INTERVIEW WITH NOUMAN ZAHEER, VICE PRESIDENT ARIF HABIB LIMITED

KHALIL AHMED
(feedback@pgeconomist.com)
Aug 1 - 7, 2011

PAGE: TELL US SOMETHING ABOUT YOURSELF.?

NOUMAN ZAHEER: I have more than 17 years of experience in capital market (both primary and secondary market activities), mutual fund, equity brokerage, block deals, private equity, and real estate.

Over the past seven years, I worked in equity trading, provided expert advisory service to the equity desk of the major institutions in Pakistan that includes State life, National Bank of Pakistan, EOBI, MCB Bank, prominent asset management companies like Arif Habib Investments, Atlas Asset Management Company, Habib Asset Management in Pakistan etc.

I was also the director of a mutual fund company of Pakistan Premier Fund that also won Karachi stock exchange's top 25 companies award. Presently, I am in a process of establishing an investment advisory firm, in addition to leading Pakistan Investor Forum (over 370 members) on Facebook. I started my career with Bhayani Securities (Formerly Kausar Abbas Bhayani Securities) as research assistant way back in 1994 and joined Arif Habib Securities Ltd in equity research and corporate finance departments as investment analyst in 1998, and later promoted as a senior investment analyst, vice president, and head of research and corporate finance.

Presently, we are providing investment advisory services to a large number of clients both within and outside the country as well. During the period in employment in both Kausar Abbas Bhiyani and Arif Habib, I enhanced the company's operations on the equity research and corporate finance side. I have prepared large number of analytical reports, market commentaries and updates on various sectors in general and leading companies in particular.

ASSIGNMENTS:

Arif Habib Bank Limited (PKR 2,514 MN)
Pak Arab Fertilizer Limited (TFC) (PKR 1,250 MN)
Arif Habib Securities Limited
Arif Habib Limited
Arif Habib Investment Management Limited (PKR 937 MN)
Valuation and limited sell-side advisory to Bank Alfalah Limited.
Valuation and limited buy-side advisory for ICP Mutual Fund-A.
Valuation and limited buy-side advisory for ICP Mutual Fund-B.
Valuation of Kasb Fund for Arif Habib Investment Management.
Valuation and market study of Bengal Fibre Limited.
Preparation of a business plan of ICP Mutual Funds & NIT.
Valuation and limited sell-side advisory to Kohinoor Energy Limited.
Valuation of Pakistan State Oil.|
Thatta Cement Company Limited

PAGE: YOUR COMMENTS ON POVERTY ALLEVIATION IN PAKISTAN.?

NOUMAN ZAHEER: It has been estimated by the Economic Survey that two thirds of the country's population lives on less than $2 a day, with at least one third living below poverty line. During the last eight years or so poverty in Pakistan has increased from 30 per cent in 1998-99 to almost one third in 2008-09, adding another 16 million people to the absolute poverty.

While incidence of poverty decreased between 2000-01 and 2005-06, the last few years witnessed an increase. The successive governments over period have initiated a number of policies and programs for eradication of poverty in the country but still the poverty is on the increase. It is argued that these programs and policies did have some beneficial impact but the population growth rates as well as rural-urban disparities plus the weak implementation of policies neutralized the impact. Honestly speaking, the problem being faced by Pakistani nation, has never been handled with diligent care and faith.

Policies as regards to development of poor strata have never been the top of the checklist as a result Pakistan today is at the verge of collapse. The share of agriculture in GDP gradually shrank 25.9 percent of GDP in 1999-2000 to 20.9 percent in 2010-11.

Notwithstanding, overwhelming majority of the population depends directly or indirectly on income streams generated by the agriculture sector. The agriculture sector remains the dominant sector with its job absorption ability and it still absorbs 44 percent of the country's labor force. It gives a kick-start to aggregate demand for industrial goods and services as well.

Poverty mainly hits the rural sector of this country. We all know 60 per cent or 102 million of our population out of 170 million lives in rural areas whose livelihood is based on agricultural sector. According to the statistics, our total economy size is approximately $180 billion and agriculture accounts for 20-25 per cent of the economy or $36-45 billion. This means per capita income of rural population is just 1/3 or $ 350 as compared to overall per capita income of $1065 reported for 2010-11.

However, poverty can easily be alleviated by increasing rural income by increasing per hectare yield. We all know that Pakistan's per hectare yield as compared to regional countries like India and China is almost half and a major cause of economic ill in the country in general and rural population in particular. If we were able to achieve the targeted average of regional per hectare yield, our GDP could be doubled and would increase by $36-45 billion which would help increase income of rural population and alleviate the poverty level at large in the country.

PAGE: COULD INDUSTRIALIZATION HELP ALLEVIATE POVERTY?

NOUMAN ZAHEER: Manufacturing, the second largest sector of the economy, contributes less than one-fourth of the total economy. Negative growth of 3.3 per cent against target of 6.1 per cent was witnessed in 2008-9 and last year's just three per cent growth was witnessed because of acute energy outrages, security environment, and political disruption.

However, manufacturing sector is witnessing a gradual buildup in its share in the GDP during the last three years from 18.2 percent to 18 .7 percent. It is still lower than its peak level of 19.2 percent in 2007-08. Industrialization needs capital investment either in the form of local investment or foreign. In current state of law and order, chances of foreign investment are very remote and local investment during the last several years is the only source of fund for industrialization in Pakistan.

Our local saving rate that is hardly in double digit means we save barely two billion dollar every year. When we try to trace where this inadequate amount of saving is utilized, we found government borrowing is the money eater. One would also find government use this money to either subsidize or to fund the billions of rupees losses incurred to public owned entities like WAPDA, PIA, Pakistan Railways and many others.

One can conclude at present we are going in the opposite direction instead of promoting industrialization we are consuming even our future bread and butter.

Therefore, as first step we must eliminate all the unfavorable subsidies financed by the government of Pakistan through heavy borrowing at the cost of industrialization. Otherwise, dreaming for industrial growth in current circumstance is not prudent.

PAGE: WHAT ARE YOUR COMMENTS ON EMPLOYMENT OPPORTUNITIES IN PAKISTAN?

NOUMAN ZAHEER: Employment opportunities in Pakistan for qualified personnel are very scarce owing to the above-mentioned reasons: low per hectare yield and slow pace of industrialization. However, once we are able to achieve our desired per hectare yield for agriculture sector and adequate flow of investment for industries, the employment opportunities in the country would witness a tremendous demand not only for local qualified individuals but also for foreign qualified expatriates.

The services sector grew 3.6 percent as against the target of 6.1 percent and last year's growth of 6.6 percent. Value added in the wholesale and retail trade sector grew at 3.1 percent as compared to 5.3 percent in last year and target for the year of 5.4 percent. Finance and insurance sectors slowed down to 12.9 percent in 2007-08 but registered negative growth of 1.2 percent in 2008-09 because of financial crisis plaguing international in financial markets.

PAGE: WHAT DO YOU SAY ABOUT INVESTMENTS AND INFLATION?

NOUMAN ZAHEER: Rising inflation and flat investment have kept economic progress jammed in reverse. However, skyrocketing inflation of the last several quarters is unlikely to be repeated in the upcoming months due to reduction of one per cent reduction in GST. But, inflation or rising cost affected by the debt crisis still sits at the top of the ranking in terms of business confidence and economic optimism.

Businesses are becoming increasingly unable to respond to the inflationary challenge through cost-cutting. Our governments has to rectify spending decisions in the short to medium-terms, Access to finance has been tightening for the past several years, and this appears to be the case for both growth capital and short-term liquidity. This, combined with rising costs, now appears to be leading to an increase in fear that customers or suppliers might go out of business.

Despite these worrying trends, confidence figures have not yet dipped to a situation where I believe there will be a renewed downturn. However, confidence is surprisingly low in the country, with a net loss of confidence for the first time in several years.

Under these challenging conditions, profitable value-added opportunities of most types have become scarcer and the investment environment has deteriorated slightly, especially in terms of financing and business support. Still, investment itself has remained flat and the outlook for employment and investment in staff has not even improved slightly.

PAGE: YOUR VIEWS ABOUT IMPACT OF LAW AND ORDER SITUATION ON POVERTY LEVEL?

NOUMAN ZAHEER: There has been a positive correlation between crime and major economic variables: when there are negative trends in the economy (high inflation, poverty, unemployment, and decline in investment) there are negative trends in law and order (increase in crime rate). The results show that the decrease in number of all categories of crimes during the years 1999-2001 have also caused decline in inflation, poverty, and unemployment. The subsequent years have witnessed positive growth in these sets of variable testifying our hypothesis that law and order and economy have positive correlations: betterment in the conditions of the former coincide with an improvement in settings of the latter.

However, not all economic indicators have similar direct correlations with the crimes. Law and order and economy being complex and multidimensional may interplay with each other through their externalities depicted in our theoretical framework. These results may have some implications for the policymakers as well as practitioners engaged in law and order and economic management. Another contributory factor to poverty is the inflation in the country.

The Economic Survey of Pakistan (2009) puts the inflationary rate at 22.3 percent; the food inflation in the country has risen from a low of 6.9 percent in 2006-07 to 17.6 in 2008-09, touching a record high of 34.1 per cent in August 2008. As poor spend more than 70 per cent of their income on food, large sectors of population have been pushed deeper into poverty.

Step to be taken to alleviate poverty in Pakistan:

1. Increase agriculture productivity.
2. Stimulate flow of funds for industrial developments.
3. Establish justice and equality.
4. Distribute resources equally.
5. Merit should be the upshot strategy in all walks of life.
6. Eliminate discriminatory policies.
7. Control inflation and other economic indicators and regulators.
8. Develop investment friendly environment.
9. Give more feasibilities and concessions to the foreign investors.
10. Dump extremism and feudalism.
11. Establish more and more technical institutes in order to get people well skilled.
12. Education
13. Provide job opportunities.
14. Agricultural lands among tenants.
15. Maintain law and order situation in order to protect economic activities
16. Net of public oriented development projects should be extended so that the respective people could find jobs.
17. Smuggling and other illegal economic activities should be dealt with iron hand.
18. Industrial zones should be established in the areas according to the local economic preferences.
19. A grand strategy should be formulated in order to achieve a radical overhaul in economic system in general by keeping in view the long-term requirements of the country.