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| August 07, 2006 | Monday | Rajab 11, 1427 |
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Appalling civic failures
Reining in US soldiers
The export challenge is real
RAINS in Karachi have claimed several lives. Many people were hit hard by frequent and prolonged power breakdowns and some were electrocuted on the first day of the downpour. Angry mobs attacked KESC property and caused considerable damage. The much publicised Clifton underpass was under water the very first day and the areas around it got flooded when the water was pumped out. How did they build the Rs180 million underpass without having the means to automatically pump out the water in case it got flooded?
AN action plan to reduce the cost of doing business is stated to have been finalised by the ministry of industries and production, something urgently needed to make the economy globally competitive. While reforms have improved the enabling business environment, the cost of basic facilities such as power, gas, water, etc. is still very high. The shortage as well as the rising tariffs of utilities and the exorbitant price of land required for small and medium-size enterprises are holding up rapid industrial expansion. Delayed tax refunds too impact adversely on business finances. Many complain that reliable statistical data to take informed investment decisions is not readily available. The government has been slow in implementing its proposals like setting up textile cities or industrial estates where all infrastructural facilities could be provided under one roof. Enforcement of commercial contracts is a major problem. In fact, many good policies get bogged down at the implementation stage, making governance a critical issue in sustainable economic development.
But the point is that the government alone cannot bring down the cost of doing business. It is equally, if not more, important for businessmen to adopt the best international practices to cut costs, improve productivity and quality and deliver goods and services to both the domestic and foreign consumers at competitive prices. Barring a small number of cases, the modern corporate culture has not been adopted by the country’s trade and industry. Agriculture is nowhere near corporate farming. Even well-established industries look for official props — something that can only be considered in times of crises or in the early stages of development. Every country has its domestic advantages as the availability and cost of industrial inputs vary, and in this respect no two economies are comparable. The disadvantages can be overcome by creativity, innovation and dynamism. Not growing cotton and depending on imports, Bangladesh is making its presence felt in the global textile markets.
Finally, the diverse factors in productivity can be handled far more efficiently by investment in human skills. India’s new centres of excellence in technology like Bangalore and Hyderabad and the export boom in software are an accomplishment of higher education and training. In China, the market-driven economic growth after 1979 drew heavily on the then existing capacities of a better educated and healthier population. Education and trade skills are essential for producing goods of high quality conforming to international standards. Lauding the skills with which Southeast Asia accessed the global market, it is often forgotten that its remarkable achievement was made possible by the induction of professional managers and workers into the planning, designing and manufacturing processes. Other factors of importance are a high literacy rate, good healthcare, genuine land reforms and gender equity. Much needs to be done in these areas by the government and the private sector alike. Both the industry and agriculture suffer from low productivity and produce low value-added goods and commodities because of the failure of managements to overcome the shortages and upgrade trade skills required by a growing economy. The problem is further complicated by the slow absorption of highly productive and sophisticated technologies. No doubt there has been some improvement over the years in reducing the cost of doing business by cutting down red tape which, in some respects, places Pakistan in a better position than many other countries in the region. But the situation calls for concerted efforts for an improvement in systems in cutting costs, avoiding waste and enhancing productivity and quality.
TORRENTIAL downpours claimed another 25 lives in Punjab on Friday, pushing the rain-related death toll in the province to well over 50 in less than two weeks. In Karachi, four days of rain that began on July 30 have so far caused nearly 40 deaths. The situation is much worse in the NWFP (where 70 people were killed till Saturday), Northern Areas and Azad Kashmir, where flash floods and landslides have killed about a hundred people in the last month or so. What is perhaps most tragic about these figures is that they are part of an endless cycle of death and destruction. Year after year, the monsoon devastates large parts of the country and the current season is no exception. Relatively dry Karachi often avoids major damage but was not so fortunate this time. The civil administration was caught napping, despite the city government’s claims that it was ready to meet “any eventuality”. In Rawalpindi, the same old story of a garbage-choked Leh nullah overflowing its banks and harming residents was repeated all over again. Across Punjab and the Frontier, towns and cities were inundated as poorly maintained drainage systems collapsed under the strain of a phenomenon that is not a one-off but occurs every year, and that too within a fairly short period.
The question is, will this year’s lessons make for a better 2007? Or will they again be forgotten, and the same lapses and failures repeated, once the wet spell is over? Will any effort be made to ensure that the Leh nullah, once a gushing mountain stream in which people used to fish, does not revert to its primary use as a receptacle of garbage? If the words of the Rawalpindi municipal services EDO are anything to go by, the signs are not encouraging. Asked to explain the misery caused by the nullah, the man who earlier promised — but failed — to have it cleaned had this to say: “It is the will of Allah. Nobody can avert the havoc.” In Karachi, the blame game between the city government and other civic agencies is taking precedence over constructive debate and improvisation of remedial measures. The frequency and extent of rains may be beyond our control but the man-made causes of this yearly calamity must be tackled.
ALTHOUGH there has been growing pressure on the US military in Iraq to check its arbitrary use of force when dealing with the civilian population, there have been a number of cases in which the strong-arm tactics of the Marines have resulted in death and injury to innocent people. Last November’s Haditha killings, in which 24 Iraqi civilians were shot by troops in retaliation for the murder of a colleague, figures most prominently among such cases. But with the revelation of similar instances of violent behaviour by US troops, there is growing concern that the military command is doing little to rein in its soldiers and has, in fact, given them a virtual carte blanche to transgress all norms of responsible conduct. Hence, the blurring of distinctions between wrong deeds and justified action — at least as far as the troops are concerned.
Even though the findings of the Haditha inquiry are still awaited, there is an accountability process in place as in the on-going Hamdania case where six US soldiers face charges for assaulting Iraqi civilians last April. Three of the men have also been charged with killing an Iraqi civilian. Meanwhile, the Abu Ghraib prison scandal resulted in a number of convictions for US military personnel. But the pattern discernible in all these and other cases is that it is junior officers who are being made to face the charges. True, they may be the actual perpetrators of the crime they are being accused of, but the answerability process should be extended further so that high-ranking officials are also brought into the scope of inquiry. This will send a strong message to junior military officers and deter them from committing acts that do not conform to the rules of war.
Then began the usual blame game. The Karachi Port Trust, that had built the underpass as a gift to the people of Karachi, blamed the city government for allowing it to be flooded while the city government accused the KPT for the faulty construction of the underpass. Now not one but three enquiries are underway — one by the KPT, another by the city government headed by Nazim Mustafa Kamal and the third by former Nazim Niamatullah Khan.
Will all these inquiries produce positive results? Will the negligent and the guilty be publicly identified and punished? Or will the inquiry peter out as happens when the guilt is collective?
Meanwhile, the auditor-general of Pakistan has found serious and numerous irregularities in the accounts of the various departments of the federal government.
These will soon come before the public accounts committee of the National Assembly so that it can be conveyed to parliament and the taxpayers how tax payments are handled or misused.
In spite of its diligence, the committee has not been very effective as the accounts and abuses relate to an earlier period. This report is for the period 2003-04.
While fraud and foul play are exposed, it remains to be seen what proportion of the embezzled amount will be recovered. The recovery may not be as much as in the past.
While the government exults over the high economic growth of recent years, the country is facing three macroeconomic problems demanding critical attention. They are the large external trade deficit which has risen to a record $12.12 billion, a sizable fiscal deficit and inflation which can get worse if the fiscal deficit is not prudently tackled.
The rulers, too, have acknowledged the prevalence of these problems but have not been able to come up with adequate remedies fast enough. As a result of the record trade deficit, the balance of payments deficit has also risen to $4.1 billion despite home remittances from overseas Pakistanis rising to a record $3.6 billion. Foreign direct investment has risen to its peak of $3.5 billion — a total of over seven billion dollars.
If the two sectors had not produced such excellent results, the current account deficit would have been far larger and much more critical. The second problem is the fiscal deficit of Rs140 billion which is to be raised through bank borrowing or printing of currency notes. That may be easy to opt for as in the past, but it is a hazardous course to adopt as it will aggravate inflation.
The third fear is the rise in inflation far above the 6.5 per cent projected by the government for the current year. While world oil prices are shooting higher and higher, having already touched $78 a barrel, world food prices are also rising, particularly sugar, wheat and edible oil.
Domestic prices are rising all around and with Ramadan to begin soon, the overall price rise can be excessive. The governor of the State Bank of Pakistan, Dr Shamshad Akhtar, has been cautioning the government against these trends and voicing fear that they can slow down the growth of the economy.
The current account deficit rose with exports rising in 2005-06 by 13.3 per cent, while imports rose by a giddy 30.6 per cent according to Dr Shamshad. The Social Policy and Development Centre has also made an extensive and well-documented study of the budget for 2006-07 and underscored the three problems which the economy faces along with pervasive poverty. Its argument is backed by a great many tables.
The State Bank is playing its part to boost the economy and help the ailing sectors. It has reduced the export refinance rate by 1.5 per cent from 7.5 per cent. This can prove helpful for textile exporters who find their exports cost more than 15 per cent of Indian textiles and 20 to 22 per cent higher than Bangladeshi textiles.
Having failed to achieve a modest export target of $17 billion last year, the government has now set the export target at $18.6 billion for the current year. A great deal has to be done to achieve that target, although many say that the target is low. Commerce minister Humayun Akhtar says the export target is realistic and based on past performance.
The export surplus also matters. The State Bank on its part is realistic. While it has reduced the export refinance rate by 1.5 per cent, it has increased the discount rate by half a per cent in pursuance of its tight monetary policy. That will push up interest rates for borrowing as has already happened.
Meanwhile, there are negative developments on the export front. Over 300 hosiery knitting units are reported to have closed down as their cost of production has gone up far higher than the products of India, China and Bangladesh. Their products have become far more competitive in the international market.
This value added sector has been making a major contribution to export earnings while other countries are subsidising their exports in several ways; Pakistan has been pushing up their input cost. Following the disruption of the electricity supply as a result of the rains, power has been shut off for most of the industries at SITE and in the Korangi industrial area. Industry in both production areas has suffered heavy losses as a result of the closure of its operations.
This is not a good advertisement for attracting foreign investors. Load-shedding or breakdown in power supply is too frequent and too prolonged and we can’t be telling foreign investors to have their own power set-up which can be pretty costly.
Meanwhile, there have been some new developments on the privatisation front. The Council of Common Interests has come into being and has approved the privatisation of the Pakistan Steel Mills a second time, following the first approval given by the previous CCI in 1997. It has approved the privatisation of 28 previous units and given advance approval for 10 more units.
Pakistan Steel can go under the hammer again, but there is strong objection from the opposition parties who smell foul play. The opposition is making a major issue of that and will fight it out in parliament and outside.
The government has also taken a decision to mix ethanol to the extent of 10 per cent with petrol to reduce the consumption of imported oil. But the price of mixed petrol will not be reduced and initially only PSO pumps will sell the mixed petrol. If there is no price incentive to use the mixed petrol, the consumers may prefer non-adulterated petrol.
Measures to increase the production of alternative sources of energy are to be stepped up. Fifty-six letters of intent have been issued by the government for wind power with a target of producing 700 megawatts of power by 2010 and 9,700 megawatts by 2030. Some of the units will have to start the supply of power soon in order to motivate the people. Earnest and sustained efforts should be made to make such projects popular and a commercial success.
Dr Shamshad Akhtar says the government can use the privatisation funds or the foreign portfolio investment to reduce the current account deficit. She says on both scores $1.9 billion were raised last year. But how can privatisation funds be used to meet the current account deficit when the official policy is to use 90 per cent of the sale proceedings of privatisation to repay foreign loans? So, foreign exchange from privatisation cannot be used for meeting the current account deficit.
The government had tried to obtain oil on credit from Gulf countries including Saudi Arabia and Kuwait through high-level diplomacy. But it has not had success so far. Although the imports are too large and the trade deficit very wide, one good thing is that the largest single item of import is machinery, particularly textile machinery. That can increase industrial output and exports, and enlarge employment revenues. But the machinery has to be put to best use with greater focus on value added for exports.
With all countries out to export more and more, the government has to give greater attention to export problems and not take them lightly. Neglect in this sector has resulted in the country not being able to fulfil its export target next year which will force the government to set a low target of $18.6 billion for the current year. The country should not fail to achieve the new target.