POWER OUTAGES HITTING HARD TO ECONOMIC GROWTH

LSM'S NEGATIVE GROWTH IS TERMED AN EYE OPENER FOR THE GOVERNMENT.

KANWAL SALEEM
(feedback@pgeconomist.com)

Mar 26 - Apr 1, 20
12

In the backdrop of shortages of electricity and gas, the country is facing poor investment climate both from internal and external fronts posing serious challenges ahead. Even the slashing of the policy interest rate by two per cent to 12 per cent has failed to trigger borrowings from the private sector for expansion. The low demand for fixed investment loans is largely due to persistent energy shortages, the uncertain law and order situation, and excess capacity in the industrial sector. Investment climate in Pakistan is not conducive. The government is making the operations of even existing industries impossible by jacking up the input cost like the recent massive increase of Rs6.39 per unit in the electricity tariff, the single largest raise in the country's history, under monthly fuel adjustment mechanism.

The economy of Pakistan is the 27th largest in absolute dollar terms. Pakistan has a semi-industrialized economy, which mainly encompasses textiles, chemicals, food processing, agriculture and other industries.

The economy has suffered in the past from decades of internal political disputes, a fast growing population, high inflation rate, increasing poverty level and low quality of education, terrorism etc.

The gross domestic product (GDP) is the market value of all final goods and services produced within a country in a given period of time. It is often positively correlated with the standard of living.

Price hike affects women the most because of their traditional dependence on male family members. Illiteracy keeps the poor women in social, political, and economic shackles. Food price hike also provokes gender conflicts resulting in excessive ratio of divorce, honor killing, domestic violence and sexual harassment.

In a society faced with multiple economic, social and security related challenges, current phenomenon of unchecked price rise has demoralized the struggling flood affectees. It has made it even more difficult for them to be resilient against unprecedented devastation of property and life.

Experts believe that the ongoing energy crisis in the country had cut three per cent of its GDP while it has been facing a serious lack of investment from both internal and external front for the last four years. The government decision to raise electricity prices is bound to hit investments, manufacturing, exports, trade besides increasing the incidence of electricity pilferage that already is 25 per cent of the 22 per cent line losses and eating up Rs50-75 billion, they added. How the industry would remain competitive at such a high price of electricity, which is one of the basic industrial raw materials, they said.

Pakistan has the highest tariff in the region, since in India the electricity tariff for industry is 10.5 cents, in Bangladesh 10.75 cents, and in Sri Lanka 10.75 cent whereas in Pakistan tariff is already 15 cents meaning that 45 percent higher as compared to the region.

On one side, the cost of doing business in Pakistan is high, while on the other with massive and unprecedented increase in power tariff, we have tariffs double than what the regional countries are offering to their trade and industries leaving Pakistan totally uncompetitive and unviable in the international market.

The country had already lost a number of international markets to China, Bangladesh, and India due to high cost of doing business and the decision to increase power tariff would make the Pakistani goods more uncompetitive.

Most of the industrial units have already reduced their working to single six-hour shift from the previous three shifts system. This has led to increased level of raw-material wastage leaving production process non-profitable.

The crisis in industrial sector is not only causing flight of capital and relocation of industrial units to the countries like Bangladesh and Malaysia but also reducing government revenues drastically.

According to the Lahore Chamber of Commerce and Industry (LCCI) President Irfan Qaiser Sheikh, the business community was unable to understand that instead of taking measures to control line losses and enhance cheap power generation up to capacity, the policies are being evolved to add to the miseries of the business doing people. Negative growth witnessed by the large-scale manufacturing sector was indeed an eye opener and a wakeup call to the government. He said that the industry needs cheaper electricity to keep the units operational and complete the export orders well within the given timeframe but only because of the shortage of electricity the exports are not up to the mark.

It may be noted that the State Bank of Pakistan (SBP) in its quarterly report has noted that there has been almost no improvement in the investment component, despite the reduction in the cost of borrowing.

LCCI has warned the government of massive layoffs and industrial closures if it fails to immediately stop eight to 10 hours power outages in the industrial areas.

Business leaders from a number of trade and industrial associations including Lahore Township Industrial Association, Ferozepur Road Industrial Association, Katarbund Road Industrial Association, Kahna Kacha Industrial Association, Anjuman-e-Tajiran Pakistan, Qoumi Tajir Ittehad, Anjuman-e-Tajran Badami Bagh Auto Market, Township Traders Association, Pakistan Auto Parts Manufacturers and Exporters Association, Anjuman-e-Tajran Urdu Bazar, and Brandreth Road Traders Association had already raised voice over long hours of power outages that is hitting hard to their businesses.

Mr. Sheikh said that government would not be able to control the situation triggered by the demonstrations and strikes called by the angry industrial workers against their retrenchments as a result of these power outages. "How the government would establish its writ and from where it would collect revenues to run its day-to-day affairs when the industrial wheel is coming to a grinding halt," he questioned.

The LCCI president urged the government to allocate funds in the forthcoming budget for new power projects and construction of dams to generate cheap and sufficient electricity.

Unemployment, price hikes, industrial closures always gave birth to lawlessness and anarchy. Therefore, the government should understand the ground realities and reset its priorities regarding provision of electricity to the industry, he said.

He also said that the industry needs a continuous supply of electricity to keep the units operational and complete the export orders well within the given timeframe but only because of the shortage of electricity, the exports are not up to the mark.

The LCCI president said that cheaper and uninterrupted power supply is only way to achieve economic targets set for the year 2012 but neither the government is sharing its future plans to this regard nor paying any heed to the difficulties being faced by the trade and industry.

Nevertheless, the spiking food and energy prices, rising unemployment on the back of sluggish growth, and electricity and gas shortages are directly affecting the quality of life.