Pakistan Economy - News & Updates - Archive

[Neo]

Refineries investing to reduce air pollution

KARACHI: The government has set a deadline of 2008 for all the refineries to become compliant with EURO 11 specification aimed at reducing sulphur content in diesel to 0.05 per cent from the current around one per cent in order to reduce vehicular air pollution.

All the refineries have geared up efforts to make heavy investment in this regard in order to meet the deadline.

In sharp contrast, a paper relating to the Pakistan Millennium Development Goals (PMDGs) 2005 reveals that sulphur content should range between 0.5 and 0.25 per cent in diesel by 2015 as per the MDG target for ambient air quality. The document says that diesel used in Pakistan contains very high sulphur content (one per cent). Pakistan, however, plans to reduce the sulphur content by half in 2010 and by three quarter in 2015. The paper says that lead content in petrol is also high -- 0.35 gram/per litre -- which is a major health hazard.

Refinery officials say that the refineries are already far ahead of the PMDGs and the real facts are not reflected in the PMDGs’ document.

Aftab Husain, general manger commercial and technical services, Pakistan Refinery Limited, said that he had gone through the PMDGs but the market facts are very different. Petrol had already become lead-free in 2002 and the document reveals another story.

In diesel, he said out of total consumption of 7.5m tons per annum, 4.5 million tons were being imported that contained only 0.5 per cent sulphur contents. Local refineries produce three million tons of diesel that has 0.7-0.9 per cent sulphur contents.

“The Euro II deadline set by the government for diesel is 0.05 per cent by 2008,” he said, adding that his company was investing $188 million purely on this project.

Mr Husain said over $100 million investment was required for acquiring hydro desulphurisation plant from the US and European countries. All the refineries are working on this project.

However, he said the refineries might face a delay in achieving 0.05 per cent sulphur contents by 2008. “It may take more time because all the consultants and plant manufacturers all over the world are already booked for various oil and gas projects in upstream and downstream sectors worth $260 billion in various countries.” Many consultants and plant manufacturers have declined to take new projects, as they are already overbooked, Mr Husain says.

The project like hydro desulphurisation takes 36-40 months from front and engineering design, engineering procurement and construction phase up to commissioning, he added. Consequently, if the projects start at the end of 2006, it will take up to early 2010 for completion.

CNG: According to the PMDGs 2005, the number of CNG vehicles had increased sharply from 500 in 1990-91 to 280,000 in 2000-01 and to 700,000 by March 2005. Air pollution levels in most cities of Pakistan have reached critical thresholds. The most serious issue is the presence of excessive particulate matters (SPMs). Among others, the major sources of excessive SPM are vehicular emissions. The target for CNG vehicles population for the Medium Term Development Framework 2009-10 is 800,000 vehicles and 920,000 vehicles by 2015 under the MDG.

CNG Stations Owners Association of Pakistan Chairman Malik Khuda Bux was not aware of MDGs but he said the industry had already exceeded the MDG target of 900,000 vehicles by 2015, as over 1.1 million vehicles were already plying on the roads. He said at present there were 1,079 CNG stations in the country, and the government had already issued licences to 3,811 more stations, out which 119 stations were in various stages of construction. An investment of Rs20-25 million (excluding land price) is required for setting up a CNG station, he adds.

Inayatullah Ismail, manager media relations, SSGCL, flatly refused to provide any reply to a questionnaire sent by Dawn regarding CNG with reference to controlling vehicular air pollution. The subject is a part of the PMDGs. He said he had referred the questionnaire to the senior general manager, management services, Engr Naimur Rahman Akhoond, who said the issue of MDGs did not relate to SSGCL. Even Mr Inayatullah said that he had first time heard about the MDGs.

“Our function is to only provide gas. We do not indulge in other business,” he said, adding that the government had never given any details or guidelines on the MDGs.

CNG Dealers Association Chairman Abdul Sami Khan had also no knowledge about the MDGs. “The government has not intimated anything on it with the association,” he added. — A.S.K

 

[Neo]

‘We are doing all within our means to achieve MDGs’

By Ihtasham ul Haque

ISLAMABAD: Prime Minister Shaukat Aziz has said that the government is all set to attain most of the Millennium Development Goals (MDGs), including 100 per cent literacy rate by 2015.

“We are committed to MDGs for eradicating poverty, providing health and education facilities to all, ensuring gender equality and combating HIV,” he said.

In an interview with Dawn, the prime minister said the government was moving in the right direction for achieving the MDGs set by the United Nations.

“Just take the example of poverty, which is gradually reducing. Four million people were pulled out of poverty in 2004-05,” he said.

He said poverty had reduced by 10 percentage point from 35 per cent to 25 per cent and the international donor agencies had also termed it a ‘good achievement’. In absolute numbers, he claimed, the count of poor persons had fallen from 49.23 million in 2001 to 36.45 million in 2005.

To a question, Mr Aziz said that a number of policy measures had been adopted to improve literacy, and the focus was on backward areas. He said the way he was personally monitoring the progress, most of the districts would have to attain 100 per cent literacy by 2015 to support a national average of 88 per cent by 2015.

He stressed on the need to create awareness about the MDGs among different stakeholders, especially in the private sector.

“It involves motivation and enough funds, and the government is doing this job very seriously, considering that the literacy level in the country is still very low,” he said, emphasising on public-private partnership to achieve broad MDGs objectives.

The prime minister denied that the conditions set by donors, particularly those related to introduction of user fee in public hospitals, were causing problem to the government.

“Since all arrangements are being done on an affordable cost and with full support of the donors, there is no problem dealing with any issue,” he said, adding that subsidies were being offered to different segments of society with the support of the donors.

He said the Ministry of Finance and the Planning Commission had worked out a joint strategy to adequately meet the millennium goals by 2015.

When asked about the assessment of funds required to implement the goals set by the UN, Mr Aziz said the government was regularly disbursing considerable funds to meet the requirements.

He said the World Bank and the Asian Development Bank had enhanced their annual financial assistance to Pakistan. Both were offering over $2.5 billion annually in order to remove poverty and help achieve other economic indicators relating to health, education, rural development, etc, he added.

About reducing child mortality, he said even though intra-national, intra-Balochistan and intra-Sindh disparities widened in the past, on an average there was an improvement of 10 percentage points in the immunising coverage.

In absolute coverage, he said, districts of Punjab dominated the top-10 ranking, with above 90 per cent coverage. Districts of Balochistan, with roughly 40 per cent coverage, were at the bottom, he said, adding that coverage in many of the districts in Sindh and NWFP grew rapidly.

Regarding the national MDG target of greater than 90 per cent set for 2015, the prime minister said that at least 16 districts had already achieved it, and another 50 districts were likely to do so around 2015.

He said disparities in the coverage of safe water supply had narrowed, indicating convergence nationally and provincially. He said the top 10 positions in the coverage were equally shared among the four provinces in 1998 as well as in 2005. However, districts of NWFP and Balochistan shared most of the bottom 10 positions in 1998 and 2005, he said, adding that districts in Balochistan also shared the distinction of being the fastest growing during 2001-05, while the opposite was evident for few districts in Punjab.

Under a broader definition of safe water supply, the prime minister said that nearly 36 districts of the country had achieved the national target (narrowly defined as pipe/hand pump) of 93 per cent set for 2015.

In reply to a question, he said there were many challenges like poverty and unemployment which warranted even more serious efforts on the part of the government and the private sector to achieve broad improvements in the economy.

 

[Owais]

$407.3 million foreign investment received during July-August 2006-07


ISLAMABAD (updated on: October 16, 2006, 17:32 PST): Pakistan attracted a total of US $407.3 million as foreign investment during July-August 2006-07, official sources told APP here on Monday.

The sources said a total investment amounted, $407.3 million in the first two month of current fiscal year as against $295.8 million in the same period of last year, thereby exhibiting an increase of 37.7 percent.

The Foreign Direct Investment, a major component of overall foreign investment, was amounted to $375.5 million in the first two months of current fiscal year as against $230.8 million in the same months last year showing an increase of 62.5 percent, they remarked.

The sources further said the portfolio investment on the other hand stood at US $31.9 million as against $ 65 million last year.

"The US has been the largest investor in Pakistan accounting 31 percent of the total FDI in the first two months followed by UK (17.4%), UAE (12.8%), Switzerland (5.5%) Netherlands (4.2%) and so on", they added.

Official sources said that energy sector (oil and gas and power) along with communication sector have been the major attractions of foreign investors in Pakistan, accounting for 23.5% each, followed by financial businesses (17.4%) and trade (11%). Three-fourth of the FDI has therefore, come to these sectors, they added.

Official sources said that Pakistan has become an attractive investment destination in various sector of the economy and the government's investment friendly policies have further lured the investors - both domestic as well as foreign investors.

The stable and fastest growing economy of Pakistan in the region followed by consistency and continuity in the economic policies are yet another major reasons for the enhanced foreign investments in the country.

 

[Owais]

New dry port to be constructed near Kot Radha Kishan


KASUR (updated on: October 16, 2006, 17:33 PST): The Pakistan Railways has decided to construct another dry port near Kot Radha Kishan at Premnagar railway station to relieve load on Lahore's dry port, said the Chairman National Assembly's standing committee for Railways here on Monday.

Talking to reporters, Sardar Tufail Ahmed Khan said that 300 acres of land, for the project, has already been acquired by the Railway authorities and CBR which largely aims to expedite unloading of goods from trains arriving from Karachi.

He said the work for laying a railway track for the new dry port would be started soon and shades will also be set up for the unloaded goods at the port.

Tufail said that the government has completed the survey of all the railway bridges in the country and in the light of this inspection about 100 bridges are to be repaired and four new ones will be constructed.

He said that the Frontier Works Organisation (FWO) is undertaking the construction of Ran Pathani bridge in Sindh for which a budget of Rs 100 million have been spared. It could take another four months to complete, he added.

 

[Owais]

Inflation reaches 8.73 percent in September

ISLAMABAD (October 16 2006): Besides skyrocketing food stuff prices, increasing medical expenses are inflicting 'a body blow to millions of Pakistanis living on fixed income', as during September 2006, its (Medicare) prices leaped to 9.77 percent from 7.89 percent a month earlier.

Increasing expenses on education is another head of CPI basket which, during September, jumped to 7.16 percent from 6.25 percent in the same month last fiscal year. Within a month, its prices increase by 1.31 percent, affecting adversely the low-income citizens.

If the current rising trend persists, it would dampen government's efforts at achieving high literacy rate and ultimately Millennium Development Goals (MDGs).

It is important to note that general inflation measured by the Consumer Price Index (CPI) has touched 8.73 percent in September this year due to continuous increase in prices of food items, fuel and lighting, house rent, Medicare and education expenses over the corresponding month of last year.

The rising inflation-particularly of food items-is also becoming a nightmare for economic managers which, (food inflation) during September 2006, leaped to double digits (11.26 percent) from 11.08 percent a month earlier and 7.44 percent in July; thus snatching the purchasing power of the low-income group.

Food inflation, having more than 40 percent weightage in the CPI basket, unevenly affecting the purchasing power of low-income group, increased by 0.14 percent in September over previous month and 2.24 percent during August 2006 over previous month (July). This surging trend is a serious challenge for the government.

Majority of population consists of low- and middle-income groups and it always suffered most by the increasing food inflation. Whenever price of food basket goes up, it hits these groups and squeezes their purchasing power.

The Federal Bureau of Statistics (FBS) data reveals during 2005-06, average annualised CPI inflation was 7.92 percent and food inflation, 6.92 percent. While in the first quarter (July-September) of 2006-07, the average general inflation rose to 8.43 percent with food inflation more than nine percent.

It was at 8.73 percent (food inflation 11.26 percent) during September of this fiscal year, indicating that inflation is again on the rise and is still a potential threat to the economy.

The house rent also increased by 7.28 percent over the corresponding month of last fiscal year. The government statistics, however, showed that the house rent was constantly on the rise during the last seven months. The house rent rose by 0.42 percent in March 2006, 0.62 percent in April, 0.60 percent in May, 0.52 percent in June, 0.54 percent in July, 0.55 percent in August and 0.56 percent in September 2006 over the previous months.

However, the government remained silent about this phenomenal increase, which would have serious implications on the monthly budget of the low-income and middle-class people.

Though, the government has tightened its monetary policy in July, the SBP toughened its stance by raising its policy rate (the 3-day repo rate, which is its rediscount rate) from 9 to 9.5 percent, and adjusted upward both the banks' cash-reserve requirement ratio and their statutory liquidity requirement ratio, yet the accommodative monetary policy prevailed for the last few years would have a boosting effect on inflation.

The prices of all groups of the CPI basket also increased significantly in one month. These include: Medicare increased by 2.06 percent, education by 1.31 percent, household, furniture and equipment by 0.65 percent, house rent by 0.56 percent, transport and communication by 0.20 percent, and fuel and lighting prices increased by 0.16 percent over August 2006.

The FBS data reveals for several months, prices of some necessary goods and services such as food, house rent, transport and communication shot up significantly.

Economists opined that inflation should range between 7-8 percent, but it is likely to go up if the present upward trend in prices continued. At the moment, officials look quite helpless in controlling the abruptly surging trend in commodity prices.

It is also important to note all multilateral donor agencies, including the Asian Development Bank (ADB) and the World Bank have sounded concern time and again over high inflation in the country. They are expressing fear the inflationary and external pressures are expected to stay over and above the laid down targets for FY2006-07.

Experts analyses show that Pakistan would face two main challenges-burgeoning current account deficit fuelled by oil import and soaring inflation-which, they say, would hover around eight percent or slightly cross it at the end of the financial year despite good economic indicators. They say it would in turn affect prices of food and beverages, transport and communication and house rents.

In such circumstances, it has become hard for economic managers to tame inflation. They also look helpless in controlling prices of petroleum products, house rent, transport and communication, sugar, wheat and other edible items. It is obvious rise in petroleum prices will have a multiplier effect on a large number of items.

 

[Owais]

Massive inflow of portfolio investment continues

KARACHI (October 16 2006): Massive inflow of portfolio investment in the country's stock market continued as $13.5 million foreign investment came in the country during the last week ending October 12.

According to the data released by the State Bank (SBP), a total of $214,514,415 has been brought into the market during the current fiscal year (from July 1, 2006 to October 12, 2006).

A huge sum of $6,456,745 portfolio investment was recorded on October 12, 2006. Investors from Hong Kong invested $2,273,709 in the country's stock market while $21,435 was invested by investors from Switzerland; $775,491 from UK; and $3,386,110 from USA during a single session.

During the first three months of current fiscal year, almost half of the investment was made from Singapore. Investors from the island have more than $101.361 million in the Special Convertible Rupee Accounts (SCRAs) to their credit. Singapore is followed by $74.995 million investment from UK and $49.276 million from USA. A total of $16.352 million investment in the country's stock market came from Hong Kong while an investment of $59,943 came from Liberia.

Whereas during the said period major outflow came from Switzerland. As Swiss investors withdrew $22.235 million from Pakistani stock markets, while investors from BV Islands took away $2.063 million and investors from the UAE took away $1.748 million from the country's equity markets.

Others who took away their investment from the country's equity market during the period under review included Bahrain ($70,641), Guernsey ($66,177), Kuwait ($848,626), Luxembourg ($34,184), Qatar ($40,546), Saudi Arabia ($423,696) and Germany ($52).

Faisal Shaji, head of research, Capital One Securities, said massive inflow of portfolio investment was witnessed due to growing banking, oil & gas and cement sector in the country. He said major share of the portfolio investment came in the banking sector and more investment is expected in this sector. Cement and E&P sectors also have much potential and these sectors could attract more investment from overseas investors in future.

 

[Owais]

PNSC finalises $135 million deal with ABN-Amro Bank

KARACHI (October 16 2006): The Pakistan National Shipping Corporation (PNSC) has finalised $135 million financing deal with a leading foreign ABN-Amro Bank for acquisition of three vessels as a part of national flag carrier's fleet expansion plan, it is reliably learnt.

The new vessels includes two double-hull oil tankers of 'Aframax class' and one bulk carrier of 'Panamax class', but the Corporation is considering delaying the purchase of bulk carrier amid declining trend of tonnage (ships) in the international market.

The vessel acquisition plan would cost an amount of $150 million, of which $135 million has been arranged through financing from ABN-Amro Bank, while remaining amount of $15 million would be provided by the Corporation from its own resources.

In this regard, Prime Minister Shaukat Aziz has given go-ahead for the purchase of vessels.

Sources told Business Recorder that the Corporation obtained necessary approvals from the federal government that also appreciated the plan and it is expected that these vessels would be inducted into the fleet in the financial year 2006-07. The national flag carrier have to replace its ageing oil tankers as one of its oil tankers would be out of business under restrictions of Condition Assessment Scheme (CAS) of International Maritime Organisation (IMO) in 2007, while another three tankers would fall under the same in 2010.

Lack of adequate fresh tonnage (new ships) due to financial constraints has resulted in gradual deterioration of the PNSC fleet in terms of age profile and unless the trend was reversed, foreign vessels would grab a bigger chunk of the country's seaborne trade, the source said. The age profile of the fleet, however, is gradually deteriorating as in terms of dead-weight tonnage (DWT), over 62 percent of the fleet of 15 ships with about 636182 DWT is over 26 years old, while remaining 38 percent is 18 to 23 years old.

 

[Owais]

EU export licence may be suspended: 'Karachi Fish Harbour needs to meet standards'
KARACHI (October 16 2006): Terence James, International Expert in Facility Design, in his report issued recently about the Karachi Fish Harbour said if no action was taken, it likely would result in suspension of the EU export licence.

"The existing harbour is badly congested, there is no access to existing 'floating pontoons' and is lacking viable control system. The activities occurring at the Karachi Fish Harbour and market hall are short of the world industry standard and that required to meet European Union standards for fish handling," the report added.

"The existing facilities with the exception of the recently completed EU Corridor auction hall K-1, are in a poor state of repair, suffering badly from lack of maintenance. It is unlikely to be able to support any growth and should be viewed as a constraint on the development," it said.

The report, with title of "Trade related technical assistance facilities design" further said that the deterioration of the facilities and the more onerous standards demanded by the EU and internationally, had resulted in the current facility being incapable of meeting the required standard overall. This is resulting in expenditure, in a piecemeal fashion, to try and meet EU export standards.

It said there are no effective 'Traceability' systems in place, which are increasingly demanded internationally. Conditions of hygiene and handling on the vessels are inadequate. Failure to react to this change will result in continued expenditure and disruption trying to comply with EU standards in a piece meal approach, which will be both practically and commercially inefficient.

The report said the harbour was badly congested with vessels often two or more deep waiting to land. Fishermen are manhandling catches across other moored vessels as there is insufficient room on the quayside.

Vessels are landed by hand in a method, which is unacceptable regarding compliance with the EU standards. It is also inefficient, adding to the delays in landing and exposes the catch to contamination spoilage. Vessels should load their catch into approved containers, which can be lifted mechanically from the vessels. There is no effective control system adding to the inefficient landing and congestion.

STUDY FINDINGS:

-Karachi Fisheries Harbour Handling Facilities: These are badly out of date, inefficient, unhygienic and incapable of meeting international or EU standards in their present form. Significant investment is required, both in rehabilitation of existing and new facilities.

-KFH Vessel Provision, Landing and Control: A confused, inefficient, often chaotic state exists leading to capacity restrictions, poor handling and spoilage of product, which in turn results in lower revenue for poor quality product and higher quantities of trash.

-Maintenance and Repair/Upgrade Provision: The current situation results in part, to the lack of adequate financial recourses to maintain and upgrade the harbour and its facilities.

The report said the harbour's overall position was likely to result demanded with consequences to the local society of job loss. Consequences to the commercial supply infrastructure and allied processing industries in declining business and job loss, and a decline of the local economy. In addition the government will loose foreign exchange earnings.

The report said that significant changes had been taken place in the international market in the past 10 years and changes would continue to occur in the future. EU legislation and the international expectation of best practice and traceability would result in uneconomic development and be inferior to a properly conceived plan.

 

[Owais]

Italian group keen to invest in mine sector: MoU next month

KARACHI (October 16 2006): An Italian group has shown keen interest to invest in Pakistan's mine and mineral sector and an agreement in this regard would be signed early next month.

Sources in the Sindh mines and mineral department told Business Recorder the Carrara group from Italy is coming next month to assess the potential of natural resources in Pakistan. During the visit, the group would sign a memorandum of understanding (MoU) with the authorities.

Sources said the group made the offer to Pakistani entrepreneurs in an exhibition in Italy after a detailed study of granite samples.

The Sindh mines and mineral department through the Export Promotion Bureau had participated in the Italian granite exhibition in this month. Pakistani entrepreneurs displayed six samples of granite. A number of foreign investors visited the stalls and had shown keen interest in pink and blue varieties of the granite, sources said.

They said about 52 countries participated in the exhibition and they set up about 1500 stalls in the exhibition. When contacted, Sindh mines and mineral department director-general Sohail Akbar Shah said Pakistan has rare quality of stones in the world that has vast potential to attract foreign investment.

He said the government was planning to lure foreign investments for exploration and setting up plants in the mines and mineral sector, specially in Sindh, where approximately one billion tonnes of granite had been identified.

In this regard the department had participated in the Italian exhibition and displayed six samples of granite. The quality of Pakistani granite attracted several foreign investors because of the rare quality of granite, he said.

He said: "Our focus was on Italian investors because Italy is the world leader in marble, granite and stone sector and has expertise in the industry. The Italians are also equipped with modern technology for mine exploration."

The granite rock formation is found in the Nagarparkar region of Thar.

These formations are 1450 to 1500 feet high and cover an area of about 40 square miles with an estimated one billion tonnes of granite reserves. The granite is available in a variety of colours and textures.

The Sindh government has allocated Rs 32 million in this fiscal year to carry out a feasibility report of the exploration. The report would contain study of the area, shades of granite (pink, blue, grey, etc), financial study of the project, he said.

The purpose of the report was to sort out exact reserves in the province because past studies gave estimations but did not define the actual quantity and locations, he said.

 

[Owais]

Investment under CFS declines

KARACHI (October 16 2006): Total investment under the continuous funding system (CFS) on the Karachi Stock Exchange week-on-week basis has declined by nine percent to Rs 22.27 billion against Rs 24.48 billion in the previous week.

Analyst said many of the badla eligible securities were subjected to spot trading during the week. Muhammad Sohail, an analyst at JS Securities, said it was due to this reason that weak holders offloaded their positions in these scrips.

This could also be the reason that open interest at derivatives counter increased to Rs 9.8 billion from Rs 8.9 billion in the last weekend as investors leveraged them through the futures market. Analysts attribute the fall partly to lesser demand for liquid funds.

Rate of return at the CFS counter remained stable at 13.4 percent, whereas cost to carry in the futures market increased by 84bps to 8.2 percent. The upper limit of the investment under CFS is Rs 24.5 billion.

 

[Owais]

Sectors to be identified for foreign investment

KARACHI (October 16 2006): Naib City Nazim Nasreen Jalil has said that the City District Government Karachi will identify the sectors and projects for foreign investors. Talking to Dr Junaid Ahmed, Adviser to the federal ministry of finance, who met the naib city nazim at her office, she said the city nazim would be requested to issue directives to the concerned departments in this respect.

Dr Junaid apprised her about the Investment Conference being organised in December this year to be participated by local and Saudi investors. He requested Jalil to identify sectors and projects that could be presented at the conference to the investors.

 

[Owais]

Chinese investors offered maximum incentives

LAHORE (October 16 2006): Punjab Chief Minister, Chaudhry Pervaiz Elahi has offered maximum incentives to Chinese investors for investment in Punjab under private-public partnership scheme.

According to a handout issued here on Sunday, in his presidential address to an investment conference at Shangai the Chief Minister said that Punjab is a best place for investment for Chinese industrialists and traders. The conference was largely attended by industrialists relating to electronics, mineral development, textile, tourism, power generation, real estate, media and other industries.

The Chief Minister said that Punjab government is providing resources in the industrial sector along with education and health as a result of which a conducive climate has been created for biggest investment in the province.

After the conference, two important MoUs were signed between the Chinese investors and Bank of Punjab.

According to the first agreement Bank of Punjab will ensure better financial facilities to Chinese investors while under second MoU they will invest in a mega project of international standard markets and stores in the province.

Under the first phase of this project, 150 hyper markets would be set up in different cities and after that more than one thousand convenience stores would be opened throughout Punjab.

 

[Neo]

Competition driven sustained growth

By Afshan Subohi

IT is no more natural endowments that decide the fate of a country and its people. It is rather the way resources are put to use or competitiveness of an economy that decides its position in the integrated modern world of today. Sustainable development, therefore, depends on the level of productivity and competitiveness in an economy.

A tiny Asian island city state Singapore would not have achieved the status it has compared to countries many times its size, rich in natural resources of wide varieties. Singapore is a country smaller in size to many bigger cities of the world. Karachi is about four times more populated than Singapore, peopled by 4.3 million.

The country has neither land nor drinkable water. It has to import both drinking water and earth from neighbours to quench the thirst of its citizens and to reclaim land to meet the needs of a fast expanding economy.

Singapore is a fascinating example of how sincerity of purpose, focused effort and effective planning can work wonders. It invested in its people and coastline and developed into one of the most business-friendly economies, housing offices of several thousand multinationals and overseas businesses.

It handles more than 20 per cent of containerised world cargo. The country is clean and green with enviable living standards. In the business world it is regarded as an efficient, peaceful and predictable country that serves as an excellent gateway to the world for trade.

Singapore was ranked fifth as one of the most competitive economies in league with US, Sweden, Switzerland and Denmark. And one significant reason for it is that its hunt for talents is worldwide. Singapore’s Ministry of Manpower runs an international talent department.

Pakistan stood at 91st position in the current Global Competitiveness Report released by the World Economic Forum among 125 countries surveyed. India was ranked 43rd, Sri Lanka 79th.

The nine factors that were taken into account by the World Economic Forum to asses the competitiveness are: institutions, infrastructure, macro-economy, health and primary education and training, market efficiency, technological readiness, business sophistication and innovation.

Does this low ranking of Pakistan matters when it is growing at rates comparable to Asian giants— India and China? Before attempting to answer this question, it would be appropriate to define competitiveness.

There are several ways to understand competitiveness but in essence at macro level it is determined by the level of productivity, that is, returns to capital from investment. Logically productive economies are far more likely to create wealthy countries.

Professor Micheal Enright, director of the Competitiveness Programme at the Hong Kong Institute of Economics and Business Strategy, defines it for firms as the ability to succeed against competitors in ways that lead to higher profits. At macro level, he says, that it is the ability of a nation to support productivity that allows a high and rising standard of living. This involves competitiveness in a sufficient range of firms and industries to foster economic growth and development, he says.

In the light of this definition low ranking of Pakistan indicates that businesses and most industries at the micro level are less productive and therefore cannot compete with their counterparts in the global market. Implying that return on per dollar of capital per unit of labour is lower than in most other countries. This certainly is a dismal situation and should ring the alarm for both public and private sector.

It was only after much of the petty business was wiped out from local market as a result of influx of cheap imports from China and increasing threat to exportable surpluses from competitors that the issue of productivity popped up on the development agenda of the government. Cynics, however, feel that the issue was taken up because of external pressure. They feel the government was sensitised by the western nations who need competitive trading partners in the developing world to support their economies.

Whatever the inspiration be, the government did create a company— National Productivity Organization in 2003 under the ministry of industry and production. Though three and a half years later, the company is still without a CEO, it is said to be acting as a think tank to identify factors leading to low productivity.

The NPO collaborates with other private bodies such as Pakistan Business Forum to address the issue. Kamran Rasool, secretary ministry of industry and production admitted that the situation is not gratifying and the country has a long way to go before our industry and businesses can respond in a befitting fashion to the challenges of a dynamic international market. He felt that NPO will have to be made effective with sufficient budget to assist industry in training manpower and achieving sophistication.

A senior source in Islamabad told Dawn that so far the NPO has trained 22,000 people from management to shop floor cadres. The company is also said to be working to evolve benchmarking facilities for different categories of firms. A study was conducted for the spinning industry. Currently, the organisation is said to be working on a project to promote energy efficiency in industries.

Another company, Competitiveness Support Fund (CSF) has been launched this year in collaboration with USAID with $20 million seed money. An insider told Dawn that company was initially placed under the ministry of industry. However, donors on more comfortable terms with the ministry of finance got the CFS placed under this ministry to suit their interests.

When confronted the CEO of competitiveness support fund Arthur Bayhan told Dawn from Islamabad that they favoured placement of the CSF under ministry of finance as it is the core ministry compared to the ministry of industry which is a side ministry.

“Competitiveness is a cross cutting subject much wider than the scope of a side ministry catering to one specific area of the economy”. He said that a study identified a gap in Pakistan’s efforts to become more competitive: it lacks a vehicle to finance and promote innovation. The CSF, he said is designed to address this gap.

He told Dawn that his company has identified four industries: motorcycle, food processing, fishery and automobile sectors where Pakistan has a comparative advantage. The CSF has decided to assist to improve competitiveness in these sectors.

An effort will be made to commercialise research at the academic institutions and develop linkages between universities and industry. The CFS also plans to create business incubators to get knowledge based industry promoted, he said.

Chaudhry Mohammed Saeed, President the Federation of Pakistan Chamber of Commerce and Industry was skeptical as he does not see any focus on research and development in private or the public sector.

“Who does not know that six per cent R&D duty concession offered to the textile sector is not directed to research. It is a subsidy to exporters to compete internationally”. For all the BMR in the textile sector it is still not in a position to compete without government support internationally, Saeed said.

The head of the apex private sector representative body pointed out that well positioned vested interest does not want promotion of innovative practices for petty gains. He quoted the example of powerful lobby of pesticides importers who assure that disease resistant seeds are not made available to growers for their business to thrive even if it costs dearly to the country.

Saeed accepted that the private sector has yet to realise the worth of research and development in promotion of their business in the long-run. “We want immediate returns whereas research is a long drawn process. R&D is not a part of our culture. Till the time we understand and appreciate the role of innovation in successful business operation we will continue to drag” he said.

Independent analysts saw the issue of competitiveness more of a political than an economic subject linked directly to investor perception of stability of the country. “When the mindset of the elite is to keep dual nationality to move out of the country with their assets at the first sign of political upheaval who in the right mind would invest in research?” an analyst posed a question. Given an option, investors prefer short-term investment in capital market or properties or at best in a trading venture where money rolls back in months.

This adds up to the sad reality that the despite all pomp and show, the growth bubble can bust anytime. For a long-term sustainable development, the government will need to improve the competitiveness by investing in most dependable asset of the country, its people. It will need to create institutions but above all it needs sincerity of purpose to climb up the said index.

 

[Neo]

Tardy pace of trade negotiations

By M. Ziauddin

PRESIDENT General Pervez Musharraf has returned home from an 18-day long foreign trip with lots of praises for his leadership qualities and a couple of million dollars from the proceeds of his book’s sale.

However, he seemingly was not so successful in resolving issues of a bilateral free trade area (FTA) agreement, a bilateral investment treaty (BIT) and the launching date for Reconstruction Opportunity Zones (ROZs).

And nobody in the US seemed to be interested in discussing with him the matter of lifting the ban on the supply of nuclear fuel and equipment for setting up nuclear power plants in Pakistan facing looming power shortages.

The US President during his visit to Pakistan in March last had announced the establishment of ROZs along the Pakistan-Afghan border in Tribal Areas. The products made in the ROZs are to get duty-free market access in the US. However, the relevant US legislation covering the ROZs is still being awaited. And there is no hope of things getting started until the next year.

And the US continues to be non-committal on inclusion of the whole textile made-ups into the proposed ROZs. The FTA is to be signed after the finalisation of the BIT. But so far there has been no concrete movement on the BIT as the kind of conditions that are being put forward by the US seem too restrictive for Pakistan to agree.

Even the Generalized System of Preference (GSP) offered to Pakistan by the US is expiring in two months time and there is no guarantee that the US Congress would extend the agreement for another year. Not only this. It is so cumbersome for the Pakistani businessmen to get a business visa for travel to the US and on the other hand, the travel of the US businessmen to Pakistan is highly restricted because of the frequent American travel advisories.

The national economy is about to enter the choke mode as energy shortages have started slowing down the wheels. Textiles, the mainstay of our exports are finding it increasingly difficult to compete in the world market against the better quality products of China, India and even Bangladesh.

The flow of foreign investment is confined only to non-export oriented, but highly profitable domestic utilities such as telephone services, power plants, gas and oil marketing companies. All these are expected to bring in no more than another $5-6 billion. But in due course of time, the repatriation of profits would drain out more than what had come in.

So, Pakistan badly needs either civil nuclear power, say about of 1200MW to 1500MW immediately or it have to go for the costly thermal power stations of equal capacity. International assistance is required to help us build the Bhasha dam at least over the next seven years at the latest to save the economic wheels from coming to a complete halt.

Meanwhile, in order to enhance our stagnating exports, we need access to the rich market of the US for our textile and leather garments. Besides, this we also need an expedited processing of the proposal to set up ROZs.

The latest economic numbers give an indication of the oncoming crisis. The external debt and liabilities stand at $37.26 billion compared with $35.83 billion in June 2005, showing an increase of nearly $1.50 billion. Last year alone, the government borrowed more than $2 billion. In the same year it also mobilised $800 million by floating Eurobonds. The year 2005-06 ended with a trade gap of $12 billion, almost equal to our foreign exchange reserves.

The import bill has surpassed the export earnings by almost 100 per cent. The Supreme Court verdict on the sale of Pakistan Steel Mills seems to have warned off the prospective foreign buyers of our other even more lucrative public entities. The only number that has continued to remain positive is that of remittances which is approaching $5 billion annually. But once the overseas Pakistanis see the gathering clouds they would find it risky to keep their savings in the host countries.

Clearly, the macroeconomic stability the government had so painstakingly established with severe belt tightening at a time when the 9/11 related bonanza was creating massive fiscal space is seemingly under serious threat from infrastructure shortages, low productivity, low savings, decelerating investment rates, lack of markets, limited variety of exportable goods and massive technological deficit.

With the US dragging its feet on its promises, it appears that Pakistan will have to fend for itself in the coming months and years. But how does a country which has come to completely depend on outside help for its economic well being and does not know any life without the US crutches, cope with such a reality?

Unless Pakistan takes some very smart and quick steps and without losing any more time, the country would surely be left far behind in the economic race that is on at a frenzied pace in Asia itself.

And in order to get a head start in this race even at this late hour, the country very badly needs the FTA and the BIT and the ROZs. So, the government would do well to focus more on these issues rather than wasting time and resources in non-productive foreign trips.

 

[Neo]

Foreign aid declines for farm sector

By Amin Ahmed

ISLAMABAD, Oct 15: Though agriculture plays a starring role as the most important sector for employment and income generation in Pakistan, foreign aid for agriculture and rural development has continued to decline.

Only three projects have been listed as ongoing in the Public Sector Development Programme for 2006-07, which received foreign aid, whereas for new projects no foreign aid has been committed. The three projects are: Chaghi water and agricultural development programme; livestock disease control or eradication of rinderpest; and agricultural business development and diversification project which is being assisted by the Asian Development Bank. The total foreign aid for these projects in 2005-06 was Rs907.5 million.

Foreign aid for agriculture and rural development fell to less than $5 billion in the late 1990s from $9 billion in early 1980s, according to statistics released by the UN Food and Agriculture Organization (FAO) on the occasion of World Food Day being observed on October 16.

Only investment in agriculture together with support for education and health would turn the situation around. The bulk of that investment would have to come from the private sector, with public investment playing a crucial role, especially in view of its facilitating and stimulating effect on private investment, the FAO said.

Underlining the importance of foreign aid in agriculture, FAO Director-General Jacques Diouf said that the public sector in many parts of the developing world had been slow to respond to the changes that globalisation had brought to markets. Investment in building the capacity of governments to help their small farmers and to encourage private investors was money well spent.

Increasing the volume of public investment in agriculture was of absolute necessity and it was crucial to make such assistance more effective.

The FAO had helped 165 member countries to obtain funding for almost 1,600 agricultural and rural investment programmes and projects. That represented funding commitments of over $80 billion, said Dr Diouf in his message on World Food Day.

The FAO report said that most of the world’s farmers were small-scale farmers. As a group, they were the biggest investors in agriculture. They also tended to have inadequate or precarious access to food themselves. If they could make a profit with their farming, they could feed their families throughout the year and reinvest in their farms by purchasing fertilizer, better quality seed and basic equipment.

Small producers faced many obstacles beyond their control: lack of credit, insecure land tenure, poor transport, low prices and poorly developed business relations with agribusinesses to say nothing of natural factors such as drought, flood, pests and disease.

The report said a new model for cooperation between the public and private sectors in rural development was evolving. The model included new ways to bring together producers and agribusiness; establish and enforce grades and standards; improve the investment climate for agriculture; and provide essential public goods such as rural infrastructure.