, the DFIs were unceremoniously wound up and development financing was shifted on to commercial banks but it didn’t arouse banks to the need for developing investment products to shore up term funds.

Banks are funding both medium-term industrial projects and mortgages out of short-term sources, which are increasing liquidity and systemic risks. This trend has to stop, the sooner the better.

Undoubtedly, the government’s refusal to float its term paper to set interest rate yardsticks is unfortunate but if banks are undertaking term-financing they can’t indefinitely wait for the government bonds to set the trend for floating their own debt paper. They must either float their bonds and collect term funds, or opt out of term financing activities. It may force the government to recommence floating term debt paper but no central bank can overlook for extended periods serious mismatches in asset/liability tenors.

The need for saving can’t be over-emphasized. Countries wherein bad lending practices encourage over-spending destroy the culture of saving and eventually fall in a bottomless pit. We simply cannot encourage wasteful consumption because it destroys the nation’s hard-earned wealth, which, in our case, has never been enough.

We seem to be developing the habit of living on borrowed money. The yawning trade, the BoP and current account deficits are growing at an alarming proportion. Rise in imports is shockingly high and has undeniably been nourished by easy availability of credit at almost throwaway prices. All this reflected an attitude of collective irresponsibility. Rise in interest rates will enforce cutting waste and unnecessary consumption, which we were becoming oblivious to.

New reserve requirements will hurt the big banks that have huge bases of the least fairly rewarded saving deposits. It is important that the SBP stands by its decision to up the reserve requirements, and not succumb to pressure for reverting back to the reserves’ 2003 levels. The country must rejuvenate a savings culture by forcing banks to offer fairer returns to their depositors. Only then will banks realize the sanctity of deposits, prevent their deployment in marginally useful imported goods and contain the need for external borrowings to pay for them.

To help banks in this endeavour, the SBP must seriously consider laying down the infrastructure (with requisite security checks) that can permit banks to issue negotiable Certificates of Deposit (CDs). It is the need of the hour because on the one hand it assures the CD issuing bank sustained liquidity and on the other gives the CD holder the assurance of ready liquidity. Admittedly, it is a risky project but it must be undertaken to strengthen a saving culture along sound lines.

 

[Neo]

Tuesday, July 25, 2006

KARACHI: Pakistan is expecting a bumper crop of 13,800,000 bales (170 kgs each) in the 2006-07 season about one and a half million bales more than last year’s crop.

Cotton growers and experts said on Monday that the local crop was progressing well and that a bumper crop was expected. The level of rainfall expected is also a concern for the standing crops as if rains are too heavy they might affect crop size and even the quality of the crop. A senior trader, Ghulam Rabbani, said if there would be no rains it would create a low moisture condition and dry weather result causing flower shedding or lower growth of plants which will be another loss for the crop.

He said according to the All Pakistan Textile Mills Association (APTMA)’s plea to the government to give more incentives to the country’s largest industry, that provides 13 million direct and indirect jobs, and contribute to about 67 percent of export earnings. This is a huge investment portfolio as the industry has invested $7 billion up to now in the the Balancing Modernising and Reconstruction (BMR) programme introduced by the government in 2000.

Ghulam Rabbani said the APTMA had appealed to the government to announce more incentives for the industry and to help them survive cut throat from competitors from India and China. He added that these countries had government partnerships which helped enhance the export business.

Mr Rabbani said local cotton is vital for the domestic textile industry. However the high mark up low export refinancing was making the business environment difficult.

He said USDA estimated that world produce was estimated at 24,899,000 tonnes and expected consumption was 26,509,000 tonnes while Cot-Look estimates stated that world production was expected to be 24,599,000 tonnes and consumption was estimated by at 26,736,000 tones.

The India Cotton Advisory Board announced a crop estimate of around 24,400,000 bales (About 4 million tones) in crop year for 2006-07 with a smart gain of around 2,600,000 bales (170 KGS each) which is a little higher than the estimate by the Indian Cotton Corporation which is 24,317,000 bales.

He said the domestic requirement stands at 22 million bales. Ghulam Rabbani added that millers were very happy with the textile package introduced by the Indian government with a bundle of tax relief in the form of lower duties, lower mark ups and export refinancing at attractive rates.

He said the China Cotton Association announced official estimates for the requirements of raw cotton for domestic industry which is said to be around 10 million tonnes while local production has been estimated to be 6 million tonnes and there will thus be a very large gap between production and the consumption in China this year.

He said the Chinese local market was showing a return to the hand to mouth purchasing of previous days. Mills are maintaining low inventories. Recent references to the need for the market to function more transparently have attracted attention, ideas have subsequently been floated as to how the balance of commercial stocks (particularly of Xingjiang cottons) might be moved through marketing channels without impending the import process, he added.

He said the United States Department of Agriculture (USDA) announced a production estimate of 4,463,000 tonnes of production of cotton for the 2006-07 year, about 738,000 tonnes less then the last crop which was 5,201,000 tonnes. According to the USDA, US domestic consumption stood at 4,788,000 tonnes and the rest will be available for export.

The crop progress report released by the USDA last week showed a negative trend overall and only Texas, the largest cotton production state, produced 3.5 million bales less than last year’s crop. A CONAB official from an association of raw cotton in Brazil, announced crop estimates for the 2006-07 crop year which is said to be around 1,048,200 tonnes.

He said Brazil was a totally export-oriented industry and was building its reputation ocer the last few years through what he called the committed quality/in-time shipments to its buyers around the world. The province of Mato-Grasso with its variety of medium and long staple cotton called Matto-Grasso is on top with supplies of export grade cotton approaching 37 percent of national cotton production.

 

[Neo]

Tuesday, July 25, 2006

LAHORE: Pakistan PC/Server shipments grew 19.1% in Q1 2006 to 128,729 compared to the same quarter of previous year, said a report of Springboard Research, a leading innovator in the IT Market Research industry.

The report further added that the government spending picked up again in the quarter after slowing down in Q4 2005 due to the October 8 earthquake. Government PC shipments registered growth of 35.3% as compared to Q4 2005 and continued to be the biggest buyer of computers with a 22.4% share.

The Pakistan government continues to focus on increasing IT awareness and penetration in the country. Moreover, improved infrastructure, bandwidth connectivity, and telecommunications have accelerated the momentum in the IT market.

The trend of increased PC purchases by households in smaller towns and cities as witnessed over the past several quarters, continued to be steadfast in Q1, 2006. In addition, the favourable developments in the South East Asia region will also have a positive affect on the economy of Pakistan.

“PC/Server consumption in the country continues to be dominated by the government and large corporate sectors such as manufacturing, telecom, banking and financial services, and IT-enabled services,” said Rehan Ghazi, Pakistan Market Analyst, Springboard Research. The growing trend of automation in the local industry, both in the public and private sectors generated substantial business opportunities for MNCs and local players in the same period. Aggressive pricing by the PC vendors also helped improving the PC penetration, especially in the households and the SMB segments.”

Among all the product segments, the portable segment experienced the highest growth of 22.4% year-to-year. The high growth in the portable market is mainly attributed to reduced prices and high consumption by the corporate sector, IT companies, financial institutions and government bodies.

HP led the market with 5.2% share of total desktop shipments in Q1 2006, followed by Lenovo and Dell. The import of second hand computers, piracy and a lack of proper training of IT professionals are some of the major hurdles that continue to affect the strength of the growth of branded PCs in Pakistan.

The government’s preferential treatment toward local vendors for IT procurement appears to be working towards local industry growth. In-box and Raffles, two local brands, ranked 5th and 6th respectively in Q1 with a total desktop market share of more than 5%.

“With strong economic indicators and a strengthening IT landscape, we expect the PC/Server market to gain momentum in 2006. Our outlook on the country remains optimistic and we expect the market to generate 25% growth in unit shipments in 2006 and maintain a level exceeding 20% in 2007 and 2008,” noted Dane Anderson, Vice President, Springboard Research. “With the new fiscal budget for FY07 declared in June 2006, we expect to see an increase in government IT-related spending due to the continuous automation of both local and national level authorities” he added.

Asia Emerging Countries Tracker is a Springboard Research service that tracks PC/Server market developments in Bangladesh, Brunei, Cambodia, Sri Lanka and Pakistan on a quarterly basis. The methodology employed for this service leverages interviews with IT resellers, vendors, component suppliers and end-users at the local and regional level.

 

[Neo]

KARACHI: The Chinese investors have expressed their interest in the development of Karachi Mass Transit Project Corridor-II and have said that work on this project would start soon.
A delegation of Chinese investors called on the City Nazim Syed Mustafa Kamal at his office on Saturday. On the occasion, the DG Karachi Mass Transit Cell Malik Zaheerul Islam and EDO Revenue Salah Ahmed Farooqi were also present.

The city nazim informed the Chinese investors about the development project continuing in the city and invited them to invest in the city as there was ample opportunities of the business, besides, the city government would also provide every possible help to them in this regard.

The Chinese investors were briefed about the six corridors of Karachi Mass Transit Project and informed them that the proposals were already submitted for the development of light rail mass transit system on Corridor-I from Tower to Sohrab Goth and the it was under scrutiny.

The investors had showed their interest in Corridor-II for the development of mass transit system from Orangi Town to Cantonment Station via Goliamar and Garden.

 

[Owais]

Ban on jobs in Sindh goes

KARACHI (July 25 2006): The Sindh government has lifted ban on employment forthwith. This was stated by Chief Minister Dr Arbab Ghulam Rahim while presiding over a meeting at the CM House on Monday to review the development projects envisaged for fiscal year 2006-07.

He said that for the benefit of the people, decision to lift ban from jobs had been taken and emphasis on education had been increased. The chief minister added that prudential development policies of the provincial government have begun to attract foreign investment in Karachi. He said that more foreign investment would flow into Sindh when the ongoing infrastructure development projects, under last year's ADP, would be completed.

He said that new vegetable markets in Karachi, Mirpurkhas and Tando Allahyar, and meat, fish and vegetable markets in Qasimabad, Hyderabad, were being set up.

To give shape to President's 'white revolution' idea, cattle colonies and dairy villages were being set up under the supervision of district governments and in the private sector, he said.

At Kinjhar Lake, a modern organisation for fish seed development would be set up to provide advisory and technical support to fishermen living on both banks of Indus.

Rahim said that he would like to see in place a mechanism to ensure timely monitoring and evaluation of all ongoing development projects so that the quality of work and financial discipline could be maintained.

He said that under the advice of the President, emphasis on development work would bring prosperity in the province, and there would be more jobs and more civic facilities for the people.

He said that gone were the days when Sindh had overdraft/loan ranging from Rs 6 billion to Rs 7 billion. "We have cleared this loan, and the province has surplus to spend on the welfare of the people of the province," he added.

During the current financial year, the condition of more than 43,000 schools would be improved and 1,200 new schools would be opened. In addition, each Tehsil would have at least one English-medium school.

He said that irrigation system was being improved to ensure water supply to tail-enders also. The process of de-silting is in progress on fast track basis. The work would be completed on priority basis, he added. The chief minister said that there would be a new medical college and an institute of business management in Mirpurkhas.

Dr Arbab said that health facilities would be extended to health-deficit areas, and there would be either new health outlets or the existing ones would be improved to meet the requirement of the people.

Chief Secretary Fazlur Rehman briefed the chief minister on the ongoing projects nearing completion and on those that would be taken up during the current fiscal.

Among others, additional chief secretary development, senior member Sindh board of revenue, secretary finance, home, works and services, irrigation and power, fisheries and livestock, education, agriculture, industries, mines and minerals, principal secretary to chief minister and other concerned officers attended the meeting.