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Economic & Business Review

Oil price imbroglio


By Afshan Subohi
Monday, 13 Jul, 2009 | 01:59 AM PST |

The National Assembly should debate and find a


way out of the current imbroglio on oil pricing.
This requires a critical review of the skewed tax
regime.

In the first week of July, fuel prices were raised,


cut and raised again. The price of petrol has now
been fixed at Rs62.13 a litre, the same as it was
after imposition of carbon tax on July1.

Instead of capitalising on the public goodwill to


kick-start the sagging economy, the elected
government seems to be doing all in its means to
loose its most valuable asset- the public support-
by accepting what it calls, ‘politically difficult
decisions’ to appease foreign lenders..

The imposition of carbon tax in place of


petroleum development levy by the Gilani
government from July 1, its termination on the
order of the Supreme Court on July 7 and
restoration of petroleum development levy the
next day on July 8 through a presidential
ordinance were extraordinary measures with a
direct impact on the wellbeing of the people.

The carbon tax that was projected to raise Rs122


billion this fiscal year for the government hiked
the prices of petroleum products by 7-15 per cent
when poverty and unemployment are on the rise.

The increase in the transport charges pushed up


the cost of production, in some cases by as much
as 10 per cent, and energised the price spiral.
Post-July 1, market reported increase in price of
many consumer and producer items such as
edibles and cement.

There was resentment in the public over the


government decision. The decision of the Supreme
Court pleasantly surprised the public as prices of
petroleum products fell back to June 30 level. The
Presidential Ordinance ‘restored’ petroleum
development levy with an increase equivalent to
the raise announced under the garb of carbon tax.

Dr Asim Hussain, advisor to prime minister on


petroleum, defended the position of the
government. “The government needed revenue
from petroleum products to cut the Rs722 billion
budget deficit.”

“The government is bogged down with pricing of


wheat, sugar cane, power, gas, oil products for the
better part. Let the market determine the prices of
products and services and the government should
focus on improving the fundamentals to create the
right economic environment for growth and
development”, a member of the government
research team said on the condition of anonymity.

The biggest opposition party- PML(N)- tried to


champion the cause of the downtrodden by
opposing the carbon tax but for this, it chose the
apex court instead of the parliament.

“They (PML N) sat through the prolonged


marathon budget sessions of the assembly and
voted for passing the budget with carbon tax.
Coming out of the assembly they headed for the
court. What is this? Delayed reaction or
hypocrisy? Why did they not tear it (carbon tax)
down on the floor of the assembly in the full
public view? Which democrat would push the
Supreme Court to overrule the decision of the
parliament?”, asked a seasoned analyst from
Islamabad.

Even if we cut the dramatics out, it would be wise


not to drag the Supreme Court on issues that can
well be debated and resolved in the assembly. The
solution should be acceptable for donors but must
not be against the wishes of deprived people.

“If this is the beginning of another round of


animosity between the two key institutions_ the
executive and the judiciary, only time would tell.
This, however, would not fare too well for the
country faced with turmoil and recession”,
commented a worried businessman.

A country’s health dependent on net foreign


inflows for growth, cannot, perhaps, afford to be
indifferent to its balance sheet. It needs to project
itself as financially responsible to achieve credit-
worthiness to be able to get the support it
desperately needs from development partners.
But why should the burden of narrowing fiscal
and current account deficit be borne by ordinary
citizens in an inequitable society? Indirect taxes
on essential commodities such as oil
disproportionately burden the poor. It would be
apt for the government to focus on enlarging the
tax net and making tax administration efficient
and corruption-free.

To show a presentable current account position, it


may take drastic measures to cut wasteful
spending. There is a huge room to reduce the size
of government without compromising its capacity
to govern. There are scores of departments that
have become redundant.

By publicising and honouring members of


assemblies who pay most in taxes, examples could
be set for others to follow. What FBR has not been
able to achieve by hounding high net worth
individuals could perhaps be achieved by setting
examples.

“Instead of squeesing more revenues out of a


sliding economy through taxation, would it not be
better if the government trims its non-
development expenditure, drop orders for new
cars for ministers’ chief ministers’ MNAs’ and
MPAs’, cut on lavish parties and extended
dinners, stop travelling in company of friends and
relatives around the world?

It is the typical behaviour of the private sector to


internalise gains and externalise pains. The
government is expected to reconcile the competing
interests in a society that also suit the interests of
the majority. It is also supposed to be a custodian
of public interest. It is supposed to keep self-
serving interests and socially costly practices in
check by laying down rules and regulations that
promote social justice.

It is inappropriate, in the first place, to rename a


tax to cover up the inefficiency of the government
in mobilisation of internal resources.

This is not only the government, the attitude of the


opposition is equally intriguing. The PML(N)
legislators like other members of the National
Assembly took little interest in the budget which
was passed once the business of grant approval
was completed without any meaningful debate.

It, however, opted to file a petition in the Supreme


Court
against the carbon tax on oil products instead of
tearing it down in the assembly with the help of
legislators.

SMEs see no hope for a turnaround


By Nasir Jamal
Monday, 13 Jul, 2009 | 01:59 AM PST |

The economic downturn and power shortages


have adversely affected the small to medium-sized
businesses.

Frequent power cuts and weaker sales at home


and abroad are cutting output and revenues of
this sector, forcing many to either lay off workers
to get through the crisis or simply to shut down.

The economic slump has “crushed” small and


medium enterprises (SMEs), says Amjad Cheema,
a manufacturer and exporter of surgical
instruments in Sialkot. Barring a few exceptions,
he says, majority of the small to medium
businesses are fighting for their survival.

“No small to medium-sized producer can survive


unless it works at its optimal capacity. The loss in
output means increase in cost of production,
which immediately makes you uncompetitive in
the market and affects your sales. We just don’t
know how to ride through the economic crisis and
frequent power cuts,” he argues.

SMEs survived inflation and currency devaluation


and higher wage demands during the last couple
of years although these factors sharply jacked up
our input costs and cut our revenues, says
Cheema. But we cannot survive power shortages,
he adds.

Only a fraction of small to medium businesses


could afford alternate power generation because
of the costs involved. More than 70 per cent SMEs
are dependent upon the Pakistan Electric Power
Company (Pepco) system, which means they are
without electricity for more than eight hours a
day. “It is difficult even to run one shift during the
entire day,” says a fan manufacturer from Gujrat,
who asked not to be identified.
Little wonder then that many SMEs have shed a
large number of jobs in the last one year to save
costs and get through the economic and power
crises. Others have simply closed down as they see
little hope of making through the present crisis, he
says.

“Most SMEs are cutting jobs or shutting their


manufacturing capacities, partially or wholly,
across a broad spectrum of the industry as their
costs are spiking while the demand slowing,” says
Ijaz Khokhar, a former chairman of the Pakistan
Readymade Garments Manufacturers &
Exporters Association (PRGMEA).

An SME analyst, working for the Small and


Medium Enterprises Development Authority
(Smeda) tells Dawn on condition of anonymity
that the smaller units working in informal sector
with no access to finance are more prone to
closures due to the economic slump and reduced
consumer spending at home.

“I can say that a large number of SMEs have


closed down in Sialkot, Gujrat, Gujranwala,
Faisalabad, and Lahore as elsewhere in the
country. But it is difficult to give the exact
number,” he says.
Khokhar says small and medium exporters are
losing orders from their foreign buyers because of
the delays in shipment of their previous export
consignments because of energy crisis. “Our
credibility as a responsible supplier is at stake.
Our L/Cs are expiring, forcing some to ship their
export consignments by air to retain their buyers
at higher costs. Even that is not helping and most
foreign buyers are turning to India and China for
getting timely delivery of their ordered goods,”
Khokhar says.

Cheema says the small exporters are forced to


export their goods on credit. “Your buyers are
purchasing from you on one condition: they will
make payments only after 60 days. And you have
no choice but to accept their condition if you wish
to stay in the market.”

Majority of SMEs, usually short of collateral to


pledge with banks, are also facing acute cash flow
problems as a consequence of falling production
and sales. “When your business is doing well and
you are getting export orders, you could obtain
running finance against confirmed L/Cs. Now that
you don’t have confirmed L/Cs you cannot even
borrow from the banks to purchase raw
materials,” says the former PRGMEA leader.

We don’t have comprehensive, recent data on the


contribution of SMEs to the economy. But the
Census of Establishments conducted by the
Federal Bureau of Statistics a few years back says,
SMEs with the employment base of up to 99
constitute around 90 per cent of 3.2 million
private enterprises in the industrial, services and
trade sectors, and employ around 78 per cent of
non-agriculture labour force. Also, these
contribute over 30 per cent to the country’s gross
domestic product (GDP) and 25 per cent to the
total export earnings. Their share in the
manufacturing value addition is estimated to be 35
per cent.

In spite of being the largest employer in the non-


agriculture sectors and their huge contribution to
the GDP and exports, SMEs continues to face
several challenges: limited access to formal
finance and credit and modern technology,
unfriendly tax regime, over-regulation, poor
quality production, shortage of skilled labour,
lack of marketing skills and techniques, etc. These
factors have largely been responsible for breeding
inefficiencies and stunting the growth of small and
medium enterprises. But the government and its
various agencies have failed to implement policies
and take initiatives to help this important sector
expand and grow.

“It is fashionable these days to talk about SMEs


and their role in the revival of the economy. But
no practical measure is ever taken although
abundant opportunities exist for expansion and
value-addition in the manufacturing, services and
agricultural sectors,” says an anonymous fan
manufacturer from Gujrat.

Khokhar says the current economic downturn has


amply proved that SMEs cannot flourish as stand
alone, viable entities. There is a dire need for
clustering SMEs from different sectors together,
make sector policies and create supply chain
linkages between them, he adds.

Khawaja Ahmed Bilal, the founding chairman of


Smeda, is sorry to note that policy-makers just
don’t realise the crucial importance of SMEs.
“The government’s policy-makers have no idea
about the needs and requirements of a small
enterprise. They don’t know what does a khokha
owner needs or require (for survival, growth, and
expansion),” he laments.
“SMEs are the backbone of any economy. They
are the ground realities. You cannot turn around
the economy without reviving small and medium
businesses,” Bilal notes.

But the policy-makers have so far shown no


inclination of basing their strategy for turning the
sliding economy around on the ground realities.

Will rental power plants resolve the crisis?


By Ashfak Bokhari
Monday, 13 Jul, 2009 | 01:59 AM PST |

A quick-fix solution to the worsening power crises


has been found in installing rental power plants
which, by providing immediate relief, may
suppress the crisis till the scheduled projects come
on line. But many are sceptical about the success
of this venture.

A flipside of the project is that it is not a quick-fix


solution in the true sense, to the current power
crisis. By the time these plants, whose number is
not known, are put in place and begin producing
electricity, it will be winter and the worst period
of people’s misery may have been over.

Under the agreements, each plant is to be installed


in six months but experience of other countries
shows that delays are frequent. Bangladesh’s case
is an eye-opener. It is now taking steps to penalise
the lessors for failing to install plants in time.
Agreements for two plants were signed on
January 16, 2008 and the plants were to go into
operation in 120 days e.g. on May 16, 2008.
Nothing has happened so far.

Another two agreements were signed in June and


December last year but the plants did not go into
operations in six months as scheduled..

In Pakistan’s case, there has been delay on the


part of Pepco officials to plan the proposed plants
at an appropriate time so that the people could
have escaped this summer’s agony. The first
meeting between Pepco, National Bank of
Pakistan and other financial institutions was held
on February 24 to discuss the opening of letters of
credit and advance payments to rental power
projects.

The second one took place on March 2 in which


representatives of rental power projects including
Pakistan Power Resources, Walters Power,
Techno E Power and Turkish sponsors of Karkay
Karadenz made presentations on their projects
and financing structure.

Plants of 1,000 MW to 1,200 MW capacity are to


be acquired by Pepco through international
competitive bidding.

Besides, the Private Power and Infrastructure


Board has been mandated to acquire rental power
and the projects have the approval of the
Economic Coordination Committee (ECC).

The first snag the entire project suffered from, to


begin with, has been the trust deficit between the
lessors and the Pepco, and then between the Pepco
and the banks. The mistrust can be traced to
recent bitter experiences in financial dealings in
this sector. The electricity generation companies
have been unable to pay off their debts simply
because they could not receive payments from
distribution companies which were similarly
unable to receive payments from their debtors.
As a result, a multi- billion rupee inter-corporate
circular debt had come into being and the
government had to intervene. The matter was
partially settled a few months back after the
government borrowed over Rs80 billion from
banks. The government owes a staggering amount
of Rs158 billion to IPPs and the government has
arranged Rs75 billion in emergency to pay off
nearly 50 per cent of the liabilities.

For the power sector owned and managed by the


state, the government had to come forward and
offer sovereign guarantees to the banks to secure
loans for the rental power plants.

Loans amounting to Rs25 billion (meeting 80 per


cent requirements) for around 1,100-megawatt
projects (current shortfall is 2,500MW) were
committed at a meeting on July 6 between the
CEOs of certain banks and Finance Adviser
Shaukat Tarin, paving the way for the owners of
rental power plants to begin their installation
process..

The government had to give guarantees to banks


because they had refused to issue stand-by letters
of credit (SBLCs) to rental power plants as they
are unsure about return of their money and have
massive exposure in the loss-incurring power
sector and are unwilling to further spread their
risks. But the banks, the chief of their association
says, “have no other choice but to lend.”

The government is giving them guarantees. The


problem is that the industrial sector, on whom the
country’s long-term progress depends, is the
banks’ main clientele. And the industries cannot
function unless there is electricity. So, to make this
sector viable and vibrant, banks consider it quite
prudent, as a matter of principle, to lend to power
sector.

In case of rental power, there is confusion about


how costly it would be when compared to other
sources. Pepco says there will be no difference in
their tariff and that of independent power
producers. But the minister for water and power
Raja Pervez Ashraf told a Senate committee
recently that the tariff of rental power plants to be
commissioned to add 4,500MW to the main grid
will be linked to oil prices. Hence, no guarantee
can be given that the rates will not go up.

However, any raise in electricity charges, it may


be noted, is becoming politically difficult for the
regime to accept and carry out after Supreme
Court’s recent intervention asking the ministry of
power not to withdraw subsidy on electricity
tariff. Similar future interventions cannot be ruled
out.

Another aspect of the episode is that power plants


being installed on rent are ‘ineffective and
expensive’. A business daily of Karachi quoted a
Pepco official as stating at a meeting on energy
efficiency held recently that due to the current
energy crisis, the Pepco was now installing ‘most
inefficient and expensive rental power plants’.
However, he said, by upgrading the old inefficient
plants, instant power supply would be made
available in the shortest possible time.

Rental power projects are being added on the


basis of 36-60 months tenure with 7-14 per cent
advance payments. The lessors are accepting
government guarantees for the entire tenure of the
project with an additional seven per cent advance
payment because their tax is being deducted at
source, thus the total advance being 14 per cent.
The lessors had objected to tax deduction at
source.

Meanwhile, an integrated energy plan which


Shaukat Tarin has hinted at in January was taken
up by Prime Minister Gilani at a presentation on
energy security last week. He asked the petroleum
ministry to finalise the plan by next month. The
integrated energy plan will redefine the energy
mix and reduce the reliance on imported oil for
energy requirements. The focus of the plan is to
reduce dependence on single source of energy and
promote alternate fuels side by side.

Tea plantation for reducing imports


By Jalil Ahmed
Monday, 13 Jul, 2009 | 01:57 AM PST |

TEA worth $220 million is imported annually to


meet the domestic needs despite huge indigenous
production potential. According to Pakistan Tea
Association (PTA), 175 million kg tea is consumed
annually.
Customs statistics show an import of 105 million
kg whereas as many as 70 million kg black tea is
being imported illegally from Afghanistan.

Local tea importers are concerned over a record


increase of nearly 200 per cent in black tea import
by Afghanistan from Kenya so far in 2009, saying
it would ultimately be sold in Pakistan and would
affect the local formal market.. Afghanistan has
become the fourth biggest tea importing country
from Kenya.

PTA has called for delisting tea from Afghan


Transit Trade Agreement (ATTA) and suggested
lowering of import duty and other taxes on tea to
discourage its illegal import. The cultural fusion
of tea in our daily lives is so complete that people
drink tea at least twice daily. On an average, one
kg-- highest per capita in South Asia—is
consumed in Pakistan.

Awakened to the steady rise in tea consumption,


the government set up in 1986 the National Tea
Research Institute (NTRI} Shinkiari in NWFP
which identified more than 150,000 acres of land
as suitable for tea plantation. The tea produced
was found to be next only to Kenyan tea in
quality.

Most of land suitable for tea plantation is located


in Mansehra’s hilly terrain, parts of Swat, FATA
and Azad Kashmir. The people in these areas who
are interested in setting up tea plantations claim
government’s apathy is partially attributable to
the multinationals dealing in tea. Two such
companies have joined hands to establish their
own gardens, processing and blending factory in
the area.

Experts suggest that the government should


impose a development cess of Rs2 per kg on tea
production project which should be used to
promote tea gardens. Tea is a crop of wide
adaptability which grows in a varying range of
climates and soils in various parts of the world.
Three basic factors involved in its cultivation are:
annual rainfall above 1000 mm,’ air temperature
10’, soil pH value ranging from 4.5 to 6.5 and
cheap labour availability.

The northern parts of NWFP in district


Mansehra, Battagram and Swat have all the basic
requisites for commercial tea production,
provided plants are grown for three to four years.
Back in 2001, two Chinese processing plants were
installed at Shinkiari with a capacity to produce
one ton black tea per day. Pakistan Science
Foundation, Islamabad, also installed a green tea
plant to process 100kg per day.

Azad Jammu and Kashmir (AJK}government


recently leased marked lands. AJK alone can
produce over 100 million kg of tea per annum.
Hopefully, by the end of next year tea plantation
would be carried out on 4,000 acres by the private
sector, 800 and 200 acres by NWFP and AJK
provided military operations in the insurgency-
hit areas are concluded early. It could open up
enormous economic opportunities to the people in
the mountainous areas and alleviate poverty.

A tea plant remains productive for well over 80-


100 years. Its crop maintains more than three-fold
edge over other traditional crops. Tea is a highly
remunerative crop and no major cash crop can
compete with it in net-return per unit area.

A farmer can beef up his income by Rs80, 000-


100,000 a year from tea cultivation on one kanal,
several times more than the income from any
other crop. Being labour-intensive, it generates a
lot of employment. Covering the ground
vegetative, it provides protection against soil
erosion.

A study published in the European Journal of


Clinical Nutrition dispels the common belief that
tea dehydrates. Tea not only rehydrates as well as
water does, but it can also protect against heart
disease and some cancers. Researchers believe
flavonoids are the key ingredient in tea that
promote health. Tea replaces fluids and contains
antioxidants; so it’s got two things going for it.

Another study suggests that tea can impair the


body’s ability to absorb iron from food and people
at risk of anemia should avoid drinking tea
around mealtimes. However, green tea is believed
to be a key to a longer and healthier life. A recent
study also showed connection between green tea
and weight loss.

Urbanisation depletes farmland


By Tahir Ali
Monday, 13 Jul, 2009 | 01:57 AM PST |
The NWFP’s population, over 17 million in 1998,
is now estimated at 24 million. Simultaneously, the
housing units have risen from 2.3 million to three
million, depleting farmlands.

A growing population and dispersal of families


have enlarged cities, towns and villages. And new
towns, villages, bazaars and institutions have been
built on agricultural land.

The food security situation (the province suffers


from wheat deficit) demanded that the
government should have brought more land under
cultivation.. Instead, hundreds of thousands of
acres of precious agricultural land has been used
in private and public sector schemes for
construction of houses, plazas, offices and
institutions.

The use of cultivable land for residential and


commercial purposes gained momentum
especially after 2000 when banks cut rates of
consumer financing and the wealthy class turned
to the real estate sector. They converted huge
tracts of lands into residential plots for sale. Prices
of land touched new heights. This encouraged
owners of agricultural lands to sell their
properties. The closer a piece of land to a town
and city, the more was its market demand.

No official figures are available but is reckoned


that around 15 per cent of agricultural land has
been used by the real estate sector so far.

Head of a regional real estate body agreed that


around 15 per cent of agriculture land might have
been used in last 20 years by housing and
commercial needs of society. “But to my mind the
perception that agriculture is threatened by
private housing societies is an exaggeration. There
are around 500 housing schemes in the province
but hardly 5-7 of these are actual entities that
have been developed. Most of the land has been
used by owners for their residential needs,” he
said.

He says use of cultivable land for residential


purposes is prohibited under the law. “The
government should regulate the real estate
business and strictly implement the law. It should
also develop arid land for housing needs.
Agricultural land should not be allowed to be used
for residential and commercial purposes.”
Secretary Agriculture NWFP Attaullah Khan said
there was no such law in place right now. He told
this scribe on phone that cultivable land was on
the decline for quite some time now, but he didn’t
have any fresh data available with him on the
subject.

The Chief Planning Officer (CPO), ministry of


agriculture, NWFP, Gul Nawaz Khatak, said that
out of 10.17 million hectares in the province, the
cultivable area is 2.8 million hectare. “Out of
cultivable area, only 1.8 million hectare is
cultivated whereas 1.02 million hectare is
cultivable waste,” he added.

His figures suggest that the actual area under


cultivation is just 30 per cent of the cultivable land
and 10 per cent of the total land in the province.
There is a huge spacefor agricultural
development.

Nawaz estimated that 0.1 million hectares of


tillable land might have been lost to real estate.
Independent estimates, however, put the loss to
around 0.4 million hectares.

He said a land use draft law 2009 had been


proposed by the federal government and sent to
provincial government. “The provincial
governments have been asked to stop use of
agricultural land for housing and infrastructure
needs like schools, hospitals and official
buildings.”

The government seems to be indifferent while the


population is going up, the economy weakening
and purchasing power of the people going down
due to high prices. Less production of food grains
in future would simply mean starving the nation,”
observed Jalaluddin Khan, a farmer in
Charsadda.

“The ministries of housing and agriculture should


ban the use of cultivable land for residential
purpose,” Jalal added.

An official in the agriculture department in


Peshawar said the government should pinpoint
barren land for residential units. It should also set
up a body that may give no objection certificates
to housing societies and individuals to see that
agricultural land is not used unnecessarily, if not
completely,” he said.
Bridging the productivity gap
By Ahmad Fraz Khan
Monday, 13 Jul, 2009 | 01:57 AM PST |

A DOCUMENT, ‘A Strategy for Accelerating


Economic Growth and Improving Service
Delivery’ was attached to the Punjab Budget 2010,
indicating the government’s path to prosperity.

It devoted seven pages to agriculture, irrigation


and livestock sectors, narrating their economic
importance and development potentials. The
document also listed key constraints faced by
these sectors.

The analysis in the document shows that the


government is aware of the problems, even if it is
not undertaking the curing exercise. The
document, putting the agriculture sector in
perspective, says that it contributed 28 per cent of
the gross provincial product (GPP) in 2007 and
provided 44 per cent employment.

About constraints, the document rightly claims


that input-driven growth has entered the stage of
diminishing returns. The total factor productivity
has grown only by 1.3 per cent during 1907-2003,
against 1.9 in Indian Punjab, 2.2 in China and 2.1
in Vietnam. Around two-thirds of productivity
increase during this period came from higher
application of capital and labour.

Second, per capita water storage capacity has


declined in the past three decades. Whereas, the
United States and Australia have 5,000 cubic
metres storage capacity per person and China
2,200 cubic metres, Pakistan has only 150 cubic
metres per capita.

As far as productivity is concerned, Punjab ranks


even lower: it produces 0.5kg of wheat per cubic
metre against 0.8kg by India (in Bhakra) and 1kg
by the United States (Imperial Valley).

Second, the pressure on groundwater has grown


tremendously. In 1960, groundwater accounted
for only eight per cent farm gate supplies in
Punjab. By 1985, the figure grew up to 40 per cent
and it swelled to 55 per cent in 2008.
Third, the sector suffers because the cropping
pattern does not conform to its comparative
advantage or to realities of the international
market. Four major crops (rice, wheat, cotton and
sugarcane) account for 47 per cent of value
addition in 2007.

Fourth, the province suffers considerable yield


gaps between efficient and average farmers – 46
per cent in wheat and 77 per cent in cotton. It only
shows how much yield could be improved through
good farming practices.

Despite this deep analysis and accurate figures,


the Punjab government did not spare enough
money for myriad of problems of the sector. The
budget spared only Rs3.2 billion – less than one
per cent – out of total Rs389 billion, for a sector
that contributes 22 per cent GPP and 44 per cent
employment. Worse still, last year the agriculture
department could only spend Rs1.4 billion out of
Rs3 billion budget.

The document may be right on low factor


productivity figures, but it is only partially right
about its causes. Inputs (fertiliser and pesticides)
application has its own limits and there is hardly
any denying that the country has already
exhausted that limit. But, there is another input
(seed), potential which has not been exhausted so
far. The government agencies fail to factor it
because they have no money and time to spare for
it. Agriculture scientists and experts agree that
seed could make a difference of even up to 30 per
cent in final yield, and this year wheat production
has only vindicated their version. Two, now wheat
seeds made a big difference.

Though it is hard to quantify their contribution


with any measure of certainty, the fact remains
that these two new varieties did make a difference.
Out of four major crops (rice, wheat, cotton and
sugarcane), the country does not have seed for
three, and claims to have exhausted the inputs
potential. The claim is a bit off the mark.

In case of groundwater pressure, it is fairing


worse, especially on three accounts – advocacy for
new reservoirs, improving groundwater and
efficient use of water. For the fear of fanning
controversy on Kalabagh dam, the Punjab
government seems to have simply stopped talking
about new reservoirs.

Though its performance is better on promoting


efficient use of water than on the other issues, it
also leaves much to be desired. There is a
commitment to take cotton to non-core areas and
on drip irrigation, but what about huge acreage
under citrus and mango orchards in central and
southern Punjab and other horticulture products
– prime candidates for pressurised irrigation.
Water being as scares as it, such initiatives need
major investment backed by determined political
will and energetic administrative machinery. That
seems to be lacking and initiatives like on cotton
looks more to prove that the government is alive
to the issue rather than showing seriousness to
address it.

The yield gap of 46 to 77 per cent is a common


knowledge, and it is time to resolve the issue
rather than pointing it out as the planners have
been doing. Who has to fill the gap with better
training of farmers and mechanise the sector.
Under the current scheme of things, the
government alone is responsible for extension
service that can bridge the gap. The devolved
services are virtually non-existent. It needs to not
only rejuvenate the services but also involve
private sector (companies in business) in such
services.
Kharif crops —growers await support prices
By Saleem Shaikh
Monday, 13 Jul, 2009 | 01:57 AM PST |

“NO support price for rice crop has been


announced while the Kharif season has entered its
third month. I have planted rice seedlings on just
20 out of my 45 acres. I am indecisive whether or
not to cultivate more rice this season,” says
Muhammad Arif Mahar, a rice grower in
Wazirabad, a village in Shikarpur district.

Majority of rice, cotton and sugarcane growers in


Sindh have expressed their disappointment over
the provincial government’s attitude towards their
problems, whether it is an issue of support prices
or provision of inputs at right prices.

Farm experts blame agriculture, food and


irrigation departments and say that the provincial
government’s callous attitude towards the
agriculture sector has not only reduced the per
acre yield of various crops but also increased
poverty, unemployment, and worsened law and
order situation.

“The delay in announcement of support price has


added to the growers’ woes who are already
suffering from acute irrigation water shortage,
black-marketing of seeds and fertiliser in various
parts of Sindh,” remarked Abdul Nabi Khan
Brohi, Sindh Abadgar Board’s (SAB) president in
Shikarpur district.

He told this scribe on phone that due to delay in


the announcement of support prices, the growers
had planted rice seedlings on barely 20-25 per
cent of farmlands in Shikarpur and Larkana
districts. “Much of these seedlings have dried due
to shortage of irrigation water in these two
districts,” Mr Brohi complained.

According to an estimate, Larkana and Shikarpur


districts are the major rice growing areas which
have 68 per cent share in total rice production in
Sindh.

SAB’s general secretary (Badin) Nawaz Memon


painted a gloomy picture of cotton, rice and
sugarcane crops in Badin district.

“As support price for cotton has not been


announced so far, the frustrated growers have
started picking cotton in Tando Bago, Talhar,
Matli and Shaheed Fazil Rahu Talukas and are
forced to sell their produce at throwaway prices,”
informed Mr Memon.

He said that on an average, 3-4 truckloads of


cotton are sent daily from the cotton growing
areas of Badin to open markets in the district to
be sold merely at Rs1,500-1,600 per 40kg.

Giving an overview of rice sowing in Badin


district, Mr Memon said, “paddy has been sown in
some scattered areas, for the farmers are reluctant
to sow it in absence of support price. But I think
rice cultivation will pick up once a good support
price is announced,” he said.

“Though Kharif crops’ sowing started from mid-


April in Sindh in dispirited mood, it will not gain
momentum unless the support prices for major
Kharif crops are announced”, believes Akhund
Ghulam Muhammad, general secretary of the
Sindh Chamber of Agriculture.
Talking about growers’ expectation for major
Kharif crops, Abdul Majeed Nizamani, SAB’s
president (Hyderabad chapter), told this scribe
that given the rising costs of various farm inputs,
the support price should at least be Rs750-850 for
paddy and Rs1,900-2,000 for cotton per 40kg.

The Sugarcane Control Board (SCB) has already


announced a support price of Rs103 per 40kg for
the upcoming crop, he said, and added that in the
given circumstances, it was a good price.

Deputy Secretary (Technical), Sindh Agriculture


Department, Muhammad Arif Khairi, says that
the support price for Kharif crops including rice
and cotton will be announced shortly.

He said: “Roughly speaking, the support prices


will be announced by mid-July”, and predicted
that “the prices for major crops will be
comparatively better keeping in view the
mounting prices of farm inputs.”

Sources in the provincial agriculture department


told this scribe that concerned officials were in
touch over the last one month with the Federal
Ministry for Food, Agriculture and Livestock
(Minfal), and the Agricultural Prices Commission
(Apcom) on the price mechanism for Kharif
crops.

“However, the agriculture department is still


waiting for final word from Apcom on the support
price announcement and it is expected in next
couple of weeks,” the sources added.

Over-leveraged Saudi firms


By Syed Rashid Husain
Monday, 13 Jul, 2009 | 01:55 AM PST |

Unable to meet their financial obligations, some


major family conglomerates in Saudi Arabia are
under critical spotlight. Nearly 90 per cent of the
companies in the Kingdom are family-owned and
have been perceived for long as the vehicle of the
country’s economic growth.
Traditionally, the finances of family-owned Gulf
companies were levered on debt during the
region’s oil-fuelled boom. As oil revenues boosted
the economy and petrodollars circulated
throughout the region in billions, prominent
merchant clans such as the Al-Gosaibis, Bin
Ladens and Kanoos, besides others, benefited
from royal largesse, which enabled them to
expand from trade into sectors like real estate,
construction, contracting and, more recently,
finance.

However, the tide seems to be receding. Three


major Saudi groups, the Al-Gosaibi, Saad and the
Tuwairqi are having difficulties in meeting their
financial obligations. Some defaults have already
been reported. And these groups are negotiating
with their banks to restructure their debts.

Ahmad Hamad Al-Gosaibi and Brothers Co (AH


Al-Gosaibi), a major Saudi firm, has defaulted on
$1 billion debt on foreign exchange transactions,
trade finance loans and swap agreements.

There are also questions on whether the company


will be able to meet its next payment on schedule
on a $700 million loan facility due in November
that was arranged by BNP Paribas and West LB
in May 2007. Saudi and Bahraini banks, and
several of the Gulf’s largest international banks,
have exposure to AH Al-Gosaibi’s huge debt,
reports here said.

A Bahrain-based subsidiary of AH Al-Gosaibi,


The International Banking Corp, is also in default
on some of its debt.

Closely related, privately-held investment


company Saad is also endeavouring to get its debt
restructured, after it ran into ‘unspecified
difficulties’ and the Saudi central bank resorted to
freezing the accounts of its billionaire chairman
Maan al-Sanea and his immediate family
members.

Saad is the second Saudi business empire to be


hurt by the sliding economy in recent days. Mann
Al-Sanea, the owner of Saad group, is married to
Sana Algosaibi, daughter of one of the AH Al-
Gosaibi’s three firm’s founding brothers.

Tuwairqi group, which incidentally also owns a


steel plant in Bin Qasim, is also in hot waters.
However, its woes are for a reason different than
over leveraging. It is reported to have bought a
large stock, at a point in time last year, when steel
prices, like virtually all other commodities, were
scaling one height after the other. However, since
the peak attained mid-last year, steel markets
have staged a dramatic downturn, bringing their
stock value to a substantially lower level. The
Tuwairqis had to request a restructuring of their
debts.

The family-owned business empires, until now,


were a little scrutinised entity in most Gulf
economies. Hence the issue of toxic assets is not
limited to a few. Banking circles in the region
appear worried. Bad debts have mounted to $40
billion in the Kingdom. The regional banks’
lending to these businessmen was based on the
businessmen’s ‘reputation’ and this is a point of
weakness, economist Khalid al-Humaidan recently
told the local Al-Riyadh daily. He blamed the
Saudi Arabian Monetary Agency, the country’s
central bank, for turning a blind eye to loans in
billions of riyals for real estate projects when the
banks were not authorised to finance the real
estate sector.

These developments have raised concerns that


some family-run businesses in the oil-rich Gulf,
including Saudi Arabia, the Middle East’s largest
economy, are not being run as efficiently as
perceived earlier. Some of these family
conglomerates appear to have been hit harder
than expected by the world financial crisis.

Bankers throughout the region are srutinising


their corporate-loan books,” says a banker in
Riyadh.

Over the years business groups have exhibited


irrational exuberance, acquisitions have
abounded, often to the detriment of core
competences within these groups. While this has
improved their diversity and versatility, it has
increased their exposure and risks. As these
groups have grown, their challenges have
increased. Businesses shifted from the first to the
second generation, and some from the second to
the third, with all the associated leadership
challenges facing family businesses the world over.

Some family-owned businesses in Saudi Arabia, as


well as in other parts of the Gulf, developed a high
risk appetite. And they are now paying a price for
this indulgence. Lack of corporate transparency
has been the hallmark of such business empires.
For obvious reasons, they guarded their financial
transactions with secrecy, shrouding their
financial health. Balance-sheets were rarely seen
in public.

Few in the hierarchy dared challenge the decision,


even if whimsical, taken by the family scions at the
top. Most family businesses in the Middle East are
less than 65 years old. However, only five per cent
have been reported to be surviving into the third
generation throughout the region.

Many of these family businesses began as trading


houses and over the years have been transformed
and diversified into huge conglomerates. However,
these businesses are faced with a host of
challenges stuttering their natural growth.

Succession issues and transferring effective


control and knowledge from one generation to the
next have often proved to be a challenge and, as
shareholders (family members) become numerous,
they impact on efficiency of decision-making.

Similarly attracting outside talent and


relinquishing control when necessary have always
been regarded important for survival and growth.
Recruitment policy needs to reflect the size of the
group. Over the years, analysts here say, family
groups have grown into multi-billion-dollar
conglomerates, sometimes without commensurate
skill resources Often a dire need has been felt for
separation of management and ownership.

Family groups also need to re-evaluate their


existing portfolio of businesses and learn to
relinquish control of those that do not fit within
their long-term strategy or cost structure. In a
non-professional family, this has often found to be
wanting, leading to dilution of resources in non-
core sectors. Diversification into multiple
businesses can lead to over-extension beyond the
group’s core knowledge and competences.

The over-leveraged based growth model is up for


serious scrutiny. It has failed many an established
houses. The city of Dubai built painstakingly over
the years on over-leveraged money, is in deep
trouble. The financial system promoted by the
West has been responsible for the recessionary
woes of the world.

Accessing US market
By Humair Ishtiaq
Monday, 13 Jul, 2009 | 01:55 AM PST |

INTRODUCED in the American Senate a few


weeks ago, the Tariff Relief Assistance For
Developing Economies Act 2009 is the latest threat
to Pakistan’s efforts to gain better market access
for its products.

The proposed legislation (S. 1141), also known as


the Feinstein Bill after Senator Diane Feinstein
who introduced it, is now with the House Finance
Committee, and aims at eliminating tariffs on
textiles and clothing coming from Sri Lanka and
14 least-developed countries (LDCs) –
Afghanistan, Bangladesh, Bhutan, Cambodia,
East Timor, Kiribati, Laos, Maldives, Nepal,
Samoa, Solomon Islands, Tuvalu, Vanuatu and
Yemen.

If it goes through, the legislation would hurt


Pakistan’s apparel exports to the US after it has
already suffered setback in the US market on
similar lines. As explained by the sponsors of the
bill, some of the 15 countries named face tariff
barriers that are much higher than those of
developed countries. According to the US
International Trade Commission, goods imported
from Bangladesh last year were charged a 15.2
per cent tariff on average. For Cambodia, it was
16.2 per cent, but imports from France averaged a
one per cent tariff rate.

In contrast, Pakistani apparel were subjected to


16.4 per cent tariff on average last year. The
proposed bill does not intend to change that status
which means its competitors will have an
unassailable advantage through the proposed
zero-rated access into the US.

With a few ‘ifs’ and ‘buts’, the benefit offered is


duty-free access for apparel manufactured in the
listed countries and exported to the US for ten
years, right up to December 31, 2019. In order to
get the benefit, the apparel must conform to one of
two rules regarding the fabric in the apparel: one,
apparel manufactured in beneficiary countries of
US fabric of US yarn can be exported in unlimited
quantities; or, two, apparel assembled in
beneficiary countries of fabric formed in
beneficiary countries of yarn formed in the US or
beneficiary countries, and for the years 2009
through 2016 apparel assembled in beneficiary
countries of third-country fabrics, will be
subjected to quota limitations.

According to a study of the Trade Development


Authority of Pakistan, five of the 15 countries are
major shippers of apparel to the US, led by
Bangladesh which shipped 1.43 billion square
meter equivalents (SMEs) in 2008, followed by
Cambodia (888.64 million SMEs), Sri Lanka
(379.49 million SMEs), Laos (16.86 million SMEs)
and Nepal (4.83 million SMEs). Combined, these
five accounted for 12 per cent of all US apparel
imports in 2008. The top three – Bangladesh,
Cambodia, and Sri Lanka – accounted for 99 per
cent of all such imports from the countries that
stand to gain if the bill is adopted by the Congress.
Bangladesh alone accounted for 52 per cent on
this count.

The implication for Pakistan, which was the 10th


biggest apparel exporter to the US in 2008 with a
3.08 per cent market share, is quite evident and
calls for some active lobbying in relevant circles to
protect its interests-- preferably getting the same
facility.

The director-general, Trade Development


Authority of Pakistan (TDAP), Nusrat Jamshed,
however, takes a light view of the Senate
proceedings. “First let it happen and then we will
surely find ways and means to circumvent the
law,” he says, citing the case of Basmati patent
which Pakistan was able to manage after India
had claimed it.

Shahzad Arshad, a former chairman of the


Pakistan Cotton Fashion Apparel Manufacturers
and Exporters Association recently appointed by
the commerce ministry as the country’s official
nominee to the International Textile Clothing
Bureau Private Sector Consultative Committee,
had not heard of the Feinstein Bill and promised
to get in touch immediately with the ministry.

Mr Arshad, who also heads the FPCCI Textile


Committee, said he had just returned from
Geneva where he had given a 60-minute
presentation on ROZs and wondered why nobody
made a mention of the bill during the proceedings
there. “If what you are saying is true, we will be
deeply hurt,” he remarked.

Being a major stakeholder, Pakistan Readymade


Garments Manufacturers and Exporters
Association (Prgmea) Chairman Jamshed Hanif,
lamented that the government was not moving at
the pace that was required by the situation. “We
have given presentations to the ministers and
officials concerned and they have assured us of a
better market access, but it looks like we are going
to miss out on what we already have in hand.
Whatever you do once the legislation is in place
will be meaningless, but our fear is that the official
circles have yet to realise the enormity of the
issue,” he said from Lahore.

Similar sentiments were echoed by Babar Khan,


who heads the South Zone of Pakistan Hosiery
Manufacturers Association (PHMA), when he said
government priorities were different from those of
the businessmen.

Regardless of the comments by the DG Textiles,


the TDAP study seems to be clear-headed in its
directions, noting without ambiguity that
Pakistani exporters of apparel are “justified in
their apprehensions”. Although there is a
commitment by the developed countries to allow
duty-free market access to the least developing
countries, this particular legislation goes a step
forward by including in its folds Sri Lanka, which
is not an LDC.
Besides, Pakistan will not only be losing the US
market of textile made-ups, but stands to lose in
terms of raw material export as well. Since the
countries listed in the said bill will get tariff relief
on apparel only when they import either yearn or
fabric from the US itself, it will be illogical on
their part to have third-party imports.

Four of the 15 countries on the list are importers


of Pakistani cotton, yarn and fabric. In the first
half of the last fiscal, exports to these countries
accounted for $273.23 million. Afghanistan and
Yemen together imported less than one per cent of
it, while the rest went to Bangladesh and Sri
Lanka, with Bangladesh alone importing 76 per
cent of the total. With the proposed Feinstein Bill
actively discouraging third-party imports, it is
only natural that Pakistan will have to find new
markets for its textile exports.

Pakistan, as noted by the TDAP report, has been


raising its voice in the WTO against duty-free,
quota-free access to LDCs, and has been
successful in making a case for itself as an affected
low-income developing country relying on textile
and apparel exports to the EU and the US.

“In fact, it was due to Pakistan’s efforts that the


Declaration of the WTO Ministerial meeting held
in Hong Kong in 2005 included a commitment by
the developed countries that while granting free
market access to LDCs, they will take into account
the trade interests of adversely affected
developing countries and a similar treatment
could be meted out to such countries,” says the
report.

It is clearly time for one more round of hectic


lobbying and canvassing at relevant forums to
protect Pakistan’s commercial interests.

Coastal communities struggling for survival

“I have to struggle hard for arranging potable


water for my family from far-flung areas as I am
always short of money. I cannot afford to take my
son to the city and get him treated there for a skin
disease. And some times, my family has to starve
four days a week, says 65-year-old Zuleka,”
resident of Atharki village at Kharo Chann taluka
in Thatta district.

Another villager, Gul Mohammad Katiar from


the same area narrated a similar painful story
regarding deaths of his two minor children. He
recalled: “My two children succumbed to
untimely death six months ago after drinking
contaminated water. And because there is no
health facility in my village, I had to rush my child
to a doctor in Thatta. But due to seriousness of the
disease, the doctor suggested that I take him to
Karachi or Hyderabad for medical treatment
which I could not afford.”

More than 85 per cent of the people in coastal


villages suffer from serious water-borne diseases,
majority of which are curable. Eighty per cent of
the coastal belt continues to face shortage of clean
potable water – particularly in Thatta and Badin
districts, according to reports of a non-
government organisation.

Pakistan Fisherfolk Forum spokesman Abdul


Sami told this scribe that the majority of coastal
communities purchase water cans at heavy prices
which are brought in through donkey carts from
distant places. It is a huge burden on their limited
earnings. “The water is excessively unhygienic and
continues to be a major cause of water-borne
diseases.”

He pointed out that mangrove forests have fast


depleted thanks to unrestrained commercial
logging which threaten, both the lives and
livelihoods of local communities. “Because of the
fast disappearing mangrove forests, fish and
shrimp catch is at the lowest,” he said.

Given the state of socio-economic life, the poverty-


stricken people of the coastal communities are
struggling for their survival.

A visit by this scribe to the coastal areas – mainly


Thatta and Badin districts has revealed a dismal
picture of coastal life where fishing was the chief
means of their livelihood.

Due to bad roads, travelling to the districts was


stressful. This is also a major hurdle in improving
living standards of coastal communities.

Traditionally, in this area, agriculture, livestock


and fishing used to be major sources of livelihood.
High quality red rice used to be extensively
cultivated in the past. But now farming is at the
lowest level due to water logging and salinity,
remarked Sikander Brohi, director Participatory
Development Initiatives (PDI).

He said the locals during the off season (May –


August) relied on farming and fishing in other
months of the year. But, fresh water scarcity from
the Indus and seawater intrusion into the
farmland have caused an immense land
degradation. Now fishing provides 90 per cent of
their livelihood while agriculture and livestock
rearing are eight per cent and the service sector
two per cent, respectively.

Officials in the Sindh Coastal Development


Authority (SCDA) however say a number of
development interventions have been carried out
to improve socio-economic conditions . They
agreed that SCDA’s performance for uplift of the
coastal areas remains dismal.

Set up in 1994, initially the SCDA was a


sponsoring and monitoring body and all the
annual development programme (ADP) related
activities- agriculture and fisheries, forest, works
and development and irrigation and water--- used
to be implemented by other relevant departments.
But since it is now a full-fledged implementing
body, the situation has improved considerably and
more development schemes have been carried out.
SCDA Director-General, Qabool Ahmed, told this
scribe that work is continuing on two separate six-
year ADP schemes which focus on improving
living standards and livelihood sources of locals.

“Sindh Coastal Community Development Project


(Rs2 billion) and Oil Palm Plantation Project
(Rs48.6 million) undertaken in 2006 and 2007
separately, will be completed in 2013”, Qabool
Ahmed informed and added, “Under the ‘Oil
Palm Plantation Project’ 500 acres of land will be
brought under cultivation of the palm oil trees.”
These projects are being implemented in eight
talukas of Thatta and Badin district.

Zamir Ujjan, SCDA assistant director for


agriculture, informed this scribe that two new
schemes at a cost of Rs450 million have been
included in the ADP 2009-10 for improving major
fishermen settlements in rural coastal areas of
Karachi, Thatta and Badin districts as well as
rehabilitation of the disaster affectees.

He further revealed that local NGOs will be


engaged in the Rs250 million ‘Improvement of
Fishermen Settlements Project’, while another
Rs200 million ‘Rehabilitation of Disaster Affectees
Project’ will be implemented in partnership with
Pakistan Poverty Alleviation Fund (PPAF).

For addressing the problem of potable water in


the area, Zahid Jalbani, Manager, WWF Indus
For All Programme KT Bunder, suggested:
“Water desalination plants with solar system can
be installed which can help meet more or less 50
per cent drinking water needs.”

There is no proper fish landing facility in both


Keti Bunder and Kharo Chan coastal towns of the
Thatta district which not only affects the quality
and sale price of fish. Jalbani also suggested that
no new programme was introduced for alternative
means of livelihood when most of the agricultural
land has been swallowed by sea.

He suggested that soft loans should be provided


for setting up small-scale/home-based micro
enterprises for the coastal communities. And such
loan facilities may be supported by training for
skill development.—Saleem Shaikh
World economies

France

The national statistics body INSEE has forecast


that the economy will shrink by three per cent in
2009, which would be the worst result since 1949.
The French economic monitor OFCE meanwhile
forecast that the country’s economy would shrink
by 2.3 percent in 2009, with the rate of downturn
easing in 2010 to 0.2 per cent -- harsher than
government forecasts. According to the statistics
agency INSEE, the French industrial orders fell
1.9 per cent in February. Orders actually rose by
4.1 per cent for the chemical industry but fell
heavily in the metals sector by 9.5 and in the
paper sector by 5.6 per cent.

France’s headline jobless total climbed by 36,400


in May, the smallest increase since September,
with young jobseekers continuing to suffer the
strongest rises. Monthly figures issued by the
Economy Ministry showed the headline jobless
total rising to 2,543,100 in May, a 1.5 percent
increase from the previous month and a 26.4
percent rise from a year earlier. As in previous
months, young people were among the hardest hit,
with an annual rise of 41.1 percent in the number
of jobseekers under the age of 25 in mainland
France. According to the most recent figures,
France’s jobless rate in April stood at 8.9, below
the euro area average of 9.2 per cent.

The government has pumped billions of euros in


stimulus measures into the economy and
introduced a range of measures to help jobseekers
back to work. But with companies laying off
workers by the thousand as sales and orders dry
up, jobless rolls are expected to grow, lagging
behind any recovery for several months. National
statistics office INSEE expected 699,000 private
sector posts to disappear in 2009 with the pace of
job losses speeding up in the second half of the
year. Workers on short-term contracts have been
hit hardest by the slowdown but compulsory
redundancies have taken an increasing toll on full-
time staff on permanent contracts as well.

The French government’s budget deficit could fall


in 2010 with a return of modest growth following
a spike this year due to the global financial crisis.
However, France’s overall public deficit will likely
remain where it is as any improvement in the state
budget is likely to be offset by the continuing
deterioration of the situation in the welfare and
social budgets. The 2009 public deficit is now
expected to hit between 7-7.5 per cent of gross
domestic product. France’s public deficit came in
at 3.4 percent of gross domestic product in 2008
— already above EU and eurozone rules
restricting budget overspending to three per cent
of output.

The state budget deficit would more than double


to between 125 and 130 billion euros (175-182
billion dollars) in 2009 from 56.3 billion in 2008.
Earlier, the budget ministry issued a document
saying state revenues were expected to fall by
between 36 and 44 billion euros this year
compared to last year, possibly hitting an 11-year
low. Not counting economic stimulus measures,
ordinary spending is being kept under perfect
control, with continued reductions planned in the
number of civil servants and efforts to pare health
costs. There were no plans to increase mandatory
social contributions.
Switzerland

The Swiss economy is in a “long recession”,


according to the KOF Swiss Economic Institute in
Zurich. Switzerland slipped into recession in the
middle of 2008 and the Swiss National Bank
expects the economy to shrink by up to three per
cent this year, which would represent the worst
decline in three decades. KOF revised its growth
forecast for the Swiss economy downwards and is
now predicting a 3.3 per cent decline for this year
and another 0.6 per cent drop in 2010.

The recession, which has been rather mild by


international standards owing to its relatively late
effect on private consumption, will last longer in
Switzerland than in its neighbouring countries.
The institute expected a mild recovery of exports
in 2010, which was too late to prevent a
pronounced rise in unemployment and sharp
slowdown in consumption. Swiss gross domestic
product for the first quarter of 2009 has fallen by
0.8 per cent on the previous three months, its
worst quarterly performance since 1992.

The year on year drop was 2.4 per cent, the


sharpest contraction since 1976. The 2.4 per cent
drop in GDP is not very upbeat, confirming the
Swiss economy is still feeling the heat of the global
economic slowdown. But it is still comparably
solid compared with other European economies.
Exports of goods – down 6.6 per cent – were again
more seriously affected than exports of services,
down 2.3 per cent. In contrast to exports, imports
of goods and services remained at the same level
as the previous quarter. Negative growth was
registered in particular in exports.

The financial crisis would hit the economy and


consumer spending squarely in 2010. After a 13.3
per cent drop in exports in the first four months of
2009, they are expected to stabilise in the second
half of the year. A continuing recession would
require businesses to adapt to lower demand and
cut jobs. However, the Swiss government cut its
2009 economic forecast for a second time this year
after the worst global recession in more than six
decades eroded exports. Swiss exports may slump
11.2 this year and increase 1.4 per cent in 2010,
the state secretariat said. Equipment spending will
probably decline 10 percent this year and five per
cent next year while consumer demand is seen
rising 0.2 in 2009 before dropping 0.2 per cent in
2010.

Swiss companies are planning to lay off staff over


the next 12 months to deal with the economic
downturn. Hit particularly hard will be employees
in the industrial sector, where 55 per cent of
companies will reportedly cut staff. Soft measures
introduced by many companies over the past six
months, such as requesting employees to reduce
their hours or imposing a freeze on hiring, have
proved insufficient. The Swiss Business
Federation predicted unemployment rates could
reach four per cent on average in 2009 and 5.3 per
cent in 2010.

Unemployment in Switzerland rose more than


expected in June to its highest level in over three
years as the deep recession forced more companies
to axe jobs. The unadjusted unemployment rate
rose to 3.6 from 3.4 percent in May. This was the
highest since March 2006. So far, the rise in
unemployment has been less than many expected
but June was a very negative surprise. The KOF
Swiss economic research institute forecasts the
unemployment rate to hit a post-war record next
year at around six per cent as Switzerland looks
set to recover only slowly from the deepest
recession since 1975.

Canada
According to IMF’s latest update, Canada’s
economy will shrink less than previously predicted
in 2009 and grow more in 2010, helped by
commodity prices that have rebounded ahead of a
global recovery. The world’s eighth-largest
economy will contract 2.3 in 2009 and grow 1.6
per cent in 2010. The IMF had earlier predicted
the Canadian economy to shrink 2.5 percent this
year before rebounding to 1.2 per cent in 2010.
Real gross domestic product (GDP) declined 1.4
per cent in the first quarter, the largest quarterly
decrease since 1991. Both domestic and
international demand continued to weaken. Real
GDP fell 0.3 per cent in March. The declines in
February and March were less pronounced than
those in the preceding three months.

Lower spending in Canada and the United States,


particularly business investment in plant and
equipment, led to a sharp decline in Canada’s
exports and imports. Business investment in
Canada fell at the fastest rate since 1982. Final
domestic demand was down 1.5% as personal
spending, particularly on durable goods,
continued to decline. Corporate and personal
income also fell in the quarter. While there have
been some encouraging signs lately, especially in
Asia, the global economy remains fragile and that
will continue to restrict Canada’s speed limit.
Canada’s economy is expected to see some growth
in the final quarter of the year, albeit at a sluggish
pace.

The year-over-year inflation rate will turn


negative and remain so until at least the end of the
year, with the strong C$ helping to keep CPI well
under the Bank of Canada’s target throughout
2010.Weak foreign demand for Canadian exports
led to a one per cent decline in manufacturing
activity, with nondurable goods the hardest hit.
Mines and petroleum activity fell 0.5 and retail
trade was down 0.6 per cent. The declines were
partially offset by strength in the activities of real
estate agents and brokers along with wholesale
trade. The Bank of Canada expects the Canadian
economy to shrink 3.5 in the second quarter,
following a 5.4 per cent contraction in the first
quarter.

Canada’s headline inflation rate rose by a better-


than-expected 0.7 per cent in May. The gain
helped to keep the annual change in consumer
prices up, although barely, at 0.1, down from 0.4
per cent in April. Economists had expected annual
inflation to fall. The Bank of Canada’s preferred
core measure, which excludes the eight most
volatile components, rose by 0.4 per cent in the
month to be two per cent higher than in May last
year and two basis points higher than in April.
While the headline inflation avoided falling into
negative territory this month, economists still
expect negative prints in the months ahead.

With the economy undergoing a relatively severe


downturn and the US economy on track for the
worst recession in the post-war period, the central
bank and economists expect that core prices will
ease relative to a year earlier. Some of the decline
in the headline inflation rate is purely the result of
energy prices being much lower than they were
last summer. Once the impact of this factor fades,
the pressure from this component will switch from
weighing down the inflation rate to bolstering it.

The Canadian economy is likely to push


unemployment rate to an 11-year high, despite
signs of economic stabilization. The median
forecast in a Reuters survey was for a net loss of
35,000 jobs last month and a rise in the
unemployment rate to 8.7 from 8.4 per cent in
May, the highest since January 1998. There are
small signs, however, that the economy’s
downward slide is slowing but the labor market is
unlikely to show signs of improvement until the
fourth quarter of this year or early 2010,
economists predict. Another 100,000 jobs are
forecast to vanish over the summer, adding to the
360,000 decline in employment since the job
market peaked in October 2008. The labour
market is going to be the last of the indicators to
show some upside. The Canadian government is
unlikely to balance its budget in 2013-14 as
promised because of a weaker economy and new
spending measures such as the auto bailout. In a
report released to the House of Commons finance
committee and obtained by Reuters, the
independent parliamentary budget officer (PBO)
estimated a cumulative deficit over five years of
C$155.9 billion ($134.4 billion). The PBO forecasts
a deficit of C$48.6 billion this year, slightly lower
than the government’s latest estimate, released
last month, of C$50.2 billion. But for the following
four years, he expects the shortfalls to be
substantially larger than those laid out by the
government and sees a C$16.7 billion deficit in
2013-14 -- the year the government has pledged to
return to a surplus.
Uniform sales tax: tussle between centre and
states
By Anand Kumar
Monday, 13 Jul, 2009 | 01:53 AM PST |

THE indirect tax regime in India, which is


complicated, irrational and antiquated, is in for a
major overhaul. Finance minister Pranab
Mukherjee, in his budget presented to parliament
last week, asserted that the new Goods and
Services Tax (GST) would be implemented on
April 1, 2010, as announced earlier.

Reforms in the indirect tax regime have always


generated opposition from states that fear their
revenues would be hurt by a uniform policy. Even
in the case of GST, states like Tamil Nadu,
Madhya Pradesh and Chhattisgarh (the latter two
are ruled by the Bharatiya Janata Party) are
vehemently opposed to its nation-wide
introduction. K. Anbazhagan, the finance minister
of Tamil Nadu, for instance, feels it’s premature
to rush through with the GST regime by April
2010; the state government fears that the fiscal
autonomy of states would be eroded by the tax.

“The roadmap towards GST must be carefully


chalked out based on consensus and not
compulsion,” says Anbazhagan. According to him,
the central government should work out fair and
revenue-neutral rates for states. Hasty moves “will
not inspire confidence among the states regarding
a fair GST regime,” adds the minister.

But Mukherjee says that GST would be


introduced in financial year 2010-11, even if some
states opt to stay out of it initially. When Value-
Added Tax (VAT) was introduced in 2005, many
states, including Uttar Pradesh and Tamil Nadu,
chose not to implement it. However, gradually all
the states accepted VAT and are implementing it
now.

While admitting that it is going to be tough to


implement the scheme from April 1, Mukherjee
says: “I know there is a problem. As in VAT, some
states did not join us.” But Asim Dasguta, the
chairman of the empowered committee of state
finance ministers (and the finance minister of
West Bengal) has assured him that efforts would
be made to resolve the differences among the
states.
At present, indirect taxes in India include the
central excise duty (imposed on manufactured
goods), service tax, central sales tax and VAT.
Additionally, many local bodies impose octroi on
goods that enter a city. There is a plethora of taxes
from the factory gate all the way to a retail outlet.
The multiplicity of tax rates results in evasion and
corruption.

* * * * * *

THE indirect tax system in India has failed to


keep pace with the changes in the Indian economy.
The manufacturing sector, which once dominated
the economy, today accounts for less than 25 per
cent of the gross domestic product (GDP). The
services sector has shot up to over 50 per cent,
though there are many services that are still not
taxed.

The central government earns about Rs1.7 trillion


(nearly $35 billion) by way of excise duty and
service tax. This revenue is shared with the state
governments. The government decided to
implement the GST system to remove barriers
between states and fiscally unify the country.
An expert committee suggested the introduction of
GST way back in 2001. The objective was to do
away with the multiplicity of taxes at the central
and state levels, to avoid double taxation and to
modernise the system. GST is being projected as a
win: win situation, both for governments and for
businesses.

While tax rates would be lowered, overall


revenues are expected to rise sharply. According
to Vijay Kelkar, chairman, 13th Finance
Commission, who laid the roadmap for
implementation of GST, implementation of GST
would result in an immediate gain of Rs730 billion
in tax revenues, besides raising employment and
expanding the GDP.

Kelkar notes that Canada’s GDP rose by 1.4 per


cent after the implementation of GST. “In India
we can expect a similar kind of positive impact,”
says Kelkar. “This means gains of about $15
billion annually.”

GST, unlike excise duty or sales tax, is a


consumption-based tax, and producing states such
as Tamil Nadu and Maharashtra fear that they
would be the ultimate losers. Many governments
have over the years extended a series of tax
exemptions, to attract manufacturers to set up
plants in their states, especially in the backward
regions. Under the GST regime, all such
exemptions would be nullified, which could result
in many of the industries relocating to the
industrial belts of developed states.

Aware about these concerns, the central


government is willing to make a lot of concessions.
“States and union territories might incur
considerable revenue losses in their bid to accept
execution of GST and it would be the
responsibility of the finance commission to protect
such losses by providing them with compensation
packages in order to advance implementation of a
flawless GST regime,” says Kelkar.

The central government envisages a single GST


rate of 17 per cent, with nearly half (eight per
cent) being allocated to the states. The
government also plans to bring in the construction
and real estate sectors and even Indian Railways
within the ambit of the GST, to boost revenues.

* * * * * *

THE Federation of Indian Chambers of


Commerce and Industry (FICCI) believes that
implementation of GST, along with the opening
up of foreign direct investment, will provide a
major boost to the fast moving consumer goods
(FMCG) sector in India.

The $25 billion FMCG sector could be a


significant beneficiary of the GST regime, as there
would be lower tax rates, uniformity in taxation
and virtually no harassment in the movement of
goods across the country. It is estimated that the
industry can touch $43 billion by 2013 and almost
$75 billion by 2018, thanks to these reforms in the
tax regime.

Besides the opposition from a few states, the


central government itself has to hasten the
legislative process to introduce GST. For instance,
the Constitution will have to be amended and
several existing laws will have to be tinkered. A
constitutional amendment requires the support of
two-thirds of the members of both the upper and
lower houses of parliament.

Considering the refusal of some states to toe the


centre’s line, it will be difficult for the government
to push through with these amendments.

The legislative process in India is extremely slow,


with members of parliament preferring to set up
standing committees to examine the changes.

Of course, the government faced similar problems


while introducing VAT in 2005. It took several
years for it to iron out the differences and ensure
its nationwide implementation.

And despite the introduction of VAT, there is no


uniformity in the tax rates across India. Last
week, about 5,000 retailers of mobile phones in
Maharashtra went on a daylong strike, protesting
against the state government’s move to raise VAT
on cell phones from four per cent to 12.5 per cent.

Most other states in India impose VAT of only


four per cent on mobile phones, but Maharashtra
– the largest market in India, with sales of 12
million handsets out of a total of 120 million sold
in the country every year – decided this month to
jack up the rates to boost its revenues.

“Maharashtra’s mobile traders have been one of


the most successful and significant channels for
the proliferation of mobility in the state,” remarks
Tushar Avalani, president, of the state’s mobile
trade association.
“As the largest mobile handset market in India,
the state’s contribution to the industry,
government and consumers is undisputed. A
regressive step like this will severely cripple the
growth of organised mobile retail trade in the
state, in addition to leading to a resurgence of grey
channel.”

According to Pankaj Mohindroo, president,


Indian Cellular Association – a body representing
handset manufacturers – the move will help grey
market operators, who will now start smuggling
handsets into the country. The association believes
the Maharashtra government move to hike VAT
on handsets could render 150,000 people jobless.

Ironically, Maharashtra is ruled by the same


United Progressive Alliance (UPA) government
that is in power at the centre. Clearly,
implementing uniform tax rates across the
country is indeed a difficult task.

Industrialisation — ensuring level playing field


By Shahid Javed Burki
Monday, 13 Jul, 2009 | 01:53 AM PST |

THE Planning Commission may have to look at a


number of issues as it begins to focus on providing
the country with an industrial sector that meet its
needs. To begin with, what kind of direction and
help should the state provide to the industrial
sector in the light of developments taking place in
the global economy and the evolution of the
world’s industrial production system?

In its most recent report, the UNIDO has


indicated that concentration on “tasks” rather
than on the production of final products provides
better opportunities to the countries such as
Pakistan that have been left behind in the process
of industrialisation. By “tasks,” the UNIDO is
referring to the assistance in producing the final
products rather than the products themselves. If
there is some substance in this advice how should
Pakistan go about it?

In focusing on the future structure of the


industrial sector, policy makers must bear in mind
the competitive pressures under which the
country is operating. Of these none is more
important than the competition emanating from
China. Trade with China is an area of enormous
interest for Pakistani businesses. Some have
concerns while some others see opportunities. The
conclusion is obvious: the dynamics of this trade
needs to be studied carefully by the public and
private sector working together and
recommending policy actions for the state. By
focusing on tasks, policy makers could achieve
better integration between the Chinese and
Pakistani industrial systems.

Businesses in Pakistan also believe that an


important aspect of the trade policy is the
Pakistan-Afghanistan Transit Trade Agreement.
While providing Kabul with an outlet to the sea is
important, the agreement should not create
opportunities for enormous leakages that have
occurred in the past and continue to occur at
present. The modalities of this trade needs to be
determined in a way that Pakistan’s economic
interests are protected.

Large businesses feel that the growth of the black


economy is hurting development of the industrial
economy. There is an urgent need to develop a
level playing field for enterprises of various sizes.
At the moment, small enterprises, by avoiding to
pay taxes and by avoiding a number of fairly
stringent regulations, have increased their market
share in the local market place at the expense of
large firms. The large producers find it difficult to
compete with SMEs.

The SMES can also deal with energy and water


shortages by making under-the-table payments to
officials responsible for providing these services.
While the development of the SME sector is vital
for the country’s economic future it should add to
the overall efficiency of the economy. Operating in
an uneven field reduces the economy’s efficiency.
How can a level playing field be produced for all
businesses?

One way of doing it is to review laws and


regulations that are in place. Such a review will
reveal that many of them are no longer needed;
the purpose for putting them on the books was to
realise a particular goal or solve a certain
problem. For instance, the Agricultural
Marketing Acts in the provinces were originally
written to protect the Muslim peasantry and small
landholders from the non-Muslim shopkeepers.
They have lost their original purpose but they
remain on the books. A review done jointly with
the private sector would indicate that many laws
and regulations only create rent seeking
opportunities for the regulators. They serve no
particular economic or social interest.

Taxation and revenue generation is one particular


area where a great deal of cleansing of laws and
regulations needs to be done. As was recognised in
the recent budget speech, it is of vital importance
for increasing the tax to GDP ratio. Many among
the private sector feel that the regulations in place
should be carefully studied by a joint working
group of officials and private sector people.

It is also important to develop international trade


as an important determinant of efficient
industrialisation. There is an anti-export bias in
the traditional approach to policy making. This is
another area where the private sector could work
with the government to; (a) identify changes in
policies that would create a pro-export orientation
and, (b) identify the institutions that need to be
improved or established to realise the
government’s objectives.

Businesses are deeply concerned about the state of


physical infrastructure which has lagged behind
the development of the economy and does not
meet the needs of a trading nation. They have
taken cognisance of the fact that India, having
lagged behind Pakistan in developing its highway
system, is rapidly catching up. Indians have
developed an ambitious programme for
developing a national highway system closely
involving the private sector. The users will be
required to pay for the facilities they use. The
private sector should be asked by the government
to present it with the contours of an action plan
that would involve it in the development of this
vital sector of the economy including the prospect
of raising additional resources for investment in
the sector.

Belonging to the sector of infrastructure but


demanding a separate treatment is shipping, an
area in which a decent beginning was made in the
1960s but has allowed the industry to run it down.
Absence of appropriate shipping facilities imposes
enormous burdens on exporters, adding
significantly to costs. How could this situation be
remedied?

The businesses recognise that Pakistan has not


given the sector of agriculture the attention it
deserves. Properly developed, agriculture could be
a major source of exports, not only of grain and
other low value- added products. Pakistan could
carve out a decent space for itself in processed
foods. But this will need investment by the state in
infrastructure (cold chains, for instance),
technology to increase productivity as well as the
quality of products, finance and market advice.
Once again, the public and private sectors could
be partners.

Given the serious shortages that have developed in


recent years in supply of energy, the government
needs to develop a well thought-out strategy to
ensure that supply keeps up with demand. It is
clear that the gap between supply and demand
cannot be closed by the government alone making
investment from public funds. There has to be a
partnership between the public and private
sectors.

Pakistan has seriously lagged behind developing


the technological base of the economy. There was
eloquent talk in the Planning Commission’s Vision
2030 statement about providing the economy a
strong technological foundation. That goal is still
searching for an operational answer. What kind of
strategy is needed and how could the private
sector support it? Should the development of e-
government be given more attention than it has
received and whether e-government could serve as
the catalyst for advancing the pace of
technological development?

Data exclusivity and monopoly rights


By Hussain H. Zaidi
Monday, 13 Jul, 2009 | 01:53 AM PST |

PAKISTAN is under pressure from developed


countries and their multinationals (MNCs) to
incorporate provisions relating to data exclusivity
in its regime for registration and marketing of
medicines and agro-chemicals.

The Drugs Act, 1976 is being amended to bring it


in compliance with Article 39 of the TRIPs
Agreement of the WTO, relating to protection of
undisclosed information.
Specifically, Article 39 (3) makes it obligatory
upon WTO members to ensure protection of
clinical test data submitted by pharmaceutical
companies to drug regulatory authorities or
agencies (DRAs) against unfair commercial use.
Since the Drugs Act does not provide for data
protection, it is being amended. However, pushed
by the MNCs, developed countries want the Drugs
Act to be amended in such a way as to provide not
only for data protection but also for data
exclusivity.

What is data exclusivity? What are its costs and


benefits? How does it differ from data protection?
And what does the TRIPS Agreement say about
the two? Let’s elaborate.

In order to get registered for a new medicine it


intends to supply to a country, a pharmaceutical
company is required to provide clinical test and
other relevant data to the DRA. The test data is
necessary to demonstrate product safety, quality
and efficacy.

The purpose is to ensure that the product does not


have any adverse effects on humans (in case of
medicines) or the environment (in case of
agrochemicals). These tests entail a lot of
investment, which may deter potential
competitors from entering into the market.

When manufacturers apply to register a generic


version of an already registered medicine, they
only have to demonstrate that their product is
equivalent to the original one. To test safety and
quality of that generic product, the DRA relies on
the data submitted by the original manufacturer
and the generic manufacturers are not required to
submit their own data. This encourages the entry
of other players in the market and promotes
competition.

By contrast, data exclusivity provides that for a


fixed period, the DRA cannot rely on the data
provided by an original manufacturer in order to
register a generic version of that medicine. This
leaves potential competitors with two options:
either to make a similar investment in clinical
testing or stay out of the competition.

Obviously, generic manufacturers are seldom in a


position to make the required investment in
clinical testing and opt to stay out of the market.
The result is that during the period of data
exclusivity, DRAs cannot register generic versions
of a medicine unless that the generic
manufacturer carries out its own tests—which is
seldom the case—demonstrating product safety,
quality and efficacy.

Data exclusivity is independent of patents and


may create a monopoly for a fixed time even when
the patent has expired or has not been granted.
Even when a patent is available, data exclusivity
may prevent the government from granting a
compulsory licence in the interest of public health.

Even if a compulsory licence is granted, the


generic manufacturer will not be able to use that
for a limited period. Thus, data exclusivity cuts
across the very reasons for compulsory licensing
of patents for medicines.

In contrast to a patent, data exclusivity does not


require any inventive activity for it to be granted.
All it requires is investment made in carrying out
clinical tests to demonstrate product safety. This
makes data exclusivity much stronger than
patents.

It is obvious that data exclusivity restricts


competition and creates a monopoly for a fixed
period. As a result, prices of medicines escalate
raising healthcare costs. That is why MNCs try to
prevail upon host governments to grant data
exclusivity and thus to minimise competition. Data
exclusivity is in vogue in many developed
countries. In the US, data exclusivity is granted
for five years, while in European Union countries,
it is available for 10 years.

Now let us see what the TRIPs Agreement says


about it. Article 39 (3) of TRIPs Agreement states:
“Members, when requiring, as a condition of
approving the marketing of pharmaceutical or of
agricultural chemical products which utilise new
chemical entities, submission of undisclosed test or
other data, origination of which involves a
considerable effort, shall protect such data against
unfair commercial use. In addition, members shall
protect such data against disclosure, except where
necessary to protect the public, or unless steps are
taken to ensure that the data are protected against
unfair commercial use.”

The perusal of Article 39 (3) shows that it imposes


two sets of obligations on WTO member
governments. One, the DRAs shall protect data
against unfair commercial use, for instance,
against the use by the government itself. Two, the
data shall not be disclosed to third parties unless it
is necessary in public interest. In the event that
the data are disclosed, the government has to
ensure that steps are taken to prevent its unfair
commercial use.

Without getting into controversy as to what


constitutes fair or unfair commercial use, one can
safely say that whatever the obligation under
Article 39 (3), or for that matter the entire TRIPs
Agreement, the objective is to protect the data
against unfair commercial use.

Besides, the Article does not provide any time


limit for data protection, which means that it has
been left to the discretion of member countries to
decide for themselves how long protection should
be granted.

The TRIPs Agreement does not create any


obligations with regard to data exclusivity.
Members may have data exclusivity provisions in
their domestic IPR regimes, but then such
provisions would be TRIPs plus and hence,
beyond members’ obligations under the WTO.

Data exclusivity regimes make sense in developed


countries for two reasons. One, these countries
have immense innovative capacity and
pharmaceutical companies may come up with
their own data. Two, rich developed countries are
in a position to subsidise the purchase of otherwise
expensive medicines to their citizens and thus
shield them from having to pay higher prices.

However, developing countries like Pakistan, have


neither the comparable innovative capacity that
would allow their domestic pharmaceutical
companies to come up with their own test data nor
the means to subsidise the purchase of costly
medicines.

In case, the amended Drugs Act contains


provisions regarding data exclusivity, the benefits
will accrue to MNCs at the expense of the
domestic industry and consumers.. Data
exclusivity will force generic manufacturers to
stay out of the competition and increase the share
of the MNCs in the domestic market. This will
confer monopoly rights on MNCs, resulting in
escalation of prices of medicines and increase in
healthcare cost. The ultimate losers will be the
poor consumers who already have a limited access
to cheap medicines.

MNCs are in a much stronger position than the


local pharmaceutical companies. While the
number of domestic pharmaceutical companies is
380, their share of the local market is 47 per cent.
On the other hand, while the number of MNCs is
28, their market share is 53 per cent.

The government should strongly resist the


pressure of the MNCs and their parent
governments to incorporate data exclusivity
provisions in its Drugs Act. Being a member of
WTO, Pakistan’s obligation is only to comply with
TRIPs provisions when it comes to IPRs and not
with any TRIPs plus provisions. This is specially
important when it is a question of providing cheap
medicines to the people—a question of life and
death.

hussainhzaidi@gmail.com

Slipping leather exports


By Mohiuddin Aazim
Monday, 13 Jul, 2009 | 01:44 AM PST |
IN eleven months of the fiscal year 2009, exports
of tanned leather fell to $270 million from $377
million in a year-ago period. Exports of leather
products including leather garments also dropped
to $499 million from $641 million. The overall
exports of leather and leather products declined to
$769 million from $1 billion.

Industry leaders say that leather sector’s exports


have suffered partly due to a lower demand amid
global recession and partly because leather
industries in China, India and Bangladesh have
become more competitive on the back of
incentives. Leather garments exporters in China,
for example, receive 13-15 per cent duty
drawback while their Pakistani counterparts get
2.4 per cent.

“We, however, hope for a revival of demand for


leather and leather products from September
onwards,” says Mr Amjad Hafiz, director at Shafi
Tanneries. Many in the industry share this
optimism and it is based on some signs of
economic recovery in the US.

During July-May FY09, Pakistan exported 17.3


million square meters of tanned leather against
23.5 million meters in the same period of FY08.
Exporters attribute it not only to a lower demand
and stiffer competition but also to structural flaws
in local supply chain of animals’ hides and skins—
and lawlessness in parts of NWFP from where
tanneries get high quality goat/sheep skins.

Tanners say foreign exchange earnings through


export of tanned leather alone may reach half a
billion dollars soon if global demand starts picking
up and local supply of hides and skins is
streamlined.

For past many years leather industries have been


importing finished leather to supplement local
purchases. According to a recent report of
International Trade Organisation—an affiliate of
the UN and WTO—Pakistan spent $76 million in
2006 on imports of animals’ hides and skins.

The production of hides of cattle and skins of


goats and sheep is almost static for last two years
at 12.3-12.6 million and 45 million respectively.
Part of the production of hides and skin is lost
every year due to bad logistics and lack of
preservation technologies.
“So there is a strong case for developing livestock
sector and improving the system for collecting,
preserving and finishing hides and skins as raw
materials for leather industry,” says an official of
Pakistan Tanners Association.

Leather Products: Pakistan is facing stiff


competition from India and China —and even
Bangladesh in the export markets for leather
garments and leather footwear. All the three
countries offered incentives to their leather
industries immediately after the recession had hit
the world. This made their products cheaper than
in Pakistan.

“Whereas Pakistan saw a decline in export of


leather and leather products after the recession
India witnessed a handsome growth,” says the
chairman of Pakistan Leather Garment
Manufacturers and Exporters Association Mr
Fawad Ijaz. (Indian exports of leather and leather
products rose to $3.54 billion during April 2008-
March 2009 from $3.48 billion in a year-ago
period).

“India has increased the rate of duty drawback on


leather exports to 9.9 per cent,” he said citing it as
a reason for export growth. An official of PTA
said India has offered 7.5 per cent subsidy for all
sectors of leather and Bangladesh 15 per cent.

Mr Ijaz and other industry leaders say a huge


decline in exports has made leather industry
suffer: In some cases, leather factories are shut
twice a week. They want the government to
allocate a few billion rupees, for lifting this
industry, out of the Rs40 billion Export
Investment Support Fund. “Besides the
government should also immediately give a six per
cent R&D to leather exporters at least for one
year,” Ijaz suggested. “The industry also needs a
blanket 25 per cent subsidy on the freight cost of
exporting leather or leather products.”

Exporters demand that import of accessories used


in leather products be subsidised to the extent of
five per cent of the last year’s export under a
blanket scheme. They also believe that inclusion of
finished leather in the list of the items under FTA
with China can also help boost our leather
exports.

They say one of the reasons for the decline in


leather and leather products is that until recently
part of Pakistan’s leather exports to Hong Kong
used to be smuggled into China and thus our
exports volume remained high. But now the
Chinese authorities have put an effective check on
it and our exports volume have reduced.

Makers of leather products say since Vietnam’s


export of footwear to the US has become duty free
this too is hurting Pakistan. To take advantage of
this, many Chinese leather industries have
relocated into Vietnam. “This has made it even
more difficult for us to compete with Vietnam, as
Vietnam is exporting very cheap footwear to the
US taking advantage of the economies of scale
introduced by Chinese companies,” says Sheikh
Javed Ilyas, a former chairman of Pakistan China
Business Council. Since Vietnam is part of
ASEAN and its exports to ASEAN countries are
tariff-free, this also frustrates Pakistan’s attempts
to penetrate into ASEAN markets.

Moreover, from Yiwu city in Chinese province of


Zhejiang, containers of cheap footwear are
dumped daily into Pakistani market and that too
hurts our footwear industry. This has compelled
manufacturers of joggers and at least one
producer of a leading brand of sleepers to
outsource production to Yiwu and take advantage
of the low cost of doing business there.
Businessmen say Pakistan needs to set up leather
engineering institutes to overcome the shortage of
skilled workforce for making high value-added
high-priced commercial and industrial leather
products. “Turkey has moved into this area
allowing countries like China, India, Pakistan and
Bangladesh to export their low value-added low
priced leather products to its domestic market,”
said an exporter of leather garments who has
trading links with Turkey. ‘Turkey is no more our
competitor; it is now our customer.”

Getting taxation priorities right


By A.B. Shahid
Monday, 13 Jul, 2009 | 01:44 AM PST |

ON July 6 and 7, the Supreme Court (SC) passed


two important judgments that reflect a level of
concern about the social, moral and legal
obligations of the state.
Much before the budget-makers began drafting
the Federal Budget 2009-10 it was clear that
energy price (after the rupee depreciated by a
hefty 25 per cent), and its shortfalls, were
adversely impacting economic growth in every
sector. In this setting, imposing taxes, raising the
prices of petroleum products and electricity was
inept, more so pending the finalisation of the
Baghwandas Inquiry Commission report.

Following the announcement of the budget, strong


reservations were expressed by chambers of
commerce and industry about revival of economic
activities. While these chambers aren’t always fair
in demanding reliefs, their demand for not taxing
electricity and petroleum products was supported
by most economic analysts. Yet the parliament
went ahead with passing the budget with increases
in both.

Passage of the finance bill conveyed the


impression that peoples’ representatives were
focused on raising tax revenues irrespective of the
consequences of this pursuit. Also, that the
parliament wasn’t keen on exercising tough but
fair options in taxing sectors that merited taxation
– hardly the route to popularising democracy and
strengthening peoples’ confidence in it as the best
governance system.

Beginning 2008 power shortages, depreciation of


the rupee and high petroleum prices drove
inflation indices sky-high hurting the industry in
many ways and squeezing its output by 7.7 per
cent. It indicated that increase in taxes on energy
and petroleum sectors would further hurt growth,
with its fallout in lower industrial activity, lower
tax revenue, lower exports, and higher
unemployment, pushing more people below the
poverty line.

Why then did the government opt for these


controversial choices? Was it the IMF pressure?
After nation-wide criticism of the ‘carbon’ tax, an
IMF spokesman denied pressurising the
government on this count. Interestingly enough,
however, after the SC verdict suspending the
recovery of carbon tax on valid grounds, the same
IMF spokesman supported this tax, calling it a
global norm for generating tax revenue.

Devising ‘global’ norms caused the current global


crisis. Globalising taxation norms will be as
disastrous as globalisation of trade because the
‘one-size-fits-all’ concept is a recipe for it. Policy
makers should be guided by ground realities that
differ from economy to economy. Instead of
grappling with these realities, they prefer the easy
way out – impose indirect taxes that hurt
everyone, and are collected and paid by
businesses.

If the economy is to be revived, instead of hiking


electricity charges what the government must do
is to assure supply of electricity. Increasing supply
charges at a time when factories all over the
country must shut down for 12 to 16 hours a day
because of load-shedding, is asking for trouble.
The sincerity of those advising a raise in electricity
tariffs is questionable; they want the economy to
collapse, not revive.

Policy makers must realise that increases in fuel


prices impact output prices in two ways; higher
energy input cost and transportation cost; their
combined effect on inflation is enormous. Without
lowering inflation there is no case for cutting
interest rates – another huge cost of doing
business an economy that is characterised by over-
leveraged businesses. Together these distortions
keep inflation high.

Pakistan’s businesses aren’t the most efficient


outfits; their flawed entrepreneurial and
managerial practices, that have persisted
unattended for decades need addressing but right
now, the priority should be reviving their sagging
productivity. In spite of all the allegations of tax
evasion, business and industry form the
documented sector that pays incomes taxes and
collects and pays indirect taxes.

Hurting these sectors will prevent meeting the


FY10 tax revenue target as in FY09. A more
sensible route to increasing taxes (even if the
government prefers not to tax the sectors that
deserved to be taxed) was to seek the logistics
support of business and industry in overcoming
the energy crisis as quickly as possible – a course
not adopted by the government for reasons it
knows best.

Following the SC verdicts, government spokesmen


have forecast revenue shortfalls that will force
reduction in development spending. There is
though, no reference to cutting current
expenditure that would surely be a new record,
given the size of the federal cabinet. The desire to
collect taxes to fund the Public Sector
Development Programme (PSDP) undeniably has
its merits but funding it at the cost of business and
industry has none.

There are many who believe that the PSDP


allocation of Rs642bn, although impressive,
exceeds the genuine outlay on the planned
projects. The implication is that a lot would be
wasted away based on the bureaucracy’s track
record of weak supervision and handouts to
favourites. Given these misgivings, it would be
wise to cut the PSDP to the extent of the revenue
loss from carbon tax and higher electricity tariff.

If that’s what it takes to help the industry, it is


well worth doing because the industry faces too
many problems rooted in the huge gaps in the
physical infrastructure. In fact, it needs more
reliefs after the problems it has been facing
courtesy a greatly depreciated rupee. The
industry’s competitiveness has eroded
enormously. Import-substitutes manufacturing
sector is falling apart because of high imported
input costs.

Export sector is weakening because of high cost of


imported inputs, and dropping demand in its
traditional export markets making it imperative
for exporters to cut costs to compete with cheap
supplies from still-strong South and Far East
Asian economies. Above all, the industrial sector
needs more and cheaper credit that, pitifully, is
being sucked away by the government to fund its
current expenditure.

It is time to get the priorities right. Taxing the


economy can’t be a convenient or tactless exercise
because not taxing those who deserve to be taxed
and over-taxing the rest is bad governance. With
all other sources (except the IMF) drying up,
trade and current account deficits can be
narrowed (and rupee strengthened) only by
increasing exports and cutting imports. For that,
the industry needs twice as much support as
before.

Cutting PSDP is never good for a developing


country. But even in that effort, projects for
power generation, tapping alternate energy
sources and water storage, must not be deleted;
they are imperative for survival in the future. And
there is no harm in examining more taxation
options. There are many that could yield more
than what may be lost by withdrawing carbon tax
or freezing electricity tariff.
World economy at the crossroads
By M. Ziauddin
Monday, 13 Jul, 2009 | 01:44 AM PST |

The biggest challenge facing the practioners of


capitalism today is the dilemma of choosing
between the devil and the deep sea: do they
continue with giving a free rein to the financial
sector notwithstanding the recent world economic
debacle or do they regulate it to save the world
economy from such future shocks?

To begin with, it seems those who hold the purse


strings in the capitals of the capitalist world have
won the day and forced the politicians holding the
governmental whiphand to step back from a
radical overhaul of the banks.

After listening to an hour long presentation of a


176-page white paper by the Chancellor of the
Exchequer purported to contain reform plans for
banks Vincent Cable, the Lib Dem Treasury
spokesman aptly remarked: “This paper will be
greeted with a sigh of relief in the City since it
marks a return to ‘business as usual’.”

The chancellor announced in the House of


Commons on Wednesday last that new legislation
would be introduced:

• To create the new Council for Financial


Stability.

• To force banks to pay a fee for a money advice


service for consumers, and pre-fund the deposit
protection scheme that pays out to savers when
banks collapse.

• To give the Financial Services Authority (FSA) a


new statutory objective of financial stability and
tougher powers and penalties against misconduct,
including regulation of “systemically” important
hedge funds. The FSA will have wider powers to
close down firms.

Pointing to the importance of one million jobs in


financial services and the £250bn of tax generated
by the sector in the past nine years, the
chancellor’s much-anticipated response to the
current “severe financial crisis” rejected universal
demands for major reforms.

While Darling outlined steps to give the FSA new


powers for financial stability, the current
“tripartite” system involving the FSA, the Bank of
England and the Treasury will remain largely
intact after the announcement of the white paper
on reforming financial markets. Banks will have
to hold more capital but it is not immediately clear
how much, or what the impact of that will be.

”We need a change in culture in the banks and


their boardrooms, with practices that are focused
on long-term stability and not short-term profit,”
Darling said. “The FSA has powers to penalise
banks if their pay policies create unnecessary risk,
and are not focused on long-term strength.” The
first task of a new Council for Financial Stability –
which is being set up to formalise the current
tripartite system – will be to tackle bank
remuneration policies.

The British Bankers’ Association welcomed the


paper with a sigh of relief.

Darling trashed a sensible suggestion by the Bank


of England Governor Mervyn King to break up
the big banks to save them from future crisis
saying that breaking up banks was too simplistic
an approach to the problem as both large and
small banks could cause systemic meltdown.

Interestingly, he wants banks to have a pre-


arranged plan to break themselves up easily in the
event of collapse and set aside more capital.

He said the stake in the ‘nationalised’ Northern


Rock would be disposed of “as soon as
appropriate in a manner that promotes
competition”. There was understandably no
mention of the collapse of the National Express.

But then it is not only the UK which is facing this


dilemma. The EU is also said to be riven by two
deep divides on the regulation of finance.

The first is an ideological one over the degree of


freedom that should be afforded to markets.
There is a large body of people who say that the
Anglo-Saxon model has failed. Therefore they
want tougher regulations.

The second divide is between countries that want


large cross-border banks to be overseen by a
single European supervisor and those that want
them to stay under the control of home regulators.
Europe’s banks operate in a largely borderless
market but are often closely watched only at
home.

There is already an agreement to establish a


European Systemic Risk Board, which is intended
to sound the alarm over the build-up of risk, and
to create new European supervisory authorities to
keep an eye on big cross-border financial
institutions. The new structures may not live up to
his expectations as in good times its warnings may
well be ignored and during a crisis it may have to
hold its tongue for fear of sparking panic.
Moreover, it seems likely to duplicate work being
done globally by the newly set up Financial
Stability Board, an international body.

But these new supervisory authorities cannot


compel countries to do anything that might cost
money such as propping up banks with more
capital. Nor can they close down cross-border
banks in an orderly way to ensure that all
depositors are protected, something that is needed
to stop countries from simply grabbing what
assets they can when big banks fail.

The Economist Weekly ( July 4, 2009) says: The


other major regulatory proposal to have come out
of Europe recently inspires even less confidence.
The commission has proposed heavy-handed
regulation of hedge funds and private-equity
firms. The principle of bringing all important
institutions into a regulatory net is sound. But the
directive clumsily lumps together hedge funds and
private-equity firms when imposing disclosure
rules and limits on borrowing.

“There is another danger. In general the wheels of


European policy turn slowly. Proposals on the
central clearing of derivatives and bankers’ pay,
among others, have been twice delayed in recent
weeks and are expected to emerge later this
month. Revisions to rules that will force banks to
hold more capital will not be released for months
and certainly not agreed before next year. Yet by
the time Europe has agreed on a set of common
rules, many countries will have revamped their
own. “Britain’s Financial Services Authority, for
instance, has proposed measures to force
subsidiaries of big banks operating in Britain to
hold more capital. It also wants to use a loophole
in European law that gives it the power to impose
liquidity requirements on the local branches of
banks from elsewhere in Europe. These are moves
that appear to undermine the principle of
Europe’s single market in banking.”

Bank deposits rise

According to the weekly statement of position of


all scheduled banks for the week ended July 4,
2009, deposits and other accounts of the scheduled
banks increased in the current week and stood at
Rs4,156.636 billion, higher by Rs36.549 billion
over preceding week’s figure of Rs4,120.087
billion.

Compared with last year’s corresponding figure


of Rs3,838.890 billion, the current week’s figure is
larger by Rs317.746 billion. During the current
week, commercial banks deposits showed a rise of
Rs36.06 billion over the week to Rs4,142.981
billion, against preceding week’s Rs4,106.921
billion. Specialised banks deposits stood at
Rs13.655 billion, against preceding week’s
Rs13.166 billion, a rise of Rs0.489 billion.
Borrowings by all scheduled banks decreased in
the week. It fell to Rs476.304 billion over
preceding week’s figure of Rs485.299 billion, a fall
of Rs8.995 billion. Compared to last year’s
corresponding figure of Rs362.502 billion, current
week’s figure is higher by Rs113.802 billion.
Commercial banks borrowings fell to Rs395.329
billion against previous week’s Rs404.359 billion,
or by Rs9.03 billion. Borrowings by specialised
banks stood at Rs80.975 billion, higher by Rs0.035
billion over preceding week’s figure of Rs80.940
billion.

Gross advances stood at Rs3,165.581 billion in the


week under review, a fall of Rs2.985 billion over
preceding week’s figure of Rs3,168.566 billion.
Compared to last year’s corresponding figure of
Rs2,855.714 billion, current week’s figure is larger
by Rs309.867 billion. In the week under review,
advances by commercial banks fell to Rs3,060.358
billion against earlier week’s figure of Rs3,063.578
billion, or by Rs3.22 billion. Advances of
specialized banks stood at Rs105.222 billion,
higher by Rs0.234 billion over earlier week’s
figure of Rs104.988 billion.

Investments of all scheduled banks decreased in


the week by Rs3.086 billion to Rs1,345.721 billion
against preceding week’s figure of Rs1,348.807
billion. Compared to last year’s corresponding
figure of Rs1,076.137 billion, current week’s
figure is larger by Rs269.584 billion. In the
current week, commercial banks investment fell to
Rs1,334.825 billion, from earlier week’s
Rs1,337.978 billion, or by Rs3.153 billion.
Specialised banks investment stood at Rs10.896
billion, against preceding week’s Rs10.829 billion
larger by Rs0.067 billion.

Cash and balances with treasury banks of all


scheduled banks decreased by Rs24.947 billion
during the week to stand at Rs346.426 billion
against earlier week’s Rs371.373 billion. Current
week’s figure is smaller by Rs88.256 billion
compared to last year’s corresponding figure of
Rs434.682 billion. In the current week, the figure
for commercial banks stood at Rs342.272 billion
against preceding week’s figure of Rs367.551
billion, a fall of Rs25.279 billion, while of
specialised banks it stood at Rs4.153 billion over
previous week’s Rs3.822 billion.

Total assets of scheduled banks stood at


Rs5,632.368 billion, larger by Rs37.004 billion,
over preceding week’s figure of Rs5,595.364
billion. Current week’s figure was higher by
Rs575.401 billion compared to last year’s
corresponding figure of Rs5,056.967 billion. In the
current week, commercial banks assets stood at
Rs5,500.226 billion, higher by Rs35.211 billion
over previous week’s figure of Rs5,465.015 billion.
Specialized banks assets rose to Rs132.142 billion,
or by Rs1.794 billion over previous week’s
Rs130.348 billion.

Sharp increase in prices of wheat, pulses

PRICES of some essential items showed sharp


increase under the lead of imported pulses as pent
up demand from Punjab dealers figured
prominently on gram and masoor sectors.

While gram whole and gram dal were quoted


higher by Rs200-400 per bag of 100 kg, the largest
increase of Rs600 was noted in masoor whole on
reports of short supply.
Meanwhile, sharp increase in wheat prices did
worry both dealers and consumers as it would
have serious impact on entire essentials’ counter,
some brokers said commenting on the rise of Rs90
per bag in the wholesale prices of wheat during
the week.

“It appears to be a belated reaction to official


permission for export of wheat flour, maida and
suji to flour mills”, said a leading broker Haji
Sulaiman who also predicted fresh rise in prices
after millers resume covering purchases against
the forward sales of finished wheat products”.

However, he said much would depend on export


prices most of the exporters of wheat products got
from their foreign trading partners and size of the
individual exports.

Market sources said physical business remained at


low ebb as wholesalers were not inclined to chase
prices further higher and waited for the fall after
supply situation improves.

On the export front, physical shipments of rice


against foreign import orders were maintained on
higher side, which the rice exporters claimed were
well above the target of $2 billion.

“Where export commitments are behind shipment


deadlines for the fiscal ended June 30,
arrangements are being made after permission to
importers to expedite shipments, some exporters
said.

But in the process, prices of those items under


nearby shipments showed fresh increase under the
lead of castor seed and its oil, which are assuming
the role of major export items.

“These essentially are Balochistan-based export


items, which are widely used the world over in
medicine and chemical processing”, market
sources said.

On the sugar front prices of white sugar were


quoted lower by Rs80 per 40 kg, but its other
products showed sharp increase on strong
demand. Both gur and desi sugar came in for
fresh strong demand from exporters and owing to
pressure on local supplies prices of both were
quoted higher by Rs300 per bag.

The rice sector again lacked normal support as


private sector exporters kept to sidelines most of
the time after having physically dispatched all the
forward consignments, notably of IRRI and
basmati types to various destinations.

IRRI-6 was an exception which remained in active


demand both from local consumers and some
foreign exporters and was quoted further higher
by Rs50.

Barring bajra, which posted a fresh rise, others


including maize, jowar and barley in the cereal
sector were traded at previous levels amid slow
ready off-take.

The oilseed sector, on the other hand, showed


mixed trend. While among major oilseeds,
rapeseed were again held unchanged at previous
levels, cottonseed suffered fall of Rs60-70 per
maund on selling promoted by reports of larger
new crop arrivals.

Meanwhile, castor seed rose by Rs50 on revival of


foreign demand for both oil and seeds, til was
firmly held at the last levels amid falling export
demand.

After early firm stance, cotton came in for active


selling followed by reports of steady new crop
arrivals and was finally ended with a loss of Rs75
per maund.

Oilcakes again ruled

unchanged for the rapeseed cakes, while


cottonseed cakes suffered fall ranging between
Rs60 and 70 per 50kg on ginners selling of the new
crop stocks.—M.A.

Rupee at new lows versus dollar

In the local currency market, the dollar and euro


this week attained new peak versus the rupee as
the rupee registered significant losses after coming
under renewed demand pressure from importers.

The inter-bank market commenced the week on a


happy note, as sufficient dollar inflows helped the
rupee recovered 11 paisa on the buying counter
and eight paisa on the selling counter, which
enabled the dollar to trade at Rs81.50 and Rs
81.55 on July 6, against previous weekend’s
Rs81.61 and Rs81.63.

However, the rupee lost its overnight firmness


against dollar on the second trading day as
increased demand for dollar on July 7 pushed the
rupee down by five paisa against the US currency,
changing hands at Rs81.55 and Rs81.60. The
rupee continued its slide versus dollar on July 8,
due to persistent dollar demand. It posted fresh
losses of 15 paisa and traded against the dollar at
Rs81.70 and Rs81.75.The downward trend in the
rupee/dollar parity persisted for the third
consecutive day on July 9, with the rupee drifting
lower against the dollar marginally losing five
paisa to trade at Rs81.75 and Rs81.80.

Finally the rupee ended the week on a negative


note as strong demand for dollars from importers
on July 10 pushed the rupee down further against
the dollar. It lost 25 paisa and breached Rs82
barrier on the fifth trading day, changing hands
against the dollar at Rs82.00 and Rs 82.05. This
brings cumulative decline of upto 42 paisa in the
rupee value against the dollar on the inter-bank
market.
In the open market, the rupee lost 20 paisa versus
dollar on the buying counter and another 30 paisa
on the selling counter, changing hands versus
dollar at Rs81.60 and Rs81.90 on July 6 as
compared to Rs81.40 and Rs81.60 at the close of
last week. It traded unchanged at its overnight
levels on the second trading day. On July 8, the
rupee/dollar parity continued its falling trend, as
the rupee posted fresh losses and breached Rs82
mark against the dollar due to heavy rush for
dollar buying by importers. The rupee lost 15
paisa on the buying counter and another 20 paisa
on the selling counter to trade at Rs81.75 and
Rs82.10.

On July 9, the rupee moved both ways versus


dollar as it lost five paisa for buying at while
gaining five paisa on the selling counter and
traded at Rs81.80 and Rs82.05. The downward
slide in the rupee/dollar parity persisted on July
10, when the US currency traded at Rs82 and
Rs82.30 after the rupee lost 20 paisa on the buying
counter and another 25 paisa on the selling
counter. During the week in review, the rupee
breached Rs82 barrier and attained new lows
versus dollar after shedding 60 paisa on the
buying counter and 70 paisa on the selling
counter.
Versus European single common currency, the
rupee commenced the week on negative note as it
shed 15 paisa on both the counters to trade at
Rs112.66 and Rs113.66 on July 6, after ending
previous week at Rs112.51 and Rs113.51. The
rupee further slipped against the euro on July 7,
shedding four paisa and traded at Rs112.70 and
Rs113.70. However, it managed to recover some of
its overnight losses against euro on the third
trading day after posting 13 paisa gains on July 8,
when the euro was seen changing hands at
Rs112.57 and Rs113.57.

On July 9, the rupee overnight firmness over euro


extended further for the second trading day in a
row, recovering 19 paisa to trade at Rs112.38 and
Rs113.38. The rupee registered sharp fall versus
euro on July 10 and traded at the week’s lowest
level of Rs112.84 and Rs113.84 after posting fresh
losses to the tune of 46 paisa. The rupee this week
shed 33 paisa on cumulative basis versus the
European single common currency.

On the international front, the dollar hit a five-


week low against the yen on the week’s opening
day as fallout from last week’s grim US jobs data
unnerved investors. The dollar was down 0.8 per
cent at 95.30 yen after hitting a five-week low of
94.66 yen. The euro hit two-week lows against the
dollar and yen. It wiped out earlier losses to trade
up 0.1 per cent against the greenback at $1.3973.
Sterling fell 0.4 per cent to $1.6270 and 0.9 per
cent to 155 yen.

On July 7, the yen and dollar rose broadly as


uncertainty about the global economic outlook
and forthcoming US corporate earnings increased
the safe-haven appeal of both currencies. The
dollar fell 0.6 percent at 94.72 yen while the euro
fell 0.4 per cent to $1.3914, according to Reuters
data. Sterling shed 0.9 per cent to $1.6119 as data
showed UK manufacturing output fell 0.5 per cent
in May, confounding expectations for a rise.

On July 8, the yen soared broadly in its biggest


jump in months as renewed concerns about the
global economy prompted investors to exit risky
investments. In late New York trading, the dollar
slid 2.3 per cent to 92.63 yen, having hit 91.82 yen,
its lowest since February. Against the dollar, the
euro was down 0.3 per cent at $1.3877. Sterling
extended losses hitting a one-month low against
the dollar. It fell as low as $1.6046, its weakest
since June 9, before pulling back slightly to
$1.6100, down 0.2 percent on the day.
KSE 100-share index holds on to 7,500 points

THE KSE 100-share index last week managed to


hold on to its recently attained resistance level of
7,500 points despite several abortive bear attempts
to push it down, thanks to the judicious blend of
both local and foreign support on blue chips.

But owing to a snap rally at the weekend session,


it managed to finish with an extended gain of
131.38 points at 7,502.66 and its junior partner
added 38.77 points to previous gains at 8,032.06 on
market talks that the new leverage product may
be ready by the end of this month, which would
solve the market’s liquidity problems.

But the erratic movements in the volume figures,


the highest at 200 million shares and the lowest at
118 million shares, reflect that alternate bouts of
buying and selling on small margin of profits
remained the hallmark of activity.

Analysts had predicted that it could finish the


weekend session with a big margin, leading to its
takeoff to new highs in the subsequent weeks but
the conflicting official perceptions about the cut or
increase in oil prices changed the market’s future
outlook though temporarily.

The Supreme Court ruling seeking a cut in oil


prices to benefit the consumers was followed by a
presidential ordinance to increase them the very
next day which sent shock waves among investors
and the weaker among them hastened to unload in
part long positions, notably on the oil counter,
they said.

“The action and reaction on the issue may not


have a political undertone, but the national issue,
earlier widely welcomed by all and sundry, may
lead to opposing interpretations of the relevant
law and may be closely followed by the market
possibly be the next week”, said Faisal A.
Rajabali, a leading stock analyst.

He said indications were that a higher dividend by


the National Investment Trust (NIT) at the rate of
Rs3.25 per unit and impressive payouts by most of
the funds could keep the market in a bullish frame
of mind during the coming weeks but it faded
owing to two official opinions on oil prices.

The presidential ordinance may have ensured the


revenue target but the profits earned by the oil
market companies and refineries during the last
several years may leave in its wake a bad memory,
some analysts fear.

Early in the week, the market passed through a


consolidations phase after the previous week’s
hefty rise as investors were in the process of re-
fixing their investment priorities for the new fiscal
but there was a relative pause in the institutional
support apparently on technical grounds.

The KSE 100-share index, however, stayed well


above its resistance level and was last quoted at
7,502.66, up 131.38 points, while its junior partner
was quoted higher 38.77 points at 8,032.06.

The turnover figure showed a sharp midweek fall


at 127 million shares from the weekend level of
182 million shares, bulk of which remained
confined to oil, cement and banking sectors but
improved later.
After last week’s hectic trading mostly on the
higher side, a considerable slow down in the
financial support kept the general buying interest
at low key as they preferred to follow the lead of
their big partners owing to financial risks
involved, some analyst said.

“Investors are awaiting official word on the


leverage product before they go all out for selected
stocks at the current lower levels”, they said but
indications are that “the positive news awaited by
investors have dried up”. The other stimulating
factor might be payouts by some leading
companies whose financial years ended on March
31 and their dividends were expected on higher
side, they added.

Forward counter: Speculative issues on the


forward counter came in for active alternate bouts
of buying and selling throughout last week but in
the absence of leverage product, most of the price
changes were speculative.

After an initial rise in banking, cement, oil and


fertiliser sectors a good bit of profit taking was
witnessed on these counters, but the on-balance
closing was mixed.
—Muhammad Aslam

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