Profit 14th November, 2011 by Profit Epaper

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The investment argument Page 3 Harnessing technology for electoral transparency Page 2 Oil market tight despite slowdown, says IEA Page 6 Pages: 8

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Monday, 14 November, 2011

Pakistan and Turkmenistan likely to sign agreement on TAPI g

Serious concerns over the security of pipeline transit from Afghanistan g ADB acting as the facilitator and coordinator for the project

ISLAMABAD

AMER SIAL

akistan and turkmenistan are likely to sign an agreement on turkmenistan, afghanistan Pakistan india (taPi) pipeline during the two day official visit of the President of turkmenistan Gurbanguly Berdimuhammadov starting today. an official source said both the countries have already agreed on the gas sale price of $360 million cubic meter (mcm) at the turkmenistan afghanistan border after deduction of $29 mcm as transit and transportation cost through afghanistan. the cost will be $10 mm BtU. the base price comes to 70 per cent of Brent oil parity in the mid country delivery point of Multan. Both the countries, he said will

sign a risk sharing agreement for afghanistan, as there are serious concerns over the security of the pipeline transit from afghanistan. the agreement will also have a condition for price review after 5 years. Pakistani team lead by Petroleum Minister, Dr asim Hussain had last month finalised the price for gas imports through taPi pipeline with the Deputy Minister for Energy turkmenistan Yarmuhammet Orazgulyev. turkmenistan had proposed to base the price of imported gas on the other alternate fuel High speed Furnace Oil (HsFO) available in the local market, as it was also used in power generation. Pakistan plans to utilise the imported gas for power generation, as the country is faced with a power shortfall of 5,000 MW during summers. the pipeline is expected to start gas supply by December 2016,

but that depends upon credible security cover to be provided by afghanistan, which will also be receiving 500 mmcfd of gas, out of total envisaged supplies of 3.2 bcfd. the Economic Coordination Committee of the cabinet had constituted a committee headed by the Petroleum Minister to finalise the draft of taPi pipeline project. the committee was asked to submit its report within shortest possible time before the upcoming visit of President of turkmenistan. taPi gas pipeline project aims to bring natural gas from Yolotan/Osman and adjacent gas fields in turkmenistan to south asian countries. the pipeline will carry 3.2 bcfd natural gas covering 1,680 km from turkmenistan through Heart and kandahar in afghanistan, cross Pakistan border near Chaman to pass near Zhob, DG khan, Multan, and on-

wards to Fazilka near Pak-india border. the capital cost of the project is estimated at $7.6 billion and will take between 4 to 5 years to complete after signing of all the contracts. asian Development Bank (aDB) is acting as the facilitator and coordinator for the project and had funded a feasibility study of the project in 2004. During the visit of turkmen President, both the countries are expected to ink agreements for enhancement of economic and trade relations that will also provide opportunity to Pakistani businessmen to explore the Central asian markets. the total trade volume between two countries was at $43.5 million during 2010-11. Pakistan’s major exports to turkmenistan include fruit and fruit preparations, medical and pharmaceutical products, while its major imports include raw cotton.

Telecom, broadband operators sustain tight quarter LAHORE STAFF REPORT

ElECOM and broadband operators have sustained a financially-tight quarter as their earnings sent to headquarters were seen dropping by 30 per cent in Julsept 2011 as compared to same time last year, state Bank of Pakistan data showed. Profit dividends of the telecom and broadband operators stood at $34.6 million in the first quarter of the financial year 2011-12, which showed negative growth compared with $49.8 million of the earning repatriation posted during the same period of previous financial year. according to data, $30.9 million profits were sent by cellular and telecom operators such as Mobilink, Zong, Warid tel, Qubee, Wi-tribe etc., as operations and services earnings, whereas $3.7 million earning repatriated abroad by listed companies in stock exchanges such as Wateen, PtCl and tRG through portfolio profits. analysts said that services’ sales of telecom and broadband operators were witnessed quite low in the first quarter of financial year 2011-12 on decreased consumptions of the subscribers in the country. During the period, heavy rains across the country particularly in sindh affected the services consumption and infrastructure of telecom sector that impacted negatively on earnings of the telecom operators. they said seasonal drop of services was witnessed in Ramadan as customers’ activities, were traditionally low in the country despite introduction of enhanced services packages particularly by cellular and broadband operators. in Ramadan, the commercial and domestic consumption of telephony and broadband services witnessed a decline of 15 to 20 per cent compared with other months of the year. subscriptions growth of different operators was slowing down because of shifted priorities of masses in Ramadan. Moreover, the stock exchanges remained volatile in the first quarter of 2011-12 with a mixed trend of share trading particularly in companies of telecommunication sector. Hence, it affected earnings of listed companies in the period under review.

Farmers uncertain as govt fails to announce wheat support price g

Agriculture Policy Institute estimates increase in wheat’s cost of production g Planning commission opposes crop support price mechanism ISLAMABAD

STAFF REPORT

nCERtaintY grips the farmer community, as the government has failed to announce wheat support price for the current Rabi crop, even though the prices of fertilisers and other inputs have more than doubled. an official source said the agriculture Policy institute (aPi) had estimated an increase in the cost of production of wheat due to rise in input prices and had recommended enhancing the support price to Rs1200 per 40 kg from the last year’s level of Rs950 per maund. However, he said the summary could not be moved as after the devolution of agriculture Ministry, aPi was under the control of Ministry of science and

technology and wheat support price was under the mandate of Ministry of inter Provincial Coordination. Planning Commission, which is overseeing majority of agriculture issues after the devolution, the source said was opposed to the support price mechanism for the crops as it wanted the market forces to determine the prices of commodities. the support price benchmarks the price of wheat and the government regulates the market by making direct procurements from the farmers. talking to Profit, former agriculture Development Commissioner, Ministry of agriculture, Dr Qadir Bakhsh Baloch said the announcement of wheat support price gives a relief to the farmers that their good yield would get them good profit otherwise they opt for other profitable crops. “Pakistan has managed

to achieve food autarky during the last few years only by timely announcing support prices for important crops.” Usually the wheat support price is announced by september end, as the sowing of the crop starts in October in the rain-fed (barani) areas and in the districts of lower sindh. Pakistan annually harvests wheat crop on average 8.8 million hectares that yield more than 24 million tonnes of wheat as compared to the country’s annual requirement of 22 million tonnes. President agri Forum Pakistan, ibrahim Mughal said that they have written a letter to the Prime Minister a week back suggesting increase in the wheat support price to Rs1250 per 40 kg. He said an official Farooq awan of Prime Minister secretariat informed him that the government was likely to

enhance the wheat support price between Rs1100 to Rs1200 per 40 kg within next few days. Currently, the wheat flour is sold between Rs32 to Rs35 per kg. if the price is increased to Rs1200 per 40 kg, there would be an increase of Rs5 per kg in the price of flour. the government had retained the wheat support price during last year to keep the food inflation low, but this year, prices are set to increase as flour mills are demanding an increase in flour prices due to hike in power tariff. Mughal said the increase in price was essential for better yield. He said if the support price was increased to Rs1150 per 40 kg, it would be beneficial in increasing the country’s wheat yield to over 26 million tonnes as compared to last year’s yield of 24.2 million tonnes. Pakistan has already been faced

with a urea shortage of 1.2 million tonnes as compared to estimated urea demand of 3 million tones during the Rabi season, which the government plans to meet through imports. the country has annual urea demand of 6.5 million tonnes of urea which can be easily fulfilled by the local fertiliser industry that has the capacity to produce 6.9 million tonnes per annum, provided they get feedstock gas supplies. the annual production for the current year is estimated to be 5 million tonnes with an estimated urea shortage of 1.3 million. the government has already imported 500,000 tonnes of urea during the current year and will incur a cost of $400 million on importing 700,000 tonnes of urea. this will have to provide subsidy of Rs26 billion to the farmers.

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Monday, 14 November, 2011

debate

Harnessing technology for electoral transparency

TARIq MALIk

n the midst of Pakistan’s never ending disasters and serious governance challenges, streamlining the voter’s list is the last thing on the public agenda. it is true that the multi-faced challenges facing Pakistan today require radical steps. But, sometimes, small tangible steps can lay the basis for radical change. after all, even the most radical institutional change is laced with small incremental steps that leave an enduring legacy. Restoring the sanctity of the electoral rolls is one such step that can have a farreaching implication for the way we choose our government, hold it accountable and force it to deliver. the last voter’s list was marred with errors and contradictions. this has been a legacy of decades of manipulation, where massaging the electoral data became an important instrument for electoral engineering. the decision by current leadership of the Election Commission of Pakistan to update and streamline all electoral lists using latest technological tools is likely to revolutionise the voting process. it is our obligation to explain the processes behind this exercise to the citizens at large – who are the real stakeholders of this country. this is the main objective of this article.

longSTAnDIng DemAnD an amendment in the election law promulgated by Parliament earlier this year has made Computerised national identity Cards (CniCs) mandatory for registration and casting of vote, when more than 93 per cent of adult population has registered themselves with naDRa. this is a historic step that promises to bring greater transparency in the next general elections. this is an area where elected parliamentarians deserve much credit. it was a long standing demand of all political parties, civil society and media to conduct free and fair elections. in a country whose birth was itself the outcome of electoral ballot, it is an open secret that scientific rigging in elections has remained a festering issue that has often marred the credibility of the electoral process. in the backdrop of this important legislation, it was obvious that the institution responsible for maintaining civil registry was to be involved in updating the electoral rolls. Civil registration will be used this time to conduct meritorious elections, a practice followed in most civilised democracies. the Election Commission of Pakistan (ECP) has sought the extended involvement of naDRa in the election process to ensure computerised credible, fair and accurate electoral rolls with a vision of ‘one voter, one CniC, one vote’. naDRa has agreed to participate in this important exercise and a contract with a framework for ‘rules of engagement’ was signed between the two parties. Use of modern technology would put a tab on interventions by “various individuals in some institutions” that need not be named. there is a hope that harnessing technology in the electoral process would go a long way towards bringing greater transparency and credibility to the electoral process.

The ‘SuPermAn’ voTer transparency of voters list is of utmost importance but it remained the most neglected domain in a country like Pakistan where vote counting has become more important than vote casting. Reconciliation of Final Electoral list 2007 (FER 2007) with naDRa followed directly from a strong demand by political parties to streamline the electoral lists. the only way to comb old voters list out of ‘unverified identities’ was to reconcile it with civil registry known as citizens national database. already, naDRa has issued 87.5 million CniC against the projected 93.8 million adult population. it thus covers 93 per cent of eligible voters. these citizens have come to naDRa during the last 11 years and recorded their digital finger prints and photographs. Here, it should also be considered that the remaining 7 per cent population is not disenfranchised but have the option of inclusion in final electoral rolls subject to obtaining

CniC during door to door verification, display period through claims or objections and through continuous revision till announcement of election schedule. Reconciling the electoral and citizens databases is a no brainer, since most countries where civil registries have registered more than 80 per cent of eligible voters are already using this as a competitive advantage in not only conducting elections but rolling out social security programs.

reconcIlIng voTerS lIST the strategy was, therefore, simple. it involved reconciling voters list used in the last election with the citizens database in accordance with the business rules duly approved by the Election Commission of Pakistan (ECP). in this process, CniCs in the voters list were verified. the successfully verified voters were retained, while the unverified names were removed and augmented with what naDRa was left with. so, here is how it worked: if you were registered with a fake identity card in voters list, you are out, if you were registered multiple times. so, if you are a Mr superman from Gujar-khan who is registered 26 times in 5 constituencies in a 3 hour drive radius, one of your records is retained, while the remaining 25 are ‘gone with the wind’. What is more, in case you are absent from the previous voters list but recorded in naDRa’s citizen database, your name is added to the draft electoral list. For a long time, our arm chair intelligentsia has escaped the electoral process, but now the ECP and naDRa are providing a welcome opportunity to participate in the democratic process. so, please make sure you are at home when ECP folks come to verify your record. One cannot emphasize enough the importance of registering your vote. it must be made to count. Election Commission of Pakistan took an initiative to start consultative process during this exercise. all political parties were briefed about strategy and were updated with progress through four sessions. suggestions and feedback of political parties were incorporated into the program.

this not only helped build confidence of major stakeholders in electoral process but also brought political transparency in this revision process.

DrAFT elecTorAl rollS For its part, naDRa has successfully completed the task of printing the draft electoral rolls consisting of more than 80 million eligible voters under the close supervision of ECP. the electoral rolls have been handed over to ECP for further scrutiny and door to door verification. the last electoral roll that was used in 2008 elections was replete with many errors. several entries were duplicate, misappropriated and based on fake identities. naDRa has synthesised the 81 million entries in last electoral list into 44 million verified and 37 million unverified voters. But, the scale of errors was truly mind boggling. the details of the 37 million ‘unverified voters’ is enough to shock us beyond imagination. the ugly flaws in the 2008 electoral rolls demonstrate the following uncomfortable realities: 2.14 million fake computerised identity cards that were never issued by naDRa; 2.49 million duplicate CniC entries; 6.49 million duplicate MniC entrees. there were 15 million voters without any identity and 11 million fake manual identity cards which the government had never issued. the new business rules approved by the ECP have allowed naDRa to exclude the unverified 37 million voters from the list and add 36 million new voters, who acquired their iD cards from the inception of naDRa till the preparation of the draft electoral rolls Rs in 2011 in their place. (the final electoral rolls used in 2008 elections still remain intact till the time final electoral roll is complete and is published by Election Commission of Pakistan in 2012).

The curIouS TImIng oF Pco so far so good. But, as naDRa and ECP were trailing smooth on the project highway, we encountered a major speedbreaker. the Population Census Organisation (PCO) has curiously

timed the undertaking of the census after 13 years. the PCO have now become a major player in this project, since in the aftermath of the housing census the census organization is likely to increase the total number of census blocks (or, electoral area blocks) from 102,000 to 149,000, where each block consists of 250 families. such a major reshuffling of demographic definition, due to an increase in population meant that naDRa and ECP had to reassign each voter in the right census or electoral block. the quick fix to the problem was that ECP gave a form to the housing census department that could be readily used during the census to record information linking CniCs with the voting location. naDRa had to realign voters’ list as per information provided by the census organisation and print it for ECP’s scrutiny. the Election Commission of Pakistan team comprising of 211,000 members is now making door to door contact to re-verify the voter’s information. this would help to map the CniCs of voters with respect to their census blocks. it is the first time in the history of Pakistan that the census team is going door to door for such verification. there is great optimism that this new strategy of form verification would replace the older modes of manually collecting the information that generated significant errors. With such digitisation, the margin of error is likely to reduce considerably.

Door To Door verIFIcATIon as citizens demanding rights, it is our obligation to cooperate with the verifying staff knocking our doors. if change in electoral area is required, Verification Officer will fill form – alif for single voter and Form – 2 for family or group of voters; if the voter is dead or shifted to another location, the family needs to report this to Verifiying Officer who will fill Form-B; and voter’s particulars on draft electoral rolls requires correction, staff needs to be assisted in correcting the record in Register J in accordance to particulars available on CniC. Once these changes are submitted back to naDRa, we will digitise them and subsequently print the ‘Preliminary Electoral Rolls (PER)”, which will be displayed according to law for a predetermined duration for the filing of objections and claims. again, naDRa intends to support the ECP using modern technology by providing an outreach to eligible voters using sMs technology. this would help check where one is registered as a voter and, if so, in which electoral area. During current door-to-door verification exercise the naDRa teams are facilitating the registration of eligible voters that have not been registered so far and in rectifying errors in the list. naDRa’s 800 data acquisition units, including 220 mobile registration vans and offices countrywide had been directed to work with the district election staff. Citizens without CniCs would also receive support during the ongoing verification exercise. Potential voters have the leverage to opt for their permanent or temporary address for exercising their right to vote.

We Are The ‘KhomeInI’ the Final Electoral Rolls (FER) will be printed before the next election and, in order to bring more transparency, it has been decided that the FER will contain photographs and thumbprints of the voter. Blank spaces will be left on the FER for capturing thumbprint using magnetic ink before a voter casts his/her vote. Presiding officer will ensure that the left thumb impression is captured at the time of issuance of ballot paper which will then be automatically scanned and matched with the corresponding CniCs using naDRa’s finger printing software. if pursued with diligence, sincerity and transparency, the above-mentioned changes will bring a qualitative change to the electoral process, making it more credible in the eyes of the public. the future of a democratic Pakistan rests on credible electoral rolls that are free from egregious mistakes. the ongoing electoral reforms deserve the support of every Pakistani on a non-partisan basis. Rather than infinitely waiting for a khomeini, we as citizens need to rise up and play our part in putting in place the nuts and bolts of institutional change. The writer is deputy chairman NADRA

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Friday, 11 November, 2011

EDITORIAL

The investment argument

Value for land

HilE it is not clear what will become of Pakistan Railway’s idea of leasing its land to ease fiscal constraints, the idea is sound, and should be taken further. senior executives in the planning commission have long advocated turning inefficient government landholdings into profitable enterprises. Railways presents the most fitting example. it owns large areas of land, almost all injudiciously utilised. Pretty much the same is true for other government organisations. and considering prevailing circumstances, such land is best sold to private sector and corporate use, especially if it is close to commercial centres. not only does such an arrangement stand to increase fiscal elbow room, but will also cut down on needless fixed cost, freeing the land for more profitable enterprise. such measures are essential to add marketable density to city centres. Presently, our main urban centres, while flush with individuals driven from the periphery, are short

of adequate commercial activity, which can be achieved by targeted reforms. Following these patterns played an effective role in establishing regional commercial hubs like singapore, Dubai and Hong kong. in Pakistan’s big cities, we have ample space that can be turned into viable commercial centres. Yet the official position continues to patronise the wasteful system that hinders meaningful progress. in principle, all available avenues of enhancing revenue should be exhausted before reaching out for aid to finance economic activity. in the Pakistani context, far too many potential avenues for raising serious revenue remain locked in passive government control. this position is not only contrary to the economic model we follow, but also counter productive considering our immediate needs. sick enterprises like Railways should no longer be bailed out by the government. they should first cut large holdings so their dependence on bailouts lessens, then the lands should be used for meaningful commercial activity.

Ishrat Husain

s debate about the loosening monetary environment’s impact on private sector investment continues, it is important to note that the interest rate regime ensures provision of necessary working capital, but meaningful investment will be stimulated once aggregate demand rises and capacity is fully utilised. Presently, excess capacity is observed across sectors. in the cement industry, for example, present capacity is approximately 40 million tonnes, yet production languishes around the 32-33 million tonne mark. similarly, in car manufacturing industry, production at 100,870 units falls well short of total capacity of 275,000. so, till the excess capacity gap is bridged, fixed investment will not materialise, with monetary easing, or otherwise, and private sector demand for credit will remain elusive . and with GDP growth stuck in the low 2-3 per cent range, the market is simply not generating enough aggregate demand to induce substantive investment. also, the government’s continued borrowing in the money market makes for the ideal marriage of convenience between the centre and the banking sector. Banks eye this as a risk-free asset, requiring no capital to back up advances. sovereign debt is, of course, also more reliable considering rising incidences of non-performing loans. the exercise also cuts down on marketing expenses in an otherwise stagnant environment. Before embarking on an investment-induced growth trajectory, relevant authorities must first streamline the fiscal environment. issues of commodity pricing, subsidies, public sector enterprises

Till the excess capacity gap is bridged, fixed investment will not materialise Indian dichotomy and MFN

The MFN debate

MFn status was given to india as a gesture which was indeed in response to india's waiver of objections to the preferential trade agreement. the ntBs that exist on india's part which also hopefully come down as trade between the two countries flourishes. this has to be done in small incremental steps so that it gives the market a chance to adjust. i say we let bygones be bygones and improve the relationship between the two countries, and there has to be an understanding between our two peoples that we have to live peacefully next to each other. the animosity must end now!

Every government strives to pursue the policies best suited to their own interests; is a phenomenon true regardless of time and space. Granting of MFn status to india is beneficial for both the countries. the article unfolded a very balanced view in a most unbiased manner. Every sensible Pakistani is well in favour of free trade between india and Pakistan, believing enough is enough as we are sick and tired of animosity and useless acrimonious wrangling between the two neighbours. But at least the field should be leveled for the both players to void future complications.

SAAD ALI

AHMED SHAkIL

The writer is former Governor, State Bank of Pakistan and Dean and Director, IBA

LAhORE

KARAchI

Pak-Iran trade in perspective

and circular debt need to be addressed to attract serious investors. For now, monetary incentives will not have the desired impact on employment, poverty, investment and infrastructure. also, the present market environment is too uncertain to attract serious investors. Parties willing to commit funds eye medium to long-term predictability and returns which, unfortunately, cannot be guaranteed for now. therefore, with banks reluctant to reach out and the government’s borrowing binge continuing, interest rate reduction is just likely to feed into speculative activities stimulating cost-push inflation rather than proactive generation of investment, employment and consumerism. again, fiscal policy must take centre stage, not just the government’s budgetary expenses, but public spending in totality. With Rs400 billion odd hemorrhaging annually from public sector enterprises, and Rs351 of circular debt impeding on absorption capacity of financial institutions, the fiscal outlook is unattractive. in the stock market too, while a few blue-chips dictate market direction, there is no meaningful capital formation, no iPOs and no new debt issues. it is little surprise then that even local investors are fleeing to the relative safety of regional economies. to bank on inducing fresh investment in such circumstances would amount to misreading present market conditions. immediate fillip in revenue generation should come from fine-tuning the tax administration machinery, which requires greater capacity within FBR along with full political support to take punitive actions against evaders, concealments or understatement of incomes or sales, broadening tax net at both the Federal and the provincial levels. there has not been an encouraging response from provincial authorities since the 18th amendment devolved tax collection to their domain. By simply streamlining collection of property tax in lahore and karachi, tax authorities in Punjab and sindh can help contribute 1-2 per cent to overall GDP growth. But with local government completely paralysed, and provinces unable to move forward on the tax issue, present collection is just a fraction of what it should be. the sooner those in charge reconfigure their priority list, the sooner local and central governments will have necessary fiscal space to initiate targeted expansionary fiscal policies that will unlock immediate growth, prop up employment, and engineer the second round multiplier.

Sakina Husain

HE time-honoured and window-seeking allegations of the west towards resource bearing economies, especially in the Middle East, have been the subject of several empathetic discussions. Wars were initiated through use of armed forces on the soils of afghanistan and iraq at the behest of covert whims when the west believed that it was sitting on mountains of money; incidentally the amount that will be spent during war on ‘terror’ in afghanistan up till

FY12 (approximately $500b) matches quite brilliantly with the euro debt figures revealed (more than $450b). Conversely, in the line of bloody wars, iran has had to suffer a rather subtle treatment for daring to flirt with a nuclear journey, whereby sanctions imposed prohibit development of trade relations, financial market expansion and progress on the petroleum resource aspect. notwithstanding that the Us, EU and Un are aligned in their understanding of these sanctions, iran continues to export petroleum products, comprising about 90 per cent of the 25 billion euros worth of trade that takes place between iran and the EU. against this backdrop when Pakistan is made an offer of gas, it faces a conundrum in terms of which way to go and whose side to take. During Fy11, Pak-iran trade amounted to approximately $454 million [EX: $154m; iM: $302m] where as Pak-Us trade arrived at about $5.2b [EX: 4.1b; iM: $1.1b]. thus, the ostensible stakes seem

high and the opportunity costs are obvious. On the other hand, research from the invincible multilaterals indicates that power shortages have caused the economy to lose about two per cent of the GDP (value of domestic output) during the preceding fiscal year, which in dollar terms implies that Pakistani entrepreneurs could make $4.2 billion worth of more output had they received uninterrupted power supply. Currently, about 34 per cent of electricity is produced through gas, so the immediate benefit of the pipeline would amount to about $1.4 billion. Further, the complaints from the textile industry, (comprising about eight per cent of the GDP) link gas shortages with a 45 per cent decline in productivity. By extremely conservative estimates this could amount to about $5-6b during FY11. additionally, one must not forget that about $2 billion worth of investment has been made by the CnG sector in infrastructure and equipment. this will have to be classified as sunk costs if correc-

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The gas project with Tehran puts Pakistan in a dilemma; which way to go, whose side to take?

tive measures are not undertaken. additionally, in a utopian situation where there were no sanctions, Pakistan could, for the first time in history, make in roads into financial sector development of its neighbour, which could guarantee structured and predictable returns over the next century much needed by the choking economy. such is the power of wishful thinking! and thus my friend, the time to break free could not be more opportune. While the euro zone stands waist deep in bubble splinters, and the Us is ready to swim across seven seas to save its dear friend, Pakistan could very well carve expeditiously a maneuverable space to enter into an energy sharing agreement with its neighbour. the grounds for explanation can not be simpler; the Us

needs to be convinced that if anybody’s nuclear assets and potential to fuel strategic wars (read: terrorism) needs to be feared, they should be its own. if the entire developed world, india and Pakistan possess nuclear arms, why can’t iran? and considering the fact that Pakistan is always worrying about safeguarding its nuclear assets, physically and politically, from the Us, the same can hold true for its neighbour. and if it’s not nuclear assets, but lets say human rights abuses, the index is now extremely tired of being endlessly used as a pointer! The writer is an economic researcher and freelance financial journalist. She can be contacted at sakina.husain@gmail.com

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email: profit@pakistantoday.com.pk Ph: 042-36298305-10 Fax: 042-36298302 Website: www.pakistantoday.com.pk

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Monday, 14 November, 2011

If we would have strong trade relations, the political relations would get better automatically

news

lccI President Irfan Qaiser Sheikh

Marble industry ready for Indian competition marble sector favours open Pak-India trade g Pakistan has one of the world's best marble reserves g

kARACHI GhULAM ABBAS

HOUGH many industries and sectors in Pakistan have expressed fear of losing their local markets through open trade with india, the marble exporters here are ready to face the stiff competition with indian exporters as it will pave the way for exchange of various qualities of marble. those types of marble which are not produced here or are produced in less quantity are already coming from india through smuggling, and via Dubai or a third country. Regularised trade with the

neighbouring country will earn additional revenue to the national exchequer. talking to Profit, sanaullah khan former Chairman all Pakistan Marble Mining Processing industry and Exporters association (aPMMPiEa) said there was plenty of marble being imported from india, many of which are mainly coming through Dubai. Even the marble displayed for visitors at local hotels here was mainly indian. as marble products are already coming from the neighbouring country there was no harm to local industry with regards to open trade with india. there would also be exchange of various kinds of marble between the coun-

tries as many valuable products available here have huge demands in india. islamabad has some of the most valuable stone colours which could be exported to india. When compared with Pakistan, india is far ahead in the marble sector. However both countries could benefit from the natural resources available in the region if efforts of both sides collaborated. the marble products have huge demands in Europe and Middle East. Best quality marble of Pakistan technical, coupled with expertise of india could develop the base for marble industry. Proximity between karachi and Mumbai also offers huge potential for trade and investment. talking about impacts of liberalised trade with india over the local marble industry, he said that more indian products would come to Pakistani market. On the other hand the exports of raw marble and some valued stones would also in-

crease, he added. “lahore will be the center of indian marble,” he said adding that open trade would also affect the price of the products. according to sources, the country’s raw material is already being exported to China in large quantity which is re-exported after value addition. China takes the raw material in the mainland, cuts tiles, finishes it and exports it worldwide. Pakistan can export the same marble to india with less transportation costs. Despite huge imports of raw marble from Pakistan, there was no investment on the part of China in Pakistani marble industry. the government may also think about transfer of technology and expertise in field to strengthen local industry. it is a fact that an honest cross-border free trade was always going to be a win-win situation. it is worth mentioning here that Pakistan has one of the world's best marble

APTmA chairman demands gas load shedding exemption

new budget airline starts operations from Pakistan LAHORE STAFF REPORT

ak airways – the official carrier of UaE state Ras al khaima – has started its operation from Pakistan. in the first phase, the budget airline intends to operate two weekly flights from lahore and Peshawar each. the first flight of Rak airways landed at allama iqbal international airport, lahore, on 10th november whereas, it had planned to start its operations from Peshawar on 16th november. speaking at the launch ceremony, Rak airways country manager syed Moeen Uddin said ‘small fare, big deals’ is the slogan of the airline that intends to provide full services with compatible fares. He said his company saw a vast potential in Pakistan as a large number of Pakistani expatriates were working in UaE.

LAHORE STAFF REPORT

Indian commercial attaché assures of businessmen-specific visa regime President lccI appreciates inclusion of 12 more items in positive list g Business community supports federal cabinet’s decision to grant mFn status to India g

LAHORE Staff Report

HilE agreeing with the lCCi proposal to ease visa procedures, indian commercial attaché arvind saxena has assured that a businessmen-specific liberal and flexible visa regime would be in place very shortly. He was talking to lCCi President irfan Qaiser sheikh, Vice President saeeda nazar here at the lahore Chamber of Commerce and industry on saturday. Vice President saaRC Chamber of Commerce iftikhar ali Malik and former lCCi President sheikh Mohammad asif and former Vice President shafqat saeed Piracha also spoke on the occasion. arvind saxena said that Pakistani businessmen are always facilitated whenever they intend to visit their counterparts in india. On the issue on nontariff Barriers (ntBs), the indian diplomat made it clear that Pakistani businessmen should not be afraid of indian non-tariff Barriers (ntBs) which are not at all Pakistan specific and are debatable. speaking on the occasion, lCCi President irfan Qaiser sheikh said

reserves, but has not been able to utilise the natural resource and has a share of only 0.09 per cent in the world market. However, india is among world's top seven natural stone exporters with which Pakistan has no collaboration despite a huge potential. Despite various problems like power shortages and the deteriorating law and order situation in the country, Pakistan has achieved a record high export of marble with an increase of 72.34 per cent during June to July 2010-2011. the country has achieved a record export of $60.620 million as compared to $35.178 million during the corresponding period of fiscal year 2010 with an increase of $25.442 million. Besides the huge export to China the country’s marble and granite is exported to almost 52 countries of world, which include UaE, Uk, india, China, italy, Usa and Malaysia.

the business community was happy with federal cabinet’s decision to grant MFn status to india but it definitely wants that all genuine reservations of various sectors must be removed through discussions. He said frequent exchange of business delegations of the two countries, a flexible visa regime and one year multiple visas to businessmen would definitely bring prosperity to the region. lCCi President also stressed the need for early establishment of infrastructure at Wagah border so that the businessmen of both sides could do business with ease. He informed the visiting diplomat that lahore Chamber of Commerce and industry is taking a big delegation to india in December. lCCi President also appreciated inclusion of 12 more items in the positive list. irfan Qaiser sheikh said both government of Pakistan and the indian hierarchy should liaise closely with the private sector to stimulate economic growth in the region. He said the promotion of trade is the only way to minimise political tension in the region. the neighboring countries should not mix trade with politics and

business communities should be allowed to carry on trade without hurdles. He especially addressed the indian envoy regarding ntBs (non-tariff barriers) being imposed by the indian government to block smooth flow of Pakistani exports into india. He asked the indian government to lift all ntBs. “if we would have strong trade relations the political relations would get better automatically”, he said. He stressed the need for promoting border trade particularly through land routes which is in favour of both the countries. He said the potential gains from increased economic integration between india and Pakistan are large whereas mutual trade between the two countries is unnaturally small. Further efforts to facilitate and increase trade can become an effective tool en route to progress and prosperity. Pakistan’s major exports to india include vegetables, fruits and nuts, sugar confectionery, mineral fuels, salt etc. But these exports form a very insignificant proportion of india’s imports of these commodities. a big chunk of these commodities is imported by india from countries other than Pakistan. if trade between Pakistan and india

is liberalised, exports of these commodities to india can take a quantum jump. similarly, there is a great potential for export of fish, resins, animal and vegetable fats, beverages, spirits, vinegar, leather and its goods, carpets, pharmaceutical products, chemicals and tobacco. similarly, Pakistan can import cotton seed, meat, dairy products, vegetables, fruits, tea, cereals, organic chemicals, pharmaceutical products, tanning, dyeing extracts, chemical products, plastics, rubber and its products, iron and steel, machinery, vehicles, raw materials and semi finished products etc. lCCi President said india should allow representatives of private sector of Pakistan to establish trade offices for various products in india. We believe that easing restrictions on visas, specifically allowing multiple entry visas for businessmen, eliminating requirements to report arrival to the police at each place of stay, abolishing city-specific visas, and speeding up approval processes can ensure facilitation to explore new avenues of trade promotion. lCCi president said, “We, the business community, are committed to have a serious, sustainable and constructive engagement with india and early and full normalisation of relations on the basis of mutual non-interference, peaceful co-existence and respect for each other.”

ll Pakistan textile Mills association (aPtMa) chairman Mohsin aziz said textile industry should be exempted from gas load shedding in the larger interest of national economy. Reacting to the Economic Coordination Committee’s (ECC) decision of continuing with three days a week gas curtailment for textile industry, Chairman aPtMa said gas curtailment of textile industry is already inhibiting its export target and growth potential. according to him, textile industry has employed 15 million workforce and it had achieved $14 billion exports during 201011 and intending to take it to $20 billion during current fiscal year. He said 80 per cent of textile industry is dependent on gas-based captive power plants. Mohsin said the country needs an immediate push to exports in a situation when trade deficit has crossed over 30 per cent. this trade deficit could only be overcome

The country needs an immediate push to exports in a situation when trade deficit has crossed over 30 per cent through increase in textile exports. aPtMa chairman said the textile industry is already facing financial crunch, leading to bankruptcies in the industry. a gas load shedding for three days for textile industry is fatal to the growth of industry as well as exports of the country, he added. Mohsin said the textile industry has already been deprived of gas for 120 days during the ongoing calendar year. He said the ECC should review its decision and announce exemption from gas load shedding for textile industry without delay. if it is not possible immediately, he added, the government should reduce gas load shedding for textile industry from three days to two days a week. this would strengthen its potential of achieving $20 billion exports and keep the jobs of 15 million employees intact in the country.

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Monday, 14 November, 2011

Obama's going to need every vote he can get from his base, and this Keystone decision will help -- but it's not the 'be all and end all

news

ed chen

How higher taxes for a few lightens load for all OPINION PhIL KEISLInG

n Jan. 1, 2012, almost every working american will be hit with the biggest tax increase of his or her lifetime. that’s when the social security payroll tax will revert to its pre-2009 rate of 6.2 percent, from 4.2 percent now. this post-Christmas lump of tax coal -- under a provision of the 1935 Federal insurance Contribution act, known as FiCa -- will take effect as the country struggles with 9 percent unemployment, record home foreclosures, and an economy teetering on the edge of a double-dip recession. a full-time worker, making the federal minimum wage of $7.25 an hour, will pay $290 more a year. For a teacher, construction worker or nurse making $50,000 annually, the increase will be $1,000. a two-income family, in which each spouse makes $106,500 or more, will be whacked for about $4,240. although it targets just 2 percent of payroll, this 30 percent increase in tax rates packs a $120 billion annual wallop. Unlike the federal income tax, with its myriad deductions and exemptions, FiCa fully taxes the very first dollar of each worker’s pay, including the self-employed. Only Congress can act to prevent this huge tax increase. Fortunately, there is a readily available solution that Congress -- or better yet, its bipartisan supercommittee -- can and should make law within the next 75 days.

ANOTHER OPTION to finance even a one-year extension simply by adding to the deficit would be both fiscally irresponsible and illegal. Under last summer’s debt-ceiling deal, Congress would need to enact $120 billion in additional spending cuts this fiscal year to offset extending the tax. slash defense spending? Medicare insurance subsidies? Veterans’ benefits? Even for the most ardent followers of the tea Party movement, that would be political suicide. Fortunately, another option is as obvious as it is politically elegant. Congress should enact a one- or two-year temporary increase in income taxes on the top 1 percent to 2 percent of american households to finance a similarly temporary extension of this payroll tax cut for 99 percent of working americans. Of course, President Barack Obama and the Democrats might see more immediate appeal here than congressional Republicans, who, in any case, have maintained an eerie silence about the enormous “job killing” potential of this particular tax increase. (a case in point is former Massachusetts Governor Mitt Romney, for example, who said in the Bloomberg news-Washington Post debate of Republican presidential candidates on Oct. 11 that Obama’s proposal to extend the FiCa employee tax cut was only a “temporary little Band-aid.”) But this tax swap should have broad, bipartisan appeal, especially if we ask ourselves this: What kind of tax cut would americans prefer to keep -- even if only temporarily -- as the economy claws its way back to prosperity? Or, put differently: Which tax increase, this January,

truly poses the “least bad” choice for the economy? Here’s how it would work: in December 2010, Congress extended the FiCa payroll tax cut, but only through Dec. 31, 2011. separately, the Bush-era tax cuts, including those for the wealthiest taxpayers, were extended until Dec. 31, 2012. Congress should simply “trade” some expiration dates. Extend the looming FiCa tax cut until at least Dec. 31, 2012. then temporarily “pull forward” -- to Jan. 1, 2012 -- the reversion to pre-Bush era income tax brackets for top-end taxpayers, effective for the same time period.

JUST SEMANTICS When it comes to social security and Medicare, politicians of both parties often resort to politically convenient semantics, such as assertions that FiCa levies are more like “contributions” than taxes. nonsense. at their core, FiCa payroll levies and federal income taxes are both mandatory taxes. Working americans --wage- earners and independent business owners alike -- have to pay them, under penalty of law. likewise, social security and Medicare are both government spending programs, just like thousands of other, income tax financed programs (including Medicare, which drew $203 billion last year from this source). indeed, both Republican and Democratic deficit-reduction plans now account for these FiCa- financed spending programs (and the revenue from the tax) in the same way as all other federal government spending programs. Expect some liberals to squawk about the “temporary” nature of such a tax increase, while some conservatives lob accusations of “class war-

Europe’s necessary creative destruction OPINION IAn BREMMER Hat we’re seeing in Europe — in rising italian borrowing costs and the felling of two prime ministers — is the growing impatience of the markets for a resolution to the euro zone crisis. to put a finer point on it, the hive mind of the markets has decided it is not going to give Europe enough time to get its act together. the big institutions that drive the world’s economies are sitting on huge amounts of cash — enough to solve many of these problems overnight. But they have lost confidence in the ability of the European political system to deliver solutions that will work. in a G-Zero world, where there is no strong global leader to direct the course of events, no one is interested in taking a flier on helping the Europeans get out of their mess. as the abortive G20 conference showed last week, there is no backstop for any country or institution that makes an error in today’s

environment, whether it’s tiny MF Global or the Chinese sovereign debt fund. in the postwar era, the Marshall Plan was the very definition of global security — it was a huge commitment by the U.s. to rebuild Europe into the economic force (and not incidentally, trading partner) that the world needed. today, there is no Marshall plan for Europe, from within or without. that’s the high-level view of the Europe situation. the question everyone wants answered is this: what happens next? start with Greece: the best possible outcome for that country has happened with Papandreou’s resignation and the selection of economist lucas Papademos as Prime Minister of an emergency government. Papademos is committed to remaining in the euro and accepting the terms of the Greek bailout package. Despite the roller coaster ride Papandreou took his country and the euro zone on, Greece has now moved closer to the spanish and Portuguese models for avoiding the debt crisis drama. in Greece, a resolution is starting to be reached. it’s not the beginning of the end, but maybe this is the end of the beginning.

the same can’t be said for italy as the situation changes by the day. the decisive senate approval of a package of austerity measures (by a margin of 156 to 12) was one small step for italy in the eyes of the markets— and a big step toward silvio Berlusconi resigning his mandate. it’s a wonder that Berlusconi held on to power for so long; he burned up his political capital years ago with scandals of all stripes. His stepping down is good news for italy in the long run, but the handover of power to likely frontrunner Mario Monti is a delicate process that will have to be handled with tremendous care. Unfortunately for italy, political drama has insured it will face a higher and longer level of scrutiny. Markets will continue to demand extensive and enforceable changes in spending levels throughout the peripheral states. When italy and Greece look more like spain and Portugal, the bond markets will treat them more like spain and Portugal. But that alone won’t solve the problem: investors are going to demand to know what happens next time any euro zone periphery country is on the brink of

fare.” But consider this: Most of the 4 million U.s. households with adjusted gross incomes above $200,000 will still be net winners from this “tax Hike for a tax Cut” deal. a 2 percent FiCa cut reduces every worker’s tax on the first $106,500 of wages. Raising an upper-level income tax bracket to 36 percent from 33 percent (in a joint return) only affects taxable income above $250,000 adjusted gross income. For a working couple, each paying the maximum FiCa social security tax, the “break even” point is about $390,000 adjusted gross income -- which probably means $450,000 (or more) of total household income. By syncing these three expiration dates -- for this temporary income tax increase, the FiCa tax cut and the other Bush-era income tax cuts -- Congress and/or its supercommittee can then propose which, if any, of these various changes to keep, modify or abandon post-2012. so for the next month or two, let’s mute the tiresome partisan shouting match about taxes versus spending cuts. instead, let’s focus on the defining choice of what kind of tax cut americans need and want right now. and with some luck -- and political compromise on both sides -- this debate will set the stage for the kind of truly comprehensive tax and budget reform that americans and our staggering economy need even more. BLOOMBERG (Phil Keisling, director of Portland State University’s Center for Public Service, served as Oregon secretary of state from 1991 to 1999. He is also a contributing editor of the Washington Monthly magazine. The opinions expressed are his own.)

collapse. Euro zone institutions and politics have to be reshaped to prevent this type of crisis from ever happening again. Until this risk is mitigated, lending costs will stay high for a long time to come. Case in point: i talked with about 200 international financial executives at a conference two weeks ago. 92 percent thought a “lehman event” could easily happen once again somewhere in the world. Because we all thought the economy had been getting better over the last few years, we took our eye off the ball when it came to shoring up the global financial system and making the necessary structural fixes. in the U.s., President Obama took up health care. a weak Dodd-Frank bill passed. in the global financial system, Basel iii has gone nowhere. and so every time the markets are rattled, we stare down the financial abyss, again and again. i’m an optimist on the euro zone; i still don’t think it will fracture. the political will to stay together is too great; the mechanisms for countries to drop out are too complex and undeveloped. the institutions that compose it will get stronger — eventually. But that will be a long time from now. Until that day, we’re likely to see a lot of economist Joseph schumpeter’s “creative destruction” — but as applied to financial systems, rather than corporations. Much of the financial edifice of the 20th century is yet to come crumbling down. to fully rebound from this era of crisis, more of it must. REUTERS

CORPORATE CORNER Burj Bank limited appoints Ahmed Khizer Khan as their new President and ceo

KARCHI: Mr ahmed khizer khan has joined Burj Bank as the new President and CEO. His last assignment was as Chief Operating Officer of iCD (islamic Corporation for Development of the Private sector), Jeddah. Mr khizer who held a regional and international role at the iCD will now be focusing his efforts on Burj Bank limited. While addressing the senior management team, Mr khizer stated “Burj Bank has been established as a very strong consumer brand over the past few months.” PRESS RELEASE

mahvash and Jahangir Siddiqui foundation and JS bank’s 3rd phase of flood relief operation

KARACHI: Mahvash and Jahangir siddiqui Foundation and Js Bank have reached their third phase of flood relief operations, in order to respond to the severe floods. they are providing immediate assistance to thousands of people whose livelihoods, homes, and belongings have been destroyed or severely been damaged by the flood. the focus of the foundation was again to provide medical services to all those suffering from infectious diseases. PRESS RELEASE

FAo to organise elISA training workshop in Islamabad ISLAMABAD: Food and agriculture Organization(FaO) of United nations (Un) under its project, ”Progressive control of Foot and Mouth Disease (FMD) in Pakistan” is organising Elisa training workshop on 14-26 november, 2011 at nVl, naRC islamabad.” the project is aimed at strengthening diagnostic capability, efficient surveillance and rapid response to FMD outbreaks and demonstrating benefits of early and consistent immunisation for effective control of FMD. PRESS RELEASE

etihad airways celebrates 8th anniversary of Abu Dhabi to Al Ain flight laHORE: Etihad airways, the national airline of the United arab Emirates, marked its eighth anniversary of the inaugural Etihad airways flight from abu Dhabi to al ain in 2003 on 5th november 2011.Etihad airways has become a successful, multicultural, global business and one of the fastest growing brands in the world. Mr James Hogan, CEO Etihad airways, remarked, “We have grown to become a family of more than 8,300 people, drawn from more than 120 nationalities across the world. We have proudly built our airline on a foundation of safety and quality, which will always be our priority, and backed that up with the highest standards of customer care and service.” PRESS RELEASE

nADrA launches free SmS service for verification ISLAMABAD: naDRa has launched a mobile sMs service in collaboration with Pakistan telecommunication authority (Pta) and all operating telecom companies to determine a person’s existence in the beneficiary list for Pakistan Card project to facilitate the rain affected people in checking the status of their requests. naDRa, in addition to setting up centres, has also mobilised its mobile resources MRVs (Mobile Registration Vans) to process CniC free of cost in all affected areas. PRESS RELEASE

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Monday, 14 November, 2011

The Arab winter could well prove as turbulent as the Arab spring. The Iranian nuclear issue is again rising among market concerns

Markets

market report

weekly review

International developments pressurise local equities

kARACHI

KSe remains stable despite wary investor sentiments 96 scrips advance, 108 decline and 110 remain unchanged out of total 314 scrips Stagnation invites low volume price erosion during the closing hour.

STAFF REPORT

n thursday local bourse trailed regional peers in the session as trading commenced amidst wary sentiments after the prolonged Eid holidays. as italy replaced Greece at the center of European debt crisis, fear of a split in the eurozone kept global equities under pressure. investor participation remained dismal with 49 million shares traded during the day as the benchmark index could not sustain 12k level amidst profit taking. since local fundamentals remained mostly impervious to the latest development in euro-zone, the reaction at the local bourse appeared transitory. Positive news flows especially in energy sector indicating speedy resolution of circular debt depicted possible re-rating in the sector thus positively influencing the overall index’s performance in the intermediate term. the local bourse, on syndicated efforts energised by positive developments, restructuring of maturing t-bills and meeting of Pak-india leadership, successfully resisted otherwise an extensive decline, mainly on the fierce melt down in international and regional equities and commodities. the index although failed to sustain the initial low volume high of 12000, support by OGDC and MCB, the stocks contributed almost 40 points to the benchmark 100, for it too managed an unchanged status on closing besides keeping the benchmark in brown zone during the closing hour. issuance of bonds and t-bills to offset interest receivables of the local banks did inspire the accumulators to adopt an aggressive stance, as the step will create space for financing to the OMCs and iPPs, although the plan to settle circular debt by securing loans from international lenders seemed far fetched.

since lOC from iMF stayed a major pre requisite, the financial transaction executed will provide some breathing space to the mentioned beneficiaries, thus keeping the interest in banking stocks alive. Cued up sellers on strength following the old saying “act on rumors and react on news” however disallowed the sector stocks as well as various high priced stocks from staging a rally, thus leading to a weaker market, as reflected by low volumes despite news flash suggesting improved relations with once annoyed neighbor. the propagation did inspire snap rallies in frontline cement and textile stocks, absence of follow-up however disallowed aggressive display despite corporate participation, thus forcing the strength to defuse after change of hands on strength. therefore, stagnation invited low volume price erosion during the closing hour. Fauji group stocks from the fertiliser sector undoubtedly led the market during early hours seemingly invited renewed buying after staying under correction phase for quite a few sessions, the junior partner lost the steam quite early while range bound activity and lack of interest disallowed the elder brother FFC to find consolidation on strength. On Friday, due to technical error the market got closed 15 minutes earlier from its official closing, therefore, trading has been merged in the coming Monday’s session. according to the notice issued by the Deputy General Manager Operations karachi stock Exchange it was informed that due to technical fault the ksE building terminal got disconnected that resulted in the suspension of the Friday’s trading session earlier than closing time. ‘Consequently, it has been decided that trading of Friday november 11, 2011 and Monday november 14, 2011 will be merged and settellement for both days will take place on Wednesday november 16, 2011,’ the notice stated.

Bourse closes with 50 point gain, technical error witnessed 154 crips advance, 77 decline and 2 remain unchanged out of total 260 scrips IT technical error results clearing of the day moves to monday

Oil market tight despite slowdown, says IEA LONDON

REUTERS

ORlD oil demand will be a bit lower than expected this year and next as economic slowdown and high prices curb consumption but the oil market is strong and supply remains tight, the international Energy agency (iEa) said on thursday. the agency, which advises more than two dozen wealthy industrialized countries on energy policy, said demand for oil from the Organization of the Petroleum Exporting Countries (OPEC) was running ahead of output. and while some oil production from libya had resumed earlier than expected following the overthrow of former dictator Muammar Gaddafi, the iEa said it would take a long time to return to pre-conflict levels of oil output in the north african producer. Oil supply and demand fundamentals were underpinning “stubbornly high prices,” the iEa said in its monthly Oil Market Report, adding political turbulence was also a risk for oil. “the arab winter could well prove as turbulent as the arab spring,” it said. “the iranian nuclear issue is again rising among market concerns.” the iEa said high oil prices were helping restrain fuel use in the United states, China and Japan and this trend could intensify if economic activity slowed. “the demand picture could sour significantly should economic prospects falter,” the iEa said. “RELATIVELY ROBUST FORECAST”: the iEa cut its forecast for world oil demand this year by 70,000 barrels per day (bpd) to 89.16 million bpd, and reduced its 2012 demand

projection by 20,000 bpd to 90.47 million bpd. this brought the agency’s forecast for global oil demand growth in 2011 down by 90,000 bpd, but increased its estimate of expected 2012 oil demand growth by 50,000 bpd. Oil prices have been historically strong this year, with north sea Brent averaging more than $100 per barrel, and this has helped keep a lid on consumption in many major economies. Brent crude oil futures were trading around $113 per barrel at 1600 GMt on thursday, up from below $90 a year ago. Despite concerns over the outlook for demand, the iEa suggested the oil market could stay strong for some time. OPEC oil output rose 95,000 bpd in October to 30.01 million bpd, the iEa said, with more oil from saudi arabia, angola and libya. But demand for OPEC oil and stocks was projected at around 30.5 million bpd this year, slipping only slightly to about 30.4 million bpd in 2012 as non-OPEC supplies increased. Harry tchilinguirian, head of commodity market strategy at BnP Paribas, said the iEa report suggested the oil market could strengthen if the northern hemisphere winter was severe. “it is a relatively robust forecast,” tchilinguirian said. “the fundamental position at the end of the year could be much tighter. From a

fundamental perspective, this suggests possible support for prices this winter.” LIBYA: libyan oil production had so far recovered much faster than expected and was now around 530,000 bpd, the iEa said, adding that damage to infrastructure had been less than feared. But it had a much more conservative view of the pace of recovery of the rest of the country’s production capacity. it projected libyan oil output would reach 1.17 million bpd by the fourth quarter of 2012 — 90,000 bpd more than it previously forecast, but still well below government estimates. acting Prime Minister ali tarhouni said on thursday libyan output would comfortably exceed 700,000 bpd by the end of this year and reach full pre-conflict production levels of around of 1.6 million bpd by June of next year. the agency said heavy damage to oil export terminals and other oil facilities would hold up recovery and many of the necessary repairs would have to be undertaken by foreign specialists working for the international oil companies. “the bulk of the restoration of production has been carried by local petroleum industry staff, with much of the foreign workforce still outside the country,” it said. the iEa said industry stocks of oil in the major industrialised countries had fallen by 11.8 million barrels in september to the equivalent of 57.9 days of future demand, but it noted that these stocks were still around 1.5 days above the five-year average.

The IEA said industry stocks of oil in the major industrialised countries had fallen by 11.8 million barrels in September to the equivalent of 57.9 days of future demand, but it noted that these stocks were still around 1.5 days above the five-year average

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Many areas of Punjab and northern Baluchistan are not yet developed for milk collection, and then the output from existing dairy farms can also be increased significantly, if the farmers improve the fodder and water for their cattle

Monday, 14 November, 2011

analysis

mD nestle Pakistan, Ian James Donald

Gold investor’s biggest risk is political Diversification is the key to strategic wealth protection for economic freedom SHAN SAEED

1930’S rePeATIng ITSelF Governments in advance economies are running out of financial ammunition to fight bankruptcies. the financial bazooka continues in the global financial markets. all financial transactions carry a risk. While i am convinced that your gold and silver investments will pay off, but they don’t come without risk. What do you suppose is the biggest risk we face today? another 2008 style sell off? Gold stocks never breaking out of their funk? Maybe a Depression that would slams our standard of living very soon. You bet. is the history repeating of 1930’s? i think, this time would be different and even worst than 1930. kenneth Rogoff, from Harvard University in his Book, “this time is different: Eight centuries of financial folly” has mentioned many things that solidify, the history is repeating itself argument.

PolITIcAl rISK or economIc rISK though those things are possible, i don’t see that as your greatest threat: Your biggest risk is not that gold or silver may fall in price. nor is it that gold stocks could take longer to catch fire than i think. not even the prospect of the Greater Depression. investor’s biggest risk is political. as bankrupt governments Greece, italy, spain, ireland, Portugal, Usa, and Uk get increasingly desperate for revenue, any financial/real/monetary asset held domestically could be a target. interesting book by Barry Ritholtz “Bailout nation, with new post-crisis update: How Greed and Easy Money Corrupted Wall street and shook the World Economy” shares exciting insight about an engaging look at what led to the financial turmoil we now find ourselves in advance economies. Honestly, the party is over. it is absolutely essential that every investor diversify themselves politically and economically. in fact, at this point, it is one action that should be taken before anything else. Diversification strategy is the key across countries, currencies, equities, bonds, real estate and commodities. i know many

reading this are prudent investors. these investors own gold and silver as solid protection against currency debasement, inflation, fiscal indiscipline and faltering economies. they set aside cash for emergencies. they have strong exposure to gold stocks, both producers and juniors, positioned ahead of what is likely the next-favoured asset class. they feel protected and poised to profit. investors should remain ahead of the curve in these volatile markets. Yet, despite all this preparation, investors remain exposed to one of the biggest risks i.e. Political Risk. similar to holding a diversified portfolio at a bank without checking the institution’s solvency, many investors keep their entire stash of precious metals inside one political system without considering the potential trap they’ve set for themselves. While storing some of your gold outside your home country is not a panacea, it does offer one important thing: another layer of protection. Valued investment strategy in the long run can protect wealth.

AmerIcAn PerSPecTIve AnD ITS gloBAl ImPAcT Consider the exposure of the typical Us investor: 1) systemic risk, because both the bank and broker are Us domiciled; 2) Currency risk, as virtually every transaction is made in Us dollars; 3) Political risk, because they are left totally exposed to the whims of a single government; and, 4) Economic risk, by being vulnerable to the breakdown of a single economy. Viewed in this context, the average Us investor has minimal diversification. the remedy is to internationalise the storage of some of the precious metals.

ThIS AcT reDuceS 4 PrImAry rISKS A) Confiscation: i don’t know the likelihood of another gold confiscation. it did happen on 5th april 1933, when Usa government confiscated

Gold to give boost to its balance sheet. all persons were required to deliver on or before May 1, 1933 all gold coins, gold bullion, and gold certificates owned by them to a Federal Reserve Bank, branch, or agency, or to any member bank of the Federal Reserve system. i do know that things are working against many Us investors at the moment. With $14.9 trillion of debt and $117 trillion of unfunded liabilities, the Us government will likely pursue heavy-handed solutions. Under the 1933 FDR “gold confiscation” in the Us (the executive order was actually a forced delivery of citizens’ gold in exchange for cash), foreign-held gold was exempted. Value loss to the holders of gold to Us residents in 1933 was 43 per cent at that time. Gold holding was criminalised in Usa in the 1930’s. B) Capital Controls: Many think some form of capital controls lie ahead, limiting or eliminating a citizen’s ability to carry or send money abroad. if enacted, all americans capital would be trapped inside the Us and at the mercy of whatever taxing and regulating schemes the government might concoct. although they might be able to leave the country, however, their assets could not travel with them. C) administrative action: there are plenty of horror stories of asset seizure by a government agency without any notice or due process, possibly leaving the victim without the means to mount a legal defense. Having some gold or silver stored elsewhere provides what could be the only available source of funds in such a scenario. D) lack of Personal Control: Having gold and silver stored elsewhere adds to the best options, people can pursue. americans will have a source of funds available for business, entrepreneurial pursuits, investment, pleasure or travel. notice above i have said these risks can be reduced, not eliminated. after talking to so many american friends, i have shared this article on their insistence. there is no perfect solution; Us persons could, for example, be compelled to pay a “wealth tax” on assets held worldwide, or even repatriate them in a worst-case scenario. absent a crystal ball, the political diversity of asset location is an essential strategy against an uncertain future to get economic freedom.

ForeIgn-helD ASSeTS AlSo reQuIre greATer AWAreneSS AnD PlAnnIng 1) access to the metal or sale proceeds may not be quick. therefore, this option is for those with some gold and silver stored at or near home. i do not recommend storing all of your precious metals overseas; that defeats one of its purposes, to have it handy for an emergency. 2) While i think the Us poses the greatest challenge, a foreign government could move to control certain assets as well. the risk varies by country and is generally greater within the banking system than with private vaulting facilities. 3) Understanding and complying with reporting requirements is essential. the bottom line, though, is that foreign-held precious metals can mitigate risk and give investors more options. and as the metal holdings grow; diversification becomes more crucial and strategic in the long run. Given the current rapacious climate in Usa, it’s likely that simply buying gold won’t be enough. i strongly suggest every investor diversify one’s bullion storage outside his/her current political regime. the option may not be available someday, leaving investors vulnerable without a secondary source of bullion. Happy investing in gold with effective due diligence.

Depression drawing parallels with the Great Similar crises, similar headlines;

Shan Saeed is a financial market economist and commodity expert. He has 12 years of solid financial market experience. Graduated from University of Chicago, Booth School of Business, USA & IBA Karachi. He can be reached at Blogs at

currency mArKeT FocuS

end of the beginning

SHAHAB JAfRy

OntRaRY to the impression my constant long-term euro short posture might betray, i do not see the cataclysm in Europe as the end of the single currency, just the end of its present form. as the previous week’s last trading day again sparked risk appetite, lifting equities, bidding up euro, yen and pressuring the dollar, deep-rooted market uncertainty was best expressed in opposing takes of two leading investment banks – Goldman recommending going long eurodollar all the way to 1.40, Morgan stanley predicting the opposite, down to 1.30. these are historic times indeed. Europe is flush with irony when it takes political guillotines in athens and Rome for the euro to pare weekly losses, even if new setups will be just as helpless and the outlook just as grim as hawks in the forex market milk even the briefest news-pushed risk-on windows to the last drop. Papendreu sealed his fate by invoking public consent in matters concerning severe austerity, inviting scorn from Berlin and Paris, ultimately abandoning the referendum as well as the premiership. How a couple of millennia have changed the home of democracy. Berlusconi’s scalp, too, makes way for similar austerity, wage cuts, throw away privatisation, etc, signaling another elected leader’s collapse while political appointees dictate the continent’s future from command centres at the ECB, EMU and the like. i don’t understand Goldman’s optimism. there is no way Merkel and sarkozy can talk the euro all the way to 1.40. the most they can do is engineer brief windows of false hope to provide brief, sure long-opportunities for dear friends. and that’s not all the bad news. Mr Market seems on the verge of vindicating another of this column’s positions. this week, the spread between French and German bonds rose to the highest levels since the euro was floated, according to Bloomberg. it didn’t help that s&P followed by erroneously announcing a downgrade in France’s ratings. now it can’t be long before France becomes the next italy as pundits explore its mounting deficits, its banks’ exposure to peripheral debt, its perilous allor-nothing walk on the tightrope holding the fragile union together. stay committed to the euro short. sometimes others’ ignorance is our bliss! Resumption in yen-inflows also signal increased risk aversion around the corner as tokyo’s intervention loses steam and the Japanese currency gained 1.4 per cent to $77.20, the biggest weekly climb since aug 12. Commodity currencies will ride oil’s longest streak of weekly advances since aug ’09, but it would be foolish to bank on Europe-centric news to continue providing fillip. Better than expected data from the Us added to the relief, but such numbers have been playing hide-and-seek with the market for over two years, and cannot be trusted till a positive pattern emerges. as complex as the market situation is, trading ought to be just as simple. strange, but true. Hope on the Merkozy risk bandwagon whenever they act sincere and genuinely attempt to fend off bad news, even if their sympathy is directed towards giant European financial institutions, not its governments or its people. and short with abandon whenever the market calls their bluff. short term direction is a sure tell. Enjoy risk with euro, commodity currencies, even oil. Do just the opposite as soon as greed gives way to fear. the only plausible way forward for the eurozone is phased exclusion of debtdefaulters. after trying all medicines possible, the fatally sick must finally be let go of. Failing that, the financial malaise will turn increasingly political, with the monetary union turning fiscal/political, its core centre being Germany. isn’t that just the eventuality the union was initially created to avert? Either way, the first phase of the euro is over. it must mould, or end, but cannot continue. this week delivers the end of the beginning.