profitepaper pakistantoday 22nd april, 2012

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Earnings, Fed to prove sceptics wrong Page 02

Sunday, 22 April, 2012


Pipeline bargaining





ecent spell of rains, hail and wind storm have caused heavy loss to wheat, canola, gram and sunflower crops in the country though it has also provided some benefit to the sugarcane crop. this was claimed by the Agri Forum Pakistan chairman Muhammad Ibrahim Mughal while talking to media persons here on Saturday. He claimed that the recent spell of rains has also devastated cotton crop over 25,000 to 30,000 acres of land and farmers have to sow their land again. He claimed that recent spell of rains has devastated around 1.3 million maund of wheat, 200,000 maund of canola, 50,000 maund of gram and 15,000 maund of sunflower crop. Mughal said that meteorological department has predicted rains at the end of the March, which would have been proved

couple of things clearly stand out about Islamabad’s election year policy. First, its surprise trade and investment outreach, engaging major emerging market players in the broader Asia-Pacific region just when the revenue situation became alarming. Second, its commitment to the Pak-Iran pipeline, despite severe international pressure. And now that Pakistan’s role in getting India and Afghanistan to settle outstanding tAPI issues is becoming clear, so is Islamabad’s emerging commitment to finalising the region’s principal pipeline grid, and getting a handle on the energy problem. Further, the petroleum minister’s confidence regarding the IP line’s financing clearly shows negotiations with the Russians are progressing smoothly, if they haven’t been settled already, and Gazprom will bring its muscle here sooner rather than later. (the delay on the Pakistani side is known to all, mandating immediate movement). Progress on tAPI, and Kabul and new Delhi’s price agreement, also enables Islamabad to bargain down eventual IP cost, a contractual feature that allows influence from exogenous price movements. expected $1 billion in saving will no doubt benefit the sector, plagued as it is with debt and corruption. Appreciated as recent moves are, the advances do seem to occur more on the international side, with our own homegrown problems still lingering. the billion odd in savings matters all the more now because our domestic fiscal situation is so badly compromised, and that too mostly owing to unnecessary factors that are perhaps the easiest to arrest, provided there is a measure of political will. extra trade and investment, as well as smoother energy supplies, will bring multiple benefits for

beneficial for all the Rabi crops, but unfortunately these delayed and landed in mid of April. these rains not only delayed the harvesting of Rabi crops but also delayed the sowing of Khareef crops including cotton. While growers had to sow their land again in areas where cotton had already been planted causing of loss of millions of rupees to the growers, he added. He claimed that cotton this year would be sown on an area of 8.5 million acres and rice on an area of 6 million acres. While sugarcane would be sown on an area of 2.6 million acres of land, he added. Agri Forum Pakistan chairman advised the government to help the growers who had suffered loss due to recent spell of rains and bring down the prices of fertilizers to half and exempt agricultural tube wells from load shedding so as to ensure timely sowing of khareef crops as 80 per cent of the exports from Pakistan also rely on two important khareef crops namely rice and cotton.

And so they emerged… g

Emerging powers ready to give IMF billions WASHINGTON



uSSIA said that G20 advanced and emerging countries were ready at a meeting on Friday to commit enough new funds to fulfill IMF chief christine Lagarde’s request for at least $400 billion to draw a line under the euro-zone crisis. Russia itself, he said, would offer $10 billion. “trust me that the G20 will announce the final amount. this will be an amount that will satisfy the management of the International Monetary Fund,” said Sergei Storchak, Russia’s deputy finance minister. Support from Russia, china and Brazil is crucial to achieve the doubling of the IMF’s war chest the global lender is seeking. europe and Japan already have pledged $320 billion. An international diplomat said that in all,

emerging nations have lined up at least $100 billion. the IMF has warned that the euro zone’s debt crisis presents the gravest risk to the global economic expansion, and financial markets worry that Spain and Italy may next require bailouts, following Greece, Ireland and Portugal. enlarging the IMF’s coffers could offer solace to nervous investors that any widening of the crisis could be contained. Lagarde said on thursday she expects to seal a deal on fresh funds at the World Bank/IMF meetings this weekend. But Brazil said that as a condition for funds, emerging powers want fresh pledges to recognize their fast-growing global economic weight written into the G20 communique. they are frustrated over delays - particularly by the united States in implementing an agreement to lessen europe’s sway at the IMF and lift china into the no. 3 voting slot. “What we want and

demand in every meeting is that this commitment be reaffirmed,” Brazilian Finance Minister Guido Mantega said thursday after a meeting of officials from the so-called BRIcS nations - Brazil, Russia, India, china and South Africa. Mantega drove the point even more forcefully in a speech prepared for delivery on Saturday to the IMF’s steering committee, saying it was no longer enough to simply repeat that voting reforms are crucial for the effectiveness of the IMF. “Progress on this front has been limited and slow,” he will say, according to the text. canada, meanwhile, is pushing against europe’s dominance on the IMF’s 24-member board. It wants to hold two votes when the IMF decides on how to use its new resources - one by euro zone countries and another by others. the idea would be to dilute

europe’s power on euro-zone-related issues. this drive reflects growing concern among non-european countries over the fairness in the global lender’s dealings with europe. the region has the largest single bloc on the IMF board and the Fund is headed by a French woman. “Given that the major challenge here is a sovereign debt challenge in euro-zone countries, and that euro-zone countries are asking non eurozone countries to contribute to resources at the IMF, our view is that there ought to be two votes,” said canadian Finance Minister Jim Flaherty. He has gained a sympathetic ear, South Korean Finance Minister Bahk Jae-wan, who said: “their recommendation merits some consideration.” Still, funds were

near to being sealed. the international diplomat said some countries may need to get final approval from their capitols, so any firm deal may have to await a meeting of G20 leaders set for June and that final sums remained unclear. china could contribute $60 billion, matching Japan’s pledge, although Beijing had not finalized the number. Saudi Arabia would chip in a little less than china, while Russia and Brazil were likely to contribute between $10 billion and $20 billion each, the diplomat said. this would easily reach the marker of at least $400 billion set by Lagarde. the firewall would complement the $1 trillion in emergency funds for europe agreed upon by the eu leaders last month, which was another precondition for countries bolstering the IMF resources.

Major emerging powers stood ready to pledge money to bolster the International Monetary Fund’s crisis-fighting war chest, though Brazil was holding out for promises that their voting power at the global lender would increase

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Sunday, 22 April, 2012

02 news Earnings, Fed to prove sceptics wrong

It’S cRUncH tIME

Global warning WB warns of credit crunch in the European and central Asian nations g

After a strong first quarter, Wall Street has got a case of the jitters






spike in bond yields has brought europe’s debt crisis back to the forefront. u.S. economic figures point to steady-but-uninspired growth, and stocks have backed off the sharp gains that recently pushed indexes to near four-year highs. Stocks returned a bit to their winning track this week after strong earnings reports, and investors are waiting to see if more positive surprises from u.S. companies are in store. nearly 180 of the S&P 500’s components will report earnings next week, and heading into a seasonally weak period, the market will need strong reports to offset the perception that there’s no more room to rally. “It is very encouraging that the majority of the news flow is about earnings rather than europe,” said Leo Grohowski, who oversees about $171 billion in client assets as chief investment officer at BnY Mellon Wealth Management in new York. earnings are “alleviating our concerns about economic growth and making us feel more comfortable about our estimates for the year.” next week will see earnings releases from several bellwethers. the most important will likely be Apple Inc (AAPL.O), which reports after the market close on tuesday. While the largest u.S. company by market capitalization has a history of blowout quarters, many say the company’s meteoric rise so far this year has created unrealistic expectations. For the first time since December 2008, the stock fell more than 4 percent in back-to-back weeks. Analysts see double-digit earnings growth for the S&P’s financial and consumer discretionary sectors in 2012, with industrials close behind. All three are cyclical growth sectors, while sectors that tend to lead at the end of a growth cycle and before corrections are expected to slow.

Still, worries remain about europe, where bond yields have been rising to ominous levels. And with investors skeptical of the S&P’s nearly 30-percent surge since its October low, the “sell in May, go away” adage could prove prophetic. A trend of buying into the market’s weakness was recently broken, indicating investors might be ready to capitulate. the S&P has closed near its lows on recent down days, while positive sessions have ended well below their highs. “We don’t see the type of buying that will cause the market to slow its pullback,” said Joseph Greco, managing director at Meridian equity Partners in new York. “there’s no conviction buying.” PULLBACK DONE OR SEASONALITY IN PLAY? chart watchers are starting to bet the S&P 500 is about to pull a repeat performance of 2010 and 2011, when a midyear pullback followed an April peak, and that smart investors are selling u.S. stocks after highs reached earlier in the month. “Seasonality is important, and it does make a discernable pattern. You can follow it, but it can also make you look foolish if you hew to it too

closely,” said David Joy, chief market strategist at Ameriprise Financial in Boston, where he helps oversee $571 billion in assets. “the economy is on a better footing now than last year or at any time since the start of the recovery,” he said. the early 2011 market rally faded after a massive earthquake and tsunami in Japan, which has the world’s third-largest economy. And after a large drop triggered by the downgrade of the u.S. credit rating, the S&P rallied to close the year flat. “It isn’t a stretch to say the downgrade won’t happen again this year, or that the number of exogenous shocks will be fewer,” said Andrew Slimmon, managing director of global investment solutions at Morgan Stanley Smith Barney in chicago.“In addition, the result of those shocks was a fear that the economy was going to slip back into recession. I don’t believe that’s the case this year.” Kenneth Fisher, the billionaire investor who oversees $43 billion at Woodside, californiabased Fisher Investments Inc, said the current economic environment was “as beautiful as I have ever seen it,” and that 2012 would be “a super big year” for equities.

So far, with 23 percent of S&P 500 companies having reported results, more than four-fifths have beaten expectations, topping consensus forecasts with an average surprise factor of 8.8 percent. Profit growth in this quarter has been up 6.2 percent, according to thomson Reuters Proprietary Research. FED MEETING LOOMS: tuesday will see the start of another policy-setting meeting of the u.S. central bank’s Federal Open Market committee. A slowly improving u.S. jobs market and reasonably solid growth at the start of the year brightened the economic outlook and cut chances the Fed will conduct another round of bond purchases, according to a Reuters poll last week. With the Fed monitoring a healing but still fragile economy, the statement expected on Wednesday will be closely watched by investors. “When you have a market dominated by what central bankers are doing and saying, it is risky to be out,” said Quincy Krosby, market strategist with Prudential Financial in newark new Jersey. “nobody wants to wake up to learn that there was a big move.”

And now Spain It’s déjà vu all over again as Spain writes another sorry chapter in the European debt saga KUNWAR KHULDUNE SHAHID


nD so another one bites the dust – or at least edges closer to doing so. Spain, the fourth largest economy in the eurozone is on the brink of writing another sorry chapter in the european debt saga and the pundits are opining that it was only a matter of time. the first quarter of 2012 is filled with wretched numbers for any concerned Spaniard or an economist who has been working on the fiscal drawing boards to conjure up a long lasting solution for the european debt crisis. the unemployment rate in Spain is increasing at the rate of knots; and as things stand, almost one in every four Spaniard – 22.9 percent to be exact – is unemployed. Oh and it gets worse; the unemployment beast has its claw firmly around the youth’s neck with half of the future of the country hankering after non-existing jobs. Historically, construction and housing was the go-to play for Spanish economy, when in a fix, and it is pretty evident that it has not managed to

stand up on its feet ever since the sector took a nosedive in 2007. exports have never been Spain’s forte and hence, any amount of tourist money or local consumption is a false dawn for lasting growth. Another dagger in Spain’s emptying wallet has surfaced courtesy the rising deficit of the autonomous regions. It’s almost as if the Spanish government is paying no heed to the menace, which if one were to be honest is the logical corollary of its frivolous spending. In a fit of desperation the central government is now vying to conjure up a law that would enhance its control over the regions, citing the towering debts and the plunging deficits of the aforementioned regions. the numbers for Spain are not has desolate as those of Greece – which doesn’t say much really – but the Spanish banks are indebted up to their nose, and are running out of breathing space with escalating pace. cue the clamour of default. europe has for long been playing for time. Instead of vying to root out the problem, however impossible it

might’ve had been, the europeans have just satisfied themselves by extending the inevitable. the officials have held the currency and the block together for a while now, owing mostly to the european central Bank (ecB) buying both bank bonds and government bonds. the crux of the matter, as expounded by economic connoisseurs is that europe as a whole isn’t exactly as desolate as some of its individual units are. this undoubtedly brings the unity of the eurozone under scrutiny, for the simple fact that if a particular American state were to hypothetically be in a Greece-esque quagmire, there wouldn’t exactly be a white flag anywhere in the uS. this puts the whole “united States of europe” clamour peddled by the eurozone under scrutiny. now this spring and undoubtedly the coming summer, Spain would be at the forefront of this soap opera. the ecB could both be the protagonist or indeed the antagonist of this drama and only time will tell which end the european bank ends up hogging.

He World Bank (WB) on Saturday warned of the risk of a credit crunch in the european and central Asian nations due to exposure to Western banks. “the region is going to witness a slowing down of the recovery, and this is obviously because a large part of the region is very vulnerable to the negative growth prospects in the euro zone,” Philippe Le Houerou, the World Bank’s vice president for the european and central Asian region, said during a briefing. the region, which includes 30 countries and stretches from Poland and the Balkans through ukraine and Russia to the post-Soviet republics in central Asia, has strong trade and financial linkages with the euro zone, which helped it grow in the 2000-2008 period. economic expansion in the region is to ease to 3.4 percent this year, from 5.5 percent in 2011 one of the slowest expansions of any developing region, Le Houerou said. “there is a pattern that’s emerged, and again the pattern is pretty consistent with the overall macro story, which is the countries that will see the sharpest slowdown of the recovery would be again the eastern europeans and the Balkans,” he said. turkey is likely to suffer the biggest slowdown in

gross domestic product growth to 2.9 percent this year from 8 percent in 2011. ukraine’s GDP growth is expected to ease to 2.5 percent from 5.2 percent last year. the region also faces risks of a credit crunch, Le Houerou said, as a result of the financial integration of the region with banks in some of the troubled euro zone economies. “now we have a legacy where the Western banks are now facing pressures at home, facing pressure to reducing the lending at home and in the emerging markets and there is a risk of credit crunch in the ecA region,” he said. Greek and Italian banks own about 60 percent of Bulgaria’s total banking system assets and more than a third of Albania’s, according to the World Bank. nearly half of croatia’s banking assets belong to Italian banks. “When Western european banks come under pressure then the credit crunch on the region may become a reality,” Le Houerou said. He also urged governments of the region to take fiscal and financial steps to ensure growth. But because many state coffers in the region have been depleted in recent years, he said, there has been a big increase in fiscal deficit and correspondingly, a spike in the public debt. “now, the key issue is - there is a slowing down, there is a difficult external context; there is now not much room for further stimulus through public spending,” he said.

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Sunday, 22 April, 2012

news DIPLoMAtIc GAStRonoMY


McDonald’s shareholders are lovin’ it: nearly 5pc profit increase

our fiscal cuisine needs chinese flavour


Ambassador Masood Khan briefs PM about Pak-china economic cooperation g china interested in growing its solar energy industry in Pakistan g Axiom Bank of china to extend confessional credit for water conservation, irrigation projects



AKIStAn’S Ambassador to china Masood Khan called on Prime Minister Syed Yusuf Raza Gilani at Prime Minister’s House on Saturday and briefed him about Pak-china economic cooperation. the ambassador briefed the Prime Minister especially following his recent visit to china in connection with Boao conference where he had useful meetings with china’s executive Vice Premier, Li Keqiang, and several corporate leaders. About the progress regarding the investment by the growing chinese solar energy industry in Pakistan, the ambassador said that top chinese entrepreneurs would visit Pakistan next month to explore and expand solar energy cooperation between the two countries. It may be mentioned that the Prime Minister in his recent visit invited the influential chinese solar energy entrepreneurs to invest in Pakistan. the Prime Minister expressed satisfaction that the decisions regarding the energy projects taken during his visit to china were being implemented swiftly by the two sides. During his recent visit to china the Prime Min-

ister asked the chinese leadership and the Axiom Bank of china to extend confessional credit for small and medium size dams, water conservancy and irrigation projects in Pakistan. these projects will also create jobs opportunities and alleviate poverty especially in the rural areas of the country. A credit line of $ 700 million covers these projects. credit for other energy projects is also being fast-tracked. Ambassador Masood Khan apprised the Prime Minister about the preparations being made by the two sides to hold the second session of Joint energy Working Group (JeWG) in Islamabad in the second week of May, 2012. In December 2010, during the visit of the chinese Premier, Wen Jiabao, to Pakistan, both sides decided to set up the JeWG which held its inaugural session in Beijng in August, 2011. the mechanism of the JeWG covers energy projects in conventional and alternate sectors.


A game of digits FBR vying to bring sales tax down to single digits g coming budget to be ‘people friendly’ g LtBA president thinks long-term planning beats short-term planning any day g




eDeRAL Board of Revenue (FBR) Member Inland Revenue Shahid Hussein Asad has said that efforts are being made to bring down sales tax to single digit in next few years. It is being considered to exempt annual income up to 350,000 per annum from the income tax. these views were expressed by him while speaking at a pre-budget seminar arranged by the Lahore tax Bar Association (LtBA) at the Regional tax Office (RtO) here on Saturday. LtBA President Zahid Attiq chaudhry, Joint Secretary naeem Khan, former presidents naeem Shah, Zia Haider Rizvi, Farhan Shahzad and other senior lawyers were present on this occasion. Member Inland Revenue said that the coming budget would be a people friendly budget and instead of putting extra burden on taxpayers new taxpayers would be brought under tax net. He claimed that instead of levying new taxes ratio of existing taxes would be brought down in the coming budget. He said that national tax number (ntn) must be issued within 72 hours but issuing of sales tax require verifications so it get more time than issuance of ntn. He said that most of the budget proposals presented by the Bar had been

approved while as far as bringing down the sales tax ratio is considered, he was serious to bring it down to single digit in next few years. Shahid Hussein Asad said that Pakistan was passing through a crucial juncture. He said that FBR was collecting around Rs 1952 billion at present out of which Rs 900 billion was spent on debt servicing, which should had been spent on social welfare and uplifting of common man. He termed tax as dividend of economy and said that a strong economy could give better dividend so the government should take steps to improve the economy. Drawing the attention of the office-bearers of the tax bar, he said that almost all the proposals sent by the Bar had been approved as most of these were also forwarded by different chambers, IcAP and other business organizations. He said that increase in tax base is a joint venture of the FBR and tax Bar and urged the Lahore tax Bar Association President Zahid Attique chaudhry to play their role in national development. earlier speaking on this occasion LtBA President Zahid Attique chaudhry said that short term policies to increase revenue should be abolished and the Board should adopt a longterm policy. He also called for taking steps to increase trust between the taxpayer and tax collectors. He said that audit cases should be selected on solid evidences.


He McDonald’s fast-food empire reported a “fat” 4.8% increase in profit in the first quarter of 2012. McDonald’s profit increased to $1.27 billion or $1.23/share. Last year at this time, the world’s largest restaurant chain reported profit at $1.21 billion and $1.15 share. McDonald’s operates about 33,000 outlets around the world. Although franchises already seem to be everywhere, the chain plans to open 1,500 new stores this year and plans to remodel thousands more. this is “earnings season,” as corporations of all kinds release their quarterly financial statements. Why does McDonald’s continue to be successful in the crowded fastfood marketplace? According to the Wall Street Journal, McDonald’s ” has been able to boost guest traffic and sales faster than most of its competitors with its increasingly diverse menu…and its growing global operations. ” A Wall Street analyst cited by Bloomberg claims




that “McDonald’s is taking market share just because their restaurants are more up-to-date, more modern and cleaner” than other burger chains. chicken McBites and other new menu items are said to have contributed to the climbing profits. changes in corporate leadership are coming too, with a new ceO and cFO taking over later this year. current ceO Jim Skinner is retiring in July after 41 years with McDonald’s, and eight years at the top job. the fact that you can’t turn on the tV or radio without encountering a McDonald’s commercial doesn’t hurt either, but does anyone find this advertising overkill annoying? the company continues to push forward despite warnings about the obesity epidemic and while the u.S. economy is still weak. McDonald’s and other chains have tweaked their menus somewhat to apparently make the food more health friendly. McDonald’s serves 56 million customers each day and employs 1.6 million people around the world in corporate and restaurant positions.


Govt approves Rs 12.5b hydel project at Lawi 70 MW project approved at Lawi g Project to cater to power shortage needs, work to start soon g 2,000 jobs provided at chitral g



HYBeR Pakhtunkhwa Minister for Population Welfare, Salim Khan said that government has approved 70 MW hydel project at Lawi while work on two more power generation projects would start from this year to address the issues of energy crises in the province. He expressed these views in inauguration ceremony of newly constructed Government High School at taar on Saturday. He said that work on Rs 12.5 billion Lawi hydel project would start soon to resolve the issues of power shortage and low voltage in the area. Salim Khan said that government has accomplished record development work during four years including chitral by pass road, chitral town Water Supply Scheme, Daroosh Water supply,

District Headquarters Hospital up gradation and expansion of chitra-Shagoor Road which is a depiction of our commitment to address the basic issues of area people. the minister said that more than 2000 people of chitral were provided jobs while Rs 1.8 billion agriculture and business loan have been waved off that would directly affect common man and help ameliorating socio-economic conditions of people. Provincial Minister said that education is the priority of the government and two university campuses, two degree colleges, four higher secondary schools and various middle and primary schools have been constructed to provide facility of education to people at their doorsteps. Present on the occasion large number of people reposed confidence on leadership of the minister and announced joining PPP with friends and families.


LccI has a Dutch uncle Senior experts from netherlands give their input on capacity, production g PUM here to promote entrepreneurship, self-sufficiency and sustainable development of small and medium-sized enterprise g




utcH senior experts are ready to help Pak businesses cope with capacity and production-related challenges as economy of this resource-rich country is in shambles only because on non-availability of up-to-date information. this was stated by Senior Dutch expert Sjaak Vink, PuM country coordinator for Pakistan and Afghanistan, while talking to LccI President Irfan Qaiser Sheikh on Saturday. LccI Senior Vice President Kashif Younis Meher, executive committee Members Shoaib Zahid Malik, Rehman Aziz chan, Fahimur Rehman Saigol, ch Wajid Ali and Waqar Ahmad Mian also spoke on the occasion. Sjaak Vink, who was heading a three-member comprising PuM local representative Asim Qadri and Rizwan Razi, said that PuM netherlands is a non-profit

organisation, which has been advising businesses in developing countries and emerging markets for over thirty years. He said that the PuM links these businesses, at their own request, to Dutch professionals who voluntarily devote their considerable experience to creating a better world. He said that the PuM promotes entrepreneurship, selfsufficiency and the sustainable development of small and medium-sized enterprise locally. the Dutch expert said that by allowing these professionals to execute short-term, solid consultancy projects on the workfloor, businesses can establish sufficient knowledge to develop into a growth engine for the local economy. this benefits both employment and the sustainable economic development of the region. He said that the PuM has a network comprising some 3,200 volunteers, which executes over 2,000 projects worldwide on an

annual basis. Speaking on the occasion, the LccI President Irfan Qaiser Sheikh said that businesses in Pakistan are facing multiple internal and external challenges and it is a good omen for the country that senior experts from the netherlands have shown their interest to extend cooperation. He said that the Lahore chamber of commerce and Industry would extend every possible cooperation to the Dutch senior experts on their arrival in Pakistan. Irfan Qaiser Sheikh said that Pakistan’s industry is facing a serious knowledge gap and that could be fulfilled with the help of Dutch Senior experts, who can impart training to trainers in Pakistan. the LccI President said that sector specific experts could do a lot for the revival of Pak economy as a self-sufficient business sector is beneficial to both the development of any country and that of the global economy.