Ali Salman

To change this, there is need to share stories of wealth creation without subsidy

ISLAMABAD: “Pakistan is a capitalist country with a socialist mindset.” This was aptly stated by a politician a couple of years ago, who is now part of the present government.

I was reminded of this statement when I read this headline recently attributed to the National Accountability Bureau (NAB) chairman. The chairman is reported to have said “NAB was pursuing cases of people who did not have a penny in the 1980s but owned multi-storey buildings today.”

In January 2019, Prime Minister Imran Khan said that Pakistan in the 1970s “went wrong because we had a socialist mindset, which became a deterrent to wealth creation”.

Speaking to Turkish businessmen then, PM Imran continued that though the socialist governments stepped down in subsequent decades, the mindset prevailed among the bureaucracy.

The recent statement of the NAB chairman shows that the socialist mindset prevails today. He is not alone of course. Our academia and media, which together shape the public opinion, are of socialist mindset, while practically following a capitalist model.

Media owners, for example, know quite well how to make money, whether from government ads or from preferring the rating over anything else. To be fair, one would be too naive to equate this behaviour with capitalism. This can be pure commercialism. But here I am using capitalism to offer a contrast.

What is wrong with not having a penny 40 years ago and owing multi-storey buildings today? Why we have largely a negative connotation about wealth in this society?

Part of the answer lies in what the prime minister mentioned. It was the nationalisation drive of the 1970s and the accompanying socialist rhetoric of the Pakistan Peoples Party which created this perception.

Part of the answer lies in our religious interpretations. It is commonly perceived that being poor is a virtue, which goes against the sayings and practice of the Prophet Muhammad PBUH, himself a successful merchant.

Part of the answer lies in the nexus between businesses and the government. This nexus was founded in the 1960s and has only deepened since then.

Today, we witness the manifestation of this nexus in markets such as sugar, wheat, electricity and housing. In markets, where such a nexus is non-existent, we see no problems. For example, in the domestic clothing markets, even the poorest of the poor in our country can afford some kind of clothing.

As compared to shelter and food, the access to clothing is not perceived as a problem. A government footprint in the form of subsidies for the textile sector exists but that is largely directed at the international market. The domestic market of clothing is open.

In order to change the socialist mindset, we need to share stories of our entrepreneurs, especially those who have created wealth without government subsidy.

We need to explain the process of wealth creation to the public. Those who create wealth in a productive manner, also create jobs and products. They are our heroes. They can be our small neighbourhood store owners and can be owners of large factories.

Inevitably, wealth creation leads to wealth distribution. For example, the entry of a new firm in a market, while assuming the market size remains the same, redistributes the pie wider. In many cases, new entrants, through their innovation, expands the market size.

It should be acknowledged that access to capital does give an advantage over those who do not have this access. All said and done, return on capital and return on labour may not converge in the long run.

However, paths to wealth creation through innovation and creative destruction always remain open and do not require capital as a prior condition. For that to happen, we need social arrangements which can provide a minimum level of education, health care and infrastructure for all.

Needless to say that general peace and easy taxation, as Adam Smith argued, remain critical. Pakistanis are great entrepreneurs. They are also reckless rent-seekers. In search for a better society, we ought to create room for creative destruction and entrepreneurship.

This may exhibit in favourable laws for street vendors. This may be done by abolishing all forms of subsidies. This may also be demonstrated through removing trade barriers.

We cannot do all at once. But in order to change our mindset, we need to take these actions. Capitalism may have a negative connotation for many, but certainly having more socialists than capitalists in a country does not augur well for future generations.

The writer is founder of PRIME Institute, an independent think tank based in Islamabad

Published in The Express Tribune, November 9^th, 2020.

Ali Salman

Wheat crisis brewing as evident from recent price hike and shortage of commodity

ISLAMABAD: Last week, the Indonesian parliament passed historic laws to liberate its agriculture market from excessive state control, opening up its food trade and increasing the role of private sector.

My good friend Rainer Huefers, who leads a think tank named Centre for Indonesian Policy Studies (CIPS) in Jakarta, has been part of the voices demanding these reforms. Some of the highlights of these changes, as reported by CIPS, are worth consideration by Pakistan’s policymakers as the country is reportedly going to face another wheat, and probably sugar, crisis in a matter of weeks.

Like Indonesia, Pakistan is a populous country and thus agricultural policies have serious implications for the productivity of farmers and food security for consumers. Here is one part of these reforms, which are directly relevant to us.

Just like Pakistan, previously, Indonesian laws only allowed considering imports when domestic supplies were insufficient. The new Indonesian law:

• Acknowledges imports as a legitimate source of food (but also seeks to protect farmers, fishermen and micro and small food actors through tariff and non-tariff trade measures).

• Drops import restrictions as a strategy to support farmers and plans to boost domestic agricultural growth instead.

• Removes penalties on imported agricultural commodities when national stocks are considered sufficient.

• Permits imports of horticulture, livestock and animal products.

It is expected that Indonesian consumers will be able to get cheaper and more nutritional food as a result of these changes. Furthermore, these laws will encourage international investors to return to Indonesia and as a result more jobs will be created for the Indonesians.

Pakistan should seriously study these changes in Indonesia and should conduct an extensive review of its laws. In fact, if such reviews have been made, which is likely the case, then there should be a public discourse leading to policy changes.

In Pakistan, earlier this year, the government, through its Economic Coordination Committee (ECC), decided to export wheat, which it thought was surplus. After a few months, it decided to import wheat, which it discovered to be short in supply.

When it asked the Trading Corporation of Pakistan (TCP) to issue tenders, it failed to decide three times. In the meantime, international prices of wheat went up considerably, while first shipment of imported wheat has just arrived. Precious time and money have been wasted in this exercise.

Wheat stock

On the other hand, the wheat stock available in the country, reportedly in government warehouses, is also waiting for government permission to be released.

I recall how there were deaths and a famine-like situation in Thar a few years ago simply because the deputy commissioner did not sign a letter for some months to release wheat.

In fact, according to some news reports, the wheat stockpiled in some warehouses in Sindh is being infested because the tenders needed to procure medicinal spray could not be awarded.

From support price for wheat farmers to procurement, storage, trade and release of stock, the government permission is needed at each and every stage. Why blame so-called mafia?

Governments have been involved in these decisions in the past as well. These decisions stem from a belief that some ministers and bureaucrats know the supply and demand of wheat better than farmers and consumers.

In their moment of self-belief, they mostly make mistakes because there is no mechanism to centralise information from the market. It is not just about crop size, it is also about expectations of consumers, traders and farmers, which are simply too complex to be understood.

Governments, in general, also believe that if somehow they let these permissions go away, heavens will fall. They see these controls as necessary tools to protect farmers and consumers.

They are sadly mistaken. As Indonesian case of reforms indicate, solutions lie in letting go of these controls, not increasing them.

The impending wheat crisis in Pakistan, as evident from recent price hike and shortage of wheat, is an opportune moment. Let us not allow another crisis. Instead of bureaucrats and politicians, let consumers and farmers make decisions.

The writer is the founder of PRIME Institute, an independent think tank based in Islamabad

Published in The Express Tribune, October 12^th, 2020.

Ali Salman

Board of Investment needs to step up efforts to exploit opportunities which country offers

ISLAMABAD: In my last few weeks before I relocated from Malaysia to Pakistan, I spent several hours in conversations on prospects of investment by Malaysia in Pakistan, and for that matter, from any other destination.

I spoke with government officials, businessmen, private equity investors, financial consultants, bankers as well as those associated with investment-related responsibilities within Pakistan.

I am sharing some general issues, which apply to prospects of not only foreign investment, but to a large extent, also domestic investment within Pakistan. By no means, this is an exhaustive list.

Property rights

Pakistan adopted a policy of encouraging corporate agriculture about 15 years ago. When I spoke about the prospects of commercial farming with better productivity gains, the first question I received was about property rights.

Does Pakistan offer secure property rights for large-scale land acquisitions and are large land parcels available easily free of encumbrance? The last thing an investor would want is losing capital investment, which is land purchase in the case of agricultural business.

Missing information

After a presentation I made to a group of Malaysian investors and business community where Pakistan’s Overseas Investors Chamber of Commerce and Industry was also present, SME Corp of Malaysia asked a basic question: where Malaysian companies interested in sourcing products from Pakistan can get data about potential companies and products.

In fact, an explicit reference was made of India, for which such information was readily available. It turned out that neither the government nor Pakistani chambers and business associations are equipped with such credible data.

Marketing

Apparently, Pakistan’s government and business associations have not prepared basic documentaries that can introduce basic features of Pakistan’s economy including challenges and opportunities.

While some videos are available that introduce Pakistan’s scenic mountains, investment angle is missing. I could only find videos prepared by the International Monetary Fund (IMF) and the World Bank, which were focused on structural and institutional reforms as per their mandate. In this age of digital media, this rather basic shortcoming is not understandable.

Missing projects

On its homepage, Pakistan’s Board of Investment enlists nine natural resources under its appeal to invest in Pakistan. These include salt, copper, coal, gold, cotton, milk, wheat and meat.

It also mentions some generic reasons like population, economic outlook and geostrategic location for investment in Pakistan. However, well-researched project documents, which can identify demand and commercial opportunities, are not available.

Investors need to be ready to act on intelligence before considering moving their capital.

Political stability

Pakistan has achieved considerable stability with successive democratic changes over the last decade or so. However, the common perception is contrary.

Investors still look at Pakistan as a country where frequent government changes and military intervention are a norm. On a positive, they view Prime Minister Imran Khan as a sign of positive change where economic governance is improving.

India factor, negative experiences

Pakistan has not gone into a full-scale war with India for the past 50 years, yet the common perception is that it is a country in constant conflict with one of the world’s largest economies.

Potential investors would always ask existing investors about embarking on in a new destination.

While the presentation by the Overseas Investors Chamber of Commerce did communicate that multinationals present in Pakistan have increased their investment considerably, many of the past investment transactions between Malaysia and Pakistan have not been successful. These include investment transactions in areas of telecom, banking and real estate.

While some of these issues do not have an immediate solution, most of these issues are manageable without spending huge resources. Perhaps, the Board of Investment needs to take a fresh look and redeploy its efforts to exploit the opportunities which Pakistan offers.

The writer is the founder of think tank PRIME and has established a platform to promote Malaysia-Pakistan bilateral investment

Published in The Express Tribune, August 17^th, 2020.

Ali Salman / Usman Ali

Success demands wide-ranging programme with right choice of beneficiaries, stringent monitoring

ISLAMABAD: According to the United Nations Development Programme (UNDP) 2019 report, 21.5% of the population is living in severe multidimensional poverty while 12.9% are vulnerable to multidimensional poverty.

This suggests a relative decline in poverty as compared with 2018 when 24.7% of the population was living in severe multidimensional poverty.

However, Pakistan is still far from the target of Sustainable Development Goals, which is to reduce poverty up to 9% by 2030. To fight poverty, the government needs to come up with a proper poverty reduction strategy and it is time to rethink the whole social protection approach based on income transfer. The Benazir Income Support Programme (BISP) offers an unconditional cash flow of Rs5,000 per month to the deserving families. This amount merely covers the food expense as the price of the basket of food keeps on increasing.

When the families spend all the amount, they start waiting for the aid of the new month. It means they are dependent on government aid and has no proper income generation source. Recently, Prime Minister Imran Khan launched the Ehsaas Amdan programme that would give 200,000 livestock assets to the deserving families (60% women and 30% youth beneficiaries) to improve lives of 1.4 million people.

The total budget of the programme is Rs15 billion and it is a four-year programme that ends in 2023. The prime objective of the Amdan programme is to develop better livelihood opportunities for the deprived families.

It is commencing in 375 rural union councils in 23 of the poorest districts, which are selected on the basis of three parameters – level of human development, level of poverty and food insecurity. In the Ehsaas Amdan programme, deserving families will receive small assets, including livestock (goats, buffaloes and cows), agricultural inputs, rickshaw and inputs for small retail outlets and small enterprises. If put into proper use with an entrepreneurial mindset, these assets will help in income generation.

Ehsaas will help in alleviating poverty, especially in backward areas, and it is structurally different from BISP in the sense that it is offering assets, instead of income transfer.

In the short run, the families who will receive assets will have to bear the cost of maintenance, but in the long run, they can sustainably generate income from their animals and agricultural inputs. A question that arises here is whether offering livestock to families will be useful in poverty alleviation or will it result in an additional burden or just a one-off encashment opportunity?

Many families will find it challenging to bear the day-to-day operational cost. It may be the cost of feed, veterinary care and related expenses. In some cases, the livestock may put pressure on some families, which may lead them to sell their assets.

Secondly, not every family will be able to rear livestock. It can be due to shortage of space in the house or may be due to the illness of the family head. One can also observe changes in the livelihood patterns of rural families. There was a time when rural people were strong enough to do multiple tasks ie crop sowing and animal rearing. Now, many young people do not live or work in rural areas and these rural households are also shifting from farm income to non-farm income.

The government must ensure that there is a fully functional veterinary hospital or a care centre in those areas where livestock will be distributed. Moreover, necessary awareness programmes should be initiated that help the families to fight fatal diseases like the foot and mouth disease in livestock.

Now, let’s have a bird’s eye view of what China did to alleviate poverty. If you look at the poverty level in China back in 1978, you may find that 97.5% of the population in rural areas was living below the poverty line.

The Chinese government initiated different poverty alleviation campaigns to bring a positive change in the people’s lives. Currently, it is focusing on eliminating absolute poverty by the end of 2020. China’s government mainly focused on the provision of education, skill development and creation of employment opportunities near people’s homes. In this sense, Ehsaas is quite different because it is offering assets and interest-free loans that will help in the long run to earn a better living.

Even if some families misuse or underutilise this programme, it is likely to help in generating cash at the time of emergency. Success demands a comprehensive and wide-ranging programme with the right choice of beneficiaries and a stringent monitoring mechanism.

The writers are associated with PRIME – an independent think tank in Pakistan

Published in The Express Tribune, March 2^nd, 2020.

Ali Salman / Beenish Javed

Joint efforts by govt, private sector will turn opportunities into concrete gains

ISLAMABAD: China and Pakistan have signed phase-II of the free trade agreement (FTA), which has become effective on January 1, 2020, 15 years after the phase-I was operationalised.

In this article, we weigh the possible benefits Pakistan can draw from this agreement.

China is already ranked as the second largest export destination for Pakistan with a share of 8% in Pakistan’s total exports, after the United States (17%).

Unsurprisingly, Pakistan’s exports to China are heavily concentrated in a few products such as cotton and rice, which account for 75% of Pakistan’s total exports to China.

China also occupies the largest share in Pakistan’s total imports at 29%. Since the Sino-Pak FTA, the trade volume between the two countries has increased from $2.2 billion in 2005 to approximately $15.6 billion in 2019.

Pakistan’s exports jumped to $1.74 billion in 2017-18 from $575 million in 2006-07. Correspondingly, China’s exports to Pakistan increased to $15.74 billion in 2017-18 from $3.5 billion in 2006-07.

The bilateral trade balance has remained tilted in China’s favour as Pakistan’s exports to China could not keep pace with its imports from the country.

In FY19, the trade deficit with China came down to $10.89 billion, which accounted for 34.22% of Pakistan’s total trade deficit.

According to Adviser to Prime Minister on Commerce and Investment Abdul Razak Dawood, the FTA-II is targeted to generate an additional $500 million in exports in its first year of implementation. Hopes are high.

A review of the new FTA deal reveals that market access given to Pakistan is on a par with Asean member countries – something that was missing in the previous FTA and, therefore, was a major concern for Pakistani exporters.

It also seems that the private sector has been thoroughly consulted before operationalising the agreement.

The FTA-II offers new opportunities to the exporters. This calls for joint efforts by the government and the private sector to turn these opportunities into concrete gains for Pakistan, otherwise, this may become another case of GSP Plus status, which could not be leveraged substantially.

Some challenges to convert this opportunity into material gains are worth repeating.

A high cost of production and the subsequent lack of competitiveness has always been a setback for the major export industries such as textile and leather.

Industrialists should utilise the provisions under the new phase to import cheaper inputs and focus should also be placed on product branding and marketing as this remains a weak area of the country’s trade strategy.

It is pertinent to note that neither the new FTA nor the previous one catered to the stringent non-tariff barriers (NTBs) that restrain Pakistan’s agro-based exports to China.

According to the World Trade Organisation (WTO), in 2016 alone, China initiated and enforced 87 technical barriers to trade and 12 sanitary and phyto-sanitary cases on exports of certain products from Pakistan such as organic chemicals, oilseeds, meat, fruits, grains, seeds, animal fodder, etc.

Including a provision or two on the NTBs in the new FTA could have been beneficial for boosting agro-exports to China.

Since Pakistan will be lowering its tariffs for China on 5,237 items over time, there is a possibility of increased import bill given the nature of those items (high-value products). Not to mention, the devaluation of yuan amidst the US-China trade war is also not auguring well for Pakistan.

Therefore, we should proceed with caution since China has a strong manufacturing base for export of goods as compared to imports.

Nonetheless, the ball is in Pakistan’s court now. It needs to take certain measures so as to ensure exports grow in the long run.

Firstly, it is important that Pakistan examines the impact of reduced tariffs on each product and correspondingly rationalises its import tariffs to avoid trade diversion as happened previously.

Secondly, Pakistan needs to expedite the completion of Special Economic Zones (SEZs) under the China-Pakistan Economic Corridor (CPEC) so that Chinese investments can flow into the sectors that will benefit from the new FTA.

Thirdly, there are various internal barriers to trade that require attention such as cumbersome regulations, poor infrastructure, multiplicity of taxes, high energy prices, lack of research and development, just to name a few.

Therefore, unless the government improves the regulatory environment, enhances supply capacity, broadens export basket and takes measures to develop a footprint in global value chains, FTAs will do little to improve Pakistan’s struggling exports in the long run.

The writers are affiliated with PRIME Institute, an independent economic policy think tank based in Islamabad

Published in The Express Tribune, January 13^th, 2020.