Role of trade with India in post-2014 scenario

If trade relations are normalised, Pakistan will get access to a market of over 1.2 billion consumers and India will have access to a market of over 180 million people. PHOTO: AFP/FILE

ISLAMABAD: The year 2014 will be crucial as the US withdraws its troops from Afghanistan. At the same time, India-Pakistan rivalry there has the potential to intensify and undermine any fragile stability that may exist. In this situation, trade could be a mechanism for mitigating tension between the two countries.

If trade relations are normalised, Pakistan will get access to a market of over 1.2 billion consumers and India will have access to a market of over 180 million people. The increased economic activity will lead to more employment opportunities and higher stakes for people on both sides in maintaining peaceful ties.

According to studies, South Asia remains one of the least integrated regions in the world. Pakistan and India account for almost 92% of South Asia’s GDP, 85% of the region’s population and 80% of its surface area. Despite that, trade between the two constitutes only 20% of regional trade.

Pakistan has the largest export potential in textiles, jewellery, precious metals and base metals, accounting for 45% while India can augment its exports to Pakistan in three categories – machinery, mechanical appliances and electrical equipment. These three categories comprise 54% of India’s export potential. Therefore, it is clearly in the interest of both countries to find a political solution to their dispute.

In the current scenario, the entire globe is focused on the Middle East and Asia with the primary concern of protecting economic interests in the form of smooth flow of oil from the Persian Gulf region as well as tapping natural resources of the Central Asian Republics.

At this critical juncture, due to its strategic geographical position, Afghanistan has the potential to become a land-linked country providing both Pakistan and India with direct routes to the Central Asian region.

India should allow Pakistan to access Nepal, Bangladesh and Bhutan via its territory and Pakistan should give transit rights to India to access Afghanistan. This significantly impacts the trade potential, even with other neighbours.

Trade Restrictions

In the face of restrictive trade policies and transport bottlenecks, at present, a great deal of trade occurs via Dubai. The composition of informal trade between the two countries shows that a range of products are avoiding official tariff and non-tariff barriers to reach the third country, reflecting the potential for expanding official trade.

According to recent data of the World Bank, low transport costs, dismantling of tariff and non-tariff barriers, grant of MFN status to India by Pakistan and improvement of logistics arrangements can help increase the volume of bilateral trade to approximately $8-10 billion annually.

Current low volumes of trade and low trade integration in Pakistan and India have their roots in their respective systems. Both have relatively restrictive trade regulations. Numerous studies have demonstrated that the relaxation of constraints would benefit both countries.

The recent agreements between Minister of Commerce and Textile Khurram Dastgir Khan and his Indian counterpart Anand Sharma can play the role of a catalyst in harnessing the benefits of bilateral trade in the post-2014 scenario.

Trade will, of course, not solve all the glitches, but it could be an important catalytic agent in lowering the tensions. The reduced tensions – an inevitable benefit of strengthened economic ties – would improve the security climate for investment and economic development not only in Pakistan and India but also in the whole South Asian region.

The writer is a researcher at the Sustainable Development Policy Institute

Tussle: Great game of gas politics

Govt must take a bold decision on energy import like the EU did. CREATIVE COMMONS

ISLAMABAD: 

The great game of gas politics in which global powers want to reshape this region, seems to be hitting the economy of Pakistan. The United States and some Muslim countries are in a race to reshape policies in the region and force Pakistan to import gas from the countries of their choice.

Iran, China and Russia are apparently one force against the US and its allies and want Pakistan to strengthen its ties with Tehran whereas Washington is pressing Islamabad to purchase gas from Qatar and Turkmenistan to meet domestic needs.

In this scenario, two blocs are in the process of making – one comprising Russia, Iran, Pakistan and China if the Iran-Pakistan (IP) gas pipeline project gets under way. Russia and China are in favour of Pakistan opt for this project

According to experts, the US wants to strengthen ties among Pakistan, Afghanistan and India by pushing them to work on the Turkmenistan-Pakistan-Afghanistan-India (TAPI) gas pipeline.

This rivalry has put Pakistan in a tight spot as it cannot ignore its pressing energy needs and must import gas to tackle the crisis. The country is eager to shift its power plants to cheaper gas to give a boost to the faltering economy.

Big oil and gas companies are also putting their weight behind the two blocs and are vying for a share in the multi-billion-dollar contracts. Despite the US-Iran tensions, these companies are continuously playing their role. US firm ConocoPhillips has been given shareholding in a joint gas field between Qatar and Iran from where liquefied natural gas (LNG) is being exported to the entire world.

In a scenario where Iran and Qatar are operating a joint field, it is interesting that the US pushes Pakistan to go for gas import from Qatar and shelve the gas deal with Iran.

Pakistan is going to negotiate the LNG price in upcoming talks in Doha for striking a deal. Though Qatar has designated Qatar Gas for talks, the gas supplier will be ConocoPhillips.

“A former US secretary of state is a member of the board of ConocoPhillips and is playing a role in helping Pakistan and Qatar reach an agreement,” a senior government official said.

Headquartered in Houston (Texas), ConocoPhillips has operations in about 30 countries and holds a 30% share in the oil and gas reserves being explored under the Qatar Gas-III project in the North Field near the Iranian border from where LNG will be supplied to Pakistan.

TAPI or IP pipeline

Iran, Turkmenistan and Qatar are three major gas suppliers in the world. In TAPI deal, participating countries have selected the Asian Development Bank (ADB) as a transaction adviser to help raise funds for the project.

Turkmenistan does not allow foreign firms to have a role in contracts for developing gas fields, but it has come up with a swap arrangement for US-based firms by offering offshore fields. Two US companies – Chevron and ExxonMobil – have been shortlisted and they are striving to win the contract worth billions of dollars for laying the TAPI pipeline.

Though the US claims that it is continuously helping Pakistan to overcome energy shortages, the tension between Iran, Saudi Arabia, US and Israel has put the IP pipeline in jeopardy.

Russia and China, which were quite interested in the project, could not lend their support. A Chinese bank backed out of financing the project because of the risk of US sanctions while Moscow’s way was blocked by political and civil bureaucracy in Pakistan.

The global powers are waging their war at the cost of gas imports by Pakistan. The government needs to stand firm and take a bold decision like the European Union, which laid a gas pipeline from Russia to meet domestic requirements despite fierce US opposition. The economy will collapse if the country’s interest is compromised by giving way to interference in its affairs by foreign countries

Without homework: Privatisation – all hype, no policy

It is unfair to expect from the new owner (of an SOE) to exercise independence and undertake risky business decisions in presence of bureaucratic gridlocks. ILLUSTRATION: JAMAL KHURSHID

ISLAMABAD: 

The current privatisation policy is business light, government heavy. I am a Nike-just-do-it privatisation person, and will argue for meaty policy reforms to boost privatisation in a transparent manner.

First things first. There is no new policy, as correctly pointed out by the opposition leader the other day. The effective regime of privatisation currently was defined in 2009, which pursuant to Pakistan Peoples Party manifesto, was protective of the ‘public’ rather than ‘private’ interests. The party stood true to its promise by devising a privatisation policy, which favoured labour unions over private investors.

The onus was on the PML-N government to start afresh and define a new privatisation policy according to its own manifesto. Instead, they started with a list of state-owned enterprises (SOEs) to be privatised without understanding, or may be without reading, that the current policy regime is actually anti-privatisation. They started on the wrong foot.

The current government manifesto, and the effective privatisation regime, does not come from the same book!

More than that, the currently operational policy guidelines of privatisation effectively suck out the appetite from investors. Consider yourself.

The guidelines, for example, make it compulsory for privatised units to reserve 12% shares for employees. As a matter of fact, this was the only part of the policy, which was implemented in the previous regime under the name of Benazir Employees Stock Option Scheme (Besos).

The total price tag of Besos comes out to be around Rs200 billion to be distributed across 78 SOEs through payment of dividend on 12% shareholding and payment of buyback claims to employees on ceasing to be employees.

In 64 SOEs, trusts have been established to implement it whereas 306,473 employees currently stand to benefit from this. Not only this, 235,855 employees have already received unit certificates. They have become legal shareholders. Now rest assured that no bidder can walk away without striking a deal with them.

It is unfair to expect from the new owner to exercise independence and undertake risky business decisions in presence of such bureaucratic gridlocks.

Brown-field investments

Another problematic policy is the exclusivity of the Privatisation Commission itself on brown-field investments. The current policy stipulates that “at the federal level the Privatisation Commission will have exclusivity to undertake brown-field PPP transactions as envisaged in the PC Ordinance 2000. Any other ministry/ department of the federal government will route its PPP transactions through the Privatisation Commission for implementation.”

Effectively, it means that if an SOE currently under the control of the Ministry of Defence Affairs, of which PIA is the most prominent, undergoes a brown-field investment through a PPP mode, it can only do so while coming under the blessings of the Privatisation Commission. Why a body established to dilute government control over business is so anxious to concentrate controls under its own feathers?

Contractually binding plan

Another big naysayer to prospective investors is the condition of submission of “contractually binding” business plans. The policy prescribes that a stringent pre-qualification structure will be put in place that will include a contractually binding business plan and provisions with regard to management, default, termination, penalties and dispute resolution.

Only a business certain of all possible future outcomes can make the folly of submitting a ‘contractually binding’ business plan as part of its bid. Every firm evolves business plans but then keeps them flexible enough to adjust to changing market demands and external shocks that may arise from competition. A privatised entity should be guaranteed independence from such contractual obligations.

A hoax

As a matter of fact, the so-called, public-friendly, labour-friendly, soft image of privatisation that the government is projecting through its statements is a hoax. Privatisation is transfer of ownership of assets from the government to the private hands. Full stop.

While that should indeed be the case, the government should be ready to take the blame of brutal effects which it will inevitably bring and prepare everyone for the consequences. Possible loss of jobs is just one of them. Asset stripping of the firms, whose only value is land, is another. These are all necessary, painful consequences as we move towards serious reforms.

That the government can appease both its voters, and its political opponents, is a very costly, self-deceiving spin. It is time to work on the desk.

The new Privatisation Commission has a herculean mission ahead. It is frustrating to see it has not even defined a friendly, predictable and clear roadmap for itself.

The writer is executive director of PRIME, an independent free market economy think tank based in Islamabad

Investor confidence: Swedish fund to open research office in Pakistan

Tundra’s investment in the Pakistani stock market posted a net return of 9.7% in Swedish Krona (SEK) in January against the benchmark MSCI Pakistan net return of 2.6% (SEK) in the same month. PHOTO: FILE

Notwithstanding headlines about the imminent collapse of Pakistan’s economy, it is hard to ignore international investors while they laugh all the way to the bank  simply by putting their money to work in the country’s booming capital market.

The latest affirmation of Pakistan’s potential to generate high returns for global equity investors has come from an unlikely place: Stockholm, Sweden.

One of the fastest growing asset management companies in the world, Sweden-based Tundra Fonder, has decided to open a permanent research office in Pakistan in the first quarter of 2014.

Tundra is no stranger to Pakistan’s equity market. Of its total assets under management, it has already invested about $100 million in Pakistan.

“Changing the perception of Pakistan in the eyes of international investors will be a gradual process. Pakistani corporate (entities) have shown one of the highest average returns on equity (ROE) across emerging and frontier markets in the last 10 years,” said Muhammad Shamoon Tariq, who is part of Tundra’s portfolio management team and will serve as the head of its Pakistan office.

Speaking to The Express Tribune in a recent interview, Tariq said an early resolution of the energy crisis combined with moderation in international relations, traditional democracy taking root in the country and long-term policy making can make Pakistan a ‘breakout nation’ in the next decade.

Tundra currently manages six funds with a focus on frontier and emerging markets. Out of $100 million currently invested in approximately 40 companies listed on the Karachi Stock Exchange (KSE), its Pakistan-dedicated fund has assets of approximately $70 million, Tariq said.

“This makes up approximately 1% of the free-float of the KSE. Our Pakistan-dedicated fund is the largest international fund of its type – three times larger than the London-listed exchange traded fund (ETF) and one of the four largest mutual funds in Pakistan,” Tariq noted.

The money invested in Tundra’s funds comes 100% from European clients, a majority of them hailing from Sweden, according to Tariq.

“Our funds are open to anyone who likes to invest though. We have not actively marketed ourselves outside Scandinavia at this stage, but we see an increasing interest from non-European investors now,” he said.

Recruitments

Tundra currently boasts a team of five fund managers and analysts. Two analysts will be hired in coming months, Tariq said, adding three people will be based in Karachi to cover Pakistan and the frontier markets initially.

“We hope to grow further in Pakistan. It has a large pool of skilled and ambitious people within its financial sector that makes the country a natural recruitment place for Tundra,” he observed.

Returns

Tundra’s Pakistan-dedicated fund posted a net return of 9.7% in Swedish krona (SEK) in January against the benchmark MSCI Pakistan net return of 2.6% (SEK) in the same month. The fund was launched in October 2011 and has posted a return of 83.9% since then in contrast with the benchmark return of 57.2% over the same period.

The one-year return of the Pakistan-dedicated fund has been 59.4% as opposed to the benchmark return of 38%.

“We believe foreign funds will ultimately realise the underlying factors, such as a young population, stabilising democracy, geopolitical location and bottom-line growth in Pakistan,” Tariq said, while referring to the fact that the KSE is still trading at a price-to-earnings (P/E) multiple of nine times, which is much lower than the average P/E of 12 to 13 times for the frontier and emerging markets.

Fruit Logistica-2014: 13 Pakistani companies take part in Berlin fair

“Pakistani exporters should give due importance to fruit processing and packaging for longer preservation of perishable products,” Basit said. PHOTO: FILE

BERLIN: 

As many as 13 Pakistani companies participated in the world’s leading fresh produce trade fair, Fruit Logistica-2014, in Berlin, Germany.

The exhibitors were optimistic about a substantial increase in export of fresh produce from Pakistan as they established contacts with the international buyers of fruit and vegetable products.

Pakistan Ambassador to Germany Abdul Basit, while speaking on the occasion, said buyers from Russia had shown keen interest in Pakistani potatoes whereas mangoes had made inroads into the EU market with an increase in shelf life through better processing technology.

“Pakistani exporters should give due importance to fruit processing and packaging for longer preservation of perishable products,” Basit said.

He urged the traders to spend sufficient amount of their income on research and development, which was essential to keep pace with the ever-changing market trends

Trade development: Search for business prospects in S Africa

Room to grow: $280m is the value of Pakistan’s exports to South Africa in 2012.

RAWALPINDI: 

A trade delegation of the Rawalpindi Chamber of Commerce and Industry (RCCI) is currently on its maiden visit to South Africa, with an aim to study the market for business prospects and to make initial assessments for holding a single-country exhibition.

This will be the first single-country exhibition of Pakistan in South Africa.

The delegation, led by former RCCI president Kashif Shabbir, held meetings with the South African business community to ascertain the market potential and prospects for export of Pakistani products to the African continent.

South Africa, which is the largest trading partner of Pakistan in Africa, has the biggest economy in the continent with gross domestic product (GDP) of $390 billion and trade volume of $210 billion.

South Africa, which is termed the gateway to Africa, imported goods worth $280 million from Pakistan in 2012, while its total imports were $106 billion during the same period.

Pakistan’s exports to South Africa were on the rise and had registered a growth of 7% in 2012-13, the meeting participants noted.

During the visit, the RCCI will hold meetings with the South African Chamber of Commerce and Industry and Cape Town Chamber of Commerce and Industry to explore avenues of mutual collaboration. The delegation will also visit different venues to finalise arrangements for the exhibition.

Theft control: California leaders push for ‘kill switch

“We require the cell-phone industry to take the necessary steps to curb violent smartphone thefts and protect the safety of the consumers,” he added. PHOTO: FILE

SAN FRANSISCO: 

Californian leaders want to make it compulsory for smartphones or tablets sold in the state to have built-in “kill switches” to counter the rocketing number of thefts of the devices.

Sponsors called the bill the first of its kind in the United States, where opponents fear that it may allow hackers to shut down people’s devices.

 “With robberies of smartphones reaching an all-time high, California cannot continue to stand by when a solution to the problem is readily available,” said Leno, a democrat representing San Francisco.

“We require the cell-phone industry to take the necessary steps to curb violent smartphone thefts and protect the safety of the consumers,” he added.

”The bill will be introduced within a few months.”

More than half of robberies in San Francisco involve mobile devices, according to Leno’s office.