INTERVIEW WITH MOHAMMED HANIF AJARI, DIRECTOR STRATEGIC DEVELOPMENT GETZ PHARMA (PVT.) LTD.

KHALIL AHMED
(feedback@pgeconomist.com)
Oct 17 - 23, 20
11

Mohammed Hanif Ajari is Vice President of Institute of Cost and Management Accountants of Pakistan. He is also a technical advisor to the board of South Asian Federation of Accountants. Currently, he is working as Director Strategic and Supply Chain Development in Getz Pharma, a leading pharmaceutical company ranking number 5th by IMS, with a wide range of product portfolio and having a cluster of legal entities and distribution/marketing network in more than 25 countries of the world.

He has over 40 years experience of working with world renowned chemical, pharmaceutical, logistics/cargo SCM, Lufthansa Airline within Pakistan and abroad.

He has an extensive experience of working in the different capacity to look after finance, treasury, ERP, supply chain, ERM, strategic planning, project development, business process management, corporate sustainable initiatives, and other sphere of initiatives representing operational and strategic nature of activities.

He has been thoroughly trained on balance score card, performance management in Copenhagen Denmark, and Holland.

Professionally, he is a fellow member of the Institute of Cost and Management Accountants of Pakistan and Sri Lanka. He did his MPhill in supply chain management, fellow member of institute of supply management (USA) and also chartered member of charter institute of logistics and transport. He has recognized and approved 15 thesis in the field of business process outsourcing, business process engineering, SCOR, and supply chain management dynamics, leverage financing, employees stock options, SCM Risk and enterprise risk management. His PhD thesis on enterprise management is being evaluated. He has attended many vocational and professional training programs around the world. He is also educationist and working as visiting faculty with IBA and other universities in Pakistan and abroad.

PAGE: THE STATE BANK IN A REPORT STATED THAT THE NATIONAL SAVING RATE INCREASED TO 13.8 PER CENT OF GROSS DOMESTIC PRODUCT (GDP) MAINLY DUE TO INCREASE IN NET FACTOR INCOME FROM ABROAD. YOUR VIEWS.

HANIF AJARI: In order to understand the impact of net factor income from abroad, first we need to understand what it is comprised of. The net factor income from abroad consists of (i) net compensation of employees, and (ii) net income from property and entrepreneurship (i.e., interest, rent, dividend, and profit). Here the term 'net' stands for receipts of current income by residents abroad minus disbursements of current income to non-residents in Pakistan. The factor incomes are reckoned in terms of factor incomes of residents abroad and non-residents living in the country. Factor incomes of residents are to be considered as inflows while factor incomes of non-residents are to be considered as outflows. The data for factor incomes from abroad are provided by the balance of payments statistics. For balance of payments purposes, the term 'resident' is defined as a person or entity who may be expected to consume goods and services, participate in production or engage in other economic activities in the territory on other than temporary basis and whose 'centre of interest' lies in the country's economy. The rule of thumb adopted for determining the resident status of an individual is the stay of one year or more. Thus, residents cover Pakistan nationals and non-nationals residing in the country for one year or more, government agencies (comprising all departments, establishments and bodies of its central and state governments and embassies and consulates and other entities of the government located abroad), business enterprises and non-profit organizations. International agencies are regarded as residents of an international area and not of any country.

Embassies, consulates and other entities of a foreign government are not treated as residents of the country in which they are physically located, but of the country to which they belong. Net factor income is one of the reasons of increase in national savings rate; if we decompose the savings in the economy and take a look then we'll know for sure that public sector savings have not fared well over the years; and private sector savings and foreign investment has been the major components of savings. You may recall last year's inflow of $11.2 billion remittance from overseas Pakistanis and over $3 billion remittance in the first quarter of the financial year. Hence, this remittance is the second largest components in net inward flow of remittance in the country, which contribute to the greatest saving boost in the country otherwise inflation and evaporated margins have made the domestics savings virtually non-contributory factor.

PAGE: THE CONSUMERS HAVE TO SPEND MORE MONEY IN THE PRESENCE OF DOUBLE-DIGIT INFLATION, WHICH THE COUNTRY HAS BEEN FACING FOR LAST FOUR YEARS. DURING LAST FOUR YEARS, THE CUMULATIVE IMPACT OF INFLATION WAS 76 PER CENT, WHICH ERODED THE BUYING CAPACITY OF THE CONSUMERS WHILE SAVINGS DROPPED. WHAT ARE YOUR COMMENTS ON THAT?

HANIF AJARI: Household or consumer savings depend on many complex factors, the most important being income levels, relative price stability and positive real rates of return on savings. Slow growths in real per capita income and increasing disparity in incomes have in the past promoted consumption rather than savings. Lavish lifestyle of the rich and subsistence living of a large segment of the society has led to lowering of the saving rate in the country. Added to that is the demonstration effects of conspicuous consumption of the rich and powerful, consumption liberalization through cheap money policy in this decade, and discouragement of savings by the high rate of inflation and negative real rates of return on most financial savings. If the rate of inflation can be brought down to a moderate level of 4-6 per cent a year through appropriate demand management policies, SBP can also use tools at its disposal to gradually improve nominal rates of return on financial savings so as to ensure a positive real rate of return to savers.

Some quarters doubt elasticity of savings in relation to the rate of return but it may be noted that the same argument was used for quite some time in the case of agricultural products, and control on agricultural product prices became a vehicle for providing agricultural products at relatively cheap prices to the more vocal urban sector. Similarly, the banking system of Pakistan is currently discouraging financial savings by offering a negative rate of return in real terms and is also instrumental in transfer of income from the poor to the rich. I think this is soaring and unabated inflation is one of the major reasons for the decline in savings; since inflation plays an imperative role in maintaining macroeconomic stability; and higher inflation results in generating uncertainty among household; in anticipation people substitute future consumption for present consumption, hence decreasing savings.

PAGE: IT IS BEING SAID THAT RECORD REMITTANCES IN FY11 IMPROVED SAVINGS; HOWEVER, IT IS LOWER THAN INDIA AND BANGLADESH. WHAT IS YOUR TAKE ON IT?

HANIF AJARI: Remittances are a source of increased investment; but for sustainability of improved savings there is a greater need to increase domestic savings rather than depending on foreign savings; hence a need for increase in GDP which would push savings is required. In India, the rate of domestic savings on an average is around 34 percent, out of which domestic household savings contribute about 23 percent, which is a major contribution by domestic households. If you can compare the GDP growth both in India and Bangladesh you will observe that both the countries are maintaining sustainable drive and their respective market capitalization is going on positive note. Hence, there are many available opportunities for their respective citizen to place the funds in stocks markets, hedge funds, and small scale industries.

In Pakistan due to war on terror, floods, soaring cost of capital, law and order situation, poor infrastructure, double digit inflation, and particularly food related inflation have kept most of the investment at bay. This has resulted in to unemployment particularly of white-collar employees therefore hardly one can see the positive outlook which can suggest savings.

PAGE: HOW COULD PAKISTAN INCREASE ITS SAVING TO GDP RATE?

HANIF AJARI: Gross national savings (GNS) as a percentage of GDP has deteriorated over time whereas foreign savings as percentage of GDP has relatively increased over time. Compared to 37.5 per cent of GNS in Bangladesh, this figure in Pakistan has hovered around 14 per cent only. For a sustainable domestic savings level, the government should channelize more of its resources and expenditures for the benefit of the people so that increased wages and other burdens that government might bear help people increase savings and thus increasing savings to GDP rate. Likewise Bangladesh domestic national savings is moving in the vicinity of 15-18 per cent due to sustainable GDP and growth opportunities in the country. So for increasing the saving to GDP we need to bring sharp improvement in our GDP through consistent economic policies, and maintaining monetary policy to curb the soaring inflationary trend.

PAGE: THE STATE BANK HAS REPORTED THAT THE GROSS TOTAL INVESTMENT CAME DOWN TO 13.4 PER CENT OF THE GDP IN FY11. THE IMPROVEMENT IN SAVINGS DID NOT REFLECT IN INVESTMENT TREND. WHAT COULD BE THE REASONS?

HANIF AJARI: Foreign direct investment (FDI) in the country dropped 39 percent to $2.03 billion during the last financial year. There was an outflow of $133.8 million of portfolio investment during these 11 months, which was, however, much lower than the outflow of $1.103 billion in the same period last year. Total foreign investment, thus, registered a fall of 13.4 per cent of GDP. The foreign investment that the country received during the financial year 2011 was mostly concentrated in the services sector and little was invested in the manufacturing sector. This trend is harmful for the country in the long run because these investments create few jobs, but generate handsome profits in the country, which is then sent abroad.

Oil and gas exploration sector attracted $653.9 million FDI, telecommunications $378.7 million, financial business $153.8 million, transport $115.5 million, paper and pulp $80.7 million, construction $95.5 million, chemicals $84.4 million, trade $103.9 million, petroleum refining $79.4 million, personal services $56.9 million, food industry $71.9 million and textiles $24.4 million. There was an outflow of $21.2 million from the thermal power generation sector. Besides, there was an outflow of $93.1 million from the IT service industry. We feel that most of these sectors are not labor-intensive and, therefore, do not contribute significantly to job creation efforts of the government. It was necessary for the government to improve infrastructure and ensure elimination of energy shortages in order to attract substantial foreign investment in the manufacturing sector. The United States of America continued to be the largest source of foreign investment for Pakistan. We received $521.8 million worth of investment from the US. The investment from the Netherlands stood at $271.8 million. We received $274.9 million FDI from the UK, $204.4 million from the UAE, $147.2 million from Switzerland, $104.3 million from Singapore, $71.6 million from Cayman Island, $58.2 million from Australia, $49.3 million from Germany and $24.1 million from Japan. Therefore, we can conclude that law and order situation, favorable investment opportunities and economic credibility are the necessary factors that lead to growing investments; in contemporary times, these fundamental factors have been lacking in the country. Electricity crises, inflation, terrorism activities are the factors that have hampered the investments, which could have moved in parallel to the savings growth.