HAVING NO REALIZATION OF THE POTENTIAL

DECISION MAKING IS OFTEN INFLUENCED BY EXTERNAL FACTORS RATHER THAN NEED OF THE COUNTRY

SHABBIR H. KAZMI
(feedback@pgeconomist.com)
Nov 5 - 11, 2012

It may not be wrong that Pakistanis may not have the faith in the economic potential enjoyed by the country but foreigners do have. That is the reason they have made huge investment in Pakistan but the unfriendly policies followed by the successive governments have forced them to redefine strategy towards Pakistan. The second but the largest evidence of foreigners' faith is that any MNC/transnational company making investment in Pakistan has never pulled backed its investment. Those who have left Pakistan were obliged because of their global policies or decision to divest from those specific sectors.

The case can be best understood by examining history of Engro Corp. The American conglomerate discovered low quality gas at Dharki and decided to cap it but soon came back with Pakistan's first ever urea manufacturing plant with a capacity to produce 178,000 tons urea per annum. The Company has lately established 1.3 million tons plant, taking country's total installed capacity to nearly 7 million tons per annum. However, the only regret is that Pakistan attained the capacity to produce exportable surplus of 1.2 million tons urea but had to import around the same quantity because the agreed quantity of gas couldn't be supplied to the fertilizer manufacturing units, blatant disregard to contractual obligations.

Looking at macro level there are often complaints about low GDP and slower growth. However, this can be attributed to bad policies, poor implementation, gross mismanagement and blatant disregard to 'good governance'. According to the experts the most disturbing fact is that policy planners are fully aware of the problems and also the remedies but have been failing in coming up with appropriate policies. The glaring example is looming energy crisis affecting output of the manufacturing plants adversely. Outages of electricity extend up to 12 hours daily and no gas is available up to three and half days in a week. In the prevailing conditions operating the plants at optimum capacity utilization is almost impossible. Despite all adversities Pakistan managed to achieve a modest GDP growth and barely missed the export target last year. The country would have achieved higher GDP growth and exportable surplus had there been uninterrupted supply of electricity and gas at affordable cost.

Experts have been saying for a long time that energy crisis is the outcome of not following good governance, impairing overall performance of the economy, affecting inflow of fresh investment, growing unemployment and more and more people being pushed below the poverty line. This can be best understood by looking at the performance of power plants. Pakistan has an aggregate power generation capacity of 24,000MW but actual generation hovers around 12,000MW mainly because thermal power plants don't have the funds to buy fuel.

The crisis is being attributed to circular debt and non-recovery of full cost from the consumers. Experts totally reject this as they say highly inefficient and corrupt distribution companies are responsible for the demise. It is on record that if distribution companies dispatch 100 units they get the payment for 30 units only. The remaining goes to theft and accounts receivables. This happens because corrupt officials condone theft and non-payment. However, the government is also responsible for the theft because it often becomes the biggest opponent of recovery drive. Utilities are not allowed to remove 'kundas' and disconnect supply of various entities, which fall under the category of essential services. Though, recourse is available in the form of 'deduction at source', the elected representatives oppose this.

Agriculture is Pakistan's back bone and the country falls among the top producers of milk, wheat, cotton, rice, certain verities of fruits but nearly 40% of the produce is lost before reaching the market. Policy planners have failed in providing the right impetus for the construction of farm to market roads, construction of modern storage facilities and efficient logistic system, added to this is poor yield achieved. Experts have the consensus that Pakistan can double its sugarcane and cotton output without bringing additional area under cultivation. Poor yield necessitate persistent hike in the support price but no attention is being paid to remove the root cause.

Cotton helps in earning nearly 60% of total export proceeds and sugar industry is the driving engine of rural economy. The harsh fact is that both the industries operate at dismal capacities. Textiles and clothing industry is not only a victim of energy crisis but also due to failure to undertake timely BMR and expansion. Most of the spinning units produce coarse counts of year, cloth is weaved on outdated looms and processed at highly inefficient processing plants. The result is that made ups produced in Pakistan fall in 'low quality low price' products. While there are certain islands of excellence the overall performance is highly disappointing.

Policy planners are fully cognizant of the fact that a little focus on cultivation of edible oil seeds can help in saving US$2 billion annually. However, the policies are dictates by the lobby of palm oil importers. Pakistan has the capacity to boost production of corn, canola and sunflower without having any adverse impact on other staple or cash crops. The central banks had even gone to the extent of offering soft-term loans for the growers of edible oilseeds but the move was opposed on the premise that it will affect output of wheat, which is not correct.

It is evident that most of the industrial units are operating at dismal capacity utilization and the most obvious examples are textiles and clothing, fertilizer, refineries, sugar mills. Textiles and clothing industry not only suffers due to energy crisis, its major dilemma is morbid mindset of the players, who are keen in getting the incentives but never wish to take any initiative to overcome the existing problems. While many units in Sindh have gone for self generation, most of the units in Punjab are complaining about acute shortfall of electricity.

According to the experts the peak demand of electricity in Karachi exceeds 5,000MW and overall supply by KESC remains at half but industrial units keeps on running at modest capacity utilization. The only difference in the mindsets of entrepreneurs of Karachi and Punjab seems willingness to pay the cost of electricity. Experts say that in Punjab industrialists prefer to run factories on kundas but hardly have the realization of economic losses incurred by their enterprises. Experts often ask a question that if owners are willing to run factories on standby generators during outages why they are not ready to pay electricity and gas bills?

Experts say that many of the woes are the outcome of failure to take timely decisions. Two of the most recent examples are 1) delay in finalizing wheat export to Iran in exchange for oil and 2) failure to allow export of sugar. Both the decisions have deprived the country from billions of US dollars. Experts say many decisions pertaining to Iran are influenced by the US pressure. While Pakistan was prompt in curtailing import of crude oil from Iran, other countries including India were granted exemption by the United States.

Policies regarding export of wheat and sugar are dictated by the groups having vested interest. It is on record that huge quantities of sugar and wheat are smuggled to neighboring countries. Permissions for the export of these commodities are not given only to facilitate these groups. The same is the reason for not easing restrictions on trade with India. The two countries enjoy common border, rail and road links, which make movement of goods easy, cost less and also save time. The hawks present of both sides of the border are also playing a major role. While Pakistani hawks say trade with India should not be allowed till resolution of the Kashmir issue, extremist Hindu groups say, "We will not allowed another divide of Hindustan on the basis of religion. They wish to maintain status quo that has been maintained for more than six decades.

The evidences of foreign interference in policy formulations may be many but two are most naked: 1) delay in the construction of Iran-Pakistan-India (IPI) gas pipeline and 2) failure to exploit Thar coal potential. India delayed construction of IPI and got nuclear technology in return from the United States. Lately, Asian Development has termed Thar coal 'dirt coal' and suggested to use imported coal. One wonders if Pakistan has to rely on imported coal why it should make the switchover. It seems the decision is also influenced by the 'oil lobby' that has played a key role in the construction of oil fired thermal power plants.

Experts have the consensus that Pakistan can produce around 40,000MW electricity from the mighty Indus River. However, no mega project has been constructed after the completion of Tarella Dam in 1976. Pakistan can exercise either of the two options 1) construction of a dam or 2) run of the river type hydel projects. However, multilateral financial institutions are not ready to finance either type on the grounds that it would cause damage to ecology and displacement of large number of people besides inundating huge fertile area.

The adverse impact of succumbing to external pressure is that at present installed hydel generation capacity is less than 7,000MW against total installed capacity of 24,000MW. Most of the plants established in last three decades are oil based. Thermal generation is not only expensive but oil imports consume bulk of the foreign exchange earned. With crude oil prices hovering US$100/barrel Pakistan's oil import bill has become unsustainable. There is an urgent need to change the energy mix and reducing reliance of fossil oil.

Pakistan suffers from budget deficit, trade deficit and above all trust deficit. Unless efforts are made to overcome these deficits boosting country's GDP size and growth rate will remain a far cry. Budget deficit can be overcome by following austerity drive rather than squeezing more tax from the 'already tax' payers. Containing oil import will help in erosion of foreign exchange reserves. However, overcoming trust deficit is the most difficult. If the local investors are shy in making new investment in the country, one should not expect any major investment by foreign investors. As stated 'foreign investors are like migratory birds in search of safer heavens'.

It is true that Pakistan having population of 200 million people is an enormous market but unless purchasing power is improved, demand for various products may not be there. Many experts say the prime objective of the present government should not be boosting revenue generation but creation of new productive facilities and employment opportunities. When people have more money at their disposal, they would spend it on procurement of various products. Not only demand for these products will increase but the government will be able to collect higher revenues.

Last but not the least economy can't flourish if political situation is volatile and law and order situation is precarious. The government has to weed out the militants especially those getting funds and arms from other countries. Their sole objective seems to be plunging the country into anarchy to create justification for installation of a puppet government.