960420

KSE suggests steps

to revitalise

corporate sector

RECORDER REPORT

KARACHI: In order to put the derailed corporate sector back on track, the Karachi Stock Exchange has proposed that the government scan the annual reports of listed companies and remove the hinderances that are hampering their growth.

In its proposals sent to the government, the KSE cited the problems faced by certain sectors.

Modarabas, for example, the KSE proposals pointout were initiated with the incentive of a perpetual tax holiday. Thus withdrawal of tax-exemptions has made it difficult for the sector, besides hurting official credibility. Then again this sector is highly over-regulated. Various restrictions, particularly, not being able to avail bank guarantees against their borrowing has curtailed the capacity of Modaraba companies for leveraging their operations.

Regarding the insurance sector, the KSE said that the recent exemption of capital gains to insurance companies like all other corporate entities, is very encouraging. Insurance companies can become major players in the market only if these incentives are made available, the KSE believes.

The chances of insurance companies investing in stock exchange merely for dividend returns are highly unlikely in the presence of lucrative returns being offered by other fixed return instruments. It is now suggested that necessary SRO be issued to give conclusive shape to this incentive.

The textile sector is groaning under the burden of expensive inputs especially on account of cotton, power and financial charges. To mitigate the effects of higher cost, it is desirable that cotton should at least be made available to the local industry at a competitive price. Since the last few years, the cotton policy seems to be in a disarray. In the absence of accurate estimates of cotton crop, it is being exported followed by imports during the same period. To avoid such confusion buffer stock of cotton should be built up.

For the revival of the jute industry, the KSE said that the government should take due cognizance of their cost of production as well as dumping from Bangladesh.

SUGAR - The Government's sensitive attitude towards any price increase in sugar while being indifferent to escalation in the price of sugarcane is not good for the long term health of this industry, the KSE believes. FIA raids on sugar godowns despite the fact that there is no price control on this commodity, does not augur well for attracting genuine investment towards the industry. In the face of high cost of financing and disproportionate increase in the price of sugarcane, commensurate increase in the price of end products should not be grudged by the authorities.

"Generally speaking, when a particular sector is making windfall profits, it will result in attracting more investment, ultimately balancing out the situation of demand and supply over a period of time. This has been quite evident in the case of staple fibre and cement sector. Government should avoid taking administrative measures to control the price in any sector", the proposal said.

ENGINEERING INDUSTRY: The KSE feels that the import of tractors in build-up condition is likely to do a lot of damage to this vital industry. The vendor industry is also facing problems of exorbitant price of its basic raw material i.e. steel, procured from Pasmic. This industry is also working in an environment of inadequate volumes resulting in high cost of production. There is need for a biased policy in favour of this industry with firm deletion targets set for the automobile industry, it was pointed out.

AUTOMOBILE INDUSTRY: This sector has attracted considerable foreign investment and provides impetus to small vendor industries creating ample employment opportunities. Schemes like yellow cabs, Awami Tractor Scheme or, as rumoured, the import of second hand cars can considerably dampen the future of this industry.

PHARMACEUTICAL INDUSTRY:

"This sector is under rigid price control although it is believed that such administrative interference in price mechanism is not warranted in the presence of competitive environment of this sector". The price increases are allowed from time to time but the gap between the two increases is long and most of the time not enough to offset the impact of currency parity and other inflationary impacts, it was pointed out. The recent devaluation of 10 percent and regulatory duty of 5 percent has not been allowed to be passed on fully in the end product price. Such artificial control on the price results in back-lash of diminishing investment resulting in short supply and consequent shortage of the commodity in future. It was suggested that this important industry should be deregulated at the earliest opportunity.