Pakistan Economy Thread

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Exxon Mobil has indicated that it is close to hitting huge oil reserves near the Pak-Iran border

Minister for Maritime Affairs and Foreign Affairs Abdullah Hussain Haroon on Friday said that ExxonMobil has indicated that it is close to hitting huge oil reserves near the Pak-Iran border, which could be even bigger than the Kuwaiti reserves.

Addressing business leaders at the Federation of
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Chambers of Commerce and Industry (FPCCI), the minister said that ExxonMobil — an American multinational oil and gas company — has so far drilled up to 5,000 meters close to the Iranian border and is optimistic about the oil find.

The Government of Pakistan, he said, has already taken an undertaking from the company to set up a generation complex worth $10 billion.

The government is also encouraging Chinese and Western investment in the country, he added.

He further said that there is a need to integrate the Karachi Port and Port Qasim so that they could supplement each other in the larger interest of the country.

On the occasion, he said the Pakistan National Shipping Corporation (PNSC) has sufficient funds for purchasing two vessels but this will be done by next government.

The minister said that there is greater need to have new area for fish harbour because the existing one has many issues and there is shortage of land. However, he regretted that the harbour is not well kept and hoped that the European Union (EU) will give subsidy for new fish harbour.

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’s IT Exports Make History By Crossing $1 Billion Mark


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According to the data updated by State Bank of Pakistan, exports of IT and IT-related services increased to $1.067 billion in the financial year 2017-18, as compared to $939 million recorded in the financial year 2016-17, showing a double-digit growth of 13%.

This is the second consecutive time the IT industry attained an all-time high record. The country also achieved the highest value of IT remittances in the previous financial year 2016-17.

The value of IT exports is considered as three times more than the remittances reported by the central bank, which means the overall number crossed the mark of $3 billion in the outgoing financial year. The discrepancy of the exports receipt of IT sector is due to the fact the export income is reflected in various other sectors such as financial, automobile, and health sectors.

Besides, a handsome amount of exports earning driven by freelancers is landed under overseas remittances, which causes a misreporting of export numbers. There are various local companies of various sizes functioning through Dubai and other countries while their services and products are delivered in Pakistan. The earnings are sent under overseas remittances by companies and workers, hence the real number of exports are not determined properly.

Factors Behind Exports Growth
Export of IT and IT-enabled services grew mainly due to the increasing demand of Pakistan’s products and services in the exporting countries, which have been improving gradually in the last couple of months.

The business of big companies has improved as many foreign clients are visiting Pakistan due to the better security image, said Barkan Saeed Chairman Pakistan Association of Software Houses (P@SHA).

Besides, the depreciation of the Rupee against the Dollar is one of the two major reasons which reflected the growth in export numbers.

Pakistan’s exports to IT and IT-enabled services are mainly concentrated (by 60 percent) to the US market, followed by European countries with 38 percent share, with exports to Middle Eastern countries following.

Pakistan’s IT industry is mainly “outsourcing industry” where services are provided to companies abroad. A majority of the revenue comes from software exports and services.

The Breakup of IT Industry Exports of Services and Products
Heads of IT Exports Financial Year 2017-18 Financial Year 2016-17
Call Center $104.468 million $82.859 million
Telecommunication Services $231.882 million $282.911 million
Hardware Consultancy $4.171 million $3.442 million
Software Consultancy $287.716 million $227.260 million
Computer Repair/Maintenance $1.761 million $ 0.737 million
Export of Computer Software $319.547 million $264.065 million
News Agency Services $1.023 million $1.011 million
Information Services $2.277 million $0.539 million
Other Computer Services $113.685 million $76.366 million
Source: State Bank of Pakistan

Issues and Challenges
The central bank, along with industry stakeholders, has been working on the issue of reporting export earnings. The industry is also now reporting more and more with the right codes, however a lot of work still needs to be done in this direction, said Chairman P@SHA.

Many freelancers drawing nearly $1 billion earnings bring money into their personal accounts in Pakistan. If the State Bank can resolve this issue, our real export figures can go to $2 billion easily, he further said.

Other challenges include a visa issue from the USA for Pakistani entrepreneurs, solving which can further increase Pakistan’s exports of IT and IT-ES manifold.

Besides, high taxation is also a major problem for the industry, which pushes up the cost of doing business for freelancers and smaller companies along with poor ease of doing business.

Government’s Incentives for IT Sector
Government realizes that it has an important role in providing a conducive environment for the growth of the IT industry through infrastructure and HR development. The government has the vision to enhance the exports of this sector to $5 billion per annum by 2020, which is not an impossible target.

The government has approved the following incentives for the IT sector, aimed its increasing exports.

Zero income tax on IT exports till June 2025.
5% cash reward on IT exports, similar to rewards for other sectors such as textile, leather and sports.
5% Sales tax of on ITeS within the federal areas.
Setting up Special Economic Zones (SEZ’s) for the tech sector to be defined by the BOI and MoITT.
Access to financing from commercial banks at preferential rates.
9-Year Exports of IT Industry At Glance
Financial Year Exports Value Yearly Growth
2017-18 $1063 million 13%
2016-17 $938.640 19%
2015-16 $788.640 -0.4%
2014-15 $ 821.510 0.60 %
2013-14 $ 816.616 1.70 %
2012-13 $ 802.924 74.4 %
2011-12 $ 460.251 3.87 %
2010-11 $ 443.063 -0.05 %
2009-10 $ 443.326 16.6 %


Future Outlook
With the announcement of an incentive package by the previous government, the stakeholders of IT industry believe that the industry will expectedly grow its productivity and footprint manifold at a domestic and international level.

The government has already started working on improving ease of doing business for the IT industry which will impact positively on the sentiments of the business community. The central bank is also working on the issue of reporting IT remittances through streamlining codes of services to improve exports values and to realize the true potential of the industry.

A number of IT parks are being developed in the country along with the continuous expansion of broadband services in different cities to make the ecosystem attractive and lucrative for IT companies, entrepreneurs, and starter-ups.

The expansion of broadband services countrywide has been helpful in increasing IT exports in the freelancers’ space as now many freelancers from all over Pakistan are now able to provide services.

Instead of expanding its business in the outsourcing business, Pakistani IT companies need to shift their focus on product development and marketing in order to go towards areas of product or intellectual property development for accelerated growth in exports income.

Hopefully, Pakistani companies with offshore offices as well as revenues and investments parked in different countries abroad will reap the benefits of incentives and business opportunities in Pakistan at a time when foreign companies are looking to make investments in Pakistan with the development of China Pakistan Economic Corridor (CPEC).

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‘Lotte Chemical’ shows interest in Pakistan’s chemical manufacturing industry


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Pakistan Chemical Manufacturers Association (PCMA) Monday urged the forthcoming government to include the chemical industry in its first 100 days plan and form a task force to tap offers of foreign investors for establishing Crude-Naphtha Cracker Petrochemical Complex.

PCMA Secretary-General Iqbal Kidwai said here that after the investment offers from the UAE and China, a serious proposition had also been received from South Korea’s world-renowned group ‘the Lotte Chemical’.

He also appreciated the services of Adnan Iqbal, Commercial Counsellor in Pakistan embassy in Seoul, who had held a meeting with Lotte Chemical to share the information provided by the PCMA on the need for a Petrochemical Complex, bearing crude refinery and a naphtha steam cracker in Pakistan.

He said that the PCMA, since its inception, has been highlighting the need for a Petrochemical Complex in Pakistan and efforts have ultimately attracted the attention of local and foreign investors to invest in this momentous project, which requires strong patronage and support from the government to bring the project to life.

He was confident that the complex when established, would develop the downstream of the chemical industry by producing hundreds of high-value chemicals within Pakistan, which will gradually decrease the imports of such chemicals with a single first-year impact of around $2-3 billion import substitutions.

He said that the newly elected government can easily put a feather into their hat by just patronising the establishment of the Petrochemical complex by formulating a task force in consultation with the PCMA.

PCMA Secretary-General further informed that the chemical imports of Pakistan amount to more than $14 billion, which is almost 17 per cent of the total import bill and each year, there is an average increase of 7 per cent on this account.

“Although we have made considerable progress in basic inorganic chemicals like Soda Ash, Caustic Soda, Sulphuric Acid and Chlorine with sufficient production capacity, the lack of availability of other chemicals including petrochemicals leads to dependence on imports which surely does not benefit the economy”, the PCMA secretary general added
 

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No objection to
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gas project:
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ISLAMABAD: The European Union (EU) Ambassador to Pakistan, Jean-François Cautain, said on Monday that the European Union was ready to work with the new government of Pakistan in security, economy, GSP-Plus, education, and rural development sectors.

He said this during a meeting with Pakistan Tehreek-e-Insaf Chairman Imran Khan here at Banigala. He visited Imran to congratulate him on his party’s victory in the recent elections.

The EU ambassador maintained that the European Union had no objection to the proposed Iran-Pakistan gas pipeline project and that they were ready to help Pakistan with regard to removal of its name from the FATF grey list, says the PTI Central Media Department.

The European Union, the ambassador informed Imran, would also assist Pakistan’s new government in getting investment from the union member countries. “The European Union has a desire for stability and development in Pakistan,” he noted.

Imran welcomed the ambassador at his residence and thanked him for his good wishes. PTI's senior leaders, including Shah Mehmood Qureshi, Asad Umar and Dr Shahzad Waseem were also present on the occasion.
 

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to undergo the most significant change through
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The major advantage of the
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Economic Corridor (CPEC) is regional integration, since the project does not just serve Pakistan and China alone, but the entire region. The investment coming in under CPEC is larger than the cumulative foreign direct inflows since 1970, making it a game-changer for Pakistan. A major part of CPEC is the development of Gwadar port, which is set to undergo the most significant changes amongst all the projects. Projects such as the Gwadar Free Zone are set to provide employment to more than 40,000 people. It was decided in the Joint Coordination Committee (JCC) meeting on CPEC, held in November 2017, that Gwadar would be given the foremost priority with special emphasis on its electricity issues.


Gwadar to undergo the most significant change through CPEC
The China Pakistan Economic Corridor (CPEC) is a sub-project of Xi Jinping’s multi-national One Belt, One Road initiative, which is in its implementation phase. The signing of $46 billion worth of CPEC related agreements between Pakistan and China on President Xi Jinping’s visit to Islamabad in April 2015 was considered a milestone in strengthening Sino-Pak relations.

CPEC will serve as a bridge between Pakistan and China in the development of closer relations with other regional countries as well as the world community. Thus, CPEC is not about China and Pakistan alone, but about connecting the region through economy and energy, ports and pipelines, roads and railways, with Pakistan as the hub of this emerging regionalism. The size of $46 Billion investment, if ensued, will be equal to cumulative gross foreign direct investment inflows into Pakistan since 1970.

CPEC is not meant to benefit only one province, party or government. It is for the uplift of all of Pakistan. The most significant change will be seen in Southern Balochistan, including Gwadar itself. CPEC projects include the infrastructure development and rehabilitation, power generation, port development and other areas of same nature.

The backbone of CPEC is the Gwadar Port, the only deep sea port in the area. The Gwadar Port was constructed in 2007 and the decision to make it a part of CPEC was made in 2015. The operation of the port was handed over to China Overseas Port Holding Company (COPHC) with the aim to construct new multipurpose berths, cargo terminals and other ancillary facilities.

An economic and industrial zone known as the Gwadar Special Economic Zone (SEZ), will also be developed in Gwadar which will be in line of Special Economic Zones of China. It is expected that this zone will provide employment opportunities to around 40,000 people of the area. This SEZ zone will be completed in three phases and by 2025, it is envisaged that manufacturing and processing industries will be developed, while further expansion of the zone is intended to be complete by 2030.

The backbone of CPEC is the Gwadar Port, the only deep sea port in the area. The Gwadar Port was constructed in 2007 and the decision to make it a part of CPEC was made in 2015. The operation of the port was handed over to China Overseas Port Holding Company with the aim to construct new multipurpose berths, cargo terminals and other ancillary facilities

For development of SEZ, the area has dire need of electricity. Currently the Gwadar electricity network is being fed limited electricity from Iran. There are several technical issues, due to which the Gwadar electricity network is separate from the National Grid. This electricity network is feeding Gwadar, Turbat and Punjgur district of Balochistan. Only 35MW are supplied, due to which 12 to 14 hours of load shedding is common in the area.

Joint Coordination Committee (JCC) meeting on CPEC was held on November 21, 2017 wherein, it was proposed to review the Gwadar plan in a timely manner and address the power shortage issue. In pursuant to JCC decision, a high level meeting was held on November 22, 2017 on development of a power project at Gwadar Balochistan keeping in view the demand and supply scenario within the next three to four years. The meeting was attended CCCC industrial Investment holding Company Limited (CIHC) representatives along with NESPAK, CPPA(G), NTDC, PPIB and Ministry of Energy.

The Gwadar Port Authority has presented its projected demand up to the completion of First Phase of Special Economic Zone as 290 to 300 MW. The demand includes installation of one steel mill, Potential demand on New Gwadar International Airport, estimated demand of Gwadar Port, potential demand of different industrial units and preliminary estimates of Gwadar City. Similarly, a demand forecast study conducted by Quetta Electric Supply Company (QESCO), showing potential increase of 299 MW up to 2020-2021 and 507MW up till 2024-25.

To deal with all the above scenarios, the stake holders decided to install a 300MW power plant in Gwadar and accordingly handed over this task of power generation to CIHC. After due consideration for the selection of right fuel, CIHC has decided to construct an imported coal base power plant because of non-availability of LNG or natural gas in Gwadar. CIHC also considered using local Coal Fuel for power generation, but the idea was dropped because there simply aren’t enough coal mines in Pakistan.

Another consideration was renewable energy sources such as solar power or wind power, but due to base load requirements, renewable power plants are not suitable for the area. After all these consideration imported coal fired power plant was selected and implementation of project was started.

The cost of electricity generation is approx. Rs 9/kWh, whereas the cost of electricity from a Furnace oil (FO) based power plant is estimated to be around Rs 19/kWh (with FO price at Rs. 78,000/ton). The estimated time for completion of 300MW Coal fired power plant at Gwadar is thirty months from the date of Financial close of the project on fast track basis.

The 300MW Coal Fired Power Plant (CFPP) will have its own benefits which will be cultivated by the local area population as well as the whole country. CIHC is planning to train the local engineers and technicians who can manage the CFPP operation in future, by training them in Pakistan. The other indirect benefits are the availability of power to the SEZ of Gwadar which as mentioned earlier, provide job opportunities to the people of the area. This will not only uplift the socio economic activities of the area but also boost the economy of Pakistan.

The recent power outage in Gwadar showed the necessity of launching this 300MW power project. Moreover, the import of electricity from Iran is strategically unstable and unreliable, technically not suitable for Pakistan(due to mismatch of 60 & 50 Hz frequency). Its tariff is also far too high.

Keeping in view the above mentioned facts, we must realize that 300MW CFPP project will be a sign of a developed and stable Balochistan. As a nation, we should support such developmental projects in Pakistan and stand for the successful completion of CPEC.
 

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Indus Motor Company is launching the Toyota Rush in
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in a few months.


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It is a 1500CC mini-SUV, that the company previously released as the Daihatsu Terios in 2010 but later discontinued it. And now the IMC will initially sell completely built units (CBU) into the country.

Toyota Rush was first introduced to the Japanese domestic market in 1997 after which it gained traction in several developing marketing in Asia, Africa, South America and Eastern Europe.

In other markets, the car is known as the Daihatsu Bego, Grand or the Perodua Nautica. The 2018 model of the 7-seater Toyota Rush offered in other markets features very Fortuner-esqe styling with a more compact footprint. At this point it is not clear what trim options will be available to consumers in Pakistan, but the offering will likely be targeted to a young urban audience much like the other mini-SUVs that have entered the market recently.

The Toyota Rush will position itself in the market as a direct competitor to the Honda Vezel/ HR-V and the Suzuki Vitara. The price tags for vehicles offered by local automakers in this category is between Rs. 3.5 million and Rs. 4.2 million, so we are assuming that the company will offer it around the same price tag.

Over the past few years, the country’s long-stagnant auto sector has seen the much-anticipated activity as car sales exhibited great growth year-on-year, while new automakers race to set up assembly lines to capture a slice of Pakistan’s massive demand for automobiles.

Note: The Toyota Rush/ Daihatsu Terios is not to be confused with the Daihatsu Terios Kid, a 660CC Japanese domestic market Micro-SUV that gained popularity in the country in the late 2000s.

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Huge reserves of hydrocarbons located in Makran, says
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chief




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: Chief of the Naval Staff Admiral Zafar Mehmood Abbasi said on Wednesday that huge reserves of hydrocarbon resources were expected to be explored soon and could be a “game changer” for
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’s economy.

The naval chief, speaking to businessmen and industrialists during his visit to the Korangi Association of Trade and Industry, further said that there should be no doubts on China-Pakistan Economic Corridor’s benefits for the country.

He said huge reserves of hydrocarbons had been located in the Makran region and Chinese experts would soon initiate exploration in the sea.

He deplored that a massive campaign was going on against CPEC but the nation had understood that the project would prove to be a game changer for our future economic strength and added that there should be no doubts about CPEC benefits.

The naval chief said that to give a strong push to maritime economy, business and industry had a great role to play. He said that there was a great need to have academic research on maritime economy and hydrocarbons for which Bahria University would be tasked.

Similarly, Admiral Abbasi said that there was a great need to have a technology park, which would be set up in Karachi in the near future. In order to upgrade ship-breaking industry private sector would have to play a role in introducing latest know-how so that new opportunities opened up in that sector.

The naval chief said that propaganda was going on to malign Pakistan’s armed forces but relationship between the forces and the people of Pakistan were strong and it was appreciable that democratic process was strengthening in the country.

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