Pakistan Economy - News & Updates - Archive

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SME policy to boost small and medium trade: minister ​

MULTAN (February 25 2008): Caretaker Punjab Industries Minister Khawaja Muhammad Jalaluddin Roomi said here on Sunday that the first ever and most comprehensive SME policy to boost small and medium businesses will be implemented in the near future.

Talking to newsmen here on Sunday he said the policy has been formulated in view of the problems and needs of small and medium enterprises of the country under the 'credit guarantee fund' and sub-contracting exchange to facilitate the SMEs.

Giving details of the projects under way, and those in the pipeline, he said that implementation of the policy will activate more SMEs and ensure rapid development in this sector.

Apart from this, a database line survey is being conducted in 20 districts of the country to ascertain the problems and requirements of the industrial sector, he added.

Roomi said that an Agro Food Processing Facilities Centre costing Rs 200 million is being set up in Multan to provide processing facilities for pulp extraction of various fruits like mango, guava, etc.

The construction work on the centre will be completed by June, while machinery for the centre will be imported from Italy, he added. The project, with the introduction of the latest technology, will also facilitate local growers to prepare tomato paste and puree, lead to value addition, and help reduce post-harvest losses currently estimated at 30 percent.

The proposed centre will expose farmers to the latest fruit and vegetable-processing techniques that can add value to their products and fetch foreign exchange through exports, he added. The minister also said that a Business Centre at Gujranwala has been established jointly by Smeda and t5he Gujranwala Chamber of Commerce and Industry (GCCI) at a cost of Rs 200 million, which will become functional by May.

It will provide a single promotional and display platform for the wide range of products manufactured in that region to attract national and international buyers, he added. He said that a Women Business Incubation Centre has been established in Lahore, which is a cell set up to resolve any problems being faced by women entrepreneurs, and extend hands-on support such as business infrastructure, fully furnished offices with telephone and internet facilities, display area for exhibition purposes, as well as administrative and business development support.

The minister further said that the Surgical Industry Development Project costing more than a billion rupees will be launched shortly in Sialkot. Similarly, a Sports Industries Development Centre, Product Development Centre for Composite, and Sialkot Business and Commerce Centre have also been initiated by Smeda in Sialkot to facilitate the local industry, he added.

Business Recorder [Pakistan's First Financial Daily]

 

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Encouraging mergers in textile industry​

Size matters. If it didn’t, State Bank Governor Dr Shamshad Akhtar wouldn’t push the textile industry into seeking consolidation of the entire chain through mergers and acquisitions in order to face effectively tough global trading environment.

“The industry should gear itself to deal with the increasingly tough competition in the international market,” she told the textile millers during her address at the All Pakistan Textile Mills Association (Aptma) head-office in Karachi earlier this month.

She was reported to have advised the textile barons “I request you people to seriously look into the consolidation of the sector as international and regional competitive pressures are going to further build up, and it would be larger companies that are more likely to survive,” Dr Shamshad said.

She was of the view that the textile sector should endeavour to achieve economies of scale. “With size comes everything,” she maintained. “Small-sized enterprises could also benefit by contributing to large-scale export units,” she said.

Why so much emphasis on consolidation of the textile chain? The global textile trade has surged very quickly since the quotas were scrapped in January 2005 under the liberalised World Trade Organisation (WTO) trade regime. The world trade in textiles and clothing spiked to $530 billion in 2006 from $483 billion in 2005.

With a strong textile industry supported by locally produced cotton, Pakistan was viewed across the world as one of the few countries that stood to gain maximum advantage from the phasing out of the textile and clothing quotas. But it did not happen. Pakistan’s share in the global textile and clothing trade remains below three per cent. That is in spite of over $5 billion invested in the basic and value-added sectors since 2002.

The industry blames the inconsistent government policy, poor country perception of Pakistan in the international market because of runaway blasts and suicide attacks (and what not), and the soaring cost of production on the back of rising utility, especially energy prices, credit cost for the failure of the industry to take as much advantage of the removal of the quotas as was expected of it.

On the other hand, the government blames that the textile industry had failed to increase its share in the world textile and clothing trade because of its inefficiencies and smaller size of units, particularly in the value-added sub-sectors. Hence, it has long been urging the industry to move towards consolidation in all sub-sectors in order to create volumes, curb inefficiencies and reduce cost of doing business to become competitive in the global markets.

To encourage mergers and acquisitions in the textile industry, the Shaukat Aziz-led government had decided in March last year on a recommendation of the Planning Commission of Pakistan to allow a 15 per tax credit to buyers of smaller, loss-making units. The commission had floated the idea that the profit-making companies acquiring loss-making units should get a 15 per cent tax incentive on its profits to encourage consolidation in the industry.

Further, it had suggested that the profit-making company should be allowed to indicate the losses of the acquired unit on its balance-sheet. Nothing has so far been done on these recommendations either, said the industry.

“We have done our bit. It is now for the industry to realise that it cannot and should not keep looking towards the government to protect it from competition in the new tough international environment,” a senior federal finance ministry official in Islamabad told me several weeks ago.

While most textile leaders agree with the government to the extent of consolidating the industry, they do not buy the idea that the industry itself is or was responsible for the current impasse. “Is it our failure that foreign buyers are not prepared to deal with us because of political instability and deteriorating law and order? Is it our fault that we do not get power or gas to run our plants because of energy shortages in the country? Is it our fault that our costs have spiralled over the last few years? Is it not the failure of our foreign policy that we have been denied market access in spite of Islamabad’s leading part in the war on terror?,” a leading yarn and clothing exporter asked.

“None of these factors are in the control of businessmen. This is the result of ad hoc industrial policies of the previous government, which continued to refuse to give us what we need to stay afloat and compete with our regional competitors like China, India, and Bangladesh. The fact that we are still working and haven’t closed down despite a hostile domestic and global business environment should be acknowledged,” he said.

The industry is full of those supporting and opposing consolidation. “We agree that consolidation is crucial to create volumes needed to secure good export orders,” said Aptma-Punjab chairman Akber Sheikh. “But the authorities should help us consolidate by giving an exit strategy. While the central bank should instruct the banks to stop invoking personal guarantees against the directors/sponsors of loss-making units to prepare such units for acquisitions and mergers, the government must give fiscal incentives as proposed by the Planning Commission of Pakistan to prepare the ground for mergers and acquisitions.”

He said the government must ensure that the fiscal incentives were strong enough for a bigger company to acquire a loss-incurring mill. “Unless it is done, the consolidation of the industry will not occur.”

He said, the “provision of fiscal incentives for consolidation would prevent closure of manufacturing capacities, create volumes, reduce intra-industry competition, boost efficiencies and improve marketing and product development. The smaller units cannot do all these things. Unless we achieve consolidation, we should forget competing effectively in the global markets.”

All Pakistan Textile Association (Apta) Aptma, chairman Adil Mahmood is opposed to idea of consolidation of the industry. “It is simply not possible in the given circumstances, especially in the spinning sector. The textile industry has become unviable. It is absurd to talk about consolidation at this moment,” he said.

He said most of the smaller units were making huge losses. “Even if a profit-making group acquires loss-making unit(s), it will not be feasible for the former to move the machinery to the same premises in order to reduce the costs because of the extremely high prices of land and construction. Unless you move the machinery to the same premises, how can you reduce the costs?,” he wondered.

“The best solution to the current impasse in the industry lies in allowing the millers a respectable exit from the business or in writing off their debts as was done under a scheme given by the central bank a few years back to clean up the balance-sheets of the banks,” he demanded.

Is what Adil says really a solution to the industry’s problems? That may be so, but only partially and for a limited period. The best policy would be to encourage efficient and profit-making mills buy out the loss-making and smaller units to create economies of scale. For that, the government and the central bank must work together to hand out an attractive incentive package to the industry.

Encouraging mergers in textile industry -DAWN - Business; February 25, 2008

 

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Foreign capital: a boon or bane?​

Foreign capital plays a crucial role in the current performance by impacting the vital sectors of balance of payments, fiscal position of federal government and national saving\investment.

The following table indicates important elements in the recent balance of payments. The most striking feature is current account deficit, which is more than financed by a surplus on capital account thus adding to the foreign exchange reserves to make them comfortable in an otherwise difficult situation.

External resources have been a significant source of financing the budget. At Rs200 billion, they financed 53 per cent of the consolidated (federal plus provincial governments) deficit during FY 07.

They have also been a big help in meeting saving\investment gap in the country. During FY 07, net external resources are provisionally estimated to have provided five per cent of GDP as against the ratio of 23 per cent for gross total investment .

Foreign capital has certainly been a boon in the short- run as it more than met the deficit in current account of balance of payments, fiscal deficit and saving \investment gap. However, this is not an unmixed blessing since it involves cost to the economy. Foreign capital may be by way of external grants or loans and foreign investment. Foreign grants are few and generally for exceptional purposes. Foreign loans carry liability of repayment of principal on the agreed date and interest is payable regularly at the pre-determined rate according to the schedule.

Outstanding external debt, despite large write- off after 9\11, rose from $33.3 billion in FY03 to $38.7 billion in FY07 and $40.3 billion as of end September 07. Public and Publicly-Guaranteed Debt increased from $29.2 billion to $35.3 billion and $36.8 billion respectively over this period.

Foreign investment differs from external loans in that the amount invested, along with capital appreciation, if any, can be totally taken out at will and the rate of profit\dividend, to be freely remitted, is not pre-determined., This source of capital has assumed increasing importance in recent years and brought in $ 8.3 billion (net) during FY07 as against $4.4 billion in the preceding year. Of this, foreign direct investment (FDI) accounted for $ 5.1 billion, the balance being portfolio investment (FI). An important component of FDI, equity capital almost doubled from $2.9 billion to $4.2 billion, of which privatisation proceeds were $266 million (as against $1.5 billion a year earlier).

As regards the sectoral distribution of FDI, the major share was that of communication, 37.9, (telecommunication, 35.6 per cent); financial business, 18.7 percent; oil and gas exploration, 10.6; tobacco and cigarettes, 7.6; power, 3.8 and others, 22.8 per cent. Significant changes in the shares over the year were that while the share of telecommunication dropped from 54.1 per cent, that of financial business nearly doubled from 9.3 and tobacco and cigarettes shot up from 0.1 per cent.

Net inflow of foreign investment during July December 07 was $2.2 billion as against $3.2 billion in the corresponding period last year. During these periods, while foreign private investment was $2.2 billion as against $2.5 billion, foreign public investment was negative by $ 23 million in contrast to $ 691 million earlier.

Important components of PI in FY07 were equity securities, $2.3 billion, ($986 million a year earlier), reflecting mainly the issue of GDRs by the government for OGDC and UBL and by a private bank. This included investment at the stock market, which accounted for $862 million, up from $351 million in the preceding year. Debt securities brought in $977 million as against $613 million a year earlier. This included euro bonds worth $ 820 million, up from $796 million.

During July Dec. 07, PI declined from $1.3 billion in the same period of FY06 to $103 million. Of this, private investment fell from $620 million to $126 million, whereas public investment was converted from $691 million to a negative figure of $22 million.

Foreign capital entails a price by way of serving it. Repayment of principal of loans apart, interest on loans and profit and dividend on investment have to be paid regularly. This is shown under income account. The deficit in this account increased from $ 2.7 billion in FY06 to $3.6 billion, or by 33.8 per cent. During July December 07, this was $1.9 billion as against $1.8 billion in the same period last year.

The payment of interest on foreign loans (net), despite the post 9\11 rescheduling and remission of loans and interest earned on foreign exchange reserves, was $884 million in FY07 as against $749 billion an year earlier. while profit/dividend remitted was $804 million as against $504 last year. IMF charges and interest on official debt were $735 million in FY07 as against $664 million a year earlier. Profit and dividend on PI shot up from $ 88 million to as much as $ 266 million over the year. Profit remitted (net) abroad by financial business, mostly banks, was a major factor, as this went up from $84 million in FY05 to $127 million in FY06 and were $116 million in FY07.

During July December 07, interest payments were $1.1 billion against as $645 million a year earlier while repatriation of profit and dividend was $300 million as compared with $247 million earlier. Financial business accounted for $43 million, up from just $15 million.

Foreign capital has important long- term implications depending on the fact whether it supplements national effort or serves as a substitute for it and the nature of its actual use. It is welcome, if it supplements national effort and is used to enhance the productive capacity of the economy to the point where it more than pays for itself leaving a surplus to benefit the economy and improves the lot of the common man significantly. In case of Pakistan this criterion is not met and this is manifested in very low saving\investment ratio and the gap, increasing reliance on it for meeting the current deficit of balance of payments and heavy dependence of budget on this source of financing.

The magnitude of future external liabilities would not be that serious if the foreign capital paid for itself, if not more, through adequate growth of the economy through enhanced productive capacity, particularly of the real sector, and its effective utilisation to impact the external sector. There is not much to show in this regard. The structural weakness of the growth process has persisted for a long time and has not been addressed effectively. The latest report of ADB has highlighted the unproductive use of its loans. The current serous domestic economic crisis is its practical manifestation.

The cost of servicing foreign capital is to increase significantly in the near future. Prospects of maintaining the old level of foreign capital are becoming dim. There is not much “family silver” left to be sold to foreigners, the external debt rescheduled earlier would soon mature, and the benign international environment created for Pakistan by 9\1 1 is likely to change. There are already enough straws in the wind .

Dependence on foreign capital cannot be reduced without self reliance through increased national saving anchored in domestic saving. The government is actively pursuing anti- saving policies in pursuance of a strategy of consumption-led growth, As a result, the rate of domestic saving has declined, despite the higher propensity to save due to economic growth accompanied by concentration of income and wealth and increased inflow of workers’ remittances. The ratio of domestic saving to GDP (MP) had fallen from 17.4 in FY 03 to 15.2 per cent in FY06 and is provisionally estimated at 15.1 per cent for FY 09. Household saving dropped from 16.8 to 12.4 and was 13.3 per cent respectively over these periods.

The boon of foreign capital is likely to become a bane unless there is a drastic change in economic policies. The strategy of consumption-driven growth has proved inappropriate and must be replaced by investment-driven growth. This is necessary to generate adequate surplus of tradable goods and services, which may be sold in an intensely competitive international markets.

Foreign capital: a boon or bane? -DAWN - Business; February 25, 2008

 

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Sliding growth in industry, exports​

THE industrial growth has slowed down to an average 6.9 per cent in the first five months of the current fiscal against annual projected target of 10.5 per cent, plummeting to a meagre 4.74 per cent in November. The figures for December and January have not been compiled as yet, but the worst energy crisis and strikes have dampened the chances of an accelerated growth in the last two months.

The industrial growth has gone down over the last three years to 8.8 per cent in 2006-07 from 19.9 per cent in 2004-05 owing to capacity constraints and closure of many units as a result of high cost of doing business. And not much capacity expansion has been witnessed during the last eight years.

The slower industrial growth has also affected the export proceeds; there are no trade surpluses and achieving the export target of $19.2 billion by end June 2008 is pretty difficult. On the other hand, the import bill will cross the figure of $35 billion this year.

The import of commodities at $20.48 billion during July-January is up by 18.9 per cent from $17.224 billion, while exports have grown by 5.95 per cent to $10.152 billion against $9.582 billion last year.

In seven months, trade deficit has surged by 35.15 per cent to $10.327 billion against $7.641 billion over the same period last year. Economists estimate that the trade deficit would easily cross the highest ever $15 billion mark.

Analysts said the steady dip in growth would also affect its industries’ contribution to the GDP, which would make it difficult for the economic managers to achieve the GDP growth rate target. The GDP rate of growth is worked out in May. It would be very difficult for growth to recover in the next three months to reach closer to the target.

As there is no effective industrial policy in the country except some product-specific policies, industries vulnerable to cheaper imports may close down. And also there is no effective policy or facilities for encouraging small industries to diversify the narrow industrial base or to encourage regional development. The China and East Asian economies heavily relied on small industries development for economic growth.

A draft industrial policy was announced by former minister for industries Jahangir Khan Tareen, only to be put in a cold storage. The ministry is looking after the interests of highly protected auto manufacturers and some othe industries catering to domestic consumers. The industries-specific policies only protect profit margins of special interest.

An analytical report of Asian Development Bank (ADB) — a note on Competitiveness and Structural Transformation in Pakistan- advises the policymakers to develop a new industrial policy, which should ensure ‘strategic collaboration’ between public and private sectors with a view to effectively compete in the international export market.

This strategic collaboration between the two sectors, the bank believes, is an important tool to increase exports and achieve the objectives of higher productivity. The share of the “ top 10” in total exports has decreased significantly in the last two decades, though highly concentrated in textiles.

The weighted average of the per capita GDP of the countries importing Pakistan’s “top 10” category has declined significantly indicating that the country is stuck in exports. And the income level of Pakistan’s exports is at the same level it was two decades ago.

The ADB report also said that Pakistan‘s structural transformation had been slower than those of other Asian countries. The bank called for sector-specific reforms to foster competition and transform the economy. This requires a dose of good public policy as the market alone will not be able do it.

Pakistan is a service economy from the point of view of its output structure, but an agricultural economy from the point of view of its employment structure. Intra-sectoral labour productivity growth has contributed substantially more than reallocation of labour from agriculture into the other two sectors to overall labour productivity growth.

The latter factor, in fact, plays a minor role accounting for overall labour productivity growth. Reallocation of labour from agriculture into services has been much more important than from agriculture into industry.

Pakistan, the bank report said, suffered from falling labour absorption as the absorption capacity of the service sector is not enough to compensate the falling capacity of agriculture and the stagnation of industry.

Although Pakistan’s manufacturing share is not low, given its income per capita, trade ratio in GDP, and population, the share of this sector in total output has been stagnant since the 1970s. This contrasts with what has occurred in Indonesia, Malaysia, and Thailand, for example, which have seen their shares increase.

The manufacturing sector, it said, was heavily concentrated in food and beverages and textiles. Together, they account for close to half of the sector’s value-addition. The level of technology of Pakistan’s manufacturing sector is relatively low compared to that of other countries in Asia.

Moreover, the share of manufacturing value-added accounted for by high-technology products is low and has remained stagnant during the last 40 years. Pakistan’s level of labour productivity has increased very slowly since the 1970s. There is still plenty of room for catch-up with the developed world.

Sliding growth in industry, exports -DAWN - Business; February 25, 2008

 

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Productivity and competitiveness​

BUSINESS excellence has been identified as one of the pre-requisites for sustainable economic growth. It is by increasing productivity and quality through creativity and innovation that daunting global challenges can be overcome.

To improve the level of productivity, the textile industry has invested $5 billion over last five years. And while the manufacturing sector has witnessed robust growth, the sector needs to be consolidated by resolving structural problems.

There is a dire need for linking growth with productivity as an essential factor for sustaining the competitiveness of the industries with comparative global advantage. This requires rise in productivity at a rate higher than that in the competing countries. During 1992-2006, the overall labour productivity grew at a modest rate of 1.7 per cent which is quite low as compared to India’s 5.25 per cent, Korea’s 4.86 per cent, Malaysia’s 4.36 per cent, China’s 4.15 per cent, Sri Lanka’s 2.54 per cent and Bangladesh’s 1.52 per cent.

However, the labour productivity growth of the manufacturing sector in Pakistan was 2.32 per cent, which is higher than that of Bangladesh’s 2.05 per cent and India’s 1.75 per cent, but lower than that of countries, such as Sri Lanka, Taiwan and Korea due to better application of training tools and capacity building of their labour force.

Labour output is only a partial measure of productivity. The total factors of production (TFP) i.e. capital, land and entrepreneurial ability is lower than our competitors. While during 1964-65 to 1969-70 and 1980-81 to 1990-91, the total factor productivity was 4.26 per cent and 5.38 per cent respectively, in the last decade the TFP declined to 1.7 per cent, and in the first half of the current decade was 2.15 per cent.

The factors responsible for low level of industrial production, impeding productivity and competitiveness can be summed up as: lack of industrial diversification, stagnant regulatory framework, weaker infrastructure, high tariff rates, inefficient information and communication technology, lack of research and development (R&D)facilities, lack of advancements in science and technology, limited technological choices, inadequate human resource development, absence of visionary approach and non-conducive business climate. As a result of these weaknesses, business and industry could not attain the required productivity to remain competitive in our local and foreign markets.

A typical businessman, on an average, loses 5.6 per cent of annual output due to power outages as compared with less than two per cent in China. In order to minimise loss of time caused by power failure, firms are often forced to use their own generators. The use of generators ties up capital of about 12 per cent of a firm’s fixed assets. The average waiting period for a business to obtain power connection is 45 days in Pakistan as against only 15 days in China. In addition to this, about 70 per cent of the national road network is in “fair to poor” condition.

The unsatisfactory state of the transportation network has imposed enormous costs on the business and the economy. According to a recent estimate, inefficiency in transport alone is reckoned to cost the economy Rs320 billion per year. Poor performance has also been witnessed in terms of human resource development. The budgetary allocations for education, health and research and development are negligibly low than those incurred by the competitors. Pakistan allocated only 1.6 per cent of GDP on education, 0.7 per cent on health and 0.2 per cent on R&D which has resulted in low levels of productivity in total factor productivity.

The government can play an important role in enabling the domestic firms to compete in the world market by facilitating technological upgradation based on three basic elements i.e. production, investment and innovation capability.

The country’s technological base needs to be strengthened by encouraging research and development at the firm level through incentives. More funds may be provided for quality studies in science and technology if the share of manufacturing sector is to be raised from 18 per cent in 2004-05 to 20.5 per cent in 2009-10 as envisaged under the industrial strategy.

To diversify the industrial base, it is necessary to encourage investment in new industries that are capable of exploring comparative advantage, exhibiting strong backward linkages for better growth prospects. The industrial diversification policies need to be designed in close consultation with the private sector. Targeted intervention by the government along with the sound public-private partnership can be fostering a wide range of new industries. Instead of focusing on textile manufacturing, the attention should also be given on other export-oriented industries such as leather, light engineering, customs-build fabrication, minerals, wooden furniture, processing of precious and semi-precious stones, agro-industries etc.

Efficient infrastructure is a pre-requisite for industrial development. High quality infrastructure reduces the transactions costs of doing business and improving productive efficiency. Abundant hydro-electricity potential remains un-tapped owing to inadequate allocation of resources to the development of hydro-power. As thermal power is costly, investment in the hydropower generation is essential for ensuring cheaper electricity to industries. Similarly, by improving the condition of roads, railway tracks and airports, productivity level can be increased to manufacture products on competitive rates.

Human resource development through education and health is considered to be a key determinant of productivity. Pakistan ranks at 136th position in Human Development Index -- below all the South Asian nations. More specifically, quality of scientific manpower produced in the educational institutions is poor and skills imparted in various poly-technical and vocational institutions are not demand-driven. The productivity of various industries is adversely affected due to lack of skilled workers and some of the industries are not set up because of lack of requisite skilled workers. In order to build a sound and diversified production structure in the industrial sector, high priority must be accorded to human resource development.

Due to non-linkage of academia with industry, the graduates are unaware of practical realities that they face when the step into the professional arena. To bridge this gap, there is a desperate need to establish linkage of academia with the industry.

Textiles with its 62 per cent share in total exports and eight per cent share in GDP is the single largest industrial sub-sector but needs technological up-gradation for innovation and creativity to improve value-addition and increase productivity and remain competitive in the global market.

There is an earnest need for strengthening the drivers of productivity such as investment, innovation, skills, enterprise and competition to obtain the desired level of competency. For attracting foreign direct investment (FDI), the government will have to ensure conducive and viable environment for industries, as mere liberalised investment policy cannot work alone. The skill, enterprise and competition can be derived through allocating sufficient budget for R&D activities and human resources development and by providing incentives to the private sector.

There is also the need for reinforcing the engineering industry so that it can provide primary material and components to strengthen the high- tech industry which will ensure the higher level of productivity.

Productivity and competitiveness -DAWN - Business; February 25, 2008

 

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Net foreign investment declines by 34.9pc ​

Tuesday, February 26, 2008

KARACHI: Net foreign investment decreased by 34.9 per cent during the first seven month of current fiscal year. The latest statistics of State Bank of Pakistan (SBP) showed during July-January 2007-08 the total foreign investment recorded $2,262.7 million which was $3,478.4 million in the same period of the last fiscal year.

SBP figures depicted that foreign investors dragged out almost 100 per cent investment from local stock exchanges during first seven month of FY08 which shrank to $0.4 million against $1,382.4 million in the same period of last fiscal year. However, from July-January 2007-08 Foreign Direct Investment (FDI) surged by 7.9 per cent to $2,262.4 million against $2,096 million in matching period of last fiscal year.

During July-January 2007-08 total foreign private investment including privatization proceeds dropped by 19.8 per cent to $2,241.2 million against $2,793.4 million in the corresponding period of last fiscal year.

In first seven month of FY08 the overall foreign direct investment from developed countries including Western Europe, European Union, Luxembourg, Denmark, France, Germany, Netherlands, Sweden, UK, Other Western Europe, Norway, Switzerland, North America, Canada, USA, Australia and Japan recorded 11.7 per cent rise to $1,488 million against $1,332.1 million in the identical period of FY07.

Whereas during this period portfolio investment for developed countries recorded decline of 77.6 per cent to $137.1 million as compared to $613 million of last fiscal year. Foreign direct investment from developing economies including Caribbean Islands, Libya, Egypt, Mauritius, South Africa, Oman, Iran, Kuwait, Bahrain, Qatar, Saudi Arabia, Turkey, UAE, Bangladesh, China, Hong Kong, Malaysia, Singapore, India, South Korea, etc. rose by 18.8 per cent to $612.8 million against 515.9 million of FY07.

In addition, during July-January 2007-08 the portfolio investment from developing economies recorded a negative -294.3 percent to $162.3 million which stood at $83.5 million during the first seven months of fiscal year 2006-07.

The sector wise break-up foreign private direct investment showed that during July-January 2007-08 in terms of volume the highest investment was attracted by telecom sector which stood around $750.3 million against $546.4 million in same period of last fiscal year followed by Oil & Gas Exploration sector which brought about foreign direct investment worth $366.5 million against $329.9 million in similar period of last fiscal year.

However the cement sector was on the top with increase of 504.9 per cent but the volume of foreign investment in cement sector recorded only $82.9 million followed by social services with increase of 388.9 per cent and quantum of FDI in social services was only $11.2 million.

Food sector was also another major sector where FDI increased by 86.4 per cent to $15.7 million against $8.4 million in corresponding period of FY07, whereas FDI in transport sector surged by 114.1 per cent to $60.4 million against $28.2 million of last fiscal year.

Contrary to this in financial business the foreign direct investment declined by 28.6 per cent to $395.1 million against $53.6 million of last fiscal, in power sector investment dropped by 64.8 per cent to 36.1 million which was recorded $102.4 million during July-January 2006-07.

Net foreign investment declines by 34.9pc

 

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Economists for suspending development work ​

Tuesday, February 26, 2008

LAHORE: The economists have advised the next democratic set-up that in order to keep budget deficit within manageable limits they would have to suspend all development projects in the fourth quarter of 2007-08.

They point out that the spending spree of the previous government and the caretakers has left little room for the upcoming government to correct budgetary imbalances even if they take the harshest measures. Morally, it was the responsibility of the previous government to manage the economy according to the budget they got approved from parliament.

The new government would probably assume power just before the start of the April-June quarter. It would be a great handicap if the new regime presents next budget with a very high deficit from the previous year and the best way would be to save Rs250 to Rs260 billion from the current budget to keep the gap within budgetary targets, they say.

This, they add, would also give time to economic managers to evaluate some of the ongoing development projects and the capacity of institutions to absorb the huge development allocations that were announced in the budget for 2007-08. They point out that a large amount from the previous budget was not actually utilised due to low absorption capacity of the institutions but the amount was transferred to the project account. The same thing may happen this year.

A low absorption capacity invariably leads to higher wastages either due to incompetence or corruption. The economists say Pakistan’s economy is manageable if prudent policies are adopted. The new government would have to increase the governance levels that ensure more development work even with reduced funds.

Currently, the transparency level in Pakistan is only 23 per cent. In other words, for every Rs100 spent by the government, average utilisation is expected to be Rs23 and the rest is wasted either due to incompetence or corruption.

They say all the pressure borne by the economy during the first eight months of the current fiscal year was due to mismanagement both at the administrative and political levels. The increase in the trade deficit was partly due to rise in global crude oil rates, a major chunk was due to inability of the state to control mis-declaration and under-invoicing.

Wheat import has also significantly increased the trade gap which, the economists say, could have been controlled had the hoarders been nabbed immediately after the commodity’s harvest. The hoarded wheat was mostly smuggled, causing shortage in the domestic market.

They regret that subsidy under the petroleum head has already crossed Rs100 billion, which has been financed through additional borrowing. The higher petroleum products’ rates, they suggest, should have been gradually passed on to the consumers.

They say the explanation that freezing of petroleum products’ prices have kept a check on inflation is said to be flawed. Had the governance been ideal, there would have been no pressure on what rates.

Moreover, a prudent marketing mechanism that eliminates middleman could have kept the vegetable and fruit price in check. Sugar prices in the country remained much above global levels as the government did not have the political will to annoy the strong and influential sugar lobby.

The economists point out that had the prices of commodities been controlled through best management practices, the impact of increased petroleum rates on inflation would have been much lower than the current inflation rate.

Besides these, the prices of edible oil have been beyond the control of the government as the country is dependent of imported oil. The rates of edible oil have risen to peak in the international market.

Economists for suspending development work

 

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MoUs signed to attract investment in horticulture ​

Tuesday, February 26, 2008

ISLAMABAD: The government has planned to attract investment and facilitate investors in the horticulture sector, which is one of the potential sectors having enormous capacity to enhance the country’s exports and boost its economy.

In this regard, the Board of Investment (BoI) on Monday signed two memoranda of understanding (MoUs) with the Small & Medium Enterprises Development Authority (SMEDA) and Punjab Agri-Marketing Company (PAMCO) aimed at extending support and cooperation in terms of facilitating investors in the sector.

Horticulture, which is the art of cultivating fruits, vegetables, flowers or ornamental plants, needs financing which could support private sector activities. The signing ceremony was presided over by Privatisation & Investment Minister Shahzada Alam Monnoo, while Industries & Special Initiatives Secretary Shahab Khawaja, Investment Division & BoI Acting Secretary Major (Retd) Iqbal Ahmad, Punjab Agri-Marketing Company (PAMCO) CEO Shahid Rashid, SMEDA CEO and other government officials were also present.

Shahzada Alam, addressing the participants of the meeting, acknowledged the importance of such MoUs as they serve as a critical force of liaison for public-private partnerships and are also a source of rich dividend to the country in future.

The MoU between the BoI and PAMCO is intended to facilitate and develop internal expertise and products for horticulture financing so as to encourage farmers to adopt modern and efficient horticulture farming techniques.

MoUs signed to attract investment in horticulture

 

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Industrial growth slows down to 4.46 percent​

KARACHI: Industrial growth slowed down to an average of 4.46 percent in the first half of current financial year, which has been worst performance of manufacturing sector in the recent years.

It was even worst in the month of December alone when it registered negative growth compared to same month of previous year, which analysts attributed to energy crisis and instability on the political front.

The latest official data, released on Monday, showed that the industrial production in the entire manufacturing group posted decline in month of December, which plunged the overall growth of industrial sector badly during the first half of 2007-08.

The Large Scale Manufacturing (LSM) index is based on the latest production data of 100 items provided by Oil Companies Advisory Committee (OCAC), Ministry of Industries & Production and provincial Bureau of Statistics (BoS).

The breakup of data shows that OCAC index registered growth of 6.15 percent during the first six months of this fiscal year followed by ministry of industries index that grew by 4.27 percent whereas provincial BoS index registered 4.49 percent growth over the same months of last year.

On the other hand, for the month of December, OCAC, Ministry of Industries and Provincial BoS indexes declined by 2.81, 5.74 and 1.25 percent respectively over the corresponding months of last year.

The industrial growth has seen major decline in the last three years as it has plummeted to 8.8 percent in 2006-07 from 19.9 percent in the 2004-05 in the wake of rising costs of production, which led to closure of many industrial units especially in textile sector as well as slowing of new investment.

Analysts said that apart from many other issues confronting the industrial sector December’s negative growth in industrial production was caused by long holidays of Eid followed by violence and chaos, triggered by assassination of Benzair Bhutto.

Analysts said the declining trend in the industrial production would have negative implications for the GDP of the country and it is likely that if the current trend continued, the GDP target for the current fiscal year cannot be achieved.

This slowdown in the production also caused dent in the country’s export sector, which is leading towards record trade deficit during the current financial year.

In petroleum production sector, kerosene oil production went up by 1.65 percent, motor spirits 7 percent, high speed diesel 13.17 percent, furnace oil 8.92 percent, lubricating oil 1.59 percent, jute batching oil 15.08 percent, and solvent naphtha 9.36 percent in the first half of this fiscal year.

Whereas Jet fuel oil production dipped by 12.68 percent, diesel oil down by 11.29 percent and LPG by 2.97 percent.

In Ministry of Industries Index, the production of cement was up by 20.62 percent, cigarettes 5.13 percent, cotton yarn 4.39 percent, cotton cloth 1.63 percent, jute goods 15.57 percent, soda ash 15.33 percent, caustic soda 7.58 percent, Nit Fertilizers 2.71 percent, cement 18.21 percent, buses 15.15 percent, Light Carrier Vehicles (LCVs) 16.96 percent and motor cycles 25.20 percent.

On the other hand, production of paper & board declined by 10.40 percent, glass plates & sheets 8.89 percent, steel products 7.25 percent, tractors almost one percent, trucks 21.10 percent, jeeps & cars 4.04 percent.

In the index of provincial bureau of statistics, in July-December period, cooking oil production was up by 0.10 percent, starch and its products by 1.13 percent, beverages 41.22 percent, footwear by 1.78 percent, TV sets 22.67 percent, bicycles 3.44 percent etc.

Whereas the production of vegetable ghee declined by 3.30 percent along with some other items which registered decline in production.

Daily Times - Leading News Resource of Pakistan

 

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Russia keen to expand economic ties with Pakistan​

ISLAMABAD: Russia is keen to expand economic, political and bilateral ties with Pakistan and is encouraging its entrepreneurs to launch more projects in Pakistan, said Sergy N Peskov, Russian Ambassador to Pakistan here on Monday.

In a meeting with the Prime Minister, Mohammadmian Soomro, Russian Ambassador appreciated the investment friendly polices and said that Pakistan has good prospects for foreign investment in a host of areas.

Caretaker Prime Minister said that Pakistan attaches great importance to its multifaceted relationship with Russia and wants to further strengthen the existing diplomatic, political and economic ties besides expanding cooperation in a broad spectrum of areas including trade, investment, education, energy, space science and oil and gas exploration.

Daily Times - Leading News Resource of Pakistan

 

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‘Agreement on IPI project to be signed in March’​

ISLAMABAD: Federal Secretary for Ministry of Petroleum and Natural Resources Farrukh Qayyum said on Monday that formal agreement on Iran-Pakistan-India (IPI) gas pipeline is likely to be signed between Pakistan and Iran in next month and the gas supply would begin by September 2012.

The technical details are being worked out with Iranian officials, he briefed the senate’s Standing Committee on Petroleum and Natural Resources, which met at Parliament House under the chairmanship of senator Syed Dilawar Abbas.

Under this agreement, he said, Iran would supply 2.10 billion cubic feet of natural gas to Pakistan on daily basis for a period of 25 years with delivery point pressure of 798 PSI.

The senate body directed the ministry to complete its homework and particularly to intensify efforts for land acquisition, which appears to be a contentious issue.

It also directed that contours and alignments be marked to complete the gigantic project on time.

The committee commended the IPI gas pipeline project and called upon the government to make sure that it must be implemented within the stipulated time frame, as the supply-demand situation would worsen further in the coming years.

The senate body observed that the present growth momentum in the economy cannot be sustained without continuous and reliable supply of energy principally oil and gas, therefore, strenuous efforts be made to enhance and expand the scope of exploratory activities for ensuring energy security in the country.

Terming the energy as key to development, the Senate body strongly recommended that apart from stepping up the conventional exploratory activities, the country should diversify its sources and go aggressively after acquiring LNG to improve the present situation.

In this connection, the Committee lauded the Mashal LNG Project being pursued by the government terming it as a useful one, which ought to be strengthened. The country has witnessed unprecedented gas load-shedding/management in winter this year not only for the industrial but also for domestic consumers.

The committee members said that better load management and more meticulous planning is needed to improve the supply situation during the winter season as the common perception being that poor people are made to bear the brunt of severe winter due to the inefficiency and lack of proper planning.

The committee also directed both the gas distribution companies, SNGPL and SSGPL, to cut their line losses and pilferage of gas, which presently stands at 3 percent. It observed that this ratio is high as compared to the international standards.

Senator Muhammad Ismail Buledi drew the attention of the chairman that the province of Balochistan is not being given its due share in the senior-grade employees of PPL and SNGPL, which is giving rise to heart burning of the local people. However, the management clarified that appointments at senior level are made strictly on merit and as such there is no quota.

Earlier, PPL MD briefed the committee about the province and grade wise breakup of the company employees and company’s present and future exploration, drilling and production activities.

And managing directors of both SSGPL SNGPL briefed the committee about the present availability of gas and future planning of the companies to supply gas in their coverage areas including allocation of gas to industries, commercial and domestic consumers.

The meeting was attended among others by Senators Mir Muhammad Naseer Mengal, Haroon Khan, Seed Ahmed Hashmi, Mrs Rukhsana Zuberi, Dr Muhammad Ismail Buledi, Shahid Hassan Bugti, Mir Mohabat Khan Marri and Muhammad Talha Mahmood besides senior officials of the ministry, MDs of SSGPL, SNGPL and PPL.

Daily Times - Leading News Resource of Pakistan

 

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Refinancing for first quarter of 2007-08: SBP tells banks to refund fines to exporters ​

KARACHI (February 26 2008): The State Bank of Pakistan on Monday asked banks to refund fines to exporters imposed on commercial banks for availing refinancing facilities without valid limits.

The SBP has decided to refund fines totalling Rs 2.354 million for availing refinancing facilities under the defunct scheme of Long Term Financing for Export-Oriented Projects (LTF-EOP) without valid limits in the first quarter (July-September) of the current fiscal year (2007-08). It also asked the banks to refund these fines to the respective exporters.

No limits were sanctioned under LTF-EOP for 2007-08 for the import of plant and machinery and the scheme was withdrawn in October last year. Subsequently, banks/DFIs were allowed to avail refinance facility against Letter of Credits (L/Cs) opened by banks during 2006-07 and retired/or to be retired after 30th June, 2007.

However, due to some misunderstanding, banks inadvertently released refinance to their various clients without valid limits. Banks/DFIs had approached the State Bank for refund of fines saying that the SBP instructions were not violated intentionally but were misunderstood.

In view of the above, the State Bank has now decided to refund the fines recovered from banks. The State Bank has also asked the banks to ensure that the fines refunded to them by it (SBP) should be passed on to the respective exporters.

Business Recorder [Pakistan's First Financial Daily]

 

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$20 billion effluent plants plan in limbo ​

KARACHI (February 26 2008): The federal government's Rs $20 billion plan to set up effluent treatment plants in five industrial areas of Karachi has been in limbo last three and half years.

Sources at Sindh Environment and Alternate Energy Department informed Business Recorder here on Monday that the project could not be initiated so far mainly because of the grave concerns over the project, raised by different stakeholders.

However, neither the industrial sector nor the government had tried seriously to resolve the matter via dialogue thus putting the project in cold storage, sources maintained. The plan of setting up five ETPs in industrial areas of Karachi including Korangi, Landhi, F.B Area and New Karachi industrial areas was prepared in late 2004 by the Federal Ministry of Industries.

The basic objective of establishing the plants was to ensure discharge of treated sewerage water into the sea to prevent marine and land environmental degradation in the coastal areas of Karachi. But, the delay in the project is posing threat not only to the marine life, but also the lives of the people living along the coastline due to discharge of untreated chemical wastes of hundreds of factories of the city into the sea.

Sources revealed that most of the reservations of the stakeholders cover the matter of the supervising authority of the plants, as none was named in the prototype model of the project, prepared by a reputable Scandinavian firm.

"In the project, no stakeholder including federal government, city government or private sector was named to run the project, therefore, none of the stakeholder expressed interest in contributing to the project," a provincial government official said.

Meanwhile, the industrial circles blamed the bureaucratic tactics of the government officials for the delay in establishment of ETPs, fearing that the aim of the project could not be achieved if it was owned or run by the government.

Opposing the idea that government should run the project, a renowned industrialist requesting anonymity, said that the industrialists' organisations have already suggested that an independent consortium should be constituted to oversee construction of treatment plants as well as its running.

"All stakeholders including trade persons, federal, provincial and city government and others should be taken onboard in the consortium, which should have full autonomy to run its business," he maintained. He said that the failing in the establishment of the ETPs could harm the exports of the industrial units, as according to the WTO charter, all factories would have to undergo annual environmental auditing in order to continue their exports.

He revealed that the local exporters were facing immense pressure by foreign buyers from many of the European countries to set up sewerage treatment plants to comply with standard set by European Union regarding environment protection.

Business Recorder [Pakistan's First Financial Daily]

 

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LSM posts 4.46 percent growth during July-December 2007: 12.5 percent target likely to be missed ​

ISLAMABAD (February 26 2008): Large Scale Manufacturing (LSM) has registered a dismal growth of 4.46 per cent during July-December 2007-08 against 12. 5 per cent projected target for the year.

The industry and Federal Bureau of Statistics (FBS) that collected and released the data Monday on Quantum Index Numbers for Large Scale Manufacturing Industries (QIM) said energy crisis coupled with political instability were major reasons of decline in growth.

With a 2.44 per cent decline in July-December, the LSM growth dipped to 4.46 per cent from 6.9 per cent during July-November 2007-08 as major industrial units remained closed due to power crisis, said an official that compiles data on LSM.

Power and gas crises were responsible for such a sharp drop in growth, he added.

The next month statistics, July-January 2007-08, may be even more dismal due to political turmoil the country went through following the assassination of Benazir Bhutto on December 27.

The government may not be able to achieve projected targets given the current 4.46 percent growth of LSM during the first half of the current fiscal and prevailing political and energy crises that have almost paralysed the industrial activities.

LSM is projected to grow by 12.5 percent in the fiscal 2007-08 against 8.8 percent of last year, the Quantum Index Number (QIM) on LSM released by the FBS showed that the growth may remain far less than the projected target.

The 20.62 percent growth in sugar, 18.21 percent in cement and some contribution by auto sector led to some growth in LSM. Within automobiles, buses registered 15.15 percent growth, motorcycle 25.20 percent and LCVs 16.96 percent.

Among petroleum products, jute batching oil registered 15.08 percent growth, solvan Naptha 9.36 percent, furnace oil 8.23 percent, high speed diesel 13.17 percent, motor spirit 7 percent with over all petroleum products growth of 6.15 percent.

The steel sector was most hurt by the energy crisis and political uncertainty and registered a negative growth of 7.25 percent with production of pig iron down by 1.26 percent, billets/igonts by 3.14 percent and CR sheets, strips, coil and plates by 12.93 percent. Production of jet fuels declined by 12.68 percent during the period under review, diesel oil 11.29 percent, LPG 2.97 percent and other petroleum product by 9.02 percent.

Business Recorder [Pakistan's First Financial Daily]

 

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Competition to benefit cellphone users: Entry of China Mobile​

KARACHI, Feb 25: The cellphone operators are confident that the entry of China Mobile in the local market would not harm their business as they focus more on the sales volume rather than profit margin making them highly competitive.

They felt that the new company might not be able to offer new products as far as the tariff packages are concerned.

The consumers, on the other hand, see coming of China Mobile as a welcome addition to the local cellphone market, which could bring them some new incentives from the producers as a result of ensuing competition.

China Mobile has already invested $500 million in Pakistan and has plans to invest more. The company plans to increase coverage area by several thousand miles, including highways with the capacity of 20m subscribers.

The Chinese company had acquired Paktel for over $460 million enterprise value last year. On May 4, 2007, China Mobile unveiled its new company — CMPak Limited.

The Director Marketing, CMPak Limited, Salman Wasay told Dawn that the company planned to invest $800 million in 2008 under network expansion.

“By the end of this year or middle of next year, the company aims to grab a market share of 20-25 per cent,” he said, adding that currently, it has over two million subscribers out of total market of 77 million cellphone users.

There is a huge potential to expand the business because keeping aside the number of cellphone users, who have two Sims, the actual number of cellphone users having one Sim, ranges between 50-55 million, Mr Wasay said.

He claimed that besides, offering incentive packages and tariff cuts, the company excels actually in quality of service. China Mobile is known for value-added service, he added.

Meanwhile, a source in Ufone said that it would be hard for the Chinese company to attract the people as customers having enough liquidity have already been covered by the existing players, while people in the lower income bracket are more concerned in meeting their daily necessities first and then think about having a cellphone.

He added that tariffs were coming down and the Chinese company could not afford to sell its product under price.

He said that the Ufone, having 16 million customers’ base, has invested $1 billion since 2001 in network expansion and plans to invest $150 million more in expanding its coverage this year.

Sources in the Warid Telecom said the company had been going ahead with its expansion plans in various phases and there was no threat from the massive network expansion by the China Mobile.

Warid has invested $1.2 billion in its network expansion since 2005 and has now around 14 million subscribers.

The Manager, Public Relations, Mobilink, Omar Manzur, however, did not give a clear answer whether the company, being a leader in Pakistan, feels any threat from China Mobile’s entry in a big way.

However, he said the company had been thriving in a competitive environment and had successfully maintained its position as the market leader. The company has invested $2.5 billion to-date in developing infrastructure and plans to invest an additional $500 million in 2008. It has over 30 million subscribers.

The company has been conscious of meeting its customers’ needs and has been aggressively adding one million subscribers to its network every month.

The Director, Corporate Communication, Telenor Pakistan, Syed Hasanat Masood, responding to a questionnaire sent to him through e-mail, said: “We don’t comment on the business moves made by any company as we also have our own investment and expansion plans like the Chinese company.”

He said his company had already invested $1.8bn by the end of 2007 and it had 15b customers.

Competition to benefit cellphone users: Entry of China Mobile -DAWN - Business; February 26, 2008