April 30, 2007	Monday	Rabi-us-Sani 12, 1428

The Confederation of British Industries (CBI) is a fascinating body. It is a leading business organisation, speaking for some 240,000 businesses that together employ around a third of the private sector workforce.

The organisation is also the UK's official business representative in the European Union, which generates more than 50 per cent of regulation affecting British firms. With offices across the UK as well as in London, Brussels, Washington and Beijing, the CBI coordinates British business representation around the world.

It is fascinating because despite being an association of private businesses it plays a very important role in the official business policy making process of the country. It is regularly consulted by the government and on its part it keeps the government policy makers under constant surveillance, reacting to every nuance of an official business initiative.

And it comes out with regular reports on the various aspects of country’s economy and that of the private sector’s highs and lows helping the policy makers to understand what is happening in the private sector and take timely steps to correct things or to make the maximum gains of an emerging situation and at the same time providing the members with all kinds of reliable data to take the right kind of business decisions at the right time.

In Pakistan we have any number of trade organisations from the FPCCI to chambers of commerce and industries in almost all the important towns. Then we have rich clubs or cartels like the All Pakistan Textile Manufacturers’ Association, All Pakistan Cement Manufacturers’ Association, All Pakistan Sugar Manufacturers Association and the association of oil marketing companies. But their main aim so far appears to be to protect their respective narrow commercial interests even if it meant putting a heavy cost on the nation as a whole. The chambers and trade associations are mostly associations of petty traders and importers. Therefore, their focus is always on getting the government policies so designed as to help them to improve on their margins and indulge in hoarding and speculation. None of them so far appears to have realised their national duty which means promoting self interest within the bounds of overall national interests.

Here is an example of what the CBI does to help its members and the government to make their respective policies beneficial to all.

The Quarterly Industrial Trends Survey conducted by the CBI between March 21 and April 11 2006 2007 with 529 responses across 50 sectors has yielded the surprising result that the strength of the pound against dollar has so far made no negative impact on export growth. During the survey period the pound averaged euro 1.46 and $1.97. Brent crude averaged $66.15 per barrel. In the previous quarterly survey in October the pound averaged euro 1.49, $1.95 and $59.75 per barrel of Brent crude. So, the survey in a way tells both the government and the private sector not to panic. In Pakistan’s case by this time all the rich clubs would have been at the throat of the government demanding devaluation.

According to the CBI survey demand for UK manufactured goods has continued to grow apace, according to the latest quarterly survey of Industrial Trends by the CBI published on April 24.

Growth in manufacturers’ total new orders is stronger than at any time in the last decade, other than during a short period in 2004. Levels of export orders have so far withstood the strengthening pound to remain steady over the last three months.

Growth in output is reported to have slowed slightly in this survey, but the highest balance of firms (a balance is the difference between the percentage of manufacturers reporting an increase and those reporting a decrease) for over two years now expects output growth to increase over the next three months.

Manufacturers are managing to rebuild profit margins, after unit costs rose at the slowest pace for two years while prices increased at a similar rate to last quarter. Cost pressures are expected to ease further during the coming months.

Business sentiment has improved, with the highest balance since January 2004 feeling more optimistic about the general business situation than three months ago.

A balance of +12 per cent saw the volume of their total new orders increase over the past three months, the best figure recorded since April 2004. This was only slightly lower than January’s expected figure and a similar rate of growth is now forecast for the next quarter (+13 per cent).

The recent strength of the pound has so far failed to reduce export orders, with volumes remaining flat (a zero percentage balance). The largest balance of firms for two years (+7 per cent) is now more optimistic about export orders over the coming year, despite a recent drop in levels of export orders.

Output growth slowed a little over the last three months but the highest quarterly balance (+18 per cent) since January 2004 (+21 per cent) now forecasts an increase in volume of output over the next quarter. Stocks of finished goods are considered adequate to meet demand, while stock levels of raw materials and work in progress give further evidence that firms are preparing to increase activity. Firms recorded twelve-year highs for levels of both raw materials (a balance of +9 per cent) and work in progress (+8 per cent), against +11 per cent in October 1995 and +10 per cent in January 1995).

As a constraint to firms’ output, the level of orders or sales is cited by the lowest proportion of manufacturers since January 1989 (66 per cent).

Manufacturers reported average domestic prices had risen at a similar rate to last quarter. This time a balance of +14 per cent said they had been able to increase prices, only slightly below January’s twelve-year record balance of +15 per cent. This was lower than the expected +19 per cent. A balance of +16 per cent hopes to raise prices over the next three months.

The pace of cost increases slowed, with a balance of +11 per cent reporting a rise in unit costs the lowest since April 2004, meaning more firms are managing to repair profit margins. Cost pressures are expected to ease further in the coming months, with the lowest balance since January 2004 (+4 per cent) expecting unit cost increases in the coming quarter.

The proportion working below capacity edged down to 55 per cent, slightly below the long-term average (58 per cent), but firms report that capacity is largely adequate to meet demand. With capacity having been reduced, intentions for investment in plant and machinery continue on a gradual upward trend.

Manufacturers reported a smaller reduction in numbers employed than had been expected (a balance of -19 per cent compared to the expected -29 per cent). A balance of sixteen per cent expects to cut jobs in the coming months. Based on the survey, the CBI estimates 25,000 jobs were lost from the sector in 2007 Q1, and that 30,000 will be lost over Q2, reducing the total employed in manufacturing to 2,919,000.

Sentiment about the business situation and prospects for exports have both improved. The highest balances for two years were recorded for both measures in this survey, suggesting a sharp improvement between January and April, as the climate of demand remains supportive and margins are being rebuilt.