Welcome to American Business Council of Pakistan

Business Recorder – May 10, 2007 Medicines be made zero-rated supplies: ABC

BUSINESS RECORDER

Medicines be made zero-rated supplies

May 10, 2007

KARACHI (May 10 2007): American Business Council (ABC) has recommended that medicines should be made zero-rated supplies and Workers Profit Participation Fund (WPPF) be eliminated in its entirety. ABC considers corporate and welfare taxes as high. Rate of corporate tax is at 35 percent as compared to developing and developed markets. In addition to corporate tax, WPPF and Workers Welfare Fund (WWF) combined increases the rate to 42 percent for companies. Pakistan's tax rates, as compared to Malaysia, are higher by 25 percent and India by four percent. ABC has, therefore, recommended that corporate tax rate be reduced to 30 percent for private companies and 25 percent for public limited companies. This will make Pakistan more investment-friendly and competitive with surrounding markets and increase the shareholders return. In its proposals for the 2007-08 Federal budget, presented to the Central Board of Revenue (CBR) Chairman recently in Karachi, ABC, while dealing with general sales tax (GST) on pharma products, has recommended that making medicines zero-rated will reduce the cost of production and consumer prices ultimately. The other benefit would be that foreign investors will be interested in setting up new plants and local industry will also be protected due to excess inflow of generic products. Similarly, the elimination of WPPF will provide manufacturing sector with a level playing field with its competition, attract more investors to install/expand their manufacturing operations, and utilization of funds in building schools/hospitals by the organization themselves will also facilitate government efforts in these areas. Acknowledging that GST is the key to expand tax in Pakistan, ABC has questioned how to create a win-win situation both for government and registered sales tax payer because, presently, no incentive is provided to registered entity v/s unregistered. ABC has, therefore, recommended that incentives should be provided to the registered GST payers like rebate on utility bills, elimination of withholding tax on utility bills and audit exemption for two years. Sales tax rate for registered payers should be 12.5 percent and for unregistered 15 percent. ABC has appreciated the government's efforts to reduce the tax rate on salary in the 2006-07 Federal budget. However, the effect of reduction was off stetted by the waiver of exemptions like house rent, utility, etc. It is, therefore, recommended that the government should at least revive the scheme of tax credits on gross income tax liability, which was valid till 2005-06. Similarly, marginal tax relief to salaried individuals should be provided whose salary marginally crosses one bracket to another. On the question of Federal Excise Duty (FED), the key points highlighted by ABC are: - True essence of levy of excise duty is to regulate and discourage consumption of items that are either luxurious or injurious to health such as alcohol and cigarettes. Government has implemented this policy by eliminating excise from most consumer goods - the most recent being toilet soaps and powder detergents. ABC has, therefore, recommended that FED on shampoos, skin cream and shaving preparation items should also be removed, as all these items are neither classified in luxury nor dangerous product for consumption. On advance tax-sec 147, ABC has recommended that law should be revised (as was applicable before) whereby advance tax was paid, which was equal to one-fourth of the assessed tax liability. This would simplify and streamline tax process for good corporate citizens. On Presumptive Tax Regime (PTR), ABC says that Pakistan is the only country with this concept of presumptive tax. Since it is easier to administer, the government does not differentiate between whether the company makes profit or loss (PTR is applicable on every person). Manufacturers cum importers do not have option to merge their corporate profits for the purpose of income tax. ABC has recommended that on income tax all should be taxed on profits only under Self-Assessment Scheme (SAS). Current process of audit should be continued for those entities whose accounts are not audited by the approved auditors, or option of normal tax regime should be awarded to manufacturers-cum-importers fulfilling a precept criteria (in line with what was done last year for large trading houses). Salaried class should be allowed deduction by his employer for the tax deducted on cash withdrawal, investment in funds, tax deducted on phone bills. This would benefit and help the government in making refunds to those individuals whose only source of income is salary. ABC is a chamber of US businesses in Pakistan and represents the largest group of single country investors. It currently has 60 members - most of whom are Fortune 500 companies, which operate in various sectors of economy. ABC members annually contribute: over Rs 35 billion to the national exchequer, cumulative revenues of $2.5 billion, investment of over $1.3 billion, and employ around 26,000 persons directly and over half a million people indirectly. ABC key objectives for 2006-2007 have been highlighted as under: Level playing field: covering combating corruption and smuggling as well as transparency in government decision-making and access to information. Intellectual Property Rights (IPR): patents, copyrights, trade marks, data exclusively and counterfeits and effective enforcement.

LAW & ORDER: SECURITY -- De-regulation: specially for pharmaceutical and oil marketing companies, and -- Taxation issue: corporate and personal taxation including refunds.

Business Recorder – April 24, 2007 Pakistan poised to more drug export: Shaukat

BUSINESS RECORDER

Pakistan poised to more drug export: Shaukat

April 24, 2007

ISLAMABAD (April 24 2007): Prime Minister Shaukat Aziz Monday said that the government is taking steps to position Pakistan as the manufacturing and export hub of high quality drugs. As such, Pakistan is now poised to increase the drug export. Relevant regulations and procedures have been improved to bring them in line with the best international practices. The Prime Minister was chairing a meeting to review pharmaceutical industry growth here. Shaukat Aziz said that effective intellectual propriety rights organization has an important role in the establishment and expansion of industries and manufacturing of products having internationally competitive quality. He said that the steps taken by the government including the establishment of an Intellectual Propriety Rights Organization of Pakistan, strict enforcement of laws and streamlining of drugs and patents registration process have brought about significant improvement in the pharmaceutical industry. The Prime Minister said the plans to establish the Drugs Regulatory Authority have been finalized and its establishment will bring improvement in the pharmaceutical sector. He emphasized the need to promote high quality medical research in the country and said the industry and academia need to join hands to develop a culture of research and capacity for it in the country. The Prime Minister asked the Ministry of Health to come up with a complete plan to initiate (R&D) activities in the country. He said that the health ministry and pharmaceutical industry should work together for capacity building to promote research at the local level to attract funds for research that are available globally. Shaukat Aziz said macro-economic stability and sustainability of the growth momentum have increased the investment potential of Pakistan. The government is encouraging more investment in the pharmaceutical industry and medical services and the sector will be further deregulated to facilitate its growth. Minister for Health Muhammad Nasir Khan apprised the Prime Minister of the steps taken by the Ministry to facilitate investment, streamline the registration of patents and encourage further expansion and growth of the industry. The meeting was attended among others by president of American Business Council (ABC) and chairman of MD Parke-Davis (Pfizer), chairman of ABC Pharmaceutical Sub-Committee and MD Wyeth Arshad Rahmin Khan, chairman of ABC IPR Sub-Committee and MD Merck Sharp and senior officials.

Dawn – April 24, 2007 Drug regulatory authority to be set up soon

DAWN

Drug regulatory authority to be set up soon

April 24, 2007

ISLAMABAD, April 23: Prime Minister Shaukat Aziz said on Monday that the government is taking steps to position Pakistan as the manufacturing and export hub of high quality drugs. He stated this while reviewing the performance of pharmaceutical industry and implementation of intellectual property rights (IPRs) law. He said the relevant regulations and procedures have been improved to bring them in line with the best international practices. An official announcement said effective intellectual property rights organization has an important role in the establishment and expansion of industries and manufacturing of products having internationally competitive quality. He said the steps taken by the government including the establishment of an Intellectual Property Rights Organization of Pakistan, strict enforcement of laws, streamlining of drugs and patents registration process have brought significant improvement in the pharmaceutical industry and Pakistan is poised to increase export of drugs. Mr Aziz said the plans to establish the Drugs Regulatory Authority (DRA) have been finalized and its establishment will bring improvement in the pharmaceutical sector. He emphasized the need for promoting high quality medical research in the country and said the industry and academia need to join hands to develop a culture of research and capacity for it in the country. The premier asked the ministry of health to put up a complete plan to initiate R&D activities in the country. He said the ministry and pharmaceutical industry should work together for capacity building to promote research at the local level to attract some funds for research that are available globally. The government, he said, is encouraging more investment in the pharmaceutical industry and medical services and the sector would be further deregulated to facilitate its growth.

JANG - April 24 2007 All efforts to manufacture quality drug: Shaukat Aziz

The News - April 17, 2007 Pak economy far better than India: Ishrat

The News

Pak economy far better than India: Ishrat

April 17, 2007

KARACHI: Chairman National Commission for Government Reforms Dr Ishrat Hussain has said the performance of Pakistan’s economy is far better than India if compared in relative terms instead of absolute terms. Speaking at a luncheon meeting with the members of American Business Council on Monday, he said Pakistan’s exports were larger than India’s if difference of their size and population is considered. “If our export today stands at $18 billion, theirs should be at $144 billion. But they are standing at $95 billion,” he said. Similarly, he said, Pakistan had been more successful than India in attracting foreign direct investment. “As we are likely to have received $5 billion as FDI by the end of this fiscal, India should attract $40 billion, but its FDI stands only at $12-15 billion,” he said. Hussain said it was easier in the first three years of Musharraf government to get things done because there was no elected government. “We took many decisions in that period and implemented them very easily through ordinances,” he said. “Now the situation is quite different. It looks like a one-man dictatorship from outside, but the fact is that everything is discussed in cabinet committee and the cabinet. It also goes through standing committees of parliament and is debated on the floors of Senate and National Assembly, which takes a lot of time. However, we have to respect the authority of the elected representatives.” He said the ultimate aim of the NCGR is to make the lives of ordinary citizens easier by ensuring better education, health and other services to them through reforms at the government level. The former governor of SBP said there are too many ministries and then these ministries have different departments. “In Islamabad officers keep holding meetings all the time to coordinate their matters, but that coordination is difficult to achieve. There is too much fussiness today; we need clarity,” he said. “We have decided the areas of education to be overseen by different levels of government. Higher education is to be overseen by federal government, college level education by provincial governments and primary level education by district level governments,” he said. He said that there was need to replicate the experience of petroleum ministry in the other ministries. He said petroleum ministry had given autonomy to public sector corporations like OGDC and SSGC and had formed OCAC to decide prices. It is now concerned only with policy-making and in projects like IPI gas pipeline, he said. He said the government’s only job should be to plan, make policies, implement and monitor their respective areas. It should not be involved in running enterprises, he said. The chairman NCGR said there were some commercial services being run by officers who were unable to compete because of government restrictions. He said there was no need to retain the civil servants’ groups of commerce and trade, postal service and railway. He said officers should be paid according to market conditions and their performance instead of grades. “These things may have worked in 1950s, but you cannot solve today’s problems with instruments of the past,” he said. He advised the ABC members to form a group, which should identify problems companies face in dealing with ministries and make recommendations for his commission. President ABC Iqbal Bengali said the ABC members wanted the government to ensure protection for intellectual property rights, patents, and trademarks and eliminate counterfeits. He said the government must also work towards ensuring data exclusivity. He stressed level playing field for market players and said for this the government must eliminate smuggling. He said the ABC members advocate access to information and expect transparency in the government decisions.

The News – April 7, 2007 Utilization of WPPF by government non-transparent

The News

Utilization of WPPF by govt non-transparent

April 7, 2007

KARACHI: Companies paying Workers Profit Participation Fund (WPPF) should be allowed to utilize it for their employees’ welfare. Presently, 95 per cent of WPPF goes in government’s kitty and its utilization remains invisible. The American Business Council a representative body of American companies working in Pakistan has proposed cut in corporate tax rate, utilization of WPPF by the company, incentives for registered GST payers, marginal tax relief for salaried class and payment of only one-fourth of assessed tax liability as advance tax. The American Business Council said in its proposals sent to the Central Board of Revenue for the budget of 2007-08 that rate of corporate tax is high in Pakistan at 35 per cent as compared to developing and developed markets. This, combined with Workers Welfare Fund (WWF) and Workers Profit Participation Fund (WPPF), reaches 42 per cent, it said. The council recommended the CBR to cut the corporate tax to 30 per cent for private companies and 25 per cent for public limited companies. This will make Pakistan investment friendly and competitive with regional markets and increase the return for the shareholders, it said. The council said WPPF is an additional burden on the manufacturing sector in addition to high corporate tax. Except for Pakistan, everywhere all the welfare benefits are calculated by taking salary/wages as a base rather than the profitability of the company, the ABC said. The council suggested either elimination of WPPF in its entirety or utilisation of WPPF by the company through a fund (just like provident fund) for building schools, hospitals, etc for the benefit of workers (because 95 per cent of the contribution on account of WPPF goes to the government after allocation to the workers). Currently no incentive is provided to registered entity versus unregistered. Incentive should be provided to the registered GST payers like rebate on utility bills, elimination of withholding tax on utility bills and audit exemption for two years, the council proposed. Sales tax rate should be 12.5 per cent for registered payers and 15 per cent for unregistered. ABC appreciated reduction in the tax rate on salary in the federal budget for 2006-07. However, it said, the effect of reduction was offset by the waiver of exemptions like house rent, utility, etc. The government should at least revive the scheme of tax credits on gross income tax liability, which was valid till 2005-06. Marginal tax relief should be provided to salaried individuals whose salary marginally crosses on bracket to another. This change will help salaried class and will remove a key complain of the salaried class, it said. The council recommended that federal excise duty on shampoos, skin cream and shaving preparation items should also be removed, as all these items are neither classified in luxury nor dangerous products. There were certain changes in Finance Act 2006, under which advance tax is now paid on current year income estimate (the previous act mentioned payment on latest assessed income). This creates hardship for the payers, because if there is a 10 percent variation, interest is also levied on the short payment beginning from the last quarter of the year, the ABC said. It recommended that law should be revised and advance tax equal to one fourth of the assessed tax liability should be paid by the companies. The council further recommended elimination of frivolous clause of interest percentage on dividends declared (which goes as maximum to 75 percent of the dividend rate) and keep it only to bank rate plus 2.5 percent.

The News - March 16, 2007 ABC wants Pak govt to do more to protect IPR

The News

ABC wants Pak govt to do more to protect IPR

March 16, 2007

KARACHI: The American Business Council wants the Pakistani government to do more to protect intellectual property rights and to attract investment in research, and to bring its corporate tax down to the level of other regional countries. President of ABC Iqbal Bengali expressed these views in an interview with The News in Karachi. He said American companies might look at the possibility of starting research in Pakistan if the government provided better protection to intellectual property rights. “There should be protection for patents. There should be laws. Patents are violated. Nobody is going to invest in research in current circumstances. Even no Pakistani firm will do that,” he said. He said India was a better country in this regard as the authorities there are more supportive of patents protection. He said Pakistan should attract foreign investment because it has got talent and is more cost effective, only if patents are protected. “Pakistan should honor its obligations that it has under the World Trade Organization. There should be strong punishments for violators and cases should be settled speedily,” he said. He said the people working for IPO should be aware of the technicalities. The government should educate lawyers about intellectual property and there should be special courts for cases involving violation of intellectual property rights, he said. “There should be special IPO tribunals. In this way the judges would be more competent, as they would focus only on intellectual property cases,” he said. He said the judges of the country were not as conversant with patents as they should be. The government needs to take steps to enhance their capacity with regard to patents, he suggested. He said a possible attack on Iran by Israel or US would definitely have an impact on the US businesses in Pakistan, but it would be only temporary. “Anywhere a war does have an impact on businesses, but only temporarily. If economic fundamentals are sound, the economy soon recovers,” he said. He said Pakistan should look at reducing corporate taxes in a phased manner. In the region it is ranging between 20 percent and 30 percent, but here corporate tax is charged at 35 percent, he said and added that it would send clear indication abroad and help attract foreign investment. “It all boils down to competition. Pakistan has to be competitive to attract foreign investment because every country is trying to attract foreign investment,” he said. He said the perception abroad is that Pakistan’s law and order situation is not very conducive because whatever they know is through television channels and newspapers. But when they come here and go back, the have a better opinion about this country because the situation is not as bad as it is presented in the media, he said. “The government of Pakistan has got a challenging task. Not only it has to control suicide bombings, but it also has to curb the street crimes. Street crimes are a cause of concern for us, because if something happens to our employees, we are affected. All these things add up,” he said. When asked if he agreed with the latest World Bank’s statement that Karachi was a very business friendly city, he said: “Yes. Karachi is now a business friendly city, but we should think is it enough. I think we need to do more to attract foreign direct investment.” He said Pakistan should have been able to attract a lot more foreign direct investment because it is the only country in the region that allows foreign firms hundred percent ownership and hundred percent repatriation of funds. But it is failing to do so because of its image abroad, which is only partly true, he said. He said there was an acute shortage of skilled workers in Pakistan. The kind of skills that we want in workers, we do not find, he said and added that the government must make efforts to encourage skilled people to stay in Pakistan and not go abroad. “Skilled people are not readily available. Even if we get them, we find it difficult to retain them because they prefer to go abroad. The government of Pakistan should improve the situation here so that skilled people should like to stay here.” He said he had a firm view that the government should not dictate businesses and should let the market forces determine. He said that in the US the government does not interfere. “The governments should make policies and make sure the policies are followed,” he said. “It is not a long-term solution, if the government asks businesses to reduce prices. The government needs to find long-term solution.” Asked if he was satisfied with the infrastructure of Karachi, he said the infrastructure should be proper in any city. He said there is always a shortage of power and water in Karachi, which affects businesses seriously. Traffic jams are a chronic problem. He said improvement was required in these areas. “We have generators, but even when we do get power supply, there is so much fluctuation that damages our assets. Then we have to buy water that we should not be doing. They (the government) say they are doing, but they need to do more.” About the economy of Pakistan he said its macro fundamentals were good and its eight percent growth for last few years was pretty good and not easy to achieve. The per capita income has increased from about $400 to around $800 and the number of people living below poverty line has come down to 20 percent from 25 percent, he said. However, he said, the government needs to spend more money on health and education, which are the most vital sectors for any country to prosper. “Now they (the government) are spending on these two areas, but it is still not enough,” he said. He said the judiciary had its problems, because there was a huge backlog of cases in courts. He said that because of the huge number of cases that they have to hear, decision on cases are delayed, which affects their business. “The government should spend money to establish more courts,” he said. About the negotiations between the US and the Pakistani governments on bilateral investment treaty, he said he hoped it would get signed very soon, because the gap between the points of view of both has narrowed down. When asked what the ABC members contribute in the education sector of Pakistan, he said they were not involved in education sector, but they provided technical know how to their employees. “The US government helps Pakistan for improving its education sector. Recently they (the US government) said they would be spending $115 million on Fulbright Scholarships for Pakistani students over the next five years,” he said. ABC conducts a survey every year to know about the opinion of our members about different government departments. The last survey showed that our members thought the performance of ministry of interior, ministry of labour, ministry of health and Intellectual Property Organization had gone down. But the view of our members about performance of Securities and Exchange Commission of Pakistan, State Bank of Pakistan and Central Board of Revenue had improved. About the performance of provincial governments he said the members of ABC found the departments of Punjab governments working better than Sindh’s. Particularly, the performance of the police in this province is not satisfactory.

Pakistan Observer – January 19, 2007 American trade body meets Ebad

Business Recorder – December 30, 2006 Need to establish IP courts and amend IPOP Ordinance

BUSINESS RECORDER

Need to establish IP courts and amend IPOP Ordinance

December 30, 2006

The Intellectual Property Organization of Pakistan (IPOP) Ordinance, 2005 was promulgated on August 11th last year and established the IPOP. The Organization comes under the administrative control of the Cabinet Division. The IPOP Ordinance brings the Trademark office, the Patent office, and the Copy right office under the administrative control of the IPOP. These offices would continue working by their respective charters and laws but IPOP would have the mandate to hear complaints against them, to enforce their respective laws upon them, to allocate budget or to coordinate their activities. The mandate of this organization is to promote an IP rich environment in Pakistan by developing manpower, IT infrastructure, policies and advice to the government etc. (the IPOP has an independent budget). The IPOP has the mandate to guide or direct other arms of the Government to enforce and protect and strengthen IP Rights. Arguably they can issue policy related directions to Ministry of Health to prevent them from violating patent or to adopt Data Exclusivity legislation. However, their power in this regards is still to be tested. It is noteworthy that the Board of IPOP has been empowered to regulate itself and to carry out its objectives by drafting and promulgating rules and regulations. (Traditionally the Federal Government keeps such powers with itself. It is proposed by virtue of this paper that the IPOP Ordinance is amended so that the IPOP is given powers to establish special Courts. Generally the Federal Government (“FG”) has always reserved the right to establish special courts under specific legislation to administer the provisions of those legislations. Therefore, under the IPOP Ordinance, the FG may do the same by (a) amending the Act to empower it to establish Courts by notification in the official Gazette, and (b) establishing the Courts. These courts would consist of specialists as judges; sit at places directed by FG and would have such powers of administration as are given to district courts. The next steps would be that FG amends the existing IP framework, inter alia, the Patents Ordinance, 2000, the Trademarks Ordinance, 2001 and the Copy right Ordinance, 1962, so that the infringement complaints under these acts are filed with the special IP courts instead of the district courts. For instance, FG would have to amend the section 60 of the Patents Ordinance-this section empowers a patentee to institute a suite in a District Court for patent infringement or any other issue under the Patent ordinance. Similar amendments would be required in the Trade mark and copy right legislation. Appeal against the decision of the IP courts would lie with the High Court. The appellate mechanism to address refusals of grants of patents, trademarks or copyright given under their respective legislation would remain intact. The amendments in the IPOP Ordinance would have two objectives. Firstly to provide effective enforcement of rights granted under the IP legislation of the Country and secondly to provide for speedy and cost effective method for prosecution and disposal of cases involving IP infringements and matters lying under the domain of IPOP. It must be highlighted that a detailed institutional framework would have to be developed for establishment of the IP courts and of course a scheme of arrangement for changes would have to be submitted with any proposals in respect of this paper. (This could require amendments in the procedure codes whereby the District Courts are required to make a reference to these IP Courts as soon as they receive an IP dispute matter. It is reiterated that the IP courts should have the same powers conferred on a district court by the civil procedure code. Appeals against its decisions would then lie in the High Court.

The Jurisdictional scope of IP courts over IP related matters.

The IP courts should hear disputes arising under the following legislations:

(1) The Trade Marks Ordinance, 2001

(2) The Copyrights Ordinance, 1962

(3) The Patents Ordinance, 2000

(4) The Registered Designs Ordinance, 2000.

(5) The Registered Layout-Designs of Integrated Circuits Ordinance, 2000

The Courts should also have jurisdiction over any other matter that has IP issues at stake. The principles which should be embodied in any legislation or amendments that codify the above proposal should be (1) to handle cases in strict compliance of the IP laws. To do so in a timely manner and to ensure that the procedural provisions of the Civil Procedure are strictly followed and that the courts guarantee a party its full right of action. (2) to have judges who are experts in IP matters so that they are able to assess the merits of case better. (3) All parties are to be treated equal. (4) methods of Adversarial system followed.

Daily Ausaf - December 8,2006 Pakistan – U.S. long term strategic economic partnership.

Dawn – October 2, 2006 Why Sindh is lagging behind?

DAWN

Why Sindh is lagging behind?

October 2, 2006

AS many as 94 per cent of the 60 American multinationals have a negative image of Sindh government, according to a recent annual survey. Sharing this perception, chief executives of a few British and German multinationals described “bad governance’’ the single most critical challenge to the development of the province. The World Bank too, carried out a survey of primary stakeholders in December 2004 to discover that “an overwhelming majority of them consider bad governance as the biggest challenge to the Sindh’s development’’. “Corruption and law and order, which are derivatives of weak governance system, emerge as the second and third most critical challenges’’. It is this candid observation of the World Bank report that has caused discomfort to the political leadership as well as the bureaucrats in Karachi. A recent report of Transparency International put Punjab government ahead of Sindh on corruption index has brought some consolation to the provincial administration. But the World Bank report, “Pakistan: Securing Sindh’s Future: The Prospects and Challenges Ahead’’ awaits official comments from the provincial authorities even after submission and presentation about nine months ago. According to World Bank sources in Islamabad, the bank gives the draft report to the government after carrying out surveys and holding sessions with stakeholders. A presentation is made and then the relevant authorities are expected to offer comments. The bank’s board then reviews the draft report in the light of comments of the government and gives it a final shape that accommodates all views and comments. Spread over 100 pages, the World Bank report is divided into seven chapters. The bank study has detected an all round deterioration. Thee province is falling behind in almost all sectors be it economy, manufacturing, agriculture, services education, gender equality and social sectors. What is startling is the fact of highest incidence of absolute landlessness, highest share of tenancy and the lowest share of land ownership in Sindh. The wealthy landlords with holdings in excess of 100 acres, who account for less than one per cent of all farmers in the province, own 150 per cent more land than the combined holdings of 62 per cent of small farmers in the province with land holdings of less than five acres. Crops and livestock have been devastated by the four years drought exposing more than 50 per cent of its rural population to extreme poverty. Being on the lower riparian, water supply remains less than what is needed and hence all the problems. The World Bank found Sindh to be endowed with many characteristics of a high growth region. At one time it was the most industrialized province accounting for 40 per cent of the country’s manufacturing output in the country. Rich in mineral resources, the province possesses one-third of total deposits of the country. At one time it was the most efficient producer of agricultural goods. The per capita income in Karachi was 55 per cent higher than the national average at the time of independence. Karachi was the first city in Asia to have a full fledged airport and its sea port was the main supplier of cotton and grains to Europe in 19th and 20th century. The city’s seaport is well connected by extensive road and rail network with all parts of the country and is well extended to India in East and up to Central Asia in North. The province has highest literate population, a strong entrepreneurial class, a large pool of educated labor with relatively low wages and home to many institutions of higher learning, According to the World Bank report “Sindh should be on a fast growth track and Karachi should have been a flourishing metropolis’’. Instead of building on the initial advantages to become country’s growth engine, the province, “has been gradually losing position of pre-eminence’’ the report notes and goes on to illustrate its observations with facts that show the rise in unemployment in the province. The report warns of deterioration in unemployment situation as it counts 610,000 unemployed in the year 2003-04 and nearly half a million persons are likely to be get added each year for next ten years. “Without a sustained growth rate of around 7-8 per cent per year, the number of unemployed in Sindh could go as high as 1.6 million by 2013-14’’ warns the report. The province’s share in the national gross domestic production (GDP) is found to have fallen in almost all sectors with the largest declines recorded in large scale manufacturing, finance and insurance, transport and communication sectors. Another significant observation of the World Bank is that the Sindh’s development indicators are not only low in absolute term, but are growing less rapidly relative to rest of the country. For example, its literacy increased by five percentage points from 51 to 56 between 1998-99 and 2004-05, while corresponding increase in the country was eight per cent, from 45 to 53 per cent. With a 41 per cent net primary enrolment rate, it was one percentage behind the national average. This gap widened to four percentage points by 2004-05. In 1998-99, the percentage of household with access to roads exceeded the national average by two percentage points but it fell by seven percentage points in 2004-05. Poverty headcount ratio increased from 23.4 to 40.4 per cent between 1995-96 to 01-02 when corresponding national poverty was 30.1 per cent in 95-96 and 36.4 per cent in 01-02. The report has raised issues as to why Sindh has grown below its potential and is lagging behind the other provinces in growth, poverty reduction and social indicators. The report addresses the growing inequality and disparity within the province across various dimensions. How can these barriers be removed, enabling the province to accelerate its economic growth, improve distribution and reduce poverty? This is one question that the World Bank tries to answer in the context of sound economic policies of the federal government. But in this utter dismal socioeconomic scenario, the World Bank report finds light at the end of tunnel. “Fortunately, the favorable conditions at the global and national levels and the province’s own existing and potential strengths provide an opportunistic setting for the government to embark on a broad and ambitious reform program’’ the report suggests. The report notes polarization in Sindh political environment, where political parties are formed on ethnic lines and it pleads for building a consensus in favor of reform among the existing political parties. According to the WB report, it is the only province where politicians are mobilized on ethnic lines with conflicting interests. As a part of its study, the World Bank in its earlier report given in May last year found that nature of coalition government seems to have been burdened by political stalemates that is holding the provincial government to focus on developing the “type of strategic vision, action program and implementation drive that made the province a leader in implementing reforms in earlier years. Moreover, a lack of attention to business related issues and sustained bureaucratic inaction has created a perception of severe policy uncertainty and has heightened the level of mistrust between the business community and the public sector institutions’’ the report pointed out while drawing attention towards economic stagnation and increase in the number of people being pushed down the poverty line. “It seems that the progressive policymakers, the resilient business community and the activist civil societies have given up any hope of creating a more prosperous Sindh’’, the report said. Top executives of about half a dozen multinationals and business leaders endorse most of the observation of World Bank. “ The government does not have any vision for future economic development’’ remarked a chief executive of a giant multinational. Except for Governor of province, the business leaders and executives of big corporations find difficulties in communication with the ministers and the bureaucrats. ‘Is there really any Investment Cell in the Chief Minister House?’’ asks an executive of a corporation who said he never knew if there was any cell working in the province. But his questions as to when the cell was notified, what are its terms of reference, who are its members and how many times it has met and whether it has given any approvals to projects and finally does it interact with local and foreign businessmen remain unanswered. So long as Kamal Mustafa was the provincial minister for IT there was some communication between the government and foreign investors. The Karachi Chamber of Commerce and Industry leadership including President Majyd Aziz have high hopes from the political leadership of the provincial government. “From the Governor to the Chief Minister, all area easily accessible’’ Majyd Aziz said. But he admits that the government does not have any vision for industrialization and agricultural growth. He concedes that lawlessness is growing out of proportion that now threatens the normal day-to-day economic activity. “But four times reshuffling in the cabinet portfolios is no issue for us’’ Majyd Aziz said and hopes for best in the coming days.

Business Recorder Editorial – September 29, 2006 ABC Survey

BUSINESS RECORDER

ABC Survey

September 29, 2006

EDITORIAL (September 29 2006): Briefing journalists in Karachi recently on the American Business Council's (ABC) annual survey regarding its members' perception of investment climate in Pakistan, the Council's country president, Zubyr Soomro, said that the outlook is positive. As it turns out, the positive relates only to a general satisfaction with the roles played by the State Bank, Securities and Exchange Commission of Pakistan, Central Board of Revenue, and income tax and customs departments. Which is nice. But the rest of the picture the survey presents is not so nice. In fact, it is pretty negative, except for the part where respondents described the domestic economy as "good" or "fair". The ministries of industries, health, interior, labour and manpower as well as the Export Promotion Bureau, and the outfit responsible for the protection of intellectual property rights are all viewed to be performing poorly in their respective fields. There is also a negative perception about the law and order situation, seen to be deteriorating rather than improving. And 47 percent of ABC's 85 percent members interviewed for the survey expressed reservations about internal and external political situation. So far as the performance of provincial governments, are concerned, the survey presents embarrassing results for the two larger provinces, Punjab and Sindh. Only 20 percent of the respondents thought the Punjab government was doing a "good" job. Sindh merited even worse evaluation with only six percent giving it "good" grade. Interesting, for the first time this year ABC had extended the scope of its survey to city governments. The result, though, is not very encouraging. The city government in Karachi, the nation's commercial capital, gets a "good" rating from merely 15 percent of the respondents while Lahore receives a similar rating from 29 percent, emerging as an overall winner. Needless to say, with only 29 percent votes in its favour Lahore's city government, too, has nothing much to be proud of. The image, nonetheless, is consistent with a slightly better rating that Punjab has received as compared with Sindh. Which is not surprising since the latter is more chaotic both in terms of day-to-day running of governmental affairs, coherent policy goals and implementation strategies. There are of course a number of factors that are responsible for shaping investor perceptions such as political stability, law and order, level of infrastructure development, the nature of regulatory mechanisms, public sentiments vis-à-vis demands of a market economy, donor agencies' views, and local investors' enthusiasm or lack of it. In the present context, the investor perceptions, as the ABC President explained, are based on the political, not economic climate. That should help clarify as to why despite the Federal government's best efforts to attract foreign investments, setting of ambitious targets and launching of a big President's Initiative for Investment, there are no worthwhile foreign investments in sight.

The News – September 25, 2006 Foreign investor Worries

The News

Foreign investor worries

September 25, 2006

The annual perception survey conducted by the American Business Council, a grouping of American companies operating in the private sector in Pakistan, focuses this time on the issue of law and order in the country. The survey is an annual feature and is an accurate barometer for understanding the problems that face foreign investment and investors in Pakistan. Also, for the first time respondents have also been asked to give their input on the performance of provincial governments and also of city governments. The reason why this survey is also important is because prospective investors take such views from existing investors in Pakistan very seriously since the latter are in a good position to give reliable and sound advice. Law and order and good governance are both issues that are very close to the heart of investors the world over. The responses given by the members once again highlight some of the issues that foreign investors in Pakistan as a whole have been talking about for the past several years. The results of the survey indicate that the members of the ABC perceive the law and order situation in the country to be worse than it was one year back. There is also concern about the performance of the law enforcement agencies, particularly the Karachi city police. What is also interesting is that foreign investors have largely expressed satisfaction with the working of the Punjab government but far fewer make the same endorsement in the case of the Sindh government. Similarly, there is more acknowledgement by the respondents that the Lahore city government is doing some good as far as attracting potential investors is concerned, far less than what its counterpart in Karachi is seen to be doing. Foreign investors have a valid point. Law and order in the country as a whole has deteriorated. The troubles in parts of Balochistan have only intensified. Then there are problems in the tribal areas which are also cause for worry and they have the potential to have ramifications for investors in other parts of the country. Another area of concern is sectarian violence which continues to rear its ugly head on and off while the government looks on helplessly. The rise in such violence has meant that business and factories have remained closed as strikes are observed to protest one killing or another. This has meant loss of valuable time and business for foreign as well as local investors and businesses and it eats into their profits. Then there is the rise in streetcrime, particularly in the urban centres, which has become so significant that it is now being taken into account by potential and existing investors and by the public in general as well. Robberies and street crime as well as extortion and kidnappings have increased in many cities, while the performance of the police in terms of catching the criminals and ensuring that they get prosecuted has been by and large dismal. The ABC survey, however, is not all bad news. Respondents have appreciated the functioning of the State Bank of Pakistan and have also said that the Central Board of Revenue is also working better than it was one year ago. This shows that once the government puts its mind to reforming a certain sector or entity, there is all the possibility that things will improve. This should be reason enough for the government to work at reforming the police and law-enforcement agencies as a first step towards a better law and order situation in the country.