The pandemic has caused a disaster, and big industrialists are not letting it go to waste.
Look closely and you’ll notice that Covid-19 has only fortified what Canadian author Naomi Klein calls the disaster capitalism complex. There’s wartime-like exuberance in Islamabad. Q Block has turned into a shopping strip for big industrialists. All kinds of ‘packages’ are on offer.
The government is holding out duffle bags of cash as industrialists piggyback on the pandemic. Their profits accrue to them but their losses are transferred to the taxpayers. Key ministers who wouldn’t shut up about the ills of rent-seeking in the recent past have had a sudden neo-Keynesian epiphany: industrialists need help. Discounted loans, cheap energy, subsidised land, tax breaks, duty waivers and whatnot. The government has become a conveyor belt to get public money into private hands.
Yet nine months and a massive stimulus package later, big industry is spinning stories to convince everyone of its impressive performance.
Forecasting is often the last refuge of the charlatan. No one can possibly predict how hundreds of economic variables will play out in a given year. The track record of those who pretend to have this superpower is worse than that of astrologists
Year-on-year exports for July-November are down seven per cent, according to the State Bank of Pakistan (the Pakistan Bureau of Statistics reported 2pc growth in exports for the same period). This is despite the fact that the textile sector, which constitutes more than half of total export earnings, is operating at full capacity mostly because of the orders diverted from competing regional economies amid a raging pandemic. But even textile exports were down 5.5pc year-on-year in July-November, data released by the central bank shows. It’s anybody’s guess what the numbers will look like once global supply chains revert to their pre-pandemic status and we lose newfound overseas customers to India and Bangladesh.
Hundreds of billions of rupees poured into the industrial sector in direct and indirect subsidies over the last nine months. This resulted in an annual increase of 5.5pc in the large-scale manufacturing index in July-October. The high growth rate sounds great until you examine its source. Most of it originated from cement and billet (steel) production, which rose 23.5pc and 30.4pc, respectively, thanks to the ongoing amnesty scheme and heavy subsidies announced for the construction sector.
What lies ahead?
American essayist Nassim Nicholas Taleb says forecasting is the last refuge of the charlatan. No one can possibly understand — let alone predict — how hundreds of economic variables will play out in a given year. The track record of those who pretend to have this superpower is worse than that of astrologists.
In its monthly economic outlook report for December 2020, the Ministry of Finance said there’s a “strong indication of economic revival in coming months”. Its optimism is baffling. Pakistan has not imported even a single dose of the vaccine yet. Polio workers are shot dead every year because people are suspicious of vaccines. Administering them to a highly sceptical population will be challenging even if we procure the vaccine in sufficient quantities.
The second biggest factor in determining the national economic path in 2021 is the International Monetary Fund (IMF). The government can keep the industrialists on the dole cheque as long as the IMF loan programme is in abeyance pending its second review. The honeymoon period will be over the moment the programme is revived. Forced austerity will kill any trickle-down economics that, in any case, works a lot like ice cubes traveling around a large room.
The recently announced electricity support package for industrial consumers is unlikely to go down well with the IMF. The continuous build-up in the circular debt will invite further tariff hikes and the removal of untargeted subsidies. Raising more taxes will likely be on the cards as the paltry increase of 5pc in tax revenues won’t satisfy the global lender of last resort.
In short, you should not fall for the optimism mantra peddled by corporate shills — characters that pretend impartiality despite having a direct interest in whatever they tout. Optimism is good only in moderation.
Bashir Ali Muhomad
Chairman of Gul Ahmed Textile Mills
There are a few major factors that will determine our economic performance in 2021. One is Covid-19: how long it will persist and how much worse it will get. Secondly, US policy under the new administration with regard to Pakistan and India as well as China and Russia.
Thirdly, a lot will depend on how Brexit turns out.
Finally, a lot depends on how we negotiate with the International Monetary Fund (IMF).
Chairman of Dawood Hercules
During the past year, Pakistan’s economy has laid the foundation for a post-
pandemic revival of business activity. The government’s
smart lockdown strategy has worked in Pakistan’s favour, reducing the impact of Covid-19 on our people and the economy at large.
The key areas to impact the business environment include the interest rate regime, resolution of the circular debt issue, improvement in the trade account and focus on digitisation.
Assuming the interest rates remain low, businesses will make significant progress backed by demand growth, resulting in consumer activity.
This will also benefit growth-focused industries due to the availability of inexpensive debt.
The resolution of circular debt has been a priority for the government under the IMF programme. Potential government measures will restrict the proliferation of circular debt and provide a mechanism to clear Independent Power Producers’ receivables, which will unlock value in Pakistan’s energy chain. Promoting renewable investments will also result in cheaper electricity and reduction in the circular debt.
Pakistan’s recent trade account activity has remained positive. However, this may witness a decline due to demand growth. Fiscal incentives being provided for existing and potential import substitution/export-focused projects will result in a sustainable current account surplus. This will also attract foreign capital across various sectors of the economy.
Businesses can also benefit from the promotion of digitisation to increase existing efficiency and provide the country with an opportunity to enhance its market of technology exports.
The above measures will bring sustainability to our economy and result in the prosperity of businesses while creating employment.
Mian Muhammad Mansha
Founder of Nishat Group
As we pull through one of the historically most difficult years, I hope and pray for a prosperous and healthy future for the people of the country. I have great expectations from 2021. But we will have to stay vigilant as we make the comeback — economically and otherwise — from the negative impacts of the global Covid-19 health crisis.
Given the pandemic’s persistence and resurgence of infections in the recent weeks, the prospects for economic revival during the present year will depend largely on how quickly and safely we can access the Covid-19 vaccine and how fast we can inoculate our people to get everyone back to work.
The vaccine will be the key to the business-led economic recovery in 2021.
Indeed, an economic comeback is well underway as indicated by the revival in the textile and clothing sector and the boost in the construction industry in spite of the challenges we face. But the sustainability of this recovery depends as much on policy and political stability as in the availability of the vaccine against the coronavirus.
Published in Dawn, The Business and Finance Weekly, January 4th, 2021