INTERVIEW WITH LCCI PRESIDENT

TRADE AND INDUSTRY IS FACING COMPLEX, MULTI-DIMENSIONAL, AND DEEP-SEATED PROBLEMS.

KANWAL SALEEM
(feedback@pgeconomist.com)

May 2 - 15, 2011

Trade and industry is faced with complex, multidimensional and deep-seated problems emanating from the domestic policy, institutional and infrastructural shortcomings as well as those resulting from the global competition.

The business community needs a set of priorities for economic recovery and stability during 2011. This can only be achieved by broadening the tax net and enforcing austerity measures aimed at drastically curtailing non-development expenditures apart from revving privatization program and engaging the private sector for infrastructure development.

Facilitating the private sector through reducing the cost of borrowing, production and doing business will quickly add new jobs opportunities, which should be on top of the government's economic recovery agenda.

This was crux of views expressed by the Lahore Chamber of Commerce and Industry (LCCI), Shahzad Ali Malik in an interview with Pakistan and Gulf Economist (PAGE).

Sharing his views on a wide range of issues confronted to national economy, soft spoken Shahzad Ali Malik, who is highly regarded in business and social circles said: "We are faced with pressures on both domestic and international fronts. Macroeconomic imbalances have dampened growth prospects. Market, economic and political risk perceptions about Pakistan have worsened. Inflationary pressures remain unabated. All the while, our international business partners have more choices to do deals on investment, trade and joint ventures. I feel that we are not tackling these problems head on. We have one the most attractive investment regimes in the world but the overall investment climate is negative. The government needs to engage the business community in a meaningful manner to harness their talent and resources to remove domestic constraints to businesses. This will also facilitate our business community and prepare them to benefit from existing and emerging opportunities globally."

He said: "It goes without saying that the economy of Pakistan is experiencing difficult conditions mostly driven by domestic problems. The current wave of economic downturn that led us to a painful 25-month Stand-by Agreement with the IMF in October 2008 is caused by the persistence of macroeconomic imbalances and long-standing structural problems. The only way to sustainably come out of recurrence of near financial meltdowns in Pakistan is to tackle our structural problems through implementing truly homegrown economic solutions. We need to immediately put the economy back on track to recovery and stability. The government's current nine point agenda for economic and social recovery is fine in principle but it rather seems like a long-term plan. We need a set of priorities for economic recovery and stability during 2011. This can only be achieved by widening the tax net and austerity measures aimed at drastically curtailing non-development expenditures while immediately reviving a large-scale privatization program and engaging the private sector for infrastructure development. Facilitating the private sector through reducing the cost of borrowing, production and doing business will quickly add new jobs which should be on top of the government's economic recovery agenda."

He further said that the LCCI has an excellent track record of representing the collective interests of our members that often led to timely policy response. "We take great pride in being a leading chamber of the country having a large membership. Our proposals on budget, trade, investment and sector policies get recognition. But, we are always struggling to reduce the time required to yield policy response. I have a clear set of priorities and an agenda for the promotion of trade, investment, infrastructure, and economic diversification based on value-addition especially in the agriculture sector. With regards to trade, I think we have great openings in China and Turkey as both economies have made great strides in improving their international competitiveness. LCCI will exploit our mutual economic and trade synergies."

About agriculture sector, the LCCI President said: "Pakistan cannot become truly economically independent. We have to understand that agriculture is the next gold rush and prepare for the shift underway. Agricultural economies will have an edge in global market place driven by the larger question of food security and sustainability. On food security, we have a lot to learn from China where crop yields have consistently improved. With regards to the question of sustainability, I will work on depoliticizing the issue of water management and conservation. We have no future without addressing the issue of poor water management and lack of its storage. We at LCCI have taken an initiative called "Pakistan Water Front" to achieve these objectives."

From an economic point of view, he said our choices are very limited. Eventually we have to ensure full cost-recovery in electricity tariffs. From social point of view, we need to make sure that lifeline users defined as households consuming up to 50 units per month are exempted from upward moves in tariffs since their incomes are still very low. From political point of view, we need to carefully manage popular sensitivities against rapid tariff increases. On circular debt, the government can issue new term finance certificates to raise capital to clear the existing debt overhang. But the question is what will be the situation six months down the line and will the circular debt still re-emerge to burden the sector. The chances are that we will certainly have a reincarnation of the circular debt. I think we need to focus on changing our energy-mix. In the short-run, we should promote energy efficiency especially in the industry through fiscal incentives. In the mid- to long-run, we need to be more sensible about our water resources to develop small, medium, and large hydro projects as well as relying on coal-based and renewable energy sources such solar and wind power.

Pak-China Trade: Mr. Shahzad Ali Malik said, "We need to make a distinction in relations to our trade with China and the issues concerning Pak-Afghan Trade. Chinese goods are flooding markets all over the world. The reason our local markets are flooded with Chinese goods is pure business sense. Chinese companies are good in understanding consumer demands and can produce efficiently. In a liberalized global trading environment, buyers will keep searching for best bargains. We have a free trade agreement with China that gives Chinese imports an advantage in our bilateral trade. However, we have a serious problem of under-invoicing regarding Chinese imports. Opportunities are also available to our exporters in China. But I think we still lack a deeper understanding of the Chinese market and how to win business in China."

Pak-Afghan Transit Trade: According to the LCCI President, in Pak-Afghan trade, the issue is one of smuggling and abuse of transit trade regime between the two countries. Pakistan is signatory of international treaties that require us to provide transit access to land-locked neighbors like Afghanistan. The problem is that goods destined to Afghanistan end up in local markets incurring the government huge revenue losses. This is a failure on our part and we need to correct it using technology and better checks to ensure Afghan transit goods physically go across the border.

Mr. Malik said: "I think as a nation we still have not hooked to the idea of entrepreneurship and its role in economic development. Entrepreneurs are risk takers in developing new ideas and their commercialisation. This process unleashes countless opportunities for economic development, as has been the case with the miraculous growth of most advanced economies around the world. But, since there is a lot of risk involved government needs to design special policies to ensure potential entrepreneurs have access to venture capital to start new businesses. Access to finance is an area where we still have to do a lot of work. Mainstream banking is often reluctant to offer risk finance. High interest rate also deters potential entrepreneurs from borrowing. Without improving access to cheap finance we cannot promote entrepreneurship."

He said: "Inflation in Pakistan was demand-pull to start with but it is now very much cost-push phenomenon. The surge in demand caused by high growth period of 2003-07 and the resultant asset bubble was burst in 2008. The monetary policy tightening has very much managed demand pressures. Now what is causing high inflation is the government's insatiable appetite for borrowing, high interest rates, withdrawal of energy subsidies, and cartelization and regulatory weakness exacerbated by supply shocks that resulted from recent floods. In order to sustainably bring inflation down, the government needs to tackle its fiscal imbalance while removing policy and infrastructural constraints to essential supply chains."

Alternative Resources of Energy Generation: The LCCI Chief said: "I think this is too important a source of energy to ignore. The world is fast-moving towards harnessing all sources of alternative energy. We have some of the best wind corridors in the world especially along Sindh's cost line that has double the wind speed required to run a turbine. We have almost year round sunshine to harness solar energy. The issue here is not one of resources or technology but timely action where we are seriously lagging behind."

Corporate Social Responsibility (CSR) at LCCI: Malik said: "I see CSR as a commitment to our and paying-back to communities. I strongly believe that we owe our success to our communities. LCCI as an institution has a very strong sense of CSR and we have always been at the forefront of contributing to the development of our communities. We have made large donations to leading academic institutions in Lahore. We donate large sums to hospitals and schools every year. Our members are very passionate about investing in our community and we will maintain that tradition."

Potential in Pakistani youth: The LCCI Chief said: "Pakistan has some of the world's youngest population with around 80 million people at the age of 17 years or below. This great demographic asset points towards the real possibility of a bright future for the country. But, we must not be complacent about this demographic dividend and must do all in terms of policy to educate and train our youth with an entrepreneurial flair. But, our youth must also be provided with real opportunities in turning their ideas into successful businesses. Special youth start-up finance vehicles need to be developed to encourage self-employment in our young people."

Pak-India talks: The LCCI President appreciated fifth round of Pak-India secretaries-level talks between Pakistan and India and asked for consultation of LCCI in Joint Working Groups and task-specific committees formed to resolve issues relating to Pak-India trade. It would be much wiser if the idea of common trade area at Wagah/Attri is implemented and promoted. If a common Trade Area is made available at Wagah/Attari, a number of businessmen would not be required visa at some earlier stage. Both India and Pakistan would have to work hand in hand with the business community to build confidence, dispel misunderstandings, and allay misapprehensions. Nevertheless, agreement to replace positive list with negative list is very welcoming as through the negative list it would be easier for both the sites to identify the items hurting the local industry in the two countries. For the first time in the history of Pak-India talks, a structural approach has been adopted to resolve trade-related issues. Both the governments need to ensure all future meetings should be result-oriented in the larger interests of people of two countries. Intention showed by the both countries to explore the possibility of entering into a mutually agreed Preferential Trade Agreement (PTA) to further promote bilateral trade by extending tariff, concessions would go a long way and yield positive results for both Pakistan and India. Pakistan is running well short of energy and Indian cooperation to this regard could narrow the gap between demand and supply of electricity.

"Sustainable success is a continuous process and requires consistency in hard work. Avoid short-cuts," Malik concluded.