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Monday, 10 December, 2012
Further rate-cut demanded to make bedwear exports competitive KARACHI
T
STAFF REPORT
HE bedwear exporters demanded the federal government to further slash the discount rate as well as a higher input cost to make Pakistani produces more competitive in the international market. The demand came from Pakistan Bedwear Exporters Association (PBEA) Chairman, Zain Bashir during a briefing here at a local hotel. Flanked by other exporters like Shabbier Ahmed and Naqi Bari, Zain said the move would enhance the volume of country’s exports of the bedwear textile. He said India, Sri Lanka, China and Bangladesh were the major competitors of Pakistan on the world market. Zain expressed concern over the contracting bedwear exports that had plummeted to $ 1.7 billion in 2012 from over $ 2 billion in 2005 and 2006. The newly-elected PBEA chief vowed to leave no stone unturned to regain the country’s former textile exports status and compete with the neighboring countries on the world markets. “What is required from the government is cooperation and support,” he demanded. He said utilities tariffs particularly gas were higher in Pakistan for the textile industry than that of key competing nations namely India, Bangladesh, Sri Lanka, and Vietnam. “All have a gas rate which is lower than that of Pakistan,” he added. Besides, he said, the markup rate for textile industries in India, Bangladesh, Sri Lanka, Turkey, and China were lower than what the manufacturers pay in Pakistan. “India and Bangladesh provide direct support to their respective textile exporters in the form of drawbacks,” said Zain. He said costs of gas and of finances to the textile sector in Pakistan are also higher than that of international competitors. He said if the textile exporters were provided with the appropriate support, they would have had a significant growth in the last six years. “It is tragic to see that instead of increasing our share on the world markets and helping the country earn foreign revenue, we have gone backward,” he lamented. The chairman said Pakistan was a rich country
Investors offer about 30 billion euros in Greek debt buyback: source Greece is set to purchase back about half of its debt owned by private investors, broadly succeeding in a bond buyback that is key to the country’s international bailout, a Greek government official said ATHENS AGENCIES
with natural resources in abundance but nothing of it could have been utilised in the past efficiently to bring out the nation of power and financial crisis. “There is plentiful coal in Pakistan,” he said. He said small investments in coal mining could trigger great progress in the energy generation to suffice the much needed power for residential, commercial and manufacturing sectors of the country. “Very little investment is required to mine the coal and process it to bring it to a level that it can be used as fuel,” he viewed. He said the natural gas in the country was being wasted to fuel private vehicles and residences throughout the country whereas such an import input should only be spared for the industrial requirements. “That is because the rest of the world known the significance of the precious natural resource, which needs efficient and careful utilisation in Pakistan as well,” he suggested. Zain said gas loss which the country is facing could be gauged as Unaccounted for Gas (UFG). He said: “It is shocking that a country starved for natural gas is in reality experiencing UFG loss of over 10 per cent in residential and commercial sectors. It is noteworthy that UFG loss is below 2 percent in industrial sector”. Despite the textile manufacturing sector utilization of gas in more efficient, it has been slapped with forced load shedding of the input, he showed regrets. The industrial sector runs on over 60 percent efficiency whereas home geysers run at 18 percent efficiency” he gave a comparison.
Greek and foreign bondholders offered the targeted 30 billion euros ($38.8 billion) in the deal, which is central to efforts by Greece’s euro zone and International Monetary Fund lenders to cut its debt to manageable levels. “The buyback went well in broad terms. The amount offered by investors was within the range expected, about 30 billion euros,” the official told Reuters on condition of anonymity. He did not provide more details. No formal announcement is expected before Monday, another official told Reuters. The buyback accounts for about half of a broader, 40-billion euro EU/IMF debt relief package for Athens agreed in November. The package broadly doubles the average maturity of its rescue loans to almost 30 years and cuts its interest rates by one percentage point to a level far below 1 percent. Under its terms, Athens will spend up to 10 billion euros of borrowed money to buy back bonds with a nominal value of about 30 billion euros. This is nearly half the 63 billion euros of Greek debt held by private investors eligible for the plan. Since the bonds are to be bought far below their nominal value, the country’s net debt burden would fall by about 20 billion euros. A successful buyback will ensure that the IMF, which contributes about a third of Greece’s bailout loans, will stay on board of the rescue. It would also unlock the payment of 34.4 billion euros of aid later this month. Athens badly needs that money to refloat its ailing economy by replenish-
ing the capital of its cash-strapped banks and settle arrears with government suppliers. The EU and the IMF have been withholding rescue payments to Greece for six months because it had fallen short of promises to shore up its finances, privatize and make its economy more competitive. Athens has received 148.6 billion euros in EU/IMF funds since May 2010. It stands to get almost 90 billion euros more by the end of 2014. But the rescue comes at a heavy price. Austerity measures taken in exchange for aid have plunged the country into economic depression. Unemployment hit a record 26 percent in September, the highest in the euro zone. The economy is going through its fifth consecutive year of recession and is expected to have shrunk by 24 percent when recovery begins in 2014. GREEK BANKS ON BOARD: The buyback was expected to go well after Greek banks, which hold about 17 billion euros of bonds, announced shortly before a Friday deadline they would take part. Two Cypriot lenders also said they would offer their bonds. Foreign investors have offered between 15 and 16 billion euros worth of bonds, Greek newspapers reported on Saturday, citing initial estimates without saying how they got them. Athens’ hopes of drawing enough investors to the scheme grew after it announced better-than-expected terms on Monday, with price ranges at a premium over market prices. The price range varied from a minimum of 30.2 to 38.1 percent and a maximum of 32.2 to 40.1 percent of the principal amount, depending on the maturities of the 20 series of outstanding bonds.
Wall Street Week ahead
‘Cliff’ worries may drive tax selling Investors typically sell stocks to cut their losses at year end. But worries about the ‘fiscal cliff’ - and the possibility of higher taxes in 2013 - may act as the greatest incentive to sell both winners and losers by December 31 NEW YORK AGENCIES
The $600 billion of automatic tax increases and spending cuts scheduled for the beginning of next year includes higher rates for capital gains, making tax-loss selling even more appealing than usual. Tax-related selling may be behind the weaker trend in the shares of market leader Apple (AAPL.O), analysts said. The stock is down 20 percent for the quarter, but it’s still up nearly 32 percent for the year. Apple dropped 8.9 percent in this past week alone. For a stock that gained more than 25 percent a year for four consecutive years, the embedded capital gains suddenly look like a selling opportunity if one’s tax bill is going to jump sharply just because the calendar changes. “Tax-loss selling is always a factor (but) tax-gains selling has been a factor this year,” said Paul Mendelsohn, chief investment strategist at Windham Financial Services in Charlotte, Vermont. “You have a lot of high-net-worth individuals in taxable accounts, and that could be what’s affecting stocks like Apple. If you look at the stocks that people have their largest gains in, they seem to be under a little bit more pressure here than usual.” Of this year’s top 20 performers in the S&P 1500 index, which includes large,
small and mid-cap stocks, all but four have lost ground in the last five trading sessions. The rush to avoid higher taxes on portfolio gains could cause additional weakness. The S&P 500 ended the week up just 0.1 percent after another week of trading largely tied to fiscal cliff negotiation news, which has pushed the market in both directions. A PAIN PILL FROM THE FED?: Next week’s Federal Reserve meeting could offer some relief if policymakers announce further plans to help the lackluster U.S. economy. The Federal Open Market Committee will meet on Tuesday and Wednesday. The policy statement is
expected at about 12:30 p.m. on Wednesday after the conclusion of the meeting the Fed’s last one for the year. Friday’s jobs report showing nonfarm payrolls added 146,000 jobs in November eased worries that Superstorm Sandy had hit the labor market hard. “After the FOMC meeting, I think it’s going to be downhill from there as worries about the fiscal cliff really take center stage and prospects of a deal become less and less likely,” said Mohannad Aama, managing director of Beam Capital Management LLC in New York. “I think we are likely to see an escalation in profit-taking ahead of tax rates
going up next year,” he said. MORE VOLUME AND VOLATILITY: Volume could increase as investors try to shift positions before year end, some analysts said. While most of that would be in stocks, some of the extra trading volume could spill over into options, said J.J. Kinahan, TD Ameritrade’s chief derivatives strategist. Volatility could pick up as well, and some of that is already being seen in Apple’s stock. “The actual volatility in Apple has been very high while the market itself has been calm. I expect Apple’s volatility to carry over into the market volatility,” said
Enis Taner, global macro editor at RiskReversal.com, an options trading firm in New York. Shares of Apple, the largest U.S. company by market value, registered their worst week since May 2010. In another bearish sign, the stock’s 50-day moving average fell to $599.52 - below its 200-day moving average at $601.38. “There’s a lot of tax-related selling happening now, and it will continue to happen. Apple is an example, even (though) there are other factors involved with Apple,” Aama said. While investors may be selling stocks to avoid higher taxes in 2013, companies may continue to announce special and accelerated dividend payments before year end. Among the latest, Expedia (EXPE.O) announced a special dividend of 52 cents a share to be paid on December 28. To be sure, the big sell-off in stocks following the November 6 election was likely related to tax selling, making it hard to judge how much more is to come. Bruce Zaro, chief technical strategist at Delta Global Asset Management in Boston, said there’s a decent chance that the market could rally before year end. “Even with little or spotty news that one would put in the positive bucket regarding the (cliff) negotiations, the market has basically hung in there, and I think it’s hung in there in anticipation of something coming,” he said.
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Surviving a financial crisis
F
Hassan Ayub
INANCIAL experts and analysts all point to an impending financial crisis by 2013. While most experts want us to realize that this event is indeed coming and we cannot avoid its outcome, some are quite concerned what will actually happen to regular folks like you and me. How do regular people prepare in surviving the financial crisis when 2013 is just several days away? There is still hope; you can survive any crisis when you keep this checklist in mind:
1 Reduce your debt - whenever you
have debt, someone else controls your financial future: the lending company, the bank or a finance company actually have their hands around your neck. As early as today, you need to plan on important ways to stop accumulating more debt as well as plans to reduce your current debt. Overpay mortgages monthly and you will find an extra couple of months off your debt or how about consolidating your loans so you can take care of paying them in a more efficient manner. By consolidating all your loans in one due date you will decrease the risk of missing your payments. You may also use automatic debit from your bank account so you will never have to worry about missed payments in the future. 2 Simplify your life choices - learn how to live simply so you will never accumulate more debt and you will also be able to save. Instead of eating out or shopping you can cut down on these activi-
ties so you can save money. Switch to more productive and FREE hobbies like reading, gardening or taking your dog for a walk. 3 Think of ways to reduce your family’s expenses - when the impending financial collapse happens, you and your family will be able to cope faster if you start living more simply. Cut down on cable costs and just subscribe to basic TV. Car pool or plan your trips to the store so you can save gas and energy as well. You can also indulge the family in eating simpler but more nutritious meals; choose home grown vegetables and fruits to replace eating out or eating takeaways. Simple choices like this will be able to help your family cut down on everyone’s budget. 4 Work security - are you an employee? If you are, then it’s time to question your work security. When the looming financial collapse happens, the least tenured workers will be the ones to go first and if you are the least experienced in your department then start creating plan B today. You can start thinking of a home based job that can help augment the family’s needs or how about switching careers so you can get a higher pay and better security in your work. You may also decide to forgo additional expenses until you feel that you have better security in your current job. There’s nothing wrong with being prepared and you must share this vision to all your family, friends and neighbors to start the change in everyone today before it’s too late.
LAHORE: TEVTA Chairperson Arif Saeed is addressing NAVTTC delegation. NAVTTC Chairman Mumtaz Akhtar Kahloon, Regional Director Hussain Nasir Jamy, TEVTA Chief Operating Officer Khalid Mahmood and other officers are also seen in the picture.
Business 02 Apple and Samsung: A defining rivalry in a changed mobile market JAKARTA/SEOUL AGENCIES
At the end of August, Apple Inc seemed on top of the world. Fresh off a resounding $1.05 billion U.S. legal victory over archfoe Samsung Electronics Co Ltd, the company was gearing up to launch the fifth iteration of its iconic iPhone. Just a week prior, its market value had surpassed Microsoft Corp’s and it became the most valuable technology company in history. That was then. Since winning a landmark U.S. patent infringement case in August, its stock has dived 18 percent, wiping $108 billion from its value. But the shares of defeated party Samsung have surged, rising 16 percent. The dramatic reversal has sparked raging market speculation. Some pundits say concerns are growing about the seemingly inexorable advance of Google Inc’s Android, the rival software championed by Samsung. Others say fears about higher capital gains taxes have prompted investors made rich by Apple’s stockprice growth to sell. But it is the Apple-Samsung rivalry that defines a global mobile device industry with a growing list of struggling players. Together, the two mobile juggernauts account for more than 1 in 2 smartphones sold globally. Analysts say Samsung is beginning to shed its aura as a “fast follower” and becoming a serious innovator, while Apple has failed to deliver on a truly seminal product in years - the oft-rumored Apple TV remains a well-honed rumor. “Apple’s actions have started to appear as if innovation is slowing and they’re defending turf with a zero-sum market view rather than continuing to innovate as a world-beating leader,” said Tony Nash, managing director at IHS, a business information provider. The clash of the gadget titans underscores a broader battle between Apple and Google’s increasingly popular Android mobile software, now installed on about two out of every three smartphones sold. But some Asian analysts also point to Samsung’s very different business model as helping it get a leg up on Apple. The iPad maker’s outsourcing structure provides fatter margins, but cedes some control to an army of suppliers, while Samsung’s competitiveness is driven by keeping most of its manufacturing in-house. And while Apple focuses on a few high-end mobile devices, Samsung’s product breadth helps it scoop up new, less affluent users who can then be driven
towards higher-margin devices, such as the phone-tablet combo Galaxy Note. “In Asia, Samsung is still in the stronger growth position when it comes to smartphones - bringing large-screen models to the masses, re-introducing the pen with its Galaxy Note series and also, at the lower-end, with its entry-level Galaxy Y devices driving emerging markets like Indonesia and India,” said Melissa Chau, Singapore-based research manager at IDC. SAMSUNG SHIFT: No one is writing off Apple, still the world’s most valuable listed company and expected to chalk up 27 percent revenue growth to almost $200 billion in fiscal 2013 - about level with Samsung. “There have certainly been missteps at Apple ... but if we look at what’s been achieved in the year since (co-founder Steve) Job’s death, there are things that keep their competitors quaking in their boots,” said Rachel Lashford, Managing Director, Mobile and APAC, at consultancy Canalys in Singapore. Among its strengths, she cited unprecedented demand around new launches, the expansion of content on iTunes and the Apps Store, a possible move to product updates twice a year, efforts to improve parts supply and manufacturing, the dogged legal pursuit of Samsung and cash reserves of more than $120 billion. Its gross margins of above 40 percent are double Samsung’s. But the South Korean company is now beginning to generate some buzz with recent improvements in its line-up. This week, news emerged that it is likely accelerating the launch of its next-generation flagship Galaxy smartphone - which sports an unbreakable screen. Codenamed “Project J,” the Galaxy S IV could be released as early as March or April, according to leading industry analysts and tech blogs. With smartphones increasingly looking alike, an unbreakable screen could be a big selling point for the Galaxy over the iPhone. “Samsung’s richer product line-up and vertically integrated supply structure
are among its strongest advantages over Apple’s simpler product range and strength in software,” said Kim Youngchan, an analyst at Shinhan Investment Corp in Seoul. Samsung is estimated to have shipped close to 56 million smartphones in JulySeptember, more than double the number of iPhones, and analysts expect it to sell around 30 million more smartphones than Apple this quarter. The South Korean firm’s shift comes as its Cupertino, California-based rival suffered from some missteps in its iPhone 5 mapping app, supply constraints that have prompted delivery delays and allegations of employee abuse at supplier plants in China. Charles Moon, Singapore-based principal analyst at Informa Telecoms & Media, a research consultancy, sees these as a sign Apple is adjusting to maturing markets. “A completely offensive strategy with uncontested gains are a thing of the past,” he said. “Apple is not positioned well at the moment following a couple of disappointing quarters and continued negative news flow. “Regardless of what happens (in the court ruling), Samsung and Android are winning where it counts - outside the courtroom - and this is likely to go on unless Apple can continue to reinvent itself. Very difficult, considering how far they’ve come, but not impossible. They’ve done it before,” he added. APPLE MISSTEPS: In the key battleground of China - the world’s No. 1 cellphone market - Samsung and Android devices in general appear to be making headway against pricier Apple gadgets. Third-quarter data shows Apple slid to sixth place in China, its largest market after the United States. Samsung kept top slot, according to research firm IDC, which estimated the Chinese smartphone market at a record of more than 60 million in July-September. IDC analysts forecast a rebound for Apple with this month’s iPhone 5 launch there, but it has so far failed to crack the country’s largest carrier by far, China Mobile Ltd. Apple’s “loss of market share and of opportunities like a stalled China Mobile agreement are notable and, potentially, show some strengths of an integrated hardware-led model of players like Samsung against the comprehensive hardware-software ecosystem model of Apple,” said Nash at IHS.
Schumpeter, entrepreneurship, and creative destruction Iqbal M Khan Destruction of businesses, fortunes, products, and careers is the price of progress. This is what Joseph Schumpeter describes as “Creative Destruction.” His life spanned two World Wars, the Great Depression and the beginning of the Cold War. He saw rapid change and realized the importance of change. His vision was stark and he saw that change was essential for growth. He had witnessed so many clashes in life and yet he could see revival for those who adopted to changing environment. These environmental changes may have been the reason for his philosophy. It was in 1942 he first used this phrase creative destruction. He used this phrase to propound the concept of net economic growth. People tend to see results in a shorter perspective. He saw beyond the ordinary. While the people were seeing depression, totalitarianism and the carnage of World War 1, followed by the Great Depression and genocide of the second world war. It was only human to loose faith in democracy and capitalism and hang on to their newly found faith in Socialism. But it was not so for Schumpeter. He was so focused on economics that in this struggle between economic systems and political ideologies he saw the struggle for supremacy between these two ideologies capitalism and communism. What he as a visionary, saw was the back and
forth between wealth and poverty of families under capitalism (no illusion) and yet be believed in the deliverance of “capitalist engine”. He was convinced, through his astute observation, that the economic bounties enhanced the life of the average person far offsetting the negative effects. It brought within the reach of the commoner what was at one time available to Queen Elizabeth 1 and elete in the 16th century (Silk Stocking). He became as they say the “prophet of incessant change”. Business fail, falling victim to innovation by their competitors. To survive they must be entrepreneurial and think strategically otherwise the destruction creates a wreckage (sometimes unseen to the eyes). Yet the general prosperity produced by the “capitalist engine” far outweighs the wreckage it leaves behind. He was born in 1883 in a small hamlet called Triesch in the province of Moravia. It was a part of Austria then. He belonged to a family of entrepreneurs. He gained prominetice in Austria his home country, and he always regarded himself as an Austrian and never a Czech. He gained presence as he had a lot to say against the established views on economics of the time. His views clashed with one of the titans of his time Maynard Keynes. This rivalry dogged him throughout his life. It was an era that was dominated by American Economist and it was not easy to accept a man from a small distant country, Austria, critically analyzing the works of the school of
thought propagated by Keynes. His most impactful book (1911) was not available to the English society until it was translated and published for the first time in 1934. He came into prominence only after he decided to migrate to Harvard. He was finally recognized and accepted as the great economist of his time. It was the magazine Forbes that declared in 1983 that Schumpeter, not Keynes, was the best navigator through the turbulent seas of globalization. Today we see this assessment as correct. He started his career as an academic boy wonder. He wrote remarkable books and treties in his twenties. In his thirties he had a brief carrier as Austria’s Finance Minister; He then became a successful banker, and then returned to Academics. He migrated to USA and became a Harvard professor. But he suffered crushing misfortunes all along bouncing back like an entrepreneur. And his unique ideology was to live the lifestyle of an aristocrat despite his circumstances. He wore expensive tailored clothes. And he enjoyed at the same time making fun of himself. He would often say that he aspired to become the greatest economist, horseman and lover in the world. He would say that he had achieved two but did not say which. But a time came when he was regarded as the greatest economist in the world of his time. The visitors bureau of Prague announces him as “one of the most important economist of the twentieth country,
first Austrian Minister of Finance, professor at Harvard University and creator of the Japanese economic miracle”. It may seem a tall claim but the Japanese achievements were based on the principles of entrepreneurship, credit and creative destruction. It is also incidental that despite having spent his half life in Harvard USA, he is more known in Europe and Japan. One of his famous works first published 1911 in German The Theories of Economic Development. An Inquiry into Profits, Capital, Credits and the Business Cycle 1926 2nd Edition German, which received very favorable review especially from American Economic Review. The English translation appeared as a much shorter version of his German original of 1911 in the year 1934. The most important assertion of the book was that individual entrepreneurship held the key to “Economic Growth” in any country. For Schumpeter, nothing was ever stable, the more he explored the depth of economics the more convinced he become of the unique advantages of capitalism for productivity and growth. This may have been the lesson he learned from seeing and studying the destruction of the two world wars and the emerging era of technology which is romantically called the “Republic of Technology”. He knew that creative destruction fosters economic growth but also that it under cuts cherished human values. As McCraw, his biographer puts it. “Capitalist engine can
hum along at full throttle and do wondrous things for humanity, if – but only if – it is well understood. But traits of constant change and innovation makes the whole idea of a capitalist “equilibrium” misleading and innovation requires continuous disequilibrium – which is lead by obsessive entrepreneurs. Between 1925 and 1932, Schumpeter came up with publication for exceeding that of any comparable period of his life. In this period he wrote 65 articles in contrast to 8 between 1920 to 1924. These consisted of articles that were equivalent of two medium sized books. Even though he was a first rate policy analyst who went straight to the heart of any economic problem, he disliked prescribing public remedies, but his treaties were the magical pills for any country that wishes to have economic development. It is high time that Pakistan should invite Schumpeterian Entrepreneurship as strategic agenda of its economic growth. The author is a Senior Fellow Entrepreneurship at Lahore School of Economics. He is also the author of two books on Entrepreneurship. He is currently organising on International Conference on Entrepreneurship in December at Lahore. Email: ibajauri@gmail.com, iqbal.khan@schumpeterian.org
Monday, 10 December, 2012