The Lahore Chamber of Commerce & Industry

Annual Report Annual Report

2011

2011 Lahore Chamber of Commerce and Industry

Lahore Chamber of Commerce and Industry

Annual Report 2011

Annual Report 2011

The Lahore Chamber of Commerce & Industry 11-Shara-e-Aiwan-e-Tijarat, Lahore - Pakistan Tel: 92-42-363 05538-40, UAN: 111-222-499, Fax: 92-42-363 8854 E-mail: president@lcci.org.pk Web: www.lcci.com.pk

The Lahore Chamber of Commerce and Industry

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Annual Report 2011

The Lahore Chamber of Commerce and Industry

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Annual Report 2011

Father of the Nation

Quaid-e-Azam Muhammad Ali Jinnah

The Lahore Chamber of Commerce and Industry

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President

President

Shahzad Ali Malik

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The Lahore Chamber of Commerce and Industry

Senior Vice President / Vice President

Senior Vice President Sheikh Muhammad Arshad

Vice President Sohail Azhar

The Lahore Chamber of Commerce and Industry

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Annual Report 2011

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Ijaz Ahmed Mumtaz

Amjad Ali Jawa

Marghoob Shakir Izhar

Mian Tariq Misbah

Tanvir Ahmad Sufi

Mian Jabbar Khalid

The Lahore Chamber of Commerce and Industry

Annual Report 2011

Sheikh Muhammad Ashfaq

G.R. Siddiqui

Muhammad Ibrahim Qureshi

Mian Zahid Jawaid Ahmad

M. Imran Dawood

Dr. Shahid Raza

The Lahore Chamber of Commerce and Industry

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Annual Report 2011

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Muhammad Haroon

Ghulam Sarwar Malik

Nasira Taskeen

Sheikh Muhammad Ayub

Mian Rehman Aziz

Mian Ghulam Murtaza Shaukat

The Lahore Chamber of Commerce and Industry

Annual Report 2011

Imran Aslam

Shahid Faraaz Hussain

Tahir M. Sheikh

Muhammad Yousaf Shah

Faheem ur Rehman Sehgal

Shahid Maqsood Butt

The Lahore Chamber of Commerce and Industry

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Annual Report 2011

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Khawaja Khawar Rashid

Mian Maqsood Ali

Ilyas Majeed Sheikh

Chaudhry Wajid Ali

Saeeda Nazar

Zafar Iqbal Chaudhry

The Lahore Chamber of Commerce and Industry

The Lahore Chamber of Commerce and Industry

From L to R: Messrs Mian Ghulam Murtaza Shaukat, Syed M. Saqlain PSP (Secretary General), Khawaja Khawar Rashid, Standing Sheikh Muhammad Ayub, Saeeda Nazar, Faheem ur Rehman Sehgal, Ilyas Majeed Sheikh, Chaudhry Wajid Ali, Tahir M. Sheikh, Shahid Faraaz Hussain, Imran Aslam, Mian Rehman Aziz, Muhammad Yousaf Shah, Mian Maqsood Ali,

From L to R: Messrs Sheikh Muhammad Ashfaq, Tanvir Ahmad Sufi, Mian Jabbar Khalid, Marghoob Shakir Izhar, Amjad Ali Jawa, Sitting Ijaz Ahmed Mumtaz, Sr. Vice President Sheikh Muhammad Arshad, President Shahzad Ali Malik, Vice President Sohail Azhar, Nasira Taskeen, Mian Zahid Jawaid Ahmad, M. Imran Dawood, Dr. Shahid Raza, G.R. Siddiqui, Muhammad Haroon.

The Lahore Chamber of Commerce & industry Executive Committee 2011

Annual Report 2011

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Achievement Awards

Lahore Chamber Achievement Awards 2011

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The Lahore Chamber of Commerce and Industry

Achievement Awards

LCCI President Mr. Shahzad Ali Malik receiving Performance Award

LCCI Former President Mian Shahzad Alam Monnoo receiving Performance Award

LCCI Senior Vice President Sheikh Muhammad Arshad receiving Performance Award

LCCI Former President Mr. Muhammad Ali Mian receiving Performance Award

LCCI Vice President Mr. Sohail Azhar receiving Performance Award

LCCI Former President Mr. Zafar Iqbal Chaudhary receiving Performance Award

The Lahore Chamber of Commerce and Industry

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Achievement Awards

Mr. Christan Albac M/s Telenor Pakistan receiving Prime Minister Trophy

Mr. Sheryar Ali Malik M/s Guard Auto Zones receiving Prime Minister Gold Medal

Mian Tariq Nisar M/s A.T.S Synthetic (Pvt) Ltd. receiving Gold Medal & Award

Mr. Iftikhar Hussain M/s Ishtiaq Steel receiving Gold Medal & Award

Mr. Khawaja Ibsham Mahmood M/s Lahore Esschem (Pvt) Ltd. receiving Gold Medal & Award

Mrs. Rifat-un-Nisa M/s Khayam Publisher receiving Women Achievement Award

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The Lahore Chamber of Commerce and Industry

Achievement Awards

Mr. Abdul Basit M/s Grand Parent Poultry (Pvt) Ltd. receiving Achievement Award

Mr. Muhammad Ibrahim Qureshi M/s Raffles Receiving Achievement Award

Khawaja Shahzeb Akram M/s Mass Pharma (Pvt) Ltd. receiving Achievement Award

Mr. Muhammad Tariq M/s ACAMAR Textile receiving Achievement Award

Mr. Asif Khan M/s Zxmco Pakistan (Pvt) Ltd. receiving Achievement Award

Main Muhammad Saeed M/s Madina Steel Industries receiving Achievement Award

The Lahore Chamber of Commerce and Industry

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Achievement Awards

Mr. Yasir Anwar M/s Crescent Dyeing & Textile receiving Achievement Award

Haji Inam Elahi Aasar M/s Hijaz Hospital receiving Achievement Award

Mian Shahjahan M/s Sahara Estate & Builders Group receiving Achievement Award

Syed Amir Raza M/s Neutro Pharma receiving Achievement Award

Mr. Muhammad Ahad Faisal Roa M/s Getronics Pakistan (Pvt) Ltd. Receiving Achievement Award

Syed Sameen Aslam M/s Fabcon Design & Engineering receiving Achievement Award

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The Lahore Chamber of Commerce and Industry

Achievement Awards

Mr. Tariq Mahmood Minhas M/s Tariq Pipe Industry receiving Achievement Award

G.M Sales & Marketing Sajid Jamil M/s The Imperial Electric Co. (Pvt) Ltd. receiving Achievement Award

Mr. Muhammad Bahir M/s Bau Brothers receiving Achievement Award

Mr. Shahid Lal M/s Lal Din Engineering (Pvt) Ltd. receiving Achievement Award

Mr. Zia-ud-Din M/s Forvil Cosmetics receiving Achievement Award

Dr. Zahid Ahmad Siddiqui Professor of Civil Engineering Department (UET) Receiving Research Award (Engineering)

The Lahore Chamber of Commerce and Industry

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Achievement Awards

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The Lahore Chamber of Commerce and Industry

Lahore Shopping Festival

Lahore Shopping Festival

The Lahore Chamber of Commerce and Industry

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Lahore Shopping Festival Lahore Chamber of Commerce and Industry (LCCI) organized Lahore Shopping Festival (LSF) which was a mega event one of its own kind. The purpose of this week long activity was to promote Lahore and create an economic impact in terms of generating new jobs and investment.

The idea of organizing LSF was envisaged by Sheikh Mohammad Arshad, Senior Vice President, LCCI and to materialized it the management of LCCI constituted a Standing Committee under the convenership of Sheikh Mohammad Arshad. The idea was officially launched on February 23rd in a huge press conference held in the premises of LCCI. The support provided by all the representatives from print and electronic media really boosted our morale. Thanks God, the end was far more successful and satisfactory which no one really imagined.

Sheikh Mohammad Arshad

Since the scope of event was so huge, therefore, it was considered necessary to take Punjab Government into confidence. Chief Minister Punjab Mian Muhammad Shahbaz Sharif was met and briefed about the objectives of LSF by the members of organizing committee. He rightly sensed the significance of this event and assured to extend full support by Punjab Government as a co-organizer. This favour made everything much convenient for us that we did not face any problem in realizing the real theme of LSF. Inauguration of Lahore Shopping Festival: LSF was inaugurated very magnificently on 3rd of April 2011 with a Polo match played at historic ground of Lahore Polo Club. Mr. Hamza Shahbaz Sharif, MNA was the Chief Guest. A large number of spectators came to watch the ceremony and match including prominent industrialists, traders, bureaucrats, women and children. Mr. Hamza Shahbaz Sharif shared the vision of Chief Minister Punjab with the spectators during his speech and informed the audience about the efforts being made by the Punjab Government to promote investment and economic activities in the province. This wonderful inauguration set the right tone and spirit for week long activities of LSF. Husn-e-Qirat Competition: On April 4th, the final round of Husn-e-Qirat Competition was organized here in the premises of LCCI in which first position was shared by Hafiza Habiba Yasmeen, Qari Zikriya Khalid and Qari AbdulSalam Azizi. In qualifying rounds almost 150 participants competed for the final round. Qudratullah & Company was the co-organizer of this competition. Hafiz Ajwad Ubaid and Hafiz Raghib Naeemi of Jamia Ashrafia were the judges of this event. Mr. Hamza Shahbaz Sharif was the Chief Guest who appreciated the initiative taken by the management of LCCI to make this event, a part of the LSF. Young Entrepreneurs Business Plan Competition: On April 5th, Young Entrepreneurs Business Plan Competition was held at 90-Shahrah-e-Quaid-e-Azam. Mian Muhammad Shahbaz Sharif was the Chief Guest.

Almost 300 students got themselves registered and various groups of students from top universities of Lahore participated in the competition. The prime objective of this competition was to encourage the youth to engage in self-employment by developing business plans to commercialize their innovative and workable ideas. The position holders were awarded cash prizes by the Chief Guest who not only appreciated them but also praised the idea of holding such a constructive activity to let the youth demonstrate their potential.

'My Lahore' Photography Competition: On April 5th, a photography competition was held at Old Tollington Hall at the Mall Road, Lahore. Mr. Hamza Shahbaz Sharif inaugurated the event which was attended by a large number of visitors. Both professional and amateur photographers displayed their pictures manifesting the culture of Lahore city. The jury assessed the theme and quality of work and announced the winners who were also awarded cash prizes.

Vintage Car Rally: Vintage Car Rally was a unique activity organized during LSF on April 5th which started from Liberty Market and ended at LCCI. As many as 30 plus cars participated in the rally including the car of Nawab of Bahawalpur, Mr. Shahada Alam Manno, Mr. Shahzad Ali Malik and others. A large number of people enjoyed and appreciated this unique event held for the first time in Lahore. Rana Mashood Ahmed Khan, Deputy Speaker, Punjab Assembly was the Chief Guest of the event who appreciated the organizing committee for giving Lahorites an international activity and distributed souvenirs among all the participants.

Musical Evening: A colourful Musical Evening was organized on April 5th at TM Horse Riding Club, Raiwind Road hosted by Mr. Iftikhar Ali Malik, Chairman Guard Group of Companies. It was attended by the family members of

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The Lahore Chamber of Commerce and Industry

Lahore Shopping Festival

Industrialists, traders, sportsmen and others. Singers sang famous songs for entertaining the audience and received a lot of applause from them. The objective of organizing this evening was to promote Punjabi language as the real identity of Lahore.

Business Walk: On 6th April, LSF Business Walk was organized which was started from LCCI and finished at Governor House. It attracted thousands of industrialists, traders, politicians, members of civil society, teacher and students. Business Walk was led by Mr. Pervaiz Malik (MNA) and national cricketer Wahab Riaz. The participants of the walk were urged to play active role in spreading peace and bringing economic & political stability in the country.

Lahore Wrestling Championship: Another event that added its colours in LSF was wrestling championship that was held at Punjab Wrestling Stadium on 7th April. Mr. Hamza Shahbaz Sharif was the Chief Guest of the event.

The purpose of adding up this event was to promote the Desi wrestling known as Dungal which is getting out of the fashion with the passage of time. A large number of spectators visited the stadium to enjoy the initial and final rounds of wrestling.

Punjab Expo: The prime event of LSF was First Punjab Expo which was organized in Expo Center, Lahore on 8th April. Mian Muhammad Shahbaz Sharif, Chief Minister Punjab inaugurated the exhibition. His Excellency Mr. Ishak Latuconsina Ambassador of Indonesia and Mr. Alik Nikan, Counsel General of Iran in Lahore were the prominent figures among the respected gatherings. Mr. Shahzad Ali Malik expressed his views on the occasion and claimed that Punjab has capability to become hub of economic and trading activities.

Motorbike Rally: Motorbike Rally ranging from 250CC to 1200CC engine was held on 8th April, form LCCI to Expo Center, Lahore. Around 45 bikers drove their bikes and amused the general public with their different kind of brands and models of motorbikes. Mian Mujtaba Shuja-ur-Rehman, Punjab Provincial Minister was the Chief Guest. The Chief Guest applauded the LCCI on holding LSF and said that Punjab Government is very keen to boost economic activities.

Investment Conference: Senator Mr. Ishaq Dar was the Chief Guest on Investment Conference held at Expo Centre, Lahore on 9th April 2011. A large number of prominent industrialists and businessmen from various sectors participated in this conference. Each speaker presented Punjab in general and Lahore in particular as a heaven for investment. The pro-business role of Punjab Government was also highlighted in the conference.

Closing Ceremony of First Punjab Expo: The closing ceremony of Expo Punjab was held at Expo Centre, Lahore on 10th April 2011. Sardar Zulfiqar Ali Khan Khosa, Senior Provincial Minister, Punjab was the Chief Guest and Mr. Ahad Cheema DCO, Lahore was the Guest of Honor. More than one hundred thousand visitors visited the 200 plus stalls from various sectors during three days. Indonesia and Iran are the two international participants of the exhibition. The guests praised the efforts of LCCI for organizing LSF and maintained that the events organized under the banner of LSF would go a long way in reviving the economic activities in the province as well as in country.

Cycle Race: A cycle race was held on 10th April 2011 from LCCI building to Expo Centre, Lahore. Around 100 cyclists from various departments participated in the race. Dr. Shujat Ali, Provincial Secretary Industries was the Chief Guest and Mr. Sharyar Ali Malik, Project Director Guard Autozone was the Guest of Honor. This race was witnessed by a large number of spectators. The objective was to highlight the benefits of cycling among the masses. Dr. Shujat Ali praised the management of LCCI upon organizing such an event. The winners were also awarded cash prizes at the end.

Cultural Evening and Fashion Show: Cultural Evening and Fashion show was organized at Expo Centre, Lahore in the evening of10th April 2011 and with this show the week long activities of LSF were concluded. The spectator came with families to attend this evening and enjoyed. Most of the known and emerging fashion designers displayed their work and made it a colourful event.

It is estimated that more than Rs. 150 million economic activity was generated during this week and the objectives of LSF were well achieved. The support of chamber members and the untiring efforts put in by the staff of LCCI are duly acknowledged in making LSF a unique and memorable event.

The Lahore Chamber of Commerce and Industry

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Husna Qira’at Competition

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The Lahore Chamber of Commerce and Industry

Polo Tournament

The Lahore Chamber of Commerce and Industry

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Young Entrepreneur Business Plan Competition

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The Lahore Chamber of Commerce and Industry

Vintage Car Rally

The Lahore Chamber of Commerce and Industry

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WPO Musical Evening

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The Lahore Chamber of Commerce and Industry

Business Walk

The Lahore Chamber of Commerce and Industry

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Opening Ceremony of 1st Expo Punjab

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The Lahore Chamber of Commerce and Industry

Opening Ceremony of 1st Expo Punjab

The Lahore Chamber of Commerce and Industry

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Lahore Wrestling Championship

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The Lahore Chamber of Commerce and Industry

Motor Bike Rally & Cycle Race

The Lahore Chamber of Commerce and Industry

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Opening Ceremony of Photography Competition

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The Lahore Chamber of Commerce and Industry

Conference on “Investment Opportunities in Lahore�

The Lahore Chamber of Commerce and Industry

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Closing Ceremony 1st Expo Punjab

Glimpses from Fashion Show

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The Lahore Chamber of Commerce and Industry

President Review I am immensely pleased to share with you key highlights of the performance of LCCI Management during the year 2010-11. I will begin by expressing my gratitude to members and leadership of PIAF-Founder Alliance for electing us to serve this prestigious representative body of the business community. During the year, we kept the Executive Committee members fully informed of all organizational activities and took initiatives on the basis of a broad-based consensus. I would also like to express my deepest appreciation for the support I received from Sheikh Mohammad Arshad, Senior Vice President, Sohail Azhar, Vice President and as well as from Executive Committee members in successfully delivering on the set organizational objectives.

During our tenure, we worked on a two-pronged strategy to build LCCI's long-term capacity to promote and protect vital economic interests of our members. First, we strengthened the internal resource-base, both human and financial. We deployed our human resources and physical infrastructure smartly for serving the needs of our members while completing various initiatives we took during the year. In terms of building organization's financial capacity, we reduced waste. We also sensibly harnessed regular and potential revenue streams. Second, we have been very successful in improving LCCI's external visibility to enhance its status as the premier Chamber of Pakistan. This equally covered our dealings with policy circles in the country, market development as well as Corporate Social Responsibility (CSR).

We came in office at a very difficult time characterized by low growth prospects and challenging investment climate exacerbated by infrastructure bottlenecks especially relating to poor state of key public utilities. At the same time, chronic complexities in the taxations system and the sheer lack of meaningful dialogue with the business community over tax reforms persisted. This continued to exert pressures on cost of production and doing business. We not only regularly highlighted the myriad of challenges confronting our members in discussions with relevant authorities as well as in the media for greater awareness. Issues of national importance were accorded a befitting prominence during the year. A systematic approach was taken to create awareness on the growing scarcity of water that has the potential to totally jeopardize the health of our agriculture, the backbone of Pakistan's economy. This was primarily based on interactive sessions with various local chambers, diplomatic community, academic institutions and media.

We also took practical steps in contributing to the revival of economic activities especially in Lahore. During our tenure, LCCI organized a unique and first of its kind mega trend-setting initiative called Lahore Shopping Festival.

This was very much in line with the contemporary international experience of showcasing cities for generating an economic impact. With the help of a series of activities spanning over a week, we successfully promoted the true image of the city as a thriving place to live, work, visit and invest in South Asia. The event projected the historical, cultural and investment potential of Lahore. But it also created jobs. I thank Sheikh Mohammad Arshad for conceiving the idea and for his relentless efforts in its seamless implementation. His leadership was again instrumental in consecutively holding LCCI's Seventh Achievement Awards Ceremony successfully recognizing entrepreneurial achievements of our members. Prime Minister of Pakistan distributed awards at the event.

During the year, we took important decisions to strengthen our technical prowess. We put in place a roadmap for improving LCCI's research and development activities. I am very proud to offer you some of our research work as part of this report. It will help our members gain useful insights into the strengths and long-standing weakness in our economy and its various sectors. It will also shed light on the nature of existing and emerging competitive business opportunities in the international market place. Research and the dissemination of new knowledge are critical for long-term growth and development of our member firms and economy alike.

Standing committees have been active throughout the year helping members deliberate on most pressing issues and propose solutions. This year more than 140 standing committees were formed, eminent business personalities with suitable and relevant experience acted as conveners and co-conveners. A number of our female colleagues have been exceptionally effective in managing their standing committees with commitment and dexterity. The Standing Committee on Finance & Taxation formulated a comprehensive document of Budget

The Lahore Chamber of Commerce and Industry

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President Review proposals for submission to the government for consideration and securing maximum incentives for the trade and industry.

The Standing Committee on Dry Ports took decisive steps to establish and operationalize a modern dry port at Chicho-ki-malian. This initiative of the Sheikhupura Dry Port Trust is approved by the Economic Coordination Committee, Federal Board of Revenue and Pakistan Railways is fully on board for its completion. The process of land acquisition from Pakistan Railways is in its final stages. Technical details for the construction of necessary infrastructure for the Dry Port have been submitted for approval from the Executive Committee of Pakistan Railways. I hope, LCCI will continue to facilitate the development of this long-awaited and much needed traderelated infrastructure. Once completed, this dry port will serve a large number of LCCI member firms more costlyeffectively as compared to other such facilities in the region. We have also proposed the setting-up of a Centre for Export Competitiveness. The Prime Minister of Pakistan fully appreciated the idea and issued instructions to the Ministry of Commerce for necessary action.

In order to strengthen our international trade ties and business networking, more than four trade delegations visited China, South Korea, Vietnam, South Africa, United Arab Emirates, Sweden and India. Simultaneously, many LCCI member firms were facilitated to participate in famous international exhibitions held in China, India, Singapore, Turkey, Spain, USA, Canada, Lithuania, etc.

LCCI again made generous contributions as its CSR during rescue, recovery and rehabilitation efforts in floodraved areas. We dispatched around one hundred trucks carrying daily use items to flood affected areas and also built 150 houses near Layyah District for rehousing deserving families of the area. We are grateful for the support provided to us by our friends in Iran during these testing times.

We are handing over the management of this great institution to an equally abled elected leadership. This has been a watershed year for LCCI. We took steps to reinforce LCCI's institutional capacity, visibility and service quality. More progress will be made in the coming years. Indeed, we have to continuously improve our performance to serve the needs of our members.

Shahzad Ali Malik

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The Lahore Chamber of Commerce and Industry

Ambassadors

Ambassador of Switzerland Christoph Bubb Receiving souvenir from LCCI President

A group photo with Choongjoo Choi Korean Ambassador

The Ambassador of Austria Axel Wech is presenting a book to LCCI President Shahzad Ali Malik

The LCCI President Shahzad Ali Malik is presenting souvenir to the Ambassador of Brazil Alfredo Leoni

Swedish Ambassador Ulrika Sundberg receiving souvenir from LCCI President

Russian Consul General Andrey Demindov receiving souvenir from LCCI President

LCCI President presenting souvenir to the German Ambassador Dr. Michael Koch

Thailand Ambassador Marut Jidpatima receiving souvenir from LCCI Senior Vice President

The Lahore Chamber of Commerce and Industry

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Ambassadors

A group photo with Ambassador of Poland Dr. Andrzej Ananicz

A group photo with Austrian Ambassador Axelwech

Ambassador of Sudan Mohammad Umer Mosa receiving Souvenir from LCCI President

Indian High Commissioner Sharat Sabharwal receiving souvenir from LCCI President

LCCI President presenting souvenir to Ishaq Latuconsina Ambassador of Indonesia

Belgium Ambassador Hans Christian Kint receiving souvenir from LCCI President

LCCI President presenting souvenir to Iranian Consul General Muhammad Hussain Bani Assadi

A group photo with Ambassador of Poland Dr. Andrzej Ananicz

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The Lahore Chamber of Commerce and Industry

List of Former Presidents

S.No.

Name

Year

1.

2.

3.

4.

5.

6.

7.

8.

9.

10.

11.

12.

13.

14.

15.

16.

17.

18.

19.

20.

21.

22.

23.

24.

25.

26.

27.

28.

29.

30.

31.

32.

33.

34.

35.

36.

37.

38.

39.

40.

41.

42.

43.

44.

Dr. A. Waheed (Late) Ch. Nazar Muhammad (Late) Mian M. Rafiq Saigol (Late) Mian Naseer A. Sheikh (Late) Mr. A. Majid Mufti (Late) Ch. Muhammad Saeed (Late) Mian Tajammal Hussain Mr. Mumtaz A. Sheikh (Late) Mr. M. Amin Agha Mr. Abaidullah Sheikh (Late) Mr. A. Aziz Zulfikar Mr. M. ljaz Butt Mr. Maqbool Sadiq (Late) Mr. S. Arshad Saeed Sheikh Muhammad lqbal (Late) Mian Shazada A. Monnoo Mr. Abdul Qayyum Bhatty (Late) Syed Mohsin Raza Bukhari Mr. Mushtaq Ahmad Mian Muhammad Shahbaz Sharif Mr. Muhammad Arshad Naeem Mr. Mumtaz Hameed (Late) Mir Salahuddin (Late) Mr. Tariq Hamid Mr. Iftikhar All Malik Mian Mohammad Ashraf Mr. Salahuddin Ahmad Sahaf Mr. Mohammad Ishaq Dar Mr. Bashir A. Buksh Mr. Tariq Saeed Saigol Sheikh Waheed ud Din (Late) Sheikh Saleem All Mr. Pervez Hanif Mr. Ilyas M. Chaudhry Sheikh Muhammad Asif Dr. Khalid J. Chowdhry Mr. Muhammad Yawar Han Khan Mian Anjum Nisar Mian Misbah ur Rehman Mian Shafqat Ali Mr. Shahid Hassan Sheikh Mr. Mohammad Ali Mian Mian MuzaffarAli Mr. Zafar Iqbal Chaudhry

1966 1967 1968 1969 1970 1971 1972 1973 1974 1975 1976 1977 1978 1979 1980 r 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995-96 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

The Lahore Chamber of Commerce and Industry

Ph: Off: 3711390, 37244181 35751490, 35881320 (0431) 274701-02 35710595, 35751990 36370105 198136361670, 36364412 35717506, 35717285 37237047, 37236468 35857232-5 37725421, 37723965 35811549, 35811031 37725616, 111007444 37280957-8 36316895 3571179, 35881521 35755678-80 36368835, 36304183 37351313, 37245872 37351313, 37245872 37573125-28 36365961, 36365964 35116612-15 37249638-9 37358905, 37358834 111111105, 37912872 35150661-3 35341516-23 37512141-2 36364104-05 35172859

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List Former Senior Vice Presidents

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S.No.

Year

Name

Ph: Off:

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19

1968 1969 1970 1971 1972 1973 1974 1975 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 1986

Mien Naseer A. Sheikh (Late) Mr. A. Majid Mufti (Late) Ch. Muhammad Saeed (Late) Mlan Tajammal Hussain Mr. Mumtaz A. Sheikh (Late) Mr. M. Amin Agha Mr. Abaldullah Sheikh (Late) Mr. A. Atz Zultikar Mr. M. ljaz Butt Mr. Maqbod Sadlq (Late) Mr. S. Atshad Based Sheikh Muhammad lqbal (Late) Nan Shazada A. Monnoo Mr. Abdul Clayyum Bhatty (Late) Syad Mohain Ram Bukharl Mr. Mushtaq Ahmed Han Muhammad Shahbaz Shartf Mr. Muhammad Arshad Naeem Mr. Mumtaz Hameed (Late)

20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42

1967 1988 1989 1990 1991 1992 1993 1994 1995 1996 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Mfr Salahuddln (Lets, Mr. Twig riamk Mr. tftikhar Ali Malik Mlan Mohammad Aare Mr. Salahuddin Ahmed &that Mr. Mohammad 'shag Dar Mr. Bashlr A. Buicsh Mr. Tang &seed Sabot Sheikh Waheed ud Din (Late)

36611 54Ei, 3561 i031 37725616-8, 111-007-444 37280957-8 36316895 3671179, 35881521, 35883239 35755678-80 36368835, 36304183-4

Mr. Penrez Nag Mr. Ityas M. Chs.ixihty Sheikh Muhammad AO Mr. Farooq !tither Mian Muhammad Jehangir Mr_ Pervatz Anwar Sheikh Mlan Mlsbah ur Rehman Eng. Babel Lashart Mr. Abdul Basit Mr. Yaqoob Tahlr lzhar Mian Mizzalfar All Mr. Tahlr Jerald Malik Mr. !Jaz A. Mumtaz

37351313, 37245872 37573125-28 36365961, 36366964 35847791-2 35831804-5 35750630, 37557376 111-111-105, 37912872 37587375 36868612 111-323-111, 35888000-3 36364104-05 35118436 37650787-9

37311390, 37244181 35751490, 35881320 (0431) 274701-02 36710695, 6751990-6 36370105 36361670, 36364412-4 35717506, 35717285 37237047, 37236468 35857232-5 37725421-6, 37723965

The Lahore Chamber of Commerce and Industry

List Former Vice Presidents

S.No. 1.

2.

3.

4.

5.

6.

7.

8.

9.

10.

11.

12.

13.

14.

15.

16.

17.

18.

19.

20.

21.

22.

23.

24.

25.

26.

27.

28.

29.

30.

31.

32.

33.

34.

35.

36.

37.

38.

39.

40.

41.

42.

43.

44.

Name Ch. Nazar Muhammad (Late) Mian M. Rafiq Saigal (Late) Mian Humayun Butt (Late) Mr. M. Amin Agha Mr. Muhammad Ismail Naik (Late) Sheikh Wahid-ud-Din (Late) Mr. Khalid Mansur Mr. M. Nasim Saigol Sh. Mohammad lqbal (Late) Syed Mohsin Raza Bukhari Mr. A. Qayyum Bhatty (Late) Mr. S. Arshad Saeed Mr. P.M. Khan (Out of the Country) Mr. Ijazul Haq Chaudhry (Late) Mr. Bashir A. Buksh Syed Mohsin Raza Bukhari Mr. Muhammad Arshad Naeem Mr. Mahmood All Bhatti (Late) Mr. Salahuddin Ahmad Sahaf Mian Misbah-ur-Rehman Khawaja Zubair Ahmad Mian Mohammad Ashraf Ch. Sikandar Hayat Malhi (Late) Mr. Farooq Iftikhar Mr. Salahuddin Ahmad Sahaf Mr. Mohammad Ishaq Dar Sheikh Muhammad Asif Mr. Mohammad Tariq Shafi Mr. Shahid Hassan Sheikh Mr. Muhammad Naeem Mr. Muhammad Yousaf Dar Mr. Sikandar M. Khan Sheikh Muhammad Asif Mr. Sarmad Amin Mr. Munir Ahmed Khan Mr. Muhammad Yawar Irfan Khan Mr. Muhammad All Mian Mr. Shahzad All Malik Sheikh Muhammad Arshad Mr. Aftab A. Vohra Mr. Mubasher Sheidkh Mr. Shafqat Saeed Piracha Mr. Irfan lqbal Sheikh Mr. Faisal Iqbal Sheikh

The Lahore Chamber of Commerce and Industry

Year

Ph: Off:

1966 1967 1968 1969 1970 1971 1972 1973 1974 1975 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995-96 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

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43

Standing Committees for the year 2010-11

S.No.

Committee

Convener

Co-convener

1.

Achievement Awards and LCCI Business Week

Sh. Mohammad Arshad

Mr. Sohail Azhar, Syed M. Yousaf Shah

2.

Agriculture,

Mr. Shahzad Ali Malik,

Pending

3.

Airfreight Unit (AFU)

Muhammad Amjad Chaudhry

Pending

4.

Alternative Energy Development

Engr. Muhammad Saeed Iqbal Bhatti

Mr. Asif Saeed, Engr. Malik M. Tufail

5.

Anti Fake & Anti Adulteration + Anti Smuggling

Mr. Shahid Maqsood Butt

Pending

6.

Automobile Vehicles (New & Used)

Mr. Moaaz Qureshi

Mr. Anwaar Ullah Khan

7.

Auto Parts (New)

Mr. Abdul Jabbar

Mr. Hamza Farooq

8.

Auto Parts (Used)

Mian Muhammad Aslam

Ch. Maqsood Ahmad Mr. Muhammad Razaq

9.

Banking, Economic Affairs, Leasing, Modarabas & Insurance

Mr. Farooq Hameed

Pending

10.

Bio-Technology and Genetic Engineering

Dr. Shahid Raza

Mr. Shahrukh Malik Dr. Mian Qasim Misbah-urRehman,

11.

Building

Mr. Ijaz A. Mumtaz

Pending

12.

Business Dispute Resolving/ Arbitration Committee

Mr. Shafqat Saeed Piracha

Sheikh Muhammad Ayub

13.

Canvas & Tents Industry

Kh. Shahzad Nasir,

Pending

14.

Carpets

Mr. Sohail Shamshir Ali

Mr. Mohsin Banday,

15.

Chemical & Dyes

Mr. Abrar Ahmad,

Pending

16.

China ASEAN Economic Relations

Mr. Siddique ur Rehman Rana,

Ch. Muhammad Sadiq

17.

City Liaison Committee

Mr. Mohammad Haroon

Pending

18.

Code of Corporate Governance

Mr. Altaf Hussain Khan

Mr. Hasnain Raza Mirza Mr. Muhammad Yaseen

19.

Cottage Industry

Mr. Ghulam Sarwar Malik

Haji Muhammad Nasrullah Qadri

Mr. Muhammad Rizwan Malik Syed Ather Ali Kazmi Mr. Muhammad Ayub Mughal 20.

44

Culture & Heritage

Mr. Jabbar Khalid

Pending

The Lahore Chamber of Commerce and Industry

Standing Committees for the year 2010-11

S.No.

Committee

Convener

Co-convener

21.

Customs, Tariff, Valuation, Imports and Ports

Mr. Tanvir Ahmad Sufi,

Sheikh Muhammad Ashfaq

22.

Digital Imaging & Photo Industry

Mr. Nasir Saeed

Mian Ahsan Saeed, Mr. Zaheer ud Din Mian,

23.

Diplomatic, Foreign Missions + Embassy Liaison

Mr. Tariq Rehman

Mr. Muhammad Haroon

24.

Member's Privileges

Mr. Tariq Suleman

Pending

25.

Dry Fruits & Karyana

Mian Shakeel Ahmad,

Pending

26.

Dry Ports

Mr. M. Amjad Chaudhry

Mr. Tariq Mahmood Mian, Mr. Sajid Aziz Meer,

27.

E.C.O

Syed Mohsin Raza Bukhari

Pending

28.

Economic Forum,

Mr. Wisal A. Monnoo

Pending

29.

Education,

Mr. Umar Saleem

Pending

30.

Educational Equipment and Laboratory Chemicals

Mr. G.R. Siddiqui,

31.

Electromedical and Scientific Equipment

Malik Ikhlaq Ahmad

Mr. Shahid Iqbal Butt, Mr. Shafique Ahmad Abbasi

32.

Electronic Media & Marketing

Mr. Irfan Qaiser

Pending

33.

Electronics & Multimedia

Mr. Muhammad Yousaf

Mian Ahsan Saeed Dr. Adnan Latif Ch.

34.

Energy

Mr. M. Aslam Chaudhry

Mr. Irfan Ahmed Qureshi

35.

Engineering

Sh. Muhammad Ashfaq

Pending

36.

Entrepreneurs Development and Resource Centre (EDRC)

Ms. Aasia Saail Khan

37.

Environment

Agha Sayyedain

38.

Export Development Fund (E.D.F)

Sheikh Muhammad Arshad

39.

Exports

Mr. Tahir Javaid Malik

Pending

40.

F.B.R. Liaison Committee

Mian Anjum Nisar,

Mr. Rehman Aziz Chan,

41.

Fairs & Exhibitions

Mr. Jamil A. Naz,

Pending

42.

Finance & Taxation,

Mr. Rehman Aziz

Pending

The Lahore Chamber of Commerce and Industry

45

Standing Committees for the year 2010-11

S.No.

Committee

Convener

Co-convener

43.

Food Packaging & Confectionery

Mr. Haroon Shafique Chaudhry

Pending

44.

Food Processing Industry

Mr. Jabbar Khalid

Pending

45.

Foreign Investment & Privatization

Mian Zahid Jawaid Ahmad

Pending

46.

Fresh Fruits & Vegetables

Hafiz Muhammad Ajmal

Mr. Ghias-ud-din

47.

Fresh Fruits & Vegetabls (Exports)

Mr. Ali Asghar,

48.

Furniture Industry,

Mr. Shahzad Mughal,

49.

Gems & Jewellery

Ms. Saeeda Nazar,

50.

Geo-Thermal Energy,

Engr. Saeed Iqbal Bhatii,

51.

Halal Meat

Nasib Ahmed Saifi,

52.

Handicrafts

Ms. Nabila Intisar

Ch. Ghulam Mustafa

53.

Horticulture

Ms. Nilopher Sikandar

Pending

54.

Hosiery & Garments

Mr. Shahzad Azam Khan

Pending

55.

Hospitality, Travel Tourism & Sectors Skill

Mr. Ahmad Shafique

56.

Housing & Planning

Capt. M.A. Farooqi

Mian Iftikhar Ahmad Judge

57.

Human Resource & Productivity

Mr. Tahir Javaid Malik

Mr. Muhammad Yaseen,

58.

Image Building

Mr. Irfan Iqbal Sheikh

Pending

59.

Industrial Zones of Lahore

Mian Nauman Kabir,

Pending

60.

Industry (Small & Medium)

Mr. Fahim-ur-Rehman Saigol,

Mr. S.M. Imran Mr. Muhammad Muneer Asghar

61.

Information Technology

Mr. Ibrahim Qureshi

Pending

62.

Infrastructure

Mr. Ilyas Majeed Sheikh

Khawaja Khawar Rashid

63.

Intellectual Property Rights

Mr. Zaka ur Rehman

Pending

64.

Internal Trade & Market Association

Mr. Muhammad Ashraf Bhatti

Pending

65.

International Trade Organizations

Mr. Rehmatullah Javed

Mr. Shoaib Hamid Khawaja

46

Mr. Muhammad Rizwan Akhtar Shamsi

The Lahore Chamber of Commerce and Industry

Standing Committees for the year 2010-11

S.No.

Committee

Convener

Co-convener

66.

Iron and Steel

Mr. Rehman Aziz Chan

Pending

67.

Kasur

Hafiz Munir Ahmad

Mr. Zahid Hussain,

68.

Kitchen Garden Promotion

Ms. Nilofer Sikandar

Pending

69.

Lahore Vision 2015

Mr. M Usman Ghani

Pending

70.

Large Industry

Mr. Kashif Younis Meher

Pending

71.

Law & Order

Mr. Ghulam Murtaza Shaukat

72.

LCCI-Gilgit Baltistan Liaison Committee

Mr. Adil Mahmood,

Mr. Mudassar Masood Chaudhry

73.

LCCI Wapda Dispute Resolving Committee

Mian Zahid Bashir

Engr. Sohail Lashari Ch. Munawar Anjum Mr. Farooq Hameed Ms. Naveed Anjum

74.

Leather & Leather Products

Mian Fazal ur Rehman,

Pending

75.

Library, Printing, Publications & F.M.

Mr. Shahzad Ali Malik

Dr. Shahid Raza

76.

Livestock

Mr. Mumtaz Muhammad Khan Manais

Pending

77.

Local Govt; Affairs (Wasa/LDA/LMC)

Mr. Muhammad Yousaf Shah

Mr. Zeeshan Sultan

78.

Marble Industry

Mr. Mahboob Ali Sirki

79.

Mechanized Farming

Mr. Majid Abdullah

Pending

80.

Membership

Sheikh Muhammad Arshad

Pending

81.

Mining & Mineral Development

Mr. Muhammad Riaz

Pending

82.

National Productivity

Mian Zahid Jawaid Ahmad

Mr. Mudassar Masood Chaudhry

83.

National Trade

Mr. Shahid Faraz Hussain,

84.

National Transport & Logistics Facilitation

Mr. Muhammad Anwar

85.

O.I.C.

Mr. Hasnain Reza Mirza

Mr. Almas Hyder Mr. Yaqoob Tahir Izhar

86.

OKARA

Mr. Zahid Meher

Pending

87.

Open Source Software Promotion and Development

Mr. Armaghan Saqib

The Lahore Chamber of Commerce and Industry

47

Standing Committees for the year 2010-11

S.No.

Committee

Convener

Co-convener

88.

Outdoor Advertisement

Mr. Ilyas Majeed Sheikh

89.

Pak America Business Council,

Haji Muhammad Asif Sahar

Dr. Shahid Raza Mr. Shahid Nadeem Shami

90.

Pak China Economic Relations

Mr. Shahzad Ali Malik,

Sheikh Khalil Haider

91.

Pak European Union Business Promotion

Mr. Imran Aslam,

92.

Pak India Business Promotion

Mr. Aftab Ahmad Vohra

93.

Pakistan Africa Business Promotion

Mr. Zafar Mahmood,

94.

Pakistan Japan Business Promotion

Malik Ikhlaq Ahmad,

Pending

95.

Pakistan South Africa Business Council

Dr. Shahid Raza

Mian Zahid Jawaid Ahmad Haji M. Asif Seher

96.

Paper and Board Industry

Mr. Shamim Ahmad Malik

97.

Paper and Paper Board Traders

Mr. Khamis Saeed

98.

Pesticides

Mian Awais Aziz Saleem

99.

Petroleum Lubricants

Mr. Sohail Azhar, V.P.

Pending

100.

Pharmaceuticals

Mr. Amjad Ali Jawa

Mr. Baber Mahmood Chaudhry, Khawja Shahzeb Akram, Mr. Shahid Nadeem Shami,

101.

Plastic Industry,

Chaudhry Wajid Ali,

Syed Mahmood Ghaznavi Mr. Iqbal Baig

102.

Poultry Industry,

Mr. Abdul Basit,

103.

Poverty Alleviation

Ms. Talat Hafeez,

Ms. Tanzila Yousaf,

104.

Private Hospitals

Dr. Mazhar Iqbal Chaudhry

Nadeem Zia Pirzada,

105.

Public Relations,

Mr. Anwaar A. Sheikh,

Mr. Zulfikar Ali Badar

106.

Purchase Committee

Mr. Mudassar Masood Ch.

Pending

107.

Railways

Mr. Mahsheed Mohiuddin

Pending

108.

Real Estates,

Mr. Nadeem Zia Pirzada

Pending

48

Capt. (Retd) M.A. Farooqui Mr. Akhtar Hussain

Mr. M. Ajmal, Mr. Samiullah Butt, Mr. Khalid Pervaiz, Mian Amjad Hussain,

The Lahore Chamber of Commerce and Industry

Standing Committees for the year 2010-11

S.No.

Committee

Convener

Co-convener

109.

Recycling Technologies

Syed Qaiser Ahmad,

110.

Regulatory Affairs Public Service Development

Mr. Shahid Iqbal Butt

111.

Research & Development

Mr. Shahzad Ali Malik,

Dr. Shahid Raza, Mr. Asim Qadri,

112.

SAARC Bilateral Trade

Mian Iftikhar Ahmed Judge

Pending

113.

Sales Tax & Federal Excise

Sh. Muhammad Asif,

Pending

114.

Sanitary ware, Tiles and Fittings

Mian Maqsood Ali,

Pending

115.

Science & Technology,

Mr. G.R. Siddiqui,

Pending

116.

Security Committee for the Protection of Civilians

Kh. Khawar Rashid,

Mr. Shakeel Ahmed

117.

Shalamar Hospital

Ms. Saeeda Nazar

Mr. Akhtar Hussain

118.

Sick Units

Mian Muhammad Usman,

Mr. Khalid Rafiq, Mr. Adil Mehmood,

119.

Solar Energy

Engr. Sohail Lashari

Pending

120.

Steel Building Designs and Construction

Mr. Marghoob Shakir Izhar

Pending

121.

Sui Gas Alternative Dispute Resolving Committee

Mr. Pervaiz Lala,

Pending

122.

Sundar Industrial Estate Affairs

Mr. Shahzeb Akram

Pending

123.

T.Q.M.

Mr. Hassan Amjad,

Mr. Wajdan A. Qureshi, Ms. Amara Farooq,

124.

Technical Education & Commercial Training

Ms. Aasia Saail Khan

Pending

125.

Technology Promotion in Manufacturing Skills

Mian Fazal Ahmad,

Pending,

126.

Telecom Industry,

Syed Nasir Imam Bukhari

127.

Text Books

Mr. Khalid Pervaiz,

128.

Textile Industrial Sector

Mr. M. Imran Dawood,

129.

Think Tank

Mr. Shahid Hassan Sheikh

The Lahore Chamber of Commerce and Industry

Mr. Qamar-u-Zaman Babar Mr. Mukkarram Shah Mr. Shahid Mahmood Doger

Pending

49

Standing Committees for the year 2010-11

S.No.

Committee

130.

Tin Industrial Products & Tin Packaging

Mr. Tasharraf Javed,

131.

Tools & Hardware

Mr. Shafiq Riaz,

Mr. Zeshan Khalil

132.

Trade Delegation

Mian Jabbar Khalid

Mr. Muhammad Haroon

133.

Training & Development

Mr. Awais Saeed Piracha

Ms. Uzma Manzar

134.

Turkey Pak Business Council

Mr. Bashir A. Buksh

Mr. Shahid Hassan Sheikh Mr. Mehtab H. Mohiuddin

135.

Tyre & Tubes,

Mr. Jawad Rashid

Mr. Awais Saeed Piracha

136.

Weaving, Printing & Dyeing Processing.

Sheikh Ayyub,

Pending

137.

Wholesale/Retail Business Development

Mr. Rashid Turabi,

138.

Women Entrepreneurs Development

Mr. Aasia Saail Khan,

139.

Women Poverty Alleviation

Ms. Nargis Zaman,

Pending

140.

Women Resource Centre

Ms. Nasira Taskeen,

Mrs. Munaza Parveen

141.

W.T.O.

Mr. Akbar Sheikh

Mr. Jamil A. Naz

142.

Young entrepreneurs

Mr. Umair Jaleel,

143.

Youth Development,

Mr. Zulfiqar Ali Badar,

50

Convener

Co-convener

Mr. Shahrukh Malik

The Lahore Chamber of Commerce and Industry

Foreign Delegate

Meeting with Dr. Zeljko Warga leader of the delegation of Slovenia

Meeting with Iranian Government company commercial manager Mohammad Shahab Shokoohi

LCCI president receiving a gift from chairman Pak-Turk businessmen association Sadi Yildirir

Head of delegation World Bank receiving souvenir from LCCI president

A group photo students of Harvest University

LCCI President receiving a gift from Vice President Swedish Trade Council Fredrik Fexe

Meeting with Two-member delegation of CBI

President Mushhad CCI and Mines Gholam Hossein Shafeai receiving souvenir form LCCI President

The Lahore Chamber of Commerce and Industry

51

Foreign Delegate

LCCI President receiving a souvenir from Mesutyaran Head of 28-Members Turkish delegation

Meeting with Pankaj Savera Regional Director of Australia trade organization

LCCI Office bearer receiving relief goods from Iran Chamber of Commerce & Industry for disaster management cell

A group photo with Robert Gibson British Deputy High Commissioner and director UK trade & Investment.

LCCI team with Hans Christian Kint

Stock Home Chambers Vice President Ms. Charlottee Kalain and Vice President Swedish trade council Fredrik Fexc with LCCI members.

Meeting with Indian Commercial Consular R.K. Sharma

Peter Michael Schustr leader of the Ras-ul-khama presenting shield and book to LCCI president

52

The Lahore Chamber of Commerce and Industry

Foreign Delegate

A group photo with 28 member Turkish delegation

A group photo with Overseas Railways Business Department and LCCI members after exchange documents of MOU

A picture of dinner by President of LCCI in honour of Japan delegation

Group photo of Chairman Turkish Pak Business Council Huseyin Akin

Meeting with Paul Schoenmakers leader of Netherland delegation

After signing of MOU LCCI Senior Vice President Sh. Muhamamd Arshad and Alainden Chief executive DLC world wide

LCCI president presenting the souvenir to former President of Minara Chamber of South Africa Ebrahim Patel

LCCI SVP receiving souvenir from CEO DLC Alanden

The Lahore Chamber of Commerce and Industry

53

Activities of Standing Committees

Achievement Awards 2011 The LCCI Achievement Awards, started during the tenure of Mian Misbahur Rehman, is a brainchild of Sheikh Mohammad Arshad, Senior Vice President of Lahore Chamber of Commerce and Industry. The Awards were started in the year 2005 with the aim and objective to acknowledge the efforts of business community.

The LCCI Achievement Awards has now become regular feature of the LCCI Event sheet and one of the most prestigious business gatherings of the City of Lahore. The event conducted every year with enthusiasm and a new slogan.

This year 7th LCCI Achievement Awards ceremony was arranged at Lahore International Expo Centre and the Prime Minister of Pakistan, Syed Yousaf Raza Gilliani was the chief guest. The Governor Punjab, Federal Minister for Commerce and Federal Minister for Information and Broadcasting also graced the occasion. This year M/s Telenor Pakistan won the Prime Minster of Pakistan Trophy and M/s Guard Auto Zone was winner of the Prime Minster Gold Medal.

It is pertinent to mention here that the Prime Minster of Pakistan Yousaf Raza Gillani, who was attending the function as Chief Guest for the fourth time, congratulated the LCCI management and specially Senior Vice President LCCI Sheikh Mohammad Arshad and LCCI staff for arranging the LCCI Achievement Awards 2011 function in an excellent manner.

for the year 2010-11.

1.

The documents submitted for registration of cars to the Excise and Taxation Department by show room owners, instead of directly returning to customers.

2.

The limit of 60 days for the registration of new cars after the exit from the factory may be increased to 120 days starting from the exit of car from show room.

3.

The documents signed/stamped by the car show room owners may be accepted by the Excise and Taxation Department.

4.

Policy Decisions may be made after consultation with relevant stakeholders.

5.

Data of cars may be updated from all over Pakistan.

6.

The Excise and Taxation department should issue the trade certificate of cars to the show room owners.

Auto Parts New

Automobile Vehicles New & Used

The speed with which the auto sector of Pakistan has undergone growth and development especially during the last decade is worth appreciating.

Keeping in view the importance of this sector the Convenership of the Standing Committee on Auto Parts New was given to Sheikh Abdul Jabbar who has an excellent expertise in this field. The Co Convenership was given to Mr. Hamza Farooq.

Keeping in view the importance of automobile sector in economic growth, the President LCCI nominated Mr. Muaaz Qureshi as the Convener of this Committee. In order to improve growth prospects in the auto sector, the Standing Committee made the following recommendations

The Convener and Co-Convener together worked very hard in highlighting and communicating the problems being faced by the traders of Auto Parts New to the concerned authorities. In particular, the Committee raised problems relating to tariff

LCCI President receiving a souvenir from President Pakistan Iran Business Council

Chairperson Senate New South Wales Amanda Fazio receiving souvenir From LCCI President

54

The Lahore Chamber of Commerce and Industry

Activities of Standing Committees determination, misuse of powers by Custom officials, increasing prices of raw material, onslaught of Afghan Transit Trade good on local markets and complications in the Care System. It was also stressed that the Government can increase its revenue tremendously by solving these issues. Moreover the committee also highlighted issues like increase in shipping charges and Delivery Order charges on private terminals and recommended to send the containers at Karachi Port Trust for direct TP transfer.

Auto Parts Used The demand for new and used cars in Pakistan is increasing day by day. A vast majority of used cars are imported due to tariff incentives. The demand for used auto parts has also increased. Keeping in view the importance of this sector, the Convenership of the Standing Committee on Auto Parts Used was given to Mian Muhammad Aslam who has vast experience in this field. The Committee under his guidance managed to get the Auto Parts Used SRO issued to benefit all those doing business in this sector throughout the country. The Committee in cooperation with the Federal Board of Revenue (FBR), Police and Customs Department highlighted the issues of the traders of Auto Parts Used and managed to get them solved to a great extent.

The President LCCI Mr. Shahzad Ali Malik fully supported the proposals of the Committee and communicated the same to the concerned authorities. The Committee also made efforts to reduce the ratio of fine and custom valuation charges levied on Auto Parts Used. This would help in tackling the menace of smuggling and increase Governments revenue while providing much needed relief to importers at the same time. The Committee also submitted useful Budget proposals as was the case in previous years.

Bio Technology & Genetic Engineering Dr. Shahid Raza, an Executive Committee Member, was again nominated as the Convener of Standing Committee on Bio Technology. The Committee remained active throughout the year in engaging Biotech experts from all over the country for consultation to improve coordination between the Biotech research institutions and the industry. In this regard, the Convener organized a Workshop/ Seminar titled “Food & Agriculture Technology Exhibition” in collaboration with Pakistan Science and Technology Information Centre (PASTIC) and the Institute of Research Promotion (IRP). The Workshop/Seminar was inaugurated by Mir Changez Khan Jamali, the Federal Minister for Science & Technology. It emphasized the importance of research in the field of food and agriculture. It was felt that the adoption of the latest techniques will increase Pakistan's agricultural production thus boosting the national economy.

Encouraged by the success of the first exhibition, the Committee organized another two seminars titled “Bio technology Up-gradation” and “Bio Technology and the 21st Century.” A large number of experts, scholars, students and businessmen/industrialist working in this field participated in these events that were inaugurated by Malik Ahmed Ali Aulakh, Provincial Minister for Agriculture. These seminars reduce the distance between Biotech institutes and the industry and promoted the application of new techniques to curtail cost and enhance production.

Besides these workshops/seminars the Standing Committee, also made endeavors to establish Bio Technology Park in Lahore.

Business Dispute Resolving / Arbitration Trade has become an essential feature of the global economy.

This sometimes leads to disputes

LCCI SVP meeting with Mr. James Khan U.K Business Tycon

The Lahore Chamber of Commerce and Industry

Meeting with UK trade delegation 55

Activities of Standing Committees between the parties involved which require a platform for their swift resolution, cost-effectively and out of court. For this purpose, Mr. Shafqat Saeed Piracha led the “Business Dispute Resolving/ Arbitration Committee” as its Convener.

The Convener along with the coordination of other members of the Committee helped in resolving a number of trade disputes. This year more than 80 local and foreign companies contacted LCCI for the resolution of their trade disputes. It has been observed that more than 30 cases involved Chinese companies. The Committee members also met the Commercial Counselor of the Embassy of China in Islamabad to discuss an arrangement to effectively resolve trade disputes between Chinese and Pakistani companies. The Committee remained actively involved in resolving trade disputes successively throughout the year.

Carpets The Pakistan's carpet industry is a major foreign exchange earner for the country. The Convenorship of the Standing Committee on Carpets for the year 2010-11 was handed over to Mr. Sohail Shamshir Ali in view of his services and expertise in this sector. He along with Mr. Shahid Hassan Sheikh, Former President LCCI and Co Convener Mr. Mohsin Hassan Banday made serious efforts for the uplift of the carpet industry of Pakistan.

The Committee members regularly deliberated on the prevalent crisis in the local carpet industry stemming from the government's decision to impose Reformed General Sale Tax on carpet sector. It is feared that under the present circumstances this step of the government would further lead to unemployment and increase the cost of production.

The Committee recommended to organize a single country exhibition of Pakistani carpets in Central Asian states and discussed to participate in the DOMOTEX fair in Germany. The Convener regularly highlighted the problems of growing non-

Ayesha Bux Leader of 2-members Australian delegation receiving souvenir from Sheikh Muhammad Arshad 56

availability of raw material for carpet manufacturing, increasing prices of wool and its implications due to cost competitiveness on Pakistan's carpet industry.

The Committee made various recommendations to the government to tackle the crisis in the sector.

China ASEAN Economic Relations Due to the growing economy of People's Republic of China, its international importance & friendly relations with Pakistan, LCCI has constituted a Committee on China ASEAN Economic Relations since 1999-2000.

This year also Convenership of this committee was given to the founder of the committee Mr. Siddiq ur Rehman Rana. The following are the brief of the significant activities of the committee:

i.

In accordance with the 60th diplomatic year or “China Year” activities and as per the spirit of the foreign secretary's letter forwarded to LCCI by the Chief Secretary Punjab, standing committee held its meetings, outlined seminar agenda to be jointly organized by the Business community, academia and Government of Punjab. The minutes of the meeting were approved by the Executive Committee for its execution.

Concerned departments in Punjab Govt. and TDAP at Federal Government were approached formally and outline of the proposals were forwarded for joint seminar.

ii.

The Convener of the Standing Committee Mr. Siddiq ur Rehman Rana participated in the inter ministerial meeting at foreign office on 13th April regarding multidimensional Cooperation with China. The following areas were highlighted and also conveyed formally by the President LCCI:

Meeting with Economic Officer US Consulate.

The Lahore Chamber of Commerce and Industry

Activities of Standing Committees a.

Execution of road map for Pak-China 5 year economic cooperation plan to be jointly prepared by the business community and relevant Government departments.

b. Result oriented Seminars regarding promoting exports and attracting investment from China. c.

CCTV 4 and CCTV 9, Chinese business channels in English need to be on air for better know how about the Chinese market by the business community.

d. Opening of Chinese commercial counselor office at Lahore for the convenience of business community in visa processing and getting information. iii. Standing committee invited faculty from renowned universities for developing academiaindustry and China triangle for transfer of technology by academia to industry from China. iv. Business community was facilitated to solve the problems related to trade with China and to promote bilateral trade between Pakistan and China.

Corporate Governance LCCI formed a Standing Committee on Corporate Governance and nominated Mr. Altaf H. Turab as its first Convener on the basis of his qualification, experience and suitability to highlight issues that can help improve the working of corporate sector. The Committee members included a number of experienced professionals such as Mr. Zahoor Ahmad, CEO of Think Tank, Mr. Muhammad Yaseen, CEO of HMW Associates and Mr. Ghulam Shabir Gillani, Company Secretary at Rupaly Group.

Group photo with Chairperson Senate New South Wales Amanda Fazio

The Lahore Chamber of Commerce and Industry

The Committee conducted four sessions and provided workable proposals on Code of Corporate Governance to Securities & Exchange Commission of Pakistan. Good corporate governance has internationally become best practice and is essential for ensuring investors' confidence. Steps are also being taken in Pakistan to ensure that large corporate are run efficiently and transparently. In this regard, international agencies such as United Nations and the World Bank as well as the State Bank of Pakistan are encouraging the Government of Pakistan to promote good corporate governance in business and trading fields. The Committee made useful recommendations to various government ministries and bodies involved in promoting widespread adoption of good corporate governance practices. The Committee also formulated important recommendations in LCCI's Budget proposals for Ministry of Finance.

Cottage Industry Cottage industry is considered as back bone of the economy in many countries. It is also an important part of Pakistan's national economy. LCCI established a Standing Committee on Cottage Industry around a decade ago. Mr. Ghulam Sarwar Hajveri has been the Convener of the Committee for several years and was again nominated to the same position during 2010-11. Haji Nasrullah Qadri, Mr. Muhammad Rizwan Malik, Mr. Muhammad Ayub Mughal and Mr. Ather Ali Kazmi were nominated as Co-Conveners.

Mr. Ghulam Sarwar Hajveri raised the problems of the cottage industry at all appropriate levels of the Government for their resolution. The Committee made the following proposals for the betterment of the cottage industry in the country: 1.

The Establishment of a Cottage City spanning over 100 acres as is the case in Bangladesh. A pilot project should be started in the first phase before rolling out the model throughout the

Mr. James Conn British Businessman receiving souvenir 57

Activities of Standing Committees country.

2.

Need for a policy to declare any manufacturing unit employing 10 people as cottage industry.

3.

Small scale business having upto 10 million sales in a year should be declared as part of cottage industry.

4.

Government should provide facilities to increase export of handicraft most of which are produced in the cottage industry. Special facilitation should also be provided at dry ports.

5.

A warehouse of Karachi Steel Mill should be opened at Lahore so that small scale manufacturers can easily get their raw material.

6.

Smuggling needs to be controlled as it is adversely affecting cottage industry.

7.

Loans should be provided to individuals associated with cottage industry on easy installments.

8.

Insurance policies should be introduced for individuals associated with cottage industry.

9.

Government should provide relief to cottage industry facing hardships due to energy crises.

Customs, Tariff Valuation, Imports and Ports

recommended proposals for adjusting trade policy to benefit the business community. Moreover, the Convener remained in contact with the officials of related government departments to solve the custom related issues promptly and amicably.

Digital Imaging and Photo industry The introduction of digital cameras has brought revolution in photography. Keeping in view the importance of these developments, the Convenership of the Standing Committee on Digital Imaging and Photo Industry was given to Mr. Nasir Saeed as he has vast experience in this area. The Convener made serious efforts to solve the problems of the stakeholders involved in photography business.

The committee made detailed deliberations on the negative impact of the present economic crisis and made recommendations to the Government for its resolution. The most critical problems highlighted included continuous increase in load shedding, bad law and order situation, traffic problems in markets, imposition of custom duty and sales tax on cameras and the establishment of separate custom valuation department in Lahore. The committee also recommended the construction of parking plaza at Chamberlain road by demolishing the Pakistan Time's old building in order to tackle traffic problems in the area. It was also proposed to fix customs duty and sales tax on cameras as this will also help in curbing smuggling under the guise of Afghan Transit Trade.

Diplomatic, Foreign Missions and Embassies Liaison

The Convenership of Standing Committee on Customs, Tariff Valuation, Imports and Ports was awarded to Mr. Tanvir Ahmad Sufi. The Committee played an important role in solving the problems of exporters and for reducing custom duty on raw material. The Committee submitted important Budget proposals for the year 2011-12 and also

Building relations with other countries is essential for strong economic and trade ties. This helps the business community gain access to new markets and work effectively with their international clients and suppliers alike. Keeping in view the importance of

US Consulate Chief Political economic officer Ms. Karan Swaner receiving souvenir

Meeting with Dr. Dewi Mortete Chairperson National Council Women organization of India

58

The Lahore Chamber of Commerce and Industry

Activities of Standing Committees strengthening Pakistan's economic and trade ties internationally, LCCI formed a Standing Committee on Diplomatic, Foreign Missions and Embassies Liaison. This year the responsibilities of the committee were assigned to Mian Tariq Misbah, Executive Committee Member, LCCI.

number of seminars throughout the year on business planning, developing brand power and effective brand management which have been very useful for students of different universities. The Committee organized various events throughout the year including:

During the year, the Convener regularly convened the meetings of the Standing Committee, in which members emphasized on the need to develop an appropriate and workable approach in strengthening relations with Pakistan's existing trading partners while helping to explore new markets. For that matter, the Committee actively interacted with diplomats and international dignitaries that visited LCCI.

1.

“Kinnaird Business Week” which strengthened collaboration between LCCI and Kinnaird College for Women.

2.

Different lectures were delivered on the promotion of trade and education at F.C College, UCP and LUMS.

3.

“Business Plan Competition” was organized at 90 Shahrah-Quaid-e-Azam in which different colleges took part and gave innovative ideas related to new businesses.

4.

Arranged Students visits to “Sundar Industrial Estate.”

5.

The Committee provided tremendous support on career counseling for students.

6.

The committee invited delegations of Students from Harvard and Cambridge universities. The representatives of such universities appreciated the LCCI's efforts in promoting education, trade and social entrepreneurship. The convener was informed by the universities that more student delegations will visit LCCI in October-November 2011.

ECO The LCCI Standing Committee on ECO is working efficiently under the leadership of Syed Mohsin Raza Bukhari for the last many years. The objective of establishment of this committee was to find ways and means to promote bilateral trade among ECO countries. The Committee made concerted efforts to start weekly flights between Lahore and Mashhad and also to commence rail container service between Iran and Pakistan.

The standing committee has strong relations with the Chambers of ECO countries and as result of these relations thousands of tones of food stuff and relief goods reached Pakistan from Iran through train.

These relief goods and food items were distributed in flood affected areas through National Disaster Management Authority. The committee also invited the Ambassadors of ECO countries to visit Lahore Chamber of Commerce and Industry.

Education

Electromedical & Scientific Equipment

LCCI constituted a Standing Committee on education and Mr. Umer Saleem was nominated as its Convener. The Standing Committee organized a

The sector of electromedical and scientific equipment plays an important role in providing health services for the well-being of masses. The Standing Committee had been established at LCCI,

Group photo with Pakistan Iran Trade Business Forum

Group photo with Consular General South Arica

The Lahore Chamber of Commerce and Industry

59

Activities of Standing Committees which is continuously working for the betterment of the stakeholders. The Convenership of the Standing Committee for the year 2010-11 was handed over to Malik Ikhlaq Ahmed, who has vast experience in the field of electromedical & scientific equipment. The Convener called a number of meetings of the Standing Committee, deliberated on the problems faced by the sector and communicated these issues to the concerned officials of Health Department for solution.

The Standing Committee submitted useful and workable Budget proposals to the Government including the recommendation to declare Multi Media as part of information technology used in educational institutions along with computers. It was also suggested to reduce duty on Multi Media Projectors from 25% to 5%. The Standing Committee also communicated the problems being faced by the traders of Electronics and Multi Media to Chairman FBR for their resolution.

The most important issue of the present year related to business community in the electromedical sector was late bill payments by hospitals. Mr. Shahid Iqbal Butt, Co-Convener of Standing Committee also played an important role in resolving this issue. The Convener made serious efforts in resolving these problems through his unrelenting interactions with various Government departments. In addition to this the problems like response time with respect to tenders, specification of items of electromedical, purchase and sale of electromedical items as per standard and opening of 122 tenders in single day were also taken up with the relevant departments for solution. The Standing Committee also made efforts to get relevant SRO amended in order to abolish various taxes levied on electromedical & scientific equipments.

Engineering

Electronics & Multimedia The present time is the time of new inventions in which the sector of Electronics and Multimedia is of great importance. Keeping in view the importance of this sector the Convenership of this committee was given to Mr. Muhammad Yousaf who has a vast experience and expertise in the area. The CoConvenership of the Committee was given to Dr. Adnan Latif and Mr. Ahsan Saeed Mian. The Committee under the guidance of the convener gave various proposals to the government for lowering custom duty on Multi Media projectors.

The Engineering sector of Pakistan is growing fast despite lagging behind as compared to other developing countries. During the past few years there has been considerable growth in the engineering sector. The auto sector in this regard has showed extraordinary performance. As a result, there has been tremendous increase in manufacturing of cars, motor cycles and tractors and their spare parts. Employment in the engineering sector has considerably increased. Moreover the possibilities of attracting foreign direct investment in the country has also enhanced.

However, the stakeholders especially involved in the auto sector continued to face difficulties at national and international level. Sheikh Ashfaq Ahmad, Convener of LCCI's Standing Committee on Engineering took serious notice of the situation and made stern efforts for resolving the problems of members in the sector. The Committee under the guidance of the Convener prepared a comprehensive plan including publishing of Engineering directory, developing close liaison with Engineering Development Board (EDB), State Bank of Pakistan, and TEVTA to devise a strategy for the promotion of the local industry. The Committee prepared useful Budget proposals for the year 201112.

Mr. Irfan Ahmad Qureshi, Co-Convener of the

Director UK Trade receiving souvenir from former president Iftikhar Ali Malik & Mian Anjum Nisar 60

A group photo with Harward University students

The Lahore Chamber of Commerce and Industry

Activities of Standing Committees Committee also played an important role in uplifting the Engineering sector and gave very useful suggestions for solving the problems of the stakeholders. The Standing Committee on Engineering also stressed to visit countries like India, Turkey and China in order to acquire information on the latest skills and technologies being used in these countries.

their difficulties.

2.

The EPD should create a Research and Advisory Cell in their department which can offer different options and solutions to industries to control environmental pollution.

3.

The Government should suspend implementation of Environmental Protection Act (EPA) 1997 as long as load shedding of electricity and gas is not controlled. Treatment Plants need uninterrupted electricity supply to grow biomass in the tanks to achieve Biological Oxygen Demand (BOD) and Chemical Oxygen Demand (COD) Levels.

4.

That EPD should revise National Environmental Quality Standards (NEQS) which are very strict and difficult to achieve even as compared to some European Countries.

5.

The Government may develop land fill sites for dumping of industrial waste before implementation of EPA 1997.

6.

Industrial parks and clusters should be provided with Combined Treatment Plants and SMEs may be encouraged to shift their production facilities to these locations.

7.

At initial stage industry may be asked to control Air Emissions and Solid Waste only.

8.

The implementation of EPA 1997 be made in various phases after discussion with LCCI and other stakeholders.

9.

The industrial units set up many years ago far away from city are gradually surrounded by population and newly constructed houses. The complaints of the owners of newly constructed houses may be discouraged. EPD should adopt a friendly behavior towards industry.

Entrepreneur Development Resource Center (EDRC) The Standing Committee on Entrepreneur Development Resource Center was managed by Ms. Aasia Saail Khan, as Convener, LCCI. The Convener ensured that EDRC continues to remain a useful platform for organizing training and awareness events. For the benefits of local business community special emphasis was placed on the training needs of small firms and providing them with essential guidance. This committee organized a number of training sessions throughout the year for local firms especially involved in the field of information technology. In line with its services of the past several years, EDRC organized a number of computer training programs during the year which included web designing, networking and basic computer courses.

Environment LCCI nominated Agha Saiddain as Convener of the Standing Committee on Environment. The Committee effectively raised the concern of our business community at various forums. Its representations were instrumental in generating policy response more in line with ground realities.

The Committee raised the following issues of our members to concerned official quarters for their proper resolution: 1.

The Environment Protection Department (EPD) should withdraw its notices issued to various industries in Punjab without understanding

Director Coca Cola with LCCI Office Bearers

The Lahore Chamber of Commerce and Industry

A group photo with delegation of Ras-ul-Khama 61

Activities of Standing Committees

Exports Pakistan is a developing country and due to many factors its industrial base is not strong and wide.

Around two-third of Pakistan's exports are related to agriculture sector.

Exports are one of the major sources of foreign exchange earnings, standing at over US$25 billions in 2010-11. However, there is a dire need to further enhance our exports by using all means and resources as Pakistan's performance in this regard is far below our neighboring countries specially India.

Keeping in view the role of exports in our economy and the interests of our thousands of members engaged in exports, LCCI constituted a Standing Committee on Exports and appointed Mr. Tahir Javed Malik, former Senior Vice President as its Convener. The Committee under the visionary leadership of the Convener worked hard in formulating Budget and Trade Policy proposals for the Ministry of Commerce for consideration and implementation to increase the volume of exports.

The Committee urged that Government should take concrete measures for the development of export oriented industries in the country. Makhdoom Ameen Faheem, Federal Minister of Commerce and Zafar Mahmood, Federal Secretary of Commerce also visited LCCI and discussed the proposals for the promotion of the exports.

Export Development Fund The Government of Pakistan charges 0.25% Export Surcharge on all export proceeds. The revenue collected in this head is utilized through Export Development Fund (EDF) for promoting the country's exports. LCCI is expecting Rs.1.8 million from the EDF fund towards conducting export training and language programs. A proposal have been prepared for support from EDF under the leadership of Sheikh Muhammad Arshad Senior Vice-President, LCCI and Convener of this Standing Committee. The proposal aims to establish a Centre

Meeting with Director Habib Macro 62

for Export Competitiveness (CEC) to increase Pakistan's exports in the international market.

Fairs and Exhibitions Keeping in view the importance of fairs and exhibitions, the responsibility of this Committee was given to Mr. Jamil A. Naz. He is also performing his duties as Chairman of Standing Committee on Fairs and Exhibitions, FPCCI for the last many years.

During the year, the Committee took various measures to solve the problems of its members.

The Standing Committee informed members about the fairs and exhibitions held all over the world through LCCI Chamber Circular and Website. This helped members to participate and exhibit their products in exhibitions thus increasing Pakistan's exports. The Convener proposed to organize trade delegations to those countries where Pakistani products can find strong demand. He also created an affective liaison with TDAP from the LCCI platform for ensuring meaningful participation of our members in international exhibitions.

Finance and Taxation Even a minor change in the assessment of taxation or in payment procedures can create a lot of problems for taxpayers. Keeping this important point in mind, the responsibility of the leadership of the Finance and Taxation Standing Committee was handed over to Mian Abdul Rehman Aziz Chan.

Through mutual advice and in view of the needs of business concerns in the country, the Standing Committee reviewed the Budget recommendations of all the Committees in depth before their submission to the Federal Government. The Standing Committee also held several workshops for disseminating information regarding the payment of taxes to the members. The Standing Committee also recommended several necessary amendments in the Finance Bill and forwarded them to the government.

Dr. Rashid Amjad V.C Pakistan Institute of Development Economic with LCCI president

The Lahore Chamber of Commerce and Industry

Activities of Standing Committees

Foreign Investment and Privatization Mian Zahid Jawaid Ahmad was appointed Convener of the Standing Committee on Foreign Investment and Privatization for the year 2010-11.

The Convener worked actively to highlight the importance of foreign investment and privatization in economic development. The Committee routinely urged the government to create an enabling investment climate in the country to facilitate both local and foreign investors for their effective engagement in the economic growth process. The Committee made the following recommendations in support of privatization and investment promotion: 1.

Tackle the growing energy crisis and take quick and effective measures for undertaking new hydel power projects which are essential for ensuring cheap and reliable electricity to increase industrial production in the country.

2.

Strengthen local media with support for acquiring latest technology and facilitate them to improve Pakistan's image in the world by effectively responding to negative propaganda against the country.

3.

Tackle worsening law and order situation especially in Karachi for boosting investors' confidence.

4.

Banking facilities should be improved and interest rate should be reduced.

5.

Special economic zones should be established for foreign investors to provide them low cost land and infrastructure.

our economy, LCCI constituted a Standing Committee on Fresh Fruits and Vegetables. Hafiz Muhammad Ajmal, with his vision and practical approach attributes, has been steering this Committee as Convener for the past many years. The Committee made constant endeavors to boost the quality and per acre yield of our fresh fruits and vegetables. During 2010-11, the Committee held a number of meetings to develop a consensus on measures necessary for the health of this sector. The Committee urged the government to establish a Food Market Complex of international standard and encourage the setting up of food processing & packing industry in the country. The government was also encouraged to support the development of cold storages. The City District Government was requested to improve the sanitation conditions in the Fresh Fruits & Vegetables Market Areas.

Presently only one Bank is operating in the Fresh Fruit and Vegetable Market of Lahore. This facility is inadequate to meet the demands of traders in the sector. The Committee suggested that Habib Bank, United Bank and other Commercial banks should also be approached to establish their branches in the market.

Fresh Fruits and Vegetables (Exports)

The livelihood of a very large segment of our society is attached to the trade of fruits and vegetables. In order to further promote this all important sector of

Pakistan is ranked among leading agriculture-based economies. A large variety of fruits and vegetables is produced in abundance in the country.

But unfortunately, a huge amount of production of fruits and vegetables is lost due to various reasons including lack of proper packaging and the storage facilities. This can be reversed by right policy measures accompanied by investment in building cold supply chain essential for exporting fruits and vegetables. Keeping in view the importance of this sector, Mr. Ali Asghar was nominated as the Convener of Standing Committee on Fresh Fruits and Vegetables (Exports). The Committee held a number of meetings and made following recommendations for improving exports of fresh

Seminar on OXO – BIODEGRAGABLE plastic technology and global warming

M.D. Pollution engineering Tony Liew Yuan Chin receiving souvenir

Fresh Fruits and Vegetables

The Lahore Chamber of Commerce and Industry

63

Activities of Standing Committees fruits and vegetables: 1) Training to be imparted to interested persons through workshops, seminars and exhibitions.

2) To introduce the large variety of our mangoes in the international market, an Annual Mango Exhibition to be held in June annually.

3) Right regulations and procedures should be adopted to facilitate the export of mangoes in the world market.

4) New policy initiatives be taken to boost the agrobased industry of Pakistan.

Furniture Industry The nature has gifted Pakistan with high quality of furniture wood. The available wood is not only sufficient to meet domestic needs but can also meet our requirements for exporting high standard furniture. However, due to lack of essential facilities and modern technologies, millions of tons of good quality wood is wasted every year. In order to highlight and address challenges facing the local furniture industry, LCCI nominated Mr. Shahzad Mughal as Convener of its Standing Committee on Furniture Industry. The Convener successfully led the efforts of the Committee to promote the cause of establishing the local furniture industry along modern parameters. It was noted during the proceeding of the Committee that a great number of Pakistan's furniture manufacturers has the potential to become major players in the international markets. This, however, wood require concerted efforts to ensure that the local furniture industry continues to innovate adopt new technologies.

The Convener played a major role in guiding the Standing Committee and formulated a Road Map for the growth and development of Pakistan's furniture

A group photo with 32-member delegation of Pakistan Institute of Trade and Development 64

industry. The committee also decided to hold an international furniture exhibition in Pakistan. It is hoped that such an event will facilitate the expansion of our furniture industry globally.

Gems and Jewellery LCCI has always played a pivotal role in enhancing Pakistan's export. A special attention has been paid to promote non-traditional exports and necessary recommendations have been made to the Government. In particular, efforts have been made to increase export of gold jewellery and gem stones for Pakistan's international presence in this market. In order to support these efforts systematically, the Convenership of LCCI's Standing Committee on Gems and Jewellery was given to Ms. Saeeda Nazar who has vast experience in this field. The Committee under her guidance made useful recommendations to relevant policy circles with an aim to uplift the sector.

The Convener highlighted that Pakistan is rich with deposits of precious and semi-precious stones therefore the Government should develop a skilled workforce for cutting of precious stones with the help of latest machinery. The Committee also gave recommendations to reduce wastage to encourage Jewelers Association to develop their Web Sites in order to access international buyers.

Handicrafts Ms. Nabila Intisar was appointed Convener of Standing Committee on Handicrafts. Under her leadership, the Committee took important initiatives for the promotion of the handicrafts including: 1) A website was developed for the promotion of handicrafts.

2) A delegation visited India to promote handmade items of Pakistan while learning from

Meeting with Mian Tariq Shafi Vice President of FPCCI

The Lahore Chamber of Commerce and Industry

Activities of Standing Committees the experience of Indian handicraft Industry.

3) Obtained consent from LCCI management for the establishment of Handicraft Display Center within Lahore Chambers premises. .

4) Completed necessary work for the publication of Handicraft Directory 2011. This publication will prove to be an important tool for the manufacturers of handicrafts to introduce their goods to the international market.

Horticulture The last few years have witnessed a phenomenal change in the field of horticulture in Pakistan, especially in Punjab. Horticulture has not only prospered manifolds but in fact has developed a deep sense of awareness about the importance of flowers in our lives as well as in our economy. The rich and fertile soils supported by the varied seasons of Pakistan are ideally suited for the cultivation of a very large variety of flowers. However, due to lack of basic infrastructure, the cultivation and the export of flowers has not shown significant increase. For the purpose of boosting the growth and export of flowers, LCCI has constituted the Standing Committee of Horticulture under the visionary and dynamic leadership of Ms. Nilopher Sikandar.

The Committee held very useful meetings during the year and took number of initiatives including compiling a comprehensive directory of all people related to horticulture. This will ensure that horticulture will make great contribution in the enhancement of our national economy. The Standing Committee also decided to hold Horticulture Trainings through Seminars and workshops. This would ensure that maximum people will benefit from the development of the sector. The Committee also organized a number of flower growing competitions among school, colleges and universities.

Meeting with Seed Association of Pakistan

The Lahore Chamber of Commerce and Industry

Housing & Planning The housing sector is critical for the economic uplift of any country. In Pakistan, almost 160 small industries are directly or indirectly linked with this sector. In view of its economic importance, President LCCI nominated Capt. (R) M.A. Farooqui as Convener of Standing Committee on Housing and Planning.

Mr. Farooqui convened several meetings of the Committee in which heads of different housing related organizations were invited including LDA, TEPA, Sui Gas, LESCO, Local Government and P&D department for resolving problems related to housing and planning. Some of the problems highlighted by the committee included: 1) After consultation with MD Sui Gas, the Committee guided the housing societies on making correct and complete applications for the installation of new gas connections.

2) The Committee requested WASA authorities to review the decision to increase the fee for providing sewerage link from Rs.11000 to Rs.73000 and take necessary measure to cope with monsoon season.

3) The Committee highlighted the problem of missing linkage of roads of private societies and town in master plan. This issue has been raised to MD TEPA and Director Engineering & Chief Engineer. Expected resolution of the problems will benefit almost 30 societies.

4) The Committee successfully negotiated a mechanism with Director General LDA for swift resolution of member's problems.

5) The representatives of LESCO were invited in committee meetings to look into the pending cases of housing schemes. Many housing societies were guided on completing necessary

LCCI president receiving a gift from Dr. Shehla Akram President WCCI 65

Activities of Standing Committees documentations. Cases of five societies were forwarded for approval and two of them have been approved.

1) SME National Policy should take a long-term perspective on SMEs startup growth and development in Pakistan.

6) The Secretary Local Government and Community Development, Government of the Punjab has formed new rules for the proper distribution of land in housing schemes. For this purpose the Committee invited relevant parties for comments.

2) The government should invest in human resource and infrastructure development necessary for the growth of SMEs.

7) The Committee opposed demolition of private plazas. High Court has given stay order to this end.

8) The Committee organized stalls of different associations of cooperative housing societies in LCCI exhibition at Lahore Expo Centre.

9) In a meeting with Secretary Housing & Planning various proposals were made for action by different departments relevant to this sector. The Honorable Secretary formed a committee consisting of Heads of TEPA, WASA & LDA to review all the pending cases.

Industry (Small & Medium) Small and medium enterprises (SMEs) serve as a back bone of any economy. These entities are major source of revenue and employment both in developed and developing countries alike. More than 90% of Pakistan's firms fall in the category of SMEs. Despite their predominance in economic activities, SMEs continue to face a number of challenges to their future growth and development.

In order to help our SMEs, LCCI formed a Standing Committee on Industry (Small & Medium) under the Convenership of Mr. Faheem-ur-Rehman. The Convener made great efforts in highlighting the problems of SMEs and proposed a number of solutions for their uplift including:

A group photo LCCI women business delegation leaving for Gilgat 66

3) Specialist SME clusters should be established on the basis of economic strength of a particular area/region.

4) Import of undocumented non-essential and luxury items should be banned.

5) Law & order should be maintained.

6) TEVTA should work closely with industry to develop necessary skill for the growth of SMEs. 7) In order to improve access to finance, State Bank of Pakistan should encourage all local banks to allocate 20% of their loan portfolio for SME. 8) There should be establishment of specific support funds for SMEs and credit funds with lowest markup of 6% to 7% and 5% on Micro financing.

9) Limit of Rs.2 million for loan must be raised to Rs.5 million for SMEs. 10) Markup on industrial loans must not exceed from 6% to 7%.

11) Industrial zones with 1, 2, 3 & 4 Kanal plots and 10 Marla plots should be established for SMEs near Lahore city.

12) The Government of Pakistan should establish a

Central And North Punjab women chamber visited LCCI

The Lahore Chamber of Commerce and Industry

Seminars

LCCI president presenting souvenir to Shamas ul Mulk former Chairman WAPADA at Pakistan Bachao seminar

LCCI office Bearers at pre-budget Seminar

LCCI president addressing at MEGATECH

Seminar on Pakistan Entrepreneur 2010

LCCI Vice President Sohail Azhar addressing at FBR seminar on benefits of custom ports

LCCI Senor Vice President receiving shield from Provincial Minister Ahmed Ali Olakh at national conference on Pakistan Leather Sector challenging and opportunities

A view of Book Lounging ceremony Author S.M. Naqi

A view of seminar on BIO Technology

The Lahore Chamber of Commerce and Industry

67

Activities of Standing Committees Rs.50 million equity fund for SMEs. 13) SME startups investing Rs.25 to Rs.100 million should be given tax exemptions for 3 to 5 years.

Internal Trade and Market Associations LCCI established a Standing Committee on Internal Trade and Market Associations a few years ago with an aim to highlight and resolve major internal trade issues through coordination with concerned government authorities. Mr. Ashraf Bhatti was appointed as the Convener of this Standing Committee for the year 2010-11. The Convener is a widely respected leader of the trading community throughout the country. His Convenership provided an essential bridge between LCCI, traders and government departments. The Committee held several meetings in which representatives of different markets and the Anjuman-e-Tajran of Lahore participated. The Committee members actively highlighted the lack of policy response to tackle the persistence of low growth in internal trade.

International Trade Organizations LCCI established a Standing Committee on International Trade Organizations to develop and maintain strong relations with international trade organizations working in Pakistan. Mr. Rehmatullah Javed was nominated as Convener of this Standing Committee. During the year, the Committee took following steps to make this platform more effective for the business community.

1) Suggested a road map to attain membership in the European Union for LCCI.

Chamber to discuss the prospects of possible cooperation for the promotion of business and trade between UK and Pakistan.

3) Mr. Rehmatullah Javed also addressed two seminars on Bio-Technology and received remarkable reviews.

4) With the Committee's efforts, a Pakistan Entrepreneurship Summit was held in Pearl Continental Hotel. Above 500 people participated in the event which was chaired by Mr. Shahzad Ali Malik as a guest of honor.

5) Mr. Rehmatullah Javed coordinated a seminar for Ms. Ruby S.R. Wicksler, USA and provided information to the industry regarding investment opportunities in America.

6) A seminar was held regarding the problems of false and illegal medical practitioners especially doctors. The event was chaired by Mr. Iftikhar Ali Malik and coordinated by Mr. Rehmatullah.

7) The Convener took part in the investment conference organized during Lahore Shopping Festival and received special certificate.

8) The Convener also coordinated a cycle race event for Lahore Shopping Festival in association with Guard Group of Companies.

9) Mr. Rehmatullah visited Laiyyah on behalf of President, LCCI Mr. Shahzad Ali Malik to make people aware of the activities of the Chamber and also to see the progress on construction of forty houses in the area by the Chamber.

Kasur

2) UK deputy, High Commission Mr. Francis Campbell, who is also working as the Director of UK Trade and Investment was invited at Lahore

LCCI formed a Standing Committee on Kasur this year as well, which played an instrumental role in

A group photo Punjab Chamber Delegation

Pending

68

The Lahore Chamber of Commerce and Industry

Activities of Standing Committees facilitating and finding better solutions to the problems of business community in Kasur. Mr. Hafiz Munir Ahmed was again chosen as the Convener of the Kasur Standing Committee. Chaudhary Zahid Hussain was appointed as the Co-Convener of the Committee. The Committee showed keen interest in the activities of the Lahore Chamber and also called a meeting for discussing problems in Kasur.

People living in Kasur are not well off. They are the owners of small scale businesses which are facing serious challenges to their survival due to high prices and shortages of gas and electricity. The Committee took steps to encourage the fast track construction of a sports stadium in Kasur for the benefit local residents. This will play an important role in improving the socio-economic profile of Kasur. In view of crime situation in the city, the Committee proposed the government to increase the police presence in the city for safeguarding local communities. The Committee also proposed tax exemption and reduction in tax rates for the residents of Kasur since living standards and the availability of economic opportunities in the city are still low as compared to other similar size cities.

Kitchen Garden Promotion LCCI formed a Standing Committee on Kitchen Garden Promotion under the able and inspiring Convenership of Ms. Nilopher Sikandar. The Committee aimed to encourage Kitchen gardening to tackle rising prices and supply problems of essential vegetables. Kitchen gardening can be a great source of neat, clean, healthy and inexpensive vegetables. Through growing vegetables in kitchen gardens, housewives can meet some of their daily needs while surplus vegetables can be sold to generate extra incomes.

The Committee approached the Agriculture Department, Government of the Punjab for cooperation. The Committee also made concrete efforts to promote Kitchen gardening by holding competitions

Meeting with Altaf Qmar Director Narcotics Force

The Lahore Chamber of Commerce and Industry

between various universities and colleges during the spring. The Committee, in conjunction with various NGO's, arranged awareness workshops and seminars for interested people and housewives at various forums in the city.

LCCI Liaison Committee on Finance & Taxation and Sales Tax Mr. Shahzad Azam Khan was nominated as the Convener of Finance and Taxation Liaison Standing Committee. The Convener is well-recognized and respected for having in-depth knowledge and expertise over issues relevant to the functioning of such a Committee. The main objective behind constituting this Committee was to ensure consultation among key stakeholders in the industry and Government on matters related to finance and taxation that are of significant nature and implications for the business community. LCCI's management considered the working of this Committee critical for the overall impact of the organization in effectively promoting and protecting the interests of its members. The Convener played an important role formulating Budget proposals in close coordination with all the other Standing Committees. The Committee routinely engaged relevant government departments to resolve problems of LCCI members concerning finance and taxation in general and Custom and Sales Tax related cases in particular.

Lahore Vision 2015 The city of Lahore is considered the heart of Pakistan.

Lahore is a medieval city that has always been important for cultural, political and economic activities in the region long before partition. The city achieved the status of a crossroad city linking South Asia with Central Asia. Lahore still has the potential to be a leading city in the region. But a lot of work is required before Lahore can gain the status of culturally and economically important city in South Asia. LCCI being the local chamber has a special role

Meeting with Saqib Mohiuddin CEO SME Business Support Fund 69

Activities of Standing Committees in promoting the city. This is the backdrop against which LCCI constituted Lahore Vision 2015 Standing Committee. The Convenership of the Standing Committee was again entrusted to Sardar Usman Ghani. The Convener painstakingly mobilized support for formulating a strategic vision for Lahore and encouraged LCCI management to play an active role in the development of the city. The Committee held a number of meetings to prepare a coordinated action for LCCI's engagement in issues significant for urban living including infrastructure development, preservation of heritage and building the city's image globally.

Lahore Chamber Gilgit Baltistan Liaison committee Newly born province of Pakistan Gilgit Baltistan is rich with natural resources and natural beauty, to highlight the hidden potential of this treasure land the Lahore Chamber of Commerce and Industry established the standing committee on Gilgit Baltistan. Since its commencement the committee is working very hard to attract local and foreign investment in the region. Last year LCCI arranged Gilgit Baltistan products exhibitions at its premises besides arranging an Ambassadors conference at Shangrila, Sakrdu.

The Committee has very good relations with provincial administration and the Chief Minister of Gilgit Baltistan province visited LCCI many times and publicly acknowledged the efforts done by the Lahore Chamber to attract investment and highlighting the potential of this resource rich area.

Library, Printing, Publications & FM Radio The LCCI standing committee remained very active during the current year under the leadership of President LCCI Mr. Shahzad Ali Malik. This year the committee focused on improvement of the services

Meeting with Shiren Arshad MNA and chairperson of women empowerment and adversary 70

at the LCCI Entrepreneur Development and Resource Centre (EDRC). On the instructions of the President LCCI a special page on trade resources has also been created at LCCI website to facilitate the LCCI members and general public.

The committee tried its level best to make LCCI publications according to international standards; the format of Lahore Chamber News (LCN) was upgraded. Its title-page colour scheme was changed according to the direction of the members of the committee. The committee also published beautiful and informative diary on self-finance basis.

The information department worked very efficiently to ensure maximum coverage of LCCI activities in print and electronic media. During the year many national and international delegations visited LCCI and all got good coverage. More than 400 press releases were issued by the information department.

This year special attention was given to LCCI FM Radio and many new programs were introduced for the benefit of the business community. Due to relentless efforts of the committee and information department of LCCI the FM Radio 98.6 has become a strong voice of the business community.

Membership Keeping in view the importance of the Standing Committee on Membership the LCCI management awarded Convenership of Standing Committee on Membership to Sheikh Muhammad Arshad, Senior Vice President, LCCI. Sheikh Muhammad Arshad is a very famous personality known for his wisdom and his expertise in the particular subject. During the year Chamber benefited form his broad-spectrum vision for the development of business community and simplification approach.

Under his able guidance and team of experienced personalities, Membership Department was able to

LCCI Delegation's visit to Shaukat Khanam Hospital

The Lahore Chamber of Commerce and Industry

Activities of Standing Committees improve its services such as new membership, renewal of membership, visa recommendation letters, visa invitation letters, and attestation of commercial documents and attestation of certificates of origin, to its members.

With the continuous support of Sheikh Muhammad Arshad, Convener Standing Committee number of initiatives was taken up. One of the objectives of the committee was to reduce the communication gape between the Chamber members and LCCI. During the year members were informed through continuous SMS, which resulted in improved number of renewals during the year 2011.

Translating the vision of Convener Membership regarding quality of membership data, data verification projects were started and information relating to 20,000 members were up-dated. A project for verification of representative pictures, signatures and partners/directors photo is also under implementation phase. Out of 8000 members around 2000 companies data has been up dated.

During the tenor of Sheikh Muhammad Arshad, Convener Standing Committee a great venture of membership department is on his way to achieve the target of paperless environment and step ahead is to provide services of membership department online which would indeed a new avenue in the history of LCCI. The Standing Committee during the year held twelve (12) meetings and accorded membership of the Chamber to new comers as quickly as possible.

All the applications received for new memberships, renewals of membership and other related matters were scrutinized and recommended to the Executive Committee for approval.

committee and efforts of the membership department and the convener. It was due to the untiring efforts of the Convener Sheikh Muhammad Arshad that the total membership increased more then 16000 in the year 2011, which is a milestone in the history of Lahore Chamber of Commerce & Industry.

National Transport & Logistics Facilitation The Convenership of the LCCI's Standing Committee of National Transport and Logistics Facilitation was entrusted with Mr. Muhammad Anwar. The Convener played an active role in the promotion of the sector. Transport is an important part of the economy. Efficient and low cost movement of goods is critical for the overall competitiveness of the economy. Currently, transport of goods in Pakistan is not only expenses but also extremely slow moving.

Transport problems within large cities are also becoming acute. Lahore is no expansion. Lahore is a fast-developing city whose economic performance would greatly depend on how its transport & logistics sector is developed. The Standing Committee made following recommendations for further development of sector:1) Proposed a seminar on “Traffic Management” for disseminating basic information regarding traffic.

2) P r o p o s e d a s e m i n a r o n “ F r e i g h t & Transportation Issues of Lahore”.

3) The Committee also discussed that academia and industry must develop close liaison for jointly conducting research on various sector of economy.

The Executive Committee not only accepted the recommendations of Standing Committee on Membership but also appreciated the working of the

4) The Committee suggested truck terminal should be located to appropriate locations for ensuring

LCCI members visit of Sheikhpura Chamber

A group photo with all Pakistan Paper Merchant Association

The Lahore Chamber of Commerce and Industry

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Activities of Standing Committees smoother movement of goods.

O.I.C The LCCI standing committee on Organization of Islamic Countries is responsible to look after the trade affairs with OIC block. Mr. Hasnain Reza Mirza is the Convener of this committee. During the year committee performed the following tasks.

1.

The committee reactivated the LCCI D-8, ECO, OIC Secretariat to promote trade ties with Muslim countries.

2.? Letters were sent to all the Ambassadors of OIC countries to collect their trade profiles.

3.? To promote trade amongst the brotherly countries, the committee formed Trade Mission to different countries i.e. Bosnia and Herzegovina, Iraq, African Union, Bangladesh and Indonesia. The first trade mission visited Bosnia and Herzegovina from April 4-9 this year.

4.? The committee also had meetings with Additional Foreign Secretary at Ministry of Foreign Affairs and discussed many proposals, such as Establishment of Muslim Common Market, Trade in local currency among OIC countries. Some of the proposals were included in the agenda of meeting of President of Pakistan with his Iranian counterpart.

5.? Pakistan Tajikistan business council was also established at Dushanbe due to the efforts of OIC standing Committee.

Pak India Business Promotion The Standing Committee on Pak India Business Promotion is one of the most important initiatives of Lahore Chamber. Mr. Aftab Ahmad Vohra, Former Vice President, LCCI was nominated to lead this Committee as he is well-recognized and respected

A group photo with FBR Probationary Officers 72

for his vast experience in economic and trade relations between Pakistan and India. He has long been a champion of strong ties between the two countries. The Convener has been an opinion leader both within LCCI and other relevant policy- and decision-making platforms in both countries. The Standing Committee held regular meetings to discuss major hurdles to the expansion of Pakistan India trade relations. The consultations among Committee members as well as with other stakeholders helped form a well-considered view on nature of non-tariff barriers impeding development of strong relations between the business community of Pakistan and India.

The Committee regularly and actively coordinated with various operation agencies involved in facilitating cross border trade affairs especially relating to the providers of logistic services such as the National Logistics Cell (NLC). It has been brought to the notice of the Standing Committee that business community involved in trade with India especially through Wagha border are facing tremendous difficulties in their dealings with NLC. The Convener repeatedly raised these issues with high officials of NLC to no avail. This led the Committee to approach the Federal Ministry of Commerce for its intervention. Resultantly, a meeting was held between key stakeholders of the business community, service providers and officials of various government agencies including the Additional Secretary, Ministry of Commerce Mr. Shahid Raheem Sheikh at Wagha border. It was ensured by the Convener that all problems hindering local business community in their efforts to do business with India will be resolved on permanent basis. On the proposal of Convener the Additional Secretary formed a Joint Coordination Committee comprising of all stakeholders to timely resolve the problems of the business community in order to facilitate them successfully to improve Pakistan-India trade performance.

NPO representative giving presentation to LCCI members

The Lahore Chamber of Commerce and Industry

Glimpses of Different Events

A group photo with Mian Shahbaz Sharif Chief Minister of Punjab

LCCI members with former Governor of Punjab Salman Tasser (Late)

LCCI president presenting souvenir to Federal Minister of Commerce Makhdoom Amin Fahim

A group photo with Federal Minister of Commerce Makhdoom Amin Fahim

LCCI president presenting souvenir to Federal Minister for Information Dr. Firdos Ashiq Awan

Dr. Shoib Sadele Federal Tax Ombudsman receiving souvenir from LCCI president

A group photo with Syed Mehdi Shah Chief Minister of Gilgit Baltistan

Federal Secretary of Commerce Zafar Mehmood receiving souvenir from LCCI President

The Lahore Chamber of Commerce and Industry

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Glimpses of Different Events

Makhdoom Amin Fahim Federal Minister of Commerce at opening ceremony of FBR advisory center at LCCI

LCCI president presenting souvenir to Khurram Destiger MNA

A group photo with Hall Road Delegation

A group photo with Faisal Salah Hayat FIFA Chairman

Meeting with DCO Layyah

LCCI president addressing at Shah Alam Market

A view of Punjab Chamber Strike on Gas Load Shading at Lahore

LCCI member visit at Shah Alam Market

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The Lahore Chamber of Commerce and Industry

Glimpses of Different Events

LCCI delegation meeting with Governor Punjab Salman Taseer (Late)

A group photo with Sardar Attiq Ahmed Khan Prime Minister of Azad Jammu and Kashmir

Dr. Sohail Mukhtar Director Ahmed Madex briefing LCCI members

LCCI President presenting souvenir to Gohar Ijaz Chairman all Pakistan Textile Association

A group photo of Paper & Paper Board Association

A group photo with Chairman TDAP Tariq Iqbal Puri

Meeting with Federal Seed Corporation & Registration Department

LCCI President presenting Gold Medal To Khamis Saeed Butt

The Lahore Chamber of Commerce and Industry

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Glimpses of Different Events

Federal Minister for information Qamar Zaman Kaira inaugurates FM.98.6

A seminar on Economic dialogue 2011

Meeting with Faculty members of Lancaster University UK

LCCI president presenting souvenir to Peter Hans MD Star Forum

A delegation from Netherland with LCCI members

Leader of ILO presenting a gift to President LCCI

A view of MOU signing ceremony with Pakistan Development Economy

A view catalogue exhibition from Belgian Embassy

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The Lahore Chamber of Commerce and Industry

Activities of Standing Committees

Paper and Board Industry Pakistan's Paper industry provides large employment and fulfills the needs of country's paper and board products to a great extent. But the local paper and board industry is experiencing serious hardships including inflationary pressures and heavy taxes which has greatly increased production costs. In this situation, LCCI's Standing Committee on Paper and Board Industry worked tirelessly under the dynamic leadership of its Convener, Mr. Shamim Ahmad Malik. The Committee held several meetings and proposed a number of measures to tackle the industry's problems. In particular, it urged the government to take concrete steps to control the smuggling of paper and paper products by using all means as this is hurting the local industry. These proposals were submitted to the Chairman Federal Board of Revenue. The Committee members also held a meeting with the officials of FBR and briefed them about loses faced by the paper industry due to heavy smuggling under the cover of Afghan Transit Trade.

Pakistan-Japan Business Promotion

Language Classes at LCCI in support of its efforts to promote bilateral trade. Representatives of different firms beside students participated in these courses.

The Committee also made the following recommendations for enhancing trade and economic relations between the two countries: 1) The government should place Japan on the priority list for enhancing business, trade and investment relations.

2) Problems regarding the provision of gas and electricity should be solved as soon as possible.

3) Speed up the construction of infrastructure in the Japanese Industrial Zone in Karachi.

4) Positions should be reserved in the Japanese Industrial Zone in Karachi for the Pakistani consultants working with Japanese companies so they can support fostering long-term links between Pakistani and Japanese businessmen.

The government needs to form a special database in this regard.

Japan has been a valuable trade partner of Pakistan and has played an important role its economic development. Pakistan is a developing country and lacks technology which is an obstacle to its long-term growth. Japan is world leader in the field of new technology. Keeping this need in mind, LCCI formed Pakistan-Japan Business Promotion Standing Committee and continued to entrust its Convenership to Malik Ikhlaq Ahmad.

Paper and Paper Board Traders

The Committee has been very active in promoting trade between Pakistan and Japan and attracting Japanese investors to Pakistan. With the support of SMEDA, the Committee organized a training program on “Cost Reduction Techniques in Light Engineering Sector through the Application of Lean Production System� for the benefits for LCCI members. The Committee also organized Japanese

The Convenership of the Standing Committee on Paper and Paper Board Traders was entrusted to Mr. Khamis Saeed Butt for the 10th time. The Convener is well-versed in the problems facing traders in this sector. The Committee effectively highlighted the issues and presented solutions to address the concerns of paper and paper board traders at various policy forums. A number of well-reputed members of the trading community of the sector

Sheikh Muhamamd Arshad at Oath taking ceremony Mukhtaran Rashid Hospital

The Lahore Chamber of Commerce and Industry

5) The Committee initiated preparations for holding an Investment Conference in GilgitBaltistan. The basic purpose of this conference would be to highlight investment opportunities in Gilgit-Baltistan.

MNA Pervaiz Malik SVP Sheikh Muhammad Arshad and former president Muhammad Ali Mian at Punjab Chamber Coordination Committee

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Activities of Standing Committees participated in the Committee deliberations throughout the year and contributed effectively to the formulation of Budget proposals for submission to the Government. Some of these proposals included: 1) Ensure Afghan Transit Trade does not hinder development of local paper and paper board trading community.

2) Ensure tax and duty exemptions provided in this sector are not misused.

3) Regulatory Duty must be removed from the HS CODE 4802.

4) Paper should be included in the necessary items list to exempt printing papers and paper board from duties.

5) Paper ingredients/specifications must be attached with the bundles to help in identifying the paper quality.

6) Paper being used for printing the Holy Quran and related articles should be duty free.

7) Sales tax compliance procedures need simplifications while granting income tax exemptions in view of difficult trading conditions.

8) Law and Order must be maintained to facilitate business activities.

9) Kalabagh dam electricity project should commence on urgent basis to tackle the growing power crisis in the country.

10) Future decisions on taxes and duty on paper and related items should be made in consultation

A view of conference on Housing Association at Aiwane-e-Iqbal 78

with the stakeholders.

11) Warehousing of paper should be extended to 3 years since it is a non-perishable product.

12) Local mill owners should be bound to have the elected associations in confidence while making a decision in changing paper prices and the paper ingredients should be pasted externally for informative purposes.

The government had already imposed a duty of 25% on Paper and Paper Board Industry in the name of facilitation and now a further 15% regulatory duty is being applied which is unfair for the small scale local traders. For this reason, LCCI has sent letters to the government and the FBR department to call back these unacceptable charges because it does not fall in the luxury item category. LCCI also stated antidumping duty as unfair in the letters. This duty has harmed the government's efforts to spread education and its “Ghurbat Mitao� program.

Pharmaceutical Mr. Amjad Ali Jawa, was nominated as Convener of the LCCI's Standing Committee on Pharmaceutical.

He has played a leading role in the development of Pakistan's pharmaceutical industry especially in the last two decades and continues to be a guiding force for the local pharmaceutical industry. Under his able leadership, the Committee has taken note of the fact that the regulatory frame work for the local pharmaceutical industry is faced with uncertain future direction. As a consequence of the 18th Amendment in the Constitution of Pakistan the ensuing decentralization of various federal ministries to provinces has created a degree of institutional chaos in terms of its potential and actual impact on the provision and regulatory oversight of key public services such as health. The transition has certainly affected the functioning of Federal Ministry of Health and its provincial counterparts as well as the

Meeting with Chairman Zakat Division

The Lahore Chamber of Commerce and Industry

Activities of Standing Committees Drug Control Administration.

The Convener affectively mobilized his Standing Committee to deliberate on the impact of the devolution of Federal Ministry of Health. The proceedings of the Standing Committee focused on important regulatory issues such as licensing, registration of medicines and fixation of prices. In line with international best practice, the Standing Committee maintained a consensus view that regulation of health services should be provided by a single authority for the entire country. Compliance with multiple provincial regulatory authorities is neither cost affective nor is practically feasible. This in fact can suffocate the future growth prospects of the local pharmaceutical industry. It also runs risk of flooding the country with spurious and substandard medicines. After detailed consultation, the Committee proposed that government should establish a Federal Drug Control Authority to deal with regulatory affairs of the pharmaceutical industry.

In order to generate desired policy response to these problems, the Convener wrote letters to Mian Raza Rabbani, Chairman Implementation Commission on 18th Amendment and Mr. Ishaq Dar, Vice Chairman of this commission. These efforts of the Standing Committee also motivated the provincial governments of Sindh, Khyber Pakhtoon Khaw and Balochistan to make appropriate recommendations to the federal government for the establishment of Federal Drug Authority. The Committee has also approached Mian Shahbaz Sharif, Chief Minister Punjab, to similarly recommend the federal government to show its support for the welfare of local pharmaceutical industry and other key stakeholders such as patients.

demand of plastic are increasing day by day.

Increasing demand of better quality goods from Pakistani consumers gives a lot of realm to this industry. Keeping in view the expansion of plastic industry, LCCI has formed a Standing Committee and Mr. Wajid Ali has been nominated as the Convener of this Standing Committee. He co-opted many renowned people from plastic industry. The meetings of Standing Committee indicated many problems related to plastic industry and requested the government to solve them effectively.

Poultry Industry The poultry sector is not only playing an important role in our national economy but also catering for the nutritional needs of our masses. The sector is providing protein at a very low price in shape of chicken meat. The poultry sector showed impressive development during last decade. However; it is currently facing number of challenges which has potential to under mind its future growth prospects.

The LCCI formulated a as its Convener, Standing Committee on Poultry sector and appointed Mr. Abdul Basit, Former SVP, LCCI. Mr. Abdul Basit is serving the poultry industry from the last two decades. The Convener took keen interest in ensuring the proceedings of the Standing Committee made meaningful contribution in highlighting and communicating the challenges of poultry industry to relevant policy quarters for timely response. After detailed consultation with the Committee members and key stakeholders of the poultry sector, the Convener formulated useful Budget proposals for submission to the government.

Poverty Alleviation

Plastic is ranked among few important industries in Pakistan because of which a production and

Millions of people live below poverty line in Pakistan.

LCCI formed a Standing Committee on Poverty Alleviation and nominated Ms. Talat Hafeez as its Convener. The Committee aspired to promote better standards of living in the country in general and

LCCI members at CIPE Training Program

LCCI office bearers at IT Certificate distribution ceremony

Plastic Industry

The Lahore Chamber of Commerce and Industry

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Activities of Standing Committees specially among educated and youth. To this end, special attention was placed on the dairy sector for its substantial employment potential. The Committee closely worked with Pakistan Dairy Development Department to explore ways to harness the dairy sector potential for reducing poverty in the country.

The Convener led a women trade delegation, consisting of the members of this Standing Committee on a 7-day business exploration visit to Gilgit Baltistan. The delegation met with the Governor and Chief Minister of the Province and discussed matters of mutual interest. The women entrepreneurs, besides holding the exhibitions of their products, also met with the prominent business persons of Gilgit Baltistan. Ms. Talat Hafeez, on behalf of President LCCI, signed an MOU with the Gilgit Baltistan Chamber of Commerce & Industry.

This, she hoped, would open new avenues in different fields between the people of Lahore and Gilgit Baltistan.

Recycling Technology Like many other countries the world over, recycling industry in Pakistan has also developed considerably in the last few years. Since the industry is still in its infancy stage, therefore, it faces innumerable teething problems. A number of LCCI members are affiliated with this industry. In order to give impetus to this sector, LCCI has constituted a Standing Committee on Recycling Technology. Syed Qaiser Ahmed was appointed Convener of the Standing Committee for the year. The Convener, by virtue of his consistent efforts was able to make this Committee quite active and effective in a very short time. The Committee discussed in detail the problems in this area for having an in-depth debate with various senior government functionaries. The convener along with the members also met a number of government officials and discussed the affairs of the industry at length. The Standing

LCCI staff at CIPE Training Program 80

Committee also submitted Budget proposals for the federal budget 2011-12.

Regulatory Affairs and Public Service Departments The business community has to regularly deal with the regulatory framework especially concerning procurement for running key public services. It is in the interest of our business community and general public that public procurement system works transparently. But the existing public procurement procedures are complex and need simplification. It was hoped that the implementation of PPRA Rules would help local firms effectively do their business with government institutions and all procedural complications will be resolved. But in reality there has been little improvement. This is backdrop against which LCCI established a Standing Committee on Regulatory Affairs and Public Service Departments and appointed one of its very senior Former E.C. members Mr. Shahid Iqbal Butt as its Convener. After a thorough review and consultation with members, the Convener suggested a systematic and comprehensive review of the public procurement rules in order to make them business friendly and corruption free. To this end, the Committee purposed to invite the Chief Secretary Punjab at LCCI to discuss these issues in detail and formulate a future strategy for necessary amendments in PPRA Rules.

Research & Development The Standing Committee on Research and Development (R&D), LCCI is considered to be one of the most important committees. Mr. Shahzad Ali Malik, President, LCCI fulfilled the responsibilities of Convener for LCCI's Standing Committee on R&D 2010-11. He took keen interest in the activities of R&D and ensured that this department provides necessary services to the members effectively and efficiently. The Convener worked very closely with other members of the Committee to develop a

Meeting with Gujarat Chamber of Commerce Delegation

The Lahore Chamber of Commerce and Industry

Activities of Standing Committees consensus on revamping the department on modern lines and ensured that economic research becomes key focus of its research activities. This was the key motivation of establishing an Economic Research Section within the department.

CCTV cameras at Faisal Chowk. This surveillance system is being operated by the police officials. It is hoped that the facility will help to improve law and order.

Dr. Amjad Bashir was inducted as Chief Economist to head the R&D Department. Under the able guidance of Mr. Shahzad Ali Malik the department worked efficiently throughout the year. More than two dozen research reports and working papers as well as economic and trade notes were prepared. The department was also managed to conduct around 170 meetings of Standing Committees. Around 25 seminars and a number of conferences were also organized. The department also provided more than 150 speeches for office bearers as well as for various Executive Committee members. Some 100 cases were finalized by the Business Dispute Resolution Committee. The department also worked to establish Sheikhupura Dry Port. R&D support for FM Radio programs was also routinely provided by R&D staff. The R&D department also played an active role in organizing and holding, a week-long event, the “Lahore Shopping Festival.� As part of its annual activities, R&D compiled Budget and Trade Policy Proposals and forwarded them to the concerned government departments.

LCCI nominated Sheikh Muhammad Asif, Former President of LCCI, as the Convener of the Standing Committee on Sales Tax & Federal Excise. The Committee vigilantly followed cases of fake/flying invoices by the Intelligence & Investigation Directorate of FBR and held number of meetings with the concerned officials to resolve these issues.

The Committee undertook an extensive exercise against changes in Section 21 of Sales Tax Act, 1990 and in the Sales Tax Return (STR-7). The Convener took personal interest for convincing various political leaders and government officials to avoid implementing harsh and controversial provisions in Sales Tax law. The Committee also played its valuable role in compiling Budget proposals.

Sales Tax & Federal Excise

Sick Units

Security Committee for the Protection of Civilians

Pakistan's industrial sector is facing myriad of challenges including expensive and unreliable supplies of gas and electricity and poor law and order situation which is resulting in high level of unemployment. The situation is aggravated in the face of increasing numbers sick units. The revival of these sick units needs special policy response and support mechanism.

Khawaja Khawar Rashid was nominated as the Convener of Security Committee for the Protection of Civilians for the year 2010-11. The Convener performed his duties effectively and held meetings with Police officials to ensure better security situation for general public and business community. For this purpose, the Convener held a meeting with CCPO Lahore, Mr. Ahmed Raza Tahir to discuss ways to improve the declining situation of law and order in the country in general and Lahore city in particular.

The Committee took a unique initiative to install

Mian Muhammad Usman was again nominated as the Convener of this Standing Committee. The CoConvenership of the Committee was given to Mr. Adil Mehmood and Mr. Khalid Rafique. The Committee remained active throughout the year with an aim to facilitate sick industries by finding better solutions to their problems. Mian Muhammad Usman proposed various measures for the revival of sick units including effectively responding to developments in the Supreme Court's Suo Moto

LCCI SVP receiving a memento from Head of the Navy War College

Brigadier Tariq Javed Rehan MD Heavy Industry Taxila receiving souvenir

The Lahore Chamber of Commerce and Industry

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Labard Annual Dinner 2011

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The Lahore Chamber of Commerce and Industry

Glimpses of Exhibitions

The Lahore Chamber of Commerce and Industry

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Houses for Flood - affectees at Layyah

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The Lahore Chamber of Commerce and Industry

Activities of Standing Committees action on business loans written-off during the past decades.

Technical Education & Commercial Training Ms. Aasia Saail Khan was nominated as Convener of the Committee on Technical Education & Commercial Training. She effectively highlighted the importance of technical education and training at every level and platform of government, industry and academia. The Convener met with officials of various technical training institutions and proposed to review their syllabus to accommodate changing needs of the industry. Moreover the convener represented LCCI in meetings with relevant government departments and attended a workshop on “National Skill Strategy” held in Islamabad. The Convener Ms. Aasia Saail Khan firmly believes that Modern Training Centers should be established. This will help students develop right skills that would assist them to find appropriate jobs. The Committee provided guidance needed by LCCI members throughout the year on matters related to technical education and training.

Total Quality Management (TQM)

The Committee also organized an Investment Conference during the Lahore Shopping Festival where renowned personalities from various professions were invited to share their experiences with the large gathering.

Trade Delegations Trade Delegations are the best tool for exploring new international markets. In this regard, LCCI has formed a Standing Committee on Trade Delegations. This year the responsibilities of this Committee were given to a highly qualified and young entrepreneur Mian Jabbar Khalid who painstakingly prepared a strategy for LCCI Trade Delegations. Information concerning trade delegations was routinely disseminated to members through LCCI Chamber Circular and Website to ensure their maximum participation and help them develop their international business network.

During the year, the Committee supervised the formation of a number of trade delegations to different countries with an aim to develop LCCI's trade relations with different Chambers of Commerce & Industries and business community, of the countries being visited.

Under the leadership of Dr. Shahid Raza, a seven member businessmen delegation visited South Africa and UAE. The delegation met with local Chambers and leading personalities of South Africa and signed MOUs.

Mr. Hassan Amjad, Former Executive Committee Member, was nominated as Convener of this committee for 2010-11. Ms. Ammara Farooq Malik and Mr. Wajdan A. Qureshi were appointed as Coconveners of the Committee. The Committee routinely presented its recommendations to the Executive Committee for the need to emphasize the importance of TQM on every platform.

The Committee highlighted that currently Pakistan does not have any training center which could meet the international standards in TQM. The Committee in cooperation with the Standing Committee on Training and Development effectively networked with various associations like Business Support Fund, Institute of Cost Management and Accounting of Pakistan and organized different training programs.

Mr. Shahzad Ali Malik, President LCCI also led a businessmen delegation to China, Korea and Vietnam. The delegation held meetings with their

LCCI President opening ceremony Eagle Packages new outlet

A group photo with 10-member delegation of Pak Traders Association

The Lahore Chamber of Commerce and Industry

LCCI also organized a trade delegation to visit Canton Fair China in April 2011 in which a record number of 316 members visited from LCCI platform.

Moreover, LCCI is also working to prepare for the participation of its delegation in Canton Fair China – October 2011.

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Activities of Standing Committees potential counterparts and also met Korail authorities to discuss possibilities of working together on the project of establishing Sheikhupura Dry Port. The meeting also involved discussions regarding the purchase of Korean locomotives for running freight trains for this project.

Ms. Nabila Intisar led a 15-member delegation consisting of female entrepreneurs from Handicrafts industry to India. This delegation was formed to bridge the trade gap between Pakistan and India.

Members held meetings with PHD Chamber of Commerce & Industry, All Handicrafts & Home Furnishing Development Authority, World Punjabi Organization and Export Promotion for Handicrafts.

Ms. Aasia Saail Khan also led a women delegation to Sweden and held meetings with Stockholm Chamber of Commerce, Ministry of Foreign Affairs and Embassy of Pakistan in Sweden.

Training and Development Training is essential to make people skillful and specialized, which is vital for the success of industry, trade and the economy. Regrettably, there are only a few training and development centers in the country. Pakistan needs far more such centers to meet the needs of the industry, trade and the economy. Keeping this reality in view, LCCI formed a Standing Committee on Training & Development under the Convenership of Mr. Awais Saeed Piracha.

The Convener tirelessly worked throughout the year for promoting training and development. Ms. Uzma Manzar was appointed as Co-Convener of the Committee. To achieve its goal, the Committee effectively coordinated its activities with LCCI Standing Committee on TQM and closely worked with the Business Support Fund, Institute of Cost Management and Accounting of Pakistan and various other organizations. The Committee also participated in the organization of Investment Conference during Lahore Shopping Festival in

LCCI SVP presenting award to the participant of Technology exhibition 86

which many renowned personalities from various professions took part and shared their experiences with the participants.

Turkey Pakistan Business Council Pakistan Turkey relations are profusely described as “two countries, one nation.� This is because two countries share a common traditional, historical and cultural heritage. The uniqueness of the relations between Turkey and Pakistan offers countless opportunities for building strong bilateral trade and economic ties. Under the wise Convenership of Mr. Bashir A. Buksh, Former President LCCI, the Standing Committee on Turkey Pakistan Business Council continued to play and instrument role in strengthening relations between the two countries.

The Convener is well aware of the dynamics and potential of Pakistan-Turkey relations and is successfully managing the affairs of the Committee for the last many years. The Convener chaired a number of Committee meetings during the year and proposed major steps to facilitate the interaction of business communities of both the nations. The R&D department also gave a presentation to the Committee on how to effectively do business with Turkey. The Committee also made the following recommendations in this regard.

1) LCCI business delegation should participate in Tuskon Exhibition in Turkey. This would help delegates gain much needed exposure to market and networking opportunities in Turkey.

2) The Committee praised the commencement of train service from Islamabad to Istanbul and suggested ways to remove hurdles for its effective functioning.

3) To build strong relations between Turkey and Pakistani businesses, it was recommended to simplify the visa procedures.

Khawaja Umar Mehdi Director Post Clearance Audit at seminar

The Lahore Chamber of Commerce and Industry

Activities of Standing Committees 4) The Committee proposed holding an Investment Conference and Exhibition in Lahore with the joint collaboration of Punjab Board of Investment and Trade.

5) The Committee also recommended registering Turkey-Pakistan Business Council as a recognized Council in both countries.

Tyre & Tube Industry In the face of rapid growth and development of the automobile industry in Pakistan during the last decade and the accompanied surge in demand for tyres and tubes, LCCI again nominated Mr. Jawad Rasheed as Convener of the Standing Committee.

The Committee held a number of meetings during the year and its members took keen interest in deliberating on problems facing businesses in this area. The Committee prepared comprehensive recommendations for submission to concerned authorities for resolution.

It was noted that at present local tyre industry is unable to meet the entire demand of the country.

Pakistan imports a fairly large quantity of tyres. But due to heavy custom and other duties, prices of imported tyres and tubes are becoming unaffordable for local buyers. This obviously encourages and gives rise to the smuggling which results in heavy loss to national revenue. It also creates difficulties and hazards for the genuine importers. It recommended reduction in duties on various types of tyres and tubes to curtail smuggling.

This in turn will enhance the government revenues.

The committee also prepared the Budget recommendations especially with an aim to support the development of local tyres and tubes industry.

Wapda Dispute Resolving Committee Chaudhry Zahid Bashir was nominated as the Convener of the Standing Committee on Wapda Dispute Resolving Committee. Engr. Sohail Lashari,

A view of Reformed General Sales Tax Meeting

The Lahore Chamber of Commerce and Industry

Mr. Munawwar Anjum and Mr. Naveed Anjum acted as Co-Conveners. The Convener remained active throughout the year in helping LCCI members reach settlements of their disputes with Wapda. With the personal efforts of the Convener, high officials of LESCO were invited at the LCCI where electricity related problems were discussed and most of them were resolved on the spot. Convener appreciated the efforts of Standing Committees Secretary Major (R) Shafqat Nawaz, Deputy Secretary, Miss Umber Afzal Chattha and the related staff for their hard work and showing concern of responsibility.

Weaving, Printing, Dyeing & Processing Sheikh Muhammad Ayub was nominated as the Convener of this Standing Committee. The Convener selected very experienced members of LCCI for the Committee who made the following recommendations for the betterment of this sector.

1) There should be smooth supply of gas and electricity for the textile sector.

2) The Government should bear the burden of cross subsidy on gas instead of the textile sector.

3) Materials imported under Afghan Transit Trade should not be allowed to flood local markets.

4) There should be zero rated tax on items like chemicals, dyes & machinery being used by textile sector.

5) The interest rates being charged by Pakistani banks from textile sector should be at par with the experience of comparable textile producing countries. This will improve the international competitiveness of our textile industry.

6) Pakistan's textile industry must be exempted

Provincial Secretary Punjab for Mining Shahid Mehmaood at LCCI 87

Activities of Standing Committees

from additional VAT/Sales Tax. 7) In view of Pakistan's macro economic crisis, the Government must impose ban on import of unnecessary and expensive luxury items to save foreign exchange.

8) In order to revive sick textile units, the implementation of textile policy must take longterm perspective.

9) The availability of low cost land must be ensured for establishing textile units.

10) In view of depleting gas reserves, LPG or CNG must be supplied as substitute to textile units for smooth production and to decrease unemployment.

Women Entrepreneur Development Ms. Aasia Saail Khan was nominated as the Convener of the LCCI Stranding Committee on Women Entrepreneur Development. The Committee played an important role in the promotion of women entrepreneurs at national and international platform. It took various initiatives to help women entrepreneurs to gain practical in site into rules and regulations governing trade especially with the European countries. In order to overcome information obstacles and provide exposure to these markets, a businesswomen delegation was organized from the platform of this Committee upon the invitation of Stockholm Chamber of Commerce in support of the Swedish Ministry of Foreign Affairs and the Embassy of Pakistan in Sweden. The Committee under the leadership of Ms. Aasia Saail Khan led a 9-member delegation to Sweden that visited various Swedish Government institutions besides meeting with Swedish Business Associations. The delegation held useful business meetings with their Swedish counterparts.

A group photo with member FBR Khawaja Khawar Kurshed Butt 88

The commercial section of Pakistan's Embassy provided special help in arranging meetings with various Swedish business associations, import agencies and chain stores of famous brands. During their stay in Sweden, the delegation not only met with the members of Swedish parliament but also had an interactive session with Ms. Ewa Bjorling, Swedish Minister for Trade. The delegation had the opportunity to meet with Member of Parliament, Ms. Margarela Cederfelt and the ex-senior Member of Parliament Ms. Birgitta Wistrand at the Parliament House. The Stockholm Chamber of Commerce also organized a workshop for delegates on European market trends and their rules and regulations.

During her Convenership Ms. Aasia Saail also maintained a close liaison with US Consulate in Lahore and held a series of meetings to discuss the possibilities of joint cooperation for the development of women entrepreneurship in Pakistan. With the efforts of the Standing Committee, LCCI women members were also allocated stalls at discounted rates in LCCI Lahore Shopping Festival held in April 2011.

Women Resource Centre Ms. Nasira Taskeen, Executive Committee member was nominated the Convener of the Standing Committee on Women Resource Centre (WRC). The Convener actively encouraged LCCI women members to explore new markets for business. In particular, the Convener routinely highlighted the export potential of a number of big and important markets such as Malaysia, Sri Lanka, South Africa and Bangladesh. The Committee also proposed the participation of business women in exhibition held in Sri Lanka in March 2011.

The Committee coordinated with TDAP to arrange women entrepreneurs delegation to South Africa to

Traiq Iqbal Moghal President Sheikhpura Chamber in meeting at LCCI on Sheikahpura Dry Port

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Activities of Standing Committees participate in “Southern African International Trade Exhibition” (SAITEX) held on 17-19 July 2011. The delegation successfully represented Pakistan at this international event. The Convener also participated in the “International Eid Bazar/Fair”, held during 1014 August, 2011 in Bangladesh.

The Convener made great efforts throughout the year to establish a “Training & Display Centre” for women entrepreneurs at Diyal Singh Mansion, Mall Road, Lahore. In this regard, the Convener successfully mobilized support from the Ministry of Women Development, Government of Pakistan. The proposed centre will provide a platform and opportunity to women entrepreneurs to display their products. Work on this project is in progress.

The Convener led a group of WRC members to attend a TDAP workshop on “International Trade Finance” on 14th June, 2011. Ms. Nasira Taskeen also conducted a training session on “Networking & Time Management” on 23rd July, 2011 for women entrepreneurs. In view of the importance of capacity building of women entrepreneurs, the Convener has planned three more training sessions in September. The Committee updated the Women Entrepreneurs Directory. The new edition will provide sector-wise data of Women Entrepreneurs and a tool for business networking.

Youth Development The vibrant and energetic youth plays a pivotal role in the overall growth and development of a country.

The youth power can be harnessed for the betterment of the economic strength of the state through high quality education. It is equally essential that the able and highly talented youth is focused

LCCI Husan-e-Qirat competition, religious scholars Hafiz Amjad Ubaid and Hafiz Muhamamd Rafiq with LCCI SVP

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and concerted efforts are made to boost their abilities. In order to attain these objectives, LCCI formed Youth Development Standing Committee and nominated, Mr. Zulfikar Ali Badar as its Convener. The foremost aim of the Committee is to inculcate a spirit of active participation of youth in the betterment and the speedy progress of our economy.

The Committee aimed at listing difficulties facing our youth and suggested likely solutions including developing guidelines for effectively engaging our youth in socio-economic activities harnessing their abilities meaningfully. The Committee strongly felt that serious endeavors are needed to build a lasting bridge between LCCI and academic institutions for providing adequate support to our youth. It is hoped that this will play an instrumental role in their future development.

The Committee decided to prepare and hold technical and awareness courses, workshops and seminars with the aim of improving the educational skills of our youth and help them avail better, respectable and productive career opportunities. To attain this end, the Committee decided to establish a Youth Resource Centre at LCCI. The proposed Centre will help our youth better understand the link between their academic activities and the demands of the industry. The Committee, under the banner of LCCI, also decided to establish a Job Bank with the sole task of remaining constantly in touch with industrial sector and business houses for seeking jobs for skilled and semi-skilled youth. The Committee members took active part in the Lahore Shopping Festival 2011.

A group photo with President Mushad Chamber of Commerce & Industry 89

Research Reports

LCCI Research

RESEARCH REPORTS

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Research Reports

The Team Dr. Amjad Bashir Chief Economist Hassan T. Malik Joint Director Furqan Hanif Deputy Director Umar Farooq Deputy Director Nadia Abbasi Senior Data Analyst Co-authors: Mian Abdul Rehman Aziz Chan (Steel Report) Dr. Shahid Raza (Biotechnology)

Acknowledgement Special thanks to Sheikh Mohammad Arshad, Senior Vice President, LCCI and Agha Saiddain, Former Chairman Pakistan Tanners Association (PTA) and Convener Standing Committee on Environment, LCCI for their valuable contributions in Leather Sector Report.

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An Economic Analysis of Construction Industry in Pakistan In Brief Economies are built on the dynamism of construction industry that remains to be the key source of investment, l production, jobs and growth across all sectors of an economy. l Policy- and decision-makers look towards construction industry both during economic booms and bust alike. l Construction industry is vital for high long-term growth as it essentially depends on continuous improvement

in physical infrastructure for maintaining international competitiveness. Construction has also proven critical for economic revival because it has an unparalleled ability to create rapid employment. l Construction industry is often harnessed as a source of economic diversification because it creates countless

opportunities for new investment and business opportunities. l Construction is a big global industry worth US$7.5 trillion employing 100 million people contributing 13.5

percent to the world's GDP (2009) l Construction industry consumes almost 50 percent of world resources and more than 40 percent of global

energy while being responsible for 36 percent of all greenhouse emissions. l The industry has become a major source of export earnings for many economies which has given rise to a

number of construction giants offering wide ranging project design, implementation and delivery solutions.

Apart from services, many global construction firms trade in multi-billion dollar equipment and technology products. l Pakistan also has a large construction industry but it is mainly dominated by local housing sector. The industry

as a whole is still at its early stages of development and growth in view of the international experience. l The scope for construction sector growth and development in Pakistan is large and real given the per capita

consumption of cement in the country standing at 72 Kilograms as against the world average of 262 Kilograms. l Economic growth performance in Pakistan is greatly dependent on the health of construction sector as it has

highly diverse backward and forward linkages throughout the economy resulting in one of the highest investment and employment multiplier effects. l Construction sector growth oscillations in Pakistan lack modesty. This is partly due to persistence of economic

growth volatility in the country and partly due to lack of geographic diversification and internationalization of the local construction sector. l The construction has picked growth momentum in 2009-10 after correction in the property market during

oscillated between 24 percent in 2006-07 to a negative 11 percent in 2008-09. However, the sector has regained growth momentum after the bursting of property bubble and correction in valuations during 200708 and 2008-09. l The sustainability of growth in the construction sector will largely depend on the general economic recovery

as well as on the public-private collaboration and initiatives for the development and growth of the sector. l Part of the strategic efforts to revive the construction sector would entail improving access to finance and

greater reliance on Public-Private Partnerships.

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1. The Backdrop Construction industry has a unique economic status. Most economic activities either feed into or flow out of construction sector activities. The sector is vital for economic growth because it not only caters for all hard infrastructure needs of the economy and society but also leads to wide-ranging cross-sectoral investment and productive activities. Construction industry is known to have some of the most dynamic backward and forward linkages in the economy characterised by high investment and employment multiplier effects. Simply speaking, diverse services and manufacturing activities exist only to cater the demand of construction sector.

It is widely considered as an engine of rapid job creation world over. Job creation has always been one of the most important economic, social and political imperatives for policy- and decision-makers both in developed and developing countries.

The sector has proved to be a preferred choice of policy-makers aiming to bust recessions and engender economic revival capable of generating high long-term growth. Public works programs and projects appeared a common feature of economic development after the Great Depression of 1930s and subsequently during post-World War II reconstruction efforts. Lately, the economic importance of the sector was reinforced in United States where government relied on construction as part of heavily-funded public works program to tackle the Great Recession and unemployment that resulted from the global financial crisis of 2007.

Construction industry has become a conduit of competitiveness as it provides essential infrastructure which creates the base for an economy to operate from. This has led policy-makers in all developed as well as in miraculous growth economies of Southeast Asia and lately in the Gulf Countries focus on improving the productivity and efficiency in the sector. The Kingdom of Saudi Arabia (KSA) is great example of focusing on construction as a way forward for economic diversification. The Kingdom is investing more than US$250 billion in the construction of four new economic cities. Since construction is a labour-intensive activity, special attention is paid to workforce skill development.

2. The International Perspective The economic significance of the construction industry can be gauged by the fact that it is the biggest industry of the world. It contributes around one-tenth to the entire output of the global economy. Construction industry is also the biggest source of employment as it accounts for around seven percent of the total employed labour force of the world. It is estimated that almost 50 percent world resources are utilized in the construction industry. The sector consumes more than 40 percent of global energy. In European Union, buildings' share in energy stands at 42 percent while they are responsible for 36 percent of greenhouse emissions.

Construction is a big global business with US$7.5 trillion of output employing 100 million employees while contributing 13.5 percent to the world's GDP. US construction industry was worth around US$520 billion in 2010, almost three times the size of Pakistan's economy. It is also a major source of foreign exchange earnings for many countries. US, European, Chinese and Turkish construction firms are engaged internationally in building large and increasingly sophisticated infrastructure projects such as bridges, dams, tunnels, roads, railway tracks and airports as well as modern office space, shopping malls and residential estates. Turkish construction firms have more than US$160 billion worth of contracts in more than 80 countries around the world. Construction accounts for around 9 percent of the Chinese GDP employing around 7 percent of the total workforce. Construction industry accounts for around 8 percent of the total GDP of United Arab Emirates.

3. The Local Context The construction industry in Pakistan stands at the crossroads of either attaining a strategic edge for economic growth or become irrelevant from competitiveness standpoint. This is because Pakistan's construction industry remains backward despite having been accorded a priority sector status in 1992 by the federal government accompanied by various concessions, exemptions and remissions stemming from the prevalent investment regime7. This sector is mainly dominated by residential development activities.

The industry lacks modern knowledge and applications of construction materials, quality inputs, technical know-how and skills. Most of the construction technology in the country is obsolete. Construction skills including masonry and project management are basic and informal resulting in far too much wastage of time and material. The industry has failed to develop quality and efficiency standards and most construction 94

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Research Reports processes are not industrial. Growth is highly volatile and it is either very good or very bad. Construction sector growth oscillated between 24 percent in 2006-07 to a negative 11 percent in 2008-09. However, the sector has regained growth momentum after the bursting of property bubble and correction in valuations during 2007-08 and 2008-09. The sector showed a decent growth of over 15 percent in 2009-10 as compared to over 11percent contraction in 2008-09 (see Figure-1)8.

Figure-1: Construction Sector-Real GDP/GNP Growth Rates (%) Construction Sector - Real GDP/GNP Growth Rates (%) 30 25 20 15 10 5

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The industry contributed an annual average of around 2.5 percent to the GDP during the last decade. But the growth of the industry has been stagnant throughout the preceding decade (see figure-2). The sector has the capacity to create significant numbers of jobs especially in urban areas. It employs 6.6 percent of the total labor force of the country (see figure-3). However, a vast majority of construction workers do not engage in full-time activities. They also work at farms during sowing and harvesting seasons as well as in various other informal sector activities. In this situation, employers hesitate to invest in the workforce training and development. This translates into a major constraint to designing a suitable workforce development strategy for construction sector.

Figure-2 and 3

Construction Industry Share in GDP % 3

Employed Labour Force by Sectors (%) Others, 0.1 Services, 13.66

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Research Reports The general orientation of the construction industry is mainly domestic. Not many local firms are engaged in construction activities internationally. Local firms failed to competitively participate in the construction booms of Gulf Cooperation Council (GCC) economies of the last two decades. However, many international firms have benefited from construction opportunities in Pakistan. Construction-related foreign direct investment (FDI) witnessed an almost five-fold increase during 2000-01 and 2006-07 registering an annual average of US$65 million per annum during the last decade. Construction-related FDI increased during the high growth period of 2003-07 peaked to above US$150 million in 2006 before declining to US$26.7 million in July-December 2010 in the wake of low growth prospects (see Figure-4)11.

Figure-4: Construction Sector FDI (US$ Million) Construction Sector FDI (US$ Million) 200 160 120 80 40

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In view of the key features of international and local construction industry features, the sector in Pakistan is still at its early stages of development. Pakistan's per capita cement consumption is around 72 kilogram, lowest among developing countries. This is well below the world's average of 260 kilogram, 450 kilogram in China, 631 kilogram in Japan and 102 kilogram in India. This underscores the fact that the construction industry has a great growth prospects. The sector can readily benefit from various cost advantages including labour and raw materials.

Construction industry in Pakistan is the main source of growth in wide ranging economic activities. Most of the backward and forward linkages of the construction industry in Pakistan favour services (see Table-1).

Table-1 Key Construction-related Services Cabinet maker

Iron worker

Pipe fitter

Stonemason

Dogger

Cladding

Plastering

Tile setter

Waterproofing

Labour

Plumbing

Teamster

Stonework

Insulation

Roofing

Drainage

Cement Mason

Joinery

Rural building

Electrician

Bricklayer

Masonry

Sealer

Elevator Mechanic

Carpentry

Painting and Decorating

Steel fixer

Fire stopping

Air-conditioning

Heating

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Research Reports Many key manufacturing industries such as cement and steel making are established to cater for the needs of construction sector (see Table-2). Their growth is intertwined with the growth of construction sector. Industries that directly benefit from construction sector activities have a major role in the overall commodity producing sector of Pakistan's economy. These are strategic sector for the growth and development of any economy. These industries are major part of construction sector supply chain albeit a fragmented one and lack collaboration to meet the specific design and quality demands of the construction sector.

Table-2 Construction-related Industries Steel

Brick makers

Furniture

Tiles and Ceramics

Cables and wires

Wood

Glass

Marble and stones

Cement

Equipment/Machines

Lighting fixtures

Sanitary fittings

Pipes

Paints and chemicals

3.1Residential Construction Most of the construction industry in Pakistan is only geared towards servicing the housing sector. This is very much in line with global experience. Keeping this in view, Government of Pakistan designed a National Housing Policy (NHP) in 2001 offering attractive incentives to investors, builder and developers. The aim was to create an enabling environment for construction industry in the country. But most of the key objectives of NHP2001 have not been achieved concerning capacity-building and institutional development, empowerment of relevant stakeholders such as the local authorities, private sector and civil society to play an effective role in the provision of appropriate housing at affordable prices especially for low income urban and rural population. Housing backlog in Pakistan is estimated to be around 8 million despite an addition of between 300,000 and 500,000 new houses every year affecting more than one third of the entire population which is one of the highest in the region (see Figure-5)12. As a result, Pakistan has one of the highest rooms per capita in the region standing at 3.5. The housing supply and demand gap is exacerbated by lack of suitable housing products. The growth of housing finance is slow when compared with the regional experience (see Figure-6).

Figure-5 and 6 13 Housing Shortage in Pakistan Percentage of Population

Growth of Housing Finance 2007-08

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Research Reports Housing cost is a serious policy concern in the country. Federal and provincial government are working to provide to affordable housing to low-income families. This has been a long-standing social and political commitment of all governments since the early 1970s but its realization has been fraught with many challenges. Low-income housing cost in Pakistan ranges between US$9.6 to US$12.0 per square foot and from US$16.7 to US$19.1 per square foot for middle-cost housing is some of the lowest in the region14. But since the public spending on housing and works has been low and declining, widespread provision of affordable living space will remain elusive (see Figure-7). The current economic downturn is also weighing heavily on public spending for low-cost housing.

Figure-7: National Housing and Works Spending (PRs Million) National Housing and Works Spending (PRs Million) 6000 5000 4000 3000 2000 1000

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In the presence of chronically low levels of public spending and lack of affordable finance, NHP2001 has failed to achieve most of its strategic objectives. This includes attracting private investment for constructing affordable housing estates for low income groups despite offering highly attractive investment incentives (see Table-3). It is again mainly due to problematic access to finance. Mortgage finance is low covering 1 to 2 percent of all housing transactions in the country. This is despite the fact that commercial banks' share in housing finance increased from 10 percent in 2003 to over 70 percent in 200915. The gap is filled by informal lending that caters between 10 to 12 percent of such transactions.

Table-3 Investing in Construction Industry in Pakistan Presumptive Tax Regime

Housing and constructions companies shall be charged via Presumptive Tax Regime (withholding tax).

One Window Operation

Collection of levies like EOBI, Education Cess, Social Security, Professional Tax, etc. shall be made a one window operation.

Credit Facilities

Banks and DFIs shall extend credit facilities for Balancing, Modernization and Replacement (BMR) of machinery used for Housing and Construction Industry.

Exemption of Custom Duties

Import of plant and machinery and spares by the housing and construction companies, not manufactured locally, shall be exempt from custom and import duties in excess of 10%. This will be in accordance with Government notification declaring housing and construction as priority "C" industry.

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Research Reports Guarantees

Guarantees issued by "A" rated insurance companies approved by the Securities and Exchange Commission, in respect of earnest money, retention money, performance, maintenance and mobilization advance shall be accepted by various Government agencies, departments, etc. for implementing housing projects.

Stamp Duties

Stamp duties and registration fees shall be adequately reduced to an aggregate total value of 1% to enhance registration, improve documentation and increase revenue receipts.

Non-Utilization Fee

Non-utilization fee shall charge on annual incremental basis only after notified handling over of the development scheme by the development agency to the municipality.

Duties of Construction Materials

Duties and taxes on major construction materials shall be rationalized and reduced to make construction more affordable.

Level Playing Field

Local contractors shall be treated at par with foreign contractors in all financing matters i.e. guarantees and bonds, terms of payment, penalties, etc.

Source: http://www.nhagov.pk/

Cheap housing finance for low-income groups is mainly provided by the House Building Finance Corporation (HBFC) with average loan size of Rs.1.08 million as against Rs.2.29 million, Rs.1.75 million and Rs.2.68 million for private, public sector and foreign banks respectively16. But HBFC which is not governed by general banking supervision has also become a victim of mismanagement widespread in the country and is running high levels of non-performing loans on the back of political interference. However, the outstanding housing finance portfolio improved to Rs.68.60 billion in September 2010 as against Rs.76.66 billion in September 2009 or a decline of 10.51 percent. The total number of outstanding borrowers has also decreased from 115,959 to 100,214 since September 2009, a fall of 13.59 percent17.

3.2 Non-Residential Construction The non-residential construction sector activities include building of bridges, roads, airports, dams, hospitals, etc. Pakistan has not done well on building necessary physical infrastructure that not only connects the economy to international markets but also create new opportunities for investment, job creation and economic growth while enhancing overall competitiveness The private sector construction players in Pakistan have yet to develop capacity to design and deliver large and complex infrastructure projects This situation has partly resulted from low public investment in workforce training and development and partly due to lack of private sector interest viz-a-viz complex regulatory framework and institutional complexities despite a highly attractive investment regime (see Table-4). Low infrastructure development prospects forced countless civil engineering graduates and wide-ranging building technicians seek jobs in promising markets around the world.

Table-4 Investment Policy for Infrastructure Related Projects Equal investment opportunities for both domestic and foreign investors Government permission not required except specific licenses 100% foreign equity allowed Remittance of Royalty, Technical & Franchise Fee, Capital, Profits, and Dividends 5% Customs duty on import of PME not manufactured 50% Tax relief (IDA, % of PME cost) Foreign equity investment in the company or project shall be at least US$ 0.30million Source: Board of Investment, Pakistan

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Research Reports We believe that reviving private investment in infrastructure development would require a carefully thought-out strategic approach given the level of economic, political, financial and investment risks prevalent in the country. In this regard, encouraging Public-Private Partnerships would greatly revive largescale investment into infrastructure building. This will enhance the private sector role in the development of Pakistan construction industry. In this regard, the governance arrangements such as built-own-operate (BOO) and build-operate-transfer (BOT) need to be promoted. These efforts must be accompanied by the establishment of effective infrastructure development funds to ease access to finance. The government of the Punjab has decided to set-up Punjab Infrastructure Development Fund Company with an aim to mobilize resources to support large construction projects under PPP mode.

4.

Key Issues

l ? Mismatch between economic growth strategies and the development of construction industry – the

empirical analysis of Khan (2008) points to the existence of a strong relation between construction industry and growth in Pakistan. The analysis highlights the urgent need to put in place suitable policy framework to focus on the development of construction industry as a part of future economic growth strategy.

Construction industry as a whole has not been considered as a key source of high long-term economic growth in the country. Infrastructure development is accorded a degree of policy attention. But this is only a part of the story and which too cannot take place effectively without improving the overall efficiency of the entire construction industry. Low construction industry development can seriously prejudice growth and job creation. Housing market grew by only 1.3 percent during March 2008 to March 2009 in Pakistan19. l ? Low integration and supply-chain fragmentation – various construction industry activities ranging from

designing, contracting to sub-contracting lack integration. On the other hand, supply-chain itself is highly fragmented. This is a major binding constraint impeding a competitive development of the sector. Industry and trade associations have a clear role in overcoming the coordination failure and promote inter-firm learning to produce quality goods having harmonized standards and applications. l ? Regulatory and policy bottlenecks – the existing regulatory framework needs review and streamlining. It

is complex and cumbersome that encourages construction industry players to by-pass such hurdles in order to save compliance time and cost. Property registration, planning approvals and evaluation procedures need to be modernized. Tax policy for the sector is also not in line with its true role in the economy. As a result of presumptive taxes, the sector lacks documentation. l ? Poor standards and quality controls – construction standards and quality is generally very low. This goes

largely unchecked in the private sector construction activities where contractors and sub-contractors remain out of the technical evaluation. In the public sector construction activities, connivance between evaluating officials and contractors and sub-contractors is a major problem the past, trying to find projects and completing them without cost overrun was the main concerns of all involved parties, and the quality of construction was often compromised. A number of quality control requirements have been introduced lately, including a recently approved 'Quality Promoting Outline" issued by the Prime Minister to improve the production quality, construction quality and services quality. The outline programme covers measures to strengthen or improve quality consciousness. It is hoped that enhanced government attention would improve the construction quality. l ? Growing competition – the construction industry in Pakistan has become high competitive. It involves

competition between large players in the formal construction activities as well as between the formal and informal players especially at housing end of the industry. The informal sector has the ability to seriously undercut formal players on price and they cannot offer right quality proposition both in terms of materials and construction technology. The other aspect of the construction industry competition involves local and international players. Foreign companies have greater technical and financial resources. What greatly hinders a level playing field for construction industry competition is the role of state patronage being enjoyed by large players like National Logistic Cell and Frontier Works Organization. Competing against these national construction giants is a real challenge for private companies. This is because industry players lack confidence over the competitive bidding system for public infrastructure projects. We believe that state should not participate in the design and delivery of infrastructure projects because this will impede the growth of private sector-led construction industry development. Instead, there role should be limited to one of planning and facilitation.

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? Out-dated bylaws and building codes – ambiguity in building by-laws is also a major challenge for housing l construction industry. The sector's growth is constrained by the presence of unnecessary layers of complex and cumbersome approvals and verifications. These procedures are non-transparent and give rise to corrupt practices. l ? Increasing cost pressures – inflationary pressures are driving costs in the sector. The prices of land and

construction materials significantly increased during the property boom of last decade. Inflationary pressures remain unabated despite a major correction in property valuations which can erode growth and competitiveness of the sector going forward. l ? Low public infrastructure spending – the recent cut in the Public Sector Development Programme (PSDP)

484 projects worth Rs584 billion will also be a big challenge for the survival of Pakistani Construction Industry. l ? Absence of a well-trained and well-motivated workforce – construction industry is faced with a serious

skill deficit. Construction workforce including engineers, technicians, supervisors and labour lacks appropriate skills necessary to harness changing technologies. Poor construction project management skills are also low. A large number of qualified construction workers leave Pakistan every year.

5.

Key Recommendations

l ? Develop a National Construction Sector Development Strategy – strategic planning for construction

sector development is long-overdue. We recommend that any such exercise must fully engage the construction sector association for greater ownership. In this regard, All Pakistan Contractors Association (membership-294) and Association of Builders and Developers of Pakistan (membership-600). The strategy need to guide the capacity-building of employers, consultants and contractors as well as workforce including engineers, technicians and labor. l ? Reduce regulatory complexities and steps – harmonies the role of all government tiers, ministries,

departments and agencies as well as building by-laws in such a way that significantly reduce the overall cost of doing business. Currently, public agencies, development authorities, cantonment boards, tehsil administrations have their own often conflicting and complex by-laws. The regulatory framework needs a comprehensive review in line with the legitimate interests of the private sector in close consultation with the sector construction associations. The bidding process for public sector construction contracts needs to be more transparent and competitive. The process and cost of property registration needs to be reviewed to facilitate investment into the construction sector while removing discrepancies and variation. For example, Punjab and Sindh registration cost involve a 1 percent fees, a 3 percent provincial stamp duty and transfer fees on the property value along with a 2 percent Capital Value Tax. But in Islamabad, Capital Development Authority charges a nominal transfer fee of Rs.150 per square yard. l ? Invest in training and skill development of construction workforce – construction industry is confronted

with a dearth of skilled workforce. Most construction workers are not certified which makes quality assurance almost impossible to guarantee. Ensuring a skilled construction workforce would require substantial public investment in the education and training of project managers, engineers, technicians and workers to meet the growing competitive needs of the sector. l ? Develop quality assurance standards and ensure compliance – this is a key to drive integration of various

construction processes which is greatly lacking at present. Construction standards and compliance will encourage suppliers, consultants, contractors and sub-contractors to work in close coordination which will in turn help to improve the overall supply-chain in the sector. Efforts must be made at national levels to improve the production and supply system of construction materials needs with close regulatory monitoring. l ? Establish specialist public-private funds to improve access to finance – one of the most pressing

constraints to private sector-led development and growth of construction industry relates to access to finance. Construction is a highly risky venture as a result of which construction finance is not easily forthcoming. At the same time efforts must be made to overcome slow payments to contractors which constrain cash flows throughout the sector.

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Research Reports Table-5 Pakistan's Construction Sector: A SWOT Analysis Strengths •

Major economic sector

•

Favourable demographics

•

Decent number of annual engineering

Weaknesses •

Absence of a national strategy to tackle low technology, innovation and skill level in construction industry

•

graduates

Poor compliance of local and international quality, efficiency and safety standards

•

Abudance of low cost labour

•

Attractive investment regime

•

Fiscal, financial and tariff concessions

•

Availability of Public-Private Partnership mode

•

Sufficient availability of raw material and

•

Scant regards to environmental standards

•

Chronic lack of investment in workforce training

•

Lack of harmony in construction standards

•

Low productvity and high waste

•

Non availability of proper construction

natural resources •

Significant backward and forward linkages

industry data for future projection •

Opprtunities •

Growing needs of a developing economy and large population

•

Large and growing supply and demand gap

Weak project management

Threats •

Persistance of economic slowdown

•

Further downside risk to property valuations

•

Worsening of investor's political, regulatory

for residential and non-residential

and financial risk perceptions

infrasrtucture • •

Current and futute mega infrastructure

face of participation of foreign companies in

projects for new hospitals, dams, roads,

large-scale infratsructure construction

airports, air & sea ports etc •

Boom in construction activities in floods-

activities •

ravaged areas •

Large-scale housing development

•

Mega projects of hydro and coal energy

Lack of opportunities for local players in the

Continuation of upward pressures on prices of raw materials

•

Increase in regulatory burden

•

Lack of security in remote areas

generation •

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Some Competitiveness Insights into Pakistan's Pharmaceutical Industry In Brief l ? Pharmaceutical industry plays a crucial role in the development of a healthy society and economy. State has

a role to guarantee access to health service which can only be ensured with the help of a competitive pharmaceutical industry capable of producing safe, effective and affordable medicine to tackle known disease and new outbreaks. l ? The global pharmaceutical industry is dominated by companies based in advanced economies and their

growth and development owes a great deal to the presence of an enabling environment and state that actively supported their Research and Development (R&D) and innovation activities. l ? An enabling state and environment is greatly missing in Pakistan where the growth and development of the

local pharmaceutical industry is mainly the result of individual efforts and entrepreneurial spirit. l ? Pharmaceutical is one of the fastest growing sectors in Pakistan but has long been neglected by policy and

lawmakers as a result of which the industry contributes merely around 1 percent to the country's GDP. l ? The local pharmaceutical industry is valued around Rs.100 billion which is only 0.22 percent of the global

pharmaceutical industry estimated to have worth over US$825 billion in 2010 and expected to grow to around US$975 billion by 2013. l ? The industry structure is highly fragmented dominated by small and medium enterprises (SMEs) while 27

multinational drug companies have captured almost half of the local market despite being far less in numbers. l ? Nevertheless, more than 499 active pharmaceutical units are producing almost 55,000 products with annual

exports around US$1.6 billion and provide over 100,000 jobs nationwide. l ? Exports competitiveness of local industry is low in the presence of non-existent public support for R&D and

innovation as a result which Pakistani companies are faced with fierce international competition from countries like China, India and Brazil. l ? Legal, regulatory, institutional and infrastructure constraints as well as excessive control over prices are

seriously impeding the growth and competitiveness of local pharmaceutical industry. l ? The widespread production and sale of spurious drugs by unlicensed manufacturers under the garb of

homeo and herbal is also challenging the competitiveness of local industry while risking the health and economic well-being of millions and damaging the international image of Pakistan's budding pharmaceutical industry. l ? Apart from the urgent need for publically funded R&D support program, the regulatory reforms are also in

order especially involving the creation of Pakistan Federal Drug Regulatory Authority as in vogue in many countries worldwide. l ? The Ministry of Health (MOH) need to relinquish control over drug prices for improving growth and

competitiveness prospects of the local pharmaceutical companies and instead should limit its role to strategy and policy matters.

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1.

The Socio-economic Significance of Pharmaceutical Industry Pharmaceutical industry has a special significance for social and economic growth outcomes. Access to health services is a fundamental human right. Provision of health service is also a “public good� which cannot be entirely left to the private sector. However, effective provisioning of health services, disease prevention and responding to outbreaks greatly depends on an effective public-private partnership. In other words, private sector has a vital role in helping the state to ensure a suitable health service. To this end, state has a clear role in establishing right institutions and a framework to build R&D, innovation and manufacturing capacity of the private sector to become effective partner. Government-funded programs aimed at developing vaccines and their manufacturing and distribution through private sector is a great example of public good manifestations of health services and the role of the former as critical delivery partners.

Resultantly, health services and the role of pharmaceutical companies is accorded special place in the attainment of Millennium Development Goals (MDGs). The main aim of these goals is to reduce social, human and economic cost of deadly diseases preventable through timely access to safe, right and inexpensive medicines. In this regard, pharmaceutical industry takes unique prominence because their innovative drive to tackle known and new diseases that kill millions of people each year especially in developing countries. Local capacity to produce essential medicines is critical to achieving MDGs on health.

However, this also greatly depends on the quality of institutional framework and regulatory regime considered instrumental in ensuring safety, effectiveness and affordability of drugs.

The global drive to achieve MDGs has resulted in wide-ranging international collaboration to promote effective disease prevention especially in developing countries. Pharmaceutical SMEs have been quick to spot opportunities and often engaged in the production of generic drugs at the door step of end-users. But the drive to promote local manufacturing of essential drugs is fraught with many challenges including quality problems, lack of adherence to Good Manufacturing Practices as proposed by the World Health Organization (WHO); lack of access to finance and low-level involvement of capital markets; missing R&D support and weak innovation; mismatch in education, training and skill development system; regulatory, institutional and infrastructure bottlenecks; and the absence of modern labs and clinical testing facilities.

Pharmaceutical industry is characterized by low economies of scale and high technology-intensity. But competitiveness and investment return considerations require significant economies of scale as key to longterm growth and development. This calls for a special role for the state to ensure a suitable investment climate. In view of these challenges, United Nation's Industrial Development Organization has started a program for supporting companies that need feasibility and economic viability assessment for producing essential quality medicines effective against HIV/Aids, Malaria and TB. It also provides support for enterprise capacity-building to meet quality standards prescribed by WHO.

2.

Pakistan's Pharmaceutical Industry: A Strategic Growth Sector Pakistan has about 499 active pharmaceutical units producing more than 55,000 pharmaceutical products with annual export value standing at around US$1.6 billion. The industry provides over 100,000 jobs nationwide. This is a remarkable achievement given the fact that at the time of independence, pharmaceutical industry in the country was non-existent and medicine needs were met by imports. Six decades later, the local pharmaceutical industry was estimated to have been valued around Rs.88 billion (US$1.2 billion) albeit a mere 0.22 percent of the global pharmaceutical industry valued at over US$825 billion in 2010 and is expected to grow to over US$975 billion by 2013. This small-scale presence of Pakistan's pharmaceutical industry in the global market points to a strong but latent growth and development potential.

Countries India, Brazil and Mexico have made substantial inroads into developing a robust and exportoriented pharmaceutical industry (see Figure-1). India leads the Pharmaceutical market in South Asia, ranking 4th in the world in terms of sales. Countries like Russia, Turkey, South Korea and Mexico will be the new engines of growth for the global pharmaceutical industry set to experience robust expansion averaging between 13 - 16 percent over the next five years as compared to 12 - 14 percent in 2010. The pharmaceutical industry in China will grow by over 20 percent in the next few years. This highlights the fact that local industry will have a lot to catch-up to benefit from promising growth prospects for the global pharmaceutical industry.

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Figure-1: Pharmaceutical Market Size 2009 (US$ Billion) Pharmaceutical Market Size 2009 (US$ Billion) Pakistan 2007 Mexico Russia Brazil India China

0

5

10

15

20

25

30

The structure of the Pakistan's pharmaceutical industry provides some interesting insights into the dynamics of growth and competitiveness of the sector. The overwhelming majority of the country's pharmaceutical 525 companies are locally-owned while there are only 27 multinationals enjoying disproportionately higher share of the market in Pakistan standing at around 45 percent. Local companies are far greater in number but their market share is only a few notches better as compared to their foreign counterparts (see Figure-2).

The high level fragmentation of the local industry is a serious challenge for the growth and competitiveness of the entire sector going forward. This is especially so because the sector is dominated by SMEs who lack resources and strategic sophistication to respond to existing and emerging investment, R&D and innovation opportunities in the sector to better cope with fierce global competition.

Figure-2: Pakistan's Pharmaceutical Market (% Share)

Pakistan's Pharmaceutical Market (% Share)

45 55

Multinational Companies

National Companies

The challenges faced by the local pharmaceutical industry can only be effectively dealt with by putting in place a pragmatic legal, regulatory and institutional infrastructure. The pharmaceutical sector in Pakistan is regulated by the Drug Act, 1976. Partial deregulation during the 1990s led to some premature price increases that resulted in the return of constraining regulation. Little progress has been made on developing a suitable mechanism for pricing drugs since acceptable to stakeholders' majority. The proposed draft of National Health Policy 2009 (NHP2009) has merely raised the issue of drug pricing and it's monitoring but fails to offer clear guidelines on possible contours of any such mechanism.

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Box-1 The Drug Act 1976 l ? Regulates the import, export, manufacture, storage, distribution and sale of drugs l ? It covers the whole of Pakistan and Federally Administered Tribal Areas (including Export Processing Zones) l ? The State of Azad Jammu and Kashmir (AJ&K) has also adopted this Act and the jurisdiction of the Central

Licensing and Registration Boards constituted under this Act is extended to the territory of AJ&K l ? For the purpose of this Act a drug is defined in section 3 (g) and includes allopathic drugs, surgical ligature,

sutures, bandages, absorbent cotton, disinfectants, adhesive plasters, syringes, medical supply of stents etc. l ? The Act laid down the following rules including:

o

The Drugs (Licensing, Registering and Advertising) Rules 1976 – Provide the rules, procedures and conditions for grant of Drug Manufacturing Licenses, registration of drugs, promotion to the professionals and advertisement of drugs to the general public

o

The Drugs (Labelling and Packing) Rules, 1986 – Prescribe the manners in which a registered drug shall be labelled

o

The Drugs (Import and Export) Rules, 1976 – Provide procedures to import the finished drugs and the raw materials. The pharmaceutical raw materials can be imported by the holders of valid Drug Manufacturing Licenses and the registration of the respective drug

o

The Drugs (Appellate Board) Rules 1976 – Provide procedures for making appeals before the Appellate Board against the decisions of; 1) the Central Licensing Board; 2) Central Registration Board

o

The Drugs (Research) Rules, 1978 – Every licensee is required to pay 1% of his gross profit towards a Central Research Fund, administered by the Federal Government

o

The Drugs (Specifications) Rules, 1978 – Provide order of specifications which shall be applied to a registered drug

o

The Drugs (Federal Inspectors, Federal Drug Laboratory and Federal Government Analysts) Rules, 1976 – Specify duties of Federal Drug Inspectors and the procedures of the Government Analyst.

Source: www.dcomoh.gov.pk/downloads/booklet.pdf The draft NHP2009 is passive on dealing with problems relating to a fair pricing mechanism suitable for both manufacturers keeping in view their needs to engage in expensive R&D and innovation and the interests of end-users. At the same time, the issue of supervising homeopathic and ayurvedic medicine as well as controlling spurious drugs is not being effectively addressed. On the other hand, the draft NHP2009 raises the issues of excessive competition and unethical promotional and marketing activities of manufacturing but proposes no alternatives. Perhaps, the biggest flaw in the draft NHP2009 is that it has failed to address the needs of local pharmaceutical exporters and how they should be facilitated to achieve the US$500 million export target for 2013 as a promising source of augmenting the country's foreign exchange earnings. The draft NHP2009 is failing to focus on ways to enhance the capacity of local manufacturers to compete with the high-tech global pharmaceutical industry. In this situation, only low-end markets are open for the country's pharmaceutical exports (see Figure-3-4).

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Figure-3 and 4 Top Ten Exporters of Pharma products in 2009 (US$ Billion) Netherlands Ireland France Switzerland Germany

10

0

20

40

30

50

60

70

Top Five Export Markets for Pakistani Pharmaceutical Products (US$ Billion) 70 60 50 40 30 20 10 0

2005

2006

Afghanistan

2007

Philippines

Sri Lanka

2008 Viet Nam

2009 Netherlands

Pharmaceutical is a high investment, high-risk and high-return industry. In the presence of lack of policy focus to promote pharmaceutical industry as new engine of exports, Pakistan's inherent resource and geographical advantage is being increasingly marginalised. Increasing cost of production and already high cost of doing business is rendering the sector uncompetitive when compared with export performance of countries like India and China (see-Figure-5). Nevertheless, Pakistan's pharmaceutical exports have shown consistent growth over the last 5 years (see-Figure-6). This is despite facing binding infrastructure, innovation, R&D, institutional, financial and regulatory constraints.

Figure-5: Comparison of Pharma Exports 2009 (US$ Billion) Comparison of Pharma Exports 2009 (US$ Billion) Pakistan

China

India

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2

3

4

5

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Figure-6: Pakistan's Five Years Exports of Pharama Products (US$ Million) Pakistan's Five Years Exports of Pharma Products (US$ Billion) 200 150 100 50 0

2005

2006

2007

2008

2009

The mushroom growth of local pharmaceutical SMEs in particular and their primary preoccupation with the production of copycat drugs and the recent export performance of the sector highlights the need for developing a better understanding of the key drivers of growth in the global market. The local industry need to increase its R&D expenditures to between 10 – 20 percent of their sales to effectively engage in developing new products that can be helpful in tackling health risks associated with the discovery of new sources of diseases. Enhanced R&D is critical for growth, competitiveness and development of the local pharmaceutical industry that can not only effectively respond to new disease outbreaks but also produce drugs that can tackle mutation of bacteria and viruses. But given the current development stage of Pakistan's pharmaceutical industry, the government should play an active role in promoting joint ventures between local and international companies to ensure rewarding R&D and innovation activities in the sector viz-a-viz diseases common in the country such as dengue fever, diabetes, hepatitis C, lung cancer, malaria, eye ailments, and AIDS.

3.

Global Challenges to Pharmaceutical Industry Local pharmaceutical industry needs to pay attention to drivers of change, growth and development in the sector internationally. At the global level, the pharmaceutical industry is undergoing a far-reaching structural shift in the presence of complex and inter-twined drivers of change stemming from pressures to cut costs to remain competitive in an environment of economic slowdown and highly indebted governments reviewing and reducing health care funding (see Figure-7). Resultantly, pharmaceutical industry is shedding jobs to remain competitive. Around 28,000 jobs were lost in the global Pharmaceutical sector in 2008 alone. GlaxoSmithKline reduced its total workforce by 6 percent, a loss of about 6000 jobs, in February 2009. Three fundamental drivers of change namely globalization, demographic balance dominated by growing 60 years plus population and an increasingly shrinking product pipeline faced with the expiry of a large number of patents in the next 3 – 4 years have resulted in a frenzy of activities to rethink strategies to cope with changing investment and business conditions.

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Figure-7: Global Challenges to Pharmaceutical Industry

Global Challenges to Pharmeceutical Industry

Prices

Margin Squeeze

Cost

Technology

Expensive R&D

Ethics

Shrinking Product Pipeline

Globalization

Demographics

Source: From the authors (2011)

Pharmaceutical industry traditionally based in the most advanced economies has now to contend with competitors globally especially from the countless manufacturers of generics based in developing countries in particular, courtesy of globalization. India accounts for 20 – 24 percent of the global generic drugs' production and 40 percent of the total produce is exported. In this situation, the expensive and highly-risky R&D and innovation activities of large global pharmaceutical companies are losing financial and economic viability. As result, these companies are finding it very difficult to strengthen their product pipeline to cater for new outbreaks and increasing demand for medicine to care for aging population of 60 years plus in advanced economies. Large pharmaceutical companies that spent heavily in R&D, innovation and its commercialisation are increasingly focusing on improving the productivity of these activities in the wake of growing cost pressures and growing popular opposition to unethical clinical testing practices.

Global pharmaceutical giants are now pooling resources including knowledge and technology to fund R&D. The challenge for regulatory authorities worldwide would be to ensure that such collaborative initiatives of global reach based on sharing of resource and knowledge primarily aimed at cost-cutting do not compromise safety and quality. The key drivers behind the shift include pressures to simultaneously cut prices and tackle cost resulting in substantial squeeze on margins. This is particularly challenging for industry as a whole given the highly capital- and technology-intensive nature of their business model.

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4.

Local Challenges to Pharmaceutical Industry Pakistan's pharmaceutical industry experienced mushroom growth over the last decade especially on the heels of global generics revolution. This has resulted in a highly fragmented industry structure. Most manufacturing activities are concentrated on the lower end of the drug spectrum. Low value drug manufacturing that requires little or no R&D and innovation has taken strong roots. Most companies now hesitate to take part in inherently high-risk investment in R&D. On the contrary, the phenomenal growth of pharmaceutical companies originating from advanced economies has been based on their high R&D spending.

The United States of America (USA) is the world leader in the Pharmaceutical Industry, with 8 out of the top 15 companies headquartered in the US. Novartis, a Switzerland based company, leads the world pharmaceutical market with revenues topping US$53 Billion in 2008, followed by the US-based Pfizer. State in these countries has played a major role in channelizing funds for essential R&D to tackle disease and the menace of mutation. This has not been the case in Pakistan. Despite that, the growth of local pharmaceutical industry is miraculous.

However, the need for the state to help local industry to enter into a new phase of growth based on improved competitiveness has never been so pronounced, vital and critical than today. This is in the perspective of complex and long-standing nature of challenges impeding the development of local drug manufacturers (see Figure-). Apart from the combined absence of R&D support and robust intellectual property rights, the local industry is faced with regulatory risks and unfair control over prices that are particularly undermining the survival of a vast majority of pharmaceutical SMEs while impeding the globalization of growth companies in the sector.

The MOH acting as a super-regulator have failed to ensure suitable price, fiscal and financial incentives to help these companies become innovative and competitive. Despite heavy regulatory burden, spurious drugs producing infrastructure remains intact at the cost of companies making efforts to grow on the basis of innovation. The society and economy continues to bear heavy cost of regulatory shortcomings and failure to address these unethical and criminal tendencies compromising health of millions and the global image of local industry.

Box-1

Local Challenges to Pharmaceutical Industry Low Skills

Low Innovation

Financing

Regulation

Low Technology

Infrastructure

Highly Fragmented Industry Weak Intellectual Property Rights

Absence of R&D Support

Source: From the authors (2011)

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Research Reports Spurious medicines are widely available in Pakistan. According to the WHO, Pakistanis spend 77 percent of their household income on medicine half of which are considered unsafe. Spurious drugs manufacturing activities in the country are flourishing in the presence of weak intellectual property rights. Patents are routinely violated. In some cases, MOH has registered generic drugs as patent protected drugs. The future growth and competitiveness of the local pharmaceutical industry greatly depends on how the existing institutional and regulatory framework is reformed to address these problems. In this regards, Pakistan can certainly learn a great deal from existing regulatory models especially in the United States of America (USA) (see Box-2).

Box-2 Regulatory Regime - USA The United States' Federal Drug Authority (FDA) regulates the human and animal drugs for ensuring safety, efficacy and security with an aim to protect public health in USA. FDA's ambit also allows it to regulate biological products, medical devices, cosmetics and food items that pose any risk to life. FDA is actively involved in promoting innovation in producing medicines to make them more effective, safe and affordable.

It also arranges public awareness campaigns to ensure drug-use is greatly based on advance understanding and information. The manufacturing, marketing, distribution and use of tobacco products are also regulated by FDA. The Authority is also responsible for protecting food supplies and ensures medical goods are available in case of terrorism.

Growing inadequacies of physical, smart and energy infrastructure is exerting pressures on the competitiveness of the local industry as it increases the cost of production while squeezing margins. MOH's failure to revise prices of pharmaceutical products accounting for inflation has eroded the sector's overall investment proposition both for local and international investors. Public funds are scarcely available for R&D. This is despite the 1 percent contribution from companies' profit to the R&D Fund of the MOH. Moreover, the recent decision to decentralise health services to provinces has added another layer of potential regulatory and policy risks giving rise to concerns that it may compromise safety, quality and prices of drugs.

Box-2 Strategic Recommendations l ? Ensure a suitable price revision mechanism – in order to strike a suitable risk-reward balance in the best

interests of both manufacturers and end-users, MOH needs to put in place a workable mechanism to facilitate periodic revision of prices. Without getting incentives right, the local pharmaceutical industry cannot improve its overall competitiveness including the quality and safety of drugs. l ? Ensure competition do not compromise safety and quality – given the highly fragmented industry

structure, MOH needs to ensure that the drive to remain profitable and to maintain and increase market share local pharmaceutical companies do not enter into a price war that may lead to neglect of safety and quality. l ? Guarantee robust intellectual property rights – the sporadic violation of patent laws must be checked to

ensure robust property rights. Intellectual property is the key asset in this business and it must be protected from all infringements. Distinction must be maintained between generic drugs and patented products. l ? Support R&D and innovation activities – public-private partnership model should be used to encourage

R&D and innovation activities in the sector. These efforts must be backed by a sufficiently funded pool of resources to support and share the risk of R&D activities. Local firms should also be encouraged to forge partnership with their multinational counterparts to benefit from new knowledge, technology and access to promising markets. But this can only be possible if an appropriate incentive framework is offered to encourage such joint ventures. l ? Support the establishment of large common clinical testing facilities – these facilities are necessary to

ensure local manufacturers improve efficacy of medicines. Pakistan lacks skills for clinical testing and lags far behind in the adoption of new cutting-edge drug testing and manufacturing technologies. As a result, local firms are not producing medicine effective to fight various permutations of widespread disease both in Pakistan and beyond.

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l ? Establishment of Pakistan Federal Drug Authority – we propose the establishment of “Pakistan Federal

Drug Authority” as main regulator of pharmaceutical industry on the model of FDA in the USA. A similar model is also in vogue in India. MOH's role should be limited to strategy and policy formulation only.

Figure-9: Pakistan's Pharmaceutical Industry: A SWOT Analysis Pakistan's Pharmaceutical Industry: A SWOT Analysis Weaknesses

Strengths •

Absence of a a coherent national health strategy to overcome technology, innovation and skill gaps

•

Poor compliance of local and international quality, efficiency and safety standards

•

Chronic lack of investment in workforce training

High overall turnover

•

Little or no government support for R&D

•

Sufficient availability of raw material and natural resources

•

Lack of Research and Development

•

Poor price incetive

•

Increasing adhearnce to international safety and quality standards

•

Low per capita drug spending

•

Scant regards to environmental standards

•

Lack of one-molecule one price

•

Misuse of transfer pricing mechnisim by multinationals

•

High-tech orientation

•

Growing number of pharmacy graduates

•

Availability of low cost labour

•

Favourable Demographics

•

Growth in the demand of products

•

Presence of multinational companies

•

Opprtunities •

Growing needs of a developing economy and large population

•

Growing needs of Flood affected victims

•

High industry growth rate

• •

Threats •

Persistance of economic slowdown

•

Further downside risk to global economy

•

Worsening of investor's political, regulatory and financial risk perceptions

Rising export turnover

•

Strong quality assurance and regulatory departments

Continuation of upward pressures on prices of raw materials

•

Increase in regulatory burden

•

Availability of international aid

•

•

Potential market for foreign investment

Transfer of Ministry of Health from federal to provincial government

•

Export target of US$500 Million by 2013

•

Documentation barriers for new entrants

•

Depreciation of Pakistani rupee against the dollar, increases cost of imported raw materials

•

Increase in the cost of production while product prices remain the same, reduces profit margin

•

High Tariff

Source: From the authors (2011)

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The State of Small and Medium Enterprises in Pakistan In Brief Entrepreneurship, innovation and the process of firm creation remains one of most extensively researched l areas of economics and policy studies because these issues are widely considered as key determinants of high long-term growth l ? The presence of small and medium enterprises (SMEs), their growth, productivity and competitiveness as

well as the rate with which they may fall by the wayside provides invaluable insights into socio-economic and cultural dynamics of any nation l ? Targeting SMEs' development is favored for its potential employment and investment multipliers and social

impact l ? The international experience shows that SMEs are the major source of growth, employment, value-addition

and exports not just in advanced but also in low- and middle-income economies l ? In line with the experience of industrialized countries, high growth and miracle economies of Asia also

successfully harnessed the economic potential of SMEs to support their competitiveness drive while lifting countless people out of exclusion, deprivation and abject poverty l ? The overwhelming majority of Pakistani firms are classified as SMEs which tells a great deal about the

underlying entrepreneurial streak of the country's social system having significant tolerance level for innovation and commercialization of new business ideas l ? The tolerance level for business failure is much lower in Pakistan when viewed in the perspective of

international trends l ? Pakistani SMEs are the real backbone of the country's economy viz-a-viz their share in the economy, growth

and employment but their true potential is still unrealized because of low level of productivity, competitiveness, skills and technology l ? SMEs support in Pakistan is fragmented, opaque and lagging behind the international best practice l ? The cost of doing business for SMEs is still very high and the existing policy framework has largely failed to

overcome binding legal, regulatory, institutional and infrastructure constraints l ? Lack of access to finance, high cost of borrowing, energy crisis and security situation continues to weigh

heavily on the international competitiveness of SMEs hindering their penetration into the high-quality and high-value global supply chain l ? SMEs are not accorded sufficient support for effectively responding to existing and emerging competitive

opportunities driven by innovation, new technology and changing market conditions and consumer taste

1.

Introduction: the Social and Economic Context Creation and development of firms reflects the true dynamism of a given economy and society. As a result, the creation of firms and their exit especially involving SMEs have long been a subject of academic and policy debate. The issue is not just limited to the impact of new investment and employment but also points towards a society's overall approach on entrepreneurship and innovation, inherently high-risk activities.

Many successful entrepreneurs and innovators have failed more than once. Present day advanced economies where entrepreneurship and innovation is deeply embedded in the social system have a much higher level of social, economic and legal tolerance towards business failure. Policy-makers in these countries actively encourage potential entrepreneurs wanting to commercialize new ideas and seek competitive opportunities despite previous failures.

In Pakistan, the strategic approach to SME development is not focused enough to encourage large-scale firm

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Research Reports creation and their development partly because of institutional weaknesses and partly because of social attributes. Public sector jobs are still widely considered as potentially lucrative and secure. The society's tolerance towards self-employment is relatively higher than tolerance towards failure of new ideas and investment. Policy framework for promoting entrepreneurship and innovation lacks supporting financial, legal, regulatory, institutional and organizational paraphernalia. Mainstream banking channels are highly conservative and risk-averse towards financing new firms despite the presence of suitable policy directives.

The concept of business support to SMEs is fragmented and opaque. Although, Pakistan fares well on cost of doing business especially in the regional perspective but it is still very high for SMEs. Contract enforcement and dispute resolution is cumbersome and expensive. Above all, support for linking with global supply chain is non-existent. Export promotion system is failing to help local SMEs go global.

2.

SMEs and Economic Growth SMEs represent the true wherewithal of an economy to expand sustainably. The role of SMEs in growth and job creation is well-established and their presence is valued as an important source of economic and social development both in advanced and developing economies. SMEs are the real grassroots of economic growth. The birth and development of SMEs also sheds light on the entrepreneurial streak of a given society and its business community. This is because most SMEs are established by true risk-takers trying to commercialize their business ideas often without much financial and institutional support especially in developing countries.

The experience of advanced economies in supporting SMEs is rather different. Policy-makers in these economies use a wide-variety of tools to help SMEs grow and become competitive. Public sector procurement, business support, university-industry linkage for spinning-off SMEs and the availability of venture capital as well as an encouraging mainstream banking channels support start-ups and growth of SMEs and helping them become high-tech and global. The experience of developing countries is somewhat mixed. Southeast Asian economies have successfully harnessed the outreach of SMEs for lifting large population out of economic exclusion and poverty. China and India are leading examples of public support for SMEs and effectively harnessing their employment and export potential. In the case of Pakistan, SME support mechanism is largely cosmetic, piecemeal and complex.

Without taking a systematic and strategic approach to SME development, their role in economic growth and social uplift cannot be enhanced. The key policy message here is to ensure large-scale efforts for encouraging entrepreneurship and new start-ups with the help of an effective support system for existing and new companies to grow systematically as depicted in the following SME Development Ladder (see Figure-1). This will create countless economic opportunities especially for young entrepreneurs. It will help reduce poverty and tackle social exclusion and regional disparities.

Figure-1: SME Development Ladder Support Internationalisation

SME Development Ladder

Promote Innovation and technology Support growth companies

Economic Activities

Promote entrepreneurship

Youth

Support business start-ups

Jobs

Support existing businesses

Source: From the authors (2011)

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Research Reports Developing countries like Pakistan can greatly benefit from making SME development a key pillar of their economic development strategies with an aim to improve productivity and competitiveness of enterprises (see Figure-2). Economic policy should focus on the need to embed an enterprise culture through academia, business and trade associations through creating conducive environment for SMEs on the basis of getting policies, institutions and organizations right. These partners can provide vital support for identifying institutional, organizational and infrastructural gaps and to improve SMEs support and for effectively overcoming these shortcomings. It requires a set of right policies, financing and skill development framework to support SMEs in a systematic and sustainable manner. The government, industry and academia have a shared role in the development SME and in improving their productivity and global competitiveness.

Figure-2: SME Development Environment

SME Development Environment

Productivity

Economic growth strategy

Competitiveness

Right policies

Right institutions

Right infrastructure

Right finance

Right organizations Physical Academia

Right skills

Digital

Utilities Associations

3.

The Development SMEs: Some International Insights SMEs are a major source of employment, value-addition and economic growth internationally. In many industrialized economies, SMEs' contribution to Gross Domestic Production (GDP) and total employment stands around 55 percent and 65 percent respectively. The contribution of SMEs to economic growth in middle income countries stands most prominent accounting for 70 percent and 95 percent of the GDP and total employment respectively. In low income countries, SMEs and informal enterprises contribute 60 percent and 70 percent to the GDP and employment respectively (see Figure-3).

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Figure-3: SMEs Share in GDP and Employment (%)

SMEs Share in GDP and Employment (%) 100 80 60 40 20 0 High Income Group

Middle Income Group

GDP

Low Income Group

Employment

The overarching role of SMEs in economic output and employment can be gauged by the experience of the Japanese economy. In Japan, SMEs are not only greater in numbers when compared with their large counterparts but also provide most jobs and represent major chunk of the manufacturing output (see Figure-4). It also points to the fact that high-tech manufacturing in Japan greatly depends on the activities and vibrancy of SMEs.

Figure-4: SMEs and Large Enterprises in Japanese Economy

SMEs and Large Enterprises in Japanese Economy 160,000 140,000 120,000 100,000 80,000 60,000 40,000 20,000 0 Number of Enterprises (thousands)

Number of Employees (thousands) SMEs

Value of Shipment In Manufacturing (billion)

Large

South Korea is another leading example of an economy heavily dependent on the growth and development of the country's SMEs for its overall economic health. The role of South Korean SMEs in the economy can be gauged by the fact that these enterprises account for 99.9 percent of all economic establishments and provide around 88 percent of all jobs. Korean SMEs account for majority of the value-addition standing around 50.8 percent and 48.7 percent of total manufacturing output (see Figure-5).

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Figure-5: Share of SME in S. Korean Economy Share of SMEs in S. Korean Economy 14,000.000 12,000.000 10,000.000 8,000.000 6,000.000 4,000.000 2,000.000 0 No of Companies

No of Employees Total

Value Added in Manufacturing

Output Produced in Manufacturing

SMEs

Korean SMEs have been the decisive force behind the country's export performance. The share of SMEs in total exports ranged between 30 percent and 43 percent (see Figure-6). Korean SMEs are high-value exporting enterprises that have cultivated research and design networks internationally. This helps them to better understand changing market conditions and consumer demand. Resultantly, these enterprises have successfully positioned themselves to benefit from new competitive opportunities stemming from changing tastes.

Figure-6: Share of Korean SMEs in Total Exports (5)

Share of Korean SMEs in Total Exports (%) 45 40 35 30

20 09

07 20

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In India, there are over 26 million SMEs. Nearly 90 percent of the Indian industrial units are SMEs contributing around 40 percent to the overall industrial output of the country. Much in line with experience of South Korean SMEs, Indian SMEs contribute almost 35 percent to the country's industrial exports. Chinese SMEs have also played a critical role in the miraculous economic growth of the country. China has more than 4.3 million SMEs that contribute around 58.5 percent to the GDP and 50.2 percent to the country's total tax revenue.

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4.

SMEs in Pakistan: the True Entrepreneurial Drive Pakistan's economy is mainly dominated by SMEs most of whom are operating in or with the informal sector.

Majority of these SMEs are engaged in low-innovation, low-technology, and low-skill activities. It is believed that only around one-fifth of Pakistani SMEs are manufacturing enterprises pointing to their low level of backward and forward linkages to the economy. Resultantly, majority of the local SMEs are producing traditional low value-added items as a result of which they have failed to become part of the global highvalue high-quality supply chain.

The most worrying sign regarding the state of SMEs in Pakistan relates to the decline in the share of smallscale industry in GDP during the last decade (see Figure-7). Their performance remains lackluster and well below the levels achieved at the beginning of last decade with growth rate stagnant long after the reversal of serious contraction during 2004-05 (see Figure-8). It is worth mentioning that small-scale industry failed to benefit from high growth interregnum of 2003-07 which point to their low linkages with the economy.

Figure-7-8: Sectoral Share GDP (%) small Scale Industry, Growth Rate-Small Industry (%) Sectoral Share in GDP (%) Small Scale Industry

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Growth Rate-Small Industry (%) 15 10

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Box-1 SMEs in Pakistan: Some Stylized Facts l ? Pakistan has over 3.2 million economic establishments l ?

More

than 90 percent of these enterprises are SMEs mostly based in the industrial sector employing fewer than 5 workers

l ?

Only 4 percent employs between 6 and 50 workers l ?

Companies having workforce of 50 or more are only 1,617. l ?

The population of large enterprises mainly based in the textile sector employing more than 1,000 workers is

very small l ?

Around 67 percent of these enterprises are bases in the Punjab l ?

Around 17 percent of these enterprises are based in Sindh followed 14 percent in KPK and Balochistan 2 per

cent l ?

SMEs provide 80 percent of all employment l ?

Pakistani SMEs employ 78 percent of non-agricultural workforce l ?

SMEs contribute 25 percent to total exports and account for 35 percent of manufacturing value addition l ?

The contribution of SMEs to the entire economic output stands around 30 percent l ?

Mainstream banking channels provide only 7 – 8 percent of the total SME finance l Around 57 percent of new investment by SMEs and 67 percent of their working capital comes from internal

sources Source: World Bank (2009) and Ministry of Finance (PRSP-II)

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Research Reports The SME Policy 2007 (the Policy hereafter) guides SMEs development in Pakistan. The Policy takes a longterm perspective on the role of SMEs in job creation and economic growth (see Box-1). It aims to remove key binding constraints to the development of SMEs in the country. However, it falls short on targets and on assigning clear organizational responsibilities. The key classic dilemma with the Policy is the perennial weakness in the implementation mechanism of the country which is partly due to lack of targets and partly due to the absence of political and bureaucratic will. The overarching bureaucratic control over implementation is at the heart of challenges relating to the implementation of the Policy.

Box-2 Pakistan SME Policy 2007 l ? The key objective of the Policy is to provide a short and a medium to long- term policy framework with an

implementation mechanism for achieving higher economic growth based on SME-led private sector development l ? The Policy uniformly defines SMEs in all sectors of the economy l ? The Policy aims to overcome binding regulatory, institutional and support constraints to SME development l ? Special focus is placed on SMEs support for investment in marble and granite, gems and jewelry, furniture

and dairy products with greater reliance on enlarging the scope for public-private partnerships Source: SME Policy, 2007

The Policy has had little impact over improving the general business environment in the country. It has failed to ensure variations in SME definition are removed. Pakistan still has to make further improvement in the legal, regulatory and institutional environment in the country despite having achieved substantial progress especially in the regional perspective. This has special significance for SMEs because high cost of doing business hurts firm creation and their growth process. According to the World Bank's Doing Business report which excludes the informal sector which is very useful for understanding business environment particularly for SMEs in the country, Pakistan has done rather well when compared with many developing countries. In cost of doing business, Pakistan ranks 83rd as compared to 107th position for Bangladesh and 134nd for India out of 183 countries. In terms of ease of closing businesses and obtaining credit, Pakistan ranks 67 and 65 respectively out of 183 countries.

Despite a reasonably decent performance, access to finance remains highly complex and most mainstream banking channels shy away from start-up finance due to lack of credit history, immovable collateral, documentation and awareness. Banks even hesitate to issue unsecured loans to SMEs worth up to Rs.3 million as allowed by SBP's prudential regulations. Majority of SME lending is based on collateral (see Figure9). Access to small loans goes through more than two dozen different procedural steps. SMEs' share in total lending accounts for 16 percent which is only 4 percent of total customers. SMEs also remain outside the formal capital markets in Pakistan unlike many advanced economies that cater for special financing needs of growth SMEs. The legal, regulatory and organizational set-up is still not geared towards facilitating SMEs gain easy and low-cost credit.

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Figure-9: Clean vs Collateral Based Lending to SMEs (billion)

Clean vs Collateral Based Lending to SMEs (billion) 350 300 250 200 150 100 50 0 Dec-09

Mar-10 Clean Facility

Jun-10

Sep-10

Collateral Based

Pakistan has to do a great deal of work to improve the enforcement of contracts involving procedures, time and cost. It takes 47 procedures for contracts enforcement in Pakistan compared to 21 in Singapore and around an average of 976 days for settling a contract dispute as compared to 150 in Singapore. The cost of contract settlement is somewhat lower in Pakistan standing at 23.8 percent of the total value as compared to 25.8 percent in Singapore.

The organizational and institutional framework for SME development in Pakistan needs complete rethinking. Organizations like Small Business Support Fund (SBSF), the Agribusiness Support Fund (ASF), and the Competitiveness Support Fund (CSF) have not been successful in improving growth and competitiveness of SMEs as envisaged in the concept behind their establishment. It is believed that these generously donor-sponsored programs have wasted important opportunities in providing strategic guidance to SMEs to take advantage of local strengths and global openings. Despite years of aid in these areas from a major foreign donor as well as from a multilateral development bank, Pakistan neither has a national Competitiveness Strategy nor is there a cohesive business support framework to help SMEs become dynamic and competitive at the global marketplace.

The absence of a comprehensive and widely available business support infrastructure remains a fundamental flaw in the existing approach to SME development. Pakistan established the Small and Medium Enterprise Development Authority in 1998 to guide and support SME development in the country (see Box3). But SMEDA has not been an effective organization in providing competitiveness and growth tools to SMEs. Instead, it spent far too much effort and resources on its feasibility reports' binge without much demand. There are no reliable evaluations and estimates available to assess the extent to which these straightjacketed feasibility reports were actually adopted by potential investors with or without modifications. This made SMEDA a passive information provider failing to facilitate SMEs become productive, competitive and global.

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Box-3 SMEDA Objectives l ? Policy formulation to encourage the growth of SMEs and advise the Government on fiscal and monetary

issues relating to the development of SMEs l ? Providing business development services to SMEs l ? Facilitate the development and strengthening of SME associations and chambers l ? Manage database of service, machinery and other suppliers of SMEs l ? Conduct sector studies and design sector development strategies. l ? Facilitate SMEs on access to finance l ? Capacity-building of SMEs through seminars, workshops and training programs. l ? Implement donor-assisted programs and projects for SMEs l ? Assist SMEs in getting international certifications l Identify opportunities on the basis of supply/demand gap Source: SMEDA

Despite laudable objectives of the Policy and SMEDA, substantial gaps remain in place in the provisioning of SME business support. We believe that widespread availability of adequate business support services can help SMEs become more productive and competitive. This is essential to encourage entrepreneurship and firm creation. Business support infrastructure helps businesses gain better understanding of the fiercely competitive and volatile local and global market place. Effective business support in many countries has been critical to the survival, growth and internationalization of SMEs. Global SMEs have become an essential feature of the present day international trading environment. But Pakistani SMEs that can be classified as truly international are few and far between. The Policy lacks focus on internationalization of local SMEs and organizational and institutional wherewithal to support any such drive.

We propose the provisioning of mainly publically funded business support services for SMEs in line with international best practice to help businesses understand new sources of innovation, technology, hiring, networking and access to finance as well as knowledge about suppliers and markets (see Figure-10). We believe there is serious lack of awareness on these issues. In many countries, business support now also includes the provisioning of incubator and warehouse space. Business support has a special role in facilitating inter-firm networking, learning and development of special or sector specific skills. It also encourages university-industry linkages that are critical for innovation and its commercialization. In this regard, efforts should be made to encourage private sector role in providing business support services which will lead to innovative practices in this area.

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Figure-10: Key Elements of Business Support Infrastructure

Access to Finnace

Advice

Hiring

Technological Upgradation

Key Elements of Business Support Infrastructure Training

Innovation Support

Market Knowledge

Source: From the authors (2011)

5.

Key Issues

l ? Fragmented approach to SME development – the current policy framework has gaps in assigning clear

institutional and organizational responsibilities for the development of SMEs. Multiple public sector organizations are working in this area without much coordination often resulting in duplication of efforts and waste of resources. Apart from the involvement of multiple federal government ministries and authorities and institutions trying to promote SMEs, a wide-ranging provincial departments and bodies are also attempting to do the same. None has a specialist role. The role of SMEDA and Punjab Small Industries Corporation (PSIC) has common characteristics. Both organizations are working in the same areas without coordination and consultation. The objectives and line of action of both public sector organizations overlap. l ? Weak marketing support – SMEs in Pakistan are not accorded strong public support for marketing. Local

marketing channels are not organized and are expensive often beyond the reach of most SMEs. Pakistan's international marketing infrastructure is weak. Export promotion and trade diplomacy is piecemeal at best.

SMEs are not actively supported to participate in international fairs and exhibitions. Trade delegations are not properly coordinated. SMEs are not supported to harness online marketing and websites are not bilingual which means a great majority of the consumer base outside the English speaking world are not directly targeted. l ? Lack of information about overseas markets and consumer trends – the absence of a systematic

information collection and dissemination is hindering local SMEs connect to highly demanding global supply chain. Local SMEs lack information on key aspects of doing business in the international market place especially relating to intellectual property rights and labor and environmental compliance. l ? Low brand power – current SME development strategies have failed to focus on promoting “Made in

Pakistan” as a strong brand in the international market place. “Made in Pakistan” carries a lot of negative connotation regarding business ethics in general and especially relating to labor and environmental

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Research Reports standards. As a result, local SMEs are deprived of benefitting from this essential brand power. Brand development is one of the most expensive aspects of marketing. SMEs often lack their own strong brand recognition which makes them rely upon national brand. This is greatly missing. l ? Obsolete technology – SMEs in Pakistan make little investment in technology as a result of which they lack

productivity as well as cost and quality competitiveness. SMEs' production strategies remain labor-intensive.

Technological up-gradation is costly for all firms irrespective of the size. It requires careful planning and support. The current policy framework lack financial provisioning for supporting growth SMEs to acquire modern technology. l ? Low skill level – SMEs in Pakistan are confronted with a serious and growing skill deficit not only at the early

stage of their development but also during various phases of their growth. High-skilled workforce is expensive and small in numbers. SMEs generally fail to invest in up-skilling and re-skilling of their workforce to become familiar with changing technology and production methods. Apart from low-skilled workforce, management skills for planning, budgeting and engaging in sophisticated business-to-business negotiations are also weak. l ? Lack global linkages – a very small number of local SMEs have the capacity to effectively harness global

markets. The existing strategic and policy framework for SME development has serious shortcomings in terms of encouraging globalization of local firms and helping them connect with international supply chain, research bodies and marketing networks. In this situation, SMEs hesitate to enter into global marketplace because of their low overall competitiveness. l ? Low competitiveness – the most pressing challenge to Pakistani SMEs today is how to survive in the face of

high cost of doing business and growing cost of production. The combination of energy crisis involving expensive and unreliable utilities, oil prices, poor infrastructure, high cost of borrowing and costly logistics, poor law and order and precarious security situation is further eroding their already low level competitiveness.

6.

Key Recommendations

l ? Review policy framework – given the persistence of binding constraints that hinder the development of

SMEs in Pakistan, the existing policy framework should be reviewed. This needs to be based on a participatory consultative process effectively engaging industry and academia and civil society stakeholders.

The policy framework needs to adopt a target regime assigning clear organizational and institutional responsibilities. It needs to encourage public and private sector providers of SME support adopt workable business plans and milestones to measure the effectiveness and outreach of their services. The policy review must also address the need for streamlining SME development initiatives and encourage effective linkages between various support providers. The review needs to ensure innovation, technology and research support for SMEs for their participation in high value products and services. Above all, the exercise must also address the fundamental problem of access to finance and ensure not only easy and widespread availability of SME financing but also propose a raise in the limit on unsecured loans from Rs.3 million to Rs.6 million. The existing limit is not sufficient to meet the financing needs of growing SMEs given the high paid up capital and annual sales thresholds of Rs.25 million and Rs.250 million respectively. l ? Support internationalization of local SMEs – it is critical for the growth of local SMEs to develop

international linkages and become an integral part of the global supply chain. This would require them to work closely with large multinational corporations and buying houses. SMEs must be provided experience and resources to engage in globalization activities seeking new export markets. Special initiatives are needed to facilitate globalization of potentially high growth local businesses. Export promotion bodies and Pakistan's foreign missions need to work in tandem with each other to identify and guide companies that can expand beyond national markets. Local SMEs need support to expand internationally, producing particular items for particular markets. l ? Ensure marketing support – in order to encourage the internationalization drive of local SMEs, efforts and

resources need to be allocated to help them network with global research, design and distribution channels to improve their visibility and impact. SMEs should be accorded financial, networking and promotional support to participate in international activities and events.

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l ? Support SMEs cluster – agglomeration helps growth and competitiveness on the back of inter-firm

learning. The long-standing SME clusters in the Golden Triangle of Punjab are known to have greatly benefited from their close geographical proximity. Efforts should be made to improve overall competitiveness of these spatial clusters through supporting high-technology industries. These clusters need to be supported through capacity-building of their representative bodies. Resources should be allocated to build common research labs and testing facilities for cluster members to comply with local and international standards. At the same time, efforts must be made to help clusters coordinate their research, design and production activities with large local and international partners. l ? Support Innovation in SMEs – efforts are needed to encourage SMEs to engage in product and process

innovation to enhance enterprise growth and better tackle challenges of the global economy. A good starting point can be the formulation of a National Innovation Strategy with special focus on SMEs. l ? Re-skilling and up-skilling – enterprise development cannot take place in the presence of a chronic and

worsening skill deficit. This is partly due to lack of public investment in re-skilling and up-skilling of workforce in line with the technological change and structural transformation of the economy and partly due to skill exodus in the face of low and volatile economic performance. Public-private partnerships need to be encouraged to ensure demand-led skill delivery to build a strong skill-base. This will not only improve productivity but will also engage economically inactive population. It would require significant investment in skill development. In this regard attention must be paid to train local people where particular SMEs are located in order to embed the enterprise in the local economy. l ? Encourage responsible enterprise – SMEs need to be encouraged to operate as responsible corporate

citizens improving energy efficiency and reduce their environmental impact. SMEs should be supported to engage in better waste management and recycling practices. This would not only add economic value but will also contribute national sustainable development agenda. l ? Encourage SMEs to strengthen partnerships – sector specialist SMEs should work together to develop

their representative bodies that can promote their interests effectively nationally and internationally. These bodies can benefit by developing and strengthening partnerships with local and international Chambers of Commerce. l Clarity on SME Act – The Policy proposed the promulgation of SME Act to deal with fiscal, registration, labor

and inspection laws for enterprise development in the country. The passage of the Act is being delayed sending negative signals to potential investors. The government should make its stance clear regarding the status of the Act.

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Plastic Industry of Pakistan Responding to Challenges In Brief l The global plastic industry directly employs more than 1.7 million people and is set to expand by an annual

average growth rate of about 5 percent to 2015. l ? Germany and United States (US) are the largest manufacturer of plastics in the world.

l ? The annual shipments of plastic industry in the United States are worth US$374 billion, more than three times

the value of Pakistan's entire economy. The industry employs 1.1 million people. l ? The structure of plastic industry in Pakistan consists of over 6000 mostly small and medium enterprises

(SMEs). l ? Investment in the industry is estimated to be around Rs.30 billion and it provides around 75,000 jobs.

l ? The geography of Pakistan's plastic industry shows that around 60 percent of all manufacturing units are

concentrated in and around Lahore alone. l ? The local plastic industry heavily depends on imported raw materials, 80 – 90 percent is imported and 70

percent of which originates from United Arab Emirates (UAE) and Far East. l ? Pakistan exported Rs.25 billion worth of plastic and allied products during 2009-10.

l ? Pakistan imported Rs.53 billion worth of mostly plastic raw materials in 2009-10.

l ? The industry contributes around 2 percent to the country's economic growth with per capita usage of plastic

standing at around 3.5 Kg. l ? Pakistan's plastic industry contributes Rs.8 billion to the national exchequer.

l ? The growth rate of Pakistan's plastic industry is between 10 – 15 percent as compared to 8 percent at the

global level.

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Background Plastics industry has gained an important place in the modern global economy. The industry is considered one of the key drivers of global growth especially emanating from advanced economies. The industry has become equally critical for supporting economic growth in developing countries. Understanding the importance of plastic industry for an economy and the key drivers of growth and competitiveness of firms engaged in these activities provide the main backdrop for this paper. It aims to offer some high-level competitiveness insights for understanding growth dynamics of local plastic industry. This will be based on an analysis of developments relating to cost, quality, design, technology and innovation in the local plastic industry. Such framework will help to highlight opportunities and challenges faced by the industry and the nature of the strategic approach needed to cope with the ensuing change.

Plastic products are increasingly replacing metal products. The use of plastic components for cars in Europe have increased from 6 percent in 1970 to around 15 percent at present, the share is set to reach over 25 percent by 2020.

The aerospace industry is increasingly using plastic. The Airbus A380 used 22 percent plastic that helped to achieve fuel efficiency by 15 percent. The substitution drive is increasing demand for plastic products worldwide which is pushing prices of raw materials. The challenge for processors is one of how to pass on cost pressures to end-users. In this situation, firms tend to adopt various efficiency measures to improve productivity while keep costs in check. Apart from increasing raw material prices, energy cost is also impeding the competitiveness of the industry. In addition to input price pressures, the industry is increasingly challenged by environmental concerns.

However, while the cost of compliance with environmental regulations will continue to grow, the industry will experience the opening of new opportunities such as recycling as consumer become more aware of the need to reduce the carbon footprint of modern manufacturing activities and lifestyle.

1.

Key Activities Key activities in plastic industry entail conversion of petrochemicals to polymer; compounding to blend functional additives such as pigments, stabilizers and plasticizers to resins; machinery and mould manufacturing; and making of plastic products for domestic, commercial and industrial use. Plastic is now found in almost all aspects of human living (see Figure-1). Most of the global plastic consumption comes from packaging and construction activities. Plastic is most useful in packaging because of its protective, light weight and durability features. The use of plastic in various domestic items, electrical appliances, medical devices and equipment and in transport is also on the rise. We believe that demand for plastic for various such applications will continue to rise especially since developments in process and material sciences continue to result in remarkable innovations in plastic usage.

Figure-1: Plastic Materials and Processes

Major Plastic Applications

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Medical

Transport

FURNITURE

TOOLS

DRUG DELIVERY

ENGINE PARTS

ELECTRICAL APPLIANCES

INSULATION LININGS

DEVICES

INTERIORS

TOOTH BRUSH, BUCKETS, etc.

PACKAGING

EQUIPMENT

BODY PANELS

The Lahore Chamber of Commerce and Industry

Research Reports Globally speaking, the industry has become increasingly high-tech. Firms engaged in these activities are constantly working to develop capabilities to adjust with drivers of quality, design, technology, investment and skill development. Plastic manufacturing is primarily based on two broad categories of polymers namely Thermoplastics and Thermosets. The making of plastic products is based on wide-ranging techniques including injection moulding, blow-moulding, extrusion, compounding, calendaring and roto-moulding, etc. (see Figure-2).

Figure-2: Plastic Materials and Processes Major Polymers THERMOPLASTICS

THERMOSETS

Main Fabrication Processes POLYETHYLENE

EPOXIES

POLYPROPYLENE

MELAMINES

POLYSTYRENE

UNSATURATED POLYESTERS

BLOW MOLDING

POLYVINYL CHLORIDE

PHENOLICS

EXTRUSION

ABS/SAN

UREAS

COMPOUNDING

STYRENE BUTADIENE LATEXES

POLYURETHANES

CALENDERING

PET

POLYLACTIC ACIDS

ROTOMOLDING

INJECTION MOLDING

NYLON

2.

The Global Scenario The trade in global plastic industry was worth US$773 billion in 2009. It provides more than 1.7 million jobs internationally. The industry is expected to grow at an annual growth rate of around 5 percent over the next five years. China and developing economies will be the main engines of volume growth in the global plastic industry (see Figure-3 and 4). Robust demand especially from China will continue to exert pressures on raw material prices. The cost competitiveness of processors will be a major challenge for plastic manufacturers both in developed and developing economies. While the developed economies especially in Western Europe and North America will continue to maintain their knowledge and innovation edge in high-end chemical and plastic engineering to stay ahead of competition, developing countries that heavily depend on imported raw materials will have to contend with serious competitive pressures from China.

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Figure-3 and 4: Global plastic consumption is expected to grow by 5 percent to 2015 Total: 330 mn t (2015e)

Total: 215 mn t (2007) Rest Asia 15%

Rest Asia 16%

Europe 22%

China 22%

Europe 21%

China 25%

NAFTA 19%

NAFTA 22% Japan 5% CIS 3% Latin America 5%

Middle East 6%

Latin America 5%

Japan 4% CIS 4%

Middle East 6%

Source: Plastics Europe Market Research Group, 2009

Germany and United States are the global leaders in plastic manufacturers and we expect this pattern to continue for most part of the decade. China is world's largest importer of plastics followed by US and Germany (see Figure-5 and 6). Germany is the largest exporter of plastics and its total share in world exports is over 12 percent followed by US. Germany's plastic industry not only enjoys attractive financial and regulatory incentives but also have a long-established tradition of knowledge and technology development.

German manufacturers of plastic raw materials and products are some of the best in the world simply because they continue to innovate. Germany also has leading chemical faculties in the world that maintain strong linkages with the local industry for commercialisation of new cutting-edge research. Similarly, US plastic industry valued at US$374 billion and employs over 1 million people has a specialisation in plastic sciences. Industry work closely with the academia and research institutions to ensure innovation continues to drive growth of US plastic industry to maintain its global positioning.

Figure-5 and 6: Leading plastic exporting and importing countries (2009) Top Ten Plastic Importers 2009 (USS billion)

Top Ten Plastics Exporters 2009 (USS billion)

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Figure-3 and 4: Global plastic consum ption is expected to grow by 5 percent to 2015

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The Lahore Chamber of Commerce and Industry

Research Reports We believe that in near- to mid-term the key challenge for the global plastic industry will be of tackling price pressures without compromising growth. Prices of polymers have consistently increased mainly due to robust demand especially from high-growth markets such China, India and Brazil. These demand pressures are here to stay. However, the prices of processed plastics may fluctuate in line with developments and volatility in the global oil markets. But other demand factors such as the growth in textile sector that use nylon fibre will also weigh on price directions. Prices in the global plastic industry will continue to rise in general because the demand is expected to increase by more than 100 mn tons by 2015. China will be the single largest source of plastics demand by 2015 expected to be around 25 percent of the entire global production.

3.

Local Scenario The structure of plastic industry of Pakistan is highly fragmented which is a serious cause for concern on account of competitiveness. Majority of over 6000 manufacturing units in the plastic industry are SMEs. These firms often find it very difficult to make sufficient investment in modernizing their tooling profiles. Lack of modern machine and equipment impede firms' competitiveness. SMEs are also generally unable to investment in research and development (R&D). Resultantly, Pakistan's plastic industry competitiveness landscape is dominated by low-quality low-price plastic manufacturing that lacks design, durability and safety features. These problems are compounded by the fact that vast majority of plastic raw material is imported. The sharp depreciation of rupee against US dollar and other major currency have substantially increased import bill for plastic raw material and hence the increase in cost of production. This is in addition to growing energy and security challenges that are not only squeezing margins but also discouraging new investment which is essential to help the local plastic industry to grow from largely being low-tech in nature to one that can afford up-gradation to high-tech production. The next level of growth will naturally involve high-tech plastics engineering on the heels of innovation and R&D. The domination of low-tech and low-quality plastic manufacturing on the one hand and high import of basic raw materials is fully manifested in the export and import imbalance in the local plastic industry (see Figure-7 and 8). According to Federal Board of Revenue, cumulative assessed export value of Pakistan's plastic products and article is estimated to have been around Rs.25 billion during 2009-10. The local industry imported around Rs.53 billion worth of plastic raw materials and articles during the same period. Major markets of Pakistan's exports of plastics products include Afghanistan, Italy, Turkey, US and United Arab Emirates. Major importing destinations of Pakistan include Saudi Arabia, China and Korea. This highlights the presence of large potential for market diversification to improve export performance. At the same time, it shows scope for new investment to increase the production of raw materials locally. It will greatly benefit local manufacturers while boosting exports.

Figure-7 and 8: Export and import performance of Pakistan's plastic industry (2005-09)

2007

The Lahore Chamber of Commerce and Industry

2008

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Research Reports An industry-wide drive is in order to achieve investment, quality and market diversification objectives.

Currently, Pakistan produces around 290,000 Metric Tons of raw material locally which meets only 20 percent of industry's needs. New investment in increasing local capacity to substitute imported raw materials can create vast employment opportunities. We estimate that the local industry has the capacity to create anther quarter of a million new jobs during the current decade on the back of special policy attention to identify and support the growth and development of champions in the field. Currently, the industry employs only 75,000 people mostly in the Punjab province (see Figure-9 and 10). This, however, is greatly linked to how the economy of Pakistan as a whole performs and how the rising cost of production is tackled.

Figure-9 and 10: Employment and per capita performance of Pakistan's plastic industry Plastic Industry Employment Structure (2011)

7%

Per Capita Plastic Usage (kgs.)

World

3% Punjab Sindh

30%

China

KPK

60% Balochistan

India

Pakistan

0

5

10

15

20

Nonetheless, we believe that prospects of new investment in the manufacturing of raw materials and process goods are bright since the county's per capita usage of plastic is one of the lowest in the region and world alike. The industry should prepare to make new investment to meet local demand in the wake of economic growth retuning to historical average of 5 percent from the current low of around 2.5 percent per annum. The expected doubling of economic growth rate in the country over the next two years will increase per capita income and demand for plastics. At present, the industry is not geared towards meeting new demand as it is already running at capacity utilization of around 85 percent. The industry has a strong potential to grow given the size of population and various incentives. The structure of duties and taxes for the local plastic industry is attractive that includes 5 percent custom duty on imports of all plastic raw materials.

4.

Responding to Challenges

l ? Energy crisis – since energy is a major cost component for the plastic industry the growing unreliability of

electricity, gas and petrol is exerting significant pressure on the industry. One way of tackling energy cost would be to increase process efficiency and labour productivity. l ? Modernization of tooling – the local industry in general is characterised by old machinery and equipment.

The industry needs to adopt modern tools and moulds for improving competitiveness. New investment in modern tools is vital for staying ahead of competition. This also helps to improve efficiency which can mitigate pressures emanating from rising cost of inputs such energy and labour. l ? Product development – companies need to focus on knowledge-acquisition to improve capability to

develop new products. Product differentiation is a key to success in modern manufacturing activities in general and in the plastic industry in particular. This requires significant collaboration between manufactures and researchers as well as synchronization between suppliers and demand trends. l ? Build common smart testing facilities – these facilities are important to meet quality and safety standards

which are essential to improve the overall competitiveness of local industry. This is especially essential for smaller firms that find it difficult to invest in testing labs. Larger firms can afford these expenditures but since the structure of local industry is dominated by SMEs, common testing labs can be a decisive factor towards engendering sustainable growth of a vast majority of plastic firms.

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l ? Investment in process and material sciences – public investment in building research infrastructure is

greatly missing in Pakistan. Collaboration between firms, academia and research bodies is weak. Both the government, academia and industry has a clear role in forging functioning partnerships backed by sufficient funding to develop modern process and material science knowledge-base in the country to support growth and competitiveness of local players. l ? Skill development – the industry as a whole has to evaluate its future demand for skilled workforce and

initiate a comprehensive strategy for investing in skills. The industry association(s) should collaborate with the Technical Education and Vocational Training Authority (TEVTA) at the provincial levels and the National Vocational Technical Education Commission (NAVTEC) at the federal level to ensure appropriate vocational training for its workforce. The Plastic Injection Mould Technology Development Project, a joint initiative of the Government of Japan and Government of Pakistan, can play a leading role in preparing skilled workforce in mould designing. l ? The Environment Challenge – Polymer and plastic industry is faced with a serious challenge on the back of

growing awareness over the industry's large carbon footprint. Plastic bags epitomise environmental hazards posed by the plastic industry especially in developing countries. Plastic bags that are not properly disposed end up clogging drains and sewerage lines. Dumping of plastic bags in arable land is eroding agricultural productivity because of their non-biodegradability while burning those releases dangerous gases. Pollution is an ethical question. The industry should develop an environment compliance work plan to allay fears of end-users and other stakeholders. This will also help improve the overall image of the Pakistan's plastic industry which matters in competing at the international market place. l ? The role of industry's association in competitiveness – polymer and plastic industry is fast-changing on

account of quality, price and design competitiveness which is generally low among local firms. It calls for an industry-wide effort to improve ability to produce high quality products cost-effectively. The awareness over the need to improve design, quality and productivity is gradually taking roots. However, the industry's association has a special role. Pakistan Plastic Manufactures Association (PPMA) increasingly seems capable of playing the role of improving the international competitiveness of the industry. The association is becoming increasingly capable of showcasing the industry's achievements and potential. l ? Establish Pakistan Plastic Forum – this should be based on the Triple Helix framework for bringing leading

representatives from the government, industry and academia to chalk out a National Plastic Strategy to address the competitiveness and growth challenges facing the firms in this field (see Figure-11). The Forum should make policy recommendations and provide a coordination platform to remove institutional and investment constraints. The Forum should be supported by a Plastic Innovation Fund to provide matching grants to industry champions to support their research activities and commercialisation of new ideas.

Figure-11: Key Elements of National Plastic Strategy

Innovation

Technology

The Lahore Chamber of Commerce and Industry

Design

Quality

Skills

Investment

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Pakistan's Plastic Industry: A SWOT Analysis WEAKNESSES

STRENGTHS •

Impressive growth performance

•

Low cost labour

•

Growing number of chemical graduates

•

Attractive fiscal incentives and tariff

•

Absence of a National Plastic Strategy for addressing technology, innovation and skill gaps

concessions •

Presence of multinational companies

•

High overall turnover

•

Quality, design and saftey lags

•

Lack of tooling and training support

•

Absence of public funding for R&D

•

Scant regards to environmental standards

OPPORTUNITIES •

Strong potential growth in per capita plastic usage

•

Large and growing domestic market

•

High export potential

•

Great prospects for foreign investment

•

Strong industry association

•

Development of local brands

THREATS •

Low economic growth

•

Worsening of investor's political, regulatory and financial risk perceptions

•

Continuation of upward pressures on prices of raw materials

•

Increase in regulatory burden

•

Depreciation of Pakistani rupee against the dollar will increase cost of imported raw materials

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Pakistan's Leather Industry: The Quest for New Growth Phase

Background Leather industry entails oldest forms of known economic activities. Antiquity spans over raw materials, products and skills alike. Today, leather products have attributes of not only of essential but also of luxury items. The quality and price range fully reflects this spectrum of end-use. Leather has graduated from being a key raw material for footwear to accessories such as bags, clothing, sports goods and upholstery to increasing use as part of interiors in cars and aircrafts. Production techniques that evolved over millennia were enhanced especially in the latter part of the last century. Research and development and innovation efforts have led to considerable growth and development in the industry worldwide. The share of leather industry in economic growth, employment and exports has taken special significance for many economies both in advanced as well as in growth economies of Asia such as China, India and Vietnam. The industry has strategic growth connotations for a developing country like Pakistan having a large and promising livestock profiles. With special policy focus and public support, leather industry can be an instrument of unleashing countless opportunities for boosting growth, investment, jobs and exports.

Pakistan's leather industry has developed from primarily being a supplier of hides and skins to dynamic valueaddition activities. The industry mainly evolved on the back of indigenous entrepreneurial drive to compete internationally. The state has been largely absent in helping the industry to effectively capitalize on existing and emerging competitive opportunities in the international market place. Thus, the current state of industry's development and competitiveness is a remarkable feet of achievement of local private sector. The industry now stands on crossroads; it either has to find new sources of growth or become irrelevant in the high-value and highquality value added global market. Given the level of international competition, the industry may find it difficult to benefit from new growth opportunities without targeted public support to identify and help internationalization of local industry champions as reliable partners backed by innovative products and robust branding.

1.

Complex Value Chain The mechanics of leather value chain are complex since it is closely intertwined with the performance of other economic sectors especially the health of agriculture and rural economy to mention the least (see Figure-1). In most developing economies having a large agrarian economy livestock plays a critical role in income generation and living standards. However, livestock ownership especially of cattle requires substantial investment and is not widely affordable. Livestock rearing is potentially an important source of incomes for the most vulnerable segments of the society especially in rural areas on the heels of right policies and targeted public funding. This not only helps the overall vibrancy of the agricultural and rural economies but also directly feeds into the growth and competitiveness of the leather industry.

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Research Reports Figure-1

The Relationship between Agriculture and Livestock

Agriculture

Livestock

Agricultural Growth

Agricultural incomes

Animal Production

Animal Husbandry

Extension Services

R&D and Innovation

Livestock Services

Disease Control Diagnosis

Water

Inputs

Right Feeding

Right Slaughtering

The Health of Agriculture Economy Depends on How Livestock Performs

Source: From the Authors, 2011

The key lesson from interplay of agriculture and livestock for a country like Pakistan is that the overall performance of the agriculture sector is critical for the growth and development of the livestock sector. This is especially so since crops incomes are the mainstay of capital investment in livestock. Nonetheless, livestock development needs particular attention for increasing their population, animal husbandry and support services as well as on the availability of widespread disease diagnostic and control and an overall surveillance and reporting network. These critical elements of livestock development are greatly lacking adequate investment and geographical coverage in Pakistan.

The value chain of leather industry is also subjected to myriad of local binding constraints as well as intensive competitive pressures especially those emanating from the global business environment (see Figure-6). At the very basic level, the availability of high quality of hides and skins define the growth contours of the industry. This demands great efforts across the entire spectrum of agriculture and livestock activities. It directly relates to animal health, feed, production and slaughtering practices. Poor handling of animals both at the rearing stage including lack of check on disease and care and cure thereof as well as during slaughtering and preservation of pelts greatly reduce the provisioning of high quality hides and skins. This is a serious problem in developing countries such as Pakistan which in the wake of strong international demand is driving prices up. But since value-addition is fraught with multiple challenges in these countries, better quality hides and skins are exported without value-addition that not only deprives local industry of essential raw material but also makes little contribution to foreign exchange earnings.

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Research Reports Figure-2 Local and Global Value Chain Dynamics of Leather industry

Leather Policy

Leather Strategy

Leather Incentives

Leather Research

Leather Export

Leather Finance

Hides

Light/Heavy Leather

Goat

Goat Skin

Light Leather

Sheep

Sheep Skin

Light Leather

Footwear Upholstery

End-use

Cattle

Leather Products

All Suppliers

Local

Garments/ Accessories

Global R&D

Innovation

Environmental/Social Compliance

Branding

Promotion

Technology

Skills

Low Cost Production from China, india, Brazil, etc.

Training

Investment

Source: From the Authors, 2011

The dynamics of leather industry value chain involve a diverse spectrum of suppliers such as providers of chemicals, plant and machinery and business support services for processing and assembly activities for production of end-use items. But this overly-simplified process becomes overly-complex when drivers of growth and development of the international leather industry such as advances in scientific research and technology, support for innovation and skill development along with investment into international marketing and export promotion are factored in. These are some of the key decisive forces determining the competitive edge of firms in leather industry worldwide.

The success of firms in any industry greatly depends on their ability to capture key determinants of supply and demand to abreast with changing trends. This is where the issue of environmental and social compliance requires special attention. Pollution and disregard of social issues such as child labor, and gender inequality have ethical repercussions that matter for doing business internationally. The ultimate competitive advantage in leather industry is driven by environmental and social image and cost consideration. This is especially so since the industry is perceived to have a large carbon footprint and juvenile labor problems.

In order to overcome these problems, we propose an integrated approach to support the development of agriculture, livestock and leather industry backed by a suitable policy and strategy and a well-thought-out action plan. The key focus of the integrated approach for the development leather industry must address inadequacies of public funding for the growth and development of livestock sector have the potential to suppress future competitiveness of the leather industry. This can suffocate the industry in terms of the

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Research Reports provision of necessary and low cost raw material in the form of hides and skins. The industry has idle capacity that can only be utilized if the availability of hides and skins is improved in the country. We believe that the industry can easily process another 30 – 40 percent jump in the provisioning of hides and skins.

Many countries around the world have adopted special policy, strategies and action plans to tackle local and global leather industry value chain challenges. India and China are two such examples in the region where special policy attention has played an instrumental role in improving competitiveness, growth and development prospects of their respective leather industries. In particular, fiscal incentives, public funding for research-oriented activities and easy access to finance helped companies in these countries gain and maintain their share in the international marketplace. This is greatly missing in Pakistan. The absence of right policy, strategy and implementation framework as well as growing global competition and worsening of long-standing local infrastructure bottlenecks as well as constrained access to finance and lack of R&D support has seriously dampened growth and competitiveness prospects of Pakistan's leather industry.

2.

International Insights The value of trade in global leather industry has increased from over US$77 billion in 2000 to over US$137 billion in 2010, or an increase of over 77 percent. The industry is estimated to grow to over US$245 billion by 2020, or an increase of around 79 percent. Footwear segment has experienced the largest jump in terms of absolute value increasing from over US$50 billion in 2000 to over US$93 billion in 2010 whereas saddlery and harness and accessories has seen most growth in terms of percentage increase (see Figure-3 and 4). The growth story in the footwear arena during the last decade very much belonged to low-cost producers such as China, India and Brazil. Policy-makers in these countries paid particular attention to supporting the exportorientation and globalization drive of their growth companies while creating a level playing field with the help effectively tackling entry barriers for new players.

Figure-3 & 41: Global leather industry growth story is mainly based on footwear Value-addition Global Leather Trade

Global Leather Industry Trade Volume (US$ Billion)

160

100 90 80 70 60 50 40 30 20 10 0

140 120 100

US$ Billion

150 140 130 120 110 100 90 80 70 60

80 60 40 20 0 -20

09

Footwear

10 20

08

20

20

07 20

06 20

05 20

04 20

02

03 20

20

20

01

Leather

2000

Leather Garments

Leather Saddilery & Goods & Harness Accessories 2010 Growth %

Easy access to finance, matching-grants, focus of R&D and innovation infrastructure and international marketing support helped companies in these countries undertake product and destination diversification drive. Resultantly, Chinese, Indian and Brazilian companies not only successfully penetrated but also consistently increased their share in the global marketplace. In South Asia, India is a leading example of state creating an enabling environment for the growth and competitiveness of leather industry. In order to help Indian leather industry, the government put in place an Indian Leather Development Program as part of the 11th Five Year Plan (2007-12) backed by Rs.9.1 billion funding for supporting modernization and capacity building of firms with special focus on research and development (R&D), innovation and workforce skills. In the 10th Five Year Plan, the India government provided Rs.4 billion for the growth and development of the country's leather industry. It helped to improve India's leather exporters by 28 percent.

During the current decade, leather industry is set to experience robust growth in the tune of almost 80 percent expansion. The absolute value of trade in the leather industry worldwide is expected increase from

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Research Reports over US$137 billion to around US$245 billion by 2020 (see Figure-5 and 6). These are staggering growth prospects and show the increasing importance of leather industry in global economic structure. The new growth phase underway will continue to be dominated by global footwear industry and most competitive pressures will also emanate from area. Footwear segment is expected to account for almost 70 percent by 2020 of the entire global leather industry. Leather garments and accessories will also be key segments of growth in the global leather industry going forward, accounting for almost 8 percent and 14 percent of the global business in these items respectively by 2020. In absolute terms, leather garments and accessories are set to expand from US$4.12 billion to around US$7.18 billion and US$18 billion to around US$34 billion respectively by 2020.

Figure-5 & 63: Footwear and accessories will continue to dominate future growth Product Performance (%)

Trade Opportunities - Import Prospects

80 70 60 US$ Billion

50 40 30 20 10 0 -10

Leather

Footwear

2000

3.

Leather Garments

2010

Leather Goods & Accessories

Growth

Saddlery & Harness

180

80

160

70

140

60

120

50

100 40

80

30

60 40

20

20

10

0

0 Leather

Footwear

Leather Garments

Growth

Leather Saddlery & Goods & Harness Accessories 2020

Pakistan's Leather Industry Livestock contributes over 53 percent to the agricultural value-addition and over 11 percent to national economy in Pakistan. Pakistan's livestock population comprises of Buffalos, Cattle, Goats, Sheep and Camels numbering, 30.8 million, 34.3 million, 59.9 million, 27.8 million and 1 million respectively. Almost 97 percent of livestock-related economic activities are of informal family-owned nature. Livestock still is key source of subsistence in the rural economy generating regular cash flows especially on sale of milk. Large-scale corporate-style livestock economy is underdeveloped. Traditional husbandry practices are common and disease widespread. More than half of Pakistan's livestock population resides in Punjab.

The development of Pakistan's leather industry owes a great deal to the entrepreneurial streak of the country business community. Despite little or no government support, the industry evolved from contributing US$271 million to export earnings in 1990-91 to over US$1.2 billion in 2008-9 before declining to around US$868 million in 2009-10. The export performance of leather industry has improved by over 25 percent during July-January 2010-11 earning around US$613 million against US$488 million in foreign exchange as compared to same period last year. The industry's structure comprises of 800 tanneries mostly clustered in Karachi, Lahore, Kasur, Faisalabad, Gujranwala, Sialkot, Sheikhupura and Peshawar. The employment performance of the industry is also remarkable providing around half million direct and indirect job throughout the country. Local leather industry contributes 5 percent to the manufacturing GDP and over 6 percent to export earnings.

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Figure-7 & 86: Consistent increase in hides and skins but volatile exports Production of Hides and Skins in Pakistan

Pakistan Leather Export Performance

(Million Pieces) 2009-10

867.1 2008-09

2008-09

959.2

2007-08

2007-08

1220.1

2006-07

2006-07 2005-06

1008.2

2005-06

2004-05

1229.7

2003-04

938.5

2004-05

0 0

200

400

600

800

1000

1200

1400

10

20 Skins

30

40

50

Hides

Leather produced in Pakistan is considered one of the best and preferably used by leading brands internationally. This itself poses a unique challenge to the industry since a great deal of best quality leather is exported with little value-addition. Although the industry has spare capacity to process but it faces the challenge of quality processing in the face of low skill capital. The global leather industry is segmented into industrial production and handmade goods such as footwear and accessories. The high quality and high value leather footwear and accessories market in advanced economies is dominated by handmade items.

Local industry has failed to capitalize on demand for handmade leather footwear and accessories that can compete with global players. This is partly due to policy neglect and partly due to industry's own lack of focus on forming joint ventures with global brands specializing handmade footwear and accessories.

Given the trade potential of leather industry, trade promotion has not kept abreast of international experience. Both trade policy gaps and international marketing strategy of national trade body has led to low and volatile export performance. Local industry is not appropriately supported in their participation at international fairs and exhibitions. The cost of international marketing has been a serious hindrance.

Countries that have made impressive export performance have helped their companies regularly showcase at the international trade scene with highly subsidized cost whereas leather experts in Pakistan have long been demanding increase in public funding to this end which has not been easily forthcoming. Resultantly, the local industry became hamstrung in helping the government achieve its ambitious trade policy target for leather industry. This is also due to lackluster implementation of the key aspects of the government's very own plan (see Figure-9).

Figure-9 Export Policy 2009-12

Exports

Development of a Leather and Leather Goods Export Plan in close consultation with the key stakeholders

Imports

Import of new and upgraded machinery on the basis of trade-in with old machinery

Un-gradation Zero-rating

138

Pakistan's Trade Policy 2009-12 is long on strategic ambitions and short on providing practical support for the competitiveness, growth and development of local leather industry. It seems the industry is struggling to ensure key elements of the prevalent Trade Policy are implemented. The government has done little to implement the key Trade Policy objectives. This lackluster implementation progress has the potential to dampen industry's already low competitiveness and future growth and export.

Support for production up-gradation in line with international standards Exports to be treated as zero-rated

Advance Payment

Advance payments from State Bank of Pakistan against remittances of US$1000 per invoice

Waste Reduction

Reduction of 25 percent waste of hides and skins due to poor butchering practices

The Lahore Chamber of Commerce and Industry

Research Reports Despite an unfavorable policy environment, the growth and development of local leather industry owes a great deal to Pakistan Tanners' Association (PTA). The body has successfully provide its member firms an outlet to raise voice and negotiate necessary policy outcome however slow it may have been in certain regulatory and support cases. PTA has increasingly become sophisticated in its strategic approach for collective bargaining (see Figure-10). It has not only improved its effectiveness in interacting with public bodies and international buyers and foreign diplomatic mission but has also coordinated well with member firms on critical image problems especially relating to the industry carbon footprint and underage workforce.

However, the role of PTA has never been so pronounced that at present given the importance of environmental and social compliance required for doing business globally.

Figure-10 PTA: Strategic Sophistication

PTA is leading collective bargaining on behalf of its member firms. PTA has the wherewithal and strategic sophistication required for articulating a vision and steps required to achieve high-level and firm-level objectives. Since, 2008-09, PTA has been working on an elaborated growth for the industry. Despite difficult local and global business environment, PTA strived to mobilize stakeholders and partners to support growth ambitions of the industry while meeting export targets. PTA has been consistently working to improve the image of the industry through close interaction with public bodies and foreign mission in Pakistan. It made considerable efforts to resolve the issue of outstanding payments on account of rebate and export promotion. In particular, PTA has shown in-depth understanding of global competitive challenges by making timely efforts to address environmental concerns and low skill capital of the industry.

However, PTA's biggest challenge is one of coping with slow policy response and low public funding essential for the overall performance of its member firms.

Environmental compliance has become one of the most critical aspects of international market place. This has become part of the overall branding strategy. Buyers are increasingly paying particular attention to compliance with national environmental standards. Leather industry consumes large quantities of water and generates effluents full of suspended solids, organic matter, nitrogen and salts such as chlorides and sulphate. The industry not only needs to reduce its waste water but also need to invest in treatment technologies. Effluent treatments are not comprehensive. It should be complemented by recycling of tannery effluents. Technology is available to use tannery waste to produce biodiesel. Pakistan has unnecessarily high National Environment Quality Standards (NEQS) which is hurting the local industry.

Notwithstanding that, PTA as an association has taken a lead in tackling the issue of carbon footprint proactively (see Figure-11). The establishment of combined effluent treatment plants in Karachi and Kasur and a common testing lab in Lahore are remarkable achievements of PTA.

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Figure-11 Tackling Carbon Footprint

The leather industry of Pakistan has made considerable inroads into tackling its carbon footprint. This is not only a sign of growing strategic sophistication of the industry for addressing competitiveness challenges and also an evidence of its strong sense of social responsibility. In this regard, PTA has played its due role well, created awareness among its members and coordinated response to environmental concerns. These efforts of PTA have won it accolades. The World Bank recognized the rote PTA played in the establishment of combined treatment plants to serve leather clusters in Korangi, Karachi and Kasur. To this end, PTA's adopted a smart approach simultaneously promoting cleaner production and cleaner technologies.

Environmental compliance has become a critical source of competitive business opportunities in the international marketplace. The environmental leadership provided by PTA lends invaluable insights on how industry associations in Pakistan can benefit from these opportunities for growth. However, the leather industry continues to face the challenge of how to consistently reduce its carbon footprint. The trickle down impact of PTA's environmental leadership is somewhat slow. Firm level response in establishing individual treatment plants is lagging. This is partly due to lack of public funding for meeting environmental investment requirements at firm level. This is where the government has to come forward with a practical funding plan offering matching-grants in coordination with PTA helping firms establish individual treatment plants.

Skill gap is commonly found across all sectors of the economy in Pakistan. But this has special significance for the local leather industry which has become the second most important source of foreign exchange earnings for the country. The industry as a whole has limited resources to investment in their workforce development. In the light of international experience, workforce development is largely a responsibility of the state. Human resource development falls perfectly well in the domain of public services as a merit good.

PTA has again played its due role in the establishment of National Institute of Leather Technology (NILT) (see Figure-12). But NILT lacks funds and geographical coverage in training workforce close to leather industry clusters spread throughout the country.

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Figure-12 Training for Skills

Training for skill development is key to competitiveness in the international market place. The leather industry of Pakistan has made efforts to address the skill challenge. The establishment of National Institute of Leather Technology (NILT) is another contribution of PTA helping its member firms understand leather changing technologies. NILT diploma and certificate programs are right initiatives. But the best international practice in industry-oriented human development efforts show active public funding is critical for producing skilled workforce capable of producing high quality products in line with changing demand trends. This is greatly missing in Pakistan. NILT needs a serious publically-funded capacity-building exercise. Up-skilling and re-skilling of workforce in leather industry can be instrumental in improving employment and export performance of leather firms. The government should support PTA and NILT in establishing knowledge-linkages with global firms and research institutes. It can enter in exchange programs with these players for producing demand-driven products.

PTA has been consistently demanding urgent policy response to long-standing impediments faced by its member firms (see Figure-13). The strategic perspective of PTA concerning binding policy, regulatory, infrastructural and institutional constraints is well-placed. It demand a level playing field for its member firms in line with the high-growth experience of leather industries in the region and internationally. Pakistan's leather industry is paying much higher duties and taxes as compared to their regional and international counterparts. It shows that the industry is being accorded its due importance as a strategic sector of growth for the economy of Pakistan. Resultantly, the industry is not being supported in terms of its modernization and capacity-building to compete with low low-cost producers. This has put serious limitations on its potential to grow as a low-cost producer of high-quality and high-value leather items designed to meet and beat the trend. The lack of policy regard for meeting the growth and competitiveness needs of the local leather industry can also be gauged by the fact that it is subjected to much higher environmental standards that required. Turkey, China. India and Sri Lanka has considerably relaxed effluent COD compliance requirements than Pakistan.

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Research Reports

Figure-13

Demand for Policy Response

In order to grow sustainably, the leather industry of Pakistan must be accorded competitive taxes and duties as well as a conducive regulatory framework in line with the experience of India, China and Bangladesh

Duty-free imports of plant and machinery Sales tax exemptions on key raw material such as chemicals, foils and spares Reduction of custom duty to 5 percent on foils and Chrome and removal regulatory duty on items where demand cannot be met by local manufactures Reduction of withholding tax on leather exports Access to finance especially reducing in mark-up rates on export refinancing Interest-free loans for imports of modernization of tooling Incentives for adopting cleaner technologies Matching-grants for establishing combined and firmlevel effluent treatment plants Provision of land-fill sites near leather clusters especially in Karachi, Lahore, Multan, Kasur, Sialkot, etc.

Support for participation in international fairs of up to 75 percent Support for workforce development Support for forging joint ventures

Create Level Playing Field

Country

Effluent COD Standards Surface Water – Mg/Litre

China

300

Turkey

300

India

250

Sri Lanka

250

Pakistan

150

Not making environmental sense: Pakistan need to relax NEQS for effluent COD standards which are hurting the international competitiveness of the local leather industry. Compliance with these standards is not expensive but also unnecessary in view of the international experience.

Our analysis shows that the slow policy response is the biggest challenge to growth and competitiveness of Pakistan's leather industry. The industry progress so far has been a purely private sector affair. It is the private sector entrepreneurial drive to compete that has turned the local leather industry one of top foreign exchange earner for the country. Given the future prospect for the global leather industry as elaborated in the foregone analysis, local industry can become a pillar of Pakistan economy in terms of investment, jobs and exports. But this requires a sea-change in policy, regulatory and institutional framework that can remove all growth and competitiveness constraints facing the leather industry in Pakistan. This is the way forward to securing its future.

In the following section, an Agenda for leather industry is proposed which has to be simultaneously adopted by both the public and private sector and coordinated with the other stakeholders such as the academia, research institutions and value-chain partners. It is worth mentioning that the proposed Agenda is not an entirely new Agenda. Many of its key elements are already known to the government and industry alike.

Our value-addition is to identify potential responsibilities and an ownership flow. No industry can develop sustainably on its own and nor the state can be sole driver of industrial development. The issue has market failure ramifications as well as with our familiarity with the all too common public failure. Right policies address market failures while keep the private sector in the driving seat.

4.

Securing the Future The future of Pakistan leather industry and its new growth phase greatly depends how the government and industry play its role in securing strategic outcomes and improving the overall firm-level competitiveness.

Both the government and the private sector have problems to deal with. The government has to reduce

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Research Reports growth impediments facing the industry while firms have to tackle image problems constraining their competitiveness. The government can do far more than its current performance. The industry as a whole can also improve its strategic approach to dealing with competitiveness problems. (see Figure-14). A good starting point for achieving the key parts of the Agenda is to conduct a comprehensive policy and strategy review with working to pick all the low-hanging fruit first. This can be in the form of reducing duties on the imports of essential raw materials and eliminating tariff altogether on the imported plant and machinery.

Modern tooling is vital for improving production and competitiveness prospects of the industry.

Figure-14

Agenda for Leather Industry

Tackle Growth Constaints

Growth

Tackle Image Constaints

Competitiveness

Public Sector

Private Sector

Policy

Regulation

Actions

Innovate

Watch Demand

Quality

Investment

Infrastructure

Incentives

Cost

Find Partners

Design

Support Up-gradation

Support Human Resource Development

Reduce Cost of Doing Business

Work with Local Resource Advantage

Public-Private-Academia Consultation

Work with the Global Supply Chain Reduce Carbon Footprint

Source: From the Authors, 2011

Tackling growth and image constraints has to be the fundamental pillars of securing competitiveness of the local industry. The government has to reduce cost of doing business in the leather industry by ensuring timely and right policy responses. This is only possible when the cost of regulatory compliance is reduced while required infrastructure for the leather industry is put in place. It goes without saying that the latter essentially involves reliable and affordable utilities but also entails the availability of smart infrastructure for R&D and workforce development. These efforts need to be backed by public investment. At the same, mobilization of private investment should be a key priority for the government supported by right incentive mechanism that aims to facilitate economic activities especially job creation in the leather industry. Special attention and public funding is required to support the long over-due up-gradation of production in leather industry. The focus of the drive should be on encouraging industry-wide adoption of cleaner technologies.

The private sector role in promoting the leather industry is also very clear. The industry as a whole has very few options. Its stakes are very high demanding growth. In order for it to maintain its relevance in the fiercely competitive global marketplace, innovation, cost-effectiveness, quality and design will have to be the main drivers of industry's future growth. In this regard, PTA can be instrumental in organizing collective efforts to better collect and analyze market intelligence to understand changing demand patterns especially understanding the local, regional and global fashion scene for leather footwear, garments and accessories.

For this purpose, the industry has to work with its domestic and international supply chain and find right

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Research Reports partners for collaboration to innovate raw materials, production processes and end-use items. The industry needs to fully understand that the ultimate business model of being competitive internationally does not solely depend on cost consideration alone. Environmental and social compliance has become essential elements of competitiveness. The local industry had made progress on this account. But it still has to cover some mileage before it can use low carbon footprint as part of the overall branding.

The key message for the government in the proposed Agenda is to create an enabling environment for the leather industry to be competitive and an engine of growth in investment and employment generation. The key message for the private sector is to invest in branding to tackle image problems mainly emanating from low environmental and social compliance. The common ground for government-industry action now seems very clear and includes R&D and innovation support, skill development, access to finance, international marketing support, reduction in the burden of taxes and cost of regulatory compliance. In order to ensure broader ownership, these actions must be supported by a continuous consultative process engaging all key stakeholders.

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The Agriculture Challenge in Pakistan: Developing the Strategic Sector for Growth

Background Economic structures tend to change over time with manufacturing and services replacing agriculture and mining as the main engine of growth. But the persistence of robust and increasingly insatiable global demand for food and raw materials has highlighted the importance of agricultural and natural-resource-rich economies. In this situation, agriculture sector development can offer countries like Pakistan unique opportunities for economic diversification. This must involve focus on two key issues; productivity enhancement and promotion of valueaddition. Productivity enhancement is driven by consistent improvements in farming practices, quality of inputs, outreach of extension services, adoption of latest research and post-harvest innovation. Value-addition needs systematic approach in disseminating demand information, supporting start-ups through a network of agribusiness support services and mobilizing investors in an overall enabling business environment.

Agriculture sector development is not only a key to high long-term growth for a country like Pakistan but it also has social and political significance. The sector has critical importance for tackling growing food insecurity and its potential to unleash social and political unrest. Thanks to the advances in agricultural research and technology especially concerning high-yield seed varieties, solutions are available to address food insecurity. New knowledge in the field of agriculture also offers countless opportunities for investment, value-addition and job creation within the sector and beyond. But it requires a target-oriented strategic approach that ensures greater involvement of private sector in the development of the sector.

The message for the government is that instead of wading in with unnecessary interventions, it should create enabling policy, regulatory and institutional environment while removing inefficient and uncompetitive practices in the sector. The overriding presence of public sector in agriculture needs to be rolled-back in favour of private sector which has made impressive inroads in developing the country's limited but promising agro-businesses.

Public sector role should be limited to tackling the growth and competitiveness challenge through timely policy response that enables private sector to take part in farming, value-addition and export of agricultural produce.

This is the broader backdrop for the paper; it aims to understand and highlight the challenge of agriculture development in Pakistan from the perspective of untapped potential for productivity and value-addition as well as the range of binding constraint that require timely policy response.

1.

Agriculture Performance in Pakistan The health of Pakistan's economy greatly depends on agricultural performance. The economy performs well when agriculture performs well. Agriculture sector growth fluctuated between negative 2.2 percent and 6.5 percent during 2000-01 and 2009-10 (see Figure-1 and 2). This is despite the fact that agriculture sector's share in economic structure has shrunk from around 25 percent to around 22 percent during 200001 and 2009-10. But in employment structure of the country, agriculture sector employs almost 45 percent of the Pakistan's labor force. This, however, also points low productivity in the sector as nearly half of Pakistan's labor force is contributing only one fifth to the national economic growth. One of the key reasons behind volatile and low agriculture sector performance in Pakistan is the sheer lack of focus on diversification based on greater role of horticulture, floriculture dairy and livestock for developing a comparative competitive advantage in these areas.

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Economic growth and agriculture sector performance

Figure-1 and 2

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Pakistan's climatic conditions potentially makes the country agriculturally competitive across the two main growing seasons; Kharif season that extends from April-October, and the Rabi season that extends from October- March. Major crops such as cotton, wheat, rice, sugarcane account for almost 33 percent of agricultural GDP. During the last decade, growth performance of major crops oscillated between negative 10 percent and almost 18 percent with near stagnation in 2009-10. On the other hand, growth of minor crops such as oilseeds, lentils, potatoes and onions that account for little over 11 percent of agricultural value added fluctuated between negative 3.2 percent and almost 11 percent during the last decade while registering negative 1.2 percent expansion in 2009-10 (see Figure-3). Agriculture represents around 22 percent of total land use in Pakistan. Agriculture productivity remains the greatest growth imperative in the sector given the fact that the expansion of cultivated area remains stagnant (see Figure-4).

Figure-3 and 4

Volatile crop performance and stagnation in cultivated area

Crop Performance (Growth Rate %)

ultivated Area (Million Hectares)

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The health of agriculture greatly depends on the performance of dairy and livestock as it contribute around over 53 percent to Pakistan's agricultural value-addition and 11.3 percent of the economy. Fisheries represents an important segment of the sector employing around 100,000 people along the coastal areas of Sindh and Balochistan contributing 1.2 percent to Pakistan's total exports. But the fisheries in GDP remain limited to mere 0.4 percent (see Figure-5). The growth performance of both livestock and fisheries is reminiscent to the overall volatile characteristics of the entire agriculture sector, more so in the case of latter

146

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Research Reports than the former (see Figure-6). Pakistan has strong export potential in fresh fruits such as citrus, mangoes, apples, bananas, apricot, guavas, etc. These exports have been steadily increasing standing around US$115 million in 2008-09. Horticulture contributes about 12 percent to the total agricultural output. The country has huge potential in organic production, dairy and livestock, fisheries, horticulture, and floriculture.

Figure-5 and 6 Volatile crop performance and stagnation in cultivated area Share in GDP (%)

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Diversification, value addition and productivity enhancement in agriculture sector is critical for the overall performance of the economy. This is especially so since the availability of agriculture land seems to have stagnated around 22 percent of total land in country. However, there is some improvement in the total cropped area that increased from 22.75 million hectares in 1999-2000 to 23.85 million hectares in 2008-09 (see Figure-7). But serious challenge in terms of agricultural wasteland remains in place. Pakistan has over 8 million hectares of land almost half of which lies in Balochistan can be brought under cultivation with the help of public and private partnership especially focusing addressing water management problems (see Figure-8).

Figure-7 and 8 Economic growth and agriculture sector performance Total Cropped Area

Share of Agricultute Wasteland

(Million Hectares)

(8.2 million Hectares)

30

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20 Balochistan 49%

10

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Punjab Khyber Pakhtoon Khwa

KPK 15%

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Research Reports Productivity when measured in terms of yields is considerably low in Pakistan when compared internationally. Yield in the two major crops, wheat and rice, is low both when compared with world standards and against countries China, Uzbekistan and Egypt (see Figure-9 and 10). In the case of rice, productivity is still low against many comparable economies despite considerable increase in the use of highyield certified seeds and hybridization for developing locally suitable varieties. China has become the global leader in the production of hybrid rice (see Figure-11). Leading private sector rice companies are working to promote widespread adoption of hybrid rice technology for which they have also successfully joined hands with their Chinese counterparts. The cotton story of Pakistan is also not very different in terms of yields (see Figure-12). Cotton is the most important pillar of Pakistan's economy. More than 60 percent of Pakistan's foreign exchange earnings are based on textile exports. Low cotton yield is weighing negatively on the performance of textile industry.

Figure-9 and 10 Pakistan has a lot to catch-up in wheat and rice yields Wheat

Rice

(Metric Tons per Hectares)

(Metric Tons per Hectares)

12

7 6 5 4 3 2 1 0

10 8 6 4 2

Prel. 2009-10

2010-11 Projection.(Apr)

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Figure-11 and 12 Comparative rice hybridization and cotton yields China has taken lead in Hybrid Rice Production 20

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W U o ni te rld d St at es Ch in a In di Pa a kis ta n Br az i Tu l rk ey Sy Au ria st ra lia Eg yp M t ex ico

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2008-09

Prel. 2009-10

2010-11 Projection.(Apr)

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Research Reports

2.

Growth Challenge in Agriculture Pakistan's agriculture sector is of systemic importance to the country's economic growth. But despite being the mainstay of Pakistan's economy, the sector is faced with complex and multi-dimensional growth challenges stemming from chronic policy neglect (see Figure-13). Agriculture has not been treated as an engine of long-term growth especially through the promotion of agri-business activities. Resultantly, Pakistan also failed to take full advantage of its large domestic market and geo-strategic location for penetrating regional and global food supply chain. The sector has witnessed volatile growth in the presence of poor quality and expensive inputs such as seeds and pesticides resulting in low yields; outdated farming practices and low skill-level especially in processing causing high waste of up to 40 percent of various produce; inefficient and ineffective farming practices and post-harvest handling; fragmented and low research capacity as well as constrained extension services; poor access to finance; crumbling infrastructure especially of irrigation network and resultantly diminishing of water availability at the farm-gate and lack of processing facilities.

Poor Quality Inputs

Low Mechanization

Poor Yields

High Input Prices

Population Pressure

High Waste Level

Low skill Level

Water Poverty

Low ValueAddition

Crumbling Infrastructure

Lack of Strategy

Poor Extension Services

Fragmented R & D

Lack of Action

Regulatory Weaknesses

Weak Monitoring

Weak Planning

Agriculture Performance Bottlenecks

Weak Post-harvest Practices

Out-dated Farming Practice

Figure-13

Source: From the authors (2011)

The present agricultural research and development system lacks coordination and integration. There is a shortfall of qualified researchers due to lack of proper career structures and incentives. The government has not implemented a concerted research and development (R&D) program since the Green Revolution of the 1960s. The result is that Pakistan lags behind comparator countries such as India and China in yields per hectare of all major crops. Soil degradation poses a substantive challenge to increase the productivity and growth in the sector. Lack of investment and technical expertise for reclaiming land has turned more than 8 percent of the total land area as cultivable waste. Land holdings are either very large or very small, as a result of which it is difficult to achieve efficient scale.

A large quantity of fertilizers and seeds are produced in Pakistan but remain insufficient to meet all demand.

With regard to quality of seed, Pakistan is still lacking in the production of high yield varieties fit for local cultivation. The government will need to launch a concerted drive for seed development, testing, and certification. The agriculture sector as a whole contributes around 22 percent to GDP, yet it receives less than The Lahore Chamber of Commerce and Industry

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Research Reports 5 percent of all bank credit. Access to agro-credit is cumbersome and marred by a lack of innovative financial products. In addition, farmers are often unaware of the limited credit that is available to them.

Farms in remote areas find it difficult to access markets due to poor road network and transport facilities. The absence of warehouses and cold storage cause significant waste after harvesting. The wholesale (mandi) markets system infrastructure is in poor state and lacks proper hygiene, sanitation, drainage, and storage facilities. This result in low returns to farmers. Farmers are also not provided adequate market and demand intelligence.

3.

Opportunities in Agriculture Removing binding constraints to agriculture sector development will help attract new investment and opportunities for job creation (see Figure-14). Pakistan has a large domestic market and the country's favorable location provide unique opportunities to penetrate regional and global food supply chain. The sector offers unique food processing and packaging opportunities especially in the areas of essential oils extraction, organic trade, dairy and livestock, cold storages, fisheries, horticulture, and floriculture.

Figure-14

Opportunities for Investment and Value-addition in Agriculture High yield seed production

Processing and packaging

Cold storages

Essential oils extraction

Medicinal planting and processing

Dairy and livestock

Biodiesel crops

Organic Food

Extension Services

Source: From the authors (2011)

l ? Production of high yield seeds varieties – agriculture sector in Pakistan can greatly benefit from new

investment in nascent seed industry. This offers huge growth potential for productivity enhancement. The private sector has made substantial inroads into the developing high-yield seed varieties of rice. Since 2005, several national and multinational seed companies have entered in hybrid rice business. This has led to certification of around 36 rice hybrids varieties, 19 of national and 4 multinational seed companies, for cultivation in Pakistan. Currently, around 15 seed companies are doing hybrid rice business. The area under hybrid rice has increased from 0.05 percent to 24 percent of IRRI area during 2002-10. This is great success story which needs to be replicated across the entire seed requirement.

The government has to recognize that in BT hybrid cotton seed private sector is still not being accorded a lead role. Both in the case of varieties approved and awaiting approval, private sector is competing with 150

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Research Reports public often heavily-funded research bodies with enjoying a level playing field (see Figure-15 and 16).

Private sector investment in R&D is highly risky but government-owned research bodies have no such pressure. Efforts are required to wither reduce the role of public sector research bodies in favor of private sector or help both sides to work together in a public-private mode. But the prevalent trend in this regard shows that private sector is more productive in producing new varieties of BT hybrid cotton seed.

Figure-15 and 16 Private sector competition with government-funded research Candidates for Approval

Approved Varieties 12

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Bt Hybrids Private Sector

Pakistan has to make rapid progress in this regard since BT hybrid cotton seed has helped India double its cotton production from 16 million bales to around 33 million bales in five years during 2003-08. India has excelled in developing BT hybrid cotton seed germplasm whereas China has made impressive progress in developing fusion gene. In this regard, special attention should be placed to help leading private sector seed development companies forge joint ventures with their Indian and Chinese counterparts while allowing them the import right high-yield varieties for large field trials and local production. l ? Food processing and packaging – Pakistan's agriculture sector offers many investment opportunities in

grading, processing, packaging and cold storage. These investments could substantially reduce post-harvest losses and generate new employment and exports, particularly for the country's fruit and vegetables. The government create special incentive framework for investing in food processing and packaging since these activities have special significance for diversifying our export base while creating large-scale jobs in the country. l ? Essential oils extraction – global food, cosmetics and health care industry can be readily tapped into by

promoting investment into the extraction of essential oils. Pakistan has diverse varieties of exotic seeds, fruit peels, stems, barks, wood roots, and plant secretions having rich export potential. These are low cost high value raw materials widely available throughout Pakistan. Essential oils are extensively used for flavoring foods, as fragrance in washing agents, perfumes and in beauty and skin care products. Private investment should be promoted in the large-scale production of these natural raw materials as well as helping private sector establish modern extraction facilities. l ? Medicinal plants – soil and climatic conditions in Pakistan are highly suitable for producing various

medicinal and aromatic plants and herbs which are essential raw materials for global pharmaceutical industry. Many highly sought after varieties of medicinal plants are already grown in the country often as natural outgrowth. The best part of medicinal planting is that many varieties grow without much watering and care. Both the federal and provincial government should work out a strategy to identify area available for such plating and lease it to private sector for specific purpose. The private sector should work with global partners especially in the pharmaceutical industry to adopt best practices in medicinal planting and its processing. This can unleash promising investment opportunities in the processing of these plants and herbs to use as raw materials for cosmetics, perfumes, herbal teas, and natural health products. l ? Organic food – the global food market is witnessing growing demand for high value organic foods.

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Research Reports Pakistan can take advantage of these trends by promoting awareness about organic farming among farmers. This will help crop diversification and Pakistan will have a special place in this niche in the growing global organic trade market. l ? Dairy and livestock – despite being the world's third largest producer of milk, Pakistan continues to be a net

importer of milk products. Milk processing is very low compared to world and regional standards. The government should work with private sector to develop an integrated livestock and dairy industry action plan to address gaps in livestock breeding, feed production, and processing of dairy products. Efforts are required to introduce high productivity cattle and modern milking machines. Feedlot farming, forage development and commercial livestock husbandry offer wide-ranging investment opportunities. Livestock production enhancement can improve the performance of agriculture, value addition and halal exports especially to Middle East. l ? Biodiesel – Jatropha, Castor and Pongamia planting opportunities are available throughout the country

especially in Punjab and Sindh. The biodiesel produced from these plants could replace 5 – 10 percent of national mineral diesel requirements. Planting for biodiesel is low cost, grows fast and produce seeds within one year. The Alternate Energy Development Board launched a campaign to increase the cultivation of Jatropha, the highest yielding biofuel crop, countrywide and especially in Sindh.

4.

Securing Agriculture in Pakistan In order to improve agriculture sector growth prospects, a comprehensive and target-oriented strategic framework backed by an implementation plan is needed (see Figure-17). The key focus of the framework should be on inducing a shift from input- to productivity-led growth in agriculture. This requires right policies and institutional and regulatory framework as well as considerable increase in public investment to build research capacity for promoting innovation to improve the quality of inputs especially high-yield varieties of seeds as a way of ensuring food-security. Improving conditions for agriculture growth will ensure productivity and encourage greater value addition in the sector. This must also be coupled with large-scale efforts to improve soil conditions through tacking salinity and water-logging. Pakistan's overall agricultural performance ultimately depends on how diversification and value-addition in the sector is promoted without which it cannot improve its overall competitiveness. A competitive agriculture sector is essential for improving rural incomes and reducing poverty in the country.

Figure-17 Innovation

Poverty Alleviation

Productivity

Securing the Future of Agriculture in Pakistan Food Security

Sustainability

Competitiveness

Diversification

Source: From the authors (2011)

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Research Reports It goes without saying that there is no dearth of solutions to develop a truly competitive agriculture sector in the country. Reform efforts have been in motion since the last two decades without much sustainable growth outcome. We believe now is the opportunity to take stock of these reforms to improve the focus of efforts and resource utilization. In the following, we recommend a set of policy options to improve growth prospects in the sector. Timely policy action in the above measures would contribute greatly toward improving the productivity and competitiveness of agriculture and livestock production. Private support, through encouragement and public-private partnerships, constitute important modalities to obtain results that might otherwise be constrained by the scarcity of public financial support. l ? Improve water storage and use – large-scale investment is needed to reverse water stress and scarcity in

the country that is turning into a binding constraint to Pakistan's agricultural sector performance. The country gets around 104 million acre feet (MAF) of water but only 70MAF of water is available at the farm gate. Pakistan has only 13 percent capacity to store its water as compared 40 percent in the world. It is estimated that Pakistan will have 22 – 33 percent shortfall in the availability of irrigation water by 2025. The Islamabad-based Centre for Research and Security Studies posited Pakistan is becoming “water-stressed” country. But the World Bank has gone one step further in arguing that Pakistan is moving from being waterstressed to a water-scarce country. l ? Improve agricultural research – a meaningful and practical dialogue is need between various disjointed,

multiple and ineffective provincial and federal level research agencies and universities. It is also crucial that the provincial authorities maintain a dialogue with the federal authorities with the objective of steering federal research in directions that are useful to the province. Private research organization needs to be encouraged. l ? Improve agricultural extension system – extension services need special policy focus for promoting the

effectiveness of public as well as the role of private sector for improving the linkages knowledge, innovation and resource management. The private sector can play an instrumental role in achieving smart extension services. The government needs to partner with private sector which is already gearing up to efficiently provide timely advisory services as well as supply of essential fertilizers, high yield varieties of seeds and credit. l ? Compliance with Sanitary and Phytosanitary standards – Pakistan's true agriculture and livestock

potential can only be realized through greater Sanitary and Phytosanitary Standards (SPS) compliance. SPS for food safety as developed by the World Trade Organization matter for improving export competitiveness of agriculture products. SPS compliance is costly which is hindering competitiveness of producers, processors and exporters. At the same time, Pure Food Rules which provide a mandatory framework for ensuring food safety in the country and are implemented by provincial authorities need comprehensive review and enhancement. Strengthening and capacity-building of District Health Officer and Deputy Health Officers is very important to ensure food safety. l ? Deregulate agriculture sector – reducing government control especially from factor markets leads to

efficiency because markets forces create better prices but it is important that monopolies and cartels are kept in check. Reduction in government control can improve supply and thus better prices. Market forces can better supply inputs, extension services and research outcomes its commercialization.

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Research Reports Agriculture SWOT Analysis STRENGTHS ? ? Large tracts of cultivable land ? ? Low cost of labor ? ? Good climatic conditions ? ? Large and growing population ? ? Long-standing indigenous farming culture ? ? Excellent natural endowments in livestock,

horticulture and floriculture ? ? Good potential for organic farming ? ? Increasing awareness of problems in the

sector ? ? Technical support from donors and other

development partners

WEAKNESSES ? ? Low public investment in modern farming

technology ? ? Low support for R&D ? ? Outdated faming skills and poor on-farm

and post-harvest practices ? ? Weak farm-to-market infrastructure ? ? Absence of cool chains ? ? Low value addition in meat, dairy,

horticulture processing ? ? Disparities in land ownership and utilization ? ? Lack of focus on branding and marketing of

agro-products ? ? Poor industry-university linkages ? ? Low credit supply

THREATS

OPPORTUNITIES ? ? Huge domestic market

? ? Environmental degradation

? ? Geographic proximity to large markets in

? ? Crop diseases

Middle East, Central Asia and beyond ? ? Growing global demand for food including

meat, dairy, seafood, horticultural, and floricultural products ? ? Investment in water storage and use ? ? Irrigation technologies to improve efficiency

and productivity ? ? Large foreign retailers can benefits from

investment to penetrate the large local market and export potential ? ? Untapped value addition activities

? ? Lack of investment in water storage and

usage ? ? Competition from regional economies such

as China and India and other regional competitors ? ? Lack of strategic focus on enhancing

available comparative competitive advantage in agriculture ? ? Slow technology adoption ? ? Poor governance of public sector

agricultural initiatives ? ? Legal and regulatory bottlenecks

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The Steel Economy of Pakistan: Key Growth and Competitiveness Trends

Background Steel has been an integral part of mankind's eternal journey towards prosperity. The unique feature of the steel industry is that it enjoyed equal prominence in both social and economic development through ages. With the passage of time, techniques used in steel production and its usage have greatly evolved. A great deal of sophistication has seeped into production and usage. It has completely transformed urban living. The mushroom growth of skyscrapers sprawling cosmopolitan areas around the world is just an emblem of the supremacy of steel in contemporary living. Per capita steel usage has drastically increased. In essence, steel has become the locomotive of modern day life and economic activities.

Pakistan is still lagging behind in steel production and usage. The sector's growth and competitiveness is challenged due to a number of systemic reasons including low economic growth, downturn in construction and infrastructure development activities, high cost of production and the continuation of state presence in the sector.

This is distorting steel market and industry's growth in the country. The industry's technological readiness is low to compete with comparable exporters. Local raw materials are mainly lying idle.

Policy framework is not adequately addressing private sector apprehensions on investing in high-tech steel production. Furnaces are outdated and waste a lot of energy. Technology up gradation is greatly missing.

In view of the above, Pakistan's steel industry is undergoing an uncertain phase and growth outlook blurred. This is partly because economic recovery remains fragile and export opportunities highly competitive due to a widening differential in cost of production and large capacity sitting idle worldwide. Local growth opportunities are limited as construction and infrastructure development is undergoing slump while the international market place is squeezing opportunities for smaller players like Pakistan. This paper aims to look into some of the key growth and competitiveness trends in local and global opportunities.

1.

Global Steel Industry Global steel industry is dominated by China with around 44 percent share in the international ferrous market followed by Japan and United States of America both having share of 8 percent and 6 percent respectively in 2010 (see Figure-1 and 2). Global crude steel production increased to 1,414 million metric tons (MMT) in 2010 with 15 percent increase over 2009. This has helped leading steel producing countries to record double-digit growth in 2010. This is despite the fact that construction and infrastructure development spending has declined owing to the persistence of global financial crunch and uncertain housing markets especially in advance economies. Emerging economies will be a major source of growth in the global steel industry. We also expect consistent increase in the per capita usage of steel in developing countries such as Pakistan.

Figure-1 and 2

Top Ten Crude Steel Producers – China: the steel dragon of the world 2009

India 6% Japan 8% South Korea 4%

China 41%

2010

USA 5% Brazil 2%

Russia 5% Ukraine 3%

Other 34%

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ROW EU-27 13% 13%

India 5% South Korea 4%

Japan USA 8% 6%

Brazil 2%

Russia 5% Ukraine 2%

China 44%

Other 31%

EU-27 12%

ROW 12%

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Research Reports Robust production is only part of the growth story of global steel industry. The real story is one of a gradual shift towards great technological orientation. This is partly due to heavy environmental burden that the global steel players are trying shake off and partly due to unrelenting efforts to keep cost under control.

Global steel industry is undergoing a sharp shifty towards energy efficiency. The drive towards energy efficiency is determining cost competitiveness of steel industry. Larger players dominating the global supply chain of steel products are already preparing to adjust with technological advances and adjust their production processes to environmental needs. However, small steel manufactures will face serious challenge to their survival due to their lack of capacity to invest in technological up gradation and bear the cost of environmental compliance. This may lead to some consolidation in this segment of the steel industry.

2.

Steel Landscape of Pakistan Pakistan has a small scale steel industry when compared with its production capacity and size of the population. The country's per capita consumption of steel is comparably quite low standing at less than 14 kilograms (kgs) whereas it is around to 422 kgs in China and around 2035 kgs in Qatar (see Figure-3 and 4).

The global average per capita consumption is around 183 kgs. It points to two things. First, the construction and infrastructure spending is still low in Pakistan when compared with economies that are made impressive strides in physical development. Second, the prospects for investment in steel industry are bright to meet the future needs of a large and growing population and economy. We believe that per capita steel consumption can double during the decade. This is particularly significant given the abundant and untapped resource base. This will be instrumental in meeting growing demand for iron and steel products. Notwithstanding the current state of capacity, productivity and growth profile, Pakistan's iron and steel industry constitute an important part of the country's economy.

Figure-3: and 4

Per capita consumption of steel in Pakistan is greatly lagging behaind Comparative per Capita Steel Consumption (Kgs)

Kgs 2500

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Despite low per capita consumption of steel and abundance of resources, demand for steel continues to outstrip supply (see Figure-5). This is a clear evidence of policy failure rather than market failure. Private investment has been forthcoming in the steel industry. But it is the presence of state in the steel industry that has led to a situation where Pakistan has unnecessarily become dependent on imported raw materials. The state presence in steel industry in the form of Pakistan Steel Mill (PSM) and through various bureaucratic instruments, regulatory risk remains high impeding large-scale private investment activity. Without attracting large-scale private investment, the growing supply and demand gap will not be filled as a result of which prices will remain under severe pressure.

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Research Reports

Widening supply and demand for Iron and steel is a serious challengePer

Figure-5

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Pakistan's steel industry is dominated by Small & Medium scale Re–rolling Mills (SRRM's) engaged in re-rolling, forging, foundry and arc furnace melting activities that are not only energy intensive but also have substantial environmental externalities. These units cater for more than half of the country total demand and have significant production flexibility. However, SRRM's biggest challenge is the cost of energy which accounts for more than 30 percent of their expenses. The industry lacks linkages with research centers hindering its quality competitiveness and their growth is constraint by two key forces including heavy taxation and lack of energy efficient technologies. This is eroding cost competitiveness of the local steel industry viz-a-viz the challenging global trading environment. Resultantly, the local industry has an insignificant share in the global steel market. It remain an importer of iron and steel products despite having rich raw material base which has the potential to make the country a major exporter in this area. Currently, Pakistan's iron and steel exports are negligible (see Figure-6 and 7).

Figure-6 and7 Top 10 Iron & Steel Impoting Countries and Pakistan-2009 (Billion US$)

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Top 10 Exporting Countries of Iron & Steel and Pakistan-2009 (Billion US$)

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Pakistan mainly produces long steel products with production estimated at around 4 million tons. The share of flat products stands at around 1.5 million ton. The country is faced with a supply-demand gap at around 2 million tons. Around 80 percent of the steel production is clustered around major cities of Punjab including Lahore, Gujranwala, Islamabad, Sheikhupura, Multan and D.G. Khan. The country's iron and steel exports

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Research Reports are mainly concentrated in six markets including Afghanistan, China, United Kingdom (UK), Djibouti, Netherlands and United Arab Emirates (UAE). Despite having countless opportunities to export on the basis of much need utilization of large raw material base, the industry is unable to produce for selling international in a diversified market. On the other hand, since local industry is being accorded due access to local raw materials it continues to source iron and steel raw materials from wide ranging countries internationally.

This is weighing heavily on its growth and competitiveness (see Figure-7 and 8). Efficient and responsible exploitation of local raw materials is the key to growth and competitiveness of any industry.

Figure7and8

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Top 10 importars of Iron & Steel Products into Pakistan-2009 (US$ Million)

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Pakistan’s top 10 Export Destinations forIron & Steel products-2009 (US$000)

Steel production in Pakistan is mainly based on two technologies including the orthodox blast furnace (BFI) and Directly Reduced Iron (DRI) whereas advanced economies like America and Japan are deploying new technology called ITmK3. Pakistan steel industry's biggest challenge is to secure iron ore supplies. For this the industry has to two things. First, strengthen intra-industry coordination. Collective bargaining and pooling of resources to explore all option regarding securing supplies of raw materials is essential. Working together will enhance their collectively. Second, lobby the government to work with the industry players to ensure adequate supplies of raw material primarily from local resource base. The unprecedented rise in international steel prices has been an opportunity missed for the local industry in terms of technological up gradation. Industry's impressive growth has not been translated into a modernization drive. The industry associations have also not capitalized on this window to mobilize its members improve their productivity.

Despite having one of the largest iron ore reserves, Pakistan's steel industry continue to heavily depend on imported raw mostly on steel scrap. The shipbreaking industry is the main source of scrap iron and steel and is believed to be catering almost two thirds of local needs. However, PSM has relatively better access to local iron ore reserves especially in Chaghi, Balochistan. The progress towards efficiently utilizing local iron ore deposits has been rather slow. Punjab has over 109 million tons iron ore deposits discovered in 1989.

Chiniot and Rajoa, Jhang, Mianwali and Dera Ghazi Khan. Production in the steel industry of Punjab increased from 1.8 MMT per annum to 4.5 MMT per annum. The sector attracted over US$500 million of private investment in middles of last decade alone.

Efforts are still required to complete techno-economic feasibilities of all available resources in the country.

Similarly, iron ore reserves in Dilband in Balochistan stand around 200 million tones having Fe content of 4548 percent. Currently, PSM has a five-year agreement to extract 100,000 tons of iron ore deposits from Dilband per annum. Kalabagh iron ore deposits estimated at around 300 million tones are the largest in the country. However, these deposits are relatively of low quality having Fe content between 32 to 34 percent.

Iron ore deposits at Pachin Koh-Chigendik in Chagai district of Balochistan are estimated at between 50 - 100 million tones.

3.

Binding Constraints

l ? Underperformance – Pakistan's steel industry is underperforming due to a combination of challenges

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Research Reports including: i) energy crisis; ii) high cost of doing business and production; iii) low local and global growth prospects; iv) lack of private investment owing to poor law and order and security situation; and v) high interest rates. l ? Lack of technological up gradation – outdated and cost- and environmentally-inefficient technology. This

is not only serious growth and competitiveness question for large producers of iron and steel products but also a question of viability for the industry's dominant population of small and medium enterprises (SME).

Majority of rerolling SMEs have outdated technology. l ? Restricted and high cost borrowing – one of the key constraints to technology up gradation in local steel

industry is the constrained and expensive finance. Most banks lack capacity to understand the need and implications of technological up gradation in local steel industry. Resultantly, they often shy from lending to such project. Moreover, the cost of borrowing is already very high in the country owing to the persistence of tight monetary policy stance. In developed economies, such finance is often provided by venture capital institutions which have not been successfully developed in Pakistan. l ? Untapped resource base – Pakistan's rich iron ore reserves are greatly untapped. This is a serious policy

glitch. It makes poor economic sense to increase dependence on imported raw materials despite having abundance of indigenous resource base. The government lacks strategic focus in successful exploitation of its local natural resource base. The problem is that governments has not been forthcoming l ? Lack of collective bargaining – the industry associations lack voice and cohesiveness in collaborating

together to understand drivers of growth and competitiveness in steel industry. Forces that drive supply, demand and profitability in the steel industry change not only with a systemic shift in global financial, trading and environmental dynamics but also due to the state of domestic economic, investment and infrastructure.

It is important that the industry associations understand these drivers of change and prepare member adjust with a systemic shift in the business condition. At the same time, coordination with the government ministries and bodies also need enhancement for a result-oriented collective bargaining that can mobilize time policy response.

4.

Strategic Recommendations

l ? Low-cost and reliable electricity – since iron and steel production is energy-intensive and especially in

Pakistan due to outdated technology, the government has to expeditiously ensure energy security for the industry. Low-cost electricity will open up new investment opportunities in the industry. l ? Productivity enhancement – a strategic shift in the local steel industry for adopting productivity

improvement measures is long-overdue. For this, the government has to facilitate industry work with the academia and research institutions to adopt innovative production technology. At the same time, labor productivity must also be improved with the help of training and skill development. Firms operating out of clusters can join hands to learn together to improve productivity. Inter-firms learning will help to improve the overall competitiveness of the local steel industry. l ? Participation in the global supply chain – the local steel industry can only competitive and a major source

of economic growth if it is able to participate in the international supply chain. This would only materialize if the industry has ready access to raw materials and an enabling business environment especially with the help of cheap energy and low-cost regulatory compliance. l ? Improve raw materials – government needs to development and implement a mining strategy with special

focus on efficiently mining local iron ore reserves. Primitive mining techniques are economically and socially being discarded. Technically, financially and ethically sound mining techniques can greatly help the industry to effectively tackle its raw material crisis. , Latest mining techniques are considered. l ? Ensure social and environmental compliance – the steel industry is known for having a very large carbon

footprint. This must be reduced because pollution is an ethical question that is also undermining sustainability. Improving compliance with social and environmental regulations will not improve industry's viability but will also contribute to protecting communities and the country's ecosystem.

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Research Reports

Competitiveness of Banking Sector in Pakistan Key Issues

l ? Banking sector plays a critical role in economic growth and development performance in any economy. But

this critical link is largely missing in Pakistan. Banks in general have done well as an industry but they are far from being competitive. l ? Banking industry in Pakistan is operating under extremely fragile economic conditions characterized by low

growth, high inflation, large fiscal deficit, dwindling foreign direct investment and a ballooning debt level as well as by precarious security situation, poor law and order, political instability, growing energy crisis are also weighing negatively on the growth prospects. In a generally low economic environment and large budgetary commitments including the expensive commodity operations and losses of public enterprises, the government heavily relies on the banking sector for deficit financing. l ? Uncontrolled government borrowing to finance its fiscal deficit that is fuelling high inflation while “crowding

out� private sector credit and investment. It is also responsible for the persistence of ultra-tight monetary policy and high interest rates. In this environment, banks hesitate to lend. High cost of borrowing is constraining new investment without which economic activities and job creation cannot be promoted.

Banks need to play a bigger role in mobilizing domestic savings which are critical to increase the overall investment levels. l ? We believe that banking sector in Pakistan is not geared to support high long-term growth averaging 7

percent per annum for at least a decade and half to really make a dent in abject poverty levels and for meaningfully lifting living standards of the majority of population. l ? Despite low growth and weak real sector, banking industry continues to enjoy healthy profits due to lack of

competition and unchecked cartelization. Banking sector spreads remain close to 8 per cent but banks soundness continues to deteriorate. Banking sector need consolidation especially in the small and mid-sized bank for improving competition. l The State Bank of Pakistan (SBP) needs to ensure prudential regulations are in line with growth and

competitiveness needs of the banking industry and economy alike. In this regard, SBP needs to play special attention excessive risk-taking as well as undue tightening of lending practices constraining investment and economic growth. SBP also need to ensure the availability of venture capital also known as risk finance for greater entrepreneurial activities especially in the SME sector.

Introduction A competitive financial services industry in general and banks in particular are considered the central plinth of economic growth and development all over the world. This is partly because well-functioning financial intermediaries are essential for reducing overall transaction cost in the economy and partly because banking industry is a fundamental conduit for international integration of any economy. This has certain advantages and disadvantages. Banks are often the first to open up the doors of an economy to the world through their countless cross-border financial transactions completed every minute. But at times of global financial distress, banks are also the first one to be hit cascading into credit crunch, low investment and erosion of investor confidence thus dampening overall growth prospects. Often, central banks and in some cases specially-instituted independent regulatory authorities painstakingly monitor the behaviour of banks and their exposure to risk to ensure undue excesses both during booms and busts. The risk-based approach to regulation of banks is widely recommended and practiced. Regulators also aim to ensure banks serve their customer efficiently and fairly. This is only possible when banking sector is fully competitive.

Without an efficient, cost-effective and risk-based regulatory oversight, a sound and well-functioning financial sector cannot be guaranteed. The financial crisis of 2008 that reminded the world of the Great Depression of 1930s fully highlighted the critical importance of central banks and regulatory authorities. This is where Pakistan has great deal to achieve. Although the country has not yet seen a major collapse in the banking sector but it does not mean there is no cause for concern. The nature of challenges facing the banking sector in Pakistan is not perhaps unique but they certainly have serious growth and competitiveness implications. The level of competition, customer service, product range, value for money, soundness of balance sheets and lending practices are some of the areas where the industry itself as well as an independent regulator need to work consistently and in consonance with each other. State should mainly limit its role in facilitating the industry to be

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Research Reports competitive by ensuring enabling business environment. But in Pakistan, the state still owns around 20 percent of banking assets despite privatization as part of financial sector reforms which presents a set of its own challenges.

Today, Pakistan has a thriving and growing banking industry comprising of 5 public sector banks, 26 local private banks, 6 foreign banks and 4 specialised banks. Along with monetary policy management, SBP also acts as regulator of the entire financial services industry. Microfinance institutions and Islamic banks have enjoyed robust growth. However, the local banking industry is far from being internationally competitive. The industry as a whole is faced with two immediate challenges. First, the industry as a whole has not been able to diversify its income generation as most of it emanates from interest earnings. Income from advisory services is still very low.

Second, the industry is divided into two segments. Extreme concentration of market power among five largest banks on the one hand and on the other extreme fragmentation by many smaller players. As a result of lopsided industry structure, competition is not taking strong roots in the banking sector. The structure of the sector has undergone drastic shift in the wake of around 40 merger and acquisition since 2000 and offers with vast opportunities for further consolidation.

1.

Banks and Global Economic Conditions Leading global banks jolted the international financial system in 2008. What started as a consequence of weak regulatory framework causing extreme risk-taking and leveraging in the banking system primarily in the United States (US) and subsequent complete meltdown of sub-prime mortgage business undermined global growth in general and of advanced economies in particular. The systemic risks emanating from reckless lending and leveraging of many US and European banks cascaded into job shedding and high level of public debts in many advanced economies thus dampened exports and foreign exchange earning of many developing economies such as Pakistan. It also led to the collapse of global giants like Lehman Brothers while an almost inevitable run on many US and European banks that were excessively exposed to the sub-prime mortgage crisis was only averted after G8 countries led by US scrambled to bailout banks by direct government interventions. US Federal Reserve injected US$600 billion worth of liquidity in the financial system through the purchase of federal debt. The risk of a prolonged and great recession was almost reversed by 2010 on the heels of large and well-synchronized fiscal stimulus and ultraaccommodative monetary policies adopted first by G8 to prop up their economies.

The combination of large liquidity injection totalling over US$15 trillion during 2007-09, quantitative easing and low interest rates as part of a coordinated response by G8, China and euro zone economies supported by international financial institutions helped to revive confidence in the global financial markets. The approach adopted for injecting fiscal liquidity was based on the Japanese model where the central bank intervened to check stem deflation in 2001. The global economic and financial brinkmanship that began in late 2008 led to somewhat anaemic V-shaped recovery during 2009 and 2010. This was mainly due to the fact that global growth prospects were not accompanied by robust trading environment similar to that experienced during the middle of last decade (see Figure-1 and 2).

Efforts are still being made to sustain the recovery of the world economy

Figure-1and2

World Trade Growth (%)

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The Lahore Chamber of Commerce and Industry

Market Exchange Rate

-10

161

Research Reports Although, most advanced economies were officially declared out of recession in 2010, yet the recovery remained fragile in the presence of fears of a possible “double-dip� recession. This is because the efforts to stave off a catastrophic financial global collapse resulted in a number of negative side-effects including a large debt overhang. It caused a great deal of anxiety among economic managers around the world who after having exhausted all fiscal and monetary policy tools to stabilize the world economy were now concerned about the domino effects of sovereign defaults. These fears were not all without reason and especially since European leaders and the International Monetary Fund (IMF) initiated a bailout programme for Greece's with an immediate injection of around US$16 billion to avert the country defaulting on its debt repayments. Similar concerns are still rife over the ability of Spain, Ireland, and Portugal to honor their borrowing commitments.

Global economic conditions remain tough. High oil prices, social and political unrest in Middle East and North Africa and the damage done by a record earthquake in Japan will continue to weigh negatively on global economy which is expected to grow by 4.2 percent this year. Public sector borrowings in most advanced economy have edged up and in some cases to double digit as in the UK. The US economy is still reeling from high unemployment standing at around 9 percent as it lost 8.42 million jobs since recession began in December 2007. Job creation remains weak in most G8 countries. However, China has largely managed to protect its impressive growth story albeit with the help of strong fiscal and monetary support.

Private consumption is holding up around the world but business sector is still hunkering down and continues to shy away from making major investment commitments. Banks are also likely to remain excessively cautious observing tight lending standards as they continue to deleverage and trying to rebuild their balance sheets.

Unstable financial markets and high public sector debt incurred during economic revival and resuscitation through bailouts and fiscal stimulus plans will continue to challenge global growth for some years.

However, international movement of capital and goods will pick up momentum in 2011 as global consumption demand recovers. In this situation, tightening of fiscal and monetary policy too fast and too early can be a little premature. With most G8 countries having already used most tools in their macroeconomic armory including easy fiscal and monetary policy stance, coping with another recession would be daunting. Central bank and economic manager should wait till growth recovers to its potential level and the withdrawal of fiscal and monetary stimulus should be gradual and measured. What is most needed in terms of avoiding the repeat of worldwide systemic capitulation of economic and financial system is a comprehensive and coordinated revisiting of regulatory frameworks. This should be designed to avert large-scale market and regulatory failures in future. The economic and financial regulation needs to be smart and targeted to ensure banks have sufficient capital and ability to stay out of excessive risk-taking.

2.

Banks and Economic Conditions in Pakistan The role of private sector in financial services industry in Pakistan has considerably evolved since the days of strict state controls over exchange rates, interest rates and subsidised credit especially during the first four decades after independence including the nationalization of banks and insurance companies in the early 1970s. These interventions were designed to direct credit to certain economic sectors which distorted the interest rate structure. Financial liberalization has come a long way since an intensive phase of marketoriented economic reforms began in late 1980s Financial sector reforms in Pakistan began in 1989 which led to: 1) liberalisation of interest rates and credit controls; 2) positive real interest rates for deepening of the banking system; 3) competition; and 5) improved regulation and supervision.

Financial soundness of banks has relatively improved with the help of enhanced capital adequacy ratio (CAR) and reduction in non-performing loans (NPLs). Banks have also strengthened their lending practices on the back of consumer credit history information. But at times, bank lending practices are far too conservative. Consumers are now readily benefitting from the induction of modern technology that has made available on-line banking, ATMs and some mobile phone services. Consumer financing boomed with the introduction of Credit Cards and Debit Card. The degree of competition has increased. Corporate governance has become more sound and sophisticated on the heels of 'Fit and Proper' criterion for key personnel. But considerable work is still required to ensure competitiveness and confidence in the local banking sector.

Nevertheless, reforms of the banking industry during the last two decades have helped introduce a degree

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Research Reports of service-orientation, competition and financial innovation. Privatization of nationalized commercial banks improved their profitability, efficiency and capital base while reducing the level of NPLs standing at almost 7 percent of GDP in 1997 to around 3.6 percent of GDP in 2010. The banking industry has experienced remarkable growth with a large branch network standing over 9000 throughout the country. Apart from local banking institutions, foreign banks are also present adding an enhanced competition dimension. SBP recently granted licence to the Industrial and Commercial Bank of China (ICBC) in December 2010.

Specialised local banks continue to emerge as is the case with the establishment of Sindh Bank for meeting credit needs of agricultural and small businesses in Sindh.

However, economic conditions are tough for banking sector to progress further. Pakistan's GDP growth recovered from 1.2 percent in FY2009 to 4.1 percent in FY2010 but still under-performing relative to nearby Asian economies such as China, India and Bangladesh. The economy is expected to expand by 2.5 percent during FY2011. Low growth and high inflation are not only undermining standards of living in the country but has also increased credit risk for banks as non-performing loans (NPLs) edge up sharply resulting in tightening of lending practices. The structure of the interest rates is unlikely to support growth. The benchmark policy rate stands at 14 percent. This is mainly due to high government borrowings. The persistence of large fiscal deficit and the consequent inflation are key drivers of double-digit lending rates.

Inflation threshold in Pakistan is around 9 percent beyond which point it leads to negative impact on growth.

In order to curb high inflation, SBP continues to maintain the discount rate at 14 percent (see Figure-3 and 4).

In the presence of unabated inflationary pressures, the cost of production and living continues to increase.

Inflationary expectations are not well-anchored weighing negatively on growth prospects. In this environment of low income growth and high inflation, banks hesitate to lend thus directly impeding economic recovery.

Figure-3and4

Impressive growth of islamic banking in Pakistan

Challenging Stagflation (%)

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11.5

GDP Growth Rate

Monetary policy tightening alone is insufficient to control inflation especially when fiscal policy is not geared towards meeting anti-inflationary objectives. It will only increase the cost of borrowing at the expense of growth. Instead of playing a bigger role in economic growth the banking sector is being used for financing the government's borrowing needs. Government borrowed around Rs.2.5 billion a day during the current fiscal year for budgetary support and commodity operations. The government borrowing from the banking sector standing at above Rs.1 trillion crowding out private sector investment and increased the cost of credit.

Fiscal deficit is expected to be around 5.5 percent of GDP during 2010-11 against the target of 4 percent of GDP. Fiscal deficit needs to be between 3-4 percent of GDP for which government should cut non-development expenditures and increase revenues. Fiscal deficit grew by 146 percent in nominal terms during June 2007 and June 2010 compared to 113 percent during June 2003 and June 2007. The persistence of large fiscal deficit continues to balloon government's gross debt (see Figure-5 and 6). Large fiscal deficit in the presence

The Lahore Chamber of Commerce and Industry

163

Research Reports of weak currency will hurt future growth, investment, prices and any efforts to curtail public debt standing at around Rs.10 trillion. Domestic debt increased to Rs.4.863 trillion while external debt has increased to Rs.4658.3 billion in FY2010.

Deficit-laden economy can dampen of the banking sector Government Gross Debt IMF Forecast (Rs. Billion)

Fiscel Deficult % GDP

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Figure-5and6

Banks have not been successful in mobilizing domestic savings that remain inadequate to meet investment needs of the economy. After fluctuating around 15 percent of GDP over the last decade, domestic savings decline to 9.9 percent in FY2010 (see Figure-7). Because of low savings, public sector investment, critical for facilitating private investment and for social and infrastructure development decreased as a percentage of GDP during the last three years. After increasing from around 17 percent of GDP in FY2003 to a record high of almost 23 percent of GDP in FY2007, total investment in Pakistan declined to a little over 16.6 percent in FY2010. Private investment also decreased from 11.3 percent of GDP in FY2003 to 10.7 percent of GDP in FY2010 (see Figure-8).

Figure-7and8

Investment and Saving (%GOP MP)

Investments (% GDP MP)

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Domestic Saving

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0 P

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Deficit-laden economy can dampen of the banking sector

Fixed Investment

Public Investment

Private Investment

Total Investment

In the presence of low domestic savings, Pakistan relies heavily on foreign financial inflows to bridge the chronic saving-investment gap and to finance the current account deficit. Home-bound remittances have been critical in supporting external financing gaps. Pakistan's economy, being the 11th largest recipient of workers' remittances in the world, heavily relies on these flows to manage its balance of payments and foreign reserves. Remittances into Pakistan substantially expanded during the last decade increasing from 164

The Lahore Chamber of Commerce and Industry

Research Reports US$2.4 billion in FY2002 US$9.4 billion in FY2010. The trend remains healthy as during the first seven months of the current financial year, Pakistan received US$6.12 billion worth of remittance with an increase of around 18 percent over the same period last year. Foreign exchange reserves have been replenished back to the over US$17 billion, above October 2007 level mainly with the help of US$11.3 billion bailout package from the IMF and strong flow of workers' remittances (see Figure-9 and 10).

Robust inflow of remittances keeping the economy afloat

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Figure-9and10

Conditions for high growth Pakistan remain fragile especially since the onslaught of recent flood that inflicted US$10 billion damage to the economy. Energy crisis is worsening especially involving increasingly expensive and unreliable supply of gas and electricity. The economy is set to grow by around 3 percent in 2011 before increasing to 4 percent in 2012 and 5 percent in 2013. Total budget outlay for 2010-11 is Rs.2764 billion. This is 12.3 percent higher than the budget of 2009-10. Resources available to the government are estimated to be around Rs.2,598 billion including estimated net revenue receipts of Rs.1,377 billion or an increase of 1.9 percent. Inflation is expected to be around 14 percent in 2010-11.

3.

Performance of Pakistan's Banking Industry Key indicators of banking industry in Pakistan presents a mixed sperformnace in most areas (see Table-1). In terms of simple absolute growth, the banking industry in Pakistan has performed rather well. Total bank assstes, net advances and deposits more than doubled in the second half of the last decade. Total assets of the banking system now stand well above Rs.7.1 trillion. However, profits have taken a hit esepcially in the third quarter of last decade and number of banks in losses increased from 7 in 2005 to 18 in 2009. Low growth and difficult financial and trading conditions globally have taken their toll. NPLs increased by more than three fold.

However, what is a very encouraging is the fact the SBP has been vigilent of changing domestic and international business conditions and forced banks to be cautious about their overall risk level. As a result, CAR consitently increased since 2005.

SBP's increasingly risk-based suppervision of the banking industry helped to avert major problems in the banking industry.

The Lahore Chamber of Commerce and Industry

Table-1 Performance of the Banking Sector in Pakistan (Rs. Billion) Total Assets Asset Growth % Net Investments Net Advances Deposits Equity Profit before tax Profit after tax No. of banks in loss Non performing loans Net Non performing loans Capital Adequacy Ratio - CAR (All banks) Source: State Bank of Pakistan

2005 3,660 20 800 1,991 2,832 292 94 63 7 177 41 11.3

2006 4,353 17.1 833 2,428 3,255 402 124 84 7 218 39 12.7

2007 5,172 18.8 1,276 2,688 3,854 544 107 73 10 218 30 13.2

2008 5,628 8.8 1,087 3,173 4,218 563 63 43 16 359 109 12.3

2009 6,516 15.8 1,737 3,240 4,786 660 81 54 18 446 134 14

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Research Reports In the wake of low economic growth, NPLs of banks have doubled during 2007 and 2009, reached Rs.548 billion by the end of 2010 as compared to Rs.240 billion in 2000. NPLs grew by 7.4 percent during JulySeptember 2010. Banks' credit risk worsened as infection ratio used to measure the level of NPLs to total loan portfolio sharply deteriorated especially in the consumer finance segment in the latter part of the last decade (see Table-2). Consumer financing almost invariably is the first victim of economic slowdown. This is exactly what has happened in the case of sharp increase in the consumer finance NPLs. In particular, NPLs of credit cards, mortgage and personal loans have seen sharp increase in the wake of low growth and high inflation.

This is again very much in line with global trend.

Table-2 NPLs to Loan Ratio in Consumer Financing %

Consumer

2006

2007

2008

2009

2.2

4.4

6.9

12.2

Credit Card

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3.4

5.5

11.6

Auto Loans

1.9

4.6

5.9

8.5

Durables

9.8

9.8

7.8

9.9

Mortgage

1.8

5.4

7.4

15.5

2.7

4.1

7.8

12.4

Personal Loan Source: State Bank of Pakistan

But NPLs have generally seen a broad-based increase. The infection ratio in the key economic sector has also worsened (see Table-3). In particular, textile sector has taken a hit in the wake of low growth and difficulty working conditions especially involving increasingly costly and unreliable energy supplies. Textile sector NPLs increased from 124.6 percent to 19.6 percent during 20078 and 2009. Such sharp increase in the textile sector infection ratio in the textile sector is worrying. This is because banking sector loan portfolios are heavily concentrated in the textile sector. Almost 40 percent of banks' loans are concentrated in the textile sector.

Table-3 Sector-wise Infection Ratio (%) 2008

2009

Chemical & Pharmaceuticals

7.7

6.7

Agri business

8.9

8.9

Textile

14.6

19.6

Sugar

9.1

19.6

Cement

6.6

12.2

Shoes & Leather garments

8.6

13.3

Automobiles & Transportation equipment

7.5

16.6

Financial

5.4

12.6

0

0.1

Insurance Electronic & Transmission of energy

3.4

7.4

Others

8.6

10.6

The ratio of liquid reserves to total assets of banks in Pakistan has constantly declined from around 14 percent in mid-1990s to around 9 percent by 2008 as the SBP reduced cash reserve requirement (CRR) and statutory liquidity reserve (SLR). In Sri Lanka, for example, this ratio has fallen from around 23 percent in mid-1990s to below 7 percent by 2008 (see Figure-11 and 12). This is very much in line with global trend in the area.

Liquid reserves of banks to meet various contingencies and liabilities have fallen around the world mainly because of innovation in financial and risk management. Central banks around the world mostly adopted expansionary monetary policies which also led to fall in liquid reserves to total assets ratio.

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Banks in Pakistan have reduced but comparatively better liquidity

Figure-11 and 12

PAKISTAN - BANK LIQUID RESERVES TO BANK ASSETS RATIO (%)

SRI LANKA - BANK LIQUID RESERVES TO BANK ASSETS RATIO (%)

16

16

14

14

12

12

10

10

8

8

0 1976

1984

1992

2000

25

20

20

15

15

10

10

5

0 1968

25

2008

5 1968

1976

1984

1992

2000

Source: TradingEconomics.com

2008

Source: TradingEconomics.com

However, despite difficult economic conditions, banking sector profits have consistently increased mainly on the heels of interest incomes which represent over 80 percent of their gross incomes. During FY2010, bank profits in Pakistan increased by 17 percent. The share of big-5 banks accounted for 88 percent of the cumulative profits. It is believed that 13 banks have 89 percent of the banking sector's total market capitalisation and 70 percent of all advances and deposits. One of the key reasons behind robust profitability in banking sector is the high level of spreads charged by leading banks (see Figure-13 and 14). Banks are earning high spreads of between 7 – 8 percent at the cost of both the depositors and borrowers which not only hurt savings but also investment.

Deficit-laden economy can dampen of the banking sector

Profit Before Tax

Profit After Tax

Deposit Rate

1 -1

0

11

ar

n-

M

Ja

v-1

10

0 l-1

p-

No

Se

Ju

-1 0 ay

-1 0

Lending Rate

M

ar M

n-

09

v-0 9

No

9 l-0

pSe

-50

Ju

09 20

20

20

20

20

20

20 0

20

20

08

0 07

0 06

5

04 20 05

50

03

10

2

100

01

15

00

150

10

Lending & Deposit Rates (%)

Bank Profits in Pakistan (Rs. Billion)

Ja

Figure-13 and 14

Spread

Looking at the banking sector profits and structure, it seems that banks in general and large-sized banks in particular are doing well in Pakistan. They have a large outreach and substantial deposits. Top five banks (National Bank, Habib Bank, United Bank, Allied Bank and MCB Bank) that dominate 53 percent of the banking sector industry earned 88 percent of the entire banking sector profits (see Table-4). Their combined lending is 52 percent of the total lending. Top five banks increasingly appearing like a cartel engaged in antitrust activities and the Competition Commission of Pakistan (CCP) and SBP have failed to check this trend.

These five banks are earning spreads of 10 percent whereas mid-sized banks are limited to around five percent. Since mid-sized banks do not enjoy high spreads, they hesitate to raise deposits fearing it may lower their profitability which leaves room for larger banks to raise deposits at low cost. At the same time, the midsized banks are also failing to compete due to fragmentation and lack of consolidation. SBP can play an important role in consolidating of mid-sized banks.

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Research Reports Table-4 Dominance of Top 5 Banks - Share (%) Assets

51

Market Share

53

All Lending

52

Pre-tax Profits

95

Microfinance and Islamic banking has shown impressive growth. Micro-finance still has a long way to go in Pakistan but a lot still has to be done to improve accessibility of such facilities. Easy availability of microfinancing can generate countless opportunities for growth of new economic activities and is known to have the capacity to make serious dent in the poverty levels. Islamic banking has become an alternative instrument of mobilizing savings and investments. Islamic banks have done well in market penetration but they are again small and lack coverage and product range that can suit all kinds of customers. Since the establishment of Meezan Bank as the first Islamic bank in 2002, Pakistan has six Islamic banks offering attractive non-interest Islamic financial products based. The asset based of Islamic banks reached at Rs.366.3 billion or 5.6 percent of all banking assets while deposits of Islamic banks were estimated at Rs.282.6 billion in 2009 (see Figure-15 and 16).

Figure-15 and 16

Impressive growth of Islamic banking in Pakistan

Assets of Islamic Banks (Rs. billion)

Assets of Islamic Banks (Rs. billion)

400

8

300

6

200

4

100

2

0

0 2004

2005

2006 Assets

4.

2007

2008

2009

2004

Deposits

2005

2006

Share in Bank Assets

2007

2008

2009

Share in Bank Deposits

Competitiveness of Pakistan's Banking Industry Despite being largely profitable, the country financial sector lacks competitiveness in many areas. According to the World Economic Forum's “Financial Development Report 2010�, which provides benchmarking insights into key priorities for development financial system as key to sustainable growth, Pakistan's ranking fell by 20 points from 34 out of 52 countries in 2008 to 54 out of 57 countries in 2010 (see Table-5).

Developing a competitive financial system entails: 1) institutional environment; 2) business environment; 3) financial stability; 4) banking financial services; 5) non-banking financial services; 6) financial markets; 7) financial access. Institutional environment includes laws and regulations that make providers of financial service work efficiently.

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Research Reports Table-5 Soundness of Banks in Pakistan - World Economic Forum, 2010 Overall Institutional Environment Business Environment Fiscal Stability Banking financial services Non-banking financial services Financial Markets Financial Access Source: World Economic Forum

2008 2009 2010 Difference 2008 vs. 2010 34 49 54 -20 49 52 54 -5 50 50 54 -4 37 48 54 -17 25 46 48 -23 42 51 56 -14 17 25 36 -17 33 50 55 -22

These seven indicators of financial sector development present a competitive framework for ensuring effective supervision of the financial systems and high standards of corporate governance. Institutional environment for a competitive financial system in Pakistan needs improvement as regard has fallen by 5 points during 2008 and 2010. Enabling business environment involves right human and physical capital as well right policies especially relating to taxation. Pakistan's ranking in this aspect has also declined by 4 points during the same period. Fiscal stability is based on efforts to minimize currency risks, systemic banking risks, and sovereign debt crises. Indonesia and Bangladesh has performed better in terms of managing fiscal stability as compared to Pakistan where it has fallen by 17 positions. Banking financial services is the worst hit area where ranking fell by a staggering 23 points. Similarly, in non-bank financial services, financial markets and financial access ranking fell by 14 points, 17 points and 22 points respectively.

It points to the fact that in terms of banking financial services, SBP has to pay close attention to banks' soundness involving CAR, asset quality, earnings, liquidity and exposure to systemic risks. According to the World Economic Forum Global Competitiveness Index, bank soundness has consistently deteriorated in Pakistan during the last four years (see Table-6). Soundness of banks is a very sensitive competitiveness issue and key to maintaining confidence over the country's banking system. It can only be ensured by effective regulation and its enforcement routinely.

Table-6 Soundness of Banks in Pakistan - World Economic Forum, 2010 2008 2009 2010 2011 Deterioration in Ranking: 2008 vs. 2011 66

71

85

88

-22

Source: World Economic Forum

Another key aspect of competitiveness of the local industry involves low geographical coverage and narrow product range. Financial innovation in Pakistan is also lagging. Banks need to design new products to suite smaller depositors especially in the rural sector to support economic growth. In this regard, further work needs to be done to encourage the use of mobile banking services. Branchless banking and electronic money can provide the country with a unique opportunity to increase the coverage of financial service to majority of the country's population. Pakistan has one of the highest mobile telephony in the world. Mobile phone banking services can offer a range of basic financial services to a vast majority of currently excluded and underserved poor especially in rural areas which can help strengthen the formal economy.

According to the Wold Economic Forum, Pakistan already has a right laws and regulations, framework for consumer protection and market catalysts involving utility payments and flow of remittances as essential features to feed into sustainable development of mobile financial services (see Table-7). This will also allow

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Research Reports broader availability and affordability of financial service hence increasing competitive pressures on banks.

The key challenge here would again be the regulator's ability to ensure compliance with the oversight regime and foresee risk to integrity of mobile financial services including the susceptibility to misconduct and misspelling by service providers. This is particularly important since a vast majority of user of mobile financial service are not financially literate and any breach could undermine their confidence over the entire system of electronic transactions.

Table-7 Mobile Financial Services Ecosystem in Pakistan Regulatory proportionality Consumer protection Market competitiveness Market catalysts End-user empowerment and access Distribution and agent network Adoption and availability Source: World Economic Forum

Competitive Advantage Competitive Advantage Neutral Competitive Advantage Competitive Disadvantage Competitive Disadvantage Neutral

Areas where policy focus is required include end-user empowerment and access and the presence of distribution and agent network. End-user empowerment and access involve financial literacy, financial empowerment and mobile penetration. While Pakistan has done well on the latter, financial literacy and financial empowerment is still low. Financial illiteracy can be a major impediment to use of mobile technology. This is reflected in the low uptake of mobile phone financial services despite very high mobile penetration in the country. More than fifty percent of Pakistan's population comprises of female members but they remain largely excluded from financial services. Cultural impediments to woman participation in financial services can be greatly tackled by their inclusion in on-line banking.

Concluding Remarks Despite having an impressive growth record, Pakistan's banking sector lacks international competitiveness.

We see three major impediments to the future growth and competitiveness of the local banking industry.

First, the key problems with the structure of the banking industry is extreme concentration of market power in top-5 banks while on other hand is extreme fragmentation due to a number of small players. The dominance of a few and large players does not augur well for the industry as well as consumers going forward. Top-5 banks have far greater share in industry's profitability. Second, the industry has a narrow income base. The majority of banks incomes originate from interest earnings. The share of advisory services is minuscule. Third, the regulatory framework is not accompanied by effective enforcement. Banks routinely oversteps oversight parameters. In the absence of robust enforcement, banks' soundness will remain weak.

This will constrain high long-term growth of the industry. Resultant, banks will not be able to play their due role in national economic development especially in terms of supporting entrepreneurship- and innovationled growth.

However, growth and competitiveness opportunities in the banking sector are rich and diverse. Shariahcomplaint and mobile financial services offer substantial room for growth in the industry. The real challenge here would be one of creating right institutional framework to instil consumer confidence in such financial products. For this the industry, consumer bodies and the regulator need to work in consonance to achieve shared objectives. The banking industry and regulator also need to coordinate on how to improve accounting and auditing procedures to ensure soundness of banks. A risk-based approach to regulation and its time and full enforcement is the biggest competitiveness imperative for the local banking industry.

Both SBP as well as the CCP has a critical role to play ensuring the local banking industry become internationally competitive. However, both institutions may not play their role as effectively as such intuitions do internationally. This is because their institutional capacity and independence is still not fully ensured.

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Research Reports SBP is main regulator on the financial sector in Pakistan and provides oversight of the banking industry with the help of Banking Companies Ordinance, 1962; the State Bank of Pakistan Act, 1956; Bank's Nationalization Act, 1974; The Financial Institutions (Recovery of finances) Ordinance, 2001; Companies Ordinance, 1984 and Statutory Regulatory Orders (SROs). The present government has been attempting to strengthen the regulatory and supervisory function of SBP and SCEP. SBP has somewhat improved its effectiveness in the conduct of monetary policy and regulating the banking sector. But it still has to establish its credibility as an effective regulator of the financial service industry. Perhaps, it's time that Pakistan also has an independent financial services regulatory authority while the role of SBP should limited to the management of monetary policy with a twin mandate of promoting growth while keeping prices low. In many countries such as the United Kingdom the central bank is only entrusted to conduct monetary policy.

The regulation of banks is the mandate of the Financial Services Industry.

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Research Reports

Unlocking the Economic Potential of Biotechnology in Pakistan 1. Introduction Biotechnology can undoubtedly rank as one of the greatest scientific breakthroughs of the last century. It has revolutionised the quality of life. The marvels of biotechnology have improved productivity and sustainability of manufacturing and agriculture. It is promising to bring down greenhouse emissions while making substantial contributions to environment protection technologies. The ripple effects of developments in the discipline have immensely benefitted the global economy. Since the discovery of miraculous recombinant DNA technology in 1973, advanced economies made impressive strides in quickly turning the expansion in unprecedented array of biotechnology applications as pivot of economic growth.

Biotechnology became a key driver of a diverse range of new economic activities on the back of ramped-up spending for related research and development (R&D) and its commercialization in leading economies.

Developing countries has also benefitted from advances made in biotechnology in advanced economies.

Nevertheless, the policy response in developing countries to unlock the potential of biotechnology to improve living standards and the quality of environment as well as its impact on economic activities has not been forthcoming.

Pakistan is a basket case for biotechnology opportunity amiss. Although the global biotechnology revolution gradually cascaded into various activities into Pakistan but its impact is sporadic. This is mainly because the approach to biotechnology promotion and adaptation is piecemeal. Most relevant policy shops such as the Planning Commission, Ministry of Agriculture, Ministry of Science and Technology and Ministry of Environment in particular have been insouciance, not fully realizing that biotechnology is the most efficient and cost-effective way of improving the quality of life, productivity, environment and sustainability in the country. The level of awareness about the potential benefits of biotechnology and its impact on productivity and sustainability in general is very low. This is partly because no systematic efforts are being made to educate farmers, industry, investors and population at large to harness both radical and incremental innovations in the field of biotechnology.

The government, industry, academia and civil society organizations has a role in engendering responsible and innovative utilization of biotechnology to unleash countless economic growth opportunities. The government has a role in bringing these stakeholders together supporting R&D for enhancing commercialisation of industrial, life and environmental biotechnology. Pharmaceutical, chemicals and agrobased firms have a clear benefit in increasing reliance on biotechnology, to build innovative product pipeline cost effectively. Academia has an indispensible support role in ensuring biotechnology spin-offs. Civil society organization can help in not only promoting biotechnology awareness but can also keep a check on its responsible applications.

Undoubtedly, Pakistan is a late starter in all aspects of economic and social development. But it seems that the country is again set to be very late in harnessing biotechnology. This paper aims to make a contribution in reversing this situation. We fully realize that this is easier said than done for variety of obvious reasons.

Mobilizing policy and institutional support is not easily forthcoming in the country. Notwithstanding that, this paper will offer practical insights into some promising industrial, life and environmental applications of biotechnology. By so doing, we hope that the paper will highlight the economic potential of biotechnology for late developers like Pakistan.

1.

Understanding the Potential of Biotechnology Biotechnology is a living revolution. Biotechnology has caused the most significant impact on industrial activities, lifestyles and environment over the last three decades yet its true potential is rarely fully understood. The use of biotechnology as a basic research tool and production system has particularly revolutionised the global pharmaceutical and chemicals industry and the quality of food chain and the way we live and consume. The global economy is increasingly being dominated by bio-competitiveness in industrial, health and environmental spheres. The cross-cutting nature of the technology presents a unique set of challenges and opportunities. Global health and environment industry is fast-adopting biotechnology to develop niche products to cater for niche markets. Top pharmaceutical giants have even joined hands on biotechnology R&D collaboration, and to better-manage their respective risk-reward matrixes.

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What is biotechnology?

The term “biotechnology” encompasses the use of wide-ranging formal and informal research tools to harness microbes, genes, or enzymes for developing industrial, health and environmental products. It is a technology to improve human and animal health that aims to minimize the environmental impact of life style and industrial activities on the basis of curtails the use of harmful substances and reduction is waste. A useful reference for understanding what biotechnology means in terms of policy debates is provided by the United States Congress (U.S.C.). It refers to biotechnology products as “primarily manufactured using recombinant DNA, recombinant RNA, hybridoma technology, or other processes involving site specific genetic manipulation techniques” (35 U.S.C. 156(2)(B)).

The true potential of biotechnology can simply be understood as cutting-edge research providing unique ways to develop and manufacture a wide range of alternative, new and niche products in diverse industries.

The fundamental proposition of biotechnology is that it can make substantial improvement in the quality of life, manufacturing and environmental protection (see Figure-1). What biotechnology can achieve in practical terms is of far-reaching consequences. It is already leading to significant developments in manufacturing of safer chemicals, green plastics, smart diagnostic technology, more effective drugs, less harmful pesticides and fertilizers and high yield seed varieties.

The environmental burden of biotechnologically driven product development and manufacturing processes on resources is far less than synthetic components and methodologies.

Table-1

A Framework of Biotechnology in Practice Regulation

Innovation

Academia

Industry

Government R&D Support

Commercialization

Proposition Industrial

Life

Environmental

Diagnosis

Pollution Food

Pharmaceutical

Poverty

Fe

rt

e

ili

ze

r

Improve

Seed

Hunger Chemicals

as

se

Di

Reduce

Global Biotechnology Industry The value of global biotechnology market has been estimated at US$200.9 billion in 2009. This is expected to increase by 58.5 percent to reach US$318.4 billion by 2014. Countries around the world especially advanced and emerging countries are relying on biotechnology as an instrument of economic growth, improvement in the The Lahore Chamber of Commerce and Industry

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Research Reports quality of life and environmental protection. Biotechnology Industry Organization (BIO) provides useful practical insights into how various countries around the world are progressing on adopting biotechnology. This is done by using a Bio Innovation Scorecard. The recent BIO Scorecard results show that countries like Brazil, Italy, Canada, India and Malaysia.

Biotechnology on the Move: Five Countries to Watch 1. Brazil: impressive progress has been made in the country mainly with the help of academic institutions.

In order to facilitate the development of biotechnology activities, red-tape has been greatly reduced.

Special attention was paid to develop functional collaboration between the academia and industry.

Social media such as Twitter became an important tool for promoting biotechnology.

2. Italy: the country is one of the global leaders in biotechnology industry. Italy has world's second highest score in protection accorded to Intellectual Property Rights. Patent protection is taken very seriously in order to ensure that company have faith in investing in biotechnology R&D. All necessary institutional measures are in place to safeguard return on R&D investment which makes Italy a preferred location for biotechnology activities. Italy has also successfully used social media for promotion of biotechnology.

3. Canada: the country is considered world's third best hub of biotechnology activities. Canada has taken critical steps to channel biotechnology knowledge towards improving the competitiveness of its industry. These steps are backed by programmes to educate and train workforce and scientists and protection of latest biotechnology discoveries.

4. India: as a leading growth economy in Asia, India has made impressive strides in promoting biotechnology activities. In particular, the government placed special focus on developing relations with the private sector organizations and actively promoted venture capital. India is also taking steps to confront the chronic problem of 'brain drain'. No-resident Indians especially living in the US who have developed expertise in the field of biotechnology are establishing with relevant people and organization to share knowledge.

5. Malaysia: the support for Enterprise Support in biotechnology is one of the best in Malaysia. The country has a business-friendly environment and venture capital is available for firms to exploit their biotechnology innovations. The country is planning to host the Pacific Rim Summit on Industrial and Environmental Biotechnology.

Source: BIOtechNow

5.

Progress on Biotechnology in Pakistan Biotechnology-related work in Pakistan has been underway for around three decades. Recombinant DNA technology was introduced in Pakistan quite a few years later than it was the case in the United State of America (USA) and other advanced economies. The jury is still out on the question of how far we have actually come in developing new ideas and products harnessing biotechnology since the early 1980s.

Notwithstanding that, some progress has been made in the field of agriculture biotechnology. A great deal of this work has been done at the National Institute of Biotechnology, Faisalabad. The Centre for Excellence in Molecular Biology at the University of Punjab is also working on promoting the discipline. But such institutes are few and far between. Suffice it to say, Pakistan has not produced outstanding research in biotechnology and its commercialisation. The number of biotechnology doctorate-holders is exceptionally small. Perhaps, the biotechnology revolution is largely going unnoticed despite the government established a special commission for its promotion. Hence, the economic potential of biotechnology remains largely untapped.

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The National Commission on Biotechnology In order to promote the awareness and utilization of biotechnology, the Government of Pakistan established The National Commission on Biotechnology (NCB) in November 2001 under the auspices of the under Ministry of Science and Technology. The key mandate of NCB was to act as a focal point in facilitating initiatives relating to biotechnology while establishing state of the art research infrastructure. NCB formulated a Biotechnology Action Plan to deliver the key objectives of its institution. More than two dozen public and private sector bodies are involved in biotechnology-related activities. However, NCB has not been a complete success in consolidating biotechnology research activities and their application.

Source: National Commission on Biotechnology

3.

Applications of Biotechnology Biotechnology is considered as a responsible and sustainable technology. It is futuristic. In industrial production, biotechnology is known to have reduced raw material costs, waste and a degree of unwarranted environmental impact globally. Today, biotechnology is at the forefront of innovations in agriculture, electronics, energy and chemical sectors. Global food security now appears within reach as it offers countless ways to improve crop yields and the quality of food and soil conditions. In improving the quality of life, biotechnology has led to the development of new diagnostic tools and treatments. Its credential as an environment-friendly technology is sound.

3.1. Biotechnology in Agriculture Cutting-edge agriculture R&D has fully embraced biotechnology to tackle global food security challenge and livestock health issues. This is essential to double global agricultural output by 2050 to cater more than 9 billion people by the time. Agricultural biotechnology is the main tool available to feed the ever-increasing world population. The technology is the right answer to growing food insecurity. It has led to productivity improvement in agriculture on the heels of high-yield seed varieties, ways to maintain healthy soil conditions, introduction of better fertilizers and effective pesticides while minimizing their negative environmental impact. At the same time, tools are being available to ensure livestock health is consistently improved. Food processing industry has also greatly benefitted from biotechnology offering effective use of enzymes. The industry has improved its capability to preserve essential vitamins and nutrients during processing.

3.2. Biotechnology in Health The increasing use of biotechnology in health services is helping save millions of lives around the world annually in two ways. First, biotechnology has revolutionised the detection and diagnosis of deadly but preventable and curable diseases. This is made possible by the development of new, smart and portable testing devices. Second, biotechnology has unleashed a super new wave of innovation in drug discovery, development and manufacturing. Resultantly, over 200 biologic medicines and vaccines, more than 1,200 biotechnology diagnostic tests and more than 600 new biologic medicines for treating life-impairing and life-threating diseases such as HIV/AIDS and Alzheimer. This has made biotechnology a key driver of competitiveness in global pharmaceutical market as it is becoming a main determinant of existing and future product pipeline in the industry. Biotechnology has openedup new avenues of collaboration in the global pharmaceutical industry. Leading pharmaceutical companies seems increasingly willing to share specific scientific knowledge to maintain strategic presence in preferred markets. Resultantly, the risk-reward outcomes for pharmaceutical companies have vastly improved.

3.3. Biotechnology in Chemical Industry Global chemical industry is increasingly relying on biotechnology that has substantially reduced its costs and carbon footprint. Chemical industry is greatly benefitting from useful application of biotechnology offering innovative new ways for producing biodegradable bio-plastics.

Biodegradable plastics have wider public appeal thus experiencing sharp increase in demand by both the industry and consumers around the world as an effective way to reduce environmental impact.

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Research Reports Global food processing industry has increased the use of bio-plastics. Similarly, the manufactures of multiple-use storage, spare parts, adhesives, etc. are also shifting towards bio-plastics to cater for changing market conditions and consumption priorities. In addition to producing cleaner and safer chemicals, biotechnology has helped develop bio-filters to clean-up air and water pollutants as well as large accidental oil spills that offer unmatched opportunities to reduce the use of harmful chemicalbased cleaning agents.

3.4. Biotechnology in Energy Biofuels have rejuvenated and added new dimensions to energy security considerations complicated by an ever-growing global demand for various fuels set to increase by 50 percent by 2050.

Biotechnology is providing new insights into effectively using biomass for meeting current and future energy and fuel demand. New knowledge is giving birth to second-generation biofuels that convert non-food biomass into ethanol and various other valuable by-products. Alternative and cleaner fuels or “green gasoline” are offering new prospects for tackling environmental and climate change crisis.

Bio-ethanol has provided a practical and cleaner alternative to fossil fuels albeit at a much lower scale but its use is expected to increase manifold as a number of countries around the world preparing to make blending it with fossil fuel mandatory. It is noted that ethanol made out of non-food biomass can lead to around 129 percent reduction in greenhouse gas emissions as against to mere 52 percent expected by the use of corn-based ethanol.

3.5. Biotechnology in Cosmetics The global cosmetics industry has also picked up the trend towards greater application of biotechnology for product development. The use of biotechnology is helping in the development of more effective skincare products that are highly receptive for being free from synthetic chemicals and preservatives. Global skincare market is big and expected to be around US$58 billion by 2012. Biocosmetics contain skin-friendly biological materials that cure skin diseases and help achieve healthier skin. Impressive progress is being made in the field of “edible cosmetics,” graduating to use of biotechnology in the field. We believe the use of biotechnology in the manufacturing of cosmetics will continue to expand and firms investing to stay abreast with these developments will reap handsome rewards.

3.6. Biotechnology in Information Technology Biotechnology is also making substantial inroads into the already high-tech field of information technology. Biotechnology in information technology, commonly known as bioinformatics, is set to break new grounds in the form of revolutionary new products such biochips replacing conventional chips. Bioinformatics is considered as one of the greatest breakthroughs in diagnosing human and animal diseases. Global electronic giants are taking this technology to develop smart cards containing biochips to test for various infectious diseases and DNA analysis at point-of-care i.e. at doctors' surgeries and clinical laboratories. Breakthrough work is being done to develop display panels, semiconductors and sensors using biological materials.

4.

The Strategic Approach Given the potential economic, social and environmental benefits of biotechnology, we believe that Pakistan urgently needs to develop a comprehensive National Strategy for Applied Biotechnology. A strategic approach to the promotion and use of biotechnology for economic development is long overdue. The strategy can help layout what is possible in the world of biotechnology and how to go about realizing its true potential in the field of industry, health and environment. The proposed strategy should take a sectorspecific approach guiding private investment in research and commercialization of new discoveries in biotechnology. What is very important is the need to set mutually-reinforcing strategic objectives and policy priorities for supporting private sector initiatives. We propose the formulation of such a strategy should base on a consultative process in order to ensure widespread ownership. Government, industry, academia and civil society organization should be encouraged to participate in the process. However, the most critical aspect of the strategy would be to ensure it is backed by an implementation plan having realistic targets that are achieved consistently.

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National Strategy for Applied Biotechnology

Strategic Objectives

Stakeholder Consultation

Vision, Mission

Policy and Initiatives

Implementation Roadmap

The proposed strategic framework must be practical. For the purpose of this paper and necessary stakeholder mobilization we propose seven key elements to form the strategy. Firstly, the critical starting point for promoting biotechnology for economic development is to establish working networks of industry and academia supported by the public institutions. It underscores the need for sector-specific biotechnology collaboration network both at the national as well as at provincial levels. These networks are critical for making concerted efforts in promoting awareness and use of biotechnological for the development of a diverse range of products and their manufacturing.

Key Elements of National Strategy for Applied Biotechnology

Biocollaboration

Bio-finance

Bio-products

BioRegulation Bioinnovation

Bio-skills

Bio-patents

We propose a cluster approach towards developing biotechnology networks. The practical shape of these clusters can be the development of dedicated biotechnology parks that can provide an excellent inter-firm learning environment having state of the art training centres and common testing facilities that are often highly costly for small and medium biotechnology start-ups and growth firms. Similar experiments have already been done in Pakistan and successful models are available internationally for local replication.

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Research Reports

A Cluster-Specific Biotechnology Park Centre for Cluster Excellence

Common Training Centres

Common Facilitation Centre

Shared Access to Services

Common Testing Labs

Common Investment Promotion

Secondly, the availability of start-up finance for promising biotechnology firms. Biotechnology venture funding and matching grants will overcome the early-stage financial bottlenecks. Biotechnology activities are capital intensive in nature. Lack of risk finance for bio-research and bio-production can gravely hamstrung progress in this field. In USA and other advanced economies, venture capital has been a key source funding for such high-risk and high-reward activities. Matching grant from public funds can also be instrumental in promoting the use of biotechnology. Moreover, fiscal incentives are essential for attracting new finance for biotechnology research. The argument in favor of tax incentives is robust on the basis of the potential benefits of biotechnology for public at large. Capital gains tax and R&D tax credit can encourage substantial investment in biotechnological research.

Access to and Promotion of Bio-Finance Matching Grants Venture Capital

BioLoans BioFinance

Tax Holidays

&D it -R ed o r Bi x C a T

Ga Cap i it Re ns T al lie ax f

Thirdly, university-industry collaboration is critical for engendering biotechnology spin-offs. These linkages are considerd the main sources of innovations and its commercialisation anywhere in the world. Universityindustry linkages are important for two very critical issues. First, these linkages have proven to be the single most important source of innovation being commercialised around the world. This took place in the shape 178

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Research Reports of new spin-offs emerging from research on novel ideas about products and processes at an academic institutions and taken to next logical stage of implementation by student having an entrepreneurial streak. It simply involves commercialisation of new ideas. Second, university-industry linkages provide continuous R&D support for quality improvement and niche exploitation. University-industry linkage is essential for both firm growth and economic prosperity. This has special significance for biotechnology. This is because it is a highly research- and knowledge-intensive discipline and whilst it does offer unprecedented opportunities for new discoveries in industry-, life- and environment-related activities, it can only be so on the basis of thriving university-industry linkages.

University-Industry Linkages

Economic Growth

Enterprise Growth

Spin-offs

Industry

University

Competitiveness

Sustainability

Quality of Life

Fourthly, it is critial for the progress in the field of biotechnology that new knowledge is protected. Patent protection will ensure return on R&D investment is protected that will continue to attract the private sector interest. Protction of Intellectual Property Right (IPR) is often lax in developing countries which is a serious challenge in terms of encouraging private sector investment in the biotechnology R&D. However, the issue has attracted substantial attention internationally and a great deal of work is being done to protect IPRs. We propose that the protocols for protecting biotechnology IPRs in Pakistan should be reviewed in order to assess the efficacy of these arrangements.

Fifthly, the knowledge-intensive nature of biotechnology-related activities require that workforce including laboratory technicians and scientists are well-educated and well-trained. Generally, the workforce skills are found weak in Pakistan. Apart from formal education which requires considerable upgradation, the infrastructure for training and skill development for effectively carrying out the work of biotechnologyrelated work is greatly missing in Pakistan. This is partly due to the chronic lack of public investment in developing such high-tech training and skill development infrastructure. Resultantly, large number of science graduates leave the country for better training and employment opportuntities overseas. The anacdotal evidence is that only a handful ever return. Lack of training and skill development and brain-drain is a challenge that the government and industry has to confront in order to promote biotechnology in the country.

Sixthly, the preeceding elements are critical for developing an array of breakthough biotecholongy products. But it greatly depends on the support system in place. We propose that the sector-specific biotechnology networks comprising of members of government, industry and academia need to work very closely to identify novel ideas and their commercialization geared towards exploiting niche product and

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Research Reports market opportunities. These collaborative networks can be instrumental in identifying the commercial potential of biotechnlogy.

Finally, the entire process needs to properly guided by an arms-length and cost-effective regulatory framework which aims to facilitate these activities from sustainability standpoint. Regulation should not be intrusive and regulatory compliance need not be expensive lest it constrain biotechnolgy R&D and its possible commercial, social and economic growth benefits. Above all, the regulators must be granted independence to work on scientific grounds. Their main objective should be to ensure science is being used as science ethically and legally.

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Pakistan's Automotive Sector: The Case of Tractor Industry Overview This report aims to highlight the progress of Pakistan's automotive sector with special focus on the key dynamics of local tractor industry. The motive behind case studying the tractor industry is rather meaningful. The health of automotive sector greatly depends on the overall performance of the economy and its impact on incomes. But in the case of Pakistan's tractor industry, this has not necessarily been the case. The health of the economy greatly depends on well the agriculture performs. And the health of the agriculture sector greatly depends on the level of tractorization which is essential for productivity of a wide-ranging on-farm and off-farm activities. This is the reason that despite economic downturn when the overall performance of automotive sector declined, the production and sales of tractors held up well. Two reasons come to fore for this phenomenon. First, favourable agricultural credit has helped tractor purchases. Second, tractors are multiple-use machines that are commonly used in various activities such as construction-related work. The easy availability of credit not only helped the tractor industry but also led to remarkable improvement in the sales performance in the car and motorbike market.

The progress report of Pakistan's auto industry comes out as a mixed bag of resounding successes and equally pronounced failures. The most remarkable achievement is that during the last three decades Pakistan's auto industry has achieved substantial capacity to assemble and manufacture car, tractors, buses, motorbikes, rickshaws and trucks are in the country. The production levels have consistently increased. The level of technology on offer has increased, more so in cars. The industry has moved a long way from mere assembling to an increasing share of local component. This has given birth to a large vendor industry, a great variety of auto parts are being manufactured locally for feeding the growing assembly lines as well as for exports. This segment has seen healthy growth and offers promising new investment opportunities. The availability of trained workforce has improved. On the whole, the industry is standing on the verge of a new growth face. This would obviously greatly depend how the industry as a whole adjust to drivers of change having significant impact upon its growth and competitiveness.

However, despite more than two decades of robust growth on the back of substantial local and foreign investment and transfer of technology, the industry still lacks quality, design, safety and sound environmental credentials.

Although technology sophistication has improved but still considerably lagging behind when compared internationally. Most of the production is for domestic absorption, exports are still low. Both local and multinational players offer little choice to often diehard customers. The competition level is low by international standards especially in the car and tractor segments. Apart from the cars' segment, after sales care is scant. The quality of auto parts greatly varies. In short, the industry lacks essential value for money characteristics.

As far as the performance of local tractor industry is concerned, it was helped by a favorable government policy for the mechanization of agriculture sector which remains the backbone of the country's economy. But the speed of mechanization has been rather slow. Tractorization has consistently improved but the nationalization drive of the early 1970s made the process somewhat slower. Resultantly, tractor penetration is still lower than many comparable agricultural economies. The privatization of the industry in early 1990s led to a slower capacity expansion during the decade. Tractor production really picked up momentum in the last decade. Despite doubling of production, farmers still face long delays in delivery and are forced to pay a premium for urgent purchase. In this regard, the existing manufacturers behave like privatized monopolies. Competitive pressures that are critical in driving innovation in technology, design, quality, reliability, safety and environment-friendly features are almost non-existent. New entrants have been reluctant to venture into the sector due to misplaced perceptions about entry barriers.

In view of problems facing the local tractor industry, the arrival of a third or even a fourth large player will help improve price, quality, efficiency, safety, design and technology choices offered to customers. We believe that we must have the technological, financial and marketing prowess to succeed. This is because the sector is capital intensive and requires substantial market efforts and expense to establish a country-wide sale and service network.

This is the only real entry barrier. Any large manufacturer must be prepared to adopt a three-part strategic approach to enter into Pakistan's promising agriculture machinery market. First, offer new design and modern technology. Second, offer ancillary agricultural implements. Third, invest in a country-wide sale and service network in the form of one-stop shops.

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1.

Some Insights into the Global Automotive Industry Global automotive industry continues to grow despite difficult economic and financial conditions especially in the advance economies of Europe, North America and Japan. Global vehicle production increased from 61.8 million units in 2009 to 77.9 million during 2010 (see Figure-1). It seems that the worst is now behind the global auto industry. Vehicle production remains robust even in countries that faced with recession and the threat of a double-dip recession. Three main reasons explain this situation. First, leading global car manufacturers have undergone substantial restructuring to cut costs and comply with tax and legal changes. Second, investment made in new technology, design, safety and environmental credentials is yielding desired results. Third, merger and acquisitions of the last decade have improved the resilience of large global auto companies to sustain their businesses even during considerable low growth conditions. In other words, consolidation in the global automotive industry has led to substantial improvement in operational soundness.

Figure-1: World Motor Vehicle Production

WORLD MOTOR VEHICLE PRODUCTION 90,000,000 80,000,000 70,000,000 60,000,000 50,000,000 40,000,000 30,000,000 20,000,000 10,000,000 0 EUROPE

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Source: OICA Notwithstanding the continuous buoyancy in the global automotive industry, leading manufacturers care still faced with overcapacity and price pressures undermining their margins and profitability. Merger and acquisition in the global auto industry is poised to make another come back as companies try to adjust to rapidly changing drivers of demand. This will serve many strategic purposes. First, it will help leading manufacturers to improve their balance sheets. Second, it will lead to sharing of resources needed to induct new fuel-efficient and greener technology critical for their successful launching in the new growth phase.

These strategic options will secure the industry's competitiveness going forward. In many advanced economies such as in the European Union, the “cash for clunker� programs have helped manufacturers cope with the low demand environment.

Robust vehicle demand in the emerging economies will continue to support the industry's future growth aspirations. China, India, Japan and South Korea are the true engines of growth in motor production in Asia (see Figure-2). We believe that this impressive performance is set to continue for the mid-term. These economies still have a lot of steam for expansion. China and India will continue to post robust growth numbers despite inflationary pressures and the ensuring rise in the middle class will be a major source of demand for many international players already operating in these countries. However, worries are rife for the auto industry in Japan. Production levels in Japan were hit in the aftermaths of devastation caused by the recent earthquake. This has also affected the global auto parts supply chain that greatly depends on the performance of Japanese manufacturers. Japanese economy is still not out of the woods as it is stuck in low growth conditions for more than a decade now. In this situation, Japanese auto makers will have took 182

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Research Reports beyond their borders. The key message for companies operating in the global auto parts supply chain is that they have to be flexible and nimble enough stay abreast with trends dominating the industry internationally.

Figure-2: MOTOR VEHICLE PRODUCTION-ASIa

Motor Vehicle Production- Asia 20,000,000 18,000,000 16,000,000 14,000,000 12,000,000 8,000,000 6,000,000 4,000,000 2,000,000

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However, the anticipated global and Asian auto market performance will offer local vendor industry new opportunities to diversify their product and market focus. The main challenge in this regard will stem from price, quality, efficiency and safety considerations. This would require new investment in technology and productive capacity on the part of local vendor industry. Entering into joint ventures with suitable auto part manufacturers having good synergies will become critical for the competiveness of the local vendor industry. In this regard, collective efforts by local auto parts manufacturers will be particularly rewarding.

Figure3: VEHICLE PRODUCTION EXCLUDING CHIAN-JaPAN

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Source: OICA The Lahore Chamber of Commerce and Industry

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A Snapshot of Pakistan's Automotive Sector Automotive sector in Pakistan has seen remarkable growth (see Figure-3 to 8). According to the industry's main representative body, Pakistan Automotive Manufacturers Association (PAMA), cars production during 2001-02 and 2010-11 increased from 42,679 units to 133,972 units, or an increase of around 214 percent.

Production of various trucks increased from 1,134 units to 2,810 units, or an increase of 148 percent during the same period. Similarly, the number of motorbikes produced in the country increased from 120,627 units to 838,550 units, or an increase of 595 percent. The number of jeeps produced in the country increased from 564 units to 883 units, or an increase of 57 percent in the same period. The production of pick-ups increased from 5,900 units to 19,142 units, or an increase of 224 percent during the same period. The production of tractors increased from 23,801 units to 70,770 units or an increase of 197 percent. However, the production of buses decreased from 1,326 units to 490 units in the last decade. PAMA also provides interesting insights into the sales performance across the sector as well as rules and regulations guiding activities of producers.

Figure-3 and 4 Total Farm Tractors Production

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Pakistan has in place an overambitious Auto Industry Development Plan (AIDP) which has fallen way short in delivering its key objectives. It has failed to mobilize enough policy support necessary for achieving its set targets including doubling the auto industry's contribution to GDP to 5.4 per annum and exports to US$650 million per annum by 2102. Both targets have not been met. It is not the scope of this paper to ascertain or otherwise whether the failure to achieve key objectives of AIDP was due to over-projection or lack of action planning on the part of relevant implementing bodies. Nevertheless, AIDP was a good start in laying out a growth trajectory for the auto sector in Pakistan. Tracking the performance of the local auto sector with economic growth since 2005-06 presents an interesting picture (see table-1). Pakistan auto sector performs well in high growth conditions. As economic growth lost steam, the auto sector performance declined especially in 2008-09.

Table-1

Auto Sector Sales 0 250000

2

1

Total Sales=192,636

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Total Sales=209,483 Growth=8.74

Total Sales=193,964 Growth=7.40

200000

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150000

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Total Sales=103,132 Growth=46.83

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2006-07

Pick-ups

2007-08

Jeeps & LCV (4X4)

2008-09

Trucks

2009-10

Bus

2010-11

GDP Growth Rate

Source: PAMA and Economic Survey of Pakistan

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Research Reports We believe that the local automotive sector has entered a new phase of its development. The local automotive industry has entered Tariff Based System (TBS) replacing deletion programs. Under the TBS framework, assemblers are free to buy components from a competitive supplier. This offers growth opportunities to those manufacturers only who have been consistently investing in their productive capacity. Only the best supplier will remain part of the supply chain. Since the local vendor industry is almost equally divided between formal and informal activities, improving the overall performance will be a major challenge. Innovation support and diffusion of technology becomes daunting in the face of unorganised production.

3.

Drivers of Change in the Local Automotive Industry During the last three decade, the local automotive industry has seen drastic operational, technology and manufacturing changes. What is driving these changes? What is the level of industry's preparedness to adjust with changing conditions? These are important questions for the future growth, development and competitiveness of the Pakistan's automotive industry. In the following section, we will try to answer these questions by elaborating on set of drivers of change and their implications for the local automotive industry.

1.

Local and global competition – global competition in the automotive sector is intense, only less so in the local market. Local manufactures seem rather immune from global competition. The sector is marred by anti-trust practices. This is primarily due to high tariff barriers to protect local production of multinational corporations especially the cars' segment. Internationally, these manufacturers are exposed to high level of competition to drive maximum efficiency. But in Pakistan, they are enjoying considerable protection as a result of which they introduce fewer models as compared to their international practices of their parent companies. New models are introduced far less frequently in Pakistan. Price trends show signs of cartelization. Customers almost invariably have to content with long delivery wait or pay a handsome premium for on the spot possession. The practice is more common and serious in the cars and tractors market. Less competition means unfair prices, fewer choices and no real pressure for new investment in technology. On the other hand, the arrival of new assemblers and manufactures can lead to substantial improvements in prices, quality, design and the nature of technology used in various segments of the automotive industry.

1.

Population and incomes – Pakistan's population is rapidly increasing. This will continue to create new vehicle demand. The automotive sector has already commonly seen more than doubling and trebling of production and sales performance. The trend can continue well in the future given that the economy performs well and incomes increase. From this perspective, we believe that the automotive industry in Pakistan has yet to see many more new production and sales highs. Local production has already near capacity, only less so in the last couple of years as the economy slowed leaving an impact on demand. But this is changing. Automotive sales are increasingly showing signs of robust local demand that we believe will greatly absorb local production across the industry. This, however, also greatly depends on the availability of cheap auto-loans; it may not be forthcoming anytime sooner in the wake of double-digit interest rates.

1.

Improvement in infrastructure – improvement in road network will drive vehicle demand. The government has committed to increase public spending on infrastructure especially on road network which is good news for the local automotive industry. However, the electricity and gas shortages will exert substantial pressure on cost of production in all segments of the local automotive industry. The growing shortage of gas in particular is a matter of grave concern for the CNG-based vehicle market. In this regard, the recent growth and development in the segment of CNG-run buses can be lost if supply of natural gas is not improved. This will hurt investment and employment in this segment. On the other hand, improved supply of natural gas will drive demand for CNG buses which will attract new investment and technology while helping to reduce the carbon footprint of transport.

2.

Innovation in the local automotive supply chain – currently, the local vendor industry is fragmented and small-scale in orientation. Manufacturers of automotive parts continue to suffer from under-scale and lack of financial and technical prowess to be fully competitive internationally. But the shift to TBS concerning the inclusion of local contents that came in force on 1st July, 2006 that has led to a new wave of innovation in the industry. This in particular has led to significant improvement in the quality of supplies by the local vendor industry. This will remain an important driver of change for the local automotive sector as assemblers are

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Research Reports now free to buy from the most competitive supplier, local or international. By and large, vendors are paying attention to these price and quality factors. They are investing in technology and productivity. It has led to improvement of local capacity for high quality casting and forging. We believe that over the medium-term, local automotive supply chain will undergo considerable innovation.

3.

Availability of trained assembly workforce – although workforce in Pakistan generally lacks right skills for productivity, the automotive industry has seen improvements in the availability of trained manpower. This is primarily caused by the assemblers' commitment to investment in their workforce. AIDP also points towards the need for a comprehensive human development initiative for the sector. But it has fallen short in implementation. We believe that PAMA has a special role in ensuring that such a program is put in place in coordination with relevant government bodies and academia. Relying on perennially cash-strapped government for improving the availability of trained workforce for the automotive sector will not serve any purpose. Increased availability of trained automotive workforce will considerably improve productivity in the sector.

4.

Legislative outcomes – legislative changes remain one of the most important drivers of change in the automotive industry all over the world. This is because it has a large and direct bearing on the operational cost and practices and the level of technology in the industry. In particular, compliance with environmental legislation for meeting emissions standards for CO2, N2O, and hydrocarbon particulates can significantly drive up cost in the industry. It will demand the induction of greener technology and investment for operational and assembly adjustments. Compliance with local as well as international environmental protection framework is weak in Pakistan and industry players are getting away with it. If the situation changes and the government decide to ensure strict compliance, industry will have to bear a substantial investment and technology shift. Apart from legislative pressures for compliance with emission standards, rising oil prices will also drive a shift in the industry for increasing options available for customers especially the availability of a range of smaller vehicles. Globally, the automotive industry is also undergoing changes to comply with recycling legislation. This is not a serious challenge in Pakistan as yet but can be an important driver of change in the future.

5.

Technology – for the time being local assemblers and manufacturers are significantly behind in using cutting-edge technology already being offered in the global automotive sector. This is not sustainable.

Imported vehicle come with much more sophisticated technology. But it is not having a serious competitive impact on local players, they enjoy considerable protection. The level of technology offered in the car market is somewhat better when compared to other segments of the local automotive sector. However, the level of electronics and telematics is still low when compared with imported cars. Electronically-controlled features such as steering, braking, ABS and suspension which are commonly offered in cars internationally are only available in high-value car production. The manufacturers of trucks, tractors, buses, jeeps, and motorbikes are still offering much lower level of technology to their customers. Demand is also low for sophisticated technology in these segments partly due to price considerations and partly due to lack of awareness and choices available.

6.

The Case of Pakistan's Tractor Industry Tractorization of agriculture has been a key focus of strategic approach to sector's development since the Green Revolution in the 1960s. The process has been rather slow in 1970s and 1980s as agriculture sector experienced recurrent interregnums of policy neglect. The large-scale nationalization drive of the early 1970s that proved to a major set-back to industrial development in general also dampened investment and growth of tractor industry. Resultantly, Pakistan continued to heavily rely on imported tractors to meet local demand. The local manufacturing lacked investment and management necessary for growth. The privatization of the two state-owned tractor manufacturers during the early 1990s laid the foundation of new phase of growth in the industry. It took the newly privatized units another ten years to build reasonable capacity to cater for the major chunk of local demand. However, the structure of industry remained under the control of only two manufactures. This is a major cause for concern for the overall international competitiveness and growth of Pakistan's tractor industry going forward.

The development of Pakistan's tractor industry in line with international trends is critical for economic growth performance of the country. This is mainly because mechanization of agriculture sector in general and tractorization in particular is critical for ensuring sustainable agriculture sector development, the

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Research Reports linchpin of economic growth in the country. Although, tractorization of agriculture in Pakistan has been consistently improving but considerable progress still remains to be achieved. The local industry in its current phase is not ready to support the possible next phase of agriculture growth. It is only geared to meet demand emanating from around 3 percent of agriculture growth rate, the annual average recorded during 1997-98 and 2009-10. In case agriculture sector growth returns back to the annual average of 6.4 percent achieved during 2004-05 and 2005-06, the tractor industry will not be able to meet local demand. This will certainly lead to a surge in imports which will further expose Pakistan's external sector vulnerabilities.

Notwithstanding the existing oligopolistic tractor industry structure and low level preparedness for high agriculture sector growth, the production has expanded by almost threefold in the last ten years alone.

Annual production has increased from around 25,000 units to over 70,000 thousand units during 2001-10.

We believe these production numbers would have already exceeded 100,000 units if the industry had not faced oligopolistic constraints as only two main producers dominated the market in the last three decades which created substantial entry barriers. The country's only two manufacturers include: 1) Millat Tractors Limited (MTL) which manufactures Massey Ferguson Tractors at their plant outside Lahore; and 2) Al-Ghazi Tractors that manufactures Fiat tractors also had known as New Holland at their plant in Dera Ghazi Khan area of Pakistan's Punjab province. In sharp contrast to industry structure in Pakistan, India has managed to attract 19 tractors manufactures that has resulted in a highly competitive market and no one producer can demand prices. As a result, Indian tractor market offers farmers a far greater range of choices in design and quality features.

We believe that the tractor industry in Pakistan is open for new investment. It enjoys considerable tariff concessions especially duty-free import of plant and machinery. The deletion process has also been replaced

by TBS. Given the industry's structure and low level of farm mechanization and infrastructure development, we believe that considerable opportunities exist for new tractor manufacturers in Pakistan. In view of sector's growth prospects and the growing importance of agriculture sector in economic development and food security, John Deere of USA, the largest manufacturer of agriculture machinery in the world has entered in a joint venture agreement with a local partner – The Agro Tractors Private Ltd., for establishing a plant near Lahore. It led to an investment of Rs.600 million for an assembly capacity of 15,000 tractors per annum.

1.

Global Tractor Industry Four major players dominate the global tractor industry including: 1) Deere and Company of Illinois, USA, 2) CNH of Fiat group; 3) Mahindra of India which also owns 5th largest tractor company of China called Mahindra Yueda Yancheng Tractor Company and 4) AGCO Corporation of Georgia, USA. India has become a major player in the global tractor industry contributing around 30 percent to global tractor production with 19 manufacturers, both domestic and international. Tractor industry in developing countries appears to be growing at a much faster pace as compared to their counterparts in developing economies. However, the level of tractor technology in developing countries is much lower than the level commonly used in advanced economies. This is mainly because of comparably low farmers' buying power in developing countries. These markets are still not ready for technologically advanced high-value tractors. Nevertheless, we believe some technological up-gradation is in order to respond to environmental and safety concerns.

Despite more than four decades of efforts to improve tractorization of agriculture in Pakistan, the country ranks 55 out of 144 countries from around the world. Pakistan has around 15 tractors per thousand hectares as compared to 1,288 in Iceland and 558 in Slovenia as well as against 26 in Egypt (see Table-2). We believe that tractor penetration in Pakistan is much lower than the number quoted here if adjusted for purchases made for commercial use through agri-credit facilities. A great number of tractor sales do not end up at farm.

This signals the presence of a large potential for the industry's growth in the country if tractor for agriculture use seriously pick up momentum. But this will greatly depend upon the overall growth of agriculture sector itself and the country as a whole. The increase in farmer incomes, the availability of agri-credit and a general growth environment in the country will have a positive impact on the future performance of the sector.

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Table-2 Tractor Concentration (Per Thousand Hectares of Crop Land - most recent) Rank Countries Tractor Concentration 1 Iceland 1,288.40 2 Slovenia 559.7 15 United Kingdom 84.3 35 United States 26.8 36 Egypt 26.1 55 Pakistan 14.6 68 India 9 77 China 6.2 120 Bangladesh 0.7 Weighted Average 37.8 SOURCE : World Resources Institute In view of the long-standing volatility of agriculture performance and low farm incomes, Pakistan ranks fairly also low on account of tractor per capita outcome (see Table-3). The country ranks 68 out of 147 countries.

However, Pakistan has fared well when compared with the performance of India, China, Egypt and Bangladesh each racking at 79, 82, 90 and 130 respectively. Iceland and Slovenia remain leaders in both tractor penetration and tractor per capita performance.

Table-3

Rank

Tractors Per Capita (By Country-most recent) Countries

1 Slovenia 21 United States 33 United Kingdom 68 Pakistan 79 India 82 Egypt 90 China 130 Bangladesh Weighted average

Tractor per 1 Million People 56,781.70 16,230.80 8,272.53 1,973.28 1,411.69 1,109.59 643.852 38.3176 6,498.20

Source: World Resources Institute

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2.

Pakistan Tractor Industry Growth Trends The growth of tractor industry in Pakistan has been based on a gradual but consistent drive towards greater mechanization which helped the overall development of the agriculture sector. Both large and mid-sized farmers have adopted a degree of mechanization including tractors. Many farmers also provide rental services for tractors and other agriculture implements for on-farm and off-farm work involving delivery to market, mills and for construction activities. The non-agriculture use of tractors accounts for major share of the tractor industry. In this regard, it is worth mentioning that agri-credit facility is often misused to purchase tractors that end-up in non-farm use which slows-down tractorization of agriculture in the country. Tractor purchases for commercial use are subjected to taxes and do not enjoy government subsidy. It is mainly due to weaknesses in bank regulatory controls.

Currently, the tractor industry in Pakistan is not producing for the commercial market. Agricultural and non-farm tractors are very much different in nature and use as the latter require different technical specifications to fit the demands of the work. The efficiency and environmental impact of both types of tractors is different. We believe that Pakistan has a huge opportunity not only in the manufacturing of agricultural tractors but also in production of commercial tractors without seriously cannibalizing the exiting market. It will not only lead to the manufacturing of special-purpose tractors but will also improve productivity of respective agricultural and commercial activities. The vending industry will also benefit from exploitation of such clear niche.

3.

Low Economic Growth with Buoyant Tractor Industry Despite a subdued growth environment, tractors' production expanded by a staggering 27 percent standing at 34,110 units during the first nine months of 2009-10 as 26,793 tractors same period last year.

The recent growth performance was helped by decent increase in major crops like wheat, rice and sugarcane. However, the persistence of weak economic growth during 2008-2010, buffeted by the dual headwinds of a global financial crisis and domestic turmoil has the potential to dampen tractor sale in the short-run. We expect economic growth to remain modest at between 3 and 4 percent in 2011-12. It, therefore, implies that the tractor industry as a whole ought not to shift the overall strategic direction favouring further investment and capacity improvement in line with anticipated demand.

The structure of Pakistan's economy is greatly depends on agriculture sector. Given the importance of agriculture for the economic performance of Pakistan, we believe that tractor industry has yet to see new phases of enhanced growth. Pakistan has still not been able to attain its true agriculture potential. The sector's performance is experiencing a persistently low growth especially since the second half of the last decade. Agriculture sector share in GDP has declined from around 39 percent in 1969-79 to around 21 percent in 2010-11. Despite low growth and a shrinking share in economic structure, agriculture remains the largest employer and the principal source of export revenues. Almost 70 percent of Pakistan population is directly and indirectly linked agricultural sector and rural economies. Tractor penetration in Pakistan has special significance for rural sector and this will continue to be the case going forward.

But despite the government's renewed commitment to expanding agri-credit facilities, the current economic slowdown is taking its toll on the availability for financing for the sector. After expanding by an annual average of around 25 percent during 2005-06 and 2007-08, the total supply of agri-credit increased by around 10 percent on average per annum during 2008-09 and end-March of 2009-10 (see Figure-9). We believe that the contraction in growth rate of agri-supply is temporary and agriculture-induced economic expansion will make it an important policy imperative for the government to ensure financing for the sector is revived well beyond the levels achieved during middle of last decade.

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Figure-9: Supply of Agriculture Credit by Institutions

250,000.00

30

200,000.00

25 20

150,000.00

15 100,000.00

% Change

Rs. Million

Supply of Agriculture Credit by Institutions

10 50,000.00

5 0

0.00 2005-06

2006-07

2007-08

2008-09

Total Rs. Million

4.

2008-09*

2009-10*

% Change

An Analysis of Pakistan Tractor Market Features As a result of low economic growth conditions, production in the tractor industry contracted by negative 1.16 percent during 2009-10 and 2010-11. Number of tractors produced fell to 70,770 units in 2010-11 as against 71,607 units in the preceding year. MTL produced over 40,000 tractors in the year 2009-10, with a 32 percent increase over the previous year. AGTL produced more than 30,000 tractors during the year 2009-10. Both MTL and AGTL individual production and sales have moved in tandem throughout the last decade (see Figure-10 and 15). Tractors manufactured in Pakistan are exported to neighbouring countries as well therefore there is ample opportunity of growth for the tractor industry in Pakistan. The inventory level is almost non-existent in the industry as is evidenced from the combined production and sales performance of both the MTL and AGTL (see Table-4 and 5).

Figure-10 and 11

Millat (Massey Ferguson) Tractor Production Units

Millat (Massey Ferguson) Tractor Sales - Units 50,000

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40,000 30,000 20,000 10,000

98 19 -99 99 20 00 00 20 -01 01 20 -02 02 20 -03 03 20 -04 04 20 -05 05 20 -06 06 20 -07 07 20 -08 08 20 -09 09 -1 0

0 19

19

98 19 -99 99 20 00 00 20 -01 01 20 -02 02 20 -03 03 20 -04 04 20 -05 05 20 -06 06 20 -07 07 20 -08 08 20 -09 09 -1 0

50,000 40,000 30,000 20,000 10,000 0

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Figure-12 and 13

Fiat (New Holland) Tractor Production - Units

Fiat (New Holland) Tractor Sales - Units

Figure-14 and 15 Combined Annual Production of Fiat and Millat Tractors - Units

Combined Annual Sales of Fiat and Massey Tractors - Units

80,000

80,000

60,000

60,000

40,000

40,000

20,000

20,000

0

0

Table-4 Millat Tractors Limited Millat tractors Limited (MTL) began to assemble Massey Ferguson (MF) Tractors in Pakistan in 1967. Within a few years, the company was nationalized under Economic Reforms Orders in 1972 and renamed MTL. MTL established its own assembly plant in 1982. The company was privatized in 1992 and control was won by employees. Today, MTL is worth around Rs.6 billion and manufactures a range of Massey Ferguson (MF) having technical collaboration arrangement with AGCO of USA (Massey Ferguson Ltd. U.K.). The company also manufactures diesel engines in partnership with caterpillar USA (Perkins engines, U.K.), and is set manufacture forklift trucks with the support of Anhui Heli of China. MTL has a market share of around 60 percent with a capacity to manufacture 7120 tractors a day. Its product line includes: 1. MF 240 (50 HP) Tractor

2. MF 260 Turbo (60 HP) Tractor

3. MF 375E (75 HP) Tractor

4. MF 385 (85 HP) Tractor

5. MF 385 4WD (85 HP) Tractor

6. Generating Sets (15-42 KVA)

7. Prime Movers

8. Forklift Trucks (3-Ton Capacity)

9. A range of agriculture implements.

MT has a network of 69 main dealerships in the country and 44 spare part dealers as well as 400 authorized service centres for repairs and maintenance.

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Research Reports Despite the fact the local tractor industry has made a lot of progress, it faces a number of growth and competiveness challenges as laid out in the following Cause-and-Effect diagram. The sector is still not ready to meet all local demand. Farmers are routinely faced with long delivery times often up to a year or more despite making 100 percent payment in advance. Farmers are deprived of refunds in case of further delays in delivery. It is believed the existing industry players are not investing in research and development to improve engine life, noise and efficiency as well in design and safety feature. The production and sales patterns of both players are almost identical which points to the lack of real alternative and choice. Both brands are very much identical in technology whereas the global tractor industry has made great stride in product range and features. Two main industry players are producing almost the same models. Design, technology, safety and environment-related features have seen little or no progress.

A Cause-Effect Analysis of Pakistan Tractor Industry

Macro Impact

Low Tractor Penetration

Low Production Capacity

Macro Impact

Lack of Choice

Delivery Delays

Key Sector Problem

Imported Tractors

Low Effidency

Vendor Fragmentation

Food Insecurity

Low Technology

Uncompetitive Exports

Lack of innovation in technology, design and features

Inefficient Markets

Low Quality Inputs

Moderate Entry Barriers

Privatized Monopolies

Institutional Neglect

Low Policy Priority

Existing Sectoral Outlook

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Low Innovation

High Capital Cost

Inadequate Supply

Low Consumer Protection

Expensive Marketing

Agriculture Development Strategy Gap

Expensive Distribution Network

Regulatory Weaknesses

High Premium

Low UniversityIndustry Links

Weak Framers' Associations

Lack of Competition

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Table-5 Al-Ghazi Tractors Pakistan. In 1991, of Dubai took over the management control of Al-Ghazi Tractors. Its corporate Head Office is in Karachi, Pakistan. Al-Ghazi Tractors manufactures 4 models of Fiat tractors (now called New Holland). Fiat/New Holland 480 - 55 hp tractor, Fiat/New Holland 640 - its 65 hp tractor. The company has achieved up to 92 percent localization of component manufacturing in its 55, 65, 75 and 85 hp tractors which is highest in the country. AGTL has a wide sales and services network in the country consisting of 82 and 3000 mechanical workshops. AGTL product range includes: 1.

480 S (55 HP)

2.

640 (75 HP)

3.

640 S (85 HP)

4.

Ghazi (65 HP)

5.

NH 55-56 (55 HP)

6.

NH 60-56 (60 HP)

AGTL has also moved in new areas to complement its tractor business. /the company is now also providing smart irrigation solution involving Rain Guns, Sprinkler Systems, Drip Irrigation Systems and Centre Pivot Systems.

1.

Tractor Industry Competitive Trends Pakistan imported 11,000 tractors during 2009-10. The government's decision to allow the imports of tractors will create substantial competitive pressures on the industry. Competition is good news for the farmer. Competition will help improve the industry's export competitiveness. It is argued that Pakistan can easily earn US$700 million in foreign exchange through the export of tractors, complementary equipment and spare parts. This very much depends on the expansion of production capacity of local tractor industry involving both assemblers and vendors. According to National Engineering Exports Development Strategy (NEEDS), Pakistan can readily exploit the export potential in Afghanistan, Bangladesh, UAE and African countries.

As a result of low research and development activities, innovation in sector is almost non-existent. By and large improvement in technology, design and features has stagnated. Tractors produced by both the players almost look the same with engine variations. All MT look the same. All AGTL tractors look the same.

This perhaps is one of the biggest problems for the industry as a whole. It seems as if manufactures have captive customers. They do not feel competitive pressures that can drive innovation. The Diamond analysis of Porter (1990) is very helpful to understand the competitiveness at the industry level which is mainly driven by the pressures of competition, demand signals, factor conditions and the state of cluster development. The tractor industry Diamond analysis shows that domestic conditions are highly suitable for large investment into the sector.

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7.

Tractor Industry Investment Prospects The import and export policy of Pakistan is most open and liberal to accommodate future growth and development of tractor industry in the country. The government has lifted all restrictions on import or export of tractors. Any company can freely export their products to any country of the world. A third major global player, Deere and Company, aimed to establish a plant for assembling of tractors near Lahore but the project is still not operational. This is perhaps more to do with the overall investment climate and perceived industry entry barriers rather than due to the investment regime. We believe this is an exception rather than the rule given the highly attractive nature of Pakistan's investment regime accorded to such a large foreign player.

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Pakistan Tractor Industry – SWOT Analysis OPPORTUNITIES

STRENGTHS 1.

A promising agricultural sector attracting

2.

Gaining policy attention for sector development economic sector

3.

Improved access to agriculture sector credit

4.

Excellent location for export

5.

Large, young and low-cost workforce

6.

Established export-oriented industrial clusters

7.

Good communication network

8.

Low tractor penetration offers opportunities for growth

9.

Improvement in GDP and agriculture incomes

10.

A new wave of agriculture mechanization

11.

Improvement in agriculture supply chain

12.

The development of Special Economic Zones

13.

Infrastructure development and construction activities will improve tractor sales

THREATS

WEAKNESSES 14. Farmers still lack awareness on the benefits of

22.

greater mechanization

Recurrent and prolonged economic downturns

15. Low farm incomes and limited buying power

23.

Unclear and shifting government priorities

16. Shortage of skilled work force

24.

Volatile agriculture sector growth

17. Low labor productivity

25.

Tightening of regulatory regime to ensure safety

18. Poor marketing 19. Poor delivery schedule and lack of service

26.

environmental concerns

centers 20. Absence of right fiscal incentives for R&D and

27.

Increasing prices of diesel will reduce tractor sales

product development 21. Cumbersome and expensive regulatory

Regulatory pressures on account of

28.

Complacency on the part of existing manufacturers

compliance 29.

Banks may show reluctance to increase agricredit if the current growth slowdown persist

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30. Key Findings The tractor industry in Pakistan offers very good prospects for large-scale investment especially introducing new design, technology and features for greater efficiency and safety. Tractor penetration in Pakistan is still very low compared to international standards. This low performance is mainly the result of nationalization drive of the early 1970s that deprive the sector of new investment, technological up-gradation and competition. The privatization of the 1990s led to new investment and a degree of modernization but sector failed to attract serious competition. Resultantly, the industry structure became oligopolistic dominated by only two players. The structure remains oligopolistic with moderate level of barrier to entry. The future growth and development of the sector very much depends on new investment in technology and design to achieve greater efficiency and safety.

At the macro-level, new investment in the sector is critical to support government's strategic objectives to revive agriculture in Pakistan as a key priority sector of the economy. Despite the gradual transformation in the structure of Pakistan's economy, agriculture continues to be the largest source of employment, raw materials and exports in the country. The economic growth of Pakistan depends on the growth of agriculture. The structural transformation of the economy has not led to any decoupling between the two.

The economy of Pakistan only performs well when agriculture performs well. But tractor industry continues to enjoy strong growth despite economic slowdown as was evidenced in the growth of production and sales in the sector. This was mainly helped by the fact that tractors bought in the of agriculture use on the basis of government subsidy and cheap financing are actually put to commercial use.

At the micro-level, new investment is need as an impetus for future growth of the sector and ancillary industrial and services activities especially in vending area. Above all, new investment is needed to prepare the sector to meet demand of agriculture sector that has a latent potential to consistently grow at or above 5 percent per annum. The current tractor industry capacity is only geared to support around 3 percent of agriculture growth. The other key weakness in the existing tractor industry is that it is not producing for the commercial market. Tractors produced for agricultural purpose are being put in commercial use which neither efficient nor are environmentally-friendly. We believe that Pakistan has a huge opportunity for manufacturing agricultural as well as commercial tractors. Investment into the manufacturing of specialpurpose tractor will unleash new inter-sector and intra-sector opportunities.

Disclaimer The information provided in these reports is obtained from sources believed to be reliable and in all cases the reference has been quoted. We do not make any representation, warranty or assurance nor assert that all the information provided therein is absolutely accurate or complete and it should not be relied upon as such.

LCCI and its staff is not responsible for any error of fact, opinion or recommendation and also for any loss, financial or otherwise, resulting from business or trade or speculation conducted, or investments made on the basis of information posted here in this report. Reading this report stipulates that you have also read this disclaimer.

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Footnotes 1

Ahmad and Yah argued that “construction typically contributes 5% to 9% to the GDP in developing countries and provides critical backward and forward linkages to the rest of the economy. See Ahmad, D. and Yan, Z., “An Overview of the Construction Industry in China.” http://cibworld.xs4all.nl/dl/ib/9701/pages/31.htm

2

http://www.economywatch.com/world-industries/construction/world.htm

3

ibid

4

http://ec.europa.eu/energy/efficiency/buildings/buildings_en.htm

5

http://www.oecd.org/dataoecd/24/32/45145459.pdf

6

http://www.cnbc.com/id/40605908/China_Overbuilding_to_Hit_a_Wall_Chanos

7

http://www.nhagov.pk/ and http://trade.ec.europa.eu/doclib/docs/2007/february/tradoc_133311.pdf

8

State Bank Annual Report 2009-10

9

Economic Survey of Pakistan 2009-10

10 ibid 11 Board of Investment 12 http://www.nation.com.pk/pakistan-news-newspaper-daily-english-online/Islamabad/15-Feb-2010/Amendments-inhousing-policy-by-Juneend-Kakar 13 See Zaigham Rizvi, World Bank (2009), "Expanding Housing Finance to Underserved in South Asia." http://www.worldbank.org.pk/WBSITE/EXTERNAL/COUNTRIES/SOUTHASIAEXT/PAKISTANEXTN/0,,contentMDK:227 03706~menuPK:50003484~pagePK:2865066~piPK:2865079~theSitePK:293052,00.html 14 See World Bank (2009), "Expanding Housing Finance to the Underserved in South Asia." http://www.worldbank.org.pk/WBSITE/EXTERNAL/COUNTRIES/SOUTHASIAEXT/PAKISTANEXTN/0,,contentMDK:227 03706~menuPK:50003484~pagePK:2865066~piPK:2865079~theSitePK:293052,00.html 15 See World Bank, op. cit., p.23. http://siteresources.worldbank.org/SOUTHASIAEXT/Resources/2235461269620455636/6907265-1284569649355/Chapter4SARHousingFinanceOctober2010.pdf 16 See World Bank, op. cit., http://siteresources.worldbank.org/SOUTHASIAEXT/Resources/2235461269620455636/6907265-1284569649355/Chapter4SARHousingFinanceOctober2010.pdf 17 (SBP, July-September 2010) SBP 18 Khan, op. cit., p.288, argued that "…there is strong causal relationship between the aggregate economy and the construction sector of Pakistan. The construction flow precedes GDP whereas GDP does not precede construction flow. There is a uni-directional causal relationship between the two variables real growth rate of GDP and construction flows. It established the causal linkage from the construction sector to the aggregate economy of Pakistan. Aggregate economy of Pakistan is greatly influenced by the construction industry." For details see Khan, R.A., (2008), "Role of Construction Sector in Economic Growth: Empirical Evidence from Pakistan Economy." Paper presented at First International Conference on Construction In Developing Countries. http://www.neduet.edu.pk/ICCIDC-I/Conference%20Proceedings/Papers/030.pdf 19 See World Bank, op. cit., http://siteresources.worldbank.org/SOUTHASIAEXT/Resources/2235461269620455636/6907265-1284569649355/Chapter4SARHousingFinanceOctober2010.pdf 20 UNIDO Global Project: Strengthening the Local Production of Essential Medicines in Developing Countries (DCs) http://www.unido.org/fileadmin/user_media/Services/PSD/BEP/Flyer%2018%20Nov2010%20TEGLO-051508030%20Generics_fin.pdf 21 Chairman Pakistan Pharmaceutical Manufacturers Association, however, pharmaceutical exports were estimated to be around US$100 million in National Health Policy, Stepping Toward Better Health, Zero Draft, 2009, p. 11.

22 See http://www.imshealth.com 23 http://www.ppma.org.pk/PPMAIndustry.aspx 24 Pharma-ITech.com, 3 February 2009.

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Footnotes 25 Global Crisis News, 1 February 2009.

26 http://www.pwc.com/en_GX/gx/pharma-life-sciences/pdf/challenge.pdf 27 Top 50 Pharmaceutical Companies Charts & Lists, Med Ad News, September 2007 28 Staff Report http://www.dailytimes.com.pk/default.asp?page=2006\03\09\story_9-3-2006_pg7_60 29 Aslam Pervez, (2008) www.osec.ch 30 The Importance of Small and Medium Enterprises (SMEs) in Economic Development (Bashir Ahmed Fida, 2008). www.thefreelibrary.com 31 Small and Medium Business Corporation, S.Korea www.sbc.or.kr 32 MSME Annual Report 2009-10, Ministry of Micro, Small and Medium Enterprises, Government of India 33 http://b2binformation.blogspot.com/2010/07/how-is-sme-sector-growing-in-india.html 34 http://translate.google.com/translate?langpair=ur|en&u=http%3A%2F%2Fwww.google.com.pk%2F 35 Prudential Regulations for Small and Medium Enterprises Financing, State Bank of Pakistan 36 See World Bank (2009) 37 SBP, 2010 38 For details see http://www.icis.com/Articles/2010/06/22/9370269/global-plastics-market-to-grow-5-a-year-until-2015basf.html 39 See http://www.bpf.co.uk/Innovation/Default.aspx 40 For details see Pakistan Plastic Manufacturers Association (2011).

41 Ibid.

42 See Council for Leather Exporters, November 2010. http://www.iltaonleather.org/event/aiclst/aiclst_presentation/session_1/dr_a_a_khan.pdf 43 See Syed, R. "Leather Goods Export Declined 30 percent in July-May 2010." Daily Times. June 1, 2010. http://www.dailytimes.com.pk/default.asp?page=2010%5C06%5C01%5Cstory_1-6-2010_pg5_7 44 See Council for Leather Exporters, November 2010. http://www.iltaonleather.org/event/aiclst/aiclst_presentation/session_1/dr_a_a_khan.pdf 45 See Ali, A. "Pakistan's Leather Dilemma." http://www.utrade.co/eMagazine/04-2010/inner-pages/Pakistan's-LeatherDilemma.aspx 46 Alam, K., (2011), "Leather Industry of Pakistan: An Overview." Pakistan Tanners' Association.

47 Federal Bureau of Statistics and PTA 48 Government of Pakistan, Pakistan Economic Survey 2008-9, Ministry of Finance: Islamabad, 2008.

49 According to the World bank, about 900 days of water flow can be stored in the Murray-Darling and Colorado basins, 500 days for South Africa's Orange River, 120-220 days for India's peninsula rivers, but only 30 days for Pakistan's dams.

50 For details see Pakistan "Water Storage below World Average." The News. October 06, 2009. http://www.thenews.com.pk/daily_detail.asp?id=201778 51 Pakistan Water Strategy (2002) as presented in the PER, 2007, pages 119-120. The percentage shortfalls refer to highdemand and low-demand scenarios.

52 For details see http://blogs.reuters.com/pakistan/2009/08/26/pakistans-cry-for-water/ 53 For details see World Bank, "Better Management of Indus Basin Waters." http://siteresources.worldbank.org/INTPAKISTAN/Data%20and%20Reference/20805819/Brief-Indus-Basin-Water.pdf 54 For details see online: http://viewswire.eiu.com/index.asp?layout=VWArticleVW3&article_id=1375300522&region_id=1510000351&rf=0

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Footnotes 55 The danger is that “…excessive public spending can damage long-term productivity growth and living standards in Britain, America and much of Europe.” Kaletsky, A. “G8 Signals the End of the Financial Crisis, But What Caused It?” Timesonline, 15 June, 2009. http://business.timesonline.co.uk/tol/business/economics/article6499355.ece 56 Hadoulis, J., “Greek Debt Muddle Sinks Euro, Sends Spread Soaring.” AFP. April 6, 2010. http://uk.news.yahoo.com/18/20100406/tbs-greek-debt-muddle-sinks-euro-sends-s-5268574_2.html 57 http://www.businessweek.com/news/2010-12-14/kardar-worried-pakistan-rate-rises-may-hurt-growth.html 58 http://www.brecorder.com/news/business-and-economy/pakistan/1139999:fiscal-deficit-may-reach-six-percent-of-gdpkardar.html 59 http://www.brecorder.com/news/business-and-economy/pakistan/1139999:fiscal-deficit-may-reach-six-percent-of-gdpkardar.html 60 http://www.dailytimes.com.pk/default.asp?page=2010\10\17\story_17-10-2010_pg5_5 61 http://tribune.com.pk/story/78431/government-borrowing-behind-inflation-imf/ 62 See http://www.dailytimes.com.pk/default.asp?page=2011\03\03\story_3-3-2011_pg5_6 63 See http://dawnnews.tv/wps/wcm/connect/dawn-content-library/dawn/in-paper-magazine/economic-andbusiness/returns-on-bank-deposits-800 64 See http://www.dawn.com/2010/11/08/bank-profitability-2.html 65 See http://dawnnews.tv/wps/wcm/connect/dawn-content-library/dawn/in-paper-magazine/economic-andbusiness/returns-on-bank-deposits-800 66 See http://www.dawn.com/2010/11/08/bank-profitability-2.html 67 For details, see U.S. Congress, Office of Technology Assessment, Biotechnology in a Global Economy, OTA-BA-494 (Washington, DC: U.S. Government Printing Office, October 1991).

68 See http://www.datamonitor.com/store/Product/biotechnology_global_industry_guide?productid=E50CFB5A-13A24951-A98F-30BFAD261685 69 See http://www.biotech-now.org/business-and-investments/2011/06/five-international-biotech-countries-to-watch 70 http://www.biotech-now.org/business-and-investments/2011/06/five-international-biotech-countries-to-watch 71 See http://test.bio.org/about_biotech/ind_bio/ 72 See http://www.datamonitor.com/store/Product/skincare_global_industry_guide?productid=28DC86E3-27CF-447EA579-4E3DEE8279A9 73 See Biochip Technology, Argonne National Laboratory. http://www.anl.gov/Media_Center/News/2006/ES061117.pdf 74 See http://www.physorg.com/news1174.html 75 AIDP was frameworked by the Engineering Development Board, Ministry of Industries, Government of Pakistan. AIDP aimed "to make [Pakistan's] auto industry a global player, achieving competitiveness through a critical mass of production, contributing to the GDP by 5.6% by 2012, attracting large investments, development of technologies and human resource through a well structured policy framework formulated in consultation with stakeholders" (2008).

76 For details see AIDP (2008).

77 It is noted in AIDP that "the industry while embracing the TBS and entering in the development phase was faced with the issues of competitiveness, productivity of level and scale, low technology level, research and development, supply chain and human resource management" (2008: 19).

78 Economic Survey of Pakistan 2009-10 - table 14.5 79 http://www.dailytimes.com.pk/default.asp?page=2010\05\02\story_2-5-2010_pg5_11 80 Posted on 02 May 2010. Tags: Exporting Tractors

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