Value Chain (Dec 11)

Monthly

December 2011

Democracy: the least bad governance system Fostering & sustaining development in an era of crisis MFN status for India: Subject of hot debate

Central Banks’ Dilemma: prudence vs popularity Letters of credit, how they can be used as a front for raising liquidity Livestock development in Pakistan

A Tribute to

Quaid-e-Azam Founder of the Nation

Ta’aluq: 0800-03000 | Website: www.psopk.com | UAN: 111-111-PSO (776)

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Volume - 1

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Issue - VIII

Dec 2011

Chief Editor Dr. Zeeshan Khalid

chief.editor@valuechain.com.pk

Advisor Editorial Team A.B Shahid adivsor@valuechain.com.pk

Editor Nadeem Abdul Ghani editor@valuechain.com.pk

Deputy Editor Jauhar Ali

Global & National Briefs Editorials

Jinnah – father of a nation that doesn’t deserve him MFN status for India – a subject of hot debate Of the magic of democracy, the world over

13 14 15

Targeting Iran – the same trap as the one set for Iraq?

Democracy – the least bad governance system

16 17-20

Politics

Economy

res.editor@valuechain.com.pk

Fostering and sustaining development in an era of crisis Sovereign risk: is it still to be treated as zero?

17th SAARC Summit: Building Bridges Shanghai Cooperation Organization: 10th Prime Ministers’ Meeting

Assistant Editor

Voice of Industry

dy.editor@valuechain.com.pk

Research Editor Mustafa Ali Shaikh Syed Asif Ali

asst.editor@valuechain.com.pk

Director Marketing K. Jehangeer Khan

marketing@valuechain.com.pk

9-12

Regional trade-its importance in a changed economic scenario Steel industry & India as MFN Lessons from Indian Army for Indo-Pak Businessmen

Banking & Finance

21-23 24 25 26 27-29 30-31 32

Visualizer Ali Siddique Dadi

Letters of Credit; how they can be used as a front for raising liquidity 33-34 35-36 Central Banks’ dilemma – prudence vs. popularity

General Manager Mahmood Khan

Quaid-e-Azam’s Vision of Banking System in Pakistan

visualizer@valuechain.com.pk

gm@valuechain.com.pk

Islamic Banking

Regulatory Compliance

37

Gaps in FBR’s mechanisms and the price taxpayers pay for them

38

Ajmal Khan

Livestock Development in Pakistan The Viability of Crop Insurance

39-42 43-44

Mumtaz Abbasi

Media:

Printed By:

Research & Development

Bureau Chiefs

Syed Saqibullah

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Contributors Mr. Mr. Mr. Mr. Mr. Mr. Mr.

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Agriculture

Role of Social Media in a New Era of Communication

45-47

Impact of stagnation in Pakistan’s agriculture: A serious concern of national food security

48-49

Mycotoxin – A Serious Concern for Health

50-51

Health Events

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L etters to the Editor Remembering the great

Sir, the new (November) edition of Value Chain continues its tradition of being informative and knowledgeable. The article on the increasing trend in bank frauds is interesting. The interview of Mr. Navaid is good; we should highlight those who actually have contributed to this country and Hakim Muhammad Saeed Shaheed is of course one of them and Mr. Navaid is carrying forward the tradition of hikmat. Keep up the good work.

Ali Ahmed Rasheed Sons Re-rolling Mills, Karachi.

Bank Al Baraka (Pakistan) Ltd.

Sir, this is with reference to publication of a special report on the "World Islamic Finance Summit" in your magazine Value Chain. We would be delighted to let you know that Al Baraka Bank (Pakistan) Ltd. was the co-lead sponsor of that summit and remains committed to improvement and growth of Islamic Banking.

On page 35 of your October 2011 issue there is a list of Islamic Banks that does not include the name of Al Baraka Bank (Pakistan) Ltd. It also includes names of Non-Bank Financial Institutions under the heading of Islamic Banks.

Saleem Uz Zaman Bank Al Baraka (Pakistan) Ltd. Karachi.

MFN status for India

Sir, the debate on this subject should be focused on two aspects: maximizing the potential of businesses and industries in both countries to expand by increasing trade with each other, and by building a strong combined lobby to sort out all the other divisive issues that pitch Pakistan against India, and vice versa.

Business communities in both Pakistan and India must not appear interested only in maximizing their benefits; they must also pressurize their political regimes to come closer and resolve all the divisive issues to build lasting relations. Businesses have a huge moral obligations to their nations to do so, or else they would be criticized by the divisive circles, and the process of normalization of much needed trade ties between the two countries may again be placed on the backburner.

Syed Shahid Ali Karachi

implies that state debt is not being retired. As a matter of fact, government is sucking out more and more of liquidity from the banking sector to repay its maturing debt rather than pay it from its own sources. Where do its own resources go remains a big question mark.

On the one hand the state is starving the private sector and on the other that could lead to illiquidity in the banking sector – a disaster of incalculable proportions. Such a possibility is increasing uncertainties for business and industry, increasing defaults on credit repayment, and making Pakistan investment unfriendly.

As it is, the banking sector is haunted by the prospects of higher non- per- forming loans; the ongoing drain on its liquidity will make it more risky. The PPP regime has turned the Fiscal Responsibility Act of the last parliament a sick joke. It is time this regime was held accountable for its gross waste of national resources.

Karam Ali Karachi

Non-performing loans

Sir, isn’t it rather perplexing that while our banking sector keeps telling us about its rising profitability, the nonperforming loans (NPLs) are on the rise?

According to SBP, at the end of the 3rd quarter of 2011, NPLs have risen to the all time high of Rs 629 billion. Coming in the backdrop of a constantly contracting loan portfolio, this amount must be near about 13% of the outstanding bank credit.

What are the banks doing that, in spite of their higher loan loss provisioning, they are declaring higher profits? While these results are unaudited, the magic must be uncovered because if banks are resorting to some accounting tricks, their year-end profits may turn out to be far lower.

Shahid Ali Karachi

Bangladesh’s regional responsibilities

Pakistan was pushed back to square one on the subject since, despite assurances to withdraw its objections, Bangladesh again refused to remove its objections to EU concessions that were meant to help Pakistan recover from the massive flood tragedy of 2010.

Bangladeshi commerce minister said in Dhaka that “Our position is clear. One should not mix aid with trade. We do not support any aid for trade programme for a country which is our competitor” and opposed the duty-free access of just eight products because it implies Bangladeshi export loss worth $100 million.

That reflects on both the vision and sense of moral obligations of Bangladeshi regime towards the South Asia Region. If you have friends like the Bangladesh, you don’t need enemies.

Nasim Jafri Lahore

Is Iran the target after Libya?

Sir, Libya was a ‘successful’ experiment for the US and Nato. That it has built up hopes of bringing down the remaining ‘unwanted’ regimes in the Middle East is proved by the rumours now afloat about Weapons of Mass Destruction (WMD) in Iran. The IAEA report submitted to the UN does not provide any definite proof that Iran has WMD but Israel and the US are building a hype over the issue.

All you need to recall is 2003 when, on a doubtful evidence collected by IAEA, Iraq was invaded. Besides, International Criminal Court has yet to clear Nato of the alleged crimes it committed in Libya.

F. Anwar Hussain Karachi Value Chain welcomes the views of its valued readers. Please send us your views on the address below:

Fatima Khalid Publications (Pvt) Ltd. Room No. 612, Clifton Centre, Block 5, Clifton, Karachi Email: ask@valuechain.com

The Editor reserves the right to edit your letters for making it brief or for any linguistic flaws therein

Public debt – where are we headed?

7

December 2011

G lobal Briefs Global events last month On October 31, Palestine was elected member of UNESCO. Palestine secured 107 votes. There were 54 abstentions and 14 votes against Palestine’s membership.

Fourteen states that included Turkey, Iran, Pakistan, China, Russia, India, and several Arab states agreed on November 2 at a conference in Istanbul to cooperate in re-building a war-torn Afghanistan.

Greek PM George Papandreou resigned on November 7 after his controversial remarks were rejected by the EU, leading to the formation of a ‘unity’ government made up of his party and the opposition.

US Secretary of State Hillary Clinton said on November 7 that the US is ready to work with rising Islamist groups in the Middle East who are elected, as in Tunisia.

British police arrested 20 people when thousands of students marched through London on November 7 displaying anger against government's austerity measures.

In a report presented to the UN Security Council on November 2 about Nato’s campaign in Libya, International Criminal Court pro- secutor Luis Moreno-Ocampo said that there are allegations of crimes committed by Nato forces, which will be examined impartially and in- dependently.

Maj. Gen. Peter Fuller, US commander in Afghanistan was relieved of his duties on November 5 for criticising the Afghan President.

Greek Prime Minister survived a no confidence after making the controversial promise of holding referendum to decide whether to adopt the huge spending cuts imperative for Greece to secure its next tranche of rescue loan from the EU. A senior police official D.D. Misra was sent to a mental hospital on November 5 after accusing state officials of corruption in the Indian state of Uttar Pradesh.

On November 7 a court in India found 31 Hindus guilty of killing 33 Muslims in a house during religious riots in the state of Gujarat in 2002 in which 2,000 people were killed in a wave of anti-Muslim violence triggered by fire in a train wherein Hindu pilgrims were burnt alive.

Okinawa was hit by a 6.8 magnitude earthquake on November 8, in the sea off this island, without a tsunami aftereffect.

Int’l Atomic Energy Agency submitted a report to the UN saying Iran “appeared” to have worked on designing a bomb and may be conducting research to that end.

At the G-20 summit in Cannes, failure to switch off microphones let participants know French and US Presidents’ view of Israeli Premier. Sarkozy said “I can’t stand him anymore, he’s a liar”.

Obama replied “you are fed up with him, but I have to deal with him every day.”

On November 9, the Turkish city Van experienced another damaging earthquake in 3 weeks measuring 5.7 on Richter scale.

UN Secretary General stated firmly on November 10 “that a negotiated rather than a military solution is the only way” to resolve the issue of Iran’s compliance with IAEA regulations.

Indian Supreme Court expressed its shock on November 11 since more than 250 Pakistanis–one of them since 1965– were imprisoned in India without trial in a public interest petition, and ordered the government to explain these detentions.

A former ECB policy-maker took oath as Prime Minister of Greece. The new PM Lucas Papademos is a reputed economist.

9

The Italian Premier Silvio Berlusconi resigned on November 12 making way for career technocrat Mario Monti to be the new Italian Premier.

According to Paul Condon, founding head of International Cricket Council's anti-corruption unit, all leading cricket playing countries were involved in match fixing. He said on November 15 that "in late 1990s, Test and World Cup matches were being routinely fixed".

Kuwaiti elite forces beat thousands on November 16 before the parliament who demanded the Prime Minister to resign over allegations that 16 MPs in the 50-member house got $350 mln in bribes.

On November 17, Pentagon tested a flying bomb that travels faster than speed of sound and can be guided to hit targets anywhere on the globe within an hour.

US Defence Secretary Leon Panetta said he would raise American concerns about the unintended consequences of military action against Iran in talks with his Israeli counterpart on November 18.

A faction of the Libyan rebels caught Saif-ul-Islam (son of Libya’s slain president Gaddafi) on November 19. The EU and International Criminal Court sought his protection for a fair trial on war crimes.

On Nov 21, Egypt Government reportedly resigned amidst protests demanding democratic change in the country’s biggest crisis since Hosni Mubarak’s ouster.

On Nov 21 Britian ordered its financial institutions to halt all business with Iranian counterparts.

Robert Kelly, ex-chief weapons inspector for IAEA rejected IEAE claim that Iran had built a nuclear test chamber to test components of nuclear weapon and carry out a simulated nuclear explosion.

Yemeni President Ali Abdullah Saleh signed on Nov 23 a deal under which he would step down and transfer power within 30 days to his Vice President, Abed Rabbo Mansour Hadi.

Russia is sending a flotilla of warships to its naval base in Syria in a show of force which suggests Moscow is willing to defend its interests in the strife-torn country, according to Izvestia newspaper report of Nov. 28.

December 2011

G lobal Briefs Global economy last month According to the United Nations, on November 1, world population touched 7bn, registering the fastestever increase since 1999 when it was 6bn.

China’s economy faces growing risks from Europe’s sovereign debt crisis, according to Bert Hofman, World Bank chief economist for East Asia and the Pacific.

G-20 heads of government meeting in Cannes on November 3 and 4, to plan a package for rescuing the global economy from current turmoil, re-emphasized the need for austerity.

Greek PM, invited in an emergency, was told bluntly that if he goes ahead with his planned referendum over the terms of EU’s bailout package, EU assistance could be stopped.

In an anti-Iran drive, US, Britain and Canada announced on Nov 21 new measures against Iran’s energy and financial sectors, while France proposed new sanctions including freezing the assets of Iran’s central bank and suspending purchase of its oil.

On November 9 Russia also offered technical support to Pakistan for laying the Iran-Pakistan gas pipeline and help in developing the Thar coal field.

11 Swiss banks under investigation for helping their American depositors dodge taxes.

Bank of England kept its key interest rate at a record low level of 0.50% in its November 10 Monetary policy announcement because Britain is still struggling for economic recovery.

EU parliament voted on November 15, to ban ‘naked’ credit default swaps, used by traders to bet on the risk of a country failing to pay off its debt, and imposed restrictions on the practice of short-selling company stocks from 2012.

Pakistani and Russian Prime Ministers on November 9 agreed to speed up the free trade and currency swap agreements to increase bilateral trade and strengthen economic ties.

State Bank of India with 25% share of the market disappointed investors on November 6 by reporting a 35% increase in its loan loss provisions.

Banks in India have stopped lending to state-owned power distribution entities and real estate sector, and substantially cut their consumer finance portfolios as per a November 6 report by Moody’s.

According to the Swiss financial sector regulator FINMA, four Swiss banks had flouted money laundering regulations in the way they dealt with banned Tunisian, Egyptian, and Libyan assets.

A Swiss parliamentary commission advised its lawmakers on November 10 to back a proposal for clarifying how Swiss government will handover data on wealthy Americans suspected of dodging US tax authorities. Basler, Kantonalbank, Credit Suisse and Julius Baer are among

The US public debt reached $15 trillion mark on November 17 while the Congress continued to wrangle over spending cuts. Treasury figures showed the federal debt touched $15,033,607,255,920 i.e. up $55.8 billion from November 15.

During a stopover at Vienna, travellers on Austrian airlines Comtel Air’s Amritsar – Birmingham flight were forced to pay a sum of $31,500 to complete the journey.

China may post trade deficit in 2012 as export demand in Europe and US slumps, Xia Bin, an academic adviser to the Central Bank of China told Reuters on Nov. 22.

Standard & Poor’s ratings agency said on Nov. 24 it has cut its long-term rating on Egypt by one notch to ‘B+’.

Finance Minister Francois Baroin said on Nov. 24 that rating agency Standard & Poor’s should be punished for sending an erroneous email announcing that France’s cherished top rating had been cut.

Acting Prime Minister Omurbek Babanov said on Nov. 23 Kyrgystan faces financial hardship and social unrest if it fails to join a customs union with three former Soviet states.

The European Commission proposed on Nov. 23 new intrusive laws to ensure that budgets of euro zone countries do not break EU rules and that their borrowing falls.

Eurozone’s debt crisis: On Nov 21 Spain’s socialists became the 5th Government in the 17-nation currency area to be toppled by the soveriegn debt crisis this year.

President, Turkey Union of Chamber of Commerce(TOBB) Rifet Hisarciklogu stressed upon the need of developing infrastructure for pro- motion of trade through land route and railways amongst ECO member states and suggested common visa for buinessmen.

Taiwan has tightened rules on shortselling to prop up the stock market ahead of a Presidential poll.

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Russian Premier Vladimir Putin and his Kazakhistan and Belarus counterparts signed on November 18 a treaty to form an ‘Eurasian Economic Union’ by 2015.

Italy was forced to pay record rates in a 10-billion euro bond sale and EU kept up pressure over the country’s debt on Nov. 25 under widening shadow of eurozone crisis.

December 2011

N ational Briefs Pak politics last month In a meeting with visiting American lawmakers President Zardari promised to help the US to “eradicate” the Haqqani network. Homeland Security delegation head Michael McCaul revealed details of the discussion on Nov. 6.

On November 7, Sindh government restored the old 1979 commissionerate system in Sindh. The Chief Secretary said that the notification for restoration of the system had been issued.

A group of politicians that includes MNAs and senators of PML-F and Q, decided on November 8 to form a new political party and started talks with PTI Chairman Imran Khan for an alliance.

Parliamentary committee on judges' approved on November 10 the appointment of 10 out of the 11 names that were recommended by the Judicial Commission for appointments to the superior judiciary.

Gen.(Retd) Khalid Naeem Lodhi was appointed on Nov.24 Defence Secretary in place of Lt. Gen. (Retd) Athar Ali.

confirmed to the media on November 17, that Adm. Mullen did receive a memo via US businessman Mansoor Ijaz expressing fears of a likely military coup in Pakistan, and sought US help in preventing it.

On Nov 21 Pentagon said Admiral Mike Mullen knew the emissary who brought the controversial memo to him but did not believe it was from President Asif Ali Zardari.

On Nov 22, Pakistan Ambassador to US, Husain Haqqani resigned over allegations that he wrote a memo to Admiral Mullen asking for US help in reining in the army and ISI. ISPR on Nov 22 refuted news reports that government and military were engaged in peace talks with Tehrik Taliban Pakistan(TTP).

The Government of Pakistan appointed on Nov 23, Sherry Rehman as Pakistan’s Ambassador to US replacing Husain Haqqani.

Pakistan-China commenced a fourth joint military exercise on November 14 in the Jehlum area. The exercise is aimed at exchange of experience and information via comprehensive real-time training.

National Assembly Secretariat allowed 28 MNAs to attend the Assembly session on Nov. 14 although the membership of these MNAs was suspended by the Election Commission of Pakistan for not filing the annual details of their assets.

After three years, National Assembly passed on Nov. 15, the Prevention of Anti-Women Practices (Criminal Law Amendment) Bill, 2011 to prohibit old customs of wanni, swara, badal-e-sulh, etc.

Criminal cases against 22 former and sitting parliamentarians for holding fake degree sent by Election Commission of Pakistan were finally launched. FIRs have been registered against nine out of the 22 parliamentarians on Nov. 15.

Pakistans Hockey Federation banned Pakistani players on November 15, from playing in the World Series Hockey in India. Like the IPL, the event is being organized by the private sector.

A spokesman for former US Chairman Joint Chiefs of Staff, Adm. Mike Mullen

Pakistan Taliban’s spokesman on Nov. 23 refuted claims that the group had agreed to ceasefire and exploratory peace talks with Government.

In a petition filed in Supreme Court, PML-N President Mian Muhammad Nawaz Sharif pleaded to identify those behind the memorandum scandal and bring them to justice.

Prime Minister Yousuf Raza Gillani will appoint Special Investigator, chosen from the civilian set-up, to probe memogate.

PML-N Chief Mian Muhummad Nawaz Sharif has moved on Nov. 24 another application urging Supreme Court of Pakistan to place Husain Haqqni’s name on ECL. Prime Minister Gillani told National Assembly on Nov. 24 he would set up a committe for an impartial inquiry at the highst level into the memo that led to the ouster of Ambassador Husain Haqqani.

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NATO Air Strikes on Pak Army Posts Twenty-four Pakistani soldiers were killed and 13 injured in cross-border NATO air strike on two Army border posts in Mohmand Agency on November 26, 2011 which has inflamed US-Pakistan ties and sparked anger and protests across the country demanding an end to Pakistan’s alliance with the United States and get out of the US war on terrorism. Members of civil society, lawyers, traders and students organized rallies in protest against the Nato attack in flagrant violation of Pakistan’s territorial sovereignty and integrity. In reaction to the attack, some already scheduled official visits of high-level Pakistan military delegations to the US were cancelled.

The Defence Committee of the Cabinet ( DCC) which met under the chairmanship of Prime Minister Yousuf Raza Gillani demanded of the US government to vacate the Shamsi airbase within 15 days. NATO/Isaf logistic supplies were completely suspended.

Chief of the Army Staff General Ashfaq Parvez Kayani strongly protested against the unprovoked firing and demanded of NATO/Isaf to take urgent action against those responsible for the aggression.

Strong protests were also lodged with the United States and at NATO Headquarters in Brussels, conveying in the strongest possible terms Pakistan’s condemnation of these attacks.` Pakistan’s Ambassadors to Belgium, Euroopean Union and Luxembourg lodged protest over the attack and demanded immediate and full explanation of this serious incident. China, Iran, OIC and Russia also condemned the Nato raid and called for thorough investigations.

President Asif Ali Zardari and Prime Minister Yousuf Raza Gillani also strongly condemned the Nato helicopters’ attack on Pakistani troops and termed the incident as “unacceptable’.

Foreign Minister of the UAE Sheikh Abdullah Bin Zayed Al-Nahyan dashed to Islamabad on November 28,2011 and requested Pakistan for further extension of the deadline for withdrawal of the US troops. According to reports, President Asif Ali Zardari declined to entertain Sheikh Abdullah’s request by saying that the government will follow the decision of the Defence Committee of the Cabinet that gave 15 days to US to vacate the Shamsi airbase.

December 2011

N ational Briefs Pak economy last month Government decided on October 25 to make over 1,000 changes in the Customs Tariff, Free and Preferential Trade Agreements, auto tariffs regime, exemption and concessionary all notifications and duty draw-back and trade policy notifications to bring Pakistan's customs notifications in line with the revised HS Code-2012 of the World Customs Organisation.

S&P Rating Services affirmed its ‘B-’ long-term and ‘C’ short-term foreign and local currency sovereign credit ratings on Pakistan on October 31. The outlook on the long-term rating remains stable.

Presidents of Turkey and Pakistan agreed on November 1 to work towards finalizing a currency swap agreement to deepen and broaden their partnership in every field.

Federal cabinet unanimously resolved on November 2, to grant India the MFN status. The resolution will now be placed before the parliament for approval.

On November 2 FBR expressed its doubts about whether banks surrendered the ‘flood surcharge’ they recovered from depositors between March 15 and June 30 2011. FBR therefore plans to audit bank accounts to ascertain this possibility.

CPI went up by 11% in October over its September level, according to figures disclosed by Secretary, Statistics Division.

In accordance with decision at the last SAFTA ministerial council meeting held in Maldives in June 2011, on November 4, Pakistan announced that it will cut the list of ‘sensitive items’ by 20%.

On November 3, Nepra allowed power distribution companies to increase power tariff by Rs 1.77 per unit across the board except for the consumers using up to 50 units per month. The move was criticised

by Pakistan’s business and industry.

FBR advised on November 4 a revised sales tax zero-rating regime for exportoriented sectors including textile, leather, carpets, surgical and sport goods, levying a single 5% reduced rate for these exportoriented sectors.

The Senate approved on November 4 the bill passed by the National Assembly that stipulates a maximum 14 year prison term and a fine of Rs 10 million for those involved in theft of oil and gas.

Reserve Bank of India has informed Pakistani authorities that it cannot allow Pakistani banks to open their branches in India until the political leadership or the Union government gives a green signal, according to Pakistan’s Foreign Office.

Taking serious notice of low progress of the national documentation drive, the FBR has decided to take stern action to prevent flight of capital by inquiring into investments made by resident Pakistanis abroad.

Economic Coordination Committee of the cabinet approved on November 11 the expansion of the positive list by allowing import of 18 more items from India.

The government decision for 3-day gas load-shedding announced on November 11 was rejected outright by the Executive Committee of All Pakistan CNG Association.

The July-Oct trade deficit shot up by 31% over the corresponding period last year. This was apparent from the FBS data released on November 11.

Bangladesh plans to end a complaint against EU grant of concessional import terms to Pakistan after an agreement to impose a tariff cap on six items instead of eight. Bangladesh Commerce Secretary said "we had called for exclusion of eight items from the list of 75 items or a cap on six of these items and the EU indicated a readiness to incorporate tariff rate quotas on those six items. So Bangladesh has no objection to the revised proposal."

SSGC informed KESC on November 16 that it will cut gas supply to KESC by 80 MMCFD effective November 17. That will force KESC to increase load-shedding hours throughout Karachi.

Direct and portfolio foreign investment inflow during first four months of FY12 fell to $238.1 million, or by 58.4%, over its level in the same period in FY11.

On November 21, FBR extended the last date for submission of tax returns yet again, this time to November 30.

Federal Finance Minister informed the National Assembly on November 18 that domestic public debt amounting to Rs 15.975trn, and foreign debt totalling $13.42bn (incl. $3.36bn interest) was re-paid during the last three financial years.

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National Assembly Standing Committee on finance unanimously approved on November 18 two Money Bills imposing new taxes worth Rs 38bn in FY12 – Gas Infrastructure Development Cess and the Levy on Liquefied Petroleum Gas. FBR is reported to have informed the World Bank reveiw mission that tax authorities are planning to conduct a fresh study on tax gap analysis in Pakistan for raising the tax to GDP ratio.

On Nov. 21 Lahore High Court suspended Nepra notification about levy of Rs 1.03 fuel adjustment surcharge for the month of Sept. on industrial consumers through electricity bills of October.

According to Federal Bureau of Statistics data issued on Nov 21, Pakistan’s oil import bill surged by over 53.9% to $5.013bn in July-Oct this year.

Pak Army has reportedly expressed its reservations on granting MFN status to India.

Baluchistan Government has cancelled the licence of Reko diq gold and copper mines given to a foreign company and decided to run the project itself.

Pakistan has reportedly inked one-paper ‘intention” of signing Gas Sale Purchase Agreement(GSPA) for Turkmenistan - Afghanistan - Pakistan India pipeline project and not the agreement.

According to reports, Pakistan’s domestic debt has increased by Rs 2.15 trillion to Rs 6.01 trillion in FY11 as conpared to year 2009, while external debt liabilities have increased by Rs 1 trillion to Rs 5.1 trillion during the same period.

Pakistan Jute Mills Association has launched an initiative to convince farmers of Punjab for commercial sowing of jute crop in Pakistan which can save $100 million annually being spent on the import of this fibre crop from Bangladesh.

On Nov. 30, State Bank of Pakistan announced Monetary Policy for December and January keeping the interest rate (discount rate) unchanged at 12 percent.

December 2011

E ditorial Jinnah – father of a nation that doesn’t deserve him

E

stampede. He retracted his right foot from the stairs and stood in the doorway. All he did was to wave his walking stick indicating that he wanted order. That hint was taken by the throngs and the policemen on duty. Within minutes order was restored, "I don’t know how, because the welcome was tumultuous and the slogan of Quaide-Azam Zindabad deafening”. On the one hand this incident manifested the high priority he assigned to discipline, and on the other his nation’s unquestioned submission to his command because it placed its faith in his command without an iota of doubt.

In another incident Gen. Khan recalls Mr. Jinnah’s sense of secularism and compassion. Police Inspector F.D. Hansotia, a Parsi, was Mr. Jinnah’s chief security officer but some elements weren’t happy over a non-Muslim performing that key duty, and advised Mr. Jinnah to replace him. Mr. Jinnah sought Gen. Khan’s opinion on the subject. He told Mr. Jinnah that Hansotia was a first-class officer and efficient in his duty. Mr. Jinnah smiled and said he too thought so, but authoritatively added, “don’t tell him all this” manifesting his distaste for doubting the loyalties of conscientious officers, and how it could hurt the feelings of non-Muslim officers.

In 1948, Karachi was hit by communal riots–a turmoil that greatly upset Mr. Jinnah. He knew that Gen. Gul Hassan had a Hindu friend living on Bunder Road, which was among the worst hit areas of the city. Gen. Khan writes that one night Mr. Jinnah called him to ask whether he was supplying food, etc., to that friend, and whether his family was being protected. Gen. Khan writes that just to dispel Mr. Jinnah’s worries he told Mr. Jinnah that he had been using a car of the Governor House to deliver food supplies to that Hindu friend. Mr. Jinnah remarked “I am proud of you; the people of Pakistan, whenever in trouble, must be helped” impliedly, ‘without any distinction of religion, caste, colour or creed’.

He abhorred the idea of favouring his relatives when they sought it not on the basis of merit, but on the basis of being his relatives. There were occasions when he refused even to meet them; he did so to relatives including his only daughter and one of his brothers. He wanted all state office holders to do just that–recognize and respect merit–and uphold the key Islamic value of rewarding merit, not practicing cronyism.

Let us ask ourselves whether we practice the values he gave us? Aren’t these the values that elevate nations to the highest pedestal of humanity and make the world love them? Isn’t it a tragedy that we are now a nation devoid of these values? It is time we recognized this big failure, and launched a nation-wide movement to revive the philosophy of Quaide-Azam.

very year, Pakistanis begin celebrating the birthday of Prophet Jesus Christ–the Great Messiah–on the night of December 24, and the next day they all celebrate the birth of another Messiah–Jinnah –who is remembered as the Father of the Nation. But aside from celebrating the birthday of the Father of the Nation, they portray no signs of loyalty to the values he cherished –integrity, discipline, compassion, unity – that he wanted his nation to practice for their common good.

The paradox is that the nation witnessed how he practiced these values to the very end of his life. Tragically, that history is now confined to books; neither its leaders nor the nation practices any of them. What is far more tragic is the fact that, while we see how we have descended into a visibly bottom- less pit of disrepute globally by defying the golden values he wanted us to adopt-we aren’t ready to accept that, doing so, we have lost the right to call M.A. Jinnah the Father of our Nation.

It is high time we recalled some of the magnificent examples he set through his personal conduct to highlight the importance of adopting these values.

By the 1930s, he had risen to the level of the best lawyer in India and used to charge Rs 1,500 an hour for going through a client’s case papers for preparing his defence. To be fair, he kept a clock in front of him to note the time spent in reading the case papers. Once, a client submitted case papers to his secretary who, after looking at the papers, asked the client to deposit Rs 3,000 thinking that Mr. Jinnah will take about two hours to study them. But the next day the secretary called the client asking him to collect a refund of Rs 750 since it took Mr. Jinnah only one and a half hour to read his case papers.

That people had total faith in his integrity, was portrayed by an incident reported in one of Mr. Jinnah’s biographies.

According to the author, Mr. Jinnah was addressing a huge public meeting and, as always, he was delivering his speech in English. The correspondent of a British newspaper, who was covering the event, asked some of the audience with the help of an interpreter whether they understood what Mr. Jinnah was talking about. They said although they didn’t understand English, they believed what he was saying was ‘the truth’.

In his "Memoirs”, Lt. Gen. Gul Hassan Khan (who served as the first military ADC to Mr. Jinnah after he became first Governor General of Pakistan) has included some inspiring facts about Mr. Jinnah. Recounting the events at Mauripur airport on August 7, he writes that he approached the aircraft as it came to a halt. As the door opened, Mr Jinnah appeared wearing a sherwani, shalwar, and the famous Jinnah cap. He stood in the doorway and surveyed the scene. As Mr. Jinnah was about to alight, there was a

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December 2011

E ditorial MFN status for India – a subject of hot debate

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That said, sensible businesses in both India and Pakistan must give this overdue initiative a chance to succeed because mutual trade offers both a key economic advantage–lowest transportation cost which, in a world suffering from the un-ending greed of oil exporting countries has become a major element of the landed cost of goods. In short, mutual trade is of immense economic importance for both India and Pakistan. It holds huge potential for increasing invest- ment and employment in both countries. Above all, it could bring home to people at the grassroots the realization that “together we sink or swim ashore”.

What gives rise to suspicions in Pakistan are some historic facts. India has traditionally been over-clever in dealing with other nations. Even its best friend – the US – isn’t an admirer of India’s business practices. Earlier this year, US Commerce Secretary Gary Locke pointed to India’s notoriety for using the non-tariff barriers (NTBs) to restrict imports into India from its trading partners. This clever-by-half trick is also the focus of those who (it must simultaneously be said, dumbly) find it reason enough to deny India the MFN status.

As of now, India has created a positive view in Pakistan’s official circles by promising to withdraw its objections to the EU giving Pakistani exports trade concession to help support Pakistan’s rehabilitation efforts for victims of the 2010 flood.

Given the size of India’s exports, these concessions will not make much of an impact on India but what must be admired is the skilful use of this issue to convince Pakistan to extend MFN status to India. But for being exploited, Pakistan can’t blame anyone else except itself. The ongoing mess in energy and power sectors, and the way it upped the cost structure of the industry, forced seeking such concessions.

Many of Pakistan’s business and industry associations have reacted rather harshly to the grant of MFN status to India. It primarily has to do with non-competitiveness of vast sectors of the industry and fears about cheap Indian goods leading to closure of severed Pakistani businesses. While there is no way inefficient industrial units could survive except by replacing their technology bases, improving efficiency level and cutting waste, they should be given more time by restricting imports from India to raw materials for use in Pakistan’s industry. But the fact is that, in the long-run, only the fit will survive – this reality must be accepted by our business and industry.

We import many manufactured items from suppliers in the Far East. Those items are also produced in India by companies franchised by those Far Eastern entities. Pakistan could import these goods from India at substantially reduced landed costs.

As for NTBs, that mask duplicity in the guise of quality and standards, Pakistan must convince India to dilute this black shade in its image; it could block the positive initiative that both countries seem willing to materialize.

n November 2, the Federal Cabinet approved granting “Most Favoured Nation” (MFN) status to India subject to its being endorsed by the parliament. On the face of it, this was in line with standard parliamentary practices. What gave rise to a debate over the issue was the lack of details about the basis that justified this cabinet decision.

While talking to the media at his Lahore residence on November 4, even the Prime Minister avoided giving details of the terms agreed with India, subject to which Pakistan will take this major concessionary step. Besides, these details that will have direct implications for trade via land routes and involve requisite concessions in border security, were also not shared with the defence services top-brass until after federal cabinet’s green signal. What confused the issue even more was the fact that the Prime Minister went to the extent of saying that the grant of MFN status wasn’t really agreed with India, but was only being discussed. This prompted the Indians to respond by remarking that Pakistan was “back-tracking” on the issue.

Sensible diplomacy demanded that this key issue shouldn’t have become as controversial as it has. While it is imperative that interests of Pakistan’s business, industry and agriculture must not be compromised, it is undeniable that, by sharing a common landmass, India and Pakistan don’t have any option except finding ways of sharing the benefits of this landmass and live together in peace – a reality both have denied for 64 long years courtesy their short-sighted leadership.

The softening of the Indian posture on this issue too isn’t a voluntary act reflecting an eventual sense of realization of the ground realities; it has more to do with the drying up of its hitherto favoured export market–the US and EU. Despite this, there is a ray of hope that, given this arrangement, both India and Pakistan might eventually accept this reality and, in time, shut up the extremists on both sides of the border. The lot in India that still subscribes to the idea that Kashmir is a part of Akhand Bharat, and those in Pakistan who believe in the power of the sword to liberate Indian-held Kashmir have been proved wrong.

What will work is nourishing common line of thinking on both sides of the border i.e. that the Kashmir issue must be resolved to drastically cut expenditure on acquiring destructive weaponry, and focus single-mindedly on poverty reduction–a menace that could undo both India and Pakistan from within; that both countries trade with each other on fair bases to maximize the benefit to people on both sides of the border. There isn’t an iota of doubt that both Pakistan and India have failed miserably in containing poverty, which is reaching astounding proportions in spite of fudging of the poverty lines by national economic planning commissions in both these countries.

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December 2011

E ditorial Of the magic of democracy, the world over

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or once, politicians are on the backfoot but, it seems, not for long in spite of what havoc they played with the global economy. Even though prime ministers in Greece and Italy surrendered to technocrats, the Western media still wants the masses to believe that politicians alone know how to solve their problems. The Economist wants its readers everywhere to continue to believe that “ultimately, politicians are the people who can put it [the economies] right” and technocrats’ role must be limited; its advice to technocrats is that they “should prepare for urgent elections that could produce governments for reform.” What a task for the technocrats!

Some in the media, the otherwise clean and respected lot, suffer from an incurable disease–their love for democracy no matter how it messes up nations and their economies. With its blind support for democracy, more to show its hatred for dictatorship than anything else, this lot prevented democracy from acquiring the profile Plato had envisaged for it, which was a governance mechanism manned by those trained in the art of statecraft. No wonder democracy is failing everywhere.

Each of the last four economic cycles that ended in 1988, 1995, 2006 and 2007, was shorter than the earlier proving that the globalization, privatization and de-regulation driven economic “revolutions” were abject failures presided over by governments in what we call the “free world”– countries with exemplary democratic setups that they want the rest of the world to copy, often at gun point, as was the case with Iraq, Afghanistan and Libya; Iran may be their next target.

The unfolding reality (that the Western media has thus far tried to deny) is that politicians have lost their credibility for two no longer deniable reasons: they know little about macro economics, and place their faith (knowingly, not unwittingly) in the greed-driven advice of the corporate sector. The slow but sure momentum that the “occupy” movement is gaining globally proves that people have come to the conclusion that corporations and politicians are in league against them; this manifests a mega failure on the part of politicians.

Any Pakistani will swear that political regimes were and are incapable of providing justice, law and order, corruption-free administration, and fair market regulation. They now believe that technocrat regimes that can implement urgently needed structural changes, overhaul the economies and then manage them rationally, could put things right because they will not indulge in cronyism–the favourite pastime of the politicians, no matter what their leaning.

What people are experiencing now is far worse that what they lived through in the 1988-99 decade of democracy. As for the Musharuff ’s brand of democracy, it was a reflection of what was happening in the “free world” whose sour fruits were blind consumerism, the build up of huge deficits of all varieties including trade, fiscal, energy and power–all of them

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worsened by the new so-called real democracy now in vogue. Under this brand of democracy, on October 21, as many as 103 MNAs (out of 341), were suspended due to their failure to file with the Election Commission the details of the assets they own.

Yet, 28 of the suspended MNAs are attending the National Assembly session and exercising their parliamentary rights–the rights suspended by the Election Commission.

One of the many fruits of democracy in America has been the rise in unemployment. As of now, 25 percent of the adult population is either partly or wholly unemployed and the EU presents what the German Chancellor called the worst scene since WW-II. Ireland, Portugal, Spain, Greece and now Italy reflect the fruits of democracy.

France may join this troubled group because French banks went out of their way to finance the ballooning Greek fiscal deficit.

Private banks’ lending to reckless sovereigns was bound to repeat the tragedy experienced by US banks in the 1980s. Yet the European parliament didn’t ring an alarm thereon. How could private banks go on lending to sovereigns right under the nose of the ECB? How could the Greek government go on borrowing, and why did the EU parliament sleep over public debt of member states rising above 120 percent of the GDP, and stay at that level for years? Now we are reminded that, during the decade beginning 2001, Italy’s economy grew at the slowest pace in the world, below even the growth rates of Haiti and Zimbabwe. Wasn’t the EU parliament aware of this continuing trend?

In the latest EU heads of government meeting the German Chancellor and the French President acknowledged that they might abandon Greece to its fate. There are also indications that the founding EU members may be contemplating a new club of “core” Euro economies that can live within the rules, jettisoning the rest. This is a belated acknowledgment of the trap set by the US to eventually bring about the demise of the EU by pushing the former Soviet Republics in Eastern Europe to seek EU membership. Reason: a strong Euro was a threat to the supremacy of a sliding US Dollar.

The drive to enlarge the European Union by loading it with weak economies began in the early 1990s, and to concentrate on it, the US left the Afghan war theatre, leaving the Afghans to fend for themselves in a country practically turned into a huge pile of rubble. But it was a clever-by-half strategy. What it propped up was a monstrosity–global terrorism–that defies anyone’s capacity to fight, be it the US or the EU. The wealth accumulated through colonization of the Third World and thereafter through re-colonization via self-serving institutional arrangements was squandered away on wars that shifted focus away from developing competitive advantages in industry–the gift of democracy in the last three decades of globalization, privatization, deregulation and recolonization.

December 2011

P olitics Targeting Iran – the same trap as the one set for Iraq?

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ot long ago, Int’l Atomic Energy Agency (IAEA) filed a controversial investigative report about Iraq having Weapons of Mass Destruction (WMD). That report only helped justify the invasion of Iraq; the reality to-date is that Iraq never had WMD. On November 2, IAEA filed a report with the UN in which it said that Iran “appeared” to have worked on designing a bomb and “may” be conducting research to that end.

Apparently, the uncertain nature of the findings in the IAEA report and the goof committed by the UN Security Council in accepting the IAEA report on Iraq’s WMD, responding to that report the UN Secretary General reiterated “that a negotiated rather than a military solution is the only way” to resolve the issue of Iran’s compliance with IAEA regulations.

The cautious approach of the UN Secretary General didn’t deter US Secretary of State. The same day she declared that according to the IAEA report, there was "credible" evidence suggesting that Iran's atomic program was being used to put nuclear warheads in ballistic missiles. Unless she knows what the IAEA doesn’t, saying so was irresponsible on her part. Soon thereafter, at the conclusion of the AsiaPacific foreign ministers’ conference in Hawaii, she said "Regarding Iran, we discussed the recent [IAEA] report raising serious concerns about the weapons-related work the Iranian government has undertaken." It was a hint about surveillance independent of the IAEA – the sort carried out prior to invading Iraq.

Israeli President Shimon Peres too hinted about it when he said, "intelligence services of the ‘different’ countries that are keeping an eye [on Iran] are worried and putting pressure on their leaders to warn that Iran is ready to obtain the nuclear weapons." He went on to say that an attack on Iran by Israel and ‘other’ countries was becoming "more and more likely."

But the US Defence Secretary Leon Panetta hasn’t been as reckless. Appearing at a conference along with Joint Chiefs of Staff, Chairman Gen. Martin Dempsey, Panetta cautioned all concerned against resorting to military action to destroy Iran's suspected nuclear facilities. According to him, recourse to military action could have ‘unintended’ consequences for the whole region as well as for the US forces in that region.

He reiterated the view of Robert Gates, his predecessor, that a military strike could set the Iranian nuclear program back by at the most by three years and no more.

Panetta has learnt some fairly harsh lessons provided by the invasion of Afghanistan and Iraq, but still hasn’t learned that so long as Iran remains the target of threats and vitriolic attacks by the US and EU it has no choice but to prepare for avoiding a fate similar to that of Afghanistan, Iraq and Libya.

That it should be doing that can’t be questioned because it is the most important obligation of any state. But what made Iran focus on defence in an excessive manner was the threat it confronted since 1979, courtesy the US and Israel.

Throughout the past three decades, the US blindly acted on Israel’s advice and added to its enemies in the Muslim world. Yet they wonder why the world hates them; all that they do is damn the world. It is no longer a habit with the Americans to once in a while look inside their own shirts.

Shimon Peres The Zionist-injected quest for colonizing the globe turned the US into a war machine.

America, that helped revive the global economy after WW-II by showing how business can achieve high levels of production efficiencies to bring down market prices and thus bring more goods within the reach of progressively larger consumer groups is now on an economic slide. Although fighting wars has bankrupted America, it is still being driven by its destroyer– Zionists in Israel – not the God-fearing Jews who are justifiably embarrassed by the acts of Benjamin Netanyahu and now, sadly, even Shimon Peres– member of Israel’s Socialist and more rational Labour Party.

With the Arab League in turmoil after the Arab Spring, and countries like Pakistan struggling with huge internal strife, it is highly likely that Israeli Zionists might goad the US into yet another invasion–this time on Iran–before the ever-rising numbers of economically hard-pressed Americans force their government to stop its blind subservience to Israel.

The one possibility (though its crystallization is unlikely) is that the Arabian Gulf states realize how destructive would be a conflict in the Arab (or is it the Persian?) Gulf. What these state must realize are the consequences of such a conflict, for instance, sinking of battle ships in the Gulf with loads of sea mines (impossible to retrieve) that will stay afloat for years to keep destroying the ships that try to enter the Gulf. It could freeze the Gulf economies. Besides, exporting Gulf oil safely too will become impossible and the insurance premiums will eliminate the cost advantage the Gulf states presently have in keeping their crude oil the cheapest in the world.

In early November, the media reported that UAE has been offered sophisticated US weapons. Good for the UAE, but if the war actually breaks out, these weapons will not be able to neutralize the lethal gases and radio activity that is bound to be released during the conflict, which will continue to pollute the atmosphere of the Gulf states for months, even years.

There is ample evidence to prove that Israel and the US do not care for war ethics. Israel used forbidden weapons in its recent invasions of Lebanon, Gaza and Palestine, and US did the same in Iraq. Iran is their most hated enemy; in a war on Iran, both Israel and America could go to any extent since the after-effects of the war won’t affect Israel or the US.

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December 2011

P olitics Democracy – the least bad governance system

by A.B. Shahid

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he powers that be know too well that in Pakistan where, in spite of over 3% p.a. rise in population a census was last carried out in 1982, no elected government, by whatever name called, could be ‘democratic’ but a mere façade thereof.

Yet, C’Wealth, EU, and the G-8 recognized the governments elected on the basis of doubtful electoral rolls. Demands for restoration of political governments elected by such doubtful electoral rolls convey the impression that the West wants un-representative governments in power to drain whatever is left of the country’s meagre resources, and transfer it to banks in the West.

This attitude strengthens the belief that Western democracies want West-serving corrupt governments to stay in power in Third World countries, using democracy as a façade therefor.

The invasion of Iraq with the proclaimed aim of establishing democracy has turned out to be a poorly rehearsed act for re-colonizing the resource rich Third World countries. Worse still, the Islamic world now views democracy as a covert weapon of subjugation rather than the mechanism for freeing subjugated societies. Not surprisingly, therefore, commentators suggesting that democracy is the West’s new route to re-colonization of the world are gaining credibility.

Shortsighted self-serving democratic West could not do more to damage the credibility of this otherwise least bad system of governance.

The reaction abroad to dismissal of Nawaz Sharif government reflected outright condemnation of Pakistan’s military. “Why are the men in uniform considered so incapable of putting anything right?

They too are Pakistanis. Aren’t they?” The ferocity of the statement issued at the time was matched only by its inaccuracy betraying how little they knew about Pakistan. But the British reaction voiced by the then Foreign Secretary Robin Cook was particularly rash given the fact that what we live with today (a large standing Army that feeds on the perpetual fear of Indo-Pak conflict over the unresolved Kashmir issue) is the legacy left behind by the Raj. This bleeding wound was the Raj’s parting kick.

Admittedly, democracy is the least bad system of governance, but given its failure in developing as well as developed countries, it is no more so sacrosanct that the absence of it in a country may be deemed sufficient justification for wholesale condemnation of that country. How deceptively weak is democracy as a system of governance, has been proved by the mismanagement of the world’s great democracies. In this context, it would be in order to recount some of Britain’s own bitter experiences with the system the Commonwealth seems to place at par with divine revelation,

This article is based on extracts from a letter I addressed to the Honourable Don McKinnon, then Secretary General Commonwealth on July 19, 2003 because this august forum suspended Pakistan’s Don McKinnon, membership in 2003.

Reason: Musharaf regime installed a version of democracy that was considered ‘defective’ by the Commonwealth. This letter pinpoints the ‘great’ achievements of democratic regimes all over world.

At my request, the Secretary General circulated this letter to all heads of government of the Common- wealth member states. There- after, at the Commonwealth heads of government meeting on May 22, 2004 (oddly held in New York) Pakistan’s membership was restored and my humble efforts in this context were Dr. Maleeha Lodhi appreciated by Dr. Maleeha Lodhi (then Pak High Commissioner in the United Kingdom) in her letter of May 24 – A.B. Shahid condemning those who suspend it, even for good reasons.

It is undeniable that democracy caused lasting damage to British economic and social systems during 1960s and 1970s. It will take years before an acceptable balance is restored in the state’s relationship with its citizens. Look at the way the citizens were duped by the now famous “dodgy dossier” which, quite unashamedly, was sanctified by a person no less than Tony Blair. The imbalance in the social and economic systems created by the ruthless Thatcherite response to Labour’s mismanage- ment of the state, will take time to correct. I have lived in the UK during 1976-78 and again during 1985-88. I saw the worst of the mismanagement of the state by a Labour government and the ruthless Thatcher-led Conservative reformation thereof after 1979, purportedly to correct the system. I can still recall the almost Nazi-style crushing of the trade unions, especially the treatment meted out to coal miners’ and print workers’ unions and, of course, the ultimate disaster for the Conservatives Party – the poll tax.

Since 1979, Britain has been in a state of transition from a wel-

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December 2011

P olitics fare state to a capitalist state requiring a fundamental change in peoples’ attitude – something the present leadership may not succeed in bringing about without causing unbearable pain and unmanageable fallout therefrom. To the ordinary, the scars may not be visible but they are deep all right. The “new” Labour uses its rhetoric only to mask the divisive forces set in motion by the Conservatives. Both (Labour and Conservative) styles of governance were stretched beyond their logical parameters to the detriment of British polity; its consequences are manifesting themselves in the understandable public disillusionment with politicians and democracy.

Tony Blair, Jack Straw and the able press aide Alistair Camp-bell represent what most self-respecting Britons now classify as the black sheep at the highest levels in British politics. What is worse is the fact that, given politicians’ dubious conduct over the years, Britain no longer has an effective parliamentary oppo-sition. Political leadership has lost its credibility. It is a disaster of incalculable proportions for the country, which, at one time, quite justifiably boasted about having the “mother” of all parliaments.

Mr. Robin Cook, Mr. Tony Blair (Prime Minister, UK) & Mrs. Madeleine Albright (US Secretary of State).

The high point of Westminster democracy has been a resolve to devolve power–an admission of the fact that democracy has its limitations. I consider this to be its single greatest success in accepting the most important ground reality – need for local government. But credit for this “realism” doesn’t go to West-minster MPs; separatist movement in Northern Ireland and rising disaffection in Scotland and Wales forced this realization on Westminster.

It only proves that a democratic dispensation providing for powerful central governments is unsuitable for governing large states. Failure of a massive country like Pakistan (including its break-up in 1971) in installing democracy only reinforces that point.

The moot point is the definition of “failure” of democracy. Pakistan is not an exception as far as failure of democracy is concerned, though it is among the few that suffered under military dictators, once too often. But, in many ways, democracy failed in countries that did not experience this fate. Bigger the country, bigger has been the scale of failure in social, political and economic terms.

Look at the enormous mismanagement of the State in India – the world’s biggest democracy. In not too distant past, the ruling party appointed 72 Ministers in Uttar Pardesh’s Provincial Assembly of 140 to forestall its downfall. The mess in Bihar’s Provincial Assembly has

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been a monument-tal success in rendering democracy susceptible to almost endless corruption. India’s economic mismanage- ment has now led to frightening fiscal deficit, social inequality, and frantically rising population. Finally, the ethnic rage that characterizes India’s politics today is also the gift of democracy being used to corrupt the society.

According to recent book (Sleeping with the Devil by ex-CIA official Robert Bear), in recent times, most US politicians have been on the payroll of Saudi Arabia implying thereby that democracy in the US elevated to positions of power a lot of corrupt people. Bill Clinton wrote a new chapter in shameful conduct while occupying the office of the President. That despicable drama was followed by the President’s office remaining in a state of animated suspension for 16 days because the last Presidential election was rigged beyond doubt with the help of a subservient judiciary and corrupt administration. Finally, the majority of the people Bush Jr. chose as his cabinet members, were self- acclaimed religious fundamentalists or notorious for their corruption while serving in the corporate sector prior to assuming their current advisory roles. The US has been a demo-cracy all along. Yet, the criminal deeds of its past democratic governments are so culpable that, quite unashamedly, it got the mandate of the International Criminal Court (ICC) amended whereby crimes committed by the past US governments would not be called into question by this court.

Japan is another great democracy. It enjoys the distinction of electing an amazing number of criminals to the Prime Minister’s office. All had to be sacked on bribery charges. In Western Europe, surely you remember the legacy left behind by Harold Wilson, Margaret Harold Wilson Thatcher and Helmut Kohl. Italian and Spanish governments are headed for disaster under their suspect Prime Ministers.

The treatment Western democracies meted out to the likes of Mossadegh, Salvador Allende, Lumumba, Soekarno, Bhutto, Nkrumah, Mandela and others is no secret. Nor is the history of countries where corrupt governments were installed, supported and then selectively brought down when they over-did what their supporters in the West asked them to do. Surely, you are familiar with the likes of the Shah, Pinoche, Mobutu, Suharto, Zia-ul-Haq, Marcos, Noriega, Franco, the Bothas, and Saddam Hussain, who December 2011

P olitics were supported by Western democracies. Saudi ruling family will be the next target of the West. I can go on recounting the horrors faced by the Third World democracies because the system brought to power incompetent and corrupt leaders, as well as foreign agents. Western democracies are not far behind in this respect. Britain provided vivid examples of the failure of democracy, once drifting even towards martial law.

By March 1976, things had become so bad that Harold Wilson was forced to resign, not by the Parliament or his Party High Command, but by the Army spearheaded by the MI5. Besides showing him the extent to which the economic and social system had grown vulnerable to a collapse by strikes and law-lessness, the evidence implicated him and some other senior Labour MPs in a Soviet spy ring operating in Britain. Wilson was offered two choices; resign and be rewarded or not resign and be castigated. Unlike Nawaz Sharif he resigned. The reward: investigation into his alleged role in the unexplained death of his predecessor Hugh Gaitskell, and his Soviet connections, were hushed up.

He was then knighted and given a life peerage; the rewards being conferred by democratic governments.

Hugh Gaitskell The most devastating failure of democracy has been the gradual decline of Western economies. The mess that the US, Japanese and Western European economies find themselves in doesn’t owe itself to non-representative government; the culprit is ‘elected’ leadership. These democracies are the ‘examples’ of how democracy brings out the best in any nation. Why then are they are so worse off ? Why is it that the biggest problem we face is terrorism that is deeply rooted in deprivation, denial and poverty? Why is it that businesses now tend to own governments by financing political campaigns? Why is it that instead of offering its traditional ‘development’ loans the World Bank now extends loans for “poverty alleviation”? Why is poverty now the number one problem for virtually every country?

The greed injected into the system by powerful industrialist lobbies made their trade policies self-serving. They were then imposed on the world through the WTO, which brought these disasters upon this planet; the irony is that, later, the West itself became their target. What applies here is the principle that applies to the computers – garbage in, garbage out. Greed and injustice, cleverly shrouded in the guise of propaganda about “freeing” markets, caused this seemingly unmanageable chaos.

The most painful legacy of the recent past is the failure of the State, almost everywhere, in delivering an equitable and stable socio-economic environment, in spite of tall but hollow claims of politicians and bureaucrats. Disillusionment with democracy is reaching astonishing proportions.

People now see a direct link between (conti)aaa

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and bad governance because corrupt and incompetent lawmakers (usually funded by corrupt businesses)have failed consistently to resolve people’s problems – a reality manifested by the lack of voter turnout at recent elections in Austria, Denmark, France, Germany, Holland and the US. In Pakistan too people got a raw deal, particularly during the last “decade of democracy”, which was proved beyond doubt by the low turnout at the recent general elections.

In the recent past, the mess created in Iraq by the Western democracies is another monument to how the elected leaders arrogate themselves the authority to trample both domestic and international law, and lie to their people to treacherously obtain a mandate for committing absolutely horrible crimes against humanity. This tragedy is being compounded by the victors – US and Britain – who are trying to convert Iraq into a Western style democracy virtually overnight, after getting rid of quarter-of-a-century of Western-supported despicable dictatorship of Saddam Hussain and his erstwhile cohorts.

It is infantile to assume that democracy is a medicine for all diseases. The habit of prescribing it for all and sundry must be shunned because it can’t work unless the voter knows the value of the vote, which is not the case in most countries.

More importantly, the historical and cultural perspective differs from country to country. Each country has to evolve a Kofi Annan governance set-up taking into account these hard realities, and it takes time. This is what Mr. Kofi Annan – the soft-spoken spineless UN Secretary General – has eventually found the courage to admit. Western countries forget that, in most cases, they themselves took several centuries to become the makebelieve democracies they have become.

Coming back to Pakistan, it has been established beyond any shadow of doubt that, with its population growing steadily, and people asking for redress of their grievances at their doorsteps, power must devolve to the lowest rungs instead of residing in Islamabad. A fresh start was therefore necessary beginning with the revival of local government to resolve 90% of the peoples’ problems, making it imperative to devolve power to the elected local governments. It was imperative because of the very high rates of population growth witnessed in the last two decades in big cities and towns.

Secondly, for ensuring that democracy takes roots on a lasting basis through voter awareness, the system of education should have been completely overhauled to ensure a quantum leap in raising voter consciousness. Thirdly, those (also including their immediate family members) who had been members of any house of the Parliament since 1947 should have been barred from (Conti) December 2011

P olitics Post Script

The democracy installed by Gen. Musharaf later became not only acceptable but was praised by the West. Beginning October 1999 until the 2008 elections, the Musharuff regime’s landmark actions included the following: 1. Pakistan indirectly joined the US invasion of Afghanistan after 9/11 – an event that remains a suspect cause to-date for taking revenge from Afghanistan.

2. Renegotiated with IFIs the repayment terms of Pakistan’s foreign debt, and obtained a moratorium until January 2008.

3. Initiated the local government system, which delivered very good results in revamping the country’s infrastructure.

4. Privatized PTCL and KESC but it gave rise to intermittent disputes with foreign investors.

Compared to the investors’ promises, far less investment flowed in to Pakistan.

5. De-regulated the financial services sector allowing banks to invest in equities. Subsequently, the stock market crashed thrice i.e. in 2003, 2005, and 2008.

6. None of these market crashes were investigated thoroughly to pinpoint the factors and actors that caused them.

7. Laxity in trade regulations led to rise in trade deficit from $2.877bn in FY-05 to $20.914bn in FY-08. Cheap imports also decimated the import-substitution industries.

8. Military campaign to capture the Baluch leader Akbar Bugti led to his killing and upsurge in internal strife in Baluchistan.

9. The regime scumbed to pressure from Sindhi and Pashtun nationalists and dropped the vital Kala Bagh Dam project.

10. The regime failed in 2005 to reach an agreement with China on coal mining in Thar, and coalbased power generation.

11. On March 9, 2007 Musharuff sacked the Supreme Court judges; they were re-installed a year later under huge public pressure.

12. While the Karsaz tragedy was not investigated, Ms. Benazir Bhutto was assassinated on December 27, 2007 followed by the deadliest-ever country-wide terrorism and violence.

2008 elections were based on electoral rolls that 13. were later declared fake to the extent of 45 percent, placing the current democratic regime’s authenticity in doubt.

Pervez Musharaf

contesting elections. Only then a truly representative set of people could return to the Parliament. Fourthly, it was time to make the scheming bureaucrats visualize their likely fate if the present government fell, and was replaced by a revolutionary regime. Finally, Pakistan’s judiciary needs to be overhauled.

The only issue (addressed only arbitrarily) was to increase the constituencies and women’s parliamentary seats, but the exercise remained suspect. It’s most unfortunate result has been that elections brought to power people who are now undermining the newly installed local governments because they threaten to dilute the role of the highsounding though tactless Senate, and National and Provincial Assemblies. I have yet to hear anyone from the C’Wealth lecture Gen. Pervaiz Musharaf on this and the other critical issues referred to earlier. Nor is the C’Wealth assistance visible in redressing these basic issues.

Watching the electioneering drama, which the Commonwealth very religiously takes upon itself, is a futile exercise if the basics have not been put right beforehand.

Condemning is the easiest of the pastimes to indulge in; making a credible effort at reforming institutions is far more taxing. So far, C’Wealth has opted for devoting its energies only to condemning its member governments for their failures.

It is time you paid attention to helping nations learn to stand on their own feet. Every country must be allowed and helped to create a system of governance that suits its social and cultural needs. Western-style democracy is too sophisticated a system to survive in the absence of supporting institutional arrangements. Please don’t go around prescribing democracy as ‘the’ medicine for all diseases. It hurts the image of an elderly and credible diplomat. You may not have realized, but your organization is becoming marginalized. It isn’t good for the former colonies of the Raj. Having said all that, may I hope that you will do the needful rather than find faults with us and others like ourselves?

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December 2011

E conomy Fostering and sustaining development in an era of crisis

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We too now face what the Economies that post-war Japan confronted, don’t build and the remedy lies in simulating the post-war reserves of real Japanese culture of wealth (not just self-reliance and saving.

What gives us an advantage forex reserves) by over Japan is that we have increasing selfbeen blessed with far more reliance are far natural resources than Japan. What we failed to do more vulnerable was to optimize the benefits of the resources already available with us, and discover those that lie below our feet. What we lack is the consciousness among our leaders about those huge reserves of natural resources.

Deregulating financial services in developing countries manipulated to suit the aims of getting through the annual federal budgets and no more. This has been our continuing tragedy.

According to the World Bank, savings much higher than our existing bank deposits have not yet been accessed by the banking sector. Bringing even a quarter of this wealth into the system could provide the resources we need to fill the huge gaps in our physical and social infrastructures, and for investing in both agricultural and industrial sectors to realize the full potential of our natural resources. Indeed there are bottlenecks in achieving these aims but a harsh reality is the low ‘concern’ we collectively show for materializing them.

An example thereof is the country’s virtually untouched coal reserves and the attitudes of successive regimes towards investing in accessing this hidden energy reserve.

This failure will cost the nation heavily for nearly a decade provided we begin projects in exploration, drilling, mining and extraction. What experts need to state clearly without serving any vested interests is the energy resource that can be accessed in the shortest possible time so that we achieve two essential objectives: reduce energy imports and sustain fiscal and current account positions.

Pakistan’s population growth is among the highest in the world, which poses the challenge of gaining food sufficiency. The gaps in Pakistan’s physical infrastructure may prevent enough investment in the industrial sector, but there is crying need for it in the agriculture sector. To capitalize on potential of the agriculture sector, optimizing the use of river water, (whose flow is unfairly being reduced by India) is imperative. Lining of the canal system to prevent the river water seepage into vast tracts of agricultural land and land waste by water logging simply can’t be postponed. Not doing that will imply destroying the potential of this sector at a huge future cost to the nation and its future generations.

Investors assured about the security of their investment in

ver the centuries, it has been proved that crises impact the global economy in a cyclical manner. What made things more difficult in recent years is the fact that the duration of these cycles is becoming shorter; crises now occur far more frequently. Besides greed, the factor that contributed to the shortening of the cycles was increased interdependence of the economies, which increased systemic risk.

By implication, we need to develop a problem-specific capacity to confront these crises each time they unfold.

There is no other option.

The current crisis proved yet again that economies that fail to accumulate reserves of real wealth (not foreign exchange alone) by consistently upping self-reliance in various sectors render themselves vulnerable to economic uncertainties; as crises unfold, they find that can’t provide support to their weakened businesses and industries because they don’t have internal resources for this effort. Japan was totally shattered

by WW-II but recovered only by increasing self-reliance and developing a culture of saving to invest in the nation’s future; the Japanese became vulnerable again after losing this habit.

Destruction of Japan after World War II

Development of Japan after the World War II

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December 2011

E conomy the agricultural sector can provide resources for this Deregulation can be gigantic effort but as- counter-productive surances can sound credible if new mandate only when the state has doesn’t tie perforvisible access in the hinterland to protect the interests mance evaluation to higher savings, of these investors. We had offers from the Arabian increase in indusGulf states to invest in this trial and agriculture sector on the condition of bases, growth in duty-free export of crops to real economy, the investor states. What failed to agree on were fair reduction in trade terms whereby this concesand balance of sion could be granted in payment imbalreturn for export of, say, up to 70% of the crops. It ances, and credible would be naive to expect decline in poverty that any investor will come to the love of Pakistan.

What was required was an effort that ensured as balanced an arrangement as possible, not wasting a good opportunity. Given the lack of skills in the vast majority of our youth this sector offers the best potential for raising employment and containing poverty.

Hundreds of thousands of young men could be employed in maintenance of water courses and water reservoirs, food and fruit cultivation, food storage and processing and cattle farming the potential for which simply defies estimation.

What we consistently fail to do is to make sincere efforts to harness these potential benefits that could ensure growth and turn our youth away from crime, especially falling prey to terrorist organizations.

A sector that offers enormous potential is fruit processing, packing, and packaging. The best part is that working in this sector will not require young men to shift to cities, assuming that these industrial units will be set up in small towns and villages nearest to the orchards to economize on costs. Every year, 40 percent of fruit grown in Pakistan rots because it can’t reach big towns and cities quickly enough, let alone its being processed and exported. It is estimated that if the fruit that is wasted every year could be processed and exported, it could earn anywhere between 4 to 5 billion US dollars, depending on the extent of refinement in the processes used.

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Pakistan’s imports are almost double its exports. While oil imports keep rising because of both higher consumption and the almost irrational oil price hike, we end up with an ever higher trade deficit every year. This increases the pressure for taking on more external debt. It is wholly irrational to believe that this trend can go on without casting its shadow on the economy. As a matter of fact, no longer is there a possibility of incurring more external debt because there are no lenders; the recession has broken the back of every nation that could have lent us money.

The crisis in Euro Zone and the near bankruptcy of the US will have its deadly impact on the global economy with the passage of time. These trends will also limit the ability of the IFIs to lend more to the Third World countries to finance key infrastructure projects. Collectively, the Third World is likely to face huge funding problems. To make things worse, climatic changes will cause natural tragedies which may result in no or excessive rain that will devastate economies. That this is likely was proved by what happened last year in Russia, in Pakistan last year and this year, and then in Thailand.

It is time we boosted our import substitutes producing sectors. This vital shift can’t be ignored for two reasons: its side benefits that would be investment in key sectors, and creation of jobs for the semi-skilled and skilled youth to cut unemployment, alleviate poverty, and check rising social and security threats. Musharuff regime sidelined this critical need; instead, it let cheap imports kill even those units that were on course to go into manufacturing goods after assembling them using imported components. The regime offered no tax incentives for this positive initiative of those industrialists that were trying to reduce imports by increasing import-substitution. People rose against Musharuff because by end-2007 they began to realize that his regime’s trade and commerce policies put them on the wrong track.

We wasted eight years wherein, instead of training our youth to take on more professional roles in the industrial sector, we virtually forgot about developing this institutional base.

Lack of skills is a stumbling block but one that can’t be crossed by adding vocational training centres to high schools in small towns to train both boys and girls after December 2011

conomy E conomy designing, and above all, in education, to assure raising better educated and responsibility conscious future mothers to raise our future generations with the right set of values and a quest for excellence in whatever they choose as the aim of their lives. The sector wherein they have shown and could show even more of entrepreneurial talents is tailoring and fashion designing. This is one sector which should be financed in two ways: development of high quality vocational training centres and bank credit for setting up fashion designing, selling and exporting businesses.

It would be over-ambitious to expect the state to take an initiative in these areas. Our continuing tragedy is that people bestowed with visionary qualities rarely became politicians or generals who ruled this country by turns. Not surprisingly, both classes were supported by our ‘friends’ in the West. It is highFaithtime we stopped looking to either of them. For every Pakistani, it is time to act and place self-benefit at the lowest priority because, collectively we all either swim or drown.

Economic crises mustn’t lead to despondency; they should re-kindle the desire to re-build and reform at twice the speed; this nation of 180 million has been blessed with thinkers and strategists, and has the capacity for reform and re-building. Let us materialize these capacities to build an economically and socially secure Pakistan. We don’t have too much time to just ponder over various options; what we need is quick concerted action with the consent of all the stakeholders.

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they pass the tenth class. For industry need-specific skill, the industry must play its role in assisting and guiding these institutions, so that we produce generation after generation of skilled youth to meet not only our needs but to export skilled manpower.

Rising population requires that we increase self-reliance in all sectors, but especially in the energy sector. All along the Sindh-Baluchistan beach, and in the deserts of Cholistan and Thar, the potential for solar and wind energy is immense; it could provide cheap electricity to house- holds as well as small businesses to save electricity for the industrial sector, as done by India and Bang- ladesh both countries similar to Pakistan. Developing these technologies can ensure that our gas and oil resources are preserved for the industrial sector.

The route is via initial import of these technologies from suppliers who agree to then begin assembling these energy units in Pakistan, give production franchises to manufactures in Pakistan, and then allow export of surplus output. These are, by all estimates, crucial industries of the future with an assured export market for decades. But, as in other cases, we haven’t paid much attention to developing these capacities.

What is of utmost importance is the future role of women.

In the villages, they play an important role; their contribution in the output of the agriculture sector is nearly 50%.

This isn’t true about women in cities although they have access to school, college and university education. We must also create more room for women in health care services, banking, information technology, fashion (conti)ks

Discipline

B riefs In an Arab League heads of state get together in Cairo on November 1, Syria finally agreed to begin negotiations with the Syrian opposition groups to bring to end the ongoing uprising in which 3,000 people were killed.

Syria’s membership of Arab League was finally suspended after Syria’s failure to curb violence in the country and start conciliatory talks with the opposition.

Lebanon faced yet another political crisis on Nov. 25 after Prime Minister Najib Mikati threatened to resign should Hizbullah-dominated cabinet refuse to fund a UN court probing murder of ex-premier Rafiq Hariri.

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December 2011

E conomy Sovereign risk: is it still to be treated as zero?

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ntil now, authors of books on macroeconomics assumed the sovereign risk to be zero and based their axioms on this long-held view that has been shaken by the economic crisis that now engulfs the world. Governments almost everywhere appear delinquent or near delinquent but have none to blame except themselves. They didn’t reach this worrying state overnight; excessively welfaredriven and exuberant policies, and imperial ambitions or hardcore corruption pushed sovereigns into delinquency.

Worse still the developed economies of the West (neither the developing nor emerging Asian economies) indulged in these self-destructive pastimes.

Although the US and British (English-speaking) economies carry huge piles of sovereign debt, the target of criticism in this context is the EU. While English-speaking nations have their strategic reasons for doing that, it is a fact that the EU member states were not restrained from indulging in such governance modes by the EU parliament as sternly as should have been the case. The stock of sovereign debt built up by some EU members via bank borrowing (now Euro 3trn) has created strong fears about liquidity of the European banking system as a whole, given the visible inability of governments to repay the debt on time. This is the single biggest damage sovereign debt has caused to the image of Europe, and it foretells years of stress.

It has now been revealed that the Greek government lied to the EU parliament about its public debt. But what the EU does not reveal are the systems it had in place to periodically verify the public debt accumulated by its member states.

The member states that had populist and therefore overly welfare oriented regimes in power, deserved to be audited in a fairly detailed manner to establish the level of prudence in their style of governance.

Secondly, extremely low interest rates encouraged reckless consumerism and virtually undid the saving habit. Both these trends were bound to cause lethal economic distortions. Yet, the UE parliament did precious little to pre-empt the coming disaster. On top thereof, a tendency for buying cheap Asian goods at the cost of steadily closing down domestic industry too didn’t attract the sort of attention and corrective action it deserved. The laxity in taking corrective steps cost the EU heavily, and encouraged its critics to label it as ‘the collective failure of the state’ implying thereby that sovereign risk is no longer zero. Books on macro economics must be revised; the time for doing so has arrived.

The fact is that a Public debt as % of GDP bunch of farsighted Over 125% 75 - 100% authors had begun Greece Belgium this effort at the turn of the century Portugal Netherlands to foretell what was Ireland France likely if profile of Germany Italy governance didn’t change.

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One of these outstanding authors–Joseph Stiglitz–has been advocating reform of the governance systems to contain the clout of the private sector, which prodded governments into permitting globalization of trade to limits that led to an out-come, which has shaken the entire West. Build up of trade and current account deficits was clear indication of slowing of Western economies but, instead of upping the efficiency of domestic industries, their corporate owners opted either to shift to emerging South Asian economies or franchise the production of their goods in those countries.

This narrow, profit-oriented approach was bound to backfire, which it finally did. Throughout the last decade, except Germany, no other EU state registered consistent growth in its GDP; that was an indicator of what was to follow; look at the number of the unemployed in Europe! This portrays the failure of the state, tragically, all democracies. But Stiglitz had foretold this final outcome as early as 2002, after being eased out of the World Bank for repeatedly pointing to this coming tragedy. Until 2001, he was World Bank’s Chief Economist.

In Pakistan too, the singular achievement of the in-power regime has been an astronomical hike in public debthighest ever in Pakistan’s history. Here too, the banking sector has been funding the state at the cost of the private sector; it is not concerned about whether the state has or is building its repayment capacity. From the look of thingscontinuous rise in public debt–the impression you get is that circular debt was not the case only with the power generation sector; bulk of the public sector debt is ‘circular’ because it isn’t repaid out of state resources. Fresh bank borrowing is used to repay the maturing debt, and more debt is being acquired.

With this borrower profile, can the state stay in the zero-risk category? The logical answer is that it can’t. The thing to watch is whether the state is concerned about it or ministers and parliamentarians are worried about their vested interests. As of now, given the ongoing waste of resources, corruption, and collapse of state institutions that could generate revenue, the state is a high-risk, not zero-risk borrower.

December 2011

E conomy 17th SAARC Summit: Building Bridges

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he 17th South Asian Association for Regional Cooperation (SAARC) Summit was held on November 10-11, 2011 at Addu, Maldives. The agenda of the summit was “Building Bridges�. The summit reaffirmed its commitment to peace, confidence building, liberty, dignity, democracy, mutual respect, good governance and protection of human rights in the regional countries. The participants of the summit decided to fight terrorism of all types and liberalize trade policies by eliminating non-tariff barriers and ad valorem duties within the South Asian region.

The summit was attended by the Prime Minister of Pakistan Yousuf Raza Gillani, Indian Prime Minister Manmohan Singh, Afghan President Hamid Karzai, Bangladeshi Premier Shiekh Hasina, Srilankan President Rajapaksa, Maldivian President Mohammed Nasheed, Nepalese Premier Baburam Bhattarai, Bhutanese Prime Minister Jigme Thinley and related ministers of the SAARC countries.

In a joint declaration issued at the end of the summit, the member states renewed their firm commitment to eliminate poverty and reduce income inequalities within the societies and reaffirmed their resolve to improve the quality of life and well-being of their people through people-centric sustainable development. The summit recognized the full enjoyment of fundamental rights by women and girls as an integral and indivisible part of universal human rights and that gender-based violence and discriminatory practices constitute a violation of fundamental rights. The member states showed deep concern about the continuing threat of terrorism in all its forms and manifestations, transnational organized crimes, especially illegal trafficking in narcotic drugs and psychotropic substances, trafficking in persons and small arms and increased incidents of maritime piracy in the region. They reiterated their resolve to fight all such menaces. They also accepted Nepal’s offer to host the 18th SAARC Summit in early 2013.

mandated the finance ministers of the member countries to discuss a mechanism to promote capital flows and investment.

On the first day of the summit, one of the key bilateral meetings was between Indian and Pakistani Prime Ministers, Manmohan Singh and Yusuf Raza Gillani which paved the way for what was described by the prime ministers as a "new chapter" in cordial relations between the two SAARC memeber countries.

Premiers of SAARC member countries at the inaugral session of 17th SAARC summit

"We have made very constructive and positive progress during this discussion. At the next round of meetings we should be able to open a new chapter in relations between India and Pakistan," said Pakistan Prime Minister Yusuf Raza Gilani while talking briefly to the media at the occasion.

He stated that several sensitive issues including counterterrorism measures in Kashmir had been discussed between the two premiers. He added that both parties were able to express their opinions in a "frank and open manner", paving the way for more progress.

Reciprocating these positive remarks, the Indian Prime Minister Manmohan Singh described his Pakistani counterpart as a "man of peace". He further added that "Every time I meet him, this belief has been strengthened. More needs to be done to strengthen relations between the two countries.

We resume dialogue with the hope that all these issues will be discussed in a sincere manner and I always believe that the destiny of both India and Pakistan are interlinked."

The summit also appreciated the role of observers including Australia, China, Iran, Japan, Korea, Mauritius, Myanmar, the United States of America and European Union.

In their 20-point declaration, the eight member-states vowed a better communication, rail and road links, links of energy transmission lines, people-to-people and cultural exchanges, smooth trade and transit within the SAARC region.

The South Asian Association for Regional Cooperation (SAARC) is an organization of South Asian nations, founded in December 1985 and dedicated to economic, technological, social, and cultural development emphasizing collective self-reliance. Its seven founding members are Bangladesh, Bhutan, India, the Maldives, Nepal, Pakistan, and Sri Lanka. Afghanistan joined the organization in 2005.

Prime Minister Pakistan Indian Prime Minister Afghan President Syed Yousuf Raza Gillani Manmohan Singh Hamid Karzai addressing the SAARC 17th summit

During the summit, the Ministers of Foreign Affairs of the SAARC Member States signed four regional agreements, namely SAARC Agreement on Rapid Response to Natural Disasters, SAARC Seed Bank Agreement, SAARC Agreement on Multilateral Arrangement on Recognition of Conformity Assessment and SAARC Agreement onImplementation of Regional Standards. The summit also

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December 2011

E conomy Shanghai Cooperation Organization 10th Prime Ministers’ Meeting

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he 10th meeting of Heads of Government Council of Shanghai Cooperation Organization (SCO) was recently held during 6-8 November at Saint Petersburg, Russia.

The Prime Minister of the Republic of Kazakhstanm, K. Masimov, the Premier of the State Council of the People’s Republic of China, Wen Jiabao, the First Vice Premier and Acting Prime Minister of the Kyrgyz Republic O. Babanov, the Chairman of the Government of the Russian Federation, V. Putin, the Prime Minister of the Republic of Tajikistan, A. Akilov and the First Deputy Prime Minister of the Republic of Uzbekistan, R. Azimov attended the summit.

Representatives from the SCO observer states – the Union Minister of Power of the Republic of India, S. Shinde, the Minister of Foreign Affairs of the Islamic Republic of Iran, A. Salehi, the First Deputy Prime Minister of the Government of Mongolia, N. Altankhuyag, the Prime Minister of the Islamic Republic of Pakistan, Yousuf Raza Gilani, the guest of honour of the host country the 2nd Vice President of the Islamic Republic of Afghanistan, M. Khalili, as well as the Chairman of the Executive Committee, Executive Secretary of the Commonwealth of Independent States, S. Lebedev and the Deputy Secretary-General of the Eurasian Economic Community, M. Musatayev also participated in the meeting.

The SCO Secretary-General, M. Imanaliev, the Deputy Director of the Executive Committee of the Regional Counter-Terrorism Structure, V. Kasymov, the Chairman of the Governing Board of the SCO Business Council D. Mezentsev and the Chairman of the Council of the SCO Interbank Consortium Chen Yuan also attended.

In a joint declaration, Prime Ministers of the Shanghai Cooperation Organization (SCO) member states pledged to promote economic cooperation in a bid to minimize negative effects of the global crisis on their countries' banking and financial sectors. In order to increase economic and cultural interaction in the SCO region, the Heads of Government tasked the competent ministries and departments to prepare a draft ‘List of Activities’ on further development of project related activity in the SCO framework for its approval by the Council of the Heads of Governments (Prime Ministers) of the SCO Member States in accordance with the established procedure.

Premiers of Pakistan and Russia discussing matters of mutual interest

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Group of Premiers of participating countries

The SCO prime ministers also stressed the importance of cooperation with SCO observers and dialogue partners with international organizations such as the Association of South East Asian Nations, the United Nations Economic and Social Commission for Asia and the Pacific, and the Commonwealth of Independent States.

In their meetings with the Prime Minister of Pakistan the Russian and Chinese Premiers gave assurances for extending support in several projects including oil and gas pipeline and inter-connectivity of road and rail links which would further improve the relations between these countries.

Russian premier also assured the modernization and expansion of Pakistan Steel Mills as well as provision of technical support for the execution of Thar Coal Project. The regional countries including Russia (for the first time) gave recommendation for the membership of Pakistan in the SCO. Pakistani Premier expressed gratitude to all SCO members for their support to this request.

The prime ministers of the member countries also agreed to boost the economic potential and consolidate financial and monetary systems among member states to increase state-owned finance institutions' capital adequacy ratio and liquidity.

The next meeting of the Council of the Heads of Governments (Prime Ministers) of the SCO Member States is scheduled to be held in 2012 in the Kyrgyzstan. It may be worth mentioning here that the Shanghai Cooperation Organization (SCO) is an intergovernmental international organization founded in 2001 by six countries, China, Russia, Kazakhstan, Kyrgyzstan, Tajikistan and Uzbekistan.

India, Iran, Mongolia and Pakistan are SCO observers while Belarus and Sri Lanka are dialogue partners. According to the SCO Charter and the Declaration on the Establishment of the SCO, the main purposes of SCO are to strengthen mutual trust and good-neighborliness and friendship among member states as well as developing their effective cooperation in political affairs, the economy and trade, science and technology, culture, education, energy, transportation, environmental protection and other fields, working together to maintain regional peace, security and stability and promoting the creation of a new international political and economic order featuring democracy, justice and rationality.

December 2011

Voice of Industry Regional trade – its importance in a changed economic scenario

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he rise in oil price–the second major cause of the current global crisis besides reckless bank lending, is finally making nations realize the value of cross-border and regional trade.

Ocean freight (courtesy oil price rise) now accounts for a far larger fraction of the landed cost of imports; besides rising poverty, falling purchasing power and consequently demand, this is the factor that has caused a decline in global trade. Oil price hike–the killer of economic activity–has made nations realize that neighbours too have their importance. In this context, India has been an early rise and talk about seeking the Most Favoured Nation (MFN), the hot issue of the day, started after a sustained decline in India’s factory output; rise in the sector’ output in September was the lowest since 2009.

With its much larger manufacturing base compared to any South Asian state, India could benefit by exporting far more to its neighbours with whom it shares its borders. Besides, India is the only country that doesn’t suffer as much as do its neighbours from the oil price-triggered shortfalls in power generation, and its industrial base has largely been operating close to its break-even capacity.

The only sad part is that nations in South Asia didn’t begin thinking about their regional obligations on their own; credit therefor goes to the oil exporting countries. The proof thereof is that, in spite of creation of the South Asian Association for Regional Cooperation (SAARC) as well as the South Asian Free Trade Association (Safta), trade South Asia in the region did not pick-up; in regional states fact, it was the lowest compared didn’t begin think- to other regional trade bodies.

Since the launch of SAFTA in ing about their July 2006, the total free-onregional obligavalue of exports between tions on their own; board SAFTA members was only $1.2 credit for it goes to trillion or just 4% compared to the oil exporting the total foreign trade the member states conducted with countries the rest of the world. This compares poorly with trade among EU members that is 67% of their global trade. Trade between member states of North American Free Trade Agreement (NAFTA) was also 62% of their global trade, and among members of the Association of Southeast Asian Nations (ASEAN) it is 26% of their global trade.

tariffs) of member states – Nepal 1,313, Bangladesh 1,254, Pakistan 1169, Sri Lanka 1,065, India 865, Maldives 671 and Bhutan only 157. That said, it is never too late to begin putting things right, no matter who the driver of that sane action. What is the potential of this shared endeavour to deliver will unfold as trade between the South Asian states picks up. Belatedly, at their finance ministers’ meeting in July 2011, the SAARC states agreed to cut the long lists of sensitive items by 20%–an initiative that will be activated after heads of government meet in November.

Interestingly enough, India’s list of sensitive items is much smaller than that of Pakistan. Yet, critics in Pakistan blame India for being overly protective of its interests. What should concern Pakistan far more in the context of assuring mutual benefit after giving India the MFN status, are the non-tariff barriers that India has traditionally imposed to limit imports –a policy not wholly justified because while national interests must be prioritized, what India must avoid achieving national interests at the cost of its neighbours. What will work (and on sustainable a basis) are trading practices based on fairness.

Non-tariff barriers hike bureaucratic red-tape and obstruct trade if they are aimed at denying access to the markets in the barrier imposing country. Unfortunately, it is often cited as the case with India that maintains high tariffs on agricultural commodities (average 90%), and on textile manufactures, the composite duty (ad valorem plus specific duty) often exceeds 100% of import value, which is not an acceptable profile of a country being given the MFN status, but let us not overlook that it is time for change, and India must be as aware of it.

According to media reports, during the negotiations about giving India the MFN status, Pakistan very prudently sought from India clear understanding on another critical issue that has often led to imposition of non-tariff barriers on exports to India. This relates to the Mutual Recognition Agreement (MRA), which would bind both India and Pakistan to accept quality certification of goods’ standard verification agencies in both countries to minimise chances of trade deals and exports thereunder, from falling victim to non-trade barriers.

Reaching a clear understanding on the profiles of certifying agencies to sign an MRA is what the two countries should be working for. This is an area wherein, more than sloganeering,

Regional trade body

Regional trade as % of global European Union 67 North American Free Trade Association 62 Association of South East Asian Nations 26 South Asian Free Trade Association 04 Performance of SAARC members shows a low sense of regional obligations, and proofs thereof are the lengthy lists of ‘sensitive items’ (i.e. items not exempt from import

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December 2011

Voice of Industry what will make the difference is upgrading, if necessary, the capacities of the quality/standard certification agencies.

This is an exercise that should be undertaken periodically to build global confidence in the capacities of these agencies.

Pakistan has not had a good record therein, and that’s why, very often foreign buyers send their own inspectors to check exporters’ compliance with quality specifications instead of relying on Pakistani inspection agencies.

The list of India’s non-tariff barriers is fairly large and has several aspects including: 1. visa and travel restrictions; 2. inter-provincial movement of goods; 3. limited number of ports and inland custom posts for imports; 4. customs clearance and customs valuation; 5. state trading enterprises; 6. excessive use of trade defence measures; 7. tariff rate quotas; 8. technical standards and regulations; and 9. import regulations.

What cannot be disputed is India’s right to legislate laws in accordance with its ground realities, but what is questionable is whether these laws should apply without any consideration for the fact that trade between countries is transacted on the basis of mutual benefit, not just the benefit of India acting as the state within India. It has to be on the basis of give-and-take, and in order for trade relations to expand, give-and-take should be the guiding principle.

In the above list, there are restrictions that exporters to India cannot fairly be expected to provide for. For instance, expecting exporters to lower their prices to foot the cost of taxes on inter-provincial movement of goods. But it is also true that goods will move across provincial boundaries since Indian seaports are either on India’s south eastern or south western coast. As such, goods destined for buyers in central and northern states must move through several states before they reach their destination. But tax can be recovered by any state only on goods that will be sold in that state; goods in transit can’t logically be taxed.

Besides, if import tariffs are payable only after goods reach their destination, and not at the seaports of entry, then there should be tariff collection offices at the entry points to each state so that trade is facilitated and these bottlenecks are not cited by Indian importers as causes of addition to the landed cost of goods to justify lowering of import prices.

The basic idea for international trade to succeed should be that surpluses in every sector of a country should be passed on to countries that have deficits therein. If both India and Pakistan accept this logic, disputes are most unlikely because both sides will benefit by economizing on transportation cost – the advantage both have the option of capitalizing on.

This is particularly true in case of Pakistan’s manufacturing units (especially cement manufacturing units) that are located in the north. These entities can export to India at the lowest transportation cost. Besides, supplies could reach

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India much faster, and (for the Indian states in the north) involve far less travelling through intervening provinces.

Convenience in the transport of goods could be doubled, even tripled, by setting up several mutually agreed crossing points on the hundreds of kilometres long Indo-Pak border to maximize the benefit of quicker and low-cost transportation. In this context, both countries should consider reviving their century-old railway connections to increase choices in transportation modes.

During his visit to India, Pakistan’s Minister of Commerce had a meeting with the Indian Prime Minister Dr Manmohan Singh wherein the Indian Prime Minister had expressed his government's willingness to normalise bilateral relations on a fast track basis by emphasising that, rather than delay giving India the MFN status, both sides should discuss and address genuine issues and remove apprehensions over normalisation of trade relations. He also assured the Pakistani delegation that India does not want that grant of MNF status (to India) should result in any adverse effects on Pakistan's economy or industry. Coming from him, this assurance should be relied on, and proposals such as the ones discussed above, should be placed before India to get the ball rolling.

Both sides should jointly work towards enhancing bilateral trade, which in Pakistan’s Commerce Minister’s view, should rise to $6 billion per year within three years from its current annual level of $2.7 billion. The desired increase in bilateral trade may seem a tall order now but it is achievable if there is openness on both sides about their strategies to materialize this target.

India must bear in mind that pushing for exports that can cause business closures in Pakistan will be resented, and for the right reasons. What its businesses must concentrate on is export of processed raw materials that can improve the cost-efficiency and productivity of Pakistan’s industrial sector that is severely handicapped by deficiencies in Pakistan’s physical infrastructure, and is trying to regain competitiveness to up to cheap imports from Far Eastern countries.

Trading activities, that help Pakistan’s industrial sector get back to its earlier level of cost-efficiency, will be welcomed by businesses. Above all, this change could also help reverse the inflationary trend that has been the biggest contributor to a slowdown in economic growth. It is such benefits (referred to earlier as regional obligations) that were overlooked by the South Asian states. For their collective benefit, it is crucially important For their collective that they strive for importbenefit, optimal substitution to the full extent of import-substitution their productive capacities by by logically combincombining them. ing their productive This profile of cooperation is capacities has now becoming crucial since human become crucially population is growing in every important.

South Asian country and poses huge challenges to the regimes governing them. At long last, thanks to the recession in the West, it is being realized that regional trade too is important.

December 2011

Voice of Industry Hurdles (non-tariff barriers) in exports to India

peace–Kashmir, Siachin, Sir Creek, and Indian backing for the Baloch insurgency and Tehreek-e-Taliban, but above all, sharing of Indus waters. Expanding bilateral trade with India without initiatives in these contexts (missing despite several rounds of Indo-Pak parlays) could impede progress towards sustaining such a highly desirable environment.

Should this not happen, this most welcome normalization of relations could become another US-brokered deal like the Afghanistan-Pakistan Transit Trade Agreement. What must be emphasized to India in this context are the Turkmenistan-Afghanistan-Pakistan-India as well as IranPakistan-India gas pipeline projects that (besides plugging Pakistan’s expanding energy gaps) are vital for meeting India’s rising energy needs and for sustaining the booming Indian economy. If Pakistan must materialize the cherished Indian dream of the Wagah-Torkham corridor to Afghanistan and Central Asian States, why can’t Pakistan seek a quid pro quo on Kashmir and the Indus water issues?

It is time both India and Pakistan re-wrote history for their common. Indians and Pakistanis no longer want to fight; the wars they fought only pushed them farther away though by sharing a common land mass they must come ever-closer.

Exporters to India must fulfill a variety of Indian regulatory and legal conditions. Some of them appear deliberate efforts to reduce imports rather than ensure that the items imported into India meet quality specifications. For instance Conditions that pre-packed goods must meet for entry into India. Besides stating the address of the Indian importer, packages must indicate maximum sales price at which that good will be sold to end-consumers. It implies a price that includes the exporter’s final sale price, freight, insurance, clearing/forwarding charges, all taxes to be paid in India as well as the gross profit of the importer in India.

Pharmaceuticals must be pre-registered with Indian central pharmaceuticals’ registration authority; quality certification by a global producer or a global authority is not enough.

Textiles must be certified for non-use of hazardous inputs in their manufacturing by testing laboratories accredited by a central authority in the country of origin or in exporters’ country. In spite thereof, Indian authorities can still reject such certification.

Agricultural products must be tested for hyto-sanitation in India but testing laboratories are not available at many import entry points in India.

Diplomatic “accident” in Bangladesh?

These conditions, especially the one applicable to packaged goods, embed import restrictions in what seem overtly legal requirements. Pakistanis alone are not the ones to fault these restrictions; the US and EU too have pointed to the fact that these restrictions act as stumbling blocks in exports to India.

For Indo-Pak trade to prosper on sustainable bases, goods must be transported by land to maximize the benefits of low freight.

The last condition listed above can be complied with in a costeffective manner only if both the countries establish purposeoriented laboratories at all entry points, that the two agree to use for entry of goods.

In Pakistan, the two sectors that feel vulnerable are auto and pharmacy. Both have high cost structures about which, for too long, the sector players did not take corrective steps. Instead, they depend on periodic state-approved price hikes and import bans. Auto sector availed these benefits despite the fact that, year after year it refused to comply with state-imposed targets for indigenization of its products to reduce dependence on imported components. Now the sector sees a challenge if import of far cheaper automobiles from India (under the same brand names as in Pakistan) is permitted.

Pharmaceutical sector’s problem too is high cost structure that sector managers didn’t strive to contain even though the sector players knew that pharmaceutical industry in India was producing at a much lower cost. So was the fact that Indian pharmaceutical exports were far higher compared to Pakistan’s because of its becoming progressively more competitive. To ignore this reality was a blunder. Yet, no one has pointed to this decadeslong blindness.

The other aspect that needs to be addressed is the creation of a friendly environment for resolution of disputes. Do not overlook major Pak-India disputes that impede South Asia’s

29

The news that at the recent WTO meeting, Bangladesh had objected to EU’s grant of trade concessions to Pakistan for a 2-year period shocked Pakistani Foreign Office because India had earlier withdrawn its objections on the same issue.

Officials couldn’t believe it. “That is not possible.” Pakistan’s High Commission in Dhaka was assured by the Bangladesh Foreign Office that it would not raise any objections at the WTO moot, and Pakistan had expected smooth sailing after India withdrew its objections.

In Maldives, where SAARC foreign ministers met before the summit on November 11, Bangladeshi Foreign Secretary Mohamed Mijarul Quayes said “I will check with Geneva. As far as I know we are supposed to withdraw this [complaint].”

Earlier, Pakistan’s Foreign Minister, also in Maldives, called the episode a ‘diplomatic accident’. Muted responses of some Pakistani diplomats suggest that India inducing Bangladesh to stick to the stand it had earlier taken along with India and Sri Lanka on the disputed EU trade concessions to Pakistan. Later, Bangladesh agreed to withdraw its complaint against EU’s grant of concessional import terms after an agreement with Pakistan to impose a tariff cap on six items instead of eight, as sought by Bangladesh, and its Commerce Secretary said that with the exclusion of six items from the disputed list “Bangladesh has no objection to the revised proposal". It implied that Bangladesh will waive its objections, but two days later it defied a 150-nation consencus by sticking to its stand. Bangladesh Commerce Minister M Faruk Khan said in Dhaka that “One should not mix aid with trade. We do not support any aid for trade programme for a country which is our competitor” and according to Bangladesh’s strategy “we oppose duty-free access of eight products.”

December 2011

Voice of Industry Steel Industry & India as MFN

By Ali Ahmed

Ex Chairman, Pakistan Steel Re Rolling Mills Association

MFN

status is said to be the corner stone of the multilateral trading system of the World Trade Organization(WTO). The last few days have witnessed intense and heated debates at different fora on the proposition whether or not Pakistan should grant Most Favored Nation(MFN) status to India as a step towards normalization of trade relations and giving a boost to the peace process between two fractious neighbours.

Pakistan and India have had a chequered history of relationship ever since they appeared on the world map as independent sovereign nations in 1947. Both suffered on account of strained relationship and frictions on political issues, including Kashmir, which on the one hand had an adverse impact on bilateral trade and hurt economic engagement while on the other it diverted their attention from the gigantic task of eradicating poverty and raising the standard of living of their people. They went to the extent of wars which produced nothing but death and destruction.

Steel industry for any country works as a backbone for industrial growth and urbanization. In Pakistan, however, the steel industry lacks much to be desired. The per capita steel consumption in Pakistan is one of the lowest in the world, around 37 kg. When we look at our neighboring countries like India the per capita consumption of steel there is 50 kg, while in China it is 160 Kg, in Bangladesh 103 kg, and in Malaysia 345 kg. The world’s average is 145 kg.

Pakistan is not a steel producer. We rely heavily on imports to make steel. The total demand for steel in Pakistan is 4.000 million tonnes. Out of this, the share of Pakistan Steel Mills was 1.1 million tonnes but unfortunately neither any expansion took place in the last decades nor was optimum production availed. Thus Pakistan Steel Mills, except for few years, had a history of running in losses and named as white elephant and a burden on the national exchequer.

The demand was met by Ship Breaking Industry which today ranks # 2 in the world contributing 1.000 million tonnes to the steel industry and paying billions of rupees in taxes. It is one of the major contributors on Balochistan exchequer. Gadani ship scrap’s contribution to Pakistan’s steel consumption and production is also significant, though difficult to assess. With an average output of l500,000 tonnes per year, it could account for up to 15 percent of Pakistan’s steel production.

Then comes the major players, the Melters. These are the manufacturers of Billets /Ingots from imported scrap and locally generated scrap. There are some 80 scrap melting plants (mainly induction furnaces) and 334 re-rolling mills.

Most of the latter are located either in the Punjab (250 in Lahore, 16 in Islamabad, and 16 in Gujranwala) or in Sindh (52 in Karachi).

This industry improved their efficiency and productivity many times in the last one decade. Especially when Pakistan Steel Mill was not fulfilling the demand of suppliers, they came up with the challenge of producing billets (Major raw material for making steel bars, girders, channels, T of rerolling mills) and started producing ingots and Continuous Casted Billets up to the required standards and specifications internationally acclaimed and approved.

Seen in the above context the proposal to grant MFN status to India seems to be a welcome move towards improving mutual relationships, promoting economic and trade relations and enhancing the volume of bilateral trade between the two neighbouring countries.

However, any such move needs to be looked into in broader context of the impact it is likely to have on our relationship with other neighboring countries, as well as on industrial growth and economic development as a whole. In this article an attempt has been made to examine the impact of the proposed decision on the steel industry of Pakistan.

Steel consumption, production and role of ship breaking industry in Pakistan, India and Bangladesh.

Steel Consumption Steel Production Scrap Steel from Ship Breaking Ship breaking steel contribution to the industry Re-Rolling mills

Pakistan

6 million tonnes 4.5 million tonnes 1 million tones 25% 330

30

India

Bangladesh

75 million tonnes 66.8 million tonnes 3-5 million tonnes 2.25%

5.5 million tonnes 3.5 million tonnes 1.5 million tonnes 25-30%

1800-2000

300-350 December 2011

Voice of Industry trade lacks growth because of barriers like visa, freight restrictions etc. The MFN status to India may provide a push to remove these restrictions. More than boosting trade the decision to grant MFN status to India may be seen as a major confidence building measure to help improve frosty relations between the two.

I would recommend and suggest that Pakistan should have a very cordial and friendly relationships with all of its neighboring countries which is vital for industrial development.

SAARC convention should adopt a resolution by which all members of SAARC are allowed to visit each other without the condition of visa and explore the process of industrialization and the benefits that may be derived therefrom.

Since the local melting industry was not equipped with state of the art machinery and most of the manufacturers were somewhat hesitant to invest a huge capital in industry, many small furnaces were established during the regime of Pervez Musharaf. At that time, steel was all time in high demand. It was perceived that if all the dams as proposed and promised by the Government were completed and commissioned on time, it would give a sky high boom to the local steel industry, which unfortunately did not take place.

Top 10 Crude steel production (million tonnes) Rank

Country/Region

—

World

1

2009

2010

1,351.3 1326.5 1,219.7 1,413.6

494.9

500.3

573.6

626.7

European Union

209.7

198.0

139.1

172.9

2

Japan

120.2

118.7

87.5

109.6

3

United States

98.1

91.4

58.2

80.6

4

Russia

72.4

68.5

60.0

67.0

5

India

53.5

57.8

62.8

66.8

6

South Korea

51.5

53.6

48.6

58.5

7

Germany

48.6

45.8

32.7

43.8

8

Ukraine

42.8

37.3

29.9

33.6

9

Brazil

33.8

33.7

26.5

32.8

Turkey

25.8

26.8

25.3

29.0

10

31

2008

China

—

The Melters then visited India from where they got technology of furnaces and acquired the technical knowhow. India is far ahead in steel industry compared to us.

So, if India is granted a status of MFN, it will be definitely a milestone in steel industry because then our manufacturers will have an easy access on their plants and machinery and since most of the furnaces are located in Punjab, it can be easily transferred through roads (Wagah Border) and industry can achieve much. But at the same time finished goods from India should not have an easy access in our markets as this can make our locally produced goods incompatible and harm our local industry. We should acquire technology, which is rare in our country, to conserve gas and energy in the most efficient manner.

The annual trade between India and Pakistan is at persent reportedly logged at $2.5 billion. The two countries are targeting to double this in the next 5 years. This may be achieved if sincere efforts are made by both the sides. Our

2007

December 2011

Voice of Industry Lessons from Indian Army for IndoPak Businessmen

I

By Majyd Aziz

unnecessary roadblocks at the WTO against the GSP+ incentives for 75 textile items agreed by the European Union to help Pakistan, the Indian government decided unilaterally not just to withdraw its objections but also to support Pakistan’s case.

Later, India wholeheartedly helped Pakistan in the United Nations enabling Pakistan to obtain the mandatory twothird votes essential for becoming a member of the UN Security Council. In spite of its own infrastructure shortages, India offered to sell 500MW of electricity to meet shortage on our side of the border. Moreover, Premier Dr. Manmohan Singh firmly assured Pakistani Commerce Minister that India will honor the Indus Water Treaty.

India is also spending billions to upgrade the infrastructure at the Wagah border, which would result in the movement of over 1000 trucks every day.

Pakistan too has moved forward. Frequent meetings of the two Prime Ministers on the sidelines of high profile global forums have melted the ice to enable Ministers and officials to make rational moves. Recently, when an Indian Air Force helicopter entered Pakistan’s territory, the military didn’t take action but honorably allowed it to return to its base in India. Pakistan needs cheaper oil and favorably priced raw material for its domestic industries.

Pakistan also requires comparably priced machinery for upgrading its local industries. All these are possible from India. Pakistan understands that India and China have done wonders in bilateral trade and are expected to cross $100bn mark by 2013 and possibilities of Pakistan taking advantage of trilateral trade and investment are there.

Pakistan knows that in the global trade scenario, stagnation and isolation are not prudent; if water is rising it has to be plugged otherwise there would be the threat of drowning in the global deluge, and the only way to plug it is to think globally and trade openly.

Yes, India and Pakistan businessmen must pay heed to the messages on the billboards in the cantonment area of New Delhi. The messages are loud and clear. There is no turning back. At the same time, governments of both the countries must shed their paranoia, at least with regard to facilitation of bilateral trade and investment. India must recognize that a stable Pakistan is also in its interest. India must also take the lead in accepting that billions spent on defence and security implies that millions of human beings are kept in perpetual poverty, suffering, and deprivation. Increasing employment and improving the quality of life should be the paramount priority. And, for the Indian Army, a short and sweet advice, with truly a sincere hope: the next time I am in New Delhi, the third slogan should be amended from “poised for victory” to “poised for peace” because the business communities of both countries would, by that time, have ensured that for certain.

n September this year, I was being chauffeured to ITC Maurya Hotel in New Delhi after attending a meeting as part of an 80-member business delegation headed by Pakistan’s Commerce Minister Makhdoom Amin Fahim. As we drove through the Cantonment area, I noticed strategically placed billboards of the Indian Army. Each billboard had a touching and significant slogan that depicted the vision of the Indian Army. The next day, I made sure that I wrote down those motivating slogans. As I was writing, I suddenly realized that although those three slogans depicted the Indian Army, they were remarkably applicable to businessmen of Pakistan and India, especially in the prevalent “feel good” environment.

The first slogan was “Empower your dreams”. For so many decades, the Indo-Pak businessmen, as well as their business associations, have been demanding normalization of bilateral trade and increase therein and, hopefully, in investment. The desire has always been unhindered movement of businessmen across the border, and for longer durations, multiple visas without any limitations and restrictions. They want to see the day when there would be substantial bilateral trade and ensuing that soon we enter into a mutually beneficial Free Trade Agreement. This has been their vision for years. Time has now come for a formidable and sincere campaign to achieve this objective. The visit of the Pakistani business delegation in September and the expected visit of a 200-member Indian business delegation led by Indian Commerce Minister Shri Anand Sharma in February 2012 would surely be the way where these dreams would really be materialized.

The second slogan was “They march with melodious precision”.

Businessmen and industrialists on both sides of the IndoPak border have been on the same page and not only have the yearning to undertake extensive bilateral trade but are also passionate about their patriotism and their demand for joint ventures, technology transfers, and a common approach to trading with third countries. They have unanimity of views, and are willing to support each other on an individual level even at international forums.

This is imperative as time has come for both to accept that a lot of water has flowed under the bridge while hardliners and negative forces in both the countries have created a state of despondency, misery, and hatred for far too long.

That is one reason why it is important for entrepreneurs as well as workers that the anti-business forces are sidelined.

That the advancement on the venue of prosperity, progress and peace largely depends on their making headway with their own mind-set of trust, purpose, and strength. This would then be a truly harmonious march towards a better future.

The third slogan was “Poised for victory”. Fifteen years after India granted the Most Favored Nation status to Pakistan, a decision has been taken in Islamabad to reciprocate. Thirty five years passed by before any Pakistani Commerce Minister took a trip to New Delhi. After initially erecting

The Author is Former President, Karachi Chambers of Commerce & Industry

32

December 2011

B anking & Finance Letters of Credit; how they can be used as a front for raising liquidity

I

n the context of innovations in trade products that have spread across the financial institutions in recent years, one has given birth to a product referred to as ‘Structured or Synthetic LC’ which is not a genuine trade transaction but merely dressed up as a trade product; it has nothing to do with payment for internationally traded cargos because, in almost all cases, no goods are either sold by exporters or purchased by the involved importers; they exist only on paper to make bankers believe that they are genuine trade transactions that could be financed.

These Letters of Credit (LCs) are Usance LCs providing for payment after a certain (say one to six months) period.

Importers issue such LCs to help their preferred exporters abroad to overcome temporary cash flow difficulties. This objective is achieved when the banks in exporters’ countries discount LC compliant documents and thus provide liquidity to their beneficiaries’ (exporters’) ongoing business but funds are finally retransferred back to LC issuing banks because, the beneficiary buys back the goods from the importers. In reality, however, the mythical goods don’t move at all.

These ‘Synthetic LC’s’ were used as the means to legally obtain loans from the banks that handled these transaction.

As such, these LCs may also be viewed as Money Laundering mechanisms since the repeated use of such fake transactions facilitates transfer of funds from one country to another and makes it impossible to establish the real goods and track the movement of those goods.

An LC for these transactions usually stipulates compliance conditions that defy logic, and should serve to warn banks handling them about the underlying transactions not being genuine. Banks should therefore avoid issuing, confirming or financing such LCs via Discounting or even Finance against Foreign bill facility. These deceptive LCs specify instructions to the LC advising or confirming banks to accept documents including some or all of the following relating to accepting documents:

By Ahmir Mansoor

7. Late presentation acceptable subject to the condition that documents are presented within LC validity.

8. Freedom to advising banks to add their confirmation to the LC. 9. Undertaking to pay at maturity according to advising or confirming bank’s payment instructions.

10. Documents can be forwarded directly by the confirming to the issuing bank, not via the advising bank.

Negotiating banks being allowed to claim reimburse11. ment directly from the confirming bank.

Bill of Lading reflecting a greater quantity/amount 12. than shown on the invoice is acceptable.

These phrases give the clues of frauds in the underlying transactions where the purpose is not the shipment of goods; rather, it is to avail bank credit and to shift funds between countries. But, to conform to minimum regulatory needs, the required commercial documents must be presented to banks in order to give these deceptive transactions the image of real transactions in legal terms, so that the exporter who presents such documents can validly borrow funds from transaction financing banks. The fraudsters therefore create fraudulent documents in order to fulfil the condition of “presentation” of documents complying with LC terms to obtain financing there against via Export Bill Discounting facility of finance against that bill.

Instructions in an LC that ‘documents are acceptable in spite of any discrepancies’, or ‘documents shall be acceptable as presented’ helps the fraudsters to get away with mistakes in the preparation of fraudulent documents. Another unusual clause in the LC, whereby ‘Bill of Lading reflecting a greater quantity/amount than shown on the invoice is acceptable’, clearly shows that the transaction is aimed at something else, not import of goods. Why otherwise would the quantity in the Bill of Lading and the invoice differ? They should be the same.

The laxity these terms reflect on the part of the importers, and the importers’ over-confidence in the exporters, should worry the banks that commence such dubious transactions by establishing LCs with such lax conditions. But if the LC issuing banks don’t notice what such an “open” LC may lead to, it only shows their recklessness because by opening such LCs they start a chain of subsequent flawed credit decisions

by LC discounting/financing banks in exporters’ countries.

The tragedy, however, is that banks in both developed and under-developed economies fell victims to these traps and ended up financing deceptive transactions. In many of the cases, the banks suffered large losses because the LC issuing and confirming banks did not honour their commitments due to subsequent differences that arose between the importers and exporters involved in such transactions.

What, however, keeps this suspect business alive is the (conti)

1. Copy of commercial invoice.

2. Photocopy of the bill of lading.

3. Copy of beneficiary’s certificate stating that the copies of shipping documents provided are true and correct copies of the originals.

4. That original bills of lading relating to the shipment should be sent to the notified party stated in the Bill of Lading or to the agent at destination and that the goods described should be discharged at the port stated in the Bill of Lading.

5. Fax copy or photocopy of documents.

Documents issued even before LC issuance (including the Bill of Lading itself).

6. Documents containing any type of typing errors are acceptable.

33

December 2011

B anking & Finance profile of competition that we had grown used to, wherein meeting illogical business targets had become our priority No. 1.

Bankers must not forget that they are mandated not only to look at whether a transaction complies with the pertinent local and global regulatory requirements, but also whether the transaction appears genuine based on the terms agreed between the buyer and the seller because, in foreign trade, banks financing exporters get paid only when they can get from the exporters and present to the LC issuing banks the original documentary evidence that conclusively establishes that the exporter performed as per the terms of the LC. Surely, this can’t be ensured by presenting documents such as photocopies of the Bills of Lading or Airway Bills. If, later on, (at the behest of a corrupt importer) the issuing bank goes to the point of proving that the Bill of Lading was fake or that simply one shipment of goods was used to generate documents for several presentations although no shipment ever took place, the exporter’s bank will be at a distinct legal disadvantage. This is precisely what happened in many such cases in which (the LC issuing or confirming banks helped fake exporters) the LC discounting/financing banks had to bear losses.

The tragedy that befell banks almost everywhere beginning the last quarter of 2007, and forced them to seek “bailouts” shows, that there is no substitute for prudence. Bankers can’t and should not be carried away simply by their relations with their customers. They must question importers who insist on establishing such loosely drafted LCs, as to why they are giving so much liberty to the exporter as far as submitting all the documentary evidence of shipment is concerned.

Unless and until importers can provide sensible and logical reasons for taking an over-optimistic view of the exporter’s integrity to absolve it of meeting the standard documentation requirements, bankers should desist from establishing such LCs because these transactions fall in the category of “the imprudent”, and reflect callousness on the part of bankers–the last thing that could be associated with bankers.

It is time all bankers learned lessons from their mistakes, more so because the proposed recommendations of Basle Accord-III require tougher capital allocation requirements to such risky transactions. The fact that banks are now being asked to carry even higher capital adequacy on the one hand reflects weak risk management on the part of bankers and on the other it will squeeze banks’ profits. Both outcomes must be avoided.

There are those who fault the banks for being risk-averse.

Indeed banks are showing signs thereof by not financing key business activities; this tendency is indeed causing economies to slowdown. But not financing transactions discussed above is not risk-aversion; it is manifestation of the prudence that bankers are expected to prioritize over everything else so as to justify the title of “the guardians” of peoples’ savings.

It is true that the fallout of the economic recessions shook the financial services sector and banks reacted by becoming

34

over-sensitive to risk after they noted the supervisory gaps in their organizations. While it is understandable that it will take a while for these gaps to be filled through imparting of skills and improvement of the error/weakness detection capacity of the internal systems, there is no justification for prolonged periods of risk-aversion.

Having said that, it needs to be repeated that establishing LCs providing for so much of laxity in compliance terms for the exporters is unjustified. Banks must not let importers and exporters use trade transactions to serve their illegal ends and bankers alone can check this tendency. Let us be sensitive to the need for securing depositors’ interests and projecting an image of prudence that has suffered badly in the ongoing economic recession.

Conclusion

It is my understanding that large financial institutions in the world, with extensive experience in providing trade finance services, are aware that synthetic letters of credit are schemes to raise liquidity; they don’t imply genuine trade transactions. Banks must not confirm LCs of the type discussed above, and should not negotiate or discount documents under such LCs. Unfortunately, however, it is now a common practice in banks to negotiate or discount documents with any type of discrepancies thereby contradicting or partly complying with clauses specified in an LC under discrepant documents limits extended to exporters. My advice to bankers is to shun this practice because it encouraged carelessness among exporters, which will have bad long-term adverse impact on the reputation of our export sector.

The direct impact of letting discrepant documents proceed further, instead of being corrected, would be steady decline of the image of Pakistani banks, which will create problems in obtaining lines of credit for LC confirmation, issuance of guarantees and foreign exchange trading; among them, credit lines for foreign exchange trading for forward transactions are crucially important for all banks involved in foreign trade operations. Without these lines being available, exchange risk simply cannot be managed.

Synthetic letters of credit are highly risky for countries where Central Bank regulations require payment only against genuine trade transactions, i.e. where goods are received after crossing borders in the quantities mentioned in the invoices and Bills of Lading. In recent times, dubious and complex financial products gave trade finance a bad reputation and, in part, may have prompted the Basel Committee to propose onerous conditions.

I once received a gentleman’s business card with his title as ‘Head of Structured Letter of Credit’ (in reality, ‘Head of Artificial Letters of Credit’); it surprised me greatly because it reflected how dealing in such dubious transactions has been catching on, courtesy the kind of competition that banks had been indulging in.

December 2011

B anking & Finance Central Banks’ dilemma – prudence vs. popularity

C

entral bankers are the target of harsh criticism in many countries for the caution they are exercising in their attempts to fulfil their mandatory obligations of containing inflation via limiting monetary expansion. It is odd though that this is the scenario in highly as well as weekly regulated economies, for example, UK and India.

In Pakistan, the argument against interest rate hikes by the Central Bank has often (and correctly) been that, since retail and wholesale markets are more or less un-regulated, it is not possible to contain inflation by just hiking up interest rates; far more is needed in terms of punishing the market spoilers. In the UK and India, analysts in the financial services sector worry about the impact of rate hike on economic growth and business sector profitability because Central Bank actions are inflating funding costs and squeezing private sector credit.

Earlier, Bank of England (BoE) had constituted a Financial Policy Committee (FPC) that included top Financial Services Authority (FSA) officials, to debate and recommend whether banks should be permitted to dip into their liquidity buffers to boost lending in the current market turmoil.

Only a minority of the FPC Majority of the FPC members backed such a thought that dipping move; others thought that into liquidity buffers consuming liquidity buffers could weaken faith in banks could weaken faith and may trigger counterin banks and push productive trends–push up up their funding banks’ funding cost as their costs as the big big depositors begin doubtdepositors began ing their ability to withstand doubting their abilfuture liquidity stresses; ity to face a future experience in 2008 is enough liquidity stress to do just that.

Despite these doubts and alarming conclusions of the FPC Andrew Tyrie, Chairman of the British Parliament’s Treasury Committee, urged the Governor BoE and FSA to examine the impact of regulations on bank lending because, after the onset of the current financial crisis, lack of credit to SMEs was widely being criticised for contributing to Britain’s slow economic recovery. In his letter to the Governor BoE, Tyrie had warned that attempts at doing it too quickly in a hostile global economic environment risked slowing recovery. Were that to happen, a second crisis might be seen as having been aggravated by the actions of regulators. George Osborne, the Finance Minister and fellow Conservative, promptly pledged ‘credit easing’.

Accordingly, in its latest (i.e. November 10) Monetary Policy statement, BOE didn’t discount bank rate.

Some in the BoE share the views expressed by Tyrie. Ben Broadbent (responsible for setting BoE Discount Rate) told the Financial Times that “The problem is still in the banking system, the funding costs of the banking system, and supply

35

by A.B. Shahid

of credit to non-financial entities in the economy who can’t bypass the banks.” According to him, the reasons for bank’s high funding costs remain “a mystery” because British banks had recorded significant progress over the past three years in improving their balance sheets, and now hold more capital and deposits” i.e. higher liquidity and the capacity to lend. In his view, the rationale for slowing the credit supply “may be connected with an existential threat to banks emanating from Europe..... Whatever the reason for it, it is a key factor, if not the main, restraining economic growth here and elsewhere in Europe.” Oddly, the British government is contemplating to pass new legislation that will bring FSA under BoE control and end FSA’s current independent supervisory role.

Banks too are not happy with the regulatory pressures for building liquidity; this subject has become a dispute between banks and the FSA because the pressures that forced British banks to build liquidity buffers besides the capital they carry, induced regulatory moves globally. British banks complain that they now find themselves at a disadvantage in competing with banks abroad since the new globally applicable rules on liquidity will be phased in 2015 onwards, not immediately as the case in Britain.

Similar arguments are being advanced against Reserve Bank of India’s (RBI) monetary policy, and its 13 rate increases in 18 months are the target of criticism. Analysts have blamed the ‘pride’ of the RBI Governor that is coming “in the way of sound policymaking.” RBI is being branded a ‘headstrong’ Central Bank that refuses to concede defeat in its wild quest for bringing down equally headstrong inflation.

Sanjay Mathur, Chief Economist for Asia at Royal Bank of Scotland (who realizes the problem of containing inflation in weakly regulated markets and the state’s role therein) accepts that “Enough damage has been done, but they [politicians] are so deep in the quick-sand that they are finding it hard to reverse course now, and say food prices aren’t our problem.”

That is why Mathur feels sorry for the RBI Governor since he and his Board have had precious little help from the state in tackling the pressure points such as the genuine and make-believe supply bottlenecks in the food sector.

Other economists too think that RBI became a convenient scapegoat (that helped the politicians to distract focus from their flawed fiscal policy) but consider the last rate increase as excessive and another hike “wouldn’t just be bad policy; it would further isolate India in the global policy landscape that has every other Central Bank turning dovish in the face of a crisis and recessionary signals in the developed world.”

The total 3.5 percentage point hike in the policy rate since March 2010 had desirable outcomes – money supply growth has fallen, a bubble-like property sector has cooled, inflation is high but not rising and loan growth is much lower than it was at the beginning of 2011 yet all these outcomes are being viewed by some as trends that are slowing economic growth, though RBI had forewarned about this scenario till inflation came under control.

December 2011

B anking & Finance do at present. Isn’t that the Growth has to be scenario in the EU? After pervasive–not just Ireland saved its reputation in Asia but also in the Greeks made things the regions buying worse and Italy is now a Asian goods if likely candidate for a growth is to sustain massive EU bailout package, but must first satisfy its itself; asking buyers bailers who now want IMF to buy recklessly, in to examine its tax record to fact to the point establish if it was in fact where they go bankimplementing the austerity rupt, was dumb yet measures it had promised pervasive to implement. Besides, doubts are also being expressed about the fate of French banks that had recklessly financed the Greek government.

As for Britain and the US, they are desperately trying to shift public attention from the chaos in their own economies by continually pointing fingers at the EU, though both these countries are in no better state. The other purpose of doing so is obviously to ensure the demise of the EU and the Euro that had begun to threaten the status of the US Dollar as the global medium of exchange. With their own economies in shambles, that is precisely what they should be doing to still retain their key clout – stay the parking lot for other nations’ wealth that they will coolly use for their own benefit and for invading resource-rich Third World countries like Iraq and Libya. But the worst off lot are the Asian giants that parked their exchange reserves in the US and economically weak EU states; that wealth is little more than a myth–a sad realization but far too late.

This mess is not the result of mere reckless banking and greed; it is also the manifestation of reckless deregulation in all sectors, especially the financial services on the convoluted belief that all markets are self-corrective. It implies that there are limits to greed which, historically, was never the case. It is therefore unfair to criticize Central Banks that are acting prudently. What, however, may be faulted is the speed with which Central Banks expect things to change under estimating the time lag with which Central Bank actions bring about desired results–a reality that differs from country to country depending on the extent to which an economy is document-ed and regulated.

Some RBI policies are rightly the target of criticism such as its medium-term inflation target of 4-5%. The whole sale price index RBI uses overshot the target by 5% every month since early 2006. Likewise, RBI is stuck with its forecast of 8% plus growth in GDP, which is unattainable.

Admittedly, everything is not in RBI’s control. But surely, more effective guidance is one of them. By upping rates every six weeks in 2011, RBI conditioned the markets to anticipate a rise every six weeks. But on its own part, RBI displayed impatience in expecting the rate rises to traverse a $1.6 trillion economy in six weeks. It should have paused in September since, based on its own view, inflation could ease within a few months. It is this impatience that can make things even more difficult.

To Westpac’s McKay, the rate hike in September could be postponed if not avoided because it inflated the risk to the growth-inflation trade-off when, mere tightening of liquidity (via statutory reserves) could have sufficed. Use of the words such as ‘imperative’ and ‘persevere’ in RBI’s monetary policy statements “reeks of puritanical stubbornness” portraying a disturbing potential for self-harm. According to him, “RBI seems to have elevated this decision to a moral principle.”

There is scant concern in the pro-growth lobby for the fact that comments along these lines would amplify criticism, and further harm not just RBI credibility but the funding woes of the industrial sector that is already fraught with dangers. The fact is that RBI stumbled because of the many conflicting demands of its extended mandate encompassing economic growth, price stability, and efficiency of the financial system. The proponents of further monetary tightening argue that it is imperative that inflationary “expectations” be contained to prevent inflation from gaining a “self-fulfilling momentum” and monetary policy is the best tool for ensuring that.

What many analysts overlook is the fact that, in the last decade, the almost one-sided trade flow from Asia to the US and Europe was building some serious distortions that were bound to have a severe backlash. During that decade, it was rarely pointed out by these analysts that, nations getting used to buying cheap Asian produce and coolly shutting their own industrial bases, were heading for an unmanageable chaos; it was only a matter of time If Asia becomes before that balloon bursts, over-dependent on because even the proverbial exports to the US treasures of the pharaohs and Europe while didn’t last. these two don’t build the reserves of During that period, analysts kept admiring the high rates wealth to pay for of growth being registered what they were

by Asian giants; it never buying, what could occurred to these analysts be its consequence that if Asia becomes for the ‘Asian overly- dependent on giants’? exports to the US and Europe while these two don’t build the wealth reserves to pay for what they were buying from Asia, what would be the result if the West went bust? What will the “Asian giants” then do with the overcapacity they were blindly building, and how will the receivables against goods sold on long credit terms be realized from the West? What these self-styled analysts forgot was that growth has to be all round if it is to benefit the world on a sustained basis; it shouldn’t be just in Asia but also in the regions that import Asian goods. To lure buyers to keep buying recklessly, in fact to the point where they turn bankrupt, was dumb, and yet pervasive because the analysts were praising it.

Now the exuberant West is nearly bankrupt. The countries spared by the disaster too will come under stress as they try to help the rest of the Western countries to at least portray a semblance of financial stability – the best that they can

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December 2011

I slamic Banking Quaid-e-Azam’s Vision of Banking System in Pakistan In his inaugural address at the State Bank of Pakistan, the Quaid-e-Azam had underlined the need for evolving banking practices compatible with Islamic ideals of social and economic life. Islamic banking is taking roots rapidly in Pakistan and elsewhere in the world. According to reports, it accounts for over 6.7 percent of banking sector in Pakistan and is likely to reach a level of around 12 per cent during the next 2 to 3 years. The pace with which Islamic banking is expanding the world over testifies the Quaid’s vision of banking. We are reproducing the Quaid’s inaugural address in this issue to reinforce the need for promoting an economic system based on true Islamic concept of equality of manhood and social justice.- Editor

T

he opening of the State Bank of Pakistan symbolises the sovereignty of our State in the financial sphere and I am very glad to be here today to perform the opening ceremony. It was not considered feasible to start a bank of our own simultaneously with the coming into being of Pakistan in August last year.

A good deal of preparatory work must precede the inauguration of an institution responsible for such technical and delicate work as note issue and banking. To allow for this preparation, it was provided, under the Pakistan Monetary System and Reserve Bank Order, 1947, that the Reserve Bank of India should continue to be the currency and banking Mr. Jinnah with Mr. Zahid Hussain, Governor SBP authority in Pakistan till the 30th September, 1948. Later on it was felt that it would be in that best interest of our State if the Reserve Bank of India were relieved of its functions in Pakistan, as early as possible. The date of transfer of these functions to a Pakistan agency was consequently advanced by three months in agreement with the Government of India and the Reserve Bank. It was at the same time decided to establish Central Bank of Pakistan in preference to any other agency for managing our currency and banking. This decision left very little time for the small band of trained personnel in this field in Pakistan to complete the preliminaries and they have by their untiring effort and hard work completed their task by the due date which is very creditable to them, and I wish to record a note of our appreciation of their labours.

As you have observed, Mr. Governor, in undivided India banking was kept a close preserve of non-Muslims; and their migration from Western Pakistan has caused a good deal of dislocation in the economic life of our young State.

In order that the wheels of commerce and industry should run smoothly, it is imperative that the vacuum caused by the exodus of non-Muslims should be filled without delay. I am glad to note that schemes for training Pakistan nationals in banking are in hand. I will watch their progress with interest and I am confident that the State Bank will receive the cooperation of all concerned including the banks and universities in pushing them forward. Banking will provide a new and wide field in which the genius of our young men

can find full play. I am sure that they will come forward in large numbers to take advantage of the training facilities, which are proposed to be provided. While doing so, they will not only be benefiting themselves but also contributing to the well being of our State.

I need hardly dilate on the important role that the State Bank will have to play in regulating the economic life of our country. The monetary policy of the bank will have a direct bearing on our trade and commerce, both inside Pakistan as well as with the outside world and it is only to be desired that your policy should encourage maximum production and a free flow of trade. The monetary policy pursued during, the war years contributed, in no small measure, to our present day economic problems. The abnormal rise in the cost of living has hit the poorer sections of society including those with fixed incomes very hard indeed and is responsible to a great extent for the prevailing unrest in the country. The policy of the Pakistan Government is to stabilise prices at a level that would be fair to the producer, as well as to the consumer I hope your efforts will be directed in the same direction in order to tackle this crucial problem with success.

I shall watch with keenness the work of your Research Organisation in evolving banking practices compatible with Islamic ideals of social and economic life. The economic system of the West has created almost insoluble problems for humanity and to many of us it appears that only a miracle can save it from disaster that is now facing the world. It has failed to do justice between man and man and to eradicate friction from the international field. On the contrary, it was largely responsible for the two world wars in the last half century, The Western world, in spite of its advantages of mechanization and industrial efficiency is today in a worse mess than ever before in history. The adoption Western economic theory and practice will not help us in achieving our goal of creating a happy and contented people. We must work our destiny in our own way and present to the world an economic system based on true Islamic concept of equality of manhood and social justice. We will thereby be fulfilling our mission as Muslims and giving to humanity the message of peace which alone can save it and secure the welfare, happiness and prosperity of mankind. May the State Bank of Pakistan prosper and fulfil the high ideals, which have been set as its goal.

In the end I thank you, Mr. Governor, for the warm welcome given to me by you and your colleagues and the distinguished guests who have graced this occasion as a mark of their good wishes and the honour you have done me in inviting me to perform this historic opening ceremony of the State Bank which I feel will develop into one of our greatest national institutions and play its part fully throughout the world.

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December 2011

R egulatory Compliance Gaps in FBR’s mechanisms and the price taxpayers pay for them

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to their depositors about the profit paid his year, the FBR has created a new and withholding tax deducted therefrom record of changes in the formats of bifurcated into its portions recovered tax returns that continued right up to the during the July-March 14 period and then last week of October. The taxpayer during the March 15-June 30 period along category that was worst hit was the with the ‘flood surcharge’. salaried class – the class that pays the highest volume of taxes and that too Traditionally, banks have calculated profit PAKISTAN even before it gets its monthly salary. on deposits on a monthly basis. But the new FBR requirement implied that banks Undoubtedly, FBR faces several were to calculate profit on deposits on a bi-monthly basis challenges, the toughest being its quest for achieving a hike in for March 2011. Taxpayers’ experience disclosed two apparthe tax-GDP ratio that stood at 8.1 percent at the start of the ent lapses: banks were not instructed to provide savers last financial year. It is a tough task given the fact that, even certificates of profit paid, and that these certificates were to after the passage of 64 years of its existence, large sectors of report the amount of profit into two categories viz. for the Pakistan’s multi-faceted economy remain undocumented.

July 01-March 14 period, and for the March 15-June 30 time But what is more disturbing and tragic a fact is that the FBR period and separately show the withholding tax recovered in went about inducing tax payment in misconceived ways; its these two periods to verify recovery of ‘flood surcharge’. focus was on increasing tax recovery without concerns about The prudent course was to announce through the media at ensuring that the options it exercised seemed logical, and did the start of the tax year what evidence goods and services not give tax-payers the impression that their integrity was in suppliers were to provide to their buyers i.e. taxpayers about doubt. An example thereof was the inclusion of Annexure taxes deducted by them from bill payments. In the case of ‘D’ in the tax returns–a change faulted by the Tax Bars but banks the instruction should have been to print a statement ignored until it caused a storm. FBR then conceded to the to this effect at the end of statements of account rather than demands of the Tax Bars but in installments, the last coming provide each depositor such a certificate. In commerce and on November 4. trade, buyers should have been instructed to check in the This confusion, that began early in FY-12 forced FBR to bills or invoices they paid the detail of their supplier’s being extend the last date for submission of tax returns five times.

FBR-registered tax deducting agent. There were cases where From the traditional last date for submission of tax returns tax advisors informed their clients, and rightly so, that the (August 31), the last date was finally extended to November suppliers who deducted withholding tax weren’t registered 30. Between August and October, the lives of the taxpayers FBR agents. and tax advisors were rendered miserable. Neither knew how FBR hasn’t realized the hazards of relying excessively on to document majority of the expenses (especially on buying indirect taxes in an un-documented economy which makes food) for which they don’t, or rarely get any bills, courtesy the it primarily the obligation of the FRB’s monitoring wing to non-documentation of the retail sector. catch businesses that deduct withholding tax without being Only on October 21 FBR withdrew reporting of expenses licensed as deducting agents. It is equally questionable such as repair and maintenance of houses, medicines, food, whether ordinary taxpayers know the compliance criteria for clothing, weddings, functions, and salaries paid to drivers and getting adjusted against thier final tax liability the taxes paid servants. But they were still required to report expenses under in advance. other heads. The instructions required taxpayers to report in FBR collects almost two-thirds of the tax revenue through a lump sum figure of "personal and household expense”. indirect taxes. While there is justification for indirect taxes, How will this undocumented figure help FBR is a question in economies with almost half the population close to or mark. below the poverty line, indirect taxes escalate poverty. The Besides, unrealistic demands play havoc with the image of the scenario worsens if taxes collected by collecting agents are FBR–a fact its policy-makers disregard eventually to their not surrendered to the state. Recent disclosures show that, own disadvantage. Tax collection can’t be increased unless, to while taxpayers kept paying all the indirect taxes, they were begin with, before tax return formats are finalized and made surrendered only partially to the FBR. mandatory, all the stakeholders who have a role in providing The view this distortion gives rise to is that, unwittingly, taxpayers with FBR’s required data, are consulted and advised FBR is assisting corrupt businesses to enrich themselves at unambiguously to ensure that they provide it to taxpayers on the cost of the taxpayers. Surely, that is not what the FBR formats designed by or acceptable to FBR. Taxpayers’ experiwants. The solution lies in clear statements about licensed ence, however, shows that this isn’t done. tax deduction agents, tax deduction processes, and eligibility This year, FBR made a concerted effort to recover, as fully as of taxes paid in advance for adjustment against income tax possible, taxes that it’s authorized collecting agents recover liability. This could help avoid a similar confusion next year for being surrendered to the FBR. But, banks–biggest tax collecting agents–didn’t know they had to provide certificates and build confidence in the FBR.

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December 2011

A griculture Livestock Development in Pakistan

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nimal proteins are a necessary ingredient for healthy growth of human life. There has to be a balance between carbohydrates, proteins, fats (both animal and other sources), amino acids (which are contained in animal meat), vitamins and minerals for the healthy growth of human population. The amino acids are the building blocks for the body tissues for human beings and are available in animal meat.

2. Growth rates

2.1 If we compare the growth rate in prices of meat between 1970 and 2010, the figures are as under: 2011 Govt rates Avg. Growth Rs / kg Times

Category

1970 RS / kg

Yearly Growth Times

Mutton

7.50

500

67 times

1.63 times

Beef

3.00

260

87 times

2.12 times

Poultry Shaver

16.00

150

9.4 times

0.23 times

The 1970 prices have been ascertained from a sample survey conducted from different households while the current prices are based on the news item published in the Month of Holy Ramzan Daily Dawn July 30 2011 2.2 It is quite evident that the prices have shot up tremendously during the above selected period, while income has not grown in the same ratio, thus badly affecting the purchasing power of the consumer. According to the economic survey, the population of livestock between 1990 and 2011 is as under:

Rupees in Millions

Avg. Yearly Growth % Growth % Buffaloes 17.8 30.8 73.03 3.65 Cattle 17.7 34.3 93.78 4.68 Goats 37.0 59.9 61.89 9.45 Sheep 26.3 27.8 5.70 0.29 Poultry 146.9 610.0 315.24 15.76 Source: Economic Survey 2010-2011 • Yearly average has been calculated on the basis of simple average & compound annual growth rate has not been calculated for simplicity.

• Figures are based on Economic Survey 2009-10, the figures between 1996 & 2006 are not based on any census but have been estimated.

2.3 From the above table it is quite evident that except for sheep, the population growth of livestock is greater than the growth rate of population which is generally believed to be 2.1 to 2.3 annually and is a healthy sign. In fact the growth in poultry has balanced the supply side of the overall animal proteins and acted as a catalyst for some stability in the price hike of red meat. Although the growth Category

1990

2010

39

By Tariq Iqbal Khan of population and growth rate of livestock is very reasonable, in comparison the growth in population but the consumer generally asks one question which is the disproportional price hike, as compared to his resources. The basic reason for the price hike according to experts and economists is attributable to production factors and costs.

The cost of feed has gone up as the cost of food grains, proteins, vitamins, minerals, animal blood, fish meal etc. has also gone up.

2.4 The cost of energy has gone up manifold. Similarly other factors like wages, overheads and other ingredients of cost structure have also gone up manifold. This explanation does not in any manner satisfy the consumer as his income has not grown (at least) in the same proportion, hence a large population of Pakistan faces health issues, as only calorie count is not a sufficient indicator.

2.5 Although alternate sources of protein supply are considered to be lentils and beans, their price has also gone up manifold, which has aggravated the problems of the poor population and has badly affected the purchasing power of the common man also.

2.6 While there has been noticeable improvement in some health indicators over the years, on the whole, Pakistan ranks poorly in this matter. Overall life expectancy in Pakistan is lower than many countries in its peer group, while infant as well as maternity mortality are amongst the highest. Recent cross country studies of vital health indicators show a wide variation in epidemiological pattern between different Asian countries. If we compare these with Bangladesh, India, Sri Lanka, then Pakistan’s infant mortality rate is higher.

2.7 Similarly other indicators show that a lot of progress will have to be made to improve the health status of the population, which includes proper supply of meat, eggs and milk.

3. Livestock

3.1 The overall thrust of Government livestock policy is to foster “private sector led development with public sector providing enabling environment through policy interventions and play capacity-building role for improved livestock husbandry practices”. The emphasis will be on improving per unit animal productivity and moving from subsistence to market oriented and then commercial livestock farming in the country to meet the domestic demand and surplus for export. The livestock development strategy revolves around the following: • Public Private Partnership led development.

• National Economic growth.

• Poverty alleviation.

• Food security • Improved livestock service delivery.

• Expanded opportunities for livelihood needs of farmers.

• Enhancement in Foreign Exchange Earnings.

December 2011

A griculture 3.2 Livestock plays an important role in the economy of the country. The Livestock sector contributed approximately 53.2% of the agriculture value-added and 11.4% to national GDP during 2009-10. While other development sectors experienced saturation and decline, there has been an increase in livestock sector in 2009-10. Gross value addition of livestock at current factor cost has increased from Rs.1,304.6 billion (2008-09) to Rs.1,537.5 billion (2009-10) showing an increase of 17.8% as compared to the previous year.

3.3 The population growth, increase in per capita income and export revenue is fuelling the demand of livestock and livestock products. Pakistan needs to speed up the pace of development of the livestock sector. The Government is reportedly taking some steps for such development. The Government is required to improve service delivery, reduce poverty, achieve sustainable economic growth and expand opportunities to address the needs of livestock rural farmers and to protect the livelihood concerns of the rural community. The major products of livestock are milk and meat, the production of which, for the last three years, is given in the Table below:

3.4 Species

3.6 Mega Development Projects

The Government has claimed that it is in the process of increasing public sector investment and has initiated mega development projects for strengthening livestock services for improved disease diagnosis and control, milk and meat production, breed improvement, animal husbandry and management procedures in the country.

3.7 Strengthening of Livestock Services Project

The Governments has initiated the following Projects: 3.8.1 A project of 7 years’ duration (2003-2010) with a total cost of Rs.1,992.66 million, aimed at eradicating rinderpest disease from the country, to enhance efficiency and effectiveness of delivery of livestock services, improvement of disease diagnosis, monitoring and reporting system, vaccine production particularly against newly-emerging and transboundary animal disease and capacity building of veterinary staff.

3.8 A project of 5 years’ duration (2005-2010) with a total allocation of Rs.1,520 million, is assisting in the establishment of 2,590 fattening farms (1,040 beef and 1,550 mutton), 8 Slaughterhouses and 20 butcheries in the Private Sector. Under this project, more than 9,000 feed-lot fattening operations have been completed in which more than 8,000 tons of quality beef and more than 2,000 tons of mutton have been produced.

3.9 A project of 5 years’ duration (2005-2010) with a total allocation of Rs.1,588 million. More than 10,000 rural subsistence dairy farmers are likely to enter into the milkmarketing chain due to project interventions.

3.10 A project of 5 years’ duration (2005-2010) with a total allocation of Rs.1,992 million, is aimed at enhancing the livestock productivity through the provision of livestock production and extension services at farmers’ doorsteps, targeting 13 million rural poor in 1,963 union councils in 80 districts of the country. The major goals under this project are: • Establishment of 40 Surveillance Units, 66 Rapid • Processing of 0.4 million samples of blood, tissue and swabs for screening against Avian Influenza • Establishment of Bio-security Lab 3 is under process • Collection and analysis by the Project of 190,000 swab samples and more than 200,000 blood samples • Disbursement of Rs.23.5 million as compensation to Avian Influenza affected farmers • Maintenance of Avian Influenza (bird flu)-free status since June 2008 by Pakistan.

3.11 A project of 5 years’ duration (2007-2012) with a total allocation of Rs.495.15 million, aimed at establishment of Embryo Transfer Technology Centre, Semen Production and Processing Centre, Strengthening of Provincial Semen Production Units and Support of Semen Production of Cattle in the private sector. The centre will produce 5000 embryos per year for farm use and supply to others.

Milk and Meat Production 2007-08 2008-09 2009-10

Milk

000 Tons 000 Tons

000 Tons

(Gross Production)

42,191

43,562

44,978

Cow Buffalo Sheep Goat Milk

14,437 26,231 35 700

14,982 27,028 36 719

15,546 27,848 36 739

(Human Consumption)

34,064

35,160

36,299

Cow Buffalo Sheep Goat

11,550 20,991 35 700

11,985 21,622 36 719

12,437 22,279 36 739

Meat

2,728

2,843

2,965

Beef Mutton

1,549 578 601

1,601 590 652

1,655 603

Poultry meat

Government is required to improve the framework for better growth in this sector so that desirable results could be achieved to serve the ever growing population.

707

Source: Ministry of Livestock and Dairy Development Note: Figures are based on various estimates and calculations.

3.5 Poultry

The Poultry sector is one of the organized and vibrant segments of the agriculture industry of Pakistan. This sector generates employment (direct/indirect) and income for about 1.5 million people. Poultry meat contributes 23.8% of the total meat production in the country. The

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December 2011

A griculture 3.12 A project is of 5 years’ duration (2006-2011) with a total allocation of Rs.336 million, aimed at improving quarantine facilities and establishing new entry/exit points to facilitate trade of animals and animal products.

According to a Gilani Research Foundation survey carried out by Gallup Pakistan as reported in March 2009, meat is the most essential food item in people’s daily diet. In a survey in October 2008, respondents were also asked to list what they would like as the main component of their daily diet. Assuming that financial constraints were removed and price was kept constant, the results revealed: • 52% would prefer meat • 37% would choose vegetables • 10% would like to have pulses Over the years, many changes have been observed in the pattern of meat consumption in the country.

milk available in the markets. While breast milk is the best a mother can give her infant in terms of a balanced and healthy diet.

Livestock is an important sector of agriculture in Pakistan. It accounts for 39 % of agricultural value added and about 9.4 % of the GDP. Its net foreign exchange earnings, in 2001-02, were 51.5 billion, which was 12.3 % of the overall export earnings of the country.

The role of livestock can be judged from the fact that about 35 million people are engaged in raising 2 to 3 cattle/buffaloes and 5 to 6 sheep/goats in their backyards and are deriving 20 to 25 % income from it.

In the year 2002-03, the domestic livestock population was estimated at 23.3 million cattle, 24.8 million buffalo, 24.6 million sheep and 52.8 million goats. During 199803, maximum increase was in the population of goats, showing an increase of 70 lac heads or 14 lac heads per annum.

During this period, production of beef increased from 963 to 1060 thousand tons and mutton from 633 to 702 thousand tonnes.

This shows that the total increase in beef production was 97,000 tonnes or 15.4 thousand tonnes p.a., and mutton 69,000 tonnes or 14,000 tonnes.

The per capita availability of milk was 150 liter and meat 19kg per annum in 2000-01, which comes to 0.41 liter milk per day and 5.2 grams meat per day.

To meet the domestic demand of milk and meat, the rate of growth must be at least 5 to 7 % per annum. Despite an increase in milk and meat production, the prices have moved upward abnormally.

The recent increase in meat prices is attributed to the export of live animals or meat to the Middle East and Afghanistan. There was a time when animals used to be imported or smuggled from Afghanistan into Pakistan but after 9/11 the situation suddenly took a 'U' turn. In Afghanistan, the war has seriously affected the livestock sector. Thus Pakistan started exporting instead of importing livestock from Afghanistan.

According to official figures during July-August, 2002, animals worth Rs 30 million made their way to Afghanistan. In addition, the smuggling of livestock from Pakistan to Afghanistan has also started in a big way to meet their domestic shortage of animals.

The country, though rich in livestock, rarely got a chance to export meat or meat products to earn foreign exchange.

It was offered an opportunity when various Middle East

1986- 2008

In recent years chicken has maintained its position as the largest source of meat consumption in Pakistan. However, after experiencing dramatic rise for some 20 years, chicken lost part of its edge due to apprehensions caused by viruses such as bird flu. After reaching a very high figure of 49% in 2000, the share of chicken in meat consumption fell to 39% in 2007. Most of the loss in level of chicken preference translated into gain in mutton consumption (its level rising from 29% to 36%). However in the most recent survey we see that chicken is gaining back its lost share (45%). The study was carried out by Gallup Pakistan, the Pakistani affiliate of Gallup International, among a sample of 2562 men and women in rural and urban areas of the country during October 19-20, 2008. Error margin is estimated to be approx. + 2-3 per cent at 95% confidence level. For more survey data on Health related and other issues.

Source: Gallup Pakistan Survey, October 2008

Dairy industry in Pakistan

With every passing day, dairy products are becoming costlier because live stock farming has not scientifically grown with the increase in population and also it did not match with the pace of urbanization.

Recently, milk prices in Karachi increased without any reason. In a short time of two years, milk prices have gone up by Rs 20 per liter to showing a 25% increase. Moreover, meat prices have also risen to about 25% in the last six months.

In such a situation, the only way to control prices is to develop the dairy industry on scientific lines, which will not only provide meat and milk in abundant quantities to the domestic consumers but extra quantities can also be exported.

In spite of having a large population of livestock, the country is spending some $40 million annually on the import of formula milk only, which is the highest amount spent by any country in the world on this particular commodity.

Currently, there are some 160 varieties of infant formula

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December 2011

A griculture states stopped importing meat from European countries due to the incidence of the mad cow disease.

Meat export from Lahore started in the beginning of the year 2000 when carcasses of goats and large animals were airlifted. The meat was processed under a special arrangement between the exporters and the Metropolitan Corporation of Lahore, which runs four abattoirs in the city.

The exports of LIVESTOCK - cow, buffalo, sheep and goat - are finding their way to the Gulf States, Iran and Afghanistan where there is a shortage of good quality meat and, therefore, it commands a high price. Traditionally, Europe was the biggest exporter of meat and meat by-products and livestock and had been a major source of foreign exchange for several European countries. Technically, meat from South Asia has a superior quality, due to grazing and vegetable concentrates as the main source of livestock feed here, against bone and meat meal in Europe.

According to official figures, the export of livestock, during 2001-02, registered an abnormal growth of 51 % to a value of Rs 221 million as compared to 2000-01, when exports of meat stood at Rs 146 million. The estimated export of these four categories of livestock is estimated to be more than Rs 275 million during the fiscal year of 2002-03.

A rising trend in livestock export was also sustained during the first two months of current fiscal year as exports of animals worth Rs 43 million were reported to have been achieved. There is a greater possibility that this trend would go unbridled if the government does not take corrective measures to ensure a steady supply of animals in the domestic market.

As a result of this, the value-added leather industry, including leather garment manufacturers who mostly use raw hides and skins obtained from cows, buffaloes, sheep and goats are faced with a shortage of raw material.

More than 70 % farmers hold less than 5 acres of land.

Dairy farming may prove a profitable business for small landholders. They can also grow fodder on their land to feed dairy animals, without disturbing the main crop.

Dairy farming is one of the best projects if professionally done on small land holdings. The return of the land used for feeding animals is higher as compared to land used for traditional cropping. The economical size of the herd is 50 animals, which will grow into 180 animals within a few years. Cows are also proposed in the herd, as they are high yields and efficient converters of feed into milk.

This herd would consist of 75 % buffaloes and 25 % cows. A cow, on average, yields 14 litres milk a day over a lactation period of 305 days whereas the buffalo, on an average, yields 10 litres a day over a lactation period of 280 days.

The lactation period is the period during which the animals provide milk. These animals are called wet animals. Generally the lactation days of cows are 305 days and that of buffaloes is 280 days.

For calculation, 77 % of the total number of cows has been taken as wet cows and 67 % of the total number of buffaloes as wet buffaloes.

The calving interval in a buffalo is about 18 to 20 months, while a cow has 15 to 16 months. On an average, cows are productive for 7 to 8 years, while buffaloes are productive for 8 to 9 years. Male calves will be sold at the end of year or can also be reared separately for beef production.

Pakistan is the fifth largest milk producer in the world.

Milk production is 28 million tonnes from 125 million heads. Milk is used for drinking, tea, desi ghee, yogurt and butter making. Milk is also used to make Khoya and different types of sweets. Milk processing companies use milk as a raw material to formulate different types of milk i.e. pasteurized milk, UHT milk, condensed milk, skimmed milk, milk powder, etc Different value added products like yogurt, ice cream, butter and cheese are also produced from the raw milk.

The daily consumption of milk in Lahore is 2 to 3 million litres and that of Karachi is 4 million litres. The demand for processed milk has increased its share in quality conscious consumers. During the last two decades, processed milk has achieved 4 % share in the milk market of Lahore, which is growing to about 4.5 % per annum.

Therefore, metropolitan cities are the major markets for the sale of milk.

The capital cost will be budgeted for 4 years; therefore the initial infrastructure cost has been calculated on the basis of a 4th year infrastructure requirement.

There is no fixed fodder requirement for the animals but a rule of thumb says that an animal needs daily fodder equal to 9 to 10 % of its body weight. According to estimates, a buffalo consumes 40-55 kg fodder daily, while a cow consumes about 30-40 kg. For a high yield the animals would be fed on a high protein diet concentrate.

For this dairy project, manpower requirement is 7 for performing different activities like feeding, milking, etc, which may cost about Rs 240,000.

Animals are prone to some sort of disease, at any stage of their life. Diseases like foot and mouth, diarrhea and digestive disorders are very common in animals, which affect the productivity of the livestock.

Only proper vaccination can keep the animals healthy.

Healthy and high yielding milk animals are the key to the success of a farm.

Conclusion:

Pakistan needs an integrated development programme for this sector including sufficient measures to check smuggling to Afghanistan and Central Asia through Afghanistan. The measures for development of this sector to be taken by the Government, would not only serve the needs of meat and milk for the ever-growing population of Pakistan, but would be an additional source of income for the low-income groups and a significant factor in GDP growth.

42

December 2011

A griculture The Viabaility of Crop Insurance

By Rauf Nizamani

A

griculture is very much vulnerable to the unpredictability of nature. With agricultural production representing the only livelihood for many resource constrained Pakistani farmers, the impact of natural disasters and other agricultural risks can not be taken lightly. In case of natural calamities the farmers not only have to bear the loss of their produce/crop but also have to face defaults for the bank credit. The need to safeguard the interests and investments of farmers is therefore of paramount importance.

Crop insurance is a risk management mechanism designed to even out agricultural risks and blunt the consequences of natural disasters to make losses, especially to the marginalized farmers, more bearable. In countries having multiple risk insurance schemes, government intervention or its heavy support to agricultural insurance operations has been regarded justifiable and inevitable due to market failures. Such support has been provided in the form of subsidies on premium to farmers, operational subsidies to private insurers to cover some of the high administrative costs associated with agri- cultural insurance contract underwriting and subsidized reinsurance.

The method of government intervention also varies from country to country. For example, in Canada, Japan and Philippines the insurance schemes are operating under a central government or local government body, while in United States, Spain and Mexico they are operated under a partnership between government and private insurance companies with the former assuming the role of reinsurer of the latter. In India, governments allow 50% subsidy in premium to small and marginal farmers. WTO’s regulations also support subsidization of crop insurance premiums by the governments. However, the government support programs are often fiscally burdensome.

The introduction of crop insurance in Pakistan has been under consideration since 1947. A number of committees constituted by the government had deliberated and reported on the subject from time to time which interalia includes:

43

1-ADBP Pilot Project with a private insurer; 1986-88.

2-Various proposals by ADBP 3-IAP Crop insurance scheme-1990 4-IAP Catastrophe Crop Insurance Scheme-1990 5-IAP Crop Insurance Scheme (Flood/Excessive Rain only)-1996 6-NIC Comprehensive Crop Insurance Scheme-1996 However, all the past schemes with the exception of earlier ADBP scheme had the characteristics of pilot projects with limited risks; insurance for specified crops and specified areas; Government subsidies in sharing of premiums or through reinsurance for the programs and high premium rates.

Some individual experts have also examined the issue. It has been their view that crop insurance would serve as a powerful instrument in promoting and adopting modern techniques in agriculture especially by small farmers. However, despite doing exhaustive exercises spanning nearly three decades, economic and agricultural experts are still looking for a model Crop Insurance Scheme for Pakistan, while India and Srilanka had actually been insuring the crops of their farmers for decades. India experimentally launched crop insurance in 1979 and formally introduced it in 1985.

In order to mitigate the risk of losses to agricultural borrowers due to natural calamities and risks of defaults to banks by such borrowers, SBP formulated a Task Force on Crop Loan Insurance Framework in July 2006 comprising all stakeholders for negotiating and finalizing operational modalities with public and private insurance companies for the insurance of crop loans to the farmers. Incidentally it may be mentioned that the Bank of Punjab and Askari Bank Ltd were already providing crop loan insurance to their borrowers in collaboration with East West and United Insurance companies respectively. This scheme was introduced in Punjab in 2004 by the Punjabwhere, according to insurance business sources, the rate of farmers’ literacy was highest and they were far more progressive and well connected in social terms.

December 2011

A griculture The key objective of the task force was to put in place a proper Crop Loan Insurance Framework to have the banking community, the insurance industry, borrowers’ representatives, regulators and government together to develop a common framework. The challenge before the Task Force was to convince the insurance industry to make concerted efforts to develop a workable and cost effective program for providing insurance cover. However, after extensive discussions and detailed meetings, the insurance industry convinced and developed a workable framework. Since major banks and insurance companies have developed their crop insurance program/products based on the framework developed by the Task Force and some of these have come to the market, the objective of the Task Force to develop such a commercially viable and sustainable Crop Loan Insurance Scheme that can be adopted by the market players viz banks and insurance companies have been accomplished. Thus the Task Force in its concluding meeting on 17th July 2008 decided to launch the crop loan insurance from the forthcoming Rabi crop of 2008 and banks might negotiate their terms, conditions and operational modalities including rate of premium, making the scheme/ crop insurance etc. with any insurance company as per bank’s policy and applicable rules and regulations.

Crop insurance was launched in a significant manner from Kharif 2008. National Insurance Company Ltd (NICL) and National Bank of Pakistan (NBP) agreed to enter into an agreement to provide insurance cover to farmers against crop losses from natural calamities and their exposure to bank loan risks. After more than a year long negotiation and correspondence, NBP at last gave its consent to be a partner of NICL on April 2, 2008 in crop insurance as the Prime Minister had put crop insurance as one of the key points in new government’s agenda. Earlier, the NICL had informed the NBP that its partners, the international reinsurance companies, had given a final notice of quitting support arrangement if no headway was made in crop insurance.

44

Bankers and insurance executives had estimated that a sum of Rs 3-4 billion would come under insurance coverage which was hardly 2% of the total agricultural loaning in 2007-08. About 100,000 farmers were estimated to benefit that year. This will cover only a part of NBP loaning. ZTBL which offers the highest amount to agricultural sector was reluctant to join the scheme at that time. Insurance executives are of the view that bigger the base of policy holders, the less will be the impact of loss being shared by the insurance firms. But there are many hindrances in this respect. Presently total number of borrowers of agricultural loans is hardly half a million as the overwhelming majority i.e. about 70%, according to the Report of the Committee on Rural Finance, do not enjoy access to bank loans. Small farmers do not have collaterals to offer. It has been observed that the provincial boards of revenue do not give them pass books. In Sindh as many as 250,000 small farmers have been denied pass books despite repeated advice from the SBP for last more than five years. Documentation is a pre-requisite of insurance cover. Insurance people observe that when a big part of urban economy in the country is undocumented how it would be possible to bring agriculture under documentation and provide benefits of insurance business.

Thus especially majority of small farmers will remain outside the net of insurance cover if any time the banks agree to coordinate with insurance companies for getting a cover. Apart from this the fear of risk in doing business with landed gentry also inhabits private insurance companies to go in a big way for crop insurance According to National Sample Survey, even in India where the insurance scheme is in operation for many years, only 4% of farm households have ever insured their crops whereas 57% do not even know that such a facility is available.

Thus the success of crop insurance scheme may not be achieved in isolation but depends on the reforms and improvements in the whole system.

December 2011

M edia Role of Social Media in a New Era of Communication

T

By Syed Asif Ali & Ali Siddique Dadi

Podcasts (e.g., Podcastalley, Podomatic): Podcasting is a way of publishing MP3 audio files on the web so they can be downloaded onto computers or portable listening devices, such as iPods or other MP3 players.

Podcasting allows users to subscribe to a feed of new audio files using "podcatching" software which periodically checks for and downloads new audio files automatically.

Discussion Forums: Discussion forums are places for online communities to discuss topics of common interest. Posts are organized into related threads around questions and answers, or community discussions. These forums work like a bulletin board in which you can post a message and return later to see if people have responded. A forum helps create communities around shared interests.

RSS Feeds: RSS stands for Really Simple Syndication. It is a web content format which, when used with an RSS aggregator, can allow you to alert users to new or exciting content on your website. These news feeds enable users to avoid the conventional methods of browsing or searching for information on websites.

Photo Sharing (e.g., Flickr, Picasa): Photos make information more interesting and engaging. They make it easier for people to understand your content, especially people with limited language proficiency. Photo sharing has become a key part of the social media landscape, since photos can now be so easily shared on sites like Flickr etc.

Impact of Social Media: Digital social media is altering the way we live. It is hard to know sometimes how our life has changed until we stop for a moment and look at how different it is from ten or even five years ago. In recent years, social media has significantly impacted most of our daily lives. Let’s discuss the effects of this media on our lives and world: Social Impact: Needless to say, social media has forever changed the way society works, whether it’s the sharing of an idea, the communication of news, or the availability of a product or service. Society today is on the verge of a new way that was never experienced before. The world has turned into a global village where people from different countries are now just a mouse click away. They are able to freely communicate and post their experiences with each other efficiently and easily via various social networking websites. Before social media, people met mostly by chance. Now people are able to carry out research and make very specific choices about careers, dating, travel, education, and consumer products through trusted recommendations from their online connections‌ rather than by chance.

echnically speaking, social media stands for social interaction through the internet. The ideological purpose is to allow a free-flowing exchange of ideas and generate relevant user-based content via digital social interaction.

Over the past few years, social media or "social networking" has become a part of our daily lives. It is like any other media such as newspaper, radio and television but it is far more than just about sharing information and ideas. Social networking tools like Twitter, Facebook, Flickr, YouTube and Blogs have facilitated creation and exchange of ideas at a pace which is much quicker and wider than the conventional media.

Types of social media: There are several types of social media. Broadly speaking, they may be categorized as under: Blogs (e.g., WordPress): A blog is an easy-to-update website or webpage where authors write regular entries in a diary-like format. The most effective and interesting blogs allow readers to engage in con- versations with the author and other readers.

Social Networks (e.g., Facebook, MySpace): Social networking sites are websites that connect people. In these online communities, people can join and establish a page with their profile. The most popular, Facebook and MySpace, have groups, which are featured chat boards for members. All social networking websites allow users to find people they know among the members, or look for other members with similar interests.

Microblogs (e.g., Twitter): Microblogging is writing extremely short blog posts, kind of like text messages. Twitter is currently the most popular microblog service and lets users post entries up to 140 characters long.

Users can read these messages online or send them as a text message to a cell phone or other mobile device.

Wikis (e.g., Wikipedia): A wiki is a type of collaborative work space; it's a collection of web pages that encourages users to contribute or modify the content. A simple web interface can help a community collaboratively develop a document or web page, from anywhere. Wikis can be public facing, meaning that anyone can see the content, or only open to a defined community within or across organizations. Wikipedia is one of the most wellknown public wikis.

Video (e.g., Youtube, DailyMotion): Video is an effective communication tool. Short videos can be produced inexpensively and played on computers and many mobile devices. Video is the communication format of choice for many young people.

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December 2011

M edia Like every invention, social media has also its own pros and cons. Many users of social media say the networking sites are good for society, but others contend that the dangers of social media outweigh the benefits. Proponents of social networking sites argue that these online communities promote increased communication with friends, spread general awareness, political awareness, familiarize people with valuable computer skills, and allow contact with people from around the world. While on the other side, the opponents argue that the social networking sites are tremendously increasing vulnerability to computer viruses, lower worker productivity and short attention spans among students.

In a social community, people are receiving help in major life issues like changing jobs, finding a new place to live, buying a car, and sincere advises for someone with an illness. Social networking sites helped people connect with friends and experts for advice and assistance in their decisions.

Another very interesting impact of the social networking sites is the increasing trend of social responsibility. A recent example is the supportive efforts for the rehabilitation of flood victims in Pakistan and other catastrophic countries worldwide. People made web pages on the social networking websites in solidarity with the affected people, collected donations and spread the awareness for them.

Educational impact: While for the students, social media is helping them to discuss educational topics including career and college planning. Neglecting all the assumed perceptions regarding the bad impact of social media on the students, it has been revealed in a research study that the social networking is increasing the abilities of students in general way. However the research studies suggest that there should be no addiction of the social networking sites to the students.

Social networking site use by age group, 2005-2011 The percentage of adult internet users in each age group who use social networking sites 100% 86% 76%

80%

86% 70%

67% 61%

60%

49%

48%

47%

40%

8% 4%

7% 6% 0% 2006

1%

25%

25%

11%

25%

18-29 30-49

33%

20%9%

2005

51%

26%

50-64 65+

7%

2007

2008

2009

2010

2011

Source: Pew Research Center’s Internet & American Life Project surveys: Februry 2005, August 2006, May 2008, Apirl 2009, May 2010 and May2011.

46

Professional Impact: Social media is also dramatically changing our professional workflow. Two decades ago, employees only had to deal with a typewriter, the daily mail delivery, and the phone calls. A decade ago business e-mail, a single-tabbed Web browser and Microsoft Word got introduced. Now the professional world is blitzed by hundreds of messages, feeds, updates, and corporate requests every day... And there is a constant pressure to learn new tools and services. In near future, those professionals who have social media-inspired communications and networking skills will get the pick of the most desirable jobs and opportunities. The brands with the best utilization skills of social media will triumph. This kind of information processing skill and social intelligence of professionals will be much more highly prized in the future. Social media seems like a training ground for a future “information era� society where multitasking abilities, big enthusiasm for innovation, and impeccable communication abilities are the most desired leadership skills. It is believed by the researchers worldwide that the social networking sites can help us to develop a more connected global society if we utilize its potential in a lucrative way.

Health Impacts: Despite all other benefits, addictive use of social media has its own health hazards. The tremendous use of social networking sites can cause personality and brain disorders in children, such as the inability to have real conversations, limited attention spans, need for instant gratification, Attention- Deficit Hyperactivity Disorder (ADHD), and self-centered personalities. The hours per day of face-to-face socializing have declined as the use of social media has increased. People who use these sites frequently are prone to social isolation. Parents spend less time with their children and couples spend less time together even when they live in the same house, because they are using the Internet instead of interacting with each other. Various evidences derived from research studies suggest that a lack of face-to-face networking could alter the way genes work, upset immune responses, hormone levels, the function of arteries, and influence mental performance. This situation could increase the risk of health problems as serious as cancer, strokes, heart disease, and dementia.

Political Impact: Digital media has provided the passage for free expression that government monitored traditional media did not provide. Due to the freedom of speech policy of social networking websites, this media has become an eminent podium for political debates and movements.

Youth is using this platform for spreading the political awareness and bringing a revolution in various parts of the world. If we look at the history, we will find that in past revolutions, dissidents formed underground groups, printed newspapers and seized radio stations. These traditional media served as a way to get the word out about protests and gatherings, but were time-consuming. Social media had solved this problem as this media is wide spreading, easy to use, mobile and guarantees anonymity if used carefully. If we look closely on the recent wave of revolt in Middle East and some parts of Europe, we would find that social media is facilitating the revolution, as it is a

December 2011

M edia successful catalyst when combined with different methods of digital and traditional media. Technological advance- ments like cell phones, video cameras, blog posts and Facebook, in combination with more traditional media outlets created the circumstances for effective information dissemination. Some recent examples of social revolutions brought by the help of social media networking sites are 2009 Green Tehran Protests (after the presidential elections), Arab Spring (Jasmine Revolution in Tunisia, Egypt, Yemen, Bahrain, & Libya) and global movements against capitalist monetary system (Occupy WallStreet).

The Tehran protests against the presidential election were labeled as the “Twitter Revolution.” Twitter was so important to the Iranian protests that the US State Foreign Department asked Twitter to delay a scheduled network upgrade that would have taken the website offline at a busy time of day in Iran.

Twitter complied and rescheduled the downtime to 1:30 am Tehran time. The purpose of Twitter is for news to spread and spread fast, which makes it an ideal method for organizing a mass protest. Even when the government attempted to block Twitter, proxy servers were set up to allow Twitter content into Iran through network addresses that had not been blocked.

Just as the Iranian protests had been labeled the Twitter Revolution, the Egyptian uprising was labeled as the “Facebook Revolution”. On January 27, 2011 the Egyptian government took the unprecedented step of shutting down all internet service in the country. The importance of Facebook in the Egyptian Revolution lies in the events leading up to the Revolution.

Egyptians heard about Tunisia from Tunisian citizens instead of the national news media. The call for revolt was spread quickly enough that enormous numbers were able to congregate in just days, and even hours.

The same theorem applied on revolt in Libya and mass protests held worldwide against the capitalist monetary system. These events reflected different roles for different kinds of social media. Facebook helped organize people, such as informing how and where to gather physically, while Twitter is for "amplification," enabling people in real time to share news and comment.

It may be worth mentioning here that the Associated Press of America recently revealed that The Central Intelligence Agency (CIA) keeps constant tabs on Twitter and Facebook, and briefs President Obama on top trending topics and events almost every day. The difficult task, carried out by a team known as the “Vengeful Librarians,” includes sifting through more than 5 million tweets a day. (In total, Twitter’s 100 million users publish approximately 140 million tweets every day.) Doing so has enabled the CIA to view how events in the US are being received overseas — like, the assassination of Osama bin Laden — as well as allowing the agency to keep tabs on international events, like the uprising in Egypt this spring etc.

In Pakistan, we are also witnessing the impact of social media on the general people. Politicians have started to reach out and communicate with general public via social media. For instance, Imran Khan gained sudden popularity amongst the youth via Facebook, SMS, and other social easily witnessed by the participation of his fans in the Lahore procession held on October 30th 2011. Chief Minister Punjab Shehbaz Shareef have also stepped in the world of social media by creating a fan page of his

party PML-N. Although Pakistan is awebsites and forums. The rate of success of his campaign can be developing country with very low literacy rate but according to the latest statistics almost 20 million citizens of Pakistan are active on internet and the usage is growing rapidly nowadays. Moreover, in the year 2010 the mobile internet usage rose up to whooping 161%. Apart from that according to recent statistics there are over 131 mobile phone users in Pakistan and this country now ranks 5th in Mobile phone usage.

The Internet provides a greater degree of anonymity where citizens can express their political ideas with less fear of reprisal. Facebook allows citizens from different areas of the country, who might otherwise never meet, to share political views and realize that they are not alone in their feelings. In short, Facebook helps in the development of civil society, particularly in countries where open political opposition is often curbed by force.

Business & Marketing Impact: Social media may have begun, as a tool intended purely for social engagement, but the commercial value soon became clear and it has become the marketer’s new tool for efficient marketing. A study conducted by UK professors revealed that 69% of Business to Business ‘B2B’ buyers use social media to assist them in business development and decision making.

Business networking was never been easier. There are several social networking communities that can be used to network and exchange services with other professionals. Social networking can also provide marketing opportunities for corporations and organizations. Social marketing com- munications coordinates promotional elements such as advertising, personal selling, public relations, publicity, direct marketing and sales promotion. With the help of social marketing tool, marketing executives can inform consumers about their products efficiently & people can interact with the product or company. Facebook profiles are more detailed than Twitter. They allow a product to provide videos, photos, and longer descriptions.

Videos can show when a product can be used as well as how to use it. Facebook can link back to the product’s Twitter page as well as send out event reminders of the corporation. Facebook promotes a product in real-time and brings customers, thus helping corporations in brand making.

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December 2011

R esearch & Development Impact of stagnation in Pakistan’s agriculture: A serious concern of national food security

by Qurrat ul ain Afzal, Nadeem Amjad, Saqib Arif, Soha Ahmed and Mubarik Ahmed priorities in spending. Resultantly, both at the household as akistan is an agro-based country. The share of agriculwell as at state level, expenditures on health, education, ture is 21.4% of the GDP. The agricultural sector improved drinking water, and sanitation have become least largely comprises of livestock and four major crops namely important on the list of priorities, thus negatively affecting wheat, sugarcane, cotton and rice. It implies 65% of the the absorption of food. The overall impact of all these total population of country and covers a cultivated area of factors has resulted in substantially increased food insecu20.3 million hectares. The growth of the agriculture sector rity in Pakistan. in the past few years has remained more or less stagnant due to multiple factors such as inflation, shortage of farm According to a SDPI (2009) study, the overall intensity of labour, government policies, absence of real support food insecurity in Pakistan is increasing progressively. Many mechanism for protecting the rights of farming communihouseholds have become insecure due to deteriorating ties, food prices, natural calamities etc. etc. There is no time socio-economic conditions. The increase in prices of food relevant agricultural policy and the last policy was and other items of necessities that has pushed many people announced about two decades ago. below the food security line. Across the country 48.6 percent of the population is food insecure. Of the total The overall growth rate of agricultural production this year 22.4% are extremely food insecure. FATA has the highest was estimated to be 1.2 percent. This growth rate is much percentage of food insecurity (67.7%) followed by Balolesser to an average growth rate of 2.7%, 4.4% and 5.4% as chistan (61.2%), KPK (56.2%), Gilgit Baltistan (52.4%), recorded in the decades of 2000, 1990, and 1980. The main Kashmir (46.9%), Sindh (44.3%), and Punjab (38.5%). cause of the poor productivity in the last two years, as depicted in fig-1(a&b) were the unprecedented floods in Considering the principle of food security, the country can July 2010 that destroyed rice and cotton cropped area of be divided into four categories, i.e., extremely insecure; 2.364 million hectares. The livestock sector that has 55.1% insecure at the borderline, or secure, and the reasonably stake in agriculture was equally affected and showed a slow secure. The SDPI clearly depicts that Pakistan at the housedown effect. hold, district, provincial and national level has become more and more food insecure during the last five years. Many of Food Security Situation in Pakistan the reasonably secure districts have become food insecure, Pakistan is passing through one of the most difficult times while others have become extremely food insecure. The of its history. With the dislodging of the Taliban governfood security situation at the household level ment in Afghanistan, Pakistan has become a hotspot of sporadic wars, especially in the western parts of the country. The impact of this long-lasting war remains quite visible at various levels throughout the country.

Figure 1(a). PRODUCTION OF MAJOR FOOD IN PAKISTAN As a result of war, the national economy has been (2010-2011) largely paralysed and the country has been forced to 55.309 seek IMF support to meet its necessities. Moreover the social development and livelihood sources are gradu37.475 ally depleting. Many people have become refugees, and fertile agricultural land has become unproductive. A 24.214 significant number of professional and skilled people 11.46 have either migrated or died in the conflict. The overall 4.823 3.341 2.954 3.726 1.892 1.711 impact of this situation has not remained confined only to the KPK and FATA regions, but it has spread Cotton Wheat Rice Maize Sugar Cotton Potato Onion Milk Beef cane Seed across the whole country.

The second major crisis that has emerged in the last few years in Pakistan is the fuel or energy crisis which Figure 1(b). PRODUCTION OF MINOR FOOD IN PAKISTAN has impacted all walks of life and means of production (2010-2011) (including agriculture). Increase in power tariff as a 0.99 result of pressure by loaning agencies has caused frequent power cuts due to power shortage, which has 0.767 0.643 0.616 badly affected the productivity. This coupled with 0.523 widespread reductions in income and employment 0.346 sources, declining growth in industrial and agricultural 0.172 0.168 0.139 0.131 production, increase in prices of essential commodities, and the reduction of state subsidies due to internaBajra Jawar Gram Rape Sun Canola Pulses Chilli Mutton Poultry seed flower tional debt conditionality has not only affected physical and economic availability of food, but also affected the Source: Pakistan Economic Survey 2011. government’s and household’s Million Tons

Million Tons / Bales

P

48

December 2011

R esearch & Development

Agricultural production is the foundation of food availability, especially in the countries that are not rich in other resources.

Adequate food supply at affordable prices is, therefore, the prime objective of the food security policy of all nations of the world, including Pakistan. Pakistan has made significant progress in terms of productivity enouncement of food items.

Per capita availability of cereals increased from 120 kilograms in 1961 to 137 kilograms in 1990-91and further increased to 154 kilograms in 2008-9 (Fig-1a & b). More than 80% of the increase is accounted by wheat production. The government polices have maintained the average availability at the level of about 2400 calories per person per day for the last many years.

It was 1754 calories per person per day in 1961 (Fig 2). However, the daily average availability of calories per person in the country is substantially lower than the average of other developing and developed countries, by 10% and 26%, respectively.

The change in the composition of food intake over a period of time shows a shrinking share of wheat in total calories available and a rising share from animals and other sources (Fig 2). The share of wheat declined from 48% in 1990 to 38% in 2006, while the share of other cereals declined more prominently, from 20% in 1970 to 6% in 2006. The share of livestock products in calorie intake increased from 12% in 1970 to 18% in 2002, which marginally declined to 15% in 2006. The share of other items (vegetable oils, vegetables, fruits and sweeteners) substantially increased from 20% in 1970 to 37% in 2006.

Domestic production, commercial imports, and food aid are the main constituents of food availability at national level. The production of cereals and pulses increased more than 3-5 fold since the early 1960s. Nonetheless, Pakistan has been importing significant quantities of wheat, pulses and edible oil to meet the needs of its fast growing population. The share of imports in wheat consumption during the interval 1961-2006 has varied from 26% in 1961 to less than 1% in 2004. The huge deficit during the early 1960s was largely reduced during the 1970s as a result of the green revolution. The dependence on wheat imports, however, re-emerged later because of stagnation in wheat productivity. In contrast, Pakistan has been very successful in producing enough rice for domestic consumption and even in generating a significant amount of Conti)

Figure 2. TRENDS OF FOOD AVAILABILITY IN PAKISTAN Total

Kg/person /annum

Trends in Food Production, Availability and Food Security

exportable surplus. One of the important indicators of economic access to food is the proportion of people below the poverty line. The historical evidences show that poverty increased during the 1960s despite rapid economic growth. It declined during 1970 to 1987-88 in spite of the growth being relatively slower. The declining poverty trends got reversed in the 1990s albeit with reasonable rate of economic growth, and during the 2000s, poverty continued to rise in the face of uncertain economic growth. Nevertheless, the daily average availability of calories per person progressively increased over the last five decades even though this availability has not been consistently reflected in the declining poverty.

Progressing food threatening situation in Pakistan compels the Government to take effective initiative in order to combat this alarming issue. Formation of a new ministry named "Food Security and Research" is a step forward to meet the challenges in food security and agricultural development. A lot of measures, however, are needed to be taken by the GoP to eliminate 'hunger' and 'under & malnutrition" and consequently to step in the category of 'Food Secure Countries'.

Vegetable

600

Fruits

500 400

Milk

300

Meat

200

Edible Oil

100 0

Food 91-92 93-94 95-96 97-98 99-00 01-02 03-04 05-06 07-08

Source: Farooq et al. (2009) Figure 3. Per capita availability of Calories (1961-2006) 3000 2500 calories/person/day

is much worse. The widening gap between income and market prices has compelled many households to reduce their food intake or opt for cheaper food sources. As per SDPI study (2009), at the country level, 45 districts (34 percent) are extremely food insecure, while this number was 38 districts during 2003. The increase in extremely food insecure districts depicts an alarming situation, where people are not able to meet their basic requirements adequately. In the second grouping, food insecure, the numbers of districts were more than doubled in 2009 compared to 2003 (from 16 to 35). On the other hand, the food secure districts reduced from 34 percent to 20 percent. The decline in food secure districts is quite significant. This means that even the better off districts are losing the pace of development where many people cannot earn sufficient money, or cannot have access to water and sanitation (WATSAN) facilities to become food secure.

2000 1500 1000 500

0 1961 1970 1980 1990 1995 2000 2001 2002 2003 2004 2005 2006

Source: Ahmad et al. (2010) Figure 4. Percent share of various sources in per capita availability of calories 100% 80%

Others Animal Pulses Other Grain Wheat

60% 40% 20% 0% 1961 1970 1980 1990 1995 2000 2001 2002 2003 2004 2005 2006

Source: Ahmad et al. (2010)

49

December 2011

H ealth Mycotoxin – A Serious Concern for Health

by Najmus-Sahar, Akhlaq Ahmed, Sahar Aman, Noorullah and Mubarik Ahmed*

I

n the 1960 more than 100,000 young turkeys on poultry farms in England died in the course of a few months from an apparently new disease that was termed "Turkey X disease”. It was soon found that the disease was not only restricted to turkeys but the ducklings and young pheasants were also affected and heavy mortality was experienced.

A careful survey of the early outbreaks showed that the disease was associated with feeds that largely composed of “brazilian peanut meal”. An intensive investigation of the suspect peanut meal was undertaken and it was quickly found that this peanut meal was highly toxic to poultry and ducklings with symptoms typical of Turkey X disease. Speculations made during 1960 regarding the nature of the toxin suggested that it might be of fungal origin. In fact, the toxin-producing fungus was identified as Aspergillus flavus and the toxin was given the name Aflatoxin by virtue of its origin (A.flavis--> Afla). This discovery led to a growing awareness of the potential hazards of these substances as contaminants of food and feed causing illness and even death in humans and other mammals. Mycotoxins are of different types such as aflatoxins, ochratoxins, tricothecens, fumonisin, vomitoxin, zearalenone etc. Among the different types of mycotoxins, aflatoxins have received greater attention than other mycotoxins because of their established carcinogenic effect in various animals and their acute toxicological effects in humans. Aflatoxins are potent, carcinogenic, mutagenic, teratogenic and immuno- suppressive agents produced as secondary metabolites by the fungal species Aspergillus flavus and Aspergillus parasiticus on a variety of agricultural commodities like groundnut, maize, sorghum, wheat, chillies, pepper, turmeric, dry ginger, coriander etc. Due to high toxicity of this toxin different countries make permissible limits for the consumption of food stuff w.r.t. aflatoxin contamination.

aflatoxin preparations. Hence, they were designated as “M”, whereas the “B” designation of aflatoxins B1 and B2 resulted from the exhibition of blue fluorescence under UV-light, while the “G” designation refers to the yellowgreen fluorescence of the relevant structures under UV-light. These toxins have closely similar structures and form a unique group of highly oxygenated, naturally occuring heterocyclic compounds. Aflatoxins B2 and G2 were established as the dihydroxy derivatives of B1 and G1, respectively. Whereas, aflatoxin M1 is 4-hydroxy aflatoxin B1 and aflatoxin M2 is 4-dihydroxy aflatoxin B2.

Aflatoxin B1 is the most toxic followed by G1, B2, and G2 in order of decreasing potency.

Mycotoxin and their importance

Food safety is a matter of serious concern in the international community. It has drastically affected the food trade. The World Trade Organisation agreements especially the application of “Sanitary and Phytosanitary Standards (SPS)” has highlighted its importance in international food trade. Numerous food safety concerns like the presence of pesticides, heavy metals, mycotoxins, etc have become alarming issues especially in the developing countries.

Mycotoxin contamination of various agricultural crops and foods and feeds continues to be a serious quality and safety problem worldwide. Considerable global attention is being focused on mycotoxin contamination of foods and feeds because of their adverse effects on human and animal health The frequent incidence of mycotoxin in agricultural commodities has planted a negative impact on the economies as well as health of developing countries.

Where harvest and post-harvest techniques are not sufficient to prevent mold proliferation and subsequently mycotoxin production. Knowledge of the occurrence and distribution of mycotoxin in food is important for the determining the level of human exposure to bioactive agents and may help to explain the etiology of some chronic diseases. Mycotoxin contamination problems seriously affect the agricultural economies of many developing countries, particularly the developing ones due to increasingly stringent regulations imposed for mycotoxin levels in agricultural products. The application of different permissible levels in different countries (e.g. European Union countries, the USA, and developing countries) have posed a tremendous impact on international trade in various agricultural commodities.

Aflatoxin maximum allowable limit Aspergillus flavus

Different countries have developed regulations for the permissible level of aflatoxin in food. This includes high permissible limits of 35 ppb, in Malaysia and India and 20 ppb in USA. Many countries viz Australia, Japan, China, Canada and Iran allow the products with in maximum values to range between 10-15 ppb. However the EU is very stringent with the permissible level and doesn’t permit anything over 5 ppb value.

Aspergillus parasiticus

The studies also revealed that there are four major aflatoxins: B1, B2, G1, G2 plus two additional metabolic products, M1 and M2, that are of significance as direct contaminants of food and feed. The aflatoxins M1 and M2 were first isolated from milk of lactating animals fed

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December 2011

H ealth Mycotoxins in Raw Agricultural Products

Mycotoxins may occur in crops in the field prior to harvest.

Postharvest contamination can occur if crop drying is delayed and during storage of the crop if moisture content of produce is allowed to exceed critical values for the fungal growth. Insect or rodent infestations facilitate mold invasion of some stored commodities. Mycotoxins are also detected in milk, cheese, corn, peanuts, cottonseed, nuts, almonds, figs, spices, and a variety of other foods and feeds. Milk, eggs, and meat products are sometimes contaminated because of the animal consumption of mycotoxin- contaminated feed.

Factors favouring mycotoxin Production

Fungal growth and mycotoxin contamination are the consequence of interactions among the fungus, the host and the environment. The appropriate combination of these factors determines the infestation and colonization of the substrate, and the type and amount of mycotoxin produced. Water stress, high-temperature stress, and insect damage of the host plant are major determining factors in mold infestation and toxin production. Similarly, specific crop growth stages, poor fertility, high crop densities, and weed competition have been associated with increased mold growth and toxin production.

Aflatoxin formation is also affected by associated growth of other molds or microbes. For example, preharvest aflatoxin contamination of peanuts and corn is favored by high temperatures, prolonged drought conditions and high insect activity. While post-harvest production of aflatoxin on corn and peanuts is favored by warm temperatures and high humidity.

Aflatoxin and Human Health

Humans are exposed to aflatoxins by consuming foods contaminated with products of fungal growth. Such exposure is difficult to avoid because fungal growth in foods is not easy to prevent. Even though heavily contaminated food supplies are not permitted in the market place in developed countries, concern still remains for the possible adverse effects resulting from long-term exposure to low levels of aflatoxins in the food supply.

Evidence of acute aflatoxicosis in humans has been reported from many parts of the world, namely the Third World Countries, like Taiwan, Uganda, India, and many others. The syndrome is characterized by vomiting, abdominal pain, pulmonary edema, convulsions, coma, and death with cerebral edema and fatty involvement of the liver, kidneys, and heart.

Conditions increasing the likelihood of acute aflatoxicosis in humans include limited availability of food, environmetal

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conditions that favor fungal development in crops and commodities, and lack of regulatory systems for aflatoxin monitoring and control.

Because aflatoxins, especially aflatoxin B1, are potent carcinogens in some animals, investigations are being made to explore the effects of long-term exposure to its low levels. In 1988, the IARC placed aflatoxin B1 on the list of human carcinogens.

This is supported by a number of epidemiological studies done in Asia and Africa that have demonstrated a positive association between dietary aflatoxin and Liver Cell Cancer (LCC).

Economic Impact of Mycotoxins The economic impact of mycotoxins derive directly from crop and livestock losses as well as indirectly from the cost of regulatory programs designed to reduce risks to animal and human health. The Food and Agriculture Organization (FAO) estimates that 25% of the world's food crops are affected by mycotoxins, of which the most notorious are aflatoxins.

Aflatoxin losses to livestock and poultry producers from aflatoxin-contaminated feeds include death and the more subtle effects of immune system suppression, reduced growth rates, and losses in feed efficiency. Other adverse economic effects of aflatoxins include lower yields for food and fiber crops.

Prevention and control of Mycotoxins

Hazards of mycotoxin infected food are now well recognized.

Considerable concern has, therefore, been shown in the recent years towards the control of these toxic metabolites. Control is attained by preventing the growth of moulds, separation of infected grains, detoxification and by growing resistant varieties Prevention of mould growth In stored grain, mould damage may be prevented mainly by three kinds of methods viz. drying of grain, controlled atmosphere storage and chemical treatment.

Separation of infected grains Physical separation of infected grains is an efficient and feasible method of minimizing mycotoxin contamination.

This is affected either by manual operation or with the help of an electronic sorter. Fungal infection of seeds or grain usually imparts characteric colour or other physical properties.

Detoxification Cooking at atmospheric pressure can destroy about 50 percent of the toxins. Dry roasting and oil roasting of groundnut reduces aflatoxins to a significant degree. Cooking rice under 15 Ibs. pressure for 5 minutes gave maximum destruction of aflatoxins (72 percent) as compared to ordinary cooking or cooking with excess water. Light has also been employed successfully to destroy aflatoxin in crude groundnut oil. Studies have shown that visible light is more effective than either ultra-violet or infra-red light Growing resistant varieties In view of the hazardous effects of mycotoxins, efforts are also being made to develop mould resistant varieties that remains be mould free not only in fields as standing crops but during storage.

December 2011

E vents Dubai Airshow

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xquisite Dubai Airshow was held in Dubai city during 13 Pakistan Air Force also participated in Dubai to 17 November, 2011. The 12th edition of the airshow Airshow-2011, as Air Chief Marshal Rao Qamar was officially opened by H H Sheikh Suleman, Chief of the Air Staff, Mohammed bin Rashid Al Maktoum, Pakistan Air Force along with his Vice President and Prime Minister of delegation attended the event. the UAE, and Sheikh Mohammed Bin Pakistan Air Force displayed Zayed Al Nahyan, Crown Prince of impressive JF-17 (Thunder) Abu Dhabi and Deputy Supreme jointly developed and produced Commander of the UAE Armed

by PAC (Pakistan Aeronautical Forces, and His Majesty King Juan Complex) and CATIC (China Carlos of Spain. The airshow was Aero-Technology Import Export organised under the patronage of HH Corporation). The JF-17 also Sheikh Mohammed bin Rashid Al displayed marvelous aerial aeroMaktoum, Vice President and Prime batics in the show. Other jets Dubai airshow being opened Minister of the UAE and Ruler of showcased in the Pakistani pavilDubai, and in co-operation with Dubai Civil Aviation ion were Super Mushshak and trainer jet Authority, Dubai Airports and the UAE Armed Forces.

Karakoram-8. Bangladesh, Oman and few other African states showed their interest in JF-17 Thunder The visitors broke the Dubai Airshow record as 56,548 jets. people attended the show. About one in five of visitors had flown from outside the Middle East region. The show Besides JF-17, UAE Air Force’s F-16 Block 52 and witnessed a successful week securing US $63.3 billion worth 60, Eurofighter Typhoon, Royal Air Force’s Tornado, of orders for aircraft, maintenance services and flight USAF’s F-22 Raptor, French Air Force’s Rafale and training programs which is much higher than the last edition Mirage jets and Australian Air Force’s F-15 Silent in 2009 which recorded orders worth $ 14 billion. As the Eagles and F-16s performed the aerial display for aviation industry has grown remarkably by 10 per cent this showcasing their tactical warfare strength to the new year compared to 6 per cent worldwide, the airshow was buyers. important for the local and regional companies involved in According to the official statement released by the aviation field.

AIRBUS, Qatar Airways placed orders for 50 A320 The show has become an international platform for neo-jetliners and five additional A380s, as well as the renowned international companies to showcase their most Kuwait-based Aviation Lease and Finance Company sophisticated products. A good number of companies from purchased 50 A320 neo-Family aircraft with options 50 countries of the world including US, UK, Japan, placed for 30 more to be finalized by the end of the Germany, France and Pakistan showcased their aviation year. It would be worth mentioning here that the products. Most prominent companies of the show were Airbus A380 is the largest passenger airliner in the Airbus, Boeing, Bombardier Aviation, Cessna, Dassault world. Due to its size, many airports have to modify Aviation, Lockheed Martin, Sikorsky and Bell Helicopters. and improve facilities to accommodate it.

Visitors take a close look at the Boeing models on display at the show

Al Fursan and PDF France fly over the Palm Jumeirah.

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December 2011

E vents “Magnificient-7” UAE Expo 2011

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he growing relations between Pakistan and UAE in the trade and industry have paved the way for strengthening the economy of the two states. Being Pakistan’s one of the major trading partner and the second largest source of home remittances worth 1 billion dollars from Pakistani emigrants working in UAE, the bonding of the two nations is a significant stepping stone towards the betterment of the entire Muslim nation, while providing ample opportunities to further strengthen bilateral ties.

To further strengthen the economic ties between both the nations, UAE Expo 2011 titled “Magnificient-7” was held in Karachi during 30 Nov to 02 Dec, 2011 at Karachi. The “Magnificent – 7” expo aimed at gathering both industry stakeholders and general public to witness the significant growth as well as potential of socio-economic collaboration between the two countries. The exhibition featured an extensive display of fine quality UAE manufactured goods and services as well as projection of UAE’s 7 states namely Abu Dhabi, Ajman, Dubai, Fujairah, Ras al-Khaimah, Sharjah and Umm al-Quwain as viable hub of opportunities for new bilateral business prospects and ventures.

The exhibition was inaugurated by Honorable Prime Minister Pakistan, Syed Yousuf Raza Gillani. Governor Sindh Dr. Ishrat-ul-Ebad Khan, Sindh Chief Minister Syed Qaim Ali Shah, Minister for Foreign Trade, United Arab Emirates Sheikh Lubna Bint Khalid Al Qasimi, Senior Minister for Commerce Makhdoom Amin Faheem were also present at the occasion. The exhibition was well attended by traders, industrialists and trade ministry delegates from both Pakistan and UAE. The exhibition was organized by Consulate of the UAE, Karachi and UAE Ministry of Foreign Trade. In the inaugural address, the Prime Minister of Pakistan, Syed Yousuf Raza Gillani urged the local and international investors to take full advantage from the investor friendly policies present in the country and enhance investment in different fields. He said that the businessmen are the backbone of the country’s economy and are contributing their share towards better and prosperous Pakistan. He said the government always took special measures to provide more incentives to business community so that they could play their role effectively and efficiently.

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He said, Pakistan has a huge market of around 180 million people and resilient economic fundamentals despite heavy odds that the country faced during floods and war on terror. It has a unique geo-strategic location and is the gateway to South & East Asia and the Middle East. Blessed with talented and hard-working manpower, rich mineral resources and plentiful agri production, Pakistan offers unique opportunities for liberal trade and investment, the Prime Minister added.

To a question about the recent NATO air strikes in Mohmand Agency, the Prime Minister told the newsmen that Joint Chiefs of Staff Committee has asked the US to vacate Shamsi Air- base by December 11, 2011.

Shamsi Air base, located at Jacobabad, was leased by Pakistani government to UAE government and was also used by the US troops in their war against terrorism.

Different companies from UAE showcased their products and services in shipping, petrochemicals, food and agriculture, construction, power, groups and holdings, financial services & banking, free zones, oil exploration and refining, tourism, information technology and telecommunications, health, mining and education. Prominent conglomerates were Maaza Pakistan (Pvt) Ltd, Sharjah Auto Park, GIGA Investment, DP World, Ras-al-Khaimah Free Trade Zone, Descon Engineering, Hamriah Free Zone Sharjah, EMAAR Pakistan and others.

It may be worth mentioning here that the Minister of Foreign Trade, United Arab Emirates (UAE) Sheikha Lubna bint Khalid Al Qasimi led a high profile delegation of top government officials and CEOs of corporations

December 2011

E vents 43rd Abby Advertising Awards: Screening Event

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akistan Advertising Practitioners Club (P.A.P.C) held its Annual Abby International Awards Screening event for the advertising and marketing professionals at a local hotel in Karachi recently. The event which screened commercials that won the 43rd ABBY International Advertising Award, is the largest gathering of advertising community in Pakistan that is attended by advertising professionals from all over the world every year.

Apart from India, professionals from South Asia including Bangladesh, Nepal and Sri Lanka also participate continuously.

It is a selfless effort of P.A.P.C. to tap the huge potential, available through this international event.

The event was attended by the top advertising practitioners, creative personnel, graphic designers and marketing professionals. The event also provided P.A.P.C. Ad. Club members an opportunity to network with each other and discuss the award winning campaigns at the interactive session.

P.A.P.C. is a body of professionals promoting best ethical practices in the advertisning field in Pakistan. The moving spirit in the P.A.P.C’s endeavors is its firm belief that a real good campaign does not need the crutches of mean tactics.

P.A.P.C. aims to streamline the learning processes of the practitioners so as to minimize confusion and build confidence amongst them, to encourage sharing of knowlegde through internet database, research papers, seminars, debates, group discussions, workshops and other exchanges for overall professional development of the practitioners.

To celebrate this achievement P.A.P.C. team produced a special song “World of Advertising” which was greatly appreciated by many advertising bodies including The Advertising Club Bombay and the representatives of other ABBY competing countries.

P.A.P.C. is working on producing the first-ever documentary film on “50 Years of Advertising & Brand Management in Pakistan”.

from Emirates which held a series of meetings with high profile officials including Prime Minister Yousuf Raza Gilani, Senior Minister for Commerce Makhdoom Amin Fahim as well with top businessmen and CEOs of Pakistani business houses with the purpose of identifying areas of common interest in various economic sectors between the two countries.

UAE has an open economy with a high per capita income and a sizeable annual trade surplus. After the discovery of oil fields in the UAE more than 45 years ago, the UAE has undergone a profound transformation from a marginalized region of small desert principalities to a modern state with a high standard of living. UAE’s Free Trade Zones (FTZs) that offer 100% foreign ownership and zero taxes are helping to attract foreign investors. Numerous Pakistani businessmen are operating their units in the FTZs of UAE. UAE is the largest investor in Pakistan among the Gulf Cooperation Council and its public and private sectors made an investment in energy, telecommunications, real estate, aviation and banking sector worth of $3.74 billion from 2004 to 2010.

Event in Progress

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December 2011

E vents Workshop on ‘The Power of Entrepreneurship’

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3-day hands-on workshop on “The Power of Entrepreneurship” organized under the auspices of Publicitas Training and Development with support from the State Life Corporation, First Women Bank Limited, Askari Bank Limited and The Bank of Khyber was held at Islamic Chamber of Commerce and Industries on November 15 to 17, 2011. The workshop was inaugurated by the Chief Guest Mr Shahid Aziz Siddiqui, Chairman, State Life Corporation, the Guest of Honor, Ms. Shafqat Sultana, President, First Women Bank Limited, Mr Ozair Hanafi, Executive Chairman, Publicitias Training and Development and Mr Syed Shahjahan Salahuddin, President & CEO, Publicitas Pvt. Ltd. In his opening remarks Mr. Ozair Hanafi, the Executive Chairman of Publicitas and the Lead Trainer of this workshop, mentioned that entrepreneurship is the key to self-reliance for Pakistan.

Mr Shahid Aziz Siddiqui shared his diverse experiences of the corporate world and discussed the importance of entrepreneurship in shaping a better Pakistan for the future. He presented examples of various entrepreneurs of the 19th and 20th centuries who started off from a small entity and are now owners of large enterprises which changed the world with their inspiring ideas. He encouraged the youth to come forward and play their part in developing the economy of the country.

During the address, Ms Shafqat Sultana shared her thoughts on the role women can play in improving the standard of living for their families and in developing the economy of Pakistan. She discussed the various hurdles that women are facing in this respect such as lack of resources and formal education, particularly in the rural areas. She encouraged women to start small and medium business enterprises and

Mr. Ozair Ahmed Hanafi, Mr. M. R. Mehkari, Dr. Mirza Abrar Baig, and Syed Shahjahan Salahuddin at the Closing Session of the Workshop.

seek guidance from those who have already been in the market and are willing to offer their support.

Commencing with the spirit of entrepreneurship and the personality analysis of the entrepreneur, the workshop familiarized the participants on how to start a new enterprise. The participants were involved in the workshop through various team building activities and exchange of ideas. The Second day of the workshop discussed various global, regional and local success stories and also ventured into innovative models of entrepreneurship like the women, social and halaal business.

Then the potential opportunities and resources for entrepreneurship were discussed in great details and many innovative and imaginative projects were mentioned.

Later all the participants were formed into six different teams each team conceived of a viable business idea and built their project around that idea.

The participants were aspiring young men and women and also those who are having their own enterprises. At the end, the participants described the event as very exciting and rewarding. Mr. M. R. Mehkari, President & CEO, Askari Bank Ltd. chaired the closing session while Dr. Mirza Abrar Baig , SEVP of National Bank of Pakistan Group of participants at the inaugural session of the workshop with Mr. Ozair Ahmed Hanafi, Exec. Chairman, was the Guest of Honor.

Publicitas Training & Development, Mr. Shahid Aziz Siddiqui, Chairman, State Life Corporation, Ms. Shafqat Syed Shahjahan Salahuddin presented the vote of Sultana, President, First Women Bank Limited and Syed Shahjahan Salahuddin, CEO Publicitas Pvt. Ltd. thanks.

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December 2011

S cience Japanese engineers develop world’s first flying robotic orb

Drugs which may let us live to 150 will be available within 5-10 years

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ngineers from the Japan’s Ministry of Defense, Research Depart- ment demonstrated the "world's first spherical flying machine" at Digital Content Expo 2011, recently held at Tokyo's National Museum of Emerging Science and Innovation.

According to the officials, the orb can hover like a helicopter and fly in all directions. The machine weighs less than a pound, or about 340 grams and costs approximately $US1,400.

It contains a propeller, which helps the craft take off and land vertically, as well as “wings” on its sides, which are used to provide lift when the craft tips on its “side,” with the propeller pointing horizontally to provide thrust. Because of its highly flexible motion, the orb can reach places that are difficult to access, making it potentially applicable to rescue and military reconnaissance. Army and Air Force special operation forces have deployed miniature kamikaze drones against the Taliban in Afghanistan during the past year. But these UAVs are much larger than the flying sphere.

For instance, the Switchblade, (a drone currently used by US Special Forces in Afghanistan) weighs about six pounds and measures just two feet in length.

In the prototype version of the orb, the images are not so qualitative but Japanese engineers stated that they will mount higher resolution night vision cameras along with infra-red imagery devices for better performance. Since its inception, the US army has showed interest in the flying orb device.

ccording to the research, the first drugs that can slow the ageing process are likely to become available within five to 10 years in the market, raising the Prof. Sinclair prospect of people eventually living to 150 years or more. Peter Smith, dean of medicine at the University of New South Wales (NSW), said a girl born today in Australia could reasonably expect to live to 100 already, due to advances in medicine, lifestyle and public health. In addition, new drugs to help the body repair itself were in the early stages of development, along with new stem cell therapies. The aim is not just to create extra existence, but to facilitate a longer healthy life.

David Sinclair, an Australian expert in ageing at Harvard University, said a network of genes controlled the pace of ageing, which is related to how the human body repairs itself.

Professor Sinclair has shown that resveratrol, a plant compound found in red wine, can extend the lifespan of yeast, worms, flies and mice, by activating proteins called sirtuins. The company “Sirtris Pharmaceuticals” he co-founded was bought by GlaxoSmithKline for $US720 million in 2008.

It would be worth mentioning here that in 2006, Italian scientists obtained the first positive result of resveratrol supplementation in a vertebrate. Using a short-life fish, ‘Nothobranchius furzeri’, with a median life span of nine weeks, they found a maximal dose of resveratrol increased the median lifespan by 56%.

Ancient lost kingdom found in deserts of Libya

‘EyeHear’: a new aid device for the deaf people

ritish archaeologists have discovered an ancient lost kingdom buried in the deserts of Libya (Sahara desert) following the fall of Colonel Gaddafi. Using satellite photographs, the archaeologists have discovered more than 100 fortified farms and villages, including castles and towns, in Libya's uninhabited southwestern desert. The lost cities date as far back as between AD 1 and AD 500. They belong to a littleknown ancient civilization called the Garamantes, who have been described as 'advanced' due to the discovery of underground water channels built for agriculture.

esigner Kaitlyn Fox has invented a revolutionary device for people with hearing problems. The gadget features a microphone and a built-in minicomputer with a projector. It is mounted on a pair of glasses and is able to record a person’s speech and afterwards transform it into text via transcription software installed in the gadget.

The text is then displayed on the glasses. Thus people who suffer from hearing loss can read the text and understand what other people are saying.

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It is worth mentioning that the device makes use of special speech-to- text software that can convert spoken works into text. It essentially provides real-time, real- life closed captioning for the deaf and hearing-impaired.

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December 2011

I nformation Technology Engineers make first 'Active Matrix' display Monitoring Desk using Nanowires

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ngineers have created the first "active matrix" display using a new class of transparent transistors and circuits, a step toward realizing applications such as e-paper, flexible color monitors and "heads-up" displays in car windshields.

The transistors are made of "nanowires," tiny cylindrical structures that are assembled on glass or thin films of flexible plastic. The researchers used nanowires as small as 20 nanometers - a thousand times thinner than a human hair - to create a display containing organic light emitting diodes, or OLEDS. The OLEDS are devices that rival the bright- ness of conventional pixels in flatpanel television sets, computer monitors and displays in consumer electronics.

A unique aspect of these displays is that they are transparent; until the pixels are activated, the display area looks like lightly tinted glass. This technology could also enable other applications such as GPS navigational displays right on the windshield of car.

A mini inkjet prints on any flat surface with a wave of the hand

Monitoring Desk

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lex Breton, an engineer from Stockholm, Sweden, invented a new printing device called the ‘PrintBrush’, an 8.8-ounce handheld gadget that uses inkjets, computer-mouse-like optics and navigation software to print uploaded images and text on any flat surface, including paper, plastic, wood and even fabric. The device takes only 10 seconds to print a page.

The ‘PrintBrush’ operates more like a computer mouse than a printer.

Laser sensors track the printer’s movement and pinpoint its position. The sensors continuously emit infrared laser beams toward the paper’s surface as the user moves the device over it. They then measure the scattering of the reflected beams, which determines the device’s velocity and direction of motion. Even small amounts of reflected laser light are enough to track motion, so the lasers work on almost any type of surface.

Conventional printers move paper through the machine in large part because it’s the only way to accurately track the position of the page relative to the print head. With such constraints, Breton realized, a printer could never be narrower than its paper—unless the inkjets had an entirely new way to navigate across the page.

With each new version, Breton and the team of optics engineers and other experts are refining the navigation system, most recently replacing LEDbased sensors with the lasers. They also added color, which required Alex Breton with “MagicWand” writing a set of algorithms to quickly formulate the ink combinations needed to produce the appearance of 16 million different shades.

By early next year, a ‘PrintBrush’ with a built-in camera for instant photo printing will hit the market and officially claim the title of world’s smallest printer.

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December 2011

L iterature Modern Urdu poetry: Iqbal was the trend setter

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hat a remarkable contribution Allama Iqbal made in transforming the traditions of Urdu poetry has been aptly described by Prof. Dr. K.C. Anand who recounts the whole series of changes brought about by the Progressive Movement that began as late as 1935, and since then has continued to exercise its influence on Urdu poetry.

Back in 1998, in his book “Masterpieces of modern Urdu poetry” Anand, Professor of English at the University of Delhi wrote an account of how Urdu poetry developed during the last century under the influence of the Progressive Movement. In the introduction to this remarkable book he expressed an assessment of this change as it took place. This article too is based on extracts from that introduction, according to Dr. Anand.

“The seeds of modern Urdu poetry were sown way back in the last quarter of the 19th century, when, under the aegis of Anjuman-e-Punjab (founded in 1865), Muhammad Hussain Azad, Maulana Hali, Shibli Naummani and others, called upon the practising poets to come out of the stranglehold of the ghazal, stop harping on the outworn themes of love and romance, and harness their poetic energies in the service of society. In short, they exhorted them to the edict of “art for life’s sake”, rather than “art for art’s sake”.

Though Hali and Azad did not advocate a complete break with the tradition of “radeedf ” and “qaafia”, they did object to the indiscriminate use of poetic diction and hackneyed imagery. Further, they discouraged the practice of “tarahi” mushairas where the competing poets were asked to build their poems on the metrical pattern of a model poetic line.

Instead, they introduced a new type of the mushaira called “munazima” where the participants were asked to write their poems on particular topics, rather than in a particular poetic measure.

By prescribing topics of general human interests such as, peace, justice, hope, patriotism, spring, winter, etc., these leaders of poetic reform attempted to bring Urdu poetry down from the sublime heights of love and mysticism to the lowland of the common man. Hali also wrote in his famous critique of Urdu poetry “Muqaddama-e-sher-o-shairy”, a critique which, like Wordsworth’s Preface to the lyrical ballads, under-scored the flaws in the content and form of conventional poetry, especially when it is practiced by uninspired poets in sheer imitation of the masters.

Hali’s attempt at reforming Urdu poetry, though it served as a major milestone on the path to poetic development, was not sufficiently forceful or well orchestrated to change its course in that direction. This task was undertaken by The Progressive Writers’ Association that was set up in London in 1935, under the leadership of Sajjad Zahir. This movement was, in fact, the outcome of the ferment of ideologies

ideologis and ideas that had come into existence in the Western world before the beginning of WW-II – the class that had been challenging then prevailing ideologies of imperialism, feudalism as well as fascism, and confronted these concepts with a new, humane creed of Communism and Socialism – conceived and developed in the post-WW II Russia. Just as the French Revolution of 1789 was a big inspirational force behind the great Romantic Revival in England, the Bolshevik Revolution of 1917, with its emphasis on the collective might of the proletariat turned into a strong rallying point for Progressive writers and intellectuals all over the world, including India, where the new ideals of social equality and equity found powerful expression in the works of poets like Faiz Ahmed Faiz, Ali Sardar Jafri, Kaifi Azmi, Sahir Lughianvi, Makhdoom Muhiuddin and many others. The aim of these writers was to exorcise through their poems the ghost of the past, rid poetry of its over-obsession with ghazal, and bring it in tune with the spirit of the times.

Consequently, the emphasis in new poetry shifted from ghazal to nazm which is handier of the two as an instrument of social and political communication. Most “progressive” poets turned to nazm for the expression of their political and social ideas–the expression that was the paramount concern of the Progressive Movement. Even the romantic poets like Majaz Lukhnavi opted to become soldiers of the progressive movement.

However, it is worth pointing out in this context that the Progressive Poets were not the first to use poetry as vehicle for political and patriotic fervour. The ground for this kind of poetry had – the cause of Indian nationalism and freedom – was, in fact, been prepared by the likes of Hasrat Moohani and the valuable contribution made thereto by Allama Dr. Muhammad Iqbal. His poems like “Naya Shivala, Tarana-e-Hindi”, and “Tasweer-e-dard” form the imperishable parts of India’s as well as Pakistan’s national heritage. Lines like: Na samjho ge to mit jaoge ai Hidustan walo Tumhari dastan tak bhee na ho gi dastanon mein will continue to inspire the readers’ heart and imagination, generation after generation. That Allama Sir Muhammad Iqbal was a progressive poet even before the Indian Progressive Movement was born, becomes evident when we read his poem “Farman-e-Khuda farishton ke naam” that includes the following lines: Uttho meri dunya ke gharibon ko jaga do Kakh- umara ke dar-o-dewar hila do Jis khet se dehqan ko mayssar no ho rozi Us khet ke har khosah-e-gandum ko jala do

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December 2011

H istory Socrates: as great in 400 BC as today

T

he famous trial of Socrates began in 399 BC when he was nearly seventy years old. The odd charges leveled against him were that he refused to recognize the then ‘official’ gods of the state, introduced new gods, and corrupted the youth.

According to Anthony Gottlieb in his essay “Socrates”, his pious references to the wisdom of God (of whom he often spoke conveying his belief in a single God) were considered indicative of unconventional wisdom, and defied his belief in the gods then required to be worshiped by all. To Gottlieb, when Socrates said that only God has wisdom he seemed to say this figuratively, just as one might shrug and say ‘God alone knows!’ During his lifetime, the ‘Delphic Oracle’ was as authentic a voice of God as any; yet Socrates did not just accept what it said. But, defying this popular belief, Socrates set out to “check the truth of it.”

Socrates seems to have had no doubt about what happens after death. He thought that the soul was separable from the body, that it existed before birth and that it would definitely continue to exist after death. Under Pythagorean influence, he held that, while it was tied to a physical body during life, it led a defiled and inferior existence from which it needed to be ‘purified’ and ‘freed from the shackles of the body’.

According to Plato, in his dialogue, Socrates explained that what a good human being could expect to enjoy after death was re-unification, or at least a communion with ‘corporeal’ higher forms of existence that have conventionally been seen and called ‘divine’. A philosopher in particular should regard the whole of his life as ‘preparation’ for the ‘blissful’ release after death. Not surprisingly, Socrates had lived a shambling, poor and unconventional life that certainly was unworldly.

Socrates pursued virtues because he felt morally obliged to, here and now. Earthly life imposed its own duties, brought its own blessings, and wasn’t simply a preparation for some-thing else. Socrates believed that gaining an understanding of virtues was a necessary pre-condition for possessing them. A man could not be truly virtuous unless he knew what virtue was, and the only way he was likely to attain this knowledge was by examining accounts of the particular virtues.

Once he also said that his mission to argue and question was undertaken “in obedience to God’s commands given in oracles and dreams, and in every other way, that any divine dispensation ever impressed a duty upon man.” He probably came closest to the heart of the matter when he said, “I want to think of my adventures as a sort of pilgrimage undertaken to establish the truth of the oracle, once for all.” It was his conscience and intelligence that told him to interrogate those who believed themselves to be wise. He also claimed that it “helps the cause of God” because all such activities do help to confirm the Delphic pronouncements. Socrates also said that he was influenced in his actions by what he would often refer to as his ‘daimonion’a guardian spirit or voice–which had been with

him since childhood. This seems to have been unorthodox belief in divinity or the “new gods” that he was charged with worshiping.

According to Socrates, the guardian spirit warned him of any involvement in politics, because if he had made a public figure of himself he would have been killed long before he could do much good. That’s why he chose to minister to the people privately. In his own words, “I spend all my time going about trying to persuade you, young and old, to make your first and chief concern not your bodies nor for your possessions, but for the highest welfare of your souls, proclaiming as I go, that wealth does not bring goodness, but goodness brings wealth and every other blessing, both to the individual and the state.”

Socrates was thoroughly annoyed by the fact that his fellow Athenians were not ashamed of focusing all their attention and energies on: “acquiring as much money as possible, and similarly reputation and honour, and giving no attention or thought to truth and understanding and the perfection of their souls.”

During his historic trial he said he thought he was doing his fellow Athenians the “greatest possible service” by showing them the errors of their ways of life. This was a stage of the proceedings when he had already been voted guilty, and was required to argue for being awarded a suitable penalty so as to counter his prosecutors’ proposal that he be put to death. He replied: “to be afraid of death is only a form of thinking …….he was not sure, but dying (for a just cause) could also be the greatest blessing that could happen to a man.”

Doing so, what he showed was his faith in the righteousness of his cause and his faith in divine justice as early as 399 BC – a belief that, regrettably, many still don’t subscribe to.

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December 2011

B ook Review Financial systems & economic development(Vol. II) – an ideal book for up-coming graduates

W

hat are securities markets in generic terms and in Pakistan as of now?

What is their structure in Pakistan as it prevails now and what are its dimensions?

How do securities markets operate in the real world setting; what do they accomplish through their operations; how do these operations impact the various segments of the economy? What is implied by the term ‘financial regime’; how it regulates markets and how effective has it been? What sort of financial system structure is supportive of market operations? How good has been market performance thus far in whatever all these markets do, and how it can be improved?

How securities markets in Pakistan compare with those in comparator countries?

A book that addresses these questions should be a gift for students studying to graduate in business and finance, since it covers both global standards and practices as well as those currently in vogue in Pakistan and gives the next generation a fair idea of what remains to be done in Pakistan’s markets to improve their capacities as the key support arm of the real economy. Prof. Dr. Shakil Faroqui of the Lahore School of Business has written a comprehensive book (in two volumes) that covers this vast area of inquiry, assimilation and gaining an understanding of how markets operate in reality.

In the past we have relied on books written by professors in foreign universities, especially American universities, that don’t explain concepts, practices and regulation in a Pakistani perspective. What makes this book unique is that this is the first book that fills this gap, and does so very well, and since the current profile of Pakistani markets owes itself to market de-regulation undertaken since 2000, the book includes facts and figures about the last decade to relate regulation with the market trends.

Starting with definitions of various markets–money, forex, equity and capital–the book takes its readers through: the role of each of these markets, their utility as the supporters of business activity in the real economy, the products and services they sell to provide both funding support and hedge the various risk types, the principles and practices of sound market regulation to minimize the impact of cyclical bouts of stress, the impact of cyclical bouts of market instability, and signals of impending market stress These aspects have been covered well for the graduate level.

60

The book deals in depth with defining the roles of the market participants that tend to over-lap and therefore require a special focus. The book also contains in-depth discussions over the products and services sold by each category of market players, and explains the specific needs of the real economy those products serve by relating the discussion to transactions where each product is the solution.

This aspect of the book is truly commendable because it provides the readers with clear understanding of the products sold by all markets money, forex, equity and capital –and how various products serve specific purposes. This is the understanding most employers look for in the youth that join their enterprises.

The book is specially focused on familiarizing the graduates with products that are likely to be introduced in the coming years in Pakistan’s markets given the changing domestic need and global risk scenario. This futuristic approach is the plus point of the book.

In the context of market practices and regulation the book is thorough since Dr. Faroqui, a former World Bank staffer, has a treasure of experiences both abroad and in Pakistan. He also served as an advisor to Dr. Ishrat Hussain, one of the former Governors of the State Bank of Pakistan. He realizes how practices and regulation build the image of markets, and how that serves to instill confidence in investors. Discussion over regulation is not confined to the roles various regulators play but covers the impact of taxation on the markets.

The book deals extensively with good market practices and in ensuring their reliability, the roles of the principal players and intermediaries. As a result, the grasp the readers get over transaction mechanics will certainly equip them to take on professional roles fairly quickly.

Market regulation is discussed in the context of what good regulation must deliver, globally famous regulators, how they supervise markets, and various supervisory experiences. The idea is to give the graduates an understanding of regulators’ mandates and the results they are expected to deliver. In this context the author also dwells on how market-players often respond to regulatory moves.

The final chapter is significant since it deals with globalization of finance, trends in financial flows, especially foreign flows, and the role economic stability can play in attracting them. It covers reforms in the last decade, how they worked and where they overshot the aim. The best part is the variety of lessons learnt that should guide future market reforms.

December 2011 November

S tock Market Monthly Review - November 2011

by Zeeshan Ahmed Mirza

T

he Karachi Stock Exchange market activity was bullish in first week. KSE – 100 index reached 11,957.30 points by gaining 395.63 points or 3.4 percent. The KSE 30-share index surged by 397.48 points, or 3.64 percent, to 11,292.57. The second week saw only two trading sessions against the usual five sessions due to holidays on account of Eid and Iqbal Day. The (KSE) market activity was bullish.

KSE – 100 index reached 12,038.93 points by gaining 81.63 points or 0.68 per cent. The KSE-30 Index surged by 90.41 points, or 0.80 percent, to close at 11,382.98 points.

The Karachi Stock Exchange market activity was bearish in third week of the month. KSE – 100 index declined downward 11,937.81 points by losing 101.12 points or 0.83 percent. The KSE-30 Index fell by 160.40 points, or 1.40 percent, to close at 11,222.58 points.

In fourth week again The KSE market activity was bearish.

KSE – 100 index went down 11,648.14 points by losing of 289.67 points or 2.4 percent. The KSE-100 index closed negative in four out of the five trading sessions during the week, following a 0.8% (99 points) decline in the previous week. Political uncertainty along with the International Monetary Fund’s bleak outlook for the country’s economy contributed to the index’s woes. Overall the market remained bearish as it lost 86.47 points during the month of November. Following news played vital role in KSM index movement:

Top 10 Traded Companies(Nov) Company Open FATIMA 27.80 BAHL 11.00 FFBL 62.31 FFC 199.00 ENGRO 124.14 DGKC 20.92 JSCL 5.96 NBP 44.00 LOTPTA 11.40 AHCL 32.50

Close 23.12 11.76 54.11 163.99 128.86 20.75 5.83 41.92 9.76 29.15

Diff High Low Avg. Turnover -3.40 27.80 21.80 23.64 92,077,594 0.78 12.31 10.80 11.74 68,769,876 -8.36 62.50 53.30 58.82 49,666,777 -29.42 199.80 163.29 177.86 48,053,958 10.63 138.09 120.80 129.76 46,711,659 -0.31 21.94 19.55 20.88 35,458,207 0.02 6.20 5.36 5.69 35,305,365 -1.72 46.20 40.50 43.85 31,313,904 -1.65 11.40 9.63 10.61 30,060,770 -2.69 32.60 27.60 30.00 23,889,878

Top 10 Gainers(Nov) Company Open Close Diff

High

Low

Avg. Turnover

UPFL 1685.00 1690.00 46.46 1,750.00 1,610.00 1,063.65 103 COLG 550.00 580.00 45.17 610.00 535.00 481.85 688 ATEL 40.00 58.00 18.00 58.00 40.00 11.50 4,507 PGCL 30.86 44.60 15.21 47.80 30.85 24.38 7,857 WAZIR 6.61 18.60 12.40 18.60 6.53 10.21 52,029 ENGRO 124.14 128.86 10.63 138.09 120.80 129.76 46,711,659 ICL 21.10 30.50 9.40 33.20 22.15 15.42 54,580 OGDC 146.99 153.11 6.82 161.60 142.55 153.59 15,815,963 SAPT 103.50 108.65 5.15 108.65 101.00 49.30 3,441 CPL 147.00 152.00 5.11 161.00 145.45 152.90 118,839

Positive Sentiments European leaders and banks reached a deal to tackle euro zone debt crisis and institutional accumulation in commodity stocks, which created a bullish trend in global markets Cement sales increased as compared to last year, up by 8.2% in 1QFY12 State Bank also issued a circular relaxing the forced sale provision criteria for banks which is expected to have a positive impact on the sector’s earnings The overall market capitalization increased by three billion rupees to Rs3,021 billion SECP approved 43 securities for short selling Food export surged 38% in 3Months.

Pakistani Rupee gaine strength during the week and touched a three-month high of Rs 86.16 (15 weeks highest value) versus the dollar PSO announced higher-than-expected Q1 FY12 result of Rs 14.50 per share (up 207 percent on yearly basis), while Engro posted nine months 2011 earnings of Rs.14.21 per share, (up 27 percent) Tax collection rose by 24% YoY to Pak Rs492bn in 4MFY12 Positive sentiments were witnessed on support from energy and oil sectors on hopes of early resolution of

Top 10 Losers(Nov) Company NESTLE SIEM ULVEVER BATA NRL HINO FFC WYETH PGKS RMPL

61

Open Close 3305.00 2755.15 895.00 725.86 5839.99 5528.40 800.00 730.70 326.90 263.14 108.00 74.65 199.00 163.99 686.01 680.00 89.30 70.30 2774.00 2684.75

Diff High Low Avg. Turnover -537.85 3,309.99 2,700.00 3,003.71 2,471 -208.96 949.00 713.07 719.89 1,561 -206.20 5,850.00 5,202.01 5,567.91 3,039 -101.69 852.92 708.00 731.32 18,239 -61.96 334.50 262.01 312.26 2,264,593 -33.35 104.43 71.60 60.20 3,633 -29.42 199.80 163.29 177.86 48,053,958 -19.99 714.00 661.00 470.39 958 -19.00 93.90 70.30 86.17 863,928 -18.08 2,799.99 2,501.09 2,089.92 1,013 December 2011

S tock Market Trade remained thin despite OGRA announcements for raise in local gas tariff easing concerns for rising circular debt in the country IMF’s Assistant Director said power tariff hike not enough FX reserves dropped to USD16.96 bn

circular debt on $2 billion support from World Bank and Asian Development Bank Restructuring of T-bills and meeting of Indo-Pak leadership also supported the market The restoration of gas supply to Engro Corporation for 15 days led to fresh buying in the fertilizer stocks Higher oil prices and new discoveries of oil has created interest of investors in E&P (Exploration and Production) sector

Money Market

Negative Sentiments: According to National Clearing Company of Pakistan, foreigners offloaded shares worth $7.9 million Gas load management plan was approved during the week and it was decided that two out of four fertilizer plants on Sui Northern Gas Pipeline Limited network would not be supplied gas in November Power tariff raised by Rs1.77/unit, raising inflation concerns Dealers expressed apprehension of panic selling in case the political noise was intensified.

Federal Cabinet has approved a four percent tariff hike in power sector According to the SBP data, the non-performing loans rose by Rs 38.3 billion during July/September to Rs 613 billion. The pace of increase in the NPLs was much higher than in the previous two quarters Investors had concerns over political uncertainty, resignation of Hussain Haqani and Mullen memo controversy.

IMF released its economic review of Pakistan highlighting macro–economic challenges owing to energy crisis and pressures on the external account Foreigners remained net sellers of $3.8 million The Government of Pakistan raised the wheat support price from Rs 950 to Rs 1,050 per 40 kilogram’s (kg) Major fall in global stocks and commodities on concerns for US economic growth and Europe debt crises affected the investor sentiment

T-Bills (3mth)

11.7825%

T-Bills (6mth)

11.8070%

T-Bills (12mth)

11.8769%

Discount Rate

12.50%

Kibor (1mth)

11.52%

Kibor (3mth)

11.61%

Kibor (6mth)

11.66%

Kibor (9mth)

11.70%

P.I.B (3 year)

12.2201%

P.I.B (5 year)

rejected

P.I.B (10 year)

12.3217%

Economic Indicator 2010/2011 Forex Reserves $ 17.03 Billion Inflation CPI% 14.10% Export $ 24.83 Billion Import $ 40.41 Billion Trade Balance $ (15.59) Billion Current A/C $(784.00) Million Remittances $ 11.20 Billion Foreign Invest $ 1.92 Billion Foreign Debit $ 59.53 Billion Domestic Debit Rs.5594 Billion GDP Growth 2.40% Per Capital Income $ 1,254 Population 177.18 Million

Foreign Portfolio Investment Monthly (Nov) Gross Buy Rs

Gross Sell Rs

Rs

Net Buy/Sell $

3,293,801,657

(3,657,984,486)

(364,182,828)

(4,186,010)

21,717,338,274

(22,158,459,314)

(441,121,042)

(5,070,357)

Banks/DFI

4,316,754,760

(3,586,677,515)

730,077,243

8,391,692

Mutual Funds

3,809,452,635

(3,751,352,440)

58,100,194

667,818

NBFC

1,038,845,521

(877,129,506)

161,716,011

1,858,805

28,881,149,214

(29,134,277,186)

(253,127,970)

(2,909,517)

803,787,865

(695,249,479)

108,538,385

1,247,568

FIPI Local Companies

Local Investor Other Organization

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December 2011

C ommodity Review November -2011

C

ommodities are beating equities for a fifth consecutive year, a sign that demand from developing economies is sustaining global growth that drove prices up almost fourfold in a decade.

Commodities may gain as the global economy avoids recession next year and in 2013, analysts led by London-based Jeffrey Currie said in a report today. Brent, the benchmark used to price two-thirds of global oil supplies, may jump to $127.50 a barrel at the end of next year and $135 in 2013. Goldman Sachs Group Inc. expects commodities to return about 15 percent in the next 12 months.

Commodity investor inflows rebounded to $2.1 billion in October, after a record outflow of $10 billion in September, Barclays Capital said in a Nov. 21 report. Commodity assets under management totaled $412 billion at the end of the month, $39 billion below the record in April.

During November-2011, the traded volumes at the Exchange increased to Rs. 67.88 bn from Rs. 33.4 bn in the corresponding month of the previous year, a growth of 95 % Traded Volume (Rs) Traded Lots

November, 2011 67.88 billion 299,823

November, 2010 33.4 billion 102,699

December, 2010 3.8 08 billion 103,186

PMEX Commodity INDEX Open: 2,766 Close: 2,817 Change: + 1.83 %

GOLD [USD / t Oz]

SILVER [USD / t Oz]

Low: 2,761 High: 2,922

Open: 1,720.00 Low: 1,680.2 Close: 1,747.90 High: 1,795.9 Change: + 1.62 % Gold hit a 2-week high on last trading day of November as gains in equities and the euro prompted buying from speculators after major central banks took coordinated action to prevent the euro-zone debt crisis from igniting a global economic meltdown. Gold ended November with a 1.62 % rise, the 7th month of gain so far this year, but it was still 9 percent below a lifetime high above $1,920 hit in September. During November-2011, the traded volumes at the Exchange increased to Rs. 53.7 bn from Rs. 23.4 bn in corresponding month previous year, a growth of 130 %.

Open: 33.36 Low: 31.08 Close: 32.86 High: 34.99 Change: - 01.50 % Morgan Stanley said it prefers exposure to silver and gold in the coming year, as such commodities perform well in a global economic slowdown. Max price was $ 34.99 an ounce on 8th of the month and min price was $ 31.08 on 25th of the month. During November-2011, the traded volumes at the Exchange increased to Rs. 5.2 bn from Rs. 7.7 bn in the corresponding month previous year, a –ive growth of 32 %.

63 56

December 2011

C ommodity Review CRUDE OIL [USD / barrel] Open: 91.52 Low: 91.52 Close: 100.40 High: 102.00 Change: + 9.70 % Sound gains were recorded in oil prices on the back of steady improvement in macrodata with retail sales surprising on the upside (+0.5% MoM), weekly jobless claimsstaying below 400k, and the US trade deficit contracting to US$43.1bn (-4.0% MoM).Mid-way through November, oil prices shattered the US$100/bbl mark as a pipelinereversal decision was taken to tackle the inventory buildup at Cushing, Oklahoma. Theinitial euphoria of the announcement failed to hold as markets assessed the possibilitythat additional pipelines would eventually be needed to eliminate the glut and the prevailing uncertainty on the Euro zone front kept investors edgy. On a positive note, the premium of Brent over WTI narrowed to ~US$10/bbl in end Nov after touching a record of ~US$28/bbl in Oct-11. Crude however rounded off Nov at US$100.36/bbl (+7.7% MoM), helped by excitement on Central Banks’ action on the last day.

IRRI 6 [Rs. / 100 kg] Open: 3,600 Close: 3,075 Change: + 1.64 %

Low: 3,050 High: 3,200

In domestic market prices remained quite stable during November, 2011. Maximum price was Rs 3,200 per 100 Kg on 10th of November and Minimum price was Rs 3,050 per 100 kg on 1st of November. Prices rose by 1.64 % in the whole month.

PALMOLEIN [Rs. / 37.324 kg]

Open: 4,780 Close: 4,700 Change: - 1.67 %

Low: 4,650 High: 4,850

Heavy monsoon rains and a seasonal decline in yields are expected to lower Malaysia’s November palm oil production, which some traders said may fall by 15 to 18 percent.Cargo surveyor Intertek Testing Services said Malaysian palm oil exports for November fell 8.8 percent to 1.53 million tonnes, in line with industry sources’ expectations.Concerns over the euro zone bailout progress also dragged down other vegetable oil markets.

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December 2011