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Pak-Afghan: Trade discrepancies decreased, need to do more

FARHAN ZAHEER

KARACHI

Trade discrepancies between Afghanistan and Pakistan have decreased significantly from $2.9 billion in 2010 to $1 billion in 2014 after the implementation of new transit trade agreement in 2011. However, both governments need to cooperate closely to further minimise revenue losses for both the countries, according to a new study.

Pakistan Business Council (PBC), a business policy advocacy forum representing Pakistan’s 47 largest enterprises including multinationals, conducted a study titled, ‘Afghanistan’s transit trade patterns pre and post Pakistan Transit Trade Agreement (APTTA)’.

“Pakistan and Afghanistan need to work on removing procedural shortcomings of the new agreement implemented in 2011 as opposed to negotiating a new transit agreement,” the research report recommended.

The report urged the customs departments of both countries to improve coordination to ensure that valuations of major smuggling-prone items like tyres, fabric and tea reflect their international prices and that those revenue leakages are plugged.

It noted that though Pakistan still accounted for 58% of Afghanistan’s transit imports, Pakistan should make efforts to ensure that it does not lose its share in transit trade to Chabahar, an under construction Iranian port close to Pak-Iran border that is seen in competition with Pakistan’s Gwadar port.

The disturbing aspect of Afghan transit trade is a major difference in Pakistan and Afghanistan’s reporting in value of the transit trade. For instance, in 2014, Pakistan reported a transit trade of $2.15 billion while Afghan customs reported imports of only $1.2 billion. Although this discrepancy or difference in trade figures has been reduced to $1 billion in 2014 from $2.9 billion in 2010, it should be further reduced.

The report specifically pointed out to 14 items like green and black tea, glassware, soap, electro diagnostic equipment, generating sets, tyres, fabric and office furniture where major undervaluation and smuggling seem to take place.

Published in The Express Tribune, June 26th, 2015.

Literally a black market: Tyre smuggling leaving a hole in the economy

FARHAN ZAHEER

KARACHI

A key shortcoming of the PML-N government, like most of its predecessors, has been its inability to restructure the country’s tax system. This is made worse by how the government has failed to cope with rampant under-invoicing and smuggling due to which Pakistan continues to lose millions of dollars every year.

One of the areas where massive under-invoicing and smuggling is ongoing right under the nose of Federal Board of Revenue (FBR) is the tyre sector. The sector is heavily dependent on imports, making it a lucrative opportunity for smugglers.

In its recent research report on Afghanistan-Pakistan Transit Trade Agreement (APTTA), the Pakistan Business Council (PBC) – a business policy advocacy forum representing the country’s 47 largest enterprises including multinationals – signalled at colossal under-invoicing in trucks, buses and car tyre imports.

For instance, in 2014, Pakistan imported truck and bus tyres valuing $190 million at an average unit price of $84. According to local tyre industry officials, the unit price is so low that Pakistan cannot even import raw materials of a tyre at this price. So how do importers manage to purchase tyres?

Price details

The PBC mentioned in its report that during 2014, the average per-unit price of a truck or bus tyre hovered around $142. By declaring half of the original value of the commodity, Pakistani importers saving millions in import duty, causing huge losses to the national exchequer.

“All of this is happening because our customs department is involved in these illegal activities. Importing anything at 50% of an international price is not possible without the support of tax officials,” an official of a tyre making company said.

“Pakistan does not encourage its manufacturing sector which is why renowned international tyre manufacturers do not invest here. In presence of current tyre smuggling and under-invoicing, no new tyre company will invest in Pakistan,” he added.

Pakistan imports car tyres worth $18.3 million in 2014 at an average price of $23 per unit, down 35% from the average international price of a car tyre of about $35 per unit.

Afghanistan vs Pakistan

What is shocking is that Afghanistan imported almost the same quantity of car tyres in 2014 compared to Pakistan though its population is less than one sixth and its economy is less than one tenth of Pakistan’s.

Import price of Afghanistan is one third of the international average import price of a car tyre. This scenario is equally disturbing because cheap tyres that Pakistan imports from Afghanistan under the APTTA enter Pakistani markets causing huge revenue losses.

Both Pakistan and Afghanistan meet most of their tyre demand from Chinese tyre imports while the rest of the market share is divided in Japan, Germany, Italy, South Korea.

Local production

Pakistan has a couple of companies that produce motorcycle tyres probably because such tyres do not need sophisticated technology. The country does not have any company that produces trucks or bus tyres while it has only one company that manufactures car tyres – General Tyre and Rubber Company (GTR).

GTR meets 23% of the total tyre demand in the country, while according to industry estimates, the country imports 40% of the tyres from different countries. The remaining 37% of the market share is in the hands of tyre smugglers who mainly use Chaman and Landi Kotal routes to bring in used and refurbished tyres into Pakistan.

The market believes the situation will remain the same unless the government starts taking serious measures to control such practices. In presence of widespread smuggling, new investors will never come to Pakistan and the country will continue to depend on tyre imports, they add.

Published in The Express Tribune, June 28th, 2015.

Climatic changes take toll on horticulture sector of Pakistan

FARHAN ZAHEER
KARACHI
 Pakistan’s fruit and vegetable growers and exporters are convinced that global warming and drastic climatic changes are badly affecting both quality and output of the agriculture sector of the country.

Warning the government, they say if remedial measures are not taken immediately, the country will eventually become a net importer of fresh food and other commodities.

Leading fruit and vegetable exporters have been raising such concerns for quite some time now. But the recent heat wave in the country and other such climatic changes that hit mango production during the current season in Punjab have further fuelled industry fears.

Moreover, recent government warnings that extreme cold waves may follow extreme heat waves in some parts of the country have compounded the situation.

The Pakistan Fruit and Vegetable Exporters, Importers and Merchant Association (PFVA) has squarely blamed storms and extreme weather conditions for the loss of 70% of Punjab’s mango production in the ongoing season.

“It is too early to say that the recent heat wave has affected Punjab’s mango output. But it is true that extreme weather conditions pose a serious threat to the horticulture sector,” Federal Minister for Climate Change Mushahidullah Khan told The Express Tribune.

Replying to a question, Khan said his ministry has started taking up the issues related to extreme weather conditions because they are definitely threatening the food security of the country.

Read: Horticulture trade: Pakistan’s modest share in global exports ‘shameful’

Pakistan cannot take climate change lightly as it has already seen major floods since 2010, Khan said, adding “we are also aware of the fact that Pakistan is among the top 10 most vulnerable countries in terms of climate change.”

Khan pointed out that regional countries like China, India and Saudi Arabia have shown their intent to share knowledge with each other and work jointly to cope with extreme weather conditions that are creating different kinds of problems for the region.

Apart from the recent change in weather conditions in Pakistan, fruit and vegetable experts are equally perturbed about the threat posed by different fruit and vegetable diseases. Mango and orange are the top two fruits that Pakistan exports but both are facing the threat of being struck by some disease.

PFVA Research and Development Chairman Waheed Ahmed said horticulture is one of the most vulnerable sectors in the world so the government should start taking immediate measures to protect it from climatic changes.

“It is the responsibility of the government’s research departments to see what climatic changes are happening in Pakistan’s horticulture and agriculture sectors. And then make sure that growers and other industry people prepare themselves according to the situation,” he said.

Citing an example from Europe, Ahmed said climatic changes have also hit the European horticulture sector over the past 15 to 20 years but they have devised policies for water consumption and to deal with other related problems.

Read: Improving incomes, productivity: Investment in horticulture stressed

“Pakistan is also facing extreme water shortage. If we fail to prepare ourselves now, we may see a major impact not only on our vegetable and fruit production but also on our key crops like wheat, rice and cotton,” he warned.

He asked the federal government to take emergency measures in coordination with the provincial governments to minimise the losses to the agriculture sector.

He feared that the country may be forced to import many agricultural items if it fails to make a strategy to deal with the threat of global warming and other climatic hazards.

Published in The Express Tribune, July 6th,  2015.

Is it really beef that India exports?

FARHAN ZAHEER

Cow slaughtering is a huge issue in India these days. Narendra Modi’s BJP had made it a part of its election manifesto during the 2014 election campaign. Given this, one cannot help but wonder how India has gained the distinction of becoming the world’s biggest beef exporter when slaughtering cows is banned in 24 out of its 29 states. The answer is simple, but it lies in the details. According to the United States Department of Agriculture (USDA), India recently surpassed Brazil and Australia in becoming the world’s biggest beef exporter. India does export huge quantities of red meat, but it is not beef — it is buffalo meat. But it is still called beef because the USDA classifies buffalo meat as beef.

The beef exports of India have touched $4.8 billion. The Modi government is now pushing for a ban on cow slaughtering throughout the country. Despite its contentious nature, the appeal has become so alluring that the Congress party has now announced it will support the government if it proposes a bill to ban cow slaughter. Digvijaya Singh, the general secretary of Congress, went one step further and said that the BJP should know that cow slaughter is banned in 24 states, most of which was imposed by the Congress itself when it was in power.

The BJP has blamed Congress for what it sees as a rising trend of slaughtering cows in the country. It feels that because Congress encouraged buffalo meat exports when it was in power, cow slaughtering is now on the rise and the country is exporting beef, ie, cow meat in the guise of buffalo meat. Officially, the export of cow meat is banned in India. Minister of State for Agriculture, Sanjeev Balyan, a member of parliament from Muzzaffarnagar, Uttar Pradesh (UP), says that illegal cow slaughter is on the rise in UP and is creating communal problems. Balyan is the same man who was accused of fanning communal violence in Muzzaffarnagar in 2013.

The politics on cow slaughter, beef consumption and the talk about the rise in its exports is complex. You cannot separate one from the other, especially at a time when the right-wing BJP is leading the country.

The recent case of lynching in Dadri, UP, in which Mohammad Ikhlaq was brutally killed over alleged consumption of beef is not an isolated incident. The insecurity among minorities in India is on the rise. A series of incidents over the last two years show that India has reached a point where the stage is set for more communal violence.

Published in The Express Tribune, October 13th, 2015.

Modi — mortal after all

FARHAN ZAHEER

The Bihar election has confirmed that Indian Prime Minister Narendra Modi is not invincible. Even the most optimistic people in the Bharatiya Janata Party (BJP) must have been left wondering as to what caused this humiliation at the polls. Brand Modi is definitely losing its shine. The BJP first lost terribly in Delhi against the Aam Aadmi Party (AAP) and now in Bihar against a newly formed anti-government alliance. The anti-Modi camp grabbed 178 seats, or two-thirds majority in the 243-member state assembly. Even Congress, which had won only four seats in the last election, won 27 out of 41 seats.

The result indicates that despite warnings, Modi did not mend his ways.

Reserve Bank of India (RBI) Governor Raghuram Rajan had indirectly warned the government that “excessive political correctness stifles progress”. But the most explicit warning for Modi came from Moody’s Analytics — an arm of Moody’s credit ratings division. It warned Modi that he is risking his “domestic and global credibility” by remaining silent on the shrinking space for minorities. The Bihar debacle proved that warnings by both Moody’s and the RBI governor were called for. Though accurate, these warnings were at least a few months late. Had these warnings come some months earlier, the BJP could have tried to change its current course vis-a-vis communalism in India.

Even the comments from the RBI governor on growing intolerance in the country came after Moody’s warning. Timing is of utmost import. Understandably, Indian officials and businessmen must have been fearful of speaking on sensitive issues, especially when it can draw the ire of an exceptionally powerful prime minister.

Unfortunately, the Indian government rejected Moody’s report instead of taking it as a wake-up call. Now the BJP-led alliance will face further problems in passing pieces of critical legislation. Leading Indian newspapers have also voiced their concerns about future legislation that will further dampen the confidence of the domestic and international business community.

Resultantly, the reform agenda for which the Modi administration received overwhelming support in the general election in May 2014 will come under further scrutiny. It will be more challenging now for Modi to counter the emboldened opposition in parliament while retaining the trust of the business community.

Issues like the violation of minority rights and intolerance have a spillover effect, as they are now hurting the Indian economy. The divide-and-rule policy of the BJP helped it gain power in 2014, but the continuation of this policy seems difficult now. From now on, the Modi Administration must choose either inclusive economic growth or decay.

Published in The Express Tribune, November 18th, 2015.

Pakistan’s GSP Plus status fails to spur leather export

FARHAN ZAHEER

KARACHI

More than one and a half year after the Generalised System of Preferences (GSP) Plus came into effect, the country’s leather export numbers suggest the sector has yet to reap benefits of the concession.

“Pakistan got a huge incentive under the EU’s GSP Plus scheme in which it could export its leather products with zero percent duty, but instead of increasing exports, trade in this sector has largely remained stagnant,” said Pakistan Tanners Association (PTA) Chairman Gulzar Feroz.

“As modern processing units take over the world, dynamics of the leather industry swiftly change and without innovation you lose your edge,” Feroz said in an interview with The Express Tribune. The GSP Plus scheme allowed Pakistan to export over 90% of its products on zero percent duty to 28 EU countries. Pakistan has clearly failed to take advantage of this duty concession.

Instead of increasing, Pakistan’s leather exports to the EU have declined to $1.19 billion from $1.27 billion, down by 6.3%. This happened at a time when Pakistan’s overall exports to the EU jumped over $1 billion in the first 12 months after getting GSP Plus scheme.

Problems of the industry

Leather industry’s core problems are not very much different from the problems faced by the country’s other industries.

Tanners association to hold inaugural ‘Mega Leather Show’

The industry has abundant raw-material but it still lacks proper value addition that can fetch a higher rate of return on its products. Just like other industries of Pakistan, the additional burden of security challenges and the shortage of electricity in the last decade have further dampened its prospects to compete with its regional rivals.

Now, due to the economic slowdown, especially in Europe, demand of different leather products especially leather garments have been depressed for quite some time. This has caused more trouble to Pakistan because leather garments make up about half of the total value added leather exports of the country.

Leather industry in tatters following global slowdown

DESIGN: NABEEL AHMED

“Leather garment sales have completely collapsed which is a serious problem for the industry. In such a situation, Pakistan needs to look for other avenues and concentrate on those products that can generate demand even in tough economic conditions,” he stressed.

Footwear to the rescue

One such sub-sector is footwear where Pakistan can not only increase its exports but also sustain its exports in challenging economic situations of the world. Feroz believes footwear is a sub-sector where huge space of improvement is available. He says Pakistani footwear companies should technically collaborate with other global footwear makers in countries such as Italy, Spain and Portugal to further improve their designs and quality.

EU to help sharpen leather industry’s competitive edge

“Better marketing, government support schemes or low cost of production can be reasons why India and Bangladesh are able to increase their exports,” said Feroz, asking why Pakistan cannot compete with regional rivals?

Despite such a gloomy export performance in the last decade, Feroz is still hopeful of a turnaround in the leather sector.  “There is so much potential of value addition in the leather industry of Pakistan that despite the economic slowdown in the world, the country can double its exports within three years,” he stressed. However, Feroz says this is only possible when the government views this sector as an asset.

“Leather exports are going to decline by 20-25% in the first six month (Jul-Dec) of the ongoing fiscal year 2015-16. Something has to be done at the government level to stop this trend,” he warned.

Published in The Express Tribune, October 19th, 2015.

Leather footwear – where India has a foot ahead of Pakistan

FARHAN ZAHEER
KARACHI

 

There is no denying that Pakistan needs foreign exchange through investments and exports.

The slowdown in the global economy, coupled with a fall in the prices of commodities, has led to a troubling situation for the country. One such troubled sector is the leather industry.

A Karachi-based leather export company, Highway Creation’s CEO Muhammad Danish Khan recognises these dire conditions. However, he remains bullish on the future. “Economic slowdown has caused a drop in leather export but it will rebound strongly in the near future,” Khan said in an interview with The Express Tribune.

GSP Plus status fails to spur leather export

Pakistan exports most of its goods to Europe and Canada, but like many of the world’s leather exporters, Khan is anxiously waiting for the European markets to bounce back. “Everything was fine until two years ago. Our sales were growing, but then the fall in demand in Europe hit our exports and reduced them to half from as high as Rs700 million per year,” said Khan.

Identifying a reason

Global price decline is the prime reason behind the record-low demand of leather garments in the world. Pakistan is not the only country; every leather exporter is suffering due to the current scenario, he added.

But the slump has proven to be more troublesome for Khan. He produces leather garments that can be categorised as fashion products and their demand has been hurt more than finished leather goods.

It makes sense because in tough economic situations, people tend to cut unnecessary spending. Since leather garments are considered luxury fashion products, their demand has taken a far greater hit since the world financial crisis of 2008-2009. “Retail stores in Europe are selling leather garments only on big sales. People are not buying jackets and other garments even with a 50% or above cut in prices,” he said.

Regional competition

Pakistan’s overall leather exports have been stagnant for the last 10 years. In fiscal year 2005-06, the country’s leather exports stood at $1.13 billion. A decade later, the amount is stuck at $1.19 billion. On the other hand, leather exports of Pakistan’s regional competitors, China, India and Bangladesh, have jumped considerably.

For instance, Bangladesh, China and India all have witnessed a growth of 102%, 47%, 40%, respectively over the last five years, according to the Pakistan Tanners Association (PTA).

India’s leather exports amounted to $6.49 billion in fiscal year 2014-15, up from $3.97 billion in fiscal year 2010-11. Within leather exports, India exports 78% finished products while only 22% exports are based on ready-to-cut finished leather.

DESIGN: NABEEL AHMED

On the other hand, the share of finished leather exports is just 59% in Pakistan, while the rest is based on processed leather sheets.

So how come Pakistan looks to get away with blaming the slowdown in the global economy, particularly Europe, when its exports have virtually remained stagnant over the last decade? The answer lies in what Pakistan exports.

The main difference between the leather industries of Pakistan and India is footwear – one of the five sub-sectors within the leather sector. India exported footwear worth $2.94 billion last year, which is about 27 times more than Pakistan’s footwear exports of $110 million.

Leather industry in tatters following global slowdown

Similar to Pakistan, Indian leather garment exports have witnessed sluggish growth compared to other sub sectors. However, unlike Pakistan’s heavy reliance on finished leather and leather garments, 43% of India’s leather exports are based on leather footwear.

“I am convinced that Pakistan cannot move forward unless we diversify our exports,” Khan said on product diversification and increasing exports.

Published in The Express Tribune, November 23rd,  2015