Pakistan In Focus

Digitisation to assist economy recover

The danger of a second wave of Covid-19 pandemic is still looming in Pakistan while the first wave dealt a blow to business operations of small and medium enterprises (SMEs), said Pak-China Joint Chamber of Commerce and Industry (PCJCCI) President Zarak Khan.

Speaking at a panel discussion titled “Development strategies to sustain growth” on Monday, he stressed the need for framing strategies for sustainable economic growth.

“China is now 40-50 percent digitised and we can also achieve this goal for Pakistan’s economic recovery and development,” he said.

Keeping in view the fact that traditional offline businesses remained stagnant and online business activities flourished during the pandemic, he called for speeding up digital transformation among the SMEs in an effort to adapt to the new normal.

State Bank may leave rate unchanged

Pakistan’s central bank is scheduled to decide on Monday whether to leave the key policy rate unchanged at the current level of 7 percent or revise it upwards or downwards to rebalance the economy in the current challenging times under Covid-19.

The State Bank of Pakistan’s (SBP) monetary policy committee is meeting at a time when fresh Covid-19 infection cases are again on the rise in the country.

Earlier, the Covid-19-induced lockdown in the country and across the globe prompted the central bank to cut the policy rate by a significant 625 basis points in a period of four months from March to June 2020. The policy rate currently stands at 7 percent.

However, the International Monetary Fund’s (IMF) ongoing loan programme has been put on hold ahead of increase in electricity and gas tariffs.

At the same time, the country’s foreign income is shrinking gradually while its expenditures are growing with Prime Minister Imran Khan considering announcing a second relief package for households and businesses to help them cope with Covid-19.

On the flip side, the average inflation reading shrank to 8.74 percent in the first two months (Jul-Aug) of current fiscal year, which was in line with the central bank’s projection of 7-9 percent inflation for FY21.

Experts say inflation rate may recede further in the coming months largely because of sluggish demand for commodities other than the essential ones (like food items) and likely stability in prices of petroleum products in the international market in the short to medium term.

Pakistan counts heavily on import of energy products. Experts, however, do not rule out an increase in inflation if the government opts to jack up energy prices to undo the pause in the IMF loan programme of $6 billion.

The central bank adjusts its policy rate according to the inflationary trend. A high inflation reading demands an increase in the policy rate to make borrowing expensive and low inflation leads to a reduction in the policy rate to stimulate business expansion.

The rate revision also impacts other economic indicators as well as gross domestic product (GDP) growth.

Startup aims to reduce energy wastage

Startups in Pakistan are striving to lessen darkness due to insufficient electricity transmission, while making money out of the opportunity.

Pakistan is one of those countries which still faces prolonged power outages and one of the main reasons is line losses at a time when the country has surplus production capacity.

Inefficient distribution, coupled with lower recovery of consumer bills and high power theft, is giving birth to the complicated circular debt. Consumers are now looking for opportunities to slash their electricity bills such as through installing solar panels. Enent is one of those clean-tech electronics startups that are focusing on designing innovative products that reduce energy wastage in Pakistan. It was started by electrical engineering graduates from NUST who included Muhammad Osama bin Shakeel (CEO), Syed Ali Jaffar (CBO), Muhammad Faheem Ali (CTO) and Javeria Shakeel (COO).

The startup claims it can reduce carbon dioxide emissions by 18,000 tons every year while having a massive impact on grid efficiency, thus saving $0.5 million in electricity bills per year.

Its device Intellica saves electricity by up to 20 percent by addressing the problem of unbalanced electricity load on three-phase power connections in houses, residential and industrial buildings.

Pakistan’s petroleum crisis of June 2020

On July 21, the Islamabad Policy Institute issued a report titled “The petrol crisis of June 2020.” This report shows a lack of understanding, is based on misinformation and has numerous factual errors.

There was a supply glut building up in the international oil markets since the beginning of the year. On February 25, 2020 the Arab Gulf Platts (fob) price for a barrel of petrol was $60.35, which dropped to $33.87 on March 13, 2020.

While this was happening, the full impact of Covid-19 on the demand side started becoming evident in early March. In Pakistan, this started when Sindh announced a lockdown on March 13, 2020.

In the last week of March 2020, the demand for petrol had dropped by 51 percent and that of high-speed diesel (HSD) by 58 percent as a result of the nationwide lockdown. The twin effect resulted in inventories being carried by the oil marketing companies (OMCs) and local refineries losing value every day.

As per prevalent rules, the prices for petroleum products were fixed on the first of every month based on Pakistan State Oil (PSO) imports of the previous month. As a result, the OMCs were hesitant to lift petrol/HSD from local refineries at notified prices since they could import at cheaper rates.

Avenues of private equity growth

Global private market assets have grown by over $4 trillion in the past decade, an increase of 170 percent, while the number of private equity firms has more than doubled. Comparatively, the growth of public securities over the same period has been 100 percent.

It is clear that private market investment transactions like private equity and venture capital are growing fast and are becoming an asset of choice in the global arena. So, why has this industry experienced lethargic growth in Pakistan, especially when these transactions can have a large effect on job creation and small and medium enterprise (SME) development?

We spoke to a few experts in the field and provide a SWOT analysis by focusing on strengths, weaknesses, opportunities and threats.

 

Strengths and opportunities in Pakistan for private equity and venture capital include favourable demographics (a young urban and large population), an expanding middle-class-driven economy, improving ease of doing business ranking/ digital transformation, and CPEC-China driving infrastructure development and future economic linkages.

As Jamil Akbar, private equity and corporate strategy expert, puts it, “With such low penetration of venture capital and private equity, there are many opportunities in this untapped growth market of Pakistan.

“There is an entrepreneurial spirit and culture, and an ability not just to replicate tried and tested ideas from similar markets, like Indonesia, Turkey and India, but also to develop innovative solutions to address local market gaps.”

Perceptions of foreign investors are likely worse than reality. Investors are often pleasantly surprised by infrastructure (roads, airports, electricity, hospitals, educational institutions, etc) and retail (presence of malls provide evidence of a thriving modern retail culture and diverse restaurants with a variety of cuisines).

In addition to these, people are not just hospitable but go out of their way to help you connect and solve issues.

Traders seek cooperation with shipping companies

Importers have called for the constitution of a multi-stakeholders advisory and regulatory committee in order to resolve port and shipping issues, saying shipping companies are not cooperating with traders and Customs officials, thus creating problems for the shippers, especially in the challenging times under Covid-19.

“Efforts made by the Federation of Pakistan Chambers of Commerce and Industry (FPCCI) and Customs to facilitate trade have not brought targeted results due to weak contribution and participation by other stakeholders, particularly shipping companies and terminal operators,” said FPCCI President Mian Anjum Nisar.

Chairing a meeting to discuss issues related to port and shipping in Pakistan, Nisar stated that the government must maintain a strong writ to regulate shipping companies and terminal operators in an effort to support the already suffering trade and industry.

Speaking on the occasion, FPCCI Vice President Khurram Ijaz said, “The business community has been suffering due to uncooperative behaviour of shipping lines and private terminal operators since decades, however, the recent lockdown in the country made it impossible for the traders to survive in such an unsupported regime.”

“These shipping lines offer maximum facilitation and cooperation to public and private sectors in our neighbouring countries like India, however, the same is not offered in Pakistan,” he lamented.

Ijaz emphasised the need for a long-term solution to such issues and demanded that the authorities design a multi-stakeholder mechanism based on international best practices to streamline the process for traders.

Tax break for lpg companies proposed

The Petroleum Division has proposed a framework for the liquefied petroleum gas (LPG) market comprising tax incentives, price deregulation, subsidised supply to poor households and a five-year tax holiday for infrastructure developers for sustainable fuel supply.

The framework also offers incentives for setting up LPG plants and tax break to LPG producers. Under the proposed framework, the LPG producer price will not be fixed. Consumer prices for local and imported LPG will be notified by the Oil and Gas Regulatory Authority (Ogra) every month based on the Saudi Arabian contract price, estimated discount, loading terminal charges, sea freight, port charges, other import incidentals, marketing costs, etc.

Consumer prices may vary for different zones depending on marketing costs (major cities vs remote/hilly areas).

Hydropower share to increase in energy mix

The share of hydroelectric power would gradually increase in the total energy mix, which would reduce the cost of doing business and facilitate growth of business activities, said Water and Power Development Authority (Wapda) Chairman Lieutenant General (Retd) Muzammil Hussain.

During a meeting with a delegation of the Islamabad Chamber of Commerce and Industry (ICCI), headed by ICCI President Muhammad Ahmed Waheed, Hussain spoke about dams and water reservoir projects being constructed by the authority in the country.

He said construction activities on the strategically important Diamer-Bhasha dam were picking up pace and the project would provide over 16,000 jobs for engineers and local people, leading to poverty alleviation and socio-economic uplift in the project area.

The Wapda chairman pointed out that Diamer-Bhasha dam was at the highest point compared to other such dams around the world with huge water storage capacity of 8.1 million acre feet (MAF) and power generation capacity of 4,500 megawatts.

He emphasised that the dam was a vital project for water, food and energy security of Pakistan and would go a long way towards stabilising the economy. “This dam will produce low-cost energy that will boost industrial and agricultural productivity in the country.”

He also talked about other under-construction hydroelectric power projects including Keyal Khawar, Dasu and Khurram Tangi.

Week-On-Week: SPI raises by 0.71pc

The Sensitive Price Indicator (SPI) for the week ended September 17, 2020 registered an increase of 0.71 percent for the combined income group, going up from 136.62 points during the week ended September 10, 2020 to 137.59 points in the week under review. The SPI for the combined income group rose 8.72 percent compared to the corresponding week of previous year. The SPI for the lowest income group increased by 0.71 percent compared to the previous week. The index for the group stood at 144.42 points against 143.19 points in the previous week, according to provisional figures released by the Pakistan Bureau of Statistics (PBS). During the week, average prices of 26 items rose in a selected basket of goods, prices of three items fell and rates of remaining 22 goods recorded no change.