Assignment 2nd - 522 - Economics

Department of Business Administration
Block 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 Manzoor MBA (HRM) 1st Semester
Roll No. 508195394 508, 5th Floor, Continental Trade Centre (CTC) Block 08, Clifton, KARACHI (0321-584 2326, 0322-555 5901)
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
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By: M. Hammad Manzoor, MBA HRM-I, 508, 5th Floor, Continental Trade Centre (CTC), Clifton 08, Karachi. (Roll No. 508195394)
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.
1
Contents Description
Introduction
What is Bench Marking? Bench Marking Process Explanation of Bench Marking
Page No.
4-6
Review of Literature
Stages of Bench Marking Overview the benchmarking Benchmarking process Key Steps Involved Company Profile Data Collection
6-19
3 4
Cera-e-Noor Ceramics
20-24 25-26
Data Analysis
Demerits and Deficiencies Merits & Strengths
Recommendations
27
References
28
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Economic Analysis (522) Introduction

What is Inflation?
Inflation can be defined as a situation where there is a continuous increase in general 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 services in 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 a loss of real value in the internal medium of exchange and unit of account in the economy. A chief measure of price inflation is the inflation rate, the annualized percentage change in a general price index (normally the Consumer Price Index) over time.
World Inflation Rate- Year 2007 Inflation's effects on an economy are various and can be simultaneously positive and negative. Negative effects of inflation include a decrease in the real value of money and 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 goods if 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-monetary capital projects. Economists generally agree that high rates of inflation and hyperinflation are caused by an excessive growth of the money supply. Views on which factors determine low to moderate rates of inflation are more varied. Low or moderate inflation may be attributed to fluctuations in real demand for goods and services, or changes in available 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 by money supply growing faster than the rate of economic growth. Today, most mainstream economists favor a low, steady rate of inflation. Low (as opposed to zero or negative) inflation may reduce the severity of economic recessions by enabling the labor market to adjust more quickly in a downturn, and reduce the risk that a liquidity trap prevents monetary policy from stabilizing the economy. The task of keeping the rate of inflation low and stable is usually given to monetary authorities. Generally, these monetary authorities are the central banks that control the size of the money supply through the setting of interest rates, through open market operations, 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 in circulation, 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. An increase in the money supply may be called monetary 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 in the money supply. However, in the short and medium term, inflation is largely dependent 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 the general 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; and reflation an attempt to raise the general level of prices to counteract deflationary pressures. Since there are many possible measures of the price level, there are many possible measures of price inflation. Most frequently, the term "inflation" refers to a rise in a broad price index representing the overall price level for goods and services in the economy. The Consumer Price Index (CPI), the Personal Consumption Expenditures Price 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 a narrower set of assets, goods or services within the economy, such as commodities (including food, fuel, metals), financial assets (such as stocks, bonds and real estate), 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 a subset of consumer prices that excludes food and energy prices, which rise and fall more than other prices in the short term. The Federal Reserve Board pays particular attention to the core inflation rate to get a better estimate of long-term future inflation trends overall
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Degrees of inflation i) Mild inflation not serious condition Normally the general price level would increase up to 5 %, i.e. the Consumer 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 to rising 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 system has to be adopted CAUSES OF INFLATION a) Demand Pull Inflation: as the basic cause of inflation comes from the demand side there is persistent increase in demand which could be due factors such
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 in supply , then the general price level will increase and inflation will occur as depicted in Figure A , the rightward shift in the AD curve from AD1 to AD2 will result in excess demand the effect is to push prices upwards from P1 to P2
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Price
AS P2 P1 AD1 Q1 Q2 AD2 Outpu t
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 push prices up in terms of AD-AS diagram , this is depicted in Figure B as an upward shift in the AS curve from AS1 to AS 2 the result is a rise in prices from P1 to P2
Price AS2 AS1
P2 P1
Q2 Q1
Outpu t
Figure B
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c) Imported Inflation: If there is inflation in the source countries of imports, imported inflation comes in along with the imported goods and services. E.g. as inputs or raw materials such as crude oil are purchased at high, inflated prices from the Middle East where the inflation originates, non-oil producers like Singapore import the inflation as well.
MEASUREMENT OF INFLATION
General price level is measured using price index the GDP deflator the CPI An index that measures changes in prices of a fixed basket of goods Defined as
i) ii)

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 in 1997 then CPI for 1992 and 1997 are given as CPI1992 = (RM200 / RM200) X 100 = 100 CPI1997 = (RM250 / RM200) X 100 = 125 assuming CPI is used to measure inflation , then the rate of inflation between 2 periods , say period t and period (t-1 ) is given by inflation rate = (CPIt CPIt-1) / CPIt-1 x 100% e.g. in Dec 1999, CPI was 118.9, and in Dec 1998, it was 115.7, so the inflation 118.9 115.7 X 100% = 2.77% rate during 1998 was 115.7 it is possible for inflation to be negative, but this rarely happens, this would occur when the general price level falls and it is called deflation
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Costs of Inflation A) Anticipated Inflation (inflation that is expected) i) Menu costs costs of inflation that arise from actually changing prices restaurant owners, catalogue producers, and any other business that must post prices will have to incur costs to change their prices because of inflation Shoe-leather costs costs of inflation that arise from trying to reduce holdings of cash
ii)
B) Unanticipated Inflation (inflation that is not expected) failure to anticipate inflation correctly imposes costs in the labour market and the capital market In the labour market, unanticipated inflation causes a) Redistribution of income cause wages to be set at the wrong level and create unintended redistribution of income a burst of unanticipated inflation lowers workers real wages , and employers gain at the expense of workers lower than expected inflation causes real wages to be high and workers gain at the expense of employers
b) Departures from full employment higher than anticipated inflation lowers workers real wages , so some quit to search for other jobs such quitting imposes costs on both workers and firms lower than expected inflation raises the real wage , so firms lay off some workers and the unemployment rate rises costs are imposed on both workers and firms
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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 want to 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 to have loaned more
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Unemployment? Unemployment (or joblessness), as defined by the International Labour

Organization, occurs when people are without jobs and they have actively looked for work 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 the number 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 who are looking for work Individuals who looked for work in the past but are not looking currently are not counted as unemployed The employed are individuals who currently have jobs thus, employed + unemployed = labour force People who are not working and are not looking for work are not considered to be in the labour force such as a full-time student, homemaker, or retiree is not in the labour force Discouraged workers also not included in the official count of the unemployed as they are workers who left the labour force because they could not find jobs There remains considerable theoretical debate regarding the causes, consequences and solutions for unemployment. Classical, neoclassical and the Austrian School of economics focus on market mechanisms and rely on the invisible hand of the market to resolve unemployment. These theories argue against interventions imposed on the labour 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 potential interventions to reduce unemployment during recessions. These arguments focus on recurrent supply shocks that suddenly reduce aggregate demand for goods and services and thus reduce demand for workers. Keynesian models recommend government interventions designed to increase demand for workers; these can include financial stimuli, job creation, and expansionist monetary policies. Marxism focuses on the relations between the controlling owners and the subordinated proletariat whom the owners pit against one another in a constant struggle for jobs and higher wages. This struggle and the unemployment it produces benefit the system by reducing wage costs for the owners. For Marxists the causes of and solutions to unemployment require abolishing capitalism and shifting to socialism or communism.
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Measurement of Unemployment Unemployment rate The percentage of the labour force that is unemployed It is computed as: No. of unemployed workers X100% labour force OR Labour force - no. of employed workers X100% labour force Types of unemployment i) unemployment can be classified into 3 types : 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 the labour force to find appropriate job arises because it takes time for workers to be matched with suitable jobs during this time , workers engaged in a job search will be registered as unemployed 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 provided by government job centres, local and national newspaper . Structural Unemployment: arises from changes in the pattern of demand and supply in the economy 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 of production. Unemployment may result from labour-saving techniques of
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ii)

production or a whole new technology which requires workers with different skills. people cannot immediately take up jobs in other parts because there is mismatch 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 obsolete workers engaged in their production may become unemployed. iii) Cyclical Unemployment: arises because the economy is in recession and there is deficiency of demand e.g.: in the recession year 1982, the unemployment rate rose in 48 of the 50 states in U.S. Unemployment increases during recession and decreases during expansion. in any economy , actual rate of unemployment = natural rate of unemployment + cyclical rate of unemployment The natural rate of unemployment is defined as the rate of unemployment that prevails 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 structural unemployment In other words, natural rate of unemployment = frictional + structural unemployment.
Costs Of Unemployment i) Costs to the unemployed: Even though, people may have more time to pursue leisure activities, they may be constrained in so doing by a lack of income The unemployed also suffer a loss of status as a certain amount of social stigma is still attached to being unemployed. More likely to experience divorce, nervous breakdowns, bad health and are more likely 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 people are out of work, their skills can become rusty, and they miss out on training in new 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 unemployment benefit) 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 as to what the structure of this economy is? In 1947, Pakistan had 30 million people with per capita income of 100$. Agriculture accounted for almost 50% of economic output with hardly any manufacturing, as all industries were located in India. Therefore, it was unable to feed 30 million people and was dependent on PL-480 imports from the USA. From thereon, Pakistan has come a long way. Today with 170 million people, our per capita income in 2008 was 1000$ which was ten times more. Pakistan is the third largest exporter of rice in the world and producing enough food grains to feed its people. 3 million tons of rice is exported every year by Pakistan which 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 of being deficient in food production, we are actually surplus and that is what productivity means i.e. by using the same land you produce more from the same inputs, 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% of agriculture output in Pakistan. Pakistan also produces third largest quantity of milk in the world. So within agriculture sector, there is a change i.e. major crops are only 36% of agriculture value added and 14% are minor crops, fisheries, orchards, fruits and 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 which they 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 the share of agriculture in GDP. Manufacturing and industry now account for 25% of the income; when we recall there was not even a single industry worth its name at the time 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 Muslims in this part is very strong. But where we have failed is that we have not lived up to our potential. In 1969, Pakistan exports of manufactured goods were higher than the combined exports of Indonesia, Malaysia, Philippines and Thailand. In 1960s Korea emulated Pakistan in its five years planning process. The tragedy is that even a country such as Vietnam 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 we organize 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 the global economy. Ten more important challenges facing Pakistans economy are deliberated in the succeeding paragraphs. 2. Challenges to Pakistans Economy a. We Consume More and Save Less. Out of every hundred rupees of our national income, we consume 85 rupees and save only 15 rupees, which means that the amount of money which is available to invest for economic growth and advancement is too little. Because to grow by 6%, you need at least 24-25% investment rate - and if you want to rely on domestic savings, your saving rate should be 25%. Indias saving 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 serious difficulty because as a nation this is a problem which we have to recognize. We have to at least double on savings rate otherwise we will remain dependent on foreign sources. b. We Import More and Export Less. Till 2007-2008, 80% of our imports were financed by our export earnings. This ratio has come down to only 50%, it may go up to 60% but a gap of 40% of financing needs in order to keep with the import level still exists. As a nation we prefer to use even the basic commodities of foreign countries rather than locally manufactured goods. Unless we do not change this attitude 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 there are cycles, ups, and downs i.e. when things are good, one gets financing, and when things are bad one starves for financing. No nation which strives to preserve its honour must go through this particular route. The lower is this gap between our export 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 the difference between the revenues which are collected in a year and the total expenditure incurred by the Government. Pakistans government takes away 20% of national income as its own. 80% is left in the private sector and 20% in the hands of the government is spent on defence, debt servicing, development on education, health, general administration etc. The revenue generated is only 15% of the GDP at best, and in the worst days it is 12 to 13%. Out of the every rupee of income received by a Pakistani, on average, tax paid is only 9 paisas and 91 paisas remain with the individual. 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 bank of Pakistan. The financing provided by the State bank of Pakistan is dangerous because it creates high inflation in the economy, which is injurious to the middle class, those earning fixed wages and salaries, and the poor. Therefore, there is an uproar in the country if the inflation rate goes up. In 1999, our Debt to GDP ratio was 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 next six 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 Fiscal Responsibility 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 you expect 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 is 15% and still they have fiscal deficit. So Pakistan is way below the norm for developing countries. Many people say that defence takes away a lot of government expenditure. 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 as compared to debt servicing which is 7-8% of GDP and almost 40% of government expenditure. Therefore, government has to contain its fiscal deficit by raising revenues. 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 plunge the country into debt trap again. d. Our Share in the World Trade is Shrinking. In 1990, Pakistans share was 0.2% of the world trade. After 20 years it has come down to 0.12% in a very buoyant world economy. 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 world economy 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 and the Middle East. So this narrow export base and very limited geographical spread are not 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, the prospects do not look promising. That is why we are lagging behind other countries which 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, infant mortality, fertility rates, in access to water supply, in primary enrolment ratios has social indicators which are more comparable to Africa rather than to the countries of similar per capita income. Even Tajikistan, which is a very poor country, has better literacy rate and primary enrolment ratios than Pakistan. What does it means? It means that if we had literacy rate of 100% instead of 55%, then in 2009-2010 our per capita income would have been 2000$ rather than 1000$. Instead of 30 million middle 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 millennium development goals by 2015 i.e. we will be able to reach 80-85% literacy rate, but it is doubtful that this will happen. Why do we have regional inequalities? Why Baluchistan 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 energy and water shortages, and that is not because we are not generating enough electricity 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 are paying for those who are stealing the electricity. Government of Pakistan out of its own limited resources is paying 200 billion rupees every year as subsidies for electricity. Our industry is at a disadvantage that they get the orders from foreign countries 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 since Tarbela in 1974. We have water course losses of about 20-25%. Even after these losses, the water is inequitably distributed. The influential land lords are able to take 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 3 tons by large holders. If we provide the water equitably to the small farmer, he would also be able to increase the productivity from one to at least two tons resulting into additional income, increase in exports of food grains, cotton and fruits and vegetables which will add to export earnings of Pakistan. With the climate change 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 the rankings of the countries where cost of doing business is quite high. It is not high for any particular reason but because of our bureaucracy totally sitting on their seats without taking actions or decisions in time. Unless there is some pressure or incentive for them, the normal businesses particularly the small and medium businesses have serious problems at the hands of bureaucracy. Even if we have investors 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 not available, the water is not available, the gas is not available, electricity is not available, road is not available. Lack of coordination among various government agencies, 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 and evasion of taxes by competing firms in the informal sector have rendered some of the well established firms unprofitable, or the feasibility of starting near ventures questionable.
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h. Crisis of Governance and Implementation Weaknesses. If we glance on policy documents of various governments on education, agriculture, health, trade policy etc, and look at the same policy forty years ago and the problems, there is hardly any 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 the poor governance and implementation that are the weak links in getting things done. Unless we strengthen civil services and bring about a merit based system of recruitment, promotion, performance evaluation, compensation, disciplinary action, etc, we will not be able to see any difference in the quality of governance. Orders are 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 to take off at the speed which is required. j. Uncertainty and Unpredictability due to Lack of Continuity. Every government whether military or civilian starts with a clean slate, as if nothing happened before them 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, fix those weaknesses and carry them forward. It will take only few years to bring these inherited 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 several additional years to complete them. In the meanwhile the people of Pakistan suffer because of this lack of continuity. When faced with such unpredictability about the future, the investors are pondering whether they should invest in this country as they are uncertain whether the new government when comes in would stop or alter what the previous government was doing, or adhere to the commitments made to them. Take the example of Higher Education Commission, which was sending 1700 students for PhDs abroad but the new government comes in and suspends the funding of those programmes. This solved down the process of faculty development for our universities 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 that for 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 Malakand Division 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 law and order situation and insecurity, whereby investors from all over the world hesitate in coming to Pakistan and invest, we will not be able to make any progress in 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 which was a bond for Pakistan to be paid in 2037 and Pakistan got four times over subscription 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 fund managers. 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 a stable, secure and peaceful political environment.
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Economic Analysis (522) Methods or steps used by Government of Pakistan to control Inflation and Un-employment:
There are three Main ways by which inflation can be controlled. Adopt tight monetary policy undertaken by Central Bank (State Bank of Pakistan) that use some instruments to influence the economy by reducing money supply and higher interest rates.
i)
Contractionary fiscal policy that deals with reducing government expenditures and increasing tax.
ii)
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 not increase rapidly Producers will not be able to increase prices according to their own wishes 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 and consumers who store their goods unnecessarily because such storage could cause 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 to buy goods in certain quantities, for example, one family is only allowed to buy 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 direct control must be implemented simultaneously
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Policies to reduce unemployment depend on the type of unemployment i) Frictional Unemployment Focus primarily on improving the information flows between employers and job-seekers. Employment agencies need to be set up to pool and provide information on the type of job opportunities that are available on the kind of workers who are searching for employment. Another much more controversial remedy is for the government to reduce the level of unemployment benefit.
ii) Structural Unemployment Encouraging people to look more actively for jobs, if necessary in other parts 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 train those who otherwise lack the necessary skills to get the jobs
iii) Cyclical Unemployment adopt expansionary monetary policies by increasing money supply and reducing 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 the unemployment 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
Inflation rate (%)
SRPC
Figure X Unemployment rate It demonstrate that a higher inflation rate lowers the unemployment rate
(%)
The negative relationship between the inflation rate and unemployment rate is explained by the aggregate demand and aggregate supply model An unexpectedly large increase in aggregate demand raises the inflation rate and increases real GDP , which lowers the unemployment rate Hence, higher inflation is associated with lower unemployment shown by a movement along a short-run price curve (SRPC). Figure Y depicts the Phillips curve and the AD/AS curves
Inflation rate (%) Price level AS 4 P1 P0 2 AD0 UE % 4 5 Y0 Y1
5% 4% UE UE
AD1
Real GDP (Billions of RM)
Figure Y
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the long-run PC shows the relationship between inflation and unemployment when 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
Inflation rate
6 3
C A SRPC' (Pe=6%) SRPC (Pe=3%) UE rate
5 (Natural rate of UE)
Figure Z Suppose the economy is at point A in figure 4.5. At that point, the inflation rate is 3% and the unemployment rate is at the natural rate, 5%. Now suppose the growth rate of the money supply increases. The increase in the growth rate of money supply will stimulate aggregate demand. In the short run, the increase in AD will increase output and decrease unemployment, 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%.
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Because the increase in inflation was unanticipated, real wages fall. Firms are now 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 initially anticipated. Workers now vigorously negotiate for higher wages - this increases costs 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 Five Year Plan. It was stressed, in this regard, to promote the concept of Family Planning through a private organization. The Family Planning Association of Pakistan. At Government Level, Family planning activities were initiated in the Public sector in the second Five Year Plan (1960-1965). However a comprehensive Population Planning 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. The target 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 the population 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). However the programme as a whole did not prove to be very successful in its expected demographic 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 political commitment and need for mobilizing broader supports from all stakeholders in the public and private sectors. The policy aims at swift demographic transition. It focuses on addressing various aspects of population size with national laws and development priorities while keeping up national social and cultural norms
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GOVERNMENT ROLE TO THE NATURAL MINERALS SECTOR OF PAKISTAN: The Government of Pakistan took a serious notice of over the growth of the mineral in 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 develop minerals 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 Country to access its mineral potential through geologic mapping, geoscientific survey and applied research. Pakistan Mineral Development Corporation (PMDC): Paksitan Mineral Development Coopration (PMDC) is operating three coal mines at Degari, Sor Range & Sharigh in Baluchistan, two at Lakhra and Mating in Sindh and one at Makerwal in Punjab. Apart from these, three Salt Mines at Khewra, Warcha and 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 to produce annually 15, 810 tonnes of blister copper, 1,47 tonnes of contained gold and 2.76 tonnes of Silver. Lakhra Coal Development Company (LCDC): LCDC is a joint venture of Government of Pakistan, WAPDA and Government of Sindh to 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 started commercial 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 previous stones 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 far a number of development measures have been taken by the successive government of 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 need modification are being discussed as; Development of Irrigation water resources: During the last five decades more than 81 million hectares of land has been added to the 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 million Kms. 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 to 21.69 million hectares in 2004 2005. Consequently, out of total 79.61 million hectares the net sown area has increased from 13.07 million hectares to 16.07 in 2004 2005 Development of Agriculture finance resources: Agriculture finance is regarded as one of the most important inputs in the modern technology package to be used for development of agriculture sector. Regarding this very fact, a special institution Zari Taraqiati Bank Ltd. Formerly agriculture development bank of Pakistan (ADBP) has been established; National commercial banks 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 Plant Protection Department has been established which carries out aerial sprays with the help of a fleet of 22 aircrafts. For the control of cotton leaf curl virus disease, a number of research and development projects have been started
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GOVERNMENT MEASURES TO DEVELOP SMALL SCALE AND COTTAGE INDUSTRIES OF PAKISTAN: Importance of small scale and cottage industry in the economy of Pakistan needs no emphasis. 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 possible means to organize cottage industries in particular on scientific basis so that their growth may be stimulated. Government has so far taken various measures to promote the efficiency of small scale as well as cottage industries. Out of them some important measures are being mentioned in the following paragraphs: Institutional arrangement for credit facility: In order to provide finance at cheaper rate, the Government has established the small 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 to grant 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 the import of competing goods and removal or reduction of important duties on raw material 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 scale and 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 INDUSTRIES OF PAKISTAN: Importance of small scale and cottage industry in the economy of Pakistan needs no emphasis. 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 possible means 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 PAKISTAN On fiscal side, massive cuts were made in the various sectors expect law and enforcing 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? A lot has 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 negative oriented 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 supposed to do, carries out his or her task with sincerity and honesty, we are not going to go anywhere. We should not expect any Messiah to come and fix our problems we have to do it ourselves individually and collectively. There are no short cuts available. Media is muddying the water by their sensational stories and inviting so called experts who contribute in projecting negative thinking and negative national psyche. Unless we have a positive can do mentality, it will be difficult to progress. Unless each 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 more responsive and responsible. b. Building up of Human Capital. There is no substitute to building up human capital. 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 or goes for higher education. Unless we build up human capital, we are just going to be left behind because the world economy is going to be a knowledge based economy. It is 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 and use it in order to apply to problem solving. This is a new paradigm where human capital is as important as machinery and equipment. Pakistan lags behind other countries 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 people five 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 phones today. 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. Using technology particularly the information/communication technology for the betterment of social and economic problems of Pakistan is something which needs to be done but it cannot be done the way we have compartmentalized this into different ministries. A more holistic and comprehensive approach that deploys technology 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 young labour 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 old to young people is going to increase. India and Pakistan are two countries where the ratio 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, give them skills and knowledge, they can become the labour force for the rest of the world. This will give a big boost to Pakistans own economy. In 2001, worker remittances 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 force i.e. skilled labour force going for overseas employment. This is also a way to create employment opportunities because if you have large number of younger people coming to labour force and you dont have job opportunities for them you can have social upheaval. Therefore, it is imperative to create employment opportunities for them and one of the avenues is to train them in the kind of the skills which are needed 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 or Quetta. One has to devolve powers, decentralize and delegate authority, provide resources to the local/district governments so that they can take decisions at their own. Those decisions would be very much in accordance with the requirements and the needs of those communities. Sitting in Islamabad one cannot visualize what is needed in Chaghi or Loralai, but the people in Loralai and Chaghi know exactly whether they need water, fertilizers or fruit processing industry. Let us devolve powers to the people at the grassroots level and there would be much better allocation and utilization of resources. There must, however, be accountability of the local governments by the provincial governments and of provincial governments by the federal government but not interference or usurpation of powers. If we do that, then a lot more can happen with same amount of resources which are being wasted today, and the economic growth rate can be raised from 6-7 percent average to 89 percent annually.
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References:
A special tribute and thanks to the following professionals of Cera-e-Noor for cooperating in providing data and fruitful assistance.
Name
Eshan Ali Muhammad Usman Javed
Designation
Manager HR Manager Finance
Contacts
eali@cera-e-noor.com.pk javd.u@ogil.com.pk
o o o o o o o o o
http://en.wikipedia.org/wiki/Unemployment http://en.wikipedia.org/wiki/File:World_map_of_countries_by_rate_of_unemplo yment www.inventorymanagement.com/

http://www.unitedlog.com/Inventory%20control-086.aspx? gclid=CLTZl6K__KsCFU0a6wodkizTlg
http://www.bized.co.uk/educators/169/business/inventory/lesson/inventorystrat.htm http://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.html http://paktribune.com/news/SBP-for-effective-measures-to-control-inflation166825.html
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Mr. Tahir Mahmood House. No. 67, Cat II
M. Hammad Manzoor 508195394
Street No. 04, Sector I # 508, 5th Floor, 8/1 CTC ISLAMABAD. (0300 989 Continental Trade Centre, 2976) Block-08 08, KARACHI. (0321Clifton 584 2326) Economic Analysis 02 522
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Department of Business Administration

Economic Analysis (522)

Economic Analysis (522)

Economic Analysis (522)

Economic Analysis (522)

Economic Analysis (522) Introduction

Economic Analysis (522)

GDP PPP per Capita IMF 2008

What is Monetary Inflation?

Economic Analysis (522)

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

Economic Analysis (522)

Economic Analysis (522)

AS P2 P1 AD1 Q1 Q2 AD2 Outpu t

b) Cost Push Inflation: ( supply push inflation )

Economic Analysis (522)

Economic Analysis (522)

Economic Analysis (522)

Economic Analysis (522)

Unemployment? Unemployment (or joblessness), as defined by the International Labour

Economic Analysis (522)

Economic Analysis (522)

Economic Analysis (522)

Economic Analysis (522)

Economic Analysis (522)

Economic Analysis (522)

Economic Analysis (522)

Economic Analysis (522)

Economic Analysis (522)

Economic Analysis (522)

Economic Analysis (522)

Inflation rate (%)

Real GDP (Billions of RM)

Economic Analysis (522)

C A SRPC' (Pe=6%) SRPC (Pe=3%) UE rate

5 (Natural rate of UE)

Economic Analysis (522)

Economic Analysis (522)

Economic Analysis (522)

Economic Analysis (522)

Economic Analysis (522)

Economic Analysis (522)

Economic Analysis (522)

Economic Analysis (522)

http://en.wikipedia.org/wiki/Unemployment http://en.wikipedia.org/wiki/File:World_map_of_countries_by_rate_of_unemplo yment www.inventorymanagement.com/

http://www.bized.co.uk/educators/169/business/inventory/lesson/inventorystrat.htm http://www.netmba.com/marketing/pricing/ http://www.pakistantoday.com.pk/2011/05/controlling-inflation-2/

Economic Analysis (522)

Mr. Tahir Mahmood House. No. 67, Cat II

M. Hammad Manzoor 508195394

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