Pakistan seems to be enjoying best of its economic
times but the overall consensus is that the general public is not
benefiting from economic prosperity. Some analysts say that the
collaboration among players within various sectors and undue patronage
by the government do not allow the benefits to trickle down to masses.
The sole beneficiary of economic bonanza is a small group of business
community. Owing to the prevailing situation companies are showing
higher profit, which is not sustainable in the normal environment. They
also warn that if the government takes corrective measures these
exceptional profits will vanish. This may also lead to massive erosion
in corporate earnings and the much talked about dividend yields may turn
into huge losses.
It may be absolutely ridiculous to say that the
private sector is solely responsible for the situation. The real
culprits are the regulatory authorities and the decision-makers in the
capital. It seems that either the regulators are toothless or the rent
seekers are looking after the interest of decision-makers very well.
Arshad Arif of KASB Securities, in one of his recent reports, has
identified Ministry of Industries and Monopoly Control Authority the two
major culprits. His conclusion was based on the analysis auto, cement
and steel industries. However, these are not the only culprits. One can
draw a long list of other culprits.
Probably Ministry of Industries has exhibited the
poorest performers among all the ministries in the present regime. It
has failed in resolving problems faced by sugar industry, the driving
engine of rural economy. Despite all the hue and cry from the consumers
and the media, the state of affairs in the auto industry is very much
similar to where it was 6 months before. The price reduction by the
assemblers was merely eyewash. The officials have also changed their
earlier stance on allowing import of re-conditioned cars. In fact the
ministry is beating about the bush by issuing various statements while
its unwillingness to act against the malpractice by the trade is very
Monopoly Control Authority (MCA) seems to be the
weakest authority among the regulators in the country. The authority
takes refuge behind lack of resources, but does it need hundreds of
people to take action against any one, be it the cement cartel? The poor
performance can only be attributed to lack of interest and inability to
act against ill practices of manufacturers enjoying the power to
maneuver prices individually or collectively. Despite the reduction in
the CED cement price has not come down correspondingly. Cement
manufacturers raised the prices just before announcement of budget and
reduced it by the CED reduction on the very next day. The price is
around the same level and MCA has not been able to assert itself as yet.
The elected government has also rendered National
Electric Power Authority (NEPRA) an impotent entity. Increase/decrease
in electricity tariff are being announced without going through the
formal process for determination of revised tariff. The recent
announcement regarding increase in tariff for distribution companies in
Punjab completely negated the earlier announcement that the government
wanted to bring down electricity tariff in the country.
Private Power and Infrastructure Board has been given
the mandate to recommend the measures for bring down the tariff. It is
important to point out that the Board published advertisements in
newspapers soliciting comments from all the stakeholders but gave only
seven days time to submit suggestions.
The current threatening environments may have been
sustainable in the scenario when Pakistan was without adequate foreign
exchange reserves. At this juncture, one of the solutions is to allow
import of second-hand cars and cement to reduce prices in the local
market. This may help in bring down the prices of these commodities.
Saying this, it is also important to note that both the sectors suffer
from poor capacity utilization and allowing import can render these
sectors incapable of delivering whatever they have been delivering so
However, the key problem is higher cost of production
at state owned cement units, as they are still using furnace oil.
Besides, all the plants have not been converted to coal firing system as
yet. Higher profit margin is the right of those who took the initiative
of conversion to coal. However, these manufacturers should share the
advantage of lower interest rates and reduction in government levies
with the general public.
It is worth noting that while the government is
asking the urea, cement, automobile to reduce price, it is not willing
to reduce levies charged on these commodities. The worst example is POL
products. Nearly 70% of retail prices of POL products comprise of taxes.
The same is also true about electricity. WAPDA and KESC have virtually
become tax collection agencies.