- Lower interest rate, resolution of circular debt, enhancing exports, and spotlighting on digitalization the positive steps for progress
- Need for improvement in agriculture research to compete advanced marketplace
- Government and private sector must stay on same page to achieve demand of ‘ease of doing business’
- Future policymaking and implementation should have mutual understandings
Interview with Mr Majyd Aziz — a renowned businessman
Mr Majyd Aziz is an industrialist and business leader and President of his family business group. He is former President of Employers Federation of Pakistan, Karachi Chamber of Commerce and Industry as well as South Asian Forum of Employers. He is the former Chairman of SITE Association of Industry, former Chairman Board of Directors of SME Bank Limited, and former member Board of Directors of Zarai Taraqiati Bank Limited, KESC as well as SITE Ltd. He is Senior Advisor for Pakistan on Transnational Strategy Group, Washington and Executive Board Member of Confederation of Asia Pacific Employers.
PAGE: How would you comment on 2020 as a year for the industry of Pakistan?
Majyd Aziz: The year started off on a positive note and many industrialists and businessmen were planning a positive approach to the year. Despite political instability, slow decision making of the PTI government, heavy external and internal debt scenario, and continued tension at the borders, the conventional wisdom in the marketplace pointed towards a rosy picture. Who knew that the pandemic crisis would soon engulf the world and disrupt the economic, social, political and medical environment all across the globe?
The Pakistani industrialists suddenly found themselves on a weak wicket and most of them immediately put on hold their future investments, targets and objectives. Trading came to an abrupt halt that was further compounded by lockdowns. Within a couple of months after the crisis hit Pakistan, the economy was in a vicious whirlpool affecting just about everybody. All economic indicators were going south. In fact, during the first three months of the crisis, the Quantum Index of Manufacturing was down by nearly 25%. Industries were getting a big hit and exports were tottering. Large scale manufacturing was in negative. Auto sector was in doldrums. Moreover, cotton and wheat crops also slid down leading to imports, especially wheat. Inflation needed to be controlled because the prices of essential commodities shot up which severely affected the financial resources of the citizens.
The rupee began to falter, giving rise to fears that it may gallop towards PKR 200 to one US$. The government was depending on internal and external borrowing without a commensurate reduction in non-developmental expenditure. State-owned enterprises continued to hemorrhage funds that should have been allocated to welfare projects rather than artificially propping up these white elephants.
PAGE: Your views on the impact of coronavirus on the economic growth:
Majyd Aziz: No country in the comity of nations can rightly claim to have benefited from COVID-19. Disaster struck everywhere and, except for developed nations that have formidable reserves, other countries are bearing the negative fallout of the virus. Billions are being spent on medical care, cash assistance or subsidies for the marginal population.
For Pakistan, besides the formal sector, the informal sector and daily wage earners were left dangling on a thin thread. There was not much that the government could do except for a meager one-time cash allowance that also did not reach all those for whom this scheme was initiated. The government did manage to proclaim and, to some extent, implemented few social schemes to stem the ever-growing voices of protest. At the same time, it did announce incentives for the construction industry, but this incentive-based program would lapse at the end of the year unless, on an urgent basis, the time limit is extended for atleast six months.
The virus, while being a devastative calamity, did make hospitals, laboratories and suppliers of medical equipment rich beyond their wildest dreams. Price gouging was the order of the day at the expense of the populace. And, the Federal as well as the Provincial governments closed their eyes and allowed this bonanza to fall in the laps of those associated with the medical profession. The only good sign was the service to humanity provided by medical professionals such as doctors, nurses, para-medical staff, etc. who risked their lives so that healthcare was immediately provided to those who tested positive.
Meanwhile, industries and shops suffered tremendously. Many closed their doors and laid off their workforce despite strict orders and notifications from the governments that no worker would be laid off and their wages and salaries would be routinely paid to them. This put employers under extreme tension because neither they were able to sell their products nor were they recovering their Accounts Receivables and yet they had to provide funds for their wage bill.
PAGE: What is the current state of the economy and the industry?
Majyd Aziz: Fortunately, Pakistan was able to control, to a large extent, the spread of this virus. The government’s smart lockdown strategy has worked in Pakistan’s favor, reducing the impact of COVID-19 on the people and the economy at large. As soon as the lockdown was lifted and industries and trade restarted their activities, Pakistan witnessed a substantial growth in many sectors. Exports inched upwards, the traffic at the berths at the ports was chock-a-full, textile sector went in a fast speed mode overnight, many industries were competing for skilled workers, construction sector was brimming with housing projects, and the situation in markets and shopping malls looked like eve of Eid. Social distancing was ignored and masks and sanitizers were mostly thrown into the dustbins.
The November 2020 indicators are very promising. As an example, on Year-on-Year basis, the growth in the following has been recorded: auto sales (63%), diesel sales (29%), petrol sales (20%), furnace oil sales (18%), expected urea sales (35%), remittances (28%), and cement (4%) to name a few. Moreover, Current Account surplus was US$ 447 million, while Large Scale Manufacturing was up 7% in October 2020. It would be advisable if in future the Pakistan Bureau of Statistics as well as relevant Ministries, especially Commerce, are on one page in disseminating vital data and statistics. There is obviously a disconnect among them that needs immediate attention of the Prime Minister.
Notwithstanding the flurry of economic activities, it should also be noted that many enterprises faced or are facing losses in their balance sheets. This is understandable and therefore it is imperative that the government should recognize this peculiar situation. This is the time to support enterprises, especially in the SME sector. One such initiative is worth mentioning. There is a 1.5% turnover tax that has further compounded the difficulties of enterprises that have lost money during the pandemic. This turnover tax is levied whether a company makes profit or loss. It is not of much concern to high profit making companies but affects loss makers. The proposal is that for 2020 and 2021, this turnover be reduced to less than 1% because it is seriously impacting on the cash flow of enterprises especially SMEs.
PAGE: What do you anticipate in 2021?
Majyd Aziz: The first and foremost concern is the new wave of COVID which sent all efforts to control it go haywire. When the situation was moving towards a positive trend, the government as well as the citizens became complacent and hence there is an upsurge. What is distressing is the fact that despite all caution, SOPs are followed in a nonchalant manner. Political rallies involving thousands have become a weekly affair, religious places are jam-packed, markets are bustling with activities, transport vehicles are over-crowded, and there is a facade of SOP compliance in industries. These have scaled up the infection rate and may become a roadblock in the economic progress of Pakistan.
The priority areas to positively impact the economy include lower interest rate regime, pragmatic resolution of circular debt, enhancing exports, and spotlighting on digitalization. The lower interest rates would enable businesses to make significant progress piggy-backing on demand from consumers. This would also be favorable to industries due to the availability of inexpensive debt. The albatross is the circular debt that must be resolved through formidable government efforts as this would tackle the proliferation of circular debt and would boost Pakistan’s energy sector. A fast track promotion of renewable investments would also result in affordable electricity plus reduction in circular debt. Enterprises could get a boost from intensive promotion of digitalization to increase efficiency and provide a lucrative channel to enhance technology exports.
The average crop yield in Pakistan is very low as compared to the production levels of the advanced countries of the world. In order to raise the potential of agricultural production and productivity, there should be continuous improvement in the research for agricultural growth. Agricultural research is to remove the backwardness of agriculture sector. Pakistan has about a score of agricultural colleges and universities in Pakistan. Shouldn’t private sector (sugar mills, cotton ginners, flour mills, rice mills) take upon themselves to increase the research work in the field of agriculture?
If the avenue to economic prosperity is to become a reality then the only objective of government policies should be to increase the competitiveness of the industry so that it could make products at lower cost and the best quality in the world. Pakistan has the potential to become a lower-cost hub if government and private sector are on the same page and if government seriously removes all cobwebs in order to achieve the demand of ease of doing business. Isn’t employment a major concern? Only industry can provide more jobs and not government and that focus should be on a holistic approach rather than on certain sectors to create employment. Therefore, it is important to involve organizations such as Employers Federation of Pakistan to prepare a framework for skilling and re-skilling of workers, especially retrenched, laid-off, and migrant workers. Pakistan continues to struggle with the high cost and low efficiency in every area because of the nature of politics and bureaucratic interference ensuing into procrastination in decision making.
The lack of trust between the government and the industry is a major constraint on policymaking and implementation. Unfortunately, whichever party that comes into power, transforms itself as the ultimate savior and considers national wealth as personal domain. This environment may not change, probably for a long, long time. It is a built in system that citizens have to accept and live with it. The intoxication caused by power is overwhelming. This, then, breeds corruption, abuse of power, and impedes progress and prosperity.
One should read Animal Farm written by George Orwell in 1945, that is, 75 years ago. Maybe, just maybe, the present government changes this established mindset and learns from the devastation caused by COVID and revisits its working and planning processes. Of course, political instability will once again put paid to all positive scenarios that would make 2021 the Year of Pakistan. Andrew Carnegie, the well-known American industrialist and philanthropist very rightly stated, “People who are unable to motivate themselves must be content with mediocrity, no matter how impressive their other talents”.