To compare the era of Ayub Khan, Zulfikar Ali Bhutto and Zia Ul Haq it is essential that all the political and economic aspects are considered. After analyzing all the aspects can we then decide that which era benefited Pakistan the most. By benefit it means achieving high economic growth, human development and decreasing corruption.
Political Aspect:
Ayub Khan
A tremendous amount of goodwill accompanied Khan's assumption of political power and motivated him to institute deep structural changes in Pakistan’s society, economy, and political structure. Older Pakistanis still remember the beginning of his era as a time when trains ran on time, shops were clean, and corruption was punished. The imposition of martial law in 1958 targeted "antisocial" practices such as abducting women and children, black marketeering, smuggling, and hoarding. Many in the Civil Service of Pakistan and Police Service of Pakistan were investigated and punished for corruption, misconduct, inefficiency, or subversive activities. Ayub Khan's message was clear: he, not the civil servants, was in control.
Sterner measures were used against the politicians. The PRODA prescribed fifteen years' exclusion from public office for those found guilty of corruption. The Elective Bodies Disqualification Order (EBDO) authorized special tribunals to try former politicians for "misconduct," an infraction not clearly defined. Prosecution could be avoided if the accused agreed not to be a candidate for any elective body for a period of seven years. About 7,000 individuals were "EBDOed." Some people, including Suhrawardy, who was arrested, fought prosecution.
His initiatives like the system of Basic Democracies, the Constitution of 1962, the Land Reforms of 1959, and the Family Laws Ordinance of 1961 were all significant departures from the way political business had been conducted in Pakistan in the first post-independence decade.
In the realm of political participation, Khan introduced the system of "basic democracies" in 1960. It consisted of a network of local self-governing bodies that provided a link between the government and the people. Primary governing units were set up to conduct local affair and their members were elected by constituencies composed of 800 to 1,000 Pakistanis. However many suspected that the more than 80,000 "basic democrats" were simply a tool in the hands of the incumbent to deliver the votes he needed to win. Ayub Khan also introduced Land Reforms of 1959 in which the government imposed a ceiling of 200 hectares of irrigated land and 400 hectares of un irrigated land in the West Wing for a single holding. This reform created a new class of farmers having medium-sized holdings. the Family Laws Ordinance of 1961 focused on the Muslim families and dealt with issues such as who will receive the wealth of the deceased person, the divorce procedure etc. When the United States began to rearm India after China's invasion of northern India in 1962, Khan established close relations with and received substantial military aid from China. However he couldn’t resolve the Kashmir dispute with India which worsened, culminating in a two-week war in 1965. The failure to gain Kashmir and not being able to improve the human development, which included education, health poverty etc, led him to announce in late 1968 that he would not stand for reelection. Riots continued, and he resigned his office on March 26, 1969.
Muhammad Zia ul-Haq
Zia's political survival rested on his skill in wrong-footing opponents, and on the favorable external environment following the December 1979 Soviet occupation of Afghanistan. This transformed him overnight from an international pariah to America's front-line ally in the fight against Communism.
Zia embarked upon an Islamization program in the country that incorporated a number of initiatives aimed at making Pakistan a more Islamic country. Zia introduced special shariat courts, with Islamic rules of evidence and punishments for certain crimes. Further measures included the provision of Islamic banking facilities and the government collection of zakat (alms) and ushr (agricultural tax). Islamization which was stoutly opposed by women's groups and human rights activists stirred up sectarian tensions between Sunnis and Shias. Zia's introduction of Hudood laws failed despite their popularity because of the absence of mass education, deep corruption in Pakistan's judicial-legal system, and the absence of a desire in the prevailing system to understand the whole new system and to apply it with the level of piety and caution it was applied at the time of the Prophet Muhammad, peace and blessings be upon him. The corrupt police simply used the presence of three laws, leftover criminal laws that were a legacy of the British on the subcontinent, martial law, and Shariah law to extract a higher level of bribery. Thankfully, no innocent person was hurt and no punishment actually awarded. However, the Zia regime’s punishment of its PPP opposition with public flogging, in accordance with martial law, was used to give Hudood laws a bad name in the Pakistani public’s eyes. Zia's other Islamization institutions are still alive, such as the Sharia Court and the International Islamic University in the nation’s capital, Islamabad. The most admiring thing about this era was that in a world where even leading Western countries complain about taking in refugees, Pakistan's acceptance and support of three to four million Afghan refugees was an extra-ordinary act of humanity which has gone largely unrecognized. Karachi experienced mounting ethnic violence from 1986 onwards. Clashes between mohajirs and Pakhtuns, later extended to the Sindhi community. The growing lawlessness was encourage by the ready availability of weapons and drugs as a result of the Afghan War.
Zulfikar Ali Bhutto
Bhutto introduced a new constitution with a modified parliamentary and federal system. He attempted to control and reforms the civil service and took steps to revitalize a stagnant economy and ameliorate conditions for the poor under the banner of Islamic socialism. Bhutto's most visible success, however, was in the international arena, where he employed his diplomatic skills. He negotiated a satisfactory peace settlement with India in 1972, built new links between Pakistan and the oil-exporting Islamic countries to the west, and generally was effective in repairing Pakistan's image in the aftermath of the war.
In April 1972, Bhutto lifted martial law and convened the National Assembly, which consisted of members elected from the West Wing in December 1970 (plus two from the East Wing who decided their loyalties were with a united Pakistan). The standing controversies about the role of Islam, provincial autonomy, and the form of government--presidential or parliamentary--remained on the agenda. There was much jostling for position among the three major political groups: the PPP, most powerful in Punjab and Sindh; the National Awami Party (NAP) and the Jamiat-ul-Ulama-i-Islam (JUI), both based in the North- West Frontier Province and Baluchistan. The provincial assemblies were constituted from those elected in December 1970. There was much tension during the process of drafting a new constitution, especially from members from the North-West Frontier Province and Baluchistan. Bhutto reached some accommodation with opposition leaders from those two provinces on the matter of gubernatorial appointment and constitutional principle.
The 1973 Constitution set up a bicameral legislature at the Center consisting of two Houses, the National Assembly and the Senate. The National Assembly consisted of 200 seats elected directly for duration of five years. The President on the advice of the Prime Minister could dissolve the National Assembly. The Senate was to consist of 63 members; each province was to elect 14 members. In the Provincial Government, each province will have a Governor appointed by the President. The Provincial Assembly for each province consisted of 240 seats for the Punjab, 100 seats for Sindh, 80 seats for N. W. F. P., and 40 seats for Baluchistan.
The 1973 Constitution provided a free and independent Judiciary. The Constitution guaranteed a right to the citizens; to be protected by law, and imposed two duties on them, loyalty to the Republic and obedience to the law. Any person who was found to abrogate or attempt or conspire to abrogate or subvert the Constitution was to be treated guilty of high treason. The Constitution conferred several kinds of fundamental rights to the people such as the right to life, liberty, equality and freedom of speech, trade and association. The Constitution also declared the laws inconsistent with or in derogatory to fundamental rights as null and void.
In light of the previous experience, the Constitution of 1973 was more Islamic in character than the previous ones. Emphasis was made to establish a real Islamic system in all aspects of social life. Keeping this objective in mind, more Islamic provisions were laid down in the Constitution of 1973. The Constitution recognized Islam as the religion of the country and enjoined upon the State to serve the cause of Islam and to bring all existing laws in conformity with Islam. The Islamic Advisory Council was set up to recommend ways and means to bring existing laws of the country in conformity with the Islamic principles.
Economic Aspects:
Ayub Khan
The period of Khan's government is called the 'decade of development.' Since then, no such spurt of development has been witnessed in Pakistan. He introduced a plan known as Second Five Year plan The Second Five-Year Plan (1960-65) surpassed its major goals when all sectors showed substantial growth. The plan encouraged private entrepreneurs to participate in those activities in which a great deal of profit could be made, while the government acted in those sectors of the economy where private business was reluctant to operate. This mix of private enterprise and social responsibility was hailed as a model that other developing countries could follow. Pakistan's success, however, partially depended on generous infusions of foreign aid, particularly from the United States.
Ayub Khan also tried to improve the agriculture sector. For this purpose he introduced the green revolution which was the development of improved seeds in order to help the country achieve self-sufficiency in food grains in the process. As part of his green revolution, high yielding variety seeds like Mexi-Pak wheat, Irri-Pak rice, and Nayab 78 cotton were developed and popularized, along with the Pakistan's favorite citrus fruit: the Kinno. Three multipurpose dams, Warsak, Mangla, and Tarbela were built, the last being the largest is earth-filled dam in the world at the time of its establishment. Khan’s land reforms were practically sabotaged by the country’s feudal lords, who controlled the local revenue officers responsible for implementing them. Nonetheless, the agrarian reforms did deliver for the people of Pakistan. To improve the exports of Pakistan the Export Bonus Vouchers Scheme was introduced in 1959 and tax incentives stimulated new industrial entrepreneurs and exporters. Bonus vouchers facilitated access to foreign exchange for imports of industrial machinery and raw materials. Tax concessions were offered for investment in less-developed areas.
Ayub was skillful in maintaining cordial relations with the United States which helped to stimulate substantial economic and military aid to Pakistan. The signing in 1954 of a Mutual Defense agreement with the US, led to a total economic assistance of $500 million, or 2.8% of GDP. The facts and figure which shows the economic development of Pakistan are as follows:
□ GDP growth was slow during the 1950s but accelerated to 6.7 % during the 1960s.
□ Inflation rate during the period 1960-70 was 3.3% compared to 7.1%.
□ External resource inflows into West Pakistan were 6% of GDP in 1959-60 and rose to a record level of 10.5 %.
□ National savings rose to 10.5% in 1964-5.
□ Exports on Raw Cotton accounted for 28% of export earnings in 1969-70
□ By 1964-5, Balance of Payment deficit had risen to 6.8% of GDP.
Although President Ayub Khan's agrarian reforms did result in higher agrarian yield, and his industrialization efforts resulted in the growth of capital, he was criticized for making "the rich richer and the poor poorer or the trickle down effect. Khan has also been criticized for heavy dependence on foreign aid and the inability to create jobs.
Muhammad Zia ul-Haq
Zia ul-Haq introduced Islamization policy which not only affected the political aspect but the economic aspect also. Zakat used to be collected by the government in the early days of Islam and distributed among the poor. Zia called upon Pakistan’s economists and Islamic scholars to devise a program that would use Zakat as a vehicle to deal with poverty in the nation. After a year of discussion, the Zakat and Ushr Ordinance of 1979 was promulgated on June 20th 1980. Under this order, a five-tiered structure was formed to take care of Zakat, starting from the Central Zakat Council at the federal level to a local Zakat committee for each compact block of 3,000 to 5,000 persons. On all savings accounts, a 2.5 percent per annum Zakat was instituted. Despite some problems, Zakat was nevertheless collected and through the system of citizens’ committees, it was distributed among the poor and needy. According to a Gallup Pakistan survey, 80 percent of the Pakistanis surveyed felt that the system was relatively corruption-free. It was said it was the first time a modern government coded Zakat into law and implemented it.
On Zia's call, several leading economists and Islamic scholars worked together to develop an applicable set of models and laws for the implementation of Islamic Economics. Several international conferences were held and an Institute of Islamic Economics was established. Interest-free banking was partially introduced and an implementation program was developed to see how Pakistan's economy could be transformed. The resulting momentum regarding Islamic economics continues to reverberate across the globe today, as hundreds of Islamic banks have popped up worldwide. American icon Fannie Mae, along with some leading banks, has invested in Islamic models of financing. The Dow Jones has also come up with an Islamic Index. The facts and figure which shows the economic development of Pakistan are as follows:
□ GDP growth averaged to 6.6 % between 1971-1977.
□ Public spending on education did increase to 2.7 of GNP by 1987-1988
□ Domestic debt increased from 20.38% of GDP in mid 1981 to 42.9% of GDP in mid 1988.
□ Defense expenditure increased to 7% from 5 % of GDP over the period.
□ Terms of trade in 1987 -88 was 96.32.
Rapid growth, widespread prosperity, and relatively stable prices made the Zia period appear to be an era of exceptional political and economic stability in Pakistan’s history. Like Ayub, Zia relied heavily on the bureaucracy for economic management, and under the able guidance of Mr. Ghulam Ishaq Khan the bureaucrats did a fair job of short-term economic management partly under pressure from international financial institutions which provided critical balance of payments support in the early and mid-1980s. The flexible exchange rate policy strengthened export incentives and improved the climate for private investment. The initial reduction in budget deficits, through additional taxation and efforts after 1980, to reduce subsidies and to bring agricultural prices in line with international prices helped economic growth and moderated the inflationary pressures. That high economic growth was partly a matter of luck and reflected the influence of exogenous economic developments, notably the boom in worker remittances, does not detract from the steady and more or less consistent day to day management of economic policies during the 1980s. However, major structural weaknesses remained in the economy and indeed were intensified in some instances. Even though medium-term economic planning was revived in 1978, long-term policy issues were either not pursued with any seriousness or suffered due to poor implementation. A major criticism was the growth in public spending from 23.5 per cent of GDP in 1976-7 to 27 percent in 1987-8. Government expenditures adjusted for inflation increased nearly 150 per cent during 1977-88. Since revenue growth was slow, the budget deficits had risen to a unsustainable level of over 8 per cent of GDP in the final years of the Zia regime – essentially mortgaging future production and price stability.
Finally, the two major policy problems inherited from the 1960s and the 1970s — the inelasticity of the tax system and the strong anti-export bias of the trade
Zulfikar Ali Bhutto
Bhutto claimed success for his economic policies. The gross national product and the rate of economic growth climbed. Inflation fell from 25 percent in fiscal year 1972 to 6 percent in FY 1976, although other economic measures he introduced did not perform as well.
Bhutto pointed out that his foreign policy had brought Pakistan prestige in the Islamic world, peace if not friendship with India, and self-respect in dealings with the great powers. He felt assured of victory in any election. Therefore, with commitment to a constitutional order at stake, in January 1977 he announced he would hold national and provincial assembly elections in March.
The Nationalization Order, 1972 provided for the nationalization of industry in Iron and steel sector, basic metals, heavy engineering, heavy electrical, assembly and manufacture of motor vehicles and tractors, heavy and basic chemicals, petrochemicals, cements, public utilities, power generation, transmission and distribution, gas and oil refineries.
31 industrial units were taken over under the nationalization order but it was alleged subsequently that nationalization was selective, to pick up some and to exclude others in the same fields. General Zia privatized the Ittefaq foundry nearly eight years later on the ground that Ittefaq foundry was nationalized while several others of same size were not. However the industries whose nationalization was omitted by Bhutto were not mentioned.
The nationalization order had excluded the private sector from operating in key economic fields and therefore, several industrial licenses were cancelled which included Adamjee deutez, Shahnawaz Industries, Fecto tractors, Arusa Industries for manufacturing tractors and Monnoo motors for progressive assembly of Toyota cars. The nationalization order was followed within a fortnight by another order banning the managing agency system under which companies were appointing persons to be sole purchasers for sale or distribution. The managing agency system was one of the medieval systems practiced only on subcontinent which provided the mechanism through which control over industrial sector was concentrated in a few hands. Under the managing agency system, the corporate sector was controlled by a handful of managing agents who perpetuated their control over the affairs of the companies, without being accountable to the shareholders.
The new labor policy provided for old age pensions, group insurance and other means of social security including free education for the children of the workers. Administrative reforms ensured a better, organized and service oriented bureaucracy. Education, literacy and healthcare were targeted as key focus areas. Heavy industry was brought in for the first time in the country, creating immense employment opportunities as well as transfer of technology from the developed nations. The establishment of the country’s first-ever Steel Mill could be cited as an example in this regard. Quaid-e-Awam also owes credit for establishment of the second seaport Port Qasim, near Karachi, thus laying the foundation of economic self-reliance. However, major structural weaknesses remained in the economy and indeed were intensified in some instances. Even though medium-term economic planning was revived in 1978, long-term policy issues were either not pursued with any seriousness or suffered due to poor implementation. A major criticism was the growth in public spending from 23.5 per cent of GDP in 1976-7 to 27 percent in 1987-8. Government expenditures adjusted for inflation increased nearly 150 per cent during 1977-88. Since revenue growth was slow, the budget deficits had risen to a unsustainable level of over 8 per cent of GDP in the final years of the Zia regime – essentially mortgaging future production and price stability.
Finally, the two major policy problems inherited from the 1960s and the 1970s — the inelasticity of the tax system and the strong anti-export bias of the trade.
The facts and figure which shows the economic development of Pakistan are as follows:
□ GDP growth rate fell to 3.8% between1971-77.
□ The total government spending on education increased from 1.6% to 2% of GNP over 1972-77.
□ The ratio of taxes to GNP improved to 12% in late 1970s.
□ Rural poverty incidence fell from 54% in 1969-70 to 41% in 1979.
□ Domestic savings averaged < 8 during this period.
□ Current account deficit averaged 6.5% of GDP.
□ Inflation fell from 25% in FY 1972 to 6% in FY 1976.
Conclusion:
Ayub Khan's legacy is mixed, he was opposed to democracy believing like any other dictator that parliamentary democracy was not suited for the people of his country. Like many subsequent military dictators he was contemptuous of politicians and political parties. However, during his early years in office, he sided with the Americans against the Soviets, and in return received billions of dollars in aid which resulted in enormous economic growth. Ayub began to lose both power and popularity. On one occasion, while visiting East Pakistan, there was a failed attempt to assassinate him, though this was not reported in the press of the day. In 1971 when war broke out, Ayub Khan was in West Pakistan and did not comment on the events of the war. He died in 1974.
After assuming power as Chief Martial Law Administrator, Zia-ul-Haq promised to hold National and Provincial Assembly elections in the next 90 days and to hand over power to the representatives of the Nation. However, in October 1977, he announced the postponement of the electoral plan and decided to start an accountability process of the politicians. In a statement, he said that he changed his decision due to the strong public demand for the scrutiny of political leaders who had indulged in malpractice in the past. With the retirement of Fazal Ilahi, Zia-ul-Haq also assumed the office of President of Pakistan on September 16, 1978. In the absence of a Parliament, Zia-ul-Haq decided to set up an alternative system. He introduced Majlis-i-Shoora in 1980. Most of the members of the Shoora were intellectuals, scholars, ulema, journalists, economists and professionals belonging to different fields of life. As time passed, the Parliamentarians wanted to have more freedom and power. By the beginning of 1988, rumors about the differences between the Prime Minister and Zia-ul-Haq were rife. The general feeling was that the President, who had enjoyed absolute power for eight long years, was not ready to share it with anybody else. Apart from many other reasons, Junejo's decision to sign the Geneva Accord against the wishes of Zia-ul-Haq proved to be one of the major factors responsible for his removal. Zia-ul-Haq died in an air crash near Bhawalpur on August 17, 1988.
Zulfikar Ali Bhutto (January 5, 1928–April 4, 1979) was a Pakistani politician who served as the fourth President of Pakistan from 1971 to 1973 and as the ninth Prime Minister of Pakistan from 1973 to 1977. He was the founder of the Pakistan People’s Party (PPP), the largest and most influential political party in Pakistan.
Quaid-e-Awam Shaheed Zulfikar Ali Bhutto founded Pakistan People’s Party in the winter of 1967 as an answer to the dictatorial and anti-people policies of the military-bureaucratic-feudal nexus of power that ruled the country since its inception in 1947. The Party came into being with four cardinal principles i.e. Islam is our faith, democracy is our polity, socialism is our economy and all power to the people. Its program envisaged provision of basic human needs, i.e. Roti, Kupra aur Makkan (food, clothe and shelter) to every citizen of Pakistan. It advocated a just and fairer distribution of national wealth amongst various strata of the society and stood for democratic traditions, liberal values and welfare-oriented policies. The party program coupled with dynamic leadership of Quaid-e-Awam captured the imagination of the people within no time and the Party emerged as the single largest party of the country.
Pakistan's third constitution was formally submitted on December 31, 1972, approved on April 10, 1973, and promulgated on Independence Day, August 14, 1973. Although Bhutto campaigned in 1970 for the restoration of a parliamentary system, by 1972 he preferred a presidential system with himself as president. Bhutto claimed success for his economic policies. The gross national product and the rate of economic growth climbed. Inflation fell from 25 percent in fiscal year 1972 to 6 percent in FY 1976, although other economic measures he introduced did not perform as well. The Nationalization Order, 1972 provided for the nationalization of industry in Iron and steel sector, basic metals, heavy engineering, heavy electrical, assembly and manufacture of motor vehicles and tractors, heavy and basic chemicals, petrochemicals, cements, public utilities, power generation, transmission and distribution, gas and oil refineries.
As president, Bhutto addressed the nation via radio and television, saying "My dear countrymen, my dear friends, my dear students, laborers, peasants… those who fought for Pakistan… We are facing the worst crisis in our country's life, a deadly crisis. We have to pick up the pieces, very small pieces, but we will make a new Pakistan, a prosperous and progressive Pakistan." He surely proved himself the best leader Pakistan had ever had.
References:
http://www.answers.com/topic/muhammad-zia-ul-haq
http://www.yespakistan.com/people/past-presidents.asp
http://en.wikipedia.org/wiki/Five-year_plans_of_Pakistan
http://pkproblems.com/index.php/zia-ul-haq-economic-policies-for-pakistan-an-assessment/
Tuesday, August 17, 2010
Cuban Missile Crisis
Cuban Missile Crisis
After the WW2 USA and USSR were in a cold war because both want to establish their hegemony but both of them were capable of nuclear attack so there was no such war but an era of cold war started. At the beginning of September 1962, U-2 spy planes discovered that the Soviet Union was building surface-to-air missile (SAM) launch sites. There was also an increase in the number of Soviet ships arriving in Cuba which the United States government feared were carrying new supplies of weapons. President John F. Kennedy complained to the Soviet Union about these developments and warned them that the United States would not accept offensive weapons (SAMs were considered to be defensive) in Cuba.
As the Cubans now had SAM installations they were in a position to shoot down U-2 spy-planes. Kennedy was in a difficult situation. Elections were to take place for the United States Congress in two month's time. The public opinion polls showed that his own ratings had fallen to their lowest point since he became president.
On 27th September, a CIA agent in Cuba overheard Castro's personal pilot tell another man in a bar that Cuba now had nuclear weapons. U-2 spy-plane photographs also showed that unusual activity was taking place at San Cristobal. However, it was not until 15th October that photographs were taken that revealed that the Soviet Union was placing long range missiles in Cuba.
President Kennedy's first reaction to the information about the missiles in Cuba was to call a meeting to discuss what should be done. Robert S McNamara, Secretary of State for Defence, suggested the formation of the Executive Committee of the National Security Council. Fourteen men attended the meeting and included military leaders, experts on Latin America, representatives of the CIA, cabinet ministers and personal friends whose advice Kennedy valued. Over the next few days they were to meet several times. During their discussions they considered several different strategies for dealing with the crisis. They included the following
(1) Do nothing. The United States should ignore the missiles in Cuba. The United States had military bases in 127 different countries including Cuba. The United States also had nuclear missiles in several countries close to the Soviet Union. It was therefore only right that the Soviet Union should be allowed to place missiles in Cuba.
(2) Negotiate. The United States should offer the Soviet Union a deal. In return for the Soviet Union dismantling her missiles in Cuba, the United States would withdraw her nuclear missiles from Turkey and Italy.
(3) Invasion. Send United States troops to Cuba to overthrow Castro's government. The missiles could then be put out of action and the Soviet Union could no longer use Cuba as a military base.
(4) Blockade of Cuba. Use the United States Navy to stop military equipment reaching Cuba from the Soviet Union.
(5) Bomb Missile Bases. Carry out conventional air-strikes against missiles and other military targets in Cuba.
(6) Nuclear Weapons. Use nuclear weapons against Cuba and/or the Soviet Union.
So the 4th option was chosen which was to block Cuba hence a deal was signed between USA and USSR which has the far reaching effects as
CONSEQUENSES
(1) The two sides established a direct communications link that became known as the Hot Line. It was hoped that this would help prevent dangerous confrontations such as the Cuban Missile Crisis arising again.
(2) Three months after the Cuban Missile Crisis the United States secretly removed all its nuclear missiles from Turkey and Italy.
(3) A Test Ban Treaty was signed between the two countries in August 1963. The treaty prohibited the testing of nuclear weapons in the atmosphere.
(4) The 1,113 prisoners captured during the Bay of Pigs invasion were exchanged by Castro for $60 million in food, drugs, medicine and cash.
(5) The Soviet Union became determined to have a nuclear capability that was equal to the United States. This was achieved by 1972.
(6) China accused the Soviet Union of being a 'paper-tiger' and claimed to be the true leader of the Communist movement. The split between the Soviet Union and China became wider.
(7) The United States became convinced that the Soviet Union would not go to war over another communist country. It has been argued that this encouraged the United States to help attempts to overthrow socialist and communist governments in Vietnam, Nicaragua and Grenada.
References
http://www.spartacus.schoolnet.co.uk/COLDcubanmissile.htm
http://library.thinkquest.org/11046/days/index.html
After the WW2 USA and USSR were in a cold war because both want to establish their hegemony but both of them were capable of nuclear attack so there was no such war but an era of cold war started. At the beginning of September 1962, U-2 spy planes discovered that the Soviet Union was building surface-to-air missile (SAM) launch sites. There was also an increase in the number of Soviet ships arriving in Cuba which the United States government feared were carrying new supplies of weapons. President John F. Kennedy complained to the Soviet Union about these developments and warned them that the United States would not accept offensive weapons (SAMs were considered to be defensive) in Cuba.
As the Cubans now had SAM installations they were in a position to shoot down U-2 spy-planes. Kennedy was in a difficult situation. Elections were to take place for the United States Congress in two month's time. The public opinion polls showed that his own ratings had fallen to their lowest point since he became president.
On 27th September, a CIA agent in Cuba overheard Castro's personal pilot tell another man in a bar that Cuba now had nuclear weapons. U-2 spy-plane photographs also showed that unusual activity was taking place at San Cristobal. However, it was not until 15th October that photographs were taken that revealed that the Soviet Union was placing long range missiles in Cuba.
President Kennedy's first reaction to the information about the missiles in Cuba was to call a meeting to discuss what should be done. Robert S McNamara, Secretary of State for Defence, suggested the formation of the Executive Committee of the National Security Council. Fourteen men attended the meeting and included military leaders, experts on Latin America, representatives of the CIA, cabinet ministers and personal friends whose advice Kennedy valued. Over the next few days they were to meet several times. During their discussions they considered several different strategies for dealing with the crisis. They included the following
(1) Do nothing. The United States should ignore the missiles in Cuba. The United States had military bases in 127 different countries including Cuba. The United States also had nuclear missiles in several countries close to the Soviet Union. It was therefore only right that the Soviet Union should be allowed to place missiles in Cuba.
(2) Negotiate. The United States should offer the Soviet Union a deal. In return for the Soviet Union dismantling her missiles in Cuba, the United States would withdraw her nuclear missiles from Turkey and Italy.
(3) Invasion. Send United States troops to Cuba to overthrow Castro's government. The missiles could then be put out of action and the Soviet Union could no longer use Cuba as a military base.
(4) Blockade of Cuba. Use the United States Navy to stop military equipment reaching Cuba from the Soviet Union.
(5) Bomb Missile Bases. Carry out conventional air-strikes against missiles and other military targets in Cuba.
(6) Nuclear Weapons. Use nuclear weapons against Cuba and/or the Soviet Union.
So the 4th option was chosen which was to block Cuba hence a deal was signed between USA and USSR which has the far reaching effects as
CONSEQUENSES
(1) The two sides established a direct communications link that became known as the Hot Line. It was hoped that this would help prevent dangerous confrontations such as the Cuban Missile Crisis arising again.
(2) Three months after the Cuban Missile Crisis the United States secretly removed all its nuclear missiles from Turkey and Italy.
(3) A Test Ban Treaty was signed between the two countries in August 1963. The treaty prohibited the testing of nuclear weapons in the atmosphere.
(4) The 1,113 prisoners captured during the Bay of Pigs invasion were exchanged by Castro for $60 million in food, drugs, medicine and cash.
(5) The Soviet Union became determined to have a nuclear capability that was equal to the United States. This was achieved by 1972.
(6) China accused the Soviet Union of being a 'paper-tiger' and claimed to be the true leader of the Communist movement. The split between the Soviet Union and China became wider.
(7) The United States became convinced that the Soviet Union would not go to war over another communist country. It has been argued that this encouraged the United States to help attempts to overthrow socialist and communist governments in Vietnam, Nicaragua and Grenada.
References
http://www.spartacus.schoolnet.co.uk/COLDcubanmissile.htm
http://library.thinkquest.org/11046/days/index.html
Islamic Economy Vs Capitalistic Economy
Islamic Economy Vs Capitalistic Economy
Capitalism and Islam are compared in respect of their basic economic concepts as under:
1. Right to ownership:
Capitalism
o The existence of right of private ownership of property is the hallmark of capitalism.
o It gives unrestricted and unencumbered full rights of ownership to the individual.
o The individual may acquire, own or alienate his property in whatever manner he likes. The system believes in the private ownership of the means of production, distribution and exchange which are managed and controlled by individuals or groups of individuals for private profit.
o The unrestricted right to own property and earn profits leads to concentration of wealth in few hands.
o This necessarily disturbs the balance of distribution of wealth and income in society.
o The economic disparities and the ever-increasing gulf between the rich and the poor sow the seeds of discord and destruction in the capitalist society.
Islam
o Islamic concept of ownership is unique one.
o Ownership, in reality, belongs to God while some rights only vest in man so that he may fulfill the purpose of God, that is the purpose of community by acting as a trustee for those in need. In other words, what Allah has created for benefit of and service to man belongs collectively to the whole humanity.
o Legal ownership by the individual is recognized in Islam but it is subject to the moral obligation that in all wealth all sections of society have the right to share.
o Thus private or individual ownership in Islam is not unlimited or unrestricted. All the means of production are not placed under private ownership as public ownership of certain things of common utility exists side by side with it in an Islamic state.
o Islamic state has also the right to nationalize certain things which are under private ownership for the benefit of the community.
o In this way the limited right of private ownership with law of inheritance which distributes the estate of the deceased among fairly large number of heirs averts concentration of wealth in few hands and thus prevents class-conflict.
2. Institutions of Interest:
Capitalism
o The Institution of banking and interest is the life-blood of capitalistic form of economy.
o For business, trade and industry especially for big projects and economic ventures, huge funds are required which no individual or firm can arrange.
o This leads to establishment of banks who borrow capital from depositors and investors on lower rate of interest and lend it to business enterprises on higher rate of interest.
o Thus the institution of interest has become part and parcel of capitalism.
Islam
o Islam considers interest as the most exploitive institution for humanity and has abolished it root and branch in its every form and manifestation.
o According to al-Qur’an taking of interest tantamount to war against God and His Apostle, while according to Prophet Muhammad (PBUH) interest is worse than adultery.
o Islam builds its economy on interest free basis and promotes profit and partnership as incentive for saving and investment.
3. Distribution of Wealth
Capitalism
o Capitalism does not believe in fair and just distribution of wealth.
o Since it believers in full economic freedom and private ownership of means of production, wide economic disparities exist in capitalistic economy.
o Concentration of wealth in few hands takes
o place while huge majority of the populace is deprived of the very basic necessities of life. The privileged few live in luxury while poverty, ignorance, disease and unemployment is the lot of the multitude.
o This disturbed balance of distribution of economic resources and unbridgeable gulf between the haves and have-nots ultimately leads to class struggle and ultimate overthrow of the very system.
Islam
o Islam on the one hand guarantees provision of basic human needs such as food, clothing and shelter to everyone and, on the other hand, ensures fair and equitable distribution of wealth and economic resources among all.
o It does not tolerate existence of wide disparities among the rich and the poor and tries to eliminate concentration of wealth in few hands.
o For bridging the gulf between the rich and the poor and for ensuring equitable distribution of wealth, Islam has taken many steps such as Zakat and Sadaqat, laws of inheritance and bequest, voluntary charities and compulsory contributions in the form of taxes and duties.
o To prevent concentration of wealth in few hands Islamic economic code has taken measures like abolition of interest, prohibition of earning of wealth through haram means, prohibition of
Capitalism and Islam are compared in respect of their basic economic concepts as under:
1. Right to ownership:
Capitalism
o The existence of right of private ownership of property is the hallmark of capitalism.
o It gives unrestricted and unencumbered full rights of ownership to the individual.
o The individual may acquire, own or alienate his property in whatever manner he likes. The system believes in the private ownership of the means of production, distribution and exchange which are managed and controlled by individuals or groups of individuals for private profit.
o The unrestricted right to own property and earn profits leads to concentration of wealth in few hands.
o This necessarily disturbs the balance of distribution of wealth and income in society.
o The economic disparities and the ever-increasing gulf between the rich and the poor sow the seeds of discord and destruction in the capitalist society.
Islam
o Islamic concept of ownership is unique one.
o Ownership, in reality, belongs to God while some rights only vest in man so that he may fulfill the purpose of God, that is the purpose of community by acting as a trustee for those in need. In other words, what Allah has created for benefit of and service to man belongs collectively to the whole humanity.
o Legal ownership by the individual is recognized in Islam but it is subject to the moral obligation that in all wealth all sections of society have the right to share.
o Thus private or individual ownership in Islam is not unlimited or unrestricted. All the means of production are not placed under private ownership as public ownership of certain things of common utility exists side by side with it in an Islamic state.
o Islamic state has also the right to nationalize certain things which are under private ownership for the benefit of the community.
o In this way the limited right of private ownership with law of inheritance which distributes the estate of the deceased among fairly large number of heirs averts concentration of wealth in few hands and thus prevents class-conflict.
2. Institutions of Interest:
Capitalism
o The Institution of banking and interest is the life-blood of capitalistic form of economy.
o For business, trade and industry especially for big projects and economic ventures, huge funds are required which no individual or firm can arrange.
o This leads to establishment of banks who borrow capital from depositors and investors on lower rate of interest and lend it to business enterprises on higher rate of interest.
o Thus the institution of interest has become part and parcel of capitalism.
Islam
o Islam considers interest as the most exploitive institution for humanity and has abolished it root and branch in its every form and manifestation.
o According to al-Qur’an taking of interest tantamount to war against God and His Apostle, while according to Prophet Muhammad (PBUH) interest is worse than adultery.
o Islam builds its economy on interest free basis and promotes profit and partnership as incentive for saving and investment.
3. Distribution of Wealth
Capitalism
o Capitalism does not believe in fair and just distribution of wealth.
o Since it believers in full economic freedom and private ownership of means of production, wide economic disparities exist in capitalistic economy.
o Concentration of wealth in few hands takes
o place while huge majority of the populace is deprived of the very basic necessities of life. The privileged few live in luxury while poverty, ignorance, disease and unemployment is the lot of the multitude.
o This disturbed balance of distribution of economic resources and unbridgeable gulf between the haves and have-nots ultimately leads to class struggle and ultimate overthrow of the very system.
Islam
o Islam on the one hand guarantees provision of basic human needs such as food, clothing and shelter to everyone and, on the other hand, ensures fair and equitable distribution of wealth and economic resources among all.
o It does not tolerate existence of wide disparities among the rich and the poor and tries to eliminate concentration of wealth in few hands.
o For bridging the gulf between the rich and the poor and for ensuring equitable distribution of wealth, Islam has taken many steps such as Zakat and Sadaqat, laws of inheritance and bequest, voluntary charities and compulsory contributions in the form of taxes and duties.
o To prevent concentration of wealth in few hands Islamic economic code has taken measures like abolition of interest, prohibition of earning of wealth through haram means, prohibition of
Tuesday, July 20, 2010
Mobilink – Disney Phone
The Product
Mobilink – Disney Phone
Mobilink, the country’s leading cellular phone service and Disney announced the launch of a parental-controlled mobile phone for children today. This is the first time a cellular company in Pakistan has launched a mobile phone that will meet the communication and security needs of parents. After conducting market research and realizing the growing needs of working parents to stay in touch with their children using mobile phones; Mobilink in collaboration with Disney is introducing this innovative solution to the Pakistani market. Moreover, changing social trends and feedback received by Mobilink through this research led the market leader to co-launch a safe and secure solution for parents. The features of the new Mobilink-Disney D100 allows complete parental control on all outgoing and incoming calls and text messages. With the help of this new feature, parents can control who the child can correspond with, thus enabling parents to keep a check on the list of people the child is communicating with.
Main Objective
As we grow and reach millions of people throughout the country, it was only a matter of time before we would develop a solution for parents and children. We had to tread this ground cautiously, keeping potential concerns of parents in mind. We have collaborated with Disney to introduce a phone, which gives complete parental control. We are confident that the new phone will not only provide the children of Pakistan with a phone to enjoy but also enable parents to monitor and manage the communication needs of their children.
Orientation behind the launch of Mobilink – Disney handset:
The launch of Mobilink – Disney handset for a completely new target market was basically a marketing oriented step taken by the Mobilink. As Mobilink, been the market leader wants to stay in the limelight for its consumers as it always takes initiatives and launches exclusive products in the market. With the launch of Mobilink – Disney handset, Mobilink once again showed up that they always have innovations on the move for the customers.
Target Market
The target market set by the Mobilink for the Disney phones was mainly based on the children with the age bracket between ( 10 to 15 yrs). Children within this age group were the main target market of Disney Phones. Group of people with SEC-A was targeted. And as far as the distribution is concerned, mainly urban cities such as Lahore, Karachi, Islamabad, Multan, Faisalabad etc were kept in mind.
Product Development:
Mobilink was not directly involved in the product development process as Mobilink is just the telecom service provider. The handsets were made by some third firm, and were imported by Mobilink with the co branding of Disney.
Image and Reputation
The image of the names associated with the product is of the market leaders in their respective industries. Mobilink Disney phone is a co branded product with the highest brand value and image with greater expectations from people.
When a brand like Mobilink and Disney introduces a new product in the market, it is expected to meet the standards it has maintained previously. If it does not, customers do not hesitate to turn towards another brand. This is where the concept of brand loyalty comes in, which is hard to obtain with growing competition. This is an issue that Mobilink faces in the case of Mobilink - Disney phones.
POSITION IN THE MIND OF CONSUMERS
With the increase in competition in the country and the increased awareness among people, their attitudes have changed in many ways. The major trend that Mobilink can bank on is the shift towards people becoming more mobile and image conscious. Therefore, by providing consumers with a product that enhances image and meets their changing needs along with providing them with sustained quality, Mobilink – Disney phone has potential advantage in the market.
Sales
Mobilink – Disney phone’s launch was quite successful but due to weak distribution channel and lack of after sales service, it was short-lived because of which the phenomenon of repeat purchase could not be established. However, given the right marketing mix, Mobilink – Disney phone has the potential for increased sales.
The Market
By analyzing the launch of Mobilink – Disney phones, it was expected to have certain features that kids want to have, what other phones within the same price range were offering. The Mobilink – Disney phone had lack of technology, colored display and no entertainment package (games etc.) in it. Whereas other handsets in the market were offering these things within the same price.
Competition
All the other handset makers were in direct competition with the Mobilink - Disney phone but this can be considered as exclusive in the target market they were focusing on and the technology of tracking and check and balance on the usage of the handsets.
Branding Policy:
It was a co branded product, which has two big names associated with it. Both of them are the market leaders of their markets. Disney and Mobilink. The packaging was designed to attract the children of a certain age group.
At that time Mobilink has used ATL ( above the line) promotional type and as well as BTL(below the line ) promotional type for their product. In the ATL Disney cell phones were marketed through TV , Media and Radio . And in below the line these cell phones were marketed by Flyers .bill boards, press realease and other outdoor campaigns . Personal selling was not applied in the case of Mobilink – Disney handsets. There was no public relations strategy used.
Mobilink – Disney Phone
Mobilink, the country’s leading cellular phone service and Disney announced the launch of a parental-controlled mobile phone for children today. This is the first time a cellular company in Pakistan has launched a mobile phone that will meet the communication and security needs of parents. After conducting market research and realizing the growing needs of working parents to stay in touch with their children using mobile phones; Mobilink in collaboration with Disney is introducing this innovative solution to the Pakistani market. Moreover, changing social trends and feedback received by Mobilink through this research led the market leader to co-launch a safe and secure solution for parents. The features of the new Mobilink-Disney D100 allows complete parental control on all outgoing and incoming calls and text messages. With the help of this new feature, parents can control who the child can correspond with, thus enabling parents to keep a check on the list of people the child is communicating with.
Main Objective
As we grow and reach millions of people throughout the country, it was only a matter of time before we would develop a solution for parents and children. We had to tread this ground cautiously, keeping potential concerns of parents in mind. We have collaborated with Disney to introduce a phone, which gives complete parental control. We are confident that the new phone will not only provide the children of Pakistan with a phone to enjoy but also enable parents to monitor and manage the communication needs of their children.
Orientation behind the launch of Mobilink – Disney handset:
The launch of Mobilink – Disney handset for a completely new target market was basically a marketing oriented step taken by the Mobilink. As Mobilink, been the market leader wants to stay in the limelight for its consumers as it always takes initiatives and launches exclusive products in the market. With the launch of Mobilink – Disney handset, Mobilink once again showed up that they always have innovations on the move for the customers.
Target Market
The target market set by the Mobilink for the Disney phones was mainly based on the children with the age bracket between ( 10 to 15 yrs). Children within this age group were the main target market of Disney Phones. Group of people with SEC-A was targeted. And as far as the distribution is concerned, mainly urban cities such as Lahore, Karachi, Islamabad, Multan, Faisalabad etc were kept in mind.
Product Development:
Mobilink was not directly involved in the product development process as Mobilink is just the telecom service provider. The handsets were made by some third firm, and were imported by Mobilink with the co branding of Disney.
Image and Reputation
The image of the names associated with the product is of the market leaders in their respective industries. Mobilink Disney phone is a co branded product with the highest brand value and image with greater expectations from people.
When a brand like Mobilink and Disney introduces a new product in the market, it is expected to meet the standards it has maintained previously. If it does not, customers do not hesitate to turn towards another brand. This is where the concept of brand loyalty comes in, which is hard to obtain with growing competition. This is an issue that Mobilink faces in the case of Mobilink - Disney phones.
POSITION IN THE MIND OF CONSUMERS
With the increase in competition in the country and the increased awareness among people, their attitudes have changed in many ways. The major trend that Mobilink can bank on is the shift towards people becoming more mobile and image conscious. Therefore, by providing consumers with a product that enhances image and meets their changing needs along with providing them with sustained quality, Mobilink – Disney phone has potential advantage in the market.
Sales
Mobilink – Disney phone’s launch was quite successful but due to weak distribution channel and lack of after sales service, it was short-lived because of which the phenomenon of repeat purchase could not be established. However, given the right marketing mix, Mobilink – Disney phone has the potential for increased sales.
The Market
By analyzing the launch of Mobilink – Disney phones, it was expected to have certain features that kids want to have, what other phones within the same price range were offering. The Mobilink – Disney phone had lack of technology, colored display and no entertainment package (games etc.) in it. Whereas other handsets in the market were offering these things within the same price.
Competition
All the other handset makers were in direct competition with the Mobilink - Disney phone but this can be considered as exclusive in the target market they were focusing on and the technology of tracking and check and balance on the usage of the handsets.
Branding Policy:
It was a co branded product, which has two big names associated with it. Both of them are the market leaders of their markets. Disney and Mobilink. The packaging was designed to attract the children of a certain age group.
At that time Mobilink has used ATL ( above the line) promotional type and as well as BTL(below the line ) promotional type for their product. In the ATL Disney cell phones were marketed through TV , Media and Radio . And in below the line these cell phones were marketed by Flyers .bill boards, press realease and other outdoor campaigns . Personal selling was not applied in the case of Mobilink – Disney handsets. There was no public relations strategy used.
Economic Analysis (Pakistan)
Economic Analysis (Pakistan)
Equity Market (KSE)
The Karachi Stock Exchange (KSE) is the largest and oldest stock exchange. It is a premier stock exchange in Pakistan which offers a range of high quality products and services, which has enabled it to become the leading center of capital formation in the country. It offers companies and investors an efficient and transparent securities market, for raising capital and achieving investment objectives. Companies listed on KSE are Pakistan’s most well known, largest and most established companies. The exchange is owned by 200 owners with 651 companies listed. KSE has 4 indices KSE 100, KSE 30, KSE all share index and KMI 30. It also facilitates electronic trading and its total market capitalization as of June 30th 2009 is $ 26.15 billion. KSE trades in equities, deliverable futures contracts, cash settled future contracts and stock index futures contracts.
The year 2008-09 was a difficult year for Pakistan as GDP growth slowed; inflation rates rose and discount rates also followed an upward trend. Also the rapidly rising oil prices and law and order instability made matters even worse. The international and domestic volatility led to a series of events at KSE during the year. The KSE 100 index declined 60% from 12,289 points on July 1, 2008 to 4,815 points on January 26, 2009. In order to prevent widespread risk to the entire financial system, restrictions were imposed. These restrictions along with low investor confidence, and a lack of liquidity in the market resulted in a low average daily turnover of 115.64 million shares in 2008-09 compared to 256.34 million shares during 2007-08, depicting 55% decline. The year 2008-09 was a challenging one for KSE as the revenues declined 47% from Rs.1716 million to Rs. 914 million. Poor domestic and international market conditions, drastic increase in discount rate, lack of liquidity and floor imposition on the prices of securities led to a significant reduction in trading volumes to 27,142 million from 63,316 million last year.
Now giving an overlook to year 2009-2010, at the end of March 2010 the paid up capital at KSE amounted to Rs. 894.2 billion. Aggregate market capitalization as at end of March stood at Rs. 2890 billion. Market capitalization to GDP is currently just under 20%, which is low by comparison with many countries in Pakistan’s peer reference group. The period of July 09 to March 10 saw a recovery phase in the country’s capital market. The benchmark KSE-100 index rose 33% in line with the recovery being faced by the global equity markets. From the recent trough faced in January 2009, due to the aftermath of floor imposition at the KSE in late 2008, the KSE 100 rose up to 107%. Also a great deal of foreign inflow from the period of July to March amounting to US$ 440 million has greatly powered the index. But the volumes traded remained a fraction of period prior 2008. A major reason for reduced liquidity in the market is the absence of leveraged products. Mainly on the basis of foreign buying, the KSE 100 has risen 74% since its trough in January 2009, it has gained 33% since the start of the fiscal year 2009 to 2010. The Foreign Portfolio Investment has also risen sharply for July to March (2009-10). Other positives during 2009-2010 have been the restoration of macroeconomic stability after the BOP crisis, the IMF program, the upgrading of Pakistan’s rating by Standard and Poor’s. The KSE 100 index crossed the 10,000 mark on 12th March 2010 after a period of 18 months.
Important measures taken at KSE in 2009 include the following:
• Introduction of corporate Bonds Automated Trading System.
• Data Vending and Launch of Mobile KSE Automated Trading System (mKats)
• Implementation of internationally accepted industry classification Benchmark a jointly developed.
• Classification system launched by FTSE Group and Dow Jones Index.
• Risk Management.
• Introduction of Client Level Margining Regime.
• Restructuring of Net Capital Balance requirement.
• Pre‐settlement mechanism in Ready & Deliverable Future Contract Market.
• Introduction of Exposure Dropout Facility during Trading Hours.
• Introduction of Client wise cash deposits allocation against exposure margin and losses.
• Change in Penalty requirement on Net Capital Balance Certificate.
Interest Rates and Inflation:
The interest rate has been considerably high during the recent time periods, it has been 12.5% from November 2009 to May 2010, and this high interest rate has contributed greatly to the economic downturn Pakistan has been facing. In around January 2010 it was expected that the State Bank of Pakistan will reduce the discount rate by 100 basis point or 1% in the upcoming monetary policy statement along with some level of contraction in macroeconomic imbalances and improvement in monetary aggregates. After the expected revision the new interest rate would have been 11.5% from 12.5%. A cut in the interest rate was expected due to stability in food and other commodity prices. Even though inflation remained in double digits, the stability in the exchanged rate also contributed to the expectation of a reduced interest rate.
But on the flip side the interest rates followed an upward trend rather than a downward trend, with the size of government borrowings from commercial rates to be of Rs. 305 billion or 1.8% of GDP for year 2011 against an estimated rate of 1%. These borrowings are expected to remain high until or unless the release of financial inflows and privatization receipts from external and domestic sources are not materialized in the upcoming fiscal year. In the expected fiscal scenario along with an increase in the inflation numbers to be remained in double digits, significantly above the government target of 9.5%, there is no possibility for the central bank to lower down the rates. Therefore the interest rates are not expected to reduce at least in the next two quarters of upcoming financial year, this was stated in a report issued by the Standard Chartered Bank.
Inflation is one of the menaces that have contributed immensely to the current economic condition of Pakistan. After declining for much of 2009, inflationary pressure has intensified lately due to number of adverse events. From a low of 8.9% in October 2009, the Consumer Price index (CPI) has now increased to 13.3% as of April 2010. Food inflation has also remained high in these past few months increasing from 7.5% in Oct 2009 to 14.5% now. When considering the Non-food items, here again an increase in inflation is seen from 10% in Oct 09 to 12.2% in April 2010. On a period average basis the overall inflation recorded for July to April is of 11.5%. When taking in account the inflationary pressures it is very important to consider all major indices. The Wholesale Price Index (WPI) has risen steeply from 0.3% in August 2009 to 22% in April 2010. Similarly the Sensitive Price Index (SPI) has recorded an increase to 16.7% in April from 6.7% in Oct 2009. However inflation for 2010-11 is targeted at 8% rather than the central bank’s forecast of between 11% to 12% for the current fiscal year.
A sharp spike in global commodity prices, mainly relating to food and energy, which persisted since the beginning of 2009, has exerted a strong upward pressure on the domestic price level. Also a 70% increase in international oil prices between April 2009 to 2010 and a 49% increase in IMF commodity price index have also contributed greatly. Other factors that contributed to an increase in inflation over the two years consist of weakening of the Rupee over the past two years and also increase in domestic prices of wheat
GDP and Economic indicators:
The economy during current fiscal year 2008-09 registered a growth of just 2% against the budgetary target of 5.5% and downward revised target of 2.5% and only agriculture sector showed a positive growth of 4.7% against the target of 3.7%. The country has been pushed back in to the times of low growth, unemployment, higher inflation and higher interest rate regime leaving all sectors of the economy to suffer. During this period almost all the indicators were found in the red zone due to world’s financial crisis.
A measure of macroeconomic stability achieved over the past two years has kindled a moderate recovery in the economy, despite one of the most serious economic crisis in country’s recent history. The economy grew by 4.1% in year 2009-10. For the outgoing year the Agriculture sector grew an estimated 2%, against a target of 3.8%. Industrial output expanded by 4.9%, with large scale manufacturing showing a growth of 4.4%. Also the services sector grew by 4.6% as compared to 1.6% in 2008-09. Commodity producing sectors expanded at a pace of 3.6%.There were several developments that caused this moderate economic growth, such as crop support prices policies with higher work remittances which sustained aggregate demand in the economy, improvement in business confidence, expansionary fiscal stance and a small recovery in global economy.
Now the reports and predictions made for the year 2010-11 mostly state that, Pakistan is set to grow at 4.5% in the beginning of July in the year 2010-11 against the 4.1% during the current fiscal year. Agriculture growth is targeted to be 3.8%, manufacturing growth is expected to be 5.6% and the services sector is targeted to expand to 4.7%. The government aims the fiscal deficit of between 4 to 4.2% of GDP in 2011 as compared to earlier forecast of 5.1%.
Economic Indicators (2009-2010) July-May
Exports
(Billion$) Imports
(Billion$) Trade Balance
(Billions$) FDI
(Million$) Foreign investment
(Million$) Work remittances
(Billion$) Forex reserves
(Billion$) Exchange rate
(Rs./US$) GDP Infla-tion
1.75 3.36 -1.60 2030.7 1896.9 8.064 16.013 85.4 2% 13.3%
Equity Market (KSE)
The Karachi Stock Exchange (KSE) is the largest and oldest stock exchange. It is a premier stock exchange in Pakistan which offers a range of high quality products and services, which has enabled it to become the leading center of capital formation in the country. It offers companies and investors an efficient and transparent securities market, for raising capital and achieving investment objectives. Companies listed on KSE are Pakistan’s most well known, largest and most established companies. The exchange is owned by 200 owners with 651 companies listed. KSE has 4 indices KSE 100, KSE 30, KSE all share index and KMI 30. It also facilitates electronic trading and its total market capitalization as of June 30th 2009 is $ 26.15 billion. KSE trades in equities, deliverable futures contracts, cash settled future contracts and stock index futures contracts.
The year 2008-09 was a difficult year for Pakistan as GDP growth slowed; inflation rates rose and discount rates also followed an upward trend. Also the rapidly rising oil prices and law and order instability made matters even worse. The international and domestic volatility led to a series of events at KSE during the year. The KSE 100 index declined 60% from 12,289 points on July 1, 2008 to 4,815 points on January 26, 2009. In order to prevent widespread risk to the entire financial system, restrictions were imposed. These restrictions along with low investor confidence, and a lack of liquidity in the market resulted in a low average daily turnover of 115.64 million shares in 2008-09 compared to 256.34 million shares during 2007-08, depicting 55% decline. The year 2008-09 was a challenging one for KSE as the revenues declined 47% from Rs.1716 million to Rs. 914 million. Poor domestic and international market conditions, drastic increase in discount rate, lack of liquidity and floor imposition on the prices of securities led to a significant reduction in trading volumes to 27,142 million from 63,316 million last year.
Now giving an overlook to year 2009-2010, at the end of March 2010 the paid up capital at KSE amounted to Rs. 894.2 billion. Aggregate market capitalization as at end of March stood at Rs. 2890 billion. Market capitalization to GDP is currently just under 20%, which is low by comparison with many countries in Pakistan’s peer reference group. The period of July 09 to March 10 saw a recovery phase in the country’s capital market. The benchmark KSE-100 index rose 33% in line with the recovery being faced by the global equity markets. From the recent trough faced in January 2009, due to the aftermath of floor imposition at the KSE in late 2008, the KSE 100 rose up to 107%. Also a great deal of foreign inflow from the period of July to March amounting to US$ 440 million has greatly powered the index. But the volumes traded remained a fraction of period prior 2008. A major reason for reduced liquidity in the market is the absence of leveraged products. Mainly on the basis of foreign buying, the KSE 100 has risen 74% since its trough in January 2009, it has gained 33% since the start of the fiscal year 2009 to 2010. The Foreign Portfolio Investment has also risen sharply for July to March (2009-10). Other positives during 2009-2010 have been the restoration of macroeconomic stability after the BOP crisis, the IMF program, the upgrading of Pakistan’s rating by Standard and Poor’s. The KSE 100 index crossed the 10,000 mark on 12th March 2010 after a period of 18 months.
Important measures taken at KSE in 2009 include the following:
• Introduction of corporate Bonds Automated Trading System.
• Data Vending and Launch of Mobile KSE Automated Trading System (mKats)
• Implementation of internationally accepted industry classification Benchmark a jointly developed.
• Classification system launched by FTSE Group and Dow Jones Index.
• Risk Management.
• Introduction of Client Level Margining Regime.
• Restructuring of Net Capital Balance requirement.
• Pre‐settlement mechanism in Ready & Deliverable Future Contract Market.
• Introduction of Exposure Dropout Facility during Trading Hours.
• Introduction of Client wise cash deposits allocation against exposure margin and losses.
• Change in Penalty requirement on Net Capital Balance Certificate.
Interest Rates and Inflation:
The interest rate has been considerably high during the recent time periods, it has been 12.5% from November 2009 to May 2010, and this high interest rate has contributed greatly to the economic downturn Pakistan has been facing. In around January 2010 it was expected that the State Bank of Pakistan will reduce the discount rate by 100 basis point or 1% in the upcoming monetary policy statement along with some level of contraction in macroeconomic imbalances and improvement in monetary aggregates. After the expected revision the new interest rate would have been 11.5% from 12.5%. A cut in the interest rate was expected due to stability in food and other commodity prices. Even though inflation remained in double digits, the stability in the exchanged rate also contributed to the expectation of a reduced interest rate.
But on the flip side the interest rates followed an upward trend rather than a downward trend, with the size of government borrowings from commercial rates to be of Rs. 305 billion or 1.8% of GDP for year 2011 against an estimated rate of 1%. These borrowings are expected to remain high until or unless the release of financial inflows and privatization receipts from external and domestic sources are not materialized in the upcoming fiscal year. In the expected fiscal scenario along with an increase in the inflation numbers to be remained in double digits, significantly above the government target of 9.5%, there is no possibility for the central bank to lower down the rates. Therefore the interest rates are not expected to reduce at least in the next two quarters of upcoming financial year, this was stated in a report issued by the Standard Chartered Bank.
Inflation is one of the menaces that have contributed immensely to the current economic condition of Pakistan. After declining for much of 2009, inflationary pressure has intensified lately due to number of adverse events. From a low of 8.9% in October 2009, the Consumer Price index (CPI) has now increased to 13.3% as of April 2010. Food inflation has also remained high in these past few months increasing from 7.5% in Oct 2009 to 14.5% now. When considering the Non-food items, here again an increase in inflation is seen from 10% in Oct 09 to 12.2% in April 2010. On a period average basis the overall inflation recorded for July to April is of 11.5%. When taking in account the inflationary pressures it is very important to consider all major indices. The Wholesale Price Index (WPI) has risen steeply from 0.3% in August 2009 to 22% in April 2010. Similarly the Sensitive Price Index (SPI) has recorded an increase to 16.7% in April from 6.7% in Oct 2009. However inflation for 2010-11 is targeted at 8% rather than the central bank’s forecast of between 11% to 12% for the current fiscal year.
A sharp spike in global commodity prices, mainly relating to food and energy, which persisted since the beginning of 2009, has exerted a strong upward pressure on the domestic price level. Also a 70% increase in international oil prices between April 2009 to 2010 and a 49% increase in IMF commodity price index have also contributed greatly. Other factors that contributed to an increase in inflation over the two years consist of weakening of the Rupee over the past two years and also increase in domestic prices of wheat
GDP and Economic indicators:
The economy during current fiscal year 2008-09 registered a growth of just 2% against the budgetary target of 5.5% and downward revised target of 2.5% and only agriculture sector showed a positive growth of 4.7% against the target of 3.7%. The country has been pushed back in to the times of low growth, unemployment, higher inflation and higher interest rate regime leaving all sectors of the economy to suffer. During this period almost all the indicators were found in the red zone due to world’s financial crisis.
A measure of macroeconomic stability achieved over the past two years has kindled a moderate recovery in the economy, despite one of the most serious economic crisis in country’s recent history. The economy grew by 4.1% in year 2009-10. For the outgoing year the Agriculture sector grew an estimated 2%, against a target of 3.8%. Industrial output expanded by 4.9%, with large scale manufacturing showing a growth of 4.4%. Also the services sector grew by 4.6% as compared to 1.6% in 2008-09. Commodity producing sectors expanded at a pace of 3.6%.There were several developments that caused this moderate economic growth, such as crop support prices policies with higher work remittances which sustained aggregate demand in the economy, improvement in business confidence, expansionary fiscal stance and a small recovery in global economy.
Now the reports and predictions made for the year 2010-11 mostly state that, Pakistan is set to grow at 4.5% in the beginning of July in the year 2010-11 against the 4.1% during the current fiscal year. Agriculture growth is targeted to be 3.8%, manufacturing growth is expected to be 5.6% and the services sector is targeted to expand to 4.7%. The government aims the fiscal deficit of between 4 to 4.2% of GDP in 2011 as compared to earlier forecast of 5.1%.
Economic Indicators (2009-2010) July-May
Exports
(Billion$) Imports
(Billion$) Trade Balance
(Billions$) FDI
(Million$) Foreign investment
(Million$) Work remittances
(Billion$) Forex reserves
(Billion$) Exchange rate
(Rs./US$) GDP Infla-tion
1.75 3.36 -1.60 2030.7 1896.9 8.064 16.013 85.4 2% 13.3%
Sunday, July 18, 2010
Structural adjustment programmes
Structural adjustment programmes
Introduction
In the 1950s and 60s, the model that was suggested and developed by academics and government officials in the USA focused entirely on growth. This model, where the general aim was to increase growth in the economics of the relatively advanced underdeveloped countries- Latin America and some Asian countries – rested on the premise that increased growth should be the fundamental focus of all policy, and eventually the fruits of growth would “trickle down” to the population at large.
From structural adjustment loans to structural adjustment
Programmes:
• In the 1970s, the IMF and World Bank used to play a smaller, though important, role in the economic development of many developing countries. They used to provide loans which were based on careful country analysis and had stringent conditions attached to them.
• The focus of the IMF was essentially on improving the balance of payments problem, while the World Bank was more focused on specific projects and sectors.
• This foreign money was lent on easy terms and had a negative real rate of interest. While interest rates were low and commercial banks were ready to lend, governments in developing countries and in the advanced countries were not very concerned about the accumulating debt.
• However when US interest rates rose to 18% to finance Ronald Reagan’s largest peace time military build up, third world countries were forced to increase their budgetary allocations to service the US $ denominated debt. While the cost of servicing outstanding debt increased, commercial credit to the third world became much tighter. In order to repay parts of their debts or, more importantly, huge interest, government spending priorities had to change. As a consequence internal investment and social expenditures began to fall.
• The results of such a policy were obvious at the outset: social expenditure fell in almost all those countries that had accumulated debts.
• There was a major change from the mid 1980s, when the programmes of the World Bank and IMF began to become more fused. Also, the distinction between stabilization and adjustment became narrower, and the structural adjustment programmes of the late 1980s onwards had elements of both. There were also differences in the time span of loans. Earlier structure adjustment loans were for 12 to 18 months, but as institutional and policy reform became an increasingly important concern, the period of the loans increased to between 3 and 5 years.
Structural adjustment programmes: composition.
A structural adjustment programmes seems to fairly general, in the sense that it’s basic principals are applied to countries irrespective of their differences- and this is one of the major criticisms of the approach. The focus of the structural adjustment programmes is on improving the balance of payments position, cutting the fiscal deficit, lowering inflation, and increasing growth. The different arenas around which these and other policies revolve are as follows:
1. Trade policy: countries are advised to adopt competitive real exchange rate, n the mechanism for doing this is devaluation.
2. Fiscal policy: the reduction and the elimination of fiscal deficits by curtailing public expenditure is a high priority, and an increase in prices in the public sector so as to meet costs increase revenues is also recommended.
3. Public enterprises: the preferential financial treatment to state economic enterprises is to be stopped and there is to be brought in line with the private sector.
4. Financial sector: institutions are to be restructured so as to facilitate resource mobilization and to reflect costs. Interest rate ceilings are to be relaxed. Time deposit rate and lending rates are to be liberalized.
5. Industrial policy: protection is to removed from the industrial sector so as to make it more competitive internationally, and price controls over goods are to be removed so as to improve resource allocation.
6. Agriculture: the bias against agriculture is to be eliminated by adjusting the exchange rate and by removing the protection offer to industry.
To summarize them the structural adjustment program is meant to improve the balance of payment positions with the help of devaluation, which is suppose to encourage exports, it should cut the fiscal deficit by increasing some prices and cutting subsidies and by decreasing government expenditure; and it should cut inflation and foster growth.
Structural adjustment programmes: implementations and effects
• It is often found that programs are associated with a rise in inflation and the fall in the growth rate.
• This stringent fiscal adjustment which is central to the structural adjustment programs has led to a sharp decline in the public investment which may be leading to serious infrastructure bottlenecks to development.
• If the adjustment effect on the growth is weak, adjustment lending creates a negative investment effect: “the influence of SAPs on aggregate investment is almost everywhere negative” and “this negative impact on investment runs counter towards one of the basic objectives of adjustment and thereby questions the assumptions on which policy lending was predicted”.
• Further more, the attempt to correct the balance of payments positions with help of devaluation and immediate and undifferentiated reduction in import tariffs has not given national industries adequate time to improve their competitiveness with foreign firms.
• Consequently, reindustrialization in many countries resulted from sudden trait liberalization and further eroded the industrial base of many fragile countries.
• Moreover, a study by Van Der Hoeven found that it was mostly the extreme poor effected by the program, since ‘ the economic environment in which they live is often more closely related to the external sector and the principal source of income –wages-has often decreased drastically as part of structural policies.
• Increasing income concentration and inequality was also found in the other success story.
• There was a sharp decline in the share of both agricultural incomes and wages and salaries.
• The worsening income distribution arose from the ‘removal of subsidies following price decontrol in the public sector, a neglect of a essential public services in health and education, as well as a sharp fall in real wages and agricultural terms of trade’.
• The effects SAP on he natural environment is also been seen to be harmful.
• The most palpable impact of SAP has been an increase in rural poverty.
• Countries under adjustments are often short of resources and of the capacity to implement the programmes.
Structural adjustment programmes in Pakistan
History
• Pakistan has had a long association with the IMF, and the first time that the government of Pakistan asked for a loan was in 1958.this was a standby arrangement worth SDR 25 million over a period of 10 months.
• Two more standby arrangements were made in 1965 and 1968 by the Ayub khan government.
• In the case of Pakistan, as in other UDCs, the nature and the extent of the IMF involvement change drastically in the 1980’s.
• As the IMFs funding amount in pattern changed over late 1970’s and 80’s Pakistan entered in to a long term EFF in November 1980, for a period of 3 years under general Zia.
• The second recourse to a long term agreement with the IMF, following which the various governments in Pakistan have very closely followed the program, was signed by the interim government after the death general Zia ul haq. Infact, it was literally the last day of the government when the agreement was signed, and the subsequently elected prime Minster, Benazir Bhutto, took office the following day.
• There was a gap of almost two years before another agreement was signed in September 1993.
• Pakistan’s political history since 1993 will help put he present SAP in proper context.
• The enhanced SAP was prepared by Moin Quraishi interim government, and by 30th august 1993 IMF and the World Bank staff, which represented both the IMF and the government of Pakistan, had agreed to a Policy Framework Paper, which laid the bases of the more comprehensive three years programs of 1994.
• There was so much overlapping of interest over the content of the program that it became difficult to see whether the government of Pakistan was initiating the programs based on its own particular needs and priorities, or whether the IMF and World Bank members, in their official and non official capacities, were imposing the programs.
• The Moin Quraishi government was given a standby loan of SDR 265.4 million in record time by the IMF on 16th September 1993.
• Benazir’s government endorse 1993 program, but also, within 4 months, signed the 3 years loan under the EFF and the ESAF.
• The only time the democratically elected government itself took a loan from the IMF, was Nawaz Sharifs second government of 1997-1999.
• There were 4 agreements, two ESAFs and two EFFs, but as in the past, all agreements were suspended o abrogated and were never fulfilled.
• Nawaz sharif’s second government which used a one trenches $ 495 million Contingency and Compensatory Financing Facility- completed its programs and fulfilled the agreements.
• The only exception is general Musharaf’s government, which agreed to a Poverty Reduction and Growth Fund arrangement worth US $ 1.3 billion (which is equivalent to 100% of the SDR quota of Pakistan) over the period December 2001 to 2004.
• It should be clear from the above account that there are major political connotations to SAP in the context of Pakistan, something that is also confirmed by events after 9/11.
Implementations of SAP in Pakistan: an examination of the 1988 program.
The key objectives of the 1988 SAP over the tree year period, with their annual targets were as follows:
• Reduce the overall budgetary deficit to 6.5% of the GDP
• Contain the rate of inflation and reduce it gradually
• Reduce the external current account deficit
• Reduce the civilian external debt service
• Increase gross official foreign exchange reserves
• Contain the growth of domestic credit and money supply in line wit the growth of nominal GDP.
• Consistent with the macro economic adjustments, sustain real GDP growth.
Fiscal policy
• With an attempt to decrease the fiscal deficit/ GDP ration in 3 years major emphasis was put on resource mobilization, with major tax measures that were intended to increase the tax revenue elasticity.
• Excessive government expenditure, particularly current expenditure, was also to be reduced.
• This was to be achieved by reducing the growth of current expenditures, as well as by lowering and eliminating subsidies on fertilizer and revising the procurement prices of wheat.
• There was also a major attempt to tighten the control over provincial expenditures, with a new federal/ provincial revenue sharing agreement been worked out so that provincial government would make grater efforts to raise revenues.
• The implementation of the SAP as evaluated by the IMF/World Bank was weakest in the area of fiscal policy. Most quantitative targets were not met.
Trade
• The emphasis of the SAP of 1988, in the4 trade sector, was on extensively reducing tariffs so that imports could be made cheaper.
• However, there was also an attempt to increase exports, particularly higher valued exports.
• In addition, with deregulation and privatization being promoted, the private sector was to be permitted greater involvement in the export of rice and cotton, both of which were previously solely under government control.
• In the latest agreement, the PRGF of 2001, these policies have continued, deepening the reforms further.
• With the help of these programmes the exports increased sharply and the trade balance also improved significantly.
Financial sector
• The SAP of 1988 highlighted measures to improve the efficiency and profitability of the banking system and to increase the autonomy and accountability of public sector financial institutions, particularly nationalized commercial banks.
• On the monetary policy side, policies were to be undertaken to abolish negative real interest rates on concessional credit programmes, and efforts were to be made to free interest rates in the market for medium- and long term credit, making the interest rate more responsive to market conditions rather than being under the control of the government.
• In addition to these steps, the SAP of 1988 proposed policies in the monetary sector, where the government was expected to pursue cautious domestic credit policies so that inflationary pressures were curtailed and perceived improvements in the balance of payments were not jeopardized.
• The overall effect of SAP for the financial sector was pretty good.
Conclusion
• World Bank/IMF was not totally satisfied with the outcomes, as many targets were missed.
• More importantly, independent research that has been done on the impact of the program shows, very clearly, that the repercussions have been severe for poverty, employment, wages and inequality.
• Moreover, some of the outcomes of a SAP, like higher growth and lower inflation, have not been manifested themselves in Pakistan, with growth being considerably lower and inflation higher than trend levels.
• Thus, we argue that one of the main reasons why there has been such a noticeable rise in poverty in Pakistan, has been due to the adherence of such SAPs.
Introduction
In the 1950s and 60s, the model that was suggested and developed by academics and government officials in the USA focused entirely on growth. This model, where the general aim was to increase growth in the economics of the relatively advanced underdeveloped countries- Latin America and some Asian countries – rested on the premise that increased growth should be the fundamental focus of all policy, and eventually the fruits of growth would “trickle down” to the population at large.
From structural adjustment loans to structural adjustment
Programmes:
• In the 1970s, the IMF and World Bank used to play a smaller, though important, role in the economic development of many developing countries. They used to provide loans which were based on careful country analysis and had stringent conditions attached to them.
• The focus of the IMF was essentially on improving the balance of payments problem, while the World Bank was more focused on specific projects and sectors.
• This foreign money was lent on easy terms and had a negative real rate of interest. While interest rates were low and commercial banks were ready to lend, governments in developing countries and in the advanced countries were not very concerned about the accumulating debt.
• However when US interest rates rose to 18% to finance Ronald Reagan’s largest peace time military build up, third world countries were forced to increase their budgetary allocations to service the US $ denominated debt. While the cost of servicing outstanding debt increased, commercial credit to the third world became much tighter. In order to repay parts of their debts or, more importantly, huge interest, government spending priorities had to change. As a consequence internal investment and social expenditures began to fall.
• The results of such a policy were obvious at the outset: social expenditure fell in almost all those countries that had accumulated debts.
• There was a major change from the mid 1980s, when the programmes of the World Bank and IMF began to become more fused. Also, the distinction between stabilization and adjustment became narrower, and the structural adjustment programmes of the late 1980s onwards had elements of both. There were also differences in the time span of loans. Earlier structure adjustment loans were for 12 to 18 months, but as institutional and policy reform became an increasingly important concern, the period of the loans increased to between 3 and 5 years.
Structural adjustment programmes: composition.
A structural adjustment programmes seems to fairly general, in the sense that it’s basic principals are applied to countries irrespective of their differences- and this is one of the major criticisms of the approach. The focus of the structural adjustment programmes is on improving the balance of payments position, cutting the fiscal deficit, lowering inflation, and increasing growth. The different arenas around which these and other policies revolve are as follows:
1. Trade policy: countries are advised to adopt competitive real exchange rate, n the mechanism for doing this is devaluation.
2. Fiscal policy: the reduction and the elimination of fiscal deficits by curtailing public expenditure is a high priority, and an increase in prices in the public sector so as to meet costs increase revenues is also recommended.
3. Public enterprises: the preferential financial treatment to state economic enterprises is to be stopped and there is to be brought in line with the private sector.
4. Financial sector: institutions are to be restructured so as to facilitate resource mobilization and to reflect costs. Interest rate ceilings are to be relaxed. Time deposit rate and lending rates are to be liberalized.
5. Industrial policy: protection is to removed from the industrial sector so as to make it more competitive internationally, and price controls over goods are to be removed so as to improve resource allocation.
6. Agriculture: the bias against agriculture is to be eliminated by adjusting the exchange rate and by removing the protection offer to industry.
To summarize them the structural adjustment program is meant to improve the balance of payment positions with the help of devaluation, which is suppose to encourage exports, it should cut the fiscal deficit by increasing some prices and cutting subsidies and by decreasing government expenditure; and it should cut inflation and foster growth.
Structural adjustment programmes: implementations and effects
• It is often found that programs are associated with a rise in inflation and the fall in the growth rate.
• This stringent fiscal adjustment which is central to the structural adjustment programs has led to a sharp decline in the public investment which may be leading to serious infrastructure bottlenecks to development.
• If the adjustment effect on the growth is weak, adjustment lending creates a negative investment effect: “the influence of SAPs on aggregate investment is almost everywhere negative” and “this negative impact on investment runs counter towards one of the basic objectives of adjustment and thereby questions the assumptions on which policy lending was predicted”.
• Further more, the attempt to correct the balance of payments positions with help of devaluation and immediate and undifferentiated reduction in import tariffs has not given national industries adequate time to improve their competitiveness with foreign firms.
• Consequently, reindustrialization in many countries resulted from sudden trait liberalization and further eroded the industrial base of many fragile countries.
• Moreover, a study by Van Der Hoeven found that it was mostly the extreme poor effected by the program, since ‘ the economic environment in which they live is often more closely related to the external sector and the principal source of income –wages-has often decreased drastically as part of structural policies.
• Increasing income concentration and inequality was also found in the other success story.
• There was a sharp decline in the share of both agricultural incomes and wages and salaries.
• The worsening income distribution arose from the ‘removal of subsidies following price decontrol in the public sector, a neglect of a essential public services in health and education, as well as a sharp fall in real wages and agricultural terms of trade’.
• The effects SAP on he natural environment is also been seen to be harmful.
• The most palpable impact of SAP has been an increase in rural poverty.
• Countries under adjustments are often short of resources and of the capacity to implement the programmes.
Structural adjustment programmes in Pakistan
History
• Pakistan has had a long association with the IMF, and the first time that the government of Pakistan asked for a loan was in 1958.this was a standby arrangement worth SDR 25 million over a period of 10 months.
• Two more standby arrangements were made in 1965 and 1968 by the Ayub khan government.
• In the case of Pakistan, as in other UDCs, the nature and the extent of the IMF involvement change drastically in the 1980’s.
• As the IMFs funding amount in pattern changed over late 1970’s and 80’s Pakistan entered in to a long term EFF in November 1980, for a period of 3 years under general Zia.
• The second recourse to a long term agreement with the IMF, following which the various governments in Pakistan have very closely followed the program, was signed by the interim government after the death general Zia ul haq. Infact, it was literally the last day of the government when the agreement was signed, and the subsequently elected prime Minster, Benazir Bhutto, took office the following day.
• There was a gap of almost two years before another agreement was signed in September 1993.
• Pakistan’s political history since 1993 will help put he present SAP in proper context.
• The enhanced SAP was prepared by Moin Quraishi interim government, and by 30th august 1993 IMF and the World Bank staff, which represented both the IMF and the government of Pakistan, had agreed to a Policy Framework Paper, which laid the bases of the more comprehensive three years programs of 1994.
• There was so much overlapping of interest over the content of the program that it became difficult to see whether the government of Pakistan was initiating the programs based on its own particular needs and priorities, or whether the IMF and World Bank members, in their official and non official capacities, were imposing the programs.
• The Moin Quraishi government was given a standby loan of SDR 265.4 million in record time by the IMF on 16th September 1993.
• Benazir’s government endorse 1993 program, but also, within 4 months, signed the 3 years loan under the EFF and the ESAF.
• The only time the democratically elected government itself took a loan from the IMF, was Nawaz Sharifs second government of 1997-1999.
• There were 4 agreements, two ESAFs and two EFFs, but as in the past, all agreements were suspended o abrogated and were never fulfilled.
• Nawaz sharif’s second government which used a one trenches $ 495 million Contingency and Compensatory Financing Facility- completed its programs and fulfilled the agreements.
• The only exception is general Musharaf’s government, which agreed to a Poverty Reduction and Growth Fund arrangement worth US $ 1.3 billion (which is equivalent to 100% of the SDR quota of Pakistan) over the period December 2001 to 2004.
• It should be clear from the above account that there are major political connotations to SAP in the context of Pakistan, something that is also confirmed by events after 9/11.
Implementations of SAP in Pakistan: an examination of the 1988 program.
The key objectives of the 1988 SAP over the tree year period, with their annual targets were as follows:
• Reduce the overall budgetary deficit to 6.5% of the GDP
• Contain the rate of inflation and reduce it gradually
• Reduce the external current account deficit
• Reduce the civilian external debt service
• Increase gross official foreign exchange reserves
• Contain the growth of domestic credit and money supply in line wit the growth of nominal GDP.
• Consistent with the macro economic adjustments, sustain real GDP growth.
Fiscal policy
• With an attempt to decrease the fiscal deficit/ GDP ration in 3 years major emphasis was put on resource mobilization, with major tax measures that were intended to increase the tax revenue elasticity.
• Excessive government expenditure, particularly current expenditure, was also to be reduced.
• This was to be achieved by reducing the growth of current expenditures, as well as by lowering and eliminating subsidies on fertilizer and revising the procurement prices of wheat.
• There was also a major attempt to tighten the control over provincial expenditures, with a new federal/ provincial revenue sharing agreement been worked out so that provincial government would make grater efforts to raise revenues.
• The implementation of the SAP as evaluated by the IMF/World Bank was weakest in the area of fiscal policy. Most quantitative targets were not met.
Trade
• The emphasis of the SAP of 1988, in the4 trade sector, was on extensively reducing tariffs so that imports could be made cheaper.
• However, there was also an attempt to increase exports, particularly higher valued exports.
• In addition, with deregulation and privatization being promoted, the private sector was to be permitted greater involvement in the export of rice and cotton, both of which were previously solely under government control.
• In the latest agreement, the PRGF of 2001, these policies have continued, deepening the reforms further.
• With the help of these programmes the exports increased sharply and the trade balance also improved significantly.
Financial sector
• The SAP of 1988 highlighted measures to improve the efficiency and profitability of the banking system and to increase the autonomy and accountability of public sector financial institutions, particularly nationalized commercial banks.
• On the monetary policy side, policies were to be undertaken to abolish negative real interest rates on concessional credit programmes, and efforts were to be made to free interest rates in the market for medium- and long term credit, making the interest rate more responsive to market conditions rather than being under the control of the government.
• In addition to these steps, the SAP of 1988 proposed policies in the monetary sector, where the government was expected to pursue cautious domestic credit policies so that inflationary pressures were curtailed and perceived improvements in the balance of payments were not jeopardized.
• The overall effect of SAP for the financial sector was pretty good.
Conclusion
• World Bank/IMF was not totally satisfied with the outcomes, as many targets were missed.
• More importantly, independent research that has been done on the impact of the program shows, very clearly, that the repercussions have been severe for poverty, employment, wages and inequality.
• Moreover, some of the outcomes of a SAP, like higher growth and lower inflation, have not been manifested themselves in Pakistan, with growth being considerably lower and inflation higher than trend levels.
• Thus, we argue that one of the main reasons why there has been such a noticeable rise in poverty in Pakistan, has been due to the adherence of such SAPs.
The Role of Civil Society’s and NGOs in Pakistan
Table of Contents
Introduction.................................................................................................... 2
Defining Civil Society…………………………………………………………… 3
Overview of Civil Society in Pakistan............................................................. 4
Typology………………………………………………………………………….. 5
1) Structure............................................................................................. 6
i) Mapping Civil Society
ii) Membership Base
2) Space................................................................................................... 8
i) The Right of Association
ii) Socio-religious Pressure
3) Values ................................................................................................. 10
i) Tradition of Charity
ii) Violence and Militancy: The Other Extreme
iii) Other Folk Sub-sectors
iv) Gender Equity
v) Accountability and Transparency
4) Impact................................................................................................... 13
i) Public Policy
ii) Effectiveness of CSOs: Poverty Reduction and Sustainable Development
iii) Comparative Advantage
iv) Creating Awareness
v) Successful lobbying
vi) Portrayal in Media
vii) Some Setbacks
Conclusion....................................................................................... 18
Limitations……………………………………………………………… 20
Introduction
The newest factor we are coming across in the development equation is ‘Civil society’ and in response civil society strengthening is the latest addition to the agenda of development. The traditional and the modern components of civil society are to be found around the globe whether it is in Pakistan or anywhere else. It is these organizations and institutions it is made up of and hence is known to be a stand between the individuals, the state as well as communities. Pakistan's civil society is not entirely constituted by NGOs and special interest groups. It consist both bazaar associations (baradaris) and NGO’s
The best way to gain knowledge and understand in depth along with appreciate civil society’s role from the development perspective it surely needs to be undressed of its ideological clothing. The overall purpose of this report is to critically assess the present enthusiasm of the role played by civil society as a counterweight to the state, and as the basis of a society-centered strategy of development.
We can say, that the civil society of Pakistan is basically characterized by hybrid forms, multiple inheritances and a lot of unresolved struggle among the between the practices and values of pre-capitalist society and new modes of social life. Its cultural manifestations appear as a collection of incoherent voices, conflicting worldviews and opposing interests.
Defining Civil Society
It is wise to understand the term ‘civil society’, before proceeding with the analysis of Pakistan's civil society. It is the distinction between civil and political societies, paralleling of the old fashioned segregation like prince versus people which laid the basis of the idea of civil society. According to Gramsci, it is to differentiate civil society from both economy and state, describing it as the realm of public opinion and culture [Mamdani (1996), pp. 14-15]. At the present according to Cohen and Arato, civil society is differentiated from the state and defined as "the sphere of associations (especially voluntary associations), social movements, and forms of public communications that mediate between economy, state and society" [Cohen and Arato (1992), p. ix].
In practice today, civil society has come to a broad meaning NGOs, local communities, clubs, interest groups and other associational arrangements which are outside the sphere of state. It is emphasized that all social institution of a society that express collective interests as well as the actions do not come under civil society. To build and sustain civic institution outside the government, both for meeting collective needs and for holding the state accountable is the main project of strengthening the civil society. According to Mccarney, this is how donor agencies and Western academics define civil society [McCarney et al. (1995
Overview of Civil Society in Pakistan
Sociologically speaking, it is Beradaris (clans) system, Panchayats (village councils) and Jirgas, comprised of religious leaders, rural landlords and town notables make up civil society in Pakistan and is observable in formal institutions, such as political parties, labour unions, media and press, chambers of commerce, citizen clubs and community organizations. We can deduce on this basis that these 'mediating' structures are the ones which regulate, balance and influence the state on high node, as well as in organizing collective action in public affairs. In a nutshell, we see that groups mentioned above act as the intermediaries who make the voice reach to the king from individuals.
It is estimated to be around 45,000 active nonprofit organizations currently working in Pakistan which include a large some of people amounting to almost 6 million members and consists of approximately a quarter million staff members. This sector have a diverse range of activities from religious education to sport activities, from performing religious rites to the lobbying for civic amenities, and also from running vocational centers to national human rights advocacy organizations. It includes all the sizes which range from small neighboring graveyard to the multibillion rupee hospitals. It has come up that almost half (46%) of the Pakistan’s nonprofit organizations cite education to be their main activity performed. Advocacy is the second largest component in this nonprofit sector totally approximately 18% whereas, the organizations providing social services and religious activities as their main activities represent 8% and 5% respectively of the total. A relatively small share work in the health sector 6%.
Typology
NGOs (Non-Governmental Organization): Citizen Sector, which in depth can be defined as private, not for profit citizen organizations, pressure groups and support centers.
Community Based Organizations (CBOs): Membership based, grassroots organizations known to be a subset of NGOs.
Trade Unions: These are organized associations of the workers in an industry or profession which work for the protection and furtherance of their rights and interests.
CSOs (Civil Society Organizations): CSO will be used as an “umbrella term” in the report to refer to NGOs, CBOs, think tanks, trade unions, cultural groups and informal citizen organizations
The project report presents an overview of the contemporary civil society along four dimensions based on the limited survey and range of secondary data which includes research papers, articles and databases:
1) Structure
2) Space
3) Values
4) Impact
1) Structure:
Civil society organizations, sectoral and regional distribution, resources, membership, networking etc. are the lime light of this part. Since there is no database been maintained on regular basis hence, it is difficult to draw an absolute picture of the civil society of Pakistan. From 1990’s several initiatives have been launched to collect data on various dimensions of the civil society, but so far no comprehensive analysis has been undertaken. The amount of data available is pretty much of a mere sketch or can be said as area specific, which also mostly focus on the NGO’s.
It has shortcomings in areas such as membership base, regional distribution, building alliances and coalitions, co-operation with the private sector. I have not been able to find a consolidated data available on the number, funding sources and resources of such traditional civil society actors as madrassas, jirgas and panchayats (council of elders), savings groups, burial societies, neighbourhood associations and shrines.
i) Mapping Civil Society:
After reviewing a number of databases and surveys, from my findings, I would estimate that there are around bulk of 59 percent in Punjab province followed by Sindh and NWFP NGO’s actively working currently in Pakistan. If non-registered organizations are added to those registered (active) under the six laws, the number, according to reliable government sources, could be anywhere around 50,000.
It is a complicated task due to multiplicity of registration laws to map the NGP sector in Pakistan. There are six different laws under which organizations can be registered:
i) The Societies Act (1860),
ii) Companies Ordinance (1984),
iii) The Trust Act (1882),
iv) The Charitable Endowments Act (1890),
v) The Co-operative Act (1925)
vi) The Voluntary Social Welfare Agencies (Registration and Control) Ordinance (1961).
It wide open fact that there is no such system whereby non-functional NGOs are struck off the registration records which result in many of the NGO’s, which have becomes defunct still continue to be listed and hence present a false picture of the sector.
ii) Membership Base
Only five to ten percent of the total has more than 450 members. There are basically no reliable figures as such available on the membership base of CBOs and faith-based organizations which can accumulate the exact numbers. It is only 22 percent of civil society knowledge bearers agrees that CSOs in Pakistan has an active membership base. Approximately, 35 percent disagrees while as many as 65 percent of respondents seems to hold a mix opinion. This clearly shows the lack of information of the membership base of CSOs in Pakistan.
2) Space:
This section of the report studies the legal, political and socio-cultural environment that civil society operates in. Borne the brunt of repeated military interventions in the country’s polity have been faced by the Civil society of Pakistan. The state has many times came under the repression in various forms including bans on CSOs, arrest of civil society leaders and political pressure. After a quasi-democratic interlude in 1980’s, the country again came under military rule of General Parvez Musharraf (Retd). After coming out of the military rule now certain socio-cultural norms and attitudes still lack the continuation of the impact on the strengthening of civil society.
i) The Right of Association
There have always been an ambiguity and mixed based attitudes between the state and the NGOs. Where the services are appreciated the NGOs provide, they are also perceived as a competitors for donor funded, political allegiance and influenced. The government’s concerns with the operation of NGOs essentially hinge around issues of sovereignty, funding, monitoring and supervision. The history of the relations between the state and civil society shows that while the former is relatively comfortable with the service delivery and charity role of NGOs; it is the advocacy work that it finds unsettling and provocative. It is seen that traditionally, the state has refrained from interfering with the activities of informal CSOs such as madrassas, shrines, seminaries and jirgas.
ii) Socio-religious Pressure
In the recent past certain sub-sectors of civil society faced increasingly hostility at societal level. Throughout 2000, it is seen that NGOs were been subjected to repeated verbal assaults by religious leaders. The attacks came despite the support extended by the government ministers to NGOs calling for their inclusion in advisory panels and in undertaking work at the grassroots level. Religious extremists continue to accuse development and advocacy-oriented NGOs of working against ‘national ideology’ by spreading liberal and secular values
3) Values:
This part of the project report looks into the values, norms and attitudes that civil society represents and propagates. It takes into account issues such as promotion of human rights, gender equity, tolerance, sustainable development, transparency and accountability, internal democracy etc. There is, however, a dichotomy between the values held by modern CSOs and traditional or folk sub-sectors in terms of vision and values. The Values dimension almost 50% reflects a civil society that is reasonably well- advanced in terms of norms and attitudes.
i) Tradition of Charity
Volunteerism has traditionally in our country been a deep-rooted impulse, which is encouraged primarily by the religious obligation of helping the poor and the needy. After partition in Pakistan the charity organizations which were setup drew on the historical tradition of providing relief to the needy. Dominance by the founding fathers of such organizations have shown and proved invaluable services to the poorest of poor whereas, they somehow lack internal democracy and accountability and are characterized by informal structures.
ii) Violence and Militancy: The Other Extreme
A sub-set of CSOs comprising religious seminaries, however, has invariably backed jingoistic and chauvinistic ideologies. Their worldview is clearly at cross-purposes with the goals of social development, gender equality and social justice adopted by other civil society organizations. It can be seen similarly with the jirgas in the North West Frontier Province and the Federally Administered Tribal Areas often condone violence, honor killings and gender discrimination in the name of familial honor and traditions.
The political parties are highly blamed for the infusion of violent culture in to universities which includes the campus life upset due to the educational hurdles be the first and foremost attribute to the student raging frustration enhancing it with the deeply unsatisfactory nature of education experience with regards to a most doubtful future employment prospects.
iii) Other Folk Sub-sectors
It is evident that mysticism in the subcontinent, as elsewhere in the world, gave birth to a whole range of poetry, allegory and music that was an combination of the unorthodox Islam and the indigenous culture. Nowadays, Sufi saints are looked upon as models of piety and spiritual excellence. Within these saints some gained more popularity after their deaths which resulted in the birth of shrines as being the center of their wishes to come true for people of all creed and sects. As the years pass by some of these shrines have lost their charm and became hotspot of drugs, prostitutions and quackery. There are still few which still aim to provide genuine alternatives space for faith, devotion and culture.
iv) Gender Equity
Today studies have clearly pointed out the need for trade unions to involve women workers and to address their concerns and problems. Additionally, it has been notified that women have limited opportunity to exercise leadership in trade unions. This is partly due to the tradition of segregation and social restrictions on women’s mobility that women workers will not have any incentive to join trade unions unless they have the confidence that doing so will improve their condition and strengthen their position in the workforce. Much like trade unions, professional associations, employers’ unions and student organizations continue to be male-dominated. The under-representation of women in these organizations speaks volumes about their dominated status in the Pakistani society.
v) Accountability and Transparency
A rise to greater responsibilities and public expectations there is seen an increasing role of CSOs in the social sector. NGOs are found wanting in terms of internal democracy and participatory decision-making. Civil society of Pakistan in this manner is caught up in conflicting trends. Only a quarter of the respondents agreed that CSOs make information about their general activities publicly available, while only a very small percentage believe that financial accounts are disclosed. Any individual who is relatively better off in qualification from the other and wield a certain amount of influence setup a community based organization. This gives rise to the total control of that organization and with very minimal or limited democratic participation. Larger NGOs in Pakistan have remained caught up increasingly in the world of foreign official aid, which pushed them towards certain forms of evaluation and accountability at the expense of others. When most of the funding is obtained exclusively from foreign funding agencies it is therefore, hard for the organizations to establish their credibility either to government or to society-at-large.
4) Impact:
In this final part of the report the contribution of civil society to various social, economic and political problems, its role in agenda-setting, policy-making, implementation and monitoring are discussed. The overall impact of the civil society initiatives can be gauged from the fact that CSOs in Pakistan are now accepted as partners in social and economic development. Once which was an indistinct voice at the edge, civil society today is a force to be recognized with in the national ground. Functioning under resource constraints and in an unfavorable environment as they do, CSOs’ contributions to the country are indeed impressive.
i) Public Policy
Civil society in Pakistan has evolved under the shadow of frequent military interventions and a debt-ridden and elitist state system. That the ideals of people-centered development, human rights, gender equality and social justice are slowly but steadily creeping into public policy frameworks has much to do with the efforts that civil society has made over the past five decades.
ii) Effectiveness of CSOs: Poverty Reduction and Sustainable Development
There have been a tremendous impact through micro-credit in the rural areas are the result of initiatives taken by such as the Aga Khan Rural Support Programme (AKRSP). It has formed more than 2 300 village organizations and over 1 450 women’s organizations contributing to almost Rs 1450 million disbursed in loans to more than 600 000 villagers. It is the AKRSP model which was replicated by each of the four provinces in addition to the National Rural Support Programme (NRSP) at the national level.
iii) Comparative Advantage
A huge number of respondents agree to the providing of services by the CSOs to be of maximum positivity to the state. It is the edge over the state that has remained distant from the realities on the ground and obsessed with extravagant projects which are pointed out by many observers regarding the flexibility, informality and emphasis on small scale projects performed by CSOs.
iv) Creating Awareness
It have been a vital role played by the NGOs in Pakistan in creating awareness on issues such as human and legal rights, women’s role in development, and over-population. For women and minorities that have borne the brunt of religious bigotry and social repression, civil society came as a silver lining in dark, gloomy clouds. Repealing discriminatory laws and reforming the electoral process have been consistently campaigned by the advocacy groups. It is the role of civil society which have been lobbying successfully have blocked an attempt made by the Muslim League government to introduce religious coding of the national identity cards.
v) Successful Lobbying
Child rights’ organizations have played a key role in reducing child labour in Pakistan’s football stitching industry. To eliminate the child labour from the football stitching industry was a consequence of a constant struggle of the Sialkot Chamber of Commerce and Industry in 1997. The project of UNICEF based on a multi-pronged approach of providing education to children which were displaced from the football stitching industry gave credit to their families was an immense success and went on to win the government’s support as well.
vi) Portrayal in Media
Media as known plays a very vital role in the portrayal of these CSOs. In view of maximum observers as the negative approach is taken towards these operational CSOs which raise allegations adherence to foreign agendas, corruption and promotion of western values with lacking of the accountability. The is that the coverage and analysis of CSO activities varies from one medium to another and also from one kind of CSO to another to which majority of the public opinion poll is that they are negatively portrayed in the media both in paper and television broadcast. It is advised that CSOs need to devise a strategy for effectively engaging media to have a stable and positive image to be presented.
vii) Some Setbacks
In spite of significant breakthroughs made by the civil society’s development initiatives have sometimes also met with failure. Due to the unexpected withdrawal of funding or at the culmination of the project period have led to the many of the CSOs come to a halt in their operations and permanently closed down only because of the dependency on the foreign donors to the sustainability of the projects. This dependence often translates into programmes that are task-oriented, bureaucratized and unsuited to local conditions. Rather than on long-term planning, institutional strengthening, human resource development and building a sound resource base CSOs are forced to concentrate more on immediate activities. Due to the lack of focus and clear organizational structure community based initiatives fall short of targets. They seem to be in need of clear vision, focused objectives, well-defined strategy, managerial and financial systems, planning and implementation skills and linkages with the surrounding systems. Only few organized and planned procedures are for regular contact with the government. Technical advice and training in situation analysis and devising strategies are weak points that must be developed. This would be an important step towards building their capacity to put forward alternative policies in their areas of concern. Finally, it must be added that many civil society initiatives are well-geared toward long-term human development although their results may not be visible in the short-term, whereas CBOs still need some clarity in their long-term plans. Changes in attitudes, levels of awareness and social consciousness are hard to quantify — thus much of civil society's impact invariably escapes public notice.
Conclusion
The research phase of the project report yielded a wealth of information and ideas about the roles played by civil societies in Pakistan. On the positive side, the results of the finding speak itself of a civil society that is healthy and advanced in terms of financial sustainability and commitment. The fact that civil society knowledge bearers consider it to be financially strong may encourage a focus on areas such as lack of human resources and weak management while trying to establish a link with low impact. A negative aspect of the most CSOs weak structure along with lack of vision for long term planning is to a very great extent subject to political and government pressures. The objectives envisioned by smaller CSOs are often vague and limited to short-term remedy of diverse issues. The role of CSOs in promoting and practicing human rights emerges as a strong value especially given the non-democratic societal context. CSOs as playing a successful role in promoting harmonious relations in society needs to be qualified by the fact that the sheer number of militant and ethnic organizations overshadows the positive role played by other CSOs. It is also highlighted that service delivery and mobilization of the marginalized as success areas. A number of indicators a substantial percentage of views of the knowledgeable individual land in the mid-range category (those who neither agreed nor completely disagreed).
The hypothesis that can be drawn in the introduction to this report to the best understanding is:
Civil Society in Pakistan is characterized by hybrid forms, unresolved conflicts and divergent legacies, where a civil society is caught up in the middle of the ripple of pain and birth cramp of a new one. There is also a need, “to assess the role of CSOs in the broader socio-political environment of the country,” to quote one author Jean-Jacques Rousseau in his one of famous book on Civil society.
Limitations
While I made every effort to make this project as broad-based, comprehensive and accurate as possible, I was constrained by a number of factors that must be mentioned at the outset.
• Government representation in various aspects was limited
• The accuracy was doubtful which lead to more investigations
• Time and resource constraints precluded collection of data
• The relatively small number of respondents
• The language of the small questionnaire i.e. English also posed a limitation as knowledge bearer
• Ongoing concerns in the country limited to the various locations to be approached for valuable data
• Driver took a leave to his sister’s wedding caused a lot of trouble for transportation
• Parents permission on visiting some locations for information made a few obstacles
• The temperature of Lahore being a major factor
Introduction.................................................................................................... 2
Defining Civil Society…………………………………………………………… 3
Overview of Civil Society in Pakistan............................................................. 4
Typology………………………………………………………………………….. 5
1) Structure............................................................................................. 6
i) Mapping Civil Society
ii) Membership Base
2) Space................................................................................................... 8
i) The Right of Association
ii) Socio-religious Pressure
3) Values ................................................................................................. 10
i) Tradition of Charity
ii) Violence and Militancy: The Other Extreme
iii) Other Folk Sub-sectors
iv) Gender Equity
v) Accountability and Transparency
4) Impact................................................................................................... 13
i) Public Policy
ii) Effectiveness of CSOs: Poverty Reduction and Sustainable Development
iii) Comparative Advantage
iv) Creating Awareness
v) Successful lobbying
vi) Portrayal in Media
vii) Some Setbacks
Conclusion....................................................................................... 18
Limitations……………………………………………………………… 20
Introduction
The newest factor we are coming across in the development equation is ‘Civil society’ and in response civil society strengthening is the latest addition to the agenda of development. The traditional and the modern components of civil society are to be found around the globe whether it is in Pakistan or anywhere else. It is these organizations and institutions it is made up of and hence is known to be a stand between the individuals, the state as well as communities. Pakistan's civil society is not entirely constituted by NGOs and special interest groups. It consist both bazaar associations (baradaris) and NGO’s
The best way to gain knowledge and understand in depth along with appreciate civil society’s role from the development perspective it surely needs to be undressed of its ideological clothing. The overall purpose of this report is to critically assess the present enthusiasm of the role played by civil society as a counterweight to the state, and as the basis of a society-centered strategy of development.
We can say, that the civil society of Pakistan is basically characterized by hybrid forms, multiple inheritances and a lot of unresolved struggle among the between the practices and values of pre-capitalist society and new modes of social life. Its cultural manifestations appear as a collection of incoherent voices, conflicting worldviews and opposing interests.
Defining Civil Society
It is wise to understand the term ‘civil society’, before proceeding with the analysis of Pakistan's civil society. It is the distinction between civil and political societies, paralleling of the old fashioned segregation like prince versus people which laid the basis of the idea of civil society. According to Gramsci, it is to differentiate civil society from both economy and state, describing it as the realm of public opinion and culture [Mamdani (1996), pp. 14-15]. At the present according to Cohen and Arato, civil society is differentiated from the state and defined as "the sphere of associations (especially voluntary associations), social movements, and forms of public communications that mediate between economy, state and society" [Cohen and Arato (1992), p. ix].
In practice today, civil society has come to a broad meaning NGOs, local communities, clubs, interest groups and other associational arrangements which are outside the sphere of state. It is emphasized that all social institution of a society that express collective interests as well as the actions do not come under civil society. To build and sustain civic institution outside the government, both for meeting collective needs and for holding the state accountable is the main project of strengthening the civil society. According to Mccarney, this is how donor agencies and Western academics define civil society [McCarney et al. (1995
Overview of Civil Society in Pakistan
Sociologically speaking, it is Beradaris (clans) system, Panchayats (village councils) and Jirgas, comprised of religious leaders, rural landlords and town notables make up civil society in Pakistan and is observable in formal institutions, such as political parties, labour unions, media and press, chambers of commerce, citizen clubs and community organizations. We can deduce on this basis that these 'mediating' structures are the ones which regulate, balance and influence the state on high node, as well as in organizing collective action in public affairs. In a nutshell, we see that groups mentioned above act as the intermediaries who make the voice reach to the king from individuals.
It is estimated to be around 45,000 active nonprofit organizations currently working in Pakistan which include a large some of people amounting to almost 6 million members and consists of approximately a quarter million staff members. This sector have a diverse range of activities from religious education to sport activities, from performing religious rites to the lobbying for civic amenities, and also from running vocational centers to national human rights advocacy organizations. It includes all the sizes which range from small neighboring graveyard to the multibillion rupee hospitals. It has come up that almost half (46%) of the Pakistan’s nonprofit organizations cite education to be their main activity performed. Advocacy is the second largest component in this nonprofit sector totally approximately 18% whereas, the organizations providing social services and religious activities as their main activities represent 8% and 5% respectively of the total. A relatively small share work in the health sector 6%.
Typology
NGOs (Non-Governmental Organization): Citizen Sector, which in depth can be defined as private, not for profit citizen organizations, pressure groups and support centers.
Community Based Organizations (CBOs): Membership based, grassroots organizations known to be a subset of NGOs.
Trade Unions: These are organized associations of the workers in an industry or profession which work for the protection and furtherance of their rights and interests.
CSOs (Civil Society Organizations): CSO will be used as an “umbrella term” in the report to refer to NGOs, CBOs, think tanks, trade unions, cultural groups and informal citizen organizations
The project report presents an overview of the contemporary civil society along four dimensions based on the limited survey and range of secondary data which includes research papers, articles and databases:
1) Structure
2) Space
3) Values
4) Impact
1) Structure:
Civil society organizations, sectoral and regional distribution, resources, membership, networking etc. are the lime light of this part. Since there is no database been maintained on regular basis hence, it is difficult to draw an absolute picture of the civil society of Pakistan. From 1990’s several initiatives have been launched to collect data on various dimensions of the civil society, but so far no comprehensive analysis has been undertaken. The amount of data available is pretty much of a mere sketch or can be said as area specific, which also mostly focus on the NGO’s.
It has shortcomings in areas such as membership base, regional distribution, building alliances and coalitions, co-operation with the private sector. I have not been able to find a consolidated data available on the number, funding sources and resources of such traditional civil society actors as madrassas, jirgas and panchayats (council of elders), savings groups, burial societies, neighbourhood associations and shrines.
i) Mapping Civil Society:
After reviewing a number of databases and surveys, from my findings, I would estimate that there are around bulk of 59 percent in Punjab province followed by Sindh and NWFP NGO’s actively working currently in Pakistan. If non-registered organizations are added to those registered (active) under the six laws, the number, according to reliable government sources, could be anywhere around 50,000.
It is a complicated task due to multiplicity of registration laws to map the NGP sector in Pakistan. There are six different laws under which organizations can be registered:
i) The Societies Act (1860),
ii) Companies Ordinance (1984),
iii) The Trust Act (1882),
iv) The Charitable Endowments Act (1890),
v) The Co-operative Act (1925)
vi) The Voluntary Social Welfare Agencies (Registration and Control) Ordinance (1961).
It wide open fact that there is no such system whereby non-functional NGOs are struck off the registration records which result in many of the NGO’s, which have becomes defunct still continue to be listed and hence present a false picture of the sector.
ii) Membership Base
Only five to ten percent of the total has more than 450 members. There are basically no reliable figures as such available on the membership base of CBOs and faith-based organizations which can accumulate the exact numbers. It is only 22 percent of civil society knowledge bearers agrees that CSOs in Pakistan has an active membership base. Approximately, 35 percent disagrees while as many as 65 percent of respondents seems to hold a mix opinion. This clearly shows the lack of information of the membership base of CSOs in Pakistan.
2) Space:
This section of the report studies the legal, political and socio-cultural environment that civil society operates in. Borne the brunt of repeated military interventions in the country’s polity have been faced by the Civil society of Pakistan. The state has many times came under the repression in various forms including bans on CSOs, arrest of civil society leaders and political pressure. After a quasi-democratic interlude in 1980’s, the country again came under military rule of General Parvez Musharraf (Retd). After coming out of the military rule now certain socio-cultural norms and attitudes still lack the continuation of the impact on the strengthening of civil society.
i) The Right of Association
There have always been an ambiguity and mixed based attitudes between the state and the NGOs. Where the services are appreciated the NGOs provide, they are also perceived as a competitors for donor funded, political allegiance and influenced. The government’s concerns with the operation of NGOs essentially hinge around issues of sovereignty, funding, monitoring and supervision. The history of the relations between the state and civil society shows that while the former is relatively comfortable with the service delivery and charity role of NGOs; it is the advocacy work that it finds unsettling and provocative. It is seen that traditionally, the state has refrained from interfering with the activities of informal CSOs such as madrassas, shrines, seminaries and jirgas.
ii) Socio-religious Pressure
In the recent past certain sub-sectors of civil society faced increasingly hostility at societal level. Throughout 2000, it is seen that NGOs were been subjected to repeated verbal assaults by religious leaders. The attacks came despite the support extended by the government ministers to NGOs calling for their inclusion in advisory panels and in undertaking work at the grassroots level. Religious extremists continue to accuse development and advocacy-oriented NGOs of working against ‘national ideology’ by spreading liberal and secular values
3) Values:
This part of the project report looks into the values, norms and attitudes that civil society represents and propagates. It takes into account issues such as promotion of human rights, gender equity, tolerance, sustainable development, transparency and accountability, internal democracy etc. There is, however, a dichotomy between the values held by modern CSOs and traditional or folk sub-sectors in terms of vision and values. The Values dimension almost 50% reflects a civil society that is reasonably well- advanced in terms of norms and attitudes.
i) Tradition of Charity
Volunteerism has traditionally in our country been a deep-rooted impulse, which is encouraged primarily by the religious obligation of helping the poor and the needy. After partition in Pakistan the charity organizations which were setup drew on the historical tradition of providing relief to the needy. Dominance by the founding fathers of such organizations have shown and proved invaluable services to the poorest of poor whereas, they somehow lack internal democracy and accountability and are characterized by informal structures.
ii) Violence and Militancy: The Other Extreme
A sub-set of CSOs comprising religious seminaries, however, has invariably backed jingoistic and chauvinistic ideologies. Their worldview is clearly at cross-purposes with the goals of social development, gender equality and social justice adopted by other civil society organizations. It can be seen similarly with the jirgas in the North West Frontier Province and the Federally Administered Tribal Areas often condone violence, honor killings and gender discrimination in the name of familial honor and traditions.
The political parties are highly blamed for the infusion of violent culture in to universities which includes the campus life upset due to the educational hurdles be the first and foremost attribute to the student raging frustration enhancing it with the deeply unsatisfactory nature of education experience with regards to a most doubtful future employment prospects.
iii) Other Folk Sub-sectors
It is evident that mysticism in the subcontinent, as elsewhere in the world, gave birth to a whole range of poetry, allegory and music that was an combination of the unorthodox Islam and the indigenous culture. Nowadays, Sufi saints are looked upon as models of piety and spiritual excellence. Within these saints some gained more popularity after their deaths which resulted in the birth of shrines as being the center of their wishes to come true for people of all creed and sects. As the years pass by some of these shrines have lost their charm and became hotspot of drugs, prostitutions and quackery. There are still few which still aim to provide genuine alternatives space for faith, devotion and culture.
iv) Gender Equity
Today studies have clearly pointed out the need for trade unions to involve women workers and to address their concerns and problems. Additionally, it has been notified that women have limited opportunity to exercise leadership in trade unions. This is partly due to the tradition of segregation and social restrictions on women’s mobility that women workers will not have any incentive to join trade unions unless they have the confidence that doing so will improve their condition and strengthen their position in the workforce. Much like trade unions, professional associations, employers’ unions and student organizations continue to be male-dominated. The under-representation of women in these organizations speaks volumes about their dominated status in the Pakistani society.
v) Accountability and Transparency
A rise to greater responsibilities and public expectations there is seen an increasing role of CSOs in the social sector. NGOs are found wanting in terms of internal democracy and participatory decision-making. Civil society of Pakistan in this manner is caught up in conflicting trends. Only a quarter of the respondents agreed that CSOs make information about their general activities publicly available, while only a very small percentage believe that financial accounts are disclosed. Any individual who is relatively better off in qualification from the other and wield a certain amount of influence setup a community based organization. This gives rise to the total control of that organization and with very minimal or limited democratic participation. Larger NGOs in Pakistan have remained caught up increasingly in the world of foreign official aid, which pushed them towards certain forms of evaluation and accountability at the expense of others. When most of the funding is obtained exclusively from foreign funding agencies it is therefore, hard for the organizations to establish their credibility either to government or to society-at-large.
4) Impact:
In this final part of the report the contribution of civil society to various social, economic and political problems, its role in agenda-setting, policy-making, implementation and monitoring are discussed. The overall impact of the civil society initiatives can be gauged from the fact that CSOs in Pakistan are now accepted as partners in social and economic development. Once which was an indistinct voice at the edge, civil society today is a force to be recognized with in the national ground. Functioning under resource constraints and in an unfavorable environment as they do, CSOs’ contributions to the country are indeed impressive.
i) Public Policy
Civil society in Pakistan has evolved under the shadow of frequent military interventions and a debt-ridden and elitist state system. That the ideals of people-centered development, human rights, gender equality and social justice are slowly but steadily creeping into public policy frameworks has much to do with the efforts that civil society has made over the past five decades.
ii) Effectiveness of CSOs: Poverty Reduction and Sustainable Development
There have been a tremendous impact through micro-credit in the rural areas are the result of initiatives taken by such as the Aga Khan Rural Support Programme (AKRSP). It has formed more than 2 300 village organizations and over 1 450 women’s organizations contributing to almost Rs 1450 million disbursed in loans to more than 600 000 villagers. It is the AKRSP model which was replicated by each of the four provinces in addition to the National Rural Support Programme (NRSP) at the national level.
iii) Comparative Advantage
A huge number of respondents agree to the providing of services by the CSOs to be of maximum positivity to the state. It is the edge over the state that has remained distant from the realities on the ground and obsessed with extravagant projects which are pointed out by many observers regarding the flexibility, informality and emphasis on small scale projects performed by CSOs.
iv) Creating Awareness
It have been a vital role played by the NGOs in Pakistan in creating awareness on issues such as human and legal rights, women’s role in development, and over-population. For women and minorities that have borne the brunt of religious bigotry and social repression, civil society came as a silver lining in dark, gloomy clouds. Repealing discriminatory laws and reforming the electoral process have been consistently campaigned by the advocacy groups. It is the role of civil society which have been lobbying successfully have blocked an attempt made by the Muslim League government to introduce religious coding of the national identity cards.
v) Successful Lobbying
Child rights’ organizations have played a key role in reducing child labour in Pakistan’s football stitching industry. To eliminate the child labour from the football stitching industry was a consequence of a constant struggle of the Sialkot Chamber of Commerce and Industry in 1997. The project of UNICEF based on a multi-pronged approach of providing education to children which were displaced from the football stitching industry gave credit to their families was an immense success and went on to win the government’s support as well.
vi) Portrayal in Media
Media as known plays a very vital role in the portrayal of these CSOs. In view of maximum observers as the negative approach is taken towards these operational CSOs which raise allegations adherence to foreign agendas, corruption and promotion of western values with lacking of the accountability. The is that the coverage and analysis of CSO activities varies from one medium to another and also from one kind of CSO to another to which majority of the public opinion poll is that they are negatively portrayed in the media both in paper and television broadcast. It is advised that CSOs need to devise a strategy for effectively engaging media to have a stable and positive image to be presented.
vii) Some Setbacks
In spite of significant breakthroughs made by the civil society’s development initiatives have sometimes also met with failure. Due to the unexpected withdrawal of funding or at the culmination of the project period have led to the many of the CSOs come to a halt in their operations and permanently closed down only because of the dependency on the foreign donors to the sustainability of the projects. This dependence often translates into programmes that are task-oriented, bureaucratized and unsuited to local conditions. Rather than on long-term planning, institutional strengthening, human resource development and building a sound resource base CSOs are forced to concentrate more on immediate activities. Due to the lack of focus and clear organizational structure community based initiatives fall short of targets. They seem to be in need of clear vision, focused objectives, well-defined strategy, managerial and financial systems, planning and implementation skills and linkages with the surrounding systems. Only few organized and planned procedures are for regular contact with the government. Technical advice and training in situation analysis and devising strategies are weak points that must be developed. This would be an important step towards building their capacity to put forward alternative policies in their areas of concern. Finally, it must be added that many civil society initiatives are well-geared toward long-term human development although their results may not be visible in the short-term, whereas CBOs still need some clarity in their long-term plans. Changes in attitudes, levels of awareness and social consciousness are hard to quantify — thus much of civil society's impact invariably escapes public notice.
Conclusion
The research phase of the project report yielded a wealth of information and ideas about the roles played by civil societies in Pakistan. On the positive side, the results of the finding speak itself of a civil society that is healthy and advanced in terms of financial sustainability and commitment. The fact that civil society knowledge bearers consider it to be financially strong may encourage a focus on areas such as lack of human resources and weak management while trying to establish a link with low impact. A negative aspect of the most CSOs weak structure along with lack of vision for long term planning is to a very great extent subject to political and government pressures. The objectives envisioned by smaller CSOs are often vague and limited to short-term remedy of diverse issues. The role of CSOs in promoting and practicing human rights emerges as a strong value especially given the non-democratic societal context. CSOs as playing a successful role in promoting harmonious relations in society needs to be qualified by the fact that the sheer number of militant and ethnic organizations overshadows the positive role played by other CSOs. It is also highlighted that service delivery and mobilization of the marginalized as success areas. A number of indicators a substantial percentage of views of the knowledgeable individual land in the mid-range category (those who neither agreed nor completely disagreed).
The hypothesis that can be drawn in the introduction to this report to the best understanding is:
Civil Society in Pakistan is characterized by hybrid forms, unresolved conflicts and divergent legacies, where a civil society is caught up in the middle of the ripple of pain and birth cramp of a new one. There is also a need, “to assess the role of CSOs in the broader socio-political environment of the country,” to quote one author Jean-Jacques Rousseau in his one of famous book on Civil society.
Limitations
While I made every effort to make this project as broad-based, comprehensive and accurate as possible, I was constrained by a number of factors that must be mentioned at the outset.
• Government representation in various aspects was limited
• The accuracy was doubtful which lead to more investigations
• Time and resource constraints precluded collection of data
• The relatively small number of respondents
• The language of the small questionnaire i.e. English also posed a limitation as knowledge bearer
• Ongoing concerns in the country limited to the various locations to be approached for valuable data
• Driver took a leave to his sister’s wedding caused a lot of trouble for transportation
• Parents permission on visiting some locations for information made a few obstacles
• The temperature of Lahore being a major factor
Tariq Glass Industries
Tariq Glass Industries
TABLE OF CONTENTS:
Executive Summary 3
Introduction 4
Cost Methods Used 6
Analysis of Income Summary 7
Analysis of Cost of Goods Sold Statement 9
Application of Activity Based Costing 11
Break – Even Analysis 12
Evaluating Annual Results to orient the outsider 13
Conclusion & Recommendations 14
References 15
Appendix 16
Executive Summary
Over the last twenty years, Tariq Glass Industries Ltd. has excelled in the art of glass manufacturing. The company has gained immense popularity under the brand names of Toyo Nasic, Omroc and Nova. Today it has become a reliable house hold name in Pakistan. This company enjoys a competitive superiority over its rivals primarily because the glassware produced in this firm is of matchless quality. Tariq Glass Industries also offers extensive variety in terms of its products, which attracts consumers from all regions of the country. Moreover the company runs operations in the international markets as well across Europe, Middle East, Africa, Asia and the Far East. Presently the Managing Director or the CEO of the company is Mr. Tariq Baig.
This report presents a brief, yet comprehensive analysis of the financial position of the company in terms of its financial statements and the cost methods used for valuing the inventory. The report covers tenure of three years starting from the year 2007 up till the present year 2009. A careful analysis reveals that the company earned reasonable profits in the year 2007 and the preceding years. But since 2008 due to various macro economic factors and some internal policies the company is facing tremendous losses. The major reason for these losses is attributed to external factors. These factors include the financial crunch that has devoured the financial systems of the world as well as political instability in our country. Certain other factors include rampant inflation. Due to rising prices the manufacturing process has turned out to be very expensive resulting in relatively lower profits. These factors have resulted in inefficient operations because of rising expenses and diminishing revenues.
Lastly the report concludes by summarizing the major causes of the present financial position of the company. Various financial ratios have been computed which outline the underlying factors for the unsuccessful operations of the company. The final analysis indicates that the financial position can be improved by efficiently managing the production process in accordance to the macroeconomic factors. This will result in lower per unit costs. Moreover the cost systems must be cautiously evaluated so that they represent true costs for the inventories. Certain employees can also be laid off to reduce expenses.
Introduction
Tariq Glass Industries Limited was formerly known as Nasir Saddique Corporation of Pakistan Limited and more popularly recognized as Toyo Nasic. The company was established in 1981 as a public limited company. The project was set up with the Technical assistance of Toyo Nasic Glass of Japan which is the leading manufacturer of Glass ware in Pakistan.
Over the last twenty years, Tariq Glass Industries Ltd. has excelled in the art of glass manufacturing. Under the popular brand names of Toyo Nasic, Omroc and Nova, Tariq Glass Industries Ltd. has become a reliable house hold name in Pakistan. By fulfilling the needs of quality glass tableware and nurturing the basic ingredients of Quality, Variety, Reliability and above all having a Competitive Edge, Tariq Glass Industries Ltd. is now the market leader in Pakistan. This success is now fast spreading to international markets across Europe, Middle East, Africa, Asia and the Far East. The backbone of Tariq Glass Industries Ltd. is a team of qualified, experienced and dedicated professionals with a proven expertise along with a staunch backing through technical collaboration with Toyo Glass of Japan.
Production Capacity
The plant boasts a production capacity of almost 200 metric tons of glass tableware per day, having a combination of single and double gob press machines as well as H-28 press and blow machines for light weight product ranges.
Decorating Facilities
For the creative and decorative needs of our clients, Tariq Glass Industries Ltd. has the facility of a fully automated, state-of-the-art printing machine, with the capability of printing six colors simultaneously, including quality gold and silver banding.
Warehousing
To ensure uninterrupted and consistent supply of goods to valued clientele, an all weather warehousing facility caters for raw materials, packing goods as well as finished products storage.
Quality
Tariq Glass Industries Ltd. stands committed as a team to manufacture quality glass tableware products through dedication, creativity, experience and technology. Their focus is striving not only to meet the expectations of their clientele, but also their imaginations. Their journey continues towards excellence.
Quality Assurance
At Tariq Glass Industries Ltd. assuring quality starts with a careful selection of indigenously available raw materials, which are processed through a most modern and fully automated plant. Quality Assurance at every step is constantly monitored by their experts through a fully equipped on site laboratory.
Cost Methods Used
As Tariq Glass industries mainly deals with the glass making including bottling and many more. Company basically uses two cost methods which are job order costing; it is the cost system which provides a method for tracking resource consumption directly to individual product. In this type of cost system cost of direct material, direct labour and overhead are accumulated separately for each job. Second one is the Activity Based Costing, it is an overhead allocation method that uses multiple overhead rates to track indirect cost by the activities that consume those cost. In activity based costing many different activity bases or cost drivers are used in applying overhead cost to products. Thus activity based costing recognizes the special overhead considerations of each product line. Other than this activity based costing provides management with information about the cost of performing various overhead activities.
As this company is engaged in diverse production activities so it uses both above prescribed cost accounting system, the overhead application rate using job order costing is determined by the given formula:
Overhead Application Rate = Est. Overhead Cost / Est. units in the activity base
Analysis of Income Summary
INCOME STATEMENT ANALYSIS
2007 2008 2009
Sales 1,108,446,723 1,174,459,701 1,409,803,158
Cost of goods sold 908,757,268 1,054,201,600 1,282,562,334
Gross profit 199,689,455 120,258,101 127,240,824
Operating Expense:
Administrative 29,340,674 31,917,516 32,040,086
Selling and Distribution 54,551,193 54,069,253 75,479,250
83,891,847 85,986,769 107,519,336
Operating Income 115,797,588 34,271,332 19,721,488
Financial charges 33,699,627 34,636,004 56,353,274
82,097,961 (364,672) (36,631,786)
Other Income 970,704 478,110 70,042
83,068,665 113,438 (36,561,744)
Other Expenses 5,700,790 5,209,669 -
Profit/loss before tax 77,367,875 (5,096,231) (36,561,744)
Tax amount 27,041,619 12,054,694 5,859,010
Profit/loss after tax 50,326,256 (6,958,463) (30,702,734)
An income statement is a summarization of a company's revenue and expense transactions for a particular period of time. The income statement reports on the financial performance of the company in terms of earning revenue and incurring expenses over a period of time and explains how the company's financial position changed between the beginning and end of that period. Therefore it is extremely important for the company's owners, creditors and other interested parties to adequately understand the income statement, because ultimately the relative success or failure of a company is based upon its ability to earn revenues in excess of its expenses. Once a company's assets are acquired and the business process is initiated, the revenues and expenses are important dimensions of a company's operations.
The table above illustrates the financial performance of Tariq Glass Industries, in terms of its income statements for three consecutive years. These income statements reveal the amount of profit and loss incurred by the company for the years 2007, 2008 and 2009. We have observed that in the year 2007 the company earned a net profit amounting to 50,326,256 which was slightly greater than the profit of the year 2006 which was 49,112,726, thereby revealing smooth operations. Now if we analyze the figures of the year 2008, it is observed that sales figures rose as compared to the sales figures for the previous year, but due to rising inflation rates and the dreaded financial crisis the cost of goods sold and other expenses also increased considerably, which resulted in a lesser operating income or a net loss of 6,958,463.
In the year 2009 the company again incurred a significant net loss amounting to 30,702,734, which is almost five times greater than the previous year's loss. This is primarily due to the political instability in the country, the financial crisis and soaring inflation rates. Although sales figures enhanced in the year 2009, but consequently the cost of goods sold also increased manifold. Even after the increase in cost of goods sold figures the gross profit was still greater than the preceding years' gross profit. But the selling and distribution expenses also increased significantly, which greatly offseted the gross profit. The cumulative effects of all these changes resulted in a lower operating income as compared to the preceding years and therefore a net loss was incurred.
All in all it can be stated that the income statements for the past three years reveal that Tariq Glass Company is in a weak financial position due to various internal and external factors. The owners of this company need to initiate drastic measures in order to control their losses and improve their financial position. These measures may include a cost efficient production process and significant reduction in expenses.
Analysis of Cost of Goods Sold Statement
COST OF GOODS SOLD ANALYSIS
2007 2008 2009
Direct Material
Raw material consumed 249,131,532 277,538,301 324,517,791
Packaging material consumed 121,307,354 117,462,993 175,336,958
Direct Labor
Salaries, wages and other benefit 140,182,082 177,168,480 222,976,693
Manufacturing Overhead
Stores and spares consumed 43,225,138 73,354,553 62,967,856
Fuel and power 289,128,308 323,853,591 387,568,006
Depreciation 51,381,351 57,968,756 88,537,394
Carriage and freight 3,832,906 5,957,782 4,665,431
Repair and maintenance 4,169,813 5,037,167 8,319,414
Travelling and conveyance 4,306,285 7,585,491 8,307,241
Insurance 2,242,276 2,647,275 3,286,869
Postage and telephone 687,974 850,956 1,009,267
Rent, rates and taxes 959,138 1,845,518 1,002,630
Printing and stationary 110,903 111,425 232,526
Entertainment 96,198 131,200 301,200
Others 2,340,084 3,253,502 4,679,865
Total Manufacturing Cost 913,101,342 1,054,766,990 1,293,709,141
Work in process
Opening 5,006,759 5,466,576 7,425,414
Closing 5,466,576 7,425,414 11,007,463
Cost of goods manufactured 912,641,525 1,052,808,152 1,290,127,092
Finished goods inventory
opening 19,874,464 23,758,721 22,365,273
Closing 23,758,721 22,365,273 29,930,031
COST OF GOODS SOLD 908,757,268 1,054,201,600 1,282,562,334
Above given table includes cost of goods sold during the three executive years which are 2007, 2008 and 2009. Cost of goods sold includes direct material, direct labour and finally manufacturing overhead. As cost of goods for year 2007 is 908575268 and a major portion includes manufacturing overhead. As we look at 2008 cost of goods sold it comes out to 1054201600 which is greater than 2007 cost, main increase in cost are because of salaries paid to labour and the rent paid or taxes paid, company work in process and finished goods inventory also increases compared to last year inventory. 2009 in which the cost of goods sold results to 1282562334 a higher value compared to last year, the major reasons behind this increased value is the increase in direct material cost because of increased inflation and the overhead component which is fuel and power and this is because of high load shedding and increase in petroleum prices. So company cost of good increase every year results in a short of profits every year.
Application of Activity Based Costing
Tariq glass industries also uses activity based costing in which the overhead cost is allocated to two different cost pools and these cost pools are then driven by different cost drivers. The overhead is distributed on the basis of number of employees working on a particular department. The two cost pools are ordering and inspecting cost pools and these pools are driven by the crushing and moulding drivers.
We assume that during the present year, 2009, overhead accounts to 746,214,657 which is to be spread in the above given cost pools. The ratio of splitting cost among both cost pools is based upon the number of employees working in each department. Total employees working at ordering are 40 and on inspection are 60 so the cost comes out to be:
Total Overhead 100% 100
Ordering 40% 40
Inspecting 60% 60
Total Overhead 100% 746,214,657
Ordering 40% 298,485,863
Inspecting 60% 447,728,794
Now assigning cost to the cost drivers of individual cost pool:
Ordering cost pool:
Ordering Overhead 100% 10,000
Purchase orders for crushing 20% 2,000
Purchase orders for moulding 80% 8,000
Ordering Overhead 100% 298,485,863
Purchase orders for crushing 20% 56,997,173
Purchase orders for moulding 80% 241,488,690
Inspection cost pool:
Inspection Overhead 100% 2,400
Inspection for crushing 75% 1,800
Inspection for moulding 25% 600
Inspection Overhead 100% 447,728,794
Inspection for crushing 75% 335,796,596
Inspection for moulding 25% 111,932,198
This is how the overhead cost is spitted to different cost pool and then to their respective cost driver by defining stated percentages according to which the total overhead cost is divided among each activity pool. The values for splitting cost using Activity Based Costing are based upon assumed percentages.
Break – Even Analysis
Break Even analysis helps to decipher exactly how much dollar sales or units are to be produced so that a company will be in a position of no profit no loss.
The total cost incurred by the company in 2009 is 1,293,709,141 in which fixed cost totalled 547,494,484 and variable cost was 746,214,657. Company produces 1 million units throughout the year 2009 so break even in dollars and units come out to be:
Contribution margin per unit = Sale price – variable cost
= 1293.71 – 746.21 = 547.5
Contribution margin ratio = Sale price – variable cost / sale price
= 1293.71 – 746.21 / 1293.71 = 0.4231
Break even in rupees = Fixed cost + Target Operating Income / Contribution margin ratio
= 547,494,484 + 0 / 0.4231 = 1,294,007,289
Break even in units = Fixed cost + Target Operating Income / Contribution margin per unit
= 547,494,484 + 0 / 547.5 = 999,990 units.
Assuming that company has not estimated any operating income so the contribution margin per unit comes out to be 547.5 Rs and break even in units are 999,990 units. These are the units that the company should sell in order to be at breakeven point. While calculating the amount of sales in rupees required for the company to breakeven, the value turns out to be approximately 1.2 billion rupees for the year 2009.
Evaluating Annual Results to orient the outsider
Observing the past year performance of Tariq glass industries, the company has borne heavy losses in the last two years due to political instability, global recession and rising inflation. By analyzing the income statement of the company one concludes that investors would be unwilling to invest in the stocks of this company, but other than the income statement some financial ratios are used in order to detect the liquidity position of the company. This data is for the years 2007 up till 2009 while setting benchmark year 2007.
Year 2007
Current Ratio = Current Asset/Current Liability 1.1
EPS = Net profit/No of shares 3.85
Debt Equity Ratio = Debt / Equity 50.83%
Year 2008
Current Ratio = Current Asset/Current Liability 1.04
EPS = Net profit/No of shares -0.83
Debt Equity Ratio = Debt / Equity 27.68%
Year 2009
Current Ratio = Current Asset/Current Liability 1.04
EPS = Net profit/No of shares -1.33
Debt Equity Ratio = Debt / Equity 38.59%
The current ratio has increased from the base year and has remained relatively same in 2008 and 2009 due to increase in stores and spares. If we take inventory into consideration then it is not a good thing as either it is stockpiled with the company or it is not utilized properly. The company doesn't have an ideal ratio that is 2:1 but it covers all the current liabilities.
The EPS ratio has gone negative in 2008 and 2009 because the company incurred heavy losses during these years. Debt Equity Ratio tells what percentage of equity is financed by debt. If the ratio of debt is high it is considered good as the company gets the hedge and tax shelter. The ratio should not exceed 50% as then it will be difficult to pay off the debts. Well as in 2008 and 2009 it hasn’t gone very high so it’s reasonable.
Conclusion & Recommendations
To conclude, the income statement clearly depicts heavy losses which the company has gone through in the last two years. It is indeed an alarming situation and certain measures should be taken. The losses are mainly due to rising Inflation rates which have shot up in the current times, the expenses and the costs have increased much. Moreover there is overall global recession which has made everything even worse. Another major reason is political instability in Pakistan.
After looking at the ratios which are deduced from company’s figures it is seen that the company is going through losses and they are to be rectified in some way. This can be done through effective cost management at internal level. They should increase their current ratio level. As this shows that the company has enough assets to cover its liabilities. It is actually a guide to the magnitude of the financial margin of safety.
Most of the losses which they are bearing are due to external effects so if government changes some policies and reduce the overall inflation rate. This would reduce the overall input costs. But internally what the company can do is that it can manage its costs in a better way, effective management of cost systems may reduce their overall expenses. The company can also lay off certain employees in order to reduce salary expenses. So by taking into consideration all or some of the above stated recommendations the company can improve its current situation.
References
www.tariqglass.com
http://www.researchandmarkets.com/reports/585535
http://www.pakboi.gov.pk/pak/xdetail.asp?ComID=26391
http://it.glassglobal.com/directory/glass/profile/default.asp?ID=34336
http://www.alacrastore.com/company-snapshot/Tariq_Glass_Industries_Limited-2515850
http://www.docstoc.com/docs/17455272/TOYO-NASIC-TARIQ-GLASS-INDUSTRIES-LIMITED
http://www.tariqglass.com/tgiadmin/financials/THIRD%20QUARTERLY%20ACCOUNTS%20MAR-2006.pdf
Appendix
The annual report is attached for further reference.
TABLE OF CONTENTS:
Executive Summary 3
Introduction 4
Cost Methods Used 6
Analysis of Income Summary 7
Analysis of Cost of Goods Sold Statement 9
Application of Activity Based Costing 11
Break – Even Analysis 12
Evaluating Annual Results to orient the outsider 13
Conclusion & Recommendations 14
References 15
Appendix 16
Executive Summary
Over the last twenty years, Tariq Glass Industries Ltd. has excelled in the art of glass manufacturing. The company has gained immense popularity under the brand names of Toyo Nasic, Omroc and Nova. Today it has become a reliable house hold name in Pakistan. This company enjoys a competitive superiority over its rivals primarily because the glassware produced in this firm is of matchless quality. Tariq Glass Industries also offers extensive variety in terms of its products, which attracts consumers from all regions of the country. Moreover the company runs operations in the international markets as well across Europe, Middle East, Africa, Asia and the Far East. Presently the Managing Director or the CEO of the company is Mr. Tariq Baig.
This report presents a brief, yet comprehensive analysis of the financial position of the company in terms of its financial statements and the cost methods used for valuing the inventory. The report covers tenure of three years starting from the year 2007 up till the present year 2009. A careful analysis reveals that the company earned reasonable profits in the year 2007 and the preceding years. But since 2008 due to various macro economic factors and some internal policies the company is facing tremendous losses. The major reason for these losses is attributed to external factors. These factors include the financial crunch that has devoured the financial systems of the world as well as political instability in our country. Certain other factors include rampant inflation. Due to rising prices the manufacturing process has turned out to be very expensive resulting in relatively lower profits. These factors have resulted in inefficient operations because of rising expenses and diminishing revenues.
Lastly the report concludes by summarizing the major causes of the present financial position of the company. Various financial ratios have been computed which outline the underlying factors for the unsuccessful operations of the company. The final analysis indicates that the financial position can be improved by efficiently managing the production process in accordance to the macroeconomic factors. This will result in lower per unit costs. Moreover the cost systems must be cautiously evaluated so that they represent true costs for the inventories. Certain employees can also be laid off to reduce expenses.
Introduction
Tariq Glass Industries Limited was formerly known as Nasir Saddique Corporation of Pakistan Limited and more popularly recognized as Toyo Nasic. The company was established in 1981 as a public limited company. The project was set up with the Technical assistance of Toyo Nasic Glass of Japan which is the leading manufacturer of Glass ware in Pakistan.
Over the last twenty years, Tariq Glass Industries Ltd. has excelled in the art of glass manufacturing. Under the popular brand names of Toyo Nasic, Omroc and Nova, Tariq Glass Industries Ltd. has become a reliable house hold name in Pakistan. By fulfilling the needs of quality glass tableware and nurturing the basic ingredients of Quality, Variety, Reliability and above all having a Competitive Edge, Tariq Glass Industries Ltd. is now the market leader in Pakistan. This success is now fast spreading to international markets across Europe, Middle East, Africa, Asia and the Far East. The backbone of Tariq Glass Industries Ltd. is a team of qualified, experienced and dedicated professionals with a proven expertise along with a staunch backing through technical collaboration with Toyo Glass of Japan.
Production Capacity
The plant boasts a production capacity of almost 200 metric tons of glass tableware per day, having a combination of single and double gob press machines as well as H-28 press and blow machines for light weight product ranges.
Decorating Facilities
For the creative and decorative needs of our clients, Tariq Glass Industries Ltd. has the facility of a fully automated, state-of-the-art printing machine, with the capability of printing six colors simultaneously, including quality gold and silver banding.
Warehousing
To ensure uninterrupted and consistent supply of goods to valued clientele, an all weather warehousing facility caters for raw materials, packing goods as well as finished products storage.
Quality
Tariq Glass Industries Ltd. stands committed as a team to manufacture quality glass tableware products through dedication, creativity, experience and technology. Their focus is striving not only to meet the expectations of their clientele, but also their imaginations. Their journey continues towards excellence.
Quality Assurance
At Tariq Glass Industries Ltd. assuring quality starts with a careful selection of indigenously available raw materials, which are processed through a most modern and fully automated plant. Quality Assurance at every step is constantly monitored by their experts through a fully equipped on site laboratory.
Cost Methods Used
As Tariq Glass industries mainly deals with the glass making including bottling and many more. Company basically uses two cost methods which are job order costing; it is the cost system which provides a method for tracking resource consumption directly to individual product. In this type of cost system cost of direct material, direct labour and overhead are accumulated separately for each job. Second one is the Activity Based Costing, it is an overhead allocation method that uses multiple overhead rates to track indirect cost by the activities that consume those cost. In activity based costing many different activity bases or cost drivers are used in applying overhead cost to products. Thus activity based costing recognizes the special overhead considerations of each product line. Other than this activity based costing provides management with information about the cost of performing various overhead activities.
As this company is engaged in diverse production activities so it uses both above prescribed cost accounting system, the overhead application rate using job order costing is determined by the given formula:
Overhead Application Rate = Est. Overhead Cost / Est. units in the activity base
Analysis of Income Summary
INCOME STATEMENT ANALYSIS
2007 2008 2009
Sales 1,108,446,723 1,174,459,701 1,409,803,158
Cost of goods sold 908,757,268 1,054,201,600 1,282,562,334
Gross profit 199,689,455 120,258,101 127,240,824
Operating Expense:
Administrative 29,340,674 31,917,516 32,040,086
Selling and Distribution 54,551,193 54,069,253 75,479,250
83,891,847 85,986,769 107,519,336
Operating Income 115,797,588 34,271,332 19,721,488
Financial charges 33,699,627 34,636,004 56,353,274
82,097,961 (364,672) (36,631,786)
Other Income 970,704 478,110 70,042
83,068,665 113,438 (36,561,744)
Other Expenses 5,700,790 5,209,669 -
Profit/loss before tax 77,367,875 (5,096,231) (36,561,744)
Tax amount 27,041,619 12,054,694 5,859,010
Profit/loss after tax 50,326,256 (6,958,463) (30,702,734)
An income statement is a summarization of a company's revenue and expense transactions for a particular period of time. The income statement reports on the financial performance of the company in terms of earning revenue and incurring expenses over a period of time and explains how the company's financial position changed between the beginning and end of that period. Therefore it is extremely important for the company's owners, creditors and other interested parties to adequately understand the income statement, because ultimately the relative success or failure of a company is based upon its ability to earn revenues in excess of its expenses. Once a company's assets are acquired and the business process is initiated, the revenues and expenses are important dimensions of a company's operations.
The table above illustrates the financial performance of Tariq Glass Industries, in terms of its income statements for three consecutive years. These income statements reveal the amount of profit and loss incurred by the company for the years 2007, 2008 and 2009. We have observed that in the year 2007 the company earned a net profit amounting to 50,326,256 which was slightly greater than the profit of the year 2006 which was 49,112,726, thereby revealing smooth operations. Now if we analyze the figures of the year 2008, it is observed that sales figures rose as compared to the sales figures for the previous year, but due to rising inflation rates and the dreaded financial crisis the cost of goods sold and other expenses also increased considerably, which resulted in a lesser operating income or a net loss of 6,958,463.
In the year 2009 the company again incurred a significant net loss amounting to 30,702,734, which is almost five times greater than the previous year's loss. This is primarily due to the political instability in the country, the financial crisis and soaring inflation rates. Although sales figures enhanced in the year 2009, but consequently the cost of goods sold also increased manifold. Even after the increase in cost of goods sold figures the gross profit was still greater than the preceding years' gross profit. But the selling and distribution expenses also increased significantly, which greatly offseted the gross profit. The cumulative effects of all these changes resulted in a lower operating income as compared to the preceding years and therefore a net loss was incurred.
All in all it can be stated that the income statements for the past three years reveal that Tariq Glass Company is in a weak financial position due to various internal and external factors. The owners of this company need to initiate drastic measures in order to control their losses and improve their financial position. These measures may include a cost efficient production process and significant reduction in expenses.
Analysis of Cost of Goods Sold Statement
COST OF GOODS SOLD ANALYSIS
2007 2008 2009
Direct Material
Raw material consumed 249,131,532 277,538,301 324,517,791
Packaging material consumed 121,307,354 117,462,993 175,336,958
Direct Labor
Salaries, wages and other benefit 140,182,082 177,168,480 222,976,693
Manufacturing Overhead
Stores and spares consumed 43,225,138 73,354,553 62,967,856
Fuel and power 289,128,308 323,853,591 387,568,006
Depreciation 51,381,351 57,968,756 88,537,394
Carriage and freight 3,832,906 5,957,782 4,665,431
Repair and maintenance 4,169,813 5,037,167 8,319,414
Travelling and conveyance 4,306,285 7,585,491 8,307,241
Insurance 2,242,276 2,647,275 3,286,869
Postage and telephone 687,974 850,956 1,009,267
Rent, rates and taxes 959,138 1,845,518 1,002,630
Printing and stationary 110,903 111,425 232,526
Entertainment 96,198 131,200 301,200
Others 2,340,084 3,253,502 4,679,865
Total Manufacturing Cost 913,101,342 1,054,766,990 1,293,709,141
Work in process
Opening 5,006,759 5,466,576 7,425,414
Closing 5,466,576 7,425,414 11,007,463
Cost of goods manufactured 912,641,525 1,052,808,152 1,290,127,092
Finished goods inventory
opening 19,874,464 23,758,721 22,365,273
Closing 23,758,721 22,365,273 29,930,031
COST OF GOODS SOLD 908,757,268 1,054,201,600 1,282,562,334
Above given table includes cost of goods sold during the three executive years which are 2007, 2008 and 2009. Cost of goods sold includes direct material, direct labour and finally manufacturing overhead. As cost of goods for year 2007 is 908575268 and a major portion includes manufacturing overhead. As we look at 2008 cost of goods sold it comes out to 1054201600 which is greater than 2007 cost, main increase in cost are because of salaries paid to labour and the rent paid or taxes paid, company work in process and finished goods inventory also increases compared to last year inventory. 2009 in which the cost of goods sold results to 1282562334 a higher value compared to last year, the major reasons behind this increased value is the increase in direct material cost because of increased inflation and the overhead component which is fuel and power and this is because of high load shedding and increase in petroleum prices. So company cost of good increase every year results in a short of profits every year.
Application of Activity Based Costing
Tariq glass industries also uses activity based costing in which the overhead cost is allocated to two different cost pools and these cost pools are then driven by different cost drivers. The overhead is distributed on the basis of number of employees working on a particular department. The two cost pools are ordering and inspecting cost pools and these pools are driven by the crushing and moulding drivers.
We assume that during the present year, 2009, overhead accounts to 746,214,657 which is to be spread in the above given cost pools. The ratio of splitting cost among both cost pools is based upon the number of employees working in each department. Total employees working at ordering are 40 and on inspection are 60 so the cost comes out to be:
Total Overhead 100% 100
Ordering 40% 40
Inspecting 60% 60
Total Overhead 100% 746,214,657
Ordering 40% 298,485,863
Inspecting 60% 447,728,794
Now assigning cost to the cost drivers of individual cost pool:
Ordering cost pool:
Ordering Overhead 100% 10,000
Purchase orders for crushing 20% 2,000
Purchase orders for moulding 80% 8,000
Ordering Overhead 100% 298,485,863
Purchase orders for crushing 20% 56,997,173
Purchase orders for moulding 80% 241,488,690
Inspection cost pool:
Inspection Overhead 100% 2,400
Inspection for crushing 75% 1,800
Inspection for moulding 25% 600
Inspection Overhead 100% 447,728,794
Inspection for crushing 75% 335,796,596
Inspection for moulding 25% 111,932,198
This is how the overhead cost is spitted to different cost pool and then to their respective cost driver by defining stated percentages according to which the total overhead cost is divided among each activity pool. The values for splitting cost using Activity Based Costing are based upon assumed percentages.
Break – Even Analysis
Break Even analysis helps to decipher exactly how much dollar sales or units are to be produced so that a company will be in a position of no profit no loss.
The total cost incurred by the company in 2009 is 1,293,709,141 in which fixed cost totalled 547,494,484 and variable cost was 746,214,657. Company produces 1 million units throughout the year 2009 so break even in dollars and units come out to be:
Contribution margin per unit = Sale price – variable cost
= 1293.71 – 746.21 = 547.5
Contribution margin ratio = Sale price – variable cost / sale price
= 1293.71 – 746.21 / 1293.71 = 0.4231
Break even in rupees = Fixed cost + Target Operating Income / Contribution margin ratio
= 547,494,484 + 0 / 0.4231 = 1,294,007,289
Break even in units = Fixed cost + Target Operating Income / Contribution margin per unit
= 547,494,484 + 0 / 547.5 = 999,990 units.
Assuming that company has not estimated any operating income so the contribution margin per unit comes out to be 547.5 Rs and break even in units are 999,990 units. These are the units that the company should sell in order to be at breakeven point. While calculating the amount of sales in rupees required for the company to breakeven, the value turns out to be approximately 1.2 billion rupees for the year 2009.
Evaluating Annual Results to orient the outsider
Observing the past year performance of Tariq glass industries, the company has borne heavy losses in the last two years due to political instability, global recession and rising inflation. By analyzing the income statement of the company one concludes that investors would be unwilling to invest in the stocks of this company, but other than the income statement some financial ratios are used in order to detect the liquidity position of the company. This data is for the years 2007 up till 2009 while setting benchmark year 2007.
Year 2007
Current Ratio = Current Asset/Current Liability 1.1
EPS = Net profit/No of shares 3.85
Debt Equity Ratio = Debt / Equity 50.83%
Year 2008
Current Ratio = Current Asset/Current Liability 1.04
EPS = Net profit/No of shares -0.83
Debt Equity Ratio = Debt / Equity 27.68%
Year 2009
Current Ratio = Current Asset/Current Liability 1.04
EPS = Net profit/No of shares -1.33
Debt Equity Ratio = Debt / Equity 38.59%
The current ratio has increased from the base year and has remained relatively same in 2008 and 2009 due to increase in stores and spares. If we take inventory into consideration then it is not a good thing as either it is stockpiled with the company or it is not utilized properly. The company doesn't have an ideal ratio that is 2:1 but it covers all the current liabilities.
The EPS ratio has gone negative in 2008 and 2009 because the company incurred heavy losses during these years. Debt Equity Ratio tells what percentage of equity is financed by debt. If the ratio of debt is high it is considered good as the company gets the hedge and tax shelter. The ratio should not exceed 50% as then it will be difficult to pay off the debts. Well as in 2008 and 2009 it hasn’t gone very high so it’s reasonable.
Conclusion & Recommendations
To conclude, the income statement clearly depicts heavy losses which the company has gone through in the last two years. It is indeed an alarming situation and certain measures should be taken. The losses are mainly due to rising Inflation rates which have shot up in the current times, the expenses and the costs have increased much. Moreover there is overall global recession which has made everything even worse. Another major reason is political instability in Pakistan.
After looking at the ratios which are deduced from company’s figures it is seen that the company is going through losses and they are to be rectified in some way. This can be done through effective cost management at internal level. They should increase their current ratio level. As this shows that the company has enough assets to cover its liabilities. It is actually a guide to the magnitude of the financial margin of safety.
Most of the losses which they are bearing are due to external effects so if government changes some policies and reduce the overall inflation rate. This would reduce the overall input costs. But internally what the company can do is that it can manage its costs in a better way, effective management of cost systems may reduce their overall expenses. The company can also lay off certain employees in order to reduce salary expenses. So by taking into consideration all or some of the above stated recommendations the company can improve its current situation.
References
www.tariqglass.com
http://www.researchandmarkets.com/reports/585535
http://www.pakboi.gov.pk/pak/xdetail.asp?ComID=26391
http://it.glassglobal.com/directory/glass/profile/default.asp?ID=34336
http://www.alacrastore.com/company-snapshot/Tariq_Glass_Industries_Limited-2515850
http://www.docstoc.com/docs/17455272/TOYO-NASIC-TARIQ-GLASS-INDUSTRIES-LIMITED
http://www.tariqglass.com/tgiadmin/financials/THIRD%20QUARTERLY%20ACCOUNTS%20MAR-2006.pdf
Appendix
The annual report is attached for further reference.
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