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Volume - 2 Issue - XVII September - 2012 Price: PKR -150
23-24. ‘Fair elections: are they possible?
25-26. Judiciary-Executive standoff - are we heading towards a point of no return?
18. Unity, faith, discipline: the trampled values
17-21 September 1965 war: the turning point Unity, faith, discipline: the trampled values SBP monetary policy: a late but correct initiative Of crop exports during a drought More time (yet again) for the PM to act
40. The Libor fiasco, its aftermath and lessons
23-28 Fair elections: are they possible? Judiciary-Executive standoff - are we heading towards a point of no return? Scenarios: post-US-Nato Afghanistan
45-47. Green Energy
29-36 Rate cuts aren’t enough, more is needed Shining India: how true is that? The looming energy crisis Drought and its impact on key crops and prices: A global perspective Indo-Pak trade: India’s clever-by-half approach
TRADE & INDUSTRY 31. Shining India: how true is that?
CONTRIBUTORS Mr Tariq Iqbal Khan Mr Rauf Nizamani Mr Tahir Rauf Mr Ferozeali Hussaini Ms Soha Ahmed Ms Raeda Latif Mr Ayub H. Ansari Dr Aameer Mian Ms Naila Aman Khan
37-39 Preventing terrorism via cell phone – is blocking the service a palliative? Apple Inc. won the patent war against Samsung
51-52. Corporate farming and its impact on small farmers and the economy
40-44 The Libor fiasco, its aftermath and lessons The baffling StanChart affair Consumer loaning: should it dry up? Banking sector’s profitability
FICTION
Green Energy
45-47
51-52 Corporate farming and its impact on small farmers and the economy
LEGEND
53-54 Agha Hassan Abedi: a human par excellence
EDUCATION & TRAINING
58-59 Operational Risk Management in Banks
62-63
The Writhing Tail
11-14 15-16 48 49-50 55 56 60-61 64-65 66-67 68 69-70 73-74
Global & National Briefs Voice of Industry - In brief Quotes Regulatory Compliance Monthly Stock Market Review Monthly Commodity Review Events Science & Technology Travel & Tourism History Sports Your Horoscope - September 2012
PUBLISHED BY Fatima Khalid Publications (Pvt) Limited, Room No. 612, 6th Floor, Clifton Center, Khayaban-e-Roomi, Clifton, Karachi. Email - ask@valuechain.com.pk Ph: 021-35293371-72 Website: www.valuechainmagazine.com Disclaimer: The views expressed by the writers do not necessarily reflect those of the magazine or its editorial staff.
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Editor’s note
Editor’s note Defence Day of Pakistan
Observance of the Defence Day on the 6th of September every year takes our memory back to 1965 when Pakistan’s valiant armed forces and the nation as a whole successfully repelled the aggression thrust upon us. During the war, while the armed forces fought bravely and offerred precious sacrifices, the nation stood behind them like a solid rock - united, disciplined, dedicated and infused with the spirit to defend every inch of the motherland. The 17-day war fought between Pakistan and India resulted into huge losses, the after-effects of which are still being felt, but the homeland was successfully defended shattering the enemy dreams to have a victory drink in Lahore. While observing the defence day the same zeal, spirit and unity needs to be imbibed and implemented in letter and spirit. Pakistan's post-independence history has been characterised by periods of military rule, political and economic instability and conflicts with neighbouring India. Pakistan and India have had strained relationship ever since they emerged as sovereign independent nations in 1947. Although the two South Asian nations did establish diplomatic relations soon after their independence but these relations were overshadowed by numerous territorial disputes and the violent events that followed. The relations between India and Pakistan continued to be plagued by hostility and trust deficits. As a result, the two countries went into three major wars, besides being involved in numerous armed skirmishes and military standoffs, Kashmir being the focal point of all of these conflicts with the exception of the events of 1971, which resulted in the secession of East Pakistan, now known as Bangladesh. The War of 1965 was the culmination of the skirmishes that took place between April 1965 and September 1965 between Pakistan and India and seeminlgy a practical manifestation of an earlier announcement of the then Prime Minister of India, Lal Bahadur Shastri, ‘that India will fight against Pakistan on a front of its own choice,’ that on the 6th of September 1965, the Indian forces, without a formal declaration of war, launched an attack on Pakistan across the international border. It was a three-pronged offensive by the Indian forces against Lahore, Sialkot and Rajasthan. However, the vigilant and valiant armed forces of Pakistan, backed by the spirited, united and disciplined nation, put up unprecedented defence and countered the aggression, despite being much smaller in number, and thus wrote a glorious chapter of bravery in the history of wars. At a time when the world, especially the developing world, is passing through a difficult phase of its history because of political turmoil, economic instability, insurgencies, terror attacks, bomb blasts, killings and events of the sort, it is important that steps are taken to bring in harmony and peace in mutual relationships. In the context of India-Pakistan relationship, some efforts were made in the past—notably, the Shimla summit, the Agra summit and the Lahore summit. However, the fruitful impact thereof was neutralized by the events like the Siachen conflict, Indian and Pakistani nuclear tests in 1998 and the 1999 Kargil war. Certain confidence-building measures — such as the 2003 ceasefire agreement and the Delhi–Lahore Bus service — helped in deescalating tensions but those efforts were also impeded by periodic terrorist attacks such as the attack on the Indian Parliament, 2007 Samjhauta Express bombings, which killed 68 civilians (most of whom were Pakistanis) and the 2008 Mumbai attacks. These events dealt a severe blow to the India-Pakistan peace initiatives. Seen in this context, the steps taken in the recent past for enhancing bilateral trade and improving mutual relations are welcome moves. One hopes that these efforts have been made in real earnest and will succeed in producing positive results. The Indo-Pak relations apart, Pakistan is exposed to other equally important issues, both internally and externally - on political, social and economic fronts. They need to be addressed with a sense of urgency.
L etters to the Editor
The looming food crisis Sir, the latest predictions about drought in America, Russia, India, Ukraine, Pakistan, and several other countries suggest that a major food crisis is in the making because all these countries are exporters of food to the rest of the world. The overall crop shortfall in these major food exporting countries may be as high as 20%, which implies food shortages across the world in food items would include wheat, rice, corn, barley and sugar. In this developing scenario would Pakistan be right in exporting its current surplus at below the international market prices as being done by the Trading Corp., and the Ministry of Trade & Commerce? Inamullah Khan Faisalabad Sir, the Meteorological Department has let us down badly by first predicting monsoon rainfall to be in excess of its level witnessed last year and now predicting a drought. According to the department’s latest guess rainfall in southern Pakistan could be 40% below normal and in the north 20% below normal. In this scenario, how is Pakistan planning to meet the food deficit that is now more than certain? There has been no policy statement on how this crisis will be confronted, which foretells food riots. Nadeem Ahmed Karachi Power load-shedding in for a rise Sir, besides the highly likely food shortages as a consequence of the drought, the other worrying aspect is that the water reservoirs of Pakistan too will not be filled to their full capacity. Hence, they will not generate the quantum of electricity that they could in spite of their technological limitations that expand every year because of aging of their power generation equipment, which is not being replaced.
Doesn’t this scenario foretell even higher power load-shedding and crippling of the business and industry and consequent rise in unemployment? Is anyone in the many state offices bothered about what and where are we headed for? I fail to understand what are the priorities of this lot– the state officeholders – the lot that calls itself ‘supreme’. So far, the only respect in which this lot has been supreme is wrecking the economy of Pakistan. A. Shahid Karachi Sir, the water shortage, the country is going to witness, will not allow generation of hydro electricity to the extent to which it is possible despite the limitation of the outdated power generation plants at both Tarbela and Mangla dams. This deficit will force diversion of larger quantities of natural gas to the electricity generation sector. How will the sectors dependent on natural gas face up to gas shortages? The sectors most likely to be hit are fertilizer and industry but the real crisis will be in the CNG sector. What is the government’s plan to meet this crisis without triggering more of unrest on the streets? Sadly, the in-power regime’s sole concern is completing its term, nothing else. Mansoor Ahmed Raja Lahore Unfulfilled promises in power sector Sir, I totally agree with Mr Nazim Ali (Value Chain July Ed.) that chaos–power load shedding and resultant job lossescrippling almost every industrial town in Punjab, is intended to use this chaos to blame PML-N for bad management of the province in the next elections. But the fact is that people can no longer be taken for a ride; now they all know the truth, courtesy the many TV channels in Pakistan. The coalition government cannot push under the carpet the fact that, until the passage of the 18th constitutional amendment provision of electric power was the federation’s responsibility that it messed up beyond redemption by any province. Passing the blame on to the provinces is a clever-by-half trick that is bound to hit back on the coalition members. Aziz A. Khan Sialkot Sir, I agree with Mr Saleem Khawjah (Value Chain July Ed) that “much before the elections, power shortfall will cause the downfall of the system.” Yes, the one oddity that defines the conduct of our politicians is “lying shamelessly” and not admitting their failures in fulfilling their promises. That applies especially to “Raja Rental”, the minister of Water & Power for several years and now the sitting chief
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executive presiding over the power sector mess. Saleem Khawjah Faisalabad Indo-Pak trade relations Sir, expanding trade between India and Pakistan is logical but was delayed far too long to the disadvantage of both. Global recession, not common sense, made both conscious of this need, but what is still a key missing link therein is ‘balancing’ the interests of both the countries. While the decision of Indian authorities to permit Pakistani investors to invest in India must be welcomed, why the Indian authorities do not consider it appropriate to also allow Indian investors to invest in Pakistan? Is it that India offers too many investment opportunities while Pakistan offers none at all? That the Indians don’t see the need for balance in a relationship of this nature is shocking. Jamil Sheikh Faisalabad Sir, the decision of the Indian authorities to allow direct and portfolio investment in India is welcome but is it because, in the last fiscal year, India has experienced a drop of 78% in direct investment flow? Or is it because India realizes that it can take and should take its share in the flight of capital taking place from Pakistan? If that’s the case, it is very unfortunate. Ahmed Aziz Karachi PM given more time to act Sir, I believe the Supreme Court decision to give the Prime Minister more time to act on its post-NRO expiry instructions (write to the Swiss authorities to re-open pending money laundering cases against the President) amounts to over-optimism because the action that was deliberately delayed so long is unlikely to be taken by the Prime Minister. A. Shahid Karachi
“Value Chain” welcomes the views of its valued readers. Please send us your views on the address below: Fatima Khalid Publications (Pvt) Ltd. Room No. 612, Clifton Centre, Block 5, Clifton, Karachi Email: ask@valuechain.com.pk The Editor reserves the right to edit your letters for making it brief or for any linguistic flaws therein.
September 2012
G lobal Briefs Global events Morsi retires Defence Minister and Army Chief: Egypt’s President Mohammed Morsi on August 12 ordered retirement of defence minister and the army chief and scrapped a constitutional document which handed sweeping powers to the military.
Iran tests short-range missile: Iran has test-fired a new, more accurate short range missile capable of striking land and sea targets as a show of strength that underscored its ability to hit shipping in the Strait of Hormuz, if attacked. China’s first moon probe next year: China will land an exploratory craft on the moon for the first time next year, as part of an ambitious space programme that includes a long-term plan to put a man on the moon. China’s third lunar probe will blast off in the second half of 2013 and attempt to land and transmit back a survey of the moon’s surface. Syria’s first astronaut defects: Syria’s first astronaut General Muhammed Ahmed Faris fled to Turkey on August 5 after defecting from President Bashar al-Assad’s regime. RBS, Commerzbank drawn into US Iran money probe: US authorities are investigating Royal Bank of Scotland and Comkerzbank over possible breaches of sanctions on Iran, in a widening crackdown which has already cost Standard Chartered a hefty fine. Syrian PM defects: Syria’s prime minister Riyad Hijab defected to the opposition seeking to overthrow President Bashar-al-Assad’s regime.
Afghan officials meet Mullah Baradar in Pakistan: Afghan officials have held secret talks with Mullah Abdul Ghani Baradar, the Taliban’s former second-in-command who is in detention in Pakistan in a move which could help rekindle stalled peace talks with the insurgents. Attack on Iran’s nuclear sites: Israel’s prime minister and defence minister would like to attack Iran’s nuclear sites before the US election in November but lack crucial support within their cabinet and military.
Earthquakes in Iran: Twin earthquakes struck Iran on August 11 killing 306 people and injuring 3,000, according to an official toll. Taiwan renews claim over East China Sea: On August 14, Taiwan renewed its claim over a disputed East China Sea island chain at the centre of a territorial dispute between Tokyo and Beijing, as activists scrapped plans to sail to the area.
Japan’s PM survives confidence vote: Japan’s prime minister survived a no-confidence motion on August 9 after reaching an 11th hour deal with a major opposition party over his much-cherished sales tax bill.
Reuters blogging platform hacked: The blogging platform of the Reuters News website was hacked and a false posting saying Saudi Arabia’s Foreign Minister had died was illegally made on Reuters journalist’s blog. Reuters did not report the false story and the post was immediately deleted.
Google fined over privacy violation: The US Federal Trade Commission fined Google $22.5 million for violating the privacy of people who used rival Apple’s Safari web browser even after pledging not to do so.
India to launch Mars mission: Indian Prime Minister Manmohan Singh told reporters on August 15 that India planned to launch a space probe that will orbit Mars and that the mission was scheduled to begin next year.
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Curiosity rover lands on Mars: NASA has successfully landed its $2.5 billion Mars Science Laboratory and Curiosity rover on the surface of the Red Planet, breaking new ground in US-led exploration of an alien world. The one-tonne rover is the largest ever sent to Mars. Japan sends back Chinese activists: In a bid to defuse row, Japan on August 17 sent home the first group of Chinese activists detained after landing on an island claimed by both Tokyo and Beijing. China welcomed the move but at the same time warned its neighbour against further “escalation” in tension. Syrian refugee exodus accelerates: UN agencies said on August 17 that Refugees are fleeing Syria in ever greater numbers as the conflict between President Bashar al-Assad’s forces and rebels intensifies. North Korea could produce more nukes: US think tank said on August 16 that North Korea could build an arsenal of up to 48 nuclear weapons, several times more than it has now, if the communist state were able to step up its program unchecked. OIC suspends Syria’s membership: The 57-member Organisation of Islamic Cooperation suspended Syria’s membership. Brahimi to become new Syria conflict envoy: Lakhdar Brahimi, a veteran diplomat troubleshooter, will take over from Kofi Annan as the international envoy on the Syria conflict. Arab Bank board appoints new chairman: The Board of Arab Bank, Jordan’s largest lender, has elected Sabih-al-Masri as chairman of the Bank after resignation of Abdel Hamid Shoman. September 2012
G lobal Briefs Global economy OECD report - Major world economies slowing: According to Organisation for Economic Cooperation and Development (OECD) most of the major world economies are slowing with Britain the only country, to see tentative signs of a pick-up. Spain closer to full-scale bailout: Capital flight from Spain gathered pace in May and the central government deficit rose further above target in June, taking the country closer to the full-scale bailout it is desperate to avoid. World Bank help for Myanmar: The World Bank on August 1 pledged $85 million in development grants to Myamar and assistance for the former pariah state to clear its arrears as part of efforts to support political reforms. ECB to buy govt . bonds in September: Accordng to a Reuters poll, the European Central Bank will probably begin purchasing Italian and Spanish bonds in September, when also it is likely to cut its main refinancing rate to a new record low of just half a percent.
German industry orders hit: German industrial orders fell more than expected in June as domestic and eurozone demand faltered, indicating the single currency bloc’s debt crisis is taking its toll on Europe’s largest economy. China’s exports, imports slow in July: China’s exports and imports slowed for the second consecutive month in July highlighting worsening conditions in the world’s second biggest economy. Bundesbank to launch trading hub in Tokyo: Germany’s Bundesbank is in final stage of talks with Japan to establish a trading hub in Tokyo, as the central bank wants to manage some foreign currency reserves in Asian financial markets. Eurozone economy shrinks: The eurozone’s debt ravaged economy reportedly shrank in the second quarter, having flatlined in the first, despite continued German growth which economists said could soon be snuffed out. Standard Chartered to pay fine over Iran probe: Standard Chartered on August 14 agreed to settle US allegations that it helped Iranian clients dodge sanc- tions, accepting a fine of $340 million from New York’s banking watchdog. China-North Korea sign agreements on economic zones: China said on August 14 that it signed agreements with North Korea pushing forward their joint development of economic zones.
BoJ governor warns of China slowdown: Bank of Japan Governor, Masaaki Shirakawa on August 24 warned of a possible delay in China’s economic pickup and a strong yen that could add pain to Japan’s economic recovery, signaling the bank’s readiness to offer monetary stimulus if risks heighten further. Libor, Euribor deals being probed: The Dutch Central Bank said on August 6 it was investigating the role, if any, of local banks in the interest rate rigging scandal which has rocked the financial markets and resulted in large fines. The central bank said it was looking at interest rate estimates submitted by Dutch banks during the calculation of Libor and Euribor, the benchmarks used in trillions of euros (dollars) worth of global financial deals.
Germany steered clear of recession: Germany’s economy grew in the second quarter of 2012 as rising exports and consumer spending helped Europe’s biggest economy steer clear of the worst of the debt crisis. European banks bad loans: According to Price Waterhouse Coopers, European banks are holding around 1.05 trillion euros (1.3 trillion dollars) in nonperforming loans. The new figure, from 2011, was almost 9 percent higher than the previous years. The increase was especially skewed towards banks in the countries where the euro crisis is most acute. Taiwan’s exports decline: Taiwan posted a fifth straight month of decline in exports in July, dragged down by double-digit drops in shipments to China, Europe and the United States that
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will add to worries that the global economy is further losing momentum. Romania out of recession: Romania pulled itself out of recession in 2012’s second quarter but the Hungarian and Czech economies contracted further as their powerhouse industrial sectors fell victim to a euro zone crisis that has already hit the region’s consumers. Malaysian economy grows: Malaysia’s economy grew faster than expected 5.4 percent in the second quarter as robust domestic demand helped offset the impact of the global economic woes. Indian panel lowers GDP forecast: Indian Prime Minister Manmoham Singh’s economic advisory council on August 17 said that India’s economy would grow less than previously forecast this year on a weak monsoon and inflation will be higher. The council urged the government to act to control deficits. CRISIL slashes India’s growth forecast: Indian rating agency CRISIL slashed the country’s growth forecast to 5.5 percent for the fiscal year ending March, just two months after pruning its projection to 6.5 percent from 7 percent. Japan’s growth outlook trimmed: According to a Reuters poll, Japan’s economy will grow a bit slower than previously thought in the third quarter, mainly on slackening consumer spending and a sluggish global backdrop that is crimping demand for the country’s exports. Analysts trimmed their growth forecasts for the current quarter and the next to a consensus 0.2 percent, from 0.3 percent in the previous poll. Eurozone trade rises: According to EU statistics office statement on August 17, trade volumes for the eurozone rose in the first half of the year underlining the area’s dependence on external sources of growth as economic activity within the zone stagnates. FDI in India slumps 78 percent: Foreign Direct Investment in India slid by 78 percent to $ 1.24 billion in June from $5.66 billion in the same month a year earlier, amid mounting worries about corruption, bureaucratic delays and lack of economic reforms, according to figures posted on India’s Department of Industrial Policy and Promotion website. September 2012
N ational Briefs Pak politics PPP opposes election under existing constituencies: PPP is reportedly opposed to the decision of the Election Commission of Pakistan for holding the next general election in 2013 under the existing constituencies and has decided to approach the Commission in this regard.
Terrorists attack Kamra air base: Militants armed with rocket-propelled grenades and automatic weapons carried out a brazen attack under cover of darkness on the Minhas base of Pakistan Air Force at Kamra before dawn on August 16. The attack was repelled and only one aircraft was damaged. Nine terrorists were killed by the security forces. Afghanistan behind Balochistan unrest: Interior Minister Rehman Malik on August 3 shared with the Senate documentary evidence which he claimed confirmed that Afghanistan was behind attempts to foment unrest in Balochistan as part of a larger international plan for secession of the province from the country. PPP to contest polls under Fahim’s presidentship: Senior leadership of the PPP has reportedly decided to contest next general elections under the presidentship of Makhdoom Amin Fahim and his party’s banner, PPP Parliamentarian, as the PPP is not registered with the Election Commission of Pakistan. SC seeks list of contemptuous TV shows: Taking notice of private TV channels allegedly ridiculing the judiciary, the Supreme Court on August 6 ordered PEMRA to provide a list of such TV programmes on August 13. Rabbani terms creation of 7 ministries unconstitutional: Senator Mian Raza Rabbani, on August 6, declared the creation of 7 new ministries after the 18th Amendment as unconstitutional.
JUP stand on Balochistan situation: Jamiat Ulema-e-Pakistan (JUP) told a press conference on August 7 that US CIA, Indian RAW and Israeli Mossad intelligence agencies were responsible for present graave situation in Balochistan created under a planned conspiracy. NAB asked to resubmit report in Ogra scam: The Supreme Court on August 7 asked Chairman, National Accountability Bureau (NAB) to resubmit a report pertaining to the Rs. 83 billion Oil and Gas Regulatory Authority (Ogra) scam. PM appears before Supreme Court: Prime Minister Raja Pervez Ashraf appeared before the supreme court on August 27 in complaince with the court order to show cause for not implementing the NRO verdict. The Supreme court allowed the PM 3 weeks time to implement the verdict and reappear in person on September 18.
Raja Adeel said that the judiciary had a record of validating martial laws. He alleged that there was collusion between the army and the judiciary. He also claimed that every judge of the Supreme Court owned two plots each and pointed out that even the judges of Lahore High Court made fortunes by getting precious plots in Islamabad.
Pak-US Joint Operation in NWA ruled out: Chief of Army Staff General Ashfaq Parvaiz Kayani on August 17 ruled out any joint PakistanUS operation against militants in North Waziristan and said that such an operation would be unacceptable to the people and armed forces of Pakistan. General Election in March 2013: PPP and PML-N have reportedly agreed on next general elections in the first quarter of the next year most likely in the second week of March.
SCBA chief suggests middle way to end crisis: Supreme Court Bar Association president Yasin Azad said at a press conference on August 8 that the Bar supported the court’s decision issuing show cause notice to the prime minister but warned sacking of the prime minister would create huge problems for the country. He said a middle path upholding the dignity of the judiciary as well as that of parliament should be found. Taliban threaten to kill Imran: The Taliban have threatened to kill Pakistan Tehrik-i-Insaaf (PTI) chief Imran Khan if he holds a planned march to their tribal stronghold along the Afghan border in protest against US drone attacks. ANP leader Raja Adeel criticizes judiciary: Speaking at a seminar arranged by Human Rights Commission of Pakistan on August 8, ANP leader
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PPP Senator asks CJP to resign: Hurling charges of prejudice against the chief justice of Pakistan, PPP Senator Faisal Raza Abidi on August 5 asked the CJP to quit for taking oath under the Provisional Constitutional Order (PCO) and for alleged involvement of his son in a financial impropriety case. PPP has issued a show cause notice to the senator for his controversial press conference. Taliban threaten attacks on military: The Taliban have reportedly warned the country’s military that they have set up a “suicide bombers squad” to hit troops if an offensive is launched in the North Waziristan. PTI unveils economic policy: The Pakistan Tehreek-e-Insaf on August 24 unveiled its economic plan for the country that envisages a more than doubling of the growth rate of the economy through an investment and trade-driven growth strategy. September 2012
N ational Briefs Pak economy STPF 2012-15 aims to increase exports volume to $95bn: The Strategic Trade Policy Framework (STPF) 2012-15 aims at increasing Pakistan’s exports volume in three years time to $95 billion against the exports realization of $67 billion during 2009-12.
India allows investment from Pakistan: India on August 1 over-turned its ban on foreign investment from Pakistan in a move designed to build goodwill amid a renewed push for a peace settlement between the two nuclear armed neighbours. Pakistan foreign ministry spokesman Moazzam Khan and Pakistani businessmen welcomed the move. SBP Monetary Policy: Announcing the Monetary Policy for the next two months, State Bank of Pakistan on August 10 lowered its policy rate by 150 basis points to 10.5 percent w.e.f. August 13, 2012.
S. Korean investors to set up power plant: South Korean investors on August 7 expressed interest to establish a 300 megawatt solar power energy generation plant in Balochistan at a cost of $ 900 million. Agreement to this effect was signed by the CX Solar company and the Balochistan government which has allocated 1,500 acres of land for the project. Thar coal reserves: According to Engro Corporation CEO Aliuddin Ansari, Thar coal fields have estimated lignite reserves of 175 billion tons equivalent to total oil reserves of Iran and Saudi Arabia combined and can be utilized to produce 100,000 MW of power for 200 years. Textile exports decline by 1.7pc: According to Federal Bureau of Statistics for July 2011-June 2012, the gas and electricity crisis and overall law and order situation of the country downed the 2011-12 textile exports by 17.7 percent, in dollar terms by $ 1.432 billion, as compared to 2010-11 exports. During fiscal 2011-12, Pakistan exported textile products valued at $ 12.356 billion against $ 13.788 billion exported previous year. ECC allows export of sugar at below global market price: The Economic Coordination Committee (ECC) of the Cabinet has allowed export of 30,000 tons of sugar to Tajikistan at $ 20 less than the international market price and decided to review petroleum prices on weekly instead of fortnightly basis. WB loan for nutrition project: The World Bank has reportedly agreed to give a $55 million loan to Pakistan for improving the nutritional status of children and women in Sindh, Balochistan and Khyber Pakhtunkhwa.
MoU signed to set up coal power plants: The Karachi Electric Supply Corporation on August 10 signed a Memorandum of Understanding with a Hong Kong based company sponsored by Chinese and Korean investors for setting up of coal power plants to generate up to 1,000 megawatts. Pakistan, Japan set to sign $2.5 bn loan agreement: Pakistan and Japan are reportedly set to sign a pledge agreement for releasing over $2.5 billion sanctioned for the revival of Karachi Circular Railway by October this year.
MoU signed with China for JF-17 export: Senate’s Standing Committee on Defence Production was informed on August 15 that Pakistan has signed a Memorandum of Understanding with China for the export of JF-17 aircraft, a joint Pak-China venture. Pakistan’s Wheat exports rise 200 pc: Following rising demand and better price in the world market, Pakistan’s wheat export has again picked up, witnessing some 200 percent growth during the first month of the current fiscal year. EU demands Pak to eliminate export duties: The European Union is demanding Pakistan to eliminate 20 percent duty on export of raw hides, 25 percent duty on export of molasses.
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Export of wheat to Iran: Pakistan has agreed a price of $300 per ton for export of wheat to Iran in a barter deal. Iranian officials will visit Pakistan to check the quality of the wheat before shipments can be finalized. Cellular operators incur millions of rupees losses: Cellular phone companies have incurred millions of rupees losses due to suspension of their services for 10 to 12 hours from Chand Raat till after Eidul Fitr’s namaz. Besides, millions of rupees transactions through branchless banking systems were also not made due to suspension of mobile phone services in four major cities of the country. Banks’ NPLs rise 4.4 percent: Non performing loans (NPL) of the banking sector, according to State Bank of Pakistan’s statistics on August 24, surged by 4.4 percent to reach Rs. 652.991 billion by end of June 2012. Pakistani products may face more NTBs in Indian market: Pakistan’s trade with India may face more NonTariff Barriers (NTBs) because of poor quality control system in the country. India has strict rules while Pakistan Standard and Quality Control Authority (PSQCA) being inefficient and thickly polluted with corruption, maintenance of standard while meeting foreign countries quality specifications would be a challenge for Pakistani products. Tajikistan to import wheat, rice, corn from Pakistan: In a meeting between Tajikistan’s Chairman of the Agency for State Material Reserves Nurmahmad Akhemadov and Pakistan’s Commerce Minister Makhdoom Amin Fahim on August 14 it was agreed that Tajikistan would import 100,000 tons of wheat, 5000 tons rice and 5000 tons corn, edible oil and fertilizers from Pakistan to meet its domestic requirements. September 2012
V oice of Industry Trade & Industry briefs Ban on export to hit cotton prices: Pakistan Cotton Ginners Association (PCGA) has expressed its concern on the prohibition of cotton export by the State Bank of Pakistan describing it a conspiracy of bureaucracy of Trade Development Authority of Pakistan (TDAP). Due to stoppage, the export orders worth millions of dollars would be stopped and the country would lose precious foreign exchange in return.
No dearth of talent in Pakistan: Aamir Sohail, former cricketer visited Islamabad Chamber and Commerce Industry (ICCI) on the special invitation of Sports SubCommittee of ICCI. He said that there is no dearth of talent in Pakistan in any sporting fields. Mr. Munawar Mughal, Executive Member and former president ICCI said that steps should also be taken for the capacity building of players and sports board. OICCI expresses concern over law, order situation: The Overseas Investors Chamber of Commerce and Industry on August 1 expressed concern over the deteriorating law and order condition in Karachi and said the situation is affecting its stakeholders including foreign investors, who collectively contribute approximately 20 percent of the total taxes. Release of $280m for power projects welcomed: President of Multan Chamber of Commerce & Industry Mian Anis A Sheikh has welcomed the release of $280 million for ongoing power projects. Dialogue on investment policy urged: The Lahore Chamber of Commerce and Industry has urged the government to initiate dialogue with the private sector on the upcoming investment policy and steps to overcome the low-FDI phenomenon. KCCI demands energy security plan: Karachi Chamber of Commerce and Industry (KCCI) has demanded of the government to formulate a 20 years energy security plan which should be based on 40 percent on nuclear, 40 percent on Thar Coal and 20 percent on hydal and alternate energy to overcome perennial issue of acute power shortage problem.
ICCI urges government to salvage cement industry: President, Islamabad Chamber of Commerce and Industry (ICCI) Yassar Sakhi Butt has expressed concern over decline of 1.64 percent in exports of cement compared with dispatches achieved last year (JULY 11). He said that cement sector is contributing above Rs. 30 billion to the national exchequer in the form of taxes and providing job opportunities to more than 150,000 people. He urged the government to explore new destinations for export of cement. New mechanism for NRM demanded: Khyber Pakhtunkhaw Chamber of Commerce and Industry (KPCCI) has demanded formation of a new mechanism for Natural Resource Management (NRM) which should be developed on principles that local community has first right to reap the benefits of its natural resources and then contribute their due share to the national supply pool after need fulfillment. Early formation of BPLC urged: In the wake of worsening law and order situation the Lahore Chamber of Commerce and Industry (LCCI) on August 7 urged the government to immediately announce formation of Businessmen Police Liaison Committee (BPLC) to save traders and business community from criminals.
Patron In - Chief Korangi Association of Trade & Industry, S.M. Muneer and Chairman Ehtesham Uddin are giving away KATI plaque to AIG Sindh Iqbal Mehmood at a luncheon meeting at KATI. LCCI criticizes amendment to SRO 647: President, Lahore Chamber of Commerce and Industry (LCCI), Irfan Qaiser Sheikh has severely criticized the amendment in SRO 647 made through SRO 564(i)/2012 and demanded of the Federal Board of Revenue to withdraw the amendment immediately. He said the amendment would create further financial burden and liquidity problem for all the businesses.
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Stringent anti-terrorism laws demanded: The business community of the federal capital on August 10 urged the government to review anti-terrorism laws of developed countries for enacting stringent laws to deal with the menace of terrorism and insurgency in Pakistan.
FPCCI will support Baloch students: Haji Fazal Kadir Khan Sherani, President Federation of Pakistan Chambers of Commerce and Industry (FPCCI) presenting FPCCI crest to the students of Sardar Bahadur Khan Women University, Balochistan, who won the competition organized by IBA in the field of Information Technology (IT). Haji Fazal Kadir Khan Sherani said that though Balochistan is a backward province but is very rich in talent and capabilities. Discount rate cut welcomed: The trade and industry community has welcomed the State Bank of Pakistan’s move to reduce discount rate by 1.5 percent in its monetary policy announced on August 10. They termed it a good omen for investment and growth in the economy. They said that the discount rates were still on higher side and urged the Governor, Central Bank that efforts should be made to bring it down to single digit. MCCI rejects raise in gas tariff: Multan Chamber of Commerce and Industry President, Mian Anis A Sheikh has opposed and rejected the Gas company decision of unilateral increase in gas tariff through raise in cess and termed it as downright robbery. He said that the decision would lift up inflation to alarming levels and would hit the export-oriented value added sector which was already hard pressed due to loadshedding and high cost of production. LCCI urges govt to introduce new trade policy: The Lahore Chamber of Commerce and Industry on August 15 urged the government to prepare a new trade policy in consultation with the private sector to effectively control the fast widening trade deficit and to increase exports. September 2012
V oice of Industry Trade & Industry briefs Export-oriented trade policy demanded: Expressing grave concern over growing trade deficit, the Multan Chamber of Commerce and Industry has called for revising the trade policy, in consultation with the private sector, making it export - oriented. The existing policy led by a 4.7 percent decline in exports, posed a key challenge to the macroeconomic stability of the country. It was fast converting the country into a consumer society. Promoting organic farming suggested: According to the Member, Export, Islamabad Chamber of Commerce and Industry, Ahmad Jawad, Pakistan needs to promote organic farming which is the best option for producing quality and healthy agriculture products on cheaper costs to cater to domestic needs besides attracting international market.
The Turkish delegation invited Pakistani businessmen to attend 14th MUSIAD International Fair: The Turkish delegationcomprising MUSIAD Chairman of Foreign Relations Commission, Mr. Sevket Can Tulumen, Coordinator Foreign Relations, Mr. Abdulkadir Sicakyuz and Commercial Consular in Turkish Embassy, Mr. Cezmi Besogul visited Islamabad Chamber of Commerce and Industry (ICCI) for having a meeting with Mr.Yassar Sakhi Butt, President ICCI. Mr. Sevket Can Tulumen informed business leaders about 14th MUSIAD International Fair and 16th International Business Forum Congress and its importance for all the Muslim countries.
US CCI urged to help stop drone attacks: President, Lahore Chamber of Commerce and Industry, Irfan Qaiser Sheikh, on August 25 strongly protested against the continuation of drone attacks and urged the US Chamber of Commerce and Industry to help stop the strikes which were not only a violation of Pakistan’s sovereignty but also against the international law.
Dr. Asim Hussain, Minister of Petroleum & Natural Resources visited KCCI: Petroleum prices in the country are linked with international rates and they will be raised or reduced in accordance with them, Adviser to the Prime Minister on Petroleum and Natural Resources Dr Asim Hussain stated on a seminar held at KCCI. Expressing fears of possible shortage of gas during this winter, he said that the situation would improve by next year (2013), as the ministry “is moving on the right track as far as gas management is concerned”. Former KCCI president Zubair Motiwala said that Sindh produced 2,794 MMCFD gas but was consuming just 39.37 percent against Punjab which was producing just 189 MMCFD gas and consuming 1,880 MMCFD. SNGPL urged to entertain court stay orders against increase in gas cess: Lahore Chamber of Commerce and Industry (LCCI) has urged the SNGPL authorities to entertain stay orders issued against increase in Gas Infrastructure Development Cess. A large number of businessmen have reportedly said that the SNGPL was allegedly intentionally making mockery of the High Court orders issued against the gas cess and thus creating troubles for the businessmen who were already facing multiple internal and external challenges.
Economic integration with India: The Secretary General of South Asian Federation of Exchanges (SAFE), Aftab Amad Chaudhry said on August 24 that Foreign Direct Investment (FDI) from Pakistan would open the way for increased trade, commerce and economic integration between India and Pakistan.
Govt. urged to stop seeking fresh IMF loan: Expressing concern over the report that the government is seeking fresh loan from International Monetary Fund in order to lower the immense pressure on foreign exchange reserves, Yassar Sakhi Butt, President, Islamabad Chamber of Commerce and Industry (ICCI) said it would be difficult for the country to survive economically if the present trend of dependence on foreign help would persist for a few years more.
Flour millers urge govt to withdraw fuel price hike: Flour millers in Punjab on August 24 urged the government to immediately withdraw the fresh increase in petroleum and gas prices, as it would result in increase in their input cost, resulting in price increase for the masses.
Hike in POL products’ prices rejected: Business community, traders and industrialists have outrightly rejected the recent hike in petroleum products’ prices and said that the decision would bring detrimental impacts on almost declined businesses, trade and industrial activities.
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Govt. urged to pay dues to IPPs: Islamabad Chamber of Commerce and Industry (ICCI) on August 1 urged the government to resolve the payment issues of independent power plants for reducing the loadshedding which was causing immense problems for the masses. Declining export of value added textile sector: Chairman, Value-Added Textile Forum, Muhammad Mushtaq, expressed serious concern on decline of value-added textile sector and shifting of a large number of value added textile export industries abroad. He urged the government to take serious notice of this trend and take remedial measures. Need stressed for equipping students with IT based knowledge: Lahore Chamber of Commerce and Industry Senior Vice President, Kashif Younis Meher has urged the government to focus on equipping the students with right skills and information technology based knowledge as the maximum utilization of human potential is key to success and a necessary ingredient to make Pakistan a developed country. MCCI asks for extension of time to file ST return: Multan Chamber of Commerce and Industry (MCCI) President, Mian Anis A Sheikh has demanded of the Federal Board of Revenue (FBR) to extend the date for filing of sales tax return as majority of the business community has yet to file the returns. He said that online forms for filing the returns were available just a day before Eid and it was not possible for any one to file returns on due date which was August 24. APTMA urges uninterrupted energy supply: A delegation of All Pakistan Textile Mills Association (APTMA) on August 28 met with Finance Minister Dr. Abdul Hafeez Sheikh and requested him to release funds for upgrading the textile sector with retrospective effect, reduction of interest rate, besides calling for uninterrupted supply of electricity and gas to save the industry. September 2012
E ditorial September 1965 war: the turning point
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That said, this war had long-lasting effects. Historic records show that between 1960 and 1965, Pakistan was recording an average GDP growth of 6.4%, which was the second highest in Asia after Japan. That promising pace of progress which could have made Pakistan a developed country much before many of the South East Asian countries. Unfortunately, that pace was blunted. It may surprise many that the industrialization process that began after the imposition of Martial Law in 1958 had set up an industrial base that attracted the Asian countries to learn from Pakistan’s experience. Even after the downfall of that regime, beginning 1973, hundreds of South Korean engineers were trained at the Machine Tool Factory in Karachi; a reflection of the state of development of the economy at that time. Although Pakistan had successfully defended its borders and hundreds of its valiant soldiers sacrificed their lives to defend the nation and the country, the price paid was phenomenal. Once the war losses were assessed, in particular those of the armed forces, the painful reality was that the bulk of what was built over the 17 years since the creation of Pakistan had been lost in the 17-day war. The measures adopted thereafter to re-build the economy and the country’s defences slowed its growth rate but the more unfortunate aspect thereof was the economic imbalances these measures created between the two wings of the country–a process that began shaking the Ayub regime and building up frustrations in E. Pakistan. Within a short span of seven years, Pakistan was split and its Eastern wing became the independent state of Bangladesh. It was the result of the war-caused economic distress and bias in sharing its burden equally with E. Pakistan. The terms of the Tashkent Declaration became a subject of controversy in W. Pakistan and ambitious politicians used it as the weapon to plan the ouster of Ayub Khan. That political chaos turned the attention from building the country to achieving futile but self-serving political ends–a tendency that is now at its peak and threatening the existence of the remaining Pakistan. Diversion of resources to defence, though needed to rebuild defence capability to protect Pakistan against another Indian invasion, began to slow the import of plant and equipment. This shift slowed the continued build up of an industrial base that could effectively and logically compliment the country’s agrarian economy–fertilizer, disinfectants, agricultural equipment, husking and grain polishing equipment, silos, transport network (especially railway), power generation, textile and its related sectors–to assure all round growth and employment. This slowdown has continued to-date. The exchange rate of the Rupee has weakened from Rs 4.8844/$ back in 1965 to Rs 94.30/$. In the 1960s, the World Bank and IMF were too happy lending to a growing economy like Pakistan. That is no more the case because the leadership’s priorities are not focused on the economy; it is on pure politicking.
he Indo-Pak war of September 1965 was a turning point in Pakistan’s history. That 17-day war 17 years after the creation of Pakistan was a huge tragedy whose aftereffects continued to bleed Pakistan beginning with the slowdown of economic progress and six years later the break-up of the country. Military historians are of the view that the skirmishes in the Rann of Kutch in May 1965 foreshadowed the coming war. The fact that under international pressure (particularly UK’s) troops on both sides had reverted back to their position was not the end of the tension. Having suffered an embarrassing defeat at the hands of the Chinese in 1962, India was bound to redeem itself before the nation, and the easy target there for could be Pakistan. Subsequent to the troops’ withdrawal to their preclash positions, the announcement of the Indian Prime Minister Lal Bahadur Shastri that India will fight on a front of ‘its choice’ signalled the coming war. What eventually materialized his threat was the rise of the freedom fighters in Kashmir and the support for them from Pakistan. But, according to Lt. Gen. (r) Gul Hassan, there was not enough realization in Pakistan’s defence quarters of a Indian retaliation of the size that we witnessed in the early hours of September 6. The massive attack on the Punjab’s eastern borders was a shocker. Had the 150 troops posted on the Wagah border not fought valiantly to stop hundreds of Indian tanks and artillery moving towards Lahore, this war could have become a sad story. Similarly, the Indian attack on Chawinda that later became the biggest tank battle after the WW-II battle for Leningrad, was a challenge that was not envisaged. But the defence put up by Pakistani forces–outnumbered by 1 to 5–is a glorious chapter in Pakistan’s history. And then there was the equally remarkable performance of the Pakistan Air Force (PAF); it defended Pakistan’s skies and kept striking at Indian air bases as well as the troops and weapons moving towards Pakistan to both save and assist Pakistan’s Army in fighting the Indian forces on the ground. The fact that Pakistan’s fight back was absolutely astounding for the Indians (and no less for the West) was proved by the subsequent Indian rush to the UN to force Pakistan to cease fire. Pakistan’s armed forces were backed tooth and nail by every Pakistani. As a matter of fact, they wanted to fight on the fronts alongside their valiant soldiers who were offering their lives for defending Pakistan. This war also showed the world that, whenever the people of Pakistan stand with their soldiers, no power on earth can defeat them. Throughout the war, and for months thereafter, the people remained disciplined; prices of goods went down, despite the problems in movement of goods, there were no shortages, even the instances of theft and crime virtually dropped to zero; it was a remarkable demonstration of unity that was never seen thereafter, a fact widely reported in the global media.
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September 2012
E ditorial Unity, faith, discipline: the trampled values
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he opening lines of the famous historian Stanley Wolpert’s masterpiece entitled the “Jinnah of Pakistan” read as follows: “Few individuals significantly alter the course of history. Fewer still modify the map of the world. Hardly anyone can be credited with creating a nation-state. Mohammad Ali Jinnah did all three.” Jinnah’s indomitable courage was rooted in the three ‘golden’ principles that he gave to his nation–unity, faith, discipline–and by his own conduct, established the importance of all these principles; practicing these principles, his nation was able to carve out Pakistan in the most chal- lenging scenario. Unity implied shunning sectarian, racial or ethnic divides and remaining committed to upholding the basic objective of the nation despite petty differences, and resolving them through rational and unbiased dialogue. Faith implied a firm belief in the committed objective despite all divisive attempts of those within the nation’s ranks as well as its adversaries. Discipline implied unflinching compliance of the law and observance of civilized values down to the point where individuals imbibed the habit of patiently waiting for their turn in the longest of queues. Central Working Committee of the Muslim League was the forum for settling all differences. Every member could raise his objections to the policy stance being adopted on an issue thereby settling all divisive issues without subduing any valid objections. This spirit ensured that the unity in the party was not just visibly but truly solid to withstand the staunchest of opposition. In one meeting of this committee, Maulaa Hasrat Moohani differed with Jinnah, but none other than Jinnah invited him to the dais to present his point of view but when the audience tried to silence the Maulana, Jinnah lost his temper. He came to the dais and in a harsh manner, told the audience to set an example of true democracy in the party by listening to the Maulana’s view and then decide the party stance on the issue because merely silencing the opposition was unfair. As for faith, he firmly believed that India’s Muslims had the right to have a homeland of their own, and had the capacity for administering it in accordance with the Islamic principles of justice, equality and compassion that an India ruled by the Congress would lack given its bias manifested by the likes of Pundit Nehru and Sardar Patel. But when in 1945, Congress signed a pact with Muslim League whereby one-third of the seats in Lok Sabha and the Raje Sabha were to be reserved for India’s Muslim for all times to come, Muslim League gave up its demand for Pakistan. However when, despite giving up its demand for Pakistan, participating in the 1946 election and helping Congress to form a coalition government, Congress breached its pact with Muslim League, Jinnah renewed his call for Pakistan. It was the sheer strength of his faith in that
idea, that helped realize that dream in a year and a half. As for discipline, in his “Memoirs” Lt. Gen. Gul Hassan Khan (who had the distinction of serving as Jinnah’s ADC in 1948) recalls an episode wherein he learned how respect for discipline was essential for assuring real equality. For years, Jinnah had been a victim of tuberculosis. After becoming Pakistan’s Governor General, work pressure worsened his condition and his doctor advised him to spend the weekends in Malir where weather conditions, and some hours of peace, were likely to contain the damaging effects of the disease. Every Saturday, along with Miss Fatima Jinnah, he would go to Malir in his personal car without any entourage. On the first Saturday after Gen. Gul Hassan became Jinnah’s ADC, he was also in the car on way to Malir. As the car approached the Drig Road station, the railway crossing (which used to be there then) was closed; the car therefore stopped. Thinking that it was odd for the Governor General to wait till the gate opened, Gul Hassan left the car and went to the cabin of the gatekeeper to ask him to open the gate, which the gatekeeper did immediately. But when Gul Hassan returned to the car, Jinnah asked him to go back and ask the gatekeeper to keep the gate closed till the train that was to cross the road, had passed. When Gen. Gul Hassan returned, and sat in the car, Jinnah told him that the law that applies to the citizens applies to the Governor General and no one is above the law. This is one example of Jinnah’s concept of discipline; there are many others. In 1946 late Agha Hassan Abedi (founder of the BCCI) was manager of Habib Bank’s main branch in Delhi located near Jinnah’s residence. Muslim League’s bank account was in that branch. Every morning Agha Sahib used to go to Jinnah’s residence to collect the donations made to Muslim League for being credited in the party’s account. He often used to recall how precisely Jinnah would count every coin before handing over the cash to Agha Sahib because “that money belonged to the people”, and had to be accounted for accurately. The sad scenario of September 11, 1948, when that giant of a leader died was recalled as below by late Miss Fatima Jinnah: “Nearby stood hundreds of huts belonging to the refugees who went about their business not knowing that their Quaid, who had given them their homeland, was in their midst, lying helpless. Cars honked their way past, buses and trucks rambled by, and we stood there immobilized in an ambulance that refused to move an inch….We waited for over an hour, and no hour in my life has been so long and full of anguish.” Our lasting tragedy has been that soon after his passing, we began trampling the values he gave us; its first manifestation was the break-up of Pakistan in 1971, but tragedy continues.
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September 2012
E ditorial SBP monetary policy: a late but correct initiative
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n its Monetary Policy announced on August 10, State Bank of Pakistan took the courageous step of lowering its discount rate by 150 basis points to (for a start) lure back the private sector to operate at a higher level – an initiative welcomed by all business chambers. The act is courageous since, in public perception, inflation hasn’t really fallen, and with Kibor now likely to drop by a like measure the banks won’t be overjoyed at being forced to earn only a fair return. The Monetary Policy also hinted at the profile of the banking sector when it said that “scheduled banks continue to prefer government over the private sector” despite a clearly visible “improvement in the currency to deposit ratio and considerable deceleration in growth of non-performing loans.” While moderately worded, it does point to the short-sightedness of the banking sector. For any economy, especially a developing one like ours, its financial services sector forms its backbone because it focuses on channelling credit and investment into sectors of vital present and future importance; earning profit is the secondary consideration. In Pakistan, it is the reverse. The opening lines of the Executive Summary of the Monetary Policy summed up the worrisome contradictions in the current economic set up by admitting that “the economy seems to have settled at an unenviable equilibrium of high inflation and low growth”. Inflation is the outcome of huge public sector debt (funded by banks and currency printing) for the current expenditures of the state, that and power load-shedding and the chaos on the streets have reduced economic growth to the sum of just goods and services; real investment has reduced virtually to a drop in the ocean. Finally, the low GDP growth of 3.7% in FY12 is primarily the result of consumption expenditure. What feeds the expectations that inflation will remain high, is continued public borrowing from the SBP, as well as feared depreciation of the exchange rate though the external current account deficit is modest. Public sector borrowing continues despite commitments announced during the year as well as in the FY12 budget but above all, the explicit requirements of the SBP Act, whereby fiscal authority not only has to stop further accumulation of the debt owed to SBP but also must take steps to retire its borrowing from SBP over the course of the next seven years. Yet, in FY12, fiscal borrowing from scheduled banks grew by 50% and accounted for 67% of the overall increase of 14.1% in M2. Besides crowding out the private sector, these substantial, and often unpredictable calls to borrow created big challenges for monetary management. At long last, the government retired Rs 198bn of public debt during July 2012, but it was through higher borrowing from banks, and by August 7, consequent injection of liquidity by the SBP increased to Rs 423bn. The provisional estimates of the fiscal deficit from the financing side suggest that it may be 6.4% of the GDP or Rs 1,328bn, which excludes the debt consolidation of power and food sector arrears of 1.9% of GDP. Thus the deficit may be around 8.3% of the GDP.
Editor’s note
This massive slippage is the result of shortfalls in tax revenue collection, non- realization of some non-tax revenues, state expenditure over-shooting its target courtesy energy sector’s circular debt, and the losses of public sector enterprises. The dark side of the frightening level of public debt has been that in FY12, net flow of credit to the private sector was just Rs 18.3bn–a huge decline compared to Rs 173.2bn in FY11. How this economic environment is impacting the confidence of the private sector is manifested by the fact that volume of credit retired by this sector was unusually high. But the other worrisome aspect of this depressing setting is that the larger portion of total credit to the private sector was availed by the Non-bank Financial Institutions – a trend that only confirms the rumours about large-scale flight of capital from Pakistan. Things are no better in the external sector. A decline of 3.2% (largely due to reduced volumes) in export receipts and price-driven increase of 12.3% in import payments hiked the FY12 trade deficit to 6.7% of GDP or $15.4bn. But an impressive inflow of $13.2bn of remittances contributed significantly to limiting the current account deficit to $4.5bn or 2% of GDP. Presently, this deficit is small compared to Pakistan’s deficits historically, and the deficits recorded by other emerging and developing economies. But this is not to deceive anyone into believing that things don’t look bad. With foreign direct and portfolio investment down to only $590 million in FY12, the future doesn’t look promising. In FY12, the overall balance of payment position is a deficit that, together with the repayment of IMF loans, resulted in a decline of $4bn in SBP’s liquid foreign exchange reserves i.e. from $14.8bn at end-June 2011 to $10.8bn at end-June 2012. These aspects of the economy adversely impact the country risk perception abroad. These negatives, and the pressure for retiring IMF loans in the coming years, have dampened the prospects of tapping the resources of international financial markets. The only option is to increase the exports of valueadded items, but if the energy crisis is not contained, exportled growth also looks less likely, and GDP growth in FY13 too may remain between 3 to 4%. While these negatives are worsening the economic scenario, the most worrisome part is that the protracted energy crisis and weak fiscal fundamentals are forcing a decline in private investment, both domestic and foreign, although the balance of payment position is dependent wholly on foreign financial inflows. A setting wherein the pace of rise in domestic debt is excessive and uncertain global economic conditions do not inspire much confidence about foreign inflows materializing to plug the expanding fiscal gap between the expenditure and resources of the state, the prospects aren’t promising. This is the reason why the SBP has very rightly recommended that a concerted effort must be made to plug the gaps in the power and energy sectors and improve the physical infrastructure so that both industry and agriculture maximize their output.
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September 2012
E ditorial Of crop exports during a drought
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n the August issue of the Value Chain, we had pointed to the unfolding Global drought and its impact on food prices. In August, the fears about the coming food shortage were exp- ressed by a much wider section of the global media and now that monsoon is nearing its end in many food exporting countries and rainfall has been much less than necessary, food shortages in a number of countries seem most likely. The worst affected country is the US where drought and the high temperatures experienced this summer symbolized the worst monsoon in the past 56 years. This weather destroyed standing crops and the eventual crop loss may be between 16 to 20%. That’s not all, shortfall in corn and barley–that partly serve as animal food, may also impact wheat and dairy sectors and thus compound the food shortage. This applies to all the countries that have been hit by drought. In Ukraine, one of the major exporters of wheat, the output in 2012 has dropped from 22 million tonnes last year to 16.3 million tonnes–a drop of 26%. Barley crop too suffered due to drought and its output fell to 7.1 million tonnes compared to 9.2 million tonnes last year. The overall quantity of crops put together has fallen from 56.7 million tonnes last year to 45 million tonnes in 2012–a fall of about 21%. Rumours are that because of the huge crop shortfall in the US due to the dry monsoon, and the fact that Russia too suffered its impact the Russian government may restrict its wheat exports. Brazil accounts for nearly half the world’s sugar exports. The Brazilian government has trimmed its sugar forecast, but has not lowered the expected level of its output. At 596.6 million tonnes, sugar cane crop will be 1% less than last year. But sugar output is still expected to be 38.85 tonnes–8.4% higher than 2011. However, analysts place the cane output at 510 tonnes and sugar output at 33.16 million tonnes. The other factor to be kept in mind is that Brazil uses a lot of ethanol as fuel and a major rise in global oil prices could force it to divert more ethanol into the energy sector cutting its exports. In India, sugar prices are rising as the wholesalers build sugar stocks in anticipation of its shortage because of lower sugar cane crop and lower yield therefrom because of the drought. After China, India is Asia’s second biggest producer of corn, and its corn is being exported to South East Asian countries at fob price of $320 per tonne (up from $270 per tonne) to compete with Latin American corn costing $350 per tonne. These exports are going on despite the fact that based on the latest monsoon rainfall data, weather pundits conceded that India is facing a severe drought, confirming what millions of livestock farmers around the country had known for weeks. Responsible regimes in the under-developed and developing countries hit by drought are taking prudent steps to forestall possible food shortages because these shortages could lead to food riots, which these countries will find difficult to coup with. But the less prudent regimes still aren’t fully conscious of what they are heading for if they close their eyes to export of food stocks without realizing the dangerous consequences of their shortages because, in the current scenario, food grain prices could only rise. Importing the same crops at far higher prices will then force these regimes to subsidize their prices, escalating their fiscal deficits and diversion of resources from other important sectors. The impact could eventually result in lowering GDP growth.
The predictions of Pakistan’s Met office about higher rainfall in the current monsoon have been proved wrong; rainfall has been 21% below normal in the north, and twice as much in the south. Metrological Department has therefore cautioned the government about the consequences of a looming food and water crisis, and advised to prepare a contingency plan that includes building strategic grain reserves, restricting crop exports and assuring tougher controls on smuggling of crops to face this double blow with minimum adverse impact on the poor. In a letter addressed to the president, prime minister, cabinet division, federal ministers of finance, food security, climate change, water and power, defence, as well as provincial chief secretaries, federal adviser on Metrology and Climate Affairs warned of a repeat of the 2007-08 worldwide food crisis that sparked food riots in many countries. According to him the “abnormal climate patterns in some of the world’s vital foodproducing regions are threatening global food shortage”, and in the coming months there was a strong possibility of lower production of food grain and soaring of prices globally. One week before sounding his warnings about crop shortages, he had warned about a looming ‘acute water crisis’ leading to severe water shortage for drinking and for winter crops, and abnormally below normal temperatures during the April-June period and low subsequent rainfall, were building an alarming scenario. Analysis thus far indicates that both Mangla and Tarbela dams may not be filled to their capacity despite a rise in rainfall, and could cause extreme irrigation water shortage. In spite of these warnings, Trading Corporation of Pakistan is reportedly planning to export large quantities of wheat, sugar and other crops, and that too at below international market prices because it is desperately trying to earn export earnings to cut the rising trade deficit that has been caused by lower exports courtesy the ongoing power load-shedding and law and order situation. The other contributory factor is the inadequacy of crop-specific storage silos and warehouses due to which crop condition deteriorates rapidly if stored for a long period–the weakness that forestalls any advantage arising out of building strategic reserves. This policy approach is worrying, because a scenario that has already been rendered volatile by skyrocketing food inflation could only become worse and much more uncontrollable for the regime if food riots were to add more public anger to the riots fuelled by food shortages. This is simply not the time to export crops; they must be retained to sustain their supply.
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September 2012
E ditorial More time (yet again) for the PM to act
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n August 27, despite a split within the PPP over whether the Prime Misiter should present himself before the Supreme Court as per the legal notice issued to him in the NRO case, the pressure of the coalition partners, principally MQM forced a reluctant PM Pervaiz Asharaf to be present in the court on August 27. But while he did that, he stuck to the PPP line by saying that he needs more time to consult his party leaders on complying with the court order. This stance is odd because, firstly, the issue has been hanging over the country like a sword (hopefully, including the PPP’s leadership) for over two and a half years. Isn’t it odd that in this long period, the collective genius of the PPP leadership, ably assisted by its legal advisors, couldn’t make up its mind about acting on the court’s instructions? Besides, if the party stand is legally defendable, why didn’t the party file an appeal against the Supreme Court verdict, that not only disqualified but also convicted the last PM? Secondly, after the annulment of the NRO, how can anyone claim immunity under that ordinance? Thirdly, seeking more time implies that the sitting PM has not rejected the idea of asking the Swiss authorities to reopen the money laundering cases against President Asif Ali Zardari (perhaps because he accepts that that is not a legally defendable stand) but wants to be seen as ‘loyal’ to the party (in fact to Mr. Zardari) until his regime comes to an end. Impliedly, for the PM, loyalty to the party ranks above loyalty to Pakistan’s interests or fulfilling the requirements of the law. Press reports suggest that this policy offers two benefits–PM manifesting loyalty to the party, and dragging this issue long enough to ensure that the 15-year Swiss time deadline for re-opening legal cases (which falls in September) also expires. It is thus no surprise that, in spite of the passage of two and a half years, the PM was demanding that he should be given a 6-week recess before returning to the court to say whether he will or will not comply with the court verdict. The media appreciated the court’s leniency towards the PM by allowing him a 3-week recess and also giving the authority to decide who (the Law Minister, the Attorney General, or a constitutionally competent state officeholder or bureaucrat) may write to the Swiss authorities to reopen the said money laundering cases. Indeed it was a manifestation of respect for the office of the PM and a credible response to the elements that have been shamelessly accusing the Supreme Court of a biased, unfair, person-specific stance on the issue. That said, perhaps, instead of asking the PM to disclose his stance on the issue on September 18, the Court should have asked the PM to present before the court a copy of the letter sent to the Swiss authorities specifically requiring them to re-open the money laundering cases pending against President Asif Ali Zardari. But we believe that the Court knows exactly what it should ask the PM to do in order to credibly comply with its instructions.
Since 2009, this is one of the factors that have absorbed the regime’s undue attention at the cost of worsening the profile of the many problems Pakistan confronts. The negligence of the regime in resolving these problems has seriously damaged the image of Pakistan in Pakistan as well as abroad; this is reflected in a decline in every sector of the economy that is making Pakistan a country unsuitable for investment because the level of uncertainty about everything is abnormally high. That is why Pakistan today confronts its worst financial crisis after December 1971. The State Bank of Pakistan (SBP) and even the state-administered Pakistan Bureau of Statistics (PBS) admit that macro-economic indicators are at their worst-ever level, be it fiscal, trade, or balance of payment deficit, foreign investment inflows, supply gaps in energy and power sectors, exports, inflation, unemployment, and as the collective result thereof GDP growth rate has declined to a dangerous level of just over 3% against the minimum required 7%. What the government calls its successes are mere myths–the BISP, 18th amendment to the constitution and the wholly unplanned transfer of federally administered institutions to the provinces, petroleum prices’ weekly revision, planned split of Punjab into several provinces, unchallenged drone strikes by Afghanistan-based Nato forces, sidelining of the inquest into Ms Benazir Bhutto’s assassination, uncontrolled lawlessness and target killings in Karachi, and the role of Peoples’ Aman Committee therein. It is hard to recall any constructive steps taken by the regime to strengthen Pakistan’s economy. While the regime insists that it must be allowed to ‘complete’ its term, it has precious little in terms of its performance that can justify this demand. The fact that huge amounts of state energies were spent on the person-specific Swiss affair, and Pakistan became a politically unstable country in the eyes of the world, did not bother the regime. This irrefutably proves the fact that the priorities of the regime are not nationalistic in character; the focus is only on protecting vested interests. Many observers are of the view that this issue was allowed to drag on for far too long and there is a strong possibility that the Swiss authorities may not be instructed in time to reopen the money laundering cases against the President of Pakistan. While the majority of Pakistanis have lost faith in democracy, the other damage may be that it may also lose its confidence in the legal process for delivering justice. While those blaming the prolonged dragging of this issue have a point, it isn’t fair to overlook that some elements in the country’s media (the “pro-democracy” lot) did a lot to project the judiciary as partisan and thus forced it to show a degree of restraint that, under normal circumstances, it wouldn’t have shown. But Pakistan could end up with a negative view about clauses in its constitution about immunity of state officeholders and irreparably damage its Country Risk perception because that will portray Pakistan as a country wherein state officeholders can do just about anything, and with total impunity.
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September 2012
Awan Trading Co.
is Pakistan based Coal trading entity which was incorporated in the year 2002. The company started its operation as an importing company and for the last two years it has also started supplying domestic coal (Pakistan coal). So far the company has imported and supplied 5 million tons of coal, from South Africa and Indonesia, to the cement factories. This opportunity of supplying coal to cement factories was created due to their (Cement factories) shift from furnace oil to coal as the main energy fuel. Since then the company has been sincerely committed in its mission of
supplying coal to factories as a source of energy. What you sell is important! So we source our Coal from best suppliers around the world. Developing longterm relationships has been the hallmark of our company. Our promise that “we deliver, no matter what the situation� has earned us, the confidence of our buyers. The success of our trading can be gauged from the fact that we are now importing 21 vessels (1 million ton) of coal in a year which as resulted in 30% market-share for Awan Trading Co and hopefully the share will increase in the coming years.
P olitics Fair elections: are they possible?
by A. B. Shahid
A
n old saying is that winning elections inspires the visionary political parties to prepare for winning the next elections by responsibly governing the state upholding justice, respecting merit, ensuring economic growth by optimally utilizing every penny of tax revenue–all to reduce the economic inequalities they inherit on coming to power. Such a track record builds peoples’ confidence in their right to go on administering the state for yet another term. PPP’s much demanded full term (in which it did nothing to justify its re-election for another term) will come to an end in mid-November; between now and that date, there is no way PPP can undo this track record, yet it craves for another term because the pleasure of being in power is too good to forego. Besides, should the PPP lose the next elections, there is a strong possibility of its being held accountable for what it did during its full term. PPP therefore will do everything–legal or illegal–to re-occupy the corridors of power. While PPP and its coalition partners are most likely to do all that they must to assure that outcome, the opposition parties and the parties not represented in the sitting parliament, will do the same. Put together this setting places in doubt the fairness of the coming elections because the one undeniable reality is that the people no longer trust their politicians or democracy because both failed to deliver. The huge deficits of every shade–justice, equality, respect for merit, and then the fiscal, trade and current account deficits, and the killing weight of public debt starkly establish the reality that, neither the politicians are blessed with integrity nor do they know how to administer the state. In Pakistan’s history, the only time largely fair elections were held, was in 1970. Thereafter, all elections were rigged with impunity. Yet, the parties that gained power kept claiming ‘popular mandate’, as does the PPP and its coalition partners. The reason therefor is that two-thirds of the voters live in the villages and small towns, and the Election Commission never extended to these levels since they remain the domain of the landlords. The low level bureaucrats supervising the electoral process serve their seemingly ever-lasting masters–the landlords–not the Election Commission. In a setting where the ordinary know that no one can save them if they vote against their corrupt landlords, it is unlikely that they will vote according to their choice; that choice will be made for them by the landlords. Assuring fair elections is tough; it requires changing this sick scenario by empowering and assuring the district administrations that power lies with the state, not with the landlords–a mindset change that no caretaker regime with a 90-day tenor can achieve. That’s why, none of the caretaker regimes ever delivered on the promise of holding fair elections. The tenor of the caretaker regimes sounds fair for states with strong judicial and law enforcement set ups that, over time, establish that none is above the law, thus conveying the message that citizen exercising their
choice are not under a threat from any quarter, which is not the reality of Pakistan. This guarantee gradually weakened; as of today, it is a myth; the powerful rule this land and their word is the law for the ordinary and the low level bureaucrat. In November 1996, when late Malik Meraj Khalid took over as the caretaker Prime Minister, I had written to him a letter which, besides other things contained the following lines: “Please ask yourself whether you can implement far reaching changes in administrative set up within the sacrosanct period of 90 days, to ensure that the administration stays impartial. Short of a miracle, Mr Prime Minister, you can’t do that. Nor do we expect you to perform miracles. But what we certainly expect of you is cleaning up the administrative mess before holding elections. Please don’t forget that you came to power with a claim to precisely achieving that end, which cannot be achieved in 90 days; a realistic estimate would be ‘90 weeks’, provided, of course, you relieve your cabinet of some of its dead weight, and replace it with nonpoliticians with a track record of having served in senior capacities, and leading their organisations to verifiable success. You have consistently said that you are ‘determined’ to hold elections within ‘90’ days because that’s what the constitution provides for. Nothing less than that could be expected from a gentleman of your stature. But, let me ask you, in the event of a conflict of interest, which of the two has higher priority: provisions of the constitution or the interests of the citizens and the state? Constitutions are framed by nations to formalise a code of conduct for the government in its interaction with citizens. Without disrespect to the status and sanctity of the constitution, it can’t be placed above the higher interests of the citizens and the state. And at any given point in time, it is the highest obligation of any government to decide what the best interests of the citizens and the state are and amend the constitution accordingly since it was never envisaged that the constitution will have a solution for all possible situations that may arise in the future; to believe so places a burden on the constitution that it is not capable of carrying because had that been the case, constitutions wouldn’t be amended.” As expected, he did not reply. The tenor of caretaker regimes remains 90 days, guaranteeing that elections will never be fair. No matter who presides over the Election Commission, a fair election isn’t possible. Until the powerful are restrained from corrupting this exercise to assure their or their cronies’ election, the legislature will stay in the clutches of this lot whose generation after generation adores the corridors of power. We need a nonpartisan caretaker regime with a ‘90-week’ tenor to first put things right. Although every political party always claims that elections are rigged, none of them ever felt the need to cleanse the system of the evils that permit ballot rigging. The only explanation is that they all indulge in it and look at it as a reliable means of getting back into power, which makes free elections a myth.
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September 2012
P olitics admission that in the 2008 elections nearly 44% of the votes were cast by voters who weren’t on the computer data base of NADRA continues to place in doubt the authenticity of polling in the next elections. Admittedly, ECP undertook a corrective exercise thereafter, but whether the aims of this exercise were fully achieved has yet to be confirmed Fakhruddin G. Ibrahim by ECP. The next elections remain a dicey issue until these issues are settled credibly. We need credible democracy to elect regimes that are respected all over the world. Impact of 20th constitutional amendment The 20th amendment to the constitution has empowered the Election Commission of Pakistan (ECP) with fresh authority to restrain the incumbent regime from influencing the results of the coming elections. A reinforced ECP now implies that: • ECP members–all retired high court judges, one from each province–have been empowered, not the CEC in person. • As in the case of the CEC, an ECP member “shall not be removed from office except in the manner prescribed in Article 209 relating to superior court judges”–a guarantee of the tenure of the four ECP members to enable them to act without fear of being shunted out. • ECP has been entrusted the task of conducting election to the office of President, and to act as its returning officer; earlier it was the CEC who was assigned this responsibility. • ECP has been empowered to even nominate a caretaker prime minister or provincial chief minister if the outgoing prime minister, chief ministers, and leader of opposition fail to reach consensus on appointment of caretaker federal and provincial chief executives, and subsequently the eightmember parliamentary committees also fail to do so. • ECP, not the CEC, will now appoint the presiding officers for chairing the meetings of the parliamentary committees (national and provincial), when required per constitutional provisions or the law.
Despite the way it has been used as a vehicle to perpetuate power, especially during its current spell, people still believe in the merits of democracy far more than the misguided lot (whether on purpose or otherwise) that is clamouring for the elections to be held within 90 days. We all believe that the country needs fresh elections to strengthen democracy, not re-install the same discredited politicians. An election which is held after putting in place all those arrangements which are essential to making its results fair and meaningful in the long run, will augur well for a stable democratic setup. We need a democratic setup which is credible, and can ensure for us a place of respect in the comity of nations. The nation expects no less from the caretaker government. Pakistan’s media show a remarkable hatred for anyone who faults democracy in its present form, but oddly, newspapers and TV channels spend much of their energy on showing the people (very rightly) how corrupt are their politicians. Given this track record, the media never really met the expectations of the people. It is most unfortunate that this institution, that is supposed to reflect popular public opinion, continues to be, by and large, in the hands of self- seekers–the minority in it consisting of romantics who try to impose their out-dated ideas on the masses rather than face up to harsh economic realities created by the post-cold war era, and the demand for more efficient government rather than fighting over its form. It specialises in sensationalism, blackmail and, above all evils, in blind following of Western political thought which, when supplanted in Pakistan (as we tried to do for the past sixty years) simply fails making the nation look like a bunch that is incompetent by birth. This has been happening consistently because we are (or perhaps not) trying to install a democratic system without first preparing a fertile ground for its taking roots. No wonder, in the eyes of the public (very sadly, not the politicians) democracy failed to deliver. In the process all we achieved were new heights in debasing of democracy–by far the least bad system of government. The desire to hold the next general elections within 90 days, is just another of these half-hearted efforts doomed to fail as did the earlier ones. But democracy’s failure this time will prove more disastrous than the politicians’ wildest dreams, and they will be responsible for the consequences. Unless the discredited politicians are prevented from returning to the parliament, the electoral effort will be an historical failure no matter who is at the helm of the affairs. There is no way the Election Commission could assess the credentials of the contestants (estimated to exceed 2,000) in a short span of 90 days wherein it will also have to structure, organize, and implement balloting arrangements at hundreds of thousands of locations all over the country, and physically verify that balloting arrangements are not only in place, but well publicised for the voters to come and cast their votes. Even if these arrangements are in place (very doubtful), the hurried scrutiny of the contestants–the key pre-condition for assuring that only those with integrity and competence are elected to the legislature will remain unfulfilled–expectations that can’t be met by a caretaker regime with a 90-day tenor. Then there are continuing doubts about authenticity of the electoral rolls and that ECP may again have missed out on over half a million eligible voters. Coming in the backdrop of ECP’s
These changes emphasize the fact that the CEC will not have a major role as before. ECP decisions will now be based on consensus, which is a positive sign. However, contro- versial views were expressed by observers over the appointment of Justice (r) Fakhruddin G. Ibrahim as the new CEC. Was it because of the stand he (CEC on the cards at that time) took supporting National Assembly Speaker Dr Fehmida Mirza’s ruling not to send the reference to the ECP against Yusuf Raza Gilani? The reason for doubts is that this stand isn’t in line with his meticulous track record. Besides, contrary to his stand supportive of an independent judiciary, he also advised Chief Justice Iftikhar Muhammad Chaudhry to resign since he had become ‘controversial’, and the bar was divided over his actions. That said, Justice (r) Fakhruddin G. Ibrahim is an independent person and given his track record as a former state officeholder, his views, though unusual, do not reflect partisan considerations. What is questionable though is his physical fitness to take on the CEC’s role at 86 years of age.
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September 2012
P olitics Judiciary-Executive standoff - are we heading towards a point of no return?
by Jauhar Ali
P
giving any clear assurance to the bench despite being repeatedly asked to make a positive commitment, the prime minister submitted that it was his solemn desire to find a way out commensurate with the dignity and honour of the judiciary. The court, however, made it abundantly clear to the Prime Minister that “if you will not give a commitment then law will take its own course.” In the last 65 years of chequered history of Pakistan, political instability has remained an unrelenting concern. Constitutions were abrogated, democracy was derailed, authoritarian rules were introduced, the voice of the people was suppressed, and distortions were created in the systems to suit the ends of the dictatorship. An air of uncertainty has continued to prevail about the sustainability of the office of the prime minister who is the country’s chief executive in a democratic set up. Starting with Nawabzadah Liaquat Ali Khan, a leading political figure who played a pivotal role in the genesis of Pakistan, down to Syed Yusuf Raza Gilani, we have had 21 prime ministers. Sadly, however, none of them could complete their stipulated term of office; they were either assassinated, sacked or were removed through the process of the court. The nation is once again caught up in a serious crisis with the executive seemingly embroiled in direct confrontation with the judiciary. The ongoing standoff between the two institutions lends strength to the fears – both, real or perceived – about the future of the nascent democracy in the country once again. Raja Pervez Ashraf is the 22nd incumbent prime minister. Given the current environment, it is difficult to predict with any degree of certainty if he will succeed in keeping his premiership intact till the PPP coalition completes its term of office next year or, like his predecessor, he too will be shown the way back home triggering fears of a showdown between judiciary and the executive because the political environment we see today is not exactly the same as we had at the time of exit of the former prime minister. Apparently, the political situation today is inexorably moving towards a direct confrontation between two state institutions as is evident from the strongly worded recent statement of the former Prime Minister Syed Yousuf Raza Gilani. Talking to the press he said, “if another Prime Minister is ousted in a similar fashion, the PPP will not take it lying down; it will resist, since it considers the repetition of such a move would be tantamount to destabilizing, dividing, and arguably disintegrating the country.” He also warned that the judiciary’s activism could trigger an intervention by a ‘third force.’ While the government still maintains that writing letter to the swiss authorities would tantamount to violating the constitution,
rime Minister Raja Pervez Ashraf has so far religiously followed in the footsteps of his predecessor Syed Yousuf Raza Gilani in the NRO implementation case. Will he meet the same fate as his predecessor? PPP leader Aitzaz Ahsan says “Yes”. “If Prime Minister Raja Pervez Ashraf does not write a letter to reopen graft cases, then the court would have no option but to send him home”, Aitzaz Ahsan said while talking to media persons in the premises of the Supreme Court on August 28. It would be only a miracle if what transpires at the end of the day is something otherwise. But who knows what exactly lies in store for the PM in times to come. On August 8, as generally perceived and predicted, the incumbent Prime Minister followed his predecessor in noncompliance of the Supreme Court’s orders for writing to the Swiss authorities (to reopen the graft cases against President Asif Ali Zardari) and was, in the process, asked for personal appearance on August 27, 2012 to show cause as to why he should not be proceeded against for contempt of the court. He is the second prime minister in succession who has been arraigned for committing the contempt of the court. Contrary to what people had generally believed (based on the statements of the PPP stalwarts), Prime Minister Raja Pervez Ashraf appeared before the Supreme Court on August 27, but he was neither convicted nor disqualified like his predecessor. Instead, the apex court allowed him three weeks time to implement its order in the NRO case and directed him to reappear in person before the bench on September 18, but with a positive commitment that its (the court’s) order would be obeyed. Unlike former prime minister Syed Yousuf Raza Gilani’s contempt of court case, the Supreme Court showed flexibility in its attitude and approach towards the incumbent P.M. when it asked him to authorise either the Law Minister Farooq H Naik or the attorney general to resolve the matter. “ The matter can be solved in three days as all you have to do is to authorise either the law minister or Attorney General Irfan Qadir and the court will sort out the rest of the matter,” the bench assured the prime minister adding that “ we will also take care of any anticipated effect.” “We are only interested in implementing para 178 of the NRO judgment that relates to the withdrawal of a letter written to the Swiss government by former attorney general Malik Muhammad Qayyum,” Justice Asif Saeed Khosa, heading a five-member bench of the apex court hearing the NRO implementation case, told Raja Pervez Ashraf who appeared submissive and, in his submission before the bench, conceded that the NRO implementation case had created quite an unheaval in the country and, therefore, needed to be resolved quickly. While avoiding
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September 2012
P olitics the judiciary has enough legal grounds to remain stuck to its position. But, if the crisis is to be overcome, a ‘middle path’ that upholds the dignity of the judiciary on the one hand and that of the parliament on the other, will have to be found, and acted upon in letter and spirit. And this may not be something impossible or improbable given the will to find it out. There was the kindling of a ray of hope towards this end when Justice Asif Saeed Khosa asked Attorney General Irfan Qadir to play a ‘mediatory role’ to resolve the standoff between the judiciary and the executive. Sadly, however, that hope seemed to be dissipating with the Supreme Court’s declaration that ‘it cannot move an inch from its December 19, 2009 NRO judgment’ and the adamant attitude of the government spokespersons not to write to the Swiss authorities as, according to them, such a letter would tantamount to violation of the constitution. The apex court’s seemingly harsh stance had logic behind it. As enumerated by the court, a 5-member bench hearing the NRO implementation case cannot revisit or revise the 17-member bench NRO decision of 2009. The perception that the government is using delaying tactics to avoid implementing the court’s verdict on writing to the Swiss authorities, and Law Minister Farooq Naik’s August 7 television interview may also have played a role in forcing the court to take the stated position. In his interview, the law minister had given an indication that the government was thinking of moving a review petition against the NRO verdict and the court judgment of August 3, setting aside the Contempt of Court Act 2012, apparently framed to protect Prime Minister Raja Pervez Ashraf from being sent home. The review petitions have already been filed but, after initial hearing, the case has been deferred indefinitely. Nevertheless, it seems highly unlikely that the said petitions will hold much weight. The Supreme Court has already quite clearly stated its point of view on both the matters. Hence, apparently it is unlikely that the honourable bench would change its position in the matter. In the current volatile situation marked by political instability, adverse law and order conditions, and economic downturn, it seems imperative that both sides – executive and the judiciary – act with restraint. The judiciary has constantly done so. Despite setbacks to the attempts to find a middle way to resolve the issue, the honourable court, while issuing a show-cause notice to Prime Minister Raja Pervez Ashraf, observed that it had shown judicial restraint but it was very unfortunate that its hands had been forced by non-compliance with its verdicts. “We may observe at this stage, and we observe so with respect to the esteemed office of the prime minister/chief executive, that the ostensible calculated defiance on his part through adoption of dilatory tactics and putting up excuses for resisting implementation of this court’s directions may know no bounds but at the same time restraint exercised by this court is also not without any limit,” observed the honourable court. Despite this, however, the bench thought it appropriate to advise the Attorney General to continue his efforts for finding out an alternative solution to end the standoff over this issue between two major institutions of the country. “If you make progress, then it will be fine,
otherwise the court will proceed further in accordance with the law” was the court’s advice. The country’s legal fraternity is with the apex court – that the NRO judgment should be implemented in letter and spirit – yet they feel that remaining stuck to their stated positions would be too risky under the present circumstances, and that it would be prudent to review other options to reach an amicable solution . In its January 9 verdict in the present case, the honourable court had mentioned six options. One such solution, which draws inspiration and legality from the court’s own judgment, was proposed by the President of the Supreme Court Bar Association, Yasin Azad. Talking to newsmen, he advocated the need for finding out an option that is acceptable to both, the judiciary and the parliament because, as he said, sacking of the second Prime Minister, especially in an environment of political and economic instability caused by the air of uncertainty this standoff was producing, would only add to the problems of the country. He suggested formation of a commission by the apex court to write to the Swiss authorities or alternatively, holding general elections to end the confrontation. What we have seen thus far is that the two organs of the state have apparently reached a stage from which it may be hard for either side to step back. The ultimate outcome of this confrontation is not hard to perceive. Going by the political history of the country, the tussle may encourage the anti-democratic forces to take advantage of the situation. To avoid this inevitable eventuality both sides need to act with a greater sense of responsibility. Restraint, calm, and calculated decisions, are the possible solutions to avert the crisis. Sometimes, circumstances of a case are also taken into account to reach a particular decision. Seen in this context, the subsequent submission of Attorney General Irfan Qadir in the Supreme Court is quite encouraging. He said that there was a genuine desire on the part of the government to resolve the issue once for all and that he had undertaken genuine efforts to find a middle way to break the logjam between the executive and the judiciary over the NRO verdict implementation. “The middle path that is being searched at the highest government level will ensure that the standing and prestige of the apex court remains safe and secure and no harm is done to the executive also,” the AG said. One only hopes and prays that good sense prevails to take the country out of the current political impasse.
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September 2012
P olitics Scenarios: post-US-Nato Afghanistan
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lthough there are doubts regarding the complete withdrawal of US-led North Atlantic Treaty Organization (NATO) plus International Security & Assistance Force (ISAF) troops from Afghanistan by the end of the given timeframe i.e. end-2014, but optimistically speaking, most of the soldiers would definitely pullout by then. Since Australia, Germany and France have already withdrawn or are about to pull out all their respective troops from the war theatre in Afghanistan, the most important and pertinent question that concerned quarters have started asking is the post-withdrawal situation in Afghanistan and the surrounding region. In the aftermath of NATO’s Chicago Summit Conference on Afghanistan last May, and the signing of the US-Afghan long-term strategic partnership agreement in the recent past, the roadmap to the future of Afghanistan is strewn with risk. The withdrawal of international forces from Afghanistan is being planned in the hope that the Afghan National Security Forces (ANSF) including the Afghan National Police (ANP) would be fully capable of looking after the state’s external and internal security responsibilities by 2014. There is lack of consensus among experts and commentators on Afghanistan whether handing over of the security responsibilities to the Afghan National Security Forces, and ultimate withdrawal of foreign forces would result in a stabilized Afghanistan, or may lead to another bout of a civil war. According to initial estimates, the size of the ANSF would be around 350,000 by the year 2015. With an estimated population of 30 million, such a size of the security forces of Afghanistan apparently seems enough. Given the huge security challenges, both inside the country in the shape of Taliban insurgency and external threats, having such a large security force has its justifications. Nevertheless, raising and maintaining such a big military and paramilitary apparatus is a gigantic task for Afghanistan, both administratively and economically. Ensuring discipline in a large security force is itself a daunting task. Keeping in view the recent history of Afghanistan and the tendency of Afghan military personnel to join warlords in times of national crisis, fulfilling this dream is a huge task. There is a need to inculcate thorough professionalism in the ANSF, which requires long periods of training in indigenous military academies. Although the ANSF personnel have been getting specialized training from US and NATO trainers, this is not enough. The country needs national military academics as well as instructors to train the Afghan military and paramilitary forces into professionally competent and committed soldiers.
Naila Aman Khan The author is a political analyst and sociologist
Without this infrastructure, ANSF personnel cannot be indoctrinated with the discipline which is critically needed for stability. For Afghanistan, a strong national army is indeed a guarantee of its very statehood. What we have seen in recent times is that Afghan national army (after Dr. Najeebullahi’s pro-Communist regime in 1992 was over-thrown by Afghan mullah warriors) got diluted, and in order to sustain themselves, the soldiers either took to other vocations or joined the known warlords. The international community has helped Afghanistan to raise military and paramilitary forces of around 150,000 personnel. Initially, the US and its coalition partners were eyeing a full-fledged Afghan Military of 352,000 personnel. However, recently the NATO leaders agreed that, for the security forces to be sustainable, by 2017 the number of the same should be scaled back to 228,500. According to NATO estimates, it could cost around US Dollars 4.1 billion a year to maintain a force of this size. Thus the ANSF strength and sustainability is dependent on foreign funding. Apart from that, as the number of the proposed military and paramilitary personnel has been reduced by a hefty 120,000 soldiers, the ultimate ANSF would need extremely rigorous training and discipline, which is indeed a daunting task. The international community promises to provide billions of dollars until 2024 for meeting the operational costs and development needs of Afghanistan, but these promises may not always be kept. In this situation, the Afghan government would be in dire straits. Afghanistan still does not have a modern and sustainable economy, and there have been no large-scale efforts by the Karzai administration, or by its international partners, to develop modern economic institutions like industrial banks, stock ex- changes, etc. One is not very optimistic about the capacity and ability of Afghanistan to raise revenues domestically to meet the operating costs of various government departments. Without a viable and growing economy, political stability would remain a dream. Afghan leadership and the international community need to understand that modern economic institutions are indispensable for running a modern nation-state or, for that matter, any nation-state. Although the Afghan Constitution, Parliament, Executive and Judiciary have been in place for quite some time now, and there have been two presidential elections also wherein the incumbent President Hamid Karzai won, Afghanistan is far from being categorized as a “stable” state. The presence of around 132,000 international troops (mostly from the Western countries), the failure of Afghan government to
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P olitics develop modern economic institutions as well as to control corruption, the negative role of Afghanistan’s neighbouring states, the traditions-laden Afghan society and its statecraft, have together contributed to political instability in Afghanistan. As only one of the destabilizing factors (the foreign forces) expected to be neutralized with the withdrawal of these forces from Afghanistan, in the foreseeable future all other factors would continue to foment instability in Afghanistan. The two main Afghan insurgent groups–Afghan Taliban and the Haqqani Network–both have refused to give up militancy and terrorism. These groups have taken, and would continue to take, full advantage of political instability in Afghanistan to overrun the state and its institutions. So far, both these groups have rejected the offers from Afghan President Karzai to join the government and participate in the political process. Therefore, once the foreign forces withdraw, these groups, particularly the Taliban, may think of joining the government and taking part in elections. The Taliban have been arguing that only they would talk to Afghan authorities when foreign forces withdraw. However, this would depend on the situation then. If the Taliban leadership is convinced that the group could not make a comeback, it would opt for joining the political arena. However, sensing that through political process the militia won’t be able to restore their regime, Taliban would go for overrunning the state. The premise of this scenario is that, by its orientation and origin, Taliban Movement has been an absolutist group. It has not believed in sharing of power or becoming an opposition group. It is worth remembering that Afghan Taliban regime (1996-2001) became a bête noire for the civilized world for providing sanctuaries to the largest global terrorist group, Al Qaeda, besides its gross human rights violations, particularly the reign of terror it perpetrated on the women of Afghanistan. There have been statements from different Taliban leaders like Arsala Rahmani that once Taliban return to power they would not repeat their past practices. They have specifically clarified that they would not put a bar or ban on women education. Will they keep their promises is anybody’s guess. Moreover, Taliban have also been clarifying that once their regime is restored, they would ensure that the Afghan soil is not used against any country. They have also tried to distance themselves from Al-Qaeda. They didn’t react strongly to the killing of Al-Qaeda founder and this regime’s chief financer Osama bin Laden. However, if Taliban return to power, even through the existing Afghan political institutions that primarily are based on presidential system of government, there could be another civil war. But, with the Taliban occupying political offices in Kabul, the scale and intensity of the civil war may not be severe. Despite that, as Taliban are almost entirely Pashtun, the other key Afghan communities-Tajiks, Uzbeks, Hazaras and Turkmens (who once remained united under the banner of Northern Alliance)-may launch a decisive separatist movement. The separatist movement may turn into militancy. In that case, the discipline of ANSF having over-representation of the minority communities would be tested. Ultimately these
Arsala Rahmani
forces may develop schisms along ethnic lines. This would be disastrous. Afghan Taliban’s return to power in Afghanistan, either through elections or by force of arms, would have farreaching consequences for Pakistan. The Pakistani Taliban, more specifically Tehreek-e-Taliban (TTP), would consider Afghan Taliban’s regaining power as their own victory, and would give them a model to replicate and satisfy their own urge for power. This may result in a new wave of terrorism by Pakistani Taliban groups. Pakistani religious parties would provide political support to the insurgents and join their demand for enforcement of Shariah and doing away with the existing state dispensation. This may lead to largescale instability in Pakistan. Islamic extremist groups based in Central Asia, like Islamic Movement of Uzbekistan (IMU), would also consider Taliban’s return to power as a role model, which would result in exacerbation of their militancy against the autocratic regimes in Central Asia. As there are no true Afghan political parties and the existing parliamentary groups are basically the former warring factions, Taliban, being the strongest militia, have every chance of getting into power by participation in parliamentary and presidential elections. While in government, Taliban would have to reconcile to the long-term strategic partnership Afghanistan under Karzai has inked with the US. Under the terms of the said partnership, the US would keep its bases in Afghanistan. If Taliban would refuse, it would be denied power because the very aim for which the US and NATO occupied Afghanistan was to deny the use of Afghan soil by global terrorist groups like Al Qaeda. This the Western powers would ensure by any means. In case Taliban agree to the age-old panacea for Afghanistan, that is, a broad-based government in the country after the withdrawal of foreign forces, this would provide much-needed stability to Afghanistan. In such a scenario, there would be little room for manoeuvrability for the neighbours of Afghanistan to pursue their interest in this war-devoured country. Once Afghanistan has a broadbased government the resultant stability could lead to a thriving regional economy because, since long, instability in Afghanistan has been the spoke in the wheels of such an economy. The future of Afghanistan and of the region would depend on the role of Afghan Taliban and its neighbours. One could only hope that all sides would try to stabilize Afghanistan, which is in the best interest of the region and its inhabitants.
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September 2012
E conomy Rate cuts aren’t enough, more is needed
by A. B. Shahid
T
he unexpected 150 basis point cut in power load shedding, infrastructure deficiendiscount rate offered by the State Bank cies, inadequate attention to maintaining law of Pakistan (SBP) in the Monetary Policy it and order, and lack of serious effort to raise announced on August 10, was welcomed by the output of the domestic energy sector so the vast majority of the business community as to contain the expanding external deficit but has also given rise to some questions that is not abnormal at present but could because the drop in inflation cited by SBP as expand to a dangerous level (in terms of its the reason for cutting the policy rate, is debatimpact on the Rupee’s exchange rate, and in able. Statistics of the Federal Bureau of comparison to the burden of external debt Statistics (FBS) now have few buyers, which is Mr. Yasin Anwar, Governor SBP servicing) if energy imports are not cut, and feeding doubts. Some analysts believe that the the export sector does not operate on its SBP used the FBS reported inflation figure as a window of optimal capacity to increase both export proceeds and opportunity to slash the rate and made use of it before employment. there was another hike in inflation. The doubters, who do not find much positivity in the This class has gone to the extent of pointing to the high latest SBP monetary policy, point to another harsh fact; cost of public debt (indeed at a record high level) and its Pakistan’s greed-stricken banks won’t be overjoyed at the servicing cost as the driver of the cut in discount rate. This prospects of lower profits courtesy the lowering of the argument carries convincing weight; the sitting government discount rate (and thus Kibor). Besides, while the monneeds such a rescue prior to the coming elections to borrow etary policy accepts that this sector hasn’t been taking its more and on cheaper rates to spend on visibly popular obligation seriously (placing profit above achieving the heads to gain a part of its lost popularity. But what remains crucial macroeconomic targets) it does not spell out how highly uncertain is whether fiscal authorities would ratioit proposes to shift the focus of this sector. In the postnally use the breather offered by lower debt servicing cost 1971 era, besides the many other serious disadvantages i.e. will it refrain from further wasteful expenditure to bring Pakistan suffered, it lost its access to cheap IFI funding the fiscal deficit within manageable limits? handicapping all its development finance institutions (DFIs), and the subsequent cronyism in appointment to But what goes against this argument–even higher fiscal key offices in them gradually made them ceremonial debt–is the logic that banks may not be willing to lend to institutions. the state as in the recent past since the new rate will leave banks with lower spreads. Lending to private sector, During the Musharuff era, DFIs were eventually shut on the wherein gross yield (the sum total of the mark up, commisflawed logic that commercial banks can do the job of financsions and service charges) could earn banks a much higher ing infrastructure development. That was a massive blunder. return may become more attractive. A more credible view is Lamenting the decay of physical infrastructure, though right, that SBP now shares the frustration of the business and is admission of that gaffe; given the profit-oriented mindset industry with lawlessness that is being triggered by rising of the present owners and managers of commercial banks, to unemployment, which visibly threatens to tear apart the hope that they would bother about macroeconomic priorities social fabric of the society. That’s why SBP finally decided was over-optimistic; during 2003-08, what they all thrived on to lend the private sector a helping hand in reviving its was consumer lending in all its forms and aftereffects thereof confidence to increase investment in the real sector. were manifested in the trade deficit of $20.75 billion, by then the highest in Pakistan’s history. Financing infrastructure was What remains doubtful though is that, in isolation, is lowernot their priority, and in financing the setting up of industrial ing of the discount rate (that could bring down the Kibor units, they didn’t consider the ensuing power shortages. by around 125 basis points) all that business and industry need to regain confidence in the system? Unless, as pointed While the monetary policy has expressed its worries over the out by the monetary policy, the government improves upon buildup of the fiscal, trade, and current account deficits, and its role in enforcement of the law on streets and in ensuring government's apathy to correcting the course (despite SBP’s a large cut (i.e. by half) in the power load-shedding hours, repeated advice) and also reminded the government about its business confidence may not be revived to contain the latest amendments to the SBP Act and Fiscal Responsibility flight of capital which is now an almost accepted reality. In & Debt Limitation Act, the conduct of the in-power regime mid-August, the UAE government released the figures of should leave it in no doubt that its fresh warning too would foreign investment in its real estate sector since January be lost on deaf ears. It is time the SBP considered adopting 2012 and, reportedly, the amount invested in it by Pakistanis a legal course to oblige the regime to abide by these laws. was a hefty Dh 1.713 billion. Despite all this, SBP’s cutting of its discount rate is a positive The ongoing flight of capital finally struck the SBP, forcing move, though it is a bit late in the day. The private sector has it to give much higher weight to the state of the private suffered a serious wound to its confidence. SBP can’t deliver sector credit and investment. That it is worried about this what is the state’s responsibility – plug the power and energy ongoing tragedy is manifested by its repeated reference to gaps, control law and order, curb resource waste, and blatant
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September 2012
E conomy impulses of the economy. That is why the policy rate was kept unchanged at 12.0 percent for about 10 months to contain demand pressures despite criticism from certain quarters, including the government and various trade bodies. Fall to a single digit in inflation rate in July and the receipt of CSF, which has temporarily supported the budget and external side, seem to have provided an opportunity to the SBP to consider easing of monetary policy. The SBP move seems to have been influenced by a bleak investment scenario in the country. The SBP is powerless as far as structural factors that have been ailing the economy are concerned. It can only point out and has repeatedly done so about the low tax-to-GDP ratio, high government expenditure beyond budgeted amount primarily due to rising subsidies, power and gas shortages, and inefficient public sector entities bleeding the Federal Budget. Real private investment could only be improved if the government was able to reduce its fiscal deficit and release more real/financial resources of the economy for private sector utilisation. If the private sector credit or investment is financed through the creation of more money, it could simply add to inflationary pressures in the economy without making the intended impact. The situation in Pakistan could be more risky since productive potential of the economy is not only impeded by a serious lack of credit but is also profoundly constrained by certain other adverse factors like severe energy shortages and security situation which are likely to persist in the foreseeable future. If SBP were to lend directly to the government instead of lending for budgetary needs via the banking channels the inflationary implications are equivalent. But it would force the banks to lend to the private sector. The result of SBP policy rate cut would be the lowering of lending rates which are linked with the Karachi Interbank Offered Rate, known as Kibor, benchmark interest rates following a rigging scandal that has implicated global banks and hurt the reputation of regulators on both sides of the Atlantic and also a reduction in the rate at which banks keep their overnight excess cash with SBP - since both these rates are anchored to the SBP policy rate. The reduction in policy rate by 150 basis points is expected to lower local banks' net interest margin, a key measure of profitability from lending, in a significant manner. Although Kibor is extremely hard for a single institution to manipulate, the SBP will be required to ensure its increased post-policy rate cut oversight in an effective and meaningful manner. Political parties - whether they are in coalition or in the opposition in Parliament - also need to play their role to ensure fiscal discipline and continuity of economic policies. The pressure for maintaining fiscal discipline could be exerted on the government by them. The State Bank's Act is being violated with impunity and there needs to be a full-fledged debate on the issue to fix responsibility and provide the necessary guidelines in Parliament. Until and unless overall fiscal deficit is brought within sustainable limits and problems like energy shortages are solved, the efficacy of monetary policy to achieve the desired objectives would remain in doubt. It is quite possible that the State Bank has become frustrated with the rising level of fiscal deficit and government's apathy to correct the course despite its repeated advice. That’s why it decided to take a calculated risk so that added pressure on balance of payments could be managed and a couple of percent rise in inflation is something the country can live with. But fast rising unemployment is far more dangerous as it could tear the social fabric of the country. SBP, therefore, on its own, has decided to lend a helping hand to private sector investment. The fiscal authorities now need to avail this breather of lower debt servicing burden not by increasing wasteful expenditure but by bringing the fiscal deficit within manageable limits.
corruption in state offices. But what it can do is to pressurize banks into doing their job more responsibly–channel savings into economically productive sectors. Independent analysts argue that State Bank of Pakistan's decision to cut key discount rate to 10.5 percent from 12 percent is a politically-motivated move. They were expecting little or no cut. Even the Monetary Policy Statement (MPS) issued by SBP lacks clarity. It fails to explain the rationale behind the 150 basis points cut; it appears to have been written before the decision to reduce the policy rate by a highly significant margin as it could not spin the argument in favour of a big reduction. The reasons proffered in the Monetary Policy Statement for this large cut are not entirely convincing. It has relied heavily on some reduction in the rate of inflation in July, 2012 and the need to revive private sector credit and investment in the economy to make a case for a sharper easing in its monetary policy stance. Another notable feature this time is the realisation on the part of the State Bank that the impact of monetary policy has become limited in the presence of a host of unfavourable factors threatening the economy. The most glaring negative development is that the economy "seems to have settled at an unenviable equilibrium of high inflation and low growth". Main reasons for such a sad situation are a protracted energy crisis, weak fiscal fundamentals, a declining trend in private investment and rapid pace of increase in domestic debt. Balance of payments position remains contingent upon foreign financial inflows. Uncertain global economic conditions do not inspire much confidence either. While recognising policy limitations in such a constrained environment, the SBP, in its MPS, has vowed to play its required role in nudging the macroeconomic outcomes whenever there is a relative ease in some of its core concerns. It increasingly appears that the SBP has seen a window of opportunity to slash the rate and has availed it before there is another uptick in inflation rate. Improvement in key economic indicators, according to the MPS, would require comprehensive and credible reforms in the energy and fiscal sectors. Adherence to the legal policy framework of economic policymaking - the SBP Act and FRDL Act - is also important. So far as the present monetary policy decision is concerned, Central Board of Directors decided this time to give a relatively higher weight to the state of private sector credit and investment, knowing that the projected inflation for FY13 could remain slightly higher than the target. A more integrated approach of both fiscal and monetary authorities in earnest is needed with a view to achieving sustainable growth and bringing inflation within a 4 to 5 percent range - a desirable rate according to SBP's own macroeconomic model for a developing country like Pakistan. A deadly combination of low growth and high inflation continues to persist, energy crisis continues to worsen, fiscal outcome continues to be bleak, revival of private investment is not in sight and foreign sector continues to be highly vulnerable to various kinds of shocks. As if all of this was not enough to depress the prospects of the economy, poor law and order situation, political uncertainty, rampant corruption, war on terror, etc, have also combined to make the economic situation more worrisome. While the State Bank always showed its concern for the deterioration of various economic indicators, it continued to concentrate on its primary function of achieving price stability through a tight monetary policy and advising the government simultaneously to revert to a sustainable fiscal position in order to release higher investible resources for the private sector to unleash productive
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September 2012
E conomy Shining India: how true is that?
E
nergy and power shortages are now the accepted reality in the South Asian countries; people must learn to live with this reality, but the gradual warming of the planet is making it increasingly difficult to survive. Recent research shows that work time losses in some areas in these countries can be as high as 50%. To make things worse, on job efficiency of workers (often spending sleepless nights, courtesy power load-shedding) is also falling. Economic planners in all these countries–Pakistan, India, Sri Lanka and Bangladesh–blame their politicians for sidelining crucially important investment in energy and power sectors to spend state revenues on projects that yield popular though shortterm results. Simply defined, that’s how the politicians compromise the future of their nations. All that the political leaders do is to blame the earlier regimes; what they do not do is cut resources waste to save resources for these crucially important sectors. Worse still, huge chunks of the inadequate resources that are allocated for these sectors are pocketed by politicians and their cronies in the project tendering process; thus these resources produce far less in terms of returns. While in Pakistan, power load-shedding (and the destructive public unrest it has been giving rise to on a daily basis) keeps the media busy, the recent power “blackout” in India created history because, for two full days, northern and eastern India (some 600 million people or almost half of India’s population) was without power, which caused massive disruptions. People were evacuated from underground railway systems in major cities because the trains they were travelling in were stuck in the underground tunnels. On ground, traffic signals weren’t working, which caused massive traffic jams for hours at a stretch. Coal miners remained trapped as the lifts weren’t working. Hospitals couldn’t function, and so, many requiring immediate treatment, had to suffer or died. But the Indians exhibited remarkable discipline; there were no instances of looting, arson, or street fighting. Oddly, the chairman of India’s Power Grid Corporation said “this is not something new…..the country is in safe hands.” His reaction portrayed the extent to which the mindset of the bureaucracy has been moulded by the politicians over the years. What he did not realize was the fact that he was commenting on what was the longest and the biggest-ever power failure anywhere in the world. The official explanation of this tragedy was that some states squeezed more electricity out of the system than their quota, from the national transmission network linking five regional grids, and thus caused hundreds of transformers to trip and power lines to melt. In effect, the blame was shifted from the flaws in the system, to consumption. Many experts, however, hold a different view; they think a lot of the blame lies on the sub-standard materials used in power transmission systems–a reflection of how resources continue to be wasted because of the graft that has become a part of the culture. Like Pakistan, load-shedding due to frequent system failures has forced most mega businesses to install a whole variety of backup systems–the cost of bad planning as well as resource allocation by the state to this critical sector–that, effectively, passes the state responsibility on to the citizens. Most of the power distribution companies are state-owned and virtually bankrupt because,
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Areas affected by India’s power crisis source: Power Grid Corporation of India
unlike Pakistan, politicians insist that tariff stays as low as possible–the popularity consideration. One of the funniest explanations of the power ‘blackout’ was that a disappointing monsoon could have forced farmers to pump more water to their fields. That the monsoon has been very disappointing is true, but water pumping units couldn’t cause such a meltdown. This brings into this debate another regrettable aspect of planning. According to recent research, India and Pakistan (as well as countries even like the US) are heading for ever-larger crop shortfalls because they are overdrawing water from their underground reserves–input that is essential for healthy crop growth. This developing scenario is worrying because politicians in the South Asian countries are still not bothered about the consequences it will entail. India’s Congress-led coalition has few parliamentarians with a record that portrays a vision for reform in general; it relies on fickle regional parties to remain in power. The opposition is no better, possibly worse. In isolation, prime minister Manmohan Singh can achieve precious little despite being an economic expert par excellence. Pakistanis are in the same boat, though without even this solitary plus–a professional prime minister. A reminder of that was the partial blackout in Karachi soon after the black-out in India. What is missing is a concern for preserving water by repairing and improving water transmission systems in both farms and cities, and above all, creating awareness about the disastrous consequences if water is not used judiciously. Then there are the issues of shifting to wind and solar energy to reduce fuel consumption and spread of pollution-causing climate change that is shortening the monsoon spells. This calls for diverting resources, and quickly, to contain this scenario from taking ever-higher toll of its neglect, but there are no indications yet that this issue is being taken seriously by the politicians. One senior Indian banker says “You are talking about 40 or 50 years of underinvestment in this sector”, a comment that is frightening; it applies to Pakistan as well but with a discount. September 2012
E conomy The looming energy crisis
by K. Jehangeer Khan
I
n June, the Minister of Petroleum had warned of a severe natural gas supply shortage and predicted that the power cuts could become longer unless CNG consumption was brought down. In fact, he recommended a complete stop on the use of CNG, and went as far as ann- ouncing that CNG stations’ national network would be closed down in the next couple of years. This has now been followed up by warnings from the Metrological Office about the looming water crisis caused by the drought, and abnormally below normal temperatures during April-June 2012 that led to lower water inflow into the rivers and dams. Together, this would lead to severe water shortage because Mangla and Tarbela dams would not be filled to their full capacity even with rainfall in September and onwards. Besides causing extreme shortage of water for irrigation, the developing scenario could cause power supply shortages that could prove more debilitating than those witnessed in 2012 (thus far). With dams not filling to their full capacity, in the months to come, hydro electricity won’t be generated as fully as possible, reliance on gas and furnace oil will increase and problems, courtesy the aging of the power generation plants at Tarbela and Mangal dams, would add this misery. Not that things were far too good (compared to today) even in early 2008, but the fact that four and a half years thereafter were wasted without much being done in terms of increasing the output of the existing natural gas and oil wells (let alone discovering new reserves), has made Pakistan more deficient in energy back up because supply isn’t keeping pace with the rise in its demand. In the case of natural gas, this failure will prove more damaging because, while its consumption by the fertilizer, industrial, CNG, and power sectors kept rising, its supply did not increase at a matching pace. The fact that one of the major fertilizer manufacturing units, that spent a huge sum in the shape of the badly needed DFI funds, discovered later on that it can’t get the quantity of gas that would be sufficient to operate its new production plant at break-even capacity, let alone full capacity, indicates how badly has the gas sector been managed. The way the energy price kept rising since 2007, was a clear warning of what was coming, and should have triggered a sort of emergency in the expansion and up-grading of the energy sector, but nothing of the sort was witnessed, which reflects very poorly on the way the state is being managed. Besides this neglect, the focus on setting up solar and wind power-based energy sectors too was very inadequate, in fact, negligible. What was required was devising a package of tax incentives that could attract large investments, for a start, in the assembly and then manufacture of this technology under foreign manufacturers’ license, although this was imperative because global oil reserves are fast depleting, andit would be wise to begin a shift to non-oil and gas sources
of energy to sustain the national economy. Pakistan, fortunately, has the sort of topography where these technologies could deliver good results. The over 500km long Sindh-Baluchistan almost straight coastline, and the Cholistan and Thar deserts with wind blowing across them all round the year are ideally suited for generating energy from wind. That’s not all; they are equally well suited for generating solar energy making them an asset for Pakistan. At present, however, localities in both these deserts have been declared drought affected areas because, while there has been no rain, the water reservoirs there have dried up, and animals as well as humans are at risk. As a matter of fact, scores have already died of both thirst and lack of natural greenery that is their food. TV channels have been showing the dead bodies of cows, goats, bullocks and camels lying in these deserts. While this scenario foretells a rise in supply shortages of food and meat and their prices going up, a far bigger worry for the immediate future is the over-dependence of the power sector on gas and the consequences for the domestic, industrial and the CNG sectors, of diverting larger volumes of gas to power sector; this diversion is bound to escalate social unrest to new levels of intensity. But the bigger uncertainty surrounding the economy is law enforcement capacity of the state. The sensible course, that wasn’t adopted, was to, for a start, cut the power line losses and theft, and in the case of gas, its line leakages. Cutting these ‘known’ ongoing loss-types could have added between 12 to 18% to gas and power supply, and thus helped contain power load shedding to levels that could afford economic activities to continue at a level that ensured growth rate above 4% per annum and also cut the rising level of unemployment. Even now a transparent effort in this area, that on the one hand exposes the power thieves and on the other operational lapses and corrects them, could work well. Penalizing big power thieves could shut up the critics of this corrective effort when it penalizes the smaller thieves in this class who form an enormous group. Just visit any market and see for yourselves the thousands of ‘kundas’ hanging from the overhead power supply lines. This applies to markets in every city, thanks to the integrity of the frontline staff in the power distribution companies; the pity is that we all see this thievery network in operation with our own eyes but ignore it. This is not the way of those who sincerely want things to change for the better. Miracles don’t happen anymore; people must act to help materialize actions that improve things credibly. During the worst periods, the gap between electricity demand and supply touched a high of 7,000MW; indications are that such peaks could become the norm in the coming winter; sustained supply shortfall at such a level or close to it is a worrying prospect. It is time businesses began preparing for it now.
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September 2012
E conomy Drought and its impact on key crops and prices: A global perspective
S
cientists are already warning that salt levels in the world's oceans are rising, impacting weather patterns. Research by scientists in Australia and US on data collected over the last 50 years shows that arid regions are becoming drier while high rainfall regions have become wetter as the planet continues to get warmer. The upcoming report by the UK based center for Low Carbon Futures Near Future drought and related food security projections for Asia says within the next 10 years large parts of Asia can expect long periods of severe drought. Northern China, India, Mongolia, Afghanistan and Pakistan will be among the most seriously affected countries. The primary source of water supply for agriculture in most parts of the world is rainfall. Pakistan is a land where rain falls not only in summer but also in winter. Kharif crops largely depend upon the amount and distribution of rains especially during monsoon season. Pakistan Meteorological Department had predicted 15% above normal rains during this season but so far it had been far from normal. Now the Pakistan Meteorological Department has indicated that in this monsoon in July the rainfall was 43% below average. The provincial rain fall patterns for the same period were estimated at 91% below average for Sindh, 34% for Baluchistan, 29% for Punjab and 43% for Khyber Pakhtunkhwa. Due to damp weather crops of chili, cotton, sugarcane, melons and vegetables are under pest attack in some parts of Sindh. Relatively mild impact of El Nino phenomenon, associated with warming of the tropical Pacific Ocean, has resulted in reduced rainfall in subcontinent. The Indian monsoon season also indicates nearly 20% below normal rainfall so far and the Indian Meteorological Department has indicated the possibility of drought in some parts of the country. Thus there are concerns about low crop productivity. According to the chief of Pakistan Meteorological Department, Qamaruzzaman Chaudhry, Pakistan may be heading towards an acute water crisis which will seriously affect winter crops and create shortage of drinking water in some areas. Below the usual temperatures during April, May and part of June coupled with low rainfall were contributing to the alarming situation and an analysis has indicated that Mangla and Tarbela dams might not be filled to their capacity even if there was a revival of monsoon activity. Rapid development of El Nino conditions had suppressed monsoon over part of South Asia leading to deficient rains over Pakistan. Due to Al-Nino conditions the rainfall has significantly increased over South East Asia and consequently it has decreased over South Asia. The drought will not only affect major summer crops i.e. rice, cotton and sugarcane but also hit output of wheat in winter as it is largely dependent on water from dams for irrigation. In Punjab the wheat estimates have been revised downward which now stands at 17.7 million tons against 19.04 million
By Rauf Nizamani
tons last year. However, some officials privately concede that final tally may be even lower. The Food Department which has the single crop (wheat) expertise is of the view that final size may turn out to be 17 million tons. According to an official water shortages had resulted in reduction of 10% area under paddy cultivation in Punjab and CLCV (cotton leaf curl virus) attack on cotton plants. Similarly there were reports of disease attacks on sugarcane. Acute water shortage has hit cotton sowing on about 200,000 acres in Sindh. All the three major summer crops are facing serious threat of reduced output and increased incidence of disease because of water shortage in the province. Chairman of Agriforum of Pakistan feared that the shortfall in the production of rice and cotton will also hit exports and widen trade deficit and impact adversely on balance of payment situation. Additionally, water shortages will reduce hydro-power generation at a time when the electricity supply gap is rising on the back of government’s financial troubles. Although the exact extent of damage will become clear only once the monsoon rainfall is over but the outlook appears to be dismal so far. Worst affected area by the drought in Sindh so far is Mithi/Tharparker. According to a report, on the basis of historical trend, it has remained the most vulnerable district to droughts and continuously declared as drought calamity hit area in 1968, 1978, 1985, 1986, 1987, 1995, 1996, 1999, 2004, 2005, 2007 and also in 2012. Moreover, about 20 to 30 percent fruit crops have been affected by abnormal weather conditions in the Kashmir Valley. Persistent precipitation with below normal temperatures during the flowering season of fruit crops in Kashmir has affected the fruit setting which requires particular temperatures and weather conditions for healthy growth. According to an agriculture and environment expert, Dr. Pervaiz Amir, Pakistan has been included among the countries likely to be affected by climate change in Global Climate Risk Index 2012, a report by German Watch, a non-governmental organization. The report released prior to Durban climate change conference in 2011 examined the effect of extreme weather events world-wide from 19912010. He believes that the early impact of climate change is already apparent during summer months. Lahore, Sarghoda, Mianwali, Larkana and Nurpur Thal were among 28 cities in the world that experienced record high temperatures in 2010. Water intensive crops like sugarcane, rice and cotton will be the worst affected by the climate change. According to a World Bank study, as much as 30% of the country’s current water reserves will deplete in 20 years. The cost of production of these crops will surge if policies and guidelines were not formulated on use of water for irrigation. Water shortage will take a toll on about 20 to 25 percent of cultivable land in Punjab and Sindh and render it unfit for
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September 2012
E conomy were projected both for wheat and maize croplands in central, southern and northern China. Global average spring wheat yields are projected to decrease by up to 25% over the next 50 years. Some regions such as South Asia and Southern Africa may be affected sooner. The forecast for world cereal production by the Food and Agriculture Organization (FAO) has been lowered from June which is likely to result in the smaller buildup of world inventories by the end of season in 2013 than previously estimated. FAOs latest forecast for world' cereal production in 2012 stands at 2,396 million tons in 2012, a record level and 2 percent up from the previous high last year but as much as 23 million tons less than reported in June. While the bulk of the increase in cereal production from last year is still expected to originate from a significant expansion in maize production in the United States, the deteriorating crop conditions due to the continuing dryness and above average temperatures in much of the major growing regions of the country have dampened this outlook. The FAO’s latest forecast for maize production in United States stands at 350 million tons, down 25 million tons from the June forecast. As a result the global coarse grain production is now foreseen to reach 1,229 million tons this year, 19.5 million tons less than anticipated in June. World wheat production is heading toward a contraction of about 3.2% to 678 million tons or 2 million tons less than reported in June as downward adjustment in Australia, China and the Russian Federation more than offset upward revisions in the EU and Morocco. World rice production in 2012 is now anticipated to grow 1.6% to 489.1 million tons which compares with the previous forecast of 490.5 million tons. The small reduction mainly reflects some deterioration of prospects in a few major producing countries especially India. The forecast for global cereal utilization in 2012/13 has been lowered slightly by around 6 million tons from the previous month to 2,370 million tons but still 1.8% higher than in 2011/12. The reduced forecast reflects expectations of somewhat slower expansion of feed use. World feed utilization of cereals is currently forecast at 816 million tons, up 3.2% from the previous season but down from the 3.8% expansion expected last month. Food consumption of cereals is forecast in the order of 1085 million tons, an increase of 1% from the previous season, which is largely in pace with the world population growth. Total industrial use of cereals is also anticipated to increase by 1%, mostly on stronger demand from the starch industry, while the cereals for the production of bio-fuels could stagnate at around 2011/12 level. Following this month's downward revision to the forecast of world cereal production in 2012 the forecast of global stocks for crop seasons ending in 2013 have also been lowered. The latest forecast stands at 536 million tons, 12 million tons less than predicted in June. Most of the downward revision since last month concerned coarse grains(mainly maize) the inventories of which are now forecast at 189 million tons, 11.7 million tons less than reported in June. The reduction from the previous report follows the deterioration of crop prospects in the United States which could result in lower ending stocks than earlier anticipated. Based on the latest forecast the global stock to use ratio of coarse grain may improve less than envisaged last month and stands at 15.3%. The forecast for global wheat
agriculture. A likely repeat of 1998-2001 droughts in Baluchistan over the coming years will take a heavy toll of crops, fruits and livestock production. According to former environment minister Malik Amin Aslam, Pakistan stands to lose between $ 6 billion and $ 14 billion per annum if no measures are taken to deal with natural catastrophes triggered by climate change. The projection is based on the $ 9 billion losses incurred during the 2010 summer floods. Climate change will lead to changes in growth cycles of various microbes, insects and fungi. These changes may make it difficult to maintain current yield levels in cross-pollinated crops (maize) and several fruits and fodders. The production of honey may also be affected as bees are likely to migrate to higher altitudes. Locust and stem rust will cause greater damage to crops with rise in temperature and humidity levels. Crop yields might go down by as much as 50% owing to outbreak of these diseases in the Punjab and Sindh. Changes in nitrogen-fixing bacteria may affect soil fertility. The incidence of dengue and Congo fevers and Hepatitis C will go up due to variations in temperature. Experts are of the view that crop yields and sowing and harvesting patterns may undergo striking changes in 20 to 30 years owing to rise in temperatures and fall in fresh water reserves. They suggest that the population is required to reduce dependence on wheat and shift to use of coarse grains such as barley, sorghum, millets, oats and coarse rice. Farmers may shift from production of staples to cash crops. There is a world-wide evidence of lesser rains and abnormal climate patterns threatening global food crisis. The USA that supplied nearly half of the world's export of corn and much of its soybean and wheat is passing through its history's worst drought since 1956. According to the Ministry of Climate Change, the situation was no different in neighboring India, the world's second largest producer of sugar, cotton and rice that is also experiencing the failure of monsoon. India has received 36% below average rains in key crop growing areas in north and had officially declared drought conditions in those areas. The ministry says that India's 84 reservoirs were filled to 19% capacity that would likely affect their next wheat crop, forcing the country to resort to its reserve inventory from last year. Kashmir, Himachal pardesh and possibly lower riparian states of Punjab, Haryana and Rajasthan may experience a severe drought. There was evidence that erratic monsoon in north-west India was because of deforestation in Kashmir. Southern China continues its third year of drought. According to China's Flood Control and Drought Relief Agency, drought has caused water shortages for more than 8.57 million people throughout the country. Some 3.64 million hectares of farm land across Yunnan, Shanxi and Gansu provinces have been affected. Droughts are frequent in China, which has 20% of world's population, but only 6% of its fresh water resources. From China down to India the region is home to many of world's fast growing economies. But in a cruel twist of fate it is home to two-thirds of the world's poorest people and more than 60% of the global undernourished population. This is the region that produces around 60% of world's wheat, 27% of maize and 94% of rice. The three cereals alone are worth over $ 100 billion annually. Of the major producers of cereals in Asia, China, Vietnam and Indonesia have the greatest increase in exposure to drought. More specifically, drying trends
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September 2012
E conomy inventories has been cut slightly by two million tons from June to 179 million tons, down nearly 14 million tons or 7% from their opening levels with most of the reduction concentrated in Commonwealth of Independent States (CIS), reflecting this year's smaller harvests. With 2012 world rice production now expected to outpace consumption by 13.4 million tons, the size of the rice stocks carried over in 2013 are forecast to rise by smaller amount to 167.5 million tons, which is a record and represents a very healthy stock to use ratio, at almost 35%. World trade in cereals in 2012/13 is forecast to reach 296.7 million tons, nearly unchanged from the previous month and almost identical to the estimated trade volume in 2011/12. World trade in wheat is forecast to reach 135 million tons, down 5 million tons or 3.5% from 2011/12. The decline is largely driven by expectation of higher availabilities of coarse grain compared to the previous season. International trade in coarse grain in 2013 is heading towards its second highest level since 2007/08 record rising to 127 million tons, up 4 million tons or 3.4% from 2011/12. Higher maize trade (99.5 million tons) would account for most of the expansion. Trade in rice is preliminary foreseen to hover around 34.7 million tons in 2013, up marginally from 34.5 million tons currently anticipated in 2012. The slight increase would be sustained by expectations of large availabilities in exporting countries and a revival of purchases by few major importing countries, such as Bangladesh, the Democratic Republic of Korea, Nepal and Philippines. USA's Midwest hit by drought and global food prices look to set rise in 2013. According to the US Department of Agriculture Economic Research Services Outlook, the reduced crop production in US could lead to a possible hike in global food prices in 2012/13 season. This is because the US is the largest producer of wheat in the world. The severe drought in the Midwest is expected to affect prices for corn and soybeans as well as other field crops which should in turn impact retail food prices. However, the transmission of commodity price changes into retail prices typically takes several months to occur, and most of the impact of drought is expected to be realized in 2013. Experts are calling for international action to avoid a repeat of the worldwide food price crisis of 2008. Corn prices have already surged more than 60% due to the drought. According to International Grains Council Worldwide corn stocks are set to reach their lowest levels in six years. One big problem is mandatory ethanol production targets in Europe and US. About 40% of US corn crop is used for ethanol production. USA is the largest exporter of wheat and produces 35% of world's corn and soybean supplies. These two com- modities are crucial in the food chain, because they are used for feed stock for animals. Russia that exported 23 million tons of grain last year may also not be able to export more than 10 million tons and there is also a chance that it would put a ban on any such export as it did in the past. Global food crisis is turning out to be far too frequent to be dismissed any longer as a freakish phenomenon in much the same way as the extreme and erratic weather patterns associated with global warming. A spike in the prices of agricultural commodities is again looming, threatening a repetition of 2007-08 global food crisis when international prices skyrocketed to their highest in 30 years. The International Monetary Fund's food price index rose by over 80% between the start of 2007 and mid 2008. Severe drought in the United States, flooding
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in several parts of Europe, a massive shortfall of rain in Africa and India are feared to lead to huge loss of output and a scramble for markets and supplies. Meanwhile steep prices, high production costs and slow global output for the whole decade have been forecast by the FAO and OECD. Agricultural output growth is said to average annually at 1.7% over the next 10 years, down from trend rate of over 2% in recent decades. Moreover, according to the 2012 FAO OECD Outlook, with only a slight increase in farmland area expected in the coming decade and 25% of all agricultural land degraded, production will have to be raised through enhanced productivity. If Russia, Ukraine, Kazakhstan and Egypt clamped restrictions on wheat exports, curbs on rice exports by Indonesia, the Philippines, Vietnam and India have similarly pushed up global prices. The response from poor food importing countries has been either to lease or buy land overseas in order to bolster supplies and stocks. This situation would certainly cause rise in food prices which would create the situation like 2007-08 food crises that sparked food riots in more than 30 developing countries; this time the expected shortages may surpass that level. The trigger behind the current episode is believed to be the severe drought in US, the world's largest exporter of corn, wheat and soybeans. But drought or no drought, at the core of the current crisis is said to be the pressure to convert grains into fuel by diverting corn (maize and other coarse grains) to the manufacture of ethanol. US oil companies are required to dilute gasoline with increasing amount of bio-fuel under the renewable energy programme of Environment Protection Agency (EPA). This year's target for bio-fuels production is some 13.2 billion gallons, almost all of which is said to be from corn. The situation is reminiscent of 2007-08 global food crises when USA and European bio-fuel policy of subsidies, tax exemptions and incentives for corn-ethanol production was roundly criticized by multilateral agencies. The IMF, in particular, pointed to the policy's detrimental effects on staple food crop output, citing estimates that US corn-ethanol production accounted for 50% of the increase in global demand for corn in the preceding three years. Now US grain, meat and dairy lobbies are concerned that in the current extreme heat and sparse rains, a disproportionate diversion of corn could cause a further spike in prices, hurting livestock and poultry feed and the demand for meat. The crippling effect of US drought, the worst in 50 years, and an impending crop failure could impact world markets in the absence of corrective steps. September 2012
E conomy Indo-Pak trade: India’s clever-by-half approach
by Kamran Khan
O
India’s interest to be proactive in making this a win-win situation for both sides. While he then went on to fault Pakistan’s Afghan policy and the valid view that it is time to forget the Bombay tragedy, he accepted the fact that India’s non-tariff barriers are a genuine hurdle. Besides, India didn’t reciprocate the concessions that Pakistan agreed to reflecting India’s cleverby-half approach, especially because India also doesn’t say much in the context of the measures it will take (with their time table) to reduce the tensions on the northern and southern borders between the two countries, and fairer sharing in the Indus river water. Despite its wish to increase cross-border trade with Pakistan, what the Indian policy lacks are the initiatives that could help popularize in Pakistan a détente with India because the gaps in Indian policy stance provide the extremists a cause to call the détente-supportive Pakistani response a “submissive policy”, which is proving an obstruction to the much needed process of normalization of relations. There are indications that the Indian Premier will pay a visit to Pakistan. No one knows as to when this will happen, but some foreign relations analysts believe that the Indian Premier may partly settle these issues on his visit to Pakistan. Time waits for none, and the politics of postponing positive actions is a flawed idea. Irrespective of who will rule Pakistan after the next elections, the fact is that geographical realities won’t change and both countries will be facing more difficult times given the drought that is now a reality; the sooner they evolve a mutually beneficial strategy the better it will be for both. The sooner they begin a process that assures a better future for both nations lesser could be fury of the reactions to the poverty that is likely to escalate. It is important for both India and Pakistan to realize that, in the coming months, things would only go from bad to worse because there are no signs of a global (in particular US and European) economic revival. Asian countries will have to rely more on trading among themselves; to make it purposeoriented, they must meet shortfalls in each other’s economy by entering into mutually beneficial trade arrangements that maximize the value of each other’s surplus. In India, 50% of electricity is generated using coal as fuel. Pakistan has a huge surplus thereof but lacks the capacity to mine it to generate electricity or export it. India could help in both. India faces a shortfall of cement; Pakistan could meet that demand at the cheapest cost courtesy lowest transportation costs. Pakistan’s pharmaceutical sector is yet another sector which India could boost by providing it cheap raw material or allow investment in joint ventures in this sector. In the textile sector too, India could collaborate for huge mutually beneficial results. As of now, Pakistan exports a lot of raw cotton; its export in valueadded form could help Pakistan a lot. And, there are several other opportunities that await materialization, but won’t if India persists with its clever-by-half approach.
n August 1, the Indian government announced its decision to allow Pakistani businesses to invest in India in all sectors (except three sensitive ones) to promote trade in the region. The initiative was welcomed, but the farsighted businessmen pointed to the fact that the initiative was not accompanied by a simultaneous permission to Indian businesses to invest in Pakistan. In the absence thereof, it amounted to inviting the frustrated Pakistani investors to look at India as well besides Sri Lanka and Bangladesh as the countries to shift their capital. In an environment marked by drying up of the much needed foreign investment inflows, what was expected of a ‘friendly’ India was a move that allowed setting up of joint ventures in both India and Pakistan, which is in their common interest because Pakistan–India’s next door neighbor–needs access to the advances in technology and production processes that India’s industry achieved since 1991, when Manmohan Singh became its Finance Minister. Pakistan lagged behind in this vital area–modernization of its industrial base–because of sustained fiscal mismanagement which forced the Pak Rupee to depreciate continuously since 1974. Partial initiative in the backdrop of a reduction in Pakistan’s list of negative items by 1,209 that will give Indian exporters access to the otherwise secure sectors–auto, pharmaceuticals and parts of textile–is unwise. Permission to Indian business and industry to set up joint ventures in these sectors (to begin with) so that these sectors could become competitive and so, not only substitute imports but, over time, turn into export-oriented sectors, was the need of the hour. This magazine has throughout been supportive of the moves to bring closer the two economies since nations that share a common land mass must supplement each other’s key needs because of natural logic, the most obvious reason for it being that transportation of goods between the two is the easiest and the least expensive, more so in a scenario of escalating oil prices. In July, a Bharatiya Janata Dal MP wrote a piece in the Indian Express that said: Recent months have seen some progress in improving relations, most notably on the trade front. But even that has been halting at best, bedevilled by Pakistani worries, some valid and others less so. Pakistan’s fear of being swamped by Indian goods is neither the biggest nor most logical concern, since in any case plenty of Indian goods already get in, either through third countries like the UAE or straightforward smuggling across the border. Pakistani concern that has more validity is that Indian non-tariff barriers would deny their exporters the benefits of integration with the largest regional economy; that restrictive Indian regulations complicate imports from everywhere, and are opposed just as strongly by Indian companies, can hardly be any solace to Pakistan, which has long been lectured on the need to reciprocate the most-favoured nation status that India has granted it since 1995. It is in
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September 2012
T rade & Industry Preventing terrorism via cell phone – is blocking the service a palliative?
I
n today’s digital age, telecom sector is a vital contributor to economic progress in countries around the world, especially in a developing country like Pakistan where telecommunication has emerged as one of the fastest growing sectors ever since it was opened up to the private sector. By 2008, Pakistan had become the world’s third fastest growing telecommunications market in the world. Pakistan's telecom infrastructure has since improved dramatically, courtesy foreign and domestic investments in the land-line and mobile networks; fibre optics systems are being installed throughout the country to aid in national network growth.
subscribers in Pakistan reached 68.8 percent, up from 68.2 percent in March 2012. At the end of May 2012, Mobilink stood at the top with 36,048,127 subscribers, followed by Telenor with 29,896,660 subscribers. Ufone was third with 23,550,270 subscribers and Warid had 13,798,974 subscribers. Like all other sectors affected adversely, telecom sector also witnessed shocks due to the government response to terrorism. A recent example was the total shutdown of mobile networks before Eid-ul-Fitr. In view of the terrorism threat on Eid Day, Federal Interior Ministry ordered all mobile phone networks to stop their service in Karachi, Islamabad, Lahore and other major cities for 16 hours from 8:00 pm on 19 August. According to Federal Interior Minister Rehman Malik, insurgents had planned terror attacks on Eid Day. He said that Karachi, Lahore, Multan were under threat of terrorism and government saved Pakistan from a big terror plot. There is no denying the fact that terrorism is striking at the very roots of our country but the approach adopted to solving the issue can hardly be appreciated. Government and law enforcement agencies were on red-alert status after the attack on Kamra Air Base on 16 August. Intelligence agencies gave the warning of attacks using Improvised Explosive Devices (IEDs), on markets, Eid prayer gatherings and public places and that the IEDs were to be detonated via cell phones. Instead of devising practical steps to arrest the terrorists, the government suspended the mobile phone services and created panic among the masses. According to industry sources, suspension of the mobile services cost around 3 billion rupees in revenues as the telecos blocked all kinds of cellular communication at a high traffic occasion for telecom operators. The communication blockade also cost more than half a billion rupees to the national exchequer. According to a telecom source requesting not to be quoted, the services remained suspended for long hours at a time when the use of services is at its peak—an increase of around five times over the usual volume. Karachi and Lahore are the two biggest cities with large subscribers’ base of mobile phone networks, whereas Quetta and Multan are included in the top 10 cities in terms of users’ tele-density. Mobile phone users are said to be high potential consumers of different services including SMS, MMS, calls and emails. If one to 10 SMS per hour are exchanged on mobile phone networks in the normal days, the figure increases by five times on special occasions like Eid, said an official of a cellular phone company. Similarly, if one call is made in an hour in routine, it goes up three times on Eid. Similarly, transactions worth millions of rupees through branchless banking systems could not be made due to suspension of mobile phone services in four major cities of the country. According to the franchise agents of different branchless banking companies, the utility of services increased immensely in the last week ahead of Eid as the network was also jammed in different hours. They said money transactions increased significantly from Karachi and Lahore, to different large and small cities as small businessmen and workers sent thousands of rupees to their hometown for Eid celebrations. Cellular officials said the government should evolve a different mechanism to stop terrorist attacks rather than block the services of mobile phone companies, which causes millions of customers to suffer.
FDI in Telecom Sector (US $ million) Periods 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11
FDI in Telecom 207.1 494.4 1,905.10 1,824.20 1,438.60 815.00 373.62 79.2
Total FDI 949.4 1,524.00 3,521.00 5,140.00 5,410.00 3,720.00 2,199.44 1,574.0
by Syed Asif Ali
Telecom (%) Share 21.8 32.4 54.1 35.5 26.6 21.9 17.0 5.0
Currently, five cellular mobile operators i.e. Telenor Pakistan, Pakistan Mobile Communication Limited (PMCL/Mobilink), PTML (Ufone), Warid Telecom and China Mobile Pakistan (CMPak) are providing services using GSM technology. As a result of progressive network rolled out by the operators, the facilities are now available to over 95 % population of the country. The sector is one with high potential that remained an important contributor to the national economy – Rs 363 billion to the national exchequer - during 2012 and showed an increase of 5.4 percent compared to last year. Telecom Contribution to taxes (Rs. in billion) Period GST Activation PTA Others Total Deposits Tax 2003-04 12.1 4.02 0.69 21.59 38.40 2004-05 20.5 7.53 17.71 21.38 67.12 2005-06 26.8 11.4 17.38 21.55 77.13 2006-07 36.28 17.6 9.72 36.95 100.55 2007-08 44.61 19.2 10.86 36.96 111.63 2008-09 49.35 14.2 9.15 39.3 112.00 2009-10 44.0 6.6 13.6 44.9 109.0 2010-11 52.6 7.2 12.0 45.2 117.0 Source: Central Board of Revenue and Pakistan Telecommunication Authority. Note: PTA's contributions comprise of all its receipts including Initial and Annual License Fee, Annual Spectrum Administrative Fee, USF and R&D Fund Contributions, Numbering Charges, License Application Fee, etc. Others include custom duties, WH Tax and other taxes.
According to latest statistics issued by Pakistan Telecommunication Authority (PTA), cellular industry of Pakistan ended May 2012 with almost 120 million subscribers (119,860,799 subscribers to be exact). PTA said that tele-density of cellular mobile
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September 2012
T rade & Industry In his statement, Rehman Malik defended his act saying that the blockade of mobile phone services in different areas of Pakistan on Eid-ul-Fitr was helpful in averting the imminent threat of terrorism on that auspicious occasion. Mobile phones, he asserted, have become the biggest weapon of terrorists in the country, hence the blockade of prepaid services is being reviewed. Before Rehman Malik’s statement, the suggestion of blocking pre-paid SIMs was rejected by telecom sector. Even the government regulator PTA disagreed with the proposition and declared this suggestion as impracticable. Telecom experts believe that banning of prepaid SIMs is impossible. No country in the world would allow the business slaughter of this magnitude. However, just a few days after creating a fright among prepaid mobile connection users as well as telecom companies in the country, he said on 25 August that the pre-paid connections will not be blocked entirely. “We did not say that the prepaid connections will be blocked, only the SIMs registered on fake identities will be blocked,” said the Interior Minister. He was of the view that thousands of SIMs are sold and registered on fake CNICs and terrorists are using them for remote bomb blasts. These SIMs are also being used by extortionists, kidnappers and criminals. Government had successfully blocked around 10 million illegal SIMs but still almost 50% of the registered SIMs, are backed by fake identity cards. It is worth mentioning here that out of 118 million mobile phone subscribers in the country, there are hardly one million post-paid subscribers, which means that if such a ban is ever imposed it will leave the telecom industry with one million subscribers as a whole or 250,000 subscribers for each operator (Telenor, for instance, had approximately 326,000 post-paid subscribers at the end of second quarter 2012) to continue using this vitally important service. The issue of SIM cards, either unregistered or registered with fake identities, surfaced in 2005. The cellular companies vigorously sold SIMs without asking the customers for ID cards or getting the registration forms filled. That was the time when sales managers were busy, round the clock, in selling SIMs and making their commissions. Franchisees were part of this as they sold SIMs without documentation. Unlike other countries, in Pakistan the SIM cards are being sold even at general stores without any documentation. In short, mobile phones SIMs are being sold in every corner of the country without registration with only one target in mind: increase the number of subscribers to add up to the income. In 2005-2006, after some tough regulations were imposed by government regulators, mobile phone franchisers had to hire special staff to just fill in the forms; they would fill thousands of fake registration forms (of SIMs that were sold at un-official outlets) against unknown CNICs. One CNIC was often used for thousands of registrations. This exercise resulted in registration of dozens of SIM cards on a single CNIC. PTA took some strict measures to curb this trend and to stop cellular companies from selling large-scale un-registered and preactivated SIMs. PTA introduced various methodologies including the 789 system and the 668 system and put an end to pre- activated SIMs to curb illegal sale of SIMs, but those helped only with the registration of new SIMs. Despite all these measures, SIMs already sold (in earlier years) were never registered and the problem persisted. After a further strict instruction from the security agencies and interior ministry, more than 10 million illegal SIMs were blocked but this step was later stopped due to inconsistent policies.
Every 4 to 6 months the Interior Minister issues a statement for curbing illegal SIMs in response to which PTA blocks few million SIMs, that’s it. Everyone gets back to normal leaving the prob- lem there as it is. A recent example was the order passed by PTA in which all cellular companies were asked to block all unverified and un-authorized connections by May 17, 2011. But illegal SIM cards are still effective. This system needs refining. Sources in PTA revealed that the regulatory authority has proposed new strict laws to ensure the safe use of mobile SIMs e.g. the mobile operators may be required to deliver SIMs to customers via couriers on the addresses listed on the identity cards, while selling SIMs via outlets or shops would no longer be allowed. Between 1st January and 18th August 2012, Pakistan faced 415 bomb blasts in which 656 people were killed and 1,644 people were injured. Almost 45 percent of those blasts were detonated by a cell phone. This factor indicates that the terrorists in Pakistan are now experts in assembling and detonating IEDs. Cheap, simple to use and effective, improvised explosive devices (IEDs), have been the weapon of choice for insurgents in Iraq and Afghanistan – and their use is increasingly reported in the war against terror in Pakistan. These home-made bombs have been responsible for the majority (nearly 70%) of foreign military casualties in Iraq and Afghanistan, indicating their volatility. In Pakistan, IED attacks alone have taken lives of 2,707 soldiers whereas 1,188 NATO soldiers became prey to IEDs in Afghanistan from 2006 to 2012. The US and allied forces are using technological and tactical solutions to combat IEDs like TNT detectors and short range mobile jammers. Pakistan needs to follow suit. It is a strange philosophy that if there is fuel shortage, close the fuel stations for a few days in a week, if there is electricity shortage, resort to load-shedding for several hours in a day, if there is target killing, ban pillion riding, if there is law and order situation, declare public holidays, and this mobile telephone service suspension is another brilliant idea in keeping with the same philosophy in mind - “don’t find solutions and plan, but keep on making the common man suffer and be miserable”. We need new terrorism laws and an effective technical system to search and hit insurgents rather than block the mobile networks and cause misery to everyone. Mobile communication has been one of the few developments that have increased freedom of movement and served as stimulus for the economy. The authorities need to find creative ways to prevent the system from being hijacked for criminal activities rather than shutting it down entirely.
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September 2012
T rade & Industry Apple Inc. won the patent war against Samsung
T
he smartphone is a marvel of innovation, packing sophisticated computing and communications technologies into a sleek digital device. Companies in the smartphone industry have, in the past couple of years, spent billions of dollars buying patents and hundreds of millions suing one another. There were reports that Samsung had infringed on Apple’s patents on mobile devices. Apple and Samsung are the world’s two leading smartphone makers. Apple Inc., which makes the iPhones and iPads, sued Samsung in April 2011, claiming that the Korean company had copied the designs of its devices and used its technology to build its Galaxy range of smartphones. Apple accused Samsung of infringing on seven patents that covered everything from the "pinch and zoom" capability of iDevices to "bounceback" effect users see when scrolling. Samsung was found guilty of infringing six of the seven patents. Accordingly, a federal jury in San Jose, California, awarded Apple $1.05 billion in damages from Samsung for infringing on just six patents Apple's lawyers weren't able to convince the jury that Samsung had violated a patent on the physical design of the iPad. But Samsung says it will challenge the jury’s decision, which covered design basics like the shape of the iPhone itself and its array of small on-screen icons. Samsung had asked for more than $422 million from Apple, contending it had violated Samsung’s patents, but got nothing. Samsung countersued claiming that Apple had violated the patent for its wireless technologies without payment of royalty. The amount is much less than the Korean company's net annual profits solely in US. Samsung has already earned billions of dollars by selling these controversial products, and has already come up with revamped products with new design and free from the controversial features. More than the financial damages, Samsung stands to lose in terms of its reputation and its future in the United States. If the court follows up the verdict with a ban on the sales of its products in the U.S., it would be a huge blow for the company. The court has set Sep. 20 as the next date for a hearing when presiding Judge Lucy Koh will decide on the sales ban on Samsung's Galaxy phones. Samsung intends asking Koh to reverse the jury verdict or failing that, to appeal against the verdict. In a statement, Katie Cotton, an Apple spokeswoman, applauded the court for sending a “clear message that stealing isn’t right. We make these products to delight our customers, not for our competitors to flagrantly copy,” she said.
by Ali Siddique Dadi
Samsung said in a statement that the decision was a “loss for the American consumer. It will lead to fewer choices, less innovation, and potentially higher prices,” the company said. “This is not the final word in this case or in battles being waged in courts and tribunals around the world, some of which have already rejected many of Apple’s claims”, Statement added. Following this verdict the question arises whether other phone makers that run on Android will have to redesign their phones in order to avoid meeting the fate of Samsung. Apple had sued companies such as HTC, LG and Motorola Mobility for patent infringements. Steven P. Jobs, the late chief executive of Apple, told his biographer that Android was a “stolen product.” Apple’s suit against Samsung, has partly been viewed as a proxy war against Google, which Apple executives have derided as a copycat, swiping Apple’s innovations. It is interesting to mention here that the Japanese court on 31 August rejected Apple's claim that Samsung stole its technology, dealing a blow to the iPhone maker after last week winning $1.05 billion in damages in the US from its bitter rival Samsung. The Japanese court found that Samsung did not infringe on Apple's iPhone and iPad patents for some of its own Galaxy smartphones and tablet computer. The 3-judge panel also awarded legal costs to Samsung. "The defendant's products do not seem like they used the same technology as the plaintiff's products so we turn down the complaints made by (Apple)," Judge Tamotsu Shoji told the court. Apple had sought damages and the block of sales of its some of Samsung's products in the lucrative Japanese market. But as well as dealing a blow to the US firm, the ruling will help Samsung pick itself up after the defeat in the United States, analysts said. JPMorgan analyst Doug Anmuth commenting on this patent war said that Google and Android manufacturers will likely now have to work around certain features of the operating system and their devices. However, he believes closer enforcement of existing patents could spur more innovation within Android. Some reported that other technology stocks, such as Nokia Corporation perhaps, might benefit as Nokia have a new lineup with “Windows 8” mobile operating software coming out. Perhaps Nokia can compete on price or as an alternative to Apple and Android. Samsung held 32.6% of the market compared to 16.9% for Apple, while the Apple holds about a 70% market share for tablets.
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September 2012
B anking & Finance The Libor fiasco, its aftermath, and lessons
by Jauhar Ali
B
arclays’ bank has already acknowledged its guilt in the Libor affair, and reached a settlement with the regulators; the other large banks are expected to follow suit in the near future. To the observers, a big legal barrier to the bank customers suing their banks has already been breached. The large established firms among this population are preparing to lodge law suits against their banks. Because Libor was ubiquitous, the likely group of plaintiffs is huge, and the American legal fraternity is going to be busy during the months to come. The US is the first country where over two dozen law suits have been filed and banks have been asked to file statements in their defence within one month of being served notices. It is likely that trials will commence early next year. Meanwhile, legal action related to Libor is also in the process in Japan, Canada and Singapore, and in the US more cases are likely to be filed in the coming days and months. Most of the law suits, that have been filed so far, have been structured as class action, implying thereby that the ones that are decided in favour of the complainants will automatically favour institutions that suffered losses in the same manner, dramatically increasing the stakes for the targeted banks. This implies that even individual pensioners and pension schemes that invested in the Libor-denominated bonds could sue the banks for losses. The usual claim is that returns for mortgages and other loans tied to Libor were unfairly depressed because rates had been suppressed by banks that manipulated the Libor. In the US, Wisconsin’s Community Bank & Trust has filed a suit against Citigroup, Bank of America and JPMorgan Chase (US banks on the Libor panel) under Wisconsin’s racketeering statutes. The Community Bank & Trust estimates its loss at $300m to $500m annually, between August 2006 and May 2010. This is just the beginning; financial firms that traded Libor products on the Chicago Mercantile Exchange too will join the ranks of the petitioners. In spite of the fact that over two dozen suits have already been filed in the US against banks on the Libor panel, careful lawyers are examining the strengths of the argument against banks because tying culpability to Libor is not as straightforward. The key weakness of the argument is that by itself, Libor is not a price; in theory, it is the rate that a bank must pay to borrow from the inter-bank market. Besides, given the government interventions in the interbank market whereby this yardstick rate is impacted via T-Bill and GoP bond rates, has reduced its role in determining rates on which banks lend to their borrowers. That’s not all; banks add their costs (such as a credit risk spread) to the lending rates that they charge to their borrowers. A far more difficult exercise is to determine the precise loss a borrower suffered; the exercise will require determining what the rate should have been on each trading day and relating that to the loans disbursed on that day, to establish potential loss or benefit. Working this out would be mind - bogglingly complex for anyone. Even institutions claiming losses - the revenue lost by quoting lower rates to the borrowers - must also accept that returns on deposits too were lower by a similar margin. In view
Barclays’ CEO Bob Diamond
of this relationship between rates charged to borrowers and the rates paid on deposits did they actually lose out? As this debate expands in terms of its dimensions, it may become difficult to conclusively establish the claims of the complainants. This is the beginning of a debate that is likely to rage for long and give rise to some amazing discoveries. But the issue that shouldn’t be lost sight of is the basis, and the mechanism for banks to quote their inter-bank offered rates. The issue that central banks must focus on is whether banks should quote their bids on the basis of their costs and desired returns on equity, or on the basis of the liquidity position in the market. If banks are to quote rates on the basis of their perception of market liquidity, the yardstick inter-bank rates would be the ones that will unfairly suit the liquid banks and permit them to exploit the less liquid banks. In this scenario, liquid banks would end up earning excessive profits at the expense of the economy as a whole because mark-up rates would skyrocket, which is what we observe in Pakistan. It is fairly well known that the average of the spread banks in Pakistan earn is the second highest in the world. At over 7% per annum, it is unrealistic because it exceeds the profit rates paid on saving accounts that account for bulk of the deposits banks hold. Also, even if all the uninsurable risks are factored into the mark-up rates charged by banks, a 7% per annum spread is far too high; how it has been impacting the national economy is no secret either. Besides the law and order chaos, the key factor causing flight of capital is the very high cost of borrowing that is eroding the competitiveness of businesses. Oddly, despite all this, the banking sector profitability didn’t suffer too much, as shown by their June 2012 results. It is surprising that some bankers (including a senior former central banker) keep insisting that the formula used in banks for determining their daily quotes for determining the Kibor is flawless, and does not need re-visiting. It would have been realistic to re-examine the rationality of the Kibor in the light of the weaknesses exposed by the Libor affair as well as the path Pakistan’s economy is on. For a start, it was unfair to launch the floating rates system at a point in time when the financial literacy level of the vast majority of businesses was low and they couldn’t grasp the downside of borrowing on floating rates pegged to Kibor. This eventually reflected its impact in the loan losses banks suffered during 2008-10.
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September 2012
B anking & Finance The baffling StanChart affair
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ntil the beginning of August, Standard Chartered Bank Plc had emerged from the global financial crisis far less damaged compared to most global banks. The group had thrived only because of its tiny exposure to regions that bore the brunt of the current crisis. Now, of course many analysts opine that StanChart executives forgot that the bank operated in many (US-defined) high-risk countries (a covert reference to Iran). After Barclays and HSBC, StanChart is another British bank targeted by the US regulators. While the StanChart affair was on, Deutsche Bank joined this class, but Citibank announced its plans to expand its branch network in China. These global European banks have large networks in Asia–the lowest-risk region. Is the US now focused on the rich Asian markets and pushing the European banks out? That is the question being posed by the European financial and political circles, and has credible bases for doubting US intentions. John Mann, a member of the John Mann, a British parliament called the British StanChart affair a part of the lawmaker, said ‘political onslaught’ going on the StanChart in the US against the British affair is a part banks. He considered it to be a “concerted effort that had of a ‘political been organised at the top level onslaught’ in of the US government....... I the US against believe this is how WashingBritish banks ton is trying to win a commercial battle to have trading shifted from London to New York." Mann, who is a member of the British parliament's Finance Committee, also called for a parliamentary inquiry. A British executive in one of the several institutional shareholders in StanChart said that politics was motivating the US officials. When asked if US regulators had developed an anti-London bias, the executive said "Oh yes." But Bank of England (BoE) Governor Mervyn King doesn’t share the view that the move is part of a concerted US effort to damage the image of London as a global financial centre. However, in StanChart’s case, the way Benjamin Lawsky, the head of New York's Department of Financial Services (DFS) went about exposing issues still being investigated, surprised even the US authorities including the Federal Reserve Bank and the US Treasury because StanChart itself volunteered all the evidence to these authorities in 2011 Lawsky went after they expressed the fears about exposing that the “U-turn” exemption facts still being in transactions involving Iran investigated; it might have been violated. Many banks around the world theresurprised fore believe that StanChart was federal US ill-treated. authorities On August 9, The New York including the Times reported that many of Federal the accusations made by DFS Reserve and not endorsed by Federal the US Treasury were Reserve Bank, US Treasury or
the US Department of Justice. Earlier, on August 6, Lawsky recalled what he described as quotes from a dialogue back in 2006 with a senior StanChart executive “manifesting the obvious contempt” that StanChart has for US bank regulations. According to Lawsky, the StanChart executive (impliedly, Richard Meddings, then Group’s Finance Director) asked "You f--ing Americans, who are you to tell us, the rest of the world, that we are not going to deal with Iranians?" A StanChart spokesman in London responded to this allegation saying "this is not a quote we recognize as coming from Richard, or any other of our directors." Governor BoE vented his feelings by saying "one regulator but not the others had gone public while the investigation is still going on…. I think all the UK authorities would ask is, that the various regulatory bodies investigating the particular case try to work together and refrain from making too many public statements till the investigaBoE governor tions are completed." Stanadvised the Chart accepted that transactions worth only $14 million US authorities were violative of the US bank- to refrain from ing law while British Chancelmaking public lor of the Exchequer repeatstatements edly spoke to US Secretary of till the Treasury, Tim Geithner, advising him caution while talk- investigation is ing to the press over the issue. over As for the ‘U-turn exemption’ granted under US regulations, it permits non-US entities to trade with Iran in US Dollars i.e. the US insists that Iranian transactions be denominated in US Dollars. Perhaps, the idea is that the proceeds of these trade transactions moving between banks located in the US could be frozen, as and when the US government decided to do so. Many banks now feel that permitting the non-US entities to handle Iranian trade transactions denominated in US Dollars, and then suddenly classifying it as a violation of the US rules, is unjustified. While StanChart admitted to “inadvertently” having handled prohibited transactions worth only $14 million, DFS accused StanChart of handling prohibited Iranian trade amounting to $250 billion over the years. DFS then privately pushed for a deal–accepting $500 million in fines–as a condition for waiving its punishment i.e. cancelling StanChart’s banking license. Earlier, accused of misconduct of similar nature, some banks preferred to settle quietly with the US regulators i.e. paid the fines. These banks include Barclays, Credit Suisse, Lloyds, JP Morgan Chase and ING Bank. Their settlements added up to over $1.8 billion. However, by mid-August, signs were that StanChart may be forced to pay a hefty $1 billion. There was also speculation that this figure could be raised to calm New York’s banking regulator that alleges that StanChart failed to disclose all the transactions involving Iran. Lawsky therefore asked StanChart to explain why its banking license shouldn’t be cancelled. Until reaching a settlement with DFS StanChart bluntly denied all allegations of processing bank transactions with $250 billion tied to Iran that Lawsky cited in his order.
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September 2012
B anking & Finance On August 14, StanChart settled with the DFS on a far lower penalty amount ($340 million). StanChart CEO Peter Sands, and to the surprise of many, CFO Richard Meddings; both arrived in New York after Lawsky made the highly damning disclosures about StanChart facilitating Iranian trade with the rest of the world. DFS also imposed the condition of posting its compliance officers in StanChart’s New York Office. But that settlement was with DFS, not the federal authorities i.e. Department of Justice, Office of Foreign Assets Control and Federal Reserve Bank, implying that case against StanChart was not settled, and more penalties were likely. Next came the news that the survivors of the victims of 1983 bombing of the US Marine barracks in Beirut had filed a suit against StanChart for recovery of $2.6 billion–the sum that a US court had decreed against Iran as compensation for the families of the 241 US servicemen who lost their lives in an attack on the Lebanese capital. Impliedly, the suit is based on the assumption since StanChart benefitted from handling the trade transactions for Iran it earned money from Iran and so must pay on Iran’s behalf the compensation the payment of which Iran had avoided thus far. As soon as Lawsky made his stunning disclosures about the violation of US anti-Iran banking regulations by StanChart, the Group’s share price had dived by as much as 22%, but then recovered by 14% after StanChart settled with the New York bank regulators. Since then, its major shareholders i.e. corporate entities, have been expressing their anger over the ‘oversight’ in StanChart and think it is time for a shake-up of its board of directors, which hints at the prospects of the careers of the CEO and CFO as well as a senior independent director Rudy Markham who has been on the board for eleven years. One of the top 20 institutional shareholders of StanChart group said “they may need to act quickly to prevent a loss of credibility.” The chairman of the board is also under attack for taking his eyes “off the ball”. What has convinced the shareholders to demand a change is the fact that the settlement with New York’s DFS was made on DFS’s terms although, initially, StanChart had vehemently denied that it was involved in financing Iranian trade to the extent of $250 billion as claimed by DFS. The terms of that settlement suggest that StanChart finally accepted the charge of being involved in violation of US banking regulations to a much larger extent than just $14 million earlier admitted–the view is highly damaging for StanChart. As with Barclays Bank involved in the Libor affair, the view now is that StanChart was in fact involved in violating the US regulations, but that‘s Terms of the legal view. The stronger settlement view is that the US can’t use with DFS imply its laws (that are clearly that StanChart biased) as the basis for prosaccepted being ecuting the rest of the world guilty of violating for dealing with countries the US perceives to be its US banking mies but what gives the regulations to eneUS this muscle is that the much than just US Dollar is still the me$14 million it dium of exchange–a real claimed tragedy.
Peter Sands StanChart CEO
Benjamin Lawsky
In August, the last addition to the list of the European banks being investigated for handling transactions of Iran, Somalia, Sudan and Yemen were Britain’s Royal Bank of Scotland and Commerz Bank of Germany. Although federal US regulatory agencies refuse to confirm or deny that these two banks have been under investigation for violating the famous “U-turn” exemption–a lesson taught by the grossly mishandled StanChart fiasco–the involved banks confirm that the process is on. Royal Bank which, like Barclays Bank, was earlier blamed for being part of the Libor affair came under severe stress in 2009; after its bailout by the state it is 86% state-owned. At present, British, German and Dutch banks are the targets of US regulators but there is a possibility that other European banks–the fraternity that has the largest network of branches in Asia, the Middle East, Africa, and Latin America because of its imperial legacy–may remain the target of US regulators. Confusions about the U-turn exemption, and their desire to earn abnormally high bank charges (from blackballed entities like Iran), could have induced many banks to handle Iranian trade. There is therefore a strong likelihood that more banks could fall in the U-turn exemption violation trap. This feeling is causing a whole variety of concerns in Europe. The US is overlooking the consequences of this trend on the Nato alliance whose support it badly needs in facilitating exiting from Afghanistan. But the present policy stance, which is driven more by Zionist-inspired anti-Iran feelings than by any other consideration, could cost US a lot. How closed is the US mind is portrayed by the fact that, to assure their success in the coming US presidential election, both Obama and Romney, are bending backwards to please the Zionist regime in Tal Aviv. Neither of them is worried about the long-term US interests, which should be sustaining Nato’s unity on comprehensive bases. America as well as Britain’s (now seen as a The US is US protégé) main aim is the death of the Euro so that there oblivious to the is no united resistance to the consequences “English” doctrines of what is of its actions humane, fair and civilized. on the Nato Example of those doctrines is alliance whose encouragement of hatred for support it Iran just because the US and badly needs in Israel hate Iran. Secondly, it is facilitating wholly immaterial and unexiting from regrettable how many of the Afghanistan innocent are killed by Nato’s bombing; the dead be counted as mere collateral damage.
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September 2012
B anking & Finance Consumer loaning: should it dry up?
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limits were granted without a logical relationship to the borrower’s monthly income–their repayment capacity. Not surprisingly, many such loans became non-performing, and because they were not secured by collateral, banks had to bear the loss. In the case of auto finance, while this distortion was there i.e. illogical relationships between borrowers’ monthly incomes, and the share that of which could be recovered as instalment, a more serious error was that, in thousands of cases, vehicles purchased from the loans weren’t registered in the names of the lending banks. The bigger flaw in consumer lending was that it enticed borrowers into a trap–improved standards of living–without realizing that that improvement also had to be paid for. Besides, lenders capitalized on the financial illiteracy of the ordinary borrowers, which was most unfortunate. Lending on floating rates of mark-up without incorporating in finance agreements ‘cap and floor’ mark-up rates exposed their borrowers to unlimited future repayment liabilities. The result of following this flawed practice–sadly, not checked by the regulators–was reckless lending just to meet the lending targets in order to earn hefty performance bonuses, which is a sad chapter in Pakistan’s banking history. This was bound to make people fall into the habit of living beyond their means and virtually evaporate savings, which it did. Inculcation of this culture was the biggest loss Pakistan suffered because the saving habit suffered a severe blow. We need a savings to GDP ratio of at least 15%. As of now, it is about 8.7%. We need to inculcate a culture whose prime aim should be optimizing resources–making the most productive, not just pleasure generating use of savings (such as buying a 90 inch screen TV that also hikes up the electricity bill). The objective should be to buy assets that cut expenses. Extending credit for buying assets that increase savings, and so generate the requisite repayment capacity makes economic sense. For instance, buying a washing machine could cut the borrower’s laundry bill; replacing a 21 inch screen TV with a 90 inch screen TV won’t result in savings. Consumer lending doesn’t mean giving people funds to buy just about anything; it must also ensure that they buy what could generate savings to pay for those assets. That requires knowing what savings is the asset going to generate before lending for it, but refusal to lend to even genuine borrowers is, at best, a weak excuse for lacking lending skills. Consumer loaning has fallen drastically. As for even personal loans that are being extended now, they are offered largely to corporate employees after confirmation of repayment ability by the borrowers’ employers; not just that, the employers are being informed about the loan liabilities their employees are incurring. A good lesson learnt but at a huge cost.
hat we have witnessed since 2008 is a complete reversal in the profile of banking in Pakistan in the sense that credit to the private sector is now a lower priority; what’s on top is the funding of public sector debt. According to the SBP monetary policy announced on August 10, in FY12 public borrowing from scheduled banks grew by 50%, and accounted for 67% of the overall increase of 14.1% in M2. The worst sufferer of this profile change has been consumer credit because, bad experiences of weak consumer lending–a huge stock of non-performing consumer loans accumulated in 2008–forced banks to nearly stop consumer loaning which was a rash response. Even in the worst phase of a recession need for genuine consumer finance doesn’t evaporate since, if an individual can generate economy by using certain assets acquired through a consumer loan, he or she can save money that can be used to repay the loan, and the only proviso there for is that the borrower’s source of income/earning, and thus his/her repayment capacity, is sustainable. That’s what needs verification by the lending institutions, but since the institutional arrangements and disciplines to assure credibility of this investigative effort are inadequate, or not as reliable as they ought to be, and those involved in this effort lack the requisite skills, banks opted in favour of suspending consumer finance. This amounts to a knee jerk reaction, not a well thought out strategy. The fact that in 2007, consumer credit accounted for 17% of total bank credit was not a good sign for any economy like Pakistan, but neither is its virtual denial. True, consumer loan portfolios always dip during recessions because, as a result of reduced demand, businesses cut their operations, or even shut down completely. Consequently, workers lose jobs and their repayment capacity erodes making them very high risk customers. That being a possibility when an economic cycle nears a downswing, the more prudent course is to act before it materializes, not regret after that stage has passed. To be reasonably secure, consumer lending must be backed by institutional arrangements that credibly verify the precise amount as well as sustainability of the borrowers’ repayment capacity. Unfortunately, in this area we didn’t develop either the requisite infrastructure or the disciplines that obligate the information suppliers to be honest in providing full details. It is a failure that we are still not keen on addressing although it should be a high priority because denial of genuine consumer credit has its role in reducing demand for goods and services, consequent reduction in economic activity and employment, and higher poverty. Since consumer credit is by far the most profitable venue for lending because risk factor incorporated in mark-up rates is the highest and therefore the spread earned by banks are also the highest, banks should allocate a substantial part of their resources to building the institutional arrangements to securely benefit from consumer lending. Banks neglected all this to their own disadvantage; the fact that in 2007 the share of consumer credit accounted for over 17% of the total bank credit reflected a short-sighted quest for profit due to which credit card
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September 2012
B anking & Finance Banking sector’s profitability
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espite the many problems Pakistan confronts, its banking sector has performed well in terms of its profitability; the big five banks have recorded marginal (in case of National Bank) to reasonable growth in profit in the first half of 2012, which has been a tough year on many counts including a slowdown in GDP growth, rising fiscal, trade, and balance of payments deficits, a high level of political uncertainty, and deteriorating law and order, and rising crime rates. Put together, these negatives have been worsening Pakistan’s country risk perception within and outside the country that is reflected in substantial contraction in economic activity. Yet, collectively, the ‘big five’ posted a profit growth of 17% over their 2011 half-year results. Given the fact that SBP discount rate (and therefore Kibor) went down and the baseline profit rate on deposits was increased by 1% during FY-12, earnings did not fall, which is the positive side of this picture. The other side of the picture shows that this growth isn’t the outcome of a hike in credit to the private sector. According to the State Bank of Pakistan Monetary Policy announced on August 10, growth in credit to the private sector over its June 30, 2011 has been nominal. That is not all; as per State Bank of Pakistan’s report, a large portion of the credit extended to the private sector was availed by NBFIs, not the real sector, and given the fact that NBFIs extend credit at rates of mark-up higher than banks, credit availed by the NBFIs may not have gone into the real sector, but into the stock market. Another reason behind the rise in profitability is a substantial decline in loan loss provisions. The big five account for 55% of the banking sector’s deposit base. That, collectively, their loan loss provisioning came down to Rs 7.6 billion on June 30, 2012 from Rs 19.2 billion in June 2011, shows what a big difference was made by lower provisions for loan losses. The fact that risk-aversion among banks virtually froze credit to the private sector, explains why fresh provisioning for loan losses went gone down. Besides, a portion of the provisions earlier made was realized because the 200 bps reduction in SBP discount rate earlier (and hence, 176 bps reduction in Kibor), made it easier for many of the distressed borrowers to repay their overdue liabilities, and so, to that extent the losses that were recorded earlier, were also reversed. While banks have ensured that they escape the impact of the negative factors impacting Pakistan, the fact is that the negative factors are worsening the country’s economic scenario, of which the most worrying part is that the protracted energy crisis, and weak fiscal fundamentals are forcing a contraction in private investment–domestic as well as foreign–although balance of payment position is dependent wholly on foreign financial inflows. Profit-wise, operating results of Pakistan’s banking sector may be impressive but the risk-aversion they portray is dampening investor confidence – a serious error of judgment that Pakistan will eventually pay for; its cost could be multi-dimensional–reduced economic activity, shortages of all types, unemployment, and social chaos.
National Bank of Pakistan
Habib Bank Ltd.
United Bank Ltd.
MCB Bank Ltd.
Heads Net MUP Non-MUP Profit BT
HY 11 16.549 9.831 11.659
HY 12 17.751 10.479 11.680
Heads Net MUP Non-MUP Profit BT
HY 11 14.389 5.899 10.229
HY 12 17.910 7.680 13.808
Heads Net MUP Non-MUP Profit BT
HY 11 11.384 3.008 7.564
HY 12 9.678 6.862 9.415
Heads Net MUP Non-MUP Profit BT
HY 11 6,587 1.343 3.418
HY 12 7.182 1.482 4.458
Heads Net MUP Non-MUP Profit BT
HY 11 3.608 1.601 1.006
HY 12 3.925 2.097 1.578
Heads Net MUP Non-MUP Profit BT
HY 11 (1.068) 0.132 (2.177)
HY 12 0.324 1.196 0.343
Allied Bank Ltd.
Bank Al Habib Ltd.
Askari Bank Ltd.
KASB Bank Ltd.
The Bank of Khyber
Heads Net MUP Non-MUP Profit BT
HY 11 22.085 7.613 15.452
HY 12 26.923 7.789 19,161
Heads Net MUP Non-MUP Profit BT
HY 11 19.788 4.192 16.162
HY 12 20.505 5.195 17.259
Heads Net MUP Non-MUP Profit BT
HY 11 7.173 2.749 3.074
HY 12 8.140 3.079 3.579
Heads Net MUP Non-MUP Profit BT
HY 11 (2.192) 0.813 (3,823)
HY 12 1.331 1.093 (0.154)
Heads Net MUP Non-MUP Profit BT
HY 11 2.458 0.601 1.363
HY 12 4.750 1.399 2.711
Heads Net MUP Non-MUP Profit BT
HY 11 1.332 0.970 0.668
HY 12 2.332 0.886 1.138
Bank Al Falah
NIB Bank Ltd.
Meezan Bank Ltd.
Soneri Bank Ltd.
Silk Bank Ltd.
Heads HY 11 HY 12 Heads HY 11 HY 12 Net MUP 1.134 1.048 Net MUP 1.665 1.780 Non-MUP 0.249 0.446 Non-MUP 0.421 0.481 Profit BT 0.705 0.705 Profit BT 0.337 0.263 Figures in Billion Pak Rs. Pak banks’ results published till Aug. 30
Another feature of the performance of banking sector is the slight drop in its spread, which essentially had to do with the drop in SBP discount rate. As of August 10, SBP’s discount rate has been reduced by another 150 bps. This will bring the Kibor down by another 125 bps, and will reduce the banking sector’s spread. But, experts are of the view that since mark-up rates are usually revised on a quarterly basis, the latest discount rate cut won’t impact banks’ 2012 profits very significantly; its impact will be felt from 2013 onwards. Given the ongoing flight of capital from Pakistan (irrefutable anymore) it is time for the banking sector to contemplate the consequences this dangerous trend will have for them even if they ignore its wider social consequences. It is more sensible to strengthen arrangements for sharing risk with the support services (insurers, custodial services, asset valuation agencies, clearing and forwarding agencies, etc.) by seeking a stronger regulatory system for them. Becoming risk-averse or hiking up their spreads to ridiculous levels (to cover their risks) isn’t the solution that the banking sector has so far opted for.
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September 2012
R esearch & Development Green Energy by Tariq Iqbal Khan
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uring the last decade, especially in Pakistan, a debate regarding environmental issues has started. Pakistan enacted the environmental laws and EPAs (Environmental Protection Agencies) [different names have been given by provinces; for example the Government of Punjab has named it a �Department�] were created at the provincial level and the federal ministry was created at the Federal Government level, having a full-fledged division and necessary staff along with the budget. As usual, the staff in the said agencies was either hired by the agencies themselves or transferred from other divisions. While making recruitments or transferring the staff from other divisions, due consideration was not given to the relevant qualifications or experience; each successive government obliged its own vote bank rather than taking care of the needs of such agencies. Environmental protection needs a balance between the industrial growth and protection against consequential environmental degradation. These two aspects have equal importance and the staff needs the necessary knowledge and training, as one aspect cannot be given preference over the other. The growing population which is a major problem in Pakistan needs industrial growth to meet its needs for: a. New job opportunities b. Availability of extra production to cater to the growing population c. Production for the price equilibrium in commodities d. Creation of exportable surplus e. Import substitution Environmental protection is necessary for the same growing population for the following reasons: a. To control unnecessary pollution b. Treatment of effluents c. To ensure that no extra greenhouse or poisonous gases are emitted by such industry d. To ensure that birds and other wildlife are not unnecessarily disturbed and their natural habitats are protected. e. To protect the flora and fauna of that area It is important to create a balance in the above-mentioned objectives so that industrial growth continues, placing the country in a position to achieve necessary growth in GDP which would provide economic security to the growing population. At the same time it must be ensured that the same population does not suffer, unnecessarily, the consequences of environmental degradation. Environmental degradation casts a very bad effect on human health as well, while the food chain created by God Almighty, is also broken or disturbed. The agencies created to provide protection against environmental degradation need to understand all these aspects and specially the concept of the food chain. Pakistan is also one of the countries where certain species are either facing extinction or have been categorized as endangered species by the World Wildlife Fund. Excessive deforestation, excessive cropping, excessive housing, in particular
badly-planned housing, are some of the major causes that endanger the survival of wildlife in Pakistan. Environmental Protection Agencies The research in the working of our Environmental Protection Agencies gives clues to malpractices in such agencies. We have witnessed the proceedings in various public hearings by the EPA on proposals for new industries needing clearance from these agencies. In such public hearings relevant issues are neither highlighted nor debated upon properly. In most cases, certain audience members (maybe planted by vested interests) raise issues, and the debate thereon generally has no substance in it. There are consulting firms which would make a case for the industry and present a report in those public hearings and most of the time that report leaves a lot to be desired. At least four to six months are required by the EPA to give a clearance. The reason for the delay is not understandable. After the hearing is over, no formal Minutes or report is available for the general public. Anyone interested in obtaining such information has to pursue this with the agency at his own. It is also a common belief that certain persons offer their services to the industry to obtain the clearance from such agencies against a professional fee. Nobody can say with confidence what amount is retained by such professional firms and what amount, if any, is passed on to get the necessary clearance. For all intent and purposes, these agencies are a hurdle under the garb of environmental protection. The entrepreneurs who would like to establish a new project have to spend considerable time and money for clearance from these agencies. The cost of installing an industry, therefore, enhances while the objective of protection against environmental degradation is not fully achieved. Globally the environment has not been protected during the last four or five decades and global industrialization has contributed towards global warming. The main cause of this degradation is burning of fossil fuels - a consistent depleting source of energy, which at the same time, is a major source of pollution, greenhouse gas emissions and, as a consequence, global warming. During the last two decades, the consciousness about environmental degradation has evolved. In this respect, various
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September 2012
R esearch & Development is Bhutan which has largely relied on its hydel resources to meet its energy needs. Bhutan has a planned capacity of 53,000 Mw of electricity, out of which up to now they have installed something like 8,000 Mw. While its own needs are limited, the balance is exported to India, the major beneficiary in some parts of Assam and northern Bihar. Thus Bhutan also earns foreign exchange through the export of electricity. In India, the major source of electrical generation is coal which is not a very clean source of energy, as the emissions from burning of coal and the sulphur contents in the coal are much more detrimental to the environment as compared to fossil fuels (especially lighter fuels with low hydrocarbon contents which emit less harmful gases as compared to coal). India has also developed liquefied natural gas terminals where the lower hydrocarbons are comparatively better for the environment. Although the coal reserves which is a cheaper source as compared to the fossil fuels were exploited by the British, who had a lot of experience in coal mining, India is deficient in energy and, due to various reasons, the GDP growth of India during the current fiscal year has been marked down. The GDP growth in the current quarter in India is only 5.3%, while overall GDP growth has been marked down to 6.6%. In Pakistan we had the necessary hydel resources but they could not be harnessed properly. The energy mix, once Pakistan deviated from creating additional hydel electricity, has changed drastically, and the cost of the energy mix is quite high as compared to other economies in the region. Pakistan is facing depleting gas reserves from existing wells, while new explorations and drilling are not being done up to the desired level. Despite a lot of discussion, planning and meetings held, Pakistan could neither import gas through pipelines from neighboring countries, rich in gas resources, nor liquefied natural gas through shipping. Up to now, Pakistan has not built an LNG terminal which is the need of the day to overcome the energy deficiency. Nepal is also energy deficient and has not developed its hydel resources to the desired level; the industrial growth is also low while the economic growth is only being achieved through agriculture, small industries or cottage industries and tourism. Sri Lanka is also deficient in energy. They have developed the hydro resources and have a chance to grow it further; political differences are not hampering their development. But the question of environmental degradation remains an issue. The rain patterns in Sri Lanka always provide an impetus to its growth through agriculture. Bangladesh is also deficient in energy. They have no known oil or gas reserves. Except small gas reserves in Sylhet, no other significant source of gas is available. Bangladesh also largely relies, for its energy needs, on coal and fossil fuels. Now, we revert to our primary subject of cleaner energy and environmental protection. The synopsis of the energy map of our region tells us that the largest economies of the region depend for their energy needs on sources which create pollution, such as coal and fossil fuels. It is important for the welfare of the population of this region, that the
nations joined hands and signed a protocol named the Kyoto Protocol. Kyoto Protocol This is a protocol to the United Nations Framework Convention on Climate Change (UNFCCC or FCCC) aimed at fighting Global Warming. The protocol was initially adopted on 11th December 1997 in Kyoto, Japan, and enforced on 16th February 2005. As of September 2011, 191 states had signed and ratified the protocol. The United States and Canada did not ratify the protocol. By the year 2000, US and Canada alone produced 1600 million tons of carbon which was around 40% of the total carbon produced by all the nations upto that date. Other United Nations member states which did not ratify the protocol are Afghanistan, Andorra, and South Sudan. In December 2011, Canada renounced the protocol. Under this protocol, 37 countries committed themselves to a reduction in four greenhouse gases (GHG) - Carbon dioxide, Methane, Nitrous oxide and Sulphur hexafluoride. The other two groups of gases produced by them are Hydroflourocarbons and Perflourocarbons and all member countries have given general commitments. Basic Principles The basic principles of physics tell us that all energies are inter-convertible, so the environmentalists started pleading that generally the nations should opt for cleaner energy or, “Green Energy�. Alternatively we may say that green energy would be an energy which is derived from sources of energy where there is the least disturbance of nature that generally leads to environmental degradation. In solar energy, the heat energy from the sun is converted into electrical energy or used as a direct source of heat energy. Mechanical energy may be derived from the wind between 70-90 metres above ground level and that mechanical energy is converted into electrical energy. The gravitational force from water falling from a height is converted into mechanical energy through turbines and then converted into electrical energy. This last source becomes controversial in the eyes of environmentalists because the storage of water in dams and artificial lakes displaces the population, certain deforestation takes place, the natural habitat of wildlife and birds are disturbed, and in some cases it results in water-logging as well. In case the mechanical energy is derived from run of the river or water flowing in a canal, it is much less detrimental to the environment but the construction of canals is also controversial, as it again disturbs the environment. These resources, if properly harnessed and used, would be less detrimental to the environment and, in the long run, would be beneficial to the economies of these countries as they contribute towards their growth targets, protect the environment in those countries and finally hedge against growing global warming which is quite detrimental to the human race as well as all types of wildlife, flora and fauna. The changing climate also disturbs the food chain, contributes towards soil erosion, and other issues - like extinction of species. The best example in our region of SAARC countries
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R esearch & Development environmental protection agencies at the federation level of each country take some care in planing to acquire energy in a manner that is less detrimental to the environment. What Is Green? "Green," in general, encompasses the entire movement to become more environmentally conscious. Green energy has become something of a global phenomenon. Green energy, organic food, Go Green, and a whole modern dictionary of similar terms, are being used in our everyday life and businesses are beginning to push hard for renewable energy. Going green is important for electricity and natural gas companies, as well as federal and state agencies, for research and developing renewable energy for future generations. You can go green at home in many affordable and easy ways. Here are a few major reasons to go green: • Burning fossil fuels is pumping billions of tons of greenhouse gases into the atmosphere, not to mention increasing dependence on resources such as oil and coal, of which there is not an endless supply. • Renewable energy is 100 percent clean and uses resources that are sustainable—sun, water, wind, etc.—and do not negatively impact the environment. • The less we consume, the fewer resources are consumed to meet the demand. Homes are poorly designed, and tend to over-consume precious resources. Energy conservation can be done by simply switching to LED or Compact Fluorescent Lighting (CFL) Energy Savers. LED lights use up to 90 percent less energy than traditional lighting. • Save money on your energy bill. You would be amazed how cutting back on water consumption, wasteful lighting practices and buying efficient appliances can save you a good chunk of cash. • Using recyclable or organic products means that toxic materials are removed from the production. The more we dispose of in landfills, the more valuable and costly materials are wasted, and more greenhouse gases are produced as these landfills decompose. Understanding the Impact of Climate Change based on US data: The next decade will be crucial in implementing changes aiming to reverse the effect of global warming. Historically, periods of warmth could be attributed to various factors: the sun, volcanic eruptions and changes in the earth's orbit. But the single most significant factor in recent climate change is humans. Statistics from the U.S. Environmental Protection Agency (EPA) and the Energy Information Administration (EIA) show a major increase in greenhouse gas emissions within the last century. Since the Industrial Revolution, nearly 3.2 billion metric tons of carbon dioxide has been added to the earth's atmosphere annually, a 35 percent increase. Scientists are concerned that the Arctic has heated nearly twice as fast as the rest of the planet in the last 50 years, and because of the
human contributions to increasing greenhouse gas emissions, the dangers associated with rising temperatures could be realized in the near future. Leading Causes of Global Warming (1) Fossil Fuel Consumption The burning of fossil fuels is considered the greatest threat in global climate change. According to the EIA, the U.S. contributes more than 25 percent of all carbon dioxide emissions from energy production. In fact, power plants produced a whopping 2,459,800 metric tons of carbon dioxide in 2006. (2) Vehicle Emissions More than 20 percent of all carbon emissions in the U.S. come from automobiles, large trucks and airplanes. (3) Landfills The gradual decomposition of trash in landfills produces more than 34 percent of methane emissions. Methane is not as concentrated in the atmosphere as carbon dioxide, but does trap more solar heat than other gases. (4) Deforestation The destruction of forest populations is seriously interrupting the natural maintenance of carbon through photosynthesis, emitting millions of tons of additional carbon dioxide into the atmosphere. Fossil Fuels: How Do They Negatively Affect the Environment? Fossil fuels are the largest greenhouse gas emitters in the world, contributing 3/4 of all carbon, methane and other greenhouse gas emissions. Burning coal, petroleum and other fossil fuels at extremely high temperatures (combustion) is the primary means by which electricity is produced. It also leads to heavy concentrations of pollutants in our air and water. The real problem is that the atmosphere already absorbs a ton of greenhouse gases naturally, but is trapping up to 25 percent more of the sun's radiation due to annual increase in greenhouse gas emissions. Just think of the atmosphere as a very thick blanket of insulation that grows thicker and more absorbent by the year. Here are some statistics from the Energy Information Administration: • 3.2 billion tons of additional carbon dioxide annually. • More than 2.5 million metric tons of carbon produced by power plants. • 98 percent of U.S. energy production comes from nonrenewable sources, a.k.a. fossil fuels. • The U.S. consumes more than 20 million barrels of oil per day, with more than one million tons of coal consumed annually as well. The increased awareness surrounding the global warming and the importance of renewable energy is vital, but the fact remains that fossil fuel production and consumption has hundreds of years of history, and the use of renewable energy is still in its infancy.
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Q uotes
R egulator y Compliance 1) NEW DEPTT TO HANDLE TRANSIT TRADE:
decided by Appellate Tribunal Inland Revenue, Lahore Bench, Lahore “ATIR” with the observation that the appellant having paid the amount of sales tax and SED before the issuance of the said SRO, was clearly entitled to the benefit of the amnesty contemplated in the SRO 648(I)/2011. To hold otherwise would be negation of justice, fair and equal protection of law. The appellant having paid the sales tax and SED due from him is as much entitled to the amnesty contemplated in the SRO 648(I)/ 2011 on June 25, 2011 as any other taxpayer who pays the due taxes after issuance of the SRO 648(I)/2011 on June 25, 2011. Resultantly, a person in similar factual situation either before or after the issuance of the beneficial legislation, shall stand equally benefited from the amnesty provisions.
The Federal Board of Revenue has established a separate full-fledged department for handling and processing multibillion transit trade with Afghanistan in a bid to minimize pilferage of containers on way to Afghanistan. The directorate general office will be responsible for enforcement of all transit trade agreements, laws and procedure through respective regional offices. The establishment of the new directorate general of transit trade is believed to smoothen cargo movement and reduce its misuse. The new office will start functioning from October 1.
2) TEMPORARY IMPORTATION SCHEME IN TRADE POLICY NOT FEASIBLE:
The Federal Board of Revenue has conveyed to the Ministry of Commerce that any modification in the ‘temporary importation scheme’ notified vide SRO 492(I)/2009 in the upcoming trade policy is not feasible, as the scheme is very simple, facilitating manufacturers-cum-exporters with minimum documentation.
5) 550 CASES OF FTO’S OFFICE PENDING WITH FBR:
Over 550 cases of the Federal Tax Ombudsman (FTO) Office are pending with the Federal Board of Revenue (FBR) for implementation relating to tax matters, redressal of taxpayer’s complaints, taxation disputes and cases of maladministration by the tax department. FTO Office has reportedly issued instructions in this regard to the FBR. The FBR Office has also decided to take legal action against the tax officials who would not implement the findings/ recommendations in the said 550 cases. The highest level of non-implementation of cases has been witnessed in Lahore where findings in 308 cases of the FTO Office have not been implemented. Under Sections 11 and 12 of the Federal Tax Ombudsman Office 2000, it shall be the duty of the Revenue Division and the Tax Employee to implement the finding made under Section 11 and 12 within thirty days of such decision being communicated to the concerned Tax Employee.
3) NEW SALES TAX RETURN FORM NOTIFIED: The Federal Board of Revenue (FBR) has issued SRO 1004(I)/2012 to notify the new sales tax return form through amendment to the Sales Tax Rules 2006. The new sales tax and federal excise return form has been notified through STR-7 i.e. Sales Tax and Federal Excise Return. According to the new return form, a new Annex-E1 has been introduced for the collection of the Federal Excise Duty on natural gas. The Annex-E1 seeks details about the name of registered person, tax period, locality/city, province, UoM, quantity, rate and the FED paid. The new sales tax return form has incorporated changes in view of amendments made in the Sales Tax Act 1990 and Federal Excise Act 2005. The penalty charged and the provisions of the SRO 191(I)/2011 have been removed from the new form which has also deleted provision pertaining to the calculation of inadmissible input tax for furnishing computerized national identity card numbers and National Tax Numbers of unregistered buyers under rescinded SRO 191(I)/2011. The Annex-A is related to the domestic purchase invoice, Annex-B Goods Declaration; Annex-C domestic sales invoices; Annex-D Goods Declaration-Exports (GDE); Annex-E FED on natural gas; Annex-F Carry Forward Summary; Annex-G Sales Tax Arrears and Annex-H is related to the stock statement.
6) MOST WHOLESALERS STOP FILING SALES TAX, FED RETURNS: Most of the wholesalers have stopped filing of sales tax and federal excise returns and deliberately making attempts to change their category/tax status on issuance of SRO 564(I)/2012, which has disallowed input tax in excess of 90 percent of their output tax. The SRO 564 (I)/2012 has included ‘wholesalers’ into the categories of taxpayers who are not allowed to adjust input tax in excess of 90 percent of their output tax. This restriction has been imposed on the ‘wholesalers’ through issuance of the said SRO. Resultantly, a large number of wholesalers have stopped filing of their sales tax returns for tax period of June 2012. The wholesalers have also applied to the FBR for change in their status to service providers, retailers, wholesalers- cumretailers to avoid payment of input tax. Under SRO 564(I)/2012, amendment has been made in SRO 647(I)/ 2007 dated 27th June 2007 to exclude ‘wholesalers’ from the said SRO.
4) WAIVER UNDER AMNESTY SCHEME NOTIFIED:
Reportedly, the waiver from payment of default surcharge and penalty under the provisions of Sales Tax Act, 1990 and Federal Excise Act, 2005 could be claimed by the taxpayers under the amnesty scheme notified through SRO 648(I)/2011 dated June 25, 2011 even if principal amount of sales tax and FED was paid before the issuance date of said SRO. The case of STA No. 701-702/LB/2011 and FEA No. 13-14/ LB/2011 on common legal issue of Waiver/ Amnesty for payment of Default Surcharge and Penalty were
7) TAXPAYERS ASKED TO REPORT EXEMPTIONS AND CONCESSIONS: The Federal Board of Revenue has made it mandatory for the registered persons, availing sales tax or federal excise duty exemptions or concessions, to specifically report the
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R egulator y Compliance and Exploration Policy 2012 according to which subsidy on gas will be gradually withdrawn and newly discovered gas will be 100 percent costlier. The policy aims at promoting oil and gas exploration in the country to overcome the energy crisis. Under the new policy, more incentives would be given to investors, especially foreigners, to expedite exploration activities in the country. Indigenous resources will also be utilised to enhance oil and gas production. Initially 15 companies will invest $100 million in the oil and gas exploration sector. Dr Asim said he hoped that the country’s gas production would reach up to 5 billion cubic feet by the mid of next year, adding that there would be no gas loadshedding in the next winter, though it would continue for the CNG sector. In order to accelerate exploration, the period of exploration licence has been reduced from 9 years to 7 years while the appraisal renewal period has been reduced from two years to one year. In order to attract much-needed foreign investment in the exploration and production sector, better gas price has been given - $6 per MMBTU for Zone-III, $6.3 per MMBTU for Zone-II, $6.6 per MMBTU for Zone-I, $7 per MMBTU for Zone Offshore Shallow, $8 per MMBTU for Zone Offshore Deep and $9 per MMBTU for Zone Offshore Ultra Deep. Windfall levy has been reduced from 50% to 40% while base price of crude oil and condensate for the windfall levy has been increased from $30/barrel to $40/barrel that would escalate each calendar year by $0.5/barrel. Windfall levy will be equally shared between the federal and provincial governments. As per the policy, a bonanza of $1/MMBTU shall be given for the first three discoveries in the offshore area. Gas price will also be extended to leases for additional 10% production over and above the commitment of development plan approved by the government. 10% of the royalty would be utilised in the district where oil and gas would be produced for infrastructure development. SSGCL and SNGPL will be responsible for laying pipelines for which they will get tariff on transportation of gas as approved by Ogra. For offshore, gas will be delivered at the nearest access point to an existing regulated transmission system, or at the shore within coastal locations.
relevant notification, Schedule of the Sales Tax Act 1990 or exemption order under the new sales tax return form. If a taxpayer is not charging standard rate of 16 percent sales tax, he has to report proper SRO to verify exemption/ reduced rate in the return form. Previously there was no condition for the registered persons to specifically mention such exemption notification or legal SRO to justify reduced rate etc. In case of filling Annex-C of the new return form, if the taxpayer claims exemption on sales, he has to specifically give legal backing for availing such exemption.
8) TAX OFFICIALS ASKED TO OPTIMIZE USE OF SIMULTANEOUS AUDIT SYSTEM:
Through a circular issued on August 28, the Federal Board of Revenue (FBR) has directed the tax officials to effectively utilize the system of ‘simultaneous audit’ while investigating fiscal frauds and tax evasion cases of non-resident persons etc under the framework of Article 26 (exchange of information) of the avoidance of double taxation treaties signed with different countries. The mechanism of ‘simultaneous audit’ is frequently practiced by various forward-looking tax administration and signifies coordinated but independent tax examination of related taxpayers in two or more different states by exchanging background information pre-audit assumption in audit tips, and the eventual audit reports.
9) CCP ISSUES POLICY NOTE TO INFORMATION MINISTRY AND PTA:
The Competition Commission of Pakistan (CCP) on August 28 issued a policy note to the Ministry of Information Technology (MoIT) and Pakistan Telecommunication Authority (PTA) recommending the withdrawal of the directive issued by MoIT proposing establishment of international clearing house exchange for international incoming calls for long distance, fixed-line local loops, wireless local loops and mobile operators. Through the policy note, the Commission has categorically informed the MoIT and PTA to prevent collusive behavior, ensure transparency and anti-competitive practices by establishing such international clearing house exchange for international incoming calls.
10) GUIDELINES TO TAX OFFICIALS FOR SEEKING INFORMATION ON FISCAL FRAUDS:
Through its income tax circular 4 of 2012 the Federal Board of Revenue (FBR) has issued new policy guidelines for the tax officials seeking information from other countries on fiscal fraud or evasion involving non-resident companies or Pakistanis having assets/wealth abroad under Article 26 (exchange of information) of the ‘avoidance of double taxation’ agreements. The tax officials have been directed to properly utilize provisions of the avoidance of double taxation agreements to collect information about international business transactions and other data to check fiscal frauds, under-invoicing, over-invoicing and tax evasion etc by non-resident taxpayers or resident taxpayers having overseas fiscal connections.
12) SEC PROPSES LIFTING AD BAN ON PRIVATE STOCK OFFERS:
WASHINGTON: US securities regulators voted 4-1 on Wednesday to propose lifting a long-standing ban on general advertising for private securities offerings, a measure that some say will spur economic growth but one whichcritics fear could pave the way for fraud. The rule, required by the JOBS Act passed by Congress earlier this year, would allow companies to advertise to investors so long as they take “reasonable steps” to verify that the purchasers are “accredited investors.” Accredited investors include those with net worth of at least $1 million or an annual income of at least $ 200,000. The public will have 30 days to comment on the proposal.
11) PETROLEUM POLICY 2012 UNVEILED:
Adviser to Prime Minster on Petroleum Dr Asim Hussain on August 27 unveiled the government’s Petroleum Production
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A griculture Corporate farming and its impact on small farmers and the economy
L
ike many other issues in Pakistan, which regularly appear and disappear, the issue of corporate farming has resurfaced and is being discussed in the relevant circles. In fact the idea of corporate farming was already there in the Companies’ Act 1984. The military government of General Musharaff had disclosed its plan to allow corporate farming in the country while unveiling the annual budget of 2000-01. According to the plan, the foreign companies were to be granted a 30-year lease, extendable for another 20 years, on government owned land. Now these have been revised to 50 and 49 years respectively. In July 2002 the Federal Cabinet decided to allow duty-free and sales-tax free import of machinery and equipment for use in corporate agricultural farming. Tax holiday packages for irrigated, barani, and cultivable areas were announced. Apart from this, to avoid complications in the future, an amendment in 1977 land reforms act was also considered to do away with the upper ceiling of 100 acres. The Ministry of Food, Agriculture and Livestock (MINFAL) started work on it and wrote to the four provinces to furnish details of cultivable barren land in their respective areas for utilizing the same for corporate farming. However, the federal government, in response to the news about giving land to various countries/companies, clarified that till then no mature deal with any country or corporate sector had been made for corporate farming. An eight-point policy package detailing the concept of corporate farming was prepared in this respect. According to the package, the federal ministry of industries and production, the board of investment and ministry of food, agriculture and livestock will look after the industrial part of the concept. Since only local and foreign companies, which have been incorporated under the Companies’ Ordinance1984, will be entitled to corporate farming, the Security and Exchange Commission of Pakistan and the provincial governments would also be involved. The provincial revenue department will take care of the taxation part as the corporate farming is to be covered by the agriculture income tax law which is a provincial subject. As per the policy package, some special laws would also be made to deal with possible labor problems. This would involve the ministry of labor as well as MINFAL. Out of total 79 million hectares of land in the country the survey of 57 million hectares has been done and documented. While 22 million hectares of land is undocumented and has not been surveyed. Pakistan has about 8 million hectares fertile cultivable land in the four provinces besides hectares of barren land which can be used for crop production by developing corporate farming and for maximization of agricultural production in the country. This was the time when globalization was the buzz word and efforts from all sides were being made to make everything compatible with it. Similar was the case in this regard also and it was said that agricultural sector had to be made highly efficient and competitive in order to meet the future needs for food at home
by Tahir Rauf
and also to be able to compete in the international trade arena. The opening was necessary to make Pakistani agriculture more efficient in an era of globalization. But this did not take off and remained buried in the files. Another factor which gave rise to this idea was that the extraordinary increase in global prices of staple commodities like wheat, rice, corn, soyabean and barley seemed to have led many richer states to begin growing these crops on their own instead of continuing to import them, even if this production took place on land located in other countries. Several state-sponsored companies from South Korea, Japan and Gulf States acquired farmland in Laos, Cambodia, Burma, Mozambique, Uganda, Ethiopia, Brazil and South and Central Asia. According to some unofficial sources, Pakistan has offered 6 million acres of land to resourceful countries and multinational companies for corporate farming. Saudi Arabia and UAE have also desired Pakistan to begin growing crops for them. It is said that United Arab Emirates, which imports 85% of its food, purchased 324000 hectares of farmland in Punjab, Sindh and Baluchistan in June 2008. Pakistan Ministry of Investment has also confirmed its intent to offer Arab countries one million acres of land for cultivation. According to newspaper reports, some private companies on behalf of UAE government have already purchased thousands of acres in Baluchistan near Mirani Dam. Reportedly, the UAE is also in negotiation with Sindh government to acquire farmland in Shikarpur, Larkana and Sukkar and with Punjab government for acquiring land around Mianwali, Sarghoda, Khushab, Jhang and Faisalabad. Reports are that barren cultivable land in Baluchistan, Thar and Cholistan would be given to the corporate sector. Priority in this respect would be given to overseas Pakistanis and local investors for investment in farming sector. However, the investors will have to build their own dams in areas like Baluchistan, install their equipment for exploration of water for irrigation, besides bringing with them modern farming facilities and high-tech equipments for land development. Agriculture in Pakistan suffers from capital deficiency. The banks are reluctant to lend to the agriculture sector which may be seen from the fact that the share of credit to agriculture is hardly 4% of the total credit to private sector. According to some farmers, one may sell the factory or house in Pakistan but to find buyer for some piece of agricultural land is quite difficult mainly due to the complications in the title and revenue records. Agriculture in Pakistan suffers from over-employment which has rendered it non-profitable. In the western world, only two to three percent of population is normally involved in agriculture but in Pakistan around seventy percent of the country’s population is directly or indirectly involved in it and is yet unable to feed the remaining 30%. This deficiency is partly due to lack of funds besides big land holdings and the lack of interest of their owners
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A griculture to cultivate all the land and use the modern technology to maximize their output. Thus corporate farming is an attempt to attract capital in the agriculture sector. It is also said that this would attract investment, make the system efficient and end stagnation in this sector. Agriculture is an important sector of the country’s economy and all other sectors, in one way or the other, are dependent on it. Therefore, improvement in agriculture may not be made in isolation. The question, however, remains as to how a country which has a weak industrial base and economy not sufficiently diversified may benefit from the idea of corporate farming which is inevitably related to the developed industrial economies. Agriculture in Pakistan is largely labor intensive and the induction of modern technology would relieve a lot of people from agriculture and render them unemployed. Unless they are absorbed in other economic activities this would create a social and economic problem and in fact a human crisis. To avoid a social explosion, apart from widening and diversifying the economic base, it is necessary that attention be given to the establishment of small/cottage industrial zones and training institutes for training of the people in different trades. There are also many other reservations especially on the part of small farmers. They are of the view that big land lords have once again conspired to save their land holdings as now they can register a private limited company and transfer all of their land in its name and save it from any future land reforms. Similar exemptions were given to the big land lords in land reforms in the past in the name of using modern technology and to promote the agriculture on modern lines but nothing significant was achieved. Many experts see the concept of corporate farming as nothing more than an attempt aimed at land grabbing in the developing countries by the investors of the developed countries, the major intention behind being to grow food, agro fuel, timber, carbon and tourism. They argue that at present over a billion hungry people live in Ethiopia, Ghana, Madagascar and Mali where land grabbing by investors from developed countries has been done quite expeditiously. Pakistan has silently started allotting vast areas of land in Sindh, Punjab and Baluchistan to countries with larger populations for corporate farming which would destroy local agriculture and also lead the country toward severe food insecurity, and consequent increase in poverty. Unstable food grain markets, rising prices and deepening food insecurity were the outcomes of land grabbing in Asian, African, and Middle Eastern countries. Pakistan, Uganda, Brazil, Cambodia and Sudan are among the most favored countries by international land grabbers who are also behind corporate farming. The investors from the rich countries want access to resources, markets, and labor forces of the poor countries at the lowest possible price. Thus Pakistan’s agriculture is under pressure of these investors and large corporations. To protect the interest of small farmers and people at large it is necessary that a long term agriculture policy is developed that focuses especially on the rights of the small farmers, the impact of climate change, ensuring registration of small farmers and recognizing the role of women as farmers. Most vulnerable section in this case is the small farmers. In Pakistan’s case, more than 80% farmers own less than two hectares of land and many of them have none. Pakistan is already facing a situation where small farmers, unable to support their livelihood, are abandoning farming in search of urban employment.
It is feared that due to corporate farming this situation will further aggravate. Corporate farming would mean the end of small farmers who cannot compete with highly sophisticated and mechanized multinational companies. Because once the foreign investors thronge the market, small farmers would not be able to compete with them. Cost of inputs and machinery would go down for them because of bulk purchases, putting small farmers at comparative disadvantage. Instead of promoting corporate farming, role of agriculture cooperatives must be revived and encouraged as it is the only way for the small farmers to pool their resources and get advantages of economy of scale and access to modern technology, bank credit, markets and other facilities. It is wrong to assume that traditional farming is inefficient. Although ill-equipped, these farmers are producing food for 180 million people. Corporate farming is based on the idea of maximizing profit and not producing food for survival. Companies invest only in economically viable business ventures. If they see more profits in cash crops they will invest in cash crops and would use Pakistan as a base for exporting cash crops which would replace staple cereals on the country’s farms. This may boost foreign exchange earnings but not the food production and Pakistan might be forced to import its food. It is also argued that the multinational companies will utilize our land to produce seeds on commercial basis for export to other countries of the region. In particular, the repercussions of corporate farming can be very dangerous for Pakistan in the context of our water scarcity. Given that some 70% of all fresh water withdrawn for human use goes into agriculture, it may be prudent for Arab and other water scarce states to invest in agriculture in other countries so that their scarce water sources are not placed under increased pressure. The problem of course is that the countries like Pakistan are facing acute water scarcity problems, and placing the burden of providing water to corporate farms will only make matters worse. However, the officials argue that the small farmers need not fear as nobody could deprive them of their land. To begin with, only state and barren lands would be offered for corporate farming and only the willing farmers would sell their lands to the local or foreign investors. They are of the view that creating islands of efficient farming would have a trickledown effect on the rest of the sector. However, the environmental hazards posed due to deforestation, land degradation and increased water consumption also need to be taken into account before making such confident claims. Some economists did not expect foreign business to be interested. Like other sectors, the probability of foreign direct investment coming to agriculture is low. The advanced state of the decay of agricultural infrastructure and the generic perception of Pakistan being an unstable country will mean that the country’s risk taking will remain high. This will surely apply to agriculture also. Corporate farming presents both opportunities and challenges. The sector needs money that can only come from private sector but certainly not at the cost of poor farmers who constitute a majority of Pakistanis.
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L egend Agha Hassan Abedi: a human par excellence
by A. B. Shahid
A
ugust 5 was the day Agha Hassan Abedi, creator of Bank of Credit and Commerce International (BCCI), left for the heavens back in 1995. Born in Mehmudabad, India in 1922, in his 73-year life he created what few could, given the tough times he lived in. On July 4, 1991 – the day of its winding up–BCCI’s branch network had spread to 64 countries and its representative offices were located in another 8 countries. BCCI at that time was also the world’s largest privately owned bank. In November 1991, CNN had telecast live an inquest by a US Senate sub-committee into the collapse of BCCI. In the hearing, Masih-ur-Rehman (BCCI’s ex-CFO) made a detailed deposition. It was followed by depositions by representatives of the Fed, Comptroller of Currency, FBI, DEA and CIA. After listening to them, the committee felt that, based on the evidence present- ed, BCCI could have been restructured, not closed. The chairman therefore asked the CIA representative “why was the bank closed?” In spite of being monumentally brief, the CIA representative’s reply was enormous in what it conveyed; he said “Sir, we decided that the bank should be closed”, ‘we’ denoting the US that, since 1942, decides what should or shouldn’t happen on this planet. No Third World bank achieved what BCCI had achieved; its closure was a tragedy. More than BCCI’s own flaws, its end manifested the anger of the powers that be. That move was triggered by a BCCI policy that angered the Western powers: BCCI began replacing the expensive and strenuous World Bank loans to Third World countries with its much cheaper and rational term loans. More than a banker, Abedi was a visionary with a remarkable perception of what was coming–a quality that is the greatest divine gift; that vision has been badly bruised by man’s quest for success, which has been reduced to grand but short-lived delusions. Mr Abedi believed that mankind could achieve far more if only it could fathom the divine scheme. He believed that we have a grand purpose in life, and should feel honoured to have been chosen for the task of building the future i.e. using our vision, creativity, and managerial capacities; to him, desires are the essence of our psyche but their materialization will not herald a better future for us all unless their outcome conforms to the divine scheme. If our desires trigger life-promoting efforts, we will gracefully ride the highway of evolution but we must develop an ability to manage this great enterprise. In essence, management has two sides: first an awareness of what is happening around us and second, the ability to ride that wave of evolution. But the key obligation of managers is to develop a joint vision; without this cohesion success may either be partial or may depict a shabbily masked conflict that is rooted in disbelief. A unique example of Mr Abedi’s vision was the policy he devised for People’s Republic of China. Till the early 1980s, courtesy the Cold War, the West ensured that China was
virtually secluded from the rest of the world. In 1979, BCCI set up a representative office in Beijing and, the former Pakistani Foreign Secretary Sultan Muhammad Khan as chief representative of the BCCI. Until the early 1980s, China was finding it hard to access the global markets but Mr Abedi knew the potential of China. Based on the reports filed by BCCI representative office, he had concluded that it was time to assist China and so, in early 1983, he visited Beijing to hold a detailed dialogue with the Chinese leadership. At the end of the dialogue he offered China a line of credit of US$25 million at 1.5% below Libor, and invited China to access the world mar- kets using BCCI’s global network. A member of the BCCI delegation later asked Mr Abedi why he had offered the line at 1.5% below Libor. Mr Abedi told him that China’s cheap labour and modern technology is the combination that will make China world’s biggest economic power in the 21st century. During the 1980s, BCCI helped China access technology markets and its results are visible now. Given his humble background, what he achieved in his life-time owed itself to this perception about the purpose of life and the role of management in materializing it. A look at the mess created by those who altered the socialmaterial balance of the global economic system elevates Mr Abedi to the level of a genius par excellence. It is well known that in the 1960s Pakistan was one of Asia’s most promising economies. In 1959, Mr Abedi parted ways with Habib Bank to create the United Bank because, in his perception, Habib Bank was not liberalising its policies fast enough to materialize the opportunities offered by Pakistan’s potential. But, the 1965 war with India, events leading to the 1971 saga, and subsequent change in Pakistan’s governance profile under the PPP, convinced Mr Abedi that he could do more for humanity by exiting from the constrained national landscape to the global landscape and in September 1972, he created the world’s largest privately owned bank– the BCCI, initially in the UAE. BCCI expanded into 72 countries within a span of 19 years, the bulk being under-developed countries that BCCI helped enter the global markets, to benefit from this exposure, and on easy terms. In 1979, he was the first corporate executive to give his vision of the demands and challenges of the 21st century, and mustered the support of a gentleman like the former US president Jimmy Carter (who even today is highly respected for his views) in creating awareness thereof among the inhabitants of this planet.
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September 2012
L egend What his ‘Vision-2000’ think-tank advocated was harnessing technological advances for the benefit of mankind to lower global poverty line. He was also the first banker to give NCR the idea of linking global branch networks for consolidation of accounts, and thus of risk, in real-time. In its brief 19-year lifespan, BCCI twice changed its information technology. In Pakistan, BCCI was the first to provide on-line terminals to its customers. Going by the global standards at the time it was remarkable and manifested BCCI’s quest for ever-better risk management, and for making optimal use of the globally available resources. BCCI’s International Management Development Centres in seven countries across four continents trained hundreds of bankers through its training courses that used case studies so as to prepare them for hardcore purposeoriented banking; today many of them hold senior positions in many of the better-managed banks in many Third World countries. BCCI was a Luxembourg-based bank, but its global policy-making, supervisory, and control unit was located in London. Unlike most organizations, this unit was called the ‘Central Support Organization’, not Head Office, because Mr Abedi saw the unit’s role principally as the support arm for BCCI’s frontline, not an office calling the shots which manifested his perception of how good management liberates its frontlines to achieve their full potential. Global banking and promotion of world trade to create new investment and employment opportunities that empowered Third World countries to do more for their people was the hallmark of BCCI. But Mr Abedi wanted more; BCCI also had to share with the people the benefits accruing to BCCI through this evolutionary process. Although BCCI exists no more, BCCI-created or funded hospitals, schools, colleges, pilot projects for employment creation and poverty reduction, and many trusts and foundations to support charitable institutions, that still exist in countries around the world. Many may not know this fact that, at the very outset, BCCI committed to the government of Pakistan that the profit of its Pakistan operations won’t be remitted to the bank’s Head Office, but will be used in its entirety to fund poverty alleviation projects in Pakistan. Besides this, millions were donated to dozens of hospitals and schools. The prominent projects that BCCI’s profits financed were the Orangi Pilot Project, GIK Institute of Technology, Foundation for Advancement of Science and Technology, and the BCCI foundation (now called the Infaq Foundation). This manifested his perception of Corporate Social Responsibility. Had the bank not been closed in 1991 it would have been the record year for its Pakistan operations in terms of growth in asset base, and profitability because, at that time, the bank held 55% of the total foreign currency deposits of Pakistan, and handled 15% of its foreign trade. That is why Pakistani depositors were paid in full along with profit for the period during which their deposits were frozen. BCCI’s ability to rescue Pakistan was eventually eroded since its majority shareholders were being pushed by the US to divert resources to re-build Iraq’s war-torn defenses.
Quite unwittingly, BCCI’s shareholders shifted the pressure on to BCCI. Mr Abedi resisted this pressure till his removal from the scene after suffering a paralytic stroke. After the winding-up of BCCI, Pakistan wasn’t the only example of depositors being paid in full; everywhere depositors were compensated fully except in the UK, the US and UAE, and operations in almost all the countries except UK and the US, were bought over by local or international banks. After all BCCI wasn’t as bad a bank as thought by the powers that be. Now the same powers that be are bailing out banks involved in a variety of malpractices that were never proved in case of the BCCI, as proved in the US Senate hearing on BCCI’s winding up back in November 1991. The desire to “share” the benefits was institutionalised down to all levels of the BCCI. In 1980, Mr Abedi had addressed a letter to all employees reminding them of their obligation to share the benefits accruing to them with the less unfortunate, and to induce employees to adopt this habit. For a start they were offered a sum along with their monthly salaries. In that letter, he emphasized that while extending financial help is one way of “sharing”, the ultimate humane form thereof was giving of “yourself ” i.e. offering your time, energies and abilities with humility, for the salvation of the less fortunate. One is yet to hear of an organization that tried to inculcate this psyche among its staff as a policy. Talking of humanity manifested through humility, just one episode thereof would show how Mr Abedi manifested it. A young Englishman was selected by the HR Division to take care of the up-keep of Mr Abedi’s desk. He was told how meticulous Mr Abedi was and what he expected of those working with him. The day that young man was to join office, it so happened that as he entered the office lift, an immaculately dressed gentleman also joined him in the lift. That gentleman very politely asked the young man which department he worked for, to which the young man replied “well, it is my first day in the job and I will be a part of the president’s staff. They tell me he is a perfectionist. That’s a big challenge but I will prove my worth”. Then the young man asked that gentleman if he was properly dressed for his first day in the job. The gentleman fixed the knot of the young man’s necktie and said “you certainly are; I assure you that the president will like you because you are honest and committed to doing your best”. Later, as an HR Division officer took that young man to the president’s desk for being introduced, he couldn’t believe his eyes; the president was the gentleman who he met in the lift a few minutes earlier. Mr Abedi believed in the dignity of fellow human beings. He believed in the dignity of mankind because he believed that each one of us had some goodness to offer and we all should be induced to do our bit willingly in materializing the divine scheme. This is the Agha Hassan Abedi the BCCI employees remember. God bless his soul for making them more caring, humane, and purpose-oriented for the sacred obligation they carried as bankers. Is there anything else you need to face the Creator, if you hope to be forgiven for your many unintended errors and lapses?
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September 2012
S tock Market Stock Market Review August 2012
T
he KSE-100 index posted another month of strong performance in Aug'12, gaining 5.6% MoM and in the process breaking the 15,000 points psychological barrier for the first time since Apr'08. The surprise discount rate cut by 150bps by the SBP to 10.5% following benign Jul'12 CPI reading was the main driver behind the strong market performance, further supported by healthy corporate results and optimism in the Telecom sector on proposed implementation of International Clearing House (ICH). Other major economic developments were the healthy remittances for Jul'12 which were up by 10% YoY to US$1.2bn while the PkR remained relatively stable against the US$, despite repayment of IMF tranche of US$397mn. On the political front, 3 weeks extension given by the Supreme Court to PM Raja Pervez Ashraf to write letter to the Swiss authorities prevented a political deadlock, albeit temporarily. Market performance in numbers: The KSE-100 Index closed the month at a 52-month high of 15,392 points, up 5.6%MoM while the CYTD gain now stands at an impressive 36%. Furthermore, Index gains were backed by healthy trading activity with average daily volume clocking in at 156mn shares compared with 90mn shares last month. Of particular note was the spike in trading activity in the last week of Aug'12, with volumes growth being led by the Telecom sector. KSE was easily the best performing sector in the region, where the MoM gain of 5.6% easily outscored the Top five gainers scripts MoM PTCL
29%
HUBC
15%
PPL
14%
DGKC
12%
ENGRO
12%
Top five loser scripts MoM MEBL
-9%
BAFL
-8%
UBL
-7%
LOTPTA
-4%
FATIMA
-4%
by Ayub Humayun Ansari
benchmark MSCI FM gain of 1.7%. In this regard, total FIPI inflows were recorded at US$49.3mn (+58%MoM). On sector wise basis, the Telecom sector was the notable outperformer gaining 30.6%MoM (optimism on ICH implementation), followed by Aug 31,2012 ^KSE 15391.58 the Electricity (attractive dividend yields as well as proxy war in HUBC) and Construction materials (healthy profitability of cement sector amidst lower coal costs and downward sticky cement prices). Banking sector (-1.6%MoM) 2012 Aug 6 was the notable underperformer largely due to expectation of NIMs shrinkage following lower interest rates while Chemicals (+1.6%MoM) also under performed on poor urea sales as well as below-line result of LOTPTA. Outlook: We believe that the bull-run at the KSE is likely to continue in the near term, where surprisingly lower CPI reading for
Major Sector Performance Sector MOM FYTD CYTD Telecomm 30.6% 27.6% 91.7% Elec 12.0% 16.2% 42.4% Cons & Mat 9.2% 24.7% 123.6% Oil & Gas 8.4% 9.1% 22.7% KSE All Share 5.2% 8.9% 34.2% Food 3.4% 9.2% 46.9% Chemical 1.6% 0.6% 11.2% Comm Bank -1.6% 3.7% 40.2%
Aug'12 (9.05%YoY, 32 month low) has strengthened the case for further monetary easing. Telecom sector is expected to lead the market rally where we highlight ICH as a game changer for the industry.
15.40k 15.30k 15.20k 15.10k 15.00k 14.90k 14.80k 14.70k 14.60k Aug 13
Aug 23
Aug 27
Aug 31
Money Market T-Bills (3mth)
11.4382%
T-Bills (6mth)
11.4893%
T-Bills (12mth)
11.5946%
Discount Rate
10.50%
Kibor (1mth)
10.51%
Kibor (3mth)
10.46%
Kibor (6mth)
10.51%
Kibor (9mth)
10.81%
Kibor (12mth)
10.84%
P.I.B (3 year)
12.6680%
P.I.B (5 year)
13.0717%
P.I.B (10 year)
13.3296%
Portfolio Investment Breakup - Aug'12 Monthly (Aug 2012) Gross Buy Gross Sell Net Buy / Sell PkR PkR PkR $ FIPI Local Com Bank DFI M. Funds NBFC Local Investor Other Org
8,740,620,456 -4,059,301,542 4,681,318,907 49,277,041 32,277,628,518 -33,486,400,891 -1,208,772,372 -12,723,920 5,579,915,308 -7,396,996,384 -1,817,081,075 -19,127,169 6,416,110,140 -5,750,883,809 665,226,331 7,002,382 1,712,656,782 -1,933,597,475 -220,940,693 -2,325,692 48,344,602,772 -50,763,945,791 -2,419,343,016 -25,466,769 1,494,288,315 -1,174,696,399 319,591,916 3,364,125
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September 2012
C ommodity Review Commodity Market Review August-2012 by Raede Latif
C
ommodities revealed a rising trend for the month of August, with bullions having a fairly sharp rise from the mid of the month. The recent activity is further substantiated by the Standard and Poor’s GSCI Index, which has shown an increase of 5.09% over the month. Stability was witnessed in the recent trend of gold. After reaching a four and a half month high during the month, the yellow metal awaited the US Federal Reserve implementations to stabilize the economy through a third round of US Bond buying. Gold as always has been utilized to provide a hedge against inflation. However, an immediate quantitative easing was not announced, which initially led to a price decline followed by a gradual increase, with the hope that the monetary measures would be as expected. Crude Oil prices took their cues from the stock market and a rise in the US Dollar. The trend has been on the increasing end with prices hovering between $94 and $96 during the last week of the month. Silver maintained the rising stance, following the trend of gold. However, an increase in volatility was witnessed as a result of anticipation of the US Federal Reserve implementations. PMEX has shown its highest ever monthly volumes of Rs.129.3 billion. The previous highest monthly volume was closely shared by June 2012 (Rs.118.8 bn) and August 2011 (Rs.118.4 bn). Traded Volume (Rs) Aug, 2012 129.3 bn Aug, 2011 118.43 bn Jul, 2012 103.87 bn
Traded Lots 327,271 456,549 309,489
PMEX Commodity INDEX
Open: 2,936 Close: 3,096 Change: 5.47 %
Low: 2,916 High: 3,096
GOLD [USD / troy Oz]
SILVER [USD / troy Oz]
Open: 1,600.3 Low: 1,590 Close: 1692.5 High: 1,692.5 Change: 5.76% A steady rise in prices was observed since the mid of the month. Demand for physical gold remained conservative as importers sought a bigger price fall. The wedding season is underway in India: a time when a surge in demand is seen. During August 2012, the traded volumes on the Exchange were Rs.72.6 bn as compared to 103 billion for the corresponding month of last year.
Open: 27.87 Low: 27.25 Close: 31.71 High: 31.71 Change: 13.78% Prices for silver witnessed an inclination of $2.5 during the middays of the month. Silver has shown a significant change in prices of 13.78%. Volumes for Silver were Rs.9.6 billion for August 2012. The figure was Rs.7 Mn for the corresponding month of last year.
IRRI 6 [Rs. / 100 kg]
CRUDE OIL [USD / barrel]
Open: 88.83 Low: 87.33 Close: 96.58 High: 97.35 Change: 8.72% Last day activity showed a rise in prices as a reaction of the market towards the awaited speech by US Federal Reserve Chairman, Ben Bernanke. Prices for crude oil showed a rising trend. A significant range of $10 has been seen, with a peak of $97.35. Crude, like other commodities, has also been under the influence of US monetary measures along with oil production outages due to Hurricane Isaac. Crude Oil volumes for August 2012 were Rs.47 bn as compared to Rs.8.2 bn for August 2011. A significant growth factor of 5.7 times was observed.
56
Open: 3,425 Low: 3,375 Close: 3,400 High: 3,450 Change: - 0.73 % Prices remained stable with minimal variation. The difference between the maximum and minimum process for the month is Rs.75, revealing a minimal deviation. Rice has shown a decrease of -0.73% over the month
PALMOLEIN [Rs./ 37.324 kg]
Open: 4,775 Low: 4,630 Close: 4,700 High: 4,800 Change: -1.57 % Jakarta plans to lower export taxes in order to supply more refined products of the edible oil. Indonesian output has outpaced that of Malaysia. Prices have hovered between the Rs.4,600 to Rs.4,800 price range. The trend has remained stable with the opening and closing of the month differing by a mere Rs.75. September 2012
E ducation & Training Operational Risk Management in Bank
I
ntroduction: A bank is influenced by the developments of the external environment in which it operates, as well as by its internal organization, procedures and processes. A bank faces mainly three types of risk: credit risk, market risk and operational risk. Operational risk can arise by a wide range of different external events ranging from power failures to floods or earthquakes to terrorist attacks. Similarly, operational risk can arise due to internal events such as the potential for systems failures or inadequacies in any of the bank’s processes and systems (e.g. its IT, risk management or human resources management processes and systems), or those of its outsourced service providers. Operational risk arising from human resources management may refer to a range of issues such as mismanaged or poorly trained employees; negligence, willful misconduct; conflict of interests; fraud; rogue trading; and so on. Operational risk differs from other banking risks in that it is typically not knowingly taken in return for an expected reward, but exists in the natural course of corporate activity, and that this affects the risk management process. Operational Risk Management (ORM) is a continual cyclic process which includes risk assessment, risk decision making, and implementation of risk controls, which results in acceptance, mitigation, sub-contracting or avoidance of risk. ORM is the oversight of operational risk. An operational risk as the name suggests, is a risk arising out of execution of a company's business functions. It is a very broad concept which focuses on the risks arising from the people, systems and processes using which a company operates. A widely used definition of operational risk is the one contained in the Basel II Accord regulations. The BCBS defines Operational Risk “as the risk of loss resulting from inadequate or failed internal processes, people and systems, or from external events. This definition includes legal risk, but excludes strategic and reputational risk.”(New Basel Capital Accord, paragraph 644). OR Identification Approach: Two documents released by the Basel Committee on Banking Supervision, “Sound Practices for Management and Supervision of Operational Risk, December 2001” and “International Convergence of Capital Measurement and Capital Standards, a revised Framework-Comprehensive Version, June 2006” have underlined the need for comprehensive treatment of operational risk which results from all types of business activities, products and services rendered by banks. OR identification is imperative for establishment of an effective monitoring and control system. Gist of the Terms used in Definition: Business Activities are granting credit, accepting deposits, borrowing funds, purchasing securities, issuing credit cards, transferring funds, providing custodial services and providing agency services. Products are service delivery instruments through which activities are carried out, and are of different types like deposit and credit products, financial guarantee and commitments, credit card, derivative and bill purchases and discount products, etc. Processes refer to transaction processing, funds transfer processing, data & message transmission, payment and settlement processing and reconciliation of books & accounts.
by Ferozeali Hussaini Systems include the computer sys- tem, software system, core banking solution system, ATMs, networking system and book keeping and account maintenance system. External Events relate to service breakdown, natural calamities, burglaries and terrorist activities Operational Risk Categories: The following lists the official Basel II defined event types with some examples for each
category: 1. Internal Fraud-misappropriation of assets, tax evasion, intentional misreporting of positions, employee theft, and insider trading on an employee’s own account. 2. External Fraud-theft of information, hacking damage, third-party theft, robbery and forgery 3. Employment Practices and Workplace Safety: discrimination, workers compensation, employee health and safety. 4. Clients, Products, & Business Practice: market manipulation, antitrust, improper trading activities on the bank’s account, fiduciary breaches, misuse of confidential customer information, money laundering, and sale of unauthorized products. 5. Damage to Physical Assets: natural disasters, terrorism, van- dalism, earthquakes, fires and floods. 6. Business Disruption & Systems Failures: utility disruptions, software & hardware failures, failures, telecommunication problems. 7. Execution, Delivery, & Process Management: data entry errors, accounting errors, failed mandatory reporting, negligent loss of client assets, collateral management failures, incomplete legal documentation, unapproved access given to client accounts, misperformance and vendor disputes. Main Factors Generating Operational Risk: The events mentioned above may occur due to both internal and external factors in the following areas: 1. People: The management of human resources and employees behavior can become a major source of operational risk. Poorly trained or overworked employees may inadvertently expose the Bank to operational risk (for example, via processing errors). Understanding of the mandate, confidence in and respect for the institution as well as adherence to the bank’s policies and strategies are key for effective use of human resources. In addition, the continuous availability of its employees, or the bank’s ability to replace them, can influence its ability to recover from interruptions to the continuity of its operations. Therefore, the bank can realize significant improvements in its control of operational risk and reduce exposure if it would invest time and money in creating an appropriate risk culture, in which employees are aware of operational risks and are encouraged to learn from their mistakes. 2. Processes and systems: Bank’s operations are supported by many different systems and processes, such as IT systems, human resource management systems, credit, market, insurance and liquidity risk management systems and even operational risk management systems. These systems may have many different components, each of which requires the operation of various processes. For example, the credit risk management system of the bank should include
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September 2012
E ducation & Training processes for the identification, measurement, monitoring and control of credit risk. Complex or poorly designed systems and processes can give rise to operational losses, either because they are unfit for purpose, or because they malfunction. As a result, the bank may experience a wide range of problems, including settlementprocessing errors, fraud and information security failures. In addition, the increasing automation of systems and over-reliance on IT has the potential to transform risks from minor manual processing errors to major systematic failures. 3. External factors External events can have a major impact on a firm. The Bank should be aware that both expected and unexpected changes to its operations can be major sources of operational risk. The bank should have in place appropriate arrangements, having regard to the nature, scale and complexity of its business, to ensure that it can continue to function and meet its regulatory obligations in the event of an unforeseen interruption. These arrangements should be regularly updated and tested to ensure their effectiveness. (i) Disruptive events: Such events include fire, flooding, earthquakes, terrorist actions, vandalism, power failures, etc. The bank should assess the potential risk for such events to happen, design and put in place disaster recovery systems and procedures, with a view to ensuring continuity of activity. Against the monetary loss derived from such events the bank should evaluate potential cost and acquire proper insurance. (ii) Use of Consultants and Outsourcing of Services: Outsourcing arrangements require careful management if they are to yield benefits, and where they are not supervised adequately the degree of operational risk faced by the bank may increase, as is also the case of excessive use and dependence on the use of consultants for activities that may be more effectively developed internally. In particular, an issue of concern is the loss of control over processes. This could create a serious threat to the continuity of its operations if these providers were to fail. Methods for OR Management: Basel II Accord Regulations have prescribed various soundness standards for Operational Risk Management for Banks and similar Financial Institutions. To complement these standards, Basel II has given guidance to 3 broad methods of Capital calculation for Operational Risk: Basic Indicator Approach (BIA) based on annual revenue of the Financial Institution • The Standard Approach (TSA) - based on annual revenue of each of the broad business lines of the Financial Institution • Advance Measure Approaches (AMA) - based on the internally developed risk measurement framework of the bank adhering to the standards prescribed (methods include IMA, LDA, Scenariobased, Scorecard etc.) The Operational Risk Management framework should include identification, measurement, monitoring, reporting, control and mitigation frameworks for Operational Risk. Potential risk treatments: Once risks have been identified and assessed, all techniques to manage the risk fall into one or more of these four major categories: • Avoidance (eliminate, withdraw from or not become involved) • Reduction (mitigate) • Sharing (transfer – outsource or insure) • Retention (accept and budget) Benefits of ORM: 1. Reduction of operational loss. 2. Lower compliance/auditing costs.
3. Early detection of unlawful activities. 4. Reduced exposure to future risks Responsibilities: The Board of Directors shall be aware of the major aspects of the bank’s operational risks as a distinct risk category that should be managed, and it shall approve and periodically review this framework. It shall ensure that the bank’s operational risk management framework is subject to effective and comprehensive internal audit. The Senior Management shall have responsibility for implementing the operational risk management framework approved by the Board of Directors. The framework should be consistently implemented throughout the bank, and all levels of staff shall understand their responsibilities with respect to operational risk management. Senior Management shall also ensure that the necessary policies, processes and procedures for managing operational risk in all of the bank’s material products, activities, processes and systems are in place and the same are effectively communicated down the line management Monitoring and Control: The establishment of the Compliance and Operational Risk Management Department is deemed to contribute to the improvement of the management of the bank’s operational risk. Among others, the department shall regularly perform operational risk monitoring activities, in order to promptly detect deficiencies in the policies, procedures and processes, and propose corrective actions. The frequency of monitoring shall reflect the risks involved and the frequency and nature of changes in the operating environment. Monitoring and control become easier if a strong control culture prevails within the organization and banks pursue proactive procedures and policies. The following steps are suggested and recommended for strengthening and implementing the ORM: 1. Strong internal operational risk culture i.e the combined set of individual and corporate values, attitudes, competencies and behavior that determine a firm’s commitment to and style of operational risk management; emphasizing on dual controls, 2. Commitment to effective corporate governance, including, segregation of duties, avoidance of conflicts of interest, and clear lines of management responsibility, accountability and reporting. All levels of staff shall understand their responsibilities with respect to operational risk management. 3. High standards of ethics and integrity, 4. During a new product approval process, the operational risk related to each new product, activity, process and system, or their amended versions, will be identified and assessed, and mitigating controls will be established. Insurance policies may be used to confront losses which may occur as a result of events such as thirdparty claims resulting from errors and omissions, employee or third-party fraud, and natural disasters. 5. The timely reporting of operational losses and their prompt addressing by the competent management shall be fostered. Key risk indicators shall be developed, where appropriate, to act as early warnings of increased risk of potential losses. Effective tracking of these indicators shall allow the bank to identify changing risks upon their occurrence and respond to them promptly. 6. Disaster recovery and business continuity plans shall take into account different types of plausible scenarios to which the bank may be vulnerable, commensurate with the size and complexity of the bank’s operations. Such plans shall periodically be reviewed and tested. With regard to the adequacy of the human resources, all efforts shall be made to ensure that staff has appropriate expertise and training.
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September 2012
E vents NIT’s Investors’ Facilitation Centre Inauguration:
model and exemplary leadership. The award was received by Dr. Nasim A. Khan, Vice Chancellor, Hamdard University.
Mr. Wazir Ali Khoja, Chairman/MD NIT, inaugrated Investors‘ Facilitation Centre at Karachi on 30th August, 2012. All Divisional Heads and Managers of NIT branches in Karachi were present on the occasion. NIT has established this new, state of the art Investors’ Facilitation Centre (IFC) to cater matters relating to investments in NIT and day to day inquiries/issues of NIT’s unit holders regarding NIT Funds from a centralized and easy to access place. All the 22 nationwide branches of NIT are ONLINE IFC NIT customers. Talking to the media on this occasion, Mr. Khoja said that NIT is working on a plan of expansion of its nationwide branches network and is committed to provide maximum possible facilitation to NIT unit holders. He said that a new NIT branch in DHA Karachi will be functional very soon.
National flag hoisting ceremony to celebrate 27th Ramadan as Independence Day The national flag hoisting ceremony to celebrate to 27th Ramadan as an independence and thanks giving day was held on August 15, 2012 (26th of Ramadan, 1431 Hijri) Wednesday August 15, 2012 at Bilawal Stadium, Madinat al Hikmah, Karachi, under the auspices of Hamdard Village School and Hamdard Public School, Karachi in continuation of Hakim Muhammad Said’s movement and tradition to observe 27th Ramadan as an Independence Day. The ceremony comprised hoisting of national flag, recitation of verses from the Quran, Naat, National Songs, Tableaus and Speeches, reflective of the importance and value of the independence.
Karachi: Mr Wazir Ali Khoja, Chairman/MD NIT is inaugurating new Investors Facilitation Centre of NIT at Karachi.
Prof. Dr. Nasim A. Khan, Vice Chancellor, Hamdard University along with Mrs. Sadia Rashid, President, Hamdard Foundation, Hoisting the national flag at Madinat-al-Hikmah, Karachi on the occasion of 27th Ramadan.
Air Arabia's Second Quarter Net Profits up 31% to AED 66 Million:
President KCCI, Mian Abrar Ahmad jointly cutting the ribbon along with Secretary Industries Govt. of Sindh, Zamir Ahmad Khan, Chairman KATI, Etheshamuddin, to inaugurate 10th PLATIC & PACK Pakistan, 9th IFTECH food + beveragePakistan & 1st food + hospitality-2012, at Karachi Expo Centre on Tuesday. Managing Director Fairtrade Messe, (Germany) Mr. Martin Marz, the co-organizer and the Managing Director Pegasus Consultancy Aamer Khanzada are also seen in the picture..
Air Arabia's financial results for the three months ended June 30, 2012, demonstrates the continued strength of the airline’s business model. During the period under report, Air Arabia earned a net profit of AED 66 million, an increase of 31 percent compared to AED 51 million in the corresponding period of 2011. The carrier’s turnover for the second quarter of 2012 stood at AED 729 million, an increase of 23 percent compared to AED 592 million reported in the same period of 2011. The airline welcomed onboard 1.3 million passengers in the second quarter of 2012, an increase of 15 percent compared to the same period last year. Air Arabia’s average seat load factor – or passengers carried as a percentage of available seats – for the three months ended June 30, 2012, stood at an impressive 85 percent, up 3 percent on the same period last year. “Air Arabia’s expansion strategy and efficient operating model continue to be reflected in the airline’s financial performance, amidst political challenges that the region is
Hamdard University receives international Award:
Hamdard University has recently been conferred with an International Award “Third Asia’s Best B-School Award” for outstanding contribution to education. The award has been conferred by CMO Asia and Stars of the Industry Group in partnership with World Education Congress and CMO Council duly endorsed by Asian Confederation of Businesses. This coveted Asian Award is given to the institutes who have surpassed several levels of excellence and set an example of being a role
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E vents farmers across Pakistan through innovative break-throughs that have redefined the milk collection standards and benchmarks in the dairy industry. Employing over 12,000 individuals, both directly and indirectly, Engro Foods’ continues to touch and improve life of over 160,000 dairy farmers through improved payment cycles, guaranteed collection, improved margins and up to a 15% increase in milk yields. Through its wide network of over 900 milk collection centres, Engro Foods focuses its impact at the most economically challenged com- CEO Engro Foods LimiAfnan Ahsan, addressmunities in Pakistan – an ted, ing the press briefing at the effort that has also been reco- launch of Khud Pakistan gnized at local and interna- Campaign. tional fronts including the IFC managed G20 Challenge on Business Innovation where Engro Foods was declared the winner from amongst over 300 global contracts. Speaking on the occasion, Afnan Ahsan – CEO Engro Foods said: “The story of Engro and that of Engro Foods is a source of national pride. The fact that in a short span of seven years a home-grown multinational company has been created – with a geographic footprint spanning across Pakistan, Afghanistan, United States and Canada – is testament to the vision and business acumen of the Company. Engro Foods is an example that through focused approach companies can create real business value – not just in the Pakistani market but also globally.” Building on plans for the future of the Company Afnan said: “We are in the early stages of our growth trajectory and will continue to further explore diversification with focused growth in our dairy and beverage business – both locally and on the international front. We are also confident that we will continue to create real value for all our stakeholders by pursuing an inclusive growth strategy that positively impacts each individual through the value chain process.”
witnessing” said Sheikh Abdullah Bin Mohammad Al Thani, Chairman of Air Arabia. “In the second quarter of this year, our proven ability to identify and capitalise on underserved / served routes continued to reap enormous benefits.” For the six months ended June 30, 2012, Air Arabia reported a net profit of AED 115 million, an increase of 22 percent compared to AED 94 million in the corresponding period of 2011. The carrier’s turnover for the first half of 2012 stood at AED 1.3 billion, an increase of 22 percent compared to AED 1.1 billion reported in the same period of 2011. The airline welcomed onboard 2.5 million passengers in the first half of 2012, an increase of 11 percent compared to the same period last year. “We are pleased with our performance in Q2 and confident about the outlook of low cost travel in the region. As we continue expanding into new markets and adding new services, we look forward to providing best-in-class services for our customers throughout the year and beyond”, concluded Sheikh Abdullah Bin Mohammad Al Thani.
Engro Foods Limited, celebrated their success on 65th Independence day of Pakistan:
Engro Foods Limited, a subsidiary of Engro Corporation, celebrated their success on the momentous occasion of Pakistan’s 66th Independence Day as it unveiled its corporate campaign – Khud Pakistan – showcasing the roots of the Company as being one of Pakistan’s home-grown multinational organizations. Engro with its rich history of over four decades of developing the agricultural sector of Pakistan used dairy as a stepping stone to enter the foods business in 2005 to give further impetus to its already diversified business portfolio including fertilizers, petrochemicals, energy, trading and chemicals storage and hand- ling. In a span of just 7 years, with a compound annual growth rate (CAGR) of 65% and a planned infrastructure investment in 2012 to the tune of PKR 8 billion, Engro Foods has become the country’s fastest growing local company catering to a wide demographic consumer base from high income groups to the more economically conscious segment of the market both in Pakistan and abroad. Serving over 5 million consumers nationwide daily, Engro Foods had revenues of about Rs. 19.76 billion during 1H-2012 with profitability registering an increase of over 450% to close at Rs. 1.02 billion. Since its inception, Engro Foods has invested heavily in dairy development initiatives, cold chain infrastructure, enhancing capabilities of dairy
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September 2012
F iction The Writhing Tail by Soha Ahmed
I
t pushed forward initially, trying to force itself out of the killer grip. Breathing was becoming more difficult by the second. Struggling, yes, that was what it's mind was telling it to do. Push forward, then backward. Forward then backward. It wasn't working. With every tiny movement it's predator wrapped itself tighter around the little body. The lizard looked about, it's tiny head moving from side to side. There was no escape and now, it wriggled in panic. Numbness was spreading throughout its body. All of a sudden the tiny lizard stopped struggling. His brow furrowed as he tried to make a list of all of his assets and estimated the money they could be worth. Damn! It wasn't even enough to repay half of what he had taken. It had been a month since the due date and the silence of Kamran Pir, the village Feudal, indicated a storm was heading his way. Sitting on a stool with one leg crossed over the other, his hands lying idly on the table in front of him, he looked around the room that had been his family's bedroom and workroom for as long as he could remember. Staring absently at the small weathered door opposite him he recalled all those beautiful moments with their parents. His downcast eyes were slightly wet, his expression doleful. He had been young, naive and grief stricken a year ago when he had taken the decision. And what a costly mistake it was. His father had died in an accident on his way back from the city leaving Qartain, then aged 18, in charge of his 16 year old sister, Fatima, and a loan of 2 lac rupees to be re-paid. He had borrowed some money from Pir sahab to pay off his father's debt. Little did he know then that Pir sahab had his own grievances against his father and was dying to get it out on him and Fatima, the next of kin. He knitted his brows as he tried thinking of all the possible ways out of this predicament. While he was staring into space, Fatima walked in and noticed the frown emerging on her brother's forehead. She knew something was wrong. Her brother had lost his appetite and had been acting fidgety since quite a while. She started to say something but checked herself in time. If he was worried she didn't want to annoy him by being inquisitive. She walked back to the small kitchen adjacent to the living room and sat down on the floor to make a small chapati from the leftover dough. which was only enough for one person. She decided to skip the meal. After warming the leftover curry, she took a dirty plate and cleaned it using very little amounts of water. Drying the plate with a clean cloth, she placed the chapati on one side of the plate and the curry on the other. Holding the plate she walked out of the kitchen into the living room where her brother sat with a grave expression. She kept the plate on the table in front of her brother and was about to go back to get some water when Qartain said: “Fatima, I love you very much. Mother and father gave me the responsibility of protecting you. I have talked to Kamil chacha. He is going to the city for a few weeks with his family and they have agreed to take you with them.” ood half an hour before the tears ceased and the siblings toughened up. Fatima got up first and headed towards the battered cupboard in the corner. She knew she had to go. Qartain may have claimed it was a temporary settlement but she knew he was not telling her everything. She feared for him. She knew she would be safe, Kamil chacha had been her father's closest friend and his wife treated her just as she treated her own daughter, Jamila. Her eyes teared up again as she thought of all the bad things that could happen to her only family, Qartain. Would she ever be able to see him again?
Fatima was ready with her things in about fifteen minutes. Fifteen minutes that seemed like a lifetime. She stepped out of her house into the small veranda. It was a small space where they used to sit when the weather was pleasant. The tin roof was extended forward over a large step to provide shelter from the sun. The seventeen years of her life, all those moments, everything flashed before her eyes as she took the first step down from the veranda, out of her house. It was unsafe to take her to Kamil chacha's house following the route from the main market, so they took a longer route following dark, muddy alleyways. It took them ten minutes to reach the small house similar in build to their own. They greeted Kamil chacha, his wife, daughter Jameela and eight-year-old Niaz. The dear old man had deep lines etched on his forehead that told of the hardships he had faced in life. He bade Qartain farewell while handing him some money and reassuring him that his sister would always be safe with them; she would be a part of their family. He turned around and went to make sure the reins on the donkey were strong. Qartain patted Fatima affectionately one last time before she got on the donkey cart along with Kamil chacha and his family. Qartain waved to them as they drove ahead, watching his sister crying openly, with tears in his own eyes. He was on his way back with his expression somber, when five gunned men, wearing black kurtas, walked towards him, their mouths arched menacingly. His immediate impulse was to run, but he knew that he had nowhere to hide. His insides were screaming, he was scared for his life. He had never seen a gun before but was sufficiently terrified of them because of the many stories his father had told him. How the bullets moved through the air speedily, colliding and then tearing open human flesh. The men were advancing towards him. One of them had his gun pointed towards him; he warned Qartain, with a sardonic smile, not to move a muscle. Frozen, He waited for them to come to him. His face must have betrayed how scared he was because it made those men grin maliciously. The men came closer and one of them pointed his gun at Qartain's head. At that point, time ceased to exist for him. He couldn't breathe. His forehead was creased and beads of sweat forming all over his face. He pleaded with them: “Please, let me go… for God's sake! I'll return the money, I just need some time.” The men laughed noisily. “Time is what we don't have, lad. Consider this a warning from Pir Sahab. If you don't return the money by tomorrow morning you will not live to see another day, understood?” Qartain nodded. Just then one of the men hit his head with the back of the gun and pushed him to the ground. The attack was so unexpected and forceful that he fell against the wall on the side. Blood started oozing from his nose.The men looked at him one last time, satisfied, and walked away laughing while Qartain lay there. He thanked his lucky stars he had sent Fatima away. He couldn't even bear to imagine what these beastly men would have done to her. He got up slowly. The lower part of his face was bloody because of the blood gushing from his nose, and there was a bruise on his forehead where it had hit the ground. His white shalwar was torn and stained red with blood at his knees. He stood up. His left leg was badly bruised. With difficulty, he walked back through the alleys to his own home.
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F iction He didn't feel safe when he got home. Everything was the same, yet everything was so different. After nursing his injuries, he began pacing, thinking of a solution, there had to be a solution. Time passed and he couldn't think of anything. He decided to go to the bazaar. It was a good fifteen minute walk from his house to the bazaar. It wasn't a very big market, but it was big enough to cater to the limited needs of the whole village. The shops were small and situated right one after the other in a roughly oval shape. It seemed like everyone was looking at him, or maybe it was just the way he felt. He walked over quickly to the blacksmith's shop. The village blacksmith had been a close friend of his father's. Maybe he would lend him some money. Lost in thought he entered the shop and looked for Ahmed Din. He was sitting at the far end of the shop on a wooden stool behind his iron table. His gray hair was oiled back. His face was rugged, the color of his skin dark. His hands were rough with all the years of hard work, working as a blacksmith. He looked up, saw Qartain, and his expression changed from one of cool composure to one of guilt. “I know why you're here Qartain. I'm very sorry. Kamran Pir sent his men all over the village promising a bloody end of whoever agreed to lend you any money at all. He's a cruel man Qartain. He won't let you live in this village unless you return his money, and knowing your financial position I know you can't. The only thing I can do for you right now Qartain is to give you my motorcycle. Here are the keys. Run away son, run away with Fatima, build a new life for yourself somewhere in the city.” Qartain thought about what Ahmed Din had said. After a few minutes of silence he finally replied: “I cannot run away Ahmed chacha. This village is my whole life. And I cannot take the thing you love most from you. I know how much you love it. I've grown up to see how fondly you look at it.” With the corners of his mouth rounded upwards, Ahmed Din replied with a grim smile: “My son, you will realize soon that you have no choice. Take it son, my bike is not more precious to me than the lives of my friend's children. I insist, take it. You can always return it to me if you decide otherwise. Now leave quickly before someone reports your presence to the devil.” Qartain walked back to his house with the motorcycle, all the while thinking about what Ahmed Din had said to him. The sky was turning dark blue. It was a cloudless night and the stars were shining above. He was thinking about his father, his mother, his sister, his old life. He rounded the corner into an alley close to his house and then he stopped instinctively. Something was amiss. There was smoke in the sky. It was nearby. He started coughing and his eyes turned watery. There was a big fire somewhere. And judging by the smoke it was in the vicinity of his house. But why hadn't anyone put out the fire? It took a moment for it to register on him. Oh God! He left the motorcycle and ran towards his house, which was ablaze. The five gunned men who had threatened him earlier were standing in front of his house with some empty transparent bottles, the corners of their mouths quirked upwards victoriously. He took a step forward coming into their view.
Oh God! He was going to die.
“What have you done? The ultimatum was till tomorrow morning.” Qartain yelled. “We changed our mind. We want the money now.” said the same man who had spoken earlier, and the rest of them jeered. They started walking towards him. His heart skipped a beat. He was going to die. His body was screaming at him to run, to move his feet. He couldn't yell. His voice was gone. He was sweating, his breathing rapid. His eyes were wide with fear, his open mouth.
The lizard stopped moving. The panic was there, it was surging through its tiny body, but the lizard remained completely motionless. The predator was exerting more pressure on the tiny body. Time was running out. The tiny creature was breathless and panic - stricken; it could sense that death was right round the corner. Desperately, clinging to the last shred of hope, the lizard decided to do the one thing that could save its life. Yes, it would mean letting go of something that was very important, but the tiny lizard had absolutely no choice. As a last resort, the lizard began separating its tail from its body, something that had always been a part of its existence, something without which it's movement would be impaired. But that was the only thing that could save it's life, and survival was more important than comfort. The tail kept writing after detachment, but it would grow back with time, the comfort would come back. If the lizard lost its life, nothing more would matter, not the tail, not the comfort, not the ease of movement. Sacrifices have to be made sometimes, priorities have to be set. And survival was a key priority, comfort was not. He didn't want to die. Fatima would be alone if he died, without anyone to protect her. He turned then and ran for it. He ran towards the bike, thanking Ahmed Din in his heart. He rounded the corner. The men had to stop firing and run after him. Adrenaline, it made him run fast. He picked the bike off the ground, swung his left leg over it, adjusted his position and turned the key in its slot. The bike wouldn't start. He kept turning the key over and over, uttering a silent prayer each time. God, please, keep me alive for Fatima; keep me alive for my sister. She has no one left, please God. The men were standing at the far end the alley, malicious smiles on their faces. “You think you can escape us? Boys, he doesn't know what he's up against. I will torture him first, because he tried to run away, and I will make him beg me to kill him.” The men jeered. They were enjoying themselves immensely. Qartain turned the key in the slot and the bike started. Before the men realized what was happening he rode off. He didn't know where to go; he didn't know what he was doing. All he could think of was his how his life would never be the same, how he could never come back to the village, how his home would be a pile of ashes in no amount of time, his home, his security, his whole life. But all this, it was not more important than his life, his sister's life. Yes, they were emotionally attached to all that they had to leave behind, but in time they would have a new life, a new home, security, a new family, and new memories.
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S cience & Technology Seeing Crime Before It Happens
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ast summer, at an undisclosed location in a northeastern metropolis, the U.S. Department of Homeland Security (DHS) was trying to predict the future using a the technology called Future Attribute Screening Technology, or FAST, a $20 million federal project that aims to highlight airport passengers whose bodies betray hostile intentions. In theory, FAST has the potential to detect terrorists in the final minutes before they act, but critics warn that the system may have other consequences, such as flagging innocent travelers through false positives while letting some with ill intent sneak through false negatives. The DHS, for its part, maintains that FAST is merely improving on a far older and more fallible crime predictor: human judgment. 4 Tools to Spot Criminal Intent The Future Attribute Screening Technology system operates on the premise that people with hostile intentions will involuntarily exhibit minute physiological signs that can be remotely detected with a suite of sensors: Cardio Sensor that finds heart and breathing rates using Doppler radar. Thermal Camera that looks for slight temperature fluctuations on the face due to changes in blood flow to the brain. Eye Tracker made up of a camera and processing software that track the position and gaze of the eyes. It also keeps tabs on changes in pupil size. Video Camera that grabs high-resolution images for analysis of body movements. Floor sensors, based on Nintendo’s Wii Fit board, add the ability to track fidgeting and shifts in weight. The camera also has a microphone to analyze quivers and pitch changes in a subject’s voice. About 3,000 DHS officers already roam the nation’s airports scanning for suspicious behavior and facial expressions in a program called Screening of Passengers by Observational Techniques, or SPOT. The automated FAST system is intended to supplement SPOT by catching signals that are undetectable to the naked eye. DHS’s faith in the technology is based on the controversial ‘Theory of Malintent’, developed in 2007 by clinical psychologist and FAST research consultant Daniel Martin. By combining ideas from neuroscience, psychophysiology, psychology, and counterterrorism, Martin concluded that the physiological signs of a future hostile actor would increase with the severity of the impending act and as the moment of the crime approaches. The DHS has plenty of time to make this technology better, as FAST is years away from reaching a real airport.
Cars that can communicate
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n a few weeks, about 2,800 cars, trucks and buses will start talking to each other on the streets of Ann Arbor, Michigan, in a giant experiment that government officials are hoping will lead to safer roads. Wireless devices will allow the vehicles to send signals to each other, warning their drivers of potential dangers such as stopped traffic or cars that might be blowing through a red light. They can even get traffic lights to turn green if no cars are coming the other way. The U.S. Department of Transportation and the University of Michigan are hoping the year-long, $25 million project generates data that show the devices can cut down on traffic crashes. Officials say eventually this could lead to the devices going in every car. About 500 vehicles with the devices are now on the roads. That will rise to 2,800 in about six weeks, officials stated. More than 32,000 people died last year in U.S. in traffic crashes, down 1.7 percent from 2010. The number of crashes has fallen in recent years as automakers added safety devices such as air bags, antilock brakes and stability control, which helps drivers keep cars under control in emergency situations. When the technology will make its way into cars and trucks everywhere is unclear. The National Highway Traffic Safety Administration has the authority to order the devices placed in all new cars, but according to officials, they'll have to study the data before making any decision. The data will be available in about a year. In a demonstration recently held at the Transportation Research Institute, a Volkswagen GTI equipped with a device got a signal that a car up ahead of it had braked. The warning allowed the GTI driver to slow down before seeing the brake lights on the car in front of him. The device also warned the GTI driver at a stop sign that another car was about to speed through the intersection. Ford, General Motors, Honda, Hyundai/Kia, Mercedes-Benz, Nissan, Toyota and Volkswagen/Audi all are supplying vehicles and taking part in the test.
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September 2012
S cience & Technology Engineers develop 'electronic nose' prototype
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esearch by Nosang Myung, a professor at the University of California, Riverside, Bourns College of Engineering, has enabled a Riverside company to develop an "electronic nose" prototype that can detect small quantities of harmful airborne substances. Nano Engineered Applications, Inc., an Innovation Economy Corporation company, has completed the prototype which is based on intellectual property exclusively licensed from the University of California. The device has potential applications in agriculture (detecting pesticide levels), industrial sites (detecting gas leaks, combustion emissions), homeland security (warning systems for bioterrorism) and the military (detecting chemical warfare agents). "This is a really important step," Myung said. "The prototype clearly shows that our research at the university has applications in industry." Steve Abbott, president of Nano Engineered Applications, Inc., which is designing the product and expects to begin selling it within a year, said adding that the company is now focused on writing software related to the device and working to make it smaller. At present, it's about four inches by seven inches in size. The goal is to make it the size of a credit card. At that size, a multi-channel sensor would be able to detect up to eight toxins. A single-channel sensor device could be the size of a fingernail. Nano Engineered Applications is now looking to collaborate with companies that could bring the production version to market. The company believes the product will initially be commercialized on the industrial side for monitoring such things as gas and toxin leaks, and emissions. The key to the prototype is the nanosensor array that Myung started developing eight years ago. It uses functionalized carbon nanotubes, which are 100,000 times finer than human hair, to detect airborne toxins down to the parts per billion levels. The prototype also includes a computer chip, USB ports, and temperature and humidity sensors. Version 2 of the prototype, due out in 30 days, will integrate a GPS device and a Bluetooth unit to sync it with a smart phone. The development team is evaluating if adding Wi-Fi capabilities will enhance value.
Hover bike lets you drive like a Jedi
A
resurrected hover vehicle won't fly through dense forests as effortlessly as the "Star Wars" speeder bikes from "Return of the Jedi," but its intuitive controls could someday allow anyone to fly it without pilot training. The aerial vehicle resembles a science fiction flying bike with two ducted rotors instead of wheels, but originates from a design abandoned in the 1960s because of stability and rollover problems. Aerofex, a California-based firm, fixed the stability issue by creating a mechanical system — controlled by two control bars at knee-level — that allows the vehicle to respond to a human pilot's leaning movements and natural sense of balance. "Think of it as lowering the threshold of flight, down to the domain of ATV's (all-terrain vehicles)," said Mark De Roche, an aerospace engineer and founder of Aerofex. Such intuitive controls could allow physicians to fly future versions of the vehicle to visit rural patients in places without roads, or enable border patrol officers to go about their duties without pilot training. All of it happens mechanically without the need for electronics, let alone complicated artificial intelligence or flight software. "It activates the aerodynamic controls required to counter the movement — which lines the vehicle back up with the pilot," De Roche told. "Since [the pilot's] balancing movements are instinctive and constant, it plays out quite effortlessly to him." But Aerofex does not plan to immediately develop and sell a manned version. Instead, the aerospace firm sees the aerial vehicle as a test platform for new unmanned drones — heavy-lift robotic workhorses that could use the same hover technology to work in agricultural fields, or swiftly deliver supplies to search-and-rescue teams in rough terrain. Even the soldiers or Special Forces might use such hover drones to carry or deliver heavy supplies in the tight spaces between buildings in cities. U.S. Marines have already begun testing robotic helicopters to deliver supplies in Afghanistan.
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September 2012
T ravel & Tourism Fiji - an exotic tourist destination
by Taimoor Akhtar Bhatti
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t is said that great things often come in small packages. Fiji is a living example. Comprising a group of volcanic islands in the south Pacific lying about 4,450 km southwest of Honolulu and 1,170 km north of New Zealand it is an exotic tourist destination. It is a small country. Yet it has a lot to offer for tourists attraction. The country has natural beauty, stunning landscapes and abundant sunshine. Ranging from archaeological site, beaches, forest, gardens, islands and mountain to museum, religious and spiritual sites, waterfalls and many more, the country is blessed with all that could attract, amuse and entertain the tourist. The income thus generated contributes immensely towards its economic growth and development. There is a strong inter-relationship between tourism and economic growth. In many of the developing countries tourism provides a viable option for growth and development. It generates income, creates job opportunities and contributes significantly to the respective countries’ economy. According to a research carried out by World Travel & Tourism Council, tourism continues to be one of the world’s largest industries which contributed 9 percent of global GDP in 2011 and accounted for 266 million jobs. According to the research, over the next 10 years, the contribution of this lucrative industry is expected to go up to or even beyond 10 percent of global GDP and around 328 million jobs. It is not surprising, therefore, that over the years, tourism has continued to gain growing importance in many economies of the world, Fiji included. Fiji is a developing country though it is one of the more developed of the Pacific island economies. In 2011, Fiji's economy grew by an estimated 2.1%. For 2012, the official forecasts for its growth rate is 2.3 percent while the yearend 2012 inflation forecast is 3.5%. For years together, Fiji’s economy has been dominated by sugar and textile exports. However, neither industry has been able to compete effectively in globalized markets. Fishing is another important export and local food source. In 2010 and the first quarter of 2011, fish was the leading domestic export. Gold from Fiji’s only gold mine is also an important export industry. Like many developing countries, Fiji has a narrow resource base and for long has depended on sugar exports as the main source of foreign exchange earnings and employment. In recent years, however, tourism industry in Fiji has grown rapidly and become the single largest foreign exchange earner. Especially, within the last two decades tourism industry in Fiji has grown dramatically overtaking the traditional export sector of sugar as the main source of foreign exchange earning and employment creation.
As a major and essential industry, tourism in Fiji makes up 25 percent of the country’s economy. The industry provides employment directly and indirectly to an estimated 45,000 people annually. In the year 2010, over 600,000 visitors reportedly arrived in the country and this figure is expected to go further up by the end of the current year. As such, the government of Fiji regards tourism as a priority sector for achieving sust-
ainable economic growth. Fiji has a lot of breath-taking islands, beaches and resorts. Some of them are Yasawa Island, Natodola Beach, Vatulele Isalnd Resort Beach, Namenalala Island Beaches, and Horseshoe Bay. Horseshoe Bay is the only quality beach on the island that is not open to the entire public. For enjoying access to this beach the visitor has to get a yacht or be a guest at Matangi Island resort. Also worth visiting and enjoying are Navala Village, Navua River: Nananu-i-Ra Island, Historic Coral Coast, Mamanuca Island Cruise, Bouma National Park and a lot more. Yasawa Islands: It is an island chain where small island resorts have been set up to accommodate the visitors. Moving around from one beach resort to another won’t be that difficult since there are a lot of boats that can be obtained on rent. Natadola Beach Resort: Located 40 minutes from Nadi International Airport, Natadola Beach Resort is situated on one of the most beautiful white beaches of the Coral Coast. The emphasis at Natadola Beach Resort is on swimming, fishing, and relaxation, interspersed with beautiful cuisine. Local villagers offer horse riding along the beach and sell green coconuts for drinking With its refreshing Moroccan architecture and exotic palms, the Beach Resort offers an excellent alternative to the larger hotels in the Nadi and Coral Coast area. The miles of pure white sand and clear azure waters make the visit to fiji truly memorable. Vatulele Islanad Beach Resort: For those of the visitors who would like peace and privacy in beautiful unspoiled nature island, Vatulele Islanad Beach Resort would be the right choice. The resort is luxurious, with great stuff, spacious burrows which are very clean. Food is excellent. Namenalala Island: This is the Pacific gateway and offers scuba diving, snorkeling, fishing or honeymoon vacations with Fijian bure accommodation. It is a secluded paradise with white sand beaches as well as hiking trails through tropical forest. Fiji's reef eco-system (often called the soft coral capital of the South Pacific) is diversified and the Namena Barrier Reef which surrounds Namenalala Island is acclaimed as one of Fiji's best sites.
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T ravel & Tourism Navala village: Offering a picturesque scene the Navala islands and check out the sites. It’s a great place to bring family Village is one of the tourist spots that any visitor of Fiji cannot along or to simply enjoy great tropical food under the sun. afford to miss. The houses built in the traditional fashion of the Bouma National Park: The visit to Bouma National Park islands are the main attractions in this site. They are made out of is yet another of several highlights of any trip to Fiji. bamboo and thatch and are locally known as ‘bures.’. The Situated on Taveuni Island this national park is one of the visitors get a warm welcome here in the traditional yagona most visited attractions of Fiji. The island of Taveuni is ceremony and are treated to a traditional Fijian drink. It takes Fiji’s third largest island behind Viti Levu and Vanua Levu about an hour to drive all the way into the highlands just to and is known as the “Garden Islanad of Fiji” due to its lush catch a glimpse of the place but it is worth seeing and enjoying. tropical vegetation. The island is a popular destination for Navua River: A trip to many visitors to Fiji and has a number of resorts and accoNavua River is a great treat mmodation options availespecially for those who able. The park stretches over are nature lovers. They get an area of about 15,000 hecto travel from the rainfortares of land and has a beaest to the nearby villages utiful mountain range that and gain the scintillating serves as a back drop. It is experience of the wild life filled with volcanic peaks as as they view the natural high as 1000 ft, cliffs, and Mamanuca Island Cruise Navua River beauty of the local rainforbreathtaking waterfalls. est. The visitors can get on The main attraction of the a motorized canoe for the park are the Tavoro Falls, a river cruise. However, the group of three falls with visitors who wish to get a natural swimming pools. more traditional feel, can They are situated at an take the tour on a bamboo hour's walking distance from raft which facility is availthe main road. The first able easily and abundantly. waterfall is about 24m (78ft) Nananu-i-Ra Island: This high and only 10 minutes' is a small island located at walk along a flat cultivated the northern coast of Viti path. The second waterfall, Levu. Getting to this beau30 or 40 minutes walk is a tiful tourist spot will reqbit smaller but it has a good uire a drive along the counswimming pool. It also is a tryside, which in itself is a perfect spot for hiking and treat for nature lovers. Gettrekking. The Bouma Falls Nananu-i-Ra Island ting to the island will also Trail and Lavena Coastal have the tourists taking a Walk are the two maintainshort ten-minute boat ride. ed hiking routes inside the The reward for the short park. The track is quite steep trip is a dip in some of the in places but has steps, hanmost beautiful beaches in drails and lookout spots to Fiji. There are beaches with rest. sandy bottoms, sheltered Lau Group of Islands: beaches, and beaches that The visitors who are interBouma National Park Navala village teem with undersea life. ested in adventure might The resorts here offer a lot of water sport activities like just want to head out and go exploring for which one of the wind surfing and kite surfing. recommended places is the Lau Group of islands. However it will be time consuming as it takes about a whole month Historic Coral Coast: The islands of Fiji are not just about to completely explore all the islands. There are small hotels having fun in beaches and enjoying the sweet tropical life; those and resorts all over the islands so finding a place to retreat interested in seeing historical sites can take the tour at the Coral for the night won’t really be much of a problem. Coast. Highlights of the historic tour include visits to the Tavuni The above are just a few sites. There are many others for the Fort, Sigatoka Sandunes National Park, and the Nakabuta visitors to see and enjoy the trip to this beautiful island Pottery Village. These historic sites are only an hour away from country. It is a place to step back in time - a time of no the airport, which makes them quite accessible to the tourists. pressure - a place that hands the visitor the time to relax, Mamanuca Island Cruise: Among the other popular tourist re-assess and appreciate the things that really matter in life spots in Fiji are the Mamanuca Islands. Some of the luxury health, family, a partner, nature and a sense of perspective. It hotels of the country are located in this island chain. This is not surprising, therefore, of Fiji is regarded by many as tourist spot features 30 islands that can be reached by a day the third spot in the list of most desirable destinations to cruise. The tourist can engage in water activities or just tour the visit in 2012.
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H istory Wars between India and Pakistan: A Chronology
E
ver since its independence in 1947, Pakistan and India have had strained relations that led lead to wars causing deaths and destruction on both sides. 1947 - 48 - First IndoPak war on Kashmir: Immediately after independence, India reinforced its military build up in Jammu and Kashmir. Pak Army’s 101 Brigade was rushed to halt the Indian offensive along Uri-Muzaffarabad axis. By June, Pakistan had five brigades in Jammu and Kashmir together with Azad Kashmir forces and elements of the para-military Frontier Corps. Indian offensive was beaten and halted sucessfuly. In December, Pakistan Army planned to go on the offensive, ‘Operation Venus', with 7 Division to cut off the main supply route at Beri Pattan Bridge area. On 14 December, the Beri Pattan bridge-b in a two-mile area was totally destroyed together with Indian divisional Headquarter. On 30 December, India asked for ceasefire with effect from 1 January 1949. Pakistan accepted, as the fate of Jammu and Kashmir had been taken over by the United Nations. 1965 – Second IndoPak war: The Indian forces intruded into Pakistani area in the Rann of Kutch in April 1965. Both the armies had fully mobilized, with eyeball to eyeball contact. Pakistan proposed cease-fire, India accepted. Past midnight on 5/6 September, without a formal declaration of war, Indian Army crossed the international border and attacked Lahore and Kasur fronts. Pakistan Army and Pakistan Air Force halted the attack inflicting heavy casualties on the aggressor. On 7 September a single Pakistan Air Force Pilot, Squadron Leader M.M. Alam, Sitara-i-Juraat, in his F-86 Sabre shot down five Indian Air Force attacking Hunter aircraft in a single sortie, an unbeaten world record. On the night of 6/7 September three teams of our Special Services Groups were para-dropped on Indian Air Force bases at Pathankot, Adampur and Halwara to neutralize them. To relieve pressure on Lahore front, on the night of 7/8 September, after crossing two major water obstacles in a bold thrust, Pakistani armoured and mechanized formations, sup- ported by artillery and Pakistan Air Force, overran Khem Karn, 6 to 8 miles inside Indian territory. Vital Indian positions at Sulemanki and across Rajasthan and Sindh were also captured. The biggest tank battle since World War II was fought on the Chwinda when the main effort of the Indian Army was blunted, inflicting heavy casualties. Pakistan Air Force support helped turn the tide of the battle. Before a counter offensive by 6 Armoured Division on 22 September could be launched, India asked the United Nations for cease-fire. India’s aggression against our international borders without a formal declaration of war had
by Mustafa Ali Shaikh
cost it, apart from heavy personnel, material land economic losses, 1617 sq. miles of territory as compared to 446 sq. miles of our open and undefended territory. Pakistan Army captured 20 officers, 19 Junior Commissioned Officers, and 569 Other Ranks. 1971 – Third war: It initially started as a civil war in the then East Pakistan and now Bangladesh. The prevailing situation in East Pakistan provided India an opportunity to intrude in April 1971 on the pretext of helping the protesters giving birth to Mukti Bahini. Thus Pakistan army was dragged into a long internecine guerilla war lasting for 9 months when on November 21, 1971 India launched a full fledged attack on East Pakistan. The Pakistan army though fought valiantly but could not hold for long. India helped cessation of East Pakistan now called Bangladesh. On July 2, 1972, India and Pakistan signed Simla Pact, agreeing to exchange POWs, withdraw the troops to pre-November 20, 1971 position and respect the Line of Control. 1998 – Pakistan becoming a nuclear power: Pakistan started thinking of nuclear weapons development in January 1972 under the leadership of Prime Minister Zulfiqar Ali Bhutto, who delegated the program to the Chairman of PAEC Munir Ahmad Khan. On 28 May 1998, a few weeks after India's second nuclear test (Operation Shakti), Pakistan detonated five nuclear devices in the Chagai Hills in Balochistan. It was named Chagai-I. Pakistan carried out the last nuclear test at the sandy Kharan Desert under a codename Chagai-II, also in Balochistan, on May 30, 1998. Thus Pakistan became the 7th country in the world to successfully develop and test nuclear weapons. 1999 – Fourth Indo Pak War (Kargil): It was an armed conflict between India and Pakistan that took place between May and July 1999 in the Kargil district of Kashmir along the Line of Control (LOC). The operation at Kargil was planned meticulously by the top Pakistani army establishment in a bid to capture the deserted heights in the Valley left by Indian army during the inhospitable weather conditions. The Pak army contemplated that by capturing the strategic heights they will be in a commanding position to get the status of the Line of Control (LoC.) altered. Moreover, the international pressure was too paramount to be overlooked by Pakistan.
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S ports Victory in Tri-Nation Series: women’s cricket at the top
Pakistan vs Australia ODI series
I
A
n the recently held tri-nation cricket context, Pakistani women players proved that they are not less in their talents compared to other countries’ female players. The series played between Pakistan, Bangladesh and Ireland was hosted by Ireland.
ustralia beat Pakistan by 3 wickets in the final match of the ODI series, played in Sharjah on 3rd September, 2012 and won the series by 2-1. Pakistan lost a precious chance to end a decade- long era without a one-day series win over Australia. Last time Pakistan won one-day series against Australia a decade ago in 2002.
Pakistan lost the first ODI of the series but came back in the series gracefully with a thumping win in the second ODI, thanks to the exceptionally good batting and bowling performances, especially by Nasir Jamshed and Azhar Ali. Nasir Jamshed missed his century by 3 runs. Azhar Ali scored 59 runs. The spectacular win in the second match had raised optimism that Pakistan would win the third match and lift the trophy. The cherished dream, however, remained unrealized. After being asked to bat first, Pakistan openers Mohammad Hafeez and Nasir Jamshed gave the Aussies a run for their money by forging an opening stand of 129 runs. However, after the end of the opening partnership, Pakistani batsmen were cleaned up by the Australians without any hassle. Pakistan scored 244 runs with Muhammad Hafeez as the highest scorer -78 runs on 97 balls. Saeed Ajmal once again proved his skill as an ace bowler. He took 3 wickets for 37 runs. Mitchell Starc destroyed Pakistani batting line and grabbed 4 wickets for 51 runs. Chasing a target of 245 to win in 50 overs, Aussie openers DA Warner and DJ Hussey crafted a stand of 44 runs before Warner was removed by Abdur Rehman on a knock of 21 runs. Hussey and Michael Clarke then forged another daunting partnership, taking the score to 88 before the skipper was out after scoring 32 off 34 balls. With three quick wickets by Ajmal, Misbah made a blunder by taking him off which cost Pakistan, as Michael Hussey and MS Wade put Australia back in the game. Michael Hussey scored the precious 65 runs off 72 balls. He was named as the Player of the Match, while MA Starc took home the Player of Saeed Ajmal the Series award.
The girls in Green, led by Sana Mir, defeated their rival Bangladesh by four wickets in the final match. Batting first, Bangladesh women’s cricket squad scored 161 runs in the designated overs for the loss of eight wickets. Aisha Rehman scored 37 runs. Pakistan's Nida Rashid and Qanta Jalil bagged two wickets each. In reply, Pakistan scored the desired runs for the loss of six wickets to win the tri-nation women’s tournament. Sana Mir scored 29 runs, Bismah Maroof 28, while Jaweria Wadood scored 24 runs. Earlier, in the first match, Pakistan beat Ireland by 73runs, hitting 254 runs for the loss of three wickets. The main feature of Pakistan innings was Nain Abidi’s century. She became the first woman cricketer of the country to score a century. In the reply, Ireland’s team were all out for just 181 runs. Not just Nain Abidi, the whole Pakistani team played with a fighting spirit and the victory is evidence of complete team work. Nain Abidi Wicketkeeper Batool Fatima was exceptionally energetic behind the stumps. She stumped two Irish players (Melissa Scott-Hayward and Mary Waldron) and ran out another (Eimear Richardson) to the delight of her teammates. Similarly, fellow players Sadia Yousuf, Bismah Maroof and Javeria Khan also fielded well and ran out Ireland’s Cecelia Joyce, Kim Garth and Laura Delany respectively. Pakistan coach Mohtashim Rashid was pleased that the team clinched the Ireland Tri-Nation Women’s One-Day Series involving the host nation and Bangladesh. He said that this achievement has given the players ‘self-belief ’ and motivated them to do better at the international level.
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S ports Pakistan at Olympics-2012: result achieved: zero
P
akistan sent a 21-member team to the London Olympics to compete in four sports – hockey, athletics, shooting and swimming. Sohail Abbas, captain of the Pakistan Hockey team, was the flag bearer at the opening and closing ceremonies and the contingent was led by Aqil Shah as Chief de Mission. Sadly, however, Pakistan’s squad returned empty handed from the London Olympics 2012. This shows that the fighting spirit in our sportsmen is veining. The last time Pakistan’s squad won a medal in the Olympics was in the 1992 Olympic Games in Barcelona – a modest bronze medal in hockey, nothing more. It was the same time when Pakistan won the cricket World cup. That was the time when our sportsmen’s hearts were filAnum Bandey led with the zeal and passion for victory. Pakistan participated in hockey, athletics, shooting and swimming. Anum Bandey competed in the Women’s 400m Individual Medley, but had to bow out of the Olympic Games after falling to secure a place in the final. Her time of 5.34.64 was the longest of the four contestants in her batch, but was over two seconds quicker than her speed in the qualifying effort (5.37.11) meaning that she did manage to set a new national record. Pakistani swimmer Hussain was given a wildcard entry to participate in the Games based on his performance at the Shanghai qualifiers. HowRabia Ashiq ever, Hussain also failed to qualify for the 100-metres freestyle after he finished last at the Aquatics Centre with a time of 57.86 seconds. In the shooting competition, Pakistan’s Khurram Inam, finished with a perfect final round but failed to qualify for the skeet final event because of a poor show earlier. Inam scored 25 in the fifth and final round at the end of the two-day qualification period, finishing with an overall score of 112 to end 28th out of 36 contestants. In athletics, Pakistan sprinter Liaquat Ali came in fifteenth in the men’s 100 metre preliminary round of the Olympic Games and thus failed to qualify for the next round. His finishing time was 10.90 seconds, which was less that his own personal best of 10.55 seconds. Rabia Aahsiq also failed to qualify for the semifinals of the women’s 800m. Ashiq took part in heat 4 of the
by Syed Asif Ali
800m. She finished last in her heat and 35th overall. She was a wildcard entrant into the games and was Pakistan's last athlete competing at the Olympics. Before Rabia Ashiq’s exit, Pakistan’s hockey team was defeated and Pakistan’s dream of reaching their first Olympic semi-finals in 12 years ended in misery at the Riverbank Arena Tuesday, with a humiliating 7-0 defeat at the hands of top seeds Australia. The result – one of Pakistan’s worst losses in Olympic history – showed that the Greenshirts will again return home empty- handed. The overall performance of the Pakistan’s hockey team in Olympics was not according to their calibre, and Pakistan secured the 7th position in the games. However, the head coach of Pakistan hockey team, Akhtar Rasool, told the media that Khurram Inam he is ‘satisfied’ with his team’s performance in the games and he will continue to ‘serve’ the national team till his last breath. Former Olympian Samiullah Khan criticized Akhtar Rasool in his media statements saying that the team was unable to deliver because of confusion, ill-planning and demanded the team management to resign. This shameful performance clearly shows that the dire need of the time is to completely revamp the managerial and supervisory set ups in all sports to both train and prepare teams to compete at international levels, and introduce new talent in all fields of sports to bring back the golden period of Pakistani sports. There is no lack of talent in Pakistani youngsters; what Liaquat Ali they need is being polished by the veterans and supported by the management authorities of sports to deliver at the international level. Given the poor state of sports in Pakistan, you begin to wonder “what exactly is the Pakistan Sports Board doing? Has it forgotten its mandate, or had it turned into a wooden board? Medals Table Rank 1 2 3 4 5
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Country USA China Britain Russia South Korea
Gold 46 38 29 24 13
Silver 29 27 17 26 8
Bronze 29 23 19 32 7
Total 104 88 65 82 28
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A strology Your Horoscope September 2012 ARIES: There is a strong tendency to bury yourself
in work and in your personal life this month.You could be especially interested in resea- rch and investigation. This is the right time for you to build your future. This month is strong for learning, communicating, and connecting. Doors are opening to you. The 17-19 can be intense for happenings in your career and your personal life. Until the 22nd, efforts at improving your health and self-care routines are in focus. Relationships heat up with Venus in your romance sector, boosting your attractiveness and desire for closeness. Extremes of feeling are likely, and power struggles possible. You end the month with a bang - the Full Moon on the 30th aligns with Uranus in your sign, and this can stimulate surprises and changes. Something that's been building inside you surfaces suddenly. Your desire for change is stimulated now and you may act on a whim. New friendships might be formed. Allow for many possibilities, put few restrictions on projects, keep your options open, and expect the unexpected.
TAURUS: September is a relationship-centered month for you. Partnerships are animated and sometimes difficult. Competitiveness emerges, but the trick is to tone things down while being direct with someone close to you if problems reach a head. While you can be quite protective of your feelings in September, you're nevertheless inclined to socialize. You can revive a hobby or creative endeavor quite successfully now. You feel in charge in the areas of romance, creativity, and children. The 5th and 6th of the month are strong for friendships and support. Conversations on the 9th and 10th can move your romantic or creative life forward. More volatile days are likely from the 17th-19th and the 26th-29th. Something from the past could suddenly emerge and cause some initial discomfort. Ultimately, you're freeing yourself up of excess baggage. Deal with whatever emerges so that you can finally put the past behind you. Information that surfaces now tends to boost your ability to make a decision or come to a conclusion on a matter that has been in existence for some time. The last week of September brings stronger energy for work, even if emotions are wacky. It's also good for new or renewed health routines. GEMINI: For much of September, you're a little more introverted than usual. Your heart is with your home and family, or these areas of life demand more of your attention. There is a competitive element to your work all month. The Full Moon on the last day of August fired up your ambitions, and Mars moving through your work sector carries this energy through September. Even so, it's more about the little things that need your attention than major career goals. Mars is quickening the pace of your daily life. You can ride on this energy by stepping up a health or fitness routine, but watch for overdoing. You are slightly more prone to accidents. Watch spending on the 17-19. On these same days, keep your eye out for those who want to push you into doing or believing something that makes you uncomfortable. People in your life may be a little unreliable then. All month, however, you have Jupiter working some of its magic for you. Jupiter keeps you in a positive, forward-looking frame of mind. CANCER: You're clearing the decks on the home and family front this month. You will succeed in bring about desired changes in your family relationships. You've done a lot of restructuring in this area of life, and you're
by Dr. Aameer Mian www.astrohope.com now ready to move forward, hopefully more confident about your ability to manage your personal life. Romance can be passionate, animated, and possibly filled with fireworks in September. You're more likely to spend on comfort items and beautiful things this month after the 6th. You're especially open to learning, and connecting with others brings new ideas and interests to your world. The 17th-19th and 28th-30th of this month can bring tricky energy on the job or with a partner (and quite possibly both). Watch your reactions to people on these days - old wounds from childhood can be stimulated now. You can find quite a bit of joy in helping others in September. You're on the verge of big shifts and changes in attitude and desires when it comes to partnering. You will enjoy the support of your friends and relatives this month.
LEO: A strong theme in September is an increased desire for comfort, but you are also likely to feel compelled to finish some ventures. Avoid a mad rush to close projects, but if something has to go, let it. Apply yourself vigorously to your most important projects, but don't push yourself. Venus enters your sign on the 6th, when the desire for pleasure and comfort begins to rule. Others are especially appreciative of your sense of style. You prefer the company of others, rather than going it alone. Others notice and perhaps admire you for your pleasant demeanor, which feeds your ego and renews your spirit in turn. Your home and interactions with family will be lively and spirited in September, but sometimes challenging, particularly on the 26th-27th. Friends are supportive and friendships tend to be pleasant in September. New connections can be made, and they would be rewarding. Avoid over-committing, both socially and professionally, however. You may have additional income but at the same time you will need to put a check on your habit of being spend-thrift. Brainstorm about business and your finances on the 9th and 10th. The 17th-19th and 28th-30th can be a little tense and one way your body could react to the stress is to become sick or tired. Be wary of the jealous. VIRGO: Mercury is your ruler, but this planet of communication also rules your career, reiterating the theme that it's all about your personality right now. This is not the time to be a shrinking violet with Jupiter opening up opportunities for you when it comes to career and reputation. Look for openings and opportunities everywhere. Higherups are looking on you more favorably than ever. While Jupiter's transit will last until next June, in September, your personality is shining - more noticeable than usual, and projecting more strength. The Sun is in your sign until the 22nd, and Mercury until the 16th. Put forth the very best version of yourself. Watch carefully, however, for drama in your personal life that just doesn't suit you or your current path well at the moment. While you're raring to go and busier than your usual "very busy" state this month, your love life may be complicated and less outwardly rewarding. Love is not exactly on the back burner, but it's complex, private, and at times confusing from the 6th forward. Major shifts in your expectations from, and attitudes toward, romance are on the horizon. Take extra time to sort out your feelings. LIBRA: This is the last full month in which Saturn is
in your sign, that is, until 2039! Ideally, after its nearly 3 year transit, you've learned to be more self-reliant, mindful, and mature, and your expectations have become more realistic. Nevertheless, you're likely to feel considerably lighter and freer as Saturn moves on next month. You're simply a little older and
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A strology wiser! This month is very much about clearing the decks and putting the past behind you, but not before you reflect on the inner changes that have been made in the past year or so. The Sun enters your sign on the 22nd, launching a power month in which you are more explicitly in control of your destiny. The phrase "character is destiny" applies well at this time. Until then, work on ridding yourself of excess baggage. Pruning and clearing efforts now will increase clarity and focus. Dates to watch for are the 19th and 20th and the 26th-30th. From the 28th-29th, you can find yourself in high demand. Relationship dramas are quite possible. A Full Moon in your opposing sign (Aries) is usually dramatic on its own, but this one is highlighting the Uranus-Pluto square which is in direct competition with your sign. Surprising events can occur now, all designed to promote making big changes. Be careful about your relationship with the opposite six.
more self-control and self-mastery skills.Your desire for adventure, new experiences, and thirst for knowledge are stimulated this month. Towards the end of September, you'll be buckling down, but until then, while work and home life do need attention, ideally you'll be feeding your need for non-routine experiences. Nevertheless, pressures this month are building. Letting go of an attitude or situation that has been driving you to act in ways you don't truly feel comfortable with may be difficult, but ultimately will bring a strong sense of relief and build up your own inner strength. If you don't make necessary changes, you might attract more pressure from people and outside circumstances to do so, possibly in ways that make you feel helpless instead of empowered. Intimacy strengthens in existing relationships from the 6th. Be as present as possible, even if your social and professional lives tend to demand your attention. For now, clear the decks, take stock of the general direction you'd like to steer, and let go of the attitudes that keep you locked to the past.
SCORPIO: Mars in your sign all month supplies
you with plenty of energy and motivation, sometimes running a little overboard, but harnessed well, you can accomplish much. Work may be more available to you. Personal magnetism is high with both Mars (all month) and Venus (from the 6th) angular in your solar chart. Again, this extra presence can be a little problematic, particularly the 26thand 27th, but you can actively work to turn it to your advantage. Your ruler, Pluto, is stationing this month, and this can certainly add intensity to the mix. Ultimately, you'll find that as it moves forward after the 18th, you'll have a good sense that your personal plans, and particularly learning endeavors, projects, and interests, move forward as well. Pushing yourself beyond your limits can lead to a variety of health complaints, so do your best to learn what those limits are. Stress and tension are likely to be most noticeable on the 18th-19th and 28th-30th. The last two days of the month can involve work conflicts. Avoid pushing and strong-arming as much as possible. Patience may be on the short side in September! Love is easier to attract while pursuing business goals. Intimacy for partnered Scorpios can be richer and more fertile than usual.
AQUARIUS: This is one of the better months of the year for love relationships, particularly around the 12th and 20th. Your manner is especially appealing. Jupiter is already bringing good vibes to your life through your romance and play sector. Mars angular can also pull out passion in you, and this can be highly attractive to some. Your ambitions are stimulated and sometimes challenged under this influence. You can be motivated to prove your worth, to advance, and to accomplish, or perhaps instead to go your own way and assert your independence in the professional world. It's time for taking the initiative, but draw on the charms of Venus and your stellar negotiation skills at the right moments so that you don't push people away from you. There can be equally strong desires to hold on to information and to give it out freely, particularly around the 18th-20th. For some of you, secrets or elements of the past can be revealed. Certainly, there's an increased desire to express yourself in some way; finding the best channel may be difficult but ultimately helpful. Avoid paranoia, but do take extra measures to keep those things you'd prefer to be private tucked away safely. Your sincere friends will be cooperative; this will give you mental peace.
SAGITTARIUS:
September is a stronger month for taking charge of your career, recognition, and accomplishment. While your responsibilities tend to increase at this time of year, this time around you have Mars moving through your privacy sector, and there can be some escapist tendencies. Listen to your body's signals and exhaustion limits. Old angers and current suspicions may be aroused this month, and you may be dealing with some disappointments about how things have played out. You may very well be correct on some points, but you are unlikely to take solid action until the second week of October. This is a time for processing and absorbing and possibly letting go. Your love life is private and can involve some sacrifice this month. Feelings are complicated, and especially so on the 28th-30th, when something comes to light that demands your attention. Freedom and control are issues now. With Jupiter in your partnership sector until next June, doors are opening for happier relationships. Consider reorganizing your finances this month, as changes in spending, saving, and budgeting are necessary. Also watch for a tendency to take risks with your money, and this does include lending.
PISCES: Your ruling planet Jupeter’s stay in the fourth
house of your birth chart during the whole month of September can lend extraordinary importance to your family affairs. Your co-ruling planet Neptune will be under the influence of retrograde movement during the month. This may occasionally create negative thoughts ultimately causing waste of your valuable time. Close relationships make headlines for you in September. Communication will be the key. Open up the airwaves, allows a partner to have a say, and listen as much as possible. The 15th-16th of the month will give you a chance to start fresh, either with someone new or with a current partner. This is the time for focusing on the present and the future, not the past. Energy levels should be good, and you should be able to draw upon your fair share of motivation. A course or travel plans might be especially attractive now. Money might come from an unexpected source, but you have to think outside of the box, and outside of your neighborhood or routine. Try to shed your tension that may be experienced in group situations or with acquaintances this month, as there can be so much more than meets the eye in these areas of life. Money and business worries or changes can lead to some stress as well, particularly from the 18th-20th and 28th-29th. You might share some grievances about how someone else is handling your money or whether you're being shown the respect you deserve. Perhaps a friend or associate, who is somehow in a position to affect your own earning power, is trying to pull you down a road you don't want to take, or you are desirous of more financial freedom.
CAPRICORN: Your ruling planet, Saturn, is on the verge of changing signs after an almost 3 year stay in the sign of Libra. This will put Saturn and Pluto, two big planets in your life, in mutual reception. This combination can be powerful indeed, particularly when it comes to new ideas and directions. With Pluto in your sign stationing this month and under pressure, circumstances are such that you are pushed towards learning 74
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