Author Archives: Moin Fudda

What’s Stopping Pakistan from Reaping its Demographic Dividend?


Photo: Dawn

“In the absence of adequate job creation by the public or private sectors, it is more important to enhance financial inclusion, which can help create greater opportunities for self-employment instead of salaried employment.” Tameer Microfinance Bank CEO Nadeem Hussain

Pakistan is one of the top ten most populous countries in the world. Youth make up over 36 percent of the Pakistani labor force, and that proportion is projected to rise to 50 percent by 2050. According to the World Bank there will be 1.7 million Pakistanis entering the country’s labor force every year, yet, worryingly, the Pakistan labor force survey also finds that over 3.7 million people are currently unemployed. The yearly upsurge in the unemployment rate is putting additional weight on the shoulders of the Pakistan government. The government must reassess and make needed reforms in order to change the current trajectory and allow Pakistan to reap the benefits of its demographic dividend.

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Pakistan Seeks Potential Solution to Political Protests


For the past several weeks, Pakistan has faced a set of dual protests that have sparked a political crisis. One protest, led by former cricket star turned politician Imran Khan, head of the PTI party, draws on Khan’s allegation of widespread rigging in the landmark 2013 elections. Khan’s demands include electoral reforms, a redo of the election, and, controversially, the resignation of Prime Minister Nawaz Sharif of the PML-N party.

The other protest, led by Sufi cleric Muhammad Tahir-ul-Qadri, who heads the PAT party, seeks justice for followers killed and injured in a June incident at his headquarters. Qadri has demanded a full investigation, and also seeks the resignation of Punjab Chief Minister Shahbaz Sharif, the Prime Minister’s brother. After marching to Islamabad and holding daily rallies, the protests eventually turned violent. While the violence subsided, and the army has mediated talks among the government, Khan and Qadri, the situation has not yet abated.

These crises come at a difficult time for Pakistan. The country is dealing with massive floods after heavy monsoon rains. Furthermore, because of the protests, the center of Islamabad has been shut down for more than month, freezing legislative and ministerial activity in the capital. As a result, the government has been unable to make any progress on meeting an extensive set of conditions to keep badly-needed funds flowing under an IMF loan facility. Moreover, the much-awaited visit of Chinese President Xi Jinping has been postponed.

Over the past year, as shown by CIPE’s partner PRIME, an Islamabad-based think tank, the government has made only limited progress toward implementing an ambitious economic reform agenda, thus engendering widespread frustration. Against this backdrop, many observers worried that the military could seize power again, as it has done in the past, or at least seek greater influence. Citing a report from the US Congressional Research Service, there was fear that this could cause the US to withdraw crucially needed support.

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Business Community Unites on Pakistan Budget Proposal

kcci presidents conference

“In a rare show of strength, top representatives of all the country’s chambers of commerce and industry gathered in Karachi and asked the government to revamp the tax collection system if it wants to increase revenue collection in the country.”Express Tribune

For the past five years, CIPE Pakistan has been supporting the All-Pakistan Chamber Presidents’ Conference organized by Rawalpindi Chamber of Commerce & Industry. This conference has provided the business community an opportunity to assemble and a platform to advocate for policy reforms in the country with one voice.

Following in the footsteps this conference, Pakistan’s largest chamber, the Karachi Chamber of Commerce & Industry, organized a Chamber Presidents’ Conference focusing on bringing together leading chambers to submit a joint proposal for the forthcoming federal budget.

Considering the fact that Pakistan has one of the lowest tax to GDP ratios, which results in the government falling short of revenue and burdening those who already pay heavy taxes, participants of this conference remained focused on a single-point agenda “to work with government on increasing tax collection and reducing dependence on IMF loans.”

Zubair Motiwala, Co-President of the Pakistan-Afghanistan Chamber of Commerce & Industry said, “Our successive governments have followed a policy of divide and rule. But now that we are united here on one platform, no government can ignore us anymore.”

The conference was attended by the presidents of more than 18 chambers including those from Faisalabad, Lahore, Multan, Islamabad, Rawalpindi, Khyber Pakhtunkhwa, Gilgit Baltistan, Lasbela, Sukkur, and other cities and regions.

This was the first time that leading chambers have agreed to develop a unified budget proposal at least two months ahead of budget preparation. The proposal will be finalized at the next meeting, which will be hosted by Faisalabad Chamber of Commerce & Industry in April of this year.

The business community showed its determination to keep advocating for policy reforms to encourage economic revival in the country. Speaking at the occasion, Dr. Shimail Daud, President of the Rawalpindi Chamber of Commerce and Industry, said;

“The unnecessary power of the bureaucracy should be curtailed for the good of the country’s economy. The business community from all four provinces of the country is working together for the most implementable and serious budget proposals and this time it will definitely bring results.”

Moin Fudda is Country Director for CIPE Pakistan.

Political Parties Ask Business Community to Present Economic Manifesto for Pakistan

President Conference 1

The Chambers President’s Conference provides an excellent opportunity for business community leaders to focus on a single key agenda point – how to advocate for business-friendly policy reforms – This is the only such event in Pakistan that brings business community leaders together under one roof for intense and constructive discussions.” – Manzar Khurshid Shaikh, President, Rawalpindi Chamber of Commerce & Industry

For the fifth year in a row, on February 25-26, 2013, leaders of Pakistan’s business community assembled at Bhurban near Islamabad to participate at the Fifth All Pakistan Chamber Presidents Conference. Thirty-three chamber presidents representing large and small chambers from across Pakistan deliberated on how the next government should act on improving conditions for doing business in Pakistan. The Rawalpindi Chamber of Commerce and Industry spearheads this event in collaboration with CIPE Pakistan.

This year’s conference was unique as, for the first time in this history of Pakistan, representatives from five key political parties faced direct questions from business leaders. Pakistan Peoples’ Party, Pakistan Muslim League (N), Pakistan Muslim League (Q), Muttehda Qaumi Movement (MQM) and Pakistan Tehreek-e-Insaf (PTI) attended the meeting. There was an agreement from politicians that the next government must improve the conditions for doing business in the country, which will not only stop capital flight, but also provide employment opportunities.

Interestingly, they arrived on a consensus on the business community’s demand for an effective business-focused manifesto. It was agreed that after the elections, key political players will again sit down with business community leaders to get feedback on specific reform agenda.

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Pakistan Inches Towards Reforming Public Sector Enterprises

Participants at the roundtable on corporate governance of public sector enterprises in Islamabad. (Photo: CIPE Staff)

“The government was determined to enhance the efficiency of public sector enterprises (PSEs) by restructuring their boards and appointing professional heads of these organizations, mostly from the private sector, in order to make the entities profitable institutions.”

– Dr. Abdul Hafeez Shaikh, Finance Minister of Pakistan

Pakistan’s loss-making public sector enterprises (PSEs), also known as state-owned enterprises, are a major cause of economic concern. This year, ccording to official estimates from the Ministry of Finance, eight major PSEs received more than  US $3.5 billion in support from the federal government, which is higher than the federal component of Pakistan’s development budget. According to the Ministry of Finance, “Inefficient public sector enterprises are draining fiscal resources and choking the economy.”

A major reason that these companies lose so much money is a low level of transparency and poor governance; but historically, any discussion of the governance of Pakistan’s PSEs was taboo. Successive governments used these companies to provide jobs to their supporters. Moreover, non-transparent financial transactions continued to drain resources while reducing PSEs’ operational efficiencies.

Understanding the political sensitivity of the issue, CIPE’s Pakistan team has taken a subtle approach to the reform of PSEs, with patient efforts aimed at generating a debate on the importance of a introducing a code of corporate governance for PSEs. These efforts began to yield results when, on CIPE’s advice, the Ministry of Finance constituted a taskforce in October 2011, comprising a wide range of stakeholders, including relevant ministries with ownership of PSEs, private sector representatives, the Securities and Exchange Commission of Pakistan (SECP), the Pakistan Institute of Corporate Governance, and others. The taskforce became the driving force behind a productive debate. As a result of several meetings and a consultative process, on March 22, the SECP released new draft regulations for PSEs.

Recognizing Pakistan’s unique regulatory framework, under which ministries are the owners of relevant PSEs, existing codes of corporate governance were not sufficiently relevant to these firms to ensure local buy-in. Instead, CIPE advised the taskforce to develop a homegrown solution that would still be based on international best practices. After careful consideration and study of international models, a technical committee appointed by the taskforce prepared the draft regulations to correspond to the complex reality of public sector enterprises in Pakistan.

“The draft regulations have been designed in view of the distinct governance challenges faced by the PSEs. Recommendations made in the draft regulations include measures to optimize efficiency, enhance the transparency of operations, and provide a mechanism for accountability of management.”

Securities and Exchange Commission of Pakistan

The draft regulations are now available on the SECP’s website for review and comment.

In order to generate further public debate, and to build awareness about corporate governance of state-owned enterpises, CIPE also assisted the taskforce in organizing Pakistan’s first major roundtable on governance of PSEs, on April 10 in Islamabad.  This event received an overwhelming response, with over 125 participants from various PSEs attending. Moreover, a subject which, as mentioned, was previously considered taboo in Pakistan, received extensive media coverage.

Restructuring the Private Sector in Pakistan

As many as half of the companies listed on the Karachi Stock Exchange are family-owned enterprises. (Photo: The Express Tribune)

Writing in Dawn on January 3, 2012, Dr. Shahid Kardar, former governor of the State Bank of Pakistan, painted a gloomy, yet realistic, picture of the country’s macroeconomic imbalances. It seems clear that the crowding out of private sector investment due to excessive government borrowing from commercial banks that he describes is closely linked with structural problems within the private sector. These problems, in addition to a smaller window for bank lending to the private sector, include weak corporate governance in many family-owned enterprises, and a lack of equity investment through stock exchanges. Unless structural reforms are introduced in the private sector, which will require action by regulators and businesses themselves, macroeconomic stabilization alone will not bring Pakistan out of its low growth equilibrium.

Dr. Kardar’s arguments regarding the crowding out of private sector lending due to government borrowing at risk-free rates are indeed well-founded. Overall trends in bank credit to the private sector in Pakistan are declining, not only when measured over time, but also in comparison with other regional economies. Within South Asian Association for Regional Cooperation, Pakistan ranks last out of seven members in terms of domestic and commercial credit for the private sector.

According to a December 27, 2011, presentation made by a representative of the Federation of Pakistani Chambers of Commerce and Industry at a conference in Islamabad on “Economic Connectivity and Regional Trade,” domestic credit to the private sector in Pakistan represents 21 percent of GDP. This is better than Afghanistan – where domestic credit barely rises above 10 percent of GDP – but in India, this figure is 50 percent, in Sri Lanka, it is 28 percent, and in the Maldives, it is 65 percent.

The State Bank notes that government borrowing from commercial banks increased by Rs 590.2 billion ($6.4 billion US) in FY 2011, compared with an increase in private sector credit of Rs 121.3 billion ($1.33 billion US). The State Bank clearly states that “there is little doubt that government borrowing is distorting credit conditions for the private sector.”

Given populist tendencies in both the central and provincial governments, it seems unlikely that the government will get out of the way and let the private sector partake of commercial credit. In this light, it is fitting to ask what alternatives we have to facilitate private sector growth, to allow the private sector to lead the country on a path of economic recovery. One answer is an agenda for private sector restructuring, presented below in an effort to generate further discussion.

It is evident that Pakistan’s largest firms, even those listed on stock exchanges, are essentially family-owned enterprises. According to sources in the Karachi Stock Exchange, family-owned enterprises comprise as much as half of the 660 listed companies. These enterprises typically resist expansion through the dilution of shares, even at the cost of growth. While control over assets is a basic economic right of these families, engaging professional management, with a reasonable stock options structure for these executives, can help such enterprises to expand.

There is a clear need to work with Pakistan’s family-owned enterprises to encourage adoption of the Code of Corporate Governance and equity-dilution models. In this context, the Pakistan Institute of Corporate Governance is doing important work along with the Securities and Exchange Commission of Pakistan (SECP). While changing attitudes is not easy, adopting appropriate frameworks and systems can facilitate the process.

Next, these families also need assurance that the threat of nationalization, still fresh for the oldest generation, is no longer a reality, and that they will themselves be the greatest beneficiary of expansion. Another important incentive for family-owned enterprises, both listed and unlisted, to follow the Code of Corporate Governance, will be greater access to funds, as lenders and investors alike feel more comfortable working with firms that adhere to the highest standards of corporate governance.

Further, it will be necessary to work with stock exchange stakeholders, including investors, and front-end and back-end regulators, to encourage long-term equity investment in the shares of listed companies, rather than day-trading, as well as to facilitate a favorable climate for new IPOs. Stock exchanges should be a place for raising new funds for expanding enterprises. Unfortunately, the number of IPOs launched in the last five years in Pakistan can be counted on one hand.

In conclusion, Pakistan faces an immediate need for private sector restructuring, comprising reforms in corporate governance of family-owned enterprises, and greater regulatory oversight of stock exchanges. This may involve national-level consultation and coordination among the State Bank, SECP and stock exchange regulators. While there is no easy way out of the current economic crisis, shifting the argument away from the country’s much criticized macroeconomic management, and instead to need for private sector restructuring, could help steer decision-makers in an important direction.

Intellectual property rights law important for Pakistani businesses

P@SHA roundtable on digital IPR (Photo: CIPE Pakistan)

Effective protection of intellectual property in Pakistan has been impossible in the absence of legislation that would improve the enforcement of trademark, copyright, and patent laws. Although 2007 Presidential Ordinance created the Intellectual Property Organization (IPO) of Pakistan tasked with management of intellectual property and enforcement coordination, legal protection of businesses whose intellectual property rights (IPR) were violated remained weak.

As a result, Pakistan continues to rank poorly in international indices when it comes to IRP and patents protection as well as copyright piracy. One highly affected segment of the economy is the technology sector where success and profitability depend on being able to protect one’s inventions.

To address these issues, back in April 2009, CIPE in partnership with the Pakistan Software Houses Association for IT & ITES (P@SHA) organized a roundtable on “Digital Intellectual Property Rights Issues and Their Impact on Business.” The key recommendation at the roundtable was to enact a legislation that gives better protection to intellectual property.

Following the roundtable, P@SHA and other stakeholders remained in close contact with the IPO. After two years of regular deliberations with the policymakers and the private sector, IPO has now finalized a draft law – the IPO Ordinance – to provide legal coverage to enforce the trademark, copyright and patent infringement laws.

The new ordinance is likely to be approved in the next meeting of the Federal Cabinet. It is expected make the law enforcement agencies legally bound to protect IPR. The ordinance would also allow for revision in the trademark and patent fee structure, establishment of IPR facilitation centers in major chambers of commerce, and a nationwide awareness campaign for IPR protection that would explain its benefits for the economy and private sector.

Announcing this, IPO Chairman Hameed Ullah Jan Afridi informed that Federal Investigation Agency (FIA) has already established a dedicated IPR Cell and Police and Customs are in the process of creating IPR Cells to improve enforcement. The ordinance also proposes that the federal government empower IPO to become an enforcement agency and to function independently without seeking help from other law enforcement agencies, following the model adopted in Mexico.

More and more intellectual property is being created in the digital domain in Pakistan – not only by IT firms but also by production houses, photographers, health professionals, education professionals, artists, musicians and all other types of businesses. In pursuing successful advocacy in support of the IPO Ordinance, P@SHA recognized the fact that the needed reform in the legislation dealing with IPR will not only safeguard the rights of its member IT companies, but also protect and encourage innovations that are taking place throughout Pakistan’s economy.