Remaking of History

In 1612, in return for a favor, Sir Thomas Roe asked King Jahangir of Indian sub-continent, to arrange for a commercial treaty which would give the East India Company, exclusive rights to reside and build factories in Surat and other Areas. This particular decision of Jahangir, proved devastating and humiliating for all the people of Sub Continent, for rest of the centuries to come. In my view, the current Govt. of Pakistan has still got to learn, many lessons from history.

Trading agreements between different nations are always considered fruitful for economic growth and development. WTO, not only has opened barrier free gates to new commercial and investment avenues for many countries but also it has also provided a platform for many countries to share their culture and tradition. Likewise, SAFTA agreement will not only bring prosperity among the countries of South Asia, but will also prove to decrease the animosity, existing between India and Pakistan. Trade relations, between these two countries, will hamper the further growth of hostile tension, as their mutual interests will be tied with the trading gains. That is what the supporters of trade treaty are Arguing all the time.

But this is only the one side of the picture. The second side is destructive and devastating for the economy of Pakistan. With increasing fuel prices and cost of production, Pakistan is suffering investment drain from past 4 years.In the Musharraf's dictatorial era, Pakistan was among some countries, who enjoyed the fruits of economic boom of 2003-07. Stock market was flooded with foreign investment, dollar was at 61 whereas CNG was available 24/7 at Rs. 38 per kg. And above all, we fresh Graduates had a fairly good freedom to select the career of our own choice. To keep it short and simple many people got financially stable in that era. But the situation prevailing today is not the same, as it was 6 years back. Dollar is 91, Fuel prices have crossed the psychological limit of Rs. 100, CNG is short in supply, Industry and Household are suffering Unannounced Load-shedding (Govt. call it load management), and above all the high Inflation and unemployment rate has added fuel to fire.

Readers in Economics must be familiar with the fundamental concept of circular flow of Income. whenever there is a leakage or injection into the flow, the balance is disturbed, resulting in an increase or decrease in the income, circulating within the economy. Situation is still good if the injections are equal to leakages, as the overall balance remains same. In case of Pakistan same is not going to happen. If we look at the current situation, Pakistan will loose at the all ends. Firstly, its local industry will face two fold competition, one from environment and second from Indian industry. Secondly the energy dependence on India will not only directly affect the homeland security but will also prove manipulative for Cost of production for Pakistani Products. Thirdly, the probable closure of local industry will result in mass level Unemployment. And last but not least, the cultural dominance of India will take its roots deep into Pakistan. 

Lets talk figures, Currently the trade volume between the two countries is $2.7 Bn. If the MFN status of India becomes effective, the trade volumes will increase till $10 Bn but in doing so, Pakistan will have to forfeit Custom duties and other tariffs worth $3 bn. India has an export list of approx. 85O Items which all come under the SAFTA trade agreement, thus the duty of 5% cannot be imposed on Indian products. This situation will directly affect the sick Industry of Pakistan and many employees working in these sick Units. First the industry will be affected with the competition from cheap Indian commodities, secondly, the reliance of Pakistan on India for energy requirements, will sooner or later, will prove manipulative for cost of production for Pakistani products. thirdly, the Govt revenue will decrease significantly. Forthly, the Import bill will further Increase.

According to economist, 52% of Indian Population are living under poverty line, thus these 52% people are not playing any role in economic development of India. Thus Indian Investors are in search of new markets, and in this case Pakistan, the next door neighbour, is the best option. in India's view, Pakistan is a perfect market to sell its products as its local production in adversely hit by power shortages, corruption, terrorism and protection money payments. Any cheap product injected into Pakistani economy will adversely affect local Industry. Also the environmental factors are in favour of India as it will draw prospective direct local investment into India and in return, owing to the lawlessness in Pakistan, there wont be any direct investment in Pakistan from Indian side. 

The remedies are very simple, Pakistan should adopt 3 fold strategy before entering into any trade agreement with India:

1. Control over moral and financial corruption.
2. Reduction in power shortage
3. Control over lawlessness and terrorism

If the Govt. of Pakistan adopts these three strategies persistently, Pakistan can talk to India on equal terms where both the countries benefit from bilateral trade. An unjust gain from one side will again force the two countries in a situation which will  deteriorate the trust buliding environment, which is currently augmenting, and then we will al witness the remaking of a history.     

Positive Signs & Economic Recovery

Although stricken by a global credit crunch, decisions of Dubai Govt. are reposing a positive sign towards the recovery of economy. It all happened during Dubai Air Show 2011.

According to the Boeing Media Center, Emirates airline has announced an order of 50 777-300ERs with an option of 20 additional air crafts purchase order. The order valuing $ 18 Billion is the single largest commercial airplane order in Boeing’s history.  Additional option of 20 jets will make this deal totaling $ 26 Billion. Thus to Park this army of jets, Emirates do need a bit more space at DXB.

 "The 777's reliability, performance and operating economics have firmly established it as the backbone of our fleet," said His Highness Sheikh Ahmed bin Saeed Al Maktoum, chairman and chief executive, Emirates Airline & Group. "We have an ambitious and strategic plan to continue growing our international network and especially increasing our long-haul, non-stop routes.  This order supports our fleet expansion and reiterates our commitment to operating a modern fleet for the benefit of our passengers and to ensure operational efficiency as well."

DXB airport is designed to receive 60 million passengers daily. It is expected that 51 million passengers will pass through DXB in 2011. Thus work is under process to increase the capacity of present airport to 90 million by 2018. Also the construction of DWC (Dubai world Central) is under way, which will guarantee the capacity of 160 million. It also plans to hold the Dubai Air show 2013 and is currently providing support to a number of cargo flights. By the end of 2020, whole operations of Emirates airlines are planned to be shifted to aforesaid destination.

On the other hand, the deadlock related to the expansion of overcrowded Heathrow is yet to be solved. The two oppositions, the conservatives and the Labours have joined their hands to oppose the construction of third runway. Any other option will take years of planning and committees.

Paul Griffiths, the chief executive of Dubai airports, is confident that Emirates, Ittihad and Qater Airways are in a strong position, to grab the market share from traditional commercial airlines. So all Dubai got to do is to expand, because the growth plans of home liners are “so audacious”. 

Redesigning Euro

The euro zone, since the crisis, has witnessed several skirmishes between the politicians and the Market Players. The situation will get more severe in 2012. Sounds Dangerous, but politics should be kept aside if Eurozone want a permanent solution to prevailing financial crises. All the Eurozone countries are now heading towards deficit cutting, reducing the expenditure on public services like health benefits etc. Any wrong step, at this stage, would lead to a financial disaster, unimaginable.

With the loosing value of stock capital and Govt. bond yields, Major financial institutions of Europe are in a difficult situation, as they want a financial rescue at any cost from Germany and other financial worthy Eurozone partners. This eventually put the politicians in a bargaining position, as they also want a price or some sort of financial guarantee for this prospective bailout. Now it’s the Eurozone which has to decide whether it wants to continue the affairs, as they are or change the governance system of euro; with later being a highly uncertain and unlikely option. But Germany, along with fellow members, is sure to devise the strategy for this bail out and the euro governance mechanism in 2012.

Many options are available for the euro zone leaders like establishing a mini European monetary fund with enough funds to cater the needs of crises struck countries, a homogeneous monetary policy, acceptable to all European countries, a pan European banking regulatory Authority, which should regulate the bailout process, centralized borrowing, not to mention a Govt. expenditure regulating body, which would require the governments to submit their fiscal policies or the combination of any two or more of these above options.

France and Germany mistrust European commission whereas other countries dislike European parliament and an intergovernmental council. Also there is a suspicion over the involvement of a centralized commission in the fiscal spending, which leaves a big question in mind that which institution will hold the supreme authority in regulating the Eurozone crises. Thus an environment of mistrust and inkling among the Eurozone members can spoil the 9 year long hard work, towards the establishment of United States of Europe.

Apart from twice-yearly summits and the establishment of EMF (European Monetary fund), more is needed in the form of new sanctions such as debt caps, independent information and data disseminating and regulating departments. All these options need a new treaty, which would require a time involving exercise, which Eurozone cannot afford, as time is running out.

To sum up, harsh steps must be taken to regulate the monetary affairs or else Europe should get itself ready to face the next currency crises in 2012.