INTERVIEW WITH ZAKARIA USMAN, CHAIRMAN FPCCI COMMITTEE ON FEDERAL BUDGET & FORMER VP FPCCI
June 4 - 10, 2012
PAGE: HOW WOULD YOU COMMENT ON THE ECONOMY OF PAKISTAN?
USMAN: Pakistan has an enormous economic potential and in the presence of the right policies and conducive environment, can deliver a generation of higher, sustainable growth that can address most of the social and infrastructure development challenges being faced by the country.
God has blessed Pakistan with huge resources. Pakistan is the 28th largest country in terms of GDP size (PPP) at US$ 488 billion. It has the world's largest deep sea port - Gwadar, has 5th largest gold mine in the world, and 2nd largest coal reserves. Pakistan has a flourishing agricultural livestock and dairy sector, is the 5th world largest milk producer, 6th largest oranges producer, 2nd largest producer of Chickpea, 4th largest producer of Apricot, 4th largest producer of Sugarcane, 11th largest wheat producer, 12th largest rice producer, 4th largest producer, and 3rd largest user of cotton.
Pakistan is the largest producer of footballs. Pakistani people are very vibrant devoted and participate in social activities. We have world largest volunteers Ambulance service founded by Sattar Edhi Saheb.
The UN Food and Agriculture Organization (FAO) reported that Pakistan emerged as the second largest producer of buffalo meat and buffalo milk. The FAO figures ranked Pakistan as the third largest producer of pulses and seed cotton, fourth largest producer of goat milk, meat, and lint cotton. It is the sixth largest producer of mangoes and eighth for un-manufactured tobacco and castor oil.
Pakistan is a net food exporter, except in occasional years when its harvest is adversely affected by droughts. Pakistan exports rice, cotton, fish, fruits (especially oranges and mangoes), and vegetables. These items include in the world best food basket. But, due to various reasons including, inter alia, natural calamity, disasters, floods, external and internal crises and political uncertainty, its growth and economic performance are hurt.
In recent times, non-performing loans and government borrowing is negatively affecting the economic growth on one hand and it creates severe liquidity crunch for industry on the other. Energy crisis in the country is directly affecting the industry through high utility bills along with increase in price every month in the name of fuel adjustment charges.
Industry is also facing load shedding of electricity and gas, which is a major hurdle. The current surge in deteriorating law and order situation has also increased feeling of insecurity among businessmen. There is great threat to life for the top management.
There are many cases reported where chief executives or their family members are abducted and released after heavy torture and ransom. Movement of the top management is now restricted to limited areas and that too with escorts, increasing cost of security disproportionately.
Buyers have great life threat to visit Pakistan. This situation further aggravates when even local buyers are not ready to travel. Investment opportunities have also declined in the country and investors are not interested to invest in Pakistan. For sustainable growth and economic development, contribution of industrial sector in the national economy needs to be increased through industrial friendly policies and attitude of government services agencies like electricity distributing companies particularly billing and operation departments is discouraging industrial sector. Amnesty schemes for industry like stock market are the dire need for this sector.
PAGE: IT IS BEING SAID THAT PRIVATE INDUSTRIAL AND COMMERCIAL GROUPS IN BOTH PAKISTAN AND INDIA ARE PREPARING FOR TRADE THAT IS MORE OPEN. YOUR VIEWS.
USMAN: Liberalization of trade between Pakistan and India is mutually beneficial for both the countries. Pakistan can benefit not only by accessing a big market for its exports, it can save significantly by substituting its expensive imports from the rest of the world with those from India. It is believed that increased trade relationship can play a vital role in normalizing the political relationship between the two countries. This will, therefore, benefit millions of people living in both countries as the resources would be diverted from less desirable areas such as defense spending, poverty alleviation initiatives, etc.
PAGE: DO YOU THINK THE NEW BUDGET WOULD OFFER INNOVATIVE INCENTIVES FOR INDUSTRIALIZATION AND PROMOTION OF INVESTMENT?
USMAN: I don' pin much hope with the present budget, as economic condition does not permit the government to announce any breaking news. When economy is growing at 2 to 3 per cent, budget deficit is higher than as prescribed, tax to GDP ratio around 8 to 9 percent, and the country is running on loans from external resources, it is not possible to deliver beyond donor's conditions. I do not think that present budget will provide any room for such innovations. If it delivers innovative incentives for industrialization, the present infrastructure does not support any innovative changes. First of all, we have to establish infrastructure, energy availability for industry then these incentive would generate desire results.
PAGE: IT IS BEING SAID THAT THE GOVERNMENT SHOULD REMOVE SALES TAX ON IMPORT OF PLANT AND MACHINERY. COULD YOU GIVE YOUR INPUTS ABOUT GST?
USMAN: Currently, the structure of taxes on plant and machinery ranges between five per cent and 25 per cent. On the other hand, if we look at other countries in the region, our competitor nations allow duty free import of plant, machinery and spare parts. Smuggling, particularly through ATT/Iran and the Sust border (KKH) continues unabated, resulting in colossal losses to trade, industry, and government revenue. Since the total elimination of smuggling only through administrative measures at the borders is difficult, the remedy lies in reducing incentives for smuggling by reducing the tariff rates on smuggling prone items to the lowest possible level. This will result in higher government revenue, provide impetus to local trade/industry, and generate employment opportunities.
PAGE: YOUR VIEWS ON EXPORT AND COST OF PRODUCTION.
USMAN: The cost of production in Pakistan is very high due to various reasons, i.e., expensive input material, costly and shortage of power, complex and cumbersome duty/taxes, the high rate of interest, and bureaucratic hurdles by government departments. It is proposed that the duty on the import of capital goods should be 0 per cent if not locally manufactured, and 10 per cent on locally manufactured machinery. This will encourage investment in the manufacturing sector, and improve our competitive advantage.
PAGE: YOUR VIEWS ON GAS AND POWER SHORTAGES AND BAD LAW AND ORDER SITUATION.
USMAN: There are three main factors that impede economic development of Pakistan. Energy crisis in the country is directly affecting the industry through high utility bill along with increase in price every month in the name of fuel adjustment charges. Industry is also facing load shedding of electricity and gas, which is a major hurdle. Deteriorating law and order situation is adversely affecting business and trade of the country. Strikes cost billion of rupees to the country. Government revenue also faces shortage.