Pakistan Economy - News & Updates - Archive

[Neo]

First irradiation plant to be operational in Feb

LAHORE: Pakistan’s first irradiation plant, a joint venture of Pakistan Horticulture Development and Export Board and Pakistan Atomic Energy Commission (PAEC) will become operational in February next year.

“The establishment of the facility will greatly boost horticultural exports by helping the exporters meet phyto-sanitary requirements under WTO agreement,” Chairman PHDEB, Saadat Eijaz Qureshi told newsmen.

Lack of proper post-harvest technology in Pakistan causes losses to fruit and vegetable production by 30-40 per cent.

Qureshi said the plant would irradiate food items like rice, wheat, cereals, fruits, vegetables and processed food like spices through gamma rays treatment to increase their storage and shelf-life in a most economical manner to fulfill international quarantine requirements such as disinfections and microbial control in horticulture produce.

He said that the project would provide commercial fruit and vegetable irradiation services based on Cobalt 60 gamma radiations to kill the plant pathogens or at least retard the growth of disease-causing bacteria and parasites in food and related items.

Irradiation technology is widely used in scientific as well as commercial applications in the field of agriculture and animal sciences, pharmaceuticals and medical science.

About the safety of this technology, PHDEB Chairman said, three international agencies World Health Organization, Food and Agricultural Organization of the UN, and the International Atomic Energy Agency accept the safety and usefulness of food irradiation.

More than 42 countries in the world including developed countries like the US, Canada, UK, France as well as developing countries like Pakistan, Bangladesh and Thailand have given clearance for irradiation processing of food.

In neighbouring India, the government has also permitted use of irradiation technology in preservation of food items such as potato, onion, rice, wheat atta or maida, mango, resins, dried dates, ginger, garlic, shallots (small onion) and meat products including chicken.

Saadat Eijaz Qureshi said construction work of second irradiation plant would start in Karachi soon after the operationalisation of the plant at Lahore. The construction of Karachi’s plant would take two years, he added.

http://www.thenews.com.pk/daily_detail.asp?id=35860

 

[Neo]

WB for lenient labour rules: Temporary workers get 36pc of job market

ISLAMABAD, Dec 16: Pakistan has one of the largest populations of temporary workers in the world, who experienced a 3.5 per cent decline in real earnings between 1997-98 and 2003-04, according to a World Bank report. Still, the bank advised the government to go for more lenient labour market regulations, believing that stricter measures were resulting in a lack of investment and a reduction in regular jobs.

In a confidential report on Pakistan’s labour market, the bank says the most significant piece of evidence that labour regulation “is excessive in Pakistan happens to be that the share of temporary workers in Pakistani businesses is one of the highest by any international standard, standing at about 36 per cent against, for instance, 15 per cent in India and three per cent in Bangladesh”.

It says the national economic growth rate has been improving during the past four years but job growth remains slower than the increase in labour force, which now includes more than 45 million workers. Interestingly, this slower growth in job creation is not compensated for by improvement in job quality.

“Job earnings are low and Pakistan faces the double challenge of providing more jobs while also improving earnings and the quality of jobs.” Average earning of salaried employees in 2003-04 was Rs4,088 ($68) per month. For a typical family of six with one person employed, the average earning placed that family below the poverty line. Statistics on earnings of self-employed are not available but are believed to be much lower.

Underemployment – seasonal or chronic – is another problem facing many workers, especially those in self-employment or the farming sector. Underemployment translates into income losses. Many workers in rural areas have three ‘inactive’ months in a year where they are mostly unemployed, with some 40-60 idle days per year. Average earnings of poor rural workers are less than Rs2,000 ($33) per month.

Earning differentials are large – average earnings in rural areas are 68 per cent of earnings in urban areas, while female employees earn 59 per cent of males, although it is not clear if it is for similar work. Earning differentials between rural and urban areas have been diminishing, while those between men and women have been increasing.

For elementary workers (which are focus of minimum wage legislation), average real earnings eroded by 11 per cent from Rs2,671 in 1997-98 to Rs2,374 in 2003-04. Real earnings in the private sector fell more in the informal than in the formal sector. In contrast, government employees saw real wages improve by 21 per cent on average. Real wage gains were also made by some of best-paid professional categories. The rest experiences falling real earnings, with a sharp fall in real wages of illiterate or less-educated workers.

The report says “informality is widespread and has been growing”. The informal sector accounts for 70 per cent of non-agricultural employment and 55 per cent of wage employment. Informal sector comprises 73 per cent of workers in rural areas and 67 per cent in urban areas. “Informality overall grew by five percentage points from 65 per cent in 2001-02 to 70 per cent in 2003-04”.

Interestingly, some 61 per cent of the employed labour force in 2004 was self-employed or unpaid family helpers – up by two percentage points from 2001-02. Lack of job opportunities rather than inherent entrepreneurial spirit was cited as the main reason people become self-employed, the report said.

 

[Neo]

$41.6m WB credit converted into grant

ISLAMABAD, Dec 16: The Pakistan government and the World Bank (WB) on Saturday signed an agreement to convert $41.61 million credit the former had taken from the International Development Association (IDA) into grant.

The Melinda and Bill Gates Foundation will reimburse this amount to the WB discharging the government of Pakistan of its payment obligations and all liabilities.

The agreement was signed by Secretary Economic Affairs Division M Akram Malik and John Wall, country director WB, here at the Economic Affairs Division.

The overall objective of the project was to support the government’s efforts to eradicate polio from the country. The Polio Eradication Initiative project had been a major national effort since 1994, an official announcement said.

It added that the programme’s achievement was reflected in declining number of polio cases from tens of thousands per year in 1980s to 34 cases as on November 2005. The IDA, it added, was supporting the polio eradication initiative in partnership with technical agencies - Unicef and the World Health Organisation (WHO) and several other development partners.

 

[Neo]

Shaukat eyeing record FDI this year

ISLAMABAD, Dec 16: Prime Minister Shaukat Aziz on Saturday said that the country would attract a record inflow of foreign direct investment (FDI) during this fiscal year due to investor-friendly policies of the government.

Talking to George Soros, a renowned global financier, at Prime Minister House, the premier said that Pakistan had become an attractive destination for foreign investment because of the availability of skilled manpower and comparatively low cost of production and a level-playing field to both foreign and local investors.

He said that the country had vast potential in housing and real estate, electricity production and distribution, oil and gas development, IT and telecom, agribusiness including dairy development, petrochemicals and engineering sectors. "We are encouraging the private sector particularly the foreign investors, while the government plays the role of a facilitator," he added.

Mr Aziz said the policies of liberalisation, deregulation and privatisation had been resulted in rapid growth of all segments of the economy particularly telecom and banking sectors. “Tele-density has reached 27 per cent and international investors like Singapore government and Standard Chartered and ABN Amro are increasing their investment here,” he boasted.

With a growing middle class Pakistan is fast turning into a major market economy and a manufacturing and servicing destination in the region, he added.

George Soros appreciated Pakistan’s consistently growth rate and the reform agenda undertaken by the government and said that he would like to contribute in the education and healthcare, develop micro-finance, housing finance, especially to benefit the poor.

 

[Neo]

Sunday, December 17, 2006

Leghari opens IT park in Rawalpindi

ISLAMABAD: Minister for Information Technology Awais Ahmad Khan Leghari on Saturday said that the government had launched big internship and apprenticeship schemes to place thousands of young IT professionals in the industry.

“We are currently running a huge project to give away 10,000 internships and 5000 apprenticeships to help young IT graduates get training and subsequently permanent jobs in the IT industry,” he said during the inaugural ceremony of a software technology park in Rawalpindi. The high-tech IT park has been set up by a leading US IT company MTBC to start its business operations in Pakistan.

Based in New Jersey, MTBC which specialises in the medical billing/transcription business and is recognised in the US as a leading health services provider has already trained and employed over 500 Pakistani IT graduates and further plans to double its employment number by the end of next year.

Mahmud Haq, a US-based Pakistani who heads the company, told the minister his company had come to Pakistan to benefit from a host of investment friendly policies introduced in the IT sector.

He said that his company’s business in Pakistan was growing at a fast pace due to availability of a cheap but well-trained manpower which allowed the company to offer services to leading US clients at 4 percent of their cost as compared to 8 percent charged in India and 12-15 percent charged in the United States.

http://www.dailytimes.com.pk/default.asp?page=2006\12\17\story_17-12-2006_pg5_2

 

[Neo]

Sunday, December 17, 2006

FDI factor starts tantalising textile sector

By Hamid Waleed

LAHORE: The lure of foreign direct investment (FDI) has started tantalizing the textile circles and they feel that the textile sector’s jumbo size now looks very small because of heavy investments made by telecom giants alone recently.

Textile millers say the textile sector has invested nearly $5 billion in the past five years under the Balancing, Modernization and Rehabilitation (BMR) programme, but Mobilink ($4 billion) and Warid ($2 billion) alone have invested $6 billion in a short span of time. They also refer to the proposed investment of $43 billion by the Emmar Group on two islands off the Karachi coast and another $1 billion by Engro Chemicals in near future.

“Such an impressive inflow of foreign investment in the country has probably devalued the textile sector in the eyes of policymakers,” said one textile miller.

Others in the textile sector, however, look at the situation in another way. According to them, the industry is facing a crisis of leadership, providing an opportunity to the policymakers to twist the textile sector’s arm at their will.

They are of the view that the chairman of the All Pakistan Textile Mills Association (APTMA) is not vocal on textile sector’s issues. They claim the former APTMA chairman had a similar attitude, saying: “The practice of back channel negotiations with policymakers has diluted the industry’s position in general.”

They also blamed the industry elders for sidelining small textile millers.

Nevertheless, they said, the textile industry was still contributing largely towards the economic growth of Pakistan. Its share in the total exports of the country was 63 percent, in manufacturing 46 percent, in employment 38 percent, and 11 percent in the gross domestic product. Around Rs eight billion investment had been made during the last five years. But government policies were pushing this important sector to the wall and it could collapse at anytime, they said.

According to these circles, the input costs are at all time high and volatile, there had been favourable stability in cotton prices during the last three years, but the changing prices of polyester remained unstable for the past many years, which left negative effect on the financial results of the spinning sector. The government is continually increasing prices of other inputs: the cost of electric power is 6.9 cents per kilowatt, which is nearly more double when compared with the rate in our competitive countries. The price of gas is $4.42 per MMBTU and in Bangladesh it is $1.83 per MMBTU. Regardless of the decline in international prices of oil, WAPDA is said to be increasing its prices. The government has revised the minimum wage twice in recent years from Rs 2,500 to Rs 4,000.

There is no duty drawback for exporting units on use of water, power, telephone, C&F, and insurance, but it is available in Bangladesh, China and India. Our industry is subject to various additional duties and taxes such as EOBI, social security, professional tax, duty and surcharge on utilities, cross subsidy and stamp duty. The levy of custom duty at the rate of five percent on the import of machinery and 5-25 percent on stores and spares does not only discourage the BMR of machinery, but also make the cost of stores and spares high. The levy of income tax on export proceeds from 0.75 to 1.5 percent whereas in Bangladesh this rate is quite low at 0.25 percent of total export proceeds. Then there is the exorbitant increase in interest rate, there are procedural difficulties in raising finance from banks, difficult and lengthy procedures of CBR taxation system, blockage of huge amounts in the name of input sales taxes and advance income taxes in government treasury, delayed refunds, lack of professionalism in policy and procedure-making departments, all are contributing to put the textile sector in difficulty.

Due to all these factors, they said, Pakistani exporters are losing their market share in Europe even with the lower price than exporters from China, India and Bangladesh. They were of the view that the ministries of commerce and industry were of no help in the resolution of the issues. “The Trade Development Authority does not realize that once a buyer is lost to other country, he is not likely to return to Pakistan, and once a mill is closed, how difficult it would be to restart it.

They urged the government to take immediate steps to save the textile sector.

 

[Neo]

Sunday, December 17, 2006

Govt to provide 15,000 new jobs to youth in IT

ISLAMABAD: The government has launched various internship and apprenticeship schemes to place thousands of young IT professionals in the industry, said Information Technology Minister Awais Ahmad Khan Leghari on Saturday.

He said this during the inaugural ceremony of a software technology park in Rawalpindi, set up by a leading US IT company, MTBC, to start its business operations in Pakistan. “We are currently running a huge project to give away 10,000 internships and 5,000 apprenticeships to help young IT graduates get training and subsequently permanent jobs in the IT industry,” Leghari said. Based in New Jersey, MTBC specialises in medical billing and transcription and is recognised in the US as a leading health service provider. It has already trained and employed over 500 Pakistani IT graduates and plans to double employment by the end of next year. Mahmud Haq, a US-based Pakistani who heads the company, told the minister that his company had come to Pakistan to benefit from a host of investment friendly policies introduced in the IT sector.

He said that his business in Pakistan was growing at a fast pace due to availability of cheap but well-trained manpower which allowed the company to offer services to leading US clients at a cost of 4 percent as compared to 8 percent charged in India and 12-15 percent in the US.

Leghari welcomed the company’s decision to start its operations in Pakistan and offered to provide, for a certain period, the cost on training and salaries in case the company decided to set up offices in less developed urban centres.

He said, “The arrival of your company in Pakistan puts a positive stamp on the scope of growth for the IT sector and IT youth in this country,” Leghari said. He said that his ministry had formulated plans to create job opportunities for youth in the IT sector and had generated over 200,000 jobs during the last two to three years.

 

[Neo]

Sunday, December 17, 2006

‘Pakistan needs large dams’

LAHORE: WAPDA Chairman Tariq Hamid said Pakistan required more large water reservoirs to tackle increasing water and power needs. He was presiding over a seminar on ‘Corporate Social Responsibility’ organised by the Institute of Cost and Management Accountants of Pakistan. He said Pakistan was heading towards water shortage due to a rapid growth in population and sedimentation of dams, adding that setting up large reservoirs was need of the hour.

“Pakistan has a storage capacity of 9 percent to total water available, and the average storage capacity worldwide stands at about 40 percent,” he said, and warned that Pakistan would be short of water like Chad and Ethiopia, by year 2012 if the storage capacity was not increased.

“Having a cultivable land of 77 million acres, Pakistan has a potential to bring 22.6 million acres of new land under cultivation provided additional water is available,” he added. He said annual electricity consumption had risen by 9.8 percent during the last four years, adding that the load on WAPDA’s transmission system had increased by 2,000 MW during peak hours (from 6:30pm to 10:30pm).

“To control electricity shortage in coming years, we have to generate sufficient electricity at an affordable rate by constructing big dams,” he said.

 

[Neo]

Rupee depreciation: the wrong debate

By Yousuf Nazar

IT is a hot topic: is rupee devaluation around the corner? But is it the right question? Perhaps not. The real and more important question is whether the government is prepared to review and change the policies that have contributed to a widening trade deficit in the first place? If not, difficult days may lie ahead.

Prime Minister Shaukat Aziz has denied that the devaluation is on the card. The State Bank Governor criticised the media reports for creating “misperceptions and misunderstanding” at a rather unusual Sunday press conference.



The Governor maintained that the central bank abandoned fixed exchange rate regime a long time ago and moved to a floating exchange rate regime since early 2000 and the IMF has not advocated, in its consultations with Pakistan, any depreciation and has just provided its perspective and analysis of the movements in the real effective exchange rate. The World Bank’s Pakistan representative has also commented on economic outlook and exchange rate policy at a media briefing in Islamabad, noting that China and India have allowed their currencies to depreciate while Pakistan has not. This is factually incorrect as shown below:
% Change Against US Dollar Since
January 2006 January 2004
Pakistan rupee (1.79) (5.96)
Indian rupee +0.70 +1.99
Chinese renminbi +3.16 +5.80



Pakistan rupee has depreciated against dollar while Indian and Chinese currencies have appreciated.

A few observations are in order:

The IMF is not the ultimate authority on macro economic policy. Its often-controversial and questionable prescriptions have some times proved harmful for the countries that were under its programmes and drew sharp criticism from some of the world’s leading economists.

Pakistan is currently not under any IMF programme and is not bound by its ‘advice’. Moreover, the IMF has provided estimates of the “real” exchange rate using different methodologies. That is, what is the real purchasing power of Pakistani rupee viz-a-viz a basket of currencies given the different rates of inflation in their respective economies? The hard fact is, according to the IMF report, Pakistan’s currency appreciated by 10 per cent in real terms, relative to its trading partners, from December 2004 to June 2006. The correct and relevant question is: does it need an adjustment to bring it in line with its inflation-adjusted value?

Pakistan is not under a ‘free’ floating exchange rate regime. It is under what is called a ‘dirty float’ or a ‘crawling peg’ regime with rupee de-facto pegged to the dollar. What it means that the market forces alone do not determine its value freely and the Central Bank through a variety of controls and interventions plays a key role in determining its value.

The principal reason for the current debate is not the IMF report or some ‘misunderstanding’ but the recent trade performance and the widening current account deficit.

The crux of the matter is the government believes it can run current account deficits year after another as long it can fund them through capital flows or more precisely through borrowings, foreign direct and portfolio investments and privatisation proceeds. In a worst-case scenario, foreign exchange reserves can be used to meet shortfall on a temporary basis.

This approach is faulty, short-sighted and fraught with considerable risks. Industrial and trade strategy should drive financing strategy and not vice versa. It seems that we are treating privatisation as a means of financing the expanding current account deficits while not paying sufficient attention to address the structural and fundamental reasons that are causing the deficits.

The month-wise imports and exports data for the 16 months to October 2006 reveals a clear trend of declining exports and rising imports. (see graph 1)

During the first four months of the current fiscal year, the exports growth of 1.3 per cent compared to a year earlier is not only behind a much higher 7.7 per cent growth in imports but reveals a worrying trend given Pakistan’s huge dependence on Textile and Clothing exports. They account for 60 per cent of exports but are concentrated in low-value added products: yarn and bedwear/towels account for 45 per cent of textile exports while ready-made garments account for only 15 per cent.

During the four months from July-October 2006, textiles and leather exports declined in absolute terms and the small overall export growth was achieved only due to higher rice exports. The low value-added textiles (yarn, cloth, and bedwear/towels) have seen the sharpest decline in the current fiscal year.

The textile industry is blaming higher energy and interest rate costs while the Commerce Ministry has blamed shortsightedness and immaturity of the business community for their current woes. “The community in their quest for easy short-term gains, compromises on their long-term interests,” said a spokesperson for the ministry, adding had the entrepreneurs and traders read the signals being given by the government and restructured their businesses accordingly, they could have fared better.

While the government and the industry have traded accusations, Pakistan's balance of payments deficit widened 52 per cent in the first four months of the fiscal year 2006-07. The deficit, the amount by which imports exceed exports, remittances and other incomes from abroad, widened to $3.34 billion in the July-October period, from $2.19 billion a year earlier. The cost of importing oil in the first four months climbed to $2.73 billion by $594 million. Pakistan imports about 85 percent of the oil it uses.

What is not disclosed in the figures is the yet unexplained and even larger increase of $862 million in ‘other imports’. Here, it needs to be highlighted that the data provided by the Federal Bureau of Statistics is not detailed enough to facilitate more in-depth and meaningful analysis and even the Ministry of Commerce has cited shortcomings in the statistical data as an issue in taking appropriate and timely policy actions.

In addition, the quality of reporting is not generally at par with those of some other Asian countries. Notwithstanding these issues, all other major imports, including industrial machinery, commercial and consumer vehicles and metals, reported a decline during July-October compared to a year earlier. In summary, given the rise in “other imports’ and decline in machinery and vehicles’ imports, the assertion that the current difficulties are largely the consequence of a higher oil import bill is not supported by the facts nor does it tell the whole story.

It is not just the current year’s data that points to a rapid and unsustainable growth in non-oil imports. During the FY 2005-06, Pakistan’s non-oil imports grew by 32.8 per cent to $21.6 billion from $16.3 billion in 2004-05 and by 76.6 per cent compared to level of non-oil imports ($12.2 billion) in 2003-04.

The government has maintained that the rising imports represent overall economic growth and higher investment spending. If that is case, it should result in correspondingly higher investment spending. However, that is not the case. Why?




No doubt, the GDP has been increasing at a healthy rate but the growth has been fueled by an extraordinary surge in consumption. During 2005-06, private consumption spending was higher by 34.7 per cent in real terms compared to FY 2002-03 as shown in the graph.

In other words, it increased at an average of 10.4 per cent per annum (in real terms without adjusting for inflation) during the four-year period to June 2006, faster than the overall average GDP growth of 7 per cent. In sharp and somewhat curious contrast, the investment spending grew by an average of only 4.2 per cent per annum during the same period.

Simply put, we have been spending more than we have been producing and that spending boom has been supported by a rapidly expanding banking sector that has been one of the principal beneficiaries of the growing remittances since 2001. (see graph 2)

What has also contributed to the deterioration is the lack of proper incentives to encourage the rising foreign exchange flows to go into the productive channels. Fiscal and trade policy distortions have contributed to a record boom in private consumption (cars, mobile phones, real estate, consumer imports) while the investment spending has not risen as fast although the net banking credit to the private sector grew by 29 per cent in 2003-04, 33 per cent in 2004-05 and 30 per cent in 2005-06. This issue lies at the heart of the current debate.

When a credit or a liquidity driven boom is used to finance an ever-increasing level of consumption and does not result in higher capital formation and investment spending, it causes higher inflation. The problem is exacerbated when higher consumption also involves finished goods imports that put additional pressure on the current account.

The trade policy should eliminate or lower tariffs on imported raw materials and discourage consumption of luxury imports on one hand and discourage exports of raw materials and low value-added goods on the other. We seem to have been doing the opposite: importing more and more of finished goods and exporting more and more of raw materials and low value-added goods. The problem has been further compounded by the fact the Central Bank is not completely independent in reality and has not focused on containing the inflation rate as the most important goal of its monetary policy as do most central banks. The policy makers and the businesses must address these fundamental issues on a top priority basis instead of quibbling about the exchange rate.

The writer is a former head of Emerging Markets Equity Investments, Citigroup

 

[Neo]

Growth and competitiveness

By Khaleeq Kiani

PAKISTAN could achieve a higher growth rate of 7-8 per cent provided existing weakness in certain key areas of business environment are addressed effectively.

This was the consensus that emerged at a two-day seminar on “Pakistan: growth and competitiveness” organised by the World Bank at Lahore University of Management Sciences. Many analysts viewed costly and unreliable supply of energy, weak infrastructure and lack of judicial reforms affecting competitiveness.

Weaknesses enumerated by the World Bank included costly regulations, weak public institutions, corruption, political uncertainty and feeble contract enforcement. Other problems reiterated by the bank were transport bottlenecks, corruption, lack of skilled workers , the rigidities of land and labour markets and difficulties faced by SMEs in accessing credit. The country has also a narrow tax base, it was stated.

A former federal minister Dr Abdul Hafeez Sheikh viewed “corruption as one of the top problems “ and added military coups to the listed problems. Listening to his candid speech were minister for industries and production Jehangir Tarin and prime minister’s advisor on finance Dr Salman Shah.

Dr Abdul Hafeez Sheikh observed: The tackling of corruption and resolving governance-related issues are important. It should be decided whether the country will be ruled by the army or the army is to be subservient to the elected representatives. Build institutions and not dams.

There was almost a consensus among speakers including academicians that corruption and weak public sector institutions were at the heart of Pakistan’s problems and unless confronted head-on, no policy measures and incentives could be of any help.

Dr Abdul Hafeez Sheikh enumerated many failures of the present military-led government that varied from water and power sectors, to aviation industry and from shipping to gas and Thar coal development. On the positive side, he mentioned telecom, banking and privatisation as successes.

On land holdings and property laws, he said, assets that could not readily be turned into capital, are dead assets. Prof De Soto had been invited to a high profile meeting presided over by the President and attended by ministers and who’s who of the government to seek guidance for converting these dead assets into capital but “mysteriously the offer Mr De Soto made was not taken up”.

We have not been able to settle political disputes and inter-provincial issues like resource(NFC award) and water distribution etc. Macroeconomic stability is a must but not sufficient for bringing change in the lives of the people. The country’s economy started to improve after 9/11 in the shape of high remittances and capital aid and rescheduling of foreign debt. Growth spurts driven by aid were destined to increase disparities and just a seven per cent of foreign direct investment went into the manufacturing sector- not a good sign for the long-run.

Former finance minister Sartaj Aziz said: the investment to GDP ratio was quite low and Pakistan could not sustain high trajectory of growth with existing trend of investment. An investment to GDP ratio of at least 27 per cent was a must to achieve growth rate of seven per cent.

Interestingly, Pakistan achieved higher growth during three military rules when the country was needed by the foreign powers for their agendas but it never helped reduce poverty. We do not accept dictatorship.

A World Bank study that examined in detail the textile chain and its competitiveness abroad was of focus of all participants. Tariq Sayeed Saigol said his cousin had started to import electronic goods for assembling home appliances because of higher input costs in textiles at home. The bank report said Pakistan could make tangible progress but it would not be automatic. To realise it, Pakistan will need to do more than reinforce the fiscal and monetary discipline that has enabled it to regain lost ground.

The country must also build strongly on initial, far-from-complete progress in designing and promoting an investment-friendly business environment that will nurture new competitive strength. A broader and deeper investment climate reforms and a strengthened macroeconomic framework could propel the economic revival to produce a higher and sustained growth.

The value chain analysis of the textile sector showed that many weaknesses harm the cost competitiveness. In exporting Blue Denim Jeans and other textiles and apparels to the US market, Pakistan was at a competitive disadvantage because of the longer shipping time and higher freight costs as a percentage of export values.

Relative to China this disadvantage amounts to 6.5 per cent of the export value. This highlights the importance of compensating the disadvantage with competitive cost advantages through relatively more efficient Customs administration, port operations, and inland transport and logistics, and lower factory-gate costs.

In cotton spinning where power charges account for about a fifth of total costs and 42 per cent of conversion costs, competitiveness and profitability is adversely affected not only by the high electricity tariffs for industrial users, but also by frequent outages –commonly an average of three per day--that heighten inefficiency and expense. With funds which they could otherwise be used to automate some processes, many textile mills install back-up generators, further raising their costs of production.

In ginning and weaving, the scarcity of trained workers, technicians and engineers is hampering maintenance and productivity improvements. And due to the rigidities of the labour market, contractual hiring is preferred, encouraging under-investment in training by employers and workers.

For non-integrated mills which are mostly SMEs (e.g., in weaving), access to financing is limited by high collateral requirements because of inadequacy of the private credit information system and restricted range of assets acceptable as collateral.

In dying, material inputs account for over 55 per cent costs. Chemicals, mostly imported, account for 95 per cent of these inputs. Collecting rebates on customs duties and other levies paid on these imports can take 3-5 months, delays that create cash flow problems for the firms and raise their costs, thus undermining their competitiveness.

Similar problems are faced in the production of other intermediary inputs, notably yarn. Excessive use of (subsidised) water through flood irrigation is reducing cotton yields and quality and also raising costs of water extraction and tube-well investments.

Many cotton growers cannot obtain enough quality seeds for their crop because of lack of private-sector involvement in the production and distribution of seeds, while inefficient state-owned enterprises are unable to supply sufficient quantities of quality seeds at prices that are set below-cost.

Responding to inadequate supply of quality seeds, growers use retained hybrid seeds, which are susceptible to pests and viruses, thus reducing cotton yields and quality. Former finance of Thailand Tarrin Nimmanhaeminda said the globalisation demanded continuous changes in policy-making so as to maximise gains and minimise losses. He advised the policy makers to defend national interests and put in place hard and soft infrastructure for better regional and global integration.

International quality standards should be accepted and adopted and but law and regulations governing capital flows be very carefully prepared and changed as the world changed. The exploitation of natural resources should be subject to limits and privatisation should not attract the impression of selling away national assets and creating private sector monopolies but for creating competition.

In his opinion Pakistan should provide access to credit but without making it free money so that poorest of the poor could benefit and equality of law is ensured. Besides, he said, the public administration should comprise small, clear and efficient bureaucracy whose wage pattern should not have major gap with the private sector.

 

[Neo]

Govt to seek $17 billion from lenders: Construction of three major dams

By Khaleeq Kiani

ISLAMABAD, Dec 17: The government has decided to immediately prepare and negotiate a $17 biillion, 15-year business plan with four leading international lenders for the construction of three major dams in the country, Dawn has learnt.

The decision on the financing of the construction of the Kalabagh, Diamer-Bhasha and Akhori dams was taken at a meeting of the task force on mega dams led by Adviser to the Prime Minister on Finance Dr Salman Shah on Dec 11.

The task force comprises federal secretaries of the ministries of finance, water and power, the economic affairs division and the planning commission. The adviser on water and power, members of the Water and Power Development Authority and other officials of various government agencies are also on the task force.

A senior government official told Dawn on Sunday that the task force was constituted at a recent meeting of the president and the prime minister and was entrusted with the task of starting formal financial preparations for the dams. He added that the announcement of the task force constitution was not made to keep the professional and technical work in a low profile.

The task force decided to create special cells in three federal divisions -- finance, economic affairs and water and power led by respective secretaries -- to become focal points for interaction with foreign lenders.

Water and Power Secretary Ashfaq Mehmood suggested to the task force to create a Special Purpose Vehicle (SPV) to finance and construct the Diamer-Bhasha dam following the international practice of creation of offshore companies for investment and tax purposes.

“This will also enable the government to take up the project along market-based, commercial lines without recourse to normal audit issues and bureaucratic approvals and may encourage even the local private sector to be part of it under the new public-private partnership scheme,” the official said. The task force was informed that initial contacts with the World Bank, Asian Development Bank, Islamic Development Bank and Saudi Fund for Development had already been made and the response was very encouraging.

Some of the lenders, the meeting was informed, needed a broad-based resettlement policy, risk mitigation measures and a long-term business plan along with a repayment mechanism to meet their standards, policy concerns and board approvals.

The World Bank -- because of its experience of resettlement issues of the Tarbela and Mangla dams where many displaced persons are still homeless -- was insisting on a national resettlement policy to satisfy its legal requirements. The bank’s own poor performance in the implementation of the Left-Bank Outfall Drain has caused it to be more vigilant on environment and livelihood issues of the people likely to be affected by the dams construction.

The water and power ministry cell was directed to prepare a national resettlement policy, land acquisition and resettlement mechanism specifically for the three dams, environmental aspects, tender documents, bidding process and prequalification criteria besides financial needs on an annual basis. It would be assisted by Wapda, Nespak and Chief Engineering Organisation, Indus River System Authority, etc.

The ministry of finance will prepare, with input from the water and power ministry, the overall financing requirement for each project on an annual basis, examine terms and conditions of the foreign financing and put in place the repayment schedule. The cell in the economic affairs division, in consultation with the finance and the water and power ministries cell, will act as a one-window operation to hold formal negotiations with the lenders.

The sources said an inter-provincial committee led by Secretary Ashfaq Mehmood and appointed by the Executive Committee of the National Economic Council a couple of months ago approved early this month a land acquisition mechanism for the Diamer-Bhasha dam.

The committee, however, asked the provincial governments to submit their views on construction priorities and related issues of the two other dams, promising that they would be analysed by Wapda which would come up with a plan for consensus within two months. Till such time, Wapda was directed to start an awareness campaign throughout the country in January about the merits and demerits of various dams.

According to the water and power ministry, the total cost of three dams was expected to be about Rs1.027 trillion ($17.1 billion), including a foreign exchange component of Rs433 billion ($7.22 billion). The cost of the Diamer-Bhasha, Kalabagh and Akhori dams were estimated at $6.51 billion, $6.2 billion and $4.44 billion, respectively.

The government plans to seek foreign financing of $2.964 billion for the Diamer-Bhasha, $2.84 billion for the Kalabagh dam and $1.42 billion for the Akhori dam. These three dams are part of the five big dams project President Pervez Musharraf announced in January. The other two daws -- Munda and Kurram Tangi - are in the process of being given to the private sector for construction. The construction of none of the five projects has taken off yet.

http://www.dawn.com/2006/12/18/top1.htm

 

[Owais]

Crisis in the making for sugar sector

ISLAMABAD (December 18 2006): A serious crisis is in the making in the sugar sector as ex-factory rates have gone as low as Rs 28 per kg, threatening payments to the growers.

The sugarcane rates of Rs 65 and Rs 67 per kg for Punjab and Sindh, respectively, contribute to Rs 23 to one kg sugar cost and, with inclusion of sales tax @ 15 percent and overhead expenditures one kg sugar cost the mills between Rs 32 and Rs 33. The question which comes in one's mind is how long the mills can operate and ensure the payments to growers of the crop when sugar cost becomes more than its selling price. One need not to ponder for a long time to answer that such a situation can not exist for a long time.

ANOTHER QUESTION IS: what is it which is creating the problem for the sugar sector after a break of every four to five years? Market analysts believe that it's the faulty government policy that is pushing the sugar sector towards a situation like that of 1999-2000 when huge unsold stocks of sugar had created glut-like situation, leaving the sugar sector players in complete disarray. Its ultimate effect was sticking up of billions of rupees of the growers' payments and default of bank loans by the industry.

Finally, the government had to play a role and pull the industry out of the crisis by picking up the huge unsold stocks.

The analysts apprehend that sugar sector is slowly and gradually heading towards a serious crisis as the mills' sale of fresh stocks is below average. They say that the situation, if it persists, will result in big unsold stocks with the mills.

THEY CITE THREE REASONS FOR THE LOOMING CRISIS: huge carryover stocks, banks' tough margin financing conditions, and untimely offloading of imported stocks.

They say that the sugar market is being injected with much more stocks than demand that would further bring down sugar prices and make it hard for the mills to pay to the growers for the sugarcane.

The analysts hardly see any chance of improvement in the market sentiment in the near future. They believe that unsold stocks would keep on mounting due to less demand and, finally repeat the 1999-2000 crisis for the sugar sector.

They also believe that corrective measures are needed without any delay to put things in order to avoid a crisis. They suggest relaxation in margin financing for sugar industry to provide it seasonal loans at notional percentage to ensure payments to the growers, besides providing them much space in the market for selling stocks and pay back the banks 100 percent seasonal loans by October 31.

They also demand that the government should give up the policy of governing the sugar sector on ad hoc basis and prepare a long-term strategy to let all stakeholders function with full confidence.

They also stress for more protection for the growers and demand a system that would ensure them timely payments.

 

[Owais]

Over Rs 600 million announced for Shahdara uplift projects

LAHORE (December 18 2006): Punjab Chief Minister Pervaiz Elahi has said that PML (N) has lost its identity after its merger into PPP, and Pakistan Muslim League will win with a thumping majority in the next general elections due to its record historic developmental works and public service.

He said that in the past, PML (N) had been accusing PPP of disintegration of the country but now its leadership has formed alliance with it (PPP) while no true Muslim Leaguer even can think of alliance with PPP. He added that there was no question of a deal with the party, which was responsible for disintegration of the country.

He was addressing a public meeting on the occasion of inauguration of the reconstruction work of Ravi Road at Niazi Shaheed Interchange here on Sunday.

The Chief Minister said that PPP, by opposing Kalabagh dam had not only tried to stop Punjab's water and devastate its lands, but also hatched a conspiracy against Pakistan. "Now, how PPP will ask for votes from Punjab?" he questioned.

He said that the hike in electricity rates was the result of wrong policies of PPP government, and those who are against Kalabagh dam do not want prosperity in the country. He said that those who were elected twice from Lahore as chief minister and prime minister did nothing for development of the city and left Pakistan for 10 years, under a 'deal', leaving the workers and voters leaderless.

He said: "Our hearts beat with the poor people and Lahorites, and measures taken by PML government for the development of the city would be seen soon, and the people would themselves see that the government has completed a record number of welfare-oriented projects for their uplift." Pervaiz announced that proprietary rights would be given to the dwellers of all katchi abadies of Lahore along with facilities at par with Model Town and Gulberg.

On the demand of the people, he announced immediate abolition of toll tax at Sagian Bridge. He said that toll plaza at Ravi Bridge G T Road would be shifted outside the city.

He also announced immediate provision of Rs 150 million for construction of a road from Baba Chhatriwala to Niazi Chowk, Rs 140 million for a road from Shahdara to Begum Kot, Rs 50 million for girls degree college at Match Factory, Shahdara, Rs 220 million for setting up a technical college at Shahdara, and Rs 25 million for Faizpur Interchange.

The Chief Minister also announced upgradation of Shahdara Hospital. He further announced reconstruction of Lahore Circular Road and a modern inter-change at Azadi Chowk.

He said that Ravi Town is a backward town of Lahore; therefore, Punjab government has diverted the development sources towards this town. He said that with the cooperation of Bukhatar Group of UAE, a 'sports city' is being developed over an area of 3,000 acres, which will not only open new vistas of development in the area but would also generate a large number of job opportunities.

Meanwhile, 20,000 people will get employment due to construction of Shaikh Zayed Hospital, he added.

He said that Rs 10 million would be given to each union council of Lahore for development projects. He, however, made it clear that after provision of funds, monitoring of utilisation of these funds will be ensured and in case of negligence in the development work, new faces would be introduced.

Pervaiz Elahi on this occasion also distributed documents of proprietary rights among the residents of Katchi Abadies.

Federal Commerce Minister Humayun Akhtar said that Lahore is the city of Muslim League, and PML had carried out extraordinary development works here. He said that earlier Ring Road was announced six times, but it was Pervaiz Elahi who started this project, which would be completed in 2008.

Lahore Nazim Amir Mahmood said that Ravi Town was the background town of Lahore but PML government has constructed the biggest interchange of the country here. He said that due to development projects announced by the Chief Minister, Lahore has now become the city of PML and of Pervaiz Elahi.

MPA Qaisar Amin Butt, President PML Lahore Munir Ahmed, Nazim Data Ganj Bakhsh Town Tariq Sana Bajwa and Nazim Ravi Town Yousuf Ahad also addressed the meeting.

 

[Owais]

$38.3 million foreign investment in bourses

KARACHI: Foreign investors during the current fiscal year made investments amounting to $38.3 million in the Pakistani stock exchanges.

State Bank of Pakistan (SBP) figures showed that the US with $16.8 million investment in December topped the list, while the Kuwaiti investors for the first time in the current fiscal year made substantial investments of $12.2 million to clinch the second position.

Foreign investors during the current fiscal year thus far made investments of $33.3 million in Pakistani stock exchanges, out of which, US with $143.5 million investments remained at the top.

 

[Owais]

Foreign investments in coal mining remain lukewarm

ISLAMABAD: Pakistan has thus far failed to lure foreign investments in projects relating to coal mining and power supply despite attractive incentives offered.

Ministry of petroleum sources said that the ministry has already briefed the high officials about it.

Sources attributed this failure in attracting foreign investment in coal mining to its frustrating performance, non-availability of support and auxiliary industries relating to mining, lack of reliable and correct data and non-availability of skilled workers besides the huge capital required for projects of coal mining and power houses. Therefore, the incentives offered needed to be perked up further, sources told.