assignment 2nd_522_economics

7/30/2019 Assignment 2nd_522_Economics

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Department of Business AdministrationBlock No. 13, Sector H-8,Allama Iqbal Open University, Islamabad.

Economic Analysis (522)

Assignment No. 02

Submitted to:Mr. Tahir Mahmood

House No. 67, CAT - II, Street No. 04,Sector I 8/1, ISLAMABAD(0300-989 2976)

Submitted by:

Muhammad Hammad ManzoorMBA (HRM) 1st Semester

Roll No. 508195394

508, 5th Floor, Continental Trade Centre (CTC)

Block 08, Clifton, KARACHI

(0321-584 2326, 0322-555 5901)


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ACKNOWLEDGEMENT

All praises to Almighty Allah, the creator of the Universe who blessed me with the knowledge

and enabled me to complete this research. I feel great pleasure and honor to express my

sincere gratitude and heartfelt thanks to my worthy subject faculty member Mr. Tahir

Mahmood Sab, for his guidance, encouragement and friendly attitude during the present study

and throughout the period of M.B.A (Semester I).

I pay my thanks to all the Faculty of the Department & AIOU Karachi Campus Staff for their

kind support, constructive criticisms and real encouragement. I wish to thank Ms. Zehra

Jabeen for valuable discussions and knowledge sharing during the completion of this project.

I further wish to record my thanks to all my students, class fellows, well wishers and

especially Cera-e-Noor Management Mr. Usman Javed (Manager Marketing), Mr. Khizar

Iftikhar, Khurram Shahzad, Rehan Hassan, Sohail, Waleem, Javed for their help, valuable

suggestions, whole hearted cooperation and prayers.

Finally, I owe all my academic success and progress in life to my loving parents and sisters,

whose affection, endless prayers, good wishes and inspiration remained with me for higher

ideals of life.

M. Hammad Manzoor

2By: M. Hammad Manzoor, MBA HRM-I, 508, 5th Floor, Continental Trade Centre (CTC), Clifton 08,

Karachi. (Roll No. 508195394)


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ABSTRACT

The study had been carried out by keeping in mind about the internal and external

benchmarking techniques for the sake of an organizational, in which the planning

strategy should be adopted as input that can help us out for continues progress of

that firm

Cera-e-Noor (Karachi) has been selected for the sake of the data analysis and working

on its merits and demerits, the methodology includes the evaluation of the different

benchmarking techniques and evaluation on the basis of the bench marking solutions.

SWOT analysis had been carried out and conclusion followed by recommendations had

been made in this regards.




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Sr. No. Contents Description Page No.

1 Introduction What is Bench Marking?

Bench Marking Process

Explanation of Bench Marking

4-6

2 Review of Literature Stages of Bench Marking

Overview the benchmarking

Benchmarking process Key Steps Involved

6-19

3 Cera-e-Noor Ceramics Company Profile

Data Collection

20-24

4 Data AnalysisDemerits and Deficiencies

Merits & Strengths

25-26

5 Recommendations 27

6 References 28




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Introduction

What is Inflation?

Inflation can be defined as a situation where there is a continuous increase ingeneral price level over time

Generally inflation is a situation where there is too much money chasing too few goods cost of living has increased there is persistent fall in the value in the economy prices are rising

In economics, inflation is a rise in the general level of prices of goods and servicesin an economy over a period of time. When the general price level rises, each unit of

currency buys fewer goods and services.

Consequently, inflation also reflects erosion in the purchasing power of money aloss of real value in the internal medium of exchange and unit of account in theeconomy. A chief measure of price inflation is the inflation rate, the annualized

percentage change in a general price index (normally the Consumer Price Index) overtime.

World Inflation Rate- Year 2007

Inflation's effects on an economy are various and can be simultaneously positive andnegative. Negative effects of inflation include a decrease in the real value of moneyand other monetary items over time, uncertainty over future inflation may




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discourage investment and savings, and high inflation may lead to shortages of goodsif consumers begin hoarding out of concern that prices will increase in the future.Positive effects include ensuring central banks can adjust nominal interest rates(intended to mitigate recessions), and encouraging investment in non-monetarycapital projects.

Economists generally agree that high rates of inflation and hyperinflation are causedby an excessive growth of the money supply. Views on which factors determine lowto moderate rates of inflation are more varied. Low or moderate inflation may beattributed to fluctuations in real demand for goods and services, or changes inavailable supplies such as during scarcities, as well as to growth in the money supply.However, the consensus view is that a long sustained period of inflation is caused bymoney supply growing faster than the rate of economic growth.

Today, most mainstream economists favor a low, steady rate of inflation. Low (asopposed to zero or negative) inflation may reduce the severity of economic

recessions by enabling the labor market to adjust more quickly in a downturn, andreduce the risk that a liquidity trap prevents monetary policy from stabilizing theeconomy. The task of keeping the rate of inflation low and stable is usually given tomonetary authorities.

Generally, these monetary authorities are the central banks that control the size ofthe money supply through the setting of interest rates, through open marketoperations, and through the setting of banking reserve requirements.

GDP PPP per Capita IMF 2008

What is Monetary Inflation?




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The term "inflation" originally referred to increases in the amount of money incirculation, and some economists still use the word in this way. However, most

economists today use the term "inflation"to refer to a rise in the price level. Anincrease in the money supply may be calledmonetary inflation, to distinguish it

from rising prices, which may also for clarity be called 'price inflation'.

Economists generally agree that in the long run, inflation is caused by increases inthe money supply. However, in the short and medium term, inflation is largelydependent on supply and demand pressures in the economy.

What is Deflation, Disinflation, Hyperinflation, Stagflation & Reflation?

Other economic concepts related to inflation include: deflation a fall in thegeneral price level; disinflation a decrease in the rate of inflation; hyperinflation an out-of-control inflationary spiral; stagflation a combination of inflation,

slow economic growth and high unemployment; andreflation an attempt to raisethe general level of prices to counteract deflationary pressures.

Since there are many possible measures of the price level, there are many possiblemeasures of price inflation. Most frequently, the term "inflation" refers to a rise in abroad price index representing the overall price level for goods and services in theeconomy. The Consumer Price Index (CPI), the Personal Consumption ExpendituresPrice Index (PCEPI) and the GDP deflator are some examples of broad price indices.

However, "inflation" may also be used to describe a rising price level within anarrower set of assets, goods or services within the economy, such as commodities

(including food, fuel, metals), financial assets (such as stocks, bonds and realestate), services (such as entertainment and health care), or labor.

The Reuters-CRB Index (CCI), the Producer Price Index, and Employment Cost Index(ECI) are examples of narrow price indices used to measure price inflation in

particular sectors of the economy. Core inflation is a measure of inflation for asubset of consumer prices that excludes food and energy prices, which rise and fallmore than other prices in the short term. The Federal Reserve Board pays particularattention to the core inflation rate to get a better estimate of long-term futureinflation trends overall




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D e g r e e s o f i n f l a t i o n

i) Mild inflation

not serious condition Normally the general price level would increase up to 5 %, i.e. theConsumer Price Index (CPI) is about 105.

ii) Creeping inflation

more serious than mild inflation occurs when demand is rising but supply is constant , hence leading torising prices the general price level would normally increase by 10% and CPI is 110

iii)Hyperinflation / galloping inflation / runaway inflation very serious economic condition where the value of money is

persistently falling inflation that exceeds 50% per month price level increases more than 100-fold over the course of a year in some countries money becomes valueless and a new currency systemhas to be adopted

C A U S E S O F I N F L A T I O N

a) Demand Pull Inflation:

the basic cause of inflation comes from the demand side there is persistent increase in demand which could be due factors suchas

increase in money supply (expansionary monetary policy) increase in government purchases (expansionary fiscal policy) increase in exports

when demand is rising and cannot be met by a corresponding increase insupply , then the general price level will increase and inflation will occur as depicted in Figure A , the rightward shift in the AD curve from AD1to AD2 will result in excess demand the effect is to push prices upwards from P1 to P2




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Figure A

b) Cost Push Inflation: ( supply push inflation )

the basic cause is the rising costs of production , such as an increase in wage rates an increase in the prices of raw materials

when industries are faced with rising production costs , they will pushprices up in terms of AD-AS diagram , this is depicted in Figure B as an upwardshift in the AS curve from AS1 to AS 2 the result is a rise in prices from P1 to P2

Figure B



Price

Outpu

t

AS1

AS2

P2

P1

Q2

Q1

Price

Outpu

t

AD1

AD2

AS

Q1

Q2

P2

P1


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c) Imported Inflation:

If there is inflation in the source countries of imports, imported inflation comesin along with the imported goods and services.

E.g. as inputs or raw materials such as crude oil are purchased at high, inflatedprices from the Middle East where the inflation originates, non-oil producers likeSingapore import the inflation as well.

MEASUREMENT OF INFLATION

General price level is measured using price index

i) the GDP deflator ii) the CPI

An index that measures changes in prices of a fixed basket of goods Defined as

CPI in year K = (cost of basket in year K / cost of basket in base year) X 100

e.g. suppose a basket of goods costs RM200 in the base year of 1992 and RM250 in1997

then CPI for 1992 and 1997 are given asCPI1992 = (RM200 / RM200) X 100 = 100

CPI1997 = (RM250 / RM200) X 100 = 125

assuming CPI is used to measure inflation , then the rate of inflation between 2periods , say period t and period (t-1 ) is given byinflation rate = (CPIt CPIt-1) / CPIt-1x 100%

e.g. in Dec 1999, CPI was 118.9, and in Dec 1998, it was 115.7, so the inflation

rate during 1998 was %1007.115

7.1159.118X

= 2.77%

it is possible for inflation to be negative, but this rarely happens, this wouldoccur when the general price level falls and it is called deflation




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In the capital market, unanticipated inflation causes

a) Redistribution of income and too much or too little lending and borrowing

b) Interest rates based on incorrectly anticipated inflation imposes a cost on

either the borrower or lender

if the inflation rate is unexpectedly high , borrowers gain but lenders lose if the inflation rate is unexpectedly low , lenders gain but borrowers lose

c) Inaccurate inflation expectations also create an inappropriate amount of

borrowing and lending

when the inflation rate is higher than anticipated , the real interest rate is lower

than anticipated , and borrowers want to have borrowed more and lenders wantto have loaned less when the inflation rate is lower than anticipated , the real interest rate is higher

than anticipated , and borrowers want to have borrowed less and lenders want tohave loaned more




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Unemployment?Unemployment (or joblessness), as defined by the International LabourOrganization, occurs when people are without jobs and they have actively looked forwork within the past four weeks. The unemployment rate is a measure of the

prevalence of unemployment and it is calculated as a percentage by dividing thenumber of unemployed individuals by all individuals currently in the labour force.

Definitions:

The unemployed are those individuals who do not currently have a job but whoare looking for work

Individuals who looked for work in the past but are not looking currently are notcounted as unemployed

The employed are individuals who currently have jobsthus, employed + unemployed = labour force

People who are not working and are not looking for work are not considered to bein the labour force such as a full-time student, homemaker, or retiree is not inthe labour force

Discouraged workers also not included in the official count of the unemployed asthey are workers who left the labour force because they could not find jobs

There remains considerable theoretical debate regarding the causes, consequencesand solutions for unemployment. Classical, neoclassical and the Austrian School ofeconomics focus on market mechanisms and rely on the invisible hand of the market

to resolve unemployment. These theories argue against interventions imposed on thelabour market from the outside, such as unionization, minimum wage laws, taxes,and other regulations that they claim discourage the hiring of workers.

Keynesian economics emphasizes the cyclical nature of unemployment and potentialinterventions to reduce unemployment during recessions. These arguments focus onrecurrent supply shocks that suddenly reduce aggregate demand for goods andservices and thus reduce demand for workers. Keynesian models recommend

government interventions designed to increase demand for workers; these caninclude financial stimuli, job creation, and expansionist monetary policies.

Marxism focuses on the relations between the controlling owners and thesubordinatedproletariat whom the owners pit against one another in a constantstruggle for jobs and higher wages. This struggle and the unemployment it producesbenefit the system by reducing wage costs for the owners. For Marxists the causes ofand solutions to unemployment require abolishing capitalism and shifting tosocialism orcommunism.


http://en.wikipedia.org/wiki/Classical_economicshttp://en.wikipedia.org/wiki/Neoclassical_economicshttp://en.wikipedia.org/wiki/Austrian_Schoolhttp://en.wikipedia.org/wiki/Unemployment_types#Classical_unemploymenthttp://en.wikipedia.org/wiki/Minimum_wage_lawhttp://en.wikipedia.org/wiki/Unemployment_types#Cyclical_or_Keynesian_unemploymenthttp://en.wikipedia.org/wiki/Supply_shockhttp://en.wikipedia.org/wiki/Marxismhttp://en.wikipedia.org/wiki/Proletariathttp://en.wikipedia.org/wiki/Socialismhttp://en.wikipedia.org/wiki/Communismhttp://en.wikipedia.org/wiki/Neoclassical_economicshttp://en.wikipedia.org/wiki/Austrian_Schoolhttp://en.wikipedia.org/wiki/Unemployment_types#Classical_unemploymenthttp://en.wikipedia.org/wiki/Minimum_wage_lawhttp://en.wikipedia.org/wiki/Unemployment_types#Cyclical_or_Keynesian_unemploymenthttp://en.wikipedia.org/wiki/Supply_shockhttp://en.wikipedia.org/wiki/Marxismhttp://en.wikipedia.org/wiki/Proletariathttp://en.wikipedia.org/wiki/Socialismhttp://en.wikipedia.org/wiki/Communismhttp://en.wikipedia.org/wiki/Classical_economics


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M e a s u r e m e n t o f U n e m p l o y m e n t

Unemployment rate The percentage of the labour force that is unemployed It is computed as:

No. of unemployed workers

labour forceX100%

ORLabour force - no. of employed workers

labour forceX100%

T y p e s o f u n e m p l o y m e n t

unemployment can be classified into 3 types :

i) Frictional Unemployment:

unemployment that occurs naturally during the normal workings of an economy can occur for a variety of reasons such as people change jobs, move across the

country, search for new opportunities or take their time after they enter thelabour force to find appropriate job

arises because it takes time for workers to be matched with suitablejobs during this time , workers engaged in a job search will be registered asunemployed the problem is that information is imperfect

Employers are not fully informed about what labour is available. Workers are not fully informed about what jobs are available.

To remedy frictional unemployment - better job information providedby government job centres, local and national newspaper .

ii) Structural Unemployment:

arises from changes in the pattern of demand and supply in theeconomy

Pattern of demand - declining demand - change in consumer tastes,goods out of fashion, competition from other industries, etc.

Pattern of supply - methods of production - new techniques ofproduction. Unemployment may result from labour-saving techniques of




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production or a whole new technology which requires workers with differentskills.

people cannot immediately take up jobs in other parts because there ismismatch between workers skill and job requirements due to

not having sufficient education lack of skills and training

E.g. when products such as black and white television become obsoleteworkers engaged in their production may become unemployed.

iii) Cyclical Unemployment:

arises because the economy is in recession and there is deficiency ofdemand

e.g.: in the recession year 1982, the unemployment rate rose in 48 ofthe 50 states in U.S.

Unemployment increases during recession and decreases duringexpansion.in any economy ,

actual rate of unemployment = natural rate of unemployment + cyclicalrate of unemployment

The natural rate of unemployment is defined as the rate of unemployment thatprevails when output and employment are at the full level of employment level.

Even though the economy is operating at the full employment level of

employment , there will still be people who are facing frictional and structuralunemployment

In other words, natural rate of unemployment = frictional + structuralunemployment.

C o s t s O f U n e m p l o y m e n t

i) Costs to the unemployed:

Even though, people may have more time to pursue leisure activities, they maybe constrained in so doing by a lack of income

The unemployed also suffer a loss of status as a certain amount of social stigma isstill attached to being unemployed.

More likely to experience divorce, nervous breakdowns, bad health and are morelikely to attempt suicide than the rest of the adult population




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Long periods of unemployment reduce the value of human capital. When peopleare out of work, their skills can become rusty, and they miss out on training innew methods.

ii) Costs to society:

The main cost to society is the output which is lost People will enjoy fewer goods and services than they could have consumed with

higher employment The country will be producing inside its PPF Whilst government revenue will fall as unemployment rises, it will have to

increase its spending on unemployment related benefits (such as unemploymentbenefit)

There has been increased evidence of a link between crime and unemployment,particularly in the case of young unemployed men




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ECONOMY, INFLATION & UNEMPLYMENT OF PAKISTAN CHALLENGES AND PROSPECTS

1. Introduction &an Overview. Let me give you a brief overview in simple terms asto what the structure of this economy is? In 1947, Pakistan had 30 million peoplewith per capita income of 100$. Agriculture accounted for almost 50% of economicoutput with hardly any manufacturing, as all industries were located in India.Therefore, it was unable to feed 30 million people and was dependent on PL-480imports from the USA. From thereon, Pakistan has come a long way. Today with 170million people, our per capita income in 2008 was 1000$ which was ten times more.

Pakistan is the third largest exporter of rice in the world and producing enough foodgrains to feed its people. 3 million tons of rice is exported every year by Pakistanwhich is surplus to our requirements. Pakistan is also one of the five major textile

producing countries in the world. So if we measure in relation to where we were vis--vis structure of economy, agriculture has come down from 50% to 20%. Therefore,

out of total national income, agricultures contribution is just 20%, but instead ofbeing deficient in food production, we are actually surplus and that is whatproductivity means i.e. by using the same land you produce more from the sameinputs, that is how economic growth takes place.

Agriculture is not only crops, within agriculture there has been a significant change.Livestock, dairy, mutton, beef, poultry and similar other products is 50% ofagriculture output in Pakistan. Pakistan also produces third largest quantity of milkin the world. So within agriculture sector, there is a change i.e. major crops are only36% of agriculture value added and 14% are minor crops, fisheries, orchards, fruitsand vegetables. Thus, we are moving in a direction where the same land and same

resources are being used more efficiently in order to produce more. As a contrast,agriculture is only 2.5% in the US having a population of 300 million, out of whichthey not only feed the entire population, but also export to the rest of the world.Therefore, it is important to understand that when it is said that agriculture is

producing/contributing more, it is the productivity of agriculture rather than theshare of agriculture in GDP. Manufacturing and industry now account for 25% of theincome; when we recall there was not even a single industry worth its name at thetime of partition. So if we look where we were and where we are, I think the

justification for Pakistan in terms of betterment of economic conditions of Muslimsin this part is very strong. But where we have failed is that we have not lived up toour potential.

In 1969, Pakistan exports of manufactured goods were higher than the combinedexports of Indonesia, Malaysia, Philippines and Thailand. In 1960s Korea emulatedPakistan in its five years planning process. The tragedy is that even a country such asVietnam which was completely devastated by the war has now overtaken Pakistan.Ten years ago, India which was way behind Pakistan (till 1990s) is now way ahead.

As an economist and student of globalization, the biggest challenge is: how can weorganize ourselves to reach that position where at least we can be running not at the




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nine second a mile but at least ten second a mile 3 race which is going on in theglobal economy. Ten more important challenges facing Pakistans economy aredeliberated in the succeeding paragraphs.

2. Challenges to Pakistans Economy

a. We Consume More and Save Less. Out of every hundred rupees of our nationalincome, we consume 85 rupees and save only 15 rupees, which means that theamount of money which is available to invest for economic growth and advancementis too little. Because to grow by 6%, you need at least 24-25% investment rate - andif you want to rely on domestic savings, your saving rate should be 25%. Indiassaving rate was about the same, but last year they recorded 34% saving rates.Chinas saving rate is 50%, so this is the contrast as to why we are in seriousdifficulty because as a nation this is a problem which we have to recognize. We haveto at least double on savings rate otherwise we will remain dependent on foreignsources.

b. We Import More and Export Less. Till 2007-2008, 80% of our imports werefinanced by our export earnings. This ratio has come down to only 50%, it may go upto 60% but a gap of 40% of financing needs in order to keep with the import levelstill exists. As a nation we prefer to use even the basic commodities of foreigncountries rather than locally manufactured goods. Unless we do not change thisattitude of preferring the imported goods we have to keep on relying on outsiders to

fill in this gap b/w our imports and exports. Relying on outsiders means that thereare cycles, ups, and downs i.e. when things are good, one gets financing, and whenthings are bad one starves for financing. No nation which strives to preserve itshonour must go through this particular route. The lower is this gap between ourexport earnings and expenditure on imports - and that can be achieved only by

expending our exports; our reliance on external sources would be reduced.

c. Government Spends More than it Earns as Revenues. Fiscal deficit is thedifference between the revenues which are collected in a year and the totalexpenditure incurred by the Government. Pakistans government takes away 20% ofnational income as its own. 80% is left in the private sector and 20% in the hands ofthe government is spent on defence, debt servicing, development on education,health, general administration etc. The revenue generated is only 15% of the GDP atbest, and in the worst days it is 12 to 13%. Out of the every rupee of income receivedby a Pakistani, on average, tax paid is only 9 paisas and 91 paisas remain with theindividual. In 2007-2008, Pakistans fiscal deficit was more than 7% which means its

income or revenues were only 13% of GDP whereas, expenditures were 20%.Therefore, fiscal deficits have to be financed from somewhere, so how do you

finance them; you either go again begging the external donors, or to the State bankof Pakistan. The financing provided by the State bank of Pakistan is dangerousbecause it creates high inflation in the economy, which is injurious to the middleclass, those earning fixed wages and salaries, and the poor. Therefore, there is anuproar in the country if the inflation rate goes up. In 1999, our Debt to GDP ratiowas 100%, which means that the entire national income was pledged as debt. Every




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single penny was pledged to the creditors. This ratio was reduced gradually over nextsix to seven years and brought down to 50%, an average for all the economies.However, the way the things are going for the last two years, it has moved from 50%in last two yrs to 58%, and with all the borrowings it may go to 60%, while the FiscalResponsibility Law 2005 says, that the government should not exceed the debt GDP

ratio more than 60% and is required to reduce it by 2.5%; and that is not happening.

The reason the fiscal deficit is widening is low revenue collection. How can youexpect that only nine paisas out of every rupee of income generated by Pakistani

population suffices to meet the requirements of defence, infrastructure,development, debt servicing etc. This is just not possible. In India, tax GDP ratio is15% and still they have fiscal deficit. So Pakistan is way below the norm fordeveloping countries. Many people say that defence takes away a lot of governmentexpenditure. Whereas, the fact is that defence expenditure is only 20% of

government expenditure. It is only 4% of GDP, and is not such a large expenditure ascompared to debt servicing which is 7-8% of GDP and almost 40% of government

expenditure. Therefore, government has to contain its fiscal deficit by raisingrevenues. Agriculture incomes are exempt, professionals, retailers, wholesales,transport owners and many other service providers evade taxes by paying a small

fraction of what is due. Continuing large fiscal deficits year after year may plungethe country into debt trap again.

d. Our Share in the World Trade is Shrinking. In 1990, Pakistans share was 0.2% ofthe world trade. After 20 years it has come down to 0.12% in a very buoyant worldeconomy. World trade has been growing faster as compared to the world output.India in the same period had doubled its share from 0.7% to 1.4%, while Pakistan is

going the other way and that is the reason why exports/imports imbalance is

increasing. We are not taking advantage of the opportunities which a buoyant worldeconomy is providing. Pakistan is stuck with only a few commodities textiles,leather, rice, sports, goods and the surgical goods. We have not entered the markets

for more dynamic products. All our exports are to a few markets the USA, EU andthe Middle East. So this narrow export base and very limited geographical spread arenot allowing us to expand our share. Unless we improve the quality of our products,

go out and do the marketing abroad, invest in research and development, theprospects do not look promising. That is why we are lagging behind other countrieswhich from way back are over taking Pakistan.

e. We Badly Lag in Social Indicators. One of the most glaring weaknesses is that a

country like Pakistan that should have had best indicators in literacy, infantmortality, fertility rates, in access to water supply, in primary enrolment ratios hassocial indicators which are more comparable to Africa rather than to the countries ofsimilar per capita income. Even Tajikistan, which is a very poor country, has betterliteracy rate and primary enrolment ratios than Pakistan. What does it means? Itmeans that if we had literacy rate of 100% instead of 55%, then in 2009-2010 our percapita income would have been 2000$ rather than 1000$. Instead of 30 millionmiddle class in Pakistan we would have 60-70 million middle class people; we would




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have poverty reduced to 15-20%. We have committed to achieve the millenniumdevelopment goals by 2015 i.e. we will be able to reach 80-85% literacy rate, but itis doubtful that this will happen. Why do we have regional inequalities? WhyBaluchistan is lagging behind other provinces? It is because of literacy rates and

primary enrolment ratios. There is a direct correlation between regional inequities

and backwardness with the level of education.

f. We Face Energy and Water Shortages. Another challenge we face today is energyand water shortages, and that is not because we are not generating enoughelectricity or we are not having enough water. With the losses of KESC from the

point it has generated to the point they realize the billing is 45%, so 55% people arepaying for those who are stealing the electricity. Government of Pakistan out of itsown limited resources is paying 200 billion rupees every year as subsidies forelectricity. Our industry is at a disadvantage that they get the orders from foreigncountries but they cannot execute the orders because there are electricity outages.In addition to economic losses it also creates inconvenience for pursuing normal life.

We have silting of our dams, but no additional dams have been constructed sinceTarbela in 1974. We have water course losses of about 20-25%. Even after theselosses, the water is inequitably distributed. The influential land lords are able totake greater share of water from the canals as compared to poor farmers.Therefore, the productivity of poor farmer is only one ton per acre as compared to 3tons by large holders. If we provide the water equitably to the small farmer, hewould also be able to increase the productivity from one to at least two tonsresulting into additional income, increase in exports of food grains, cotton and fruitsand vegetables which will add to export earnings of Pakistan. With the climatechange taking place with all the glaciers in Himalayas which are going to melt, we

are going to have difficulties in future due to global warming.

g. Cost of Doing Business is High. Pakistan is ranked among the bottom half of therankings of the countries where cost of doing business is quite high. It is not high forany particular reason but because of our bureaucracy totally sitting on their seatswithout taking actions or decisions in time. Unless there is some pressure orincentive for them, the normal businesses particularly the small and mediumbusinesses have serious problems at the hands of bureaucracy. Even if we haveinvestors who are welcomed by the federal government, when it comes down to

provincial and local governments there are given a run around the land is notavailable, the water is not available, the gas is not available, electricity is not

available, road is not available. Lack of coordination among various governmentagencies, innumerable laws and regulations that are antiquated and outdated have

proved to be serious impediments. Labour laws, inspections by multiple agencies,the delays in the court system, infringement of intellectual property rights andevasion of taxes by competing firms in the informal sector have rendered some ofthe well established firms unprofitable, or the feasibility of starting near venturesquestionable.




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h. Crisis of Governance and Implementation Weaknesses. If we glance on policydocuments of various governments on education, agriculture, health, trade policyetc, and look at the same policy forty years ago and the problems, there is hardlyany significant record of implementation of those policies or plans over this period.

We produce five years plans and all kinds of medium term frameworks, but it is thepoor governance and implementation that are the weak links in getting things done.

Unless we strengthen civil services and bring about a merit based system ofrecruitment, promotion, performance evaluation, compensation, disciplinary action,etc, we will not be able to see any difference in the quality of governance. Ordersare given by the higher ups but they are not carried out; summaries are approved,but they remain buried in the files and therefore; whether it is education, health,water supply, revenue or law and order, you can pin down the problem to the

governance issues. Unless we fix the governance issue, the economy is not going totake off at the speed which is required.

j. Uncertainty and Unpredictability due to Lack of Continuity. Every governmentwhether military or civilian starts with a clean slate, as if nothing happened beforethem and nothing will happen after them. This is not the way the real world works.You take the projects and programmes which were initiated by the previous

governments, evaluate them as to what the strengths and weaknesses were, fixthose weaknesses and carry them forward. It will take only few years to bring theseinherited projects to completion and the country will benefit from new motor ways,new ports, highways, educational institutions etc. But the blame game of successive

governments results into abrupt termination of all such projects and programs.

When these are resumed the cost has escalated three times and it takes severaladditional years to complete them. In the meanwhile the people of Pakistan sufferbecause of this lack of continuity. When faced with such unpredictability about the

future, the investors are pondering whether they should invest in this country asthey are uncertain whether the new government when comes in would stop or alterwhat the previous government was doing, or adhere to the commitments made tothem. Take the example of Higher Education Commission, which was sending 1700students for PhDs abroad but the new government comes in and suspends the fundingof those programmes. This solved down the process of faculty development for ouruniversities at a time when we should have been sending twice as many scholars.

k. Political Stability, Law and Order/Security. The overall arching theme is thatfor a robust economy we should have political stability, law and order and security.The Armed Forces of Pakistan deserve gratitude for what they have done in MalakandDivision to bring about stability as far as the law and order situation is concerned.The sooner the country is gotten rid of this image of political instability, poor lawand order situation and insecurity, whereby investors from all over the worldhesitate in coming to Pakistan and invest, we will not be able to make any progressin this country. In 2007, Pakistan was one of the most favorite countries among the




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international investor community. A thirty year piece of paper was floated whichwas a bond for Pakistan to be paid in 2037 and Pakistan got four times oversubscription at a price which was only 300 basis points above the US treasury. Very

few countries can claim to have that kind of credibility with international fundmanagers. However, in two years time we have missed that boat. Therefore, it is

imperative that we resume the journey which has been interrupted by nurturing astable, secure and peaceful political environment.




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Methods or steps used by Government of Pakistan to control Inflationand Un-employment:

There are three Main ways by which inflation can be controlled.

i) Adopt tight monetary policy undertaken by Central Bank (State Bank ofPakistan) that use some instruments to influence the economy by reducing moneysupply and higher interest rates.ii) Contractionary fiscal policy that deals with reducing government expendituresand increasing tax.

iii) Direct control - direct govt intervention in the price mechanism of the country

a) Price Pegging Government fixed the floor and ceiling prices , so that prices will notincrease rapidly Producers will not be able to increase prices according to their ownwishes

b) Control Of Trade Union Demand for higher wages has caused cost-push inflation Persuade not to make these demands

c) Anti-Hoarding Campaign Done in Malaysia , where reports were made against producers andconsumers who store their goods unnecessarily because such storage couldcause artificial shortage and push prices up

d) Price Tagging Prices of all goods have to be labelled Prevent producers from over-charging the consumers

e) Rationing

This is done as a last resort whereby consumers are given coupons tobuy goods in certain quantities, for example, one family is only allowed tobuy 10 kilograms of rice per month. In other words, the demand for the

good is predetermined.

To be effective all three methods, i.e. monetary policy, fiscal policy and directcontrol must be implemented simultaneously




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Policies to reduce unemployment depend on the type ofunemployment

i) Frictional Unemployment

Focus primarily on improving the information flows between employersand job-seekers. Employment agencies need to be set up to pool and provide informationon the type of job opportunities that are available on the kind of workers whoare searching for employment. Another much more controversial remedy is for the government toreduce the level of unemployment benefit.

ii) Structural Unemployment

Encouraging people to look more actively for jobs, if necessary in otherparts of the country

Encourage people to adopt a more willing attitude towards retraining,and if necessary to accept some reduction in wages Use wage subsidy programs to encourage employers to hire and trainthose who otherwise lack the necessary skills to get the jobs

iii) Cyclical Unemployment

adopt expansionary monetary policies by increasing money supply andreducing interest rates to stimulate aggregate demand or expansionary fiscal

policy by increasing government expenditure and reducing tax

Trade-Off Between Inflation And Unemployment - The Phillips Curve

A Phillips curve shows the relationship between the inflation rate and theunemployment rate.

There are 2 times frame for Price Curve : the short-run PC the long-run PC

The short-run PC shows the relationship between inflation and unemployment

holding constant the expected inflation rate and natural rate of unemployment .




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Figure X illustrates a short-run PC

Figure X

It demonstrate that a higher inflation rate lowers the unemployment rate

The negative relationship between the inflation rate and unemployment rate isexplained by the aggregate demand and aggregate supply model

An unexpectedly large increase in aggregate demand raises the inflation rate andincreases real GDP , which lowers the unemployment rate

Hence, higher inflation is associated with lower unemployment shown by amovement along a short-run price curve (SRPC).

Figure Y depicts the Phillips curve and the AD/AS curves

Figure Y



Unemployment rate

(%)

Inflation rate (%)

SRPC

UE %

Inflation rate (%) Price level

AS

AD0

AD1

Real GDP(Billions

of

P1P0

Y0Y1

5% 4%

UE UE

4

2

4 5


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the long-run PC shows the relationship between inflation and unemploymentwhen the actual inflation rate equals the expected inflation rate

the long-run PC is vertical at the natural unemployment rate Along the long-run PC, an increase in the inflation rate has no effect on the

unemployment rate. The long-run PC tells us that any anticipated inflation rate is possible at the

natural unemployment rate when inflation is anticipated, real GDP= potential GDP ==> unemployment is at

the natural rate

How is the Short-run Phillips Curve related to the Long-run Phillips curve?

e.g.: An increase in the growth of the money supply

Figure Z

Suppose the economy is at point A in figure 4.5. At that point, the inflation rateis 3% and the unemployment rate is at the natural rate, 5%.

Now suppose the growth rate of the money supply increases. The increase in thegrowth rate of money supply will stimulate aggregate demand.

In the short run, the increase in AD will increase output and decreaseunemployment, as the economy moves up along the short-run Phillips curve, from

point A to point B, where the actual inflation rate has increased from 3% to 6%and the unemployment rate has fallen below the natural rate to 3%.



C

A

B

Inflation

rate

UE rate

SRPC (Pe=3%)

SRPC' (Pe=6%)

5

(Natural rate of

UE)

6

3


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Because the increase in inflation was unanticipated, real wages fall. Firms arenow receiving higher prices relative to their input costs, so they expand output -unemployment rates fall - movement along the SRPC from A to B.

Eventually, workers (and other input owners) realize that their real wage has

fallen because of the increase in the inflation rate that was not initiallyanticipated. Workers now vigorously negotiate for higher wages - this increasescosts to producers, and as a result, they reduce output and unemployment rises -rightward shift in the SRPC from point B to point C in figure Z.




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GOVERNMENT ROLE TO OVER COME POPULATION PROBLEM:Government of Pakistan took a serious notice of over population from the First FiveYear Plan. It was stressed, in this regard, to promote the concept of FamilyPlanning through a private organization. The Family Planning Association ofPakistan.

At Government Level, Family planning activities were initiated in the Public sector inthe second Five Year Plan (1960-1965). However a comprehensive PopulationPlanning Programe was formulated as an integral part of the overall development

programme during third Five Year Plan (1965-1970).

Rs. 284 Million were allocated to implement the Family Planning Programme. Thetarget stipulated to bring down the crude birth rate from an estimated level of 50

per thousand to 40 per thousand.

The administrative set up of the programme was based on tier semi-autonomous

organizations, with the population planning council at the Federal level and thepopulation planning boards and district boards levels.

The programme required for the recruitment and training of para-medical personnel,field staff, and the establishment of family planning clinics. On gross root level,DAIS were assigned major role to distribute family planning devices, while clinical

family planning services were provided by the Lady Health Visitors (LHV). Howeverthe programme as a whole did not prove to be very successful in its expecteddemographic impact.

To address the population in decent way the Government of Pakistan has formulated

Pakistan Population Policy in 2002. The policy calls for a sustained politicalcommitment and need for mobilizing broader supports from all stakeholders in the

public and private sectors. The policy aims at swift demographic transition. Itfocuses on addressing various aspects of population size with national laws anddevelopment priorities while keeping up national social and cultural norms




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GOVERNMENT ROLE TO THE N ATURAL MINERALS SECTOR OF PAKISTAN:

The Government of Pakistan took a serious notice of over the growth of the mineralin Pakistan and observed that mineral sector is very slow due to number of factors.Some of the factors observed by Government of Pakistan as follows;

Financial Constraints

Inadequate Institutional Framework

Lack of Technical Know how

Under Developed Infrastructure

Paucity of sophisticated and laboratory equipment

Lack of intensive research work

Heavy cost and heavy risk

The Federal Government has set up six corporations / institutions to developminerals in public sector. These are;

1. Geological Survey of Pakistan (GSP)2. Pakistan Mineral Development Company (PMDC)3. Saindak Metal ltd (SML)4. Lakhra Coal Development Company (LCDC)5. Gemstone Corporation of Pakistan (GEMCP)6. FATA Development Corporation (FDC)

Geological Survey of Pakistan (GSP):Geological Survey of Pakistan has been assigned the study of Geology of the Countryto access its mineral potential through geologic mapping, geoscientific survey andapplied research.

Pakistan Mineral Development Corporation (PMDC):Paksitan Mineral Development Coopration (PMDC) is operating three coal mines atDegari, Sor Range & Sharigh in Baluchistan, two at Lakhra and Mating in Sindh andone at Makerwal in Punjab. Apart from these, three Salt Mines at Khewra, Warchaand Kalabagh in Punjab and two salt quarries at Jatta.

Saindak Metals Limited (SML):SML is implementing Saindak Copper Gold project in district chagi, Baluchistan. It is

first large scale metal mining project in Pakistan. The project has been signed toproduce annually 15, 810 tonnes of blister copper, 1,47 tonnes of contained gold and2.76 tonnes of Silver.

Lakhra Coal Development Company (LCDC):LCDC is a joint venture of Government of Pakistan, WAPDA and Government of Sindhto develop large scale mechanized coal mining operation to meet the requirement of




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WAPDA during development period of main mine project. LCDC has also startedcommercial production of coal and limestone.

Gemstone Corporation of Pakistan (GEMCP):GEMCP is a joint venture of Government of Pakistan and Government of Khyber

Pakhtoonkhwa. The Corporation is operating mines of emerald and other previousstones in Khyber Pakhtonkhwa.

FATA Development Corporation (FDC):FDC is a newly established corporation. Its performance is yet to work out.

GOVERNMENT ROLE TO AGRICULTURE SECTOR OF PAKISTAN:

The Government of Pakistan is really concerned about the agriculture secotor, so fara number of development measures have been taken by the successive governmentof Pakistan to develop agriculture sector. No doubt, these measures are proving their

worth but the pace of growth is very slow. Of them, some measures, which also needmodification are being discussed as;

Development of Irrigation water resources:During the last five decades more than 81 million hectares of land has been added tothe irrigated areas by means of construction or improvement of 3 major reservoirs(at Tarbela, Mangla and Wasah), 19 barrages, 12 link canals, more tha 1.61 millionKms.

Development of Land Resources:During the last five decades more than 7 million hectares of land has been added to

total cropped area, which has increased from 14.69 million hectares in 1959 1960 to21.69 million hectares in 2004 2005. Consequently, out of total 79.61 millionhectares the net sown area has increased from 13.07 million hectares to 16.07 in2004 2005

Development of Agriculture finance resources:Agriculture finance is regarded as one of the most important inputs in the moderntechnology package to be used for development of agriculture sector. Regarding thisvery fact, a special institution Zari Taraqiati Bank Ltd. Formerly agriculturedevelopment bank of Pakistan (ADBP) has been established; National commercialbanks have also been instructed to provide medium and short term loans.

Plant Protection Measures:To protect crops from various kinds of pests and to control desert locust a PlantProtection Department has been established which carries out aerial sprays withthe help of a fleet of 22 aircrafts. For the control of cotton leaf curl virus disease, anumber of research and development projects have been started




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GOVERNMENT MEASURES TO DEVELOP SMALL SCALE AND COTTAGE INDUSTRIESOF PAKISTAN :

Importance of small scale and cottage industry in the economy of Pakistan needs noemphasis. The Government has full realization of it and is keenly interested in their

growth and expansion in the country. It has been trying to explore every possiblemeans to organize cottage industries in particular on scientific basis so that theirgrowth may be stimulated.

Government has so far taken various measures to promote the efficiency of smallscale as well as cottage industries. Out of them some important measures are beingmentioned in the following paragraphs:

Institutional arrangement for credit facility:In order to provide finance at cheaper rate, the Government has established thesmall and cottage industries corporation which has been powered to grant direct

loan to cottage industries upto the extent of Rs. 10, 000 to each borrower and togrant loans upto rupees one lac to each commercial credit to co-operative societies.

Measure to provide protection against foreign competition:Protection to home industries has been extended by imposing restriction on theimport of competing goods and removal or reduction of important duties on rawmaterial equipment and tools, used by cottage industries.

Arrangement to import raw material:Government also arranges for the import of such raw materials which the small scaleand cottage industries find difficult to procure from abroad, and the same are

supplied to artisans and craftsman at cost price.

GOVERNMENT MEASURES TO DEVELOP SMALL SCALE AND COTTAGE INDUSTRIESOF PAKISTAN:

Importance of small scale and cottage industry in the economy of Pakistan needs noemphasis. The Government has full realization of it and is keenly interested in their

growth and expansion in the country. It has been trying to explore every possiblemeans to organize cottage industries in particular on scientific basis so that their

growth may be stimulated.

BENAZIR INCOME SUPPORT PROGRAMME (BISP)Benazir Income Support Programme (BISP) was launched to mitigate sufferings of

poor segment of the society and it is a very successful practice.

MASSIVE CUTS BY GOVERNMENT OF PAKISTANOn fiscal side, massive cuts were made in the various sectors expect law andenforcing and energy sectors to control inflation.




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Prospects/Solutions to Improve Economy

How can we overcome these challenges and problems and improve our economy? Alothas been written and talked about, but I will focus on only a few action points.

a. Change in National Psyche and Mindset. We as a nation are too much negativeoriented and too much cynical where we find everything wrong in this country.Unless we change our mindset and unless everybody who is doing what he is supposedto do, carries out his or her task with sincerity and honesty, we are not going to goanywhere. We should not expect any Messiah to come and fix our problems we haveto do it ourselves individually and collectively. There are no short cuts available.Media is muddying the water by their sensational stories and inviting so calledexperts who contribute in projecting negative thinking and negative national psyche.Unless we have a positive can do mentality, it will be difficult to progress. Unlesseach one of us changes our mindset rather than blame the government and the

system, we are not going to go anywhere in this race for global economic survival.This is easier said than done. But I expect our younger generation to be moreresponsive and responsible.

b. Building up of Human Capital. There is no substitute to building up humancapital. Private sector, public sector, NGOs, local communities, philanthropists etc,all here to put their hands on deck and participate in making sure that every child

goes to school. Every high school graduate has some technical and vocational skill orgoes for higher education. Unless we build up human capital, we are just going to beleft behind because the world economy is going to be a knowledge based economy. Itis not an economy where you memorize material or reproduce that in the exam and

forget about it - that is no longer the case. One has to acquire the knowledge anduse it in order to apply to problem solving. This is a new paradigm where humancapital is as important as machinery and equipment. Pakistan lags behind othercountries in the institutions, infrastructure and incentives for human capital

formation. We have no choice but to accelerate the pace to catch up with others.

c. Use of Technology. The technology is spreading like a wild fire. How many peoplefive years ago could have thought that even in a small towns and villages of Pakistan,one would access to mobile telephones. 95 million Pakistanis have mobile phonestoday. You can use this technology in order to provide them banking services,information on climate/weather, agriculture extension, health, education etc. It is a

powerful tool which can leapfrog a lot of time which we have wasted. Usingtechnology particularly the information/communication technology for thebetterment of social and economic problems of Pakistan is something which needs tobe done but it cannot be done the way we have compartmentalized this intodifferent ministries. A more holistic and comprehensive approach that deploystechnology for poverty reduction has to be put in place.




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d. Young Labour Force. Pakistan is one of the few countries which has a younglabour force which can be harnessed for its own and global economy. Japan, Europe,USA and after 2050 China are going to have aging population where the ratio of oldto young people is going to increase. India and Pakistan are two countries where theratio of younger people to the older ones is going to increase. If we tool these young

men and women properly, we increase the female labour force participation, givethem skills and knowledge, they can become the labour force for the rest of theworld. This will give a big boost to Pakistans own economy. In 2001, workerremittances were less than a billion dollars; today we have almost 7-8 billion dollars.Now this can be multiplied by three or four times if we have educated labour forcei.e. skilled labour force going for overseas employment. This is also a way to createemployment opportunities because if you have large number of younger peoplecoming to labour force and you dont have job opportunities for them you can havesocial upheaval. Therefore, it is imperative to create employment opportunities forthem and one of the avenues is to train them in the kind of the skills which areneeded not only by the national economy but also by the international economy.

e. Governance, Devolution and Decentralization. As the population is increasing,one cannot govern Pakistan sitting in Islamabad, Karachi, Lahore, Peshawar orQuetta. One has to devolve powers, decentralize and delegate authority, provideresources to the local/district governments so that they can take decisions at theirown. Those decisions would be very much in accordance with the requirements andthe needs of those communities. Sitting in Islamabad one cannot visualize what isneeded in Chaghi or Loralai, but the people in Loralai and Chaghi know exactlywhether they need water, fertilizers or fruit processing industry. Let us devolve

powers to the people at the grassroots level and there would be much betterallocation and utilization of resources. There must, however, be accountability of

the local governments by the provincial governments and of provincial governmentsby the federal government but not interference or usurpation of powers. If we dothat, then a lot more can happen with same amount of resources which are beingwasted today, and the economicgrowth rate can be raised from 6-7 percent average to 8-9 percent annually.




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References:

A special tribute and thanks to the following professionals of Cera-e-Noorfor

cooperating in providing data and fruitful assistance.

Name Designation Contacts

Eshan Ali Manager HR eali@ cera-e-noor.com.pk

Muhammad Usman Javed Manager Finance javd.u@ ogil.com.pk

http://en.wikipedia.org/wiki/Unemploymenthttp://en.wikipedia.org/wiki/File:World_map_of_countries_by_rate_of_unemploymentwww.inventorymanagement.com/http://www.unitedlog.com/Inventory%20control-086.aspx?gclid=CLTZl6K__KsCFU0a6wodkizTlg

http://www.bized.co.uk/educators/16-9/business/inventory/lesson/inventorystrat.htmhttp://www.netmba.com/marketing/pricing/http://www.pakistantoday.com.pk/2011/05/controlling-inflation-2/www.dawn.com/2011/07/19/central-bank-independence-and-inflation.htmlhttp://paktribune.com/news/SBP-for-effective-measures-to-control-inflation-166825.html


mailto:[email protected]:[email protected]://en.wikipedia.org/wiki/Unemploymenthttp://www.inventorymanagement.com/http://www.bized.co.uk/educators/16-9/business/inventory/lesson/inventorystrat.htmhttp://www.bized.co.uk/educators/16-9/business/inventory/lesson/inventorystrat.htmhttp://www.netmba.com/marketing/pricing/http://www.pakistantoday.com.pk/2011/05/controlling-inflation-2/http://www.dawn.com/2011/07/19/central-bank-independence-and-inflation.htmlmailto:[email protected]:[email protected]://en.wikipedia.org/wiki/Unemploymenthttp://www.inventorymanagement.com/http://www.bized.co.uk/educators/16-9/business/inventory/lesson/inventorystrat.htmhttp://www.bized.co.uk/educators/16-9/business/inventory/lesson/inventorystrat.htmhttp://www.netmba.com/marketing/pricing/http://www.pakistantoday.com.pk/2011/05/controlling-inflation-2/http://www.dawn.com/2011/07/19/central-bank-independence-and-inflation.html


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M. Hammad Manzoor

508195394

# 508, 5th Floor,

Continental Trade Centre,

Clifton - 08, KARACHI. (0321-

Economic Analysis

52202

Mr. Tahir Mahmood

House. No. 67, Cat II

Street No. 04, Sector I

ISLAMABAD. (0300 989

assignment 2nd_522_economics

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