December 2012

DECEMBER 2012

De-weaponization of Karachi FBR’s over ambitious plans Obama’s re-election: the illusion Economic growth: mirage and reality Tax avoidance and evasion Special Economic Zone Act 2012 Auditing needs revamping Environment: ignored threats

GLARING GAPS EATING AWAY The Roots of Economy

Continuous Power at Your fingertips. www.smjafferco.com

Complete Backup And Maintenance Facilities Managed by Qualified Professional Engineers having 50 Years of Dedicated Experience.

Complete Installation & Commissioning Facility with Auto Starts/Stop & Auto Load Transfer System.

Spare Parts Availabilty

Gerneral Leasing/Rental Facility Sound Proof Canopy Options.

Round the Clock After Sale Services Availability

Trusted Name Since 1949 S. M. JAFFER & CO.

MECHANICAL & ELECTRICAL ENGINEERS For sale, service & spare parts, please contact: Head Office Karachi: Jaffer House 17, Timber Pond, Keamari, P.O.Box No. 4488, Karachi-75620 Fax: (+92-21) 3285-1162, 3285-0086 Email: smjaffer@cyber.net.pk, info@smjafferco.com

Lahore Branch Office: Plot No. Q-29C Gulberg II, Lahore.

Fax: (+92-42) 3571-5021 Email: info@smjafferco.com

Islamabad Branch Office: House # 32-A Nazimauddin Road Sector # F-7/a, Islamabad, Pakistan.

Fax: (+92-51) 2653474 Email: info@smjafferco.com

Karachi - Lahore - Islamabad: 111 - 765 - 765 URL: ww.smjafferco.com

Volume - 2 Issue - XX - December - 2012 Price: PKR - 150

INSIDE

34-35

44-46

EDITORIALS - 19-21

De-weaponization: what are its real aims?

November 2012: a month to remember FBR’s new plans: too ambitious to believe

31-33

POLITICS - 22-25

Obama’s re-election: will anything change?

Turkey: which world it wants to be a part of ?

ECONOMY - 26-43

General Elections in Pakistan: Impact of female electorates on results Economic growth: the mirage and the reality Economic Causes of Extremism In Pakistan Tax avoidance and evasion: impact on Pakistan’s economy The Role of Cottage and small Industry In Economic DevelopmentFinancing Infrastructure: ImportanceFor Socio-economic Development

TRADE & INDUSTRY - 44-50

Cotton ginning in Pakistan: Potentials and problems Special Economic Zone Act 2012 – Aiming for long term FDI IT Industry in Pakistan is progressing towards right direction

49-50

58-60

63-64

BANKING & FINANCE - 51-56

Auditing in need of revamping its mandate Managing Fraud Risk

HEALTH & ENVIRONMENT - 57-60

Environmental pollution: can it be contained after 2020?

Karachi: A mega city without a viable public transit system

AGRICULTURE -63-64

Dire need of investment in agricultural R&D

EDUCATION & TRAINING - 65-67 Good Corporate Governance

SOCIAL ISSUE - 73-74

Conundrum in Karachi

INFORMATION & TECHNOLOGY - 76

FBR planning to tax Google: is it possible?

REGULAR FEATURES

11-16 17-18 61-62 68-70 71 72 75 77-78 79 80 81-82 85-86 87 88-90

Global & National Briefs Voice of Industry - In brief Regulatory Compliance Events Monthly Stock Market Review Monthly Commodity Review Obituary Travel and Tourism Science & Technology Discovery Sports Your Horoscope - Dec 2012 Quotes Entertainment

CONTRIBUTORS Mr Rauf Nizamani Mr Raza Khan Mr Tahir Rauf Mr Ferozeali Hussaini Ms Raeda Latif Ms Naila Aman Khan Mr Farhan Anwar Dr Aameer Mian

Published by Address: Room No. 612, 6th Floor, Clifton Center, Khayaban-e-Roomi, Clifton, Karachi.

Ph: 021-35293371-72 Email: ask@valuechain.com.pk Website: www.valuechainmagazine.com Facebook: www.facebook.com/Value.Chain Disclaimer: The views expressed by the writers do not necessarily reflect those of the magazine or its editorial staff.

K.G. Traders (Pvt.) Limited, is a leading knowledge

based services organization which aims to fulfill the outsourced business needs of organizations in Banking and Corporate Sectors. Established in 1964, the organization is considered as most professional and reputable consultants, whereby, the service quality has always been appreciated by its valued customers.

The firm is fully equipped and backed by a team of qualified personnel who believe in continuous improvement in service quality. The organization is diligent in its efforts to uphold the principles of professional practice, follows modern approaches and techniques in its strategies.

Our product range includes but not limited to the following:

Key Services 1.

Collateral Management (Banks’ Muccadam) Services

2.

Asset Valuation – PBA Approved No Limit Valuator

3.

Supervision Services

4.

Stock Inspection Services

5.

Clearing & Forwarding Services

6.

SECP related Services

7.

BIR Services – Local Credit Report & Income Estimation

Our nation-wide presence

Clients • • • • • • • • • • • • • • • • • • • • • • • • •

Askari Bank Ltd. Allied Bank Ltd. Al-Baraka Bank Pakistan Ltd. Bank Alfalah Ltd. Bank Al-Habib Ltd. Bank of Khyber Ltd. BankIslami Pakistan Ltd. Bank of Punjab Burj Bank Ltd. Barclays Bank PLC Pakistan Dubai Islamic Bank Faysal Bank Ltd. Habib Bank Ltd. Habib Metropolitan Bank JS Bank Ltd. KASB Bank Ltd. MCB Bank Ltd. Meezan Bank Ltd. National Bank Ltd. NIB Bank Ltd. Soneri Bank Ltd. Standard Chartered Bank Summit Bank Silk Bank Ltd. United Bank Ltd.

KARACHI BRANCH 609 - Clifton Center, Block – 5, Kahkashan, Clifton.

Tel: 021-35293377-80 Fax: 021-35293382 info@kgtraders.com.pk

LAHORE BRANCH 11-D, Block-H, Gulberg II Tel: 042- 35817214-15 Fax: 042-35817217 lahore@kgtraders.com.pk

MULTAN BRANCH 7 & 8, 1st Floor, Trust Plaza, LMQ Road.

Tel: 061-4542535, 061-4542536 Fax: 061-4784414 multan@kgtraders.com.pk

HYDERABAD BRANCH A-184, Bait-ul-Khair Building, Mezz. Floor, Near Meezan Bank, Jamia Masjid Road, Saddar.

Tel: 022-2730941- 022303828 Fax: 022-2730942 hyd@kgtraders.com.pk

FAISALABAD BRANCH 05,04th Floor, Ashraf Butt Centre Circular.

Tel: 041-2412028 Fax: 041-2412072 fsb@kgtraders.com.pk

RAHIMYAR KHAN BRANCH 05, Main Shafi Town, Shahbazpur Road.

Tel: 068-5000428 Fax: 068-5878466 ryk@kgtraders.com.pk

SUKKUR BRANCH C-28,1st Floor, Street No.6, Hamdard Housing Soceiety, Airport Road.

Tel: 071-5000695 Fax: 071-5630636 sukkur@kgtraders.com.pk

GUJRANWALA BRANCH 1st Floor, Dr. Nadeem Nazir, Muhallah Amir Park, Commissioner Road.

Tel: 055-3017516 Fax: 055-3258283 gujranwala@kgtraders.com.pk

ISLAMABAD BRANCH 14,3rd Floor, Shahnawaz Plaza, Plot No.11, G-11 Markaz.

Tel: 051-2100461 Fax: 051-2100462 isb@kgtraders.com.pk

November 2011

December 2011

January 2012

February 2012

March 2012

April 2012

May 2012

June 2012

July 2012

August 2012

September 2012

October 2012

Select an option:

One year Rs.1500.00 Two year Rs. 3000.00

Please enclose a

Cheque/ Draft/ Payable to:

Pay Order

Fatima Khalid Publications (Pvt) Ltd.

www.valuechainmagazine.com

Editor’s note

OUR TEAM

Editor’s note

Chief Editor

Need for reviving the spirit of nationalism

Dr. Zeeshan Khalid

chief.editor@valuechain.com.pk

Advisor Editorial Team A.B. Shahid

adivsor@valuechain.com.pk

Editor

Jauhar Ali

editor@valuechain.com.pk

Deputy Editor

Mustafa Ali Shaikh

dy.editor@valuechain.com.pk

Assistant Editor Syed Asif Ali

asst.editor@valuechain.com.pk

Director Marketing K. Jehangeer Khan

marketing@valuechain.com.pk

Design Manager Ali Siddique Dadi dm@valuechain.com.pk

Visualizer

Taimoor Akhtar Bhatti visualizer@valuechain.com.pk

Bureau Chiefs

Syed Saqibullah

lahore@valuechain.com.pk

Ajmal Khan

multan@valuechain.com.pk

Mumtaz Abbasi

hyderabad@valuechain.com.pk

Printed By

Ibn-e-Hassan Printing Press, Hockey Stadium, Karachi.

Distributors

Rehbar News Agency, Karachi. 0333-2168390 National News Agency, Book Mart, Karachi.

021-35688828 Irfan Book Point Near Cantonment Police Station, Jammia Masjid Road Saddar, Hyderabad. 0300-3012131 Syed Yasir Ali, Book Mart, Lahore. 042-35773717-18 Ahmad Rehman, Best Book Sellers, Faisalabad. 041-38733763 Kitab Ghar, M. Khalid, I-144, Iqbal Road, Rawalpindi. 051-5552929

It is very rare in the history of nations for one great man to succeed another. In the context of Pakistan, such a succession was too distant a possibility. Among the Muslims the dearth of leadership was conspicuous. Hence, the death of the Quaid-e-Azam left a void that could not be filled by successive governments that came to power.

The creation of Pakistan was not an accident of history; it was the culmination of a historical process initiated and vigorously pursued with the awakening of the Muslims in the subcontinent who had by now realized that rapprochement with the Congress was impossible and that if the Hindu Congress was to be the heir to the British power, it was time for them (the Indian Muslims) to close their ranks and assert their separate identity. The underlying assumption among the Hindus was that the subcontinent belonged to them and that the Muslims were there on sufferance. That would have continued to exist had Pakistan not come into existence. What followed was a tragedy of unprecedented magnitude in which hundreds of thousands were callously uprooted from their hearths and homes and mercilessly massacred in cold blood.

For the sub-continent Muslims, Pakistan was an embodiment of their hopes and aspirations for a better life; a land of promise free from corruption, discrimination and exploitation they had been experiencing under the British rule in united India. Fulfilment of the promise was not around the corner given the historical antecedents, political constraints and economic compulsions. It needed reconstruction and reform, both of which were an opportunity and a challenge to the custodian of the new state. Sadly, however, the country could neither be reconstructed nor reformed the way it should have been.

The country has mostly remained under dictatorial rule while democracy, which, according to Abraham Lincoln is a ‘government of the people, for the people and by the people’, has been short-lived and overshadowed by a ‘government of the few elected by the many’ that produced nothing but a climate of poverty and pain, ignorance, hunger and disease.The ideals of political liberty, economic opportunity and social equality seem to have been left behind yielding place for the desire to become overnight addicts to the opiate of materialism. This gave birth to evils like drug trafficking, dacoities, targeted killings and other crimes that led to a rapid erosion of nationalism- the basis on which the sub-continent Muslims sought independence from the British.

Every successive government that rose to the citadel of power added to the miseries of the people. Pakistan today has become a symbol of widespread corruption. Accordingly to Transparency International, Pakistan suffered a loss of around Rs. 8.5 trillion (US dollar 94 billion) in corruption, tax evasion and bad governance during the four-years of the government of the former Prime Minister of Pakistan Syed Yousuf Raza Gilani. Reportedly, the country has had a consistently poor ranking at the Transparency International’s Corruption Perceptions Index with scores of 2.5 in 2011, 2.3 in 2010 and 2.5 in 2009 out of 10. It ranked 134 on the index with 42 countries ranking worse.

In its latest report, a US-based World Justice Project has shown Pakistan as one of the worst countries in the world in terms of massive corruption and low level of government accountability. The report finds Pakistan as the seventh most corrupt nation in the world and one of those having the weakest and ineffective accountability system. The report also exposed the anti-corruption apparatus of the state including NAB, FIA and provincial anti-corruption establishments for their failure to check corruption. This is a travesty and a sad reflection on the integriity of the country and the spirit of nationalism with which iit was achieved.

The state which was conceived in the spirit of a dynamic and overriding nationalism has fallen victim to the cult of regionalism and is frantically engaaged in undermining the integrity of what has remained of Pakistan. What is needed in this scenario is to strengthen the institutions of democracy and thus help provide a political base that could ensure integrity and economic progress of the country, free from corruption and evils of the sort.

As we celebrate the birthday of the Father of the Nation on 25th December, let us rededicate ourselves to revival of the ideals for which Pakistan was achieved.

Letters to the Editor Media blues Your article on “Media blues” is an eye openiner; it rightly portrays the role of media that, with few exceptions, has over time turned out to be serving as a tool of political strategists, little realising that by ‘becoming the proxy of evil strategists, they lost credibility’ as being ‘honest news provider.’ This has become, more or less, an international phenomena, news media in Pakistan being no exception.

The instances quoted in the article call for serious thinking about ‘where the media is headed for in its pursuit of material gains.’

Shahina Ansari Lahore

Monetary Policy Your editorial on ‘Monetary policy’ is a well thought out content that rightly refers to the deteriorating law and order situation in the country as a “killer” factor and the “biggest-of-all” risks that is sapping invesstor confidence and forcing even profitable enterprises to close and shift the capital somewhere else.

One cannot but agree with your view that lowering interest rates is not the main incentive that businesses need; they need security, first and foremost.

Surprisingly, this has not been mentioned in the SBP monetary policy for October-November 2012. The policy reminds the government to contain its current expenditures; fiscal deficits, borrowing etc.“ Is the government really serious about it?” That is the question that needs to be answered in times to come.

Saim Ali Islamabad Tax amnesty I have read with great interest your editorial on the subject. Your observation that FBR’s proposed tax amnesty schemes manifest its repeated failure is quite logical. What the FBR actualy needed to meet its tax collection targets was to facilitate the tax payers by devising tax-friendly collection mechanism. As very rightly pointed out, FBR’s continued failure to devise such mechanisms indicates that its focus is not on improving and increasing tax collection but serving the interests of the in-power regimes, powerful lobbies in Pakistan’s business and industry and the black sheep within its own ranks.

Shahid Iftikhar Karachi

10 www.valuechainmagazine.com

Russo-Pakistan relations The article provides an interesting reading. There is no denying the fact that Pakistan has suffered much because of its over reliance on US during its 65 years history. As rightly mentioned in the article, Russia and China are two important forces that have great interest in the geopolitical and strategic developments in the region. China has proved to be our all-weather friend; Russia too enjoys a place of strategic importance in view of its strong linkages with Europe and Asia. In view of Pakistan’s great strategic value for the major powers, revival of the warmth and strong bonds of relationship between Pakistan and Russia is of crucial importance. A golden opportunity to this end has been provided by the ongoing geopolitical environment where Russia considers Pakistan crucial for fighting out the threats to its security. Pakistan should not let this golden opportunity go by default.

Bushra Khan Karachi Micro Finance The article on Incentives for Promoting Micro Finance is quite informative. Micro finance plays an increasingly important role in alleviating poverty by providing financing facilities to the majority of unbanked poor in the country. The sector, therefore, needs government attention and support.

It is encouraging to note that the concerned authorities are constantly trying to improve and expand its scope. As mentioned in the article, the State Bank of Pakistan has taken certain initiatives to further strengthen and facilitate the sector. The central bank has reportedly decided to allow them to raise foreign currency loans from international financial institutions

or donor agencies. This is indeed a welcome move. More of similar steps need to be taken.

Shariq Rajput Faisalabad Remittances: Effects on Pak Economy Remittances by overseas Pakistanis make valuable contribution to the country’s foreign exchange reserves and are more sustainable than foreign aid or foreign direct investment (FDIs). After exports, it is considered as the second largest source of foreign exchange earnings of the country.

Considering its importance the volume of remittances need to be increased. It is encouraging to note that several initiatives have in the recent past been taken by the central bank to facilitate the flow of remittances. More of policy formulations need to be undertaken to encourage foreign remittances.

Shoaib Ahmad Sialkot Pharma industry The article is on a subject of critical importance. The market is flooded with fake and ill-made medicines posing hazards to health and precious lives of the people who use them. Lack of supervision, lack of concern for human life and health and weaknesses in the regulation of pharmaceutical sector have made things worse. Verifying authenticity of the medicines is not that easy and practicable for the common man. Hence the business of fake medicines continues to flourish.

The National Assembly of Pakistan recently passed the Drug Regulatory Authority of Pakistan (DRAP) Bill 2012 to regulate the pharmceutical industry. It is a welcome move and one hopes that it will be implemented in letter and spirit.

Irtiza Haider Rawalpindi

“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.

BRIEFS

Global Politics Iran parliament summoned Ahmadinejad: Iran’s parliament on November 4 told President Ahmadinejad that he must appear before the assembly within a month to explain his economic policies at a time of crisis. Later, Iran's supreme leader Ayatollah Ali Khamenei ordered parliament to stop its bid to summon the President. Khamenei warned MPs that if the matter went further, it would play into the hands of Iran's enemies.

Iran’s warning to US on airspace violation: Iran on November 11 warned US it will react strongly against any US intrusion into its airspace after two of its warplanes fired at an American drone 10 days ago. On November 12, Iran launched an air defense exercise aimed at optimizing its deterrent capabilities as well as sending a strong warning to those threatening it with military strikes.

Obama wins: US President Barack Obama cruised comfortably to a second term in the White House by winning 303 of the 538 Electoral College votes. His rival Romney won 206 electoral votes against 270 needed to win. President Asif Ali Zardari has warmly felicitated his US counterpart on his re-election as the President of the USA for the second term.

Israel’s attack on Gaza: On November 14, Israeli forces have launched numerous missile attacks on Gaza, killing at least 162 people including children after a bomb struck a bus in Tel Aviv, injuring 16. Israeli war jets striked Gaza city with more than 10 consecutive attacks. The IDF claimed that they are striking key Hamas targets, while the Palestinian Authority criticized the attacks for killing civilians. Later both parties cease fired on November 21.

Saudi Arabia Ordered $600M worth National Command System: American defense firm Raytheon announced a $600+ million contract to deliver a national-level Command, Control, Communications, Computers and Intelligence (C4I) system to the Kingdom of Saudi Arabia.

Protest demonstrations in Kuwait: Thousands of people have staged regular demonstrations against Kuwait’s ruler Sheikh Sabah al-Ahmad al-Sabah’s emergency decree reducing the number of votes allowed per citizen from four to one for the sake of Kuwait’s security and stability. Kuwaiti ruler on November 21 urged the citizens they should use the ballot box to express their demands in a parliamentary election on Dec. 1 and not take to the streets “screaming and wailing” in protest.

Qatar asks Syrian opposition to name ambassador: On 23 November, Qatar asked Syria's newly formed opposition coalition to appoint an ambassador to the Gulf Arab state, the first Arab country to publicly announce it will accept an envoy from the body. Qatar is one of the main backers of the Syrian National Coalition and a staunch opponent of Syrian President Bashar al-Assad, who is struggling to control an uprising against his rule in which 38,000 people have been killed.

IAEA chief says Iran’s nuke work unaffected by sanctions: UN nuclear watchdog chief Yukiya Amano has reinforced the view of many analysts that increased Western economic pressure on Iran has failed to make it change its nuclear course.

Judicial revolt against Morsi: Egyptian President, Muhammad Morsi faces a rebellion from judges who accused him of expanding his powers at their expense, deepening a crisis that has triggered calls for more protests. Egyptian President Mohammed Mursi expressed confidence that a solution would be found in coming weeks.

Goma rebels vow to liberate all Congo: Rebel forces in eastern Congo vowed on Nov 21 to “liberate” all of the vast central African country as they began seizing towns near the Rwandan border and spoke of a 1,000 mile march to the capital Kinshasa.

Citizens of 20 states seek separation from US: US citizens from at least 20 US states have filed petitions to secede and to create their own governments following re-election of Barack Obama. States with secession-related petitions on the White House website also include Alabama, Arkansas, Colorado, Florida, Georgia, Indiana, Kentucky, Michigan, Mississippi, Missouri, Montana, New Jersey, New York, North Carolina, North Dakota, Oregon, South Carolina and Tennessee.

z

FARC Colombian Rebels Announce Unilateral Cease-Fire Africa: The Revolutionary Armed Forces of Colombia's negotiator Iván Márquez announced a unilateral cease-fire on November 19. He said that said FARC would stop all military operations and acts of sabotage against government and private property.

US, Mexico sign rules on sharing Canada, India clinch nuclear trade deal: Canada and India have reportedly clinched on November 6 a deal opening the door to Canadian exports of uranium and other nuclear supplies to the energyhungry South Asian nation for the first time in nearly four decades.

Colorado River: The United States and Mexico on November 20 signed a pact for new rules on sharing water from the Colorado River. According to the agreement, Mexico will sacrifice some of its share of the river during shortages. Also under the plan, water agencies in California, Arizona and Nevada will buy water from Mexico, which will use some of the money to upgrade its canals and other infrastructure. www.valuechainmagazine.com 11

BRIEFS

Global Politics Swiss bank. Adoboli, a senior trader on the Exchange Traded Funds desk at UBS’s investment banking arm in London, admitted trading far in excess of his authorized risk limits and making fictitious book entries to hide his true positions.

Anti-austerity strikes sweep southern Europe: Police and protesters clashed in Spain and Italy on November 14 as millions of workers went on strike across Europe to protest against spending cuts they say have made the economic crisis worse.

Argentina launched campaign to undermine Falkland’s referendum: Argentinean Foreign ministry launched an action plan to thwart the success of a referendum to be held by the islanders of Falkland. The 3000 population of the Falklands are overwhelmingly pro-British and the vote is expected to deliver a resounding rejection of Argentine efforts to claim the South Atlantic archipelago.

Iran warns Turkey not to deploy Patriot missiles: Iran has said that Turkey’s plans to deploy Patriot defensive missiles near its border with Syria would add to the region’s problems, as fears grow of the Syrian civil war spilling across frontiers.

Turkey asked NATO for the Patriot system, designed to intercept aircraft or missiles.

Taliban urge Obama to pull troops out now: Taliban spokesman Zabihullah Mujahid on November 7 asked US President Barack Obama to admit that his country has lost the war in Afghanistan and put its troops out now. He said that the American administration should stop acting like police in the world and focus on solving their own people’s problem, and don’t make the world hate Americans even more.

Ukraine- Protest rally over election count: Ukraine opposition parties called a public rally for November 5 to protest against what they said was fraud by President Viktor Yanukovich’s ruling party in the final stages of the vote count from the October 28 parliamentary election.

IPB claims EU Nobel peace award “unlawful”: The International Peace Bureau (IPB) claimed on November 5 that awarding the Nobel Peace Prize to the European Union is “unlawful” since the block is not a “champion of peace” as defined by the will of founder Alfred Nobel.

Georgian govt detains army general, ex-minister: The Georgian government detained the armed forces’ chief of staff on November 7 on suspicion of abuse of power, stepping up what the opposition says is political persecution of President Mikheil Saakashvili’s allies.

UBS trader gets 7 years jail for $2.3bn fraud: Former UBS trader Kweku Adoboli was convicted and sentenced to seven years in jail on November 20 for the biggest fraud in British history, which resulted in a loss of $2.3 billion for the 12 www.valuechainmagazine.com

Karzai accuses US of breaching prison pact: Afghan President Hamid Karzai has accused the United States of breaching an agreement to transfer more than 3,000 detainees at a controversial prison north of Kabul to Afghan control.

Indian authorities executed Ajmal Kasab: India executed the lone surviving gunman from the 2008 terror attack on Mumbai on November 21. He was was one of 10 gunmen who rampaged through the streets of India’s financial capital for three days in November 2008, killing 166 people. Kasab was hung in secrecy at 7:30 a.m. at a jail in Pune, a city near Mumbai, after Indian President Pranab Mukherjee rejected his plea for mercy.

13 killed as Bangladesh flyover collapsed: At least 13 people were killed and dozens are feared missing after a flyover under

construction collapsed in Bangladesh’s southeastern port city of Chittagong.

Witnesses said more than 50 construction workers and vegetable hawkers had gathered near a pond under the bridge at the end of work when three concrete girders of the under-construction flyover crashed on November 25.

Xi succeeds Hu Jintao in China: China’s all-powerful Communist Party on November 15 unveiled a new seven-man leadership council steered by Xi Jinping to take command of the world’s number two economy for the next decade. After striding out in Beijing’s Great Hall of the People as the party’s new generalsecretary, Xi vowed to fight official corruption and build a “better life” for the nation’s 1.3 billion people.

Sino-Japan dispute: According to Japan’s coastguard, four government ships temporarily sailed into the territorial waters of disputed Tokyo-controlled islands in the East China Sea on November 4. Japanese Vice Foreign Minister Chikao Kawai “strongly protested to the Chinese ambassador Cheng Yonghua about the Chinese ships’ intrusion into Japan’s territorial waters.” The US Senate has unanimously approved an amendment that reaffirms the US commitment to Japan in its territorial dispute with China over the Senkaku Islands as Washington tries to counter any attempt by Beijing to challenge Japan's administration of the archipelago. On the other side, Philippines and Vietnam protested China's inclusion of the disputed islands in the South China Sea on maps in its new passports.

Indian BSF asks Bangladesh to demolish 55 insurgent camps: Border Security Force (BSF) has requested its Bangladeshi counterpart, Border Guard Bangladesh (BGB) to destroy 55 camps of north-east insurgents in the country on November 15.

The list was handed over at an Inspector General level meeting of border management and coordination held in Sylhet district.

BRIEFS

Global Economy IMF pledges continued support for Malawi: The International Monetary Fund (IMF), which in June gave Malawi a 3-year $157 million loan package, has pledged to continue its support to fix the country’s troubled economy hit by donor aid suspensions.

Buddget deficit and fiscal cliff in US: According to reports, President Barack Obama and US congressional leaders are expected to discuss ways to reduce the budget deficit and avoid fiscal cliff of automatic tax increaes and spending cuts in 2013 that could tip the economy into recession. Yu-Dee Chang, chief trader and sole principal of ACE Investments in Virginia said that if the fiscal cliff happens, a lot of major assets will be down on a short-term basis because of the fear factor and the chaos factor.

and flexibility to those investors that do not have the intention to subscribe to their entitlements.

OPEC chief sees comfortable 2013 for oil: OPEC’s Secretary General Adullah al-Badri stated on November 14 that he is not worried about the oil market outlook for 2013, as the exporter group pumps a million barrels per day more than its official output target without weakening prices. OPEC produces more than a third of the world’s oil and has pumped more than its 30 million bpd output target all year. The organization will meet on Dec. 12 to set output policy.

India, China firms sign deals: Indian and Chinese companies signed agreements on November 26 worth bilions of dollars as the two emerging market giants sought to broaden commercial ties despite political tensions. The deals included plans for investments in clean energy, infrastructure, electric power, steel and other projects.

Japan to invest $15bn in Indian infrastructure: Japan is reportedly planning to invest 1.2 trillion yen ( 15 billion dollars) in 19 infrastructure projects in western India.

The projects include a desalination plant, a liquefied natural gas power plant, next – generation grids and power plants as well as transportation and distribution projects.

US to overtake Saudi Arabia as top oil producer: The West’s energy agency said on November 12 that the United States will overtake Saudi Arabia and Russia as the world’s top oil producer by 2017. The agency predicted that Washington will come very close to achieving previously unthinkable energy self-sufficiency.

Federal Reserve backs holding interest rates near zero to 2016: Federal Reserve Vice Chair Janet Yellen said on November 14 that US interest rates may need to stay near zero until early 2016 to forcefully lift employment, and she strongly backed adopting inflation and unemployment thresholds to guide policy.

Big US banks give $22bn in mortgage relief: Five US banks have provided about $22 billion in mortgage relief to customers under a deal to settle borrowers’ accusations over foreclosures.

Argentina’s industry output rebounds in October: Argentina's industrial output rebounded in October, rising 2.2 percent from a year ago in its first gain in seven months as the car industry picked up.

Argentina's economy has slowed this year after booming for most of the last nine years, hurt by high inflation and sluggish growth in Brazil, its key trade partner.

Brazilian demand for Argentine automobiles is a key factor for industrial production since Argentina sends about 80 percent of its automotive exports to its giant neighbor.

OPEC reports 1.8% drop in Venezuela's oil output: Venezuela's oil drilling in October slipped 1.8% as appears from data supplied by the Organization of Petroleum Exporting Countries (OPEC) in its monthly report.

India may miss 2012-13 fiscal deficit targets: According to a Reuter’s poll, India will likely miss its revised fiscal deficit target for the financial year ending in March.

India needs to reboot economy: Delegates at the Indian World Economic Forum on November 7 said that India needs to ‘reboot’ its economy by reducing endemic corruption and slashing red tape to get back on a high growth path and reduce poverty.

Saudi Arabia allows rights trade on stock market: Saudi Arabia’s Capital Market Authority is reportedly allowing subscription rights for share offers to be listed and traded on the Saudi stock market, as it modernizes the market in preparation to permit the entry of foreign investors. This framework aims to add further protection

IMF sets June 2013 deadline for Bangladesh to implement domestic oil pricing reforms: Bangladesh has to implement its domestic fuel pricing reforms by June 2013 if it is to receive the remaining $705 million from a total $987 million loan it is seeking from the IMF under an Extended Credit Facility agreement. Under the deal with the IMF signed in April this year, Bangladesh was to introduce a number of reforms including adjusting fuel prices in accordance to the international oil markets, in return for a $987 million three-year loan.

BoE cuts 2013 growth forecast: The Bank of England on November 14 cut its forecast for British economic exansion and predicted low growth for the next three years due to the eurozone crisis, tight credit conditions and inflationary pressures.

European banks urge one-year delay for Basel III rules: European banks have asked the European Commission to postpone the introduction of tougher global bank capital rules, known as Basel III, by a year to 2014 after US regulators delayed application of the new requirements. www.valuechainmagazine.com 13

BRIEFS

Global Economy activity that began in smaller periphery countries has now engulfed core members, Germany and France.

BoJ urged to target 3pc inflation: Japan’s main opposition leader Shinzo Abe said on November 7 that the Bank of Japan should continue monetary easing until it achieved 3 percent inflation, signaling the central bank could come under more political pressure after the next general election.

World Bank to spend $6.4 million on Gaza water project: The World Bank on Tuesday approved a $6.4 million grant to improve water and sewage services in the Gaza Strip in the wake of an eight-day firefight between Israel and the territory's Hamas rulers. The infrastructure in the impoverished Palestinian enclave - with a population of more than 1.5 million people - has been deteriorating in recent years and the area is now "choked with untreated sewage.”

World Bank Approves Another $500 Million Loan for Tunisia: On November 27, the World Bank approved a new $500 million loan for Tunisia to help the North African nation change its regulatory structure. This is the second bank loan to the country since the 2010 political revolution that toppled its longtime president and helped to spark a broader uprising across the region. The bank last year gave Tunisia a $500 million loan to support the then-transition government, including changes to information and internet access. The bank said the new financing assistance will help reshape the business environment by cutting bureaucratic hurdles, strengthening the financial sector, restructuring key social services and improving transparency in the country.

Euro zone manufacturing shrank in October: According to a survey, Euro Zone manufacturing shrank for the 15th month running in October as output and new orders fell, fuelling expectations of further easing from the European Central Bank. Manufacturers were the driving force behind the bloc’s recovery from the last recession, but the downturn in factory 14 www.valuechainmagazine.com

Gloomy reports show Europe’s economy worsening: According to Purchasing managers index (PMIs), the fourth quarter has so far brought no improvement in the fortunes of most of Europe’s economies, which now risk shrinking more than previously expected. Meanwhile, Europe has reportedly pressed Asian countries to open their economies further and urged China to ramp up domestic demand as it seeks to tap into the fastergrowing region and ease the effects of its long-running economic crisis.

German’s economic growth slows down: Growth of Germany’s economy that long fended off the eurozone’s troubles, expanding by 4.2 percent in 2010 and 3 percent in the second quarter of this year, slowed to 0.3 percent in the second quarter of this year from 0.5 percent in the first and some economists expect a contraction in the fourth quarter.

Hollande promises tough decisions to revive economy: French President, Francois Hollande on November 5 pledged ‘tough decisions’ after his government was urged to cut labour costs by 30 billion euros ($38 billion) and the IMF warned that poor competitiveness was the French economy’s biggest problem.

EU approves financial aid package to Egypt: The European Union has approved a 5.0 bilion euro ($6.4 billion) financial aid package to Egypt after its economy was battered by a 2011 uprising that toppled Hosni Mubarak.

EU budget summit ends without deal: European Union leaders failed to reach agreement on November 23 on a new seven-year budget for their troubled bloc, calling off talks in less than two days after most countries balked at far deeper spending cuts demanded by Britain and its allies.

Mexico’s GDP will grow 3.3 percent in 2013: On 27 November, The Organisation for Economic Co-operation and Development (OECD) said that the Mexico’s gross domestic product (GDP) growth would slow from 3.8 per cent this year to 3.3 per cent next year. It's expected to then rebound to 3.6 per cent growth in 2014.

World Bank satisfied with reforms in Serbia: The World Bank is satisfied with results achieved by Serbia’s Finance Ministry and World Bank in the preparation of a program of structural reforms. The World Bank and the Serbian Finance Ministry worked on the preparation of reforms in the state and public enterprises' sector.

G20 presses Europe, US to fix fiscal challenges: Finance ministers and central bankers from the Group of 20 leading developed and emerging nations at the 2-day talks in Mexico City on November 5 pressed the US and Europe to swiftly resolve their fiscal challenges, warning that they threaten to harm global growth. They vowed to do “everything necessary” to strengthen the world economy, reduce financial market volatility and generate jobs.

Poor returns cast cloud over BRIC equity funds: Investors fed up with years of poor returns are reportedly deserting BRIC equity funds, pushing share valuations to record cheap levels and questioning the future of the high-profile investment theme.

Colombia to shuffle TES bond allocation: Maria Fernanda Suarez, Colombia’s director of public credit told Reuters that Colombia will hold off on any further overseas bond sales until next year and instead shift the remaining $300 million it had planned to sell in international markets into local bond sales. Maria said that the balance of the 42 billion scheduled for sale on Wall Street this year would be turned into peso-denominated Treasury bonds, TES and sold to state entities which by law are obliged to invest in the securities with their excess liquidity.

BRIEFS

National Politics which wittingly or unwittingly creates mistrust between the people and the Armed Forces of Pakistan undermines the larger national interest. He said that all institutions should work within the bounds laid down by the constitution as assuming more than one’s own due role will set “us back.”

President Zardari urges neighbours to united against terrorism: Addressing inaugural ceremony of the 6th Conference of SAARC Speakers and Parliamentarians at the Presidency, President Asif Ali Zardari on November 4 urged regional countries to join hands to fight extremism and terrorism, saying no country had suffered from it as much as Pakistan which, according him, lost more than 40,000 innocent lives in addition to Rs. 80 billion in economic reforms.

SC proposes Rangers being sent back to borders: Dissatisfied with the Rangers contribution to maintenance of law and order in Karachi, the Supreme Court on November 1 proposed that they be sent back to borders and the budget allocated

by Sindh Government for the Rangers operations in the city should be spent on police to improve latter’s performance.

Nawaz wants all-out action in Karachi: PML-N President Mian Nawaz Sharif has expressed concern over the incidents of target killings in Karachi and demanded the federal government to utilize its full force and resources to crush those playing with the lives of innocent people in Karachi and restore a peaceful and safe environment in the city.

Don’t cross the limits, Kayani: Chief of Army Staff, General Ashfaq Parvez Kayani addressing the officers at the Army’s General Headquarters in Rawalpindi issued a rare warning against attempts aimed at undermining the country’s military. He said that any effort

Swiss letter takes off: The government has finally sent the letter to Swiss authorities for reopening of corruption cases against the beneficiaries of the National Reconciliation Ordinance (NRO), including President Asif Ali Zardari, by withdrawing one written by the Musharraf government under the NRO.

SC has ultimate jurisdiction-CJP: Chief Justice of Pakistan Iftikhar Muhammad Chaudhry has observed the Supreme Court has ultimate jurisdiction and as a guardian and protector of the constitution, a heavy responsibility lies upon the judges of the apex court to uphold the canons of constitutional predominance and its supremacy over all other institutions and authorities.

Ulema accuse US wanting to control politics, resources of region: Ulema and scholars belonging to different schools of thought at the International Muslims Unity Conference held in Islamabad on November 11 accused the US of planning to take over the politics and resources of the region.

They pledged to struggle for the supremacy of Islam and confront all the anti-Islamic forces striking at the Islamic values.

Defaming army, courts in campaigns to be a crime: The Election Commission of Pakistan on November 12 issued the revised draft of the Code of Conduct for political parties and candidates participating in the next general elections, and outlawed defaming the judiciary and army during electioneering. The ECP has demanded the feedback and proposals from the political parties within the next 15 days to make the code of conduct more effective and comprehensive.

Altaf lashes out at UN, OIC: Muttahida Qaumi Movement (MQM) leader Altaf Hussain has demanded of the United Nations, its Security Council and the Organization of Islamic Cooperation (OIC) to take notice of the blatant Israeli aggression against Palestinians. He condemned the Israeli aggression in Gaza and criticized the international community and the Muslim world for keeping quiet over the killing of innocent children, women and civilians by Israeli armed forces.

Taliban prisoners’ release: The Afghan government on Nov 15, welcomed Pakistan’s agreement to release several Taliban prisoners, but a Taliban official dismissed the move as irrelevant to the country’s peace process.

According to a senior Afghan official close to talks between Islamabad and Kabul, Pakistan will consider freeing Afghan Taliban, secondin-command, Mullah Abdul Ghani Baradar if current releases of lower level members help to advance peace efforts.

Senators want army to take over Karachi: The Upper House on Nov 13, urged the government to hand over Karachi to the Pakistan Army to deal strictly with criminals.

The Senate also suggested declaring emergency in Karachi. The MQM boycotted the session against rising violence in Karachi. The senators were of the view that it is the right time for military action, not speeches by the interior minister.

BD PM shuns D-8 summit invitation: Bangladesh Prime Minister Sheikh Hasina has turned down an invitation to D-8 summit in Islamabad on Nov 22, 2012. www.valuechainmagazine.com 15

BRIEFS

National Economy USAID to provide $93m for Kurram Tangi dam project: The United State Agency for International Development (USAID) would provide 93 million dollars for construction of Kurram Tangi dam in North Waziristan Agency, costing Rs. 59.561 billion.

CPI inflation settles at 7.7pc in October: The consumer price index (CPI) inflation settled at 7.7 percent on yearly basis in October 2012 as compared to 8.8 percent in the previous month and 11 percent in October 2011. The major reason behind the decline is said to be the fall in food head and controlled petroleum prices.

PM asks Finish businessmen to invest in Pakistan: In a meeting with his Finish counterpart Jyrki Katainen, in Laos on November 4, Prime Minister Raja Pervez Ashraf asked Finish businessmen to avail the investor-friendly opportunities being provided by Pakistan.

The Finish Prime Minister appreciated the role being played by Pakistan in the region and expressed is country’s support to it.

FY 13 revenue collection target may be slashed: The Federal Board of Revenue (FBR) is planning to revise downward revenue collection target for 2012-13 to Rs. 2,194 billion from Rs. 2,381 billion, reflecting a decrease of Rs. 187 billion.

MoU for expansion, modernization of PSM signed: The Russian Federation has agreed to the Memorandum of Understanding (MoU) approved by the Government of Pakistan regarding the expansion and modernization of Pakistan Steel Mills.

Interest on debt surge by Rs. 132bn: The interest on domestic and foreign debt witnessed a phenomenal increase of Rs. 132 billion during the first quarter of the current fiscal year largely because of heavier reliance on domestic borrowing.

Pak expatriates remit historic amount in October: Overseas Pakistani workers remitted a historic amount of $1,365.10 million in October 2012 as against $1,017.87 million sent by them in the same month of 2011.

President signs DRA Bill into law: President Asif Ali Zardari on November 12 signed Drug Regulatory Authority Bill 2012 into a law to prevent the sale of fake, substandard and non-registered medicines 16 www.valuechainmagazine.com

and regulate manufacturing, storage, distribution, import, sale and advertising of therapeutic drugs.

Textile industry may miss current year’s export target by $4bn: To energy shortages, the domestic textile industry is likely to miss its export target by $4 billion, including Christmas orders worth $1.5 billion during the current year.

Textile export target was projected to be $16 billion for the current year.

EU trade package goes into effect: The European Union exceptional trade package of Pakistan meant to support flood victims of 2010 is being implemented from November 15, 2012 as the package has been notified in the official journal of the EU. Federal Cabinet approves various tax laws: The Federal Cabinet meeting held on November 14 approved amendments to various tax laws for launching a new amnesty scheme with a view to bringing non-filers into the tax net. The meeting decided to give approval to amendments to Customs Act 1969, Sales Tax Act 1990, Income Tax Ordinance Act 2001 and Federal Excise Act 2005 to register non-filers for bringing them into the tax net. The Cabinet also approved amendment to Foreign Exchange Regulation Act 1947 (FERA, 1947) and the Land Surveying and Mapping Bill 2012.

Joint Declaration signed with EFTA: Pakistan and European Free Trade Association (EFTA) have signed Joint Declaration in Geneva (Switzerland) which will reportedly be instrumental in holding negotiations on FTA Agreement (FTA).

Iran arrests Pakistani exporter seizes rice worth $500,000: Iran on November 14 arrested a Pakistani exporter in Mashhad and seized his rice stock worth $500,000. The event has jolted Pakistani exporters who feared loss of trade with the neighboring country, particularly those exporters who already had rice stocks in Tehran.

Cabinet approves plan to whiten black money: To provide an opportunity to the rich to legalize their un-disclosed local and foreign assets by paying a minimum tax, the federal cabinet on November 14 approved Tax Registration Enforcement Initiative 2012 that is likely to enable authorities bring in the tax net 1.3 million rich in the short term.

FDI down by 24pc in July-Oct 2012: The State Bank of Pakistan revealed on November 15 that Foreign Direct Investment (FDI) narrowed down by 24 percent to $244.4 million during July-October 2012 compared with $322.7 million in the corresponding period of last fiscal year. Bad law & order situation and poor infrastructure followed by rising energy shortfall are major hurdles in foreign investment.

Turkmenistan pushes TAPI gas pipeline: Turkmenistan is pushing ahead with plans to build a hugely ambitious pipeline to transport its gas through conflict-torn Afghanistan to India and Pakistan, despite concerns about the viability of the project.

PM calls for enhancing D-8 trade to $ 500bn by 2018: Inaugurating the 4-day 8th D-8 Trade Exhibition in Islamabad on November 19, Prime Minister Raja Pervez Ashraf called for enhancing the current D-8 trade from $130bn to $500bn by 2018. He also emphasized the need for free trade agreements and removal of barriers to further bolster trade among the member countries.

Pakistan considered as hub for solar energy power projects: According to Raphael Lechner, a German national and lead trainer on the occasion of launching of a training workshop on Solar PV System in Karachi said that the global investors consider Pakistan as the most potential hub in the region to generate electricity exploiting solar energy as it has immense capacity and potential to explore sunlight as compared with different parts of the world.

3pc GDP being lost due to power shortages: According to a report compiled by National Electric Power Regulatory Authority (NEPRA) , the country was losing up to 3 percent of its GDP because of power shortages which may increase if this trend persists.

Govt’s bank borrowings surpass budget estimates: The government borrowing from commercial banks reportedly surpassed budgetary projections for deficit financing for the entire fiscal year during the first quarter. The government borrowed Rs. 546 billion during July-September this year, up by 16 percent against the budgetary projection of Rs. 484 billion borrowing from scheduled banks for financing fiscal deficit in 2012-13.

BRIEFS

Voice of Industry LCCI, SCCI sign MoU to promote trade, industry: The Lahore Chamber of Commerce and Industry (LCCI) and Sargodha Chamber of Commerce and Industry (SCCI) on November 14 signed MoU to wage joint efforts and pool their resources for the promotion of trade and industry in their respective areas of jurisdiction.

PIAF hails LHC remarks on Kalabagh Dam: Pakistan Industrial and Traders Association (PIAF) Chairman Sohail Lashari in a statement on November 1 welcomed the Lahore High Court remarks on Kalabagh Dam and called for its early construction. He termed Kalabagh Dam as the “only long-term solution” to end power shortage and save the country from devastating floods.

FCCI flays SNGPL’s gas load management plan: President, Faisalabad Chamber of Commerce and Industry (FCCI), Mian Zahid Aslam has severely criticized the discriminatory four days gas closure for eight districts of the Faisalabad region, while allowing five days supply to Lahore region.

Mr. Andrey V. Demidov, Consul General of the Russian Federation, visited the Karachi Chamber of Commerce & Industry and had a meeting with the President, Mr. Muhammad Haroon Agar. Andrey V. Demidov, Consul General of Russian Federation endorsed that Pakistan Steel Mills was a good example of past cooperation between two countries; similar cooperation can be extended in many areas, particularly in energy as Russia is number one in energy sector.

FPCCI urges promotion of tourism: The Federation of Pakistan Chambers of Commerce and Industry (FPCCI) has urged the government to open new avenues of tourism and its expansion as poor law and order situation in the country has ruined the industry.

S.M. Muneer, President FPCCI Fazal Qadir Sherani, Chairman KATI Muhammad Zubair, Chairman Allied Bank Mukhtar Ahmed and others are present at the occasion of dinner by Allied Bank Assets Management Company.

KCCI calls for boosting agroproducts’ exports to cut trade deficit: In its report, Karachi Chamber of Commerce and Industry (KCCI) has suggested that domestic agriculture sector should be encouraged to enhance the shelf-life of agro-based products to increase exports. The report also called for setting up agro-based industries, model farms, besides introducing supply chain solutions in major districts of the country.

APTMA seeks regionally competitive interest rate: Chairman. All Pakistan Textile Mills Association (APTMA) Ahsan Bashir has urged for the provision of regionally competitive interest rates in the wake of improvement in economic indicators. He said that a regionally competitive interest rate would attract investment in the textile industry, which is long overdue and will enable to narrow down the technological capacities for generating exportable surplus.

KCCI urges US for investment in Pakistan: Exchanging views with the delegation of USAID in Pakistan, President of Karachi Chamber of Commerce and Industry said that besides granting economic assistance/aid, US may consider increasing investment in Pakistan as it is the largest trading and investment partner of Pakistan.

MCCI urges government to monitor sugar production, and allow export: President, Multan Chamber of Commerce and Industry (MCCI) has urged the government of Pakistan to monitor sugar production and allow exports when produce is sufficient through sugar mills with a view to bail out growers. He also urged the government to take notice of Indian discriminatory attitude towards Pakistani products and imposing 20 percent duty on Pakistani refined sugar to stop the entry of less expensive Pakistani sugar into India.

MCCI stresses need to revive economy: President, Multan Chamber of Commerce and Industry (MCCI) Muhammad Khan Saddozai stressed the need for the revival of economy by resolving the crisis of governance and energy.

LCCI for consultation process before trade policy announcement: The Lahore Chamber of Commerce and Industry (LCCI) on November 14 said that In the backdrop of persistent increase in trade deficit, the Ministry of Commerce should take immediate steps towards initiating a consultation process before finalizing trade policy so that country’s exports could be enhanced.

He urged the government and the Ministry of Commerce to take the representatives of the business community, export oriented industries, chambers of commerce and industry on board for evolving an effective, resultoriented and practicable trade policy that could help achieve desired goal of increasing exports.

S.M.Muneer, President KATI, I.T. Minister Raza Haroon, Mian Zahid Hussain, President All Karachi Industrial Alliance, Niaz Ahmed, Vice Chairman KATI and others are with Commissioner Karachi Hashim Raza at the KATI office, Karachi.

APTMA apprehends 2m surplus cotton bales by year end: All Pakistan Textile Mills Association (APTMA) leadership has apprehended that the industry would be left with two million surplus cotton stocks by the year end due to another domestically bumper crop of 15 million bales besides import of some two million bales of cotton from abroad.

He said that the consumption of cotton by the industry is declining fast because of energy shortage. The industry can easily consume 16 million bales if it gets uninterrupted energy supply and can pay the farmers better price accordingly. www.valuechainmagazine.com 17

BRIEFS

Voice of Industry

A delegation from Sri Lanka, headed by H.E. Mr. K. Abdul Baiz, Chairman (Mayor), Puttalam Urban Council, Democratic Socialist Republic of Sri Lanka, visited the Karachi Chamber of Commerce & Industry and had a meeting with the members, at Aiwan-e-tijarat. In the picture, Mr. Muhammad Haroon Agar, President of the Chamber, is seen presenting chamber’s Crest to H.E. Mr. K. Abdul Baiz.

Turkish team visits Islamabad Chamber: A Turkish delegation led by its parliamentarian and Vice President of the Foreign Affairs Committee, Prof Dr Muhammad Cetin visited Islamabad Chamber of Commerce and Industry (ICCI) to discuss ways and means to explore and create joint venture opportunities between the two countries. Dr. Cetin emphasized to increase bilateral trade up to $ 2 billion for economic prosperity of the two countries.

Need for exploring trade opportunities in Mauritius underscored: Talking to Lahore Chamber of Commerce and Industry (LCCI) President Farooq Iftikhar in Lahore on November 20, the High Commissioner of Mauritius Muhammad Rashad Daureeawo called for constructive economic ties with Pakistan through the expansion of already signed Preferential Trade Agreement to various fields. He said that Mauritius, for being a gateway to Africa, has huge scope for Pakistani furniture, pharmaceuticals, textiles, tiles and sanitary ware, carpets and mangoes and these marvelous opportunities must be tapped.

FPCCI assumes D-8 Federation’s chairmanship for next two years: Federation of Pakistan Chambers of Commerce and Industry (FPCCI) on November 20 assumed chairmanship of D-8 Federation of Chambers of Commerce and Industry for the next two years.

18 www.valuechainmagazine.com

SCCI calls for US support in infrastructure development: Talking to a US delegation in Peshawar on November 21, Dr. Mohammad Yousuf Sarwar, President, Sarhad Chamber of Commerce and Industry (SCCI) urged the US government to extend support for up gradation of existing industrial estate and infrastructure development, and in energy sector which could be beneficial for war-affected business community of the Province of Khyber Pakhtoonkhwa.

Speaking on the occasion, US Consul General in Peshawar, Robert G Reed said that Washington believed in longterm relations with Islamabad, for bringing economic prosperity, stability and development in this region.

Energy issue causing heavy loss to economy: Former President, Lahore Chamber of Commerce and Industry, Irfan Qaiser Sheikh has said that the ongoing energy issue including gas and electricity load shedding is causing heavy loss amounting to Rs. 550 billion annually to the country’s economy which can be averted by taking prudent measures.

Egyptian businessmen visit ICCI: A delegation of businessmen from Egypt visited Islamabad Chamber of Commerce and Industry (ICCI) and expressed their interest in promoting trade and economic relations with Pakistan. They stressed the need for close cooperation between the business sectors of the two countries.

MCCI hails govt decision relating to age limit of used cars: Ex-President of Multan Chamber of Commerce and Industry (MCCI) Malik Asrar Ahmed Awan has hailed the government decision of extending age limit of used cars imports after two years infusing a new lease of life into the local automobile industry which got into trouble due to its continuously declining sales.

Goods clearances in e-transshipment: President, Sarhad Chamber of Commerce and Industry, Dr. Muhammad Yousaf Sarwar has termed the directives issued by the Collector Customs Appraisement, Karachi regarding the filing of all goods clearances in the electronic transshipment as an unlawful move and demanded its immediate withdrawal. He said that the decision would not only delay the supply of goods shipments, but also result in additional cost of damage and detention of the supplies.

Mr. Alan L. Davis, Director Economic Growth, USAID Mission, visited the Karachi Chamber of Commerce & Industry and had a meeting with the President, Mr. Muhammad Haroon Agar.

Iran ready to start barter trade with Pakistan: Iranian Consul General Muhammad Hossain Bani Assadi at the Lahore Chamber of Commerce and Industry on November 5 said that Iran is ready to start barter trade with Pakistan to facilitate the businessmen and to jack up the volume of two-way trade. He said as soon as Pakistan government agreed to the proposal, other formalities would be finalized.

LCCI Senior Vice President Irfan Iqbal Sheikh reassured the Iranian Consul General that the LCCI would continue to play its role for increasing bilateral trade and economic relations.

Energy situation to hit textile industry hard: Chairman, All Pakistan Textile Mills Association (APTMA) Ahsan Bashir on November 20 termed the energy shortage disastrous for the industry and said that the gas curtailment would reduce the domestic industry’s production capacity by 30 percent resulting in a reduction of $3 billion in textile exports during the current fiscal year. He said that the industry would not be able to benefit from the bumper cotton crop that was recorded during the current season.

PIAF protests against gas supply suspension: Pakistan Industrial and Traders Associations Front (Piaf) has strongly protested against the suspension of gas supply to 350 industrial units of Lahore Township Industrial Area and called for its restoration for the sake of economy of the country. Piaf Executive Committee also expressed grave concern over law and order situation in Karachi and called on the Federal and Sindh governments to immediately launch operation against the anti-social elements that were hell-bent to destroy the country.

EDITORIAL

De-weaponization: what are its real aims?

A

s the time for general elections comes closer, the in-power regime is initiating steps that could become valid causes for postponing the elections, and the prominent among them are the doubts about authenticity of the electoral list for Karachi and a move to begin nationwide de-weaponization. Of these two, de-weaponization became the more controversial since, except for the MQM, the coalition members initially passed a resolution in the Lower House proposing that this operation be restricted to Karachi. Subsequently, however, a resolution moved by MQM demanding countrywide de-weaponization too was supported by PPP, though its alliesANP and JUI-F –and its adversary PML-N opposed it.

This move by MQM split the House and it deepened further when the MQM resolution was put to vote prompting some members of the ANP and JUI-F to condemn it very angrily.

MQM’s stand (based on realities) was that weapons are not made in Karachi; they come to Karachi from outside, mainly from KPK and Baluchistan. As such, unless these sources of weapon supply are subjected to de-weaponization Karachi will continue to suffer from violence fuelled by weapons that keep flooding Karachi. The fact is that MQM’s stand carries weight although ANP and JUI-F members accuse MQM of introducing militancy and bloodshed in Karachi conveniently forgetting the post-1965 election mayhem that marked the beginning of the trouble in Karachi. On its part, MQM wants effective steps to de-weaponize the entire country.

ANP’s stand is diagonally opposed; it wants a “clean-up” of Karachi. More than logic, the stance aims to weaken the hold of its political rival on Karachi. JUI’s Fazlur Rehman blamed the MQM for its deceptive resolution, accusing it of duplicity i.e. being involved in terrorism, yet proving itself innocent. To him “the process must start with dismantling the militant wings in Karachi by disarming them; passage of resolutions [to that effect] is an eye wash that won’t serve the purpose”. Despite his flawed logic (and role in creation of the Taliban) he is right in demanding that policies that have been fuelling militancy all over the country should be changed.

PPP Chief Whip Syed Khursheed Shah supported the MQM resolution because he felt that clearing the whole country of illegal weapons was needed, but talk of de-weaponization of Sindh and Karachi alone was not the right approach and won’t deliver “until nurseries of these weapons are eliminated–a reference to sources earlier cited by the MQM. But PPP MNA Noor Alam Khan (from KPK) opposed the resolution and supported ANP stance over an operation in Karachi. He objected to MQM’s stance that arms were manufactured in KPK and Tribal Areas, and said it amounted to labelling the Pashtuns as terrorists. “If you had established industries [in KPK], arm factories would not be functioning.” He too forgot what KPK governments did to the Export Processing Zone that was established in KPK. He also faulted the CJP for his silence over the May 12, 2007 bloodshed in Karachi.

Despite this blame-game, the MQM resolution for a countrywide de-weaponization operation was passed on November 20. The big question is who will carry out this operation and how will it be assured that it will remain non-partisan. In the past, similar operations in Karachi became party-specific and overly ruthless and left behind a record that is not admirable.

But the tougher questions are: “Why this operation is being launched now? Should this not have been the priority of the in-power regime throughout its term that the regime is proud of completing? Was completing its term its sole aim or was it proving that a democratic regime is best suited to lead good governance?”

No one can deny the importance of de-weaponizing this land of 200 million; petty and big crime and terrorism have hurt it enormously because it has been rendered a country with the highest risk, and so unsuitable for investment in its economy.

The ongoing economic slide has increased poverty manifold, and thus helped those who want to use its poverty-stricken youth for de-stabilizing it. But should undoing this organized effort be the job of a regime that has just about 14 weeks for dismantling a criminal-terrorist network that developed since the 1980s, and now threatens both the military and civil law enforcers every day? The oddity convinced many that, in line with its selfish priorities, country-wide de-weaponization too is the route the regime is adopting to stretch its term rather than resolve this problem.

As for supporting the MQM stand on a country-wide operation, it too can be moulded to do what all the other coalition partners want (who are also as scared of being ‘out of power’ as is the PPP) by beginning the country-wide operation from Karachi. It will ‘kill two birds with one stone’: while publicly MQM’s stand on country-wide de-weaponization will be up-held, voter support in interior Sindh (lost after PPP backed the controversial local government bill) could be regained. In particular, chaos courtesy the country-wide de-weaponization effort, will create grounds for imposing country-wide state of emergency to help the regime stay in power, most likely, for an indefinite period.

A truly responsible action on the part of the in-power regime would have been admission of its failure to set its priorities right from day-1 of its term that pushed Pakistan into what now seems a bottomless pit. Besides its failure in containing crime and terrorism, the rampant corruption, embezzlement and unprecedented waste of scarce national resources (about which none except the regime has doubts) leave no room for the regime to stay in office. The past administrative record of the regime hardly builds any hopes about its ability to carry out an unbiased, comprehensive and truly purpose-oriented de-weaponization operation because, as far as the civilian law enforcement agencies are concerned, the regime did nothing to enhance their manpower, protective gadgetry or access to criminal strongholds.

Remember the Layari operation? www.valuechainmagazine.com 19

EDITORIAL

November 2012: a month to remember

U

ntil 2012, November was marked by meetings to eulogize great men like Allama Iqbal, Yasir Arafat and Faiz Ahmed Faiz. This year, besides remembering these greats, Pakistanis lived through some painful and shocking experiences. For a start, it seemed that the Ministry of Foreign Affairs forgot that this year, November and Muharram will coincide making it irresponsible to the point of being reckless to organize any event that had international significance.

In recent years (especially the past five years) Pakistanis have witnessed some tragic and shameful events during Muharram reflecting on the degree to which sectarian divide has been widened by a class that is out to de-stabilize Pakistan. Before the beginning of Muharram, the Interior Minister had been warning about a repeat of those tragic events because he had been receiving intelligence reports that terrorists were out to play havoc on Imambargah, and on processions leading to these sacred places.

This warning, it seems, didn’t bother the Foreign Office.

We have yet to recognize the harsh reality that Pakistan will be targeted by those who never approved of a Muslim state acquiring nuclear capability. Now these dissenters have devis -ed a new strategy to achieve their objective. That strategy is based on a concerted effort to fuel dissent and disunity in the various nationalities in Pakistan, worsen the sectarian divides, and cause religious divides (by blowing up minor differences over insignificant events). This chaos is to convincingly label Pakistan as an unstable state that is incapable of holding on to, and protecting its nuclear arsenal. Thereafter, a resolution could be passed by the UNSC to deploy its peace-keepers in Pakistan and assume administration of the state.

While the “Expo-2012” and “Ideas” exhibitions that attract a large number of foreigners and foreign dignitaries each year, ended only days before the beginning of Muharram, a more significant event–D-8 Summit–took place on 7th Muharram–a day of great religious significance. The day before, Pakistan was badly bruised by the bomb blasts targeting the country’s minority Shia community. These incidents caused the death of many innocent and hurt dozens of others. However, the worst of these tragic events occurred in Rawalpindi, on the night before the D-8 Summit commenced. In that shocking event, 25 innocent citizens were killed, and dozens suffered serious and minor injuries.

What message these events conveyed to the visiting heads of state and government must by now be known to the Foreign Office. Thus far, these individuals had been reading reports sent by their diplomats in Pakistan, but the D-8 Summit gave the opportunity of observing themselves how critical has the situation become, and how inadequate is the administration’s ability to respond to it. How all or some of these dignitaries responded to these incidents would be known to the Foreign Office, but it is highly unlikely that they were not disturbed.

Surely, bureaucrats in the Foreign Office know what can be the consequences of mistiming a global or multilateral event; what

20 www.valuechainmagazine.com

seems the more likely cause of mistiming these events, is political expediency. Seemingly, the idea behind organizing these events in November was to repair the damaged image of the party in power as the prelude to its going into general elections.

These events could then be cited as proofs of the global image of the party in power, and its suitability for staying in power for yet another term. What the clever-by-half in-power politicians didn’t realize were the consequences of the failure of this attempt–shocking domestic events at the time projecting the opposite view to all the visitors. The same lot insists on deciding everything i.e. parliamentary supremacy.

The visiting leaders also saw firsthand the bitter controversy raging over Presidential indulgence in politics, governmentjudiciary-military divide, the continuing insurgencies in KPK and Baluchistan, judiciary’s views about failure of provincial administrations in KPK, Baluchistan and Sindh, the doubts being cast over the integrity of the country’s intelligence out-fits, calls for de-weaponizing the country and also declaring a state of emergency, and the refusal of the country’s COAS to deploy soldiers in towns and cities to contain the consistently worsening state of law and order.

This scenario was rendered worse because, while the COAS refused to deploy troops in town and cities, he nevertheless put the troops on alert for acting if things got out of control of the civil law enforcers–a tacit admission of the worsening state of affairs. This is hardly the picture of a stable country, and of its credentials to hold on to its nuclear arsenal. Let us hope that the visiting dignitaries did not get that feeling, but the way the state is being administered doesn’t build hopes.

The quality of the debate on all the issues listed earlier shows how little the parliamentarians know about gravity of these issues, and the damaging consequences they could entail for the continued existence of Pakistan as an independent state. The majority of the parliamentarians show a critical disability – their refusal to move beyond settling petty personal scores. There is hardly any MP who gives the impression that he or she has vision–the ability to foresee consequences of the way the world is being changed by ‘the powers that be’, to serve their neo-colonial interests. De-stabilizing the Middle East in the garb of the ‘Arab spring’ is the prelude to re-colonization of this region to support a near bankrupt West.

While it goes to the credit of Interior Minister Rehman Malik that Ashura wasn’t marred by grave incidents, November 26 onwards target killers were back in action; the lull on Ashura was the result of deploying thousands of Rangers, policemen and FC soldiers which can’t become a routine. Impliedly, the country remains under threat, but one long overdue action of the federal cabinet was to approve the draft of a bill to set up a National Counter-Terrorism Authority (NCTA). While the saying “better late than never” still holds this delay shows the concern the regime has for stability in the country.

EDITORIAL

FBR’s new plans: too ambitious to believe

P

akistan has consistently failed to increase its tax-GDP ratio at a satisfactory pace to increase it to at least 21%.

That is what the economists consider the minimum for sustaining its physical infrastructure to support a much higher level of economic activity so as to contain rising poverty. Fiscal deficit–now primarily the result of rising current expenditure–too couldn’t be contained because of rising inflation courtesy the depreciation of the Rupee. Compared to that, tax-GDP ratio has risen only fractionally, as depicted by the following figures (Tax collection figures in billions): This track record mani- Fiscal yr Tax coll.

Tax-GDP fests a clear failure of the 2007-08 Rs 1,008 9.8% administration to ensure a 2008-09 Rs 1,161 9.1% Rs 1,327 8.9% steady rise in tax revenue 2009-10 Rs 1,558 8.9% along with growth in the 2010-11 Rs 1,883 9.1% GDP. Impliedly, either 2011-12 taxes were not collected fully, or entities that progressively qualified to be taxed after their incomes increased to taxable levels, weren’t taxed. Both the trends are signs of failure of the taxation mechanisms. Not surprisingly, IMF has been disappointed with the rise in tax revenue, because the alternatives it suggested were either not implemented (tax on agriculture), or implemented partially (Value Added Tax) because of their limited practicality.

IMF was concerned over this disappointing trend because in 2013, pressure for repaying the instalments of its Stand By Arrangement could be threatened by a default by Pakistan, as was the case in 2003, when Pakistan’s debt to WB, ADB and other external lenders had to be re-scheduled until January 2008. Repeated reminders by the IMF to revamp the taxation systems were not heeded, nor did the government offer any alternatives that were workable, given the hurdles posed by a huge undocumented economy wherein in the majority of the small and medium businesses are run by individuals who are not literate, and bureaucrat’s own lethargy/connivance.

Recently, the two options proposed by the Federal Board of Revenue (FBR) comprised a Tax Amnesty Scheme, and a 3-Year Strategic Plan to bring 4 million potential taxpayers into the net, are being debated in the media by experts, for their harmful side effects and impracticality. As before, the Tax Amnesty scheme has come under attack for its negative impact on the honest taxpayers because it rewards those who openly defied the law for years on their own or courtesy their connections in the FBR and the Ministry of Finance.

In this backdrop that can’t anymore be hidden behind smoke screens, the support of the Finance Ministry and the FBR for a controversial Tax Amnesty scheme just because it would raise the needed resources (the argument used as the bait for the IMF) gives the feeling that they don’t care about ethics; that legality of an action can't be compromised for the sake of expediency or administrative “convenience”. This mindset shows no worry about Tax Amnesty’s impact on the morale of honest tax payers, or for checking the generation of black

wealth, and it’s being stashed away to tax heavens abroad. The reported IMF concern only over the return of the funds earned via trading in drugs and arms, and not so much over the funds accumulated abroad via under-invoicing of exports and overinvoicing of imports, if right, would be a shocker; it is least expected of the IMF. Indications so far suggest that this rumour is not correct and the IMF isn’t supportive of the relief offered by Tax Amnesty Scheme, but the scheme is not a dead issue as yet; it could be re-erected with certain changes in the relaxations in the initial draft of the scheme.

Belatedly, the government is contemplating other options for increasing the tax-GDP ratio. Reportedly, FBR has finalized a “3-Year Strategic Plan”, with lucrative incentives to expand the tax net. These incentives include reduction in the Sales Tax rate from 16 to 10 percent and decrease in the corporate income tax from 35 to 30 percent. A reduction in tax rate for Association of Persons (AOPs) and individuals too is under consideration.

This plan is now to be discussed with the IMF to gain its approval. What, however, is questionable about the plan is FBR’s planned heavy reliance on electronic means for implementing it; for example, in the context of individual taxpayersthe largest taxpayer group–the FBR has assumed that it would be able to electronically document ‘life pattern’ expenditures for assessing individuals’ income tax liabilities.

Based on these ‘life pattern’ expenditures–i.e. models–FBR will serve ‘electronic notices’ to undocumented persons. The monitoring of the expenditures would be done with the help of electronic database and information available with the tax department. This implies the development, de-bugging and installation of IT software that affords the FBR access to the details it will need to fix rational tax liabilities. This electronic assessment procedure, with big question marks hanging on it, is part of the whole scheme of documentation. Will this be a credible workable system, or will it lead only to disputes?

In the case of registered persons, FBR would work out the expenditures. Sales tax base would also be enlarged with the help of electronic data available with the tax department after FBR brings buyers and sellers of the supply chains within the sales tax net. It is planned that fake/flying invoices would be checked using FBR’s electronic verification systems to plug the holes in the monitoring system. This is a positive move. But does it not require businesses, especially wholesale and retail, to install electronic Cash Registers that record all transactions, and are linked to the FBR for real-time recording of transactions, and reconciling tax collected by the sellers with amounts thereof surrendered to the FBR? The plan also proposes to strengthen border controls by the customs department, deputing efficient customs staff at the border check posts, and establishing new check posts at all points, from where smuggling is taking place. These are long overdue steps and their inclusion in the Strategic Plan makes sense, but they need implementation on a high priority basis. www.valuechainmagazine.com 21

POLITICS

Obama’s re-election: will anything change?

B

arrack Obama has been elected America’s President for a second term. Most Americans are relieved that, at least for the moment, reactionary forces in the US have been held at bay because the election has thwarted a powerful right-wing assault. But, other than that, there is little enthusiasm about what they achieved by retaining Obama in the White House. To begin with, even though huge amounts of money spent by the Republicans couldn't help them win the election, the Democrats too won the election only because they spent far bigger sums and the sources of much of that money were the US corporate and financial interests that will expect (and also receive) huge favours from policy-shapers in the next Obama administration that will again secure their interests.

The amazing thing about big money is that it enables a tiny minority of the wealthy to access between 40 and 50 percent of the electorate through the media to sell them a distorted picture of the world. No less amazing is the fact that (via a Congress elected the same way), 1 percent of the Americans will still be able to get 40 to 50 percent of America’s voting public to vote for policies contrary to the needs of the vast majority, to serve the interests of that 1 percent. In spite of the rhetoric of ‘democratic involvement’ that he preached all through the election season, Obama is unlikely to set up any mechanism to get a feedback from all those who worked to ensure his re-election for a second term.

In the name of an invented fiscal emergency, or debt crisis, a tough austerity policy will be followed because the highest of priorities would be paying off the banks and large investors although, in his first public appearance in the White House after being elected, President Obama promised to levy higher income taxes on the rich, and reduce taxes to zero on annual incomes below $250,000 – a proposition that is most unlikely to get Republican backing. The Republican response is most likely to favour only reduction in the existing tax concession for the rich, not increasing taxes on this class. Should that happen, the Republicans will hurt their interests because concessions in taxation granted under the Bush regime will be expiring in December 2012.

That, apparently, is the only possibility that may help increase taxation to bring down, albeit very slowly, the huge fiscal debt from the cliff it is on.

The vast majority of Americans crave for a world based on generosity, caring for each other as well as the environment, respecting all differences based on race, gender and religion, eliminating poverty, and war. Americans have used the only available mechanism (elections) they presently have to publicly manifest this commitment. But the Democrats and their re-elected president will provide few avenues to promote such an agenda. Instead of promoting a global 22 www.valuechainmagazine.com

The cost to elect the president and Congress: (in billions)

2000 2004

$3.2 $4.2

2008 2012

$5.3 $6.0

Source: Center for Responsive Politics

agenda of cooperation, wherein America’s success is linked to the well-being of the planet and of everyone thereon, the new agenda is likely to continue to pursue the blind cause of making the US “No. 1” in economy, politics, military, and the media.

Obama will continue the drone attacks with their murderous impact on the civilians because that is now recognized as the manifestation of US superiority. He also won’t challenge the worship of the marketplace which has become the mantra of all Republicans and the right wing of the Democratic Party. It is highly unlikely that he will seriously restrain Netanyahu's craving for a war with Iran that might eventually drag in US troops and he, almost certainly, won’t publicly demand that Israel end the occupation of the West Bank. How will such a stance promote badly needed change in America’s profile in the world is anybody’s guess because neither the Republicans nor the Democrats (except a sidelined Ron Paul) show any signs of accepting defeat in the US ‘war on terror’.

Most Americans don’t realize that they have essentially been frozen out of the policy-making institutions and they will not be heard or taken seriously until they articulate unified alternative vision – challenge the globalization of materialism and selfishness, which is the real content of what the pro-Obama Democrats and their ideological Republican allies are likely to deliver in the coming four years. American politicians will stay focused on a struggle between Congressional Democrats and Republicans. They will go on practicing ‘identity politics’ to highlight their differences, overlook the filth in Pentagon and the CIA

exposed recently, and let economic disparities continue because a mindset change hasn’t taken place.

Business-funded electoral campaigns repeatedly ensured the victory of corporate-friendly regimes that tried to materialize dangerously ambitious dreams of big businesses, particularly that of America’s armament industry. All these regimes hurt America’s economy and its reputation as a responsible superpower. In spite thereof, businesses were permitted to finance election campaigns. This is the issue that Americans need to address. What they must require from now is: 1) government funding of state and federal election campaigns to stop funds from other sources being used to finance election campaigns and, 2) equal (government-funded) media time for all candidates.

This is imperative for ensuring that the common Americans (not the big businesses) decide who should lead this superpower that has the capacity to benefit the world in as big a measure as it has so far damaged it.

In this context, it is as important that the large corporations too are set on the right track so that American ingenuity can serve both the US and the world for improving the standard of life on this planet; this requires setting up a credible forum of accountability of the corporate sector.

Corporations must prove (every five years) to a jury consisting of ordinary citizens that they have been pursuing socially responsible innovative, marketing and personnel policies, and progressively containing environmental pollution to ensure a far safer future for coming generation or else risk losing their corporate charter and permission to function.

But none of these wishes will materialize because the election didn’t change the system. www.valuechainmagazine.com 23

POLITICS

Turkey: which world it wants to be a part of?

by Kamran Khan

N

ot long ago, an editorial in The Economist had forecast that, given the way the current Turkish regime has been going about revamping the economy, and the way other European economies are collapsing, in too distant future, Turkey may become the ‘China’ of Europe.

This was no ordinary tribute to the Turkish regime by a conservative English language weekly. We in Pakistan wish nothing less for Turkey because of our historic links to that country.

That said, what is overly disturbing is the approach Turkey is adopting in the context of its role in global trade and politics. It would not add much to the knowledge of the readers that 9/11 was an event that drew a dividing line between the West and the Muslim world. Turkey is the only Muslim state that has, however, remained a part of Nato, and has tried its best to become a full-fledged member of EU – a choice that will have its consequences for Turkey. Interestingly enough, while its membership of Nato is a legacy of the past regimes, Turkey’s insistence on full-fledged membership of the EU is the stand of its present (Islamic) regime as well.

Doing so, Turkey isn’t strengthening its status in the Muslim world, which it deserves not because of the Ottoman Empire that it set up but because, besides Malaysia, it is, by far, the most developed Muslim state. This status should incline it to worry about the economic plight of the rest of the Muslim world.

Unfortunately, that’s not visible, at least from the way it has been treating the Muslim countries. Being the part of a Nato that invaded Afghanistan, Iraq and Libya, and assisted in the de-stabilization of Syria, is odd. While Turkey did not join the Nato forces that were involved in these wars, it did not feel the need of parting company with Nato.

In the context of Pakistan, the ‘Karkey experiment’ has been a disappointment. Perhaps, the Turkish government did not realize

24 www.valuechainmagazine.com

the harmful consequences this experiment could have for its image among the ordinary Pakistanis who have always had the highest respect for Turkey; they remember how, in the 1965 war with India, Turkey stood by Pakistan. Episodes like the Karkey affair hurt that robust image. What has been more disturbing is the Turkish attitude towards concessions in foreign trade that Pakistan has been seeking since 2005. It has been the Turkish stand all through that due to its commitment with EU Customs Union, it can offer preferential tariff only for three categories of products i.e. basic agricultural products, processed agricultural products, and some iron and steel products.

Pakistan and Turkey had signed a Framework Agreement on Preferential Trade Agreement (PTA) back in January 2004; it provided for bilateral preferential trading arrangements. Two rounds of negotiations were held by December 2005, but to-date nothing materialized; that process continues without any results. Initially, Pakistan had requested the withdrawal of the additional duties on textile products since Pakistan had a low share of these all items in Turkish markets (4.54% in fabrics and 2.30% in garments at the time). The Turkish stance was that since the safeguards were imposed on MFN basis, it was not possible for Turkey to lift them specifically on exports from Pakistani. The Turkish view was that the only way to exempt such exports from additional duties was to enter into a PTA, which could contain a clause that exempted mutually agreed imports from either country from [EU dictated] 'trade defence measures' like countervailing and anti-dumping duty.

However, in the negotiations, which were held in Ankara in October 2011 to execute the PTA, Turkey was unwilling to incorporate such provisions in its text. However, when the Pakistani negotiators explained that similar precedents did exist in several bilateral and regional trading arrangements, Turkey

agreed to consider the proposal. According to press reports, both sides agreed to conclude the PTA and finalize their lists of concessions by the last week of October 2011, so that the PTA could be signed during Pakistani President's visit to Turkey in November. But later, Turkey regretted its inability to conclude the PTA during the president's visit.

The fourth round of PTA negotiations was held on May 20, 2012 in Islamabad along with meeting of the Joint Working Group on Commerce. The group held detailed discussions to conclude a PTA text. Pakistan sought exemption clauses because additional duties are impacting Pakistan's exports of fabrics and garments to Turkey, which is reflected in declining bilateral trade.

Turkish side submitted its revised offer and request lists to Pakistan seeking concessions. Pakistan agreed to respond to both lists via diplomatic channels and both sides also agreed that next round of the PTA negotiations will be held at the earliest.

Turkey’s stand all through has been that it would not be possible to accede to Pakistan's request to include exemption clauses in the PTA text, because there was no such precedent

in FTAs concluded by Turkey. This stance is strange because nine of the existing Regional Trade Agreements (TRA) do not allow imposing anti-dumping levies. These RTAs include those agreed between European Communities and European Economic Area, European Free Trade Association (EFTA), and EFTA’s agreements with Chile and Singapore. At least five RTAs also exclude imposition of countervailing duties. Given these precedents, the Turkish stand sounds odd. What is worse is the fact that despite talks that began back in 2004, the issue remains unresolved. For eight long years, Pakistan has failed to increase its exports to a ‘friendly’ Turkey.

Given the current level of Turkey’s exports, what Pakistan sought from Turkey was an insignificant favour. Sadly, what it got in return were excuses lacking credibility. This was not what Pakistan expected from Turkey–the country that rightly deserves to lead the Muslim world. But can such capitalistic (self-serving) tendencies help elevate Turkey to that pedestal?

Going by the ground realities and Turkey’s desire to be more a part of the West, this ambition may not materialize.

ECONOMY

General Elections in Pakistan: Impact of female electorates on results

by Naila Aman Khan

W

omen around the world, Pakistan included, constitute around half of the total population eligible to vote in the general elections. Yet, they tend to be under-represented in elections in most countries worldwide, perhaps, because in many constituencies, especially in Pakistan, female voters are not permitted to cast their votes. The representation of female voters in the electoral process is also influenced by the cultural practices in many constituencies wherein women are not allowed to exercise their right to vote. Another reason for lack of interest among women in the electoral process is that elections are not contested on a basis wherein issues specific to the female voters find a prominent place in policies and promises.

In recent years, however, there has been a significant change in attitudes as women are increasingly being elected to head the state and the government. More than 20 countries currently have a woman holding office of the head of national government, though the global participation rate of women in national parliaments is only 20%. A number of countries are exploring possibilities that may increase women's participation in government at all levels, from local to the national.

Hopefully, the upcoming elections in Pakistan will represent a departure from the past as, like many other countries of the developed world, women in Pakistan are becoming more active participants in various areas of state activity. This upsurge in female activism is likely to have a positive impact on women’s representation in elections. The upcoming elections in Pakistan

26 www.valuechainmagazine.com

would, hopefully, be held in an environment wherein the issues specific to women will also figure prominently along with those of the general masses.

Among the host of issues facing women in Pakistan, perhaps the most significant are the anti-women posture of religious extremists and radical elements. These elements are antagonistic to the very idea and practice of entrusting any public service role to women, be it teaching the children of the country, getting education or reformation of the society. This is quite evident from the recent attempt by Tehreek-e-Taliban Pakistan (TTP) on the life of the women’s rights’ activist Malala Yousafzai. The incident has created a deep sense of insecurity among the women, particularly those desirous of getting education and seeking professional roles in the future.

The Taliban’s attempt on Malala’s life for championing the cause of education to girls is likely to have far- reaching impact on women’s representation in the process of elections in Pakistan. While on the one hand the women who felt intimidated by the incident might feel dejected and desist from taking part in voting and political campaigning, many others could draw a lesson from Malala’s bravery and feel incentivised to take active part in the election process in the hope of bringing about a strategic change in thinking and Pakistan’s political scenario, thus trying to ensure a secure environment for the women in Pakistan. Malala’s instance has undoubtedly stirred an unprecedented wave of consciousness among the educated women of Pakistan for creating social space and public sphere for females

100

Male voters Female voters

Female vo ters

(as percentage of male)

1988 1990 1993 2002 2008 2012

75

50 1988

90

93

02

08

86.9 85.6 83.5 85.6 78.5 73.8

2012

Gender breakup of number of voters for 1997 is not available in ECP’s published records

in the country. It remains to be seen whether the women intimidated by the Malala attack outnumber those who have been invigorated by it. The next elections would be a good barometer to gauge.

In an attempt to justify their action against Malala, the insurgents claimed that they did so because the teenager and her father not only took an avowedly anti-extremist stance and threw a gauntlet to them, but also because she was a woman – the class for which the extremists believe there is no role in education, politics or any other public sphere. It may be mentioned that Malala had expressed her desire to join politics after completing education. This implies that the prevalent ultraconservative anti-women contours in Pakistani society are indeed a great challenge for the women electorate to overcome through their right of suffrage.

The timing of the attack on Malala Yousafzai in the context of upcoming general elections is quite important. By choosing such a time, the radicals seem to have sent a strong message across all those women who want to bring about a change in the political climate of Pakistan by ensuring increased participation of female voters in the upcoming elections. It may be remembered that just before the last general election in February 2008 Mohtarma Benazir Bhutto, the chairperson of Pakistan People’s Party (PPP) , was killed by a suicide attack, perhaps because she was a woman. Earlier, a sitting female minister in the Punjab, Zille Huma, was publicly stabbed to death by a radical cleric, justifying his act by the argument that in Islam there is no public role for the women.

Only last month a woman member of the provincial assembly in KP, Khurshid Begum, was fired upon by the insurgents in Kohat. Luckily, she and her husband survived the murderous attack. Only days after the attack another member of the provincial assembly in KP, Nighat Yasmeen’s house was torched by insurgents in the remote Lakki Marwat district. Importantly, targeting women politicians particularly those who are members of the legislature is a kind of warning against women participating or desirous of taking part in the coming elections. The timing of the two attacks also shows that the fundamentalists do not want any role for women in politics and policy making.

The extremist-terrorist actions have already claimed thousands of lives of innocent civilians that included a large number of females. Women voters had played a significant role in the success of the PPP and ANP in the last elections. Sadly, however, these parties failed to take any concrete measures for protection of their elected female leaders from the onslaught of the extremist and terrorist attacks, let alone women electorates

in general. Surprisingly, the killers of Benazir Bhutto and attackers of Malala Yousufzai are still at large. This is likely to impact the results of the upcoming general elections because, after all, female voters would logically be thinking in terms of exercising their right of vote in favour of the candidates they feel would come to their rescue, and once in power, would take practical steps to thwart the threat to women and their family members.

For women in Balochistan, the issue of extremism may not be as acute as it has been in other provinces. As such, this may not intrude with their voting decisions. However, the issue of military operations, and the resultant collateral damage, will be an important electoral issue in the province. In particular, the issue of hundreds of missing Baloch nationalists would significantly impact the voting pattern in Balochistan. The significance of the missing persons issue can be gauged from the fact that, for the first time in recent Baloch history, women came out of their houses and staged protest demonstrations on the roads and streets of Quetta, Karachi and Islamabad. The Baloch nationalist parties, who have also been championing the cause of missing persons, may boycott the elections yet again leaving the women with no choice to vote for any party at all. If this happens this would really be unfortunate.

In the Punjab, the issue of criminal assaults on women may figure prominently in the voting agenda of women since there has been a significant increase in such incidents after the last elections in 2008. Such cases should have jolted the women electorate, particularly in rural Punjab. Whereas, in the urban centres the same issue may not have been of personal nature, in rural Punjab it repeatedly made the headlines. Hopefully, therefore, this will be an important issue for the women electorate in the cities as well. The urban areas of the Punjab, along with Karachi, have been in the forefront of women rights’ movement in Pakistan. The issues of striking down discriminatory laws against women, right to equal jobs, and inheritance rights would be primary electoral issues that are likely to affect voting decisions by the women.

Overall, the issues specific to women electorate, along with the territorial issues, are important and could influence the electoral decisions by women in the next elections. Hopefully, courtesy the cleansing of the electoral lists of their errors, female votes would count significantly in the success of the candidates. It therefore seems only appropriate that the parties in the run in the forthcoming elections should devise policies that will ensure protection of the rights of the women. Lacking support of the female voters would make it difficult for any candidates to win the seat they would be contesting in any part of the country. www.valuechainmagazine.com 27

ECONOMY

Economic growth: the mirage and the reality

by A.B. Shahid

CHIN A

I

n his last “state of the nation” address to some 2,268 party delegates at Beijing’s Great Hall of the People before handing over power to his successor, China’s President Hu Jintao acknowledged the growing public anger over graft and issues like environmental degradation, that were undermining the party’s support, and had caused the number of protests to surge. He said that “Combating corruption and promoting political integrity, which is a major political issue of great concern to the people, is a clear-cut and long-term political commitment of the party”, and went on to add that “If we fail to handle this issue well, it could prove fatal for the party and could even cause the collapse of the party and the fall of the state. We must therefore make un-remitting efforts to combat corruption”.

This is a dangerous development indeed but the logical after- effect of “Opening up China” that began during the tenor of Deng Xiaoping. Accessing “free markets” has its costs, and no one accessing them can afford not to pay them,

28 www.valuechainmagazine.com

because business partners in the “free for all” markets can influence the mindsets of even committed Communists.

Last month, The New York Times had reported that the family of Premier Wen Jiabao had accumulated at least $2.7 billion in “hidden riches”. While the Chinese government labelled the report “a smear”, Premier Wen Jiabao promptly ordered investigations into the wealth of his relatives to disclose the truth.

But the more important issue that President Hu Jintao pointed to, was the fact that problems had “increased markedly” in health care, housing, environment, food and drug safety, and public security. Over six and a half years ago, on April 16, 2006 he had made a landmark statement in a meeting with Lien Chan, leader of Taiwan’s opposition Ku Min Tong party, which, for understandable reasons, wasn’t reported by any global newspaper; just BBC and CNN TV news bulletins made passing reference to the president’s speech.

In spite of Western accusations of repressing the freedom of expression, the fact is that the Chinese governments listen to and care about their nation’s interests, and never hesitate to accept where they went wrong. The Cultural Revolution of the 1960s, reformation under Deng Xiaoping during 1980s and President Hu Jintao’s frank admission about the need for a complete reassessment of economic policies proved the point. More importantly, President Hu’s statement clearly showed that Chinese leadership doesn’t practice borrowed ideologies; while it patiently listens to and watches alien ideas in action, it thinks and evolves through its own experience – a quality that is missing in the leadership of most other nations and, blissfully, we form a part of this idea-borrowing club without realizing that eventually we too will end up like the bankrupt US and the EU. In his landmark statement, President Hu Jintao had said that Chinese economy had grown by more than 10% last year, but the government “does not seek high-speed economic growth". Such high growth was not an official target. He said that the government wanted to pay more attention to improving the lives of the ordinary people, implying thereby that the real sign of success was improvement in the standard of living of the masses. Expressing his concerns about the impact of high economic growth, he said "We are concerned about the pace of development and the quality and the effect of our growth. We are also concerned about saving our resources, environmental protection and improving of our people's livelihood". These were the concerns of a leadership that was conscious of its responsibilities as a citizen of the world keeping in view the demand-pull strains created on the global output of many of the commodities and environmental pollution.

Deceptive ratios and percentages that statisticians throw up never impress the Chinese leadership. The versions of these figures then suggested that China's economy was growing at a blistering pace, though not at fifteen percent a year, as was the case in the late 1990s. President Hu's comments at the time reflected increasing concern among the country's top leadership that hundreds of millions of people living in the countryside missed out on the nation's economic miracle.

President Hu’s statement was the first explicit expression of the government’s worries, but the feeling about the majority not benefiting from China’s record growth for more than a decade was not new. In 2005, the government had announced that it would adopt policies that improve that situation but reforms to speed-up the trickledown effect could take time to sink in. President Hu’s latest statement proves that it does take time, but the time lag has been beyond the capacity of the people to live with, and the global recession could make things worse for an overly export-dependent China.

The fact that China is conscious of the need to make amends places it well above the leadership in many other countries.

Protagonists of globalization of trade, now on the defensive, don’t want the masses to know that what these self-styled philosophers make out to be so holy is, in fact, no more than a mirage. The results they promised to achieve through de-regulation and globalization of markets didn’t last for long because the leadership could not speed-up the trickledown effect; ignoring statements, such as the one made by Chinese President, can’t hide the fact that growth routed through the private sector finds its way only to the coffers

of the rich and the powerful. This reality is now surfacing everywhere and a glaring example thereof is the resentment that is building up in US and European economies. Being more liberal, EU members like even France, Germany and Italy, are facing a tough time.

Unemployment – the product of hasty market de-regulation without requisite adjustments in the social and commercial values–may popularize socialism yet again because distributive justice of the free enterprise system is fast losing its credibility. The Western economies survived after the 1980s courtesy the wealth they accumulated during their pre-and post-imperial days but can’t go in with the present disrupted state of their economies, and condition of many developing economies is worse. These countries are witnessing rapid erosion of their industrial productive capacities and buildup of huge distortions in their balance of payments, because their economies cannot face up to competition unleashed by the lifting of barriers to trade.

Abdicating state authority in favour of the private sector in areas that have direct impact on the common man’s life, has been the cardinal error that governments everywhere seem to have made without realizing that by subordinating their role to the private sector, they were diluting the raisond’etre for the continuation of the state as the primary institution.

What they all failed in appreciating was the fact that there is a fundamental difference in the objectives of the state and the private sector. The state is not in the business of making profit (common belief to-date), but private sector is driven primarily by this motive despite the “much talked about” concerns it has for social responsibility. Only a handful of the private sector institutions genuinely believe in the fact that they too are citizens first, and so must keep the social impact of their policies upper-most in their multifaceted interactions with the society as buyers, consumers, suppliers, employers and taxpayers. As citizens, businesses need all the support and freedom they require

Chinese leadership After the present congress ends, the Central Committee will meet to select a Politburo – roughly 25 members– and from that group, the Politburo Standing Committee – the apex of power. The current standing committee has nine members, though party-conversant academics say that this time it may be whittled to seven, but two members are considered shoe-ins: Xi Jinping and Vice Premier Li Keqiang, who could be named the premier.

The Central Committee also appoints a Party Commission that oversees the military. A critical question is whether or not President Hu Jintao will stay as the military commission head. His predecessor, Jiang, did so; he hung on in that key capacity for over two years, and cast a shadow on President Hu Jintao’s efforts to consolidate power.

China, like most communist governments, has a history of some violent, unpredictable leadership successions. One of revolutionary leader Mao Zedong’s named successors died in an alleged failed coup.

Jiang’s stepping aside for President Hu Jintao in 2002, however, was an orderly succession and there is no reason to believe that this time there could be a different scenario. www.valuechainmagazine.com 29

for continuing as truly productive institutions for their owners but they must never be allowed to forget that they have to support the state in achieving the ultimate objective of improved standards of living for all its citizens, especially the vast majority of the underprivileged. Unless this cardinal principle is built into every state policy there is no way growth will trickle down to the underprivileged, which was the single biggest failure of the state everywhere. A convoluted belief that standard of living improves with availability of cheap automobiles and electronic gadgetry reflects the flawed mindset of the vast majority of the private sector players about what is the real purpose of life.

Tragically, even the senior politicians tend to equate prosperity in rural areas with the number of motorcycles sold every year, which is shocking.

Given such a mindset among the politicians, who could be bothered about setting up more schools, vocational training centres, colleges, libraries, gymnasiums, healthcare centres, hospitals, theatres, art studios, etc., and how many financiers could be interested in financing small businesses as a means to improving the overall social and economic environment. If governments are really concerned about fulfilling their responsibilities to their citizens, by regulatory actions they require businesses to participate in these crucially important activities. That’s the only justifiable way for the state to pass on its responsibilities to the private sector. Unfortunately, it is not happening and therefore the trickledown effect is not even a trickle. President Hu Jintao too accepts having failed in this endeavour.

30 www.valuechainmagazine.com

Excerpts of President Hu Jintao’s speech: • Combating corruption and promoting political integrity, which is a major political issue of great concern to the people, is a clear-cut and long-term political commitment of the party. If we fail to handle this issue well, it could prove fatal for the party and could even cause the collapse of the party and the fall of the state.

• Problems had “increased markedly” in health care, housing, environment, food and drug safety, and public security.

• All those who violate party discipline and state laws, whoever they are and whatever power or official positions they have, must be brought to justice without mercy.

• Leading officials, especially high-ranking officials, must ... exercise strict self-discipline and strengthen education and supervision over their families and their staff; and they should never seek any privilege.

• We should give full play to the strength of the socialist political system and draw on the political achievements of other societies. However, we will never copy a Western political system.

• We should enhance our capacity for exploiting marine resources, resolutely safeguard China’s maritime rights and interests and build China into a maritime power.

ECONOMY

Economic Causes of Extremism in Pakistan

by Raza Khan

I

n recent years Pakistani state and society have been seriously affected by the twin menace of extremism and terrorism justified in the name of Islam and various experts and analysts have pointed at different instrumental causes of the phenomena of radicalism and violence. Observably economic factors have been one of the most important causes of religious extremism and terrorism in the country. However, economic causes have had produced the ripples of radicalism and terrorism by interacting with political and cultural causes. However, little efforts have been made, on the state and societal level, to understand the economic causes of extremism and violence in the name of Islam in Pakistan. Therefore, if extremism and terrorism have to be countered first there is a need to comprehend their economic causes.

According to the Marxist thesis, which ultimately got the shape of a popular socioeconomic theory known as the Base and Superstructure, at the foundation of every society

lies the institution of economy which determines the character of other social institutions. In other words in every state and society the character of the base (economy) determines the nature of the superstructure erected over it.

The superstructure comprises the rest of social institutions; for instance, the nature of government and the state, the structure of the family or the kinds of an ideology prevalent at a point in time in a society. In Pakistan, extremism as part of existing social attitudes and militancy as part of the behaviour of certain groups within Pakistani society have largely been the manifestation of nature of the base in Pakistan. The points one wants to drive home here is that the twin phenomena of extremism and militancy in Pakistan have a definite relationship with the character of the economy in the country.

The economic dimension of extremism and militancy in Pakistan started getting shape during the Cold War and has roots in the clash of the economic ideologies of capitalism www.valuechainmagazine.com 31

epitomized by America and Socialism represented by the erstwhile Soviet Union. The US in order to inflict a decisive blow on the USSR chose the battlefield of Afghanistan where it needed the support of AfghansPashtoons of both Pakistan and Afghanistan. This could partly be done by exploiting the religious sentiments of Pashtoons in particular and Afghans and Pakistanis in general. The best way of attaining the end was through establishing a large number of so-called Islamic seminaries in Pakistan mainly along the Durand Line, in Afghan refugee camps mostly in the suburban areas. There were two purposes for establishing so many madrassas. The first was to use them as instruments of brainwashing and indoctrinating controlled concept of Jihad and anti-Soviet propaganda into its inmates. Secondly, to use these seminaries as recruitment and militancy training centres for anti Soviet so-called mujahideen. These madrassas were entirely funded by the US and Arab countries. This, for the first time, also gave the Pakistani Muslim clergymen the taste of US dollars and Arab Riyals.

Hitherto clerics or mullahs had had a marginalized role in the Pashtoon society or, for that matter in the whole of Pakistan. The cleric operators of the madrassas not only got a taste of money but also of social power hitherto enjoyed by Khans and landlords. So having money they no longer remain economically dependent on the community for their finances, which traditionally had been the case. With pumping of more and more money from the US and Arab countries these madrassas went on strengthening and soon became dens of militants and depots of arms. To foot the huge bill for organizing and financing in Afghanistan, the US Central Intelligence Agency (CIA) in collusion with Pakistani state agencies set up a large number of heroin manufacturing factories in Pakistan’s tribal areas. Soon a large number of people of General Zia-ul-Haq (1977-88) military-led establishment got involved in drugs trade while the mechanism of Afghan Transit Trade was also exploited by these elements to the hilt. Partly production of heroin and smuggling money was funnelled by the CIA to recruit and train militants. The Taliban regime in Afghanistan (1996-2001) had also been solely dependent upon the opium production and trade.

Whereas, Taliban in Afghanistan after being overthrown have been growing opium and successfully trading it partly to meet their finances especially in the Southern Afghan districts of Helmand, Zabul and Kandahar. Afghanistan, despite NATO’s presence since 2001, has been second leading producer of opium in the World. A large part of this opium money is transferred to Pakistani Taliban in order to get a constant supply of fighters against ISAF and NATO troops.

Another important international economic reason which contributed to the menace of extremism and terrorism in Pakistan and the region as a whole has been the US foreign policy objective of countering cleric Shiite state in Iran with the radical philosophy of Arab Wahabism. The US considered the rise of Imam Khomeni-led Iranian Revolution of 1979 as a great impediment in its continued exploitation of the oil resources of Iran over which it had had a virtual monopolistic control in the era of deposed Shah of Iran, 32 www.valuechainmagazine.com

Reza Pehlvi, believed to be an American stooge. The other supporters of American policies in the region like the self-imposed dynastic rulers of Saudi monarchy and the Gulf sheikhdoms feared that their subjects may get inspired by the Iranian revolutionary ideals and could overthrow them. As Arabs had a traditional rivalry with Persians the US very shrewdly exploited this situation by fomenting anti-Iranian and Shiite feelings among the population of overwhelming Sunni neighbours, Pakistan and Afghanistan to partially encircle Iran and thus pressurize the cleric-state there. For this purpose a large number of Arab sponsored madrassas were established in Pakistan. In response Iran also funded construction of a large number of Shiite madrassas in Pakistan. The product of these foreign funded madrassas has been extremists and militants, most of whom joined terrorist groups like the TTP in subsequent years.

As mentioned above, Pakistani Muslim clerics for the first time got a significant and leading social role and economic benefits during the anti-Soviet Afghan resistance; however in the post Soviet-Afghan war situation their biggest dilemma was how to perpetuate their newfound social status and convert these madrassas into ever-increasing sources of income. One significant way of achieving the objective was using these madrassas as a base to make a political constituency for their groups in order to capture power rather to establish a stranglehold over the state and society. The militant-madrassas played a significant role in the unprecedented electoral win of an alliance of clerical parties, the Muttahida Majlis-e-Amal (MMA), in the then NWFP (now KP) and FATA in October 2002 general elections which enabled the alliance in forming government in NWFP and a coalition government in Balochistan.

Thanks to madrissas the extremist clerics have been able to make an economic base and status for themselves that some academic authorities have started even calling mullahs as the new conservative elite of Pakistan. There are only around 18000 registered seminaries in Pakistan while according to independent estimates there number is in the vicinity of 40000. Obviously, the government does not have a mechanism to verify the financial sources of unregistered seminaries. At the time of independence in 1947, there were only 137 madrissas in Pakistan. According to a 1956 survey, there were 244 madrissas in all of the West Pakistan.

In order to increase their bargaining position and nuisance value the operators of seminaries have been using the brawn power of their disciples to foment unrest through violence. For achieving this end the clerics have not been hesitating to make suicide bombers by exploiting the, poverty-stricken youth as the matter is of the former’s economic survival.

It is important to explore why such a large number of parents have been putting children to madrassas. The most important factor has been the economic and families adverse financial conditions. According to various surveys, majority of parents, whose children have been studying at seminaries, were of the view that they did not send their sons and even daughters to get involved in militancy but to get free of cost religious education.

However, the biggest economic reason, which observers

have pointed at in this regard, is provision of not only free religious education and books but above all boarding facilities offered by madrassas. Having several children and without having the means to feed and nourish them all, parents have been finding no other place but seminaries to pass on their parental responsibility to.

As mostly good madrassas with huge complexes for boarding are located in big cities they have been an additional attraction for children and youth and their parents.

Otherwise, for the parents, largely hailing from rural areas, it is almost impossible to find a place in cities where the opportunities to find future economic prospects are relatively higher. A large number of children and youths from far off places like Waziristan, Kohistan, Zhob as well as Afghanistan have been going to these seminaries.

It is understandable that why mostly children and youth from KP and that too from its poverty-stricken and low per capita districts; FATA, Pashtoon areas of Balochistan, remote districts of the Punjab like D G Khan, Rahim Yar Khan, Rajin Pur, Bahawalpur and Azad Kashmir join madrassas. As far as KP is concerned according to official estimates the total population above the poverty line is 40 percent. However, according to estimates of independent economists the incidence of poverty in real terms is not less than 70 percent with conditions in remote districts like Kohistan, Hazara region, Upper Dir, Chitral and Tank being the worst. In FATA the poverty has been large-scale, pervasive and ubiquitous. The correlation of poverty and extremism is vividly evident in FATA, which has become a hotbed for extremist militants of every make. Somewhat same is the condition in remote districts of the Punjab and Pashtoon districts of Balochistan as a very few Baloch and Sindhi youths and children join madrassas.

It is not only the rural poverty which drove hundreds of people towards militant groups but also the urban poverty,

whose impact is rather severe than rural poverty. Due to inability of the state institutions and agencies to provide economic opportunities in cities like Karachi, Faisalabad, Multan, Jhang, Peshawar, Quetta among others more and more people, mostly migrating from villages and other areas, get economically marginalized and physically dislocated.

Yet another important economic reason for extremism in Pakistan is unemployment among youths. Unemployment has compelled the youths to join the ranks of militants in two ways. The one is by joining militancy imparting madrassas and the other through direct joining of the militants without going through the rigours of seminaries training.

Due to almost non-existent economic infrastructure in the Frontier and Balochistan having no industrial base and lack of extensive agriculture partly due to undeveloped irrigation structures unemployment in these regions has been rampant.

With no prospects of economic gains and social mobility there are a very few options for the youths to weigh.

During the last two decades petro-dollars, patronage from Pakistani government functionaries and monopoly on nontaxed border trade between Afghanistan and Pakistan have economically strengthened religious fundamentalist groups in Pakistan and Afghanistan. These fundamentalist forces have whitened their black-money by investing it in real estate business and other trades. Religious fundamentalists, especially in FATA, KP and Balochistan, have diversified their investments. They control a portion of real estate, transportation, retail and wholesale businesses in these areas. Consequently, these fundamentalist mafia groups have been fully financing Talibanization in Pakistan.

The state agencies and functionaries must take cognizance of the above-mentioned economic causes of extremism and terrorism in Pakistan and try to address them at warfooting. www.valuechainmagazine.com 33

ECONOMY

Tax avoidance and evasion: impact on Pakistan’s economy

by Jauhar Ali

T

axes and duties are important sources of revenue and core instruments in the hands of the government to finance expenditures on goods and services provided to the people, to achieve sustained growth targets and undertake development works. They are the lifeblood of a nation as they play a predominantly important role in determining the extent and quality of public sector performance. As such, they form an integral part in planning the government’s annual budget that sets the revenue targets to be achieved against the expenses to be incurred.

Missing revenue targets hinders economic growth, and has an adverse impact upon the performance of the country as a whole. When the authorities entrusted with the collection of taxes and duties fail to meet the targets set or where the payment of taxes and duties are avoided or evaded by individuals or groups of individuals, governments are likely to fall into the trap of budgetary deficits that are detrimental for the smooth running of the state. Sadly, this social evil is pervasive globally, and tax structures are skewed by this reality. Pakistan is no exception.

Year after year, the FBR has been setting challenging budgetary targets and undertaking innovative ways to ensure better collection, but rarely the targets have actually been achieved.

Meeting 100 percent of the targets may not be possible for various reasons. However, it may not be improbable to achieve a significant increase in revenue collection if the targets set are based on ground realities and incidents of avoidance and evasion of taxes and duties are contained.

In Pakistan, the Federal Board of Revenue (FBR) has reportedly set a target of Rs. 2,381 billion for the year 2012-13, envisaging a 27 percent growth over the previous year’s collection of Rs. 1,883 billion (slightly lower than the Rs. 1,952 billion budgeted last year). The FBR’s Year Book terms this target as challenging, keeping in view the past track record of revenue collection and the skewed tax environment that we have in Pakistan. The FBR has launched various tax reforms, the proposed Tax Registration Enforcement Initiative-2012, commonly known as Tax Amnesty Scheme, being one. But incentives and policy reforms, howsoever good and attractive they may be, are likely to yield positive results subject to the presence of concrete, market-oriented enforcement ability. www.valuechainmagazine.com 35

The subject has therefore been focus of research in Pakistan and elsewhere in the world for many years. The growing interest in the subject has been due to the persistent budgetary deficits resulting from inadequate collection of tax revenues. In these exercises, a major cause of concern has been not just the presence of the tax and duty avoidance and evasion but the size and the extent thereof because higher the volume of the tax evaded or avoided greater are the chances of negative consequences thereof on the country’s fiscal and monetary sectors.

Mobilization of resources for revenue generation is thus a critical factor in all schemes drawn to manage and run the economy of the state. As responsible citizens of the state, payment of taxes and duties is an important obligation – both moral and legal. Sadly, however, there is no dearth of moral turpitude and disregard for the laws of the land prompting many to avoid and evade this responsibility, realizing little that it is a crime and impacts badly on the overall economy of the country. They adopt different ways to avoid the responsibility and thus the revenue doesn’t flow into the government’s financial pool.

What is worse is the fact that this social evil, which has become a norm and a practice in developed as well as developing countries, often goes unnoticed because of the flaws in the tax administration system. In several cases, avoidance or evasion of taxes and duties takes place because of the tacit support of either the tax officials themselves or of those who wield pelf and power to influence the decisions of the tax machinery.

An example of the influence used is to be found in a recent report according to which Directorate of Intellligence and Investigation Customs of the Federal Board of Revenue is said to be facing stiff resistance from influential and powerful persons during ongoing drive against non-duty paid smuggled vehicles that include Mercedes, Land Cruisers, Parado Jeep, Mark-X etc. The agency is reported to have confiscated 338 such luxury cars during the last one month.

The practice of avoiding or evading taxes and duties is not a new phenomenon or concentrated in any particular class of people or country; it has been around since ages and practiced globally, Pakistan being no exception, though the magnitude and nature of tax evasion is phenomenal. The instances of such an attitude are witnessed in many sectors; a whopping Rs. 47 billion scam in which five telecom companies are stated to be involved in non-payment (in terms of interconnect charges) is a recent example the settlement whereof has been taking twists and turns ever since it came to surface with the Chairman of National Accountability Bureau taking suo moto action against the cellular companies allegedly involved.

36 www.valuechainmagazine.com

Reportedly, they had been evading this payment since 2007.

Surprisingly, despite preventive instructions, the FBR was reportedly still inclined to grant waiver to the said companies under Section 65 of the Sales Tax Act of 1990 but were prevented to do so on intervention of NAB which, according to reports, has completed its inquiry in the case while Islamabad High Court has also vacated the stay order filed by two operators involved in the scam.

The above was just one example of tax evasion; there are several others the most recent being the one in which the Federal Board of Revenue unearthed no less than 26 large scale cases of evasion of taxes and duties worth Rs. 20 billion—a huge amount – within the documented sectors. They include sugar, soft drink manufacturers, textile processing units, power producers, a tobacco unit and ship breakers. In yet another case, Pakistan Customs unearthed a scam of importing a huge quantity of black tea and clearing the same without paying tax liabilities. Tea import is said to be one of the major commodities where gross duty evasion and smuggling incidents were reported in the past.

More recently, Pakistan Customs reportedly cleared four consignments of prime quality steel bars (Hot Rolled Deformed bars) imported from a neighbouring country in the garb of Alloy Steel Bars at zero rate of duty thus causing revenue loss worth millions of rupees to the national exchequer on the one hand on account of sales tax and income tax due to low valuation and mis-declaration by at least $100 per ton and to the domestic steel industry on the other because after this import the rolling mills have stopped buying billets from domestic steel melters.

According to reports, approximately 8,000 tons of steel bars have been imported under the cover of Alloy Steel Bars which are not used in constructin work.

Interestingly, the goods were reportedly released simply on an undertaking instead of bank guarantees to secure the revenues of the government. However, on complaints of the domestic steel industry, the customs intelligence is reported to have detained the imported consignments and customs officials have been deputed at the godowns where the imported goods were shifted after clearance.

Availability and mobilization of revenue has been a major concern of multilateral and bilateral donors. Raising tax revenue is therefore of critical importance especially for developing countries like Pakistan. This has also been very rightly emphasized by the IMF recently. However, this calls for sustained policy measures and strengthened administrative machinery to ensure an honest and sincere enforceability of the measures designed.

Unless this is done the realization of the cherished desire would continue to be a dream unrealized. What is important is not just the detection of the cases but effective recovery of the amounts involved. Let us hope that the loss to the exchequer will be avoided through recovery of the taxes and duties.

ECONOMY

The Role of Cottage and small Industry In Economic Development

by Rauf Nizamani

T

he role of handicrafts and small scale industries in the changing pattern of economic and social life is a subject of considerable importance especially to the countries that are still in the early phases of industrial development. The Asian Regional Conference of the International Labor Organization held in New Delhi in 1947 adopted a special resolution on the subject and suggested, inter alia, the desirability of establishing, where feasible, branches of industrial production on the basis of small domestic and handicrafts industries and emphasized the need for organizing these industries. Cottage or household industries occupy an important position especially in rural set-up as traditionally in those areas women are not encouraged to work outside their homes. Therefore, a significant number of women in Pakistan is engaged in handicraft and tailoring activities. For example, up to 30 to 40 percent women in NWFP are involved in the cottage and handicraft industries.

Small scale industries like carpet weaving, candle making and handicrafts can be established in houses with women gainfully employed therein. This not only increases the active labor force but also empowers the women.

However, as female artisans typically work at home they have no access to credit with which to buy new materials or to increase their production. Similarly, they also face difficulties in marketing their products.

Most workshops and firms active in the field of handicrafts are economic units that are administered with a small capital.

More than 94% of people in the handicrafts industry of Europe work in small economic units with staff strength of 1 to 8. Statistics are almost the same in other countries.

According to some observers, this also increases their vulnerability as they find it difficult to compete with larger firms which enjoy economies of scale as well as better facilities of credit and marketing. But a proper management with an expert planning can help in removing obstacles and solve problems in the handicrafts industry.

The benefits of establishing and promoting cottage and handicraft industries are many. They not only provide additional employment and raise the standard of living for both rural and urban populations but also prevent migration from rural areas to the cities. At present, efforts are being made to promote handicraft and cottage industries by establishing new industrial estates and cottage industry villages for bringing together the cottage industry at one place.

Realizing the potential of the sector and its role in alleviation of poverty as well as empowering rural women, the Commonwealth (CW) in collaboration with Sindh Small Industries Corporation (SSIC) launched a survey in Sindh to help revive centuries old handicrafts industry in the province. The Commonwealth came to the help of handicrafts artisans following the reports that the traditional handicrafts making skill was dying due to lack of financial resources. They assured the SSIC officials that on the basis of survey the CW would provide technical and financial support to save the centuries www.valuechainmagazine.com 37

old professions from extinction. At that time SSIC itself did not provide any financing to cottage and handicraft industries due to paucity of funds. However, it submitted Rs. 500 million financing scheme in this respect. It also offered plots in new small industrial estate of 100 acres established at Northern B pass in Karachi on 10% payment with the remaining 90% being charged in easy installments over a period of four years. Out of this, about 30 acres in the estate have been reserved for women to set up cottage industry units.

Pakistan has enormous potential in handicrafts and could earn precious foreign exchange through the export of handicrafts products. Good quality of handicrafts is produced in all the four provinces that have recognition in the world market. There are good demands for rugs, carpets, brassware, handicraft and embroidered work in the international market. According to an estimate, these goods at one time provided about 30% of export receipts of manufacturing sector.

According to the Trade Development Authority of Pakistan (TDAP), efforts are being made to increase this share to one billion dollars but this does not seem to materialize so soon because it has been observed that instead of increasing, Pakistani handicrafts are losing their foothold in the international markets. Pakistan could export only $ 5 million worth of handicrafts in 2008-09 and instead of increasing this amount it is declining continuously. In 2009-10 the country received only $0.9 million from these exports which further reduced to $ 0.4 million in 2010-11 and to $ 0.15 million in 2011-12. In the first quarter of 2012-13, Pakistan received only a meager amount of $ 0.054 million from the exports of these commodities. This is in contrast to the performance of other 38 www.valuechainmagazine.com

developing countries which may be seen from the fact that India’s handicrafts export totalled one billion dollars and Vietnam earned $ 800 million through the export of these items last year. The share of Pakistan in the world trade of handicrafts, estimated to be around $ 250 billion, is quite negligible.

There are many reasons for this dismal performance. It has been observed that with the passage of time the quality of craftsmanship has been diminishing. The value has been infringed and the traditional sense of handicrafts has almost disappeared. Thus this sector is in dire need of development and promotion in order to revive the culture and art of Pakistani heritage. The biggest problem cited by the artisans in this respect is the access to credit to be able to expand and compete in the international markets.

Skilled craftsmanship is the principal feature of handicraft. However, for the greater part trade in handicrafts is in the hands of middlemen many of whom have been associated with handicraft production for generations.

As a rule these middlemen work on small scale and work to orders.

The economic downturn due to the load shedding, law and order, political uncertainty and recession in the international market has not only affected the big business and industry but has also badly affected the small business and industry which does not only consist of more than 99% of the total business establishments in the country but being labor intensive also provides employment to millions of people. In a capital starved country like Pakistan, it is considered as an answer to both scarcity of capital as well as generating employment. The capital to labor ratio in SME sector is around one-fourth as compared to Large Scale Manufacturing (LSM) industries.

According to Punjab labor department sources, due to the crisis approximately 800,000 laborers have been dispelled from their jobs while 400,000 to 800,000 are receiving fewer wages. Apart from this, owners have also withdrawn the overtime facility due to load shedding which has further increased the hardships of the poor. Moreover, the cottage industry which provides employment to millions of workers has been mostly closed with around half a million self-employed owners out of job.

The President of Lahore Chamber of Commerce and Industry (LCCI) has recently stated that about 70% of the industry had already been closed down and remaining was on the verge of collapse. He said that industry has no money to pay salaries and utility bills. More than 350 small industrial units, most of them surgical forging units in Sialkot, Uggoki, Sambrial, Daska, and surrounding areas, have been closed down. About 6000 small and big sized units have been affected in Sialkot. Similarly, there are about 6500 SMEs and 25000 cottage industry units of diverse nature in Gujranwala which have been badly hit especially due to energy crisis.

According to one estimate, there are about 10,000 factories in Lahore, among them 30 to 40 percent have been closed down because of load shedding as most of these industries were using electricity and gas in huge amount.

In these factories plastic moulding, rubber articles, leather garments, cotton, iron-made goods and many other things were being produced. According to Chairman, Pakistan Hosiery Manufacturers Association (PHMA), the industry is suffering colossal losses due to power outages and gas load shedding. The deterioration is across the board and almost all industries are victims of declining trend. They are losing large export orders and laying off workers due to closure of units. He further said that running units on self generation is costly and has wiped out liquidity of many units.

Chairman of SITE Association of Industry in Karachi had estimated that about 10 to 20 percent of industries in SITE area are on the verge of closure mainly due to the crisis of utilities whereas the President, Karachi Chamber of Commerce and Industry (KCCI) stated that about 25 percent businessmen of the city have been forced to shut their businesses due to load shedding and shopkeepers at major markets are suffering colossal damages.

These economic crises have given rise to the social and political problems. On the one hand the workers who lost their jobs due to closure of industries because of power

outages are protesting while on the other hand riots have broken out in Karachi and other cities of the country which has given a new dimension to the problem of law and order and compelled the business community to approach the government for seeking quick and short-cut solution of the problem. Vice President, FPCCI asserted that it is a vicious circle and we must come out of it at the earliest as long hours of load shedding was causing social unrest and heavy production losses to the industry leaving negative impact on investment climate. The business and industry are faced with a typical situation and fear that it would be difficult for them to meet the quality and timely delivery schedule given by their buyers.

Chairman, Korangi Industrial Area said that ‘there was a rapid growth in the energy demand and in the near future it would be one of the biggest issues if appropriate measures are not taken to resolve the same’.

It is interesting to note that the energy crisis has not only affected adversely all sectors of the economy, it has also given rise to a new form of cottage industry which is producing scores of goods to counter the power outages.

Small manufacturers, who are actually exploiting load shedding, are getting handsome amount by making emergency lights, candles, generators, UPS and many other items.

The load shedding crisis has given rise to the price-hike of electrical equipments helping the manufacturers earn abnormal profits. Thus a sort of cottage industry has come into being which is creating jobs opportunies for the manual labor force. Many producers are making Ultra Power Supply (UPS) of 500-1000w and selling them at prices ranging from Rs 6000 to Rs 12000.

According to a generator dealer, an ordinary generator, depending on different brands, sizes and quality, recorded a price hike of Rs 2000 to Rs 5000. Replica articles have also captured market due to low price, although there was a serious concern about their quality.

Most of the shopkeepers were selling artificial light gadgets because, according to them, the common people forced them to bring these goods to the market. But being of sub-standard quality they posed a serious risk that they might explode.

Considering its importance, the industry calls for urgent attention for solution of the problems retarding its performance and progress. The sooner it is done the better it would be for the country’s economy and well being of the people attached to it. www.valuechainmagazine.com 39

ECONOMY

Financing Infrastructure: Importance for socio-economic development

by Tahir Rauf

I

nfrastructure is the mainstay of the country’s economy and infrastructure assets such as road networks, energy, telecommunication and airports serve as the backbone for public services and are vital to sustain economic and social activity. Status of infrastructure is often seen as an indicator of socio-economic development of a country.

According to an assessment report on the private sector carried out by Asian Development Bank (ADB), the infrastructure sector in Pakistan consists of power, telecommunication, roads, ports, railways, air transport, urban infrastructure, information technology, cyber parks and industrial estates. The report concludes that while Pakistan holds up generally well on infrastructure sector performance compared to the other South Asian and other low income countries it is clearly way below the averages for the OECD countries. Pakistan’s physical infrastructure is inadequate in comparison with world standards and has been one of the critical reasons for holding back more rapid economic growth in the country.

The public sector has been the main provider of basic infrastructure in Pakistan. However, given the major unmet needs and limited fiscal space, the government’s capacity to address the infrastructure deficit is severely constrained. Pakistan’s electricity and power infrastructure has already come under major strain and there is a danger that the infrastructure sector in totality will become a major bottleneck for continued growth and development unless a well designed long-term

strategy to enhance infrastructure investment and expand private sector participation in infrastructure development is evolved and implemented.

Available data indicates that Pakistan had total private sector investment in infrastructure of $17.206 billion during 1990-2006 with a major concentration of 96% in the energy and telecom sectors. There was very little private investment in transport and no investment in water and sewerage sectors. Despite the lagged interest of private sector so far, the government remains keen to tap private sector participation in investment in the infrastructure sector. The Medium Term Development Framework (MTDF) for 2005-10 had earmarked $16 billion for public sector investment in the infrastructure sector. Pakistan’s total requirements for infrastructure development over the next five years are in the range of $40 billion and much higher at about $65 billion if the planned large water storage dams are also included. The funding gap between the total requirements and the available government’s public sector resource is expected to be filled by the private sector. Such a strategy, however, seems very ambitious given the existing constraints to private sector participation in infrastructure development.

The bulk of the private sector financing for infrastructure development in Pakistan, concentrated in the telecommunication and financial sectors, has been generated offshore and entered Pakistan as FDI. www.valuechainmagazine.com 41

The absence of an active market in long-term debt securities is a major reason for the dearth of local financing in the amount and tenor required for infrastructure development. Infrastructure projects, by their very nature and design, require relatively large investment, besides longer gestation period for development, construction, startup and operation. Considering the large investment requirements for infrastructure development, direct financing from financial institutions would be insufficient given the balance sheet and credit exposure limitations of these institutions. Over the long term, only an efficient and properly functioning banking sector and capital market can sustain large scale infrastructure financing in the country. It is important to note that, while in the conventional corporate finance, investors and creditors usually look at the financial strength of borrowing company and not just net realizable value of project alone; the Infrastructure Project Financing (IPF) ideally requires non-recourse financing, wherein the lender looks solely at the cash flows of the project for its debt servicing. Keeping this in view the distinctive features of infrastructure projects and feedback received from various stakeholders State Bank of Pakistan has also revised guidelines to the banks for financing infrastructure projects hoping that the same will help banks/DFIs to develop expertise for financing of infrastructure projects, especially by evaluating the intrinsic cash flow generating ability of these projects. Banks/DFIs are encouraged to prepare their own structured lending schemes for the Development of Infrastructure Projects Financing (IPF). For this purpose banks/DFIs may conduct/arrange their own studies to determine the potential in specific infrastructure 42 www.valuechainmagazine.com

projects. Banks and DFIs are also required to ensure observance of due prudence and necessary oversight in IPF to safeguard the interests of their institutions. Besides conventional infrastructure financing, banks and DFIs are also encouraged to adopt Islamic mode of banking to develop infrastructure products, as it is very conducive to infrastructure financing. In developing Islamic financing products for infrastructure, the banks/DFIs should refer the relevant guidelines issued by SBP. After issuance of these guidelines the banks have made some headway in this respect.

Total outstanding finance provided for infrastructure projects at the close of June 2009 was Rs 259 billion or about 10% of the credit to private sector. The analysis shows persistent trend of sector congestion as the infrastructure financing is becoming less and less diversified. The sector congestion can be ascertained from the fact that outstanding stock of power sector escalated enormously from Rs 52.2 billion in June 2008 to Rs. 115.4 billion in June 2009 while financing in other sectors paints a dismal picture.

Position of top five sectors from June 2008 to June 2009 shows that though power transmission has shown increase over the year but it is still much below the desired level, considering the huge unmet needs in this sector.

The infrastructure finance in Pakistan has not been consistent in recent times. It was at Rs 296.5 billion at the end of March-11 which fell to Rs 290 billion at the end of June 11 and resurged to Rs 300 billion at the end of September-11. At the end of March-12 the outstanding portfolio of infrastructure finance again dropped to Rs 273.2 billion, against Rs 281 billion at the end of previous quarter ending December,11.

The analysis shows that power generation sector stood out among all the sectors of infrastructure. A number of factors like power policy, availability of sovereign guarantees in case of IPPs, expertise of financial sector in this area and demand for energy contributed to its consistent lead over other sectors. Petroleum and power transmission sector have shown a downward trend, while Oil and Gas sector has shown a steady trend over the last few quarters.

At the end of March-11, power generation sector had 62.5% of the total stock followed by telecom sector with 15.9%. After a year, the top slot continues to be held by power generation sector with a substantial 66.7% share in the pie. Except for telecommunication sector, other major sectors in graph showed a declining trend. Telecom sector trended marginally upward from 15.9% to 16.1%. Petroleum sector’s share dropped from 6.2% to 4.9% in a year.

A total of Rs 10.3 billion were disbursed during JanMarch-2012 quarter in all infrastructure sectors against Rs 7 billion in the previous quarter. The disbursement during Jan- March-11 quarter was Rs 7.6 billion. Telecom sector received Rs 4.2 billion, which is 40.7% of overall disbursement. Telecom sector got Rs 1 billion in the last quarter while Telecom and Ports & Shipping sectors were conspicuous by their absence in the quarter ending March-11. Apart from this recent funding, overall telecom sector seems reaching a saturation point as most of the telecom companies are in paying back mode and no new initiatives are on the ground. Petroleum sector also received Rs 1.5 billion in Jan-March 12 which is a healthy sign for the sector.

No non-performing loan was recorded in the last three quarters of 2008-09. This trend on the one hand marks the cautious approach by the financial institutions due to nature of infrastructure financing which is a long term phenomenon and the flip side is perhaps lack of government policies and guarantees to make-up for the risk associated with the long term funding. However, the situation has not remained the same. Non-Performing Loans were Rs 10 billion at the end of March 11 which steadily increased to Rs 11.3 billion in December 11, and Rs 13.3 billion in March-12. The absence of public sector initiatives in array of sectors viz. mass transit, railway, oil and gas exploration, water supply and sanitation needs a clear conducive government policy to facilitate private sector investment.

However, the establishment of Infrastructure Development Bank is also under consideration to develop and improve key infrastructure areas. The primary focus of the bank will be on power sector, specialized economic zones and agricultural infrastructure and once capacity of the bank develops the focus will span other needy sectors like road, railway and port etc.

Apart from this, for ensuring sustainability of project financing and to develop human capital, SBP is also planning in partnership with World Bank a training program titled ‘Frontiers in Infrastructure Financing’.

The importance of physical infrastructure cannot be over emphasized. All the developing countries have multiple institutions with varying degrees of mandate and functions peculiar to their economic needs but the common thread among them is that they supply a pipeline of viable projects and means to provide long-term fixed rate financing.

However, provision and development of infrastructure is not the only prerequisite for economic development and growth of a country. Its effects would be felt only when it is combined with other factors such as good governance and law and order situation etc. Recently a study has been conducted about the impact of infrastructure development on manufacturing growth of Pakistan. The study has concluded that although in other countries the relation between the development of infrastructure and manufacturing growth is positive but in the case of Pakistan the results of the study do not conform to the earlier research as in this case the relation between the two is surprisingly inverse. The study, on the basis of empirical evidence, proves that the infrastructure investment does not play a role of key component in the growth of manufacturing sector. This difference in Pakistan and other countries’ results is due to various reasons. Political instability and economic conditions of the country are the main reasons for such results. Because due to these conditions new investors do not want to invest in Pakistan and also existing investors move their businesses abroad. Although government expenditure is increasing every year on infrastructure but its effect on manufacturing sector is negative due to direct and indirect impact of corruption, bad governance, government structure and management.

The same thing may be said for the growth of the other sectors of the economy. www.valuechainmagazine.com 43

TRADE & INDUSTRY

Cotton ginning in Pakistan: Potentials and problems

G

inning is the lifeline of the textile sector which plays a crucial role in earning foreign exchange and building up the country’s exchange reserves. According to a recent statement of Mahesh Kumar, Chairman, Pakistan Cotton Ginners Association (PCGA), textile sector, of which ginning is considered as the backbone, involves more than Rs 35,000 billion economy and is providing millions of direct and indirect jobs in the country. The cotton ginning industry has the potential to grow and make much larger contribution to the national economy given the problems it faces are identified, discussed and resolved. Sadly, no serious efforts are seen to have been made to address the issues confronting the industry and thus improve its performance as per the immense potential that it possesses. The researchers have identified the lack of quality control, low productivity, non-existent marketing skills and unpredictable business and political climate as some of the main causes hampering the growth of cotton ginning which is otherwise a lucrative segment of the country’s economy.

Ginning is a set of mechanics whereby raw cotton obtained from the farmers is processed and converted into salable stuff to textile industry. With the availability of good quality of raw cotton, and processing thereof by skilled workforce on machines using modern technology, ginning plays a significantly important role in the economy of the

44 www.valuechainmagazine.com

By K. Jehangeer Khan, Ammar Jamal Qazi & Jauhar Ali

countries around the world. However, in Pakistan this important sector of the national economy still lags much behind in terms of quality of raw cotton, its processing and marketing.

As a local business practice, cotton ginning is a three-pronged process: 1. ginners purchase raw cotton from farmers 2. separate the raw cotton into lint and seed, and 3. sell the processed cotton to textile/clothing industry and seeds to the oil mills. Tragically, in Pakistan, the entire process is hugely flawed.

The raw cotton provided to the ginners in Pakistan is said to be one of the most contaminated in the world, probably because of substandard picking process, storage and transportation. Contamination affects quality of cotton which in turn has a negative impact on prices in the market. The ginners use decades old machinery, outdated technology and unskilled workforce which result into low productivityreportedly one of the lowest in the world. Of the total production of cotton the world over, roughly around 9 percent cotton is produced in Pakistan. The yield is the lowest in terms of quantity and worst in terms of quality when compared with other cotton producing countries.

In the ginning process in Pakistan, fibre generally constitutes 33 percent, trash 8 percent and seed 59 percent of the

total cotton produced. The trash level being that high causes considerable loss to the ginners because of lower prices in the market. In the post-production phase, the industry lacks the marketing and negotiation skills to deal with local and international customers and as a result they fail to get the best price for their product. Lack of government support price mechanism, inflation and allied factors also play their role in having an adverse impact on fair return to the industry for the produce. These together have a combined effect on profitability which undermines the urge to work for the growth of the cotton ginning industry.

I

quite effectively. As a result, the country was able to expand its ginning network from a few informal setups to over 800 ginning mills till 1965. However, due to flaws in government policies that acted against future investments in the sector, and subsequent lack of interest by ginners and textile mills owners the momentum of the growth could not be maintained. Contaminated quality and low production of raw material also had an adverse impact on the growth of this industry.

The trend continues unabated as a result of which ginning has become the weakest link in the textile value chain. As against the installed capacity of around 40 million bales, average prod- uction of cotton in Pakistan during the last decade reportedly hovered around 12 million bales per year leaving the industry grossly underutilized, primarily due to insufficient and substandard quality of raw material supplied which in turn resulted into higher cost of doing the business and lower profits achieved therefrom.

Of the 900 ginning factories in operation in Pakistan, around 60 percent are reported to be using on an average 950 maunds of cotton per day which is too low a quantity when compared with the international standard of 3000 maunds per factory per day. According to a research carried out by the faculty of Islamia University, Bahawalpur and published in American Journal of Scientific Research, India

In Pakistan, there are estimated 1500 cotton ginning factories with installed capacity of over 40 million bales on a seasonal three-shift basis. Of them, around 475 ginning units are located in Sindh, more than 700 units in Punjab and the rest in other parts of the country. On an average, around 900 factories are reported operational producing around 12 million bales a year – much below the total installed capacity. Generally, ginning factories operate 100-120 days in a season and in Pakistan, 52,000 kilograms of cotton is required for producing 100 bales of cotton fibre. But a considerably good number of the units remain idle due to a multiplicity of factors, insufficient raw material being one of them, and those that are operational give out production which does not match international standards. The result is a substantial loss to the growers, the ginners, textile owners and the national kitty as a whole. It is important, therefore, that the problems and issues confronting the industry are addressed to on a priority basis.

In this regard, PCGA Vice Chairman, Ghulam Rabbani recently appealed to President Asif Ali Zardari to provide his Association time to apprise him about the plight of the ginning units in the country. One hopes their grievances will be listened to and resolved—the sooner the better. It may not be a bad idea if the PCGA members and the government representatives sit together, discuss the issues and devise a practicable mechanism that may include, besides others, assuming minimum supply of cotton from ginners to textile industry and suitable price mechanism that will ensure respectable survival of the ginners and create a win-win situation for all stakeholders.

In Pakistan, there were no ginning units at all when the country appeared on the world map in 1947. The growth in this sector started with the onslaught of the Korean War in 1950 which caused hike in cotton prices and created fair opportunities for cotton producing countries, Pakistan included, to capture their market share.

Pakistani farmers and ginners responded to the demand

that produced 14 million bales in the year 2000, despite raw material used being one of the most contaminated, has more than doubled its production level and also reduced contamination of the raw material by 35 percent through introduction of new version of cotton seeds, use of new technology and improvement in the ginning process. The Indian government has given incentives and fixed minimum price. This has significantly helped Indian cotton ginning sector to grow.

Cotton ginning productivity is determined by “ginning out turn” (GOT) and production of bales per hour (one bale is equal to 100 kgs of cotton fibre). On this scale, Pakistan is reported to be having 34 percent of GOT whereas India has 42 percent of GOT. Pakistan had 32 percent of GOT in 1960. No significant progress has been made during the last 50 years. Pakistan can draw lessons from the cotton ginning industry in India.

Introduction of modern technology also helps in managing the quality of cotton. Tragically, in Pakistan, we have neither inducted modern machines nor chosen to introduce new technology. The ginning sector in Pakistan is stated www.valuechainmagazine.com 45

to be using Saw Gin machines copied from American Saw Gin version of 1950s and 1960s. But no improvement whatsoever has been made to these machines so far.

Contrary to this, India and many other countries use Roller Gins. The Americans use Saw Gin with improved version of this technology. As per studies carried out by SMEDA, locally made ginning machine produces 2 bales per hour compared to branded machine which produces 7.5 bales per hour. International average production is 60 bales per hour. No attention has been paid to the training of unskilled workers employed. As a result, the industry stands to suffer. Since neither long term benefits nor reasonable wage increases are offered to the unskilled, seasonal employees, they remain uninterested in boosting production in the ginning sector.

Another factor hampering the growth of cotton ginning in Pakistan is the ginners’ inability to market their product directly; they sell their cotton fibre through brokers who exploit them to their own advantage, especially in the absence of any price fixing mechanism enforced by the government. Government’s licensing practices, tax policies resulting into higher prices and resultant difficulties in selling cotton fibre in the local and international markets, higher interest rates and problems of the sort also contributed to the decline of the ginning industry in Pakistan.

The situation demands urgentt attention and immediate remedial measures if the industry has to survive sustain and grow.

The experts in the field have suggested that the government and PCGA should evolve a mechanism ensuring that the ginners are provided with good quality of raw material and in sufficient quantity. More than that, efforts need to be made to engage trained and skilled manpower. Latest machinery backed by modern technology should be made available to the ginners at subsidized rates so that good quality and enhanced output can be ensured. Power shortage is yet another tumbling block.

This needs to be addressed. One obvious solution could be the assigning of certain quota to ginning sector.

Besides availability of easy bank loans for the ginning sector, the role of Pakistan Cotton Standards Institute should also be activated so as to assist the farmers and ginners in producing quality fibre which in turn will get them reasonable prices in the local and international markets. If done in real earnest, these combined with other measures could help revive and improve the cotton ginning sector.

46 www.valuechainmagazine.com

Recently, the members of Kissan Ittehad Council, Multan called for a fair price mechanism and better seed supplies for the economic betterment of the farmers and growers besides provision of better infrastructure from field to main market in the country. It is quite encouraging to note that the Textile Ministry has responded positively assuring the growers and farmers of cottonseed a fair price for their produce. During a protest demonstration staged by the cottonseed farmers and lint traders in Multan, Textile Secretary Shahid Rasheed said that the ministry understands the problems of textile sector, growers of cotton and traders. He agreed that the prime export oriented textile sector depended on smooth and quality availability of lint. The Textile Ministry, he said, would convene a meeting of all stakeholders to draw a plan for running sector related business matters in a smooth way. This is a welcome move but the tragedy in many instances has unfortunately been that the commitments made are not honoured in letter and spirit. Hopefully, the Textile Ministry would break the impasse and honor the commitment made-the sooner the better.

References [1] Asif Tanveer, Hassan Danial etc (2012). Challenges and Issues for Ginning Industry in Pakistan. ISSN 1450-223X Issue 57.

[2] Ali, G. (2008). Cotton Value Chain: Skill Gap Analysis in Ginning Sub-sector. CABI Ref.: FR/CABI-PK/CR60010/ 1111.

[3] Altaf, Z. (2008). Challenges in the Pakistan cotton, yarn, textile, and apparel sectors. In C. B. Cororaton, A. Salam, Z. Altaf and D. Orden (ed). Cotton-Textile-Apparel Sectors of PakistanSituations and Challenges Faced. USA: The International Food Policy Research Institute (IFPRI).Retrieved December 10, 2008, from http://www.ifpri.cgiar.org/pubs/dp/IFPRIDP00800.pdf#page=30 [4] Andrus, J.R. & Mohammed, A.F. (1966). Trade, Finance and Development in Pakistan. Stanford, California: Stanford University Press.

[5] Baffes, J. (2001). Policy reform experience in cotton markets. . In T. Akiyama, J. [6] Baffes, D. Larson, & P. Varangis (ed). Commodity market reforms: lessons of last two decades. Washington D.C.: The World Bank.

[7] Bajaj. L & Sharma, M.K. (2009). Value Addition to Cotton Chain In India – Significant Contribution By BAJAJ STEEL INDUSTRIES LIMITED. International Workshop on 76 Asif Tanveer, Hassan Danial Aslam, Umer Farooq and Muhammad Badar Habib “Utilization of Cotton Plant By-produce for Value Added Products” November 9-11-2009 at Hotel Pride Nagpur India.

TRADE & INDUSTRY

Special Economic Zone Act 2012 – Aiming for long term FDI

By Majyd Aziz Former President KCCI

O

n September 10, 2012, at an impressive ceremony at the Presidency, President Asif Ali Zardari gave his consent to the Special Economic Zone Bill - 2012. The journey from conception to signing took four long years, but it was worth the waiting. It all began when Pakistan Japan Business Forum, a bilateral Forum that I helped establish, floated the idea of a dedicated SEZ for the Japanese investors. The ball got rolling when Salim Mandviwalla, the energetic Chairman of the Board of Investment embraced this idea and motivated his team to prepare an attractive SEZ package, which was approved in 2008 by the Economic Coordination Committee of the Cabinet while the Federal Cabinet accorded approval in principle for initiation of legislation in 2010.

The Council of Common Interests too discussed this bill due to introduction of the 18th Amendment and approved the bill in August 2011. The Senate accorded its approval in January 2012 and National Assembly on July 13, 2012.

This Act would allow ‘Developers’ and Zone Enterprises to plan and also operate in an enabling environment

that would include security, safety, the availability of physical and social infrastructure, and access to all incentives, facilities, and rules of business. The central aspect of the Act is the formation of a high-powered Board of Approval with the Prime Minister as its Chairman. This, in itself, manifests total commitment towards development and success of SEZs. The salient features of the Act include the approval of Zones not less than fifty acres. Up to 30% of the Zone may be used for social infrastructure. This would be attractive for those investing and working in any specific SEZ. The government would ensure the provision of public utilities and transportation links up to the zero point of the Zone. Besides, government would also promote adoption of simplified administrative procedures for SEZs by relevant Federal and Provincial authorities and agencies. Such facilitative procedures include issuance of licences, permits/approvals, satisfactory customs and other documentary requirements, easy fulfillment of tax or duty obligations, and support for and the authorization of modern means of communication and e-governance. www.valuechainmagazine.com 47

The country’s labor laws would be equally applicable to the Zone Enterprises. Moreover, the Board of Approval may, in consultation with concerned ministries and governmental agencies, make special rules for employing non-Pakistanis in key managerial and technical positions; these relate to issuing visas, temporary residence and work permits. Dependents of the non-Pakistani employees too would be facilitated through these special rules.

Each zone would be designated either as a Free Trade Zone, an Export Processing Zone, Multilateral Economic Zone, a Regional Development Zone, a Reconstruction Opportunity Zone, Hybrid Export Processing Zone, Sector Development Zone, or Extra-Territorial Zone, depending on its specified characteristics.

SEZs – the globally accepted definitions

“A Special Economic Zone (SEZ) is a geographical region that has economic and other laws that are more freemarket-oriented than a country's typical or national laws.

Nationwide laws may be suspended inside a special economic zone. The category SEZ covers and includes free trade zones (FTZs), export processing Zones (EPZs), free Zones (FZ), industrial parks or industrial estates (IEs), free ports, free economic zones, urban enterprise zones and others. Usually the goal is to increase foreign direct investment, development of infra-structure and to increase employment.” – Wikipedia An ETZ would be out of the ambit of the customs territory of Pakistan so that transportation of goods and provision of services from and to these areas and to and from the custom supervised territory of Pakistan shall be considered as export and import. They will get the same treatment in rebates and other advantages. All the incentives under this Act shall be in addition to all incentives, benefits and protections that may be applicable to Developers and/or Zone Enterprises under generally applicable legislation and international agreements of Pakistan. These benefits won’t be withdrawn prematurely, and any change therein shall be to the advantage of the Zone Developer or the Zone Enterprise. Zone Developers shall be entitled to the following benefits: (a)One time exemption from all customs duties and taxes for all capital goods imported into Pakistan for the development, 48 www.valuechainmagazine.com

operation and maintenance of a SEZ entity, subject to verification and approval from Board of Investment. (b)Exemption from all taxes on income accruable in relation to the development and operation of the SEZ for a period of ten years, starting from the date of signing of the development agreement.

All Zone Enterprises shall be entitled to following benefits: (a)Exemption from custom duties and taxes on imports of capital goods into the SEZ for installation there (b)Exemption from all taxes on income for a period of ten years starting from the date the Developer certifies that the Zone Enterprise has commenced commercial operations with the relevant SEZ. A very relevant feature is the ‘alternative dispute resolution’ clause. It would be advisable to utilize the expertise available at the Karachi Centre for Dispute Resolution to prepare an effective mechanism for the mediation process, so that the investors and developers can utilize their energies towards the success of their endeavours.

Pakistan is strategically well-placed to be the ideal centre for setting up industries to cater to the Middle East, the Central Asian Republics, and Afghanistan markets. The country also welcomes import-substitution industries. The future benefits of the Act for Zone Enterprises would be immediate savings in taxes, duties, and other front-loading charges, a safe and secure working environment, preferential treatment accorded to goods and services (i.e. the Reconstruction Opportunity Zones concept initiated by US Government, but remains in limbo to-date) but, far more importantly, accessible domestic and global markets.

The various bilateral forums, FPCCI, the various chambers of commerce and industry, and trade associations, as well as Pakistani diplomats based in foreign countries must promote the SEZ Act. The Prime Minister should order the setting up of SEZ Authority, and advise the provincial governments to set in motion plans to establish the Provincial SEZ Authority in their respective provinces. Hopefully, Chairman BOI must have, by now, set up the relevant infrastructure in the Board so that foundations for implementation of the Act are firmly established. Pakistan badly needs foreign direct investment (FDI), and the Special Economic Zone Act is the Motorway whereon FDI will travel to this country.

INTERVIEW

IT Industry in Pakistan is progressing towards right direction Mr. Amir Raza Khan VP of Capital Markets Business Unit at InfoTech Few people are able to bring out the best in themselves while having the defined focus and career path. One such name in this regard is Mr. Amir Raza Khan who is currently the Vice President of Capital Markets Business Unit at InfoTech.

In an interview with him, we also talked about Raza Khan experience in the local IT industry and the changes witnessed during his association with the industry for about two decades. We also discussed about the development of the local I.T. industry with regard to other regional and international industries.

Given below is what he said:

Q. Do you think that the IT industry in Pakistan is progressing towards the right direction and at the right pace?

A. There is quiet an improvement in the local industry over the past five to seven years. The things have started to accelerate, with efforts being made both by government and stakeholders involved to develop the industry. But still, a lot more is needed to be done. The good thing is that the industry has found somewhat right direction, and things could only get better over time with continuous steering and favorable government policies.

Q. Which sectors do you find have still a long way to go for provisioning technological solutions in the local industry?

A. I think health and education are among the two sectors where still technological advancements remain a bit neglected. Comparing these two sectors with others in the developing world, we still have a long way to go but not much effort has been made in this regard.

Unfortunately, our local IT industry was driven more by export based customized software development for almost a decade rather than investing and growing in vertical markets.

Due to this, the industry could not grow overall on solid grounds. Hence, Infotech took the initiative to develop software products for the Capital Market a few years back.

Today, Infotech has vast portfolio of software products for Capital Markets that include Trading System, Clearing System, Depository System, Surveillance System, Regulatory Compliance Portal, Book Building and IPO Engine.

Q. How do you see the development of technology consultancy in the local industry over the past decade?

A. When I started my career in IT consulting, there was no established local player in technology consultancy in local industry. I think the reason for this was the less dependency of businesses on information and technological solutions at that time. But now the scenario has completely changed.

Over the past decade, these solutions have become the need of time for the enterprises and, therefore, they rely more on IT vendors for their services. Due to this, there is an emergence of local consultancy services with InfoTech paving the way for others in this particular area.

Q. In which specific local sectors do you see the technological solutions rapidly penetrating?

A. Taking on the local industry perspective, I think the Financial and Telecommunications are fully well equipped with the recent technological developments, as witnessed in other regional and global markets.

The banking industry has highly welcomed the recent information technological solutions for customers support and other management functions. Meanwhile, the telecom sector is also faring comparatively well. In short, technology systems in Capital Markets have evolved over a period of time but technology systems of emerging capital markets still require another round of automation to embrace the challenge of growing volume and multiassets class financial products. www.valuechainmagazine.com 49

Q. Do you see the Pakistani Capital Markets paralleling the regional and international markets in terms of technology?

A. Yes, to a great extent. I would say that Pakistani Capital Markets have always remained ahead of their regional counterparts and even several other advanced markets in term of automation levels.

In the global financial industry, the challenge has always been the frequent regulatory updates for implementing the software products without compromising on the quality.

Likewise, our Capital Market IT systems were faced with the same challenge but have managed to serve well in the past while complying with the frequently changing regulations.

Presently, exchanges, brokers and other institutes of Capital Markets have assessed the need of revamping their systems.

This transition is being utilized by many other exchanges in Asia, Europe and US and the local industry should also move in this direction.

Q. Do you believe that regulations can play an important part in the integration of regional Capital Markets?

A. Yes, I believe this is the first step towards regional financial integration. Likewise, we at Infotech are providing consulting services to South Asian Federation of Exchanges for harmonizing the regulations of all capital markets in SAFE region i.e. Bangladesh, Bhutan, India, Maldives, Nepal, Pakistan and Sri Lanka. Regulations of all Stock Exchanges in the countries are being codified, analyzed, benchmarked with IOSCO standards and finally recommendations would be made as SAFE Rule Book which will serve as the bible of Capital Market Regulations in the region. Once all the exchanges in the region adopt these harmonized regulations, regional integration of Stock Exchanges through technology would become simpler. This will pave the way towards cross border listing and trading.

Q. Human Resource is a major challenge in implementing IT solutions at organizations. Do you think that the local industry is facing a dearth of IT skilled individuals?

A. I think it’s a misconception that Pakistan garners few highly skilled human resources in the IT industry. Our local talent is highly skilled and there is no dearth of available resources in our environment. The problem here is that the IT professionals are not provided with the right direction to utilize their skills, due to which most of them end up in achieving much less than what they are capable of. The issue can be well addressed if the local business industry collaborates with the educational institutions in this regard.

Q. What according to you should be done to drive all the sectors of the industry at an equal pace when it comes to technology?

A. I believe that no industry can flourish until and unless all the sectors involved drive at the same pace. It is necessary to have uniformity which is currently lacking in our industry. This can be achieved if the respective autonomous bodies assess and recommend the desired changes as needed by each sector while keeping the most progressive sectors in mind.

Today, enterprise level systems are interdependent on higher level of automation and its benefits can only be reaped 50 www.valuechainmagazine.com

if all sectors grow at a pace with high level of interorganization collaboration and integration.

Q. We have heard about Capizar Suite of Applications which has also won the APICTA Award in Financial Applications category. Could you brief us about it?

A. Infotech’s Capizar is a financial solution developed for capital markets which provides complete end-to-end solutions for these markets across continents. As a transformation company, we have always focused on innovation and product development according to the requirements of the industry. This was the reason Capizar was developed, and I feel proud that it managed to get the recognition by winning the PASHA ICT Awards, 2011 and Asia Pacific ICT Awards in Thailand in 2011.

Q. As we know you have introduced the Electronic Trading System in the country, Can you elaborate on what the concept is all about?

A. I feel pleasure in developing and introducing the Electronic Trading Platform in the country at Lahore Stock Exchange. This was later projected into Unified Trading System which brought together both the Lahore and Islamabad Stock Exchanges on a single platform.

The idea was to eliminate liquidity fragmentation across exchanges while providing a homogeneous trading platform for the two exchanges without diluting the identity of each Exchange. Another objective was to consolidate the technology infrastructure and services for optimizing the capex and opex related to these advanced systems. I believe this concept can be further extended across the country for further optimizing the resources across multiple exchanges.

Q. Would you like to share any last word with our readers?

A. Our local industry has immense potential to compete with the regional as well as global markets. All we need is to have belief and focus in achieving the desired outcome.

Considering the accelerated development over the past few years, I am confident that our IT industry will be well groomed in next few years. Meanwhile, I envisage another round of major technology revamp in the local Capital Market and other emerging economies.

Q. Please give us a brief introduction of your professional background and InfoTech?

A. Ever since my graduation in Computer Science in 1993, I have been associated with the IT industry. The early association with the industry provided me the advantage to better assess my career options while contributing to the development of industry. Acknowledging the need of IT-led transformation in the enterprise market, I had completed my MBA in 2005 which provided me with better understanding of the corporate environment. My area of expertise revolves around managing the technology in capital markets while also evaluating and assessing the state of technology in different markets.

At InfoTech, we provide the state-of-the-art IT solutions to the enterprise market. The company has now become a leader in the Systems integration business while partnering with the global names like IBM, Oracle, Microsoft, Cisco etc., both locally as well as internationally.

BANKING & FINANCE

Auditing in need of revamping its mandate

P

akistan is again trying rather frantically to re-launch itself into the club of emerging Asian economies in an attempt to woo foreign investment. Over 50 years ago it had attempted to do so for the first time, and had succeeded in it to a measurable degree, and become the second fastest growing economy in Asia after Japan. But, after the 1965 war a slide began therein (that slowed during brief intervals) and continues to-date.

One of the many requirements for success in any attempt to attract foreign investment will be a credible change in the global perception of Pakistan to give it the image of a wellregulated economy. Undoing the damage caused by political misadventures of the past 35 years seems a mammoth task. The 1971 war and Pakistan’s break-up, all but shattered its image. In the early 1970s, using the smokescreen of socialism, we nationalized virtually everything under the sun and in the process left these institutions at the mercy of the politicians and bureaucracy. In less than two decades, these institutions were virtually decimated.

Since the 1980s, Pakistan had been facing serious allegations of gunrunning and drug trafficking but 1990s proved, by far, the worst years in the country’s history as far as suffering on account of allegations of supporting international terrorism, conducting nuclear tests against the advice of its friends, and the Kargil misadventure are concerned.

It is unfortunate that all this happened under democratic dispensations, but the most devastating blows to investor confidence were dealt by the astronomical loan losses suffered by the country’s banks and other depository institutions, the freezing of the foreign currency denominated bank accounts, the roller-coaster ride of the country’s stock markets, and well publicised allegations of corruption within the rank and file of the politicians, bureaucracy, and the regulatory agencies.

The foregoing was a more than adequate recipe for suicide.

The worst sufferers in a deluge that engulfed Pakistan during the past 35 years have been institutional arrangements and regulatory practices. The key concept of good governance is dead. The task now facing the nation is akin to bringing the dead back to life but no messiah is in sight to perform that miracle. Pakistan stands debased in the eyes of the world and few now have confidence in investing in this country. But revamp of Pakistan’s auditing standards may re-lay the turf for good governance; being an unbiased yardstick for judging managerial integrity, competence, capacity, and responsibility auditing standards need revision and up-dating to strengthen good practices and credibility of regulation.

Auditing is a vitally important function that can encourage the build-up of healthy business practices and of credibility of the professional capabilities of those managing Pakistan’s industry, its growth, and its expansion along modern lines. It

by A.B. Shahid

is a task that cannot be postponed because therein lies what can prove as the most effective and credible strategy for the revival of investor confidence.

Precious little has appeared in the national press concerning the development or otherwise of the auditing function. In stark contrast thereto, regular debates on auditing practices appear in global media, and a variety of opinions are expressed about the conditions obtaining in other countries. This tradition has served as the catalyst for reform in regulatory arrangements, practices and market conventions to confront ever-changing market realities.

In the West, traditional auditing practices remain under fire for bringing about more improvement in reporting corporate performance, and to ensure transparency in the relationship between auditors and the companies they audit. Criticism by the public opinion makers and courts of law, have forced a radical re-think in auditing circles in the West. In Pakistan, however, we haven’t felt the need for any such exercise yet, though we have not done any better than the West by relying on old auditing practices. Although a great deal needs to be done in this context, a beginning is nowhere in sight.

The reason therefor is that no one has yet pointed the finger at the auditing function for the failure of some investment and finance companies, co-operatives, the continued listing of public limited companies on the stock exchanges despite serious financial irregularities, and misreporting of financial results by business entities with visible connivance of some auditing firms. As a matter of fact, the seal of a ‘recognised’ auditing firm lends acceptability to even unbelievable facts and figures reported in company financial reports. But this is without the least disrespect to those auditing firms that have consistently taken their role very seriously, and should be commended for this effort unreservedly. It is these auditing firms that have sustained a bit of confidence among foreign investors who still are prepared to take a risk on Pakistan.

There are examples wherein, despite revenues being reported in millions, the audited net profit figures end up in just a few thousand rupees, year after year, conveying the impression that the enterprise exists more for charitable purposes, much less for earning a livelihood for its owners.

All this goes on, and is accepted unquestioningly by tax authorities because the reports are “audited”. Nobody bothers to question the calibre or the integrity of the auditors.

Not many countries can allow such gross negligence by this vital service for long. Governments in all developed countries regularly review the performance of their auditing institutions. But one has yet to witness such issues being discussed, let alone reviewed by an independent authority.

This is a critical gap that needs plugging, and is the obligation of the corporate regulatory authority besides, of course, www.valuechainmagazine.com 51

those in the profession of auditing. What is worrisome though is the fact that neither of these stakeholders has so far realized the importance of plugging this gap that has been escalating the already high country risk associated with Pakistan given the after-effects of its participation in the US ‘war on terror’.

In recent years, auditing has been under intense criticism in the West. Basically, this barrage of criticism stems from the business bankruptcies forced by the long running recession in which the West as a whole finds itself. Undoubtedly, there was a variety of factors that led to an unprecedented number of corporate failures, but the role of auditors has come in for especially harsh treatment, though not the least unjustified. Drawbacks of this service have been acknowledged candidly by Britain's Auditing Practices Board (APB). According to the APB, auditing is in need of fundamental reform. This comment, coming in the wake of a spate of huge corporate bankruptcies, is as applicable to auditing services in Pakistan.

The dismal financial and dividend records of many public limited companies quoted on the KSE, and the fact that their directors and managements continue to survive and thrive unscathed, is living testimony to the mercenary attitude of auditing services in Pakistan, besides the negligence of the erstwhile corporate law authority. This state of affairs, for which the corporate law authority must share the blame, can frustrate any discerning observer with the way the corporate audits are conducted. Over the years, we watched dozens of companies go scot free despite serious irregularities. Some of them went bust soon after obtaining a clean bill of health from their auditors.

To make auditing firms financially liable for failure to report vital information concerning frauds and the future impact of management actions, the threats being mooted in Britain have made auditing firms more fearful of losing their job. In Pakistan we have not yet thought of any such measures yet although shareholders, creditors and employees have found the spectacle wholly un-amusing. They are becoming cynical about auditors; the cause of ensuring a sustained flow of foreign direct investment in the corporate sector can hardly be served by such a relaxed regulatory environment.

The response of auditors to the question "where were you when your client companies were misreporting facts relating to their operations and profitability" has often been that the public doesn’t understand their (auditors') job.

Auditors have coined a neat phrase therefor: the "expectations gap". This is an approach which smells of a mercenary approach caring for their ‘social accountability’. A more realistic and less self-destructive idea would be to close this gap, not by changing what the public expects but by re-examining what auditors should be doing. Their job, as defined by the law is, in part, a ‘public' service, which they do not seem to realise as well as they ought to.

The fundamental flaw in the system is that it provides for the auditors (technically) to be appointed by ‘shareholders’ who, in reality, have little control over the affairs of the company. There are perhaps a handful of examples where small share-holders were able to exercise any influence over the directors in these matters. In theory, auditors are appointed by share-holders; in practice they are hired (and fired) by managers whom they consider to be their real clients.

52 www.valuechainmagazine.com

Companies have virtually always been run by directors according to their own considerations.

The too-cosy-for-comfort relationship between a company's auditors and its bosses flaws the system making it convenient for company managers to browbeat auditors into accepting dubious accounts. Lack of clarity in defining the role of the auditors (that could otherwise allow for holding the auditing firms responsible for lack of adequate and precise inquiries) leaves the doors open for being careless or cursory about the issues reflecting on the management's true performance. Yet, auditors enjoy a status from where they can pronounce the final judgment. One result thereof has been that one-man (chartered) accounting firms have mushroomed, and the way they go about certifying the financials of all and sundry, gives the impression that in exchange for a hefty fee these auditing firms simply ‘rubber stamp' the financial statements without proper investigation and scrutiny.

But it is unfair to place the entire blame for such aberrations on the auditors; their hands are tied in some key areas since disclosure requirements relating to company financials are often scanty. It forces auditors to deliberately overlook facts. It is not difficult to understand the motivation behind such regulation i.e. the government's continuing embarrassment in supporting the sagging image of the state-owned enterprises. What isn’t realised is the fact that attempts at propping up sagging images makes them more suspect than they are.

Auditors must respond by making audits more expressive because they should honestly serve the best interests of the existing and prospective investors. An audit should include a judgement about whether an entity is really a going concern, assessment of its internal management systems, and honest opinions on the risks it faces. The auditors should recognise a wider audience than company directors and shareholders. Only by enlarging their role auditors will give weight to the argument that supports limiting their legal liability to realistic proportions of the damage in the event of audit failure.

The first step in improving the current unacceptable state of affairs is to amend the Companies Act-1984 and the Banking Companies Ordinance-1962 to bring disclosure requirements at par with internationally accepted standards.

Presently, the laws provide for requirements that do not serve the purpose of full disclosure about company performance. They provide for inadequate mandatory reporting on areas that highlight efficiency of the resources employed by the companies, and weak areas of managerial decisionmaking and performance. It does not call for “re-inventing the wheel”; yardsticks therefor already exist, and could be incorporated in the mandatory disclosure requirements.

The argument that auditors should go on reporting to the directors on accounts prepared by managers (little more than backward-looking snapshots) no more holds water.

Auditors should not just detect fraud but predict a company's future (particularly if it has been messed up by the directors), and report to an audience including small shareholders, creditors, suppliers, buyers, etc., with a stake in the company's future. The logic that auditors aren’t obliged to keep all these groups informed is out-dated considering the tremendous changes in market ethics in the last fifty years.

To make auditors more accountable to all concerned, and less obliged to directors and management of the companies they audit, some fundamental changes will have to be made in the existing laws governing the appointment and scope of work of the auditors. The law should institute measures to change the relationship between a company and its auditors. It has been recommended by Britain's APB that institutional shareholders should have direct interaction with the investee company's auditors, perhaps through a voluntary body. What however is not clear is why institutional shareholders should have a privileged position over other shareholders. If it is okay for them to deal directly with the investee company's auditors, why shouldn’t it be possible for other shareholders to enjoy the same privilege?

A realistic alternative would be to have a balanced approach without creating classes among the shareholders. It is only fair that the law permits the companies to internally appoint audit committees composed of nonexecutive directors who are professionally competent to supervise the auditors. These committees should define the scope of the audit function to provide an insulating layer between auditors and managers. This will effectively break that cosy relationship, and auditors be appointed for a shorter fixed term after which another firm must take their place but this rotation needs careful handling; just to meet its requirement, handing over audit to inexperienced firms can increase the risk of audit failures.

The practice of using the same auditing company for both audit work and tax consultancy must be stopped forthwith. It forces auditors to deliberately report results better suited to taking tax advantages rather than focused on accurately reporting achievements or failures of the management. There is evidence to suggest that company management sometimes uses auditors as the loss-leaders. Under these arrangements, auditors prepare accounts with the objective of finally ending up with reduced profitability so as to minimise tax impact. In other cases preparation of accounts along these lines has been made a condition to providing auditors with nonaudit business. Shareholders should also be fully informed about the fees an auditor is earning from non-audit work provided by their company. That said, such malpractices aren’t followed by respectable major auditing companies, but the same can’t be guaranteed about the smaller auditing companies.

At the moment, there is no independent regulatory authority looking into the affairs of the auditing firms in Pakistan. But all these factors pinpoint the need for independent assessment of the profession. Among other things, outside referees could police a stand-offish relationship between firms and their auditors. In an environment free of checks and balances the profession is likely to evolve practices suited more to its own interests rather than genuine information needs of the investors and general public. To encourage investment in stock markets, the corporate sector must be made to appear transparent in performance reporting that can’t be achieved unless auditors, who act as ‘referees' in the game, are given a strict code of conduct, and their observance of that code is supervised by an independent authority.

Recommendations of Britain’s Accounting Practices Board (APB)

1. Auditors should comment on companies' adherence to a code of good practice suggested by the Cadbury report on corporate governance. With the help of internal auditors, they should also look for fraud, but have the necessary immunity from confidentiality rules to allow auditors to report suspicions to public regulators (as they can now for banks).

2. This would include an assessment of a company's internal management and whether it is a going concern. Auditors should also look at a company's risk management.

3. In its judgement in the Caparo case in 1990, the House of Lords had held that auditors owed a duty of care only to directors and shareholders as a whole.

Third parties could not sue auditors for negligence, even if they had relied on the accounts. APB report suggested that Caparo judgment be overturned.

Auditors should accept their responsibility to other stakeholders, including creditors, employees and potential shareholders.

4. The report also considered how to make auditors more independent of company managers but was not keen on two popular ideas: compulsory rotation of audit firms and barring them from doing non-audit work for audit clients. Nor did it agree with the notion that all companies should have audit committees of non-executive directors. But the report did include some notions for direct links between shareholders and auditors, perhaps through some sort of audit panel, or through ‘shareholder audit representatives’.

It is not clear how either would work.

Auditors’ response:

Audit reform will run into several obstacles, the one stressed is auditor’s legal liability against litigation.

Accountants say that the threat of open-ended legal liability could drive them out of business. In practice, most damages are met through insurance, though it is getting harder to buy, and its cost is passed on to the audited firms in audit fees. The APB is probably right to argue that some reform, say, to make awards proportional to the damage an auditor actually did, will be needed if the public wants auditors to take on a bigger role.

Then there is the cost. Extra audit work means higher fee. APB thinks that shareholders may not object if this prevents unexpected company failure. It claims that most extra costs will fall on ill-managed companies that have to knock their internal controls into better shape. But the suspicion remains that rotten apples might still escape detection, but better-run companies will end up paying a higher audit bill.

The biggest problem is enforcement; APB accepts that the new audit discipline may be enshrined in company law. But APB didn’t want the state to regulate auditing. The Cadbury committee later suggested that a voluntary code of practice is enough to improve corporate governance. In effect, it made no major change in the existing controversial scenario. www.valuechainmagazine.com 53

BANKING & FINANCE

Managing Fraud Risk

by Ferozeali Hussaini

I

ntroduction: Risk is the vulnerability or exposure an organisation has towards fraud and irregulatory and may cover a wide range depending upon the nature of the organization’s business.

All organizations are subject to fraud risks. Large frauds may lead to the downfall of entire organizations, massive investment losses, significant legal costs, incarceration of key individuals, and erosion of confidence in capital markets. It is the management’s responsibility to identify and control the risks which the organization faces. Regulations such as the (I) U.S. Foreign Corrupt Practices Act of 1977 (FCPA), (II) the 1997 Organization for Economic Co-operation and Development AntiBribery Convention, (III) the U.S. Sarbanes-Oxley Act of 2002, (IV) the U.S. Federal Sentencing Guidelines of 2005, and similar legislation throughout the world have increased management’s resp- onsibility for fraud risk management.

Fraud risk is the chance of a perpetrator (or perpetrators) committing a fraud which has an impact on the organization.

Fraud can occur where there are people who are dishonest, or who become dishonest. The starting point for any organization in fighting fraud effectively is a clear understanding of where responsibility for managing this risk lies.

Because fraud occurs in so many different ways and settings, there is no standard recipe for fraud prevention. In the area of financial services, for example, the prevention of transaction fraud (such as fraud perpetrated through the use of counterfeit cheques or plastic cards) relies on different solutions to the prevention of identity-related fraud (such as establishing a line of credit using false identification or credit-worthiness documents) —although both make extensive use of technological, targethardening approaches which seek to make paper documents and plastic cards difficult to manipulate or counterfeit.

The key to fraud prevention, however, lies in the development, and refinement of a fraud control system. The foundation for such a system is a management philosophy which is sensitive to fraud risk.

The basic elements of such a system are careful recruitment of staff, a culture of integrity and loss prevention within the organization, and regular auditing of transactions by internal controllers, backed by independent and accountable external auditors. The first line of defense against fraud in the financial services sector is to ensure the greatest possible transparency of transactions.

What is fraud?

No precise legal definition of fraud exists; many of the offences referred to as fraud are covered by the Theft Acts of 1968 and 1978. The term is used to describe such acts as deception, bribery, forgery, extortion, corruption, theft, conspiracy, embezzlement, misappropriation, false representation, concealment of material facts and collusion. For practical purposes fraud may be referred to as the use of deception for obtaining an advantage, avoiding an obligation or causing loss to another party (Government Internal Audit Manual (GIAM C5.4)).

54 www.valuechainmagazine.com

The Auditing Practices Board’s Statement of Auditing Standards (SAS) 110 “Fraud and Error” gives more background information on the meaning of fraud and distinguishes between fraud (deliberate falsification) and errors (unintentional mistakes).

There are primarily three types of irregularities which are of concern in this context: Theft: Dishonestly appropriating the property of another with the intention of permanently depriving them of it (Theft Act 1968). This may include removal or misuse of funds, assets or cash.

False Accounting: Dishonestly destroying, defacing, concealing or falsifying any account, record or document required for any accounting purpose for personal gain or gain for another, or with intent to cause loss to another or furnishing information which is or may be misleading, false or deceptive (Theft Act 1968).

Bribery and Corruption: Offering a bribe to any public officer to influence his behavior and similarly accepting such a bribe (Prevention of Corruption Acts 1889-1916).

Why do people commit fraud?

There is no single reason for prompting one to commit fraud; any explanation of it needs to take account of various factors.

Looking from the fraudster’s perspective, it is necessary to take account of:

The fraud triangle Motivation

The fraud triangle Opportunity

Rationalisation

Motivation: In simple terms, motivation is typically based on

either greed or need. Other causes cited include problems arising out of debts and gambling. Many people find opportunity to commit fraud but only a minority of the greedy and needy do so. Some people with good objective principles can fall into bad company and develop tastes for the fast life, which tempts them to commit fraud. Others are tempted only when faced with ruin any way.

Opportunity: In terms of opportunity, fraud is more likely in companies where there is a weak internal control system, poor security over company property, little fear of exposure and likelihood of detection, or unclear policies with regard to acceptable behaviour. Research has shown that some employees are totally honest, some are totally dishonest, but that many are swayed by opportunity.

Rationalisation: Many people obey the law because they

believe in it and/or they are afraid of being shamed or rejected by people they care about if they are caught. However, some people may be able to rationalise fraudulent actions as: • necessary – especially when done for the business • harmless – because the victim is large enough to absorb the impact • justified – because ‘the victim deserved it’ or because “I was mistreated.”

Some frauds arise because of the system weakness such as a lack of proper control over placing of purchase orders. Other frauds are the result of failures to follow proper control procedures. It may be carelessness in carrying out a check. It may be that too much trust has been placed in one individual with no effective separation of duties.

Frauds which result from collusion may be more difficult to prevent. Computer frauds, defined as those where the computer was instrumental in the perpetration of the fraud, may arise because of the absence of human review of transactions. The lack of human involvement may allow transactions to be processed which would be queried in a manual system. An organization can therefore be exposed to the risk of fraud in a number of different ways: Internal fraud: This is a fraud perpetrated by individuals inside the organization and is most often carried out by staff who have access to moveable or liquid assets, such as cash or stocks. It is likely that the risk of fraud and its scale will increase if the member of staff is able to conceal the irregularities by also having access to accounting records. It may be opportunistic, though it may also be planned and committed over a long period.

External fraud: This is a fraud which is perpetrated by individuals outside the organization and covers activities such as burglary, theft, deception and computer hacking by external parties. It is very often systemic and continuous, stemming from the inherent problem of safeguarding some type of systems against attack.

Collusion: This type of fraud involves two or more parties, either both internal or internal and external working together.

This type of fraud can be difficult to detect as controls may at first appear to be working satisfactorily.

Fraud Indicators - Warning Signs: Managers should also be alert to any warning signs that might indicate that fraud is taking place. These may be: • staff under stress without a high workload • always working late • reluctance to take leave • refusal of promotion • unexplained wealth • sudden change of lifestyle • new staff resigning quickly • cozy relationships with suppliers/contractors • suppliers/contractors who insist on dealing with one particular member of staff Impact of a Potential Fraud: The possible impact in relation to any fraud arising within an organization will vary with regard to the nature of the organization and the type of service it provides. Within the public sector, the nature of many of the personal services provided and the fact that the public purse funds most of the operational activity means that any type of reported fraud can have a major impact in a wide variety of areas including, for example: -

• The overall reputation of the organization • Potential financial loss • Loss of confidence in the organization • Possible need to divert financial resources from other key services • Affect on staff morale and productivity • Potential increase in insurance costs • Need to utilize resources in investigative work • Potential loss of political office • Disruption caused by criminal investigations Fraud Risk Assessment: An effective fraud risk identification process includes an assessment of the incentives, pressures, and opportunities to commit fraud. Employee incentive programs and the metrics on which they are based can provide a map where fraud is most likely to occur. Fraud risk assessment should consider the potential override of controls by management as well as areas where controls are weak or there is a lack of segregation of duties.

The speed, functionality, and accessibility that created the enormous benefits of the information age have also increased an organization’s exposure to fraud. Therefore, any fraud risk assessment should consider access and override of system controls as well as internal and external threats to data integrity, system security, and theft of financial and sensitive business information.

Assessing the likelihood and significance of each potential fraud risk is a subjective process that should consider not only monetary significance, but also significance to an organization’s financial reporting, operations, and reputation, as well as legal and regulatory compliance requirements. An initial assessment of fraud risk should consider the inherent risk of a particular fraud in the absence of any known controls that may address the risk.

Fraud prevention and detection measures: When risks and deficiencies in the level of control are identified it is necessary to choose the most appropriate type of controls. Fraud should be deterred wherever possible. Similarly, prevention is always preferable to detection. Strong preventive controls should therefore be applied wherever possible. However, preventive controls may not be sufficient to guard against determined fraudsters and detective controls are therefore important. Detective controls are established to detect errors, omission and fraud after the events have taken place. The following range of controls should be considered.

Physical security: This is a preventive measure which controls or monitors access to assets, documentation or IT systems to ensure that there is no unauthorised use, loss or damage. Assets can range from the computer terminal which sits on the desk to the cheques sent out to pay suppliers. All assets should be held securely and access to them restricted as appropriate. The control should apply not only to the premises but also to computers, databases, banking facilities, documents and any other areas which are critical to the operation of the individual organization. It may even be appropriate to restrict knowledge of the existence of some assets.

Access to computer systems is an important area which should be very tightly controlled, not only to prevent unauthorized access and use, but also to protect the integrity of the data - the Data Protection Act requires computer and data owners to secure information held on their systems which concerns third parties. The threat to computers can come from both inside and outside an organization as computer hackers may gain access in order to extract or corrupt information.

The computer itself is also vulnerable to theft, both in terms of hardware and software. This type of theft has the additional cost of potential major disruption to the core operations of an organization. www.valuechainmagazine.com 55

Organizing: Organizing involves the allocation of responsi-

bility to individuals or groups so that they work together to achieve objectives in the most efficient manner. Major principles in organizing relevant to fraud are: • clear definition of the responsibilities of individuals for resources, activities, objectives and targets. This includes defining levels of authority. This is a preventive measure which sets a limit on the amounts which may be authorized by individual officers. To be effective, checks need to be made to ensure that transactions have been properly authorized; • establishing clear reporting lines and the most effective spans of command to allow adequate supervision; • separating duties to avoid conflicts of interest or opportunities for abuse.

This is also largely a preventive measure which ensures that the key functions and controls over a process are not all carried out by the same member of staff, e.g. ordering goods should be kept separate from receipt of goods; similarly authorization and payment of invoices; and avoiding undue reliance on any one individual. There are three types of control that reduce the risk of fraud: (1) physical controls (such as locks and guards); (2) administrative controls (procedures laid down by management); and (3) technical controls (such as passwords).

Fraud prevention and detection are related, but are not the same concepts. Prevention encompasses policies, procedures, training, and communication that stop fraud from occurring, whereas, detection focuses on activities and techniques that promptly recognize timely whether fraud has occurred or is occurring. Every organization is susceptible to fraud, but not all fraud can be prevented, nor is it cost- effective to try. An organization may determine it is more costeffective to design its controls to detect, rather than prevent, certain fraud schemes. It is important that organizations consider both fraud prevention and fraud detection.

Most organizations have written policies and procedures to manage fraud risks, such as codes of conduct, expense account procedures, and incident investigation standards.

They usually have some activities that management has implemented to assess risks, ensure compliance, identify and investigate violations, measure and report the organization’s performance to appropriate stakeholders, and communicate expectations. However, few have developed a concise summary of these documents and activities to help them communicate and evaluate their processes.

It is management’s prerogative to determine the type and format of documentation it wishes to adopt for its program.

While each organization needs to consider its size and complexity when determining what type of formal documentation is most appropriate, the suggested formats include: a. A single comprehensive and complete document that addresses all aspects of fraud risk management (i.e., a fraud control policy); b. A brief strategy outline emphasizing the attributes of fraud control, but leaving the design of specific policies and procedures to those responsible for business functions within the organization. c. An outline, within a control framework, referencing relevant policies, procedures, plans, programs, reports, and

56 www.valuechainmagazine.com

responsible positions, developed by the organization’s head office, divisions, or subsidiaries.

Conclusion:

Because fraud exists in different forms, it is necessary to define carefully what it is that one is seeking to prevent and to tailor policies and initiatives accordingly. It is trite to say that prevention is better than cure. What emerge globally from fraud research are three sorts of fraud control measures: i.employing reliable staff (with adequate references and fidelity insurance); ii. good systems, regularly monitored by internal auditors and supervisors;and iii. company policy of dismissal and prosecution for fraud, backed by a much more substantial police presence and expertise.

Fraud prevention, like other forms of crime prevention, is an attitude of mind. Our social learning about crime tends to generate and sustain the view that crime is committed by ‘other people’, by strangers rather than intimates.

While each organization needs to consider its size and complexity when determining what type of formal documentation is most appropriate, the following elements should be found within a fraud risk management program: • Roles and responsibilities.

• Commitment.

• Fraud awareness.

• Affirmation process.

• Conflict disclosure.

• Fraud risk assessment.

• Reporting procedures and whistleblower protection.

• Investigation process.

• Corrective action.

• Quality assurance.

• Continuous monitoring Finally, any experience of fraud victimization should be seen as an opportunity to review systems and procedures in order to prevent further victimization by the same offender, or by others employing the same strategy. Businesses, therefore, need to learn from prior fraud experiences and not simply dismiss the offender and hope that the same problem will not recur in the future. We will not be able to eliminate fraud entirely, as with all crime problems; it is a question of making them manageable. Changes to make it harder for senior officials to dominate a company and override controls — such as firm auditors who are free to report fraud to regulators, and the presence on the Board of strong non-executive directors — will reduce the risk of fraud.

References:

Fraud Risk Management, www.theiia.org.com; Managing Business Risk & Fraud, www.acfe.com Association of Certified Fraud Examiners (ACFE)/AICPA, Fraud Tools, www.acfe.com.

Heel of Fraud Prevention, 2005, www.aicpa.org.

I.J. Alexander Dyck, Adair Morse, and Luigi Zingales, “Who Blows the Whistle on Corporate Fraud?”, Fraud Prevention, 2007, St. John’s University, www.theifp.org.

ACFE, Report on Occupational Fraud & Abuse, 2006, www.acfe.com.

HEALTH & ENVIRONMENT

Environmental pollution: can it be contained after 2020?

T

he one threat that escalates every year (making tougher the lives of all the nations on this planet) and yet fails to push nations into goading their rulers to do anything about it is planet warming. This change, caused by unchecked pollution of the planet’s environment, will make everyone pay a heavy cost over time due to irregular monsoons, frequent droughts (that will steadily lower agricultural output making food ever-more costly), rise in ocean levels as icebergs melt (drowning out many island states and causing big rescue operations), and a faster rise in poverty.

Warnings about this ultimate chaos that would be unmanageable even for the best of governments have been sounded by experts all through the past three decades but the corporate sector’s mad race for industrialization prevents governments from imposing regulations that could gradually cut the use of fossil fuels by switching to less pollutant sources of energy, make recycling of industrial waste mandatory, and stop the flow of industrial waste into the oceans because this implies incurring huge costs, though one-time.

On November 20, World Metrological Organization (WMO) of the UN released its latest “Greenhouse Gas Bulletin” on environmental pollution, and the resultant escalation in the greenhouse effect. According to this report, the quantum of greenhouses gases in the atmosphere touched a new record high level in 2011, pointing to the fact that the worst planet warming gases – carbon dioxide, methane and nitrous oxide – had reached higher levels in the atmosphere, but rise in the level of carbon dioxide was the highest.

By 2011, the level of carbon dioxide was 140 percent higher than its pre-industrial era level i.e. dating back to 1750. In the last 260 years during which the proportion of carbon dioxide increased by 140 percent, over 375 billion tonnes of this gas were injected into the atmosphere, courtesy continued heavy reliance on fossil fuels as the main source of energy. During the same period, the level of methane surged by 259 percent, which is the product of convenient but unhealthy landfills in the cattle breeding and rearing sectors.

According to the WMO report, these fresh billions of tonnes of additional carbon dioxide and methane that were injected into the atmosphere in the past 260 years will remain in the atmosphere for centuries causing planet warming to escalate, which will impact every sphere of human life. In the past, the carbon sinks–absorbers of carbon dioxide–including jungles, marshes and oceans, had absorbed nearly half of the carbon dioxide produced on the plant. The existing carbon sinks are unlikely to continue absorbing carbon dioxide at their earlier pace because, while oceans are expanding due to melting of the icebergs, jungles and marshes are on the decline–a trend that will escalate the chances of higher greenhouse effect and faster warming of the planet. All this has gone on because global forums failed to impose universally applicable regulations to steadily cut the emission of the harmful gases. What is obvious is the inability of governments anywhere to press their domestic industrial sector to preserve the environment.

by Mustafa Ali Shaikh

While most of the developing countries are to blame for this developing scenario since they all consider themselves to be in a “do or die” race for industrialization, the biggest polluters of the global environment have been the US and China–nations that should have set examples of containing environmental pollution. The fact that measures to contain pollution will become mandatory from 2020 onwards is a bad omen; it is more than obvious that by that time, planet warming will become unmanageable for any government.

Consistent denial of climatic realities

The first move to cut environmental pollution was the set up of Intergovernmental Panel on Climate Change (IPCC) by the UN in 1988. But the mandate of this panel was limited to ‘assessing’ the scientific evidence of pollution. In 1992, world leaders agreed to draft a Framework Convention on Climate Change that again set ‘non-binding’ targets for stabilizing gas emissions at their 1990 level by 2000.

This was a reasonable period for making necessary adjustments voluntarily.

In 1997, the famous ‘Kyoto Protocol’ was agreed whereby all nations agreed to cut (between 2008 and 2012) their harmful gas emissions by a minimum of 5 percent below 1990 levels.

The US – the sole superpower – refused to comply with this protocol because its industrial sector couldn’t compete with the over-efficient (and far more pollutant) Chinese industrial sector. In 2007, IPCC confirmed that 90 percent of environmental pollution in the last 50 years was man-made.

In 2009, a conference attended by 193 nations agreed to take ‘note’ of the Copenhagen Protocol (of 2007) on taking anti-pollution steps. This forum too did not bind the participating nations to adopt ‘anti-pollution’ measures. In 2011, a global forum on containing environmental pollution that assembled in South Africa, agreed to negotiate by 2015 a new accord on the subject, and to make its compliance mandatory for all the countries, but only from 2020 onwards. Too little too late! www.valuechainmagazine.com 57

HEALTH & ENVIRONMENT

Karachi: A mega city without a viable public transit system

by Farhan Anwar

T

he rapid population growth and failure of planning/implementation agencies to adequately develop and manage the urban infrastructure to meet the requirements of sustaining this growth has had many adverse consequences for the city. Probably the most visible manifestation of an ongoing urban governance crisis is to be found in the transportation sector.

Karachi, a city of 18 million people is yet to be provided with an urban mass transit system. Many plans / studies have been carried out. These include the MRVP Master Plan 1952; Karachi Rapid Transit Study 1974; Karachi Transportation Master Plan 1985; Karachi Mass Transit Study 1990; KCR Improvement Study (JARTS) 1990; KMTS Priority Corridor 1, 1994; KMTS Priority Corridor 2, 1994; BOT Contract on Corridor 1, 1996; and KMTA / NMTA Implementation Plan 1997.

As increasing doubts about the possible and timely implementation of the ‘Karachi Circular Railway Revitalization Plan’ begin to surface, it is a matter of much frustration and anger that for a city with over 18 million inhabitants, showing a high level of economic disparities, we continue aggressively to promote policies and infrastructure interventions (example: car loan schemes, the countless number of flyovers) that promote ‘private vehicle’ usage at the cost of ‘public transport’. In most of the large cities globally, it is the exact opposite with active discouragement of private vehicle usage as it is considered environmentally nonfriendly, energy intensive and non-equitable. In this regard, the KCR revitalization can prove to be only a component of a larger and urgently needed public mass transit system in Karachi and even that is far from a reality. The present article looks into the historical perspective of KCR, highlights the salient features of the plan and discusses the scenario ‘with or without’ the KCR intervention.

Karachi Circular Railway: A Historical Perspective: The Karachi Circular Railway System (KCR) was introduced in the city in 1964. The aim was to provide an alternative and cheap source of rapid urban public transport system for the people of Karachi. This project was completed in two phases. In the first phase, the circular railway track was initiated from the Drigh Road Railway Station, located on the main railway line, routed through the urban localities of Liaquatabad, Nazimabad and concluded at the Wazir Mansion Railway Station at Lyari.

In the second phase, the track was extended from the Wazir Mansion Railway Station and connected with the Karachi City Railway Station, located on the main railway line.

Initially, the KCR was utilised only by the goods train service. However, in 1969, when both the project phases were completed, it was opened for public use. The KCR schedule was formulated in such a way that travellers on the main railway service arriving in Karachi whose inner city 58 www.valuechainmagazine.com

destinations included areas such as Liaquatabad, Nazimabad, S.I.T.E. etc. could link up with the KCR service. Records show that till the late 70’s and early 80’s, the KCR was functioning as an extremely efficient and profitable enterprise. During that period, at an average, it was generating profits of up to Rs.0.5 million per month. However, during the past 15 years, the KCR service has experienced a progressive decline, in terms of the state of infrastructure facilities and the overall running and management of the train service. The KCR service was officially suspended by the Pakistan Railways on December 15, 1999.

KCR Revitalization Plan: In October 2004, the Prime Minister constituted a task force to study the existing KCR network and formulate recommendations/proposals for its revival or otherwise. The final report was submitted to and approved by the Prime Minister in November 2004. Then this task force was reconstituted as the Implementation Committee with the Minister of State for Railways serving as its Chairman. In March 2005, KCR reopened partially using the Pakistan Railway (PR) main line, but the daily number of passengers was only about 3,000 persons, and the role of railways became even more minimal than before. Under such situation, the Medium Term Development Framework (MTDF) 2005-2010 recognized that the mega cities such as Karachi and Lahore will play a key role in Pakistan’s economic development in the decades ahead.

Urban transport was viewed as crucial to improve the quality of life and economic performance of urban areas. A main identified strategy of the MTDF for urban transport was to strengthen both rail & road-based public transportation infrastructure.

Salient features of KCR

• Route length: 43.12km dual tracks (elevated 22.86km, tunnel 3.93km, ground 16.33km) with stations • Trains will operate at 6min. Headway/interval: Passenger/ Train 1391: Per Day 0.698 million

• Electric traction infrastructure with modernized signaling & telecommunication system • Interchange facilities with the proposed BRT, LRT & connectivity with existing road network • Provision of segmental fare level compatible to bus fare • Computerized ticketing, automated gates, vending machines and elevators Under this recognition, the Government of Pakistan (GoP), the Government of Sindh (GoS) and the City District Government of Karachi (CDGK) decided to strengthen both rail & road-based public transport. The Ministry of Railways (MoR) and GoS sought ways to revitalize KCR. In 2006, the Japan External Trade Organization (JETRO) carried out a feasibility study for revitalization of KCR.

Implementation/Private Public Partnership

• Implementation agency: KUTC is the vehicle for the implementation; will function as Regulatory Authority on Project completion • Govt. of Japan/JICA (Association with KUTC) Consortium of International Consultants will be engaged for:Design, Drawings, Appointment of Consultants & Contractors, Project Monitoring & Evaluation

• Private Sector: Operation & Maintenance: Private Operator of International repute ) Singapore/Dubai model) Real estate development : Joint venture Dedicated power supply: Independent Power Plant (IPP): 120 megawatts • Funding: JICA loan (93.5% US$ 1457.7ml.): Cost of infrastructure, track, rolling stock, signal & telecom etc.

KUTC funding (6.5% US$ 101.1ml.): Resettlement, Import duties, Admin cost, preliminary studies etc.

• Time Line: Completion in three years after commencement (2011-2014)

Future Transport Scenarios: With or without KCR

If the KCR Revitalisation project also comes to a nought, then the consequences for the future transport / traffic scenario for the city of Karachi are very grave. Some related concerns are discussed below: More Buses?

If we continue using the public buses mode for fulfilling the needs of the commuters, then the sufferings of the commuters are going to multiply in addition to increasing the urban pollution load, and loss of energy and time. www.valuechainmagazine.com 59

At present, 8747 public buses are operational in the city and 11,254 buses are still required to fulfil the existing demand.

In view of the growing population, the requirement for buses would soon surge to a figure of about 17000. What is also important to consider, is that regular traffic jams and large magnitude vehicular movement are phenomenon no longer restricted to the Central Business District areas of the city. Similar scenes are being witnessed with growing intensity at traffic corridors like University Road, Rashid Minhas Road etc. which till a few years ago, received insignificant levels of traffic. Rapid growth of population and the fact that the city has for long been developing and extending in the absence of any kind of urban planning mechanisms and ineffective regulation, has contributed to the establishment of growth patterns which fail to conform with the accepted and employed standards and requirements of properly planned / regulated urban growth world-wide. This process, while contributing to other forms of urban decay has also exacerbated the chaos witnessed in the transport sector.

It is difficult to expand the inner city road network so that the carrying capacity could be enhanced. Thus introducing more buses could only result in introducing more chaos to an already unmanageable situation. Measures like building flyovers, though useful in reducing the levels of traffic congestion, can have only very limited cumulative impact in improving the overall situation, when assessed in the long run.

Increasing the Pollution Load Then there is the pollution concern. If the citizens are not provided with a mass transit system, like KCR, then this would encourage greater use of private vehicles and introduction of more public buses. Levels of atmospheric pollution, already very high in certain downtown areas, are going to increase. While localised impact, which may include public health problems and damage to architectural / heritage sites / vegetation can immediately be cited, certain global and international concerns cannot also be neglected.

Pakistan is signatory to a number of international treaties and agreements like the Kyoto Protocol, Agenda 21 (Rio Earth Summit) and the recently concluded Earth Summit declaration in Johannesburg, South Africa. The Kyoto Protocol in particular and other agreements in general, oblige Pakistan to control the emission of Green House Gases (GHG’s). The climate change program of the Global Environment Facility (GEF), which is in operation in Pakistan, also requires the introduction of clean and efficient forms of transport and calls for efforts to limit and control the emission of GHG’s. To all this we can include the issue of higher level noise pollution, which would be a natural outcome of persisting with the present mode of public transport.

Increase in energy/time loss and financial burdens Expected greater traffic jams, congestion, traffic bottlenecks are all likely to increase energy and time loss and add to mental stresses. The cost of petroleum is constantly on the rise. In the absence of an efficient mode of public transport, more and more people would be forced to purchase, whenever possible, some form of private transport. The capital cost of purchase and the running cost of maintenance (petrol /repair) of private vehicles would add to the finical worries of the peoples.

Damage to Architectural Heritage / Vegetation Higher level of smoke emissions from an ever increasing vehicular load, will add to the problem of degradation of 60

www.valuechainmagazine.com

architectural heritage structures and even the newly built urban landmarks. Vegetation on road medians will also suffer.

To make way for increased road traffic, it is quite possible that more and more roundabouts will be done away with and road medians either reduced or totally removed. This may also add to the loss of urban vegetation cover, which is already very minimal.

Future Scenario with KCR It is quite evident that KCR would not in itself become the prime mover of public commuters in Karachi. However, it has sufficient capacity to play an important and integral part of a multifaceted and diversified urban mass transit system in Karachi city. As has been mentioned in the previous section, Karachi cannot for long do without an urban mass transit system. KCR, with the basic infrastructure already in place, offers a unique and logical mode of rapid mass transit system. It would help in greatly reducing the traffic load / congestion in the city, particularly in the inner city area. KCR could help in reducing the number of public buses / private vehicles in the city, thus lowering the pollution levels and cutting down on energy / time losses.

It would be representative of a model for efficient, affordable and environment friendly mode of urban mass transportation system, as is the requirement of global treaties and programs like the Kyoto Protocol and GEF to which Pakistan is a signatory. It can thus even solicit additional support funding from such programs. KCR also seems to offer a few other optional uses as added advantages to its main functional uses.

Garbage Collection / Transportation In 1994, the then Karachi Metropolitan Corporation (KMC) had initiated a project, namely the Garbage Train Project, which proposed the collection and transportation of city solid waste via the KCR system to a landfill site at Dhabeji on the National Highway.

This project was proposed in view of the fact that the existing landfill sites at Gond Pass (Hub) and Jam Chakro (Surjani Town), due to the rapid spread of the city were now located within inhabited areas. Thus a site at a safe distance from the city was required to build a new landfill site. About 5000 acres land of Dhabeji (50 km from the city) was acquired by KMC for the purpose and a connecting track was built at the site.

The mode of KCR for transportation of waste was proposed as transporting waste by buses was found to be a non-feasible option, both financially and operationally.

This project, though terminated after two months of operation, can still be revived and integrated in the KCR Revitalisation plan.

BRIEFS

Regulatory Compliance CCs empowered to engage advocates with fee up to Rs. 500,000: The Federal Board of Revenue (FBR) has empowered Chief Commissioners of Large Taxpayer Units (LTUs) and Regional Tax Offices (RTOs) to appoint lawyers with Rs. 500,000 fee for strongly defending major tax related cases in courts involving huge amount of revenue.

Audit guidelines issued to LTUs and RTOs: The Federal Board of Revenue (FBR) on November 13 issued instructions to the Large Taxpayer Units (LTUs) and Regional Tax Offices (RTOs) to finalize tax assessment under normal law in all cases selected for audit and no agreement with the taxpayer should be made during audit process.

Minimum taxation- Controversial clarification withdrawn:

The Federal Board of Revenue (FBR) has withdrawn a controversial clarification which has created an anomaly on the issue of ‘minimum taxation’ of taxpayers falling within service sector under Section 153(1)(b) of the Income Tax Ordinance 2001 as amended vide Finance Act 2009. In this regard the FBR has issued Circular No. 9 of 2012 to withdraw the clarification letter C.No. 1(10)WHT/2006Pt.III dated November 01, 2010 which was deemed not only contrary to the law but also against the verdicts of Federal Ombudsman (FTO) in C.No.719/LHR/IT(594)/ 1258/ 2010 and C. NO. 627/LHR/IT(483)/1310/2011.

Tax liability on payment for services rendered: The FBR has reportedly clarified that the amount received under section 153(1)(b) of the Income Tax Ordinance 2001, on account of “rendering or providing of services”, shall be clubbed with other receipts of the taxpayer falling under the normal tax regime and taxable income shall be worked out accordingly.

Normal tax rates are to be applied to the resultant taxable income. However, if the tax, worked out on the payments, subject to deduction under section 153(1)(b) is less than the withheld tax, the later being the minimum tax shall be the tax liability on the payments for services rendered which have been subjected to deductions of tax under section 153(1)(b).

FBR to rescind SRO on Transfer of ST Registration:

The Federal Board of Revenue has decided to rescind SRO 589(I)/2012 relating to ‘ownership transfer’ from one person to another in case of sales tax registration due to lack of IT system back-up support. The SRO was issued on June 1 to ensure smooth transfer of sales tax registration.

FBR clarifies taxation status:

FBR has issued a clarification dated November 16, 2012 regarding amendment made in Section 152 of the Income

Tax Ordinance 2001. According to the clarification, to facilitate foreign investors, the FBR has ruled that permanent establishments of non-resident persons would not be required to obtain any declaration/certificate of Commissioner Inland Revenue seeking reduced rate of tax under Section 152(3)(b) of the Income Tax Ordinance 2001.

The FBR clarification said that Section 152 of the Income Tax Ordinance 2001 has been amended vide Finance Act 2012 in a way that all withholding provisions regarding non-residents are consolidated.

According to the clarification: Sub-section (1) provides for deduction of tax on payment of royalty or fees for technical services; Sub-section (1A) provides for deduction of tax on payment in full or part (including payment by way of advance) on the execution of a contract or sub-contract under a construction, assembly or installation project or supply of supervisory activities in relation to such project, or any other contract or a contract for advertisement services rendered

by T.V. satellite channels in Pakistan.

Sub-section (1AA) applies to payment of insurance premium or re-insurance premium.

Sub-section (1AAA) relates to payment for advertisement services to a media person relaying from outside Pakistan.

Sub-section (2A) covers deduction of tax for sale of goods, rendering or providing of services and execution of contract for the sale of goods or rendering or providing of services; All the transactions covered by sub-sections are liable to tax at separate rates.

Sub-section (2) further provides that, in case of any other payment not covered by sub-sections, withholding tax shall be deducted as per rates provided under Division II of Part III of the first schedule with certain exclusions as per subsection (3).

The exclusions provided under sub-section (3) are not applicable on the payments referred to in paragraph 2 supra as these payments are subject to withholding tax independently under the relevant sub-sections and not under sub-section (2).

The term permanent establishment has been defined in subsection (41) of section 2 of the Income Tax Ordinance 2001.

FBR seeks powers of Parliament to lock CNICs:

The Federal Board of Revenue (FBR) has decided to amend the provisional assessment procedure under section 122C of the Income Tax Ordinance 2001 for suspension of the computerized national identity card numbers (CNICs) of potential individuals, who would not avail the Tax Registration Enforcement Initiative-2012.

FBR grants ST exemption on machinery import:

The Federal Board of Revenue (FBR) has granted sales tax exemption on the import of machinery used by poultry industry www.valuechainmagazine.com 61

BRIEFS at any stage under SRO 727(I)/2011 which deals with the exemption of sales tax on the import of plant and machinery not manufactured locally and having no compatible local substitutes subject to the fulfillment of laid down conditions.

Duty free import of raw material:

The FBR has empowered Collectors of Customs to obtain financial security of withholding tax not collected at the time of duty-free import of raw material consumed in the manufacture of export of goods. In this connection, the FBR on November 26 issued SRO 1367(I)/2012 and SRO 1366(I)/ 2012 to amend Export Oriented Units along with Small and Medium Enterprises Rules, 2008.

The exemption of duties and taxes including withholding tax was already given to the importers of raw materials and inputs used in the manufacture of finished products to be exported.

The collectors are also securing financial securities against withholding tax not collected on the import of raw materials used in the manufacture of export goods. However, the provision of securing financial security of withholding tax was not available in the Export-Oriented Units and Small and Medium Enterprises Rules 2008. This might result in audit objections or litigation with the contention that how FBR could collect financial guarantee of withholding tax when the same provision was not available in the relevant law. The amendments now issued aim at removing the said ambiguity.

SBP to be granted appellate powers:

The federal government has decided to give appellate authority power to the Governor, State Bank of Pakistan in case any foreign exchange company or bank is penalized for violating the Foreign Exchange Regulation Act of 1947. According to Finance Ministry, the country needs effective enforcement powers to regulate the foreign exchange business of banks and exchange companies. However, under the existing provisions, SBP has no direct power to impose monetary penalties and has to follow a lengthy procedure of adjudication.

SBP issues instructions to improve transparency:

The State Bank of Pakistan has issued detailed instructions for profit and loss distribution and pool management in Islamic Banking Institutions (IBIs) in order to improve transparency and disclosures and bring standardization in IBI’s profit and loss distribution policies and practices.

According to these instructions, applicable with immediate effect, Para IV of annexure II of IBD Circular No. 2 of 2008 stands withdrawn. Further, the provisions of BPRD Circular No. 7 of 2008 regarding minimum rate of return on savings deposits as amended from time to time shall no more be applicable on Islamic Banking Institutions.

According to IBD Circular No. 3 of 2012 issued to the Presidents/Chief Executives of all Islamic banks and all conventional banks having Islamic banking branches, failure to comply with the SBP instructions will invoke penal action under the provisions of Banking Companies Ordinance 1962.

62 www.valuechainmagazine.com

As per SBP instructions, each pool of deposit established by IBIs would act like a virtual enterprise having explicitly demarcated sources of funds, ownership of specific assets and income and expenses. The profit earned on the financing and investments made through such pool of deposits will be shared between IBIs and the depositors as per pre-agreed profit sharing ratio. In case of loss, the same will be borne by the depositors in proportion of their investments unless caused by the negligence and misconduct by the IBIs in managing the depositors’ funds.

SECP signs MoU with KCDR to facilitate dispute resolution:

The Securities and Exchange Commission of Pakistan (SECP) has signed a Memorandum of Understanding with Karachi Centre for Dispute Resolution (KCDR) to provide an alternate dispute resolution mechanism among the regulated enterprises and companies. To facilitate the entities, the SECP has resorted to this mechanism for the benefit of all companies falling within the regulatory ambit of the SECP. The arrangement will reduce direct and indirect cost of dispute resolution.

Under the agreement, the SECP will encourage incorporation of the inter-party agreements. The SECP will refer inter-party disputes among the relevant persons to an accredited mediator for amicable settlement through mediation, and the KCDR will train the relevant SECP officers in effectively discharging this function.

NA passes compulsory education law:

The National Assembly on November 13 passed The Right to Free and Compulsory Education Bill 2012 unanimously to ensure free and compulsory education to all five to sixteen years old children. The Bill contains 29 clauses. Clause 3 of the Bill says that (1) every child, regardless of sex, nationality or race, shall have a fundamental right to free and compulsory education in a neighboring school. (2) No child shall be liable to pay any kind of fee, charges, expenses, etc. Clause 14 of the Bill talks about registration of schools. It says “any person who establishes or runs a school without obtaining certificate or registration, or continues to run a school after withdrawal of registration, shall be liable to fine which may extend to Rs. 200,000, and in case of continuing contraventions, to a fine of Rs. 25,000 for each day during which such contravention continues.

Senate adopts bill on intellectual property rights: The Senate on November 13 unanimously passed ‘The Intellectual Property Organisation of Pakistan Bill, 2012”.By virtue of its membership to the World Trade Organisation, Pakistan is also signatory to the agreement on Trade Related Aspects of Intellectual Property Rights that obligates the Government of Pakistan to ensure adequate protection of Intellectual Property Rights in the country for domestic and international rights, holders alike.

AGRICULTURE

Dire need of investment in agricultural R&D

by Syed Asif Ali

F

ood autarky is one of the primary goals of the governments and the policy makers around the world. Therefore, they either try to achieve food self-sufficiency for feeding their masses through yield on the farms or manage it through imports.

The phenomenon of food shortage is not new; it has been around in different countries at different point of time.

The situation is compounded when there is phenomenal increase in population growth. Any deficiency is likely to create crisis like situation to be tackled with.

From America to China, Europe to fertile lands of IndoPak continent, the world at large is confronted with food crisis which may worsen in the near future due to various factors like global warming, shortage of water and phenomenal growth in population. Alive to the gravity of the situation, the governments around the world are trying hard to find ways and means that could avert the situation and avoid global food famine. Sadly, however, the governments in South Asia do not appear to be seized of the seriousness of the problem as any practical steps which may have been taken by them in this regard are nowhere to be seen as yet.

According to a research carried out by International Food Policy Research Institute, despite greater government commitment to agricultural research throughout South Asia the region is exposed to the challenges arising out of food supply shortages.

Pakistan is no exception.

Pakistan is highly dependent on the agricultural sector, which is its main income and employment-generating sector. In 2011, the agricultural sector in Pakistan accounted for 21 percent of gross domestic product (GDP) and employed 45 percent of the labor force. Over the past six years, agriculture has grown at an average rate of 3.7 percent per annum. However, volatility in the sector is high, with the range of growth varying between 6.5 percent and 1.0 percent.

The fluctuation in overall agricultural production has been largely dependent on the contribution of major crops. During the year 2009-10, the overall performance of agriculture sector was significantly weaker than the target set therefor.

This volatility ratio needs attention of our policy makers and economic managers as it could have profound impact on food production and supply system of Pakistan in near future.

Population growth may make the situation even worse.

Population in Pakistan is expected to double by 2050. In order to feed the growing population and address other pressing challenges, such as adaptation to climate change and rising and volatile food prices, it is crucially important that agricultural productivity is increased. In order to attain food security for this fast-growing population, food production needs to grow by at least the same rate as the population. Agricultural growth rates of at least 5 to 6 percent are required to poverty reduction at a substantial level. Since land and water resources are becoming increasingly scarce in Pakistan, the target will have to be met by ensuring increased per acre yield and crop intensification.

This will require the broad dissemination of new and improved technologies, and agricultural research and development (R&D) is the channel through which this can happen. Investments in agricultural R&D are, therefore, important for achieving higher agricultural growth in developing countries like Pakistan.

Pakistan has one of the largest agricultural research systems among developing countries, employing over 3,500 full- time researchers. Agricultural R&D investment in the country increased during 2000–09, albeit at an irregular pace. However, based on a number of indicators, Pakistan appears to be falling behind other South Asian countries.

Population in Pakistan is expected to double by 2050.

In order to feed the growing population and address other pressing challenges, such as adaptation to climate change and rising and volatile food prices, it is crucially important that agricultural productivity is increased.

www.valuechainmagazine.com 63

India continues to be the region’s largest player in agricultural research and technology development. The country’s annual investment in agricultural R&D has doubled since the late 1990s, reaching $2.3 billion in 2009 (in 2005 PPP prices). Other aspects of agricultural R&D that gave India supremacy over its neighbors in this field include the relatively important role of the private sector and the sweeping reforms underway to encourage more effective partnerships and entrepreneurship.

Recent data reveals that public sector spending in agricultural R&D spending in Pakistan has been quite inadequate for ensuring the required rate of agricultural growth. The latest data indicates that for every $100 of agricultural output, Pakistan invested just $0.21 in agricultural R&D. This is one of the lowest levels in the developing world, and a considerable decline from levels recorded in the 1990s.

In terms of human capacity, it fares significantly worse than other countries in the region. The country’s share of agricultural researchers with PhD degrees remains very low, at only 18 percent. Even more worrying is the fact that most of these PhD-qualified scientists are in their fifties. This underlines the need for taking partical steps for training and education of newly recruited scientists on top priority basis. It must however be kept in mind that agricultural R&D requires long-term commitments with sufficient and sustained funding and well-staffed research agencies for realizing the benefits thereof. A key challenge facing Pakistan will be to ensure that resources and capacities are more evenly distributed, both at central as well as at provincial levels. Another problem is limited promotion opportunities, low salary levels, and inadequate incentives for researchers associated with government agencies. It takes long for promotions and that too generally on seniority basis rather than on merit. This has led to a brain drain of researchers from the government sector to universities, non-research agencies, or to opportunities outside Pakistan.

At global level, the private sector is always a helping hand for government in making investments in research & development. In Pakistan, however, the situation is just the opposite; the private sector contribution in this regard accounts for only a small portion ( around 6 percent to be exact) of agricultural R&D. Due to Pakistan’s political and economic climate, coupled with 64 www.valuechainmagazine.com

unresolved intellectual property rights, private sector hesitates in making larger and long-term investments.

Public sector agricultural R&D in Pakistan is heavily reliant on government support. Foreign donor support has traditionally played an important role in financing agricultural R&D in Pakistan, although exact shares of donor funding are not available. The United States (through USAID and USDA) and the World Bank (through ARP I and II, for example), have directed significant funds toward the establishment of new institutes, the upgrading of research equipment, as well as human resource development and degree-level training.

Recommendations:

• Increase investment levels, improve time management, and target these investments to ensure maximum impact on increasing per acre yield and poverty reduction.

• Increase diversification of funding sources through sales of goods and services and private sector participation (meaning governments need to provide the necessary enabling policy environment).

• Develop stronger links between agricultural research agencies and farmers, to ensure that research outputs are effective and respond to end-users’ needs.

• Increase sub-regional collaboration, streamline allocation of limited resources and reduce duplication.

• Promote policy and institutional reforms that enhance good governance.

EDUCATION & TRAINING

Good Corporate Governance

by Ferozeali Hussaini

T

he concept of "governance" is not new. It is as old as human civilization. Simply put "governance" means: the process of decision-making and the process by which decisions are implemented (or not implemented). Governance can be used in several contexts such as corporate governance, international governance, national governance and local governance. Since governance is the process of decision-making and the process by which decisions are implemented, an analysis of governance focuses on the formal and informal actors involved in decision-making and implementing the decisions made and the formal and informal structures that have been set in place to arrive at and implement the decision.

Government is one of the actors in governance. Other actors involved in governance vary depending on the level of governance that is under discussion. In rural areas, for example, other actors may include influential land lords, associations of peasant farmers, cooperatives, NGOs, research institutes, religious leaders, finance institutions, political parties, the military etc. The situation in urban areas is much more complex. At the national level, in addition to the above actors, media, lobbyists, international donors, multinational corporations, etc. may play a role in decisionmaking or in influencing the decision-making process.

What is Good Governance? Recently the terms "governance" and "good governance" are being increasingly used in development literature. Bad governance is being increasingly regarded as one of the root causes of all evils within our societies. Major donors and international financial institutions

are increasingly basing their aid and loans on the condition that reforms that ensure "good governance" are undertaken.

Defining “Corporate Governance”: Corporate governance is a term that refers broadly to the rules, processes, or laws by which businesses are operated, regulated, and controlled. The term can refer to internal factors defined by the officers, stockholders or constitution of a corporation, as well as to external forces such as consumer groups, clients, and government regulations.

A well-defined and enforced corporate governance provides a structure that, at least in theory, works for the benefit of everyone concerned by ensuring that the enterprise adheres to accepted ethical standards and the best practices as well as to formal laws. To that end, organizations have been formed at the regional, national, and global levels. In recent years, corporate governance has received increased attention because of high-profile scandals involving abuse of corporate power and, in some cases, alleged criminal activity by corporate officers. An integral part of an effective corporate governance regime includes provisions for civil or criminal prosecution of individuals who conduct unethical or illegal acts in the name of the enterprise.

“The term “corporate governance” can broadly encompass all of the corporation’s relationships: relationships among capital, product, service and human resource providers, customers and even society at large. It can encompass all the laws designed to hold the corporation accountable to shareholders and the public, as well as workings of the market for www.valuechainmagazine.com 65

corporate control. It can refer to audit practices and accounting principles, and it can refer to shareholder activism. Even more narrowly, the term can be used to describe just the role and practices of the board of directors; and the common denominator for all these definitions is: that Corporate governance concerns the relationships between a corporation’s managers and shareholders, based on the foundation that the board of directors is the shareholders’ agent to ensure that the corporation is managed in the shareholders’ best interests. The paradigm is simple: Managers accountable to boards and boards accountable to shareholders.”

This definitional range underscores the reality that corporate managers, directors and investors all function within a larger business and legal environment that shapes behavior. But no matter what the definition, at its heart corporate governance concerns the means by which a corporation assures investors that it has well-performing management in place and that corporate assets provided by investors are being put to appropriate and profitable use. Of course, differences remain between nations concerning the issue of the corporate polestar: For whom is the corporation governed? Different national systems of corporate governance articulate the primary objective of the corporation in different ways.

Characteristics of Good Governance: Good governance has 8 major characteristics. It is participatory, consensus oriented, accountable, transparent, responsive, effective and efficient, equitable and inclusive and follows the rule of law.

It assures that corruption is minimized, the views of minorities are taken into account and that the voices of the most vulnerable in society are heard in decision-making. It is also responsive to the present and future needs of society.

Accountable Consensus Oriented

Participatory

Transparent

Characteristics of Good Governance

Follows the rule of law

Responsive

Equitable & Responsive Effective & Efficient

What Is the Importance of Corporate Governance?

Business management is the coordination and distribution of economic resources throughout an organization. While smaller businesses typically rely on business owners to complete these functions, large companies often have several layers of management to oversee operations. Corporate governance is a managerial tool for extremely large or publicly held companies.

66 www.valuechainmagazine.com

In the wake of the financial crisis that began in East Asia and rapidly spread to other developing parts of the world, policy makers have learned that systematic failure of investor protection mechanisms, combined with weak capital market regulation in systems that rely heavily on “crony capitalism,” can lead to failures of confidence that spread from individual firms to entire nations.

Insufficient financial disclosure and capital market regulation, lack of minority shareholder protection, and failure of board and controlling shareholder accountability all supported lending and investing practices based on relationships rather than on a prudent analysis of risk and reward.

As markets become more open and global, and business becomes more complex, societies around the world are placing greater reliance on the private sector as the engine of economic growth. In both developed and developing nations, a growing proportion of economic activity takes place in firms organized as corporations. Corporations are creatures of law; societies allow corporations to be created by law because they recognize that incorporation provides an efficient form of organization, and society benefits as a result. The corporate governance is important because the quality of corporate governance impacts: (1) the efficiency with which a corporation employs assets; (2) its ability to attract low-cost capital; (3) its ability to meet societal expectations; & (4) its overall performance.

Effective corporate governance promotes the efficient use of resources, both within the firm and the larger economy.

When corporate governance systems are effective, debt and equity capital should flow to those corporations capable of investing it in the most efficient manner for the production of goods and services most in demand, and with the highest rate of return. In this regard, effective governance helps protect and grow scarce resources, and helps ensure that societal needs are met. In addition, effective governance should make it more likely that managers who do not put scarce resources to efficient use, or who are incompetent or -- at the extreme -- corrupt, are replaced.

When corporate governance is effective, it provides managers with oversight and holds boards and managers accountable in their management of corporate assets. This oversight and accountability -- combined with the efficient use of resources, improved access to lower-cost capital and increased responsiveness to societal needs and expectations -- should lead to improved corporate performance.

Effective corporate governance may not guarantee improved corporate performance at the individual firm level; there are simply too many other factors that impact firm performance. But it should make it more likely that managers focus on improving firm performance and are replaced when they fail to do so. Nonetheless, the connection between effective governance and firm performance makes considerable intuitive sense.

Effective corporate governance is also closely related to efforts to reduce corruption in business dealings. Effective governance systems should make it difficult for corrupt practices to develop and take root in a company. Strong governance may not prevent corruption, but it should make it more likely that corrupt practices are discovered early and eliminated.

Elements of Effective Corporate Governance: Corporate governance practices vary across nations and firms, and this variety reflects not only distinct societal values, but also different ownership structures, business circumstances and competitive conditions. It may also reflect differences in the strength and enforceability of contracts, the political standing of shareholders and debt holders, and the development -- and enforcement capacity -- of the legal system.

In developed countries, the discussion of corporate governance improvement tends to assume in place welldeveloped and well-regulated securities markets; laws that recognize shareholders as the legitimate owners of the corporation and require the equitable treatment of minority and foreign shareholders; enforcement mechanisms through which these shareholder rights can be protected; securities, corporate and bankruptcy laws to prevent bribery that enable corporations to transform -- to merge, acquire, divest and downsize -- and even to fail; anticorruption laws to prevent bribery and protection against fraud on investors; sophisticated courts and regulators; an experienced accounting and auditing sector, and significant corporate disclosure requirements.

Developed countries are also more likely to have welldeveloped private sector institutions, such as organizations of institutional investors, and professional associations of directors, corporate secretaries and managers, as well as rating agencies, security analysts and a sophisticated financial press. Many developing and emerging market nations have not yet fully developed the legal and regulatory systems, enforcement capacities and private sector institutions required to support effective corporate governance.

Therefore, corporate governance reform efforts in these nations often need to focus on the fundamental framework.

Reform needs vary, but often include basic stock exchange development, the creation of systems for registering share ownership, the enactment of laws for basic minority shareholder protection from potential self-dealing by corporate insiders and controlling shareholders, the education and empowerment of a financial press, the improvement of audit and accounting standards, and a change in culture and laws against bribery and corruption as an accepted way of doing business.

In addition to differences in the development of legal and regulatory systems and private institutional capacity, nations differ widely in the cultural values that mould the development of their financial infrastructure and corporate governance. These differences in culture may make certain concepts difficult to accept. For example, concern in some Asian cultures with personal integrity and reputation can pose barriers to the concept of bankruptcy. Likewise, the long history of communism in Russia may have impacted that culture’s understanding of property rights. Ultimately, corporate governance and the framework that supports it must have relevance to a nation’s own unique legal environment and cultural values. While common elements of effective governance can be identified to enable national systems to attract global capital and heighten investor confidence -and some market driven convergence of systems may be inevitable -- governance reform is largely a matter for each nation and the private sector within each nation to determine.

Corporate Governance as Risk Mitigation: Corporate governance is of paramount importance to a company and

is almost as important as its primary business plan. When executed effectively, it can prevent corporate scandals, fraud and the civil and criminal liability of the company. It also enhances a company’s image in the public eye as a self-policing company that is responsible and worthy of shareholder and debt holder capital. It dictates the shared philosophy, practices and culture of an organization and its employees. A corporation without a system of corporate governance is often regarded as a body without a soul or conscience. Corporate governance keeps a company honest and out of trouble. If this shared philosophy breaks down, then corners will be cut, products will be defective and management will grow complacent and corrupt. The end result is a fall that will occur when gravity – in the form of audited financial reports, criminal investigations and federal probes – finally catches up, bankrupting the company overnight. Dishonest and unethical dealings can cause shareholders to flee out of fear, distrust and disgust.

Conclusion: Increasingly, policy makers have come to recognize that effective corporate governance -- transparency, accountability and the fair and equitable treatment of shareholders -- is a necessary component of efforts to promote sustainable development. However, corporate governance reform requires both governmental and private sector support. In this regard, there is a need for a publicprivate partnership, both to raise awareness of the value of corporate governance improvement, and to assist in implementing corporate governance reform. To provide a framework for this public-private partnership on an international scale, the World Bank and OECD have announced the formation of a Global Corporate Governance Forum.

This effort, together with the considerable efforts of Transparency International to reduce corruption and bribery, offers great promise.

However, reform efforts must take into account the fact that every nation has its own national personality and social and economic priorities. Likewise, every corporation has its own unique history, culture and business goals. All of these factors influence the optimal governance structures and practices for nations and individual corporations.

Therefore, international agreement on a single model of corporate governance or a single set of detailed governance rules is both unlikely and unnecessary. Of course, the influence of international capital markets will lead to some convergence of governance practices.

References: James D. Wolfensohn, “A Battle for Corporate Honesty,” The Economist: The World in 1999; Ira M. Millstein, “The Basics of a Stable Global Economy,” The Journal of Commerce (Nov. 30,1998); “Lessons from the Global Crisis,” Campbell R. Harvey and Andrew H. Roper, “The Asian Bet” in Financial Markets & Development; International Anti-Corruption Conference, 10-15 October 1999, Durban, South Africa; Michael Pomerleano and Xin Zhang, “Corporate Fundamentals and the Behavior of Capital” Simeon Djankov and Larry H.P. Lang, “Corporate Ownership and Valuation: Evidence from East Asia” in Financial Markets & Development; Ira M. Millstein & Paul W. MacAvoy, “The Active Board of Directors and Performance of the Large Publicly Traded Corporation”; www.valuechainmagazine.com 67

EVENTS

IDEAS 2012 showcased Pakistan’s defence capabilities

T

he International Defence Exhibition and Seminar, commonly referred to as IDEAS, is a mega event of the defence sector held with a prime mission to showcase Pakistan's ability to export arms to foreign nations.

It also offers an ideal opportunity for the manufacturers of military weapons system etc. for entering into joint collaboration with Pakistan or other prospective international partners. The event, which was held second time, provides a useful platform for the defence forces to assess the best products and technology to cater for their respective defence-related requirements.

The 7th chapter of the exhibition, was held after a gap of four years from November 7 to 11, 2012 at Expo Centre, Karachi. Yet, it received an overwhelming response from the exhibitors as well as delegations from around the globe. Buyers from over 50 countries attended the exhibition which showcased a wide variety of technology, ranging from equipment used in the third world countries to the most sophisticated systems from the West.

This 5-day event, which was inaugurated by Prime Minister of Pakistan Raja Pervez Ashraf, generated business deals worth around $40 million on sustainable basis through national companies and their international partners.

A total of 209 firms, including 74 local and 135 foreign, representing 56 countries put their products on display. The local participants included Pak Vehicle Eng, PHSADC, Daud Sons, POF, PAC Kamra, HRI-PAF, Alsons, GIDS, Pakistan Navy, Karachi Shipyard, MTE Directorate TE, Procon Eng, Lyra, Alsons Industries, Makkays, HIT, DGMP and Sigma Motors.

The foreign countries represented in IDEAS 2012 included Canada, China, Czech Republic, France, Germany, Greece, Ireland, Italy, Japan, Korea, Malaysia, Pakistan, Russia, Singapore, South Africa, Thailand, Turkey, United Arab Emirates, United Kingdom, Ukraine and United States of America.

Some of the major indigenously developed products showcased in IDEAS-2012 included Main Battle Tank, Al-Zarrar,JF-7 Thunder Aircraft, Missiles, Arsenals etc. Hataf and Shaheen missiles were also put on display. Pakistani Defence products of Pakistan are in great demand; currently Pakistan is exporting its defence products to five continents of the world. These foreign countries that participated in IDEAS-2012 are our potential buyers. This in turn will benefit the economy of the country.

International defence seminar and conference held in the exhibition provided local and international defence experts a bigger platform to share their knowledge thus providing valuable insights to the key players in arms industry about the latest technologies. In their farewell statements, the foreign participants in IDEAS-2012, lauded Pakistan’s high-tech defence industry which, they said, was fostering self-reliability, curtailing dependence on foreign manufacturers and boosting exports.

Pakistan’s Advance Engineering and Research Organisation (AERO) – a part of the state-owned Global Industrial and

68 www.valuechainmagazine.com

Defence Solutions (GIDS) conglomerate – showcased its Shahpar UAV at the exhibition. The autonomous canardpushing UAV boasts an endurance of seven hours and can relay data in real time out to a range of 250 km. The drone can carry up to 50 kg in payload, which can be configured for reconnaissance and day/night surveillance missions.

While providing an excellent platform to showcase our precision engineering industry capabilities to the world, IDEAS also provides ample business opportunities to our local small-scale manufacturers. Hopefully, IDEAS-2012 will help create awareness about new trends and technologies used in defence.

Celebrating 23 years of First Women Bank Ltd.

Mrs. Shafqat Sultana President First Women Bank Ltd. cutting cake at the 23rd Anniversary function of the bank along woith Ms. Salma Ahmed and Mr. Majyd Aziz, Mr. Ishtiaq Baig, Ms. Charmaine Hidayatullah and Ms. Shaheen Zamir are also seen in the picture.

EVENTS

D-8 summit: how to make its outcome credible?

O

n November 23, at the conclusion of a daylong summit in Islamabad, leaders of eight Muslim countries inked a Charter that aims to forge stronger economic alliance among the D-8 member states. Foreign ministers of the participating states – Bangladesh, Egypt, Iran, Indonesia, Malaysia, Nigeria, Turkey and Pakistan signed the Charter that envisages a roadmap to boost trade between them to $500 billion by 2018. Earlier in the day, presidents of Pakistan, Nigeria, Indonesia and Iran, Dy President of Egypt, Prime Minister of Turkey, Dy Prime Minister of Malaysia, and Bangladeshi Advisor to the Prime Minister on International Affairs deliberated over the issues confronting D-8 member states, and concluded the contents of the charter.

As per the terms of their Charter, the D-8 member states will strive to ‘democratize’ the global decisionmaking apparatus and the mechanisms there for, to achieve a just international order based on the rule of law and the universally accepted principles of international law. In addition thereto, member states will strive for fuller realization of the vast potential for socio-economic cooperation to achieve sustainable advance-ment of their countries, individually as well as collectively. The member states also agreed to promote welfare, alleviate poverty, and improve the quality of life of the people of D-8 countries and to achieve these aims, strengthen their social, economic, technical and scientific contacts, promote private sector activity by encouraging increased cooperation between member states’ chambers of commerce and industry, public-private partnerships – all for achieving the long-term goal of balanced national development in the member countries.

Foreign Minister Hina Rabbani Khar in a meeting with her counter-parts from Egypt, Iran, Indonesia & Turkey.

The aim is to elevate their respective levels of development to progressively higher levels, with the ultimate objective of playing a bigger role in the global economy, and the process of globalization of trade. According to the Charter, coopera- tion in this realm will be focused on trade, industry, finance, banking, joint investments, insurance, privatization, energy, mining, transport and logistics, customs, science, technology, agriculture, rural development, developing human resources, worker exchange, remittances, micro-financing, alleviation of poverty, health services, humanitarian assistance, information and communication setups, environment, tourism, and other possible areas, as may be decided by the Council of Ministers or Summits.

It is this massive scale of cooperation that holds the key to successfully boosting trade in this 8-country fraternity, which is achievable if the member states take this target seriously, given the fact that potential for trade between them is huge, and if materialized, will www.valuechainmagazine.com 69

President Asif Ali Zardari and leaders of D-8 countries in a group photo after conclusion of the eighth D-8 summit at the Presidency, Islamabad on November 22, 2012

steadily bring down poverty levels in all the member states. What, however, is odd is the fact that the charter didn’t say anything about containing population growth which (if not addressed) would sustain the pressures that the D-8 charter proposes to address. Nevertheless, it is a good beginning reflecting a higher level of consciousness.

With the exception of Malaysia, in varying degrees, the other D-8 members confront poverty as a de-stabilizing factor that demands immediate attention. Besides the varying degrees of weaknesses in their administrative mechanisms (causing sub-optimal use of state resources), rising population causes mis-matches between demand for state resources, and availability thereof, but because of religious sensitivities associated with this issue, governments find it hard to bring home to their people the criticality of limiting family sizes to rational levels to ensure nurturing of healthy, reasonably educated and thus self-reliant generations that is essential for nurturing and sustaining socially as well as economically balanced societies.

The D-8 group has unique advantages – it consists of states that produce all that the member country populations need –food grain, fruit, spices, seafood, cotton, cooking oil, fuel oil, natural gas, coal, and much more.

Several member countries have developed industrial sectors that manufacture the entire range of consumer and capital goods including, textiles and garments, leather goods, medicines and medical instruments, electronic goods, cars, heavy transport vehicles, fertilizer and pesticides, agricultural implements and machinery.

This mix offers an opportunity for maximizing selfsufficiency within the D-8 countries, which is achievable by offering mutually beneficial trade concessions to 70 www.valuechainmagazine.com

bring down the cost of living within the D-8 club of countries because that is the common aim of all the member states. This aim can be achieved with progressively higher levels of success if all member countries also assist each other optimize their productive capacities by sharing technical knowledge and improved gadgetry.

The charter signed on November 23, holds out the promise that D-8 member countries will engage in such cooperation on a mutually beneficial basis; it is a good beginning and may lead to a better future for all the member states but also calls for changing their preferences in foreign trade – prioritizing member states while choosing foreign buyers (destinations of exports) and sellers (i.e. sourcing of imports). Unless this key change in these choices is made, the charter signed by the D-8 states will remain a document for storing in the archives.

Surely, the governments of all the member states know that. Based on their experiences of what was the fate of many earlier multi-lateral treaties, hopefully they will avoid that end.

Bangladesh, Egypt, Iran, Indonesia, Nigeria, Turkey (only in the Kurdistan province), and Pakistan confront the challenge of rising economic inequalities that could partly be addressed by increased trade between the D-8 states. To maximize the ultimate benefits of this treaty to the people in their respective countries, the resources the activation of this treaty will generate, or save, must be used more carefully and efficiently to pass on higher advantages to the people. Unions between countries last only if their people back them, bur for that the people must actually reap their benefits. This calls for a great deal of hard work and sacrifice by the richer states.

MARKET REVIEW

Stock Market Review November 2012

T

Money Market he KSE-100 Index con- tinued with its upward momentum and T-Bills (3mth) 9.3207% closed the first week at 16,243 T-Bills (6mth) 9.3401% points, up by 0.88% WoW. Aver- T-Bills (12mth) 9.3870% 10.00% age daily volumes were down by 3.01% Discount Rate 9.51% WoW to 145.86mn. Key news flows Kibor (1mth) 9.49% driving market sentiment included i) ECC Kibor (3mth) Kibor (6mth) 9.54% approving 75mmcfd of gas supply to the Kibor (9mth) 9.82% fertilizer plants on the SNGP grid during 9.86% this winter season, ii) Lahore High Court Kibor (12mth) extending the hearing on ICH to Nov 14, P.I.B (3 year) 10.3521% iii) delay in EU Autonomous Trade P.I.B (5 year) 10.9397% Preferences (ATP) package and iv) media P.I.B (10 year) 11.4209% hype over the confrontation between army and judiciary.

The KSE-100 Index ended the second week at 16,197 points down -0.28% WoW, the first weekly decline in five weeks. This decline reflects the conservative stance taken by investors due to volatile law and order situation in Karachi, as well as some profit taking.

However, activity picked up with average daily volumes rising by 16.73% WoW to 170.27mn shares with activity dominated in tier II and III scrips. Major news driving market sentiment were the unresolved issues over determination of UFG for SNGPL, restructuring of ANL’s debt and start of EU, ATP package.

KSE-100 Index continued its upward momentum, ending the third week at 16,237 points (+0.25%WoW). Average daily volumes showed a significant rise clocking in at 253mn shares (+48%WoW).

However activity was again dominated by Tier II and III scrip, particularly in the cement sector expecting further monetary easing and improving margins (lower coal prices) continued to attract investor interest. Improvement in activity came despite volatile law and order situation in the country. Other key news flow shaping market sentiment included ECC’s decision to reduce maximum age limit of imported vehicles from 5 to 3 years (+ive for the auto sector) and increase in the wheat support price by PkR150 to PkR1,200/maund. SBP also announced major changes in Islamic Banking regulations which included removal of floor on PLS saving accounts and relaxation in requirement to pay profit from daily balance to average monthly balance on PLS saving accounts.

The KSE-100 Index continued its upward momentum, ending the last week of the month at 16,574 points (+2.07%WoW). Average daily volumes showed a significant rise clocking in at 291.8mn shares (+15.5%WoW) while net FIPI inflow stood at US$6.7mn, up by 17%WoW from previous week’s net inflow of US$5.7mn.

Key news flow driving the market included 1) PSMC likely to be allowed to import Euro-II compliant parts from India which would allow the company to resume manufacturing of Alto, 2) T-bill auction where cut-off yields were largely flat (+1bps to +5bps) with participation skewed towards 6M tenor leading market to firm expectations of at least 50bps cut in Discount Rate (+ve for leveraged sectors, cements and textiles in particular), 3) Unilever Overseas holding, the parent company of ULEVER deciding to voluntary delist from KSE and 4) Lahore High Court ordering the GoP to start construction on Kalabagh dam (+ve for cements).

by Zeeshan Ahmed Mirza Nov 31, 2012:

^KSE 15910.11

2012

Nov 8

16,600 16,500 16,400 16,300 16,200 16,100 16,000 15,900 15,800 15,700 Oct 28 300.0

Nov 19

Top 10 Traded Companies(Nov 2012) Company FCCL MLCF JSCL ANL DGKC KESC BYCO EFOODS LPCL ENGRO

Company ULEVER ILTM UPFL BATA IDYM COLG SAPL SUTM BHAT PICT

Open 6.4 9.14 14.45 6.97 52.91 5.74 8.68 70.23 5.4 92.24

Open 9,498.04 382.87 3,690.00 1,515.00 492.35 1,282.08 285.61 92.92 215 150

Close 6.95 14.93 17.23 8.53 53.8 6.88 10.33 87.6 5.28 96.11

Diff 0.55 5.79 2.78 1.56 0.89 1.14 1.65 17.37 -0.12 3.87

High 7.19 16.9 17.65 9.11 55.71 7.4 11.24 88.8 5.7 99.91

Low Avg.Rate Turnover* 6.4 6.8 603,731,000 9.18 12.74 285,643,500 14.05 15.77 264,500,500 6.4 7.92 190,337,000 52.11 53.66 182,146,000 5.53 5.97 173,895,500 8.26 9.47 118,828,500 70.41 78.27 104,505,000 5.2 5.4 87,755,000 89.5 93.9 86,531,100

Top 10 Gainers (Nov 2012)

Close 10,159.54 951.18 4,190.00 1,722.00 607 1,365.00 366.03 163.36 275 206.04

Diff High 661.5 11,228.96 568.31 952.35 500 4,410.00 207 1,722.00 114.65 607 82.92 1,365.00 80.42 366.03 70.44 181 60 290 56.04 207

Low 9,300.00 401.1 3,600.00 1,259.00 491.75 1,235.00 295 97 215 145

Avg.Rate Turnover 9,782.54 24,940 630.7 9,800 4,025.85 1,180 1,437.31 12,000 533.66 23,200 1,290.05 8,100 329.64 13,700 141.71 18,000 251.67 15,100 171.4 1,493,800

Top 10 Losers (Nov 2012)

Company Open Close Diff High Low Avg.Rate Turnover* 3,480 NESTLE 4,800.00 4,655.00 -145 4,900.00 4,332.01 4,666.40 206.68 163.5 -43.18 197.86 142.6 160.46 143,400 PGCL 325.69 298 -27.69 330 277.51 293.63 287,900 NATF 332 313 -19 338 310 323.02 28,200 EXIDE 177.4 160 -17.4 170 143 157.6 13,100 MUREB 119.77 104.25 -15.52 114 102.75 108.59 2,300 ZIL 30.37 22.35 -8.02 28.86 22.35 25.38 3,000 NATM 356.11 350 -6.11 372 333.45 353.52 2,600 MFFL 75.69 69.63 -6.06 77 69 71.59 1,361,500 PRL 92.92 87.29 -5.63 97.35 83 87.03 187,000 EFUG

Foreign Portfolio Investment Monthly (Nov 2012) Gross Buy Rs FIPI 8,530,382,649 Local Companies 42,522,886,463 Banks/DFI 9,059,094,010 Mutual Funds 6,802,312,936 NBFC 2,455,996,903 Local Investor 68,973,740,770 Other Organization 1,330,591,676

Gross Sell Net Buy/Sell Rs Rs $ (5,240,986,159) 3,289,396,485 34,625,226 (44,340,901,844) (1,818,015,382) (19,137,004) (7,112,056,512) 1,947,037,494 20,495,132 (7,796,864,107) (994,551,170) (10,468,960) (2,183,105,979) 272,890,924 2,872,536 (69,220,243,157) (246,502,384) (2,594,762) (3,780,847,649) (2,450,255,696) 25,792,168

www.valuechainmagazine.com 71

MARKET REVIEW

Commodity Market Novemeber-2012

by Raeda Latif

1750

SILVER [USD / troy Oz]

1730

72 www.valuechainmagazine.com

34 33 32

Open: 32.66 Close: 33.39 Change: + 2.24 %

28-Nov

25-Nov

22-Nov

19-Nov

16-Nov

13-Nov

10-Nov

7-Nov

4-Nov

31

1-Nov

28-Nov

25-Nov

22-Nov

19-Nov

16-Nov

13-Nov

10-Nov

7-Nov

4-Nov

1-Nov

Open: 1,715 Low: 1,677.8 Close: 1,714.6 High: 1,752.6 Change: - 0.02 % Gold swung between gains and losses over Greek debt deal and US economy woes in the month of November, 2012. The yellow metal posted its second consecutive monthly

28-Nov

25-Nov

22-Nov

19-Nov

16-Nov

13-Nov

7-Nov

10-Nov

4-Nov

PALM OLEIN RS / 37.324kg

4,400 4,325 4,250

4,100

35

1670

PALMOLEIN [Rs. / 37.324 kg]

1-Nov

1690

Open: 3,238 Low: 3,210 Close: 3,250 High: 3,295 Change: + 0.37 % A mixed trend has been observed for prices in the month of November, 2012.

Where prices remained in a narrow band over the month.

At PMEX a thin trading was witnessed in IRRI-6 in the month of November, 2012. A total volume of Rs. 6.5M was recorded during the month.

4,175

SILVER US#/troy Oz

1710

1-Nov

28-Nov

25-Nov

22-Nov

19-Nov

16-Nov

13-Nov

Open: 86.93 Low: 84.73 Close: 88.80 High: 88.87 Change: + 2.15 % Oil capped its first monthly increase since August on signals that economic expansion in the U.S. is accelerating. A strong euro against the US dollar has Increased oil’s appeal as an alternative investment.

Further the Geopolitical issues in the Middle East continue to support the oil market.

Crude Oil volumes for November, 2012 were Rs.44.04 billion as compared to Rs.8.87 billion for the corresponding month of last year 2011. A significant growth of 396 % has been observed.

3,210

Low: 30.91 High: 34.08

After witnessing a steep fall in the month

28-Nov

GOLD US $/troy Oz

3,220

25-Nov

GOLD [USD / troy Oz]

84

22-Nov

28-Nov

25-Nov

Low: 3,007 High: 3,096

3,240

19-Nov

Open: 3,061 Close: 3,083 Change: + 0 .72 %

22-Nov

19-Nov

16-Nov

13-Nov

7-Nov

10-Nov

4-Nov

1-Nov

3,000

3,260

85

16-Nov

3,050 3,025

3,280

13-Nov

3,075

87 86

10-Nov

3,100

3,300

7-Nov

PMEX COMMODITY INDEX

IRRI 6 [Rs. / 100 kg]

4-Nov

PMEX Commodity INDEX

of October, 2012 silver prices rebounded in last 3 weeks of the month of November 2012. Although the white metal Prices fell down In last couple of days but still managed to post a 2.24 % growth.

Volumes for Silver were Rs. 6.27 bn for November 2012. The figure for the corresponding month of last year was Rs. 5.2 bn.

IRRI-6 RS/100kg

88

7-Nov

411,156 299,823 420,959

CRUDE OIL US $/Barrel

89

10-Nov

Traded Lots

CRUDE OIL [USD / barrel]

4-Nov

Traded Value (Rs) Nov, 2012 105.8 bn Nov, 2011 67.88 bn Oct, 2012 108.6 bn

decline on investor worries that the U.S. fiscal crisis might lead to a recession and a n end-of-month profitmaking which prom- pted a flurry of sell orders.

During November 2012, the traded volumes on the Exchange were Rs. 55.49 bn as compared to 53.79 bn for the corresponding month of last year.

1-Nov

T

he world economy is in its best shape in 18 months as China’s prospects improve and the U.S. looks likely to avoid the so-called fiscal cliff. The Standard & Poor’s GSCI gauge of 24 commodities rose 0.1% where the UBS Bloomberg CMCI index of 26 raw materials was up 0.2 %.

During November, 2012, the traded volumes at Pakistan Mercantile Exchange increased to Rs. 105.8 bn from Rs. 67.88 bn in the corresponding month of the previous year, a growth of 56 % witnessed.

Open: 4,200 Low: 4,150 Close: 4,285 High: 4,375 Change: + 2.02 % After observing an increase in first half of the month prices went down in later part, on the news that stocks are piling up in Malaysia, the largest exporter of the commodity, over a weaker demand.

Over all the prices of palm olein remained in a band of Rs 4,150 /37.324 kg and Rs. 4,375 / 37.324kg.

SOCIAL ISSUES

Conundrum in Karachi

by Jauhar Ali

F

or quite some time, Karachi – known as the ‘City of Lights’ and Pakistan’s industrial and financial hub – has been the target of extremism, militancy, intolerance, sectarian violence, terrorism and killings. In recent months, there has been an unprecedented upsurge in these incidents. On an average, about a dozen innocent people are killed every day besides incidents of kidnapping for ransom, extortion, and activities of a variety of sorts. An air of uncertainty prevails about the safety and security of the people as the death toll from ‘targeted killings’ in Karachi rose to 40 in just three days. According to reports, more than 2000 people were killed during the current year. The actual number may be much higher.

There is no let up or signs of relenting, not to speak of the end of the deadly game anytime soon because, while the criminals seem to have overwhelmingly taken control of the city, the viability and effectiveness of the law enforcement in the city stands practically crippled. The state functionaries who remain barricaded behind high walls and secured doors, except for making state- ments and showing concerns for the spate of killings, seem to have abdicated their primary responsibility of protecting the life and property of their citizens.

The President, the Prime Minister, the Interior Minister, and the Provincial Governor of Sindh, all are concerned about the ongoing state of lawlessness in Karachi. Yet, the law and order situation in the city is getting increasingly out of hand. With every passing day, terrorists’ control over the heart of Pakistan’s economic hub is tightening, while officials and the leaders, with

their ill-equipped, poorly trained and understaffed law-enforcement structure (to react to such incidents), are doing nothing beyond statements of condemnation and claims to bring the criminals to book. Even the noise and fury in the Senate on November 13, did not help improve the situation; there is little or no relief for the citizens of Karachi.

In one of its verdicts on restoring law and order in Karachi, the Supreme Court had ordered the recovery and confiscation of all illegal arms and ammunition in the city, freeing the police of political influences, making laws for taking action against the land mafia active in the city, and ensuring that, in future, arms licences were issued only through NADRA. Sadly, none of these injunctions have been implemented. Terrorism and killings, earlier restricted to some specific areas, have spread and practically engulfed the whole city. The saddest part of it is that the government writ is not to be seen anywhere around.

While the criminals were wreaking havoc in Karachi, the President of Pakistan was enjoying an Eid Millan Party in Malakwal (Punjab). Speaking on this occasion, he referred to the ongoing death game in this metropolitan city as “the attempt of those who are against Pakistan’s peaceful thinking and promotion of democratic norms.” The involvement of some outsiders fishing in the troubled waters may not be ruled out; but the possibility of identifying and apprehending these elements may also not be set aside or considered as something impossible or a distant possibility. It is hard to believe that the law enforcement agencies are not aware of the killers; their problem www.valuechainmagazine.com 73

perhaps is that they are afraid of apprehending the culprits due to the culture of political patronage of the violent gunmen for vested interests. It is unthinkable that with the security and law enforcing agencies in place, the militants could make the city their home with such impunity unless there was patronage and support from those who wield pelf and power to influence the government machinery to take punitive action against them.

We have already heard the ramblings of our Interior Minister Rehman Malik who said that “an invisible force is engaged in disrupting peace in Karachi and Quetta on sectarian basis, but would not succeed in its negative plans against the country.”

When and what does the Interior Minister plan to do to foil the attempts of the “invisible force” for restoring peace in Karachi seems to be a closely guarded secret as nothing whatsoever is seen to have been done so far.

The Prime Minister is also quite concerned about the Karachi situation. Expressing his concern for Karachi in the Federal Cabinet meeting which he chaired on November 14, he said that “extremism, militancy, intolerance, sectarian violence and terrorism, all put together, pose a serious threat and challenge to the country’s sovereignty, security and national cohesion; [and] as a nation, we have to thwart ‘sinister designs’ of the terrorists, and the government would play its part in eliminating these elements.” The people of Karachi have been dying in targeted killings for the past several months. In recent weeks, there is a visible upsurge in terrorist activities. The busy Prime Minister may not have noticed the criminals’ ‘sinister designs’ before or else they would have been uprooted already.

The venerable Chief Minister of Sindh, Syed Qaim Ali Shah did a commendable job of restoring peace in Karachi; on November 12, he inspected different police stations and placed under suspension or transferred certain police officers in key positions besides calling for a list of police officers from the Sindh police chief for more transfers in the coming days. He told the newsmen that restoring law and order was the “top priority” of his government. Is that really the case?

The present government has been in power for the last over four-and-a-half years. But the issue stated to be one of “top priority” still remains unresolved. Interestingly, at least 10 more citizens lost their lives to the guns of target killers by the evening the same day. Instead of undertaking some concrete measures, all that the Sindh Government did was to ban pillion riding for over two weeks as one of the measures to stop terrorism. Has it ever helped overcome the problem?

Despite extensive security measures claimed to have been taken in the city to avert incidents of terrorism, the people of Karachi had another terrifyiing experience on November 21 when at least three persons were killed while 20 others sustained injuries in twin blasts near an Imambargah in Orangi Town. The first blast occurred when an alleged suicide bomber while trying to enter with his explosive-laden bike in the Imambargah rammed into a rickshaw accidentally leaving three persons killed and seven others injured. Within abouot half-an-hour thereafter, while the rescue and investigation work was yet in process, the second bomb, planted outside a shop near the scene of the first blast, also went off leaving 13 persons injured. What is astonishing is that the bomb disposal squad and the law enforcing agencies had cleared the site after the first blast.

74 www.valuechainmagazine.com

Target killing stats per year source: CPLC & Sindh Police

1356

1437

1037 786

373 56

98

56

187

104

228

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Earlier on November 18, a bomb went off near an Imambargah in Abbas Town locality of Gulshan-e-Iqbal. Reportedly four people were killed and over a dozen others injured in the incident. Although there were intelligence reports about the threats of such attacks during the first 10 days of Muharram, the blasts could not be prevented.

The good news is that the Sindh police, that have so far miserably failed to act against terrorism, have succeeded in identifying ‘five major reasons’ behind continuing target killings in the city. Interesting! How long, if ever, will it take for our worthy police to take action and bring the criminals to book?

The upsurge in deteriorating law and order situation in Karachi and inability of the government and the law enforcers has led to build-up of frustration to a point where demands are being made to impose a state of ‘emergency’, or hand over control of the city to the Armed Forces of Pakistan for a cleanup. It might help stop the conundrum temporarily; but it may not offer a permanent solution. The experience of the army action of 1992 should serve as a guide in this regard.

With the heightened phase of carnage taking place in Karachi, and a general reign of terror in which citizens are kidnapped for ransom and businesses subjected to extortion, militancy, sectarian conflicts, extremism and terrorism, deadly violence, extortionism, and run-of-the-mill targeted killings, a wave of gloom and concern pervades the city which in turn is descending in the vortex of uncertainty and chaos. The situation points to serious flaws in the security apparatus of the state where the law enforcers are seen way below the rising curve of terrorism.

Undoubtedly, there are security lapses and legal loopholes that allow the criminals to wriggle through the judicial system and return as free persons to re-engage in their nefarious activities again, but things cannot be left unattended. What is needed is that the federal and provincial governments, security agencies, political and religious parties and the religious scholars should sit together and think of the ways of pulling the city out of the marshes and establishing lasting peace in the city.

On their part, the people of Karachi should also play their role as responsible citizens of the state. The Prime Minister has rightly suggested to the people of Karachi to keep an eye on miscreants, and inform the law enforcing agencies about any suspicious activity. Strengthening the hands of the law enforcing agencies is important; who else could perform this role better than the people themselves? Karachi is mini-Pakistan, and cannot be left to the whims of the few disgruntled or misguided elements.

OBITUARY

Bal Thackeray: a leader committed to expediency

B

ala Saheb Keshav Thackeray, popularly known as Bal Thackeray, breathed his last on November 17, just two months short of his 87th birthday. Rated as one of India’s most ‘divisive’ political leaders, he began his professional career as a cartoonist with one of the Mumbaibased English dailies ‘The Free Press Journal’. Later his cartoons were also published in the Sunday edition of the ‘Times of India’. Finally he began publishing his own weekly ‘Marmik’ in 1960 and six years later on June 19, 1966 founded his pro-Maharashtra Shiv Sena party–the army of Shivaji, the famous Marhata ruler who defied the Moughal empire. Thackeray’s father, Keshav Sitaram Thackeray, too was a writer but used to publish a fortnightly called ‘Prabodhan’ (enlightenment). Although known for bashing Muslims all life, the firebrand Bal Thackeray began his career as the leader of Shiv Sena by fighting against non-Marathi workers migrating to Bombay, a city that his party re-named as Mumbai. By mid-1970s Shiv Sena was a fact of life in Bombay; it organised riots, gheraos and bandhs with chilling, violent efficiency. Precious little is known about any productive efforts that this outfit made for the Marathis.

Yet, a measure of Thackeray’s influence was the fact that, beginning the 1990s, Shiv Sena had become an un-ignorable threat and the day he died Bombay was frozen as long lines of politicians, businessmen, and film actors headed for his residence. How many of them actually admired him (given his blatantly open role in many of massacres in Bombay) is anybody’s guess but that these mourners feared a backlash if they didn’t turn up to mourn his death is a certainty. Shiv Sena’s reputation as a party associated with intimidation and violence is not the least in doubt.

Although Thackeray eventually joined hands with equally militant BJP, his sponsor was Maharashtra’s Congress chief minister VP Naik who sought Shiv Sena to counter the trade unions that were taking over the control of Bombay’s illadministered industrial belt. Naik and, oddly, several other Congress bosses used Shiv Sena to attack the campaign of VK Krishna Menon, who was opposing the Congress party in Bombay in the 1967 general elections.

But by mid-1970s, tables had turned. In 1975-76 during the emergency imposed by erstwhile PM Indira Gandhi, Shiv Sena’s press was shut down and many Sainiks were arrested. By the mid-1980s the BJP-loving, Muslim-hating leader of Shiv Sena had forgiven Gujaratis and other ‘prosperous’ outsiders and concluded that Muslim-bashing held out far better political prospects. Using his friendship with Pramod Mahajan, he linked up with the BJP, and in 1992-93, Shiv Sena took an active part in the communal riots that shook the whole of India.

Thackeray felt proud of his role in all those massacres. His pride was hurt when Mani Ratnam’s movie ‘Bombay’ was released.

Thackeray’s main objection thereto was that a Thackeray-like character in that movie expressed his regrets over the massacres in Bombay–a totally uncalled for gesture; “why should I regret?” he roared. It was no surprise that following the riots the Shiv Sena-BJP alliance won the elections in Maharashtra. Determined that he mustn’t seem just as another politician, Thackeray flatly refused to head the government, appointed one of his protégés as the Chief Minister, and declared he would run the show by “remote control”. Among the great successes of his control were not the initiatives that improved the lives of the ordinary Bombay citizens. Criminal gangs, mafias of a variety and social inequalities only escalated.

But there are many beneficiaries of this state of affairs who continue to support Thackeray’s Shiv Sena.

Thackeray out-lived most of his opponents and was able to promote religious segregation and inequalities, virtually un-opposed. What accounted for Thackeray’s longevity were a mixture of personal charisma, blood-boiling expression and sense of timing. This conduct reflected just one core belief: that he was supreme. Except for that belief, he could adopt any self-serving stance and use his eloquence to justify it, as portrayed by his irrational reaction to the movie “Bombay”. In essence, he was a small man–one who could not fathom the reality that all humans on this planet are equal.

Not surprisingly, Thackeray’s idol was Adolf Hitler (whom he would refer to as a painter to deceive people into believing that he didn’t subscribe to Hitler’s racial segregationist theory about superior and inferior races). Bal Thackeray’s success as a political leader is a deception; he was racist and in that role he succeeded marvelously. What he left behind is a long story full of shameful acts of racism and religious intolerance, which is hardly the legacy of a great leader.

At a personal level, he was charming, warm and loyal too, if it suited his ends. That’s why, at a political level, he ran Shiv Sena like a creative enterprise, altering its storyline, to adopt a expedient strategy, and in this context his deceptive abilities rarely failed him. Shiv Sena–his enterprise continues to flourish and is shaping the character of the city of its birth –Bombay–by changing its character from a cosmopolitan to a Marathi-centric Mumbai.

That expediency was Thackeray’s driving force is proved by the fact that, despite his hatred for the Muslims, he reposed great confidence in the healing abilities of Dr Jalik Parker and Dr Abdul Samad Ansari, who have been treating Thackeray’s family since 2009. His son Uddhav, who will now assume the control of Shiv Sena, underwent another phase of heart treatment in November at a Bombay hospital, and his angioplasty too was conducted by Dr Parker, the physician who officially announced Bal Thackeray dead on November 17. www.valuechainmagazine.com 75

INFORMATION & TECHNOLOGY

FBR planning to tax Google: is it possible?

by Taimoor Akhtar Bhatti

W

ith its current pace of development in information and technology (IT), Pakistan is gradually moving ahead to emerge as the next regional hub for the IT sector in South Asia.

Local companies dealing in information technology sector are already taxed but what about the global IT and web companies which are generating revenues from Pakistan? It has been confirmed by now that Federal Board of Revenue (FBR), the federal authority responsible for taxing businesses and individuals in Pakistan, is seeking ways to tax internet giant Google, on the revenue generated through its business in Pakistan. But this proposition, however, is not as simple as it appears to be; FBR needs to develop an inclusive strategy related to Google areas of business in Pakistan and devise a legal framework before imposing the proposed tax structure.

It would be worth mentioning here that the Google is already taxed in neighboring India, the current regional IT giant in South Asia. Recently, in November, Internet giant’s Indian chapter, was slapped with a fine of INR 760 million (US$13.8 million) by the country's income-tax authorities on charges such as misleading the tax department, under- declaration of revenue generated in India, violations of accounting rules and attempt to show revenues much less than actually generated. Google India has appealed against the penalty order which pertains to the assessment year of 2008-2009.

“Google India had credited an amount of Rs 119.83 crore to Google Ireland Ltd towards distribution fees without deducting tax at source in line with the tax treaty between India and Ireland. The entire activity of (Google’s) AdWords Program and the revenue earned thereon has happened in India with both the advertisers as well as people making use of the advertisements situated in India. To this extent, the income of M/s Google Ireland Ltd was held to be accrued as well as arisen in India itself,” said the order.

The tax office had tracked Google's operations in other markets through various sources and media reports, and informed Indian authorities on the nature of transactions between India and Ireland, which aimed at avoiding taxes.

76 www.valuechainmagazine.com

Indian newspapers further quoted Google spokesperson for India having said that “Google places great importance to adherence to the local laws and comply with applicable tax rules in all countries where we operate.”

This scenario tolled the bell in Pakistan where the tax managers are seriously thinking to follow suit. Pakistani tax authorities feel, “If Indian tax authorities can fine Google, then why can’t we bring it under the tax net?” FBR tax experts are of the opinion that Google can be bound (by Pakistani authorities) to deduct tax for all media buying within Pakistan at the time of purchase. Similarly, all AdSense payments can be taxed at the time of issuance of payments to Pakistani publishers. This process of deducting tax from publishers and advertisers (at the time of transaction) is in practice in USA and European countries. According to media reports, about Rs. 320 million were spent in online media from Pakistani advertisers during the last fiscal year, 35 percent of which is shared by Google. Experts say that taxing Google is very much possible but extremely hard.

They say that Pakistani tax authorities will have to be vigilant and come out of the box to tax a company like Google.

In the month of September 2012, Dr. Kamil Tarar, Pakistani IT expert, submitted a petition against Google to the Chief Justice of Pakistan to take suo-moto notice as Google earns millions from Pakistan annually, and yet pays no tax to the government. His application further stated that Google has been generating business worth $6 million annually without any financial benefit to FBR for years together in the form of central leviable taxes and duties which means that Google should be either brought under tax net or not allowed to earn revenue from Pakistan. Surprisingly, Google is operating in Pakistan without any lawful authority and the government has no check and balances in place.

On 3rd September, Google Inc. held a gathering of IT experts and Google officials to highlight its interest in Pakistani IT market. It was revealed in the event that it sees Pakistan as a US 500 million dollar (or Rs. 47 Billion) advertising market with 22 million internet users, which is larger than the population of Australia and Singapore.

TRAVEL & TOURISM

Ukraine: an enticing destination

by K. Jehangeer Khan

T

ourism in Ukraine is generally considered to be underdeveloped, yet, the country is known as the 8th most popular tourism destination in Europe.

The visitors primarily come from Eastern and Western Europe, USA, Israel and Canada. In 2011, foreign tourist arrivals were about 21 million, with CIS countries accounting for 63% and EU countries for 33%.

Tourism serves as one of the key factors driving the Ukrainian economy. Its contribution to GDP is around 2%. The World Travel & Tourism Council (WTTC) forecasts a 4% annual growth in the sector’s contribution to GDP by 2022.

Located on the crossroads between central and eastern Europe, between north and south and blessed with spectacular landscapes, rich culture and major historical sites, mountain ranges and coastal areas Ukraine provides a diverse portfolio of tourism assets that attract more than 20 million foreign citizens every year with places like the Carpathian Mountains in western part, Ukraine offers an unspoiled, gently undulating beautiful mix of natural areas, forests, meadows, shepherds and humans living in harmony with nature. The Carpathian Mountains or one of the most popular resorts and considered as a the Green Pearl of Ukraine. The Ukranian coastline on the Black Sea is a popular summer destination for sea and sun worshippers. Visitors can also take cruise tours by ship on the Dnipro River from Kyiv to the Black Sea coastline.

Historic and cultural sites are concentrated in Kyiv, Lviv, Chernihiv, Odessa, and Crimea. Crimea is a fascinating region to explore, as well as a great place to spend a vacation. Across

the centuries it has attracted settlers such as the Greeks, the Venetians and the Genoese - all of whom founded cities along the coast and inter-married with the local people.

For those wanting to experience city life in Ukraine, there is the bustling capital Kiev, with its beautiful architecture, fantastic restaurants and first rate museums. Ancient churches, broad boulevards, beautiful landscapes and a variety of cultural facilities make it fascinating destination for the tourists. The art and architecture of Kyiv are world treasures.

Lviv is a poetic city steeped in legends, both ancient and relatively new. It has narrow medieval streets paved with stones and architectural decoration done in different styles, all preserved in its original form. Almost half of all Ukrainian architectural relics are located in the Lviv Oblast The Odessa Archaeological Museum has a Neo-classical architecture. The site features numerous artifacts and collections of artworks that are important to the history of the country. This tourist spot is near and very accessible to other tourist destinations in Odessa like the Duc de Richelieu statue.

Encouraged by the interest shown by the tourists as reflected by the great number of tourists’ arrivals, the government of Ukraine is set about modernization and further uplifting of its tourist resorts. Modernization of Ukraine's tourism infrastructure is becoming an important priority for the Ukrainian and Crimean governments.

In preparation for UEFA European Football Championship 2012, significant investments were made in transport development (USD 7.6 billion), hotel (USD 3.2 billion) and sport www.valuechainmagazine.com 77

(USD 1.1 billion) infrastructure to reinforce the country’s capacity to host the expected number of foreign visitors.

Hosting of the event was of extremely significant importance as it aimed at helping address several goals which included significant development of the country’s infrastructure to promote tourism and standard destination for visitors. A well-organized event could also improve the image of Ukraine in Europe and elsewhere in the world.

However, the results were not as encouraging as expected.

The coveted goals could not be achieved as the efforts were marred by internal political developments. Rather than trying to improve the image of the country, some members of the government and their business associates used the championship as a source of personal enrichment. As a result, the initiative neither helped improve Ukraine’s image internationally nor did it contribute significantly to the growth of its economy.

There are a number of sites which are worth not missing during visit to Ukraine. Some of them are: Khotyn Fortress: Situated in Khotyn and included in the Seven Wonders of Ukraine, this historical place, construction of which was led by Prince Vladimir Sviatoslavich in the 10th century, provides significant transportation routes connecting Ponyzia to Kiev and Scandinavia.

The Savior Cathedral of Cherniv: This is the oldest church in the country depicting the Byzantine architecture.

Inside the cathedral, people can find pillars that are made of marbles. It features artifacts of as early as 1030.

Yalta: Steep mountain peaks serve as a lovely backdrop for Yalta, the jewel of the Crimean peninsula. Yalta has exemplary resorts, museums, and beaches. The city features numerous attractive health resorts. In addition, there are other famous destinations in the place like the Armenian Church, the Alexander Nevsky Cathedral and the Nikitsky Botanical Garden.

National Museum: The National Museum of the History of the Great Patriotic War in Kiev features statues that depict the events in the World War II. One of the most interesting statues represents the 1943 Battle of the Dnieper.

78 www.valuechainmagazine.com

Vyudubychi Monastery: Many people like to see the Vyudubychi Monastery because several known individuals were buried at this place such as Vladimir Alekseyevich Betz and Konstantin Ushinsky. The monastery was constructed from 1070 to 1077. Inside the premises of the monastery, people can find different cathedrals like the Saint George Cathedral.

Sofiyivsky Park: Sophievka is one of the most popular garden parks in the world and a real world landscape architectural masterpiece of the end of the 18th century and the beginning of the 19th. The park is spread over an area of 1547 hectares at the outskirts of the ancient town Cherkassy, Uman region. It is considered to be the standard of the landscape composition of water, land, architectural works and sculptures. At the site, people can find different scenic areas like fountains and waterfalls.

Saint Sophia Cathedral: Inside the cathedral, people can find the cathedral’s bellower and a collection of commemorative coins given by the government of Russia.

Located at Kiev, the Cathedral is listed as one of the UNESCO World Heritage Sites. The site is originally the spot where former leaders of Kiev were buried.

Kiev Pechersk Lavra: Pechersk Lavra is a unique monastic complex, included by the UNESCO into the list of the monuments of the world-wide significance. Also called the Kiev Monastery of the Caves, the Kiev Pechersk Lavra was constructed in 1015. The place features the Great Lavra Bellower and the Gate Church of the Trinity. There are also museums inside the monastery including the Museum of Ukranian Folk Art and the State Historical Library.

In recent years, Ukraine has become a top destination for medical tourists seeking low cost healthcare and highly qualified doctors. Kiev boasts many international standard private hospitals and clinics making it a perfect base for medical tourists. The standards of Private Healthcare are exceptionally high. The low cost of medical treatment along with the highly qualified Ukrainian doctors are a major attraction in medical tourists seeking treatment in Ukraine.

SCIENCE & TECHNOLOGY

Japan's new nuclear-proof robot

A

Japanese robot, designed to withstand high levels of radiation and extreme heat at damaged nuclear plants such as Fukushima, displayed its performance on its first public demonstration on 21 November. Japan has been the home to the largest number of industrial robots in the world. Yet, hithertofore, the country did not have a device capable of entering the damaged Fukushima nuclear facility after last year's devastating earthquake and tsunami.

Japan brought in U.S. robots to survey the extent of the damage inside the reactor buildings.

The robot has been made by Japanese company Toshiba and has the ability to carry up to 20kg of equipment and lifting itself up if it falls over on uneven surfaces and amid debris. Just over one metre tall, the Tetrapod robot weighs 65kg and is equipped with sensors to detect radiation levels and a camera so that the investigators can operate the machine from a safe distance.

The robot has multiple-jointed legs that are controlled via a dedicated movement algorithm. This gives it the ability to negotiate uneven surfaces, avoid objects and even climb stairs to reach areas that wheeled robots cannot access.

World’s tallest building in 3 months

A

company in China is preparing to build the world’s tallest skyscraper at Changsha City. This is not surprising because several countries around the world have been building scyscrapers. What is unique and distinguishing about it is that the Chinese company plans to complete the task in just 90 days from the foundation upwards. Work on this project starts at the end of November.

The building, to be called the “Sky City,” will be 838 metres high, with 220 floors and a construction area of one million square metres. 200,000 tons of steel will be used in construction. The building will have the capacity to accommodate 31,000 people inside, who will be able to move up and down with the help of 104 high speed lifts. Some 83% of the building will be for residential use, with room for 17,400 people. It will also have a hotel with a capacity for 1,000 visitors. There will be schools educating up to 4,600 children and a hospital which will have facilities to treat 1,400 patients. Only 3% of the building will be for office use. Any remaining space will be used for shops and restaurants.

The building will be just a few metres taller than the Burj Khalifa in Dubai but will be constructed at a fraction of the cost. The company behind it, Broad Sustainable Building (BSB), specialises in prefabricated modular technology which allows them to cut costs significantly. The Burj in Dubai cost £9,500 per square metre, whereas Sky City will cost just £950 per square metre. Some of the team members who built the Burj will also work on this new project. The Chinese company claimed that building will be able to withstand earthquakes of upto magnitude 9 on the rickter scale .

Bendable screens smartphones 'next year'

N

ext year could bring a new twist in the evolution of the smartphones as Samsung is gearing up to produce flexible, unbreakable mobile phone screens that can be bent, twisted and even folded up. The South Korean tech giant reportedly has the flexible screens in the final stage of development and will be ready to ship them next year. The breakthrough has been made by the use of organic light emitting diodes (OLEDs), which are thin and can be put on flexible material such as plastic or metal foil.

Samsung is not the only company to have invested heavily in research into flexible screens using OLEDs. Companies including Japan's Sony and LG Display, also of South Korea have launched prototypes. However Samsung is the first to promise a launch date for the technology.

The company's move to produce the flexible displays comes as smartphone and tablet makers search for ways to differentiate their products in a market where customers face a flood of almost identical products. www.valuechainmagazine.com 79

DISCOVERY

US Navy producing jet fuel from seawater

T

he US Navy Research Laboratories are working on a project which can produce ‘JP-5’ fuel from seawater.

With an eye on sustainable energy efforts and the current $11 billion annual fuel bill for the U.S. Navy, scientists at the U.S. Naval Research Laboratory (NRL) have created a process that turns sea water into jet fuel. The process will extract carbon dioxdide (CO2) and produce hydrogen (H2) from seawater, subsequently catalytically converting the CO2 and H2 into jet fuel by a gas-toliquids process. The potential payoff is the ability to produce JP-5 fuel; JP-5 is the fuel which US Navy fighter jets, frigates and aircraft carriers use. The ability to produce JP-5 fuel stock at sea will allow the US Navy to reduce the logistics expenses on fuel delivery with no environmental burden. Navy officials estimate the process used to convert the seawater to fuel would cost somewhere between $3 and $6 per gallon. The US Navy has confirmed that their scientists achieved a major breakthrough but the research process is still going on.

New material for Bulletproofing material

N

ed Thomas, the Dean of the George R. Brown School of Engineering at Rice University in Texas have discovered a new super polymer material that is stronger than a speeding bullet. The dynamic new compound is able to stop 9mm bullets a common pistol and sub-machinegun round. The remarkable polymer could revolutionize bulletproof vests for soldiers and police officers, as well as make lightweight, durable aircraft skins and jet engine blades. The material is a complex multiblock copolymer polyurethanem, which is a synthetic compound built in the lab.

The polymer substance can detain the bullet and seal it without any damage and cracks. It is a clear material and anybody could see through it, making it a great ballistic windshield material.

By conducting similar 'gunshot tests' at a microscopic level, the scientists found that the polymer actually liquefied when it came in contact with high velocity penetration. However, because the polymer is actually comprised of thousands of barely-perceptible layers, only some of the material liquefied, while the rest held its shape and strength. That means the material is sturdy without being brittle. It absorbs shock without breaking or bending.

A new study on Einstein's intelligence

A

ccording to a new study, Albert Einstein's extraordinary intelligence may have been related to a uniquely shaped brain. Researchers compared Einstein's brain to 85 'normal' human brains to determine what unusual features it possessed. The study, 'The Cerebral Cortex of Albert Einstein: A Description and Preliminary Analysis of Unpublished Photographs,' was conducted by Dean Falk, a senior scholar at Santa Fe’s School for Advanced Research and published on Nov. 16 in ‘Brain’, a journal on neurology.

The researchers noted that although the overall size and asymmetrical shape of Einstein's brain were normal, the prefrontal, somatosensory, primary motor, parietal, temporal and occipital cortices were extraordinary. These may have provided the neurological assistance for some of his intelligence and mathematical abilities. With permission from his family, Einstein's brain was removed and photographed upon his death in 1955. It was even sectioned into 240 blocks to make histological slides. Most of those photos, blocks, and slides have been hid from the public eye, and the photographs used by Falk's team are held by the National Museum of Health and Medicine. Some of the photos show unusual angles of Einstein’s brain. The study concluded that the brain was not spherical, as some studies have said, and was not unusual in size or shape. The right side of Einstein’s brain showed four folds in that area. That may be the most highly evolved part of the human brain. This part of brain is involved in planning, daydreaming, analyzing problems and finding solutions.

80

www.valuechainmagazine.com

SPORTS

‘Over cricketing’ won’t work; reviving Test Matches would

T

he year 2012 will, probably be the year-till-date wherein the highest-ever number of matches will be played by December 31. Isn’t this ‘over-cricketing’? Can players be expected fairly to play good cricket at the pace demanded by this schedule? That this isn’t the case was proved by Bangladesh defeating West Indies in a 1-day match in Bangladesh, on November 30, virtually within days of West Indies winning the ICC T20 Championship. It also proves that winning the limited over matches has more to do with luck than with playing skills.

Test matches give the players a real chance of showing their skills, not the limited over matches. Yet, the 11 test matches played this year were insignificant compared to the number of T20 matches that will add up to a hefty 141 by year-end. Even the 1-day matches added up to a paltry 10. That people around the world no longer have the luxury of watching 5-day test matches is a reality, but in spite thereof test matches shouldn’t be sidelined, which seems to be the case.

It seems that, finally, the ICC has noticed this negative trend, and to make it possible for the cricket-lovers to watch test matches, it has floated the idea of test matches being played after sundown. Hopefully, this change will once again make test matches financially as viable, as they used to be, because it will be convenient for large crowds to watch them in the stadiums after finishing their work routines. But it took the ICC a bit too long to reach this conclusion, which will make popularizing test matches a demanding job.

Although this would be a radical change, it would be worthwhile for all the cricket-playing nations to accept it, and play more test matches because, historically, the finest cricketers were produced by test matches, not 1-day or T20 matches. It is agreed by most senior cricketers that while 1-day and T20 matches are excessively entertaining, the quality of the game is on a slide. Ever since the advent of limited over matches, the element of recklessness became prominent in cricket.

The beauty and grace of the game, and the patience batsmen exhibited while playing test matches, has virtually disappeared.

Besides, this change in the profile of the game also made it more susceptible to ‘match fixing’. Until the 1970s, when limited over matches were unknown, there were virtually no incidents of ‘match fixing’, and the (now flawed) business of betting on match results was not a source of huge incomes.

The only flaw in cricket until then was the quality of umpireng; it was blamed for decision errors [due to the absence the Decision Review System (DRS) technology] and biases rooted of in the nationalities of the umpires. The emergence of the DRS has largely taken care of this big flaw and removed this stigma on the game. This should augur well for test matches, and help build high class players in teams in all the cricket-playing nations. This is important for the future of the game and its becoming much more of a globally played game. It is time cricket authorities everywhere took this issue instead of fighting over issues like the colour of the ball for playing test matches after sundown.

by Syed Asif Ali

T20 matches Locations India Sri Lanka S. Africa Sri Lanka Bangladesh India S. Africa India Total matches

Event Indian Pr. League ICC t20 World Cup Champions League Two-nation series Two-nation series Two-nation series Two-nation series Two-nation series

One-day matches Sri Lanka

Bangladesh Total matches

Test matches S. Africa India Bangladesh Sri Lanka Total matches

Participant 9 Indian cricket clubs 12 nations 14 local & foreign clubs Sri Lanka & N’ Zealand Bangladesh & W. Indies India & England S. Africa & N’ Zealand India & Pakistan

Duration Apr. 04 – May 27 Sept. 12 – Oct 07 Oct. 09 -28

Matches 76

Oct. 30

1

Dec. 12

1

Dec. 20 and 22 Dec. 21 – 26 Dec. 25 – 28

2

Two-nation series Two-nation series

Sri Lanka & N’ Zealand Bangladesh & W. Indies

Nov. 01 – 12 Nov. 30 – Dec. 08

Two-nation series Two-nation series Two-nation series Two-nation series

Australia & S. Africa India & England Bangladesh & W. Indies Sri Lanka & N’ Zealand

No. 09 – 04 Dec. Nov 15 – Dec. 12 Nov. 13 – 12 No. 17 – 29

27 29

3 2 141 5 5 10 3 4 2 2 11

Let us accept the fact that a limited over match doesn’t allow players to show their best cricketing skills because there is no room for error, which is asking too much of any player, good or not so good. This flaw reduces the limited over matches to contests that a team can win only if it is lucky that day; its skills don’t matter as much. This is especially true of the T20 matches because, given 4-over bowling spells even the highly skilled bowlers don’t get a chance to show their qualities.

This is equally true for the batsmen because, right from the word go, they are expected to hit boundaries and sixes, forc-ing them to play un-natural strokes. This profile makes this game ‘reckless’. This form of cricket is making the spectators admire recklessness not the beauty of the game, which is not good for the future of the game. Batsmen no longer aspire to score centuries. As long as they score runs that are more than the balls they played, they feel they have done their job which is a clear indication of the decline of the game and the worst part thereof is that they still end up with big rewards. www.valuechainmagazine.com 81

While its is likely that test matches played after sundown will attract large crowds, and become financially viable, what still seem uncontrollable are the evils hurting the game’s image–“match fixing” and betting on match results based thereon. The fear is that, while test matches played at after sundown may attract larger crowds, this upsurge could render them susceptible to these evils because the fellows in this trade will devise new ways of corrupting this otherwise clean profile of the game as well.

The issue that hasn’t been addressed as effectively as should be the case is corruption within the cricketing institutions. It has led to very embarrassing situations for these institutions, and earned them adverse publicity, and Pakistan is the worst sufferer on this count. Even if you overlook the Salim Malik affair as a part of old history, the incident involving Salman But, Muhammad Asif and Muhammad Amir aren’t as old; in fact, they continue to hurt Pakistan’s image.

The latest is the unfolding story about India-Pakistan semi-final match in the One-day World Cup Championship series played in India in 2011. While God and the two teams alone know the truth about what actually happened in that match, sceptics in Pakistan thought even at that time that there was more to Pakistan’s amazing defeat than what they saw on the TV screens. They are still of the view that Pakistan was told point blank that because the series was being played in India there was no way Pakistan could win this series; the reason therefor was that such an outcome could cause Anti-Muslim 82 www.valuechainmagazine.com

riots, which had been threatened by Shiv Sena of the late Bal Thackeray. If, at some point in time, it is actually proved that the result of the India-Pakistan semi-final was, in fact, agreed in advance, and to allay the fears of the overly worried Indian government on this count Pakistan’s Prime Minister travelled to India to witness that match (and ensure its desired result), it would reflect very badly on the state of cricket in Pakistan and state interference therein, because test matches too could suffer a similar fate.

Hopefully, this won’t turn out to be the truth. This brightens the hope for test matches being corruption-free, and also the forums to revive real, good, professional cricket all over the world. This will re-set the standards the players should aspire for. Revival of test match cricket will also afford its lovers to see what cricket actually demands of its players, and what is cricket ‘at its best’–something the spectators haven’t seen for a long, long time.

It is time two nations (why not India and Pakistan?) set the trend by playing the first-ever night test matches and show-ing the world that it is workable. Both countries have huge populations of cricket fans, which would ensure the success of this experiment and elevate both countries to yet another higher pedestal in promoting cricket. The ideal way of going about it would be to lower the ticket prices to induce a large number of spectators to once again get used to watching test matches; once the trend picks-up ticket prices may gradually be revised upwards to their fair level.

INVITATION TO WRITERS Effective communication has always been regarded as essential and important. Especially in the present era of information overload, importance of effective communication has increased manifold. Writing is an Art and an essential part of effective communication. The ability to think creatively and write clearly, concisely and convincingly is not a closed preserve of some selected individuals or groups of individuals. This may come to anyone, anywhere, anytime.

If you have original ideas and wield a facile pen, you are most cordially invited to use it for writing research papers and articles on topical subjects for Value Chain, a monthly publication.

The magazine covers Global & National Economy, Politics, Banking & Finance, Agriculture, Trade & Industry, Social Issues besides Art & Literature, History, Science, Games & Sports, Book Review etc. – subjects that will be of interest to any reader, no matter how intensely he or she may be involved in economic matters and issues.

Chief Editor

To contact us dial 021-35293371-72

Or

Type us on ask@valuechain.com.pk

Feedback Form “Value Chain” has successfully completed the first year of its publication. This has been possible due to encouragement received from our readers. We thank them all. During the last one year, we have tried to address topics and issues that are of common interest to the readers. For further improvement of the magazine we need suggestions on what our valued readers would like us to incorporate in the magazine. We shall be grateful if this feedback form is completed and returned to us at the earliest.

Chief Editor Personal Details First Name:

Last Name:

Company Name:

Job Title:

Address:

City:

Postcode:

Telephone:

Fax:

Email:

Mobile:

Poor 1

2

Average 3

4

Excellent 5

Design / Presentation of the Magazine: Easy to read: Contents: Articles on Economy: Articles on Politics Articles on Banking & Finance Industry Coverage: Research Articles Our Regular Features What else would you like to see in the next edition of “Value Chain”?

Comments

Fatima Khalid Publications (Pvt) Limited

Room No. 612, 6th Floor, Clifton Center, Khayaban-e-Roomi, Clifton, Karachi.

Ph: 021-35293371-72 Website: www.valuechainmagazine.com

ASTROLOGY

Your Horoscope December 2012 ARIES: Mars, your ruling planet, will stay in its chart house from 22nd to 23rd Dec which will add to your reputation in business and career. A foreign tour and friend circle will be beneficial. On 3rd Dec, matters concerning heredity and law will require your utmost attention. While travelling you need to be very careful due to Jupiter's retrograde position on 3rd Dec. Sun-Jupiter opposition on 3rd and 4th Dec, may create misunderstandings with relatives living far off ; be reserve with strangers during travelling.

Mercury-Jupiter opposition will make you see your colleague one step behind your self-determined yardstick of cooperation; be careful.

TAURUS: In 7th house, Venus will make your partner

center of love and more cooperative with you from 1st to 16th Dec. Mercury will influence first ten days of the month. From 17th to 31st Dec, heredity and law suits will become easy to tackle due to Venus' appearance in 8th house while retrograde position of Jupiter in money house will make your financial status strong but keep an eye on others. From 1st to 26th Dec, Mars appearing in 9th house will remain in its ascendant position (on 22nd and 23rd Dec) which will demand your attention on spiritual matters, higher education and foreign visit. Venus-Neptune Square, from 16th to 17th Dec, will make you more sensitive about love affairs and you will be indecisive; so beware of the situation. Venus-Uranus Trine will make your creativity more potent and you will pave the way for yourself to be distinct from others. From 26th to 27th Dec, Venus-Jupiter opposition will keep your attention focused on matters relating to law and expenditure.

GEMINI: Under the influence of your ruling planet, Mercury, your attitude and behavior will be one of a responsible person from 1st to 11th Dec. Venus' influence during the first 16 days of the month may be negative for you; so you must give almas to avoid the ill effects. Under the influence of the Sun during the first 21 days you will gain good reputation but you must be polite with your partner. From 12th to 31st Dec, mercury's stay in 7th house will make you focus on domestic affairs. Jupiter in ascendant position will affirm your ideologies and you will need to consult others before decision making process. On 11th and 12th Dec, Neptune square will stir a strong wave of misunderstandings and wastage of time. Under MercuryUranus Trine your attitude towards experimentation will be beneficial for you. From Under the influence of MercuryJupiter on 18th and 19th, you will adopt an over-confidant posture which will be harmful for you. Mars, from 1st to 27th Dec, will appear in 8th house in its ascendant position; on 22nd and 23rd Dec, you will find several remedies of ongoing legal and family problems.

by Dr. Aameer Mian www.astrohope.com

CANCER: Moon's rise and fall will not only firm up

your determination and attitude but you will also enjoy revolutionary thoughts and good repute. On 23rd, 24th and 25th Dec, Moon in ascendant position will help you in fulfillment of you long cherished desire. From 1st to 26th Dec, Mars will appear in 7th house of your birth chart which will give you comfort in affairs concerning domestic and social life. In 5th house, the collective influence of three stars will make love and children weighty affair for you whereas Venus-Mercury's stay in 6th house will urge desire for attainment of job and indicate better health signs.

Under Venus-Jupiter opposition, from 23rd and 24th Dec, beware of the jealous and the sub-ordinates. From 30th to 31st Dec, Saturn-Sun Sextile you may fall in love affair which may result in love marriage.

LEO: Sun's appearance in 5th house will make love and

children weighty affairs from 1st to 21st Dec. Your subordinates will respect you and you will build up new connection along with the improvement in health from 22nd and 31st Dec under Sun's stay in 6th house. Mars' ascendant position in 6th house, from 1st to 26th Dec, will help solve your job problem and you will get your desired job. Jupiter's retrograde position in 11th house will not delay the fulfillment of your wishes. But you need to control your expenditure.

Under Sun-Uranus Square, from 26th to 27th Dec, you will feel tired by working hard and getting better understanding of situation. Sun-Pluto Conjunction will move you to use money for the fulfillment of your wishes and you will feel temptated towards opposite sex, from 30th to 31st Dec.You should not believe everyone blindly. From 30th to 31st Dec, Sun-Saturn Sextile will help you power of manage things in difficult situations and you will build new social connection with VIPs. You will get success remaining in the limited boundaries.

VIRGO:

Mercury, making stay in 3rd house, will further strengthen your relations with family and peers from 1st to 11th Dec. Under the influence of Jupiter’s retrograde position in your money house, you must consult others in changing your career and also in business contracts. Mercury’s stay in 4th house will make property and domestic matters better from 12th to 31st Dec. But in 4th house Sun's stay will indicate not to make haste and adopt careful attitude till 21st Dec. Your love life will be pleasant and you will achieve handsome amount of money, may be through prize bond due to Mars' appearance in 5th house till 26th Dec and also in ascendant position on 22nd and 23rd Dec. Mercury-Neptune Square, on 11th and 12th Dec, will require you to pay heed to consultation with others and adoption of a positive attitude. On 14th and 15th Dec, Mercury-Uranus Trine will improve your technical skills and hobbies. Due to Mercurywww.valuechainmagazine.com 85

Neptune opposition you need to be careful in business; blind trust can be harmful for you on 18th and 19th Dec.

LIBRA: Your ruling planet, Venus, will stay in your money house which will attract attention from 1st to 16th Dec. Not only Saturn but on 11th Dec, Mercury will also appear in money house and create neutral situations for you; be careful while investing. From 1st to 31st Dec, Venus will stay in 3rd house which will maintain healthy relations among you and your relatives. From 1st to 26th Dec, Mars in its ascendant position will make an appearance in 4th house on 22nd and 23rd Dec which will make your domestic environment more comfortable for you. Moreover, you may get a new ride and your property dealings will show signs of improvement. From 16th to 17th Dec, VenusNeptune Square will expose you to challenging situations and your decisive power will be minimized.

Venus-Uranus Trine will polish your creativity and you will get distinct repute by your unique ideas, from 2oth to 21th Dec. Under Venus-Jupiter opposition you must avoid behaving like a chatterbox; critically analyze the circumstances before making decisions, from 23rd to 24th Dec.

CAPRICORN: Your ruling planet Saturn's stay in 11th house of birth chart will make you adopt a co-operative attitude towards your seniors. Whereas during 11th to 16th December, under the influence of Mercury and Venus along with Saturn your wishes will come true. Retrograde Jupiter in 6th house will make you conscious about health issues and will produce sense of responsibility as it is needed! Mars in retrograde position in money house will shape your talent and will ease your work! On 27th and 28th of this month, Saturn-Pluto sextile will bring discipline in your life pattern. Risk taking will be beneficial for achieving your goal. On 30th and 31st Dec, SunSaturn Sextile will be helpful in controlling the situations and healthy relations with higher authorities will bring changes in mode of lie.

AQUARIUS:

SCORPIO: Mars in ascendant position will appear in 3rd house from 1st to 26th Dec and it will make things better for you and your power of decision will improve further. The ascendant position of Mercury from 1st to 11th Dec and Venus from 1st to 16th Dec will give positive diversity to your thinking process while provoking courtesy in your manners. Jupiter's retrograde position in 8th house will demand care anc caution. Your relatives will be cooperative and travelling will prove to be pretty important due to Pluto's appearance in 3rd house. Saturn-Pluto Sextile will give you disciplined life and zest to make friendly relations while others will appreciate your wide vision and ideologies, from 27th to 28th Dec. Sun-Pluto conjunction will motivate you to use power and be distinct from others, from 30th to 31st Dec. You should adopt careful attitude towards opposite sex.

your ruling planet, Saturn, while staying in your money house will pave the way for achieving positive results in your career and business.

Moreover, Mercury and Venus' appearance, till 11th and 16th Dec respectively, will prove to be good omens for your career. Venus and Mercury along with Sun in 11th house, from 17th Dec to 31th Dec respectively and from 12th to 31st Dec, will land you in the company of loving people and increase your interest in literature. In 5th house, Jupiter’s retrograde position will sensitize you to love. After Uranus' retrograde position on 13th Dec the situation will be changed Mercury-Uranus Trine will make you expressive and tempt towards new inventions, from 14th to 15th Dec. Venus-Uranus Trine, from 20th to 21st Dec, will give you distinct position and talking of events and ideas will be recreational.

You will struggle with mental fatigue and for the accurate understanding of circumstances under Sun-Uranus Square from 26th to 27th Dec. Saturn-Pluto Sextile will make you admirable and give you mental peace after accomplishment of pacts, on 27th and 28th Dec. SunSaturn Sextile, from 30th to 31st Dec, will create in you a determined and decisive quality which will lead you towards triumph.

SAGITTARIUS: Jupiter's retrograde position in 7th house will signal careful attitude in marital life and you should not rely too much on anyone. In 12th house, Saturn, Venus and Mercury will stay together causing not only neutral incidents but also requiring a careful planning of budget. Your money house under Mars' influence will be beneficial and you will see a variety of resources for earnings from 1st to 26th Dec while Mars will maintain its ascendant position. Sun in ascendant position will infuriate you so try to control your anger till 21st Dec. Sun-Jupiter opposition will put you to unnecessary queries but you will struggle for the solutions, on 3rd and 4th Dec. You will need the help of legal advisors. On 18th and 19th Dec, under the influence of Mercury-Jupiter opposition your decisions will be misunderstood. On 23rd and 24th Dec, VenusJupiter opposition will pave the way for trustworthy consultancy and you must follow the saying “look before you leap".

PISCES: The 4th house Retrograde Jupiter will make viewpoint of others important for you; be careful while purchasing new ride. Mars' presence in 11th house from 1st to 26th Dec and its ascendant position on 22nd and 23rd Dec will help in attainment of your cherished desires and sincere company. From 3rd to 4th Dec, Sun-Jupiter opposition will create complications especially in legal issues; so, seek help and guidance from experienced people. Mercury-Neptune Trine will create misunderstandings as suggestions don't cut off traffic and be positive, from 11th to 12th Dec. Mercury-Jupiter opposition will agitate your mind from 18th to 19th Dec. You also must ask for the consultation from sincere peer. On 22nd and 23rd Dec, SunNeptune Sextile will set for you a scene of perfect healthy enjoyment and literary activities. You must check your expenditures. On 23rd Dec, Venus-Jupiter opposition will make love a burning issue and expression of ideas will be unnecessary in special events.

86 www.valuechainmagazine.com

QUOTES 1 "My country has lost as much blood as anyone else ... I am opposed to the narrative that Pakistan is somehow not doing enough,”

-Pakistani Foreign Minister, Hina Rabbani Khar stated in an interview to Al-Jazeera

Network, 10 November.

“I want to have a strong UK in the EU. I will do everything to keep the UK in the EU.”

-German Chancellor Angela Merkel stated in a meeting with UK Prime Minister David

Cameron, 6 November.

“I want to thank every American who participated in this election, whether you held an Obama sign or a Romney sign, you made your voice heard and you made a difference.”

-US President Barack Obama, thanking American citizens after his victory in presidential elections, 6 November.

“Israel, which was shaken by a handful of Fajr-5 rockets during eight days - how would it cope with thousands of rockets which would fall on Tel Aviv and other (cities) ... if it attacked Lebanon?”

-Hezbollah leader Sayed Hassan Nasrallah warned Israel after the cease fire

between Hamas and Israel, 25 November.

“The resolution in the U.N. today won't change anything on the ground.”

-Israeli Prime Minister Benjamin Netanyahu reacted after UN General Assembly voted overwhelmingly to recognize Palestine as a non-member state, 29 November.

“We have a chance to ensure that every rupee spent by the government is spent truly well and goes to those who truly deserve it.”

-Indian Prime Minister Manmohan Singh urges his ministers at a meeting, 26

November.

“Whatever happens in the United States – especially something that could happen that would significantly slow the American economy — would be of great concern to us.”

-Canadian Prime Minister Stephen Harper stated during a Q&A session at Canadian

American usiness Council, 19 November.

www.valuechainmagazine.com 87

ENTERTAINMENT Compiled by Ali Siddique Dadi

Review

Rise of the Guardians

Box Office Nov 2012 in US $ Ranks

Movies

Weekend

Gross

Weeks

01

The Twilight Saga: Breaking Dawn - Part 2

$17.4M

$255M

3

02 03 04 05 06 07 08 09 10

007: Skyfall Rise of the Guardians Lincoln Life of Pi Killing Them Softly Wreck-It Ralph Red Dawn Flight The Collection

$17.0M $14M $14M $12M $7M $7M $7M $5M $3M

$246M $49M $84M $48M $7M $158M $31M $82M $3M

4 2 4 2 New 5 2 5 New

The Twilight Saga: Breaking Dawn - Part 2

Directed by

Peter A. Ramsey

Lincoln

Directed by

Bill Condon

Bella (Kristen Stewart) awakes -- as a vampire -- from her life-threatening labor, and her newborn daughter, Renesmee, proves to be very special indeed. While Bella adjusts to her new state of being, Renesmee experiences accelerated growth.

When the Volturi learn of the baby's existence, they declare her to be an abomination and sentence the Cullens to death. Bella, Edward (Robert Pattinson) and the rest of the clan seek help from allies around the world to protect their family.

Directed by

Steven Spielberg

Directed by

007: Skyfall

Life of Pi

Sam Mendes

When James Bond's (Daniel Craig) latest assignment goes terribly wrong, it leads to a calamitous turn of events: Undercover agents around the world are exposed, and MI6 is attacked, forcing M (Judi Dench) to relocate the agency. With MI6 now compromised inside and out, M turns to the one man she can trust: Bond. Aided only by a field agent (Naomie Harris), Bond takes to the shadows and follows a trail to Silva (Javier Bardem), a man from M's past who wants to settle an old score.

Directed by

Ang Lee

88 www.valuechainmagazine.com

ENTERTAINMENT

Review

!920- Evil Returns

Box Office Earning Nov 2012 in Ind Rs. Ranks

Directed by

Prakash Jha

Student of the Year

01 02 03 04 05 06 07 08 09 10

Movies Jab Tak Hai Jaan Son Of Sardaar 1920 - Evil Returns Student Of The Year English Vinglish OMG! Oh My God! Luv Shuv Tey Chicken Khurana Chakravyuh Ajab Gazab Love Rush

Weekend 82.24 cr 69.65 cr 1.4 cr 0.9 cr 0.4 cr 0.3 cr 0.2 cr 0.1 cr 0.08 cr 0.05 cr

Gross

Weeks

82.24 cr 69.65 cr 20.49 cr 62.90 cr 38.91 cr 81.46 cr 6.38 cr 17.03 cr 35.7cr 30.1cr

New New 3 5 7 8 3 4 8 9 Directed by

Jab Tak Hai Jaan

Jab Tak Hai Jaan is a Bollywood film directed by Yash Chopra, written and produced by Aditya Chopra under their production house Yash Raj Films. The film features Shahrukh Khan, Katrina Kaif and Anushka Sharma in pivotal roles, making it the first film to pair Shah Rukh Khan and Katrina Kaif and the second collaboration between SRK and Anushka Sharma. This is Yash Chopra's fourth film to feature Khan in the lead role. The film, termed as a love triangle, marks the return of Yash Chopra as a director after eight years, his last film being Veer-Zaara in 2004.

Yash Chopra

Directed by

Karan Johar

English Vingish

Directed by

Umesh Shukla

Directed by

Son of Sardar

Ashwani Dheer

Son of Sardaar is a romantic comedy which takes you straight into the heartland of colourful Punjab and larger- than- life Punjabis. They take pride about their hospitality & warmth but are mighty serious about matters regarding honour & dignity. It is the story of Jassi (Ajay Devgn) a peace loving, happy-go-lucky Sardar from London who falls in love with Meet (Sonakshi Sinha) on his trip to India to sell of his ancestral land. Twist of fate and series of incidents take him to her house where he faces the most unexpected. He comes within an arm's distance of his worst enemy ever- the heavy weight Billu Paji (Sanjay Dutt) who is the head of Meet's family and is out to kill Jassi owing to a family feud which started three generations ago! A cat and mouse game begins, where Jassi tries to stay put by all means, while Billu Paji wants to fish him out. Confusion, drama, comedy and craze reach a crescendo with never seen before action sequences. www.valuechainmagazine.com 89

ENTERTAINMENT

Top Ten UK Songs Ranks

Song

Singers

Last Week Total Weeks

01

Troublemaker

Olly Murs Ft Flo Rida

01

02

02

Locked Out Of Heaven

Bruno Mars

09

03

03

Diamonds

Rihanna

10

09

04

Beneath Your Beautiful

Labrinth Ft Emeli Sande

04

09

05

Girl On Fire

Alicia Keys

05

02

06

The Power Of Love

Gabrielle Aplin

07

04

07

Candy

Robbie Williams

08

05

08

Gangnam Style

PSY

06

15

09

Little Things

One Direction

03

03

10

Die Young

Kesha

New

01

Locked Out Of Heaven

Singer Bruno Mars

Diamonds

Troublemaker Troublemaker" is the lead single from English singer-songwriter Olly Murs' third studio album, Right Place Right Time. The single was released on 18 November 2012. The track features guest vocals from American rapper Flo Rida. It is Murs' fourth single to reach number one in the UK charts and his first single to spend more than a week at the top spot.

Singer Rihanna

Top Ten Music Chart Buster Ranks

Song

Movies

Singers

Last Week Total Weeks

Harshdeep Kaur

01 02

Heer Ishq Shava

Jab Tak Hai Jaan Jab Tak Hai Jaan

03

Saans

Jab Tak Hai Jaan

04

Challa

Jab Tak Hai Jaan

05

Radha

Student Of The Year

06

Dagabaaz Re

Dabangg 2

07

Ishq Wala Love

Student Of The Year

Raghav Mathur, Shilpa Rao Mohit Chauhan, Shreya Ghosha Rabbi Shergill Shreya Ghoshal, Vishal-Shekhar, Udit Narayan Rahat Fateh Ali Khan, Shreya Ghoshal, Shadaab Faridi Shekhar Ravjiani, Salim Merchant, Neeti Mohan

01 02

03 04

03

07

03

07

06

08

New

New

08

Vele

Student Of The Year

Shekhar Ravjiani

07

11

09

10

09

The Disco Song

Student Of The Year

Benny Dayal, Sunidhi Chauhan, Nazia Hassan

08

12

10

Rani Tu Main Raja

Son Of Sardar

Mika Singh, Bhavya Pandit, Yo Yo Honey Singh

05

07

Heer There’s something very melancholic about this track – a London based girl trying to impress her father on his birthday by singing a song in impeccable Punjabi. Despite working in close quarters with the creative team, Katrina Kaif wasn’t getting the scene right. Aditya Chopra tried helping her out, but she simply felt too tired, cold and vulnerable, and broke down while shooting for the scene.Even Gulzar saab was super impressed with the way Rahman did justice to this Punjabi number. For more such interesting titbits, 90 www.valuechainmagazine.com

Student Of The Year

Singer Shreya Ghoshal, Vishal-Shekhar

Dabangg 2

Singer Rahat Fateh Ali Khan, Shreya Ghoshal Shadaab Faridi

[Our Delivery Promise] AWAN TRADING CO (PVT.) LTD.

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. 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.

Awan Trading Co (Pvt.) Ltd. D-28/11, Block 1, Clifton , Karachi Pakistan Tel: 0092-21-3581-0966, 3581-967 | Fax: 0092-21-3581-0968 | Cell: 0092-333-2545511 Email: import@awantrading.com.pk | Info@awantrading.com.pk