Making Minerals a National Priority

Majyd Aziz

The European Union Parliament presented a year-end gift to Pakistan by according the status of GSP Plus that should provide a much needed boost in exports, especially textiles and leather. Everyone concerned with this achievement patted themselves on the back for a job well done. It did not matter who did what or how or what really spurred the EU Parliament to take a positive decision. However, in the initial euphoria, it seemed that stakeholders completely forgot the importance of what is nonchalantly referred to as non-traditional exports. Minerals, for example.

Various trade development policies and frameworks did provide incentives and subsidies for many items but there has never been a focused attention accorded to minerals. There is the usual bragging that Pakistan is richly endowed with natural resources and has billions of tons of coals to last a century, etc, etc but actions speak louder than words. The Pakistan Strategic Trade Policy Framework (2012-15) earmarked only “Rs 20 million for subsidy at 100 per cent of the prevailing mark-up rate for establishing mining and processing units in Khyber Pakhtunkhwa and Balochistan.” Interestingly, the same amount is allocated for Women’s Chamber of Commerce and Industry.

Why are minerals exports in the slow lane? Can minerals enhance the economic figures? Are the stakeholders serious? Is there a strategy to focus on minerals? The answers are neither satisfactory nor encouraging because there has seldom been an institutionalized approach to promote and project the potential of minerals in the global marketplace. The stakeholders range from the individual mine owners to the dealers, the transporters, the exporters, and the government. It took years for the Board of Investment to make the shift towards promotion of minerals. In the final days of the erstwhile government, a Sector Advisory Board on Mining was constituted consisting of representatives of Federal and Provincial governments, mine owners, exporters, and experts. A couple of long and focused meetings of the Board have taken place and there has been progress in formulating a workable approach to encourage mining and to enable it to be a game changer in the export regime. The participants have come up with attainable proposals and recommendations. It is hoped that the government would take decisions based on these deliberations in the Advisory Board.

There are huge deposits of metals such as antimony, chrome ore, copper, gold, iron ore, manganese, and zinc lead to name a few. In non-metallic, Pakistan has deposits of aragonite, marble, basalt, agglomerate, granite, onyx marble, different kinds of clay, barite, dolomite, feldspar, gypsum, limestone, phosphate, quartz, pumice, rock salt, silica sand, soap stone, and of course, coal. What all these amount to are potent reserves that could transform the nation from a begging bowl syndrome to a country with sovereign foreign exchange reserves. 

Pakistan must get out of the dependence on just traditional exports as the main revenue generators. The country can never enhance the export regime by dabbling in a limited number of ten or twelve sectors and concentrating on merely protecting whatever share these products have in the world market. It is time to move out of the narrow shell that has been the base for past many decades. A shift towards development of minerals also brings a marked change in the lives of citizens living in undeveloped areas of the country. Unemployment and social deprivation in these areas can best be addressed if opportunities are provided at their doorsteps rather than compelling them to move to the already congested and highly competitive urban areas. 

It should now be abundantly clear to anyone who has the welfare of Pakistan at heart that the future of the people and the whole country depends not only on broad-based and concentrated industrial development but that the mining of precious minerals can thoroughly serve the interests of the country as a motivation for the development of other non-traditional sectors of the national economy. The major drawbacks in mining are the non-availability of competent technical workforce, the total reliance on antiquated and manual mining mechanisms which results in inconsistency of quality and productivity, the lack of quality assurance testing services at mine mouth or within the proximity, the low availability of transportation resulting in higher trucking charges, the difficulty in accessing the mines due to non-existent road network, and more threateningly, the worrisome law and order situation, including regular attacks by so-called secessionists. The hard and dangerous living conditions in most of the mining areas in Balochistan and Khyber Pakhtun Khwa impact severely on the progress of mining too.

It is imperative that a paradigm shift is made to bring about a revolution in minerals development. This is where the stakeholders must now concentrate. It is incumbent upon the government to recognize the need to assist and facilitate those who are committed to develop the potential of exports of minerals as well as promote the utilization of minerals for domestic requirements. The government must provide freight subsidy of Rs 500 per tonne from mine mouth to port, export consignments certification charges subsidy upto 50% through Export Development Fund, exemption from Withholding Tax, as well as preferential support of atleast 3% of FOB to encourage this sector. 

There is a need to set up a Minerals Promotion Council as envisaged for leather and services sector in the Strategic Trade Policy Framework (2012-15). It is also proposed that the government-owned SME Bank Ltd must be nominated as the focal bank to provide financial facilities to mine owners, dealers, and exporters and that the government must make an infusion of atleast one billion Rupees in the Bank for this sector.

Trade Development Authority of Pakistan must be directed to encourage and subsidize the participation of exporters of minerals at various global minerals exhibitions and conferences so that minerals are promoted at international forums. Minerals must be included in all present and future Free Trade Agreements as well as Preferential Trade Agreements. Educational institutions must be directed by the Higher Education Commission to introduce mining technology courses to train technologists to improve productivity, quality, and value addition of minerals (for example through beneficiation of minerals). 100% subsidy must be given by government to students from mining areas.

It is only through concerted efforts and detailed planning would Pakistan be able to attract foreign investment in mining. The stage has to be set before the act can begin. Instilling confidence and improvement in conditions are essential. The target for 2014 should be set at $750 million and by end of 2015 the country should cross the billion-dollar threshold. Pakistan must make the giant leap forward. Minerals will result in deliverance for Pakistan. Debacles such as the Reko-Dig Project must be avoided in future to restore confidence of international investors. The protectors of the country must heed the advice of Indian businessman Anil Agarwal who said, “If left-wing extremism continues to flourish in parts which have natural resources of minerals, the climate for investment would certainly be affected.”

Bangladesh: National Ownership of Exports

Majyd Aziz

“Now won't you give some bread to get the starving fed? We've got to relieve Bangladesh. Relieve the people of Bangladesh. We've got to relieve Bangladesh.” On August 01, 1971, ex-Beatle George Harrison alongwith legendary Sitar maestro Ravi Shankar organized two Concerts for Bangladesh at the Madison Square Garden in New York City where Harrison sang for the first time his hymn titled Bangladesh. This lamentation galvanized the world and Bangladesh became a country that needed to be saved from impending disaster. A bloody civil war, the rise of a secessionist movement, the clarion call for Bengali nationalism, the whispers of conspiracies and plots, the rejection of the people’s mandate, and the emergence of a strong leader culminated in the emergence of Bangladesh on December 17, 1971.

Henry Kissinger, the erstwhile US Secretary of State, presided over a high-level meeting in early December 1971 in the State Department to discuss the situation in, then, East Pakistan. There were growing concerns about the possibility of a famine-like situation. It was in this meeting that, Ural Alexis Johnson, a Foreign Service official, made the infamous comment that the new nation would be an “international basket case”, a quote that has been wrongly attributed to Kissinger.

This stirring background forms the basis for the narrative of how a nation that chronically suffers from natural disasters, such as cyclones, that has a huge populace living in abject poverty, that faced famine and hunger, that is enmeshed in political turmoil and instability, that suffered military coups, tolerates unrestrained corruption, and copes with unrest among the people, surmounts all these negativities to emerge as a relatively successful nation by becoming the premier clothier to the world. The apparel exports are in excess of $20 billion and experts predict that Bangladesh, despite various roadblocks, would triple her exports figures by December 2020.

There must be some critical mass that has brought about this spectacular transformation from what Kissinger acerbically stated more than three decades ago that “Bangladesh is a bottomless basket” to the enviable position that Dhaka today has in the global textile marketplace. Bangladesh garment manufacturers were and are routinely chided for blatant employment of child labor, blamed for paying pathetically low wages and violating human rights and labor standards, and are accused of shamelessly disregarding workplace safety and health measures. 

Bangladesh apparel manufacturers also suffer the ignominy of being callous with the lives of the workers. In the last seven or eight years, more than 2200 workers have died in fire-related incidents in the garment industry. The eight-storey Rana Plaza, where factories were employing thousands collapsed on April 24, 2013 resulting in the death of 1126 workers. Despite global condemnation from buyers, consumers and social activists, despite calls for boycott of Bangladeshi products, and despite vociferous demands for new safety standards, the fact remains that the importance of apparel from Bangladesh is still in vogue.

Garment tycoons are active in national politics and have a strong voice and influence in major political parties. This is a prime reason why Bangladesh garment industry has managed to keep wages low, has a lax attitude in assuring a decent workplace environment, and has been successful in thwarting all efforts to introduce legislation that would negatively impact on it. What is more astonishing is that major apparel importers and brands also neglect to take into account gross violations and disregard of human rights.

The carefully planned strategy of the Bangladesh entrepreneurs since the last more than three decades ensued into an inclusive growth in many sectors. The game plan was to take advantage of the prevailing universal sympathy for Bangladesh, especially in Europe and United States, and set up a labor-intensive industrial sector that provided immediate employment to the marginalized women and, in the beginning, even children. Today, four million workers toil day and night to clothe the western world. 80 percent of garment workers are women and five million slum dwellers of Dhaka are a ready supply of labor willing to stitch, sew and cut for a meager wage. The allure of cheap labor, the protection of the industry by the state apparatus, and the obvious vulnerabilities of the new entrepreneurs enabled major global brands and chains of stores to make Bangladesh their preferred choice. Moreover, the special consideration given to Bangladesh in the form of duty-free access by Europe and USA propelled the industry to grow exponentially. 

The apparel sector is the mainstay of the export regime and everyone in the country adopted the industry as their own. Political parties, labor federations, business organizations, media and policymakers all endeavored to protect, promote, and project the country’s garment industry. This worked superbly for the manufacturers and they become a strong and potent force, often dictating the nation’s policies. Profits were fabulously high and more than 5000 units were set up in cities, towns and even in agriculture fields. The quality of apparel was maintained at world class standards and lucrative linkages were globally established. The unwritten rule accepted by all was that export transports would not be blocked while protests and strikes would not affect production schedules or deliveries. This national ownership made the difference between Bangladesh and many regional countries.

Alas, a time comes when activism shakes up the status quo. This development happened after the Rana Plaza tragedy. The workers became violently agitated and demanded raising the basic emoluments from the despicably low of $40 per month to more than $100. Internationally, the major brands and department stores also faced a backlash from their customers and this compelled them to prescribe safety codes and measures for factories. The downside has been further compounded by a steep decline in profit margins. Although demand for Bangladesh products is remarkably rising, essentially due to shifting of American and European orders from China, the price of the average garment has fallen by 12-15% in the last some years. A message that Pakistani exporters must comprehend is that Bangladesh would be distinctly preferred over Pakistani products. They should first and foremost endeavor to convince their compatriots that success lies in national ownership of strategic assets, be they nuclear, historical, or private sector. In the words of American spiritualist Dr Orison Swett Marden, “No employer today is independent of those about him. He cannot succeed alone, no matter how great his ability or capital. Business today is more than ever a question of cooperation.”

Pakistan and Iran: New Goalposts

Majyd Aziz

PAKISTAN’S is fortunate to have Iran as a strong and considerate neighbor. Although at times the relationship becomes tense mainly due to events that are mostly related to factors that are not directly bilateral but are usually because of external circumstances, the fact is that the relationship is accommodating and genuine.

PAKISTAN’S state leadership has always endeavored to maintain a special bond with her Western neighbor and this is amplified by the erstwhile Regional Cooperation for Development and lately by the Economic Cooperation Organization. Moreover, the decision to set up the Iran Pakistan Gas Pipeline inspite of the United Nations’ economic sanctions on Iran is a manifestation of the imperative desire to further strengthen the brotherly and neighborly bonds. The Arab Spring, the Saudi Arabian heart-burning in relationship with Washington, the growing influence of Iran in the Islamic World, and more importantly, the historic agreement that Iran, under the dynamic leadership of President Hassan Rouhani, agreed with the P5+1 countries in Geneva has further amplified the importance of Iran. Notwithstanding the objections of Tel Aviv and Riyadh, the deal is being hyped as pragmatic, crucial, and a major step towards peace in the region.

PAKISTAN’S position is bolstered too after this agreement. The threat of sanctions on any country doing business with Iran and the future of the nation’s energy deficiencies loomed heavily on the decision-making of the government. The saber-rattling attitude and display of brazen belligerence of Rouhani’s predecessor had taken its toll, not only on Iran’s citizens, not only on Iran’s trading partners, but more threateningly, on Iran’s neighbors especially Pakistan. President Obama’s 15-minute phone call on September 27 to President Rouhani during the United Nation General Assembly session became the catalyst for a sincere process of negotiation towards a long-term nuclear agreement. For Pakistan, this is another worthwhile opportunity that should not be missed.

PAKISTAN’S trade and industry, as well as economic and political analysts, must not take this opportunity in a complacent manner. However, it is to be understood that fraternal brotherhood, obligations of being next-door neighbors, and common religious adherence does not necessarily translate into easy Rials and Rupees. The focal point would always be national interests and state priorities. Inspite of the dire ramifications of the economic sanctions and inspite of being branded as a global pariah by Western powers, the fact is that the political, security and diplomatic considerations and exigencies would count heavily on the bilateral relationship and these could be the basis for developing a renewed approach towards the trade and investment decisions.

Nowadays, whenever the discussion centers on Pakistan and Iran relationship, the Iran-Pakistan Gas Pipeline is highlighted. The project has become a matter of prestige, a matter of survival and a matter of determination. Former President Asif Ali Zardari and Former President Mahmoud Ahmedinejad performed the ground-breaking ceremony of the Pipeline on March 11, 2013. The total cost of the project is estimated at $7.50 billion with the cost on the Pakistani side of about $1.25 billion. The project would supply 750 mcft daily through its 1700 km length from January 2015. It is estimated that atleast 4000 mw of electricity could be generated through the use of Iranian gas. Iran has completed the 900 km pipeline upto the border while Pakistan is still unsure when the project would see fruition.

Pakistan took up the challenge of agreeing to the pipeline knowing well that there were international sanctions and there was scant possibility of the project becoming a reality in the near future. All factors were against this pipeline and the non availability of external financing has put a damper that is evident. Although government ministers routinely acclaim that the project is all set to take off, the ground reality is something else. There is no doubt that this project is a doable alternative but the fact remains that there is no international support. However, there is a positive response to the TAPI pipeline which is the US-backed Turkmenistan, Afghanistan, Pakistan, India gas pipeline. There is news about a revisit of the agreed rates and pipeline funding in Pakistan territory under the Gas Sales Purchase Agreement (GSPA) The price which set at 87% of crude oil that translates into $12 mmbtu which as compared with local gas price of $4.5 mmbtu is almost three times high. However, Iran is hesitating to also provide full funding for laying the pipeline inside Pakistan.

The United States and other countries, especially Israel and to some extent Saudi Arabia, launched a concerted campaign to deter Iran from going nuclear while Iran has been resolute in its strategy to achieve nuclear technology capability. The embargo enforced by United Nations directing members not to deal with Iran has proved effective and has hurt the Iranians in many respects. Pakistan is caught in the whirlpool in agreeing to adhere to the UN decision and at the same time, in sustaining bilateral relations with the Western neighbor. Pakistan seems to be strongly committed to fulfilling its obligations regarding the Iran Pakistan Gas Pipeline and the expected supply of electricity, but the various restrictions, including banking restrictions imposed by State Bank of Pakistan, have made decision making difficult and disturbing.

There is an alarming factor that needs to be highlighted. It is the growing influence of India in Iran and Afghanistan. New Delhi did not waste any time in jumpstarting its plans as soon as the nuclear deal was signed. India has financed the $100 million highway from Iran’s Chabahar Port to Herat in Afghanistan and has pledged another $100 million for upgrading the Chabahar Port. Moreover, India is exempted by US from procuring oil requirements from Iran. It is, therefore, imperative that the Pakistani policymakers, businessmen, and the politicians must all have a common and practical strategy to offset any Indian influence that is damaging or impeding Pakistan-Iran relationship.

The internal situation in Iran became complicated with the official devaluation of the Rial by 100%, with a galloping inflation rate, with citizens being deprived of basic needs, with the intimidating threat of a war, with the foreign exchange reserves being squeezed, with high unemployment due to lack of investment in productive units, and with the economy having all symptoms to implode. However, the lower rates of petrol and energy in the domestic markets, the reliance on cash transfers for 97% of the population, and the focused efforts of the government to turn the tide has begun to boost the confidence of the economists and financial managers.

Pakistan and Iran have to sincerely look towards the future. Iran, while facing sanctions, has to rely on neighbors to maintain economic sanity. Pakistan offers the ideal set up for Iranians in many aspects. Iran must bring about a fundamental change in trade relations with Pakistan since it is in Iran’s advantage to accord preferential treatment to Pakistanis products and services. Apart from rice, wheat, fruits, etc, Iran can procure textiles, leather, minerals, services, and also other commodities from Pakistan. Moreover, Iran can invest in agriculture and livestock that would cater to the Iranian consumers’ needs.

Pakistan is facing a severe financial crisis and Iran should accept an agreement for the supply of petroleum products on a deferred-basis or on a barter-basis. This too would be in the mutual interest of both the countries. Pakistan and Iran must take full advantage of ECO, OIC, as well as D-8 ('Developing Eight' Group of eight developing Muslim countries: Bangladesh‚ Egypt‚ Indonesia, Iran, Malaysia, Nigeria, Pakistan and Turkey).

Pakistani Chambers and Associations should also extensively lobby with United Nations as well as Washington to exempt Pakistan from conditionalities of the trade embargo, and treat Pakistan as a nation that needs Iranian gas and electricity. Pakistani businessmen should also lobby through ECO, as well as OIC and D-8, so that mutually beneficial regional cooperation is ensured and enhanced.

The geo-political situation is undergoing a remarkable paradigm shift. Iran has become a prominent player in this new configuration. The ramifications of the Arab Spring, not only on countries like Egypt, Libya, Tunisia, Syria or Bahrain, but in some ways, on the Muslim Ummah have been inclusive. The change of guard in Iran, where hardliner Mahmoud Ahmedinejad was replaced as President by Hasan Rouhani, has also introduced new dynamics in Iran’s national agenda. The landmark nuclear deal between Iran and the P5+1 countries infused a radical change from the belligerent attitude of the erstwhile government in Iran. Although the nuclear deal is a probationary one for about six months, it is hoped that strict adherence by Tehran would enable the United Nations to lift the unsympathetic economic sanctions and Iran would be able to maintain an enhanced trade regime. There are forces in US Congress who toe the Israeli line and, prodded by lobbyists, are dead-set to introduce damaging resolutions to enforce additional sanctions on Iran. The confrontational mood may vitiate the fragile environment and provoke Tehran to adopt a hard line. Notwithstanding this thinking in some segments in Washington, the consensus is that the future outlook is positive and that the comprehensive solution would be real, enforceable, and not illusive.

Iran under President Rouhani has displayed pragmatism that will usher in an encouraging environment.  The recent visits of the Iranian Foreign Minister to various Muslim capitals have also emboldened the desires of the Muslim Ummah to have peace and prosperity among Islamic countries. At the same time, the rising status of Iran has eclipsed the influence of Saudi Arabia and to some extent the threatening braggadocio of Israel, especially of Premier Benjamin Netanyahu. The new status of Iran may also reduce the proxy war between Iran and Saudi Arabia that has led to sectarian extremism in Pakistan. Moreover, this bodes well for Pakistan too as Iran would be an alternative supplier of oil at a comparable price. It is hoped that easing of the sanctions would encourage Pakistani businessmen to improve their trade exposure across the border and at the same time, the banks would also commence banking facilities for Pakistani importers and exporters doing business with Iran.

Pakistan and Iran have to become major players in the region. The goalposts have moved but the bond of brotherhood, cooperation, and economic survival still remains firm. The future is favorable for both the countries since the menacing albatross of economic sanctions may soon be removed. The caveat, as always, is that Pakistan must be ready to play on the front foot and take all measures to craft a much stronger and mutually beneficial bilateral relationship. There is no other alternative. Iran is the next leader of the Muslim Ummah and is, fortunately, right across the border for Pakistan.