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Cover Story

An interview with Yasin Lakhani, Chairman, Karachi Stock Exchange

Dec 06 - 12, 1999

The inconsistency in the GoP policies, lack of efforts to resolve IPPs issue and delays in privatization of state enterprises are the key factors adversely affecting the investment in the country. If the local sponsors are shy, how could the foreign investors take any initiative. These were the expressions of Yasin Lakhani, Chairman, Karachi Stock Exchange while talking to PAGE.

While the economic managers were responsible for some of the adverse measures, many of the factors affecting the economic fundamentals for the country were really beyound their control. These included persistent economic uncertainty following the nuclear tests and imposition of economic sanctions. This on the one hand forced the GoP to freeze foreign currency accounts and the country faced a near-default situation. On the other hand the Asian crisis further diverted the attention of fund managers away from Pakistan. All their attention and efforts were concentrated towards these countries involving substantial stake.

Pakistan has tremendous potential for economic growth but the 'status quo policy' and delay in the privatization of state enterprises has diminished the interest of foreign investors towards Pakistan. Foreign investors are mainly interested in large scale projects and privatization offering the immediate opportunities for investment. The sectors of immediate interest for foreign investors are power generation, transmission and distribution, oil and gas exploration, infrastructure projects and financial services.

The previous government, once the external debts were rescheduled, initiated transport revamping and Mera Ghar schemes having no impact on the economy but overlook deteriorating law and order situation and increasing political instability. This had a direct impact on the economy of the country and concerns about Pakistan's ability to honour even the rescheduled debt servicing obligations.

To improve the prevailing economic scenario, Yasin made two suggestions. In his opinion, instead of imposing 15 per cent GST on retailers, the GoP should levy 5 per cent tax in the first phase and gradually increase the percentage. Alongwith this income tax on income from agriculture should be imposed and collected.

The second suggestion was regarding privatization. To give a feeling that GoP is serious in privatization, at least 10 per cent of the total shares of public sector enterprises listed at stock exchanges, should be offered to general public. If it is feared that some group may try to accumulate the shares, the offer should be for a lot of 1000 shares and to the individuals only.

Besides, conveying the impression that the GoP is serious, the process can help in gauging the sale prices of the shares for the transfer of management. The basis of calculating the offer price should be the net asset value. It should also be kept in mind that shares of profit making companies can be offered only as general public will not be interested in buying the shares of loss making corporations.

For quite some time the GoP has been talking about privatization of WAPDA, KESC, Habib Bank, United Bank, Sui Southern Gas Company and Sui Northern Gas Pipeline. Area Electricity Boards of WAPDA now operate as limited companies. Bidders for KESC have been short listed and even the financial restructuring has been done. Therefore, sale of the shares of these entities, through stock exchanges, should not take very long

In his views, the GoP should gradually remove the capital control restrictions. As such remittances are now allowed but the central bank unnecessarily delays the outflow of profit. This has a direct negative bearing and new investors are reluctant to invest in Pakistan despite the fact that many shares are quoted at a substantial discount.

In order to attract the investors he made two suggestions. The regulators must discharge their due responsibility and the companies should make greater disclosure and follow good governance. According to Lakhani, performance of limited companies is the only criteria to attract the investors. In most of the sectors a small number of companies are doing exceptionally well. Therefore, it may be said, the economical fundamentals for these sectors are not totally adverse. If management really strive hard even the bad performing companies will be able to emulate the best performing companies.