Illustration by Rahada Tajwer.
“When it comes to the industry, it doesn’t really matter if a party has a better plan than the others,” says a former president of the Lahore Chamber of Commerce and Industry.
In Pakistan, election manifestos mostly employ political sloganeering and rhetoric to solicit votes on the polling day rather than laying out carefully planned strategies to address the political, social and economic challenges facing the people.
As we head for another election later this month, the question is if any of the three main contenders for power — Pakistan Muslim League-Nawaz, Pakistan Tehrik-i-Insaf or the Pakistan People’s Party — has areal plan to attract new investments and revive the export-oriented manufacturing that has been declining for the last many years.
A cursory study of the election manifesto of the PML-N as well as the “plan” the PTI intends to implement during the first 100 days if voted into power shows that these parties may have economic targets they want to achieve over the next 5 years, but not a strategy to pull it off.
The PPP, which is often considered cut-off from the country’s new economic realities with anti-business bias due to its nationalisation policy of the 1970s, on the other hand has briefly laid out a combination of its targets for the manufacturing and export indus try and strategy to meet them.
The PPP manifesto for election 2018, for example, talks of building a national consensus for what it calls a basic national economic reforms agenda to be prepared by a joint parliamentary committee to ensure a cross-party commitment to broader macroeconomic reforms.
It then moves on to specific actions it intends to take to improve industry’s competitiveness and boost dwindling exports.
These include rationalisation of surcharges on five major manufactured exports, including textiles, a review of all free trade agreements, transfer of control over Export Development Fund (EDF) to exporters for better management, establishment of exclusive economic zones for foreign companies that will be required to export half of their production, agreements of currency swaps with Pakistan’s trading partners and encouragement of foreign buyers and brands to open their buying houses in major cities.
Moving on the PPP also has a plan for closed factories and intends to rehabilitate sick industry through a scheme to be formulated with the help of the central bank. It promises to ensure availability of energy at affordable prices to ensure the industry’s competitiveness in the world markets and prevent future mass industrial closures.
The PPP that saw exports peak to $25 billion from $20bn under its five year term between 2008 and 2013 is also aware of the narrow product and market base of the country’s exports and plans to work on these issues to reduce dependence on textiles, which form 55-60 per cent of export shipments.
The party isn’t averse to subsidising existing export industries to sustain them and encourage new industries to push exports for a limited time.
The plan promises industrial restructuring to increase the value added intermediate and capital goods industry by ensuring financing and finding niche markets outside the county.
As we head for another election later this month, the question is if any of the three main contenders for power has a real plan to attract new investments and revive the export-oriented manufacturing that has been declining for the last many years
Interestingly, the PPP is the only party that speaks about greater regional economic and trade integration by separating trade from other geopolitical issues.
The PML-N that launched its manifesto for the next election last week also talks about boosting industry and exports but in far less clear terms than the PPP. It vows to grow exports by 15pc annually if re-elected on July 25 by improving ease of doing business for manufacturers and exporters. It promises to cut input costs for exporters by rationalising import tariffs on their raw materials, remove anti-export bias, harness opportunities offered by CPEC to increase access to international markets, continue the support package it had announced for exporters and so on.
Simultaneously, it has a plan to push the investment to GDP ratio to 22-25pc to boost industrialisation in the country and create 2million jobs a year.
Private investors will be facilitated to invest in new projects through establishment of special economic zones, operationalisation of a national single window to reduce trade time and cost by bringing 20 government departments and agencies under one roof, checking smuggling and under invoicing of imports and cutting corporate tax to 25pc in five years.
Also, small and medium industries will be helped to access finance and form joint ventures with foreign companies around the CPEC.
Businesspeople insist that the PML-N did not take their input before writing their election manifesto. This is despite the fact that Punjab’s textile industry invited the heads of the three parties.
“We invited the heads of these parties to give our input for the revival of manufacturing and exports. Both Asif Zardari and Imran Khan turned up. Shahbaz Sharif didn’t.
“After listening to our presentations, both the PPP and the PTI promised to truly zero rate exports, help revive over 100 factories — mostly in Punjab — closed down because of energy shortages, higher gas and power prices and bad government policies, and reduce the cost of energy to regional level so that our exports become competitive in overseas markets,” the Aptma group leader said.
The third contender for power, PTI, has yet to give its programmer for the polls. But its plan that the party wishes to implement in its first 100 days in power indicates that it plans to revive manufacturing and exports through reduction in taxes and energy rates, payment of export refund claims and so on.
Additionally it intends to make interventions in the housing market to kick-start the industries associated with the construction sector.
Many businesspersons argue that it is a mistake to read too much into election manifestos. “At the end of the day, these are just slogans and political rhetoric to charm voters,” a former president of the Lahore Chamber of Commerce and Industry said on condition of anonymity.
“When it comes to the industry, decisions are made according to how much clout a particular industry enjoys over the sitting government and its economic team.
Manifestos become meaningless and forgotten once a party comes into power. So it doesn’t really matter if a party has a better plan than the others.”
Despite reduced urgency, reforms remain top priority in Power
By Khaleeq Kiyani
Five years down the road when they return to the electorate, addressing electricity shortage is no more an issue for the PML-N and PTI even though it still remains a challenge in the eyes of the PPP
Before the 2013 general elections, energy shortages and loadshedding were among the top most chal-lenges facing the country, and the major political parties — PML-N, PPP and Pakistan Tehreek-i-Insaaf (PTI) — laid out steps in their manifestos to overcome them as a top priority besides reforming the governance structure of the sector.
Five years down the road when they return to the electorate, addressing electricity shortage is no more an issue for PML- N and PTI even though it still remains a challenge in the eyes of the PPP. Even though the urgency has lessened, reforming the sector remains among the top priorities of all parties.
All the three major parties, nevertheless, appear to be feeling the need to improve the fuel mix and reduce tariffs even though they have different lines of action. They also equally want to transform state owned power companies — generation companies to distribution companies — as a means of improving the energy sector and addressing the chronic circular debt problem.
Perhaps because of its hands-on experience, the PML-N has a far better, more comprehensive roadmap for the power sector on paper, including initiatives it miserably failed to implement in the last five years, privatisation being the most important.
Followed by this is the PPP that also has a comprehensive plan for the power sector including many tall promises it could not deliver on in its five year 2008-13 term — providing electricity to every citizen at an affordable cost and materialising the Iran-Pakistan gas pipeline.
PTI trails behind with a significant lag both in quality of objectives and preparedness. It has not yet spoken in detail about the power sector and is currently in the learning process through various standing committees of the senate. Its three prominent senators Nauman Wazir, Shibli Faraz and Mohsin Aziz have developed a 360 degree-view of the entire power and energy sector owing to their leading different standing committees.
It plans to begin with Imran Khan’s 100-day plan if voted to power and then come up with a detailed policy direction and implementation plan. Individually Senator Nauman Wazir is convinced the smallest possible transformers must be introduced and feeders should be leased out on a revenue sharing basis for billing, recovery and power supply, starting with the most inefficient Peshawar Electric Supply Company.
The party, without explaining how it planned to go about doing so, wants to start reforms on an emergency basis in Gencos and Discos and begin work urgently to shift towards sustainable and affordable energy.
It also loftily talks about addressing the root causes of circular debt and initiate regulatory reforms designed to move away from rent seeking models and towards increasing system efficiency and recovery of losses.
In its next term (2018-23), PML-N aims to transition Pakistan from sufficiency to breakthrough efficiency, affordability and sustainability. It promises to introduce IT based monitoring and evaluation systems to provide operational and financial information of power companies on a real time basis and pursue privatisation of Discos.
It also promises universal access to power through innovative on-grid and off-grid solar and cluster based mini grid solutions by ensuring targeted subsidies and concessional agricultural tariff.
“The cost of electricity would be dramatically decreased through retiring and replacing inefficient plants, reverse tariff biding, smart metering, and developing accountability in an open access and competitive market place,” the PMLN promises for the next five years.
While the PML-N has been imposing surcharges to block declining electricity rates to shift funds to cover losses and theft, it now promises to ensure reduced costs to consumers and to rationalise tariff.
It plans to add another 15,000 megawatts by 2025, including 5,000-7,000MW through Thar coal and hydroelectricity to be able to reduce tariffs by creating a comprehensive plan for water storage and run of the river hydropower generation.
The PPP also wants to provide electricity to all as a basic need irrespective of urban-rural settlement. It has a four-pronged strategy to address the energy requirements of a growing population and economy “on a sustainable basis, by providing adequate, affordable and progressively cleaner energy to all.”
For this, it promises to fully utilise all domestic resources of energy, including Thar coal, natural gas and hydropower, and ensure maximum exploitation of Sindh’s rich wind corridor for at least 12 hours a day to move away from imported fuels.
“By 2023 wind and solar parks in Sindh will add at least 5,000 MWs to the national grid,” the PPP promised in its manifesto and pledged to ensure the Bhasha Dam project, which has remained stalled so far, is taken to quick completion along with resuming work on the Pak-Iran pipeline. It also promises to increase the share of renewable energy in the energy mix to 5pc in five years.
Business leaders' persepctive
By: Kazim Alam
Q: Do you think the next government should compromise growth to achieve stability? Growth consolidation would likely entail lower taxes, a big development budget and a higher fiscal deficit. Or would achieving economic stabilisation by reversing tax breaks and cutting development spending would be a better approach?
Q: How can the next government best address the challenges of the external sector? Can the decline in reserves be contained? How do you view the rising borrowing from Chinese lenders? Do you favour a return to the IMF?
Ghazanfar Bilour
President, FPCCI
A1: Pakistan’s economy has the capacity to grow at a high rate if it is managed properly. Since 2013 -14, exports and remittances contributed $111bn and $98bn, respectively, while the country received $ 9.5bn in investment inflows. Tax revenues amounted to Rs3.8 trillion last year. All these indicators reflect that the economy has potential to grow without taking foreign aid. However, it takes time and prudent policies to achieve sustainable economic growth.
It will not be possible to finance government expenditure without enhancing the tax base. The current situation reflects that the fiscal deficit will keep widen-ing unless the government creates some fiscal space by raising revenues. The government may not compromise growth while sustainability remains a prerequisite for achieving development.
A2: Pakistan’s reserves are a mix of borrowing and foreign earnings. During the past five years, a gradual slide in the country’s exports cost cumulatively $13.8bn. Pakistan received $23.6bn loans from the IMF during the same period. Pakistan and China have signed a currency swap agreement of approximately $1.5bn to facilitate bilateral trade. But given the trade deficit with China, borrowing from Beijing will not solve this issue.
Pakistan has two options. It can either manage the economy on its own or go to the IMF to achieve stability. However, we observe that the country received both IMF support and foreign investment for mega projects during the past five years. But the macroeconomic situation is still unstable. We have to rely on our own resources and manage the economy ourselves.
Irfan Wahab Khan
President, OICCI
A1: Pakistan needs consistent economic growth with stability in its policy and actions. The next government must give priority to the economy and address other political and administrative issues later on. The new leadership must ensure that issues with economic fundamentals are comprehensively addressed in the first two years of the term with input from all major stakeholders, like the Overseas Investors Chamber of Commerce and Industry (OICCI). This will require commitment and participation from all leading political parties so that a change in government every few years does not result in any fundamental change in economic policies.
We think that higher economic growth can be achieved by leveraging technology and promoting digitisation in key economic sectors. The next government should seriously engage with business stakeholders to build a better economic and business environment for the economy to thrive. Transparent, consistent and predictable policies are critical for attracting foreign direct investment (FDI) in manufacturing and key strategic projects with a longer maturity timeframe.
A2: Challenges on the external front are serious, but not insurmountable. Foreign exchange reserves can be boosted through a smart but urgent review of trade policies as well as attracting funds held overseas by the Pakistani community — a process that has already been initiated under the ongoing amnesty scheme.
The OICCI recommends that there should be a Private- Public Dialogue Forum headed by the prime minister. It should comprise key stockholders, like the OICCI and government leadership, to period-ically review key economic challenges. We expect the new government to introduce a forward-looking, longer-term export policy with significant incentives for the diversified value-added product range and destination, with an increased focus on growing regional trade.
The government is advised to engage world-class consultants for assistance on the export diversification strategy and attracting FDI in export-able sectors, including from China. Moreover, there is a need for restricting imports by creating a positive environment to boost domestic production and revise many free and preferential trade agreements in the country’s interest.
We do not favour going to the IMF because of tight conditions it entails. Nor do we favour frequent borrowing from China as it creates a bad precedent and defers tough measures that policymakers need to take. We favour self-sufficiency, which may be painful but dignified.
Many countries in the region, including India and Malaysia, have prospered without seeking IMF assistance despite tough challenges. Pakistan should also show determination and good governance to navigate through challenging times.
Ehsan Malik
CEO, The Pakistan Business Council
A1: The next government’s key priority should be to achieve macroeconomic stability, with the twin deficits – external account and fiscal – as the main areas to focus on. There are no shortcuts here, but the first thing that the government must do is to curtail its expenditure. Reversing the tax breaks should be the last option. High rates provide a bigger incentive to evade taxes. The country needs a broader tax base. However, in setting the tax rates for different classes of taxpayers, the globally followed principle is to tax corporations at a lower rate than individuals. Incorporated entities promote higher standards of governance and accountability.
Taxing companies at a lower rate prioritises job creation over consumption, which is already high at 80 per cent of GDP and has encouraged imports and undermined domestic manufacturing due to fundamental flaws. One consolation for the new government is that tax revenues will be bolstered by devaluation. However, an International Monetary Fund (IMF) programme is inevitable.
A2: Successive governments have indulged in temporary fixes, which at best amount to first aid when the economy needs drastic surgery. Relying on short term loans is not a sustainable solution. China, the provider of such assistance, is also the source of Pakistan’s largest trade deficit — over $15 billion per annum or $1.25bn a month. Short-term loans from Beijing help sustain exports from — and jobs in — China whereas the need is to create jobs in Pakistan for value-added exports and import substitution.
Implemented intelligently, an IMF programme — along with structural reforms to fix fundamental flaws that have undermined domestic manufacturing — will restore the balance on the external account.
Published in Dawn, The Business and Finance Weekly, July 9th, 2018