Pakistan Economic Forum IV 2018 Pakistan Economic Forum IV
2018 Acknowledgement
The PBC would like to acknowledge the contributions made by the following members of the PEF panels in the preparation of this document.
I. Sustainable Macro-Economic Growth 1. Dr. Ishrat Husain (Panel Chair) 2. Mr. Arshad Zuberi 3. Mr. Bashir Ali Mohammad 4. Mr. Shaukat Tarin S.I. 5. Syed Salim Raza 6. Mr. Sakib Sherani 7. Senator Osman Saifullah Khan 8. Mr. Sayem Ali
II. Equitable Fiscal Policy 1. S.M. Shabbar Zaidi (Panel Chair) 2. Mr. Abrar Hasan 3. Mr. Haider Patel 4. Mr. Irfan Chawala 5. Mr. Iqbal Ali Lakhani 6. Mr. Masoud Naqvi 7. Mr. Nasim Beg 8. Ms. Naz Khan
III. Make in Pakistan 1. Mr. Ali Suleman Habib (Panel Chair) 2. Mr. Abdul Razzak Dawood 3. Mr. Almas Haider 4. Mr. Azam Faruque 5. Mr. Bashir Ali Mohammad 6. Mr. Iqbal Lakhani 7. Mr. Murad Saigol 8. Mr. Parvez Ghias 9. Mr. Saquib Shirazi 10 Mr. Shabbir Diwan 11. Mr. Shahid Hussain 12. Mr. Sikandar Mustafa Khan 13. Mr. Sohail P. Ahmed 14. Mr. Shahid Soorty 15. Syed Yawar Ali 16. Mr. Towfiq Habib Chinoy Pakistan Economic Forum IV Economic Forum Pakistan IV. Availability &CostCompetitiveness ofEnergy 21. 20. 19 18. 17. 16. 15. 14. 13. 12. 11. 10 9. 8. 7. 6. 5. 4. 3. 2. 1. 8. 7. 6. 5. 4. 3. 2. 1. V. Pakistan’s Agriculture, Dairy andLivestock Potential Syed FaisalHasan Mr. SulaimanMonnoo Mr. SikandarMustafaKhan Mr. SaudPasha Mr. SamieCashmiri Mr. SaboorAhmed Mr. Rashid Haleem Mr. BilalTata Mr. ArshadUddinAhmed Capt. ArifNadeem Mr. Afzaal Rizvi Mr. AbdulWahab Mr. UsmanJavaid Mr. SajidIqbalSindhu Mr. Rana SohailSharif Mr. KhalilSattar Dr. AsifAliShah Mr. AhmedSajjad Mr. Afaq A.Tiwana Mr. AamirMahmoodMirza Syed Yawar Ali(Panel Chair) Mr. Yacoob Sattar Mr. Tayyab Tareen Syed MuhammadAli Mr. NadeemBabar Mr. MumtazHasanKhan Mr. MuhammadSaqib Mr. JavedAkbar Mr. KhalidMansoor(Panel Chair)
Pakistan Economic Forum IV 01THE PAKISTAN BUSINESS COUNCIL PROFILE The Pakistan Business Council: An Overview
The Pakistan Business Council (PBC) is a business policy advocacy platform, established in 2005 by 14 (now 72) of Pakistan’s largest private-sector businesses and conglomerates, including multinationals. PBC businesses cover nearly all sectors of the formal economy. It is a professionally-run organization headed by a full-time chief executive o cer.
The PBC is a not-for-profit entity, registered under Section 42 of the Companies Ordinance 1984. Though it is not required under the law to do so, the PBC follows to the extent possible, the Code of Corporate Governance as applicable to listed companies.
The PBC is a pan-industry advocacy group. It is not a trade body nor does it advocate for any specific business sector. Rather, its key advocacy thrust is on easing barriers to allow Pakistani businesses to compete in regional and global arenas. The PBC conducts research and holds conferences and seminars to facilitate the flow of relevant information to all stakeholders in order to help create an informed view on the major issues faced by Pakistan.
The PBC works closely with the relevant government departments, ministries, regulators and institutions, as well as other stakeholders including professional bodies, to develop consensus on major issues which impact the conduct of business in and from Pakistan. The PBC has submitted key position papers and recommendations to the government on legislation and other government policies a ecting businesses. It also serves on various taskforces and committees of the Government of Pakistan as well as those of the State Bank, SECP and other regulators with the objective to provide policy assistance on new initiatives and reforms. Pakistan Economic Forum IV Economic Forum Pakistan
THE PAKISTAN BUSINESS COUNCIL - PROFILE The PBC’s Founding Objectives
To provide for the formation and exchange of views on any question connected with the conduct of business in and from Pakistan.
To conduct, organize, set up, administer and manage campaigns, surveys, focus groups, workshops, seminars and field works for carrying out research and raising awareness in regard to matters a ecting businesses in Pakistan.
To acquire, collect, compile, analyze, publish and provide statistics, data analysis and other information relating to businesses of any kind, nature or description and on opportunities for such businesses within and outside Pakistan.
To promote and facilitate the integration of businesses in Pakistan into the World economy and to encourage in the development and growth of Pakistani multinationals.
To interact with governments in the economic development of Pakistan and to facilitate, foster and further the economic, social and human resource development of Pakistan. Pakistan Economic Forum IV Economic Forum Pakistan
THE PAKISTAN BUSINESS COUNCIL - PROFILE 0
The Board of Directors
Mr. Muhammad Ali Tabba (Chairman) Lucky Cement Limited
Mr. Towfiq Chinoy (Vice-Chairman) International Industries Limited
Mr. Abdul Razak Dawood Descon Engineering
Mr. Abrar Hasan National Foods Limited
Mr. Ali S. Habib Indus Motor Company Limited
Mr. Arif Habib PakArab Fertilizer Limited
Mr. Bashir Ali Muhammad Gul Ahmed Textile Mills Limited
Mr. Iqbal Lakhani Colgate Palmolive (Pakistan) Limited
Mr. Nauman Ansari Bank Alfalah Limited
Mr. Muhammad Aurangzeb Habib Bank Limited
Mr. Shabbir Diwan Gatron Industries Limited
Ms. Shazia Syed Unilever Pakistan Limited
Syed Yawar Ali Nestle Pakistan Limited
Dr. Zeelaf Munir English Biscuit Manufacturers Limited
Mr. Ehsan Malik (CEO) The Pakistan Business Council Pakistan Economic Forum IV Economic Forum Pakistan
THE PAKISTAN BUSINESS COUNCIL - PROFILE Membership Criteria
The PBC is neither a trade nor is it a representative body for a specific industry. It does not advocate sector and industry specific issues; instead, its advocacy thrust is on improving the general business environment of the country.
The PBC represents private businesses in Pakistan, with substantial investments in manufacturing and the financial / services sectors. To ensure quality of membership, the qualifying threshold for membership has been deliberately kept high, so that no more than approx. 100 of existing private sector businesses can potentially qualify. To ensure ‘frontline business intellectual input’, the authorized representative invariably has to be the Chairman / President / CEO / MD of the member company.
The current qualifying threshold for a non-financial sector company to be a member is to have an equity of at least Rs. 1.0 billion, or Net Fixed Assets equivalent to this value. For a financial sector company, the qualifying requirement is a paid-up capital of at least Rs. 2.0 billion. Qualifying thresholds are for individual companies, and group companies’ paid-up capitals and group companies’ fixed assets cannot be clubbed together for meeting the qualification criteria.
To further ensure participation of only serious businesses, the joining fee and the annual subscription fee have been kept at premium levels of Rs. 3.0 million and Rs. 2.0 million respectively. Finally, the membership criteria also stipulate that meeting the financial qualifying threshold is not a guarantee for acceptance; companies desirous of PBC membership have to be invited to join the PBC, and membership is subject to Board approval. Pakistan Economic Forum IV Economic Forum Pakistan
THE PAKISTAN BUSINESS COUNCIL - PROFILE 06
The PBC Members by Sector
PBC currently has 72 members, whose businesses cover nearly all sectors of the formal econo- my. The sector wise representation (in alphabetical order) is detailed below:
Sector Member Companies
Large-Scale Manufacturing
Agro Industries 1
Cement 2
Chemicals / Fertilizer 9
Energy 2
Engineering 6
Fast Moving Consumer Goods 17
Packaging Material 3
Pharmaceuticals and Healthcare 5
Textiles 9
Total Members in Large-Scale Manufacturing 54
Services
Financial Services 11
Hospitality 1
Logistics / Courier 2
Utilities 3
Telecommunication 1
Total Members in the Services Sector 18
THE PAKISTAN BUSINESS COUNCIL - PROFILE The PBC’s Member Companies Pakistan Economic Forum IV Economic Forum Pakistan
THE PAKISTAN BUSINESS COUNCIL - PROFILE The PBC’s Member Companies Pakistan Economic Forum IV Economic Forum Pakistan
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27 MNC’s from 13 Countries
USA
UK
UAE
Switzerland
Japan
THE PAKISTAN BUSINESS COUNCIL - PROFILE 27 MNC’s from 13 Countries
Netherlands
France Bahrain
South Korea Norway
Hong Kong
Germany
Sweden Pakistan Economic Forum IV Economic Forum Pakistan
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Nominated Representatives of Member Companies
PBC Executive Member Representative and Designation Group Company
Abbott Laboratories Pakistan Syed Anis Ahmed (MD) Abbott Laboratories AkzoNobel Pakistan Limited Jehanzeb Khan (CEO) AkzoNobel NV AlliedBankLtd. Mohammad Naeem Mukhtar (Chairman) IbrahimGroup Amreli Steels Limited Abbas Akberali (Chairman) Amreli Steels Artistic Milliners (Pvt) Limited Yaqoob Ahmed (Chairman) Artistic Milliners Asian Food Industries Shahid Iqbal (CEO) Mayfair Bank Alfalah Limited Nauman Ansari (CEO) Abu Dhabi Group Bank AL Habib Limited Mansoor A. Khan (CEO) Dawood Habib Group & Friends/Associates Cherat Cement Company Ltd. Azam Faruque (Chief Executive) Ghulam Faruque Group Colgate Palmolive Iqbal Lakhani (Chairman) Lakson Group Dalda Foods Limited Perwaiz Khan (CEO) Dalda Foods Dawood Hercules Corporation Ltd. Inam ur Rehman (CEO) Dawood Group Descon Abdul Razak Dawood (Chairman) Descon Group EFU General Insurance Saifuddin Zoomkawala (Chairman) EFU English Biscuit Manufacturers Dr. Zeelaf Munir (MD & CEO) English Biscuit Manufacturers Engro Corporation Ghias Khan (President & CEO) Engro Corporation Engro Foods Limited Ali Ahmed Khan (CEO) FrieslandCampina Holdings Faysal Bank Yousuf Hussain (CEO) Ithmaar Bank B.S.C (Bahrain) Ferozsons Laboratories Osman Khalid Waheed (CEO) Ferozsons Laboratories Gatron (Industries) Limited Shabbir Diwan (Director) Gani & Tayub / Gatron Group Getz Pharma Khalid Mahmood (Managing Director) Getz Group GlaxoSmithKline Pakistan Azizul Huq (Managing Director) GlaxoSmithKline Gul Ahmed Bashir Ali Mohammed (Chairman) Gul Ahmed Group Habib Bank Ltd. Muhammad Aurangzeb Habib Bank Limited Hascol Petroleum Limited Mumtaz Hasan Khan (Chairman) Hascol Hub Power Company Limited Khalid Mansoor (CEO) Hub Power Company Limited ICI Pakistan Asif Jooma (Chief Executive) Yunus Brothers Group Indus Dyeing & Manufacturing Imran Ahmed (Director) Indus Group Indus Motor Company Ali S. Habib (Chairman) The House of Habib Interloop (Pvt.) Limited Musadaq Zulqarnain (CEO) Interloop International Industries Ltd. Towfiq Chinoy (Managing Director) IIL Group JDW Sugar Mills Ltd. Jahangir Khan Tareen (CEO) JDW Group JS Bank Limited Khalid Imran (President & CEO) JS Group K-Electric Muhammad Tayyab Tareen (CEO) KES Power Limited K&N’s Foods (Pvt.) Limited Khalil A. Sattar (CEO) K&N’s Foods Lotte Chemicals Humair Ijaz (CEO) Lotte
THE PAKISTAN BUSINESS COUNCIL - PROFILE Nominated Representatives of Member Companies
PBC Executive Member Representative and Designation Group Company
Lucky Cement Muhammad Ali Tabba (CEO) Yunus Brothers Group Martin Dow Limited Jawed Akhai (Chairman & CEO) Seatle (Private) Limited Mega Conglomerate Habib Ullah Khan (Chairman) Mega Group Millat Tractors Ltd Sikandar Mustafa Khan (Chairman) Millat Group National Foods Ltd Abrar Hasan (CEO) National Food Nestlé Pakistan Limited Syed Yawar Ali (Chairman) Nestlé Nishat Mills Ltd. Mian Umer Mansha (CEO) Nishat Group Packages Limited Syed Hyder Ali (Managing Director) Packages / Ali Group Pakarab Fertilizers Ltd. Arif Habib (Chairman) Fatima Group Pakistan Services Limited Murtaza Hashwani (CEO) Hashoo Group Pakistan Telecommunication Dr. Daniel Ritz (CEO) Etisalat International Pakistan Company Limited Pakistan Tobacco Company Ltd. Graeme Amey (Managing Director) British American Tobacco Philip Morris (Pakistan) Ltd. Alexander Reisch (Managing Director) Philip Morris International Reckitt Benckiser Fahad Ashraf (CEO) Reckitt Benckiser Saif Textile Mills Osman Saifullah Khan (Chief Executive) Saif Group Sapphire Textile Nadeem Abdullah (Chief Executive) Sapphire Group Shan Foods (Pvt) Limited Sikander Tiwana (Chief Executive) Shan Foods Soorty Enterprises (Pvt.) Limited Shahid Rashid Soorty (CEO) Soorty Group South Asia Pakistan Terminals Syed Rashid Jamil (CEO) Hutchison Port Holdings SICPA Inks Pakistan (Pvt.) Limited Asif Ikram (CEO) SICPA SA. Shirazi Investments Saquib Shirazi (Director) Shirazi Group Siemens Pakistan Engineering Helmut Von Struve (MD & CEO) Siemens Soneri Bank Limited Mohammad Aftab Manzoor (CEO) Rupali Group Standard Chartered Bank Shahzad Dada (CEO) Standard Chartered Bank Synthetic Products Enterprises Zia Hyder Naqi (CEO) SPEL Group Tapal Tea Ltd Aftab F. Tapal (CEO) Tapal Tea TCS (Private) Limited Khalid Nawaz Awan (CEO) TCS (Private) Limited Telenor Pakistan (Pvt) Limited Irfan Wahab Khan (CEO) Telenor/Telenor Pakistan B.V. Tetra Pak Pakistan Jorge Montero (Managing Director) Tetra Laval Group The Coca-Cola Export Corporation Rizwan Ullah Khan (Country Head) Coca-Cola Export Corporation TPL Trakker Limited Ali Jameel (CEO) TPL Trakker Limited Tufail Chemicals Zubair F. Tufail (CEO) Tufail Group United Bank Limited Sima Kamil (President & CEO) Bestway Group (UK) Unilever Pakistan Limited Shazia Syed (Chairperson & CEO) Unilever Pakistan Economic Forum IV Economic Forum Pakistan
THE PAKISTAN BUSINESS COUNCIL - PROFILE 1
The PBC Members’ Contributions to the National Economy
PBC members and their group companies contributed more than 10% of Pakistan’s GDP in 2015, a little more than 18% of national tax revenues and 18% of Pakistan’s exports. The PBC companies also provide direct employment to 315,000 people in Pakistan.
18.4% 18.1% 16.2%
10.6% 13.1% 10.1%
PBC’s contribution PBC’s contribution as PBC’s contribution as as a percentage of a percentage of a percentage of National GDP National Tax Receipts Pakistan’s Exports
2014 2015
An Evidence Based Approach to Policy Advocacy
The PBC believes in research-based advocacy, which is further supported by evidence of best practices in economies at a similar level of development as Pakistan. Moreover, the PBC’s recommendations are tailored to Pakistan’s unique environment. This emphasis on a pragmatic approach to advocacy has enabled the PBC to emerge as the apex representative of big business in Pakistan. The PBC endeavors to partner with various government ministries, departments, regulators, institutions as well as with other private sector organizations and professional bodies, in its advocacy e orts. Since 2006 the PBC has worked very closely through taskforces constituted by the Ministry of Finance, the FBR, the SECP, Ministry of Commerce and the SBP, in various areas which include:
The Holding Company Law - 2007 The Law on Large Import Houses – 2007 The Housing Advisory Group of the SBP - 2008 The Real Estate Investment Trust Law – 2008 The Special Economic Zone Act -2012 Pakistan team for negotiating the Afghanistan Pakistan Transit Trade Agreement (APTTA) 2011 The revised Code of Corporate Governance for Listed Companies - 2012 The Takeover Code - 2012 The Corporate Law Reform Commission The Law on Private Equity & Venture Capital The Corporate Rehabilitation Act – (Work in Progress) Corporate Governance Rules (2013) For Public Sector Companies The Taskforce negotiating the Pakistan Turkey FTA (Work in Progress) Pakistan Economic Forum IV Economic Forum Pakistan
THE PAKISTAN BUSINESS COUNCIL - PROFILE Building National Consensus on Major Issues
The Pakistan Business Council first developed in 2011 a National Economic Agenda (NEA) which covered five areas of vital importance for the socio-economic uplift and development of Pakistan. The PBC has worked with major stakeholders, including political parties, in an e ort to achieve a consensus on a common national agenda which cuts across the political divide. As part of these e orts, in April 2011 the PBC convened a meeting in Islamabad at which senior leadership of the five major political parties agreed to work to develop a common national agenda. In 2013 the NEA was revisited by the PBC in order to update it and to use it as an advocacy tool with the new government which took o ce in May 2013. With elections scheduled to be held in mid-2018, the PBC is currently in the process of updating the NEA and scheduling preliminary contacts with the major stakeholders.
The Pakistan Economic Forum
The Pakistan Economic Forum (PEF) is an annual event hosted by the PBC. The inaugural event of the PEF was held in 2011. The PEF brings together the best available intellectual capital in the country, to debate on major issues which are confronting Pakistan. The panels of the Forum, headed by Chairs and Co-Chairs and comprising sector specialists, debate various issues and come up with pragmatic recommendations. These recommendations are then shared with a wider audience in the form of PBC position papers. The 4th Edition of the PEF was held on January 17th, 2018 in Islamabad. The Prime Minister of Pakistan led the Government delegation to the Forum and also spoke on the occasion. He assured the audience of working closely with the private sector and the PBC to support the “Make in Pakistan” initiative. He also announced the setting up of a Committee comprising of representatives of the private sector and the government to resolve issues which are hampering domestic manufacturing. Following panels shared their recommendations at the 4th PEF:
Macroeconomic Stability & Growth Fiscal Policy Reform The Make in Pakistan Initiative Towards Pakistan’s Energy Security & Competitiveness Improving Competitiveness of Pakistan’s Agriculture, Dairy & Livestock Sectors Pakistan Economic Forum IV Economic Forum Pakistan
THE PAKISTAN BUSINESS COUNCIL - PROFILE Recognition of the PBC’s E orts
The PBC’s e orts to improve the business climate and its emphasis on improving the competitiveness of Pakistani businesses has led to the PBC being recognized as the apex representative body of the private sector in Pakistan. In pursuing its objectives, the PBC has partnered with various institutions and policy- making forums, such as:
The PBC has signed an MOU with MEDEF (Movement of the French Enterprises) The PBC has signed an MOU with the Confederation of India Industry (CII). The PBC has signed an MOU with the Indian Council for Research on International Economic Relations (ICRIER). The PBC has signed an MOU with the Federation of Korean Industry (FKI). The PBC has signed an MOU with the International Finance Corporation (IFC). The PBC has signed an MoU with the Association of Chartered Certified Accountants (ACCA). The PBC has signed an MoU with Institute of Chartered Accountants of Pakistan (ICAP). The CEO of the PBC serves as a director on board of the Board of Investment (BOI). The CEO of PBC serves on the Trade Policy Advisory Committee. The CEO and a previous Chairman of the PBC were the only private sector representatives on the Committee set up for the development of Special Economic Zones in Pakistan. The PBC is represented by its CEO on the Taskforce constituted by the Planning Commission for the Development of the Private Sector. The CEO of PBC has been nominated on the Implementation Committee on Expo 2020. The Director Research of the PBC was part of the Pakistani team that negotiated the current Afghanistan Pakistan Transit Trade Agreement. The PBC has been nominated by the Ministry of Commerce as the Secretariat in Pakistan for the Pakistan India Joint Business Forum (PIJBF). The PBC has been nominated by the Ministry of Commerce as the Secretariat in Pakistan for the Afghanistan Pakistan Joint Business Council (APJBC). Two representatives of the PBC serve on the Taskforce constituted to negotiate the proposed Pakistan Turkey Free Trade Agreement. PBC is represented on PSQCA’s Halal Technical Committee by its Company Secretary. PBC is represented on the PBC-SEPA Joint Technical Committee formed to review the Biodegradable Plastics Rules in Sindh. PBC is represented by its Company Secretary on the Technical Committee formed to finalize Rules for the Sindh Food Authority. Pakistan Economic Forum IV Economic Forum Pakistan
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Current Areas of Policy Advocacy
PBC advocates a national consensus around a 'Make in Pakistan' thrust to deliver jobs, value added exports and import substitution of goods and services and for the equitable broadening of the tax base, consolidation of Pakistani businesses to promote scale and develop global competitiveness. Reversing the current premature deindustrialization of Pakistan with an emphasis on using the manufacturing sector for creating jobs, value added exports and revenue. A complete moratorium on the signing of new Free Trade Agreements (FTA) pending a review of the existing FTAs which have been signed by Pakistan. Broadening the tax base through equitable and e ective taxation policies and practices. Creating an environment to ensure that CPEC leads to incremental jobs and growth for Pakistan. The simplification of government processes to ease (and bring down the cost of) doing business An environment to reposition Pakistan in the Information, Communications and Technology Sector Greater market access for Pakistani exports in the major markets of the world. Constant monitoring of the industrial and trade policies being pursued by the Government of Pakistan with the aim ensuring a level playing field for Pakistani businesses. Greater regional economic integration and especially trade with India but subject to a level playing field.
THE PAKISTAN BUSINESS COUNCIL - PROFILE Major Accomplishments since 2013
Appointed secretariat in Pakistan for the Pakistan India Joint Business Forum (PIJBF) The PIJBF has been notified by the governments of India & Pakistan with the mandate to pursue recommendations for the normalization of India Pakistan trade. Both governments have nominated 15 top business persons from their respective countries. Since its inception in 2013, the PIJBF has met ‘5’ times.
Worked with the Ministry of Commerce to Develop Pakistan’s SAFTA Sensitive List The PBC worked with the MoC to develop a list of items which should be on Pakistan’s Sensitive List for trade with India under SAFTA. PBC is lobbying with the MoC to ensure that industry’s concerns vis-à-vis opening up of trade with India and a level playing field for Pakistan’s exports to India are addressed.
Appointed secretariat in Pakistan for the Afghanistan Pakistan Joint Business Council (APJBC) The APJBC has been notified by the governments of Afghanistan and Pakistan with the objective to help facilitate trade and investment between the two countries.
PBC / FBR Joint Working Group The Chairman FBR has formed a Joint Working Group (JWG) of the PBC & Senior Islamabad based Members of the FBR. The JWG has been tasked with helping the FBR plug revenue leakages as well as work to remove the operational issues faced by businesses in general and PBC members in particular.
Providing input to the Ministry of Commerce as it Negotiates the 2nd Phase of the Pak China FTA PBC is acting as the “Think Tank” to the Ministry of Commerce as it negotiates the 2nd Phase of the Pak China FTA. Major shortcomings in the first Phase of the China Pakistan FTA were highlighted by the PBC and the government as a result is taking a more cautious approach to the 2nd Phase of the FTA.
Organizing a Pakistan Business Delegation to France PBC along with the BOI and the French Embassy in Pakistan organized a Business Delegation in June 2014.
Review of the proposed Pak-USA BIT Agreement for Board of Investment The PBC has recommended to the Government of Pakistan to not sign the proposed BIT in its present form as proposed by the US as it can potentially harm the interests of Pakistani businesses. The PBC has made specific recommendations on how the terms of this BIT can be improved to better ensure that interests of Pakistan is not compromised. Pakistan Economic Forum IV Economic Forum Pakistan
THE PAKISTAN BUSINESS COUNCIL - PROFILE Centre of Excellence in Responsible Business (CERB)
The Centre of Excellence in Responsible Business (CERB) is the first of the Pakistan Business Council’s (PBC) outreach initiatives to build capacity and capability of businesses in Pakistan.
Vision
To be a multi-sector business coalition assisting Pakistani enterprises to pursue sustainable value creation in the short, medium and long term.
Mission
To engage with businesses and industry leaders and enable the transformation towards the conduct of responsible business in Pakistan To leverage private sector growth for inclusive development, poverty reduction and sustainability by following the UN Sustainable Development Goals (SDG) framework. CERB will leverage global and local best practices to inculcate a change in mind-set among businesses including small and medium-sized enterprises. It will have knowledge partners with researched resources to contribute to its mission. CERB comprises of Online Research & Innovation Initiative and two inter-dependent business units.
Online Research and Innovation Initiative
This will be developed as an online research portal with a determined e ort to integrate the business research community with industry to develop world class research to support CERB’s strategic objectives outlined in its Mission.
Ethics, Values and Governance Forum
This forum promotes responsible practices which strengthen the formal sector in pursuit of sustainable value creation.
Inclusive and Sustainable Development Forum
This forum focuses on generating livelihoods, promoting women’s empowerment and decoupling growth from its impact on the environment.
CERB’s outcomes
CERB aims to impact private sector to create wealth through the conduct of responsible business in a competitive global economy. It will assist businesses to maintain a competitive edge through high value research and dissemination of knowledge. It will use real time business knowledge and will turn it into sustainable competitive advantage for the private sector. Pakistan Economic Forum IV Economic Forum Pakistan
THE PAKISTAN BUSINESS COUNCIL - PROFILE Recent Publications
The PBC’s advocacy is supported by research work, some of the major publications of the PBC include:
Title Summary
Pakistan’s Trade with its Regional The report analyses and explores the existing trade patterns Partners: India, Iran & Afghanistan (2018) Pakistan has with its 3 neighbouring countries and explores the trade potential that exists.
4th Review of the China Pakistan Free This was a follow up report on the 3rd Review of the CPFTA Trade Agreement (CPFTA) & undertaken in 2016 with recommendations for the phase II Recommendations for Phase II negotiations. Negotiations (2018)
The Third Review of the Pakistan – A follow-up report on the proposed FTA with Turkey, along with a Turkey Free Trade Agreement (2018) word of caution for the policy-makers.
A Review of the Proposed Pakistan The report explores the proposed FTA with special emphasis on Thailand Free Trade Agreement (2018) the Thai manufacturing sector.
The Potential Impact of Brexit on A follow up report analyzing the post-BREXIT impact on Pakistan – United Kingdom Bilateral Pakistan-UK bilateral trade considering that the largest market for Trade (2018) Pakistan’s exports in EU has been the UK.
Pakistan’s GSP+ Status …a missed This report explores Pakistan’s trade with the EU post GSP+, and opportunity? (2018) analyses why the zero-duty was never fully exploited.
Pakistan: Rising Imports, Declining This was a wake-up call for policy makers highlighting Pakistan’s Exports & Premature Deindustrialization unsustainable levels of current account deficit and premature (2017) deindustrialization in the country.
Country Series – Turkmenistan (2017) Highlighted the opportunities for Pakistani businesses in Turkmenistan
Country Series – Uzbekistan (2017) Highlighted the opportunities for Pakistani businesses in Uzbekistan
Country Series – Kyrgyz Republic (2017) Highlighted the opportunities for Pakistani businesses in Kyrgyz
Country Series – Kazakhstan (2017) Highlighted the opportunities for Pakistani businesses in Kazakhstan
Country Series – Tajikistan (2017) Highlighted the opportunities for Pakistani businesses in Tajikistan
Second Review of the Feasibility of a This was a follow-up to the first review which was undertaken in Free Trade Agreement between Pakistan 2015. and Thailand (2016)
Third Review of the Pakistan-China FTA This was a follow-up to the second review which was undertaken and Recommendations for Phase 2 in 2015. Negotiations (2016) Pakistan Economic Forum IV Economic Forum Pakistan
THE PAKISTAN BUSINESS COUNCIL - PROFILE Recent Publications
Title Summary
Afghan Transit Trade through Pakistan This was a follow-up to the first review which was undertaken in and Pakistan Afghanistan Bilateral Trade 2015. (2016)
Second Review of the Feasibility of a This was a follow-up to the first review which was undertaken in Free Trade Agreement between Pakistan 2015. and Turkey (2016)
Selected Trade and Manufacturing Data Continuing negative trends in manufacturing, 7th year of for Pakistan – A Brief Analysis (2016) publication by PBC
2nd Review of the Pak-China FTA (2015) This was a follow-up to the first review which was undertaken in 2013.
Review of Pak Sri Lanka FTA (2015) This showed that full potential of the FTA was not being utilized
Afghanistan’s International Trade Main finding being that Pakistan remains the favored transit route Patterns Post-APTTA (2015) for Afghan imports
1st Year Review of Pakistan’s GSP Plus Highlights increased reliance on EU markets especially textile (2015) sector
Review of Pakistan’s PTA with Mauritius This PTA signed in 2007 has failed to achieve any objectives (2015)
Review of Pakistan’s FTA with Malaysia Major concessions by Pakistan for no significant market access (2015) for exports
Review of Pakistan’s PTA with Indonesia Again, opening up a captive market (palm oil) with no (2015) corresponding concessions
Pakistan India Trade Normalization – A Caution advised against normalizing trade without corresponding Word of Caution (2015) easing of Indian restrictions
A detailed Study on the Proposed Recommended to the Government of Pakistan to ensure that the Pakistan Turkey FTA (2014) interests of Pakistani business were safeguarded in the negotiations
A detailed Study on the Proposed Suggested that this be deferred as there appears to be no major Pakistan Thailand FTA (2015) gains for Pakistan
Country Series – Argentine Republic Highlighted the opportunities for Pakistani businesses in (2016) Argentine Republic
Country Series – Brazil (2016) Highlighted the opportunities for Pakistani businesses in Brazil
Country Series – United Mexican States Highlighted the opportunities for Pakistanis to trade with and do (2015) business in Mexico Pakistan Economic Forum IV Economic Forum Pakistan
THE PAKISTAN BUSINESS COUNCIL - PROFILE Recent Publications
Title Summary
Country Series – Ghana (2015) Highlighted the opportunities for Pakistani businesses in Ghana
Country Series – Chile (2016) Highlighted the opportunities for Pakistani businesses in Chile
Country Series – Mozambique (2015) Highlighted the opportunities for Pakistani businesses in Mozambique
Country Series – Iran (2015) Highlighted the opportunities for Pakistani businesses in Iran
Country Series – The Russian Federation Highlighted the opportunities for Pakistani businesses in Russia (2016)
Country Series – Ethiopia (2015) Highlighted the opportunities for Pakistani businesses in Ethiopia
Country Series – Nigeria (2015) Highlighted the opportunities for Pakistani businesses in Nigeria
Country Series – South Africa (2016) Highlighted the opportunities for Pakistani businesses in South Africa
Country Series – Angola (2015) Highlighted the opportunities for Pakistani businesses in Angola Pakistan Economic Forum IV Economic Forum Pakistan
THE PAKISTAN BUSINESS COUNCIL - PROFILE Compratives, Representations, Policy Papers and Short Presentations Recommendations to the SECP on the Companies Act, 2017 Recommendations to SECP on the proposed Companies, Bill 2016 Recommendations to the SECP on the Public-Sector Companies (Corporate Governance) Rules, 2013 (Updated up to April 21, 2017) Recommendations on the Listed Companies (Code of Corporate Governance) Regulations, 2017 Policy Brief on the Ministry of Commerce’s Strategic Trade Policy Framework Drafted a rejoinder to the SECP’s objections to the PBC's position on SECP Bill, 2011 Comparative on the NTC Bill, 2015 Position Paper on Oxo-Biodegradable Plastics Compilation of Pakistan-Hungary trade statistics. Afghanistan-United States Trade Analysis: comparison and recommendations for Qualified Industrial Zones versus Reconstruction Opportunity Zones Pakistan-Canada Annual Trade Analysis Briefing paper on the Istanbul Process
PBC Working with the legislature to improve the working of NTC The PBC is actively engaging with the Ministry of Commerce & the legislature to improve the new NTC Act 2015. The PBC strongly believes that the though the 2015 NTC Act is better than the old Law, there is considerable space for improving the new Law. As part of this interaction the MoC and the PBC are in the process of forming a Joint Working Group.
The Way Forward
The members of the Pakistan Business Council believe that Pakistan’s secure future lies in high and sustained levels of economic growth and that this growth must be inclusive. To further this objective, the PBC is continuously willing to partner with the various current and future stakeholders. Pakistan Economic Forum IV Economic Forum Pakistan
THE PAKISTAN BUSINESS COUNCIL - PROFILE 02 THE ECONOMY AGENDA FOR
Pakistan Economic Forum IV in thelossoftaxrevenuenecessarytofundsocialdevelopment. traders, costingjobs,creatingrepeatedcyclesofpressureontheexternalaccountandresulting short‐ will, unalignedandunpredictablepolicies,aweakfragmentedbureaucracy, vestedand local manufacturingandallserviceswithintheextendedvalue‐ protect theirdomesticmarkets. Theterm“Make inPakistan” encompassesthemaximizationof Pakistan” isallthemorerelevanttodayasmanydeveloped&developingcountriesmoveto strong domesticindustrycandeliveralltheaforementionedobjectives.PBC’s stanceon“Make in goods andservicesoncompetitivetermsinboth,thedomesticglobalmarkets. Thusa consumer baseofover200millioncanwiththerightpolicies,gaincriticalmasstoo er The centralpremiseofthePBC’s Agendafor theEconomyisthatindustryinacountrywith Agenda for the Economy The Pakistan BusinessCouncil’s AGENDA FORTHEECONOMY The principalobjectivesofthePakistan BusinessCouncil(PBC)aretofostergrowthandpromote: term interestshavetogetherworked toconvertPakistan intoanationofimport‐ SUSTAINABLE DEVELOPMENT EQUITABLE BROADENING OFTHETAX BASE IMPORT SUBSTITUTION VALUE‐ JOBS ADDED EXPORTS chains. Regretfully, lackofpolitical reliant
Pakistan Economic Forum IV AGENDA FORTHEECONOMY The Information,CommunicationsandTechnology sectorisunder‐ Development Indicators; against itsSouthAsianpeers.Morealarmingly, thesameiscaseinmostSocial in EaseofDoingBusiness,aswellmostotherglobalrankings,Pakistan faresbadlyeven mainly attheEUandUSA (50%oftotal); textiles), lowinvalue‐ seven‐ share ofworldexportshasdeclined,whilstBangladeshandVietnam’s grewtwoand 44%. Bankspreferrisk‐ private sectorcreditas%ofGDPisdownfrom28%in2007to16%2016vs.Bangladesh’s importer offoodwitha$2Bndeficit; industry whichisthebackboneofexports.Pakistan, anagrarian economyisnowanet support priceresultsinunsustainablesurpluses,whilstcottonshortageimpactsthetextiles productivity inagriculture, whichrepresents20%ofGDP, iswellbelowglobalbest,crop reliance onpresumptivetaxes encouragestradingrather thanmanufacturing,impactingjobs; retail/wholesale, whichtogetherrepresent40%oftheeconomycontributelessthan2%; manufacturing, whichrepresents13.5%ofGDPcarries58%thetaxburden.Agricultureand capital accumulation,consolidationorinvestment; of jobs,exportsandtaxrevenuehaslostfaithinthefiscalpolicywhichdoesnotpromote forced toworkasunpaidtaxcollectorof75di erenttypeswith‐ the narrowformalsectorisincreasinglyburdenedwithhighertaxes andatthesametime investment; investment lagspeercountries.Policies discouragecorporatization,capitalformationand market; The Pakistan Rupeehaslostcompetivenessvs.thecountry’s maincompetitorsintheglobal pressure ontheexternalaccount; import reliancehasgrownandexportsremittancesarestagnating,creatingrecurring countries; private consumptionat~80%remainsthedominantpartofGDP, inexcess ofpeerAsian declining; Pakistan isdeindustrializingprematurely–manufacturingas%ofGDPinPakistan is The Background absence ofadynamicformalsector aspirations forgoodsandservicesbutwithlimitedaccess todecentsecurejobsinthe And inthebackdrop oftheaboveisavibrant,techconnectedurbanyouthcohortwith Pakistan ranks lowestincreditratingsSouthAsia. The formalretailsectorfacesanunevenplayingfieldvsinformaltrade; fold respectivelyinthelasttwodecades.Pakistan’s exportsarenarrowinrange(65% addition,sophisticationandimportincorporationaretargeted averse lendingtothegovernment.TheSMEsectorsu ersmost; supported andover‐ holding taxes. Thisengine taxed;
Pakistan Economic Forum IV encumber theformalsector. Equally, iflong‐ To enabledomesticindustrytothrive, fiscalandotherpoliciesshouldfacilitateratherthan makers needout‐ an IMFprogrammeandthelowlikelihood ofdonorfunding,Pakistan politicians’ andpolicy also requiresubstantialfinancialspacetoimplementthese. Withtheelectioncycleprecluding political willandanationalconsensus.ItisPBC’s intentiontodevelopthelatter. Thecountrywill the onlywaytosustainmacro‐ Whilst shorttermmeasuresarenecessarytomanagetheimmediatechallengeseconomy, have returnedtothecountry. representing 40%ofitsGDP. Thisincluded$77Bnofassetsabroadwhichmorethanhalf this fiscalspaceisIndonesia,whichin2017wasabletounlock$330Bnofundeclaredwealth, AGENDA FORTHEECONOMY Ensure existingindustryisnot underminedbySEZs. 6. Make netjob creationandcorrectingthetradeimbalancewithChina acornerstoneofCPEC. policies areconducive, longtermandconsistent. 5. Openmoresectorstocompetition toimproveproductivityworldclass.Business willinvestif 4. Consistentlyadoptamarket ‐related exchange ratepolicy lead this. 3. Crafta“Make inPakistan” policythroughfullalignmentofallstakeholders. ThePMshouldvisibly 2. Createamorelevelplayingfieldfortheformalsector. Arrestunder‐invoicing,smugglingetc. future agreements. China, besmartwithTurkey andThailand.Start factoring impactonjobsandtaxrevenueinto 1. Stop underminingdomesticindustrythrough ill‐negotiated tradeagreements.Renegotiate with appear intheAnnexureattached: sustainable development.Theheadlinerecommendations arelistedbelowandfurtherdetails equitable broadeningofthetaxbase. PBC’s advocacyalso addressesgreaterinclusivenessand deliver jobs,valueaddedexportsandimportsubstitutionofgoodsservicesforthe As thevoiceofindustry, PBCadvocatesanationalconsensusaround“Make inPakistan” thrustto Make Anchoring Pakistan’s Future ina Medium‐Term Measures Interim Measures for Keeping Pakistan Afloat these deficienciesandhelpPakistan meettheUNSustainableDevelopment Goals the knowledgeeconomyisshort.Governmentandbusinessneedtoworktogetheraddress education andhealth.Consequently, itshumancapitalisweak,productivitylowandtalentfor will increasethetaxrevenuenecessarytofundsocialdevelopment.Pakistan lagsinnutrition, interest. Levelling theplayingfieldwithinformalsectorandencouraging domesticbusiness country’s strategicinterest.Competitionlawsshouldbestrengthenedtoprotectconsumer privatization ofSOEswouldbedependentonprivatesector’s capitalandriskappetitethe company alongthelinesofTemasek ofSingaporeorKhazanahMalaysia.Subsequent Enterprises (SOEs)shouldberestructuredundertheownershipofagovernmentholding and quality. It needstoaddsophisticationandadaptchangingdemand.State Owned private sectorshouldinvestinskills,capacityandcapabilitytobegloballycompetitivecost ‐inPakistan Initiative of‐ the‐ box solutionstocreatethisspace. Amodeltoconsiderforproviding economic stabilityisthroughfundamentalreformswhichrequire term, investment‐ friendly policiesareforthcoming,
Pakistan Economic Forum IV AGENDA FORTHEECONOMY sustainable development. 14. Strengthen public/privatepartnershipstoenablebusinesspromoteinclusiveand sector. 13. Encouragenewventures,especiallyintheinformation,communicationsandtechnology 12. Generatejobsbyaddressingtheacuteshortageinlowandmediumcosthousing. 11. Transform agriculturefromlow‐yieldsubsistencefarmingtoworldclassproductivity. doing business. 10. assets needtobetaggedandlinked toNADRA’s &otherdatabases parking ill‐gottenmoney. TheimmunityforforeignremittancesandFXaccountsneedstoend.All ensure thatavenueslike realestateandthestockmarket arenolongeravailableasameansfor 9. importers shouldbewithdrawnandgrouptaxationrestoredtotheFinanceAct2007basis. bonus shares,minimumtaxonturnoverandpresumptivetaxes, especiallyforcommercial corporates atahigherrateneedstoend.SuperTax, taxonunder40%profitdistribution, stop. Equitableratesoftaxtoapplyforallbusinessactivities–thecurrentpolicytaxing accumulation, consolidationandinvestment.Multipletaxation,forexampleofdividendsmust subservient totheMinistryofFinance. Policies mustbeforthelong‐termandpromotecapital making fromtaxcollectiontoavoidshort‐term,kneejerkmeasures–policynolongerbe 8. Reverse thetrendtowardstradingandrestore faithinthetaxationsystem.Separatetaxpolicy of localenergysourcesshouldbeapriority. the exportrebate. Long‐term energysecurityisinindigenousfuels.Impedimentstodevelopment 7. What isand what isnot“Make inPakistan” about? Annexure
IT IS ABOUT Provideenergyatcompetitivecosttofuelindustrialrevival,pendingwhich,factorthisdisparityin Greaterintegration&miningofdatabasesavailablewiththegovernmentarerequiredto
Long term policies to encourage investment in and the revival of manufacturing in Pakistan. Thus reversing the reliance on imports and avoiding the recurrent cycles of pressure on the external account.
Creating jobs and upgrading human capital to boost productivity.
Adding sophistication to Pakistan’s industrial output, broadening the export relevance beyond traditional products and destinations and promoting import substitution. Simplifyandreducebusinessinterfaceswithauthoritiestoeasebringdownthecostof
Leveraging Pakistan’s consumer base of 207 million to build scale, starting with everyday needs. As industry becomes cost and quality competitive, deploy scale for export.
Reposition Pakistan to the Middle-Income Country status.
Pakistan Economic Forum IV viii. AGENDA FORTHEECONOMY c.Highervalue‐ b.Additionaltaxrevenuefromimprovedprofitabilityofdomesticindustry; every year; a.Morelocalemployment‐ and Thailand.FTAs mustdeliver: Renegotiate theFTA withChinaandmovecautiononproposedagreementsTurkey 01 vii. The PBC’s detailedrecommendationsareas follows: vi. xi. ix.
IT IS NOT iv. iii. x. v. ii. i.
Providing a captive market for ine cient industry at the expense of consumer choice.
Supporting a tari structure which prevents access to raw materials and intermediate goods at competitive prices to export industries.
Creating monopolies in the name of “minimum economic size.”
Encouraging industry currently at the bottom of the value-added chain to continue producing basic raw materials and low value intermediate products.
Allowing the exploitation of labor in the name of “cost equalization” with regional competitors. cotton yarn,made ‐ Presently Turkey hasanti‐ Turkey isoneofthe highestusersoftradedefences,evenagainstitsFTA partners. and rubbermarkets, whichwould undermineexistingindustry Both ThailandandTurkey aspiretogetaccessPakistan’s automobile, auto‐ Pakistan alreadyenjoysrelativelylow tari accesstobothcountriesfortheitemsitcanexport Pakistan’s exportstoThailand,importsfromThailandwouldincreaseby$4. Turkish importstoPakistan wouldincrease byroughly$3.Similarly, foreverypotential$increasein and thoseofTurkey andThailand.Foreveryadditional $increaseinPakistan’s exportstoTurkey, Thailand andTurkey onfresh FTAs. ThereissignificantmismatchbetweenPakistan’s exportcapability Whilst renegotiationoftheFTA withChinahas yet tobeconcluded,Pakistan hasopenedtalkswith cost. Chinaontheotherhandavailedof57%concessional lines,mostlyfinishedgoods. concessional linesPakistan hadnocapabilityofavailing;othersitcouldn’t duetoenergyshortageand Pakistan availed ofjust5%theconcessionallinesunderFTA. Manyofthe terms toPakistan. Australia andNewZealand.TheChinaPakistan FTA didnotrequireChinatoo ersimilar Subsequent totheFTA withPakistan, ChinagrantedmorefavorabletermstoASEAN, Negotiators failedtosecureaccessforseveralitemsofexportpotentialfromPakistan. jobs andtaxrevenue. generating veryfewjobs.Importswerehoweverofvalue‐ Largest increaseinexportsfromPakistan toChinawasofcommoditiesandlowvalue‐ Under theFTA signedwithChina,Pakistan’s tradedeficitgrew5‐ FTAs todatehavenothadasignificantimpactonreducingPakistan’s tradedeficit.
ABOUT added exportsofabroaderproductrangewithgreatergeographicalspread. ups, PET. dumping, countervailing andsafeguardlevies onPakistan’s 3millionadditionalpeopleneedtofindgainfulemployment added items,undermininglocalindustry, fold toover$15Bn. parts, chemicals,plastics added items,
Pakistan Economic Forum IV viii. manufacturing. smuggled products.EmpowertheNationalTariff Commissiontogivebenefitofdoubtlocal RM/intermediates. LimitthemisuseofAfghan Transit Trade andstopthebrazensaleof accountability fromall.Ensurethatfinishedgoodsattracthigherdutythan presumptive taxregimeforcommercialimporterswithaminimumandseekfull specific duties(byunit/weight/pieces/size)onsensitiveitems.Replace the“fullandfinal” Level theplayingfieldwithinformalsectorbycurbingunder‐ AGENDA FORTHEECONOMY 02 vii. vi. ix. iv. iii. v. ii. i. law workstodelaye ective protection ofdomesticindustryagainstdumping. The NationalTari Commissionmustgive benefitofthedoubttolocalmanufacturing.Presently Customs tostopthis. Many markets inPakistan brazenlydealinsmuggledgoods.Local authoritiesmustcooperatewith Afghanistan willcontinuetofindtheirwayintoPakistan. controls aretightened,itisfearedthatgoodsimportedvia ChabaharandBandarAbbasinIranfor Porous bordersfacilitatemovementfrombothAfghanistan andIranintoPakistan. Unlessphysical sharper focusonsuchitems. finished goods.Suchitemsareeithersmuggledbackto or neverleavePakistan. Thereshouldbea in somecases,Afghanistan lacksindustrialcapacitytoconvertraw&intermediatematerialinto Afghanistan’s population;thetypes“imported”arenotinlinewithconsumertastes/preferences; and In manycasesthequantitiesofgoods“transiting”Pakistan arenot commensurate withthesizeof controls needtobeatightenedpreventevasion. only mustgoodsimportedfortransitbechargedallgovernmentlevies(notjustimportduty),physical and advanceincometaxprovideagoodincentivetomisusetheAfghan transitarrangements.Not The combinationofimportduties,GST (especiallywhenleviedonthefinalsalespricetoconsumer) through SROstocreatealevelplayingfieldforlocalmanufacturing. some manufacturer’s finishedgoodsareanother’s intermediateitem,thenexception shouldbemade and intermediatematerials.Thisneedstobecorrectedpromotelocalproduction.However, where In somecases,importdutyonfinishedgoodsisbeingleviedatthesameorlowerratethanraw the propervalue. which arevalueadded,beingleviedpurelyonweight.Thisshouldbecorrectedtobringduty There areanomaliesincalculationofimportduty. Importdutiesforexampleonautospareparts, pieces, volume, weight,etc. prone tothispractice, dutyshouldbeleviedonthehigherofad‐ Import dutyingeneralischargedad‐ against thischange. others andpaytax,includingGST onvalueaddition.Anunholyallianceofvestedinterestsargues from revenueshortfall.Commercialimportersshouldthereafterbeobligedtofiletaxreturnslike should bereplacedbyaminimumtaxonimportvaluetoensurethatthegovernmentdoesnotsu er undermines localmanufacturing.Presumptiveor“fullandfinal”taxregimeforcommercialimporters declared valueisoftenunder‐ declared/assessed, afterwhichtheyareliberatedfromfurthertaxaccountabilityofprofit.Asthe Under thepresumptivetaxregime, commercialimporterspaya‘fullandfinal”taxonthevalue invoiced, notonlydoesitdenythegovernmentrevenue, itseverely valorem. To curbunder‐ declaration ofimportsonitemsthatare valorem orspecificdutybasedon invoicing byintroducing
Pakistan Economic Forum IV AGENDA FORTHEECONOMY the PMtoputPakistan onparwithvalue‐ “Make inPakistan” strategyshouldalign manufacturingwithtradeandmustbeoverseenby policies offederalministriesandprovincesinrespectindustryexports.Thelongterm Craft a“MakeinPakistan” policythataddressesthefragmentedandoftenconflicting 03 Examples are: the growingfragmentationofauthoritybetweenfederalministriesandfederationprovinces. Pakistan needsoneholisticandalignedpolicytopromoteMake inPakistan. Thisneedstoaddress targets; etc.,aresomesolutionstoboostcreditSMEs. risk; PrudentialRegulations thatdynamicallyadjusttochangesinthemarketplace; minimumlending guarantees; lendingoncashflowratherthanphysicalcollateral;specialbankbranchestoevaluate sized businessesavailingbankcreditare27.5% and33.6% respectively. SBPrefinancing;credit businesses availingbankcredit.ThecorrespondingfiguresforBangladeshsmallandmedium vs. 44%inBangladesh.SMEsfareevenworsewithjust3.4%ofsmalland6.7% ofmediumsized The governmentcrowdsouttheprivatesectorinbanklending,whichas%ofGDPhasfallento16% Pakistan strategy. ItshouldalsobethebasisofpreparingfortradewithIndiawhenrelationsallow. Trade withChina,Afghanistan, Iran,theGulfStates &EastAfrica shouldbeapriorityoftheMake in gain scaleandbegloballycompetitive. acute needforaharmonizednationalstandardalignedwithglobalstandardstoallowcompanies Some provincesarepushingforfoodandenvironmentstandardsatvariancefromothers.Thereisan 60% ofPakistan’s exports.ExportsoragriculturalyieldsisnotseenasaKPIofprovincialgovernments. crops arevulnerabletopestattacksandthesupplyisdeniedTextiles industrywhichrepresents enough onresearch,withtheresult,forexamplethatcottonseedinPakistan isoutdated,yieldlow, Post devolution,theprovincesareresponsibleforagriculture. However, theydonotspend providing worldclassinfrastructuretopromotedomesticindustryorexports. The provincesdonottake accountofglobalcompetitivenessinsettingminimumwageratesor impact onimports,tradedeficit,localindustry, jobsortaxrevenue. Ministry ofCommerceismotivatedbyexportsthroughFreeTrade Agreements,oblivioustothe exporters’ abilitytofundbusiness Ministry ofFinanceisoccupiedinjugglingthefiscaldeficitbydelayingtaxrefunds,impacting deploying itslabourtoconvertclothapparel. 60% inBangladesh.Thelatterproducesnocotton,yetleadsPakistan 2:1intextileexportsby excluding energy, intoexportsinPakistan islessthan10%vs.40%inVietnamandThailandover long‐ FBR isdrivenbytheimmediateneedoftaxrevenuetomeetdeficittargetsratherthan term impactoftheseontheeconomyorbusiness.Incontexttrade, importincorporation, addition andexportpowerhouseslikeVietnam.
Pakistan Economic Forum IV AGENDA FORTHEECONOMY country. Pakistan shouldleverageCPECtoattracta meaningfulpercentageofthemillionsjobsthat such venturesaddincrementally tojobsandexportsdon’t displaceexistingsources in the in SpecialEconomicZonesunder CPECwillenjoyextensiveconcessions.Itisimportant toensurethat prevent itbecomingachannelforcheapimports.This isaconcernasreportedlyindustriesestablished the competitivenessofexistingdomesticindustriesand the safeguardsthatwillbedeployedto will notbetouchedbyit.However, thereneedstobegreatertransparencyonhowCPECwillimpact CPEC willnodoubtbeagamechangerforPakistan andthereishardlyafacetoftheeconomythat and notatthecostofexistingindustry. CPEC. ConcessionstoSEZ’s mustbeconditionalonjobsandexportswhichareincrementalto Make correctingthetradeimbalancewithChinaand thecreationofjobsintegralparts 05 preferable tothecurrent100%FDIregime. investment, ratherthanjustthelatter. JVs andtechnicalagreementswithforeign investorsmaybe on theexternalaccount.TheBoardofInvestmentshouldfocusbothlocalaswellforeign payback leveragingonPakistan’s largeandgrowingmiddleclassconsumptionratherthantheimpact value‐ Policies shoulddi erentiateinfavourofFDI,whichbringstechnology, addsjobs,generateseither the privatesectormayhavelimitedappetite. nation’s strategicpriorities.Anexampleofthelatter couldberisk‐ privatization shouldbedeterminedbytheprivatesector’s capitalandriskappetite, balancedwiththe along thelinesofTemasek andKhazanahofSingaporeMalaysiarespectively. Subsequent ownership andguidanceofagovernment‐ State OwnedEnterprises(SOEs),presentlyadrainontheeconomyshouldberestructuredunder comprehensive value‐ and technicaltextiles.Pakistan needstobuildcapabilityandcapacityadapt.Thiswillrequirea Within Textiles, Pakistan’s mainstayiscottonwhereasglobalindustryevolvingtoman‐ to beworldclassinqualityandcost.Pakistan can leverageitslocationasastorageandtransithub. substantial roomtoimproveinLogistics. Port handling,inlandtransportationandwarehousingneed broadband, willpromotegreaterfinancialinclusivenessaswellproductivityande ciency. Thereis its penetration.E‐ private airlineshasbenefitedtravelers.Openinglifeinsurancetothesectoraccelerated standards. TheAuto sector, hithertoprotectedandnowopeningupisacaseinpoint.Introductionof improve quality. Intime, Pakistan wouldbecomecompetitiveinexportsasitstartsmeetingglobal conducive andconsistent,long‐ in productivity, value‐ Businesses willbenefitfromhealthycompetitionnewentrants.Itnotonlystirimprovements substitution andjobcreation. productivity. SharpenthefocusofFDItotechnology,value‐ Open upmoresectorstofreshcompetitionfromnewinvestorsencouragegreater 04 added exportsorpromotesimportsubstitution.PresentlymuchofFDIispremisedonshort banking andE‐ addition, sophisticationandquality, butalsoensurecompetitivepricing.With chain change. term policies,moreplayerswilladdscale, bringdowncostand commerce, benefitingfroma ordableandmorewidelyavailable owned butprivatesectorresourcedholdingcompany added exports,import intensive oilexplorationforwhich made fabrics
Pakistan Economic Forum IV AGENDA FORTHEECONOMY 07 extract morefromthealready taxed, sometimesthroughactionsborderingonharassment, riskingthe does notdi erentiatebetween taxes raisedfromexistingandnewtaxpayers.Thisdrives theFBRto knee‐ Unless thetaxpolicyroleisremoved fromtheMinistryofFinance/FBR,taxregime willremain unpaid taxcollectoraddstothecostofdoingbusiness. tax onturnover, ratherthanprofitdiscouragesinvestment.Makingthe formalsectoran dividends, restrictionsonsurrenderoflosseswithin a groupareallretrogressive.Minimum tax onbonusshares,dividendsfromalready taxed profits,especiallyinter‐ and consolidation.Highertaxratethanregionalpeers, supertax,taxonretainedearnings, a mainKPIforFBR.Taxes needtobeequitable, regionallycompetitive,promoteinvestment misuse ofwhichthwartsthegrowthtaxbase. Maketaxes collectedfromnewtaxpayers changes. AddressFBR’s talentandtechnologygapscurbitsdiscretionarypowers, Separate taxpolicymakingfromcollectiontoreduceuncertaintyofadhocandknee‐ The government’s packagetosupportvalue‐ private consumers.Instead,industryshouldbeallowedtocreatelivelihoods. availability toa ordability. Asproductionrampsup, industrymustnotcontinuetobeusedsubsidize twice thoseofBangladesh,IndiaandSriLanka. Thenarrativeon energyshouldnowmovefrom of imports.Pakistan’s value‐ exports. Supplyofenergytodomesticindustryatcompetitivecosthelpsinwithstandingtheonslaught Provision ofelectricityandgasatregionallycompetitivecostisanissuebroaderthanjusttosustain 06 experience withtheAfghan Transit Treaty ontransitofChinesegoodscouldwipeo manyindustries. of CPEC.Pakistan hasapoorrecordofmanagingleakagesfromtransittrade. Arepeatofthe getting ChineseindustriestoaddvalueinPakistan toredressthetradedeficitshouldbeintegralparts are likely tomoveoutofChinagiventherisinglabourandconversioncostthere. Indeed,thatand be anentireyear. Finally, holdingontoexporters’ taxrefundsputsunnecessarycashflowburden. trends. Whererebatesneedtobelinked togrowth,thentheperiodfordetermining growthshouldnot conditionality oflinkingrebatestogrowthinexportsshouldtake accountofthe prevailingglobaltrade be skewed tovalueadditionwithrebatesgraduallybeingwithdrawnfromcommodities.The should bebroadenedtoencompassallexportsinsteadofjustthemainsectors.Itcontinue immediately uponrealizationofexportproceedsinsteadhavingtowait.Thepackage this intheexportrebateisnecessary. Further, banksshouldbeallowedtocredittheexportrebates destination markets andagainstcompetingsourcingcountriesisnotrecommended, duereflectionof competitors. WhilstasharpcorrectioninthevalueofRupeewhichhaslostcompetitiveness brought down,itshouldalsocompensateforenergycostdisparityagainstthemainsourcing encourage investmentintovalue‐ 12‐ package shoulddynamicallyoffsetthecostdisparities.A5‐ Provide Industryaccesstoenergyatregionallycompetitivecost.Pending thisanexport exporter’s cashflowmustbeliberatedfrom delaysinsettlingrebatesandrefunds. 18‐ jerk, ad‐ month programme)willpromoteinvestmentintovalue‐ hoc andrevenue, ratherthanreformoriented. Government’s targetfortaxcollections added exportsectorisencumberedbyenergyandlabourcoststhatare addition, capacityexpansionandproductivity. Untilenergycostsare added exportsshouldbefora5–10‐ 10‐ addition. Additionally, year package(ratherthana year termto corporate jerk
Pakistan Economic Forum IV AGENDA FORTHEECONOMY reforms suggestedwouldwork. expansion ofthetaxbase. Itisrecognizedthatwithoutsu cientlystrong politicalwill,noneofthe Unless FBRisabletolocatepotentialtaxpayersandenforce thewritoflaw, therewillbenosignificant encourage themtojointhetaxbase. Theyhavebecomeasourceofrevenue forthegovernment. to beapplauded.However, thewithholdingtaxes placedonnon‐ E orts toformalizetherealestatesectorandbringthosenotfilingtaxreturnsintobaseare withdrawn, sendingawrongsignal. when itistryingtosurvive. Fiscalincentivestodealwiththeformalsectorwerealsorecently in particulardiscouragesinvestmentasitnegativelyimpactsanewentity’s cashflowintheearlyyears imposition ofaminimumtaxonturnoverirrespectivewhethercompanymakes aprofitornot.This dividends andthecurtailmentofgrouplossrelief. Theseareretrogressivemeasuresasisthe Examples are:taxonundistributedreserves,bonusshares,supertax,inter‐ impacted. Thetaxregimealsodoesnotencouragecapitalaccumulation,formationandconsolidation. makes itdi cultfortaxcompliantbusinessestocompete. Theformalretailsectorisparticularly whilst thatofholdingcompanyshareholdersis55%.HighVAT rateprovides incentive toevadeand su er taxes ondividendsfromalreadytaxed profits.Thee ectivetaxrateofshareholdersthusis47% Not onlyisthecorporatetaxratehigherthanglobalaverageof22%,shareholdersincompanies Tax ratesinPakistan arenotregionallyorgloballycompetitive: asunpaidtaxcollectors. Withholdingtaxes accountedfor70%oftotaltaxrevenue. Thesearecollectedbytheformalsector Manufacturingwhichrepresents13.5%ofGDPcarries58%thetaxburden Total taxes grewby60%inthelast3yearsbutmostofthiscamefromexistingtaxpayers tax base. Herearesomefacts: to join.FBRisnotcurrentlystructuredwithtalentandcapacitydeploytechnologybroadenthe long‐ term healthofbusiness.Indeed,harassmentisthebiggestturn‐ Vietnam Bangladesh Sri Lanka Singapore Pakistan *Incl. WPPF&WWF andSuperTax. Tax % Corporate 38* 22 25 15 17 filers arenothighenoughto o forthosenotinthetaxbase VAT % VAT 10 15 12 17 7 corporate
Pakistan Economic Forum IV AGENDA FORTHEECONOMY neighbors, whoalsodon’t fareallthatwellagainstbestinclassglobally: Pakistan rankspoorlyinvirtuallyeveryglobalranking,manycaseswellbelowitsimmediate doing business.Replace multipletaxes/agencies withaunitarysystem.Amend conflicts betweenministries,federation&provincestoreducecostandenhanceeaseof Simplify laws,reduceinterfaceswithauthorityandaddresssilomanagement 08 anomalies, there isastrongcasetorevise somesectionsoftheCompanies Act2017. 208 definesrelatedparties sowidelythatitisdi culttoimplement.Withtheseand other obtain requisitesanctions,NOCs, etc.,fromauthoritiesthatregulatetherealestate sector. Section seek SECP’s permission priortoannouncementofprojectswhenthey are alreadyrequiredto discriminatory againstthecorporate sector. Section456 (2)(a)requiresrealestatedevelopersto registry ofassets.Asthoseoutsidethecorporatesector willnotberequiredtoreport,thisis SECP willunderthisSectionactmerelyasapostbox. Thereisnoglobalprecedentofasimilar duplicates existingpowersoftheState Bankof Pakistan andtheFederalBoardofRevenue. The Section 452requirementfordirectorsandmajorshareholders todiscloseforeignshareholdings on thecorporate, tax‐compliantsectorinsteadofmakingiteasiertodobusiness. Forexample, the The CompaniesAct2017duplicatespowerandauthority ofotherbodies,placingfurtherburden 190 countriesintheWorld Bank/PwCPaying Taxes Ranking, downfrom155th. with‐holding taxes. Duetocomplexityandmultipletaxes andagencies,Pakistan standsat172of QUOTE) Theformalsectorisalsoburdenedbyresponsibilitytocollect75di erenttypesof (vs. 25inIndia)(SINGAPORE BEINGACITY STATE MIGHTNOT BEAGOODEXAMPLETO of Karachi, amedium‐sizedenterpriseneedstopay47di erentfederal,provincialandlocaltaxes of thefederalandprovincialgovernmentsareresponsiblefortaxcollectioninPakistan. Inthecity return andcollectionsystemwouldsavetime, e ortandmoney. Multipleagenciesandauthorities window operationwouldconsiderablyeasedoingbusinessandbringdownthecost.Aunifiedtax Fragmentation ofauthoritycreatescomplexityforbusiness.Asimpler, technology‐ driven, one‐ Indices Ranking Index Global Youth Development Economic FreedomIndex Global InnovationIndex Global CompetitivenessIndex Human CapitalIndex Ease ofDoingBusinessIndex Countries Total 190 166 128 130 138 183 Bangladesh 106 104 146 137 177 117 Bhutan 69 96 97 97 75 91 India 100 105 123 133 66 39 Nepal 105 108 151 115 80 77 Pakistan 126 122 154 147 119 118 Sri Lanka 50 93 111 91 31 71
Pakistan Economic Forum IV AGENDA FORTHEECONOMY below globalbest: fragmentation haserodedproductivitywiththeresultthatperhectareoutputofmostcropsiswell Most ofPakistan’s agriculture, dairyandlivestockoperatesonasubsistencebasis.Land standards sothatitcanfuelindustrialgrowth,jobsandexports. Transform agriculture,livestockanddairyfromsubsistencefarmingtoworldclass 09 Our canale ciencyisjust33% vs.globalaverageof90% Baluchistan 22 mnmoreacrescouldbe irrigatedinSouthernPunjab, Sindh,SouthernKP and Eastern storage A $1Bnpotentialadditiontotheeconomyisestimated for eachadditionalmillionacre‐ Agriculture uses95%ofthenation’s waterandrepresents20%oftheeconomy potential: The NationalWater Policy pendingwiththeCouncilofCommonInterestsseekstoaddress to ChinaandtheME. benefit yield.Pakistan isregionallywellplacedtosupplyagricultural,horticulturalandmeatproducts rental optionswouldfacilitatemechanization.Dripirrigation, utilizingChinesetechnologywould illiteracy butisnothelpedbypoorreachandhighcost of broadband.Cooperativefarmingand Informal financingintermediarieserodefarmeryields.Poor informationflowispartlyduetolow $2 Bn. concern. UntilFY2014Pakistan hadatradesurplusinfood.ByFY2017itslippedtodeficitof analysis shouldredirectincentivestooptimizeoutput.Growingimportsofedibleoilsandlentilsisa unmanageable surplusesanditdiscouragesdiversificationofcrops.Comprehensivevaluechain activity. Governmentguaranteedpurchasepriceforwheatandsugarcanehasledto fruits andvegetablesispoor. Dairyandlivestockismostlyanaddendumratherthanamainstream other factorsimpactingoutputandeconomicsoffarming.Supplychain,especiallythecoldchainfor levelling, salinity, poorwatermanagement,indiscriminateapplicationoffertilizersandpesticidesare from GMseeds,whilstcropsinPakistan continuetosu erfrompest attacks.Absenceofland Less than40%ofseedsusedarecertified.Cottonoutputisnowathird India’s –Indiabenefited Crop Rice Maize Sugar Cane Cotton Wheat Tons/hectare Pakistan 63.4 2.5 4.6 2.7 3.1 Tons/hectare Best inworld 125.1 (Egypt) 11.1 (France) 8.1 (France) 4.8 (China) 9.2 (USA) of best Pakistan as% 29% 52% 38% 51% 41% feet ofwater
Pakistan Economic Forum IV important. Additionally, securingsupplyundertheIndusWater Treaty and fromtheKabul Riverarealso potential islostaswaterflowsintothesea.Thefrequencyoffloodsrising. Pakistan’s reservoirscanstoreonly10%vs.40%globalnorm.Some$23Bnperyearofeconomic other policies. incentivizing developers,lendersandownersthroughsupportivetax,long‐ Generate jobsbyaddressingtheacuteshortageinlowandmediumcosthousing AGENDA FORTHEECONOMY also anacuteneedforgovernment todeployITsimplifyandmake doingbusinesseasy. Thisisan disseminate knowledgeacross averywidespectrumofsociallyandeconomicallyrelevant areas.Thereis health, mobilepaymentsand e‐ and akey enablerofICT. Moreinclusiveanddemocratized webaccesswillboosteducation,agriculture, A ordable andreliablefixed lineandwirelessaccess tointernetisfundamentalpeople’s empowerment estimates thatevery1000newbroadbandsubscriberslead to33directandindirectjobs. increase inbroadbandpenetrationleadstoanof 1.4% inGDPgrowthandtheGSMAssociation over timeishighertaxrevenue. TheUN’s InternationalTelecommunications Unionestimates thata10% greater productivityande ciency, higherGDPgrowthandimprovement insocialwelfare. Thenetresult Reduction intaxratesoncellular/internetservicesothercountrieshasproventoleadmoreuse, E users areleviedadvanceincometaxwhenthehighestestimateofpotentialpayersis10million. broadband. Themainreasonisincidenceofhightaxes oncellular equipmentandservices.90%ofcellular Internet connectivityiskey fordevelopingtheICTsector. 80%ofPakistanis donothaveaccessto services. sector tocreatejobs,promotegreaterinclusionandencourageself‐ Encourage newventures,especiallyintheInformation,CommunicationsandTechnology 11 10 vii. vi. iv. iii. address thiswouldinclude: significant multiplierimpactoncement,steelandotherpartsoftheconstructionindustry. Steps to 500,000 unitsperannum.Meetingjusttheannualshortfallcouldcreate10milliondirectjobswitha Pakistan su ersfromahousingbacklogof10millionunitswhichisgrowingattherateapprox. v. ii. i. ‐ commerce isbeingthwartedduetopoorconnectivity. Fiscal regimefordevelopmentREITS shouldbereviewed. Allow collateralizationofuptoRs. 5mofpropertywithoutwealthaccountabilityfortax Incentives fordevelopersandfiscalreliefonmortgageloancostborrowers Valuation transparency Laws thatstrengthentitlesecurityandrepossessionresaleintheeventofdefault Title visibilitythroughautomationofregistrationrecords horizons ofhousing.Asaresult,currentlycommerciallendingtohousingiswellbelowglobalnorms. long‐ An earlyactivationofthegovernmentmortgagerefinancebanktoproviderevolvingtranches term funding.Thedeposittenorsofcommercialbanksdonotmatchthelong‐ commerce. Besides,itwillboostemployment,particularlyofwomen, sufficiency/export of term financingand term lending
Pakistan Economic Forum IV AGENDA FORTHEECONOMY 12 fast forward. Development GoalsthatPakistan isasignatory, thereare6thatfiscalincentivescanhelpbusinesses balance anddecouplegrowthfromimpactontheenvironment.Of17UNSustainable inclusive andsustainabledevelopmenttoimprovequalityoflife, securelivelihoods,addressgender public/private partnerships.Businessescanplayamoremeaningfulroleinsocietybypromoting the otherissuesthatneedtobetackled.Fortunately, therearesomesuccessfulmodelsof service industriesandpooremploymentopportunitiesduetohighrelianceonimportsaresomeof pollution, lowinclusionofwomenintheworkforce, weakskilllevelsforbothmanufacturingand safe drinkingwater, untreatedeuentdischarge, ine cientgarbagehandling,inadequaterecycling, and educationrankamongstthehighestsocialprioritiesforcountry. Poor healthcare, paucityof With 43%ofchildrensu eringfromstuntingand40%notattendingschoolonadailybasis,nutrition growth fromimpactontheenvironment improving qualityoflife;securinglivelihoods;addressinggenderbalance;anddecoupling Strengthen public/privatepartnershipstopromoteinclusiveandsustainabledevelopmentby than thelendingbank’s capital.Thisalsoneeds tobereviewed. software possible. PrivateEquityinvestmentbybanksiscurrentlyrestrictedto10%ofinvesteecapitalrather Prudential Regulations ofthebankingsector needtobereviewedmake lendingagainstthecollateralof government. opportunity forlocalsoftwarehousestodeveloporpartnerglobalcompaniesdigitizethe
Pakistan Economic Forum IV * WWF=Workers Welfare fund AGENDA FORTHEECONOMY consumption Goal 12:Sustainableproductionand Goal 9:Inclusiveandsustainableindustry work forall productive employment;anddecent sustainable economicgrowth;fulland Goal 8:Sustained,inclusiveand all Goal 6:Sustainablewater;sanitationfor empowerment Goal 5:Genderequality;women’s Goal 3:Healthylives;wellbeingforall UN SDGGoal Fiscal Incentive footprint ofthesupplychain 0.5 %lowertaxforreductioninthematerial standalone wastemanagementbusiness 15‐ zero landfill 0.5% lowertaxforreductioninwaste, achieving/maintaining plants Investment Allowanceforinvestmentineuenttreatment factories, warehousesando ces Investment Allowanceforinvestmentinrenewableenergy payroll 1% lowertaxfor50+newjobsonexistingcompany’s own work force) 0.5% lowerTax Rate forjobstochallengedpersons(min.5%of challenged intheworkplace Investment Allowanceforinvestmentthespecially institutes. WWF o setfortheinvestmentinapprovedvocationaltraining water WWF o setforinvestmentinpurificationplantsdrinking time workingmotherstoenablethemsecurechildcare 25% rebateinthee ectivetaxrateonsalaryincomeforfull children hospitals/clinics andtoaddressmalnutritionstuntingof Allow businesstousetheWWFcontributionfund year taxholidayforinvestmentina
Pakistan Economic Forum IV 03 PAKISTAN” “MAKE IN A CASE FOR
Pakistan Economic Forum IV A CASE FOR “MAKE INPAKISTAN” Pakistan’s three acute needs,onesolution Strong domestic industry with aconsumer baseof 207 mn “Make inPakistan” & SERVICES MANUFACTURING JOBS IN BROADER BASE FROM A HIGHER TAXES SUBSTITUTION AND IMPORT EXPORTS VALUE-ADDED
Pakistan Economic Forum IV A CASE FOR “MAKE INPAKISTAN” Context: 12 Recurrent Cycles ofExternal Account Crises and Pakistan losing share of world exports Context: importsup,exports down, trade deficitrising… IMPORT COVER IN MONTHS US$ BILLION -20 -30 50 20 -10 30 40 10 0 6 9 5 2 8 3 4 7 1 1993 1.7 -15.7 Imports 40.4 2012 24.7 1994 3.2 -15.4 1995 2013 24.8 40.2 1.9 1996 0.9 2014 -16.6 25.1 41.7 Exports 1997 1.36 1998 1.36 2015 -17.3 24.1 41.4 1999 1.9 Since ’88, Pakistan has been to IMF 12 times. -19.3 2016 41.3 22 2000 1.7 3.6 Trade Deficit 2001 2017 -26.6 21.9 48.5 7 2002 2003 8.1 2004 5.2 2005 4.1
% Share 2006 3.9 0.25 0.05 0.15 0.2 0.1 0 2007 4.4 Pakistan’s Share of World Exports Down, Bangladesh’s More than 2008 2 0.16 Pakistan’s Share 2003 Bangladesh >x2times 2009 4.1 Doubled since 2003 0.09 Pakistan 2010 4.7 2011 3.1 2012 1.7 Bangladesh’s Share 0.13 2013 3.1 2016 0.24 3.2 2014 4.5 2015 2016 4.5 2017 3
Pakistan Economic Forum IV A CASE FOR “MAKE INPAKISTAN” nation oftraders? Is Pakistan becominga Fact: manufacturinganditsshare inexports isdeclining % SHARE IN GDP 10 15 12 13 14 9 11 8 1999 - 2000 7 8.3 10.4 2000 - 2001
2001 - 2002
EXPORTS (% OF GDP) 9.1 11.3 2002 - 2003 10 12 14 0 6 2 8 4 our jobs? Can wea ordtoo shore 12.40%
2012 2003 - 2004 Share of Manufacturing inExportsDeclining 12.4 10.2 Country De‐ 2004 - 2005 MFG Share 2005 - 2006 13.28% 2013 13.8 11.7
2006 - 2007 Industrializing Prematurely
2007 - 2008 12.3 value? commodities andnotadd Why doweexport 12.24% 14.4 2014 LSM Share 2008 - 2009
2009 - 2010 11.3 13.6 10.59%
2015 2010 - 2011
2011 - 2012 10.8 13.2
2012 - 2013 8.70% 2016 to Importsubstitution? Are thepoliciesconducive
2013 - 2014 13.6
2014 - 2015
2015 - 2016 13.5 10.7
2016 - 2017 13.5 10.7
Pakistan Economic Forum IV A CASE FOR “MAKE INPAKISTAN” growth lagsneighbours Fact: manufacturingisover‐taxed andits % ofGDP Services Total Retail/Whole. Manufacturing Agriculture
MANUFACTURING SECTOR-GROWTH RATE 10% 12% 14% 0% 6% 2% 8%
4% Pakistan South Behind Lags AsiaManufacturing in Growth 9.05% 9.96% 2.09% 5.45% % ofGDP 2012 18.5% 18.5% 19.5% 13.5% Industry CarriesDisproportionate Burden of Taxes Pakistan % Tax Rev 2013 58% 37% <1% 1% India 2014 Bangladesh the taxbase. raising toolratheronethatincentivizesmoretojoin Withholding taxonnon-filershasbecomearevenue Tax systemiscomplex with 47typesoflevies those whomisusetheAfghan transittreaty. smugglers, counterfeiters,under-invoicersand Formal sectorfacesanunevenplayingfieldvs. Manufacturing carryingadisproportionateburden. Pakistan’s taxbaseisnarrow 2015 Vietnam 2016 11.90% 11.69% 4.99% 7.90%
Pakistan Economic Forum IV A CASE FOR “MAKE INPAKISTAN” Fact: FTAs are notsupportive (1:4) Turkey (1:3)andThailand capability withthoseof between Pakistan’s export Significant mismatch Fans Blankets Tiles Glassware Pumps Footwear Items
Mauritius Indonesia Malaysia China Sri Lanka Country Caution Caution Proposed with FTAs with Turkey and Thailand
to bothcountries relatively lowtari access Pakistan alreadyenjoys GrowthImport in Mainly Reliance, China on
US$ Mn Imports 2007* PoorlyNegotiatedAgreements Trade Year Signed 50 25 34 47 13 17 2006 2005 2008 2007 2013 US$ Mn Imports 2016* then Trade Balance 103 170 industry would undermineexisting rubber markets, which chemicals, plasticsand automobile, auto‐ access toPakistan’s Both countriesdesire 69 171 46 74 $0.094 Bn $0.035 Bn $(3.2) Bn $(1.55) Bn $(1.06) Bn Multiple Growth parts, 5.6x 3.6x 3.4x 2.7x 2.7x 3x 2016 Trade Balance $(15.32) Bn $(1.86) Bn $0.24 Bn $(1.0) Bn $0.17 Bn FTA partners! defenses, evenagainstits highest usersoftrade Turkey isoneofthe China Est. %from 90% 90% 80% 98% 75% 61%
Pakistan Economic Forum IV supportive ofscale Fact: Taxes are high,fiscalregime complex andnot A CASE FOR “MAKE INPAKISTAN” holding companies E ective Tax Rate of55%forshareholders Cascading taxoninter‐ Tax onretainedprofits>40% Super Tax Vietnam Srilanka Bangladesh India Pakistan Countries Vietnam Srilanka Bangladesh India Pakistan Countries corporate dividends Fiscal Policy Not Supportive of Scale
(Out of190) Taxes Rank ‘18 Paying Doing Business ComplexTax System
* IncludesWWF/WPFF/SuperTax High Tax High Rates 152 158 172 119 86 Corp Tax % 38%* 25% 22% 15% 17% traders/AOPs Corporate taxhigherthanonsole Minimum taxonturnover, evenininitialyears Restricted grouplossrelief Per Year) (Number Payments 33 47 47 14 13 VAT/GST% 10% 15% 12% 17% 7% Per Year) (Hours Time 3,115 498 435 168 214
Pakistan Economic Forum IV A CASE FOR “MAKE INPAKISTAN” …….. andFDI Fact: consumption,notinvestment drives the economy
presumptive taxes Fact: tax revenue isreliant onimportsand
India’sby bps 2060
economyexceeds and
imports, dominatesthe imports, Consumption, fueled Consumption, by 2001 2016 2011 1991 TAX COLLECTION PKR (BILLION) 1000 1600 1200 1400 600 200 800 400 0 India Pakistan 16% 24% 2006 51% 55.9 10% 59.4 64.4 61.8 68.2 76.2 21% 81.2 80.1 20% 2007 48% 11% 29% 19% 2008 49% Indirect onIncome(FTR*) 12% 20% 17% 2009 50% (NL) acquired51%ofEngro buying substantialsharein 13% 2016: FrieslandCampina investment inmilkchain 2016: Lotte (SKorea) Pepsi Lahore bottler 21% Foods forapprox. Nestle $450Mn 16% 2010 US $442Mn
51% FDImostly Motivated by Consumption 12% 20% 15% 2011 Customs 53% 11% 21% 15% 2012 56% 9% 20% Sales 16% 2013 56% 8% 20% 2013: Unilever(GB)parent Appliances for$250Mn (c.24%) forUS$530Mn 2016: ArcelikofTurkey 14% 2014 Coca Cola$380Mn bought outminority acquired Dawlance 58% 8% Excise expansion 21% 2015 16% 55% 8% 20% 17% 2016 55% 8% 23% 15% 2017 53% 8%
Pakistan Economic Forum IV A CASE FOR “MAKE INPAKISTAN” footwear, anexample Non that ofour Asian peers Fact: investment incapitalformation ishalf
‐cascading tari hurts manufacturing, Bangladesh
FINISHED GOODS RAW &INTERMEDATE MATERIALS Parity dutyoninputsandfinishedgoods Shoes Zipper Insole Board PU Chemicals Laminate Fabrics Heels Soles
Indonesia
Sri Lanka Sri
Pakistan India Investment %of GDP 15.8% 20% 20% 20% 25% 20% 20% 20% Import DutyBeforeRD 31.3% 31.5% 32.2% 32.8%
Pakistan Economic Forum IV A CASE FOR “MAKE INPAKISTAN” presumptive taxes Fact: tax revenue isreliant onimportsand manufacturing &government revenue Inappropriate tari s for commercial importers hurts
Spark Plugs Lamps Water Pumps Oil Pumps EXAMPLES Basis ofassessing
Finished Goods Finished
Finished Goods Finished
RawMat
RawMat
WeldingElectrodes ShockAbsorbers CD, 11 CD, 11 CD, 20 Total Levy/unit Rs. 70%-89% TOTAL LEVIES Income Tax 5% S Tax 17% CD 35%to50% on value OEMs assessed Assessed onvalue CD, 36 RD, 30 RD, 30 29.93 44.02 74.55 15.73 RD, 20 36% 40% 41% 41% RD Assessed onweight on weight Commercial assessed Total Levy/unit Rs. 3.80 1.22
3.18 Finished Goods Finished
18 Soles & Heels & Soles
CD
RawMat
Shoes BrakeDrums CD, 11 CD, 20 CD, 20
CD, 21 Shoes Di erence inLevies Rs. Exchequer Loss tothe RD, 30 56.66 40.94 28.71 11.93 RD, 25 RD, 25 21% 45% 45% 41%
Pakistan Economic Forum IV A CASE FOR “MAKE INPAKISTAN” Under‐invoicing andSignificant ofImportsisRampant importers only onimport value Manufacturers pay sales tax onentire value addition vs. Sales Price Profit Marketing Distribution Warehousing Conversion RM Import Activity the exportingcountry’s reportedexports toPakistan. Under-invoicing isdi erentialbetween Pakistan’s reported importsvs Turkey Thailand USA UK UAE (non-oiltrade) EU China Import Source Manufacturer’s ST Impact (2016) Invoicing* US$Mn Extent ofUnder- addition value elements of covering ALL final price ST 17%on 3,552 1,006 86.8 88.4 220 324 100 None None None None None None Com Importer’s ST Impact Reported Imports as %ofPakistan’s Under-Invoicing 26 35 35 33 10 21 5 None None None None None None only import value ST 21%on
Pakistan Economic Forum IV A CASE FOR “MAKE INPAKISTAN” Tax Evasion asaresultofpresumptiveTax Regime manufacturing andresults in total tax loss of67% Presumptive tax creates anuneven playing field for And undermines manufacturing Under‐invoicing isamajor drain on tax revenue Evasion/avoidance as%oftaxliability Extent ofevasion/avoidance Total taxes and importlevies Add di erenceofoutputandinputsalestax Tax at30% thereon Net ProfitforCompliantManufacturer Price tocustomer Output SalesTax Sales Value beforeoutputsalestax Assume 50%markup Landed costinthebookswithoutinputsalestax Tax evadedatimportstageas%ofTax due Tax evadedatimportstage Total Tax Levy atimportstage Presumptive tax S Tax ondutypaidvalue Regulatory Duty Customs Duty Declared/assessed value Full value Tax EvasionatPoint ofEntry Rs. Rs. 6% 20% 25% 20% Rs. Rs. Rs. Rs. Rs. Rs. Rs. Rs. Rs. 17% Rs. Rs. Rs. Rs. 100% Compliant Manufacturer 254 104 218 145 100 100 22 73 37 73 20 29 25 84 10 8 Commercial Importer 60% Under-invoicer Rs. 60% Under-invoicer -67% -70 34 100 -60 -51 40 34 10 12 8 4
Pakistan Economic Forum IV A CASE FOR “MAKE INPAKISTAN” Input costsare uncompetitive Gas Electricity Labour
India Bangladesh Pakistan India Bangladesh Pakistan India Bangladesh Pakistan
2010
Inflation in Pakistan’s in Inflation Input since Costs
ElectricityCost KwH /
LabourCost Month / GasCost MMBTU / X 2.5times X 2.3times X 2.5times Change ‘17over‘10 US Cents/KwH US$/month 2.80 2.52 5.72 US$/ MMBTU 8 11 14 81 65 143 X 2times X 2.3times Pakistan Multiple X 1.8times X 2.2times X 1.75 times X 1.3times Pakistan Multiple Pakistan Multiple 14% pa 13% pa 14% pa Inflation pa
Pakistan Economic Forum IV A CASE FOR “MAKE INPAKISTAN” And itisnoteasy to manufacture/do business… and destinationcurrencies over 5 years to end 2017 The Rupeelost competitiveness againstsomesourcing
South AsiaAvg Karachi Gained Competitiveness Gained 194 260 Days Permits Construction -12.25% -10% -3.70% -5% Days Electricity Getting
137 215 Bangladesh Vietnam Jap Yen Turkish India Euro
GBP US$ SL 28 47
Number Taxes LostCompetitiveness 1.90% 5% 5.20% Days Taken Taxes 277 311 12.30% 369 406 Days Export Time to 40% 113 129 Days Import Time to
Pakistan Economic Forum IV A CASE FOR “MAKE INPAKISTAN” Aligned policies to promote domesticindustry Solution: DOMESTIC INDUSTRY Housing Policy Energy Policy Trade Policy Fiscal Policy Bank Credit Agri Policy
Pakistan Economic Forum IV A CASE FOR “MAKE INPAKISTAN” 02 Salient Actions to Promote DomesticIndustry 01 manufacturing field for level playing Create amore Thrusts agreements. ill-negotiated trade through domestic industry Stop undermining Thrusts Action Points Action Points Afghanistan, refundableontransitthroughPakistan. Levy importdutyand GST ongoodsintransitto National Tari Commissiontobecontinuouslyfunctioning. Impose quantitativedutiestocheckunder‐ Remove RDonrawmaterialsandintermediates who usehightari inputs finished goodswithspecialprovisionsformanufacturers Cascading tari sonrawmaterials,intermediatesand taxable activitymustfilereturns. Withdraw thepresumptivetaxregime. Alloperatinga Encourage value-addedexports,notjustofcommodities agreements. Factor impactonjobsandtaxcollectionintofuture Thailand. Move withcautiononagreementsTurkey and Complete therenegotiationofPak ChinaFTA. valuation. Timeline Timeline Immediate Immediate Immediate Ongoing MT Ongoing Immediate Immediate Immediate Immediate
Pakistan Economic Forum IV A CASE FOR “MAKE INPAKISTAN” 04 03 region. that ofthe presently twice in Pakistan is cost. Energycost competitive energy at Provide reliable Thrusts packages short‐ replace kneejerk, export policyto consistent, A long‐ Thrusts term term, Action Points Action Points loss levelof10%.MTimpact1‐ Stem T&D lossescurrently at19%toleastthenon‐ cents/KwH impact deliveredcost.MTnone, LT impact2‐ Pursue indigenizationoffuelmixevenifittakes timeto Automate rebatestoeasecashflow. diversification throughmoregraduatedrebates. Encourage value‐ rebates Factor exchange rateandinputcostdisparityintoexport capacity andcapabilitybuilding. broad Factor energycostdisparityintoexportrebates income todomesticusers. customers. Jobsfromindustrywillprovidedisposable Equalize energycostsbetweendomesticandindustrial to cleanerfuels.Couldnegatetheshiftfromfueloil. Factor likely increaseincostofLNGasworlddemandshifts Replace the12‐ ‐ based exportpolicytopromoteinvestmentin 18‐ addition andexportdestination month exportpackagewitha5‐ 1.5 cents/KwH year, 3 OECD Timeline Timeline Immediate MT Immediate Immediate Immediate MT
Pakistan Economic Forum IV A CASE FOR “MAKE INPAKISTAN” 05 06 and investment consolidation accumulation, formation, capital corporatization, encourage should Fiscal policy Thrusts employment substantial generate shortage andto address acute cost housingto and medium Encourage low Thrusts Action Points Action Points shareholder participation. Act 2007topromoteholdingcompaniesandwider Restore thegrouptaxationregimeenactedinFinance profits withindividualsandAOPs inbusiness. Promote corporatizationthroughparitytaxationofcompany rate forthefollowingtwoyears. turnover forfirstthreeyearsofabusinessandthenhalfthe Encourage risk‐ Remove cascadingtaxoninter‐ Abolish taxonlessthan40%profitdistribution Withdraw SuperTax Fiscal regimefordevelopment REITS bereviewed wealth accountabilityfortax Allow collateralizationofupto Rs. 5 mofpropertywithout Incentivize borrowerswithfiscalreliefonmortgageloancost Create valuationtransparency event ofdefault Strengthen lawstofacilitaterepossessionandresaleinthe Automate landrecordstocreatetitlevisibility funding Mortgage refinancetofundrevolvingtranchesoflong‐ taking bywithdrawingminimumtaxon company dividends term Timeline Timeline Next budget Next budget Immediate Immediate Immediate Immediate Next budget Next budget Next budget MT MT MT MT
Pakistan Economic Forum IV A CASE FOR “MAKE INPAKISTAN” 08 07 SME sector especially tothe sector credit, Grow private Thrusts especially inIT. ventures, encourage new Policies to Thrusts Action Points Action Points for long-termprojectfinance. The bankingsystemneedstobuildappetiteandresources solutions tomanageexposure. Banks shouldbeencouragedtothinkofout-of-the-box lending criterion,especiallyfortheSMEsectorisrequired. Credit guaranteeschemewithaspecifiedminimum because banksprefertolendrisk-free tothegovernment. amongst thelowestinworld.SMEcreditisnegligible Total privatesectorcreditas%ofGDPinPakistan is fund privateequity/VC investments Allow bankstotake upto5%exposureoftheirassets Promote venturecapitalfunds cellular equipment,cell-phoneuseandfixed lineinternet Make interneta ordablebyreducingincidenceoftaxes on Tax onthebasisofprofit ratherthanturnover Timeline Timeline Next budget MT
Pakistan Economic Forum IV A CASE FOR “MAKE INPAKISTAN” 09 10 industries specific promotion of zones forthe policies and Develop Thrusts exports industry and inputs for competitive provide Livestock to Dairy and Agriculture, Promote Thrusts Action Points Action Points
cotton Promote oilseedsesp. professional basis Subsistence to livestock from Transform dairyand other crops expense ofCottonand Wheat andSugaratthe promote surplusesin Reduce incentivesto Petro-chemicals e.g. NaphthaCracker tofeedplastics Meat andmilkprocessing Bodies/ componentsfordomesticappliances Engineering, includingbutnotlimitedtoauto-parts fibers Value-added/technical apparel/textiles,includingman-made Housing
Pakistan
India Cotton 2001 10.8 10.9 16.2 35.6 2016 Timeline Timeline MT MT
Pakistan Economic Forum IV 04 COMPETITIVENESS SECURITY & ENERGY PAKISTAN’S TOWARDS
Pakistan Economic Forum IV TOWARDS PAKISTAN’S ENERGY SECURITY &COMPETITIVENESS Challenges Facing Pakistan Energy Sector 01 04 *Unaccounted ForGas 02 03 likely tocreateafurthertradedeficitofUSD6‐ With energydemandexpectedtoincreaseby70%overthenextdecade, energyimports Oil andLNGimporttotalingUS$11BNinFY2017(~22%ofentirebill) 32% 95% energyneedsfulfilledthroughfossilfuels byNEPRA(~Rs. 30Bn./annum)addtocircular debt–CurrentlyatPKR 525Billion ShortfallinDISCOsrecoveries(~Rs. 80Bn. /annum),distributionlossesnotallowed Power T&D losses:~20% NaturalGasUFG*:~14% Energy sectorhemorrhagingduetoT&D losses: LNG pricescurrentlyat10‐ sectors (industrial&commercial‐ Gas pricesfavorspecificsectors(domestic‐ tari s likely toincreaseinthemediumterm Su cient powergenerationcapacityaddedbytheGovtwithappropriatefuelmix,however Highest electricitytari (@12.51Cents/kwh)vs.comparablecountries Increased LNGimportstocaterforshortfallinindigenoussuppliesanddemandgrowth Indigenous gassuppliesexpectedtodeclinebyapprox. 50%inthenextdecade of powergenerationonoilandzerofromcoal(vs.41%worldaverage) Circular Debt Energy Losses& Pricing Energy Indigenous Gas Depletion of – Reliance onImports Inappropriate FuelMix 11 US$/MMBTU‐ US$6‐ 7/MMBTU) overhaulofgaspricingstructureurgentlyneeded US$1‐ 8 Billion/year 2/MMBTU) attheexpenseofother
Pakistan Economic Forum IV TOWARDS PAKISTAN’S ENERGY SECURITY &COMPETITIVENESS Recommendations
Long Term Environmental Indigenization to Ensure National Sustainability Energy Security
Align environmental standards of all sectors Continue expanding Thar Coal – Provide impacting environment ( transportation, power water/other infrastructure and tax/tari incentives generation, industry, agriculture, buildings) with comparable countries Maximize Storage Based Hydro Projects
Comprehensive oversight on all sectors through a Exploit Solar/Wind Potential - promote net consolidated regulatory structure metering, o grid solutions, reduced tari for imports
Exploit Tight & Shale Gas / Shale Oil - opening new areas for exploration and incentivizing exploration
Ensure Competitive Tariffs Energy Efficiency & Conservation
Natural gas Revamp gas pricing structure to give industry Promote Hybrid/Electric Vehicles- 25-40% thermal priority e ciency vs. 17-21% in traditional combustion engines Recover cost of imported LNG through equitable LED Lighting gas tari s for all types of consumers ainlz pnn or fCmeca Rationalize opening hours of Commercial Shopping Centers Electricity Consider bringing electricity tari to 9 Cents/KWh Change the mindset of the local population with for industrial consumers to make them regards to energy conservation through competitive with regional countries persistent awareness and education Curtail T&D losses to make power grid reliable Create merchant market by privatizing Discos only after making them financially viable
Pakistan Economic Forum IV TOWARDS PAKISTAN’S ENERGY SECURITY &COMPETITIVENESS Other Recommendations
Oil based power plants to be used as spinning reserve to cater for gas shortages during winter months and hedge against volatility of LNG price
Public sector low e ciency thermal power plants to be privatized
Recently announced power generation policy of “Take and Pay” contracts than “Take or Pay” contracts should be implemented after DISCOs are financially viable
Government must honor all its contracts with the existing power producers to improve Power sector risk perception
SBP policy of arranging foreign capital for infrastructure projects should be reviewed to allow competitive project financing. Encourage electricity wheeling
B2B power sales should not have to go through cumbersome NEPRA Generation License and Tari Determination processes
Discos be charged to propagate “Net Metering” due to multiple benefits: low cost power during the day; direct investment by domestic sector; address T&D limitation ……
A special team / task force should be constituted amongst GOP and private sector representatives to develop specific policy framework & target driven implementation plan for the above recommendations
Pakistan Economic Forum IV TOWARDS PAKISTAN’S ENERGY SECURITY &COMPETITIVENESS Inappropriate FuelMix BACKUP InternationalEnergyAgency(Figures asof2014) ‐ GrowthofElectricitySectorinIndia,Ministry ofPower, India, Key World Statistics, - State ofIndustryReport, Pakistan (Figuresasof2016) Sources:
Pakistan’s Power Generation Fuel mix is not sustainable due to the high share of oil based power generation resulting in very high cost of electricity Other/Rene Wable Other/Rene Wable Other/Rene Wable Nuclear Nuclear Nuclear Hydro Hydro Hydro Coal Coal Coal Gas Gas Gas Oil Oil Oil 0% 0% 2% 2%
4%
Pakistan
India World 6% 4% 9% 10% 13% 17% 17% 22% 41% 31% 31% 32% 59% power generation choice offuelmixfor of themostexpensive country, Pakistan hasone Despite beingapoor import bill! nearly of LNG inFY 17 approximately worth ofoiland approximately country imported AccordingSBP, to the 22 % of the entire ‐2016 – $1 $10 Bn worth Bn
Pakistan Economic Forum IV TOWARDS PAKISTAN’S ENERGY SECURITY &COMPETITIVENESS Indigenous Supply Situation Pakistan Projected GasDemand / World Power Generation from Coal
Coal is a predominant fuel source for power generation globally due to its low cost and reliable operability making it an ideal option for base load thermal power generation In the absence of adequate indigenous gas reserves, coal is the most viable option for base load power generation in Pakistan
Pakistan’s demand for natural gas is projected to rise significantly in the coming years Indigenous sources (without accounting for tight gas) will be on a fast declining curve MMcfd 6000 9000 5000 2000 8000 3000 4000 7000 1000 0 FY-15 FY-16 FY-17
Power Generation from Coal 2014(%of FuelMix)
Germany
World
China
India USA FY-18 Source: OGRAState of Regulated Petroleum IndustryReport, 2016 FY-19 Source: InternationalEnergyAgency(IEA),2014 Supply Forecast FY-20 FY-21 FY-22 FY-23 40% 41% Demand Forecast 46% 15.8% FY-24 59% FY-25 FY-26 73% FY-27 FY-28 FY-29 FY-30
Pakistan Economic Forum IV Bangladesh 4. TheBangladesh Energy Regulatory Commission,2 3. VietnamElectricityPrices,Thomson Reuters, 2011 2. CentralElectricAgencyGovernment ofIndia,2014 1. NEPRAState ofIndustryReport, 2015‐16 Sources: W. Average Consumer Tari s (Usc/kwh) Power Generation Cost to DISCOs RepresentativeTari – Analysis TOWARDS PAKISTAN’S ENERGY SECURITY &COMPETITIVENESS
Tari Analysis Vietnam Pakistan PKR/KWH 10.00 6.00 2.00 0.00 8.00
4.00 India Regional ComparisonofPower Tari ~ 7.35 4.93 2.42 2016 ~60% CostofPower Generation EPP “Expensive power isbetter than nopower!” will befar beneficial to the economy of the country. marginally increase, availability of sustainable power Even though cost ofpower generation isgoing to Servicing ofNew (Incl. Debt Projects) ~ 8.35 2025 5.05 3.30 CPP Total Tari Servicing ofNew (Excl. Debt Post 2025 Projects) ~ 7.23 ~20% T&D Margin 3.92 7.00 3.31 + Losses 9.24 Surcharges etc. 10.01 ~20% Taxes, Duties, Assumptions 4. 3. 2. 1. Current FXandfuelratesassumedtoprevail DISCOs including: 2025 Tari basedonweightedaveragecostofpowerto Forecast 2014) in 2016(growthrateof7%,linewithNTDCDemand Projected electricitygenerationin2025:208TWhvs.112 Determinations) allowed byNEPRA(Source:Relevant NEPRA Tari Current Tari basedoncostofpowerpurchasebyDiscosas iii. CPPofallexistingplantsaspercurrentrates ii. EPPofmosteconomicalexistingplants i. Entirenewcapacityaddition(EPP+CPP) 12.51 industrial consumers subsidy of Rs.3 Government has given a However,recently the comparable countries. electricity amongst tari Pakistan hasthehighest /KWh to
Pakistan Economic Forum IV Pakistan's Energy Losses TOWARDS PAKISTAN’S ENERGY SECURITY &COMPETITIVENESS distribution losses mainly due to: Pakistan’s energy sector hasbeen marred by transmission and Total T&D Losses Units Available forTransmission (2016) Source: Power System Statistics 2015‐16(NTDC),Pakistan EnergyYearbook 2016 Leakages 6.39% 2009 Pakistan Natural Gas Sector T&D Losses Pakistan TotalEnergy Losses T&D 3.43% 2010 7.43% 2011 3.97% 2012 Theft 4.89% 2013 7.41% 2.54 MTOE (14.1%) 18.08 MTOE 2014 Maintenance 9.35% 2015 Poor 6.78% 2016
Pakistan Economic Forum IV TOWARDS PAKISTAN’S ENERGY SECURITY &COMPETITIVENESS
Regional ComparisonofPower T&D Losses Bangladesh 2. InternationalEnergyAgency(IEA)Statistics, 2014 1. Power System Statistics 2015‐16(NTDC) Sources:
Transmission andDistributionLosses
Thailand
Vietnam Pakistan India SEPCO 38% 6.24% Total T&D Losses Distribution Losses (DISCOs) Transmission Losses (NTDC) Units Available forTransmission PESCO 34% 8.95% HESCO 27% 13.18% DISCO’s T&D LossesFY 2016 high Transmission andDistributionLosses Degraded network and thefts contributing to QESCO 24% 18.46% 19.60% TESCO 19% MEPCO 16% 19,385 GWh (19.6%) 16,762 GWh (17.02%) 2,623 GWh (2.60%) 100,871 GWh comparable countries power amongst T&Dlosses Pakistan hasthehighest LESCO 14% GEPCO 11% FESCO 10% IESCO 9%
Pakistan Economic Forum IV TOWARDS PAKISTAN’S ENERGY SECURITY &COMPETITIVENESS National Energy Security Integrated Energy Policy –
Maximize Storage Based Expand Thar Coal Hydro Projects availability forthecountry must beencouragedtoensurepowerandwater renewables, largescalestoragebasedprojects becoming increasinglyexpensivevsother Since upcomingrunoftheriverpowerprojectsare engineering stageareinhandwithWAPDA Multiple projectsofover25,000 MWatfeasibility/ projects areatdi erentstagesofexecution Currently, is approximately 60,000 MW(Existing7,116 MW) Total potentialforHydropowergenerationinPakistan MWforover100years Power Generationpotentialof100,000 ‐ gasreservesdiscoveredinPakistan sofar) Over combinedoilreserves)or; 50billiontonofOil(morethanIran&SaudiArabia equivalent to: 175 billiontonsofLignitegradecoal,whichis reserves Thar Desertcontainstheworld’s 7thlargestcoal 2000 TCF ofGas(42timesgreaterthantotal approx. 4000MWofHydelPower 200,000
Exploit Solar/Wind Potential Exploit Tight & Shale Gas / Shale Oil electricity tari further and shalegasshouldbeensuredtoreducethe Indigenous gasavailabilitythroughexplorationoftight electricity tari of6‐ have demonstrated60‐ Recent combinedcycleRLNGbasedpowerplants Energy InformationAdministration(EIA) and 9.1 billionbarrelsrespectivelyasperUS Shale gasandOilreservesestimatedat105tcf encouraged Solar Thermal/solaro ‐ cheapest source@Rs. 6‐ projects areonthedeclineandhavebecome Cost ofpowergenerationfromsolarandwindbased and researchpapers MW accordingtostudiesfromADB,variousauthors Estimated Solarpotentialismorethan2.9Million estimated byUSAID Estimated windpotentialofapprox. 132GW as 7 Cents/KWh 62% e ciencyresultingin grid applicationsneedtobe 8 /KWh
Pakistan Economic Forum IV TOWARDS PAKISTAN’S ENERGY SECURITY &COMPETITIVENESS Indigenization to Ensure National Energy Security Recommendations –
Maximize Storage Based Expand Thar Coal Hydro Projects Tax incentivesshouldbecontinued governments forfutureexpansion infrastructure tobeensuredbyfederalandprovincial Availability ofwaterforpowergenerationandother investment should becontinuedtopromoteprivatesector Incentivized MiningandPower GenerationTari s be encouragedtoleverageexistinginfrastructure Solar projectsatexistinghydropowermust ensure expeditiousimplementation Adequate budgetallocationsmustbemadeto must beexpedited Technical feasibilitystudiesofstoragebasedprojects The above interventions for indigenization ofenergy mix are essential inachieving selfreliance inenergy and reducing burden onbalance ofpayments
Exploit Solar/Wind Potential Exploit Tight & Shale Gas / Shale Oil to remaining27%ofpopulation Promote o ‐ metering’ Utility companiesshouldbetasked topropagate'net developed Local solarmanufacturingindustrymustbe revised toencouragesolarapplications Import tari policyforsolarequipmentmustbe allowed forexplorationanddevelopment economic costofLNGdeliveredpricemustbe Tight andShaleGasProjectshavingequivalent exploration New areasmustbeopenedforgasandoil shale gas/oilpotential framework forexpeditiousdevelopmentoftightand Adequate incentivesshouldbeprovidedinthepolicy grid applicationstoensurepowersupply
Pakistan Economic Forum IV TOWARDS PAKISTAN’S ENERGY SECURITY &COMPETITIVENESS 25% 24% Share ofGlobal Emissions Long Term Environmental Sustainability Intergovernmental Panel onClimateChange(IPCC),2014 Source: 16% 21% 14%
Electricity and Transportation Heat Production
Buildings and Other Energy
Agriculture, Forestry and Other Land Use
Industry oversight onallsourcesofemissions must bereviewedtoensure comprehensive Regulatory structure forenvironmentalcompliance countries revisited andalignedwithbenchmarksofcomparable Environmental standardsofallsectorsmustbe contribute theremaining75%ofglobalemissions agriculture, transportation,industryandbuildings Power sectorcontributesonly25%whereas Environmental impactmustbeviewedholistically.
Pakistan Economic Forum IV TOWARDS PAKISTAN’S ENERGY SECURITY &COMPETITIVENESS Environmental Impact ofChangeinFuelMix Emissions with NEQSandIFC Standards Comparison ofUpcoming Imported CoalPlants Significant Investment aspart ofproject cost beingmade to ensure
MG/NM3 1000 1200 1400 600 200 800 400 compliance with NEQSandIFC EmissionsStandards 0
MG/NM3 1200 12,000 10,000 6,000 2,000 8,000 4,000 0 510 Nox Pakistan 153 400 NEQS Total CO2 Emissions Projected Pakistan 198 Source: TheWorld Bank,2013 500 457 UK IFC Standard 850 Sox 2,035 India 220 5,186 Proposed Limit USA 500 10,249 Particulate Matter China 50 50
Pakistan Economic Forum IV TOWARDS PAKISTAN’S ENERGY SECURITY &COMPETITIVENESS Ensure Competitive Tari s –Natural Gas any compulsionforconsumerstoconservegas Low domesticsector gaspricesdonotcreate commercial sectors lower ratesputtingextraburdenonindustrialand The domesticsectorgetsgasatsignificantly 1000 1200 600 200 Gas pricing structure should berevamped to ensure complete recovery of 800 400 0 imported LNG cost andequitable gas tari s for all types ofconsumers 1999 interventions ensuring compliance with NEQSand IFC EmissionsStandards power plants will becontrolled through industrially proven technological be far less than many countries. Moreover, Environmental impact ofcoal based Pakistan. The overall emissions level onabsolute andper capita basis will still Upcoming power plants will result ina marginal increase inCO2 2000 Note: Pakistan’s projectedCO2emissionsbasedsolelyonimpactofupcomingpowerplantsbyYear 2025 2001 Pakistan Projected 2002 Pakistan 2003 China India USA UK Natural GasConsumer Prices Domestic (Min.) Per CapitaCO2 Emissions 2004 0 Source: Pakistan EnergyYearbook, 2016 2005 0.8 1.0 1.6 Source: TheWorld Bank,2013 2006 METRIC TONS PERCAPITA 5 2007 Commercial 7.1 at parwithnewRLNGbasedpowerplants must alsoensurelevelizedcostofpowergeneration national grid.Gaspricingtocaptivepowerplants surplus situation,captivepowerplantsmustmoveto terms ofgasallocationandpricing.Incurrentpower Captive powerplantsreceiveselectiveadvantagein 7.6 2008 10 2009 2010 15 Industrial 2011 16.4 2012 emissions for LNG DeliveredPricein2017 20 2013 ~PKR 1200/MMBTU 2014 2015 2016
Pakistan Economic Forum IV Potential Solutions for Reducing T&D Losses Power GridReliability benchmarks Discos shouldbeprivatizedaftercurtailingthecurrenthighT&D lossestocomparableinternational technology requiredforreducingT&D losses Discos shouldbeallowedrecoveryofcapitalinvestmentforinreplacement/upgradation around 1‐ Reduction inT&D lossesfrom20%to10%inthenext5yearsshouldreduceconsumertari sby distribution losses The key focusareatoensurecompetitiveelectricitytari allconsumersiscurtailtransmissionand The upcomingenergyfuelmixwilllowercostcomponentofpowertari TOWARDS PAKISTAN’S ENERGY SECURITY &COMPETITIVENESS PowerSector Tari Automation anddigitizationofoperations Consumerindexing,Metering Network visibilityandenergyaccounting Accountability andauditprocesses.Power theftshouldbemadeanon‐bailableo ence Loss andoutageminimization To protectrevenue(theftreduction) Technology –insulatedconductors,protectionequipment,isolations Innovation ingovernancemodels Performance andcostmanagementofoperations 1.5 cents/kwh Sustainability of Power of Supply Power wheelingcouldbeinitiatedtobenefitnational Reduce lossestothenationalexchequer andcurtail Industries withcaptivepower plantswillhavean incentive tomoveNational grid economy asa whole circular debt Low T&D Losses Technical Minimal Issues
Pakistan Economic Forum IV TOWARDS PAKISTAN’S ENERGY SECURITY &COMPETITIVENESS
Hybrid/Electric Vehicles Energy E ciency &Conservation Integrated Energy Policy – battery chargingstations Policy includinginstallationof /incentivized inthenewAuto should bepromoted Hybrid &ElectricalVehicles emissions EVs alsodonotcauseany 25‐ EVs improvethermale ciencyto gasoline e ciency andconsumptionof Hybrid vehiclesimproveenergy energy only convertabout17%–21%ofthe Conventional gasolinevehicles There isa need to change the mindset of the local population with regards to 40% vs.17‐ energy conservation through persistent awareness andeducation 21% usinggasoline
LED Lighting LED bulbsshouldberemoved Import dutiesandsalestaxon alternates 50‐ LED bulbsareapproximately 80% moree cientthanother
Building codes and Commercial Shopping Centers commercial centers timings shouldbeensuredfor Strict adherencetobusiness hours oftheday the electricitygridduringpeak Resultantly, thereisastresson and remainopentillmidnight light, startbusinessesbymidday Pakistan donotfullyutilizeday Shopping centersinbigcitiesof to achieveenergyconservation Building codesshouldberevised
Pakistan Economic Forum IV Encourage cottongrowing(modelfarms,seeds,land‐ Encourage oilseedproductiontoreduceimportreliance Move livestockfromsubsistencetoorganizedbasispromoteexports. Professionalize thedairyindustrytoimproveoutputandnutritionalvalue. export industry. Netimpactcouldbe$3‐ mechanization, creditandeliminationofmiddle‐ Livestock andDairy Potential Pakistan’sUnleashing Agricultural, MotivateProvinces to 4 billionontradebalance. men). Cottonistheprimaryinputtotextiles,main levelling, water‐ course management,
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