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VOLUME 01, No. 1, 2013

An Indepth Look into

Pakistan’s Economy

Karachi School for Business & Leadership

A group of like-minded business leaders, with the objective of creating future leaders who can contribute to the rapid development of Pakistan into a successful and progressive state, established the Karachi School for Business & Leadership, in strategic collaboration with the University of Cambridge, Judge Business School. KSBL has been set up to create transformational leaders and entrepreneurs and provide them with cutting-edge knowledge and skills, developed around the core values of ethics, integrity, merit and social responsibility. KSBL is a graduate management school that currently o ers world-class MBA and Executive Education programmes, to the many talented young men and women, and corporate executives in the country as well as international students. We plan to start the Executive MBA in January 2014 and the Bachelors programme in fall 2014.

Message from the Editors
The Karachi School for Business and Leadership (KSBL) commenced operations in 2012, with a two-year, rigorous MBA programme. KSBL is the rst venture of the Karachi Education Initiative (KEI), a non-pro t foundation funded by several leading Pakistani rms and businesses. Located in central Karachi in its customised campus designed by the renowned US architects, William McDonough + Partners, KSBL’s goal is to add a premium quality dimension to management education in Pakistan. KSBL’s strong research emphasis and induction of a globally compatible faculty is a unique contribution to Karachi’s educational environment. Future plans include Executive MBA and four-year Undergraduate programmes, while a range of short-duration open enrollment and customised Executive Education courses have already had a vigourous introduction. We are pleased to present the rst issue of the KSBL Review. The aim of the KSBL Review is to provide a forum for discussion on a wide-range of topics focusing both on Pakistan and other nations and regions. The Review intends to provide a reader-friendly intellectual platform that brings together academics, policy makers, and business and executive practitioners. The Review is also aimed at the informed reader concerned about governance, business, economy and society. It hopes to analyse the most essential challenges we face at both strategic and micro levels. We trust this will become a forum for even complex research to be presented in. This issue of KSBL Review encompasses four articles on important aspects of the contemporary Pakistani economy. Dr Nadeem Javaid’s article highlights two very critical trends within the structural changes in the economy of Pakistan: the performance of the service sector and the demographic shift towards an aging population. Dr Imran Ali’s article analyzes the salient features of the new federal strategy, known as the Framework for Economic Growth (FEG), and its impact on private sector development, transformation of business and investment scenarios; as well as preparedness of the business sector to bene t from the strategy. Dr Asma Hyder’s article analyses the performance of key economic indicators, the use of which can improve not only economic analysis but also business decision-making. Finally, Dr Ali Khalil Malik’s article provides a comprehensive analysis of nancial market trends and developments in the banking industry, assessing data that can become a vital tool for decision-making. Contributions from across all disciplines and elds of study from a wide-range of theoretical, practical, social and political perspectives are welcome for KSBL Review. The editors are looking forward to seeing the KSBL Review become a forum for cooperation, interaction and collaboration with colleagues across the country, in the region and globally.

Dr Imran Ali
Professor, KSBL

Dr Ali Khalil Malik
Associate Professor, KSBL

Dr Asma Hyder
Assistant Professor, KSBL

Dr Nadeem Javaid
Assistant Professor, KSBL

The Views and Opinions expressed in these articles, essays or in debates are only those of authors and not of KSBL. Manuscripts can be submitted through email on the following email address:

02 KSBL Review

www. 04 Exploring Structural Change in Pakistan Dr Nadeem Javaid GoP’s New Economic Growth Framework and its Impact on Business Dr Imran Ali 09 16 Financial Markets: Review Analysis & Dynamics Dr Ali Khalil Malik 27 Current Performance of Key Economic Indicators in Pakistan Dr Asma Hyder May 2013 03 .

% of GDP Industry. the services sector has replaced the agriculture sector as the dominant sector of the economy. has been higher than the average growth rate of the world economy. He has also worked at SKEMA Business School (France). second and third section identi es their implications for society and the future course of action. These trends are not only a ecting society but also posing a sustainability challenge to the economy in the near future.9% in 2010s. I have underlined two very critical trends during the structural change in the economy of Pakistan i. 4.6% in the 1990s and 4. Pakistan’s economy is the world’s 47th largest economy in terms of nominal GDP.10 Per Capita Income Growth Rate (1960-2012) 10 GDP Annual Growth (%) -8 -6 -4 -2 1960 1970 1980 1990 2000 -0 2010 5 0 1960 1970 1980 1990 2000 2010 -5 04 KSBL Review . During the last six decades. contribution of the agriculture sector to GDP has declined from 46% to 21% during the same period. As shown in Figure 1. causes social distress during the growth recessions. As far as the industrial (non-manufacturing sector) share of GDP is concerned. Sectoral Contribution to Gross Domestic 60 50 40 30 20 10 1960 1970 1980 1990 2000 2010 Agriculture. Services sector adds resilience to Pakistan’s economy. he was teaching Economic Policy and Business Strategy to the MBA programme at the Suleman Dawood School of Business. 6. Prior to joining KSBL. being contingent to weather and natural disasters.5% in the 1980s. Lahore University of Management Sciences (LUMS). Today. In this article.javaid@ksbl. % of GDP Manufacturing. He holds a PhD in Economics and an MS in Innovation and Industrial Dynamics from the University of Nice Sophia Antipolis. While. The structure of an economy is a function of the sum of all the di erent economic activities in the geo-political boundaries of that area.8% in the 1960s. unfortunately without an impressive improvement in social indicators. contribution of the service sector towards the GDP is 54% as compared to 38% in 1960. The rst section of this article examines these above stated trends. % of GDP Annual Economic Growth Rate ( % ) Income Per Capita Growth Rate (%) . Pakistan’s economic development as measured by its GDP is primarily sustained by the service sector. & of GDP Dr Muhammad Nadeem Javaid is an Assistant Professor of Business Economics at KSBL. Average annual real GDP growth rates were 6. Financial Markets and Issues in Corporate Finance to its executive and postgraduate programmes in its Sophia and Paris campuses. since independence. the economy of Pakistan has undergone a massive change from an agrarian status to semi-industrialized.e. Long-term shift in the fundamental structure of an economy is referred to as structural change. Though being a major employer. Agriculture sector displays the higher degree of volatility. 27th in terms of purchasing power parity and 6th in terms of population size. 4. since its annual growth rate is relatively less volatile as compared to the other three sectors of the economy. where he taught Organisation and Dynamics of Financial System. nonetheless highly skewed towards the services sector. Dr Javaid has over thirteen years of experience in higher education and in the nancial industry. France.12 .8% in the 1970s. prominence of the services sector and the demographic shift towards reverse aging population. that has increased from 16% to 25% during the last fty-two years. respectively.Exploring Structural Change in Pakistan Dr Nadeem Javaid Assistant Professor. Pakistan's average economic growth rate. KSBL nadeem.

Annual Growth Rates ( % ) 20 16 10 5 0 Agriculture Services Industry Manaufacturing driver of economic growth.5 1960 1970 1980 1990 2000 2010 Annual Urban Population Growth Rate ( %) 4. As a result. which is then counterbalanced by the increased absorption capacity of the services and industrial sectors by 12% and 10% respectively.5 Urban Population Growth (%) Population density (people per sq. During these ve decades. recent demographic indicators are re ecting improvement in life expectancy and fall in population growth rate.5 Population Density 1960 1960 1970 1980 1990 2000 2010 1970 1980 1990 2000 2010 Pakistan’s economic development as measured by its GDP is primarily sustained by the services sector. Today.5 Population Growth (%) 50 3 2.5 3 2. in terms of population size. despite having many e orts at policy level. the service sector absorbs 37% of the labour force as compared to 25% in 1950. In terms of employment. Growth in the services sector is relatively stable as compared to the other three sectors of the economy. could not display remarkable improvements.3% in 1950. 1960 1970 1980 1990 2000 2010 -5 Whereas. As shown in Figure Sectoral Dynamics . is adding resilience to the economy. during the last fty-two years.> 0 Annual Population Growth Rate ( %) 3. Figure 3 displays the sector wise annual growth rates. Demographic evolution is also a feature worth exploring while probing the structural change in an economy. has witnessed six growth recessions coinciding with steady performance by the services sector. Whereas.5 2 of land area) 250 200 150 100 50 4 3. May 2013 05 . capacity of the agriculture sector to absorb the labour force has dropped signi cantly by 22%. Pakistan has experienced a signi cant rate of population growth during the 1980s and 90s. Consequently the services sector. Population growth rate and its age composition gives insights regarding the amount of the future productive human resources available as well as its dependency levels in the economy. Agriculture sector. both manufacturing and non-manufacturing sectors are employing 20% of the total labour force as compared to 10% in 1950. being reliant on weather and vulnerable to natural calamities.www. the manufacturing sector. This implies that social distress caused by agricultural growth recession is provisionally o set by the services sector. Pakistan has moved from the 13th largest country in 1950 to the 6th largest country in 2011. agriculture still remains the major sector that is providing employment to 43% of the total labour force as compared to 65. Today its contribution to the GDP is around 18% as compared to 12% in1960. manu- facturing and industrial sectors are positively correlated whereas this relationship is missing between the agriculture and services sector.64 2000 2010 65 . Nevertheless. being the main Population Age Structure (% of total) 60 40 30 20 10 1960 1970 Age 0 -14 1980 1990 Age 15 . Agriculture sector displays the higher degree of volatility. A noteworthy fact is that growth rates among services. ksbl.

computerisation and digitisation of the economic activities. 14 million out of 242 million).8% (i. MoF. Job opportunities in services sector & informal economy are causing the rural urban migration i. Pakistan 12.e. Government of Pakistan. This implies that in the future Pakistan would have very young age structure with a sizeable dependent population.Exploring Structural Change in Pakistan Following the same trends.e.108 million) are between the ages of 15-64 years and 4.6% 2. Small-scale manufacturing and services sector never remained the focus of public policies but they kept on developing themselves as an informal sector.e.7% 4.3% 10. These structural transformations.8% (i. Structure of Pakistan’s Services Sector (% of Value Creation 2011-12) Data from Economic Survey Liiod.5% 06 KSBL Review .4 Public Administration & Defence Other services 6. a large parallel economy has emerged which is providing employment opportunities to 78 percent of the non-agricultural labor force while contributing more than 30 percent to the GDP.3% (i.23 million people have migrated from rural to urban centers during the last four years. According to the projections of the National institute of Population Studies. Resultantly.8 million) are above the age of 65 years. Pertaining to age composition of the population as shown in Figure 5. 62 million) of the current total population. So the situation calls for a very vibrant human capital formation strategy to ensure economic gains and social control. rising levels of unemployment due to rising labour force participation rate all along mechanisation. whereas the ratio of above 65 years old will rise to 5. 129 out of 242 million) will be below the age of 30 years in 2030 and ratio of above-65 years old will increase to 5. However. under-15 population is 34. 6. Data indicates that 10.8% by 2030.8% Transport & Communication Wholesale & Retail Trade Finance & Insurance Ownership of Dwellings 17. Where 60.8% (i. automation. 53% of the total population will be below the age of 30 years old. Data: Economic Survey 2011-12. all these indicators are on the bases of projections because no population census has been conducted since 1998. For example: massive urbanization due to service sector growth. expansion of the parallel economy (undocumented economic activities) and rising level of poverty and crime rate.e. though contributing to economic growth are accompanied by many unanticipated economic and social concerns. unplanned urbanization. 53% of the population (i.e.e.

this implies that an economy with an increasing young population and stagnant labour absorption capacity in the formal economy. This share is 52% in India. needs comprehensive strategy not just for economic well-being but also for social control. Policy makers have always ignored its crucial role and seldom made any concerted e ort to bring this sector into formal economy. The speed at which Pakistan’s age structures are changing is Services Sector Expansion. in Pakistan commodity producing sector’s (i. investments in human capital can turn this challenge into an opportunity for Pakistan.46% in 2012. As a result. the crucial concern is to set up the political and nancial institutions capable of managing public health care systems and pension programmes for aging society. Services rely more heavily on domestic demand and are less susceptible to global economic uctuations. Pakistan can reap the demographic dividend by investing heavily in human capital and eradicating the labour market imperfections. size of the urban population has increased from 57. this informal sector is one of the important drivers of economic growth that is infusing resilience to the national economy. Demographic transition. as a result.www. Global patterns. aging is anticipated to occur more rapidly than development. reveal that services sector contribution has increased as the economies have moved from agrarian to semi-industrial or industrial ranks. as per conservative estimates 30-50 percent of the formal economy) has emerged which is providing employment opportunities to 78 percent of the non-agricultural labor force while contributing more than 30 percent to GDP. Paradoxically.32 million in 2008 to 67. It is predominantly because of fall in the share of agricultural sector. In fact. Knowledge-intensive sectors are being considered to be the forthcoming propellers of economic growth.55 million in 2012. As a consequence.e. Consequently. A review of the past six decades of Pakistan’s development priorities reveals that the public policies has kept focus on developing the large-scale manufacturing sector whereas small-scale and services sector kept developing in the informal sector. What are the Implications for Society? In the developed world. It requires the uninterrupted GDP growth rate of 7% to create job opportunities to cater to the new participants of the labour force. as the comparative advantages of nations are shifting once again. is it a challenge or an opportunity? Given the fact that two-thirds of Pakistan’s population is under the age of 30. The services sector is not only o -setting the decline of the other sectors but also providing momentum to economic growth in Pakistan. Therefore. which could be a huge burden on the economy.e. the contribution of the services sector towards the GDP is around 75%. Services sector holds out the prospect of more stable growth compared to other sectors. combination of manufacturing and agriculture) share has declined from 62% of the GDP in 1970 to 46. ksbl. This unplanned ow of people is not only exerting pressure on the available amenities in the city centers but also making the cities unmanageable. This means that 10. Moreover. Therefore.23 million people have migrated from rural to urban centers in the quest of jobs or better education facilities for their children. urbanisation is on rise. population will grow old before it grows rich. besides a stagnant manufacturing sector. Surprisingly. Educated and well-trained young labour force can turn the fate of the nation. Pakistan would have large dependent population. 65% in Singapore and around 62% in Brazil and Russia. unplanned urbanisation together with high income inequality is causing the surge in crime rates. regarding the process of economic growth and development. May 2013 07 . a large informal economy (i.

admission into the MBA programme is based solely on merit. prepares you to create and lead sustainable organisations in a complex and rapidly changing world. Interest-Free Loans. Career Services and Placement KSBL Career Services and Placement team helps its students achieve top career success from the MBA Programme. At KSBL. the KSBL MBA substantively integrates ethics Admission component into all classes. . designed in collaboration with Cambridge University's Judge Business School. Career Fairs and Employer Events will bring together highly sought after employers to meet and recruit KSBL graduates. the Financial Aid o ce at KSBL then reviews "Transformational Leaders”. In addition to building a solid foundation in core business functions. CEO Mentorship Pragramme We have adopted a NEED-BLIND admissions policy.MBA Programme Quick discussion on a case presentation before the class Internship recruitment test in Progress The KSBL MBA is a full-time 21–month programme. There is one intake per year and the programme commences in August with a compulsory three-week Foundation Term. Curriculum The MBA curriculum. of critical thinking skills among its students. amongst others. Our relationships and reputation within the business community will help assure that MBA students are exposed to an extensive range of placement opportunities for internships and at the time of graduation. helping to shape global ethical leaders. KSBL believes in nurturing the talented youth of Pakistan. The assistance top leaders of the corporate sector with the young aspiring may consist of Scholarships. "leaders in making” to foster knowledge sharing and development Work-Study Programme. KSBL initiated the CEO Mentorship the applicant's nancial status and structures a nancial assistance Programme (CMP) and has pioneered the concept of uniting the package suitable to the applicant's requirements. Qarz-e-Hasna. Once In line with the mission to educate the next generation of admission is o ered.

www. While some measures. with changing shares of the agricultural.ali@ksbl. and what impact would this have on investment and the business environment. has an Honours Degree from Sussex and PhD from Australian National University. the FEG could stimulate more rapid growth. ANU. London. 1885-1947 (Princeton/Oxford University Presses). Professor of Business Policy at KSBL. and even awareness by business leaders of this proposed paradigm shift. it appears even in this initial phase that the bureaucratic and political establishments have failed to signal a major buy-in into this strategy. and sat on various public/private sector boards/committees including the Pakistan Railways Board. are also an incentive to change the government’s role in the economy. which are designed to bene t certain selective GoP’s New Economic Growth Framework and its Impact on Business The FEG’s proposed change and reforms Structural transitions have clearly occurred in the Pakistani economy over the past six decades. LUMS. this opportunity should not be wasted. Now. such as restructuring of some public sector organisations have been proposed. tangible results are still forthcoming. connectivity and innovation. a prospective major shift could occur in the Pakistani state’s approach to economic growth. KSBL imran. will in turn lead to more dynamic and modernised institutions and a faster rate of economic growth. The FEG attempts to move away from the traditional approach of government interventions that have focused on projectbased and SRO-based measures. such as the transition from private sector industrial growth in the 1960s to the nationalisation policies of the 1970s. re-orienting government priorities towards energising these sectors. Pakistan has also followed a roughly decennial pattern of political regime change. The new approach relies on moving the government and its various departments away from operations and towards a more regulatory and monitoring role. Clearly. which has at times re ected contrasting national economic strategies. and the business community has much to gain from this new strategy. Will such an apparent shift create new business opportunities. and co-edited Pakistan: Contours of State and Society (OUP). What remains problematical is the capacity of the business community to mobilise support for dramatically altering the government’s operational paradigms. as re ected through recent Planning Commission initiatives. By encouraging competitive and inclusive markets. thereby creating more space for the private sector in activities unduly dominated by public sector operations. Youth and Community A airs. While this strategy in itself contains a useful prescription for more rapid changes. There are major business-related features of the FEG. and helping to promote productivity. He has held teaching. The heavy revenue losses from public sector enterprises. Creative Cities and Vibrant Markets. given the existing low economic growth rate and depressed investment climate? The recent Framework for Economic Growth (FEG) developed by the Planning Commission envisages a paradigm shift in the role of government and the type and nature of state interventions in the economy. especially over the past ve years. though collective business pro-activism. as well as targeted and untargeted subsidies. May 2013 09 . remains questionable. Harvard. He has consulted with several national/international organisations.1 This paper will analyze the salient features of this new strategy. given the state’s own lag in follow-up and implementation. manufacturing and service sectors in the country’s GDP. All four have important implications for an extended role of the private sector. The new strategy relies on four ‘pillars’ or focal sectors to achieve this transition in the state’s positioning for reform. Like so many reform measures and institutional innovations proposed in the past. The hope is that Dr Imran Ali Professor. These ‘pillars’ are: Improved Governance. Sydney and Oxford. ksbl. Dr Imran Ali. and freeing them from existing constraints. He has a large number of international publications on Pakistan and Punjab. implementation remains a major hurdle. and in what ways it could positively impact private sector development and hopefully even transform business and investment scenarios. including The Punjab under Imperialism. research and visiting positions at the Universities of New South Wales.

the FEG identi es the fundamental constraints to economic growth as the lack of competitive markets and missing government reforms. Thus. regulated and monopolised markets. ing of private sector enterthe civil serprise. by reforming restrictive zoning laws. The urban economy. resilient in ation. reforming the labour sionals and market and reducing state specialists. impact of earthquakes and oods. These include restructuring and divesting control of public sector enterprises. economic distortions through arbitrary subsidies and protection. compounded by regulatory uncertainty and poor 10 KSBL Review . in which Pakistan lags even behind its neighbours. incentives. h u m a n resources. Growth will also be spurred through increased productivity: labour productivity growth has been lower than in neighbouring countries contract enforcement with weak property rights. is now an obstacle to faster growth. rms remain predominantly small in size. inadequate market development and ine cient public sector management. public service institutions. with proper space ing research and developfor profesment. through rewarding vice needs to be fundameninnovation. as well as production and management. At the core. minimising the government’s operational scope. low and declining productivity. continuing low intensity con ict. strengthening agribusiness value chains. improved human resource through better healthcare. The FEG focuses on the need to strengthen competition and entrepreneurship. Lack of government reforms creates poor returns on public investment and higher macroeconomic risks. reduced domestic and foreign investment. promoting research and development. 2 In order to achieve more rapid ‘hardware’ growth. The urban economy. through rewarding innovation. accountability and social sector delivery. while market forces should determine the ownership and nancing of assets. security. in particular. along with restructuring and speedy reforms. and lack of entrepreneurship caused by rentseeking which in turn depresses risk-taking and entrepreneurship. limiting government borrowing. a large and loss-making public sector that adversely a ects market development. more meaningful education and greater connectivity can increase labour productivity. demographic pressures. with the government exiting from operations and maintaining a regulatory and policy role. by reforming restrictive zoning laws. with its heavy rent-seeking and ine ciencies. These are mainly problems with macroeconomic stabilisation and scal policy. abolishing busitally reorganness bottlenecks. Public sector enterprises need critical surgery by removing subsidies and monopolies and ending ine ciencies in resource The FEG seeks strengthenmobilisation. The FEG also advocates improved governance. promotised. and speedier contract enforcement. the proposed FEG strategy moves the focus to ‘software’ development. abolishing business bottlenecks. The former is compounded by barriers to entry and exit. since the activity in the goods and traditional factor markets. Reforming these and other impediments to increased competitiveness of markets would lead to higher growth rates: an estimated seven percent per annum is needed just to absorb the emerging extreme youth bulge. entrepreneurship and innovation. through a number of measures. Moreover. in particular. Consequently. needs to be rejuvenated. such as economic governance.GoP’s New Economic Growth Framework and its Impact on Business The slowdown in growth is inter-related with the contemporary challenges that Pakistan faces. inadequate market development and ine cient public sector management. and the seemingly endemic state shortfall in justice. generalist bureaucracy. is highlighted. reforming the labour market and reducing state activity in the goods and factor markets. computerising property records. energy de cits. Thus. and are unable to bene t from economies of scope and scale or the premium human resources that would make them internationally competitive. The FEG seeks strengthening of private sector enterprise. needs to be rejuvenated.

along with e cient urban local governments. trading with India and China requires a major upturn. Nor have business leaders shown much interest or taken an initiative in addressing this issue: many might anyway be hostile to these proposals since they call for the dilution of vested interests. with renewed protection after initial trade liberalisation. there is a third element. the ‘software’ for urban management has become obsolete. have further depressed urban development.and rm-levels in order to move out of the current morass a ecting the agricultural. which are more functional than the retention of the dual residential and commercial categories that continue to constrain Pakistani cities. with simpler registration systems and clearly identi able property rights. the business community itself. Modern cities now have multiple types of zones. manufacturing and trading sectors. May 2013 11 .www. In particular. and indeed deepening. A return to unilateral trade liberalisation. with general reduction in tari s and abolition of the embedded and distortive system of regulatory duties (SROs). Government regulations create imbalances as they are not professionally organised and are skewed in favour of speci c interests. it appears that business is quite unaware of these developments. inadequate transport and storage facilities in the rural economy. and a host of heavy-handed government regulations. Energising these changes will require political courage and public service willingness and capability. This would yet another failed attempt at reform if the new strategy remains unimplemented. address the demand for Further emphasis is placed on openness in trade. and neglect of domestic commerce. warehousing and a ordable housing needs. It is the lack of these that explains much of the continuing. However. could help to rapidly increase business investment and enterprise. 4 A prominent feature of the FEG is the call for ‘vibrant and competitive markets’: not only to move away from import substitution but also to terminate the incentives and subsidies given to rent-seeking lobbyists. Market development is further impeded by outmoded urban management and zoning practices. Pakistan’s degree of openness has indeed decreased in the past ve years. which could initiate a robust campaign for changes that will radically expand its domain. will further spur growth. and rectify anomalies in urban land policies. ksbl. New laws and regulations would end restrictive zoning and building regulations. meso. backwardness of Pakistan. While the FEG is an admirable e ort to reinvigorate business and the national economy.5 The FEG also places major emphasis on ‘creative cities’. 6 Cities need to move to a new mode of governance. it will only remain despite the assertion in the FEG that stakeholders have been consulted in its formulation. since no economy achieved international competitiveness by remaining insular and inward looking. acknowledging that modern economies have prospered through urban centres. and unless these are buoyant and expanding then a rural stimulus alone cannot deliver development. However. While the urban population is growing rapidly. It would be a pity if yet another opportunity to return Pakistan to viable economic performance is wasted. which would be more investment friendly. The rationalisation of land and rental markets. encourage high-rise and mixed use development. creating investment disincentives for higher density land usage. Reforms are needed at macro-. Punitive imposts on commercialisation.

and why they continue to recur and return with continued vigour. with detrimental impacts on its development. as well as the big businesses that provided nancial contributions. While the former was far from perfect. the contrast with India in the nationalist movement was a telling signal of the di culties experienced after 1947. also created signi cant intermediary interests that exercised major power and rent-seeking roles in the post1947 political economy. On the political side. Consequently. We need to analyse why market forces have remained weak or been rolled back in Pakistan. This is partly because such explanations are outside the ambit of the FEG document. and only a decade before Partition. Critical developments even in the period before Partition are relevant. 7 By contrast. obstacles to reform in Pakistan. it fails to analyse in any depth why these resistances are so deeply embedded. leading to the rise of a class of rent-seekers that successfully resist governance reforms. while the rural masses (consigned to the category of ‘menial’ lower or service castes) were excluded from land occupancy. The exception was the vital Punjab province.8 democratic continuity in India and authoritarian over-reach in Pakistan. The greatest amount of land grants went to the upper. the League held only 1 out of 120 Muslim seats in the Punjab Assembly. the Muslim League was hardly organised. human resource upgrade. small and medium enterprise. it was British strategy to preserve this upper peasant element from the abrasive impact of market forces. The backbone of the Indus basin economy was the canal irrigation network in Punjab and Sindh. with detrimental impacts on its development. developed mostly under British rule. the FEG also indicates the signi cant. By the mid 1930s the Indian National Congress.GoP’s New Economic Growth Framework and its Impact on Business The Causes of Embedded Backwardness and Resistance to Change Wherever it proposes change and transition. The Congress represented a broad alliance of upper peasantry. However. for the security and scal sustenance of the colonial state. the pre-eminence of the ‘way we do things’ and the weak stimulus towards ‘how to do things better or best’. which is forward looking and focused on building the case for reform in the near to medium term future. where the League stood excluded from this role. landholding ‘agricultural’ castes. The contrasting trajectory of post1947 political developments led to 12 KSBL Review . The nature of economic change in the future Pakistan area also laid the foundations for authoritarianism and resource diversion. it did avoid the almost extreme concentration of power and resources in Pakistan. if not formidable. urban professional classes and workers. the Congress delivered a body blow to British rule by defeating the pro-British landlord-based parties in every Hindu majority province. a much wider analysis of historical. The remarkable Punjab Land Alienation Act of 1901 restricted land sales from ‘agricultural’ to ‘non-agricultural’ castes. was already a mature political party reaching from village to provincial to the all-India apex level. The agricultural colonisation and land settlement process. In the areas of suggested interventions. We need to analyse why market forces have remained weak or been rolled back in Pakistan. required to bring hitherto arid wastes under cultivation. which is probably a function of their inadequate research into the nature of the country’s institutional development. a political but anti-market measure not unrelated to the fact that the former provided both military recruits and land revenue. consequent to the Government of India Act of 1935. urban restructuring and market renewal. In the 1936 elections.9 Unlike its own peasantry during the industrial revolution. the spearhead of Indian nationalism. as there were signi cant continuities into the Pakistan period. since its communal stance could threaten the inter-religious coalition brought together by the British in the Unionist Party. whether governance. In understanding the forces that succeed in retaining the status quo. is creating the lags and relapses that keep Pakistan backward. comprising the same Muslim landlord interests that the British supported. Incumbent social scientists have generally failed to analyse these forces in the understanding of Pakistan’s political economy and evolving business and social dynamics. socio-economic and politicoinstitutional factors is required.

tax holidays. if industrial revolution is the hallmark of the modern age. having failed to nancially contribute to political organisations and democratic governance.14 TThe nationalisation programme of the 1970s represented a major rollback of market forces and a debilitation of private large-scale industrial and nancial assets. The paradigm of ‘growth without development’.12 Eventually. The strategic alliance that accomplished this further ‘counter-revolution’ was mobilized in the 1970 elections. with medium enterprise galled by the rent-seeking of big business. the religious cleansing of 1947 drove out almost the entire business community from the Indus basin. thereby greatly extending the economic domain of public functionaries. business in Pakistan lacked political anchorage. This emergent business vacuum tilted the Pakistani political economy further towards elements hostile to market forces and structural transformation. then the Pakistan area su ered a ‘counter-revolution’ in eliminating its entrepreneurial resources. and opportunistic public sector divestitures. in Punjab small landholders that had been squeezed by the ‘green revolution’ whose bene ts had passed to middle and large farmers. and indeed su ered a radical reversal in the 1970s. The rapid emergence of industrial oligopolies was seen to be induced by a range of concessions. disproportionate resource diversions. was testament to the entrenchment of anti-capitalistic elements. and in Sindh large landlords resenting the sudden rise of industrial magnates. Regional disparities added to wealth maldistribution to enhance skepticism over the functional inequality approach. With the rise of market towns. and Pakistan was seen as a model of late industrialisation. with textiles emerging as the major sector. Public functionaries in Pakistan have not only indulged in rampant rentseeking. and have since remained entrenched. such as protected markets. Second. business groups had also started diversifying beyond the textile base. which after Zia-ul-Haq’s coup came under the direct control of civil and military o Three further segments. from the economic development perspective this had serious downsides. has been explored by me in several research publications. More accelerated industrialisation in the 1960s did lead to wealth concentration and the emergence of a few dozen ‘big’ business groups. 10 First. urban intelligentsia riling against military dictatorship. Nevertheless. Unlike India. but also e ectively resisted timely reforms and thereby contributed to the retention of obsolete and dysfunctional structures and processes.11 Third. Indeed. May 2013 13 . with innumerable land transfer transactions and centralised irrigation management. The expropriated production units were placed under 12 sector corporations. The business vacuum began to be lled through trading groups in Karachi and upcountry in-migrating from India. the British generated the narrative of the usurious ‘Bania moneylender’ as the source of crisis. all potentially hostile to the articulation of the market. hopefully paving the way for socio-economic modernisation. While political history might claim redeeming aspects in the formation of Pakistan. either for grants to soldiers or in animal breeding schemes. and unlike their Indian counterparts quite undisturbed by land reforms. the colonial state tried to minimise its appropriation of agricultural land. Trading pro ts. ksbl. Such rewards remained unmatched elsewhere in the British Indian empire. raw material pricing anomalies. With the economic depression of the 1930s and consequent agrarian disruption and indebtedness. tenants expropriated by farm mechanisation. the larger landowners received signi cant land grants. the civil bureaucracy exercised more arbitrary authority than anywhere else in South Asia. Their continued eminence in political a airs has helped to retain deinstitutionalised and de facto power nodes averse to sustained reform strategies. thus losing Regional disparities added to wealth maldistribution to enhance skepticism over the functional inequality approach. Apprehensive that this segment would destabilise the hold of its rural intermediaries. ‘exploitation’ by business increasingly assumed a communal characterization. and continued obeisance to global imperialism. in this hydraulic society. a premium resource built over the previous half century.www. especially from the Korean War. and indeed of economic growth actually embedding social rigidities. were invested in industrial projects. the military obtained extensive canal irrigated land. This ‘militarisation’ of the rural economy served as a prelude to post-1947 authoritarian power capture. the Indus basin did witness the rise of a commercial and professional class. subsidised nance.13 That the country was unable to maintain this strategy. Since business groups were predominantly non-Muslim. which caused resentment especially with stagnating real wages. were greatly strengthened through agricultural colonisation. agri-trade and agro-processing. One class remains unaccounted for: the business groups that emerged with extensive agrarian growth.

capital ows went once again to low value added textile segments. This has rolled back the state from ownership of production units and commercial banks. see D. Elites and their Role in Pakistan’s Development. See Imran Ali (with A. Pakistan in Regional and Global Politics (London and Delhi. in R. 6. Relations between the Muslim League and the Punjab National Unionist Party. transport and heavy industry. Haque and D. The military continues to consume a signi cant part of the national budget. 8. Oxford University Press. in N. Malik). 2007). There is now a large body of academic research on Indian nationalism. See Imran Ali.). Racine (eds). in Imran Ali. Macmillan. government and Society in Colonial Punjab. Vol. 25. University of New England Asia Centre Paper No. 2002). South Asia (Journal of the South Asian Studies Association of Australia and New Zealand). the 1970s nationalisation had gone beyond the exclusion of large-scale business to the almost bizarre takeover of the intermediate agro-processing sector.S. 29-50. Low (ed. Dubey (eds). Low (ed). Oxford University Press. 16 Since 1990. Breman. Planning Commission. Imran Ali. The Political Inheritance of Pakistan (London. Export levels stagnated and remained tied to the commoditised end of the cotton and leather trades. energy. The Congress and the Raj (New York. 14 KSBL Review . The Political Economy of Industrial Development in Pakistan: A Long-Term Perspective. Festschrift for G. Pakistan lost the opportunities thrown up by the global economy in consumer electronics. 01 02 03 04 05 06 07 08 09 See ”Framework for Economic Growth Pakistan” (Islamabad. reprinted by Oxford University Presses. Pakistan: the Contours of State and Society (Karachi. with stateowned trading corporations in rice. 1885-1947 (Princeton. For a useful analysis of nationalist politics in the Hindu-majority provinces. For a comprehensive analysis of the agricultural colonization process. See Imran Ali. 2005). the emergent computer industry.Pakistan: Political Economy. National University of Singapore. May 2011). 1. National and Local Interactions. Persistent Inequality and the Challenges to Legitimacy and Peace Building in Pakistan. University of New England Asia Centre Paper No. 2011). The Punjab and the Retardation of Nationalism. The Lahore Journal of Economics. Vol. S. Asian Journal of Management Cases. 10 11 12 13 14 15 16 17 See Imran Ali. Pakistan Institute of Development Economics.A. Understanding Pakistan – The Impact of Global. in a ording succour to pre-modern formations and keeping business at bay. Business. Business. The Historical Lineages of Poverty and Exclusion in Pakistan. Princeton University Press. 2005). see Imran Ali. wheat and other commodities.2. Moreover. 2007). see Imran Ali. such as oil and our mills. Vol. but delivers bulk nancial resources to political and public functionaries.C. and Post-2000 Developments. Jetly (ed). For a review see Imran Ali. see Imran Ali. the private sector was emasculated from the forward linkages of the agrarian supply chain. For analysis of the underlying factors behind this malaise. Delhi and Karachi). the state took over the commanding heights of agri-trade. Two Tales of a City: Lahore and the Ends of Empire. Like 1947. 1849-1947 (Delhi. Columbia University Press. See also Imran Ali. Investment itself became a rentseeking exercise.17 It appears that the strategic intent of the colonial state. For voids in Muslim nationalism and pre-Partition Punjab political developments. Stakeholders and Strategic Responses in Pakistan (Armidale. No. Government of Pakistan. (Singapore. is being replicated by the sovereign state more than a half century after independence. 1977). in Regionalism and Trade: South Asian Perspectives. the private sector was reluctant to invest in Pakistan for over a decade. R. information technology and software development. 2005). Routledge. Past and Present (Oxford). Tan Tai Yong. 2 (2004). Malign Growth? Agricultural Colonization and the Roots of Backwardness in the Punjab. in J. No. K. lacking the nancial and organisational capabilities to invest in higher technology industries. 2009). February 1987. while excessive state borrowing not only crowds out the private sector. Pakistan. 1988. Narrative and Power under Colonialism and Independence. Oxford University Press. though these were soon privatised by Zia. and in order to placate the agrarian elite and upper peasantry. South Asia.U. 1976. Far an analysis. August 2002. No. 45. Stakeholders and Strategic Responses in Pakistan (Armidale. and the consequent rapid accumulation of non-performing loans. see Imran Ali. 2013). See Imran Ali. 8. v d Linden (eds). Regional. Democracy. Hussain and M. Institute of South Asian Studies. 14 (September 2009). Mumtaz and J. No. pp. Nayab (eds). in A. though public sector enterprises still pervade infrastructure. The Punjab under Imperialism. Sustainable Development and Peace: New Perspectives on South Asia (Delhi. Cities – Engines of Growth (Islamabad. The Sinews of Governance: Bureaucracy. 1935-47. cotton. 114. See also Imran Ali.15 After the trauma of nationalisation. Lieten (Amsterdam. The private sector remained weak. see Imran Ali. the privatisation programme has been induced through conditionalities from high foreign debt levels rather than internal dynamics. with the entry of maverick entrepreneurs exploiting the nationalised nancial sector. and Past and Present: The Making of the State in Pakistan. Pakistan Development Review (Islamabad). 4II (Winter 2006). Vol.GoP’s New Economic Growth Framework and its Impact on Business Further. Historical Impacts on Political Economy in Pakistan. The Garrison State: The Military. See Imran Ali. Imran Ali. For social and economic impacts of these processes. When investment did return after 1985. in D.L. No. Srivastava and M. 1991).A.

working with them to meet their current and future business goals. international best practices and local perspectives while focusing on individual. in 2010. using the vehicle of learning and development for their executives. family business. conducting a programme on "Strategising for Competitive Advantage" at KSBL KSBL launched Executive Education programmes in strategic collaboration with Judge Business School (JBS). KSBL Executive Education is o ering world-class. • . KSBL has conducted 17 programmes which have been very well received by Corporate Pakistan and have established KSBL as an upcoming premium provider for Executive Education in the country. functional and organisational growth and development Acknowledgment of learning from the KSBL programme through the KSBL Cambridge Certi cate Key Focus Developing partnerships with organisations. KSBL . public and social sectors in Pakistan and in the region. Since then.Executive Education A group discussion during KSBL executive education programme on creating high performance teams Dr Kamal Munir. Professor Cambridge Judge Business School. Cambridge University. • • Open-Enrolment and Customised Programmes With its highly quali ed permanent faculty. visiting foreign faculty from Cambridge and other renowned business schools.Executive Education Advantage • Highly qualified faculty for designing relevant learning experiences aligned to achieve client organisation's goals and objectives Programmes with participant-centered methodologies to allow participants to learn and discover solutions under the able facilitation of the faculty Blend of relevance and rigour. The programme portfolio is developed based upon KSBL faculty expertise and feedback / suggestions from KSBL Executive Education Alumni and from the market in general. innovative and relevant Open-Enrolment and Customised programmes and services for the corporate.

Except for a correlation of approximately 0. KSE appears to be largely immune to the foreign market spillovers and hence. provide investors the ease (and exibility) of taking positions in those products rather than physically holding them (or. . Gold & Oil Financial markets have displayed enormous volatility over the past few years. the correlations between KSE and other markets are of very small magnitude. the cost and time required to replicate an index). Dr Malik was a faculty member at the Lahore University of Management Sciences (LUMS). the spillovers between foreign and local markets.04 -. He also has a Masters in Finance from The University of Manchester and Bachelors in Economics from University of London. Prior to joining KSBL. Yet Futures are perceived to be more volatile (riskier) than traditional nancial markets because of excessive speculation in Futures. A look at the graphs of daily returns (volatility plots) for selected ve nancial markets reveals: KSE. Given the cross-correlations. displaying little or no concern for the economic fundamentals. The Karachi Stock Exchange (KSE) is perceived to be a riskier market with erratic market movements. As is evident from the graphs. Commodities (especially gold & oil) were considered to be attractive investment opportunities. in case of an index. The extremely volatile behavior of gold could be due to speculation originating in the corresponding Futures market for the precious metal. Whether this extra risk of gold is compensated with extra returns is another issue. this perception however seems to be changing rapidly. for many commodities and nancial products. or more speci cally. In terms of market dynamics. e. The spectacular growth of gold seems to be disappearing and the upward trend in the price of oil appears vulnerable to global economic uncertainty.Financial Markets: Review. we compute the cross-correlations between KSE 100 and S&P 500 indexes and between KSE 100 and SENSEX 30 indexes at various leads and lags over the past six months. Instruments such as Futures still attract a large amount of in ows and. The market at one point in time can display extreme momentum in the upside direction.13 with SENSEX at lag 0. Analysis & Dynamics Dr Ali Khalil Malik Asset Allocation: Stocks. and at other times can display sharp downside swings. displays signi cantly more volatility compared to the selected stock markets.02 0 . The volume in Futures markets has surged in recent years but excessive speculation remains a concern for the risk-averse investor. Dr Malik has six years of teaching experience at universities in Pakistan and UK.02 0 100 200 obs 300 400 500 16 KSBL Review . volatility speci c to KSE appears to be originating from within the market only. KSBL ali.04 KSE Returns -. UK). He graduated with a PhD in Finance from Manchester Business School (Manchester. which was (and still is) considered to be a safe haven for investors. Investors have experienced mixed returns from nancial instruments and commodities.1 with S&P at lag 1 and a correlation of approximately -0. on Dr Ali K. nancial engineering and nancial risk management. tends to be relatively less volatile compared to other markets.malik@ksbl. Therefore empirical evidence is not supportive of the hypothesis that global equity market spillovers signi cantly a ect the Karachi Stock Exchange. all others are close to zero (except for some non-zero correlations at random intervals). Gold. This potential for sustained upside movements has attracted many domestic investors to the markets but the more cautious and foreign investors tend to be less optimistic with respect to the performance of the market. Associate Professor.g. another emerging country’s stock exchange ‘Mumbai Stock Exchange’ displays more pronounced volatility (and hence risk) compared to Karachi Stock Exchange over the past two years’ time period. His research and teaching interests focus on nancial economics. Malik is an Associate Professor of Finance at KSBL.

2 -.04 0 100 200 obs 300 400 500 0 100 200 obs 300 400 500 .02 . May 2013 17 .04 SAN Returns SAP Returns .e.06 -.05 -. The upper half of the minimumvariance frontier. known as e cient frontier.2 ..2 Cross-Correlations SAP kse -.02 0 . KSE 100. i. we compute the e cient frontier (optimal risk portfolios) from an investor perceptive.02 .org Daily Return Plots for the Selected Financial Markets .04 obs 0 100 200 obs 300 400 500 Cross-Correlations of KSE with S&P and SENSEX Cross-Correlations . S&P 500.04 -.05 GOLD Returns 0 100 200 300 400 500 Oil Returns 0 -.1 -.04 -.www.1 SAP kse 0 0 0 10 20 leadlag 30 40 0 10 20 leadlag 30 40 To further evaluate the performance of KSE. of these assets is given above for the past two years’ daily returns. Oil and Sensex 30.02 0 .02 -.1 . In terms of portfolio allocation.02 0 -.06 -. an investor having the option to invest in these ve assets. ksbl.04 -. Gold. we consider portfolios of ve assets. Given their risk and return characteristics we want to evaluate how well these assets would t into his/her optimal portfolio.2 -.1 .1 -.

how much risk one is willing to take.18 0.15 0. it shows the maximum return you can get for a given level of risk (normally) measured by standard deviation or the lowest risk you have to bear for a given targeted return. however.. 3 Mean . KSE however. in terms of its weight in the portfolios along the frontier. with a speci ed probability. More speci cally. The uncertainty and volatile movements in the exchange rate are clearly evident from the graph.12 0. in terms of weights in the portfolios are Gold and S&P 500 respectively. We plot the daily exchange rate (Rupee-Dollar) percent changes over the last few months below. KSE appears to be an ideal market to improve the risk-return combinations (i. weight on KSE gradually increases to 100%. The fundamentals may not be very strong for Pakistan. KSE. To minimize the e ect of time-dependency on the e cient frontier.1 Even when evaluating the portfolios within this dimension of risk (C-VaR) and return. we nd that the weight on KSE in the portfolios along the frontier is now restricted to 25-50% for most of the portfolios (even as you move towards the north-west direction).2 The depreciating rupee does take some gloss o the strong KSE performance in the recent years but it still o ers great diversi cation opportunities for the investors worldwide. (risk-averse and risk-takers) compared to other assets. 1. in fact of all the assets KSE has. shifting the e cient frontier outwards) available to the investor.19 0. the largest weight in all the portfolios along the frontier. As you move rightwards along the frontier. Based on the analysis so far. comes second only to SENSEX. VaR as opposed to standard deviation measures the tail-risk.6 1.1 0. still retains its importance in terms of its weight in the portfolios along the e cient frontier.Efficient Frontier Our analysis shows that due to its non-correlated-ness with other markets KSE appears to be an ideal market to improve the risk-return combinations available to the investor. Dollar over the past couple of years).5 1.2 2. We use this frontier to illustrate the preference of assets among the assets discussed above.Variance .16 VaR to re-evaluate the importance of KSE in this portfolio allocation problem. The weight on KSE still varies between 36%-100% along the e cient frontier. but the stock market o ers attractive risk-return opportunities for the investors. The same information can also be presented in terms of other measures of risk like Value-at-Risk (VaR). The minimum weight on KSE is 35% and it rises gradually to 100% as you move towards high risk/return portfolios along the frontier. as portfolio allocation (like other nancial relationships) is time dependent.11 0.e.8 1. However its disconnection with the macro-fundamentals might just be what is keeping the more risk-averse investors away from the market. our earlier analysis stays intact.3 Expected Return 0. It still. we perform this exercise again using last one-year daily returns data only. If we take into account the impact of exchange rate movements (since the Pak Rupee has depreciated signi cantly against the U.e. The same is also true when using C-VaR as the measure of risk. A depreciating exchange rate also poses strong questions for the foreign investors. The optimal point (portfolio) on this frontier depends on the level of risk-inversion of an investor i. again as we move towards the riskier positions along the frontier.7 1.13 0.3 18 KSBL Review . which attract signi cant amount of investment globally. Using the annualised dollar returns on KSE for the past 6 months and repeating the same exercise.1 2.e. For all the portfolios along the e cient frontier there is a substantial weight on the KSE 100 index.09 1. We use conditional VaR (C-VaR) as opposed to 0.14 0. then the attractiveness of KSE is diluted somewhat. VaR measures the loss level. despite all the negative perceptions o ers attractive opportunities for the investors.9 Risk (Standard Deviation) 2 2. The weights on S&P and SENSEX however increase relative to gold (compared to our analysis above).Financial Markets : Review Analysis & Dynamics The minimum-variance frontier plots the optimal risk-return combinations i. the risk and return both increases. which will not be exceeded over a given number of trading days.S. The other two assets behind KSE. These are then followed by S&P and gold respectively. However. Our analysis shows that due to its non-correlated-ness with other markets. The term ‘tail-risk’ refers to the extreme parts of a probability distribution function.4 1.

www. ksbl. A rational investor would consider all the available information before deciding on the future course of Daily Exchange Rate Movements 4 -4 0 -2 Exhange Rate 0 2 50 100 obs 150 200 A strong performance in the past does not guarantee a similar performance in the future. the upcoming elections in Pakistan and the related uncertainty. and the weakened fundamentals all pose intriguing questions for potential KSE investors. one gets a feeling of a possible reversion in the KSE 100 index. In fact after looking at a couple of indicators (Stochastic Oscillator and Chaikin Volatility) below. 4 Stochastic Oscillator 150 100 50 0 1 16 31 46 61 76 91 106 121 136 151 166 181 196 211 226 241 256 271 286 301 316 331 346 361 376 391 406 421 436 451 466 481 Chaikin Volatility 200 100 0 -100 1 16 31 46 61 76 91 106 121 136 151 166 181 196 211 226 241 256 271 286 301 316 331 346 361 376 391 406 421 436 451 466 May 2013 19 . Had KSE already reached its peak.

Dividend payers tend to be large. lower-risk income investments may not provide high enough yield and could actually incur losses if interest rates rise in a recovering economy. Diversi cation can help improve returns and reduce volatility. Dividends occur when a company shares its pro ts with stockholders. Dividend-paying stocks have historically delivered higher long-term returns than other income vehicles. The longer the time horizon. For example.) have the potential to improve portfolio diversi cation because of their generally low correlations with stocks and bonds. risk. Adding these alternative assets may help investors reduce downside risk without sacri cing upside return potential. nancially strong companies with more mature businesses that are less susceptible to economic cycles. can therefore improve a portfolio’s risk/return characteristics. This may expand return potential while helping to protect against downside risk. Alternative assets (real-estate. being appropriately diversi ed across a broader opportunity set can help reduce volatility and increase long-term returns. asset classes such as real estate. individual asset class returns can vary signi cantly. Their lack of correlation is what makes them good diversi ers. along with a longer-term perspective. especially in the short term. but is about combining many of them into a portfolio that pursues your desired returns while diversifying risks. tend not to move in lockstep with traditional asset classes (i. As a complement to traditional income investments.5 Dividend Paying Stocks Dividend paying stocks o er attractive investment opportunities. commodities. while the S&P 500 returned only 33% over the same period. Since asset classes don’t move in lockstep. In general.e. a hypothetical diversi ed portfolio would have returned 86% over the past 10 years. yields are currently higher than government denominated debt in many countries. Diversi cation works because not all asset classes move together. For example. it is important to rebalance regularly to adjust for Diversify & Look for Alternative Investments large market uctuations and the resulting portfolio imbalances. Market neutral strategies have (had) little or no correlation to stocks and bonds. commodities. Because asset allocation is a key driver of returns. A longer-term investment horizon can further improve returns and reduce Because asset allocation is a key driver of returns. it is common for a country’s stock market dividend yield to exceed its long-term government bond yield. Some investments are positively correlated to each other. they have low correlations to stocks and bonds). Adding alternative assets to a diversi ed portfolio can also help investors dampen volatility and potentially increase returns over the long term. meaning they generally have moved independently of traditional asset classes often found in investors’ portfolios. because gains in one investment may o set losses in another. A well-diversi ed portfolio with non-correlated alternative strategies (assets) may achieve higher returns with less volatility. Non-correlated securities on the other hand make excellent diversi cation tools by allowing investors to pursue increased returns from assets that respond di erently to changing conditions. The key to generating higher income isn’t to avoid the safe investments or overdo the riskiest.Financial Markets : Review Analysis & Dynamics Investment Dynamics In today’s uncertain environment and economies struggling with their fundamentals. etc. And because international markets are driven by di erent economies. This appears to be case in our portfolio allocation the problem above as well (KSE having very little correlation with other nancial assets). It is therefore bene cial to look for income across a broader range of asset classes from around the world. the lesser will be the variability in potential outcomes. meaning they tend to react similarly to market or economic trends. they can bring another level of diversi cation to your income portfolio. it is important to rebalance regularly to adjust for large market uctuations and the resulting portfolio imbalances. dividend payers may o er added sources of yield along with other possible bene ts. The story is similar in real estate investments. Diversi cation. Dividend income therefore has the potential to cushion falling stock prices and reduce the volatility 20 KSBL Review .

emerging markets should play a larger role as a driver of growth. exchange rate risk and price risk. Futures can also be used for cross-hedging i. As the Futures price changes on a daily basis (till maturity).e. Dividend yields on emerging market stocks are often higher than those in the developed countries. One such instrument which has grown substantially in volume over the recent years is the Futures contract. And because such companies pay out a relatively small portion of their earnings. ksbl.www. Futures are available to trade on the Pakistan Mercantile Exchange. depending on a long or short position). and increase them in good times. saving the time and cost of replicating the market index in exactly the same proportions. But we hope that as the awareness for Futures grows and more people enter the market. the Futures price will normally converge to the spot price and hence your cumulative pro t and loss from Futures or physical purchases would be the same. Futures provides the exibility of investing in commodities which cannot be physically stored or publicly traded. the IMF expects that more than 70% of global growth will come from emerging markets. for hedging assets for which no secondary market exists. Dividends are an important source of income and have accounted for a sizeable share of historical stock market total returns. with the broker. They can be used to hedge against market risk. etc. utilities. Companies with high dividend yields and low payout ratios have historically delivered the best returns. This settlement will continue to take place till the maturity of the contract. The contracts normally specify the commodity to be delivered. such as foreign currency. etc. Futures for only some selected commodities are available for trading (gold. interest rates (Eurodollar Futures).6 The closing price at which the settlement takes place is usually known as the settlement price. risk management and of returns. Futures are available on a wide range of products. Investors use these instruments for hedging. Over the next four years. As mentioned. A Futures contract is a novel and cost e ective option for investing (and hedging against market risk) in a multitude of assets. when and where to be delivered (in case of a delivery) and the size of the contract. They also provide the exibility to invest in stock indexes (a diversi ed portfolio with no non-systematic risk and a Beta of 1 on-market risk) in a cost e ective manner.e. no delivery takes place. and. or till the closure of your positions in the Futures contract. commodities. one would be required to deposit only a margin (a fraction of the actual price of one ounce of gold) rather than the full amount. the Futures price will normally converge to the spot price and hence your cumulative pro t and loss from Futures or physical purchase would be the same. Therefore dividend-paying stocks in these emerging markets o er attractive opportunities for the investors. Futures these days are available on a wide range of assets and are normally traded in secondary markets. physical purchase of commodity) without the need of actually physically buying the commodity. e. indexes. As the global economy and capital markets become increasingly integrated.g. Most Futures contracts are closed before maturity (in this case. Futures provide the exibility of enjoying the same gains/losses on a commodity (i. A Look into the World of Futures Financial instruments play a vital role in ful lling multiple objectives of investors. Futures are also extensively used for hedging (especially the price risk in commodities). interest rate risk. weather. As the maturity of Futures contract approaches. a larger selection of Futures contracts will be available in Pakistan in the future. Futures also help in managing the timing of cash ows. to purchase one ounce of gold through Futures. In Pakistan. Dividends are an important source of income and have accounted for a sizeable share of historical stock market total returns. Similarly.) at the moment. they’re often able to continue issuing dividends in tough times. investment. Futures also give you the exibility to close your positions (closing out a Futures position involves entering into an o setting trade) before the maturity of the contract. the exibility of investing in various commodities without actually physically buying those commodities and hence incurring the transportation or storage costs for those commodities. They help boost gains in up periods and reduce losses during downturns. As the maturity of Futures contract approaches. the pro t and loss (what you would also experience on the physical purchase of gold) is re ected in your margin. Futures provides May 2013 21 .

8 It is not suggested to fully hedge against the complete value of oil imports. Therefore even though Futures is to some extent responsible for the volatile nature of oil prices.). making it more expensive for consumers to drive to their o ces and for businesses to deliver goods. the possibility that oil and gasoline prices will move higher. Higher oil prices reduce the amount of money consumers have to spend elsewhere. This argument is even shared by some of the oil companies’ CEOs. The kind of volumes observed in the Futures oil market cannot justi ably predict the future direction of oil prices. As tension continues to rise in the Middle East. Oil prices have displayed great variability in recent years. recent tension in the Middle East has the potential to push oil prices higher. as a result. which is an importer of oil. however. particularly in the case of Pakistan.Financial Markets : Review Analysis & Dynamics Crude Oil Dynamics The Pakistani economy is greatly dependent on the price of oil. Even though Futures prices do have a role to play in the price of oil but this recent episode of oil price surge and collapse was mainly determined by the economic fundamentals. Because this oil is imported. Because Pakistan imports the majority of oil that it consumes. the possibility that oil and gasoline prices will move higher has increased. Rising oil prices create larger percentage swings in petrol prices and. not the most important factor determining the price of oil. Recent empirical evidence shows that even though trading in Futures (increased nancialisation of the Futures markets) is an important factor.7 It is a well-known fact that Futures prices for crude oil and the corresponding spot price move in tandem with each other. therefore. has increased. and this hinders economic growth. A rising Dollar coupled with rising oil prices leaves the Pakistani economy extremely vulnerable to these changes (especially to oil prices). The long-term solution will be to continue pursuing alternative sources of energy (coal. Only a few years ago they were hovering around the record $150 per barrel barrier. but an optimal hedge ratio can surely be worked out and may shield Pakistan’s economy from potential oil shocks in the future. normally comes under the spotlight when the irrational exuberance in nancial markets is to be blamed for struggling economic fundamentals. 22 KSBL Review . Higher oil prices hamper the ability of consumers to spend money on things that would directly contribute to GDP growth. The key factor turns out to be the economic fundamentals. the money spent on it does not contribute to Pakistan’s Gross Domestic Product (GDP) and. Economic fundamentals are the main driver of the crude oil prices. for this reason. can be considered a drag on economic growth. The most recent surge in the price of oil and the subsequent collapse was mainly because of the increased global demand in the price of oil followed by reduced demand for oil due to a global recession. with prices following to $30 per barrel. rising oil prices create a drag on economic growth. Rising oil prices can therefore hinder economic growth. Economists have tried to understand the reasons behind this recent price surge and collapse in the price of oil and also the reasons behind the highly volatile nature of oil and its movements. As the tension continues to rise in the Middle East. Rising oil prices quickly make the price of petrol increase (because of the pricing mechanism adopted by the Government of Pakistan). Futures. A common perception is that this volatile nature of oil is due to the increased participation of investors/speculators in the Futures markets (increased nancialisation of Futures markets). it is certainly not the sole or the most important determinant of oil prices. And the common argument is that it is the speculation (and volatility) in Futures markets. Although prices remain below their 2008 peaks. only to be followed by an even more dramatic price collapse. The economic evidence however is contrary to the general perception of speculation/volatility in the Futures market driving the price of oil. which drives the spot price for crude oil rather than the economic fundamentals. Volatile supply drives prices further high. etc. This will make Pakistan less reliant on foreign oil and help insulate against potential supply shocks. in the budgets of consumers and businesses. any threat to production in that region typically causes oil prices to go up. Given that the Middle East produces a signi cant amount of the world’s oil. it is. as those volumes have no resemblance to the actual demand and supply volumes. And oil prices are of even greater interest since most of the economic recessions are preceded by rising oil prices.

9 While the nancial meltdown a ected many banks throughout the world. It is not suggested to fully hedge against the complete value of oil imports. provide a useful tool for hedging against the rising oil prices. political uncertainty. nancial instruments and liquidity issues may not be very relevant for the Pakistani banking industry.10 The kind of issues which Basel Regulations (and esp. but an optimal hedge ratio can surely be worked out and may shield Pakistan’s economy from potential oil shocks in the future. Pakistani Banks lag far behind their foreign counterparts in implementation of the Basel regulations.www. Pakistani Banks continue to make record pro ts. many of the Pakistani banks remained immune to the crisis. Even Basel II was not fully implemented in Pakistan and now the move towards Basel III would be a very drastic one for the banking industry in Pakistan (even the process for implementing Basel II regulations was derailed during the global nancial crisis in Pakistan). Basel III regulations) addresses e. at least banks with local and middle-eastern ownerships. Basel Regulations is a set of regulatory framework designed to increase the sustainability and e ectiveness of the banking sector. it makes sense for the country to hedge against this oil price risk. on the other hand. Pakistani Banks & Implications for the Economy As Banks in many countries around the globe continue the journey towards the implementation of Basel III regulations. as the volume of derivative transactions in Pakistan is nowhere near the level in developed countries and credit derivatives don’t even exist in the country. weak governance may put a question mark on the sustained performance of the Pakistani banks in the near future. Yet the exit of some foreign banks from the Futures (and options) do. May 2013 23 .g. Basel III was developed largely to avoid a repeat of the recent global nancial crisis and to curb the dangerous innovations of the banking industry. corruption. heavy government borrowing from the banks. slowdown of the economic growth within the country. Given the recent experience of oil price surges and the fact that Pakistan is an oil importer with an economy strongly dependent on the price of oil. ksbl. Sector Analysis (Banking Industry in Pakistan) Basel Regulations.

credit and liquidity risk (Basel II & III) and their implications for the local banks (if implemented) and the economy at large. Credit equivalent amount for the o -balance sheet items is also not expected to signi cantly increase the capital charge for the Pakistani banks. 24 KSBL Review . should banks continue to hold on to the passive policy of simply lending to the government and holding extra capital for no reason. Some of the terms used are regulations speci c and the readers are referred to the Bank of International settlements website for their clari cation. the various capital and liquidity ratios and the corresponding de nition of Tier 1 capital) will not signi cantly a ect the banking industry in Pakistan.). at least banks with local and middleeastern ownerships. should it be considered an achievement for the State Bank of Pakistan (SBP) or is it something to be worried about. new requirements aimed at increasing the contingency capital available (i.13 Basel III if and when implemented in Pakistan is therefore not expected to hamper economic growth within the country and within the banking industry. investments. Pakistani banks (or at least the large banks) already satisfying the new capital requirements however pose another question on the role of banking sector in Pakistan’s economic growth. that Pakistani banks will not have many problems in satisfying the new capital requirements in Basel III. Since derivatives ( nancial or credit) are not intensively used in Pakistan. macro fundamentals are showing no sign an economic boom in the near future and with political uncertainty increasing.12 This perception appears to be true because of the stringent state bank regulations here and also because of statistics of breakdown of banks assets into di erent categories (cash. should we continue to stick to the status quo? Pakistani economy is not doing well. exchange rate is depreciating against most of the currencies. A look into the breakdown of banks’ assets into di erent categories reveals that majority of banks (esp. many of the Credit equivalent amount for the o balance sheet items is also not expected to signi cantly increase the capital charge for the Pakistani banks. The common perception (based on statements by State Bank of Pakistan (SBP)) is.11 Risk weighted Assets are not expected to increase signi cantly as a result of these Basel III (and Basel II) regulations. except for the credit card crisis. swaps (cross-currency swaps & other FX products) being the most utilized derivatives in Pakistan. Therefore satisfying the new capital requirements for the large banks at least should not be a major issue.Financial Markets : Review Analysis & Dynamics The regulations can however hamper the growth of the banking sector and hence the economy.e. The idea here is (given the space constraint) not to evaluate the Basel regulations but rather highlight some of the key Basel Regulations for market. Holding more capital than is required. have a signi cant proportion of assets in the form of cash & bank and investments categories. GDP growth rate is one of the lowest of all the countries in the region. Pakistani Banks continue to make record pro ts. the large banks). loans & advances etc. Even if one accepts the argument that vigilant checks and control of State Bank of Pakistan (SBP) kept Pakistani banks immune to the global nancial crisis spillovers14 (despite the fact that mortgages and the related credit derivatives are virtually non-existent here).

Critics argue that regulations can potentially slow down economic growth and can even lead to more dangerous innovations by banking experts so as to nd a way around the regulations. estimation of stressed VaR. long-short hedged strategies etc. Further one can always use beta to assess the company or country speci c risk and can use strategies such as diversi cation. economy. stock market also generated strong returns for the investors despite the uncertainty surrounding the U. capital conversation bu er. In the end this is expected to free up the un-necessarily tied up capital and get injected into the economy. Banking Survey No one is arguing against a cautious approach but given the size of banking sector (compared to other sectors in Pakistan). leverage ratio. This would help them in developing expertise (knowledge and skills-based) and take a more futuristic approach towards the estimation of market-risk based VaR (Value-at-Risk) or probability of default estimations for the credit-risk based VaR. These are percentage changes in exchange rate. As a matter of fact one should always consider the fundamentals (company and country related) before making long-term investment decisions. Working Paper. is limited only to a few nancial institutions because of the strict State Bank Regulations. And the banks should be able to meet new capital and liquidity ratios speci ed in Basel III like. as well.15 In short the suggestion here is not to get rid of the control and regulatory mechanisms but being more rational and knowledgeable can actually help both economy and the banking sector. To keep vigilance one can always keep control by brining in some of the more stringent regulations of Basel like.www. Ali K. One can even experiment with non-normal distributions. The use of swaps etc. If the government borrowing and non-performing loans of the banking sector are kept under control and banks are encouraged to adopt better risk management practices. Since only a margin account is required for trading in Futures markets. May 2013 25 . etc. Malik. 01 02 03 04 05 06 07 08 09 C-VaR measures the expected loss given that the loss is greater than the VaR level. These indicators are for subjective decision making only. Helping and encouraging them to move onto the ‘model based approach’ for market risk and similarly on to the ‘internal ratings based approach’ (IRB) for credit risk will help them realize the bene ts of diversi cation (credit-default correla- tions and nancial instruments correlations). Again issues like securitization and re-securitization in Basel III may not be very relevant for the banks here. liquidity risk ratio. Other than American or European owned banks. Futures contracts are available of various maturities.S. SBP should obviously keep check on the activities of banks but banks should be encouraged to take on a more active role in terms of loans/advances etc. even a change of 1 or 2 % on a daily basis creates huge uncertainty in the foreign exchange market and hence for investors globally. there is no reason why banking sector cannot make a signi cant contribution in the economic growth of the country. to keep a tighter control. This breakdown of bank assets into di erent categories and the corresponding numbers are based on the KPMG Taseer Hadi & Co. to minimize the downside risk. capital for CVA risk. see the referenced document for more details. Volatility Spillovers in the Crude Oil Markets. market-neutral portfolios. Basel III regulations do face resistance even from banks in the developed countries. arising from changing credit spreads calculations (to account for counter- party credit risk) and other liquidity measures. 10 11 12 13 14 15 The recent increase in non-performing loans for some banks can however a ect their pro tability in the future. Karachi School for Business and Leadership. to the corporates and consumers. but they were mainly a ected due to their operations in U. and Europe. countercyclical bu er. These numbers are borrowed from JP Morgan’s Insightful Series.. This may appear surprising but the same is true for the U. The U.S.S. This analysis is based on the more detailed research paper.). one expects the banks to play a more central role in driving the economy. ksbl. The large banks in Pakistan have a more than 50% share of customer deposits.S.

Internationally Renowned Resident Faculty Dr lmran Ali. Ghani PhD.S. Moscow Institute. USA Dr Jawaid A. Brah. UK Post Doctorate. KSBL Dr Shaukat A. University of Nice Sophia Antipolis. UK Dr Faheem-ul-Islam PhD. University of Houston. KSBL Dr Shaukat A. Canada Dr Asma Hyder Baloch PhD. USSR Dr Ali Khalil Malik PhD. Professor of Operations Management Dean. Australian National University. Mississippi State University. University of Strathclyde. McGill University. Wharton School. Brah PhD. University of Pennsylvania. NUST & Sussex University. USA Dr Muhammad Athar Siddiqui PhD. Business Policy. UK Dr Rizwan Amin Sheikh PhD. France Dr Imran Ali PhD. USA Dr Nadeem Javaid PhD. USA M. France Mr Dawood Ghaznavi MBA. Yale University. USA Dr Zeeshan Ahmad PhD. University of Cambridge. UK . Manchester Business School. SKEMA Business School. University of Pennsylvania. Australia Dr Farzad Ra Khan PhD. Engineering. Professor.

Not only was the area under Wheat cultivation lower this year. Onions (36.18% decrease) and Fertilizers (13. increased to 7. particularly in Sindh.86%).57%).6 percent on average during September. Macroeconomic variables indicate the health of an economy.e. May 2013 27 . 2012 include Pulse Gram (44. The top ten commodities which varied from the previous year i. Cotton Yarn (20.www. but crop yields also declined because of lower fertiliser use and water shortages. decrease in prices has been observed in Tomatoes ( Current Performance of Key Economic Indicators in Pakistan Dr Asma Hyder Assistant Professor. These variables also help in taking policy decisions for improving the state of the economy. On average. WPI in ation. Woven Fabrics (24. Similarly the Wholesale Price Index (WPI) and Sensitive Price Index (SPI)1 also show an increasing trend on a year-on-year basis. This outcome is not surprising given the energy shortages. Sugar (18.09). 2011 to Nov. During November 2011. foreign trade. USA in 2010.e. October and November 2012 respectively.60%) and Beans (20. In ation The country’s sustained high in ation during FY 2012 re ects the Government’s heavy borrowing from the State Bank of Pakistan to nance large budgetary spending and excessive de cits. on a year-on-year basis. during this season. on the other hand. in ation.39% decrease). year-on-year basis.2 million tonnes realized in the previous year. Blocks & Tiles (40. A The surge in in ation due to food prices seems unmanageable in Pakistan’s economy.11% increase). WPI in ation was recorded at 12. Wheat Flour (56. Besan (42. The in ation based on WPI.70%). Thus it is clear that in ation has registered a considerable decline over the year. University of California Los Angeles. William Award for International Understanding and did her Post Doctorate from University of Pennsylvania. Timber (17. Large price variations are observed in Fresh Milk prices across the cities. UK under a split PhD program in 2007. Dairy Products (36. November 2011.30%).81%). More recently.77% increase). The prices of Wheat during the last month were highest in Sindh and Balochistan and lowest in Lahore. The recent performance and analysis of some indicators are given below. The top few commodities whose prices varied during Nov.5 percent a month earlier.65%) and Gas (40. A snapshot of prices in di erent cities for a few selected commodities is given in Figure 1. Honey (23.74%). The prices of Basmati Rice are highest in Islamabad and lowest in Karachi. October and November. it is clear that the economic system is facing serious challenges. increased to 7. whereas.7 percent. interest rates and foreign exchange rates.baloch@ksbl. ksbl.80% decrease).org Dr Asma Hyder Baloch is an Assistant Professor of Labour Economics at Karachi School for Business and Leadership. The Wheat crop was also a ected by a water shortage. Recently there has been an upsurge in the prices of our.10% increase). year-on-year basis.8. She did her PhD from NUST and Sussex University. the total production of 23. these problems restricted the expansion of businesses and private sector investment and adversely a ected production and growth. security concerns and challenging political environment during the last year. She is a recipient of the Fulbright J. Wheat prices were highest in Karachi and lowest in Quetta. According to the State Bank of Pakistan. KSBL asma.25% increase). Bricks. This essay presents an analysis of the recent performance of macroeconomic variables i.7 percent during the Fiscal Year 2012 against the target of 4. The real GDP growth rate was 3. Eggs (24.73% decrease). include Footwear (69.5 million tonnes in 2012.9 percent in September. the price of Rice has been observed highest in Islamabad and lowest in Bannu during the same period. However the overall increase remains high for CPI as compared to WPI and SPI. the in ation increased by 8.0%. If we look factually at Pakistan’s economy. 7.7 and 6.7 percent in November 2012 when compared to 7. She is also a research a liate at the Institute for Research on Labor and Employment. compared with 25.

Average Monthly Prices of Selected Commodities in a Few Cities. the increase in Government borrowing from the Central Bank (i.. Finally. Higher prices were observed in the early quarters of 2011.Current Performance of Key Economic Indicators in Pakistan Food carries a signi cant proportion in all three categories of in ation and in uences the movement in these indices. in ation is likely to be higher in the ongoing quarter if non-food and non-energy in ation maintain their current level. Core in ation is a measure of in ation that excludes the highly volatile commodities from the basket like Food and Energy. It is important to mention here that recently there was a slight decrease in food items and an increase in the weight of a few other commodities like Health. however the non-food index decreased after the second quarter of 2012. potatoes and the prices of a few other vegetables remain notoriously volatile. During 2012. Transport and Communication were added into the basket. monetary policy and the rupee exchange rate (discussed in the next section) are other factors that will determine the future trend of in ation. Moreover. 0 50 100 150 Islamabad Karachi Lahore Peshawar Quetta 28 KSBL Review . the CPI remained high during the mid-quarter of 2012 and after that there were slight decreasing trends.e. Core in ation is also considered as a long-term indicator of in ation. There was a slight increase in the mid-quarter of the year 2012. Increase in food prices accelerated in ationary pressures. the printing of currency notes) may further stoke in ationary expectations. Secondly. for example onions. any supply shock can add to overall in ation. this surge was mainly due to oods and damage to standing crops along with a global increase in commodities and fuel prices also pushed up the prices domestically. February 2013 0 100 200 300 400 Islamabad Karachi Lahore Peshawar Quetta Figure 2: In ation Snapshot Year-on-Year Basis In ation on Year-on-Year Basis 20 60 80 Average Monthly Prices of Milk/1KG 15 10 5 j 01 ul 20 11 0 c 1o t2 01 1 0 an 1j 20 12 0 p 1a r2 01 2 date2 j 01 ul 20 12 0 c 1o t2 01 2 0 an 1j 20 13 0 20 40 Islamabad Karachi Lahore Peshawar Quetta CPI Non_Food WPI Food Core SPI Average Monthly Prices of Kerosene Oil/1 Ltr Generally. the forthcoming elections are expected to reinforce the persistence of in ationary expectations. The surge in in ation due to food prices seems unmanageable in Pakistan’s economy. International oil prices. Rent. February 2013 Average Monthly Prices of Wheat/10KG. A very sharp decrease in WPI during the early quarters of 2012 was mainly because of a decrease in a few of the food items that are included in the WPI basket.

000 1. which is used in most lending contracts as a benchmark interest rate. they cut all the subsides and prices of selected commodities that had been deliberately kept low up to the end of the election. Average Monthly Prices of Selected Commodities in a Few Cities. during the election year. Though the discount rate is not directly linked to the interest rates that banks charge their borrowers. The argument in favor of resumption of monetary easing is that given that in ation is slightly lower and economic growth is not picking up it is necessary to encourage the private sector to borrow. Such a price rise has a sudden upward impact on in ationary pressures. 2012 the Central Bank has been lowering the discount rate. increases in budget de cit accommodated by borrowing from the Banking Sector result in monetary expansion and in ationary pressure on the economy. local output growth measured as the gross domestic product. 11KG 0 500 1. Since June. 0 20 40 60 80 Islamabad Karachi Lahore Peshawar Quetta Average Monthly Prices of Sugar/1KG Interest Rate The discount rate is the interest rate that the State Bank of Pakistan charges from commercial banks when they borrow money from its discount window to meet short-term liquidity needs. an upward trend in in ation is expected. February 2013 Average Monthly Prices of Basmati Rice/1 KG Box1: Election and Expected In ation In ation is expected to rise during and even after the election period.www. Thus after this year’s election. invest and induce the banks to step up e orts to improve their intermediary role. Usually the ruling party keeps the regulated prices arti cially low before elections. 0 20 40 60 80 Islamabad Karachi Lahore Peshawar Quetta Average Monthly Prices of LPG CYLINDER. On the other hand.000 Islamabad Karachi Lahore Peshawar Quetta May 2013 29 . and just after the election of the Government. With the additional in ow of forthcoming election funds deemed as having in ationary impact given existing level of liquidity.500 2. it is very closely correlated with the Karachi Interbank O er Rate (KIBOR).

3) November. exports from Pakistan during December. 191. Within the textile group the more signi cant textile categories include cotton yarn. Export and Balance of Trade Nov-Dec-2012 Series Exports Imports Balance of Trade December 2012 Rs 191. knitwear.015 million dollars respectively in December 2012. and security concerns and energy shortages remained an immense barrier in private and foreign investment.47 Notes: 1) Rs.08 0. which resulted in the increased demand of public services.231 and 35. towels & bed wear). 356.9 million. The main commodities exported during December.052 million dollars). 2) Rupee Value converted into US Dollar on average monthly exchange rate provided by S.268 $ 1. showing an increase of 5. This represents an increase of 3.2% over November. iron & steel. 2011. cement and made-up articles (excl.607 -1. cotton clothes.Current Performance of Key Economic Indicators in Pakistan Interest Rate (Year 2012) The Government’s objective to encourage investment through di erent methods couldn’t be achieved properly. The percentage composition of major commodity groups of exports and imports are given in the following pie diagrams. 95.5% over December. 2012 but a decrease of 6.85 1.711 % change in Dec12 over Nov 12 Rs 5. electrical machinery & apparatus. raw cotton and mobile phones.74 $ 3.969 3. plastic materials.672 -1703 November 12 Rs 181. According to provisional gures compiled by the Pakistan Bureau of Statistics2. knitwear. The gures for export and import of each of the commodities referred to above are given in table 1. palm oil. 97.899 -165. bed wear. rice. Within the petroleum group the petroleum products are 60% and petroleum crude comprises 40%. Within the food group the highest import bill is for palm oil (160. Among the commodities imported. 2012(1$ = Rs. 2012 and 15.408 356.1% over November. ready-made garments. the pressures on the scal account continued.2% over December.41 million.229 164.961 346. On the other hand imports into Pakistan during December. December. 13 12 11 10 9 8 7 6 June August October December Interest Rate-2012 Foreign Trade Statistics Foreign Trade statistics are an important indicator in judging the economic performance of a country. 2012 (1$=RS. the petroleum group comprises 38%. The major commodities imported during December. 2012 amounted to Rs.992598). jewelry. Thus despite strong growth in tax collection.491 $ 1.P. bed wear and readymade garments.187015) A large percentage of exports are from the textile group.896 3.19 3. 2011.B. towels. in million. power generating machinery. 30 KSBL Review . 2012 were petroleum products. and for pulses and tea we paid 19. cotton yarn. These statistics provide a very clear indication of growth of domestic production capacity/overall performance of an economy. 2012 were cotton cloth. some expansion has been observed in the private sector. and US dollars in million. petroleum crude. Current Value of Imports. However. almost 69 percent of overall exports. 2012 amounted to Rs. medicinal products.80 -0.

but the Government took some measures to encourage exports. Box 1. rice and raw cotton) among other countries. silk & synthetic tec. till the end of last decade. surgical goods.). carpets & rugs). the country continued with import protection policies. wheat our. Historical Perspective of Trade Openness in Pakistan After partition. the country had large balance of payment de cits not only due to ine ciencies encouraged by protectionist policies. Exports plus imports were only 16. During the 1960s and 1970s. fruits and rice) and China (cotton yarn. China. Later. 2012 2% Imports of Selected Commodity Groups in Dec 2012 7% 17% 2% 9% 29% 7% 15% Food Machinery Transport Petroleum 5% Textile 69% 38% The major export destinations include USA (cotton clothes.www. During these decades. The implementation of a Structural Adjustment and Stabilisation Program was a step toward trade liberalisation and deregulation of the economy during the 1980s and 1990s. A cross-country analysis of textile exports (based on quantum) presented by State Bank of Pakistan suggests that Pakistan’s apparel exports have performed better in the EU market compared to its competitors. ksbl. Pakistan adopted an import-substitution industrialisation policy. For Exports of Selected Commodity Groups Dec. the e orts continued to liberalise trade and reduce the complexity and variations in trade procedures. but also because of the oil price shock in the 1970s.1% of production in 1951. petroleum products. European Union and Kuwait. the ve major trading partners include UAE. UAE (Jewelry. Afghanistan (cement. May 2013 31 . Saudi Arabia. as did many other developing countries in that era.

5 155 2012m7 Time_period 140 UK Pound Sterling 145 150 96 36 160 98 92 90 2012m1 2012m4 2012m7 Time_period 24.S. under which the exchange rate is determined by the supply and demand position in the foreign exchange market. However. and Chinese Yuan Renminbi (CNY) depreciated in value against US Dollar during the rst two quarters of 2012. Dollar 94 2013m1 2012m1 2012m4 2013m1 2012m1 2012m4 2012m7 Time_period 2013m1 01 02 Rs. 32 KSBL Review .Current Performance of Key Economic Indicators in Pakistan Exchange Rate The exchange rate for Pak Rupee is based on the market-based oating exchange rate system. A snapshot of the exchange rate of Pak Rupee with few selected currencies is given below. Exchange Rate trends: Pak Rupee against US Dollar.B. One of the signi cant reasons for depreciation in the US Dollar is due to global economic developments. Like the US Dollar.P. the US Dollar appreciated against many other currencies in the region. UAE Dirham and UK Pound Sterling 26. and US dollars in million. Exchange Rate 2013 (Pak Rupee per Currency Unit) mean of Exchange rate 0 100 200 300 400 Australian Dollar Bahraini Dinar Canadian Dollar Chinese Yuan Euro Kuwaiti Dinar Omani Rial Saudi Arabian Rial Singaporian Dollar U. and Pakistan is among those countries. almost similar upward trends can be observed for UAE Dirham and UK Pound Sterling during this period. in million. 2013 against the Pound Sterling.5 U. Dollar UAE Dirham UK Pound Sterling The US Dollar depreciated 6. For example. Rupee Value converted into US Dollar on average monthly exchange rate provided by S. High repayments to International Monetary Fund (IMF) are adding to the depreciation of the Pak Rupee.7 percent from March. 2012 to Jan. Indonesian Rupiah (IDR).S.5 25 UAE Dirham 25. Japanese Yen (JPY). the Indian Rupee (INR).

Dawood Lawrencepur Ltd. Professor Business Policy.Key-Note Address by Dr Milan Pagon. Panelists: Mr Asif Jooma.. CEO & Director Service Sales Corporation (Pvt) Ltd.Key-Note Address by Dr Christoph H. CEO. Professor of Management. CEO. 2013 Dr Milan Pagon conducting a seminar on Impact of Neuroscience on Leadership CEO Panel Discussion: Pakistani Perspectives on Leadership • • • Impact of Neuroscience on Leadership . Hub Power Company. CEO. CEO. Mr Ghazanfar Azzam. Waseela Micro nance Bank LEADERSHIP April 9. Director (Dean) Judge Business School. Zayed University.Presentation by Mr Saad Amanullah Khan. Mr Shahid Hussain. UAE Leadership Role in Driving Organisational Excellence . Mr Saad Amanullah Khan. Panelists: Mr Inam ur Rehman. Assistant Professor. Gillette Pakistan Panel Discussion: Pakistani Perspectives on Leadership – Moderator: Dr lmran Ali. Gillette Pakistan . Mr Zafar Sobani. Cambridge University How do Nations Innovate? Technological Change and The Wealth of Nations . Loch.. Business Economics. ICI Pakistan.Research Presentation by Dr Nadeem Javaid. 2012 Professor Christoph Loch conducting a seminar for Senior Business Executives Dr Nadeem Javaid giving a Research Presentation CEO Panel Discussion on Entrepreneurial Approaches to Implementing Innovation in Pakistan • • • Comparison Between Strategic Oversight of Innovative Initiatives by Senior Corporate Management and Venture Capitalists . CEO. KSBL. CEO. ENTREPRENEURSHIP AND INNOVATION RESHAPING THE BUSINESS LANDSCAPE December 13. KSBL. KSBL Panel Discussion on Entrepreneurial Approaches to Implementing Innovation in Pakistan – Moderator: Mr Dawood Ghaznavi.KSBL Seminar Series on Global & Pakistani Perspectives INTRAPRENEURSHIP. Faculty.

org www. Pakistan. Karachi – 74800.ksbl. UAN: (92 21) 111 11 KSBL (5725) | PABX: (92 21) 34855382 | Website: .KARACHI SCHOOL FOR BUSINESS & LEADERSHIP National Stadium Road.ksbl. Liaquat National Hospital. Opp.