INTERVIEW WITH MR. SHAMIM A. FIRPO, CHAIRMAN FIRPO GROUP OF COMPANIES

KHALIL AHMED
(feedback@pgeconomist.com)

Mar 26 - Apr 1, 20
12

PROFILE

Chairman Firpo Group of Companies Positions Held:

Member Managing Committee
Karachi Chamber of Commerce & Industry (KCCI), 2007 to date

Chairman:
Labor & Social Welfare Sub Committee KCCI 2007 to date
Public Sector Utilities, Power & Gas KCCI 2008 to date
Dehli Cooperative Housing Society Ltd. Karachi 2000 to date

Vice President:
Karachi Cooperative Housing Societies Union Ltd. 2005 to date

Director & Senior Vice President:
Union Cooperative Club Ltd. Karachi 2007 to date

President:
Karachi Firpo Lions Club 2007 to date

Vice President:
Societies Resident Association 2006 to date

Joint Chief:
Community Policing System, Karachi 2001 to date

Life Member:
Arts Council Of Pakistan, Karachi since 2001

Hon. Treasurer:
Jamiat Punjabi Saudagran-e-Dehli (Regd.) Karachi 1988 to 2007

Ex. Chairman:
Housing Board, J.P.S.D, Karachi 2004 to 2007

Hon. Member:
Citizens Police Liaison Committee 1993 to 1997

BUSINESS PROFILE

It all began in 1964, when I stepped into the world of food business with the name of "Firpo Restaurant" serving into this dynamic and tempting field. The "Firpo" brand was well accepted by the people of Karachi. Then, the company decided to penetrate into trading and started with the name of "Sohail Enterprises" in 1974. The core philosophy of the management was to provide "Quality Products with Better Services."

Since its inception, the "Firpo" has always focused on consumer satisfaction with the motto of "Only The Best is Good Enough". The group has always emphasized on the importance of "High Quality" throughout more than 45 years history, ensuring that consumers/buyers return to dynamic brands of Firpo again and again.

Over the years, the company took steps in research and manufacturing side also. Today, the Firpo has developed a wide range of products and been turned into Firpo Group of Companies, delivering services and manufacturing in multi colored fields like:

Imports, exports & manufacturing of auto lamps & auto parts
  Imports of miniatures lamps
Imports of general merchandisers
Specialized in bridal and party dresses
Deals in optical frames and contact lenses
Manufactures and assembles auto parts
Deals in web hosting, domain registration & software development
Building and construction &
Farm House

PAGE: HOW WOULD YOU COMMENT ON PERFORMANCE OF AUTO PARTS SECTOR IN LAST ONE YEAR IN PAKISTAN?

FIRPO: Through indigenous technical resources and technical tie-ups with well-known global companies, the auto parts industry has by and large developed into a well-organized sector of the country. There are 400 organized units in the auto parts industry, most of which are registered vendors and assemblers/OEMs. Many of these are bound to supply only to OEMs as per their agreements, but due to low demand by the assemblers, they are forced to sell their products in the replacement market in one or the other way. These units efficiently manufacture sophisticated parts like piston, engine valves, gaskets, camshafts, shock absorbers, struts, steering mechanism, cylinder head, wheel hubs, brake drums, wheel bumpers, instruments and instrument panel, gear of all types, radiators, cylinder liners, blinkers and light/lamps, door locks, and auto air conditioners. Along with the organized sector, a good number of small and large units (approximately 1200) are operating in un-organized sector. In fact, 90 per cent of automotive parts industry constitutes of small and medium size enterprises (SMEs), out of which about 95 per cent are self-financed. These units produce a wide range of parts for the replacement market. The larger operators in this unorganized sector even manufacture crankshafts (aside from wheel hubs, brake drums, filters etc.) for replacement market, although not even a single assembler has yet deleted crankshaft because of high accuracy required in metallurgy and machining. However, these dozens of crankshaft manufacturers in the unorganized sector are successfully catering to most of the demand of the replacement market. Improving the auto parts industry will directly benefit the assemblers in terms of cost, on time delivery and quality. The auto parts industry is facing a major challenge with the liberalization of economy and phasing out of deletion program. Vendors need to be educated in capability building, application of TQM & JIT techniques, production and operations management and integrated problem solving. It was therefore essential to start an industry support program for assisting the auto industry to enhance its competitiveness.

PAGE: YOUR VIEWS ON INDUSTRIAL GROWTH IN PAKISTAN SINCE INDEPENDENCE.

FIRPO: The easiest way to gauge a country's development and economic growth is to view its industrial progress. Without industrialization, the countries will continue to remain underdeveloped. The progress of countries like South Korea, Taiwan and other East and South-East Asian countries, which have been called the newly industrialized countries (NICs), only endorses that view. The extraordinary growth in industry in the 1950s and 1960s suggested that Pakistan might be one of the very few countries at that time which would join the developed world. However, much of the growth that had taken place in the first two decades soon went undone with growing income and regional inequalities resulting in the separation of East Pakistan.

Pakistan after 1971 was a new country in many respects, not least because of the industrial and economic policies followed between 1972 and 1977. The role of the public sector was increased substantially and the economy, for numerous reasons, did not do as well as it had in the first two decades. Just as there was a change in economic policy in the early 1970s, in the 1980s too there was another shift, in many ways similar to that of the earlier period, but also influenced by the new world order of globalization, privatization, openness and neo-liberal economic policy. The structural adjustment programme sponsored by the IMF and the World Bank now determines much of what happens regarding industrial policy in Pakistan.

PHASES OF DEVELOPMENT

First Phase 1947 - 58: The first phase is the period when the foundations for the future years were laid. This was a period of huge change in the demographic makeup of the country as well as in the political sphere, where governments were changed frequently. The mere fact that the government had to deal with a refugee/migrant influx of about seven million into West Pakistan (about 20 per cent of the entire population) was itself a massive responsibility and task. However, Pakistan, despite heavily weighted odds, did manage growth rates of GDP of more than three per cent per annum in the earlier years.

Second Phase 1958 - 1968: The impressive performance of the main sectors of the economy can best be gauged from the high growth rates in large-scale manufacturing that continued in the first few years of the Ayub regime with the average for the period 1960-5 rising to a phenomenal 16.9 percent. Even after 1965, when there was a marked slowdown, growth rates in manufacturing still remained above 10 per cent.

Third Phase 1972 - 1977: A number of events that took place outside the control of the government were largely responsible for the poor performance of the economy after 1974. There was a very large increase in the prices of imports following the oil price rise in 1973, which resulted in inflation at close to 30 per cent in 1973/74 and the gains accrued from devaluation and exports were neutralized and positive balance of trade from 1972/3 disturbed. While export growth still showed some positive signs, albeit at a much slower pace, the import bill grew very significantly. In one year alone, oil imports rose from US$60 million in 1972/3 to $225 million in 1973/4; fertilizers increased from $40 million to $150 million in the same period.

Natural calamities of floods and pest attacks did the remaining damage to the economy and destroyed crops severely, putting pressure on prices and affecting industrial production. The failure of the cotton crop in 1974/75 came at a time when there was a surge in international prices and hence Pakistan was not able to exploit the situation to its advantage.

PERIOD BEYOND - 1988:

LEAP TOWARDS TEXTILE INDUSTRY

The textile sector holds a very important position in Pakistan's economy in terms of employment value added and exports. It has the highest manufacturing value added for any industry amounting to 17.5 per cent. Similarly, about one-third of the entire manufactured employment is in the textile sector. In terms of exports, approximately 30 per cent of Pakistan's total exports came from cotton textiles in 1990/1, up from 20 per cent in 1982/3. Cotton yarn's contribution to exports increased from 10 in 1982 to 18 percent in 1990.

Pakistan's textile industry has lost its relatively more prominent position of the 1960s and 1970s, and today holds a little over two per cent of the world market. Pakistan enjoyed a very dynamic performance in the 1960s, and was among the leading underdeveloped countries that were emerging in the world cotton textile market. In fact, Pakistan's record was quite enviable, as between 1962 and 1970 it cornered over 11 per cent of the world market. By 1972, Pakistan held about 3.5 per cent of the world market in textiles, which fell to 1.5 per cent in just four years. It rose again to 2.5 per cent in 1983 and has since stabilized at around two per cent.

IN 2000S:

Over the last couple of years, the manufacturing sector has grown at the rates of 14.1 and 12.5 percents and large scale manufacturing at even more rapid rates of 18.2 and 15.4 percents. These growth rates are more than twice the growth rate of the first three years of the present decade and more than three times those observed in the 1990s. On the other hand, investment in the manufacturing sector during the two years has declined at a rate of 2.6 percent- 8.5 percent growth in 2003-04 and 12.6 percent decline in 2004-05. As a percentage of GDP, investment increased from 3.2 percent in 1999-2000 to 3.6 percent in 2003-04 but declined sharply to 2.9 percent in 2004-05. The low levels of investment cast serious doubts on the sustainability of growth rates of manufacturing output. The low and fluctuating rate of investment is a cause for concern and has been responsible for the slow and fluctuating growth of the manufacturing sector. The manufacturing sector suffers from various structural problems resulting in slow growth rates of investment, output, and exports. These include among others lack of diversification, technical, poor quality of products, and low levels of R&D activities resulting in slow growth rates of productivity making Pakistani products uncompetitive in the world market.

The traditional industries such as food and textile industries still account for an overwhelming share of the manufacturing output; food industries accounted for 13.8 and textiles for 24 percent of the total manufacturing value added in 2000-01.

On the other hand, industries based on modern technologies such as electrical and non-electrical machinery and automobile industries accounted for just 4.4 and 4.7 percent of value added respectively. Even though chemical industries accounted for around 15.2 percent of manufacturing output, most of the chemical industrial output is concentrated in low-tech and low value added industries. Because of high protection rates, value added of the manufacturing sector at world prices has been just a fraction of that at domestic market prices. The productivity levels in most of the manufacturing industries continue to be low, making it increasingly difficult for Pakistani producers to compete in the world market. Low quality of products, lack of standardization, low value added products sold without any brand names, lack of innovation, and low levels of productivity are the legacy of import substitution industrialization and indicate the need for major restructuring of the manufacturing sector.

TRENDS IN GROWTH AND PATTERNS OF THE MANUFACTURING SECTOR

Starting from virtually scratch at the time of independence, Pakistan has made significant advances in the manufacturing sector. A handful of industrial units producing sugar, vegetable ghee, tea blending, cement, and cotton textiles comprised of the total large-scale industrial assets of Pakistan at the time of independence and contributed only 1.8 percent to GDP. The small-scale industries however, contributed 4.6 percent to GDP. While the share of small-scale industries has increased to only 5.6 percent, the share of large-scale industries increased to 12.7 percent by the year 2004-05. The share of the manufacturing sector in GDP increased from 6.4 percent in 1949-50 to 18.3 percent in 2004-05.

Over the 1950-2005, the manufacturing sector grew at a rate of 7.5 percent, and the large- and small-scale manufacturing industries at rates of 9.2 and 5.5 percent. However, the average growth rate of the manufacturing industries conceals wide fluctuations across decades and within each of the decades. For example, high growth rates were observed in the 1950s, 1960s, and 1980s and over the last few years and relatively low growth rates in the 1970s and 1990s. Manufacturing industries grew at a rate of 7.7 percent during the 1950s and the large-scale industries at a phenomenal rate of 15.8 percent. The industrial policy during the period aimed at manufacturing the products based on indigenous raw materials such as cotton, jute, hides, and skins, for which there was an assured market at home and abroad, and developing the consumer goods industries to meet the requirements of the home market for which the country was heavily dependent on imports.

The two main characteristics of the policies during the 1950s have been direct controls on imports, investment, prices etc., and a large anti-export bias. Growth of the manufacturing sector accelerated even further to 9.91 percent during the 1960s. A number of initiatives helped in realizing the high growth rate, which included a liberal import policy, subsidy to exports through a number of schemes such as export bonus scheme, tax rebates, tax exemption, export performance licensing, and pay-as-you-earn schemes.

Protection rates in the period were rather high resulting in excessive profits for the producers. Moreover, tax holidays and accelerated depreciation allowances further increased the post-tax profits of the manufacturing industries. The growth rate of the manufacturing sector fell to 5.50 percent and for large-scale manufacturing to just 4.84 percent during the 1970s.

The most important initiative was the nationalization of heavy industry and a number of sectors including cement, fertilizer, oil refining, engineering, and chemicals, which were exclusively reserved for the public sector and the policy of divesting profitable public sector units was discontinued.

Moreover, the industrialists faced a number of restrictions including price controls by the government under the Profiteering and Hoarding Act. These measures created a considerable amount of uncertainty, resulting in a fall in private investment and flight of capital. Moreover, these policies had long run implications for the industrialization process manifested in the reluctance of the private sector to invest, which continues to date.

During the 1980s, the process of de-regulation, de-control and denationalization was initiated and various measures were taken to restore the confidence of investors. Administrative controls were replaced with market-oriented forces: the import policy was liberalized, and the tariff structure was rationalized, the par value of the rupee was brought nearer to its equilibrium value and it was made convertible on the capital account, investment licensing was abolished, prices were de-controlled, and the performance of public enterprises improved due to the signaling system. The market friendly policies resulted in acceleration of the growth rate to 8.21 percent. While the process of deregulation continued and a large number of manufacturing public enterprises were privatized, the growth rate decelerated to 3.88 percent in the 1990s. The performance of large-scale manufacturing was even more disappointing which grew at a rate of only 3.54 percent.

A number of economic and non-economic factors have been responsible for the deceleration of growth. Prominent factors have been political instability, worsening of the law and order situation in the major growth poles of the country, reduction in protection rates resulting in the closure of a number of industries, emergence of significant infrastructural.

PAGE: YOUR VIEWS ON ENERGY CRISES OVER LAST ONE YEAR.

FIRPO: Pakistan's economy is braving serious challenges of an energy crisis and fast dwindling investment that is why it needs to ramp up efforts to carve out a long-term recipe to stimulate growth and reduce rising unemployment. The economy is exposed to the worst effects of the floods and appalling security. The government has though undertaken many economic reforms, yet there are many serious challenges of energy crisis and dwindling investment. Despite strong economic growth during the past decade and consequent rising demand for energy, no worthwhile steps have been taken to install new capacity for generation of the required energy sources. Now, the demand exceeds supply and hence load-shedding is a common phenomenon through frequent power shutdowns.

Pakistan needs about 14000-15000MW electricity per day, and the demand is likely to rise to approximately 20,000 MW per day by 2010. Presently, it can produce about 11, 500 MW per day and thus there is a shortfall of about 3000-4000MW per day. This shortage is badly affecting industry, commerce, and daily life of people. All possible measures need to be adopted, i.e., to conserve energy at all levels, and use all available sources to enhance production of energy. It seems that the government is considering importing energy from Iran and Central Asian Republics and using indigenous sources, such as, hydel, coal, waste, wind, and solar power, as well as other alternate and renewable energy sources, besides nuclear power plants for production of energy. Needless to say that if the country wishes to continue its economic development and improve the quality of life of its people, it has to make serious efforts towards framing a coherent energy policy. The country may plunge into energy crisis by the year 2007 due to rising electricity demand, which enters into double digit figure following increasing sale of electrical and electronic appliances on lease finance.

Pakistan is most likely to face a major energy crisis in natural gas, power, and oil in the next three to four years that could choke the economic growth for many years to come, official estimates and energy experts suggest.

Total energy requirement would increase by about 48 per cent to 80 million tons of oil equivalent (MTOE) in 2010 from about 54 MTOE currently, but major initiatives of meeting this gap are far from turning into reality. Major shortfall is expected in the natural gas supplies. The demand for natural gas, having about 50 per cent share in the country's energy consumption, would increase by 44 per cent to 39 MTOE from 27 MTOE currently. Partly contributed by gas shortfalls, the power shortage is expected to be little over 5,250MW by 2010, adding that the oil demand would also increase by over 23 per cent to about 21 million tons in 2010 from the current demand of 16.8 million tons. This would leave a total deficit of about nine million tons of diesel and furnace oil imports.

Since the gas shortfalls were expected to be much higher, the country would need to enhance its dependence on imported oil, thus increasing pressure on foreign exchange situation, he added. Pakistan has been facing an energy crisis since 2007. The main reason for the current crisis is that in the past no efforts were made to ensure increase in power-generation capacity along with increase in population growth. An energy crisis is any great shortfall in the supply of energy resources to an economy.

Electricity is the basic need of human life. It has great importance as it is directly related to every country's economy. Pakistan energy requirements are increasing day by day and not only economic growth but political stability is also linked with the availability of energy resources. WAPDA and KESC purchase expensive oil and transfer the cost to consumers. When governments purchase more oil, then prices in the international market also increase. When the price of electricity is raised, then the whole economy gets disturbed as a result of inflation and increase in the prices of items of everyday use.

The government should have to develop electricity through other alternative resources of energy like nuclear energy, natural gas exploration, natural gas import, solar energy, coal, and wind energy. Energy crises destroy at least 50 per cent of the industrial sector that leads to increase in the rate of unemployment. It badly affects the fixed income group because cost of goods and services increase. The government should produce electricity through coal, wind and water as it is cheaper than the actual cost. Hydroelectricity is the cheapest source of electricity.

PAGE: YOUR COMMENTS ON EXPORT PROSPECTS THIS YEAR.

FIRPO: Exports of traditional products went up by 15.66 per cent to $5.273 billion in the first half of the current financial year against $4.559 billion over the corresponding period of last year, mainly due to eatable products specially wheat. The government has set a target of $10 billion for export of traditional products during 2011-12. Overall exports recorded a growth of only 3.9 per cent because exports from the textile and clothing sector plunged by over five per cent during the July-December period of the year. Export of overall food basket increased by over 17 per cent while export of wheat and pulses recorded 100 per cent growth. Export of fish went up by 16pc, spices 8.91pc, meat 23.33pc and all other food items 134pc.

However, export of basmati all other varieties of rice declined by over 10 per cent. Export of sports goods recorded an increase of 1.10pc. Export of footballs went up by 9.89pc, but export of gloves dropped by 7.21 pc. The target for export of sports goods was fixed at $338.7 million for 2011-12 against $323.037 million over the same period last year.

Export of footwear products increased by 0.59 per cent. Export of leather gloves increased by 46pc, but export of leather footwear declined by 10.47pc. Export of surgical goods and medical instruments went up by 19.17 per cent. A target of $247.1 million was set for surgical goods export in 2011-12 against $259.752 million over the last year. Export of engineering goods increased by 36.77 per cent. The government has set exports target for engineering goods at $676.6 million against $254.942 million in the previous year. Export of carpets dropped by two per cent. In the past few years, export of carpets remained stagnant following stiff competition from China and Afghanistan. Export of carpets, rugs, and mats witnessed a negative growth, both in value and quantity, last year. Handmade carpets faced stiff competition from synthetic carpets. Export target of $16 billion projected for textile and clothing for the current year would not be achieved. The reasons are including energy shortages, for drop in export proceeds. Last year, export of textile and clothing sector crossed the mark of $14 billion. Textile and clothing sectors exports fell to $982.418 million in January 2012, showing a decline by over 16 per cent, from $1.180 billion over the same month last year, suggested data of Pakistan Bureau of Statistics.

Overall volume of textile and clothing in the first seven months (July-Jan) also fell to $6.936 billion, a decline of 6.73 per cent, from $7.436 billion over the corresponding period last year. Local manufacturers have projected a 25 per cent drop this year alone to Europe due to the Euro zone debt crisis. Over 12 per cent decline was also witnessed in terms of rupee despite depreciation of rupee against the dollar in the past few months, indicating that the fall in the health of rupee did not support Pakistani textile and clothing products to penetrate in the international markets. A sector-wise analysis shows negative growth in export of cotton yarn, cotton cloth, cotton carded, tents, art and silk, made-up articles in January this year over last year. A similar dip was witnessed in exports of knitwear, bed-wear, towels, and value-added products. However, export of raw cotton, tents, and yarn other than cotton yarn witnessed growth during January over the same month last year. A paltry growth was also recorded in export of garments, value-added products during the month under review. At the same time, the proposed move of generalized system of preferences by the EU also created prospects for growth in exports to European market. China was a biggest buyer of cotton from US and India. The increase in raw cotton exports shows a higher demand for cotton in China and Bangladesh. At the same time, there was a significant decline in import of machinery in the value-added sector to increase quality and capacity of production. The government has projected an export target of $25.618 billion for 2011-12. The target may be difficult but may be achieved if coherent policies are made and implemented accordingly.

PAGE: YOUR COMMENTS ON BUSINESS OPPORTUNITIES IN PAKISTAN.

FIRPO: Pakistan offers a lot of business opportunities. Pakistan offered many opportunities as it was a fast growing consumer market, which was larger than the population of several European countries combined. Pakistan continues to offer great opportunities based on its strategic location, natural resources, and talented manpower resources most of which remains unexplored and above all the resilient business community. Pakistan is fast attaining the status of business opportunity zone (BOZ) for potential foreign investors because it is not only the energy sector where investments would earn rich dividends but huge untapped mineral resources of trillion of dollars worth are a great attraction for foreign businesspersons. The availability of cheaper skilled and unskilled labor, low priced land as compared to other regional countries and an infrastructure of international standards would definitely create a win-win scenario for global investors. Pakistan and India have much more to gain from improved bilateral trade. But, the caveat is that the trade between the two countries is hassle-free, barrier-less and removed from historical baggage. Potential may be in various sectors for frosting trade like investment technical cooperation, capacity building, intellectual property rights, construction, tourism, healthcare and telecommunication etc. Due to the geostrategic location of Pakistan, it can give advantage as a springboard to expand business with trading partners of Pakistan in the South Asian and ASEAN regions. The economy is open for foreign investment and 100 percent equity and repatriation of profit is allowed. An initiative may be awaited in the fields of agriculture, livestock, farming, and education. Potential also exists in local manufacturing, as a number of sectors including pharmaceutical, automobile, motorcycle, petrochemical, auto parts, sugar, textile, cooking oil and ghee industries have genuine reservations.