Jan 20 - 26, 2003



After completing her 'O' levels and 'A' levels from the Foundation Public School and The Lyceum, she joined the Institute of Business Management specializing in Finance. Being a diligent student, she was awarded the Gold Medal for having the highest Grade Point Average in her BBA/MBA class. After her MBA, she worked at the Japan Credit Rating Company Limited for nearly 18 months where she analyzed a number of financial institutions, textile and chemical companies. She was also involved in the credit rating of Term Finance Certificates. Currently, she is working as an Investment Analyst at Khadim Ali Shah Bukhari and is analyzing Fertilizer and Textile sector and Financial Institutions.

PAGE: Can we say that the GDP growth is driven by the agriculture sector in Pakistan?

TASNEEM SHABBIR: To say that agriculture primarily determines our GDP growth would be quite true, in particular the cotton crop. As we have seen in the early nineties, the year the cotton crop is poor the GDP growth slows down. This is due to a number of reasons: 1) Pakistan is an agrarian economy and hence not only does agriculture feed and cloth us but is also the sole source of income for the majority of the population. 2) It provides raw material for most of our industrial sectors for example textile and sugar. Therefore, the year the cotton crop is poor the textile sector is adversely affected by rising raw material costs. Thus both directly and indirectly agriculture determines Pakistan's GDP growth.

PAGE: What are the reasons for lower yield in various crops?

TASNEEM: Yield per hectare for most crops in Pakistan is lower than the average for the region for a number of reasons. Firstly, farm sizes and practices, the small average farm size makes most modern tools and mechanization of farming techniques unprofitable for the farmer. As a result we continue to use antiquated techniques such as bullock driven ploughs and manual harvesting. Each process takes longer and hence whereas other regions get two crops per season we only get one. Secondly, farmers are not educated about the most effective use of fertilizer and crop rotation so as to improve their soils. Growing the same crop year after year robs the soil of its nutrients. Therefore, crop rotation is often cited as one of the best ways to correct this problem. Each soil is different and hence the NPK mix required is different. However, most farmers believe that just using urea is enough and yields are affected. Lastly, lack of resources, as the average farmer is fairly poor he cannot afford to make timely investments to improve yield.



PAGE: How can we improve yield?

TASNEEM: The most important factor to improve yield is to provide the farmers with adequate resources and to educate them for using these resources effectively. Fertilizer companies and the agricultural institutions are attempting to do this but effort by the government is lacking. Farmers must be made aware of optimum fertilizer mix, the type of pesticides to be used and crop rotation to enhance income. Furthermore, the government should also help the growers to effectively market their product so that they can get the maximum possible price. Lately, efforts have been made to enhance funds available to the sector by encouraging commercial banks to increase agricultural credit and the average rates on the loans have declined significantly. I believe that the government needs to ensure that the right people get the loans at the right time. Another factor having the potential to improve yield is timely availability of water. Although we have a very advanced irrigation system, considerable proportion of water is lost. I believe that this needs to be corrected via greater storage facilities and small dams.

PAGE: What has been the trend in Non-performing Loans during the last three years?

TASNEEM: During the 1990's NPLs rose drastically mainly due to corruption in the system. The levels became so astronomical that the banks overall performance was badly affected. During the last three years the banks have become increasingly aware of this menace and efforts have been made to make credit disbursement more efficient and improve recovery. This is largely due to the State Bank of Pakistan putting pressure on the banks especially the nationalized commercial banks and increasing disclosure requirements by the financial institutions. In addition, professional management inducted into the large nationalized banks has also contributed significantly to the decline in the pace of NPLs growth. Furthermore, the level of provisioning against these loans has increased considerably, which is a very positive sign.

PAGE: With the declining interest rates, returns on bank deposits have become virtually negative. What is the way out?

TASNEEM: With return on deposits being approximately 4% for most of the banks and the inflation rate being nearly 5%, depositors are earning a negative real rate of return. What is needed is effective investment management where the savers have a diversified portfolio i.e. a mix of investments in equities, fixed income securities, National Saving Schemes and bank deposits. This would optimize the risk return trade-off and ensure that the savers get sufficient returns.

PAGE: Equities offer attractive dividend yield. Why are investors shy to invest in listed companies?



TASNEEM: In the current declining interest rates scenario, dividend yields and returns on equity investments are very attractive. However, the main reason why the average investor is wary of investing in the stock market is the lack of awareness. He is not sure how the system works and what are the possible pitfalls. He is also not provided accurate information on a timely basis, which could enable him to make an informed investment decision. Hence, he is unwilling to take the risk. What is needed is to promote the awareness of how the stock exchanges operate, here the brokerage community can play an active part.