Liberalisation or protectionism?

WHILE the consumers may be happy to get cheaper imported second-hand cars, automobile manufacturers and vendors say they are facing tough time with the falling sales of locally-assembled vehicles. The domestic market now offers more choices to consumers, often forced to pay premium on early delivery of cars booked.
However, some consumers saw the market rigged and felt they were victims of cartelisation. There may be some truth in what the consumers believe. The industrys may not be globally competitive as some well-placed people in the government assert. That may have led to liberalisation of imports of second-hand cars. It cannot be denied that the consumer - the most important stakeholder who keeps the wheels of automobile industry running - needs a fair deal. In a way, the automobile industry can be partially blamed for its own current plight. But there are other consequences and implications of the liberalised imports of second -hand cars. The governments decision has come at a time of sluggish economic growth, marked by a very long and still continuing spell of overall deindustrialisation. Over the past decade or more, the pre-capitalist mercantalism has returned in the garb of international trade and globalisation. Pakistans surging imports continue to outstrip exports by a wide margin, putting pressure on the exchange rate, resulting in increased cost of imported raw materials/inputs for industry, making import-oriented industry globally uncompetitive. It is also forgotten by policymakers that whereas industry provides employment, promotes self-reliance and creates national wealth, imports make a negative contribution to the GDP. The auto industry claims that their sales have sharply declined with increase in imports of second- hand cars. And the government has suffered revenue loss in excess of Rs14 billion over the last 12 months because of partial exemptions in duties and taxes on second hand car imports.. And the vendor industry has lost Rs20 billion in potential sales. At least one automobile unit has slashed its production. In an country in which capital goods are imported and the engineering industry has not developed to its full potential, the automobile/vendor industry is paving the way for development of the capital goods industry. The liberalised imports of second-cars would retard that process. Because of the persisting global financial crisis, recession in Europe and fragile recovery in most of the industrialised world, most developing countries are focusing on domestic market and import substitution.

Policymakers in Pakistan are encouraging imports at the time when the rupee is under severe pressure while the external sector is vulnerable to international market volatility

Is market rigged?
Policymakers at the federal and provincial levels and the textile industry seem to be playing with the future of cotton crop on which depends the livelihood of many million farmers.
That is precisely what is happening now. The future of the crop is being jeopardised by the flawed federal policies, market rigging and inaction of the Punjab government farmers say. They complain that the federal government is discouraging local exporters through policy measures (like double registration) against selling the crop in foreign markets. It is neither ready to induct the Trading Corporation of Pakistan to stabilise domestic prices nor willing to announce support price for the most important cash crop for farmers. The market is left at the mercy of manipulators in a so-called free market. On its part, farmers allege that the All Pakistan Textile Mills Association (APTMA), a powerful lobbyist for the industry with a strong presence in the corridors of power, ensures that prices remain as low as they can be. Its success can be gauged from the fact that for the second consecutive year, the crop isbeing traded at less than its cost of production. This year, according to the official estimates, the cost of production is Rs2,499 per 40kg. The farmers, however, put the figure at Rs2,800 per 40kg whereas the current market price ranges between Rs2,300 to Rs2,400 per 40kg. The Punjab government has adopted a novel approach; it recently wrote to the federal government to intervene in the cotton trade and stabilise prices. It is strange for the Punjab government to invite the federation to intervene and increase prices even after devolution of agriculture. Punjab, on its part, is still to explain why it is not doing anything itself? Why is it not creating a body like the Trading Corporation of Pakistan for stabilising prices of different agricultural commodities? All stakeholders especially the authorities, must keep in mind that September is a make or break month for cotton. If farmers invest money and time on it, the production can go up, in its current settings, by three to four million bales. But if they dont, as there is absolutely no incentive for them in the current prices, production can go down correspondingly. This year is even crucial for two reasons: drop in acreage and the recent CLCV attack on the crop. Last year, the crop was traded almost at the same price, and, Pakistan lost 15 to 20 per cent acreage this year as compared to the last years. Thebiggest acreage loss came from the core cotton belt (southern Punjab), which

is not only a high production area but where cotton is sown from the time immemorial. The crop lost another 200,000 acres in other areas of the province. These 200,000 acres went to maize, guar pulses and fodder. Of late, guar has emerged as an alternative to cotton crop. With its price going up by almost 350 per cent in one year from Rs7,000 per maund to Rs25,000 per maund the crop is eating into areas of other crops, especially cotton. In the cotton belt, sunflower and maize became other options. With the maize prices also hovering close to Rs1,000 per maund, an acre can yield as much as Rs100,000 to a farmer. Being 110-day crop, it could also fill in the gap being left open by cotton. With prices of pulses soaring over the last few years, they are also witnessing their area expanding. All these crops are emerging as a challenge to cotton, which is losing its financial sheen for farmers, thanks mainly to cartelised trade. The crop is coming out of the virus stress and needs a tender tending. The last thing at this stage farmers and the country would want is a slide in price because it would determine farmers interest and the final crop size. The current price at 20 per cent less than international price, is not sustainable for farmers. If the prices do not improve in the next few days and weeks, the final yield would decrease on two accounts: drop in the usage of in-puts and early termination of the crop. The farmers have already stopped using fertilisers and other nutrient necessary for increasing yield because they dont see recovery of such investments. Second, being an indeterminate crop, cotton offers farmers an option to terminate the entire crop at any stage where they feel it is economically non-feasible.

Global competitive ranking

Pakistans economy is losing its global competitiveness because of a host of factors but mainly because of rampant corruption and poor governance.
The deterioration in most indicators has dragged down the countrys overall ranking to 124th among 144 economies listed on the World Economic Forums Global Competitiveness Index. The ranking is based on 100 economic indicators. Weak economic policies, inadequate physical and human infrastructure, bleeding public sector enterprises etc have inflated the cost of doing business.

Former economic advisor to the government Dr Ashfaq H. Khan says the ratings are a true reflection of Pakistani economy. Competitiveness has weakened as the economy is not on the governments radar screen. The cost of doing business has also gone up owing to power shortages, reduction in gas supply to industries, and over all security environment. According to the WEF report 2012-13, the business community has identified corruption as the most problematic issue for business. The governments instability and coups were the most challenging factor in the previous years report. In ups and downs in ranking over the years, the six major factors - corruption, government instability, policy instability, inadequate supply of infrastructure, inefficient government bureaucracy, and poor access to financing- have remained the main hurdles in the growth of business. Dr Ashfaq said manufacturing had been stifled by severe power crisis and poor law and order situation. Commenting on the banks soundness indicators deteriorating to 85, Dr Ashfaq said: this has happened because of huge increase in the non-performing loans. The banks are over-exposed to the power sector. They are not getting money, which they invested in the power sector. Commodity financing is another area which makes banks more vulnerable. The increase in risk-premium has enhanced the cost of doing businesses; banks are also now charging more for opening L/Cs. Investment in physical and human infrastructure has deteriorated. Favouritism in decision-making (129) and wasteful government spending (96) have also shown significant decline in rankings. The Efficiency of Legal Framework has slipped from 79 in 2011 to 97 in 2012. Former State Minister for Finance Omar Ayub identified politicisation of key public sector enterprises, week economic policies, lack of transparency, poor revenue collection as the few key factors adversely impacting the economy. Owing to deteriorating security situation, the reliability of police service has slipped to 127 as compared to 116 in the last year. However, the former state minister said he did not buy the argument that the economy slowed down only because of war on terror. The minister was of the opinion that industries were always located in Punjab and Sindh especially Karachi, which generated economic activities. The Karachi violence is targeted killing. He said the Mexico City was receiving huge foreign direct investment despite more killings there than in Pakistan. It was the rising cost of doing business owing to corruption, poor governance etc that created hurdles in luring investment. Small and medium enterprises, which are the backbone of big industries, were closing down because of power crisis and lack of finances.

Pakistans ranking, at 41 in 2011 on the Tax Collection Efficiency Index, declined in 2012 to 59; limitations on the ease of access to loans and venture capital availability, were placed at 65th and 55th positions respectively. The labour market efficiency index shows a decline in labour and employer relations where the ranking has slipped from 80 to 90. Businesses are shying away from reliance on professional management and ranking on this count has decreased from 88 to 101. For the state of cluster development, the ranking has plunged from 48 to 62. The commercialisation of research is not a priority. The industry- university collaboration has also seen negative fall from 69 to 81. There is also no culture of making investment in research development/ innovations. Nonetheless, Pakistan has improved its regulation framework and moved up from 76 in 2011 to 62nd position this year. Similarly the transparency of policymaking ranking has improved from 119 to 109. The countrys credit rating index is also up from 123 this year to 116 compared to last year. The report also shows significant improvements in the performance of the Securities and Exchange Commission with the securities exchange regulations ranked at 55 in the global index as compared to 70 last year.