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Businesses face diverse emotions

Updated May 22, 2017

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The business community fears that the export promotion agenda may be lost to the demands of a populist budget.

They foresee a deeper crisis at the external front if issues compromising the viability of exports are not tackled in the upcoming budget by Finance Minister Ishaq Dar’s team.

While multinationals were not perfectly comfortable, many leading local business groups and traders were calm, willing to forget their wish list for now and extend support to the PML-N government for its last budget before the 2018 elections.

Sensing the conciliatory stance of the big boys in cement, auto, sugar and IPPs, the export-oriented and second tier companies, particularly in value added textiles, were extremely nervous as they dread the government might decide to compromise their interest for its politics.


Many leading local business groups were calm … second tier companies were nervous while for the struggling third tier, the federal budget is a non-event


For the struggling third tier companies, the federal budget is a non event as many operate on the periphery of the formal economy.

The budget is to be announced at a time when twin deficits (fiscal and trade) seem to be assuming alarming proportions. The current account deficit has ballooned. According to the SBP data it rose by 200pc in the first 10 months and is expected to widen to $9bn by the end of the current fiscal year.

Despite mounting pressures on the external front the government has managed stability in the currency market, a policy that exporters believe, hurt, more than help, the economy by making imports cheaper and exports prohibitively expensive.

Azhar Majeed Sheikh, an articulate representative of textile exporters, was equipped with a stack of papers and the relevant data at his finger tips, when he visited the Dawn office last week.

He shared a lot of material to substantiate his case for government to bring the cost of the textile business in Pakistan at par with competing nations such as Bangladesh, India, Vietnam, Indonesia and China, in order to reverse the trend of dwindling exports.

“Reversal of zero rating for the export sector in the next budget would be a death knell for whatever little is left of the export oriented industry in the country.

“The duty on packaging material that makes up 3pc of the cost should be waived, GICD should be withdrawn and the government must ensure swift implementation of the textile package by earmarking and disbursing funds immediately for the purpose.

“Let the government do its part and mark my words, we will triple exports over the next three years. We have both the industrial capacity and entrepreneurial capability to beat the best of the best on an even playing field.

“However, if our working capital is held back by the government indefinitely and the industry is subjected to utility charges of 12pc to 173pc higher than competitors, and labour charges 10pc to 98pc higher, the only direction exports can go is south”, he argued.

Bashir Ali Muhammad, Chairman Gul Ahmed Textiles and founding director of the Pakistan Business Council, was cautiously optimistic when commenting on budget expectations.

“The government is under pressure to collect maximum taxes but I hope they will give relief to the five export sectors on Gas Infrastructure Development Surcharge in the budget, or else export markets will be lost for good”, he warned.

Shaukat Tareen, former finance minister, thought the leading economic team lacks a pragmatic approach and tends to cling to out dated notions. Commenting on the upcoming budget he said, “I would very much like to see concrete steps in the budget to help exporters, in general, and value added products, in particular, to boost exports and relieve pressure on our external account”.

“It would make our products more competitive so as to compete for relocation of the Chinese industry in Pakistan. By some estimates China is relocating around 85 million jobs to other countries in textiles, leather, steel, etc. over the next decade. With the present cost structure we stand little/no chance”, he said.

A leading tycoon with interest in cement, real estate, and the retail sector thought that the business community should utilise the year ahead to look inwards and make the necessary adjustment in business practices and structures to be better equipped to respond to market calls now that the country is finally breaking out of the low growth spiral.

“Call it a burden of democracy if you wish, the government’s behaviour in an election year is typical. It would be lame to expect the government to make adjustments for the business community. The waiver of the fiscal deficit limit announced by the prime minister means that the economic team is packing goodies to cultivate voters”, he said requesting anonymity.

Riaz Pasha who owns a small unit of electronic kitchen appliances in Karachi said small businesses have their own business eco system that has little to do with Islamabad. “Who would care for margins when survival is at stake?” he asked. “Besides I do not have the luxury of time to indulge in empty discussions”, he said.

In a pre-budget press conference last week in Islamabad the Overseas Investors Chamber of Commerce and Industry’s tone was different though demands were the same as earlier. It opposed tax amnesty for dishonest citizens, demanded to kill the super tax and repeated the call to broaden the tax net.

Members appeared dejected despite several key economic indicators improving. Some observers said their anxiety could also be rooted in the country’s hasty drift towards the East in the wake of the CPEC.

Published in Dawn, The Business and Finance Weekly, May 22nd, 2017