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Participants
BILAL ILAHI.
PRIMA CORPORATE TRAINERS .
BILAL ILAHI
Educational Qualification: 1977: Masters in Business Administration .(U.S.A). 1973: B Com. Punjab University (Hailey College). Work Experience:
2006-Present: CEO. PRIMA CORPORATE TRAINERS. 1988-2006: Self-Employed. CEO, METROCON (Construction Firm). 1991-2004: Self-Employed. CEO, Granada Textile Mills (19, 000 spindles ). 1980-1988: Self-Employed. Owned and managed motels/hotels in U.S.A. 1978-1980: Officer, BCCI.
Corporate Training Experience: 2006-Present: Conducted Seminars and Workshops for Institute of Chartered Accountants of Pakistan, MCB, Bank of Punjab, UBL, Bank Alfalah, ABL and HBL. Teaching Experience: 2002- Present: Taught MBA, EMBA , BBA , classes at Beaconhouse Business School / Curtin University Lahore and Imperial College Lahore.
MACRO-ECONOMIC POLICY
FISCAL POLICY
MONETARY POLICY.
MONETARY POLICY and FISCAL POLICY. The objective of MACRO - ECONOMIC policy is to have sustainable GDP GROWTH while containing INFLATION and achieving an acceptable rate of UNEMPLOYMENT. The fact that GDP rises or falls shows that BUSINESS CYCLES are unavoidable and MACROECONOMIC policy can never really conquer them.
GDP GROWTH. Country's annual output and of good and services. Same as economic growth. UNEMPLOYMENT. The number of people of working age without a job as a percentage of the workforce. INFLATION. Rising prices across the board. Monetarists ( Milton Friedman) believed it is a monetary phenomena. To stabilize prices the rate of growth of money supply needs to be carefully controlled.
PHILLIPS CURVE. There is a trade off between INFLATION and UNEMPLOYMENT. The lower the UNEMPLOYMENT RATE the higher is the INFLATION RATE. Governments have to choose between the two evils. Too much GDP growth will cause an increased rate of inflation called overheating in the economy. (e.g. concern in China today) which can lead to a recession and a hard landing.
FISCAL POLICY
One of 2 instruments of Macroeconomic policy.
FISCAL POLICY comprises TAXATION and PUBLIC SPENDING. It is used to influence the level of DEMAND in the economy with the twin goals of getting UNEMPLOYMENT as low as possible without excessive INFLATION. Keynes preferred to manage DEMAND through fiscal policy.( Monetarists through money supply ie monetary policy)
FISCAL POLICY is targeted on long - term goals. MONETARY POLICY is used for shortterm adjustments. TAXATION may be a bad thing. Necessary to pay for public and social services. Also defense. HORIZONTAL EQUITY and VERTICAL EQUITY . To ensure fair taxation. Only then will people pay.
LAFFER CURVE. Laffer argued that higher tax rate would increase revenue but at some point further increase in tax rates would cause revenue to fall. Basis of Supply side economics in USA & UK in the 80s. Governments could raise more revenue by cutting tax rates.
TAXES IN PAKISTAN Income Tax Customs Duty G.S.T. Federal Excise Date Property Tax Motor vehicle Tax Stamp Duty Direct Tax. Indirect Tax. Indirect Tax. Indirect Tax. FBR FBR FBR FBR
Direct Tax. ( // )
PUBLIC SPENDING includes spending by federal, provincial, local governments and some government backed institutions (e.g.. WAPDA) Government should borrow only to invest and not to finance current PUBLIC SPENDING. (The golden rule)
BUDGET. An annual procedure to decide how much PUBLIC SPENDING there should be in the year ahead. And what mix of TAXATION and government borrowing should finance it ? These are the questions which the budget seeks to answer.
CBRS Collection. In fiscal yr. 07-08 budgeted at Rs.1.02 tr. Tax collection showing rapid growth BUT as a % of GDP not improving !! Tax to GDP ratio is 9.25% . In 1998-99 it was 11%. Capital Gains of Rs 2 tr , in 2 yrs , in the Stock Mkt . Transactions in floated shares not taxed. CVT marginal. Agriculture Income ? ? ?
Fruits of improved economy would not go to the common man if population growth of over 1.5% Dr. Salman Shah , Advisor Finance. MDG Millennium Development Goals of UN. Cut global poverty in half by 2015. Focus on 8 points :primary education, gender equality, child mortality, environment protection, fight AIDS etc. Pakistan has signed on this document. Social safety nets ie Zakat , Bait-ul-mal, EOBI, wheat subsidies etc add to 0.5% of GDP. Illiteracy + poverty = terrorists.
MONETARY POLICY
One of the two tools of MACRO-ECONOMIC POLICY and the side-kick of FISCAL POLICY. Objective of both FISCAL & MONETARY POLICY is to have an economy with GDP growth, relatively full employment and stable prices. BUT in the absence of consistent FISCAL POLICY in many countries eg. USA the central bank ( THE FED ) has taken over the management of the business cycle.
The function of a Central Bank is to control INFLATION and UNEPLOYMENT while managing sustainable GDP GROWTH.
ECONOMIC SPEED LIMIT or POTENTIAL RATE OF GROWTH or TREND RATE OF GROWTH is the same. The pace at which the economy can grow without fuelling inflation ie. without getting overheated. For inflation to fall the economy has to grow below its TREND RATE OF (GDP) GROWTH. If TREND RATE is dropping the task of central bank becomes harder. Higher TREND RATE if there is productivity and/or labor supply. Eg. China adds 10 million workers a year.
Monetary Policy is the process by which the Central Bank manages the money supply to achieve specific goals e.g. Controlling inflation ,maintaining an exchange rate achieving full employment & GDP growth . Monetary Policy can involve : 1)Changing interest rates through OMO. 2)Setting reserve requirements for banks. 3)Trading in foreign exchange. 4)Setting discount rate.
OMO tool of implementing monetary policy by which a Central Bank controls the national money supply by buying and selling govt. securities or other instruments. MONETARY TARGETS such as INTEREST RATES or EXCHANGE RATES are used to guide this implementation. EXPANSIONARY MONETARY POLICY increases the total supply of money in the economy by lowering interest rates to fight unemployment.
INFLATION is controlled by managing liquidity through OMO (Open Market Operations). GDP Unemployment Rates Inflation Inflation Interest
Central Banks: U.S.A - THE FEDERAL RESERVE (THE FED) U.K. - THE BANK OF ENGLAND (B.O.E)
E.U. - THE EUROPEAN CENTRAL BANK . . (ECB) JAPAN- THE BANK OF JAPAN (BOJ) INDIA - THE RESERVE BANK OF INDIA (R.B.I) PAKISTAN- THE STATE BANK OF PAKISTAN . . (SBP)
FOREIGN EXCHANGE RESERVES. INFLOWS : EXPORT PROCEEDS . REMITTANCES (INWARDS) . FDI . FPI . FOREIGN AID . FOREIGN BANK LOANS OUTFLOWS: IMPORTS . REMITTANCES (OUTWARDS) . FDI . FPI . PAYMENTS ( Dividends , loans,)
Reserve Currencies:
Typically a country needs enough foreign exchange reserves to cover 3 months imports or settle its short-term foreign debt. Proposals to spend money at home misunderstand the nature FOREX RESERVES. This would put downward pressure on the Rupee once $ is converted to Rupee for domestic spending. This would force the SBP to buy $ in the market thus returning the reserves to original position !!
----MARKETS--.
CURRENCIES
Increased demand for a currency is due to transaction demand for money. OR speculative demand for money.
Transaction demand for money is highly correlated to the country's level business activity ,GDP and employment level Speculative demand. An investor may choose to buy a currency if the return is high enough i.e .INTEREST RATE is high enough. Difficult for Central Bank to control.
FOREIGN EXCHANGE MARKET. One of the largest in the world---- $2 trillion of currency changes hands every day. SPOT EXCHANGE RATE - Current Exchange Rate. FORWARD EXCHANGE RATE Quoted and traded today but for delivery and payment on a specific future date.
U.S. $
The IMF counts 13 countries using $ as their currency eg. Ecuador. $ 350 bn. are held outside of USA. Half of all notes in circulation.
THE FED, The Federal Reserve, is the central bank of the USA. FOMC. The Federal Open Market Committee of the FED sets INTEREST RATES (The discount rate and The Federal Funds rate ). The FED carries out O.M.O. (open market operations) to control liquidity and inflation and set Interest Rates. Interest Rates affect the U.S.$ E.g. U.S. GDP Unemployment Inflation Interest Rates U.S.$.
EURO
Euro is the currency of the EURO ZONE (13 countries) and not the entire E.U.(28 Countries). E.C.B. is the central Bank of the E.U. ECBs medium term inflation target is 2% (Growth and stability pact of EU for the Eurozone). Euro gained 12% against US $ in 2007. Manufacturers considering moving production to $-based zones. Eg.Airbus Industries.
. Euro is , presently, appreciating because the EUROZONE economy is performing well. GDP growth brings with it inflation or risk of inflation & therefore higher interest rates from ECB . This makes the Euro more attractive than the $. Demand for Euro goes up hence its appreciation ! Recent record strength of the Euro ( @ $1.48 means ECB not expected to raise interest rate. Higher interest rates will curb both inflation and economic growth (put Eurozone exporters at a disadvantage). But also cause the Euro to rise further !!
YUAN (China)
$ 2.6 tr. Chinese economy. Only 5% of global GDP. But 1/3 of total increase in global GDP in 2006. Leaders now want to slow the economy. From 11.1% in 2006 to 8% in 2007. From exports and fixed investment to consumer led economy.
CHINESE YUAN UNDERVALUED. Record-breaking trade surpluses with the U.S. which should have caused the Yuan to appreciate. From 1994 to 2005 ------- Fixed peg @ 8.28 Yuan / $ allowing the currency to fluctuate only in a narrow band.
How was the FIXED PEG of 8.28Y/$ employed successfully.?? 1. EXPORTS GDP YUAN EXPORTS GDP
2. P.B.O.C (Chinas Central Bank) buys U.S $,sells Yuan. 3. $ YUAN (8.28Y/$) EXPORTS 4. Above action releases too much liquidity (YUAN) in the economy. 5. MONEY SUPPLY INFLATION 6. P.B.O.C. does O.M.O to suck in excess liquidity . It sells Government Securities and buys Yuan.
INTEREST RATES
8. High Interest rates cause businesses to slow down. 9. Exports GDP 10. Subsidies on interest rates by the government for export industries. 11. INTEREST RATES EXPORTS GDP .
RBIs monetary policy 07-08: a.) Raised banks reserve requirements from 6.5% to 7%. b.) Held interest rates steady so as not to attract further funds into the rupee. Good for exporters. c.) Tightened rules on foreign commercial bank borrowing. Firms borrowing $20 m.+ will have to use the proceeds abroad. d.) RBI intervenes by buying $ and injecting Rupees. This is inflationary.
PAK RS. Pakistan's FOREX RESERVES affect the value of the Pak Rupee. Our RESERVES are approx $ 16 bn. Political, economic uncertainty can also affect the value of a currency. Interest Rates affect currency value.
FPI also called hot money. FDI preferred over FPI. FDI is investment in fixed assets. Long-term.
SBPs Monetary Policy for 07-08. Assuming real GDP growth target of 7.2% + inflation target of 6.5% broad money supply growth should be 13.7% for 07-08. Monetary growth target for 07-08 is 13.7 %. For the last 6years SBP has not met its target. Effective 1.8.07 SBP raised its key discount rate to 10% from 9.5%.
Increased monetary tightening in 06-07 helped in downward movement in inflation. Core inflation ie. Non-food & Non-energy measure of inflation fell to 5.5% in 07. BUT food inflation rose to 17% in 07-08 because of supply issues and headline inflation at 8% instead the targeted 6.5%. Tight monetary stance helped reduce import demand. However lower supply of credit to important sectors of the economy would be counter-productive.
1st half of 07-08 actual monetary expansion 19.2%. because of govts bank borrowing . Feb 1st 2008 ,SBP raised the Discount Rate to 10.5% & Cash Reserve Ratio to 8%. SBP Governor advises government : 1.Hold auction of long term PIBs. 2.Generate more inflows in National Savings. 3. Issuance of Sharia compliant instruments. The risk to inflation outweighs risk to growth.
Currencies are increasingly demonstrating a strong correlation with other markets particularly equities. E.g.. Yen-carry trade in March 2007. Shanghai dropped 9% in Feb.2007.
COMMODITY PRICING
Contango. When commodity prices are lower in the spot market and higher in the futures market. Normally interest costs means that futures prices are higher. Backwardation. When commodity prices are higher in the spot market and lower in the futures market. Maybe because there is currently a supply bottleneck.
CRUDE OIL
The share of CRUDE OIL in Pakistans total imports is 23 %.We import 82 % of our needs. $11 bn. expected in 07-08. Pakistans CRUDE OIL import is the prime cause of our TRADE DEFICIT. Increase in the price of oil (64 % in 07) contributes to global inflation. Eg. Increased transportation cost and the higher prices of 4,000 bye-products like plastics , polyester ,PET bottles, etc.
Crude oil
The most important component of energy equation is crude oil. It is a dark sticky liquid found trapped below the earth crust. Scientifically classified as hydro carbon Uses
Refined into gasoline or petrol Refining by-products are LPG, kerosene etc. Non-fuel by-products are lubricants, asphalts etc End products are 4000 plus e.g. plastics, synthetic fibers, chemicals, fertilizers . etc.
Types of Oil There are 161 different internationally traded crude oils. They have different characteristics quality and market penetration.
Cont
West Texas Intermediate (USA). API gravity 39.6 (light crude) Sulphur contents 0.24% (sweet) A very high quality oil. Excellent for refining, a larger portion of gasoline Brent (UK-North Sea) API gravity 38.3 degrees (light crude) Sulphur contents 0.37% (sweet) Less sweet than WTI ideal for making gasoline and middle distillates.
Measurement of Oil
Reserves
Consumption
In 2005 the world consumed 84 million barrels per day. ( bpd) IEA energy policy advisor to G-8. IEA estimates for 2007 is 86 million bpd. USA consumes 25 % of worlds production,60% of which is imported. The world consumes 2 barrels of crude oil for every barrel discovered. 40% of worlds supply comes from OPEC. Daily ceiling of 27 mn. bpd.
Price
Internationally the price of oil is set in US dollars per barrel, by the forces of demand and supply. Oil is traded on international markets at a price set by the marginal barrel. In Jan 2007 the price of both New York light sweet and Brent were approximately $54 per barrel. The most important oil market is NYMEX (New York Mercantile Exchange).
DEMAND FACTORS 1. U.S. Demand. a.) Summer Driving Season b.) N.E. Winter Season. 2. China. Expected to overtake Japan as the 2nd largest crude oil importer.
3. India.
Iran Iraq Nigeria Venezuela Choke points Hurricane season Tanker capacity Refinery capacity Strategic reserves of USA. Also Japan and India
Supply Factors
Choke Points
Given the fact that oil consumption occurs mainly in the industrialized west while oil production takes place largely in the middle east, former soviet union a significant volume of oil is traded internationally By pipe line 40% - transcontinental By tankers 60% - intercontinental (3500 tankers)
Strait of Hormuz
It has two 1-mile-wide channels for marine traffic separated by a 2-mile-wide buffer zone. It is the only sea passage to the open ocean for large areas of the petroleum exporting Persian Gulf States. Some 40 percent of the world's oil supply passes through the strait. It is on this vital waterway then that the US receives 12% of its oil and Western Europe and Japan get 25 to 66% of their oil respectively. In addition 15% of the world's commerce is routed through Hormuz.
Straits of Malacca
The Strait of Malacca is a narrow, 805 km (500 mile) stretch of water between Peninsular Malaysia and the Indonesian island of Sumatra. The Strait carries 50,000 vessels per year One-fourth of the world's sea trade i:e 11 million barrels a day At Phillips Channel near Singapore, the Strait narrows to 1.5 nautical miles (2.8 km). 80 % of japan oil supplies passes from
Iran Iraq Nigeria Venezuela Choke points Hurricane season Tanker capacity Refinery capacity Strategic reserves of USA. Also Japan and India
Supply Factors
Important Hurricanes
U.S. Hurricane Season from 30th June to 30th November. Katrina in August 2005. Katrinas impact on U.S. gasoline markets, initially taking out 25% of U.S. crude oil production 15% of U.S. refinery capacity.
Important Hurricanes
Hurricane Katrina
Formed Dissipated Highest winds Lowest pressure Fatalities Damages August 23, 2005 August 31, 2005
Areas affected
Iran Iraq Nigeria Venezuela Choke points Hurricane season Tanker capacity Refinery capacity Strategic reserves of USA. Also Japan and India
Supply Factors
In 2007 oil prices not determined so much by supply- demand mismatch as by speculation.
COTTON
5 largest PRODUCERS : China , USA , India , Pakistan , Uzbekistan. 5 largest EXPORTERS : USA ,Fr Africa ,Uzbekistan ,Australia, India. Total international trade is $12 bn. Africas share doubled since 1980. Cotton is a thirsty crop .Water resources? Cotton relies on fertilizers & insecticides. Worldwide mostly produced by Genetic Eng.
Rate 1 maund =(37/ 32 Kg)= RS. 3,200. (Pakistan -KCE). 1 bale of Cotton = 4.05 maunds. 1 Lot = 100 bales.
1 1b =$0.65.
Demand Factors : 1.)Global consumption 98 million bales. Subject to global demand of textiles. Eg. economy and purchasing power in the EU, USA etc. 2.)Pakistans demand 16 million bales based on 10 million spindles. Supply Factors : 1.) USA , Pakistan , India, China etc crop. Acreage and Yield. Pakistans production 11.5 million bales. Estimate of 07-08 import 3 mil. bales. 2.) Supply of man-made fibers eg polyester, nylon, acrylic, etc. (substitutes)
PALM OIL
Rate: $ 888 per ton. Or Ringitt 2,959 per ton. Up 53 % in 2007. Demand Factors: Global Demand for energy and food. Used for edible oil, sweetmeats , bio-diesel etc. Supply Factors: 1.) Malaysia is a major producer. Requires lots of land. . 2.) Soya oil is a close substitute ( Brazil). . 3.) Demand for Biomass for Bio-diesel.
COPPER
Rate : $ 7,970 per ton. Market : London Metal Exchange (LME) LME prices and trends provide the benchmark & direction for metals future prices the world over.
Demand Factors:1.) China. 2.) India. Supply Factors:A supply shortage triggered the rally. No new investments in mining since last commodity boom. There is a demand supply mismatch
WHEAT
Pakistan produced 22.5 million tons of wheat in 06-07. Demand factors : Not volatile . 21 mn. tons / yr. Supply factors : a) Volatility created by weather . . b) Export and smuggling.
24.9.07
In 6 months wheat up Rs.24/kg. from Rs.12. Export price Rs.13,000/ton in Mar-Apr. 07. TCP to float tender to cover lean period from Dec. 07 to Feb. 08. Landing cost Rs.27,000/ton. Import bill $400 mn. SBP advice to GOP in Dec 06. Build up strategic reserves(7 m. tons before exporting.)
GOLD
Rate 1 0z. =$ 914( Jan08. International market.). Highest $850/oz on 21.1.80. 10 grams = Rs 17,900. ( // Pakistan. 24-ct) Market : London Bullion Market. Demand Factors:1. Safe havenUS.$ or Gold. International political & economic situation. Inverse relationship. 2. Lower interest rates, lower $ , higher gold. 3. Hedge against oil-led inflation. 4. Indian wedding season. 5. Alternative form of money. Supply Factors:Stable in short run.
Central Banks, world wide, in 2000 owned of all the gold ever mined in their RESERVES. Now they started selling because it does not a.) have liquidity b.) earn interest c.) keep pace with inflation.
GDP Purchasing Power UNEMPLOYMENT INFLATION INTEREST RATE US$ GOLD
CAPITAL MARKETS
DOW JONES (DJIA) NASDAQ USA FTSE CAC DAX NIKKEI KSE BSE USA USA S&P UK France Germany Japan Pakistan India
CAPITAL MARKET includes institutions that channelize supply & demand for long term capital e.g. Stock Exchange, Banks, Insurance cos. CAPITAL MARKET vs. MONEY MARKET STOCK EXCHANGE. A market in which shares are bought and sold. They facilitate saving and investment. Primary markets e.g. IPO,s & Secondary markets. BOND MARKET. In Pakistan TFCs. KSE market cap.$70 bn. Bombay $ 1 tr.
15%
RISK-RETURN TRADE-OFF
RISK PREMIUM
SHARES / COMMON STOCK
12%
RISK TO INVESTORS.
All available information is rapidly taken into account in share prices. Eg. factored inor priced in
Jan 04 - 4800 Mar 05 -10,300 Apr 07 Market Capitalization. Nov 2002. Rs. 525 bn Sep 2003. Feb. 2004 . June.2005 Sept 2007 Rs. 1 tr -12,000
Mutual Funds. Diversification. Low risk. Volume Leaders Eg. BOP, LUCKY CEMENT, HUBCO, MCB Technical action of the stock versus Fundamental action. SECP is the govt. watchdog. Protect investors. Trust is the cornerstone of the capital markets. Eg in USA , DJIA fell twice as much at the time of financial scandals of 2003 than it did on 9/11. 1.5% DISCOUNT RATE cut by SBP gave a boost to KSE 100 index in Nov 2002.
COMMODITIES MARKETS , CURRENCY MARKETS and CAPITAL MARKETS and other markets are constantly reacting within themselves AND with each other e.g. 1.)Palm oil and Soya oil ,as substitutes. ( within commodities markets ) 2.) Crude oil and palm oil .When crude goes above $70,bio-diesel story begins. ( within commodities markets) 3.) Yen-carry trade .Yen , NZ$ , NZ stock mkt, Shanghai stock mkt. (currencies markets and capital markets )
4.) Crude Oil and US$. (commodities markets & currency markets) 5.) US $ and Gold. Inverse relationship. Both safe havens. (currency markets and commodity markets.)
MONEY MARKET
MONEY MARKET is a financial market for short- term financial instruments( 1year) obligations called paper. Treasury bills, REPO agreements, Commercial paper & Bankers acceptances are bought and sold by banks & dealers. CAPITAL MARKET is for longer term funds INTERBANK MARKET is wholesale money market in which only banks / financial institutions can operate.Not a physical market. .
LIBOR. London inter-bank offered rate. Daily (at 11.00 am) reference rate based on the interest rates at which banks offer to lend unsecured funds to other banks in the London wholesale money market. LIBOR is the basis for the worlds most liquid and active interest rate market. LIBID. London inter-bank bid rate. Lower than the LIBOR rate. LIBOR used as reference rate for a.) forward rates agreements b.) currencies. C.) variable rate mortgages. KIBOR. Karachi inter-bank rate.
DEFINITIONS
EXPORTS. Sales abroad. IMPORTS. Purchase of foreign goods and services.
INTERNATIONAL TRADE. Measured by the volume of imports & exports which has grown 17 times between 1950 & 2000 when output (GDP)increased only 6 times.
There are a few cases of rapid development in modern history that have not relied on exports as an engine of growth. ie. GDP growth.
TARIFF. Tax on goods produced abroad. E.g. Custom duty by CBR. PROTECTIONISM. To protect a countries economy from foreign competition. Opposite of free trade . SUBSIDY. Money paid by government to keep prices below what they would be in a free market. A form of protectionism. QUOTA. A limit on the number of goods that can be imported . Also protectionism
NON-TARIFF BARRIERS. Eg. Pak cement export to India. Opposed by WTO. DUMPING. Selling goods in export market for less then the cost of producing it. Opposed by WTO. ANTI-DUMPING DUTY. As per WTO. Imposed by NTC in Pakistan FREE TRADE AGREEMENT. Eg. between Pakistan and Sri Lanka. FREE TRADE AREA. E.g. ASEAN, EU. SAFTA. In initial stages.
LETS LOOK AT PAKISTANS EXPORTS! An important component of our GDP & the most important contributor to our FOREX RESERVES. Pakistans EXPORTS are expected to reach $18 bn. in 07-08. If Pakistan hopes to sustain 7%+ GDP growth rate we must have 14% growth rate in exports.
Country
1. 2. 3. 4. 5. 6. 7. 8. 9. U.S.A UAE UK Hong Kong Afghanistan Germany Italy China Spain
Exports heavily dependant on US & EU.-where we export low-tech manufactures like textiles, surgical goods & sports goods. India ( next door) is missing ? Exports to China negligible .China is a huge market for citrus fruits ($0.5 bn.), rice and processed herbal medicines. Chinas Imports will grow.!! SAFTA in initial stages. Pakistan not part of any FREE TRADE AREA Eg. ASEAN, G.C.C. Lack of geographical diversification.
PAKISTANS EXPORTS- PRODUCT WISE BREAK-UP. 1. Textiles. 2. Argo Products. 3. Leather 4. Chemical & Pharma. 5. Sports Goods. 6. Carpets & Rugs 7. Surgical Instruments. 8. Engineering goods 9. Other. 62.00 % 10.30 % 7.40 % 4.00 % 2.70 % 2.50 % 1.60 % 1.60 % 7.90 % TOTAL 100.00 %
% 5 12
N.A N.A
World Banks advice climb up the ladder from low-tech manufactures to medium and hi-tech, to increase its share of world trade. Auto-parts (medium-tech) Philippines $ 800 mn. India $600 mn. Pakistan $10 mn. in 2003. 67% Pak. Exports are textiles But only 2% of world textile exports. Competitive Advantage ? Textiles trade now called Rag trade. 5% global growth. Lack of product diversification.
COUNTRY
POP
(In mn.)
EXPORT
In bn
FOREX RESEVES
PAKISTAN INDIA B,DESH THAILAND MALAYSIA SINGAPORE JAPAN CHINA U.S.A HONGKONG
$18 $112 $11 $ 123 $158 $283 $590 $974 $1,024 $611
Diversity of exports in S.E. Asia ( geographic & products ) where export growth is 20 % +. THAILAND- cars (med-tech manufactures) and rice (agricultural) .TO rich countries like Japan &USA and poor countries like Laos. MALAYSIA- Palm oil and electronic components. TO USA and India. PHILIPINES-Computer chips and fruits .TO USA and China.
High export growth requires high manufacturing growth. Large scale manufacturing sector declined from 10.7% to 8.8% in 06-07.This reduced our exportable surplus ! Consumption is going up at a higher rate as compared to GDP. This also reduces are exportable surplus. Savings should be higher for Investment to GDP ratio to improve. Need higher real interest rates.
Why has Pakistan lagged behind ? 1.)Exports was never a central pillar of our development strategy. 2.) Domestic markets after 1947 were heavily protected. Exports were not as profitable.
PAKISTANS IMPORTS
CRUDE OIL (includes oil & products)$7.7bn. PALM OIL.
e-mail : b_ilahi@yahoo.com