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 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 RegionSAARC 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 non-tariff 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.

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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

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 EducationSAARC 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