Interview: Zafar Moti, Chief Executive Officer, Zafar Moti Capital Securities

Jan 29 - Feb 04, 2007

Pakistan is the only country in this region where the rate of inflation has exceeded GDP growth, while the rate of inflation as compared to GDP is half in India, China and Thailand.

Zafar Moti, CEO, Zafar Moti Capital Securities stated this in an interview with PAGE. While discussing the impact of inflation on our capital market, Zafar observed: "We are affected by the international interest rates, political and economic changes in the international scenario".

At the local economic scenario, rapidly changes in economic policies, rains and drought like conditions usually affect our output and consequently affect GDP growth, hence the index was not an exception it also got affected.

Obviously, the inflation hits local investors and their income outflow ultimately reflects in market movements. The sharp index movement is not a matter of surprise as the index volatility prevails in Pakistan, India, Nepal and Thailand due to similar economic and political conditions.

Zafar was of the view that the size of our market has reached a level of $50 billion and has the potential to touch the mark of $70 billion provided the market participants were motivated. In this respect, he said that a separate ministry for our stock exchange could be instituted with a greater say of the active market participants who know the need of the market and the investors. That ministry can be a great charm for the investors.

While talking about the impact of the inflationary pressures, he said that only moneyed people come for investment as the inflation naturally erodes income disposal of the small investors. As far as our stock markets are concerned, the inflation has badly affected which is reflected in the fact that our GDP growth is less than the rate of inflation. Actually, for the first time the government has conceded to the fact that inflation was in double-digit in Pakistan. The government is tackling the inflation with a tight monetary policy and higher interest to check inflation and spread of too much money. It is the time to take measures to preserve the perishable food items; we would have to bring down the cost of production, which had escalated due to higher international oil prices.

We would have to look into the imbalance between rural and urban discrimination in taxation system. The imbalance in taxation has led to the failure of our fiscal policy. Citing the example he said that the agri- based business enjoys a free for all status. No paperwork, no documentation for them while the urban area companies, including stock market, have to bear the taxation burden. There is no check on real estate business. These exempted areas will have to be brought into the tax net so that sense and injustice prevails in this regard.

The level of interest is again a complex issue; two years back there was low rate of interest that was also wrong. If we go in the middle of the road, than we would be able to run our factories, business and export oriented industries. In Bangladesh, Sri Lanka, Thailand and other regional countries the tax rate is usually around 7-8 percent, which is an ideal level. Extreme level either on lower side or the higher is not a good option for interest rates, he remarked.

We can enhance our productivity and export surplus through improving storage system and road communication from farm to market as well as constructing more warehouses and storage facilities to motivate our export sector.

Another nuisance area he pointed out was holidays and strikes called by different pressure groups and political parties. We are the second biggest holidaymakers in the world.

He said recently senior vice president of Bangladesh Stock Exchange visited Pakistan. Currently, there is some political disturbance and strikes going on in that country. He said that leaders of opposition recently came to him and assured the businessmen that business losses owing to strikes - leading to failure in meeting exports orders and running factories, etc. - should be compensated.

While in our country nobody bothers how much losses were faced by the businesses or the people due to strikes and that were never compensated.

Contrary to that attitude, the businesses and industries instead of expanding production capacity are decreasing production volumes due to rapid increase in cost of production. One of the feasible ways to control inflation is to enhance value addition in our exports.

Introducing export-friendly policies, our missions should work for export enhancement. These missions have failed to introduce any such product, which could identify Pakistan abroad.

With this background only those people should be allowed for decision-making who know what is market demand, what is need of the businessmen and could understand the needs of local environment.

For example those who think that we would double our revenue collection by increasing cost, had to receive less than half of the target instead of improving the revenue volume. Those making decision for revival of stamp duty, which was done away with ten years back, don't understand the market dynamics. Only those people be involved in decision making who are sitting on the pulse of the market, without them any positive result could hardly be achieved, Zafar said.

There was a long standing demand of the stock market that listed or non-listed companies should be treated with different rate of taxation so that non-listed companies should be motivated to come into market fold. But unfortunately both are being treated at par with the same taxation rate. Same treatment and stringent rules of SECP are de-motivating the companies. Instead of coming into local stock market some companies are interested to be listed with stock markets abroad. Why we are scaring away the local investors, he concluded with a question mark.