Download Business Professionals Conference Friday, 9 th November

Business Professionals Conference
Friday, 9th November 2012 - Lahore
ECONOMIC CHALLENGES AND
OPPORTUNITIES IN SAARC REGION
Presenter:
Shahzad Ahmad Awan, FCMA
Member, National Council and Chairman,
Research & Publications Committee, ICMAP
ECONOMIC CHALLENGES FOR PAKISTAN
The Pakistan’s economy is currently passing through the
most difficult phase of its economic history.
Once a robust economy, with economic growth over 6%
of GDP, now it has been transformed into a fragile
economy, due to serious economic challenges, the most
important being our country’s frontline role in ‘War on
Terror’ and the persistent ‘Power and Energy Crisis’
which has crippled our industrial sector.
Before I proceed further, let’s see what the
IMF Mission, which recently visited Pakistan
in October 2012, says in its Report :
“The
Pakistan’s economic situation is
deteriorating and Islamabad urgently needs
to address deep problems in its energy
sector while boosting growth to meet a
rapidly growing population”.
The IMF Mission further goes on to say that:
“The country’s GDP in 2012-13 is likely to
grow at the annual rate of 3% to 3.5%, not
enough to provide jobs to the growing labor
force. Decisive and far-sighted action is
needed to address this challenging outlook”.
The IMF Mission Report points out that ENERGY PROBLEM
is the largest single impediment to higher economic growth
for Pakistan and a major factor behind macroeconomic
imbalances. For this, it has outlined a comprehensive
approach to reform to tackle these problems.
The above observations of IMF are no doubt a ‘Reality’.
For more than three consecutive years, our country has
been experiencing low growth, which has almost stagnated
the per capita income level. This has aggravated poverty
and worsened unemployment rates
The Challenges that our Country faces today do
not commensurate with the abundant and vast
potential that it possesses.
 Pakistan offers huge potential and opportunities
for trade and investment to both foreign
investors and the local economy.
Pakistan is ranked number one in the World
Bank’s ‘Ease of Doing Business Index.’ in Asia
 Pakistan is world’s 2nd largest producer of water,
buffalo meat and milk
 Pakistan is world’s 3rd largest producer of cotton
 Pakistan is the 4th largest goat meat supplier
 Pakistan has 5th largest Coal and Gold reserves
 Pakistan is the 7th largest wheat grower
Prospects and Economic Revival Efforts
The economic growth of Pakistan stood at 3.7% in FY
2012 which is higher than 3% realized in previous
year, but less than the target of 4.2 percent. The
State Bank of Pakistan in its third quarterly Report
‘State of the Economy” says that this performance is
notable, given the following challenges:
 Considerable damage to cotton crop due to floods
 Ongoing energy shortages;
 Rise in international oil prices; and
 Security concerns.
The State Bank comments on the economy recovery
prospects as follows:
“Although Pakistan’s economy has shown some
recovery in terms of GDP growth, the key macro
indicators still remain weak. Persistent inflation
and pressure on the fiscal and current accounts,
remain the key challenges for the economy”
Like IMF, the State Bank of Pakistan also pinpoints that “Low
investment and energy shortages have direct growth
implications. Other areas that poses challenge and major risk
to the macro-economy is the ‘persistently high fiscal deficit’
Pakistan must overcome its economic challenges as
it has vital role to play to bring economic prosperity
in SAARC Region
SAARC region has potential of becoming a vibrant region in the
world given its enormous resources in manpower, technology,
agricultural and mineral assets, its history and civilization.
Pakistan must take immediate measures to meet its present
economic challenges as it has a more vibrant role to play for
the regional cooperation in the SAARC region.
Pakistan could play an important role in bringing the people of
SAARC together by promoting investment, trade and people to
people contacts.
The Existing Potential in the
South Asian Region
South Asia is the second fastest growing region in the
world and it has the potential to be an economic power
by the year 2025. Many in South Asia, however, still face
extreme poverty, especially the SAARC countries.
South Asia is home to half of the world’s poor, with 40%
of its population living on less than $1.25 a day.
South Asia accounts for only 2.5% of GDP 2% of world
exports, and 1.6% of world Foreign Direct Investment .
SAARC countries have common economic
goals and economic challenges
Significant challenges and barriers still exist which
continue to restrict the economic growth and
integration in the SAARC region.
What is required is a firm commitment by the
SAARC countries to move towards prosperity by
placing
stronger
emphasis
on
economic
development through REGIONAL PARTNERSHIPS as
they share common economic goals and challenges.
Private Sector in SAARC countries
have to play a Pro-active Role
The private sectors of SAARC countries are already
involved in promoting economic cooperation in the
region but they must be pro-active to put a firm
pressure on their respective governments to provide
a business enabling environment to foster the pace
of economic development and cooperation within
the region. The Private sector must play a dynamic
role to bring about revolutionary changes and foster
the pace of regional integration in SAARC region.
Key Challenges for SAARC Region
While SAARC countries continue to make efforts for
economic
development
and
intra-regional
integration, their progress is curtailed by a
continuing sub-set of systemic issues and
challenges common to all member nations.
I would like to outline few of the key
challenges and issues that are creating
barriers in the way of increasing flow of trade
and investment among the SAARC Countries
• Political Mindsets and Issues
• Abject Poverty
• Low Intra-regional trade
• Low- Intra-regional or cross-border Investment
• Poor Transport Network or Infrastructure to facilitate trade
• Sizable Sensitive List, Para Tariff and Non-Tariff Barriers
• Food Security issues
• Climatic Change Issues (floods and natural disasters)
• Under-utilization of renewable energy resources
• Stringent visa requirements
The above challenges need to be
dealt on preferential basis by the
SAARC countries, especially the two
big nations – PAKISTAN and INDIA.
More Intra–SAARC Trade can lead to Better
economic conditions for People
Intra-regional trade is one of the important measures to
alleviate and improve the economic condition of the
people of this region. However, as also indicated in the
list of barriers – the Intra regional trade among the
SAARC member states is marred by the issues of nontariff barriers and sensitive list. The SAARC states must,
therefore, address this issue immediately and
effectively for rapid expansion of intra regional trade.
More Intra-SAARC Investment can lead to
less dependence on Western Investors
The investment regime in SAARC is not only restrictive
but lacks policy harmonization. Supporting mechanisms
are needed to support capital flow and help attract more
Foreign Direct Investment (FDI) within SAARC countries
and depend less on investment from outside the region.
The FDI sources are highly diversified in SAARC countries,
mostly still originating in developed countries, outside
the region. India, Bangladesh and Pakistan attract most
of their FDI inflows from countries outside the region.
There is strong case for deeper
intra‐regional investment.
Expanding intra‐regional investment is the key to
bolstering the investment regime in SAARC region.
I would suggest that Boards of Investments in
the SAARC countries should promote more
intra‐regional investment by establishing their
offices in each other’s country.
.
I would like to highlight two other issues,
which are not directly concerned with
economy, trade or investment, but these
issues or challenges have direct bearing on
all of them. These challenges are Food
Security Issues and Natural Disaster
Food Security Issues
Considering that the estimated population of South Asia
will rise by 25% to 2000 million in 2025, food security is
the most tangible threat to all SAARC countries.
This threat cannot be mitigated by a variable increase in
food production alone, but by efforts to drastically
improve access to food sources and clean drinking water.
Natural Disasters
SAARC countries are at greatest risk of natural disasters
like earthquakes, floods and cyclones, which are already
having major impacts on their economic performance.
These have resulted in lower agricultural productivity in
the entire region. If this continues, it can turn out in shape
of severe economic shocks for the SAARC Countries.
To address the above two issues, the SAARC countries
must take action on immediate basis.
Key Opportunities for
SAARC Region
There is always a blessing in disguise.
Though the SAARC region is facing a host of
challenges but there are Opportunities as
well. We need to identify and explore them.
Few areas are highlighted here, which have
so far not been explored.
(1) Cooperation in Services

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

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Telecommunication
Banking
Energy
Transport
Software services
(2) Sharing Renewable Energy
SAARC Region has enormous potential in Energy, especially
HYDRO-POWER, but only 10% of this potential is currently
being utilized. Renewable energy options such as SOLAR and
WIND-POWER need to be seriously considered as these are
vital for the economic growth and sustainability of SAARC.
India has around 25000MW of wind power, which can be
exported to other SAARC countries.
The Renewable Energy sources in SAARC countries need to
be tapped through infrastructure development, integrated
investment promotion policy and government pledges.
(3) Greater involvement of
Private Sectors of SAARC
The SAARC Governments must consider an increased role for
their private sectors in establishing public-private partnerships,
where possible, in SAARC countries.
The Private sector needs to be more involved in guiding
Government policies through lobbying and advocacy efforts.
The private sector is effective in bringing in a commercial
orientation and operating in a non-political way. They also
have strong implementation capacities to strengthen economic
and business opportunities along with trade in the region.
(4) Promising Youth leadership
The young business leaders of SAARC region should
be brought together to prepare them as the next
generation of business leaders for South Asia and to
identify their role in the formation of an integrated
future business community. There is strong need for
youth empowerment and focus on business
leadership for South Asian economic development.
(5) Investment in Health and Education
SAARC countries have received bulk of FDI in sectors like
Telecommunication, Transportation, Exploration of mineral
and natural resources, while other core sectors like health
and education are given least importance.
Investment in health and education sectors in form of FDI or
Joint Ventures between public and private enterprises is
squarely productive, which will not only enhance Human
Development Index of the region but also help achieve
sustainable economic growth.
Concluding Remarks
SAARC was established in 1985 and the primary
objective identified in its Charter says:
“To promote the welfare of the peoples of South Asia
and to improve their quality of life"
The question is has SAARC achieved this objective?
Way Forward
I think that the two bigger countries – Pakistan and
India – should have to play their due role to move
SAARC towards the objective as given in its Charter.
I also think that the Role of private sector is quite
important as economy drives politics, and business
shapes the social values.
Businesses have the power to make a difference.
Way Forward
As far as Pakistan is concerned, I think that there is need
to create synergy between government and business
community to help resolve the present economic crisis
and put the country on path of progress and prosperity.
The Institute of Cost and Management
Accountants is always there to help the
Government in its efforts to bring
economic prosperity by extending
its professional expertise.
THANK YOU