Monthly
October 2011
Problems faced by the export sector Interveiw with Mr. Khalid Tawwab (FPCCI Senior Vice President)
Flood 2011
Flood disaster & its fallout Challenges for the financial sector
Special Report
C
s
Volume - 1
Issue - VI
Oct 2011 Remembering the 1965 war The Legend who seems to matter no more Remembering 9/11: the unlearnt lessons
7 9 11 12-13
National Briefs Advisor Editorial Team A.B. Shahid
advisor@valuechain.com.pk
Director Business Implementation Kamran Khan
Operational Stability of the Economy The Key Global Failure
14
15 16
US Fiscal Deficit
17-19
Banks Reluctance to Meet the Credit needs of Agricultural Sector
20-22
Banking Sectors: Training needs Assessment
23-25
Brands of the Year Awards 2010
26-27
Development of Warehousing and the Promises it Holds Plights of Textile Industry in Pakistan
28-30 31-33
Agriculture
Availability of Water and its Impact on Agriculture
34-37
Greenhouse Farming
38-43
Science & Technology
PAKSAT-1R: New Space Bird of Pakistan Rights, Obligations And Law
Faisalabad Syed Saqibullah
Stock Market Bullion Market Book Review
45
46-47 48-50 51 52 53
History
Retail Price: *PKR 100
54-56
L etters to the Editor Availability of Water & its impact on Agriculture Sir, Value Chain is surely a magazine which encompasses various subjects in a befitting manner for which your complete team deserves appreciation on all account. The magazine contains brain storming material, covers new ideas for businesses, book reviews and guidelines for policy makers. Moreover, editorial shows dedication to Pakistan. The article written by Mr. Tariq Iqbal on availability of Water and its impact on Agriculture is an eye opener for policy makers Col (R) Rao Abid Ali Khan Multan
Should we forget history? Sir, during September, the three landmark events that Pakistanis can’t overlook are the death anniversary of their Quaid, the 1965 war with India, and 9/11 that changed Pakistan’s fate owing to our being forced to join the highly controversial US war-on-terror. However, this year the media virtually ignored two key milestones – Quaid’s death anniversary, and the 1965 war. It was shocking that except for PTV, no TV channel telecast any extended programmes on these events. Even the programme telecast by PTV was recorded in 1995. Ignoring the Quaid is understandable because recalling his principled politics and his integrity are embarrassing for the current lot of our politicians. But “fading” him out of our history will be a big error; shockingly, its perpetrators are the great self-styled defenders of democracy. What a shame! Ignoring the sacrifices of our valiant soldiers who gave their lives in the 1965 war to defend us was equally shameful Farriel Shahid , Karachi
The sliding Rupee
KESC’s billing practices
Sir, the Pak rupee has been sliding, but more rapidly in recent days and is worrying the economy conscious lot because, with Pakistan remaining a net importer, Rupee’s slide signals higher inflation and therefore more social chaos. While many reasons are given for the Rupee’s slide, the more worrying aspect thereof is the reported flight of capital induced by uncontrolled lawlessness. If this trend isn’t contained by credibly assuring businesses about their security, business closures could herald higher unemployment that already is the main contributor to lawlessness. Sadly, politicians aren’t bothered about this fallout. Unless they are determined to squander the country and then flee, they would push for quickly restoring the investor confidence
Sir, while it is understandable that KESC offices remained sealed for over three months, and KESC faced genuine hardship in doing anything including billing its customers on time, what it finally did with billing in endAugust was wholly unfair. During June and July, KESC billed its customers at, God knows what sort of average consumption but the bills that arrived in late August were bombshells since KESC added together the actual consumption for three months and billed at the highest applicable rate. In all fairness, the total consumption should have been divided by 3 to know average monthly consumption and the correct, not the highest rate, should been applied. By not doing so, KESC earned unfair revenue which it must refund
Shahid Jafri, Karachi
Self-regulation in trade bodies
Sir, I totally agree with Mr Anwar Ahmed (Value Chain August 2011) that inflation in Pakistan owes itself more to the virtual absence of self-regulation in the whole variety of the trade bodies we have, than to the rise in commodity prices globally. In regulated economies keeping inflation at manageable levels is the concern of trade associations, and they have strict rules for penalizing the retailers who over-prices goods. You don’t hear about a retailer or wholesaler being punished by a trade association for such malpractices. It is time the FPCCI took this issue seriously and mandated the trade bodies to devise strict codes of business ethics and impose them firmly Farhan Hassan, Karachi
4
Salman Ali, Karachi
Value Chain
Please accept my heartiest felicitations on publishing the inaugural issue of ‘Value Chain’. I was particularly impressed by the selection of topics for the inaugural issue. From the macro issues that are shaping up the business world today to the intriguing idea of the five-fingered mouse - it was truly a delightful and absorbing read. May Allah bless you with great success in the endeavor! Shakil Ashfaq, 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 linguistics flaws therein
October 2011
Clients • • • • • • • • • • • • • • • • • • • •
Askari Bank Ltd. Allied Bank Ltd. Bank Alfalah Ltd. Bank Al-Habib Ltd. Bank of Khyber Ltd. BankIslami Pakistan Ltd Bank of Punjab Burj Bank Ltd. Barcley’s Bank Dubai Islamic Bank Faysal Bank Ltd. Habib Bank Ltd. Habib Metropolitan Bank Ltd. KASB Bank MCB Bank Ltd. Meezan Bank Ltd. Soneri Bank Ltd. Summit Bank Silk Bank United Bank Ltd..
G lobal Briefs Global events last month Turkey
expelled
British Air Force delivered to Libya’s National Transition Council Libya’s own currency worth 140mn Sterling. The BCC announced this on September 1.
Israel’s
ambassador and suspended defence ties with Israel after UN report on the Gaza affair stated that the UN recognizes the right of Israel to check vessels going to Gaza in order to ensure Israel’s security.
US Senate committee on foreign aid voted on September 22 to release
India’s second quarter growth
was the weakest in the last six quarters; it fell to 7.7%, which was attributed to consistent increase in Reserve Bank’s discount rate and inflation. In the financial year ending March 2011, GDP growth was 8.5%.
Leaked US diplomatic cables
show that, in February 2005 US and Australia tried to stop Mohamed AlBaradei from being elected IAEA’s chief for a second term, but failed; not enough members of IAEA’s Board of Governors agreed to oust him and he was re-elected for a second term that ended in 2009.
India’s West Bengal state will hence-forth be called Paschim Banga, as decided by West Bengal’s assembly. Paschim Banga is Bengali translation of ‘West Bengal’.
Libyan rebels finally managed to reach the presidential compound in Tripoli to catch President Qaddafi, but found that, along with his supporters, he had left for a secret location; his family members, reportedly, entered Niger. Libya’s National Transitional
Council sent a delegation to Niger on September 6 to discuss his extradition to Libya.
An explosion in Delhi’s High Court on September 7 killed 11
and hurt 66. The device was in a briefcase placed near an entrance where people were queuing for entry passes.
Cyber-crime victims numbered 431mn victims in 2011 year
and according to the Norton Cybercrime Report 2011 released on September 7, lost $114bn. Cyber-
Recep Tayyip Erdogan Cybercrime victims in the US exceeded 74mln and suffered $32bn in direct financial losses.
China’s suicide rate is now the highest in the world according to a report of the Beijing Health Bureau. Of every 100,000 now 22.23 commit suicide. Of this count, 75% die in suicides in the rural areas. Chinese government announced
it will provide Pakistan humanitarian aid worth RMB 30mln on emergency basis to help its relief efforts in floods-affected areas of the country.
Iran’s government promised
emergency humanitarian aid amounting to $100mln on September 19, that it will provide to Pakistan to help its relief efforts in floods-affected areas of the country.
Former Afghan President Burha-
nuddin Rabbani was assassinated on September 20 by a suicide bomber who accompanied a Taliban delegation to discuss the peace initiative jointly sponsored by the US and the Karzai government.
US Adm. Mike Mullen said
Pakistan's main intelligence agency ISI was actively supporting Haqqani network of militants blamed for an assault on the US embassy in Kabul last week. On September 22, in a hearing before the US Senate, he accused Pakistan of "exporting" violent extremism to Afghanistan by backing militants that attack American and Nato troops.
8
all US economic/security aid to Pakistan subject to Pakistan’s co-operation action against militants such as Haqqani group. America blamed Pakistan’s ISI for the attack last week on the US embassy in Kabul. The committee’s decision reflected lawmakers' anger at Islamabad over the militants who allegedly operate from Pakistan against US troops in Afghanistan.
Charges of ‘exporting’ terrorism
made against the ISI by US Chief of Staff Adm. Mullen on September 21 were denied by Pakistan the next day, claiming Islamabad was in deep engagement with the US at all levels to redress 'perceptional' complica-tions relating to the operational plan. The Chief of Army Staff and ISI spokesman vehemently denied Mullen’s charges.
Russian President Dimitry Medvdev said on September 24, that in the 2012 polls, he will support Vladimir Putin for the presidency. Saudi King Abdullah announced on September 25 that "starting with the next term, women will have the right to run in municipal elections and elect candidates, according to Islamic principles". This is the first step by this ultra-conservative country where women are subjected to many restrictions. Chinese Vice Premier Meng Jianzhu arrived in Islamabad on Septem-
ber 26 to show China’s unconditional backing for Pakistan in the current crisis, and also signed several pacts relating to assistance in economic and industrial sectors.
Germany’s
Finance
Minister
Wolfgang criticised US for its blame game targeting the EU for the current recession and also scaring the world. October 2011
G lobal Briefs Global economy last month S&P announced that Devan Sharma is stepping down as the agency’s president. Well before S&P lowered US sovereign debt’s credit rating, Sharma had decided to quit. Melbourne was rated by the
Economist Intelligence Unit as the world’s most liveable city while rating cities based on political and social stability, crime rates, availability of quality healthcare services, cultural activities, clean environment, and standard of infrastructure. Harare was rated as the least liveable city.
Twenty five major US firms
including GE, Verizon, Boeing and eBay paid far more to their CEOs compared to federal taxes paid by them in 2010, according to a US think tank. Of their CEOs, 22 also received pay rises during 2010 and most of these companies also got tax refunds.
In the biggest frauds in Iran’s
history, several banks suffered a combined loss of $2.6bn in a 2-year period ending August 2011. According to the head of Iranian judiciary, those involved in this big scam have been arrested.
America’s Federal Housing Finance Agy sued major American
banks after it suffered losses exceeding $41bn in sub- prime mortgages as many of the security- backing mortgages shouldn’t have been packaged into the bonds. Settlement of these lawsuits will drain further liquidity out of the banks that were bailed out by the US government.
A court in Madrid rejected
energy-efficient, environmentally conducive, and safe services. The loan is to finance new railway tracks, a modern signalling system and electrify hundreds of kilometres of rail tracks.
India to provide Bangladesh a
$750mn loan to develop its trade infrastructure. This is part of a $1bn credit line offered to its eastern neighbour to develop ports and related infrastructure
Swiss Franc posted its worst
ever one-day decline on September 6 when it fell by 10% against the Euro after Swiss Central Bank said it would enforce a limit of 1.2 francs to the Euro by buying unlimited amounts of competing foreign currencies because Swiss export industry was being hurt by a strong Swiss Franc.
A German Constitutional Court rejected on September 7 all
the lawsuits blocking German participation in emergency loan packages to EU member states. The court verdict requires the government to request the parliament’s budgetary committee to approve grant of all such aid.
Indian PM told his Pakistani
counter-part that India would no longer oppose in the WTO any concessions sought by Pakistan from the EU for increasing access to 75 Pakistani items. Pakistan’s foreign Office confirmed this on September 8.
Moody’s downgraded the credit ratings of two French banks – Societe Generale and Credit Agricole – by one notch due to their over-exposure to Greek banks.
complaints filed against rating agencies Fitch, S&P and Moody’s for downgrading Spanish sovereign debt’s credit rating. The judge ruled that from a legal standpoint there is no evidence that the downgrading based on false data.
Swiss Stock Exchange’s clearing agent will now accept gold as one of the modes of payment effective September 19.
ADB will lend $0.5bn to India under a 25-year loan (inc. 5-year grace period) to boost its railway network; ADB loan is to finance
Gold price crashed on September 23 by an historic $100 per ounce, which is new record in recent history.
9
Italy’s sovereign debt’s credit rating was down-graded by S&P
from A+ to A owing to its high debt to GDP ratio and low GDP growth in the past three years. Italian Prime called it a purely political act. Italy is Euro zone’s third major economy.
MSCI World equity index fell 4.5% on September 22, bringing yearto-date loss to 16%. The US stocks fell sharply for the fourth day. DJI fell 391 points (3.51%) to 10,733. S&P-500 fell 37 points (3.2%) to 1,129. Nasdaq Composite was down 82.5 points (3.25%) to 2,455.67. Volume was heavy since investors anticipated higher losses. Energy and materials’ shares were the hardest hit on worries of slowing global demand triggered by signs of a big slowdown in China. In the US, 1 in every 6 individuals now lives in poverty according to the Census Bureau. This development is ensnaring growing numbers of children and proves the recession’s devastating impact. Swiss bank UBS's Chief Executive Oswald Gruebel resigned on
Saturday, accepting the blame after its scandal-hit investment banking unit lost $2.3bn in alleged rogue trading. The bank said it would strengthen risk controls under an accelerated restructuring of that part of its business and named its Europe, M. East and Africa head Sergio Ermotti to replace Gruebel on an interim basis.
US stocks recovered on September 27 from the massive decline experienced on September 22. DJI average rose 257.70 points (2.33%) to 11,301.56. The broader S&P 500 rose 26.38 points (or 2.27%) to 1,189.33, and Nasdaq Composite gained 53.49 points (2.13%) to 2,570.18 points. Heads rolled in Iran’s biggest bank fraud when Iran’s President ordered the sacking of CEOs of the three involved banks.
October 2011
N ational Briefs Pak politics last month In Quetta 27 people were killed and over 60 wounded on September 7 in twin suicide attacks outside the residence of DIG Frontier Corps. The dead included an official of the Frontier Corps and the wife of DIG Frontier Corps.
help recover at least 45,000 vehicles now running on the streets there.
having killed the pilgrims.
A suicide bomber sent by the
Pakistan and Germany will enter into financial cooperation agreements under which Germany would extend millions of Euros worth of assistance for develop-ment projects in Pakistan.
Supreme Court reserved judgment on September 15 its compre-
govern-ment’s report on the devastating floods of 2010. Sindh government then sought four days’ time to submit a revised report. On September 22, the court also directed the provincial government to explain the steps taken to address the financial and mental sufferings of the calamity-hit people of Sindh.
Two PIA flights received bomb
threats on September 7. The first heading for Manchester received the threat near the Bulgarian capital of Sofia, was allowed to land in Istanbul and the other heading for a Far East destination landed in Malaysia.
Pakistan’s Supreme Court asked the government to appoint within two days judges to the six vacant positions in anti-terrorism courts of Sindh. The next day, Home Minister Sindh confirmed that the appointments had been made complying with the court’s directive. Pakistan’s prime intelligence
agency ISI made a comprehensive presentation before the Supreme Court on September 8, disclosing its findings about presence of militant wings in Pakistan’s political parties as well as gangs involved in target killings, torture, extortion, kidnapping for ransom and land grabbing.
Pakistan Army Chief chaired the
142nd Corps Commandeers meeting at Army’s Headquarters on September 8. However, the press release issued thereafter did not disclose the agenda and decisions taken at the meeting which was one of the longest such meetings in the Army’s history.
Gilgit-Baltistan is the ‘World Bank’ of stolen cars, said the jailed
car don who claims that if he gets GB administration’s help, he can
Tehrik-e-Taliban Pakistan to target anti-Taliban activists exploded himself on September 15 during funeral prayers in Lower Dir killing 26 and injuring 63 mourners.
hensive findings in the suo moto inquiry it had launched to inquire into the rapidly worsening law and order situation in Karachi, and whether this massive failure represented the failure of the government.
During a 15-hour power breakdown at Jinnah Postgraduate Medi-
cal Centre, four critically ill patients on ventilators passed away. The hospital lacks funds for buying fuel to run its three standby generators.
The UN launched a$356 million
appeal under its Rapid Response Plan to collect aid from the world community for helping Pakistan’s flood victims; it was in response to Pakistan’s request.
Residence of Karachi’s SSP
Criminal Investigation Department was targeted by terrorists using a massive quantity of gun powder. This incident on September 20 resulted in the death of 8 individuals and caused massive damage to properties in Phase VIII of DHA Karachi.
Pakistan’s Naval Chief inaugu-
rated on September 20, the construction of its first fast attack craft to be built at the Xingang Shipyard in China. The vessel ‘Azmat’ will be delivered to Pakistan in April 2012.
Terrorist forced 26 pilgrims
travelling to Iran in a bus via Mastung on September 20, to come out and then shot dead. They were Hazaras of the Shia community. Lashkar-e-Jhangvi, an extremist Sunni militant group, claimed
Supreme Court rejected Sindh
The Election Commission announced on September 24 that it had struck down 37.18 million unverified voters from the final electoral rolls of 2007 after checking 81.213 million entries. The Court of Arbitration in The
Hague hearing a petition filed by Pakistan over the construction of Kishanganga dam by India, accepted Pakistan’s application on September 25, and ordered India to stop construction of any permanent works on the Kishanganga/Neelum River bed at the Gurez site that may inhibit the flow of the river water to its natural channel.
Pakistan Air Force was placed on high alter on September 25, to respond to a possible attack by the US/Nato forces in Afghanistan after the new US Secretary Defence threatened unilateral US action against the alleged terrorist hide-outs in Pakistan. Pakistani Premier called up the
heads of all political parties on September 25, inviting them to an all-parties conference to review the situation created by US threats to invade North Waziristan, and to decide a joint policy on responding to this threat.
The All Parties’ Conference called by the Prime Minister to decide on a joint response to the aggressive stance of the US government commence at 2.30 p.m. on September 29. A huge number (58) of delegates from 45 political parties came to attend the conference, which was help at the PM House in Islamabad. However, Baluchistan National Party opted not to attend this conference.
October 2011
N ational Briefs Pak economy last month Economic Coordination Committee of the Cabinet decided, in
principle, to revise the base year of Consumer Price and Wholesale Price Index from 2000-01 to 200708, and change of the base year of Quantum Index of LSM sector from 1999-2000 to 2005-2006.
Pakistan Electric Power Co.
stopped payment to nine IPPs in response to their decision to call sovereign (government) guarantees assuring payment of their dues after the due amounts far exceeded the guaranteed amount. These claims were to become effective from September 25.
Pakistan Cotton Ginners Association’s
executive member, Ehsanul Haque told the media, that nearly 2.2mln cotton bales worth Rs 77bn were washed away in the rain spell that caused devastating floods.
FBR’s
Directorate
General
Intelligence and Investigation Inland Revenue started a national enforcement exercise against NTN holders who were on the tax rolls during the July 2007-June 30, 2010 period but failed to file their tax returns.
KSE reports show that during
July-Aug there was net outflow of $31.3mln from foreign portfolio investment because of the deteriorating law and order situation in Karachi.
Pakistan and Germany will
enter into financial cooperation pacts under which Germany will offer substantial assistance for development projects in Pakistan.
Pakistan Steel Mills Corp.
successfully began utilizing coke obtained from a by-product breeze. This could substantially cut dependence on imported coke and afford producing steel at a lower price.
Federal Board of Revenue gave
a one- time waiver under the terms of the Pak-Afghan Transit Trade Accord for trans-shipment and
loading of the containers arriving at Karachi port till September 10.
State Bank of Pakistan booths
at the air ports that scrutinize the consignments of foreign currencies exported by banks and moneychangers will now operate for only one 8-hour shift per day instead of the earlier two 8-hour shifts a day.
Pakistan and Iran signed three MOUs on September 8 to enhance bilateral trade, industrial and agricultural development joint ventures, lift visa/trade restrictions, promotion of banking, communications, information technology, import of gas and electricity from Iran and cooperation in education, health, culture, and tourism. Power sector’s circular debt
will be off-set from the proceeds of Pak Investment Bonds (PIBs) to be floated shortly. This was indicated by the Finance Ministry on September 18. Details of the PIB amount is to be floated will be announced shortly. The move was triggered by a record rise in inward remittances in August.
The Finance Minister told the media on September 20, that Pakistan will not seek continuation of IMF Standby Agreement if IMF refused to extend its assistance on terms that are politically acceptable.
On September 22 FBR had provisionally collected Rs 250bn in the 1st quarter (July-Sept 2011-12) against target of Rs 320bn reflecting a shortfall of Rs 70bn. Sources revealed that revenue collection during the 1st quarter may rise by end-September. The Rupee-US Dollar parity
witnessed a sharp fall after Pak-US relations came under pressure. In the inter-bank market the parity crossed Rs 88/$ and in the open market it touched a low of Rs 90.20/$ but did but worsen further due to intervention by the SBP.
The UN launched a $356 million appeal under its ‘Rapid Response Plan’ to gather aid from its members for Pakistan’s flood victims. Recovery was witnessed at the KSE on September 27 after improve-
ment in Pak-US relations. KSE-100 index surged by 266.21 points to close at the 11,531.24 level but the index also hit intra-day high of 11,547.13 points after hitting a low of 11,265.03 points on September 23.
Banks provided SBP complete details of unclaimed deposits i.e. deposits of the savers who didn’t operate their accounts for the last 10 years. A total of 34 banks surrendered this information to the SBP as required by Banking Companies Ord.
According to Auditor General’s
Reserve Bank of India’s high level delegation will visit Pakistan to
KSE-100 index fell by a massive 341.83 points on September 27 due to tensions in the Pak-US relations. KSE-100 index closed at 11,265.03 points. The index hit intra-day low of 11,153.29 points i.e. it dropping by over 400 points, reflecting the fears of the investors.
Competition Commission of Pakistan began inquest into the fact that, although no SBP directive enforced this practice, yet all banks charge a uniform fee of Rs 15 per cash withdrawal transaction.
report for 2010-11, Rs 8.3bn were wasted due to non-commissioning of rental power plants because all Independent Power Producers failed to meet the committed commercial operation commencement dates.
discuss modalities for opening the branches of Indian and Pakistani banks in India and Pakistan on a reciprocal basis. Reserve Bank of India’s Dy. Governor Dr Subir Vithal Gokaran discussed this proposal in a meeting in Mumbai with Pakistan’s Commerce Minister on September 28.
October 2011
E ditorial Blaming Pakistan: a poorly fudged blame game From the beginning, 2011 – the year marking the start of Nato’s planned withdrawal from Afghanistan – witnessed a surge in terrorism in both Afghanistan and Pakistan. But to the US, as always, the bigger worry is the loss of its troops, not the deaths of the innocent in Pakistan. To Pakistanis, it is nothing new. Since 9/11, they see every year how the US remembers the victims of 9/11 without ever expressing any regret over the deaths of almost a million Afghans and Iraqis killed by US and Nato troops in US retaliation for 9/11. However, what shocked the Pakistani establishment was the tirade launched against Pakistan’s armed forces by Leon Panetta and Admiral Mike Mullen wherein Adm. Mullen blamed Pakistan’s ISI for being in league with the Haqqani group in organizing the deadly attack on the US embassy in Kabul. Neither Panetta nor Mullen provide any proof of the ISI-Haqqani link. In fact, in the meeting with ISI Chief, after he rushed to Washington at the request of the US government, he was shown no evidence, not even taperecordings of the conversations that allegedly took place between ISI agents and the attackers, who are alleged to be part of the Haqqani group. Besides, the US military high command also refuses to explain why Afghan or Nato security barriers in hundreds of miles of territory between Kabul and North Waziristan couldn’t catch the attackers who allegedly came from North Waziristan. This makes this terrorist attack a massive goof on the part of US and Nato troops, though they have every conceivable detective gadgetry. This huge failure warranted a cover-up to convince the US public that US troops aren’t to be blamed because the devil behind the failure was Pakistan’s ISI. Whether this coverup delivers the desired results or not, remains to be seen, but the fact that the US high command is reluctant to release any evidence gives the impression that what Panetta and Mullen are talking about isn’t based on facts that can hold water. Such accusations, worse still, made publically, prove that the US isn’t worried about the rising number of its enemies; Pakistan’s ISI – an old trusted ally – is the latest significant addition to that expanding group. What is more worrying is the fact that the US never bothers to look inside its own shirt. Its blind resort to the gun rather than dialogue on an equitable basis to resolve issues is making things worse for America. Instead, it is taken for a ride by the likes of Adm. Mullen, the unsuccessful US defence chief who is retiring shortly, and looking for scapegoats to pass the buck for his failures on to third parties. But it is no surprise; American generals who failed in Korea, Viet Nam, Somalia, Lebanon, Iraq
and Afghanistan, did just that. In his latest meeting in Islamabad with Gen. James Mattis, head of US Central Command, Gen. Kayani expressed grave concern over the unchecked infiltration of Afghan militants into Pakistan making it clear that Pakistan would no longer tolerate such incursions nor allegations of the sort levelled by Leon Panetta Adm. Mullen. An interesting part of these allegations was the use of the expression “export” in the context of terrorism allegedly by Pakistan. It reminded Pakistanis of the use of this expression by India’s Home Minister Chidambaram during the terrorist attack on the Taj Mahal Hotel in Bombay. The US Defence Secretary Leon Panetta went well beyond that; he threatened unilateral US action against the allegedly Pakistan-based terrorist networks calling it America’s ‘right’. This exposes the current American mindset. The Americans don’t believe in any rules; they just do as they please as long as it serves American interests. The same Panetta didn’t see the need for holding the US troops accountable for attacks on Pakistan from the US and Nato-occupied Afghanistan. The first truly blunt response to Panetta-Mullen allegations came from Pakistan’s Foreign Minister who told the US that “you can’t afford to alienate Pakistan and its people” adding further that, accusing Pakistan without proof (otherwise a “strategic” US ally) was highly undiplomatic – a pointer to the fact that that’s how the US was adding to its enemies. But what is odd about the tough Pakistani stand is that while the Army and the Foreign Office and are on the same page, the Prime Minister is not, though he also called the Panetta-Mullen tirade a “propaganda blitz against Pakistan”. As a sincere US ally, what he should be doing is to tell the US what’s wrong with its policies and who are America’s real enemies. In his final address as US President, Dwight D. Eisenhower had given the Americans a dire warning about a the US military-industrial complex – a formidable union of defense contractors and the armed forces – turning into a threat to America’s future because an arms race [with USSR] could deprive the social sectors crucially needed resources. He was right; over the years, this complex made the US the world’s most indebted and economically strained nation. Given its blind support for Israel over the years, the US made itself the most un-trustworthy nation for the Muslims. On September 26, by vetoing in the UN Palestine’s request for recognition as a state and award of UN membership, the US will bolster Muslim hatred and also erode the UN image because veto is now an illegitimate UNsanctioned authority because the UN believes in the equality of all nations.
9
October 2011
E ditorial n August 23, President Qaddafi’s 42-year “despotic” rule came to an end after Natosupported Libyan “rebels” raided the presidential compound in Tripoli. But far more important was Nato’s admission about the presence of its troops in Libya, that it had denied thorough out the “Arab spring” in Libya. Indeed Qaddafi was despotic but was not corrupt, which was proved by Libya’s national wealth that he had saved over the years. During the 1980s, the US launched several aerial attacks on Tripoli to eliminate Qaddafi on various counts, but his regime rendered itself fit for overthrow after he floated the “blasphemous” idea of a Gold Dinar as a replacement for the US Dollar. This act necessitated the replacement of not just Qaddafi but his entire regime to curb such thinking – a mistake for which IMF’s Dominique Straus Kahn too had to pay. The fact that, until a couple of months ago, the rebels that toppled Qaddafi numbered less than a thousand, and admitted that without the air war waged on Libya by Nato they would either be wiped out or be on the run, should leave none in doubt about Nato’s role in toppling Qaddafi. Prior to its final assault on his compound, Nato air force (largely US and British) had conducted 7,500 aerial strikes targeting homes, universities, hospitals, offices of the state and the Presidential compound, under the cover provided by the “responsibility to protect” slogan that was accepted by the UN as an obligation under its 1973 Resolution. This “freedom promoting” bombardment was fully backed by Pentagon's remote-controlled firepower – the satellite-guided bomber aircrafts – without which Nato couldn’t deliver the results it eventually did. What was completely overlooked by both the UN and Nato was the fact that, Libyan uprising, or whatever it was, was solely an African affair, and the forum competent to settle this crisis was the African Union (AU), neither the UN nor Nato. Oddly, Nato’s ignoring role of AU in this affair, and its defiance of all AU resolutions on this issue, was visibly sanctioned by the UN. Soon after Qaddafi’s overthrow, Libyans were told to focus on rebuilding their shattered security. Indirectly, this amounted to telling the Libyans to open up their coffers to arms merchants from America, Britain and France (the principal beneficiaries of Qaddafi’s ouster), and let them pocket Libya’s national wealth – an estimated $170bn lying frozen in banks in the US, Britain, Germany and Holland – as well as 144 tons of Libya’s gold. Qaddafi’s exit also assured security for billions of dollars worth of BP, Total and ENI assets in Libya’s oil sector and eventual resumption of some 1.6 million barrels per day of
11
Libyan oil (cheapest for Europe given its close vicinity to Libya). The Nato-sponsored National Transitional Council can’t deny Western oil giants these rewards and the many others to be negotiated in the days to come. President Sarkozy of France and British PM David Cameron visited Libya after its annexation, reportedly to push for control of Libya’s oil sector; apparently the concessions sought were agreed because soon thereafter the UN recognized Libya’s controversial regime but the US and Nato are bent upon denying this right to Palestine’s legitimate regime. Western media is regretting that Qaddafi saved Libya’s national wealth instead of squandering it like the exuberant Arab states. Is it regrettable (for the West, yes) that Libya had zero public debt and huge reserves to spend on build a secure (not a recklessly exuberant) future for its citizens? Although the Western economists don’t provide credible proof of abject poverty in Libya, their regimes exploited unfounded claims about poverty to justify Qaddafi’s exit. Tripoli fell faster than expected not because Libya’s masses revolted against Qaddafi’s regime; this miracle was caused by relentless aerial bombing by Nato that destroyed Libya’s infrastructure creating business opportunities for Western civil contractors and for the corruption they are known for. The most worrying aspect of Libya’s crisis is that, while the West has shown zero concern for the aftermath of its invasions (of Korea, Vietnam, Lebanon, Iraq, Afghanistan) the success of its remote-controlled invasion of Libya is a message for the resource-rich but ill-governed Third World states that, instead of nurturing efficient and accountable administrations, rely on West-serving policies and rampant corruption and depend on their Western allies’ for survival. Till its colonial era (overtly) ended in the 1960s, the West was meting all its resource needs by draining its colonies in Asia, Africa and South America. But now it is on the brink of bankruptcy (courtesy oil price rise); its only option is to embark on a deceptive colonization initiative, that the UNsanctioned “responsibility to protect” will legalize. The remote-controlled weaponry (against which African, Asian, and the Latin American states are defenceless) that facilitated Qaddafi’s exit is a lethal threat. At a huge risk are the ill-governed resource-rich Third World states. States such as Somalia aren’t the West’s concern under the UNsanctioned “responsibility to protect” obligation; resourcerich states are its sole focus, and Pakistan is one of them. Don’t forget what led to Sudan’s eventual partitioning was its failure to improve governance, which alone will now prevent the deceptive use of the “responsibility to protect” slogan; it is now the only option – a fact most Third World regimes still don’t accept
October 2011
Floods in Pakistan 2011
Death Toll Injured Total Effected People Total IDPs Children Effected Total Damaged Area Total Houses Destroyed Total Houses Effected Livestock Perished Agricultural Land Severely Affected Crops Destroyed
412 (Sindh & Baluchistan) 1172 8.2 Million 0.5 Million 2.7 Million 7.987 Million Acres 630,457 848,412 Approx. 87,608 (Sindh) Approx. 2,800,000 Acres Approx. Cotton, Banana, Dates, Chili And Sugarcane
F lood 2011 Flood disaster and its fallout: can we ever learn any lessons? onsoon this year was again a disastrous in Sindh and parts of the other three provinces of Pakistan, as it was in 2010 and, as before, we were unprepared for the damage it caused; this reflects very poorly on our collective ability to learn lessons from even recent history. But the share of the in-power regime in this failure is the biggest because, in spite of the last year’s experience, claims about repairs to infrastructure belied reality, as exposed by the media, for instance, about increasing the height of canal banks and the materials used therein. The swift collapse of river banks shows that media reports were not concocted stories; they were true. But collapsing of river banks is the last of the tragedies; the story begins well before that. The first question that arises is with respect to forecasts made by Pakistan’s official metrological experts. Did they forecast what is happening now, and if they did, how timely were these warnings including the locations likely to be hit, and did the traditionally lethargic state organs have time to adequately augment the protective systems for containing the damage that was expected from the floods? Forecasting earthquakes is not possible but rains can be forecast much before they actually occur. Augmenting the protective systems implied substantially improving the capacity of local governments (or whatever is left thereof) to limit disruption of life in cities and towns, shifting village populations to safe locations with enough food and drinking water to last the expected period of the emergency and along with it strengthening the canal banks. An effort of no less importance was augmentation of the capacity of health services to cope with epidemics that were expected to spread in the aftermath of rain and flooding. From the look of things, as reflected in our President’s desperate appeal to the UN Secretary General for help in rescuing the flood affected people, we didn’t do much of the essential preparatory work, and there is no doubt that after the 2010 flood, we also failed to repair the massive damage to the canal system and hundreds of miles of river banks. Had that been done sincerely and quickly enough, the losses we confront now could be minimized. More disappointing is the fact that, despite knowing the profile of the past response of the “Friends of Pakistan”, the regime ignored the fact that Pakistan will confront the fallout of this disaster largely on its own. Besides, with US, Japan and Europe struggling to find the pennies that can balance their huge fiscal deficits, chances of any significant help from these otherwise powerful states and union were only marginally higher than zero. We should have realized that, in the medium term, Pakistan would have to depend largely on itself and so must improve its internal capabilities in all areas.
Besides the human tragedy that it has been, an equally worrying aspect of the flood tragedy is its likely impact on the economy in terms of shortage of food grain, and under-supply of raw materials to domestic industry; these could escalate problems in meeting the domestic food demand as well as in keeping the export sector, principally the textile, supplied with key raw materials,. The worst outcome could be exploitation of the fallout of the flood tragedy by the unprincipled profiteers who, sadly, miss no opportunity of earning unfair profits at everybody’s cost. It is therefore crucial that crop losses are assessed on very credible bases. All Pakistan Textile Mills Association estimates that rain in Sindh may have destroyed between 15 to 20 percent of the cotton crop, not 70 percent as claimed by those trying to mislead the public and the government. Indeed there has been loss of valuable lives, crops, real estate, and physical infrastructure but inflating these losses may be the route to extracting more state funds for the repair work that, as in the past, would be carried out mostly on paper. The other implication of over-estimating losses is two-fold: first, on the politically popular demand for protecting the farmers, higher loss estimates may be used to convince the federal government about a hike in the support price of cotton and, second (as done last year), Sindh’s farmers may be given the option to export raw cotton instead of selling it to local industrial units. Last year too, the government ignored the fact that such a concession was against the interests of Pakistan because it allowed exporting cotton with zero value-addition and thus earned the minimum in terms of the vitally needed export earnings; the move benefitted foreign textile industry at our cost. Not exporting raw cotton is imperative for two crucial reasons: first, to keep the wheels of the domestic industry running and containing rising unemployment and, second, maximizing export earnings to increase Pakistan’s exchange reserves to help service the mounting external debt and sustain the Rupee’s exchange value, which is now on a slow but sure slide. If this slide does not stop, inflation would defy all attempts at containment. At best, foreign inward remittances could plug the trade deficit that may cross $12bn, but according to SBP figures, in FY11 external debt servicing load (principal plus interest) was around $5.7bn. In FY12 this load will rise by $1.2bn on account of repaying the IMF. If the reserves are for debt servicing, the Rupee could slide. In this setting, Pakistan’s only option is to maximize its exports by increasing their volume, especially of value-added goods, not raw materials; the big plus of this strategy would be higher employment in the ongoing slide wherein it is now the single biggest threat to Pakistan’s internal security October 2011
F lood 2011 The flood disaster and its consequences hat we have been witnessing beginning mid-August, is a new chapter in natural disasters because, this year, the monsoon in Sindh has been the severest in recent history. But the destructive impact of monsoon was compounded by our being less than prepared for facing up to it. The number of dead and assets destroyed rise every day as more inundates areas become accessible but the real extent of damage would be known only after its detailed assessment by competent surveyors. But even now crop loss estimates signal a variety of shortages, and tough days for everyone. As per the last National Disaster Management Authority (NDMA) estimates, 7 million were affected in Sindh alone besides thousands in lower Punjab and Baluchistan. As per UNICEF’s initial estimates, the number of affected children alone was over 2.5 million and damage to life, property and livestock due to flooding caused by rain in Sindh had been widespread. Present estimate of houses totally flattened or damaged is around 2 million, and cattle loss is in the vicinity of 64,000. On top thereof, 80% of the standing crops too have been damaged. Prime Minister Yusuf Raza Gilani disclosed these details while during a nation-wide speech in mid-September on the flood tragedy wherein he sought help of the nation, the UN and “Friends of Pakistan”. The district administrations seemed helpless in organizing rescue operations because, first, the number of the affected people ran into millions and, second, they had to be moved to dry land in distant locations since, for miles at a stretch, land was flooded preventing setting up of camps in close vicinity, and since road networks too were flooded, this task became twice as difficult. Because district administrations were wholly unprepared for this tragedy, emergency transport arrangements weren’t there nor the ware withal to build temporary shelters, store food items and drinking water, set up mobile health units or fumigate the areas where the rescued were shifted. These essentials could be provided to only a tenth of the affected which implied leaving the rest at the mercy of nature. The families that were recovering from the effects of the killing floods of 2010 were disrupted yet again. In 2010, we suffered a worse tragedy that ought to have taught district administrations crucial lessons. Reportedly, they had worked out rescue plans for future emergencies. Yet, despite their claims to having evolved such emergency strategies, all district administrations without any exception performed poorly; Karachi’s districts too fell in this group. The recent monsoon also left the key arteries of Karachi including I.I. Chundrigar and M.A. Jinnah Road inundated. Economic activity virtually froze on September 12 and 14. In the city’s low-lying areas, streets remained inaccessible for days because they were submerged under a mix of rain water
Some harsh facts: A harsh truth drowned in this chaos was that during the past decade the monsoon belt gradually shifted Westwards from Rajasthan to Sindh and will continue shifting towards Baluchistan. Impliedly, in the coming years, Sindh, Punjab, Easter Baluchistan and KhyberPukhtukha will experience severe monsoons requiring concerted efforts to repair canal banks and shift village populations to higher locations, and in the cities, as concerted efforts to expand, strengthen and regularly cleanse the sewage networks. Besides, emergency rescue and medical services must be doubled at the earliest. This calls for substantial investment in these services – transport and the whole variety of rescue equipment, staff training, regular emergency drills, revival of the boy scouts movement (including first aid drills) in school and colleges; district administrations can’t routinely pass their obligations on to the armed forces who have enough on their hands, given the threats to Pakistan’s internal as well as external security. Finally, unless district administrations accept their primary share in these services, they lose their right to tax the citizens – a harsh reality that they coolly overlook. and water oozing out of overflowing sewage lines. This went on while politicians focused on accusing each other in the Zulfiqar Mirza-MQM vitriolic debate, ignoring the miseries of the flood-affected lot. Because of poor line connection work by the linemen of the Discos, live wires fell from poles and posed a formidable threat to the pedestrians. This risk escalated because of the carelessness with which, in many places, Discos had left live wires un-buried in the pavements. As a consequence, several individuals were electrocuted. On their part, municipalities created another risk for pedestrians by leaving open many gutters. Covered by the rain water, they were invisible and many people fell in them badly hurting their limbs. In almost every case, district administrations blamed the Metrological Department for late warning about the coming tragedy but Metrological Department insists that heavy rains had been forecast several months in advance warning all the concerned authorities to pull up their socks and get ready for tackling the onslaught. While the truth remains shrouded in mystery, the likelihood of timely warnings being received but ignored is high given the record of district administrations. Be they heavy or mild, the monsoons mandate preparing for them, which visibly was not done even in cities and towns, let alone the countryside, as shown by the conditions that surfaced even in big cities throughout the monsoon.
15
October 2011
F lood 2011 The already bad scenario in the villages was made worse by the incompetence and, in many cases, sheer dishonesty of the district authorities in distributing rescue materials to the affected people. There were instances of material not being distributed while it rotted in makeshift storage, distributed to only favourites, or whisked away to markets where it was sold. In one case, four low ranking staffers of NDMA were caught stealing the goods. Instances of flood-affected people storming buildings where rescue material was stored were witnessed daily, but what was worse was the instance wherein the private guards of a Sindh MPA shot dead two innocent people who were asking for their share in the rescue materials. It is such instances that hurt the faith of those wanting to join the rescue efforts that Pakistan needs while “Friends of Pakistan”, many in trouble themselves, are not coming up with help. During the rescue operations after the 2005 earthquake as well as the 2010 flood tragedy, there were instances of this sort but punishment mated out to culprits wasn’t exemplary enough. That’s why such incidents were repeated – a lasting tragedy that encourages the corrupt to go on sinning; such characters survive because of the strong backing they have.It was obvious that the tragedy in Sindh was on a scale that defied quick rescue but conditions worsened because the flood-affected could not get clean drinking water. As in the past, the bigger failure was in providing medical care to thousands who had no option but to drink contaminated water and thereafter suffer from epidemics – diarrhoea and gastric illness, and malaria caused by mosquitoes over the surface of rain water that spread over hundreds of square miles. In Punjab the rain tragedy took a deadlier turn due to the spread of dengue fever that caused hundreds of deaths. Tragically, in spite of the seemingly tireless efforts by its Chief Minister, Punjab’s medical services couldn’t deliver, firstly because spread of the disease was on an unbelievably wide scale and, secondly, some in the medical services saw the tragedy as an opportunity for enriching themselves. The almost baffling spread of the dengue fever exposed a harsh reality; with population exceeding 8 million, Lahore’s medical services are wholly inadequate. If its hospitals can’t accommodate around 4,000 patients in an emergency, it is a worrying sign. Surely, this failure could be much worse if Karachi, with a population of 20 million, had to treat even 10,000 patients in an emergency. After district authorities failed to organize and execute rescue work, its load was shifted on to the armed forces. Soon after joining the rescue efforts, ISPR disclosed that over 10,000 people were evacuated, 20 tons of rations were distributed, 12,000 families were moved to safer places, and over 2,000 patients were treated for illnesses. The Corps Commander visited Hyderabad, Tando Allah Yar, Mirpur Khas, Digri, Sindhri and Sanghar, to advise Army officers and soldiers to proactively help the victims in this national tragedy. The Army stays engaged its rescue work, and may have to stay in the affected areas for several weeks until the district authorities think they can manage it from thereon
16
Proposed sequence of steps in rehabilitation: Resources that will be required: Heavy and light transportation vehicles and fuel for them Materials for repairing roads and power supply networks – cement, concrete, sand, cables, transformers, connecting materials, insulators, poles, etc. Manpower both expert, skilled and unskilled Tents, poles, ropes, etc. Portable cots with essential bedding items Stocks of dry food Stocks of medicines, especially for treating dengue fever, cold, cholera, dysentery, fever and eye and skin infections
Sequence of steps in rehabilitation:
1. Road repairs: Transportation of repair material for road repair and power supply network, food, beds, tents and medicines for labour that will repair the affected roads 2. Access to the flood affected villages and town: Repairs to roads and construction of temporary bridges (boat bridges over rivers but know the limitations of these bridges; only light transport vehicle can travel on them) 3. Availability of essential and their security: Transportation of tents, dry food, essential medicines and land repair tools/equipment to villages, their storage, and adequate availability of security personnel – the police 4. Ensuring manpower availability for rehabilitation: Transportation of the younger farmers to their villages to fix tents, and then repair basic infrastructure – water pumps, medical dispensaries, streets, shops 5. Food adequacy: Ensuring availability of dry food stocks for at least the next three months 6. Finally back to the villages: Transportation of senior farmers and families back to their villages 7. Reviving economic activity and life routines: Revival of shops and businesses dealing in essentials 8. Putting farming back on track: Transport of seeds, fertilizers and pesticides for distribution to the farmers
Concessions and subsidies that will be imperative:
Exemption from land revenue but only on the next crop Extension in repayment period of existing bank loans until reaping the next crop Relaxing the terms of fresh lending for the next six months – loan pricing, tenor and adequacy of collateral Concessional availability of seeds, fertilizers and pesticides for the next crop Availability of agricultural tools/implements at reduced prices and, where possible, on 6 months’ credit
Reconstruction must to build stronger infrastructure:
The overall reconstruction effort must build higher, wider and stronger river embankments, stronger bridges, wider and better access roads, higher, better and stronger silos, many more better and well-staffed healthcare centres, and primary schools with all necessary equipment and teacher strength. The effort after the 2010 floods achieved none of the above.
October 2011
F lood 2011 Flood disaster: challenges for the financial services sector by Nadeem Abdul Ghani will be a tough year for Pakistan’s economy. The industrial and service sectors could contract as state funds and bank credit are diverted to rehabilitation efforts further squeezing credit availability to the private sector, which could bring borrowers in these sectors under pressure and impact banking sector liquidity, but rehabilitation ventures could offer banks the opportunity to extend their services in this effort. How things unfold remains to be seen but banks must commence analyzing possibilities, and prepare to participate in this mega effort in line with their strengths and niches. Besides widespread misery, crop losses may force import of agricultural produce whose surplus we used to export; Pakistan’s already high external debt won’t allow this. Banks therefore must help reverse the crop shortfall as quickly as possible by supporting the agricultural sector to ensure that trade deficit stretches only for a short period and does not cast its lasting shadow on the economy as a whole. In the recent past, banks had substantially increased their share in credit to the agriculture sector, but in the coming months they will have to raise this share to a higher level to assist the revival of agriculture sector on a priority basis. Pakistan’s reality is that this sector employs two-thirds of the workforce, which must remain employed to forestall a social upheaval, besides containing the food import-driven trade deficit and its overall impact on the economy. In the context of rehabilitation task, banks should focus on rebuilding the basic village infrastructure such as houses, shops, silos and healthcare centres, and provide agricultural gadgets, seeds, pesticides and fertilizers through soft loans. Repairing river embankments, bridges, streets leading to the highways and water courses, all to revive affected people’s interest in restarting the crucially important farming activity is crucially important, but that is the state’s responsibility; banks can finance it only via state agencies. Land will have to be cleansed of a lot of foreign bodies that flowed in along with flood water, and are now buried in the soil. Besides, unless farmers are provided shelters (i.e. tents) to live in, they won't return to their farms and start farming. Banks are already under pressure, both officially and morally, to write-off existing loans besides increasing credit to the agriculture sector. But banks must press for rehabilitation of the basic infrastructure to begin assisting the agriculture sector. Besides, Banks will face problems in extending credit since collateralizing credit will be difficult because the flood has swept away state offices in dozens of small towns, and the records of landownership may often not be available to verify borrowers’ land ownership status for collateralization of their debt. This data gap also offers the corrupt a chance to grab the plots of their choice. Destruction caused by flood wiped out the landscape and
made it difficult to locate boundaries of plots to conclusively decide their original locations. The problem of establishing ownerships can be resolved with the help of provincial and district governments. Banks can’t resolve this issue without a prompt state initiative to credibly re-establish plot locations and where necessary, draw fresh maps and based thereon, re-issue ownership documents. Recreating this record is tough but not impossible; what banks need is commitment to finding a legally valid solution to re-start the flow of credit to the agriculture sector. In this task, banks, state offices, and the legal community must join hands i.e. their energies and skills to find viable solutions to the quandary stakeholders confront, and must stay conscious of the urgency of achieving this objective since productivity of agriculture sector must quickly be restored. Banks already have loan products that meet the needs of the farmers, including requisite documentation procedures. This is a big plus that banks can build on but the attributes of loan products may need revision to take into account the adverse conditions of the flood-afflicted farmers. An issue the loan package revision effort must address is that loans that only partially meet farmer needs won’t help the farmers generate the requisite repayment capacity. To design these packages in a purpose-oriented fashion, banks must consult sector experts so that farmers get enough credit for all the inputs that will be required to recommence farming. After destruction of villages and farmland spreading over millions of acres, it is anybody's guess when that land will become arable since it will require repairs to hundreds of miles of river embankments, de-silting of hundreds of miles of canals and thousands of miles of water courses for water to reach the farms miles away from the rivers. Expert advice will also be needed to decide when to lend i.e. completion of the land reclamation process and essential repairs to water courses; without them farming can’t recommence. The other important issue would be re-structuring of loan products in terms of their pricing and repayment tenors. In both areas, concessions will have to be made. But to reduce the risk of default, banks will have to reorient their abilities for loan use monitoring and reliable grip over sale proceeds of crops to ensure optimal recovery from loans. This is imperative for containing loan losses and for sustaining bank liquidity to go on funding fresh credit. Banks must examine their options in re-designing their organizational units that are currently managing and supervise agricultural credit. Banks have no options but to expand their field forces, which must quickly be re-trained and imparted guidance on reporting to branches in the towns that cover the localities comprising of nearby villages
17
October 2011
E conomy Circular Debt: is it “the problem” or is it something else? here is a consencus on blaming the “circular debt” for the worsening scenario of power load-shedding. May be so, but it is worth examining how much of the blame can fairly be placed on circular debt, and which other factors may be causing this balloon to expand, virtually by the day. Some experts estimate the volume of circular debt to be in the vicinity of Rs 600 billion. Others very rightly point to the aberration being created by conveniently adding up the outstanding dues of the members in the supply chain – oil marketing companies and refineries importing furnace oil on credit, IPPs buying furnace oil on credit from them to generate power, the distribution companies (Discos) buying electricity on credit from the IPPs, and consumers (the big chunk being state offices) paying their power consumption bills with long delays or simply not at all. In addition, there were the subsidy costs, for which the government is yet to fully reimburse the IPPs. In reality therefore, if all the linked outstanding liabilities are netted the actual figure of the circular debt could come to Rs 220 billion since, on June 30, 2011, the circular debt was around Rs 200 billion and has since then been rising at a whopping Rs 1 billion a day on gross basis. The hard fact is that if the last link in the chain – consumers – were to pay their bills, circular debt could be reduced to the extent of the subsidies that weren’t paid to the IPPs. But in this mess, government offices are at the top of the defaulters’ list because of their clout, little else. The record of government offices was never exemplary in this context. But their burden wasn’t as crippling as it now is courtesy Pakistan’s over-dependence on electricity generated by oil-fired plants and the absolutely killing rise in the price of oil courtesy the un-contested OPEC cartel. But the impact of rising oil price has been worsened by other flaws that remain remedied – huge inefficiencies rooted in: - non-replacement of out-dated power generation equipment in WAPDA’s power houses, - on top thereof, poor maintenance of equipment causing frequent breakdowns and resultant load-shedding, - overstaffing in WAPDA-run power houses, corrupt administrative practices in component purchase, employee performance supervision, and disciplining, - almost uncontrolled line losses due to defective power transmission technology and equipment, - no measures to effectively check power theft that is the single biggest contributor to WAPDA’s losses, - corrupt billing practices that reward the power thieves (Rs120bn is due from private sector and Rs 90 billion from provincial government offices), and - continued free electricity supply to WAPDA staffers
The hope that privatising power generation would resolve this mess was, it now seems, only a dumb idea if Discos continued to overlook line losses and power theft, with no assurance (impossible with the OPEC cartel ruling the roost) that any rise in oil price would be contained through a reliable risk hedging mechanism. A substantial increase in oil price was therefore bound to cause its fallout if these flaws – line losses and power theft – went on, more after restoration of ‘real’ democracy in its current profile; the Discos cannot generate the cash flows to pay power generation companies (Gencos), for onward timely payments to the oil suppliers. The scenario was made worse when Gencos issued notices to the government that if their dues were not paid within 30 days, they will wind up their operations. This failure of the state was hardly the way to induce entrepreneurs – domestic or foreign – to consider investing in Pakistan’s power sector, which is the only option Pakistan has given its badly messed up fiscal management. Without any doubt, governance that leads to this end needs revamping but this need too had to be highlighted by a US advisory mission that visited Pakistan on September 14 and 15. The US mission is reported to have criticised the overlydelayed reforms in the power sector including modernization and replacement of power generation technology, continuing price distortions caused by line losses and power theft, and excessive reliance on clearly unsustainable subsidies (i.e. for which the requisite fiscal resources were not generated). The visiting ambassador Carlos Pascual, US State Department’s Special Envoy for International Energy Affairs said that, "as all Pakistanis know, reliable and affordable energy is critical to Pakistan's prosperity. Without it, businesses can't operate and families can't light and cool their homes. Pakistan's future depends on power.... there are no quick fixes to this crisis, but the US and international partners are willing to help. We will continue to support Pakistan in its efforts” to overcome the energy crisis. On Pakistan’s part, its suggested strategy was strange in several ways but particularly in the context of reducing the crippling circular debt. For the present the initiatives being considered are mostly focused on passing on the entire high cost impact on to the consumers. Oddly, there is little that addresses the system weaknesses – technology weaknesses and flaws in the distribution system. If implemented as it is, it could burden the consumers even more, which isn’t the way out expected by the commercial and industrial sectors. The US mission was told that revenue fell short due to: (i) the low tariff (courtesy allowances by Nepra), (ii) line losses and power theft of over 20% of the power transmitted, and (iii) insufficient recovery of the power supply bills. What the list didn’t include, were technical deficiencies that are a major contributor to the huge gap between the costs of power generation and revenue collection. There was no refer-
18
October 2011
E conomy -ence to the big blunder – non-constructions of Kala Bagh dam – in which several coalition partners had a role. The proposals discussed with the visiting US delegation included vital changes in the tariff determination formula wherein, after September 30, government will include the entire line losses and fuel costs of the Gencos; this will be done to ensure that, in future, no subsidies are provided to the consumers. There is a list of envisaged changes in the tariff system which include the following likely measures: - In 2011-12, increase in power tariff by 15.6 percent to bridge the Rs 1.60 per unit gap between the actual tariff and the notified (government determined) tariff. - Currently, National Electric Power Regulatory Authority (Nepra) allows inclusion of line losses up to 16.5 percent in electricity bills against real line losses of 19.5 percent. In the new tariff regime, Nepra would be authorised to permit inclusion of 19.6 percent line losses in electricity bills which, as per current calculations, implies Rs1.25 per unit additional tariff. - It is also proposed that 100 percent fuel cost be included in tariff determination; currently inclusion of 80 percent of the fuel cost is permitted by Nepra. - Several structural changes in the power tariff regime will be introduced whereby the notified (state-determined) base tariff will be increased by Re 1 per unit from the current Re 9.40 to Rs10.40 per unit, to cover increased furnace oil cost. - A new ‘industrial’ category will be added to the existing tariff regime that will get uninterrupted power supply but those falling under this category will have to pay a 25 percent premium over the tariff that will be applicable to non-industrial consumers. - Nepra may also impose an additional Fuel Adjustment Surcharge of Re 0.96 per unit on electricity bills in the wake of limited gas availability to the new four gas-based IPPs since these IPPs will now generate electricity using fuel oil and the increase in their generation cost will be to the tune of Rs72 billion in the next year (could be higher later on) and must be borne by consumers in the shape of yet another fuel adjustment surcharge. - Increased load-shedding in the areas where recovery of consumption charges is poor compared to supply, and reduced load-shedding in areas where losses or power theft is much lower. - Legislation to be passed whereby consumers who fail to pay their bills on time would be served disconnection notices and their supply severed within 60 days thereof.Also, once a connection is terminated, reconnection will be only via meters that are activated by “prepaid cards”. - Electricity bills of the provincial government offices and defence installations will be recovered directly by the federal government from the allocation of their share in the federal revenues. The immediate privatization of Discos too is on the cards. In case that is not possible, then they may be provincialised.Under
19
that arrangement, federal government would provide the share of subsidies to the provinces, and Discos will pay for the full amount of power supplied to them by WAPDA’s national grid. The point to note is that the focus is on cutting the circular debt through increased tariffs, not on its impact on the whole economy, nor on containing line losses or power theft. What is being highlighted is the fact that the proposed tariff hikes will help recover line losses that are presently burdening the exchequer with Rs 25 billion, and fuel cost of the Gencos that too are crippling their cash flows and adding Rs 25 billion to the circular debt. It would be incorrect to deny that power generation and supply systems need injection of resources to enable them to deliver so that load-shedding is minimized or eliminated. But the question is, should it be done almost wholly by jacking up tariffs that honest consumers pay. Impliedly, should the honest pay for power thieves, and inefficiencies of Discos? This question arises since proposals that have surfaced thus far, express only marginal concern for remedying these two ills, which is unbecoming of a responsible administration. All Discos need a major overhaul to bring home to their managements the realization that they must make a gigantic effort in cutting line losses – improving technology, material use and, above all, accountability of the frontline staff that is responsible for ensuring that these deficiencies do not cause avoidable losses. In this context, some Discos (Quetta, Fata, Hyderabad and Peshawar) have earned a unique reputation for openly ignoring these ills. In Fata, literally no one pays the power consumption bills. KESC is the only private sector company in Pakistan that generates as well as distributes electricity. In spite of its many weaknesses, it had done well until its labour union went berserk and, during the last three months, nearly succeeded in turning KESC into a failure. What we witnessed day after day was apathy of the law enforcers towards ensuring that union members confined themselves to protesting in a legal manner. The labour union had (apparently with the regime’s backing) allegedly, shut all KESC offices, fiddled with power generation plants and often damaged it, cut power supply lines and prevented billing of consumers. The cost of this entire chaos caused by just 4,000 employees was borne by 20 million Karachites; nowhere did the state come to their help. It is time the government should declare power generation and distribution special sectors, wherein such conduct of the labour unions will be banned but they would be allowed and assisted in filing petitions in the courts of law against their employers. Finally, a crucial area whereon no one expresses concern is the financial technology used for buying oil. Perhaps, after one unprofessional attempt at booking forward purchase of oil (that caused a loss) we have simply given it up, instead of adopting this route using professional advice to capitalize on dips in oil price. Buying oil on spot requires no great skills; buying it forward at the right time holds the key to cutting its cost and consequently the lowering the cost of electricity to a level that doesn’t cripple the efficiency of the commercial and industrial sectors to a point where they wind up October 2011
F inancial Services Banks: where did they go wrong? By A.B. Shahid or the past several months, commercial banks have been faulted for becoming overly risk-averse. There is more than a grain of truth in this accusation; banks are becoming risk-averse. Well, isn’t that a logical reaction to the events that began the world over in 2008? But the real issue deserving bankers’ attention is whether they over-reacted, and will this profile of interaction with the markets assure an economic revival? This is the issue that needs addressing. Financial services sector constitutes the backbone of any economy; on it depends the future of the nation provided this sector (with a wealth of knowledge about the expected market trends) guides businesses, especially SMEs that have limited access to market data, both national and global. But there are times when players in the banking sector opt to act merely as intermediaries and dilute their crucially important role of giving business and industry a sense of direction by channelling credit to those sectors that will promote growth on a sustainable basis. Such conduct implies missing out on the essence of prudence. The bonanza that was fuelled by oil price hike in 1973 made American bankers oblivious to the sacred demands of their profession – guardianship of the national savings and classic examples thereof were almost all of the ill-conceived sovereign loans extended to the Latin American countries. These loans subsequently became known as MBA (Mexico, Brazil and Argentine) loans. Yet, that experience, though exemplary, failed to set an example, and just over a decade thereafter in 1987 the world faced a bigger financial crisis, which too could not prevent similar crises in 1995, 2001 and then in 2008. This is not a proud track record for bankers the world over. In economies like Pakistan, where businesses are swayed away by the lure of short-term gains, banks’ role has special significance; it becomes crucially important during bouts of privatization (if compounded by excess liquidity) when the burden of pursuing socially acceptable goals shifts from the state to the private sector. Fulfilling this role credibly calls for prudence to contain the investment trends that channel public savings into marginally productive or, in fact, wholly exuberant sectors. An example thereof was import of cheap electrical goods in large quantities without realizing that by 2005 Pakistan began experiencing power supply shortfall. The pervasive use of electric gadgetry was bound to worsen that shortfall, which has now crystallized. True, inflation has more to do with the way the monetary system is regulated, but pricing of financial services plays a major role in containing inflation in a country like Pakistan where businesses tend to be highly leveraged. As provider of the financial resources, this sector can influence pricing mechanisms in the economy provided it is truly committed to maintaining economic stability. The sudden shift to floating rates of mark-up without ensuring that common
borrowers also understood the downside of floating markup rates, was a serious error, more so because, in the beginning, banks didn’t include in their finance agreements the cap and floor mark-up rates based on the worst-case re-payment capacity of each of their borrowers. This was imprudent. Banks also ignored that speculators were gaining excessive influence in markets and artificially pushing up the prices of virtually everything. It was unfortunate that banks didn’t curb these trends by limiting credit supply to such entities. Instead, unwittingly they financed speculators that helped inflate price bubbles. We witnessed that, particularly in the construction and housing sectors. Yet, banks kept lending to these sectors against inflated values of collaterals provided by borrowers. The most amazing example of this distortion that engulfed the entire US financial services sector was mortgage financing at break-neck speed via asset-backed securities – assets in this case being the existing mortgages (about whose health banks bundling them together to create more of mortgagebacked bonds had little knowledge). Institutions issuing these bonds were supported by rating agencies that branded these bonds as triple “A” rated instruments. This reckless pursuit of profit tarnished the image of rating agencies fairly badly. Rating agencies’ failure has re-loaded banks with the prime responsibility of risk assessment instead of out-sourcing it to rating agencies. After S&P downgraded the risk rating of US debt, demands are being made for disqualification of rating agencies, to start with, from rating sovereign debt. However, recently, a Madrid court dismissed a petition filed against Fitch, Moody’s and S&P for downgrading the Spanish debt’s rating. According to the judge “from a legal standpoint there is no evidence that these downgrades were based on false data. At any rate, even if you accept that rating agencies were seriously mistaken, there was generalised failure on the part of politicians, regulatory agencies, economists, analysts and experts at the global level in anticipating the crisis, above all, its extraordinary magnitude.” Such of imprudent lending is now having its impact to the dismay of the banks everywhere, and is bound to induce risk-averseness but it is inadvisable to brand all borrowers as high-risk in any category; each category has good ones too. Financial services sector carries a burden of responsibility in putting national savings to optimal use, and shouldn’t merely channel public savings into the various sectors; it must make qualitative judgments about long-term outcomes of investing in those sectors; this requires focusing not just on the nominal returns, but also on real economic returns that have important social implications. This critical obligation acquires far greater significance in the deregulated markets because to unwittingly enrich the already rich will propel
23
October 2011
F inancial Services skewed distribution of the national wealth, increase the spread of poverty and all the resultant social ills. The chaos we see all over the world now is a reflection of banks’ dilution of this imperative. Avoiding such flawed outcomes requires institutionalizing supervisory styles that can tamper the risk marketing efforts with vision instead of being driven by the greed of business and industry. The expanding gulf between credit and GDP growth rates during 2003-08 reflected a non-serious attitude of the financial services sector although this clearly visible trend fore-shadowed steady build-up of inflation-triggered major economic imbalances because it was highly likely that, for extended periods in the future, it would be possible to retrieve the bank credit blocked in marginally productive sectors; that delay is now placing the whole economy under strain. This outcome was avoidable if bankers could foresee the definite build-up of the coming recession whose signs were visible since end-2006. That was the time to apply brakes gradually by stiffening the terms of consumer lending via personal and housing loans, and credit cards. Realistically speaking, this initiative should have come from the top brass of the banks, which is expected to watch the developing macro picture of banking sector’s asset portfolio and developing imbalances therein such as: - credit growth vs. GDP growth, - trends in asset-liability mismatches and implications for future bank liquidity, - impact of competition from regional states in squeezing foreign market share of Pakistani exporters, - proportion of credit secured by weak collateral or backed by borrowers’ weak sales contacts e.g. exports on contract and collection bases, - sectors that were slowing repayment either due to drop in demand or rise in their cost structures (the mark-up and exchange rate effect) that rendered them uncompetitive, - borrowers coming under stress because their sister firms were transmitting their stress (the systemic stress - within groups of companies) to them, - trends in employment that had direct consequences for the consumer credit portfolio, - build-up of NPLs, and above all, trend in employee turnover at all levels in the bank. But market trend analysis appeared a collective weakness whose impact was accentuated by diluted risk assessment disciplines. Often borrowers’ repayment ability was assessed optimistically because pressure for booking more risk assets was imprudently high. This was the area wherein majority of the lapses occurred which are partly accounted for by high employee turnover in the financial services sector, witnessed but not contained during the 2003-07 period. Banks can’t become overly risk-averse since the ongoing slide in credit to private sector will have serious implications for the economy’s future in terms of the social fallout that
will accrue from a drop in economic activity and rise in unemployment.Banks must re-visit their lending priorities and preferences to ensure that this time they don’t make the same errors that caused the earlier recessions, which had the effect of virtually shattering the economies. In this context, of crucial importance is the state of governance in the financial institutions, particularly banks. It is time banks completely revamped their approaches to and procedures for assessing borrower risk, and the disciplines for risk asset and collateral monitoring. All these areas need strengthening on a credible basis with emphasis on: - obtaining in-depth information on market risks associated with various borrower-types, - supplementing this information and data with informal market inquiries, borrowers’ demonstrated capacity to perform and also the probability of using requested credit optimally, coverage of all risks involved in the transactions though risk hedging instruments/contracts, - real-time effective monitoring of risks as they move from one stage to the next, and - corrective steps to be taken during this process to prevent transaction failure. In this context, a key area that requires complete review is outsourcing of some critical risk management services – i.e. asset valuation, storage of goods including monitoring their condition and the movement therein, and warehouse security. The damaging effects of overreliance on out-sourcing have been sidelining of development of monitoring skills within the banks’ frontlines. Consequently, supervision of these areas has become weak because bankers’ expertise in checking whether service provides are doing a satisfactory job has weakened. Besides, banks have yet to institutionalize the procedure for seeking credit references – industry-wide use of standardised formats that make it obligatory on responding institutions to compulsorily provide the minimum information necessary for forming a view about the involved borrowers. It is also important that lending policy, strategy, sanctioning process and internal audit are viewed as an integrated whole since effective management depends on smooth interaction between these functions; to make this meaningful, behaviour of parties thereto holds the key. Banks’ strategy on booking risk assets must be guided by their economic research units, and be aligned with liability marketing and treasury activities because strategically planned accumulation of funds – the raw material that finances risk assets – can be ensured only via integration of the focus of all these functions. This critically important aim won’t be achieved unless bank managements assign it top priority and manifest it through own conduct. Institutions often lay down sketchy policies either owing to lack of professionalism or deliberately to keep policies flexible so that a variety of situations (including the ones dictated by competitive or, at times, non-business considerations) can be accommodated. Decisions taken within frame
24
October 2011
F inancial Services work of loosely worded policies permit venturing into risk areas for which institutions neither have the expertise nor requisite financial resources. Such adventures allow accepting risks that lead to distress beyond the institution’s capacity. For example, while financing industrial projects, banks often do not require their borrowers to disclose arrangements for uninterrupted power supply, or insist on these arrangements being made an integral part of the project. Well thought out policy guidelines too are no guarantee for effective supervision and operational controls. Even the most articulately spelled out policies may be undermined by the manner in which they are implemented. For instance, control systems that encourage paying just lip service to policy guidelines or to their consistent application, actually encourage hoodwinking those guidelines. Over time, this conduct becomes the organizational culture – a tendency that must be stopped in its tracks. Making policies inviolable also requires policy-makers to manifest vision in anticipating likely changes in business, regulatory as well as economic environments, and the impact they would have on their risk asset portfolios. We must appreciate that, unlike war, not everything is fair in competing in the financial services sector since dwindling fortune of a single institution could escalate systemic risk to unmanageable levels and place the entire financial system at risk. Risk must not be downgraded in favour of the bottom line – a tendency that eventually takes its toll. That’s why the business and profit targets must always bear a realistic relationship to an institution's business niche and turf, its resource infrastructure, in-house skill/expertise availability, systems support and, above all else, to realistic estimates of macro-economic growth so as to rationalize business targets and discourage risky ventures. Developing solid preventive mechanisms is possible but only by focused economic research because it will point out the likely risks and thus dictate the risk hedging mechanisms that a bank may rely on. Thereafter, it is up to the bankers to decide which risk-hedging mechanisms to rely on, when to enter into contracts there for, decide on the duration of the risk-hedging contracts, and the mechanisms for building their costs into the bank’s services. Research can flash timely signals to activate preventive mechanisms but we continue to sideline even niche-based research. There is visible dearth of in-house research by units comprising of experienced professionals with requisite expertise, who are mandated to focus on risks (domestic as well as external) that will impact banks’ niche-bases. These units should conduct real-time research and issue warnings to banks’ top brass well in time, with supporting evidence, facts and figures and also identify the options available to either eliminate or at least minimize the impact of expected crystallization of market risks. Finally, the most important asset of a financial institution is its credibility, and the only way to sustain it is through governance that is recognized as transparent, judicious and serving the interests of all the stakeholders. Simply put, this is what prudence implies. The reality, however, is different;
regulators appear satisfied with issuing complicated circulars on the subject. The fact is that these objectives cannot be achieved unless the majority of banks’ Boards of Directors consists of people conscious of their supervisory duties but, for now, this class – the executive directors – can form only 25 percent of the Board, and no more. It is also time for the SECP to assess whether this restriction helped elevate the profile of corporate governance in Pakistan or failed to do so
The best set of advices to bankers In 1863, Hugh McCulloch, the US Comptroller of Currency addressed a letter to all national banks that were organised latterly, and by their conduct their executives had earned the Comptroller's sage admonitions. Here is what he had to say: “Let no loans be made that are not secured beyond a reasonable contingency. Do nothing to foster and encourage speculation. Give facilities for only legitimate and prudent transactions. Make your discounts on as short time as the business of your customer will permit, and insist upon the payment of all papers at maturity, no matter whether you need the money or not. Never, review a note or bill merely because you may not know where to place the money with equal advantage if the paper is paid. In no other way can you properly control your discount line, or make it at all times reliable. Distribute your loans rather than concentrate them in a few hands. Large loans to a single individual or firm, although sometimes proper and necessary, are generally injudicious, and frequently unsafe. Large borrowers are apt to control the bank; and when this is the relation between a bank and its customers, it is not difficult to decide which in the end will suffer. For every dollar that a bank loans above its capital and surplus it owes to savers, its managers are under the strongest obligations to its creditors, as well as to its stockholders, to keep its discounts constantly under its control. Treat your customers liberally, bearing in mind the fact that a bank prospers as its customers prosper, but never permit them to dictate your policy. If you doubt the propriety [advisability] of discounting an offering, give the bank the benefit of the doubt and decline it; never make a discount if you doubt the propriety of doing it. If you have reasons to distrust the integrity of a customer, close his account. Never deal with a rascal under the impression that you can prevent him from cheating you. The risk in such cases is greater than the profits. Pay your officers such salaries as will enable them to live comfortably and respectably without stealing; and require of them their entire services. If an officer lives beyond his income, dismiss him; even if his excess of expenditures can be explained consistently with his integrity, still dismiss him. Extravagance, if not a crime, very naturally leads to crime. A man who spends more than he earns cannot be a safe officer of a bank. The capital of a bank should be a reality, not a fiction and it should be owned by those who have money to lend, and not by borrowers. The comptroller will endeavour to prevent, by all means within his control, the creation of a nominal capital by national banks, by the use of their circulation, or any other artificial means; and in his effort to do this he confidently expects the co-operation of all well-managed banks. Pursue a straightforward, upright, legitimate banking business. Never be tempted by the prospect of large returns to do anything but what may be properly done under the National Currency Act. Splendid financiering is not legitimate banking, and splendid financiers in banking are generally either humbugs or rascals”
25
October 2011
F inancial Services Centralizing Trade Processing: its advantages and disadvantages By Ahmir Mansoor
They knew how much to trust customers when deciding how best to deal with a small problem, for example, a minor discrepancy in documents presented under an LC. Typically, these branches provided a range of everyday ‘bread and butter’ services to import and export customers in their requirements such as issue of Letters of Credit/ Guarantees, Contracts, Advance Payments, Advising LC received from correspondent banks abroad, Confirmation of Letters of Credit, Transfer of Letters of Credit, export Bill Purchase or Discounting, Export Refinance, payments and transfer of funds between banks in different countries, examination of documents and reporting on foreign trade to the Central Banks and other data consolidation agencies of the state as well as trade associations.
dam Smith, the father of modern Economics invented the concept of ‘division or specialization’ of labour by allocating jobs to people according to their abilities. This has resulted in the increase of the productive capacity of labour in terms of quantity and quality, and has eventually reduced cost per unit. Considering its merits, the scope of division as well as specialization of labour, is now extended to banks’ back office functions. Recent changes in the banking industry organization structure have introduced the novel approach of “centralization”. This has resulted in efficient, reliable and smart processing to an extent not seen before. Global trade is both complex and crucial; it requires in-depth knowledge of varied documentation requirements, different geographies, stringent bank regulations, multiple currencies, and the ever-changing business environment. That is why trade finance was always been considered as document intensive and being subject to a multitude of regulatory requirements. Traditionally, large banks serviced their customer on a geographical basis i.e. they set up branches specializing in international trade in every town or major cities in order to be physically close to their clients. They had a good idea of the type of the businesses their customers were involved in, and their reputation for business and financial stability.
Changes in bank structure: Differentiation provides the weapon to face competition in the banking industry; if centralization of operations can bring a change by improving customer service standards, it must be implemented. Under the new model, large banks changed their traditional approach by closing most of their regional foreign exchange branches and now they have created Trade Processing Centers (TPCs), which operate as head office departments specializing in handling high trans
26
October 2011
F inancial Services action volumes. Inevitably, with all such business now concentrated in one or two TPCs, their internal functioning has been broken down into a series of individual tasks, for example, an “LC Team” that only deals with LC opening, contracts registration and advising amendments in LCs, whereas the “Bills Team” is responsible for the scrutiny of documents, and authorization of payments based thereon, and so on. Centralization has been justified for two main reasons: first, improved information technology that allows installing end-to-end trade finance solutions technology to automate trade service operations, and the ability to use electronically scanned and imaged documents in order to further speed up the process, particularly where a TPC and the customer base it serves may be miles apart. Second, trade activities are re-examined, re-defined and broken into separate specialised areas; both are desirable for cost-cutting. No wonder, TCPs are sometimes described as factories or back offices. One view is that setting up of TPC is creating customer services issues due to lack of direct contact between TPCs and the customer. Customers fear that unless there is direct contact with the processing staff, there could be time loss in shipments, violation of the tenor of the credit and the last date of shipment leading to payment disputes with buyers, which could cause either transaction failure with all its costs or downward revision of prices to compensate the buyers. To overcome the physical distance and the risk it poses to direct contact, Customer Service Stations (CSS) have been established in different cities where one or two (depending on business volume) trained staff members remain in direct contact with the TPCs and the customers to resolve issues that may arise. CSSs forward electronically all processing requests to TPCs after being satisfied with the customer credit limits and also carry out basic documents scrutiny. TPCs and CSSs should familiarize themselves with the customer key values – price, speed and access. CSS staffers, who have direct contact with customers, must possess basic trade knowledge so that they can listen effectively and make first attempts to resolve the issue when customers have bad experiences and must convey it to TCPs if the reason for the bad experience is the TPC to avoid its repetition. An important ingredient for the success of centralization is that TPC/CSS staff should have a flexible approach e.g. transactions should never be declined upfront because of banks’ internal policies, regulations or procedures. On the contrary, alternatives could be suggested thereby developing trust between the bank and the customers. But as stated earlier, doing so requires that the CSS staffers have essential
branch can protect their liabilities based on the welldefined customer’s needs and requirements. 2. A “Complaints Resolutions System” in every CSS where all customer complaints are logged. Complaints must be properly analyzed and resolved on a timely basis by the TPC and CSS. The attitude ‘that’s not my job’ must be eliminated. Some customer complaints directly relate to the TPC e.g. LC not being processed as per customer’s requirement, or commission charges not being as per the contract, or application of incorrect exchange rates to specific transactions or delayed delivery of documents/ advice. There are also complaints that are not directly linked to the TPC/CSS, for example delay in processing because customer credit limits were made available with a delay, which needs to be address for resolution by the concerned Relationship Manager. 3. Capacity Analysis i.e. the time required for processing of different trade products, the number of working hours during a week, number of transactions processed based on available data, and expected increase or new business that should be analyzed together with manpower and hardware requirements. Failure to do this will result in delays in processing customer transactions which will result in customer dissatisfaction. 4. Exception & Error Reporting System: This reporting, that refers to recording of TPC errors while processing customer transactions, is an extremely valuable tool to monitor that transactions are carried out in accordance with policies and procedure. Rather than having a rigid approach, TPC and CSS should be flexible in customer dealing. All CSSs should act according to the checklist provided by the TPC but, at times, customers are unable to fulfil some of the requirements, but require urgent transaction processing. TPC senior staff should assess the nature of the exception, and if there is no central bank regulation violation, they should approve it and allow time requisite for its rectification. But CSS staff must also ensure that an exception is resolved within the given time. This can improve the quality of service but is dependent on the ability of managers to initiate effective and sustainable strategic processes that are all customer oriented.
Perquisite for Centralizing Trade Processing: 1. Service Level Agreements (SLAs) are formal contracts that specify the terms of engagement between TPC and its branches wherein the definitions of contract, scope of services, methods of measurement, and any rules that govern the partnership, are very clearly specified. This is the essential document that advises how the TPC and the
27
5. Turnaround time: Transaction processing time should be agreed with customers. All products offered by TPCs must state processing time limits. In an environment with competitive threats, wherein other banks offer the same products using advance technology, offering fairly competitive turnaround time and meeting the timelines is crucial. This is the area that can cause problems and therefore needs focusing on. Customers losing out on account of loss of crucial time won’t come back.
October 2011
F inancial Services the customers because some knowledge of the customerspecific matters requires direct contact. But it can’t always be a substitute for the quality of bank-customer interaction that used to take place at the branch level. In fact, the realization now is that over-dependence on impersonal contacts – phone, fax and Internet was one of the causes of the current crisis, which highlights the importance of substantially improving the quality of TCP-customer interaction. e) A monotonous job for the trade processing staff, but it would be the case even in decentralized environments – branch managers never checked LC documents – so the trade handling staff will always be narrowly specialized.
Advantages of Centralization a) Staff may become specialist rather than generalist, within-depth knowledge of their subject b) Strengthens internal risk controls c) Enhances service quality relating to prompt response on correspondents and customers queries d) Tightens regulation compliance and controls e) Optimal use of advanced technology and ‘real-time’ transaction processing
Disadvantages of Centralization
Conclusion
a) Processing staff at risk on matters outside their immediate environment. b) Due to banks’ policy of hiring staff on contractual basis rather than on permanent basis, very few staffers become true specialist. The concept of ‘developing career bankers’ is fading away. Banks are setting demanding targets for processing higher volumes of business using fewer staff. c) Lack of customer awareness on the centralization of trade processing operations and their access to processors. d) Lack of direct contact between customers and TPCs, for example, the document checkers. This could also be an advantage if the document checkers were professionally competent, impartial, and loyal to bank interests. Most of the communication on specific trade finance matters (such as discrepancies in documents, negotiating credit terms or enhancement therein) is now conducted by theTPCs so there still is some contact of the TPC with
If the turn-around times are well defined and agreed to by the customers and the CSS personnel have essential traderelated knowledge, then there should be no problems in processing customer transactions anywhere in the world. Some big banks have now set up their trade processing units in India and their customers are highly satisfied with this arrangement. What is lacking is re-orienting customer relationship i.e. educating customers about pros and cons of centralization and the channels for effective and prompt interaction with TPCs. This is the neglect that is spoiling the image of TCPs although economizing on cost of operations is an aim that must be pursued for the common benefit of the banks and their customers. If any organization wishes to survive in today’s competitive environment, it has to give extra weight-age to ‘cost control’, but not at the expense of having a dissatisfied customer base. That outcome must be avoided
28
R egulatory Compliance FBR and the taxpayers’ unresolved woes Federal Board of Revenue (FBR) has set a new record of revising tax return formats. Through its circular No. SRO 850(1)/2011 of September 17, for the third time it notified a new draft of the return for reporting of income earned during 2010-11 and sought tax advisors’ comments thereon within three days i.e. by September 20. To begin with, the draft form of the Return was placed online on July 19 before expiry of the 3-day period afforded to the Tax Bars to advise their views on the suitability of the revised Return format. This action on the part of FBR caused many worried taxpayers to seek explanations from the Tax Bars when the issue had not been discussed in detail among the members of the Tax Bars. What was bothering the Tax Bars all over Pakistan was the fact that, with only 13 days left up to the last date for filing tax returns (September 30), how will they be able to explain the changes therein to their clients and also succeed in ensuring that all of them filed their tax returns as sought by the new return format before September 39. What made this task more demanding was the fact that, many of the taxpayers had already filed their returns as per the old format that was introduced by the FBR on August 28. In view thereof, the Tax Bars had requested the FBR to accept the tax returns filed on that format, and to introduce the latest revised version thereof effective from the next financial year. Even while recommending that the latest version of the income tax return be introduced in the next financial year, the Tax Bars had pointed out a serious flaw therein, which concerned the “Annexure D” that was made a compulsory attachment to the income tax return. The reasoning there for made sense because Annexure D is, effectively a return that discloses personal expenditure and therefore cannot become part of a return about income, and the taxes paid thereon. According to one of Pakistan’s biggest Tax Bars, firstly, a return requiring disclosure of personal expenditure is illegal and, secondly, at this stage, it would be extremely difficult for the taxpayers to collate the detailed information that the return requires. This Bar had therefore recommended that even for 2011-12, Annexure D be dispensed with because, as it is, a reconciliation of taxpayer wealth is filed along with the statement of wealth/net worth. Including Annexure D as a part of the income tax return would over burden the existing tax payers with filing additional information, which will be counter-productive in broadening the tax base and encouraging new tax payers to file returns of income. Another legal flaw of significance pointed out by the Tax Bars is that, in the controversial Return of Income, Flood Surcharge on pro rata basis is effectively being ‘legislated’
tax return although, Section 4A (relating to the Flood Surcharge) was not made part of the Finance Act-2011 and as such this section did not remain a part of Income Tax Ord-2001 beyond June 30, 2011. Insisting on recovery this surcharge contradicts the commitment of the government regarding temporary imposition of this levy, and therefore must be reviewed. Tax Bars went as far as advising the FBR top brass that it must recognize and appreciate the provisions of law before prescribing revised formats of Income Tax returns because Income Tax Rules are always subordinate to the provisions of the Income Tax Ordinance. The questionable Return of Income notified vide SRO 850(1) effectively imposes the Flood Surcharge on pro rata basis through the Return of Income, which amounts to “legislation” and is therefore a less than legal step that could be challenged in a court of law and cause considerable embarrassment to the FBR. What an average Pakistani finds strange about this whole affair is the mindset of the FBR. We all know that Pakistan has one of the lowest tax-to-GDP ratio, that is the primary cause of the ever-increasing fiscal deficits, and government debt (domestic as well as external) touching levels that are impairing Pakistan’s risk perception. The scenario calls for doing everything possible to ensure that taxpayers are facilitated in paying their taxes and filing their tax returns. The first step in this exercise is devising tax return format well in advance of the last date for filing tax returns, placing them within the reach of the taxpayers through all possible channels, publishing guide notes in nationwide newspapers on filling the returns, and TV talk shows to answer the questions posed by both tax advisors as well as the common taxpayers, concerning the returns. Visibly, none of this was done although what FBR needs to do is to project its image of an institution that is there not as the “king’s tax collector” but one that genuinely wants to assist taxpayers in paying their taxes. Indeed FBR has to be tough but that profile is fit for projection before the tax evaders, not the honest taxpayers. It is unfortunate that FBR doesn’t realize that it needs two different profiles for dealing with these two taxpayer types. Honest taxpayers have valid reasons to be disappointed with the FBR because they don’t have a forum for pointing out to the FBR the areas wherein they face problems. FBR unilaterally introduced e-filing of income tax returns for the employed category (with annual salary income of Rs 0.5 million and above) without noting that those in the lowest category have monthly net incomes of around Rs 35,000. Can they really buy computers? And how many of them know how to e-file returns? Will this conduct bridge the gap between taxpayers and the FBR?
39
October 2011
islamic banking pictu
The guests of honour inangurates the opening session of the World Islamic Finance Summit organized by Publicitas (Pvt) Ltd. on September 21 at the Marriot Hotel, Karachi
Deputy Governor SBP addressing the opening session
Islamic Banking: can it soften the ongoing recession? This is will sound a tough proposition for any segment of the financial services sector but the players in Pakistan’s Islamic segment of the financial services sector are not as pessimistic, though they realize the challenges confronting them are formidable but not insurmountable. This was the impression conveyed by speakers at the first 2-day World Islamic Finance Summit held at Karachi on September 21 and 22. The event organized by Publicitas (Pvt) Ltd., was supported by Islamic financial institutions especially banks. In Pakistan, the Islamic segment of its financial services sector completed its first decade in 2011 wherein, from zero, it has risen to a level that accounts for nearly 8% of the financial sector’s assets and liabilities. What must not be lost sight of is the fact that the last one-third of this decade included the years marking the worst post-WWII global recession. Islamic banks and Islamic banking units in other commercial banks of Pakistan have a combined Islamic banking branch network of over 800 with a total deposit base that exceeds Rs 560bn. This record was appreciated by Mr. Kamran Shehzad, Dy. Governor SBP in his key note address to the summit but he also pointed to the fact that in a country such as Pakistan “where agriculture has the highest contribution in domestic production [GDP], Islamic banks can increase their market share by reaching out to this sector.” Current Islamic banking modes of Musharka and Mudaraba that are participatory in nature could help Islamic banking to bring in its fold the SMEs that are ignored by conventional finance sector because of its high risk perception.
ure
31
SBP has constituted a task force with representation of Islamic banks, business community, academia and accounting professionals to design an incentive framework for promoting participatory financing modes. This framework is aimed at encouraging Islamic banks to offer participatory modes, while “minimising the issues of moral hazard, adverse selection, information asymmetries and trust deficit between the Islamic banking institutions and entrepreneurs”, he added. Besides, to promote Islamic banking, SBP had issued model agreements for encouraging standardisation in this sector, but to ensure that this step does not undermine innovation banks are also permitted flexibility in developing products and services. Earlier, in his welcome address, Syed Shahjahan Salahuddin, Managing Director, Publicitas (Pvt) Limited said the summit was aimed at providing a forum for the government, Islamic banking sector, and the private sector to identify and promote opportunities for investment in Islamic financial instruments as well as to gain better understanding of the challenges faced by all stakeholders. Earlier, in his welcome address, Syed Shahjahan Salahuddin, Managing Director, Publicitas (Pvt) Limited said the summit was aimed at providing a forum for the government, Islamic banking sector, and the private sector to identify and promote opportunities for investment in Islamic financial instruments as well as to gain better understanding of the challenges faced by all stakeholders. The next speaker, Justice (R) M. Taqi Usmani, pointed to the need for dispelling the view that Islamic banking represents just a change in nomenclature and no more; it is traditional with only A change of face. The fact though is that Islamic banking redefined the old concepts of money, finance, trading and selling. It redefined the role of money as just the medium for determining the exchange value of goods and services and segregated currency and commodity trading pointing to the fact that “trade” must exclude currency trading, and also termed short selling as alien to the Islamic concept of trade. Islamic banking can finance only Shariah compliant activities so that societies can steadily eliminate the corrupt and corrupt practices. Above all, it must steadily eliminate economic imbalances that mar a society. Nisar A. Memon, federal information minister in the last regime, also spoke on the occasion pointing to an accepted reality that the on-going economic recession is the fallout of greed in banks and the corporate sector wherein social responsibility was side-lined. It offers an opportunity for Islamic banks to prove that they do believe in their social responsibilities, and demonstrate it via their loan pricing and lending policies. He suggested that the summit should recommend to the OIC to jointly arrive at “man-centric” banking regulations and products that are convenient for
32
Libyan oil (cheapest for Europe given its close vicinity to Libya). The Nato-sponsored National Transitional Council can’t deny Western oil giants these rewards and the many others to be negotithe ordinary to comprehend, encourage entrepreneurship, ated in the days to come. President and thus propel economicSarkozy growth.of France and British PM Unless Islamic banking can assure deliveryvisited of Huqood-ulDavid Cameron Libya after ibad, it can’t effectively challenge conventional banking. He its annexation, reportedly to push also suggested that this summit should of advise the OIC to lift for control Libya’s oil sector; trade barriers between member statesthe to concessions increase trade and apparently sought thus bolster opportunities were for higher agreedemployment. because soon thereafterAlfalah the UN Libya’s Sirajuddin Aziz, CEO, Bank Ltd. recognized also addressed the controversial regime but the US summit and opined that Islamic banking has to deliver and Nato are bent upon denying results that distinguish it in up-lifting the less well off to pull this right to Palestine’s legitimate regime. them above poverty lines. He said that given its reach in Western markets, media is Islamic regretting that now Qaddafi saved Libya’s Pakistani banking has the capacity to national wealth instead of squandering it like the exuberant deliver, but warned that restricting the interpretations of Arab states. Is it prioritizing regrettable (for the West,aim yes)– that Libya had Shariah without the ultimate delivering on zero public debtcould and limit hugethe reserves spend on build Huqood-ul-ibad successto which Islamic bank-a secure a recklessly ing has (not the potential of exuberant) achieving. future for its citizens? Although thesession Western provide credible The opening waseconomists followed bydon’t discussion sessions proof of abject poverty in Libya, their regimes exploited on the following wherein experiences were shared on: unfounded claims about poverty to justify Qaddafi’s exit. - Growth, opportunities and challenges Tripoli fell faster than expected not because Libya’s masses revolted against Qaddafi’s regime; this miracle was caused by - Product development and innovation relentless aerial bombing by Nato that destroyed Libya’s - How technology hasbusiness transformed Islamic institutions infrastructure creating opportunities for Western - Treasury management Shariahthey compliant instrucivil contractors and for theand corruption are known for. ments The most worrying aspect of Libya’s crisis is that, while the In the has above sessions, audience to join West shown zerothe concern forwas theinvited aftermath of the its panellists by recalling their experience to help panel members invasions (of Korea, Vietnam, Lebanon, Iraq, Afghanistan) reach conclusions how to proceed further to of optimize the success of itson remote-controlled invasion Libya the is a opportunities, and overcome the obstacles thereto. TheWorld next message for the resource-rich but ill-governed Third day, covered theand following key statesthe that,discussion instead ofsessions nurturing efficient accountable subjects wherein valuable ideas and experiences were shared: administrations, rely on West-serving policies and rampant corruption and depend on their Western allies’ for survival. - Growth, opportunities challenges Till its colonial era (overtly)and ended in the 1960s, the West was Islamic for needs trade and businessits colonies in Asia, meting all itsfinance resource by draining Africa and South America. now it is on the brink of - Product development andBut innovation bankruptcy (courtesy oil price rise); its only option is to - Howon technology hascolonization transformedinitiative, Islamic institutions embark a deceptive that the UNsanctioned “responsibility to protect” legalize. - Treasury management and will Shariah compliant Theinstruments remote-controlled weaponry (against which African, Asian, and the Latin on American states are that The sessions focused the experiences in defenceless) Middle East and facilitated Qaddafi’s exit isnon-Muslim a lethal threat. Atare a huge risk are Africa, how banks from states capitalizing the opportunities ill-governed resource-rich Third World potential. states. States on there, and the untapped On such as Somalia aren’t concern under theofUNShariah, consencus was the on West’s adopting a realistic view the sanctioned “responsibility to protect” resourcetransaction stages that justified fundingobligation; support, instead of rich states arehelp its sole focus, financial and Pakistan one of them. viewing such as a purely whenisthe transaction Don’t forget what to Sudan’sfrom eventual partitioning was its trail indicated that led it originated a transaction involving failureintogoods. improve governance, which alone will now prevent trade the deceptive use of the “responsibility to protect” slogan; it is now the only option – a fact most Third World regimes still don’t accept
333
Islamic Bank: prospects and impediments The world famous credit rating agency S&P believes that Islamic banking could double its outreach from the present $4 trillion to $8 trillion because three of the world’s richest countries – Saudi Arabia, Malaysia and Iran – have adopted it on a national basis. S&P is right. If all the 55 members of the OIC shift to Islamic banking, it could become the global leader. In Pakistan, signs that it is moving forward, given the slow but definite rise in the size of the share of this brand of banking over the past decade. All credit to the bankers pursuing this cause! Muslims will surely not have any reservations in adopting Islamic banking provided this brand of banking serves their legitimate needs, which points to the key factor that may be an impediment to the growth of Islamic banking – Shariah compliance of its banking products and services. There can be no two opinions among Muslims about the banking system’s compliance with the Shariah, but unless Itjehad is the guiding force, we may abide for too long by religious dictates issued, and very correctly so, but applicable only to environments and modes of business that prevailed at that time (i.e. cases centuries ago) when the world didn’t have globally imposed disciplines such as the ICC Regulations, UCP codes and Basle Accords. The religious advisors who certify the Shariah compliance of a banking product or service must also keep in mind the fact that we are living in the era of “globalization” of trade and Muslim countries have to deal with non-Muslim traders as they did in the centuries gone by. As such, any restrictive convents must also find a way of dealing with the rest of the world without compromising the essence of Shariah, as, perhaps, was the case centuries ago. But before we go to that area, some basic issues need re-thinking for finding workable solutions thereto. During the recent World Islamic Finance Summit, CEO of an Islamic bank pointed to the fact that there are serious compliance issues in extending finance to traders against evidence of sale of goods on credit – bills of exchange duly accepted by buyers that represent documentary proof of sale of goods, and the mutually agreed (between the seller and the buyer) date of payment for the goods. The realistic view is that any funding assistance provided to such trader won’t amount to ‘financing’ but funding to process the next order to again ‘deal in goods’ without giving fresh collateral. The point being highlighted is that perception about the transaction’s being Shariah compliant – dealing in goods not money – should be based on the transaction’s trail and it’s being rooted strictly in trade in goods. Selling on credit wasn’t prohibited during any period in the past, and is not likely to be prohibited in the future. But refusing to finance traders selling on credit could certainly impede economic growth and undermine incentive for engaging in economic activity, which would be the least desirable outcome for the
Muslims. It is worth pointing out here that Prophet Muhammad (PBUH) – the perfect human who epitomized God-given genius – was a teacher, physician, administrator, statesman, judge and general. In short, everything that God desired him to be. But for his living, the divine design was to make him a trader. All praise to Allah for clearly establishing the fact that, for us, the best among all the noble professions is trade because it is the surest way of spreading prosperity, peace, and tranquillity at the widest scale to eliminate Fisad, to achieve the ultimate divine objective of creation of man. While spreading prosperity is the ultimate aim, it doesn’t permit legalizing what is forbidden i.e. usury, theft in the garb of business (dishonesty in measurement or quantity, mis-declaring quality, etc.), hoarding goods and currencies to create artificial shortages and then profiting there from, stashing abroad the wealth earned in home countries, etc. These activities must not be finance or assisted in any way. But legitimate business activities cannot be impeded; that would be wholly un-Islamic. Once we and our Shariah experts fully assimilate this fact there would be Ijtehad on a truly revolutionary scale and we will accept with much greater commitment the fact that we have to ensure fulfilment of the supreme divine objective of spreading prosperity to limit Fisad. What it calls for is assimilating the essence, not merely scratching the surface, to establish the Shariah compliance of banking services. What needs to be understood clearly is, that banking is to not merely help buying goods but assist all those activities that are essential for businesses to go on trading in goods on a continuing basis. Until Muslims are in a position to change globally applied regulations and trading practices, they must find ways of supporting economic activity and all that it requires e.g. issuing financial and performance guarantees, purchase and discounting of trade bills and the provision of flexible financing facilities. It would be unrealistic to assume that transactions must necessarily end after 30, 60, 90 or 180 days, and so the buyback prices (the key element in determining the amount a trader must repay its bank) can’t always be based on such fixed time periods. Those who repay with a delay must pay a compensation for the delay, and those who repay earlier must be compensated for early payment. These are wholly fair demands, and any system that does not accommodate them needs to re-examine its claims to being flawless. Let the world experience this if the system is to become global. A point in this regard is the need for “running Musharika” (Islamic banking version of Running Finance) as pointed out by Ebrahim Sidat, Country Managing Partner, Earnst & Young Ford Rhodes Sidat Hyder. Shariah experts are yet to find the ways of ensuring its use only for purposes that are Shariah compliant although it is a basic banking product. At
32
Banks with Islamic Bkg. Units or branches • Askari Bank Ltd. • Bank Alfalah Ltd. • Bank Al-Habib Ltd. • Faysal Bank Ltd. • Habib Bank Ltd. • Habib Metropolitan Bank Ltd. • MCB Bank Ltd. • Standard Chartered Bank (Pak) Ltd. • Bank of Khyber Ltd. • United Bank Ltd.
Some of the available Islamic Banking products
Islamic Banks • • • • • • • • • •
Bae Salum: In effect, this trade-related facility discounts Export Bills but financing banks become the owner of exported goods and after availing this facility, all interaction of the exporter with the buyer abroad is strictly in the capacity of the financing bank’s agent. Import Murabaha: This facility includes establishment of a LC by the financing bank, acquisition of owner-ship rights to the imported goods and provision of postimport financing of the importer but as the agent of the financing bank. Ijra: This is a long-term finance facility that is similar to leasing in the conventional modes of financing. Istisna: This facility makes available short-term funds to manufacture goods but subject to the borrower having a firm export or sale order/contract backing the purchase of goods. Once the goods are ready, the financing bank effectively buys them and the borrower sells them to the buyer as the agent of the financing bank. Murbaha: This facility usually provides businesses funds to purchase raw material or components for processing/ manufacturing but require that payment for the goods purchased by the borrower will be made directly by the financing bank, and the goods purchased will become the financing bank’s property. Musharika: This is a long term financing facility but not extended very often because it involves participation of the financing bank as a stakeholder in the borrower’s business. Salum: The facility is extended to farmers upon their agreeing to sell the crop (clearly specified in terms of quantity and quality) to the financing bank, and in case of loss of the crop for any reason, farmers are required to provide the financing the agreed quantity and quality of the crop. Shirkat-ul-milk: This is a 1-year loan with flexible terms but, as the name suggests, involves borrower’s transfer of ownership of the financed assets to the financing bank.
BankIslami Pakistan Ltd. Bank Dubai Burj Bank Ltd. Meezan Bank Ltd. Samba Bank Ltd. Modarbas Standard Chartered Bank Modarba B.F. Modarba First Habib Modarba First Prudential Modarba KASB Modarba
the same time, Shariah experts from different states (and of different schools of thought) offer differing interpretations of compliance. Sidat therefore suggests an Islamic Bankers’ Forum where compliance is defined on a joint basis. In Muslim states, housing and agriculture are two sectors wherein Islamic banks can cover much ground. While there has been great success in these sectors in Saudi Arabia and the Gulf states that is not as true of Pakistan. The housing sector is especially suited to fulfil the requirements of Shariah and should be the focus of Islamic banks In the context of inter-bank dealing too there are limits for Islamic banks because an Islamic bank can’t deposit or borrow funds from institutions that, firstly, have acquired funds via non-Shariah compliant venues and, secondly, their earnings are not wholly compliant with the Shariah. Inability or restricted ability to deal in inter-bank markets can some time create problem for Islamic banks – sitting of idle funds or facing difficulties in complying with liquidity regulations of the central bank. To a large extent, this issue has been resolved with SBP’s issuance of Shariah compliant Sukus that partially resolved the issue of secured (backed by Sukuks) inter-bank trading between the Islamic banks. But, until the other banks also hold and trade in Sukuks, the inter-bank market will remain limited for the Islamic banks. Such restrictions impede the growth of Islamic banking, and must be addressed to find a mode of productive inter-action with financial institutions that still follow the conventional banking systems. The other factor impeding the growth of Islamic banking is the fear that if, subsequent to extending finance to an entity, it is established by the bank’s Shariah advisors that the activity wasn’t Shariah compliant, it must be recalled and the income earned there from be excluded from the bank’s profit and be accounted for as ‘unintended’ charity. Financing foreign trade implies most of the time dealing with non-Islamic banks in the West. Islamic banks must deal, if not for any other reason except receiving proceeds of, or to pay for the transactions denominated in Western currencies. This implies maintaining accounts with these
banks and on their terms. There were cases where interest earning on the surplus balance was questioned, and interest charges recovered on overdraft or back-valuation of debit entries were also questioned by Shariah advisors. To sum up, Islamic banks must adopt an approach that lets them come to the forefront to afford them the clout to institutionalize practices that indeed are ethical. Meantime, they must aspire to gain the confidence of borrowers and the global banking community. Islamic banking has a great future given the fact that there are 555 Muslim states but it will take Ijtehad to make it practical for today’s challenges.
33
In the current fiscal year, Pakistan will face major problems unless its exports rise substantially to contain the trade deficit, service its external debt and yet retain enough foreign exchange reserves to prevent a silde in the exchange value of the Rupee that could further escalate inflation.Value Chain interviewed Mr. Khalid Tawwab, Senior Vice President of the Federation of Pakistan Chambers of Commerce and Industry to obtain his views on problems likely to impede the achievement of the export target for 2011-12 set by the Ministry of Trade & Commerce. This is how he responded to our queries on the subject:
V oice of Industry Problems faced by the export sector: FPCCI views on the subject VC: Last month the Minister of Commerce had set a target of 60 percent growth in exports during 2011-2012. This implied that exports should touch 40 Billion US $ figure in current fiscal year. Do you think this target could be achieved? If not, why not? KT: Well, I don’t think so. In my opinion, reaching the last year’s figures would be difficult. The reason for last year’s progress in export sector was the high prices of cotton. This year the cotton prices are about 50 percent less as compared to previous year. Pakistan’s industrial sector is unable to help us in achieving our export targets for 201112 due to various crises. The current economical scenario and law and order situation clearly indicates that we will not see any progress in Pakistani export sector this year. Look at the current energy crisis in Pakistan, today industrial loadshedding hours have, in some cases, reached till 10 hours per day. No industry can survive in such situation i.e. 10 hours power vacuum per day. To overcome this issue, the industrialists started their own power generation projects using natural gas but now the government has increased the gas prices to extreme level. The industrialists are now striving hard to generate power for their industries. Expensive power sources increased the overall cost of production. Bad law and order is also a big hurdle which is affecting the export sector’s progress. These are the reasons of not achieving the exports target. VC: Does the government take advice from Pakistan’s trade organizations as well as examine the global market trends before setting the export targets? Or they just announce export targets for the fiscal year without any market research? KT:Actually, there is a process of deciding the export targets. Ministry of Trade & Commerce gradually increases the annual export target. We also need to understand that cotton is the main export crop of Pakistan. We can only achieve the export target if other cotton producing countries suffer a cotton yield-related crisis or natural calamity. Under normal global commodity market conditions, we cannot achieve a growth target of 20 percent, let alone 60 percent. VC: Given the steady weakening of the rupee’s exchange rate, what are the prospects of growth in the manufacturing sector based on imported raw material, inputs or components? KT: Yes, the increasing exchange rate of dollar is troubling us as it also increases our import cost. Finally, it creates a burden on the balance of trade. Government of Pakistan should try to contain the slide Pakistani Rupee’s exchange rate to overcome this hurdle. VC: What in your opinion is the single biggest problem that confronts most exporters? KT: Power crisis, bad law in order situation, and lack of infrastructure are some of the big problems. Textile sector
is the backbone of our economy. Due to worsening energy crisis, textile sector is suffering down incline in exports. Similarly, foreign investors are avoiding making investment in Pakistan’s economy due to bad law and order conditions. Worst of all, United States and other countries issue travel warning notifications many times a year which frighten the international importers and industrialists to come to Pakistan, let alone invest in Pakistan. Finally, Pakistan’s foreign policy is another drawback for our businessmen. We have spent more than US Dollar 64 billion on war on terror in the last decade. We should ask the US for access to their markets, as well as the facilities they are providing to other regional countries like India, Bangladesh and Sri Lanka, etc. If they treat us equally and provide us the same opportunities and facilitates, then Pakistan can boost its export growth. Interest rate in Pakistan should not be increased more than the other countries in the sub-continent. Here in Pakistan, the rate of interest is definitely extraordinarily high. NPLs are growing day by day due to the high rate of interest, discouraging the traders and industrialists. VC: The cost of borrowing under SBP’s Export Re-finance Scheme has gone up. In the South Asian regional context, how much of a disadvantage is the cost of borrowing for Pakistani exporters? KT: SBP should listen to the voice of the industry. SBP needs to bring down the cost of borrowing as in Pakistan it the highest compared to the South Asia region. VC: Would you agree that the impact of cost of borrowing is fairly high because our export businesses are highly leveraged i.e. their borrowing is fairly high compared equity funds? KT: Yes, I agree. The rate should be a single digit figure like other countries. Here in Pakistan, the rate of interest is also extraordinarily high. NPLs are growing day by day due to the high rate of interest, discouraging the traders and industrialists. VC: Being the voice of Pakistan’s industry, can you give an opinion about the appropriate rate of interest? What should be the minimum or maximum limit of ROI in your opinion which will be feasible to the industry? KT: I think there should be a consensus on it between the government, banks, regulators and the business community. A joint agreement after a thorough discussion will be a better answer. VC: How is Pakistan’s image abroad impacting our export trade in terms of modes of interaction with buyers, their perception about our exporters’ ability to ship goods on time, and the export prices our exporters can negotiate? Answer: Terrorism is a ground reality and we are suffering it; no one can deny this fact. But I think media is creating hype over this problem and an atmosphere of fear globally. Yes we are affected by terrorism but it doesn’t mean that we are living in ground zero of any warzone. We still have October 2011
V oice of Industry VC: Do exporters face any sort of serious problems from
operational industries. Terrorism is a global menace and affecting the entire world economy. No country is safe from it but our media is showing that only Pakistan is effected and responsible for terrorism. Pakistan needs to get rid of this bad image and Pakistani traders need to promote their products and services to the world in a better way. Our exporters try their best to get the trust of international importers while negotiating business. We need to introduce our products to the world with a better strategy of marketing. Pakistani businessmen also need to deliver their orders on time and keep their commitments. Only then the foreign importers will trust on Pakistani industries. VC: How is Karachi’s volatile environment impacting transportation of goods and effecting shipments on time? KT: Karachi is the port city and it has a particular importance in the export transportation. Bad law and order situation in Karachi directly effects port operations causing hurdles in exporting goods. International traders don’t accept excuses; they want delivery on time at all costs. That is why Pakistani exporters are transporting goods by air in case of urgent delivery. This creates extra financial burden to us but we bear these expenses for delivering our export and orders on time. VC:Many exporters fail to ship goods by the last date of shipment as is the LC Contract. What sort of consequences such unfortunate exporters can face? KT: Since importers don’t accept any excuses, they demand accurate quality and delivery on time. Some of the small importers are, however, familiar with our daily financial life. They understand the consequences of a continuous 4-day strike or a big bomb blast. However, the major importers don’t understand this scenario, and insist on delivery on agreed time. Many exporters suffered huge losses when they failed to deliver goods on time as per the LC or contract terms. This breach of contract rendered the exporters helpless because either the goods had to be disposed of in the local market at lower prices, or sold to the same importer at huge discounts. VC: The common view is that our balance could become unmanageable and we may default on debt servicing if export growth is impeded by various factors. Do you agree with this view? KT: Definitely, the role of equilibrium between import and export is very important for any economy. But let me show one positive sign, which is the increasing trend in foreign remittance. You can see that our foreign remittance graph has jumped to $12 billion from $9 billion last year. This is a very promising sign, and this trend could help our ailing economy. In recent years, Pakistanis have been suffering from turmoil in all aspects of life their life, especially due to galloping inflation. To overcome their problems, their relatives abroad have been sending more money. But the fact remains that this alone cannot solve our trade deficit dilemma. Power load-shedding has reached till 10 hours per day, which is crippling the industrial and commercial sectors. No industry can survive 10 hours of power loadshedding per day.
the Pakistani shipping authorities? KT: No it doesn’t cause any serious issues. There are some minor issues which could be resolved by exporters and Pakistani shipping authorities. Normally they cooperate with us. However, we need to make a fool proof anti-fraud mechanism for shipping and cargo agents. VC: What immediate steps would you recommend to at least contain the problems that the export sector faces? KT: Nearly fifty percent of the industry’s problems will be solved if we resolve the energy crisis. This will definitely boost the export sector. Government should provide electricity to the industrial sector at cheap rates to overcome the high production cost problem. For this, government needs to explore and utilize our coal reserves, overcome the law-and-order problems, and give traders relief and a sense of safety. Some of the immediate solutions are: - Exploring the Indian market. - Exploring the pharmaceutical and surgical instruments’ export potential in unexplored global markets. - Increasing regional trade with the SAARC and ASEAN countries, especially with India, which is the second largest market of Asia since it has a population of more than 1 billion consumers. Government of Pakistan should adopt a more trade-conducive policy with India considering the strategic benefits that could accrue from it to both India and Pakistan. For instance, Pakistan imports steel from other countries although we could import steel from India, and Pakistan could export huge quantities of cement to the Indian market as India is in need of cement. In both cases, lowest transportation cost could be a huge advantage for both. There are many other goods which could be exported to India on competitive prices that will be afforded by low transportation cost. Recently, we suggested to the Pakistani government to give India the ‘Most Favored Nation’ status as they have already given Pakistan this status.
VC: Surely, you are aware of the flight of capital from
Pakistan. Rumours are that some industrialists and are shifting their businesses from Pakistan to other countries. How would you comment on this situation in the context of Pakistan’s economy? KT: Yes, many of them have shifted their business to other countries, and some others may also be trying to do so. But a genuine businessman will never do so. He may shift his capital to another field of business in case of any loss but he will never try to shift his capital to any other country. For instance, in 2001, the property rates were touching the sky due to extra-ordinary investment by traders in real estate. Some businessmen invested in the real estate sector of Dubai. But what happened in last few years? When the real estate business crashed, those businessmen were bankrupted and are now in a pitiable condition. So a real businessman never shifts his business capital to another country but strives to revive his/her business by going through a tough period of activity contraction.
35
October 2011
V oice of Industry Milk Price Structure – Who is making money? by Kamran Khan Why are the milk wholesalers pocketing so much money by continuously raising milk price? This has been a widely asked question over the past one year. To understand this quandary about one of the essentials of daily life, let’s look at the core factors that trigger serve fluctuations in milk and yogurt pricing regime. Because of taste, rich fat contents and inheritance of traditions about consuming milk and its products, Pakistan is among those few countries where buffalo milk is consumed instead of cow milk, which is otherwise commonly consumed around the world. Besides the other factors that impact milk productivity, such as duration of lactation, calf mortality rate, amount of per buffalo total mixed ration (“TMR”) consumed, amount of milk production, treatment and medication - raising buffalo herds is more expensive compared to looking after cow herds. In Pakistan, generally, herd integration ratio is 80% 20% it means if a herd has 100 cattle, it will have 80 buffalos and 20 cows – the first reason for price hike in buffalo milk – since it costs much higher than cows. If cow milk becomes the acceptable commodity, it could make the current milk price cheaper by 25%. All packaged, powdered or tetra pak milk brands contain cow milk and the producers incurs approximately 30% lower costs.
Composition of cow and buffalo milk at a glance Constituent
More viable, commercially Better whey proteins Better cheese Better health foods
Now let’s come to the underlying and variable day to day factors which serve to determine fresh milk prices. The first and foremost reason is the high and unregulated prices of cattle feed. Currently, TMR costs Rs 25.25/kg and overheads of a cattle farm of 100 animals additionally costs Rs 8/kg being other operating costs that includes hay, green fodder, utilities, labor, rent or land, animal treatment and
Party-wise Position Dairy Farmers Middlemen Contractors Shopkeepers
Profit / liter 5.847 6.750 6.633
Investment 17 million 5 million 2 million
Buffalo milk In percentage
Buffalo Milk vs. Cow Milk No difference in nutritive value Lower cholesterol content More proteins More important minerals More Vitamin A
Cow milk
Water
86.50
83.18
Fat
4.39
6.71
Protein
3.30
4.52
Lactose
4.44
4.45
Total solids
13.50
16.82
Solids Not Fat
9.11
10.11
Ash
0.73
0.80
Calcium
0.12
0.18
Magnesium
0.01
0.02
Sodium
0.05
0.04
Potassium
0.15
0.11
Phosphorous
0.10
0.10
Citrate
0.18
0.18
Chloride
0.10
0.07
Ca : P Ratio
1.20
1.80
100 Cattle Dairy Farm scenerio (ownership basis) Average milk production per cattle: 8 to 9 Liter per 24 hours Risk, Efforts & Investment Comparative Ratio Earning Ratio Dairy Farmers 80% higher than middlemen Dairy Farmers earning less than and retailers middlemen and retailers as shown in profit per liter (left) Depreciation Factor
1. Dairy Farmers : have to replace animals after 8 - months of lactation besides disease & casualties 2. Middlemen contractors : have to manage transportation truck standard depreciation 3. Shopkeepers : have to manage standard shop maintenance
38 37
October 2011
V oice of Industry medication, etc., at an average dairy farm of 100 animals. This implies that aggregate milk per liter costs Rs 48.77litre whereas current wholesale milk price is Rs 54.625/liter (ex-dairy farm). Current consumer retail price of fresh milk is Rs 68 per liter. The differential between wholesale milk price and retail price is Ra 13.375 liter (whereas tetra-pak milk is being sold at Rs 77 a liter). Given the current market practices, contractors – locally called “Pekaar” – act as middleman between dairy farmers and retailers. These contractors charge their commission (including transportation) up to Rs 6.75/ liter and shopkeepers get milk at Rs 61.375/liter. For understanding and convenience of the readers, a table illustrates here investment, earning and other ratios of the dairy farmers, vis-à-vis middlemen (milk collecting and distributing contractors) and retailers:
come to the conclusion that international best practices, which have already been put in place in Middle East, should be adopted, as it will help ensure dairy industry growth and uneven earnings paradigm. Dairy farmers have long been demanding that factors directly related to their input cost i.e. dairy feed and feed ingredients (locally called Vanda) and veterinary medicines should be regulated and controlled as it will serve to compel dairy farmers to raise wholesale milk price. Otherwise they could lose their investment. Dairy farmers voiced their concerns that there is no help from public sector/ministry of livestock and agriculture, in terms of research and expertise sharing with dairy farmers, availability of milking machines and other equipment, breeding, low priced veterinary medicines. To settle the milk price issue for good this should be dealt with like fixation of petroleum products’ prices. Milk price should be fixed in three stages (a) wholesale milk price must be a fixed in accordance with dairy farmers’ investment and associated risks (b) middlemen contractor commission should be fixed according to efforts and investment involved at this stage (c) retail consumer price should be fixed in line with shopkeepers’ related investment and efforts. Tetra pack and powdered price should also part of this price regime. To keep milk price within the range of consumers, the overall chain of dairy cattle, dairy feed price, veterinary medicines all should be closely connected and kept under control. This will help the ailing dairy industry and can turn it into a foreign exchange earning industry through dairy products exports.
These indicative numbers give a clear picture of who does what, who puts in how much effort, and who earns up to what limit. Let us now come to regulatory regime. As far as the regulation is concerned, there is no bar and binding on price of packaged cattle feed and loose cattle feed ingredients (Vanda like khali, daliya, choker, hay, green fodder) and veterinary medicines; the relevant markets and their movers and shakers determine their products’ prices according to their own doctrine, which force dairy farmers to either raise wholesale milk price or lose investment. Dairy farmers already suffer from the current market dynamics where, with very low risk and investment, middlemen and retailers are earning more than dairy farmers despite heavy investment and high risks. It is evident from market practices that there appears to be no check on any party related to dairy milk or allied products except wholesalers, who are bound to sell it on government fixed rates despite the fact that, in dairy industry chain, wholesalers have to make the highest investment, carry the highest risk and put in efforts, because they have to bear the brunt of floods, law and order, and petroleum related price hikes as all the relevant parties pass on their load to wholesalers who, in response, seem helpless due to controlled prices. Whilst talking to all three players (dairy farmers, middlemen, retailers) of the dairy industry you
As far as the regulation is concerned there is no bar and binding on price of packaged cattle feed and loose cattle feed ingredients ( Vanda like khali, daliya, choker, hay, green fodder) veterinary medicines relevant markets and their movers and shakers determine their products’ prices according to their own doctrine, which force dairy farmers to either raise wholesale milk price or lose investment. Dairy farmers already suffering from current market dynamics where with very low risk and investment middlemen and retailers are earning more than dairy farmers despite heavy investment and highest risks
36
October 2011
Power Sector
23
P ower Sector Power sector’s miseries: are we exercising the right options? Recently, seven oil marketing companies and refineries were fined for not maintaining 20 days’ oil stock. In today’s circumstances, when sustaining oil-based energy supply is hostage to cartels of oil exporting states and intermediaries who specialize in speculative trading, prudent state conduct calls for maintaining reserves at far higher levels. Besides, reserves should be created out of strategic buying when oil price dips substantially. But you can wait for benefitting from price drops only if you carry stocks sufficient at least for three to four months. An instance thereof was when oil price fell to $36 a barrel in February 2009, from its peak of $147 just eight months earlier. That was the time when the prudent buyers booked future contracts for the next 12 to 18 months providing for supplies on monthly or quarterly bases. The advantage was that the average price remained below the $55 a barrel level. Pakistan badly needs to adopt this strategy because of the huge disadvantage we have built in our power generation sector over time. According to estimates, oil-fired power now accounts for over two-thirds of the total generated in Pakistan. The sustained oil price hike during the past three years, and Pakistan’s rising financial constraints (courtesy weak fiscal management) are now preventing utilization of even the installed capacity, which itself is almost 25 percent less than the required level. This scenario made oil sector the third largest expense head after debt servicing and defence. The circular debt in the power sector was initially the product of oil subsidies that weren’t paid to oil marketing companies and refineries. Later, this debt expanded because government’s growing fiscal deficit prevented state offices from paying in full their power consumption bills. The gross circular debt stands at over Rs 600 billion of which the IPPs are saddled with Rs 300 billion, though the net figure is around Rs 220 billion. Since 2009, power tariffs were doubled on the initiative of the Planning Commission (since 2010 on the advice the World Bank, Asian Development Bank and other foreign institutions) but proved inadequate for plugging the rising gap between the cost of power generation and distribution (estimated at Rs 11/kwh) and the average national tariff (approx Rs 8/kwh). Though inadequate, these tariff hikes escalated the cost of doing business that is reflected in high inflation that has crippled the industry’s competitiveness. Despite this scenario, power theft estimated at 15 percent and distribution losses of over 10 percent in the DISCOs operating under the umbrella of Pakistan Electric Power Company (PEPCO) could not be cut because of both lack of law enforcement support to the DISCOs and in-house corrupt consumption monitoring and billing practices. In
KESC (struggling to establish a workable relationship with its labour union) both these losses are substantially higher than the national average. According to Munawar Baseer Ahmed, former Managing Director PEPCO, projections back in 2008 had indicated that in 2011, national demand in summer would be about 24,800 MW and in winter around 20,000 MW. Yet, in spite of the government announcement that 3,000 MW has been added to the national grid, the supply gap stays between 5,000 to 6,000 MW, a part of which can be plugged if only the IPPs are not loaded with huge chunks of the Rs 600bn circular debt. Sluggishly, the state has been trying to resolve this mess that resulted from non-construction of the Kala Bagh dam, but via inadequate and uneconomic solutions. Purchasing power generated on board the Turkish ship Karkey was not the right solution; it took too long to materialize and the government intends to purchase electricity from this source at about Rs 19/kwh and sell it on subsidized basis implying thereby that it will further increase the circular debt. For the longer term too the proposed solutions including import of 1,000 MW from Iran and a similar quantity from Kyrgyzstan, are impractical; they could take a long time to materialize because installing power transmission networks over hundreds of miles requires huge investment and time assuming that factors such as terrorism that is rampant on Pakistan’s Western borders won’t delay completion. And besides import price, the cost of capital outlay on building the network too will have to be paid, though over time. A workable solution to Pakistan’s expanding energy crisis is relying on a basket of energy sources and technologies to ensure affordable and sustainable energy supply. The new strategy should be based on an energy mix of indigenous resources i.e. coal and hydro-power. The coal gasification plan proposed by Dr. Samar Mukarakmand deserves a cool analysis, and if it is established that it won’t add to pollution it should be implemented quickly; over time, it may greatly reduce Pakistan’s reliance on imported oil. Give the huge reported coal reservoirs that Pakistan has been blessed with, the coal gasification technology must be taken seriously, and we must also consider using the wind technology; the 400 mile long Mekran coast and the deserts in Pakistan offer the right environment for this technology. In the current economic crunch, with zero likelihood of foreign help and limited options for external borrowing in view of Pakistan’s risk perception abroad, the short-term, the solution lies in containing power theft and minimizing distribution losses. That, sadly, isn’t getting the importance it deserves because of the ongoing political in-fighting that keeps the law enforcers busy in containing street violence rather than help the power sector in checking power theft.
40
October 2011
P ower Sector How does South Asia confront the power sector crisis by K. Jehangeer Khan
eographically, the Indian subcontinent is, more or less, a single unit since the countries thereon – India, Pakistan, Bangladesh, Nepal and, for its vicinity and commonalities in climatic conditions, Sri Lanka, together form the South Asia region. The population of these five countries adds up to 1.7bn – nearly 25 percent of the planet’s total. The other common factor that joins these countries together is high rate of population growth, which drives poverty to higher levels because of generally weak governance and inadequate state concern for more equitable distribution of the national wealth. In the context of power supply, it is estimated that about 612 million people in the South Asian region live without access to electricity. That’s not all; even those with access to electricity face load-shedding because of a whole variety of factors but primarily a visible lack of concern for the impact climatic changes are having on the region, and the quality of governance. On the average, during the peak demand, Pakistan faces 30 percent electricity shortfall, which is higher compared to India and Bangladesh. According to statistics, India faces 14 percent power shortfall, Bangladesh 25 percent, Sri Lanka 37 percent and Nepal a huge 92 percent. In most cases, South Asian countries’ present capacity to generate electricity is significantly lower than the installed
capacity due to three reasons: inefficiencies of their thermal power plants that have grown old, seasonality factor that reduces hydel generation capacity in winters, and high oil price that limits the capacity of oil-fired power generation units. Nepal tops the list where, during peak demand hours, load-shedding can be as long as 20 hours per day. Bhutan on the other hand, has power surplus and India buys around 1200 MW from Bhutan. Interestingly enough, Nepal imports electricity from India. Bhutan has surplus of electricity round the year and earnings there from provided 45 percent of the country’s annual export revenue. Pakistan is importing electricity from Iran. Given their geographical terrains, Pakistan, Bhutan and Nepal already have, and could further expand their hydropower capacity and also export surplus electricity to other countries by tapping their huge potential. Bangladesh and Sri Lanka on the other hand have largely exhausted their hydropower capacity while demand is growing, especially in Bangladesh due to increased industrialization but it has the lowest electricity tariff rates because, roughly, 85% of its electricity is generated from domestic natural gas. But the cost of generation is expected to increase dramatically as domestic gas reserves deplete steadily. At present, India and Pakistan also generate electricity via the nuclear technology and Bangladesh and Sri Lanka could join this group in the
41
October 2011
P ower Sector future. But there is a general neglect of electricity generation from renewable sources. Although huge potential exists for wind power, especially in coastal areas of India and Pakistan, but efforts are now on to overcome power supply shortages and shift to new technologies that are non-controversial and are energy efficient, especially solar and wind technologies. In India, the installed wind power capacity is 2 GW, the 5th biggest in the world. Pakistan has begun on the road to installing wind energy technology although its long Mekran coast and deserts in Sindh and Punjab had the potential for benefitting from this technology. But fiscal restraints have prevented major investment in this technology. Solar energy, being far less expensive and complex, and far more convenient to install, has been a great success in India and Bangladesh and provides houses in these countries’ vast hinterlands with cheap electricity. However, this technology it has yet to become a favourite in Pakistan. One major step in that direction in the Federal Budget FY11 was withdrawal of all duties on import of solar energy equipment, All South Asian countries suffer from load-shedding, large distribution losses, and escalating power tariff rates despite provision of subsidies that are increasing fiscal deficits and increasing pressures for increasing taxes on other sectors, which is being resented, given the ongoing global economic that is crippling industrial competitiveness, hiking inflation, and escalating poverty levels in all these countries. Due to prolonged under investment in this vital sector, and poor governance of this sector that encouraged build-up of big distortions in operations, reliability, affordability and the quality of electricity supply, Pakistan faces a severe power shortage. Electricity theft and delayed or even nonpayment of electricity bills are major causes of this sector’s being in the red. This is despite the fact that Sri Lanka, not Pakistan, imposed the highest tariffs rates for residential and agricultural consumers. India, on the other hand, had the highest tariff rates for its industrial consumer category.
Solar-Panels
Wind Energy Turbine
Some startling statistics:
Country
Installed capacity India 176,990MW Pakistan 20,921MW Bangladesh 6,837MW Sri Lanka 2,811MW Nepal 549MW
Generation Peak Shortfall capacity demand % 101,609MW 116,281MW 14 15,232MW 19,228MW 30 4,890MW 5,450MW 25 1,842MW 2,522MW 37 460MW 886MW 92
The above facts reflect an urgent need for remedying the power supply shortfalls that will expand with population rise and further aggravate the per capita supply deficiency
Coal Power Plant 42
October 2011
A griculture Fertilizer need and its availability by Tariq Iqbal Khan
Fertilizer is one of the most important agents for agricultural crops. In the not very distant past, mechanized agriculture was not very common and a lot of farmers would require animals for cultivation, harvesting and various functions which were later mechanized. To fulfill this need, the farmers required bulls, camels and in some cases special breeds of horses were also used for agriculture. Cows and buffaloes were required for breeding and the byproduct was milk and meat. The droppings of all these animals were used as manure. This natural manure provided the land with ingredients for root and vegetational growth and also micronutrients used by the plant, which becomes part of fruit, vegetable and all other types of agricultural produce. If the land is not provided these nutrients and micronutrients or if they are not available in the land, then the yield of the crop goes down. For instance, nitrogen is required for vegetational growth whilst root growth needs phosphorus, and zinc is required for the organisms which carry the food from the roots to the branches and leaves. This is a very vast subject, where the list of micronutrients and their particular uses can be discussed, but here the comment is that each time we cultivate a crop, the land becomes deficient in certain elements which need to be replenished. With mechanization nowadays, the population of animals is proportionately reduced except for milch animals (milk producing animals). The excessive cropping for the evergrowing population also reduced these elements in the soil. Due to these reasons the world preferred enhanced use of chemical fertilizer’s which are mainly: Nitrogenous, Phosphatic,, Calcium-based and/or Potash-based Here we would only comment upon the total production and import of chemical fertilizer and the growing need for availability of these fertilisers at affordable prices to the farmers. It is a ground rule of basic economics that if there is a shortage in supply, then producers and various industries may start charging more and hoarding also becomes inevitable. In view of the above, it is imperative that sufficient supply and stock of Fertilizer and other nutrients should be available for the ordinary farmer. We are not going to comment on the micronutrients in the present paper. The value addition in both major and minor crops grew from Rs.451 billion in 2003-04 to Rs.535 billion in 2009-10, which shows a growth of 18.6% over 7 years. This growth just meets the growth in population. Hence, a growth of 3 to 4% in agricultural production would create greater availability leading to stabilization of prices and creating a more effective hedge against hoarding and uncalled for inflation. To achieve this objective, all ingredients, including the
replenishment of nutrients (including but not limited to fertilizers), should be made available to the farmer at affordable prices.
Fertilizer Usage
The Government claims that it has taken several significant steps to boost agricultural production over the last five years. The domestic production of fertilizer as well as imports have increased from last year, therefore total availability of fertilizer also increased by 25.3 percent in current fiscal year. At present Pakistan is self sufficient in urea; hence no urea is imported. It is quite evident that the total fertilizer off take has declined from 3694 to 3426. If we want to improve our yield substantially then we have to improve our fertilizer off take. As policy makers, the government is also required to do awareness campaign. - To educate the farmer that local manure still is good and cheap source of fertilizer. The manure is also helpful as it contains a lot of minerals and micronutrients which is an essential requirement of the crop. - Availability of fertilizer at controlled prices and monitor their usage. - There is a need to educate the farmers on balanced fertilizers use so as to neutralize the adverse impact of constant use of nitrogenous fertilizers. - Our farmer mostly uses urea. Urea increases the vegetational growth but it cannot improve and strengthen the growth of roots for which Phosphates need to be applied. - Awareness should be given to the farmers about different fertilizers and its timings of application. - To save cost many times the farmer reduces the amount of fertilizers requires by the land. If educated and given subsidized fertilizer this can be taken care of. - The farmers have inadequate knowledge about fertilizers and pesticides as to their suitability, application techniques and safety measures. Programs for guidance of the farmers in this respect are far and few. In this area there is great scope of extension work in the public sector.
43
October 2011
A griculture - Closely related to fertilizers are pesticides that also require certain measures to be carefully monitored for having a better crop. Identification of pest problem and application of pesticide at an appropriate time, care should be taken that the chemical sprays are directed only where the pests are present. Clean cultivation helps to achieve better pest control. Those farmers, who pay attention to these points, get more yields. - Under dosing of pesticide should be avoided as pest builds resistance against pesticides. Similarly overdosing can harm the crop. - The government is generally required to make the necessary policy framework which can lead to better production and better availability of these inputs. Table-6: Production and Off-take of Fertilizer
Production and off-take of Fertilizer Year
(`000’ N/tons)
Domestic Production
% Change
Import
2718 2832 2747 2822 2907 2141 2237
7.1 4.2 -3.0 2.7 3.0 4.5
785 1268 796 876 568 416 968
2004-05 2005-06 2006-07 2007-08 2008-09 2008-09 (Jul-Mar) 2009-10 (Jul-Mar) P P : Provisional
Pakistan produces the following type of chemical fertilizers.
1. Urea 2. Ammonium nitrate/Calcium ammonium nitrate 3. Ammonium upper nitrate 4. Nitro phosphate
% Change
Total
% Change
Off-take
% Change
2.7 3503 3694 6.1 14.6 61.5 4100 3804 17.0 3.0 -37.2 3543 3672 -13.6 -3.5 10.1 3698 3581 4.4 -2.5 -35.2 3475 3711 -6.0 3.6 2557 2767 132.7 3205 3426 25.3 23.8 Source: National Fertilizer development centre
The off take of these fertilizers is given in Table I below: Table I
5. Single superphosphate 6. Diammonium phosphate 7. Sulphate of potash 8. Potassium nitro phosphate
These are grouped into the following three broad categories. 1. Nitrogen (N) 2. Phosphate (P) 3. Potassium (K) It is quite evident from the above figures that although the production and availability of fertilizer from domestic sources have increased considerably, from 1,893 N/tonnes to 3,711 in 2008-09 (all the three categories counted together) but still Pakistan had to import these fertilisers which was a constant drain on the already scarce resources of foreign exchange. The largest import was made in the year 2005-06, when it reached 1,268 million tonnes. It is also evident from the above figures that the off take was maximum in 2005-06 and slowly started a decline from that year which should be a matter of concern for the Economic
44
(000 N/Tonnes) Year N P K 1990-91 1,472 389 2000-01 2,264 677 2004-05 2,796 865 2005-06 2,927 851 2006-07 2,650 979 2007-08 2,925 630 2008-09 3,035 651 Source-Economic Survey of Pakistan
33 23 33 27 43 27 25
Import 685 580 785 1,268 796 876 568
Planners. One obvious reason for this decline is higher cost of these fertilizers and the lower level of farmer’s resources. Pakistan must plan its fertilizer production and distribution in a manner that the availability to the farmer is ensured, and at the same time import could be reduced as much as it can be done. There is a considerable debate going on in economic circles these days, whether all the gas which is consumed by the fertilizer industry should be allocated to other general industries and specially to the power plants fired on gas, to enhance the production of the industry and to overcome the shortage of electricity. October 2011
A griculture Gas Supply to the Fertilizer Industry
The gas is consumed in the fertilizer industry on two accounts: 1. The gas is used as raw material as the basic elements of carbon and hydrogen are required for formulation of urea and other fertilizers. 2. Gas is required for the heat energy for synthesis of ammonia and production of urea. There is no substitute of any type available to the fertilizer industry the world over, except the derivatives of petroleum. In some countries, naphtha and naphtha cracking also provides the hydrocarbons required for fertilizer production. Pakistan up to now has no such arrangements in place so that feed gas could be shifted from natural gas to other higher hydrocarbons. Up to now, no serious study has been undertaken in Pakistan that if natural gas is reallocated to other industries and electricity production while fertilizer’s are imported to meet the requirement, whether such an arrangement would be beneficial to the economy as a whole, and whether those prices of import would be feasible for enhanced agriculture production for the ever growing population. It is also commented that the gas is given to the fertilizer industry on a subsidy. The fact is that the normal gas supply for heating purposes is measured separately and uniform tariff is applicable for the fertilizer industry at par with the other industry. The raw material part which is called the Feed Gas is measured separately and a separate tariff is applicable in accordance with the fertilizer policy and long-term agreements entered into by the distribution companies with the fertilizer industry in accordance with the government policy. The gas supply is curtailed to the general industry as well as to the fertilizer industry during the winter months, when the domestic consumption goes up and the production as well as the transmission capacity cannot sustain that additional load on the system. It is a matter of analysis whether the burning of this valuable resource at the cost of running the industry is desirable or not. In many countries piped gas is not available to the consumers and all the domestic needs are fulfilled by way of Liquefied Petroleum Gas cylinders. It is also a fact that many domestic clusters do not justify the huge investment on laying of distribution lines and maintaining the pressure of gas specially in winters, for domestic purposes.
Pakistan Fertiliser Industry
Industry urea sales during April-June 2011 is estimated at 1,453 Kt, which is 10% lower than 1,616 sales for the same period of 2010. Industry estimated urea production of 1,282 Kt for the period is 6% lower as compared to the 1,362 Kt production of the same period of 2010. The estimated urea inventory at end June 2011 of 74 kt, is 69% lower than 237 Kt inventory at end June 2010. It is quite obvious that three large companies cater for 83% of the requirement. Out of this except for the new plant of Engrow Chemicals all their production is based on Mari Gas field which is a low BTU Gas and cannot ordinarily be used by the industry or for domestic purposes. Few power A comparison of the industry urea supply demand situation during April-June 2011 vs. 2010 is given in Table II
Table II
April – June Opening Inventory Production Imports Availability Sales Closing Inventory (Adj.)
2011 255 1,282 0 1532 1453 74
2010 % Var. 66 286 1,362 -6 0 416 1884 -17 1616 -10 237 -69
plant were especially designed for this gas field 2 decades ago and after that no additional capacity was created on this low BTU gas. Except for Dawood Hercules, Pakarab and Agritech no other plant is a burden on the National Grid of Gas supply.
DAP
The industry DAP sales are estimated at 153 Kt during April-June 2011 which is 32% higher than 116 Kt sales for the same period of 2010. DAP production during AprilJune 2011 is estimated at 182 Kt against 174 Kt production of April-June 2010. A quantity of 101 Kt was imported during the period under review.
Table III
Production Kt. Apr-Jun. 2011 Share(%)
COMPARATIVE UREA PRODUCTION SHARES APRIL – JUNE 2011 FFC FFBL DHCL Engro Agritech Pakarab Fatima Fertilisers Total 602 47
137 11
69 5
336 26 45
47 4
6 1
85 7
1282 100 October 2011
A griculture Fertiliser Industry Situation (JAN-JUN 2011) i) Urea
Urea market during the first half of 2011 is estimated to decline by 12% as compared to the corresponding period of 2010. Low urea sales are mainly because of lower production and lower imports by the GOP which resulted in a short supply situation in the domestic market. Urea production was 7% lower during the first half of this year due to gas curtailment to urea plants operating at Mari network, and complete shutdown of plants operating at national grid during different periods. Engro’s new urea plant remained shut down for about 121 days, Agritech 102 days, DHCL 100 days, Pakarab 96 days and FFBL for 41 days during the first half of 2011, which severely hampered urea production in the country. Urea availability during the first half is estimated to have decreased by 490 Kt which is 15% lower as compared to the same period of last year. GOP has lined up 150 kt urea imports for Kharif season to arrive in JulyAugust 2011. The significant profit margins on urea sales encouraged the dealers to invest in urea. Urea inventory of 166 kt at the beginning of the year was 30% lower than 238 kt inventory at the start of 2010. Industry urea production is estimated at 2,362 kt during Jan-Jun 2011, as compared to 2,528 kt production during the same period of 2010. Imports during the period were 240 kt, 51% lower as compared to 492 Kt imports during Jan-Jun 2010. Industry urea sales are estimated at 2,681 kt during Jan-Jun 2011 as against 3,030 kt sales during the same period of 2010. The estimated urea inventory of 74 kt at end June 2011 is expected to be 69% lower as compared to 237 kt inventory at end June 2010.
DAP
The DAP prices in the international market increased during the 1st quarter of 2011 and slightly declined during the 2nd quarter. However, on an overall basis, DAP prices remained firm in the international market. Domestic DAP prices were increased by Rs.915/- per bag during Jan-Jun 2011. The drastic increase was mainly because of withdrawal of GST exemption in the 2nd quarter. DAP imports are 155 kt during this period as compared to 310 kt imports during the same period of last year. According to the Fertilizer Industry estimates during Jan-Jun 2011, industry DAP sales are estimated to be 316 kt, 2% lower than 322 kt sales of the same period of last year. Overall DAP availability during the first half of 2011 was 477 kt, which was 30% lower as compared to 683 kt availability during the same period of last year.
General
Domestic fertilizer industry witnessed positive trend in production during the current year. The production in nutrient terms increased from 2906 thousand tonnes during 2008-09 to 3024 thousand tonnes during 2009-10, showing an increase of 4.1%. Nitrogen production was 2611 thousand tonnes during 2009-10 and recorded an increase of 3.2% (86.3% in total nutrient production), phosphate 403
Urea
DAP
thousand tonnes (13.3% share in total nutrient production), which increased by 10.7%. Potash blends production was about 10 thousand tonnes and was almost the same as in the previous year (0.3% share in total nutrient production). The subsidy on phosphatic and potassic fertilisers was eliminated on December 31 2008. However, from January 2010, GOP initiated a new scheme of subsidy amounting to Rs.500/- per bag of 50 Kg for potassic fertilisers only. For 2009-10, the subsidy on potassic fertilisers has been estimated as Rs.0.5 billion for 2009-10. Along with this, the subsidy on imported urea by picking the difference over its local price (for price stabilization purpose) continued for 2009-10. In addition to this, the Government is also providing an indirect subsidy to fertilizer manufacturers by selling feedstock gas (80% of the raw material cost)
Planed capacity additions
A new fertilizer manufacturing plant at Sadiqabad, Distt. Rahim Yar Khan, with a capacity of producing 400 thousand tonnes of urea, 450 thousand tonnes of CAN, 400 thousand tonnes of NP and 300 thousand tonnes of NPK, has been installed during this year. It is a project of Fatima Fertilizer Company, owner of Pak Arab Fertilizer. Engro Chemical has installed new urea plant with an annual capacity of 1300 thousand tonnes. Gas has already been allocated for the plant. This will reduce fertilizer imports into the country. Suraj Fertilizer Industries has set up a new plant of SSP at Harrappa, Sabinal with production capacity of 150 thousand tonnes annually. In addition, a few companies have started of SSP (14%) at small scale level and their total annual production capacity is around 20 thousand tonnes.
Conclusion & Recommendations:
The government has a role of ensuring that the policies and their implementation are such that availability of adequate supply side is ensured throughout the year round which include but not limited to; - Proper steps to ensure availability of fertilizers and awareness campaigns highlighting consequential advantages to the farmers; - Proper usage of fertilizers. - Availability of storage facilities. - Availability of agricultural credit. - Proper estimates of the usage to avoid shortages. October 2011
S cience & Technology Internet Marketing: fast, broad and effective by Syed Asif Ali Customer-centric marketing is essential for real success in product proliferation and adoption across the targeted audience. Conventional marketing strategies almost always required a hefty budget and market research back-up. But, compared to conventional marketing techniques, Internet Marketing is a low budget technique with a broader reach and guaranteed impact. As the world came closer courtesy the electronic media, more efficient people across the globe started realizing the benefits of Internet Marketing. Internet marketing is broader in its scope because it not only refers to marketing on the Internet, but also includes marketing via e-mail and wireless media. Digital customer data and the electronic customer relationship management systems are also often grouped together under the concept of ‘internet marketing’, which combines the creative and technical aspects of Internet technology including design, development, advertising, and sales. The current evolutionary trends in consumer behavior can be seen as a progression right from the internet's roots, since it re-transforms the World Wide Web to what it was initially created for – a medium for exchange of informa-tion between users. Besides serving as the most convenient medium for information exchange, factors such as demographic changes, people becoming more technology-centric, higher literacy, changing experience levels and affordability, also influence these changes. Today, putting up a website that attracts customer traffic, feed them information (often via three dimension imagery), and convincing them to place orders is easy; hundreds of thousands of people around the world make all, or part of their living from the Internet. The entity that revolutionized the web-marketing was Netscape; this company made using the Internet easier and not just for its users, but for people who wanted to use it to publish and sell products and services as well.
i) One-to-one approaches In the ‘one-to-one’ approach, marketers target the user browsing the Internet ‘alone’ so that marketers' messages reach the user ‘personally’. This approach is used in search marketing, for which the advertisements are based on search engine keywords entered by the users. This approach usually works under the pay per click (PPC) method. The bulk of e-mail and SMS marketing fall under this technique. ii) Appeal to specific interests When appealing to specific interests, the marketers place emphasis on appealing to specific behavior or interest, rather than reaching out to a broadly defined demographic group. These marketers typically segment their customer markets on the basis of age groups, gender, geography and other factors that clearly define the target groups. iii) Geo-targeting In Internet marketing, geographical targeting and market-ing are the methods of determining the geo-location of a website visitor with assumed specific geo-location software, and delivering different message content to that visitor based on his or her location such – latitude and longitude, country, region or state, city, metro code or zip code, organization, Internet Protocol (IP) address, ISP – and any other criteria. Using the demographic tools and various software-types is imperative for succeeding with this technique.
Benefits:
Internet marketing is relatively inexpensive considering its per-customer cost of reaching target audiences. Companies can reach a wide audience for a fraction of the traditional advertising budgets. Besides, the very nature of the medium allows consumers to research and purchase products and services much more conveniently. Above all, businesses have the advantage of reaching and appealing to the potential consumers in consumer-specific ‘language’ that brings results quickly. But while the cost-volume-profit (CVP) analysis can indicate huge economies, effectiveness of strategy and the overall marketing campaign depends on marketers’ business goals. Given the improvements in institutional arrangements all over the world, Internet marketers have access to requisite statistics on various customer populations and for measuring responses to their own marketing campaigns more easily and inexpensively because computer technology affords much easier statistical analysis of the responses. Almost all aspects aspects of an Internet marketing campaign can be traced, measured, and tested, in many cases through the use
Techniques:
Technological advances in telecommunications industry have dramatically impacted online advertising techniques. Many firms are embracing a paradigm that is shifting the focus of advertising methodology from traditional text and image advertisements to those incorporating more recent technologies like JavaScript and Adobe Flash. As a result, advertisers can more effectively engage and connect their audience with their campaigns that seek to shape consumer attitude and feelings towards specific products and services. Some of the most applied techniques are:
20
October 2011
S cience & Technology of an ad server. The advertisers can use a variety of methods, such as pay per impression, pay per click, pay per play, and pay per action. As such, via the demographic software, marketers can easily determine which messages or offerings are more appealing to the audience. Internet marketing leads to product innovation. Marketers are informed about the preferences and likings of their end users, and they can manufacture or present their services in the customer-desired manner.
Concerns and solutions:
Concerns are still there about internet marketing, which are in the process of being resolved via different software writing and internet communication techniques. Many of the consumers are hesitant to purchase items over the Internet because they do not believe that their personal data/information will remain private. Some companies, that purchase customer information, offer an option (i.e. opting out) to the respondents to have their personal information removed so as to prevent their details being disclosed in any subsequent promotional redistribution. However, many customers are unaware if and when their information could be shared, and are unable to stop the transfer of their data between companies if such activity occurs. Besides, companies holding private information on potential customers are vulnerable to data attacks and leaks. Internet browsing privacy is a related consumer concern. Web sites routinely capture browsing and search history of browsers which can be used to provide targeted advertising. Privacy protection policies can ensure transparency in these practices. Spyware prevention software can also be used to shield the consumer. Another consumer concern in relying over e-commerce is whether or not they will receive exactly what they are being promised by the websites. The suppliers offering goods and services online have attempted to address this concern by investing in and building stronger consumer brands (e.g. Amazon.com, eBay, and Overstock.com), by leveraging suppliers and the feedback rating systems, and e-commerce bonding solutions. All these solutions attempt to assure consumers that their transactions will be free of problems because the suppliers can be trusted to provide reliable products and services. Finally, several major online payment mechanisms (credit cards, PayPal, Google Checkout, etc.) have provided back-end buyer protection systems so as to address any such problems if they occur.
An indicator of the potential for Internet marketing: Former US President Bill Clinton had once said, “When I took office, only high energy physicists had ever heard of what is called the World Wide Web... Now even my cat has its own page”. time spent by browsers on visiting social media websites now exceeds the time spent on e-mailing, fifty two per cent of the people who read the news online forward it onwards through social networks or e-mail, fifty nine per cent of the adults polled stated that they use their cell phone to remain connected with their preferred social network. Due to these amazing statistics internet companies are eyeing the global potential of the social websites. Almost every national and international brand has a fan page on Facebook. It is the easiest way to introduce a brand to the potential consumers worldwide. Pages on the websites are interactive, communicative and constantly up-dated about the precise product or service. Social marketing brand pages attract more traffic to the product supplier’s official webpages via link postings. Social websites profile and brand pages also help to gather demographics about consumers through its Insights area.
Pakistan’s potential:
Social marketing:
Small local businesses are discovering the advantages of having a Facebook fan page or other social websites, and are beginning to learn the secrets of attracting customers and website visitors with simple tricks that are affordable and easy. In a recent survey, the following interesting facts were revealed: more than 220 million people visit the top 25 social networks each month. Facebook has over 500 million active users,
46
Pakistan's IT industry is flourishing, virtually by the day. From across Pakistan, Internet users are getting more and more aware about internet usage and its ‘search engine’ functionality. According to the International Telecom Union (ITU), internet users in Pakistan form more than 12% of its population. Internet market in Pakistan certainly has huge potential and there are early signs of the expected surge in consumer numbers, but there is still a long way to go. The country has pursued an aggressive IT policy over the last decade the boosted Pakistan’s drive for modernization of its economy and for creating an export-oriented software industry in much the same way as done in India. Countless Pakistani online companies are offering internet marketing solutions ranging from web-designing to web-hosting and designing complete marketing campaigns. Pakistani Internet users’ demographics that will be of great interest to marketers of personal consumption goods and services in general include the following key statistics: 87% fall in the 18-30 age range thus capturing a fresh wave of consumers entering the market 94% have a graduate or post-graduate degree 34% are “financial heads” of their household. Internet as an arena is growing every year, and an everincreasing number of users is buying or interested in buying products and services online. Challenges lie ahead for the marketers/vendors to differentiate themselves in the eyes of the potential consumers in order to succeed in the hunt for new customer acquisition, retention and growth. Innovation through Internet marketing can help companies stay afloat, and in correct direction, in the present (recession-hit) era of global corporate competition which, more than ever before, calls for delivering value for money. October 2011
27
iterature LI nnovation Malik Ram: a devoted disciple of Mirza Ghalib tarting with Kavi Kabir Das, who was the first poet to compose verses in ‘khari boli’ – the predecessor of Urdu in the 15th century – many great Hindispeaking poets and writers adopted Urdu as their medium, and created classical literature. These great poets include Pandit Daya Shankar Nasim, Pandit Brij Narayan Chakbast, Ratan Nath Sarshar, Shiv Narayan Aram and Kali Das Gupta Raza. The prose writers and critics include the likes of Munshi Prem Chand, Krishan Chandar, Gayan Chand besides a host of others but among them, Dr. Malik Ram enjoys an exalted status. Dr. Malik Ram’s rise to fame was due to his work on Ghalib which was appreciated in literary circles in India and in Pakistan. His first article on Mirza Ghalib entitled ‘Ghalib aur Zauq’ was published in the September 1926 issue of the Lahore-based literary magazine ‘Nigar’. Thereafter he kept writing about Mirza Ghalib’s Urdu and Persian prose and poetry, and about the life and times of Ghalib. Not many writers wrote as much and as brilliantly as he did. It is tragic that after the mid-20th century the world wasn’t blessed with intellectuals of this calibre. His tireless work on Mirza Ghalib made him one of the top-ranking experts on Ghalib’s poetry, and the delicacies and sensitivities that make Ghalib’s literary contributions unique. Malik Ram wrote 14 books on Mirza Ghalib, and 35 critiques, which were published beginning 1926. One of his famous commentaries on Mirza Ghalib was “Woh suraten Illahi”, which was first published in the 1949-50 issue of Aligarh Magazine’s Ghalib Number. This piece was published thrice after continuous editing, and the final text appeared in 1974 in what had by then become a book entitled “Woh suraten Illahi” wherein the author recalled his encounters with great men. Interestingly enough, the first article therein is a sketch of a perceived meeting with Mirza Ghalib, which depicts the intensity of his admiration as well as appreciation of this great poet that the whole world now recognizes. In the preface to the book, he explains this in the following words: “You might wonder how the inclusion of the (late) Mirza Ghalib in this book can be justified. Let me assure you that I have often met Ghalib and observed him as closely as the rest of the seniors whose circumstance I have penned down in this book. In fact, I dare say that, while my contacts with the others ended with their demise, but with Mirza Ghalib they continue although, in the physical sense, he departed for the heavens much before the others that I have written about”.
In Ali Jawad Zaidi’s book entitled “Malik Ram, aik mutlea”, a collection of the articles of the many critiques of Malik Ram, writer Shams-ur-Rehman described Malik Ram’s picturesque sketch of Mirza Ghalib in the following word: “This sketch has the same grandeur that distinguishes Andre Morava’s biographies of English and French writers because of the novelistic narration of their lives and times. If, describing the times a researcher is writing about in a picturesque style is the pedestal he decides to stand on (a wholly justified option) then this is an outstanding example thereof.” In his commentary on Malik Ram’s writings in his book “Malik Ram ki muraqqa nigari” Asloob Ahmed Anasari sums up his observations in the following words: “The sketch of Ghalib’s imaginative abilities that this article exposes is a speciality. By narrating his dialogue (with Ghalib) as a virtual reality, the impression conveyed by Malik Ram is that he is a contemporary of Ghalib; as such this sketch has become a rare example of imaginative sketching. The picture it paints is appropriate in every way and heart winning, and for its peculiar style of literary sketching, Malik Ram’s script will remain an exemplary piece in literary sketches in Urdu prose. According to Prof. Gayan Chand, people miss leaders of the standing of Mahatma Gandhi, Muhammad Ali Jinnah, Subhash Chandra Bose, Maulana Abul Kalam Azad, Pandit Jawaharlal Nehru and Raj Gopal Achariya, in literature the likes of Allama Iqbal and Tagore, and in science the likes of Professors C.V. Raman and Dr. Abdus Salam. But the likes of Moulvi Abdul Haq, Rashid Ahmed Siddiqui, Maulana Arshi, Masood Hasan Rizvi, Qazi Abdul Wadood, Dr. Malik Ram, Shams-ur-Rehman and Asloob Ahmed Anasari kept the literary circles alive. These, and many other intellectuals, gave society moral values, refined its taste for appreciating art and literature and fostered its ability to distinguish between good and bad, right and wrong; in fact, they gave it a sense of direction. Their literary personalities are like impregnable fortresses that shelter the civilized, and Dr. Malik Ram was one such multi-dimensional shelter because he was not just an expert on Ghalib but also on the works of Maulana Abul Kalam Azad, and thus on Islamic jurisprudence, which an expert no less than Maulan Abdul Majid Daryabadi also recognized. Due to his interest in Islam, he also acquired a grasp over Middle Eastern history and gained recognition for his studies and expositions in this area
53
October 2011
I nnovation Eye Controlled PC Monitoring Desk
Using eyes to point, select and scroll is completely intuitive and complements traditional control interfaces, such as the mouse and keyboard, in a very natural way. the world’s fourth largest manufacturer of personal computers, has built the world’s first eye-controlled laptop, using eye tracking technology from Tobii. The laptop is a fully functional conceptual prototype and an important breakthrough for Tobii in its mission to bring its eye tracking technology to serial production. “More than anything else, the Tobii laptop prototype is proof that our eye tracking technology is mature enough to be used in standard computer interfaces. To reach a state where the technology is part of the average computer, we need to make it smaller and cheaper. We believe that this can be realized in a couple of years by partnering with the right manufacturer,” comments Henrik Eskilsson, CEO of Tobii Technology. It basically works via a camera mounted on computer monitor which is focused on user's eye. User’s glance determines where user is looking, the gaze point Cursor is placed at the gaze point. "Mouse clicks" are done with a slow eye blink. For users, eye control is thrilling and makes the computer interaction more effective. It is as if the computer understands user. Computer user needs to just glance at an icon or gadget and more information will be presented; He can zoom-in pictures or maps and automatically center on the area he is looking at. The computer can auto-dim and brighten the screen when it recognizes your eyes to increase battery time. Eye control can also speed things up by enabling new and intuitive ways to switch between open windows, and browse your emails and documents.
Previewing ‘Windows 8’ Monitoring Desk
Microsoft Corporation showcased a detailed preview of the next major release of Windows, code-named “Windows 8”, at the developer-focused BUILD conference. “We reimagined Windows,” said Steven Sinofsky, president of the Windows Divison at Microsoft, in his keynote address to the thousands of developers in attendance. “From the chipset to the user experience, Windows 8 brings a new range of capabilities without compromise.” He added. The company also highlighted a variety of new features in Windows 8, including the following: ‘Metro’ style: Windows 8 introduces a new Metro style interface built for touch, which shows information, embodies simplicity and gives user a better control. The Metro style user interface ‘UI’ is equally at home with a mouse and keyboard as Steven Sinofsky, president of the Windows Divison, preveiwing Windows 8 well. Multi-Tasking Software Interface: ‘Windows 8’ provides convenient ability to snap and resize any application or program to the side of the screen, so users can multitask using the capabilities of Windows. Rich Graphics: This feature is particularly for games and graphics designers. DirectX 11 gaming power underlies Windows 8, allowing the easy creation of full-screen games as well as graphics with smooth, flicker-free action. Better Hardware Compatibility: ‘Windows 8’ supports for ARM-based chipsets, x86 (as well as x32 and x64) devices as well as touch and sensors. It means that Windows 8 works efficiently with all sorts of devices. Windows 8’ will be available in the market for home and corporate users this winter.
54
October 2011
H istory Truth: it doesn’t remain a secret for long than President Kennedy. When President Kennedy accepted the resignation of Dulles, and Cabell and Bissell were fired, he put Robert Kennedy temporarily in charge of the CIA, which was probably not probably not a wise thing to do. Robert Kennedy had a bullin-a-china-shop manner that did not endear him to those he might have made his allies. But how many staff at Langley were potential allies? John McCone became the new director in Dulles’s place, and Richard Helms – later to become director himself – took Bissell’s place. This said the relationship between the Agency and the President was set to continue much as before. William Harvey was chief of CIA’s “Executive Action” operations. Harvey’s brief was removal – even by assassina-tion – of troublesome foreign leaders, monitoring and progressing under “ZR/RIFLE” murder activities and the covert anti-Castro “Project Mongoose” programme. It was he who provided another, supreme, example of the CIA’s independence of the President and the government. It happened during the Cuban Missile crisis in the fall of 1962. Delicate negotiations were in progress to defuse the desperately dangerous situation brought about by the installation of Soviet missiles in Cuba, when the world held its breath minute by minute, terrified that this might lead to a devastating nuclear world war. While it was all going on, incredibly, maverick William Harvey was crassly running commando operations in Cuba, thus directly undermining the President’s delicate negotiations and the security of the entire nation. When this came to light, Harvey was shipped off to a post in Rome, and Tracey Barnes became the head of the Domestic Operations Division – the “Department of Dirty Tricks”though Harvey still turned up periodically in the US in connection with the Cuba projects. E. Howard Hunt was brought in to run Covert Activities. Hunt would later be convicted and jailed in connection with the Watergate scandal. Following the disclosures about the CIA-Mafia alliance, Kennedy, having rid the CIA of its top men, declared an intention to dismantle the Agency [CIA]; this was a private comment made by the President that soon assumed the proportions of a very public pronouncement. He had said he planned to “.....tear the CIA into a thousand pieces and scatter it into the wind”. Such comments weren’t calculated to make friends or influence people in the CIA, but then had that ever been possible?” There are many who still suspect that CIA had a major role in John Kennedy’s assassination because US Supreme Court investigation too couldn’t identify his murderers
istory never remains a secret; eventually the truth does surface and exposes both the heroes and the villains. The era of President John F. Kennedy, who was assassinated, will be recalled for years to come not because he made mistakes but because he was prevented from doing just the opposite – avoiding historical blunders. In his famous book “The conspiracy to destroy a destiny”* Matthew Smith recalls how this happened. In chapter 4, he writes: “If John F. Kennedy did not know what was going on at Langley, he became well aware that the CIA was a loose cannon, a rampant rogue elephant, which neither the White House nor anyone on Capitol Hill could contain. The agency was the law unto itself. It had its own programme; it served neither the President nor the government, unless their wishes coincided with those of the agency. The nature of the animal was such that it sheltered under its own secrecy, becoming totally secure and untouchable. It might well have been described as a form of government in own assumed right. By 1956, President Eisenhower was being pressed to look to the future in his decisions, but he didn’t really want to make decisions. He “really didn’t want to do or decide anything”, wrote Truman. “He passed the buck, down.” In the meanwhile, the CIA was making the decisions and spending most of its budget on activities which would not have met the approval of the President, the government or the people: activities which entered the annals of the government as “clandestine”. Before leaving, he [Eisenhower] had warned against the military-industrial complex being allowed to acquire more power. In the early days of US involvement in Vietnam, the question arose of how to deal with President Ngo Dinh Diem. Kennedy positively ruled out murder. Notwithstan-ding, Diem was ruthlessly overthrown and killed. The President was livid, but he soon realised that this was an example of the CIA having its own agenda. Another example of the agency’s duplicity, directly in defiance of the President, surfaced when a Yale professor of history was arrested in the Soviet Union for spying. Kennedy, assured of the professor’s innocence, made a personal plea on his behalf to the Russian president Nikita Khrushchev. In his response to Kennedy’s intervention, Khrushchev released this prisoner and he returned home. Invited to meet John F. Kennedy at the White House, the president only then learned that the CIA had lied, and the professor had been an agent of CIA all along. Clearly, the president could not rely on the word of the CIA at any level. It was embarrass-ing, and Khrushchev realised that he was better informed about what was happening inside the CIA
*Published by Mainstream Publishing in 2005
55
October 2011
S ports
Aleem Dar makes history
Hafeez makes us proud
Hockey: nearly on top
A Pakistani cricket umpire made history earlier this month at ICC’s annual award distribution ceremony held in London, and also may find a place in Guinness book of records. For the third year in succession he – Aleem Dar won the award for the “best umpire” – some success for a man aged 43 and, God willing, many more years to go on as an umpire. Hailing from Jhang in Punjab, he began playing cricket at school and continued right through his college days, but opted for umpiring since he couldn’t get a place in Pakistan’s top eleven. His devotion to the role he accepted finally raised him to the top after standing in matches, at first at district level, then provincial level and later, national level and finally at the top – the international level. After years of service at the global level, he made a name that qualified him to supervise world cups. By the time he stood in the last World Cup held in India, he had created another record – umpiring in over 100 one-day internationals in fewest number of years ever by any umpire. In the last World Cup in India number, 15 of his decisions were challenged but the beauty was that computer replay of the action proved him right in all cases; that’s expertise par excellence. Three cheers for Aleem Dar! He has made us proud. Let us hope he continues his performance.
On its latest tour of Zimbabwe, the Pakistani cricket team made history – it won all matches – one test, three one-day, and two T20 matches. The only earlier such success was in 2003 when Bangladesh lost all the three test matches and five 1-day matches during their only ‘full’ tour (thus far) of Pakistan. Chief selector Mohsin Khan picked up many newcomers in a 17-member squad and is happy with the show – trying out new players paid off. But was the opposing side really tough? With 16 wickets, Aizaz Cheema for one got a belated opportunity to play international cricket. But at 32, does he have many more years to go on? Mohammad Hafeez had the tour of his dreams. He helped his team with his performance with bat and ball; he was their sole centurion in the one-off Test with a test-best 4 for 31 with his handy off-spin bowling. He then dominated the ODI series scoring his career-best 139 not out – sole 3-figure knock from either side - and with Imran Farhat, recorded the highest-ever opening partnership of 228 for Pakistan, finishing the series with 2 half-centuries and 7 wickets at three runs apiece in both T20s. The veteran Younis Khan made his presence felt with useful knocks in the Test and the ODIs. Besides, he is still a superb fielder and a handy spin bowler.
On September 11, India’ hockey team recorded an historic victory; in the final of the inaugural Asian Champions Trophy held in Ordos, China, they defeated their old-time rivals Pakistan in a penalty shoot-out. Pakistan fought brilliantly to keep the Indians at bay in the match and ended at 0-0 and in the 15 minute extra-time but in the penalty they faltered twice but the Indians held their nerve to carve out a 4-2 wing in the final of the elite six-nation event. Pakistan paid a price for resting Sohail Abbas who holds the record for scoring highest number of goals in international hockey. In spite of earning 8 short corners in the final, Pakistanis failed to capitalise on any of them. PHF opted to give young players a chance in the lead up to next year’s Olympics in London. “We were really unlucky today… we were in control during the best part of the final match but failed to score… Several senior players were not included in the team but even then we did a good job”, said Kh. Junaid, the team manager. After a brief rest on return, the team will prepare for its Australian tour scheduled for October. Next, it will feature in the Champions Trophy to be played in December and then the London Olympics.
October 2011
E vent Hamdard Naunehal assembly celebrates defence day of Pakistan Hamdard Naunehal Assembly Karachi chapter yesterday organized a function on the occasion of Defence Day Pakistan on the subject of “Defence of homeland and education”, presided by Mrs. Sadia Rashid, President, Hamdard Foundation Pakistan at a local hotel. The function comprised speeches, tableau and national songs. Speaking on the occasion, the Chief guest and former Governor of Sindh, Lt. Gen. (Retd.) Moinuddin Haider said that armed forces of Pakistan can defend country against any foreign aggression but the real threat for the safety and solidarity of the country is lying in its internal conditions which is becoming bad to worst due to extremism, terrorism, sectarianism, street crimes, and target killings that are rampant in the country and particular in Karachi. He said that without education and knowledge no country could make progress and even defend itself. “Education without training, particularly moral training is not useful, because it gives only information and didn’t serve the purpose of character building of students”, he added. “Pakistan is a lucky country, it has a major population of young people of 15 years of age while there is a dearth of young people in Japan and Japanese industrialists are setting up their factories in other countries because of lack of manpower”, he said. He further added that we are not utilizing our tremendous manpower of young people. We should give vocational education and training to our youth, send them to foreign countries as our overseas Pakistanis are annually sending remittances of $ 13 billion, he stressed and further said that we should also make big dams to save our villages from rainy and flood waters as well as to store huge water and to generate electricity.
Mrs. Sadia Rashid, in her presidential address said that it is the foremost duty of all of us to safeguard our homeland and to make it strong, safe and disciplined so that we might live in peace without any danger. Praising the role of armed forces in defence of Pakistan, she said that our army is not only defending the frontiers of the country with courage, but also playing an important role in other countries as the peace force of United Nations. She advised the children to always value freedom and concentrate on their studies and try to acquire education of science and technology.
57
October 2011
E vent ITCN ASIA 2011 Staff Writer
:The exquisite 11th ITCN Asia 2011 International Exhibition & Conference commenced on 20th September, 2011 at Karachi Expo Centre. Most powerful brands of the world showcased their state-of-theart products and services which allowed the user community to get exposure to a wide range of technology and solutions under one roof.. Nisar Ahmed Khoro, Speaker Sindh Assembly inaugurated the event. Nisar Ahmed appreciated the event stating that such events are bringing positive image to Pakistan as well as introducing Pakistan as a new emerging IT hub of the Asia. The chief guest visited different stalls and met domestic & foreign visitors, witnessed the products that are catered to various ages, needs and requirements. The 3-day event was organized by Ecommerce Gateway Pakistan. The event was focused on a paradigm shift by covering a powerful Business to Business (B2B) discourse with relevant technology in various sectors and sub-sectors. ITC products / services, networking, IT solutions, software / programs, office automation, latest PCs and laptops, mobile phones and multimedia devices were displayed in the exhibition. During the 3 days of the Event, Microsoft | OPEN DOOR Event, Enterprise Solutions Seminar by Huawei, P@SHA Launchpad by Pakistan Software Houses Association, Information Security Forum with the theme “the Emerging Virtual Challenges & Threats” by Pakistan Information Security Association (PISA), Digital Marketing Forum and Conference on Mobile Applications were also held at ITCN Asia 2011. The 11th ITCN Asia 2011 International Exhibition & Conferences has reinforced Pakistan’s image as a key emerging market of the Information and Communication Technology (ICT) products and services. Around 67 foreign delegates from 17 countries including China, UAE, UK, USA, Singapore etc gathered at the podium to showcase the
latest ICT technologies and products. Some of the major participants were Microsoft, Huawei Technologies; INTEL, NDMA, etc. Microsoft Pakistan Country Manager Kamal Ahmed; Huawei Technologies Pakistan Deputy CEO Colin Hu; Economic Consular of Iran Syed Hasan Alvi; and Ecommerce Gateway President Dr Khursheed Nizam were present at the occasion. More than 103,643 visitors from all over Pakistan witnessed the products that catered to various ages, needs and requirements of the users. The IT industry in Pakistan has grown significantly in the recent years due to the investment friendly policies and incentives of the Government. Pakistani Information technology and software houses have consistently encouraged domestic IT events for the positive projection of the Pakistan IT industry in local and international markets.
Speaker Sindh Assembly Nisar Khoro visiting stall at ITCN Asia 2011
56
October 2011
tock Market