HUMAN DEVELOPMENT: A NEGLECTED AREA

KANWAL SALEEM
(feedback@pgeconomist.com)

June 4 - 10, 20
12

Pakistan's corporate sector has always at forefront in the growth of the society and to keep the country's economy moving. It has a history of pivotal involvements in corporate social responsibility (CSR) activities concentrating their value distribution towards community development.

Major contributions are made in educational sector and areas of social services. Statistics show that Pakistan's corporate sector contributes a mighty share in industrial value distribution towards society, which is fruitful for the continuously improving initiatives for sustainable development in the country.

Cement is one of the most important industries of Pakistan, as growth in the cement industry is believed to have direct impact on allied industries. Manufacturers of paints, steel, glass, furniture and other building materials often base their future productions on the basis of patterns in cement consumption, thus having a direct impact on the construction and development of the country.

The profit of corporate sector registered an impressive increase of 24 per cent on year-on-year basis to Rs90.379 billion in the third quarter of current fiscal year (FY12) as compared to Rs73.154 billion in the same quarter in FY11.

On quarter to quarter basis, the profitability of corporate sector has increased by six per cent to Rs85.639 billion. "The energy companies, cements, and banks were the key contributors," analysts said.

According to them, the cumulative profits of energy companies witnessed an impressive growth of 45 per cent. Exploration and production (E&P) companies' profits soared by 54 per cent on the back of higher realized oil and gas prices, rupee depreciation against US$ and enhanced production profile, while oil marketing companies (OMCs) profits increased by 52 per cent largely owing to Pakistan state oil (PSO) booking heavy interest income passed on by the power utilities.

The manufacturing sector's overall profits plunged by 33 per cent mainly owing to a decline of 63 per cent in the profitability of fertilizer manufacturers. Lower urea offtake due to the availability of subsidized imported urea led to their earnings decline. Textile and chemical sector profitability too declined by 60 per cent and 68 per cent, respectively. However, cements and auto profits grew by a respective 367 per cent and 118 per cent, as their strong pricing power led to massive margin expansions.

The analysts said the growth in the services sector (26 per cent) was led by the banking sector (up 25 per cent) on the back of lower provisioning amid decline in accretion of non-performing loans (NPLs). Interestingly, PTCL's profits increased by 44 per cent owing to improvement in core operations.

Experts believe that our corporate sector needs to develop institutional mechanism for pooling philanthropic contributions from individuals and corporations to address the social issues on a greater scale.

The corporate sector needs to move the narrow focus of corporate philanthropy (CP) from a public relations tool to a vehicle for creating social value for long-term impact. CP programs must be well structured in terms of striking a balance between business needs and the community's preferences with a high focus on leveraging and harmonizing for scale, they said.

They said the business case may be developed on fundamentals such as strengthening corporate legitimacy and reputation, building competitive advantage, and creating win-win situations through synergistic value creation.

As per the UNDP's Human Development Report 2011, Pakistan is among countries with the lowest human development program. The report places national multidimensional poverty, which is a composite of several social indicators including health, education, and standard of living, at 49.4 per cent of the population.

Pakistan's biggest development challenge today is to reduce its debt burden in order to pursue a path that leads towards sustainable and equitable growth for poverty reduction. The main plank of the present government to meet this challenge is its debt burden reduction strategy popularly characterized as debt exit strategy. It is not the intention to stop borrowing but to borrow for productive purposes, use the loans judiciously, contact them at soft terms and reduce the overall burden of debt in relation to income. The idea behind this strategy is to reduce reliance on international financial institutions (IFIs) for balance of payments support.

Pakistan's loss making public sector enterprises (PSEs), also known as state-owned enterprises, are a major cause of economic concern. This year, according to estimates, eight major PSEs received more than $3.5 billion in support from the federal government, which is higher than the federal component of development budget. According to the ministry of finance, "Inefficient public sector enterprises are draining fiscal resources and choking the economy."

A major reason that these companies lose so much money is a low level of transparency and poor governance; but historically, any discussion of the governance of Pakistan's PSEs was taboo. Successive governments used these companies to provide jobs to their supporters. Moreover, non-transparent financial transactions continued to drain resources while reducing PSEs' operational efficiencies. PSEs can reemerge by taking advantage from the country's corporate sector which, despite difficult situation, is making a way forward.