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Devaluation of rupee is the mother of all business illness

Interview with Mr Shamim A. Firpo – Chairman, Firpo Group of Companies

PAGE: Tell me something about yourself and your organization, please:

Shamim A. Firpo: I started life’s struggle at a very young age. When I was six years old my father died and after his death my mother played a vital role in building my personality and future. My mother motivated and encouraged me in every walk of life. I am determined and optimist kind of a person and always believes in Allah SubhanahuTa’alah that He always has good for everyone. As a person, I am very simple and want to be result-oriented.

I am also very much interested in social welfare work. In my whole life I worked hard and made my life as I dreamed. I am a self-made person and feel pleasure whenever I share my success story with students and young entrepreneurs in mentoring sessions while visiting universities and educational institutes to motivate them.

As I shared that, at a very young age I started my business journey. That was 1968 when I established my food business with the name of Firpo Restaurant at Tariq Road in Karachi. With the blessings of Allah SubhanahuTa’ala and my mother’s prayers, my business got success and popularity. The name ‘Firpo’ was so popular that it has become part of my name. I am proud to say that there may be thousands of Shamims but there is only one Firpo, so whenever the Firpo name is taken anywhere across Pakistan, people come to know that it is only Shamim A. Firpo. After getting success in food business, I diversified my business and started trading, import and export business with the name of Sohail Enterprises in 1975. I constantly worked with devotion, with the flow of time my sons joined me in business and Alhamdulillah our business has now converted into Firpo Group of Companies.

In 2018 we celebrated 50 Years Golden Jubilee of our business. If I talk about my business, we mainly deal in auto lamps and auto parts. We are well known amongst automobile industry in Pakistan. All the top auto manufacturing companies use our bulbs and parts in their vehicles. We are doing our business globally and have established offices in China, Sri Lanka, and Romania. Our working partners are China/Hong Kong, Taiwan, Vietnam, Thailand, Japan, USA, Germany, Hungry, UAE, Romania, Ukraine, Sri Lanka, Iran, Afghanistan.

Firpo is our registered brand name which is known as a name of trust and a symbol of quality in market. I am also holding different public and private portfolios and also have interest in business politics and have served the business community of Karachi as President of Karachi Chamber of Commerce & Industry for the year 2016-17.

I am very much satisfied and happy with my life and thankful to Allah SubhanahuTa’ala for giving me this respect and success.

PAGE: How would you comment on the current state of the economy?

Shamim A. Firpo: I am of the view that a sharp fall and fluctuation in rupee value is increasing cost of production which is leaving Pakistani exports uncompetitive in the international market and discourage investments in the industrial expansion. At present currency is depreciating, interest rates are surging, cost of doing business is escalating and businesses are in a state of depression as none of the sectors are progressing. Pakistan has witnessed various rounds of rupee depreciation since December 2017, which resulted in the decline in value of the rupee versus the dollar. At present Pak Rupee is facing ongoing depreciation pressures against the US dollar and touched historic level. Businessmen are worried over a massive depreciation of rupee in the last several months as this will have a devastating effect on the ‘already beleaguered’ economy.

The depreciation will increase prices of all the essential items and will result into high inflation prices of imported food products. I would say that currency devaluation for a country like Pakistan will have negative economic implications in the long run. At present, the importers have adjusted import prices while exporters are happy to have additional gains, but imports will become costlier for new foreign purchases and exporters will also bear the brunt due to rise in cost of imported raw materials. As we know petroleum products have major share in import bill of our country so as oil prices in the international market are increasing, import cost will also escalate.

In my opinion rupee depreciation may provide some incentives and short-term jubilation to the export sector of the country, but due to rise in the cost of imports, production cost would further go up that would affect the competitiveness of our exports too. Although the current-account deficit narrowed in past months, a consistent increase in the oil import bill, on account of rising international oil prices, has exerted pressure in the foreign exchange market.

Pakistan has also finally decided to approach the International Monetary Fund for help, but the rupee is expected to remain under further pressure in coming days. I have deep concerns about the serious devaluation of rupee against dollar as it will have a devastating effect on all segments of society but I am hopeful for improvement and would say that the new government will take urgent measures to bring stability in the value of domestic currency as the continuous fall in the value of rupee would bring imported inflation in the country and curtail domestic demand leading to further slowdown in the economic growth of the country that would not be in the best interest of the country. It would also adversely affect employment generation and give rise to a new wave of price hike in the country.

Pakistan mostly depended on imported capital goods and raw material for industry, but the falling value of rupee would make all imported goods and raw material costly. It would also increase the prices of petroleum products and would further enhance the cost of debt servicing leading to more pressure on our forex reserves. While formulating the strategy, the Government of Pakistan should think that our imports are much higher as compared to our exports and rupee continues depreciation would thus bring more problems to the overall economy.

 

PAGE: What is your take on the energy crisis in Pakistan?

Shamim A. Firpo: We all know that Pakistan is among those countries, which has a lot of resources and potential to produce energy. The country is geographically very rich in terms of various renewable resources which are low in cost to produce electricity and at the same time more environment- friendly. But still from last 15 years Pakistan has a series of crises in power sector and there is a shortfall because electricity demand is growing day by day and the resources to produce electricity are not used efficiently.

If I talk about natural gas, Pakistan’s primary energy supply mix clearly shows that natural gas is playing a major role in country’s economic development by accounting for nearly 50 percent of its total primary energy supply mix. Over last few decades, Pakistan has developed a formidable gas sector. Pakistan’s economy has so far survived due to abundant initial gas discoveries. Pakistan was gas sufficient till 2005, however, after that gas production didn’t keep up with the gas demand. The constrained demand of natural gas is 6,000 mmcfd whereas the unconstrained demand is 8,000 mmcfd (8 bcfd) or even potentially higher than this during winters when the domestic gas demand surges exponentially.

Oil and Gas Regulatory Authority (OGRA) has published a report ‘State of the Regulated Petroleum Industry’ for the fiscal year 2017-18 and projected 3,720 mmcfd gas deficit in the next financial year 2019-20. In the report, the OGRA also stated rising demand from various sectors particularly power, domestic, fertilizer, captive power and industry resulted in insufficient gas supply to cater the demand. The demand-supply gap during financial year 2017-18 was 1,447 mmcfd and this gap is expected to rise to 3,720 mmcfd by financial year 2019-20. The gap between the supply and demand is expected to increase to the tune of 4,600 mmcfd in financial year 2022-23 and 6,700 mmcfd by the financial year 2027-28 without the imported gas, according to the report. The report suggested that possible gap can be bridged through enhancement in indigenous gas exploration and production through incentivizing this sector, import of interstate natural gas (through development of cross-country gas pipelines) and increased import of LNG.

As per statistics, Pakistan’s installed capacity to generate electricity has surged up to 33,836 MW by February 2019 which stood at 23,337 MW in 2014, showing the growth of 45 percent in five years. Gas and electricity are the basic input for the industry and its non-availability will stop the wheel of industrial sector that will not only result in unemployment but also cause a decline in the exports and GDP. However, in recent month the supply situation of gas and electricity is getting better and I hope that I will be further better in coming months. I urged government of Pakistan to make all possible efforts to increase gas and electricity supply to industrial sector so that losses in industrial production and GDP growth could be averted.

Gas and electricity both are the basic input for the business and its high tariff would slow down the wheel of business activities that would result in unemployment and low economic growth. The cost of doing business is already high in Pakistan comparing cost in regional countries. The government is increasing gas and electricity tariff as part of the IMF’s conditions for a bailout package so gas and electricity prices would increase gradually as subsidies are withdrawn but the hike in tariff is making business community uncompetitive in local and international markets.

Our exports and small industries would also suffer with this hike, however, I am optimist that we should bear this burden for the sake of our country because we are going through a very tough economic situation and we should sacrifice and support government’s initiatives for better future of our country. Sindh is a land of opportunities. It is a rich province in natural resources. It is the largest gas producing province of Pakistan, which contributes more than 70 percent gas of total production in the country. It is not a wonder then that it is considered the energy basket of Pakistan. However, this ‘energy basket’ consumes only 46 percent of the gas it produces. The history of gas exploration in Sindh is a century old. According to the reports, in 1925, Burmah Oil Company had drilled the first well at Khairpur but it did not yield any output. After the discovery of Sui (Balochistan) in 1952, northern Sindh became the target area for hydrocarbons exploration. In Sindh the major gas exploring areas are Khairpur, Kandhkot, Mazarani, Mari, Talhar, Mirpur, Nabisar, Badin, Lakhra, Badro, Dadu, Sari, Kothar and Hundi and the exploration process is still going on in Sindh and discovering new gas reserves. There are some major gas fields in Sindh which produce a huge volume of it. In district Sanghar, 39 million cubic feet of gas reserves have been discovered during drills – the country’s second largest oil and gas producing field. This is the sixth discovery in the same exploration block and is estimated to produce 2,100 barrels per day of condensate and 11.05 million cubic feet per day (mmcfd) of natural gas. This discovery is adding more hydrocarbon reserves and also reducing the gap between supply and demand of oil and gas during the energy crises in the country.

In the 1990s, a total of 31 oil fields were discovered in Pakistan, out of which 23 were in Sindh (the rest were in Punjab). Meanwhile, the contribution of Sindh in gas production exceeded Balochistan`s for the first time. In 1990, the third largest gas field in Pakistan was discovered in Qadirpur by OGDC. In 2015, 1,095 bpd crude oil supply was found at Tando Allahyar by the OGDC. In June 2016, a total number of six discoveries were made across Pakistan, adding 50.1 mmefd of gas and 2,359 bpd of crude oil to the existing production levels. Still Sindh has lots of gas resources which are being explored by the companies but the gas being produced in Sindh should at first be supplied to the province and after fulfilling the requirement of Sindh, surplus gas should be passed on to other provinces in line with Article 158 of the Constitution of Pakistan.

Pakistan power sector is a developing market and has huge potential for local and foreign investment. Specially under the CPEC projects heavy investment are being done in power generating projects. Keeping the potential in the view a Private Power and Infrastructure Board (PPIB) is also working as ‘one-window’ facility for the investors interested in power generation and allied infrastructure. As we know that like any other infrastructure, the development of power infrastructure requires continual sizeable investments and due to the limited means in the public sector, it is necessary to mobilize private sector resources. It is expected that the private sector will play a larger role in development of the power sector.

Government of Pakistan is committed to facilitate overseas as well as local investors and working on improvement in power policies and simplification of project implementation procedure to attract investment in a transparent and efficient manner.Our country’s power sector has the investment potential of over $80 billion and this huge investment in power sector would not only help the country reducing import bill but also reduce unemployment in the country. There are some barriers in investing in power generation in which the circular debt is the biggest issue the ever-increasing circular debt due to high tariffs and an inefficient power distribution system is creating resentment among investors. To attract further investment in power sector, particularly in power transmission sub-sector, additional incentives/securities are required.

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