Pakistan Economy - News & Updates - Archive

[Neo]

Pakistan may not benefit from bumper wheat crop

KARACHI, Nov 18: Pakistan has been put at a disadvantageous position in intra-region wheat trade as the commodity has not been included in its positive list under South Asia Free Trade Agreement (Safta).

Many Saarc countries are generally food-deficient and import large quantities of food grains to meet their domestic shortages. Sometimes, however, they reap bumper crops and end up with exportable surpluses.

According to the information gathered by Dawn, Saarc states under Safta included wheat in their positive lists of free trade but Islamabad objected on the ground that normally wheat crop in Pakistan was not big enough to allow its export and it got it dropped from the list.

As a result India gets an edge over Pakistan as a supplier of the commodity to other wheat-deficient Saarc nations.

Under Safta, all the seven countries will have to liberalise and reduce their tariff regimes to ensure free trade among the Saarc states. Presently India has 1,000 items under sensitive list with tariff ceiling of 20 per cent and Pakistan has 1,200 items in the sensitive list with tariff ceiling of 22 per cent.

With strong indications that Pakistan is going to harvest bumper wheat crop of around 22.5 million tons or 0.8 million tons higher than last year and would be carrying over huge stocks of around 2 million tons, therefore, there is a strong possibility that it would have huge exportable surplus.

According to reports India for the second consecutive year is going to have poor wheat harvest owing to severe drought and bad sowing. Similarly, Australia once a net wheat exporter also faced with draught and its major crops are badly affected.

Consequently, Pakistan would have achieved big gain out of current situation where most wheat producing nations are also short in wheat and above all big consumer nations like India are also importing it in large quantities.

India which on an average harvests around 80 million tons of wheat had already placed wheat import orders in the world market for around 10 million tons to meet its domestic shortages. However, so far it managed to import around 7 million tons.

Had Pakistan put wheat under Safta on free list it would have been in advantageous position to capture Indian market. This would also have given freight advantage to India due to proximity of area and help Pakistan to improve its balance of payment with India.

Due to strong demand from India wheat prices in the world market have scrambled to $240 per ton and last shipment India received from Russia was quoted at around $228 per ton. Some time back the Russian Black Sea wheat prices were being quoted at around $147 to $158 per ton but now they have risen to $240 and above.

However, it is very strange that policy-makers in Islamabad even on knowing that cash crops or for that matter any other crop fully depend on climatic conditions and rainfall, therefore, their production is always erratic even there are extremes in quality and quantity but yet they excluded wheat from free list of Safta.

There is a strong demand that private sector people from wheat trade and exports should be involved in policy decisions and national level decisions should not be left at the mercy of bureaucracy.

Leading exporter of value-added wheat products Syed Johar Ali Qandhari demanded that the newly formed Trade Development Authority of Pakistan (TDAP) should induct people from private sector to frame policy for boosting of exports of non-traditional items like food and allied products.

He said there was strong demand for Pakistani wheat products such as wheat flour grade one (maida), plain floor (Atta), semolina (sujee) and vermicelli (pasta) etc.

 

[Neo]

Chinese team due to give final shape to FTA

ISLAMABAD, Nov 18: Ahead of Chinese President Hu Jintao's visit to Islamabad, a high-level Chinese technical team is scheduled to arrive here on Monday to give final touches to modalities of the free trade agreement (FTA) envisaging removal of tariff and non tariff barriers for a freer trade and investment within next five years.

Well-placed sources told Dawn on Saturday that the six-member Chinese delegation during their stay would give final touches--like translation into Chinese language etc--to the proposed FTA draft, which had almost been finalised in the last meeting held in Beijing.

The agreement is scheduled to be signed during the four-day Chinese president’s state visit starting from November 23, which would allow reduction of customs duty on selected items to zero per cent within a period of three years. While the duty on the remaining items of the list would be scaled down to 5 per cent within a period of five years.

The sources said that the both sides agreed that the PTA would come into effect from early next year. However, the real reduction in tariffs on all agreed products would start from July 1, 2007. Under the proposed agreement, China has agreed to provide preferential market access to all Pakistan’s core products, including textile products.

The proposed FTA agreement would have two parts- trade in goods and investment chapter. However, the services chapter would be negotiated after the signing of the agreement, the sources added.

Pakistan will be the first country with whom China would be signing an investment treaty as part of the FTA, the sources said and added China has so far not offered this facility under its operational FTAs to any country.

The sources said China was also pushing for having a similar FTA with India. China is also pressuring India to grant "market economy" status, which most developed nations and some developing nations have not accorded to Beijing in view of its highly opaque pricing system and high-level of subsidies offered to exporters. But they will go for a regional trade agreement in the first phase, added the sources.

According to the statistics, top five items of export to China constituted 86.65 per cent of Pakistan’s total exports to China indicating a very narrow base. Cotton yarn alone has a share of 55 per cent of the total exports to China.

Under the investment chapter of the agreement, the sources said Pakistan was looking for relocation or for possible Chinese joint ventures with local firms to meet the domestic demand as well as for exports to Central Asian States and China.

Some sectors, which would attract possible Chinese investment, includes textile, light machinery, dairy farming, pesticides, leather, non-woven fabric, man made filament yarn, tractor, marble, fruits and vegetables, glass industry, beverages, plastic product, motor cycles, organic chemicals and pharmaceuticals etc.

 

[Owais]

Musharraf and Blair discuss ways to enhance trade

LAHORE (November 20 2006): President Pervez Musharraf and British Prime Minister Tony Blair on Sunday in a meeting at the Governor House here agreed to further cement relations between the two sides to fight extremism and terrorism.

The two leaders agreed that restoration of peace in Afghanistan is a crucial issue. Blair said that defeating terrorism would take a long time, but lauded co-operation of Pakistan in this direction.

Later, addressing a joint news conference the two leaders announced that they had consensus views on all major issues. The exchange of views between them had led to an understanding and an improvement in ties between the two sides, Musharraf said.

But he warned that military action alone would not defeat the Taliban in Afghanistan. He called for political and economic steps, along with military action, to deal with the militant Taliban, and restore peace in Afghanistan. The international community should give 'Marshall Plan-like package' for reconstruction and economic development in Afghanistan, particularly in the south-eastern areas, President Musharraf said.

Foreign Minister Khurshid Mahmood Kasuri, Pakistani High Commissioner in the United Kingdom Dr Maleeha Lodhi and senior officials were also present on the occasion. The President said that war on terrorism in Afghanistan could not be won by military action alone. "We have to come up with a broader strategy, and this strategy must involve political elements and reconstruction and development," he said.

He said, "I never said that war against Taliban can not be won. I never believe in accepting defeat before an enemy. We must win this war."

He said: "We need to put our house in order here on our side and make sure that support (for Taliban) is cut off. But the main battle is in Afghanistan."

He argued and pointed out that his country was working hard to stop extremist elements here country from supporting the Taliban. "The Taliban problem is an Afghan problem, which is in the south-eastern region of Afghanistan, being supported by elements from this side."

He added that its solution lay in what was done in Afghanistan and not what was being done in Pakistan.

"Pakistan is certainly taking action here against elements which are supporting whatever is happening in south-eastern region of Afghanistan," he said. He said that Pakistan was doing much more than its capacity. "We have suffered about 600 dead in Afghanistan. Now if you think that we are suffering dead by not doing anything, or not doing enough, then you are not looking at reality," he said. "We must look at realities and keep re-adjusting strategies, besides finding out new solutions to the problem. That is what Pakistan is doing."

He said that Pakistan was the sole country, which was trying to implement the whole package aimed at addressing all aspects, including military, political, administrative and reconstruction.

However, he pointed out that more actions were needed from Afghanistan side, as the Taliban problem was on the Afghanistan side and the battle had to be won on that side (Afghanistan).

"Pakistan is against terrorism, extremism and Talibanisation, and Pakistanis are against any kind of Talibanisation that is backward culture of rejecting democracy and imposing very obscurantist kind of culture on Pakistan society," the President said, and added that Pakistan had rejected Talibanisation, and even the Afghan people would not like it (Talibanism).

"I believe in seeing the present, and trying to resolve disputes", Musharraf said, adding that "the resolution of Palestine issue would help overcome what was happening in Iraq, Lebanon and Afghanistan, besides creating effect against international terrorism."

Talking about ways and means to enhance trade with the UK, the President said that the two sides discussed trade and economic relations in the meeting and he also informed the British Prime Minister about Pakistan's relations with India and efforts to settle the issues, including Kashmir, Siachen and Sir Creek. He expressed the hope that his meeting with the British Prime Minister would go a long way in strengthening relations between the two countries.

The British Prime Minister pledged to double the UK development aid for Pakistan to £480 million ($960 million), which he said was meant for over three years to support educational reforms, aimed at countering the influence of Islamic seminaries (madrassahs).

Terming the talks "immensely constructive", Tony Blair praised Musharraf for his courage, saying that his leadership had put Pakistan on this journey of "change and modernisation".

According to him, Britain's relations with Pakistan were at their highest point for many years, and commended the role of Islamabad for extending co-operation in what he said "counter-terrorism".

"I think we are seeing a strengthening of the relationship at every level, which I welcome enormously," Blair said.

Pledging his commitment to fighting the Taliban, he said: "This terrorism that we are facing, of which one manifestation is what has happened in Afghanistan, has been a long time going, and will take a long time to defeat."

He said: "Nobody should be in any doubt at all about our commitment to Afghanistan," he said, adding that it was of fundamental importance to global security "to stick with it and see the job through."

"We are facing a threat from people who want to Talibanise our society, to prevent our society from making progress," he said, adding that to check terrorism and extremism, there was need to take necessary security measures, and support the democratic will of the people in Iraq and Afghanistan.

Referring to the debate on ways to tackle global terrorism, he said that the solution to this problem had different aspects, "some of which pertain to security and some of which are ideas which challenge the ideology of extremism and some of which have to do with reconstruction and development with economic progress."

About the presence of Nato forces in Afghanistan to fight terrorism and extremism, he said that Nato's summit meeting, to be held in 10 days, would analyse what further was required to do in Afghanistan. "There should be no doubt about our commitment what we are doing to help Afghanistan, recognising that it is not just about security," Blair stated. He said he also recognised the importance of reconstruction and development, which needed to be done along with security efforts.

He said that his country supported Pakistan's economic development and also was supporting its ongoing reforms process, especially in the education sector. He said that Pakistan had achieved a lot of economic development over the past couple of years and there had been significant reduction in poverty level and the per capita income had been doubled.

Blair also lauded President Musharraf's efforts for improving Pakistan's relations with India, and said that all outstanding issues, including Kashmir, needed to be addressed in a different and better way.

About partnership between UK and Pakistan universities, he said the number had been increased to 50 from 15, and added that the establishment of new universities in Pakistan, with the help of foreign universities, would bring a very positive impact on Pakistan's education sector, and the economy.

Regarding Iran's nuclear issue, the British Prime Minister said that Iran should abide by obligations of IAEA and the UN.

 

[Owais]

Development partnership agreement signed: UK doubles aid

ISLAMABAD (November 20 2006): Pakistan and Britain on Sunday signed a 'Long-term Development Partnership Arrangement' to reduce poverty and achieving Millennium Development Goals (MDGs) in Pakistan through active partnership between the two countries.

The agreement was signed by Prime Minister Shaukat Aziz and British Prime Minister Tony Blair here at Prime Minister House, following the talks between the two prime ministers. Under the agreement, the British government will provide 480 million pounds in the next three years through the Department for International Development (DFID) of the UK.

The agreement will provide a long-term development partnership between Pakistan and Great Britain through a transparent framework for mutual accountability for implementation of the development partnership between the two countries.

Under the agreement, the development partnership between the two countries is based on a shared commitment to achieve the objectives to reducing poverty with the objective of achieving the Millennium Development Goals (MDGs) in Pakistan.

The agreement would ensure respecting relevant international human rights obligations, strengthening financial management and accountability, and reducing the risk of funds being misused.

The Pakistan government, under the agreement, would take effective steps to reduce poverty in line with the Paris Declaration (2005) and achieve high and broad based economic growth including the rural economy, while maintaining macroeconomic stability.

The agreement will also help Pakistan to take initiative so that by 2015 all children with special emphasis on girls and children in difficult circumstances have access to free primary education of good quality.

It will also help to improve levels of adult literacy by 2015, especially for women, and equitable access to basic and continuing education for all adults.

The agreement will also help to reduce gender disparities in education, and achieving gender equality by 2015, with a focus on girls' full and equal access in basic education of good quality.

It will also improve health services delivery, particularly in maternal and neonatal health, besides improving provision of clean water and sanitation services.

Specific arrangements for allocating and disbursing the development assistance will be decided in separate discussions. Under the agreement, the UK will also provide financial and technical co-operation for capacity development.

 

[Owais]

Pakistan ready for freight movement via Thar Express

ISLAMABAD (November 20 2006): Pakistan is ready to allow freight movement to and from India through historic rail link - Thar Express - that is likely to be resumed this week. Islamabad, however, anticipates a matching response from New Delhi.

Which is reluctant to carry freight between the two neighbouring countries via this rail route, Federal Minister for Railways Sheikh Rashid Ahmed said on Sunday.

Nuclear arch rivals are all set to resume a rail service between Khokhrapar to Munabao on November 23 that was suspended earlier this year when railway track submerged with rainwater during heavy monsoons.

"We have received a letter from India in which it expressed their desire to restart the service from November 23. We welcome this step and hope the service would serve people of both the countries," Railways Minister told Business Recorder.

To a query, he said so far there would be no freight service between the neighbouring countries through said rail route. "We are ready for freight movement as well, but the Indian side seems to be reluctant in this regard," he added.

Sheikh Rashid said Pakistan has spent more than Rs 2 billion to upgrade and replace its narrow gauge 128-kilometer track from Mirpur Khas to the Khokhrapar by laying a broad gauge track.

To a question, he dismissed the impression that the element of smuggling was behind what he termed reluctance shown by the Indian authorities to allow freight movement on Thar Express, named after the desert from where it passes.

"There are salt and dates which we can export to India through Thar Express... There is no question of smuggling or anything," he replied in categorical terms.

The transport link was severed following 1965 Indo-Pakistan war and efforts were never made to restore it since then. However, both countries started a composite dialogue process to settle all disputes peacefully including restoration of communication links.

For the first six months, Sheikh Rashid Ahmed said Pakistani train rolled into India and now the Indian train will cross into Pakistan to Zero Point Railway station as it has been decided to operate the service on six-month basis.

 

[Owais]

Switzerland to finance Rs80 mln NWFP natural resource management


ISLAMABAD (updated on: November 20, 2006, 16:43 PST): Switzerland has agreed on Monday to provide Pakistan an aid of eighty million rupees to strengthen its natural resources in North West Frontier Province.

An agreement to this effect was signed by Swiss Ambassador to Pakistan Mr. Markus Peter and Secretary Economic Affairs Division Mr. M. Akram Malik here.

Under the agreement the Swiss government in the first phase will provide in the form of a grant of eighty million rupees for protection and conservation of forests in Haripur, Lower Dir and Hangu through the Swiss Agency for Development and Cooperation.

The NWFP Government is contributing seven million rupees in the project, which will be completed in December 2008.

Speaking on the occasion the Swiss Ambassador Markus Peter said the main objective of the project is to support resource management at community level and to improve livelihood especially of marginalized groups through multipartner integrated natural resource management.

He said the Swiss government has been contributing in Natural Resource Management for the last twenty years with a focus on forest management and planning.

Secretary Economic Affairs Division M. Akram Malik said Pakistan and Switzerland enjoy old and excellent bilateral relations.

He said the annual development assistance of Swiss government reaches fifteen million Swiss Frances.

He also appreciated the granted extended by Swiss government in the earthquake hit areas and its contribution in Northern Areas.

 

[Owais]

Textile, sugar industries, growers warned of recession if lack harmony


ISLAMABAD (updated on: November 20, 2006, 22:12 PST): The Chairman of the Senate Standing Committee on Food, Agriculture and Livestock, Senator Mian Muhammad Amjad Abbas has warned that the national economy may suffer a colossal loss if the textile and sugar industries fail to evolve grower-friendly polices urgently and do not ensure that the interests of all stake holders are fully protected.

He was presiding over a meeting of the Senate Standing Committee on Food, Agriculture and Livestock, at the Parliament House today. The Committee called upon all stake-holders in the cotton and textile production to work in complete harmony with one another for improving the quality and enhancing productivity of the country's premier export so that it can stay competitive globally. 'A long term, forward looking and uniform policy is what we need today to look after the interests of the 3-major parties i.e. the government, growers and the textile mill owners and friction-free relations between the stake holders is the key to surmount the growing challenges in this area', it was observed.

The meeting underlined the need of improving the quality of research being carried out at various cotton development institutes in the country and called for developing disease-resistant, high yielding and contamination free varieties. It also called for raising the awareness level of farmers and easy availability of the necessary inputs at reasonable rates.

'The growers tend to replace a crop which no longer remains profitable and economically viable to them no matter how important it is for the national economy', said the Chairman.

The meeting stressed the need of complete elimination of the baneful role of the middle-man, which was perceived as a major impediment hampering productivity, stifling business environment and blocking reasonable return to the farmers.

"The policy of shifting the blame simply does not work and the stake holders will have to move jointly against this menace," the members demanded.

The meeting also underscored the need to provide a fair return to the farmers, extension of outreach services, easy availability of superior quality seed, pesticides and other inputs, along with greater role of the private sector in promotion of quality research.

The representatives of the growers demanded that no sugar mills be allowed to be set up in the cotton growing areas to protect the legitimate interests of cotton farmers.

The Committee directed the Ministry of Food and Agriculture to take tangible steps for promoting awareness among the farmers regarding crop raising, use of pesticides etc.

The meeting also dwelt on issues relating to support price of sugarcane, start of crushing season, payments to the growers, accurate weighing and amendments in the Sugar Factories Act.

The Committee emphasised that the 3-stake holders i.e. the government, growers and mill owners must be on the same wave length to avoid crisis situation like the one faced by the country last year.

"Evolution of realistic policies based on ground realities and their sincere implementation can remove the existing trust deficit on part of the various parties", it was noted.

The meeting, which was attended by the representatives of the growers, sugar /textile industries, provincial governments and Minfal and textile division, stressed that a comprehensive and forward looking policy must be evolved in both the areas i.e. textile and sugar as they constitute a vital component of the national economy and not only the government but also the common man has a high stake in them.

 

[Owais]

10.9 percent industrial growth recorded during Q1 of FY 2006-07: minister


LAHORE (updated on: November 20, 2006, 16:44 PST): Federal Minister for Industries, Production and Special Initiatives, Jahangir Khan Tareen on Monday said industrial sector grew at 10.9 percent during first quarter of the fiscal year 2006-07 against 10.7 percent in the last fiscal year.

"Industrial sector is growing in a consistent manner, lending more strength to country's economy," he said while talking to newsmen at a function held here in connection with World Children Day at Special Education and Training Centre.

The ceremony was attended among others by renowned psychiatrist, Dr. Khalida Tareen and Principal of the centre, Ms. Zarina Farrukh.

Tareen said an industrial survey was being conducted to ensure that every segment of the industry was reflected in the development of this important sector of the economy.

About country's booming auto sector, he said automobile production had not declined. "The availability of automobiles in the country through local production and the imports, increased this year," Tareen added.

He said, due to enough supply of the automobiles, the premium on the automobiles was witnessing declining trends.

He said automobile manufacturing companies had prepared their expansion plans of duration ranging between three to five years. "These expansion plans fully reflect the confidence of private sector especially the foreign investors in present government," Jahangir Khan Tareen said.

He said the first phase of Multan Industrial Estate had been completed while the work on the second phase was in progress.

 

[Neo]

Defining income groups

By Afshan Subohi

PEOPLE as economic actors are often categorised with reference to their financial standing in a country. They are generally categorised in lower, middle or upper strata/class depending on their lifestyle and net worth.

Statements such as plight of lower class, dynamism of middle class or apathy of upper class are repeatedly used by public speakers and columnists and writers. Who make up these classes in Pakistan is far from clear.

An inquiry by Dawn into the definition of these classes exposed the level of disharmony in perception and understanding over the issue. In an informal survey, score of people in economic ministries, academia, professionals and representatives of the private sector were asked to define each class in terms of its income bracket. Responses exposed the level of confusion regarding the cut off income level that separates each class from the other.

Figures for income level of Rs4,000 and less to as much as Rs20,000 were quoted to be the cut off level for the lower class. For middle class, cut off was Rs50,000 to Rs100,000 and less. People earning above Rs20,000 to Rs100,000 were categorised as belonging to the upper strata of the society by different sets of interviewees.

The exercise, however, generated material that merit public sharing. At the start an attempt was made to describe the lifestyle of three classes before getting into numbers to quantify their earnings.

Most Karachiites interviewed described people living in Layari, Korangi, Orangi, Landhi, Lalukhet, Golimar, North Karachi and several hundred kutchi abbadis in and around city, to be making up the lower class. On an average, these households live a tough life. They are estimated to be about 25-30 per cent of the city’s population.

Average size of a family in such localities is bigger and in many cases all adults work to supplement family income. In extreme cases, even children are working to meet the family budget. They are low ranking government employees, factory workers, petty traders, plumbers, tailors, masons, drivers, electricians, school teachers, construction workers, guards, etc.

Besides kitchen expenses, they fully or partially avail public utilities, spend very little on education or health and manage simple household durables such as fans. Some households also have television and telephone.

In view of the people interviewed in Karachi, those residing in Gulshan, Nazimabad, North Nazimabad, Federal B Area and other such localities represent the middle class. These are white collar workers with comparatively smaller families. They are doctors, engineers, professors, lecturers, contractors, traders, businessmen, government officers, etc.

They typically own some property, a motorcycle or a car, send their children to private schools, are computer literate, have telephones and cable network, avail private health care and use many consumer durables. These are said to be the people behind surge in domestic demand.

The upper class in view of same interviewees typically reside in Defence, Clifton, KDA and PECHS. They belong to the class whose demand is price insensitive. A senior business leader and Chairman Karachi Chamber of Commerce and Industry felt that rich people tend to hide their assets for obvious reasons so it is hard to judge the real net worth of richest of the rich in the country.

“Elite in Pakistan is certainly richer than what most people contemplate”, said another businessman. A senior civil servant confirmed that in Pakistan, billionaires are not in hundreds, they are in thousands. “Pakistanis with property in elite localities in provincial capitals or in Islamabad have joined the rich men club. There are many such people in the country now”, said a retired economist.

Senior research officer Maqsood Sadiq of Centre for Research on Poverty and Income Distribution (CRPRID), a specialised cell in the Planning Commission, argued that this categorisation of classes is unrealistic. In his view, it may hold ground if perspective is limited to Karachi and Karachi alone.

From perspective of the country that include Thar and Kharan deserts and long stretches of land where even basic amenities are not available categorising people making Rs10-20,000 as poor is unrealistic. He said it would be absurd to pigeonhole a person living in a house in city with a job and supplementary income of other family members in lower class.

“Beyond cities there are few Pakistanis who enjoy luxury of living in a house with running tap water equipped with sewage, electricity and gas. To me except for, may be, small chunks in kutchi abbadis almost 90 per cent of Karachi’s population is not poor. They have already joined the ranks of middle classes. Roughly about 40 per cent of Karachi’s population may constitute middle class and the rest of 50 per cent belong to the upper class. How can a person living in a small flat in Gulshan-e-Iqbal that is worth no less than Rs2-2.5 million be counted in middle class”, he asserted.

The argument of the researcher does carry weight. His view was indirectly complemented by another interviewee who felt that rural/urban and inter-regional disparity is so stark that any generalisation would be misleading. There are all three classes of its own in each locality and income divide in different localities within a city render them incomparable. “I see such broad aggregation serving no purpose”, Ahmer Mustaffa a sociologist felt.

According to current official numbers at 7.5 per cent GDP growth rate, the population of the country is increasing by 1.9 per cent per annum and the real per capita has grown at an average rate of 5.6 per cent. The only measure that government has to assess the relative strength of sections is Pakistan Social and Living Standards Measurement (PSLM) survey that provides data on household income, consumption expenditure and consumption patterns at national and provincial level with rural/urban breakdown.

The Household Integrated Economic Survey (HIES), a component of PSLM survey provides important data on household income, consumption expenditure and consumption patterns. The key distributions in HIES are examined across five standardised per capita consumption expenditure quintiles. Each quintile contains 20 per cent of the total sample households. The first quintile contains lowest 20 per cent of the total households. In the second quintile the next better of the 20 per cent of the total and so on. In the fifth quintile, the richest 20 per cent of the total households are accounted for.

The results of the most recent survey of 2004-5 confirmed that richer households have comparatively smaller household size. The pattern of consumption expenditure showed that the level of consumption expenditure in urban areas is higher than the rural areas.

An analysis of quintiles in the report revealed that average consumption expenditure of the richest class in urban areas are more than three times higher than the lowest income class and double the same income class in the rural areas.

Similarly among total households 20 per cent of the highest income level in urban areas command income more than three times than the lower income level of 20 per cent of households.

The Pakistan Economic Survey 2005-06 analysed these numbers. According to the survey : “The estimates indicate that consumption inequality in urban Pakistan is higher than in rural Pakistan. Moreover urban inequality increased faster”. The economic survey uses Gini Coefficient as a broad aggregative measure. The trend of the Gini values indicated that consumption inequality has increased during the 2001-05 period.

This is about all in terms of trend that one finds in the official papers reflecting on the relative strength of different classes. A senior economist in Islamabad said that of five quintiles, the first two fell in the lower class and upper three represent middle class of Pakistan. He said that upper class in Pakistan is so miniscule— hardly one per cent— that it is not reflected in sample surveys.

Investigations revealed that most realistic estimates regarding the level of disposable income in different areas, districts and localities are available with marketing companies. These outfits need this data to fashion marketing strategies for their clients that include big multinationals specialising in consumer items such as Lever Brothers, Proctor and Gamble, etc.,

These outfits, however, carry out surveys and studies on demand for the clients and have no interest to share sometimes intriguing results with the public. The fact is that results are guarded as business secrets available only to those who are willing to pay for them.

Highest offices in the relevant ministries were contacted but probably the subject was too direct and in absence of readymade processed numbers, senior bureaucrats preferred to avoid commenting.

As there was no unanimity on definition of three classes it was not possible to project the numerical or relative strength of each class as percentage of Pakistan’s population with confidence.

“I cannot say anything. In absence of credible data rough projections can be very misleading. May be, the government should initiate a study on the subject to better understand dynamics of Pakistan’s economy”, commented a senior banker approached by the paper for comments.

 

[Neo]

Fabrication of power plant machinery

By Engr Hussain Ahmad Siddiqui

INDIGENISATION is the core of the policy for power generation projects -2002. It includes local fabrication of power plants as an important feature.

“Financial and Fiscal Regime” of the policy lays emphasis on use of indigenous machinery, equipment and accessories, explicitly stating: “ maximum indigenisation shall be promoted.”

Consequently, the policy allows concessions from custom duties etc on imports related to power projects, either in public or private sector, only in case the goods are not manufactured domestically.

Furthermore, “features of the power policy” highlight: “ to promote indigenisation, the local engineering industry will be encouraged to form joint ventures with foreign companies in order to develop power projects with a cumulative capacity of at least 2,000 MW by the year 2015.”

Energy sector action plan approved by the president is also focused on optimal use of indigenous resources of fuel as well as that of machinery.

In practice, however, nothing concrete has been achieved in this direction. Unfortunately, the local industry has not come forward to avail the opportunity offered under the policy or to exploit new business potential in the emerging domestic power equipment market.

The Private Power and Infrastructure Board (PPIB) has not yet received a single proposal for developing the projects out of total capacity of 2,000 MW, which has been allocated to local industry under joint venture arrangements.

At the same time, the project sponsors and their engineering, procurement and construction (EPC) contractors are reluctant to place order for locally produced machinery for the respective power projects, resorting freely to imports of almost cent per cent required plant machinery items.

A reasonable engineering and manufacturing base for the production and supply of machinery and equipment for power plants, which is capital and skill intensive in nature, exists in the country.

The industry, in public and private sector, is currently in a position to achieve indigenisation level to the extent of 30-35 per cent by value and much higher by weight, for various power projects.

Many industrial units have the facilities to deliver mechanical and electrical equipment, at competitive prices and of international quality.

Their dozens of engineers and technicians have been trained in Germany, Japan and China to keep abreast with the latest manufacturing techniques and quality control procedures specifically related to power plant equipment.

The manufacturers have the qualification of prestigious American Society of Mechanical Engineers (ASME) stamps for the power boilers, pressure vessels and pressure piping. HMC has produced equipment for 210 MW thermal power plants installed in Karachi in recent past in collaboration with Hitachi (Japan) and Deutsche Babcock (Germany).

The equipment supplied by the domestic companies to thermal power projects, mainly to Water and Power Development Authority (Wapda) and Karachi Electric Supply Corporation (KESC), includes utility boilers, steam condensers, vessels and tanks, heat exchangers, pumps, cooling towers, ducts and piping, cranes and steel structure. In addition, a number of spare parts have been produced to meet emergency demands of power stations.

Equipment and components have also been supplied to hydroelectric power stations. The list of supplies include a variety of electrical equipment such as transformer, switchgear, control panels, cables etc., besides other mechanical equipment and accessories of a power plant.

Since each project has to be designed and engineered according to selected technology, configuration and site conditions, the technology for major equipment, however, has to come essentially from foreign sources.

To encourage use of goods produced in the country, the Central Board of Revenue (CBR) notifies, and regularly updates, the list of such machinery, materials and intermediary items, under the Customs General Order.

The latest CGO No. 10 of October 7, 2003, covers machinery and equipment, indicating comprehensive list of design and engineering services and machinery and equipment available locally for various industrial sectors including energy.

There are however structural weaknesses in the institutional and regulatory framework and other constraints that hamper promotion of optimal indigenisation of machinery and equipment.

Implementation of Power Policy 2002 is already a success story. Proposals for setting up as many as 45 projects, with a cumulative gross capacity of over 13,800 MW, at an estimated total investment of $13 billion, are either in the pipeline for construction or under active processing by the PPIB.

These include four thermal power projects of total 800 MW capacity that are in advanced stage and for which letters of support (LOS) have been issued, whereas letters of interest (LOI) have been issued for fast track projects, including capacity expansion of existing Independent Power Producers (IPPs), to add 1,200 MW total capacity to the system.

Many other new thermal, gas- and oil-based, power projects of cumulative capacity of 3,388 MW have already been allowed for setting up countrywide.

In addition, power projects based on Lakhra and Thar coal resources, as well as on imported coal, with cumulative capacity of 1,550 MW are under consideration. Likewise, it is planned to create a total of 5,720 MW capacity additional hydro power generation in private sector.

Consequently, various hydro projects are at different stages of processing. Expressions of interest (EoI) for another seven hydroelectric power projects, with a cumulative capacity of 1,620 MW, have recently been invited. Proposals have also been received recently by the PPIB for expansion of Tarbela hydel power station by 960 MW.

Effective and meaningful participation of local engineering industry is possible in these forthcoming power projects. Indeed the initiative has to come from the engineering industry, preferably on a collective basis.

There may be a need for financial and fiscal incentives to be extended to engineering industry in order to embark upon manufacturing of machinery for power plants of various types and technologies in a big way and on a sustainable basis.

The industry will also require balancing, modernisation, rehabilitation and expansion (BMRE) of its existing facilities, under a phased programme, to achieve optimal indigenisation of plant machinery.

The government should devise ways and means to promote indigenisation, within the provisions of the Power Policy, but without compromising the interest of the entrepreneurs.

These measures will aim at overseeing that not only a substantial share of orders for manufacturing and supply of machinery is obtained by the local industry, but also the opportunity to assimilate requisite modern technology is availed fully by the local industry.

On the other hand, it will provide momentum to the cherished goal of self-reliance, resulting in contributing largely towards import substitution, besides reduction in capital cost and variable operation and maintenance (O&M) cost of the plant and deriving numerous benefits of standardisation.

In view of the foregoing, it shall be desirable that the Engineering Development Board (EDB), which is mandated to strengthen engineering sector, may take initiative to suggest various measures to be adopted by the government for the promotion of indigenisation of power plant machinery. This should essentially be aimed at encouraging technology transfer arrangement, in accordance with the provisions of the Policy 2002, which in essence is investor-friendly.

The global power equipment manufacturers are large and powerful multi-national companies, and without the involvement of the government, they would not agree to the idea of progressive indigenisation of machinery.

This may be the most opportune time for the EDB to propose extending concessions and benefits to local engineering industry within policy framework, as the government intends to make extensive revisions in the Policy 2002 and plan to announce policy for development of renewable energy for power generation during this month.

 

[Neo]

Monday, November 20, 2006

UK to give $910m for madrassas, poverty

* Total funding will cover the period between UK financial year 2008-09 and 2010-11

ISLAMABAD: Britain will provide financial assistance of $910 million to Pakistan to reduce poverty, reform madrassas and improve the delivery of health and sanitation services and clean water.

The commitment was made under an agreement called the ‘Long Term Development Partnership Arrangement’ signed after one-on-one and delegation level meetings between Prime Minister Shaukat Aziz and his British counterpart Tony Blair at Prime Minister’s House.

Under the agreement, the UK Department For International Development (DFID) will provide Pakistan $201 million in the UK financial year 2007-08. The total funding of $910 million will cover the period between UK financial year 2008-09 and financial year 2010-11. Much of the cash will go towards promoting President Gen Musharraf’s policy of “enlightened moderation” in madrassas that have been blamed for radicalising Muslim youths, including visiting Britons. The assistance under the agreement includes financial aid, technical cooperation for capacity development, support through international organisations or civil society organisations and other forms of development assistance.

The agreement aims at helping Pakistan meet the Millennium Development Goals for reducing poverty and strengthening financial management and accountability to reduce the risk of misuse of funds. Aziz later told a press conference the grant from the UK government would help Pakistan achieve the Millennium Development Goals. Blair told a press conference in Lahore that some $38 million would be released immediately to help tackle poverty in Pakistan.

 

[Owais]

World Bank advises raising domestic saving

ISLAMABAD (November 21 2006): The World Bank has suggested to Pakistan to focus on raising domestic saving, instead of relying on foreign saving ie international borrowing and FDI, to sustain its high economic growth through augmenting investment in physical and human capital and productivity increases.

Though Pakistan has seen an average growth of 6 percent for the last four years, the Bank has questioned how, with low domestic saving rate and low foreign direct investment, Pakistan would be able finance its rapidly growing economy in the medium term.

The World Bank report titled 'Determinants of saving in Pakistan' argues that if Pakistan wants to sustain its growth and increase its investment without paying increasing shares of income in interest or dividends, it has to finance this investment by raising its domestic saving rate.

It says that countries frequently rely on inflow of foreign savings ie capital or international borrowing, to meet investment needs. However, international borrowing can rise, or decline, depending on cyclical movements, exchange rates, external shocks, and a host of other factors. In the long run, reliance on foreign capital is also unsustainable as international liabilities erode the national income base, the report said.

Very few countries go without any international borrowing or lending in a particular year, and Pakistan is no exception. The difference between Pakistan and other fast growing economies like the ones in East Asia is that while inflow of foreign saving gave an initial boost to growth in these countries, domestic saving has been key in sustaining rapidly increasing domestic investment.

The report says: "The recent decline in household and public saving rates in Pakistan juxtaposed to increasing domestic investment needs in a fast growing economy suggest that unless saving goes up, economic growth will suffer.

To sustain its current growth momentum, without incurring the expenses of heavy international borrowing, Pakistan will need to reverse the current low (and declining) trend of domestic saving and resolve its geopolitical challenges in order to attract FDI.

Foreign direct investment could not fill the domestic resource gap even if it is doubled; hence, domestic saving is the only feasible source of extra funding unless Pakistan goes on an international borrowing spree with all of its consequences."

It says: "Saving rates have declined since 2003, despite strong economic growth in the country. Moreover, from a brief domestic resource surplus in the early 2000s, Pakistan is currently facing a domestic resource gap of around 3.5 percent of output. With a gross domestic investment rate of only 18 percent of GDP in recent years and a widening domestic resource gap, targeted growth by the government of 6 percent or higher is unlikely to be achieved."

Historical data for Pakistan place the national saving rate at around 14 percent of GDP, on average, for the period 1973-2005, and the domestic saving at 11 percent of output, on average, for the same period. While the national saving rate has been at comparable levels to the one in some of the fast growing East Asian economies, the domestic saving rate for Pakistan has been significantly lower. This suggests that net income and current transfers from abroad comprise a rather larger component in Pakistan's national saving than in the counterpart countries.

Moreover, the responsiveness of Pakistan's domestic saving rate to changes in the GDP per capita growth is lower than in the comparator countries. For example, a one percent increase in the income levels (measured by the GDP per capita in constant 2000 US$) increases Pakistan's domestic saving rate by 0.06 percentage points.

The estimated coefficient for Pakistan (5.52) is lower than the estimated ones for China (12.42), Indonesia (7.97), and Malaysia (7.55). This suggests that the elasticity of saving rate to changes in the level of income in Pakistan is smaller than in other fast growing economies.

The domestic saving rate in Pakistan has been around less than 12 percent on average for the last four decades, or almost three times smaller to the one in East Asia, for the same period. Second, despite strong economic performance, foreign direct investment (FDI), although improving, is low in Pakistan by regional and world standards.

The report says that East Asia has sustained high growth rates in the last decades, with a different magnitude of foreign capital flows in their domestic investment than the one in Pakistan. While the share of FDI in total investment has more than doubled since 1990 in Pakistan, it is still only at less than 7 percent of gross capital formation at present. This reflects low confidence of foreign investors in Pakistan, it added.

The report analyses that first, Pakistan's domestic saving rate is historically lower than the one of the fast growing Asian economies in absolute terms and when controlling for the level of economic development. Second, the domestic saving rate has considerably different structure in Pakistan from the one in the comparator East Asian countries, with corporate and public saving at significantly lower levels in Pakistan. Third, informal channels of saving are popular in Pakistan, and their economic significance (albeit difficult to quantify) could be as large as 2 to 4 percent of output.

Fourth, based on regression analysis, it has been found that demographic, financial development, fiscal, and economic growth variables are statistically significant determinants of Pakistan's domestic and private saving rates; hence, policy recommendations focus on these four factors.

Saving trends in Pakistan reveal cyclical patterns much like saving trends in the rest of the world. The domestic saving trend of Pakistan is marked by a notable increase in the early 1990s, from an average rate of 8 percent of GDP in the 1980s to 17.5 percent of GDP in 1991. High returns on the National Saving Scheme (NSS) instruments, especially over 1993-99, attracted individual and institutional deposits and explain the boost in saving.

Sectoral breakdown of Pakistan saving shows that private saving accounts for over 90 percent of national saving and preliminary data for 2005 place private saving at 12.5 percent of GDP. In comparative perspective, the private saving rate of China is three times the one of Pakistan, and the private saving rate of India is twice the one of Pakistan.

Household saving is the largest component of private (and domestic) saving in Pakistan and has accounted for about 11 percent of GDP on average for the period 1981-2005. Since its peak in 2003, which may well be due to official recording of flows that already existed, household saving has declined in both nominal and real terms.

Pakistan households save in conventional financial instruments such as various types of deposits, NSS instruments, mutual funds, GP fund, and cash. However, even if all forms of financial saving are accounted for, the financial saving rate of Pakistan is below 10 percent of GDP; and considerably lower than the one in East Asia (and especially China) and even India.

Although deposits of scheduled banks (stock) have been growing steadily in the last several years in Pakistan, their penetration is still low at around 40 percent of GDP, compared with 190 percent of GDP in China. There are 192 bank deposit accounts per 1000 people in Pakistan, compared to 1250 in Malaysia.

Corporate saving in Pakistan accounts for about 10 percent of private saving and 1.3 percent of GDP on average for the period 1981-2005. Compared to the fast growing economies of East Asia, and especially to China, the level of corporate saving in Pakistan is negligible. Observers attribute the rise of overall saving in East Asia precisely to a surge of corporate profits, which became a significant source of investment in several of the countries in East Asia.

Public saving accounts for around 10 percent of national saving in Pakistan, or 1.5 percent of output, on average, for the period between 1970 and 2005. Government saving witnessed an increase in 2004, which could be attributed to some improvement in financial management of government resources (expenditure management) and somewhat tightened fiscal discipline. Albeit positive since 1976, public saving is still in the neighbourhood of 3 percent of GDP, which is low when compared to the rate of public saving in East Asia.

Overall, in comparative perspective, saving rates in Pakistan are lower across the board than those in countries with similar per capita income. While the rate of household saving has been moderate for the last three decades (although still lower than the one in East Asia), corporate and public saving rates have been considerably lower in Pakistan than in the fast growing Asian economies.

 

[Owais]

Cotton production target revised to 12.41 million bales
ISLAMABAD (November 21 2006): The Cotton Crop Assessment Committee on Monday agreed to set production target at 12.41 million bales for the current season. The committee, which met under the chairmanship of Food and Agriculture Minister Sikandar Hayat Khan Bosan, reviewed the current cultivated area and production target.

The meeting was informed that the ginning out-turn, staple length and strength of the crop this season was reported better. The next review meeting would be convened in the first week of December.

The estimate includes 10 million bales cotton from Punjab, 2.3 million bales from Sindh, 0.103 million bales from Balochistan and 0.007 million bales from NWFP.

The meeting was attended by Secretary, Ministry of Textile Industry, Agricultural Development Commissioner Minfal, Joint Secretary (A/E) Minfal, Vice President, Pakistan Central Cotton Committee, Secretary, Agriculture Sindh & Balochistan, Director Crop Reporting, Agriculture Department, Punjab, and senior officers of Provincial Agriculture Department, TCP, PCSI, PCCC and representatives of KCA, Aptma and growers.

 

[Owais]

March-2005 crisis: report being presented to National Assembly panel today

KARACHI (November 21 2006): The much awaited foreign experts' investigation report on the Karachi Stock Exchange March-2005 crisis will be presented to the National Assembly Standing Committee on Finance and Revenue on November 21. This was announced by PM's Adviser on finance Dr Salman Shah while talking to a private TV channel on Monday.

He said the foreign experts in their briefing to the NA standing committee would point out the causes of the KSE March-2005 crisis. It is worth mentioning the SECP announced investigation regarding the KSE March-2005 crisis, in which the investors lost $13 billion. A US investigating team was hired to probe against the suspect involvement of a number of brokers in March crisis in July 2006 and the probing team issued notices to 12 brokers at KSE for their suspect involvement in the said crash. The brokers were directed to provide data of their transactions made prior to KSE crash.

The forensic team was given a three-month time to complete its investigation on the subject and present a comprehensive report before the NA standing committee on finance within the stipulated time.

 

[Owais]

Nike ends Pakistani soccer balls deal

KARACHI (November 21 2006): Sporting goods company Nike Inc on Monday said it stopped orders with its Pakistan-based supplier of hand-stitched soccer balls over labour concerns. The company said the decision follows the supplier's failure to correct significant labour compliance violations.

Nike said soccer teams and leagues sponsored by Nike will not be affected by the decision. The company, however, continues to source apparel in Pakistan.