OVERVIEW: 'It's very important to attract university students towards entrepreneurship,' President, Islamabad Chamber of Commerce and Industry.

Construction activities in Pakistan, even during the boom periods, have not been at the level required by a growing, developing economy. Yet the property prices hit the roof even as the income levels grew nominally. Since you are involved in the construction business yourself, please tell us what is the scenario like for the industry?
Yassar Sakhi Butt: Construction industry has an impact on the whole economy, as it is allied with other key sectors like cement and steel. The boom of 2000s was due to the speculators, as genuine builders and buyers were few and far between. The prices grew manifold and, therefore, productive construction could not take off and liquidity got locked in unproductive real estate.
Currently, the steel mills are operating at below 50 percent of their capacity because construction activity has considerably slowed down. We are forecasting an uptick in the construction industry subject to the resolution of the energy crisis. Some local groups are bringing in investment from abroad and we are already seeing some results. The business community is expecting some incentives for the construction industry in the next budget. The incentives could be in the areas of taxes and duties, and export/import of key raw materials.
Delegations from Turkey, Brazil, Argentina and China have visited us and they are very much interested in the local construction industry. As far as housing is concerned, big local groups are busy developing their societies. The Emaar group was aggressive in the beginning, but they have been on a standstill for a while. Moreover, there is a lot of potential in the hotel industry in Pakistan, provided the law-and-order situation improves.
BRR: What is your take on the government's handling of the energy crisis?
YSB: The primary reason for this crisis to have overblown is that the government has been very inconsistent in its policies. This crisis is affecting the business landscape in multiple ways. I am seriously concerned about the situation in the CNG sector where investors and operators have invested billions of rupees and now the government appears to be giving up on the sector.
There are indications that the government wants to curtail or even close down the multi-billion rupee CNG sector owing to gas shortage, which we feel is 'artificial' as many new reserves have been identified. If the CNG business discontinues, the compressors, generators and dispensers would go to waste as any new establishments, such as a petrol or diesel stations, on the premises don't require this equipment.
BRR: But at this point in time, there is a clear gas shortage and hence, sector prioritisation with respect to economic impact must take effect until the demand-supply gap reduces to manageable level.
YSB: Middle-to-low income group people depend on CNG for their transportation needs. So, any prioritisation must take the price component into account. And, it's not like that the CNG sector is minting money. This business used to have a handsome rate of return, up to 70 percent, in earlier years. Now the returns have dropped to a maximum 16-17 percent.
The government's policies have been distorted. Initially, the industry was given unprecedented support and now there is a pushback. They had allowed only 55 CNG filling stations in the country when the CNG policy came, and today, there are over 3,000 CNG stations across Pakistan, within walking distance of each other. I believe that the CNG sector's fate will affect not just the businesses, but also the consumers. The government must compensate the sector and bring the price parity to a desirable level. The investors are stuck.
BRR: How are you taking up issues like these with the government?
YSB: The Islamabad Chamber has been producing policy papers towards major issues concerning the economy, businesses and trade. The government demands policy papers from us, but the policy that is actually implemented is coming from somewhere else. The government hasn't really been receptive to the stakeholders' views, and if they keep on ignoring the suggestions of chambers of commerce, I am afraid the economic situation cannot be turned around.
BRR: What are the major areas currently under focus at the Islamabad Chamber of Commerce?
YSB: The Chamber is active in many areas, as we represent the local business community and provide them a platform to discuss and raise their issues. We organise workshops and roundtables on various issues confronting the businesses and traders. We produce policy papers, too, to help the government define and refine its policymaking.
Major focus areas are the entrepreneurship and SMEs support. At the end of this month, the Chamber is going to organise the first-ever 'National Entrepreneurship Conference' in Islamabad, in collaboration with the US Embassy, USaid and CIPE. The conference's agenda is to promote entrepreneurship among the youth, and we are engaging international and local speakers and local universities for the conference.
Islamabad Chamber has a strong focus on youth issues. Lately, we have presented to the government a draft for 'National Youth Policy'. One of the key recommendations was to bring internships into the private sector. What we have realised is that it is very important to attract university students towards entrepreneurship. Ideas and platforms are there, but the critical element, and sometimes a constraint, is the access to finance. Through this conference, we will engage the private sector for handholding of the workable projects from students to foster entrepreneurship among the latter. We are working to establish a fund which has both public and private participation.
BRR: In your experience how has the tight interest rate regime affected the SMEs in last three or four years?
YSB: High interest rates have hurt businesses a lot. This is especially the case with SMEs whose business activities and financial viability have a relatively higher sensitivity with the changes in interest rates. With higher interest rates, they become uncompetitive not just within the country, but also with the outside world. Obviously, the SME's capital structure would differ across industries and sectors, but expensive debt component is harmful.
Although major chunk of the bank deposits is being used to finance government's budget deficit, I think that the credit is getting available, as we have seen an increase in private credit flows in recent months. However, SMEs are the least desirable for bankers to lend anything, as the SMEs aren't in a position to fend off the energy crisis like big corporate do. Some SMEs may have the best collaterals, but the lending rates, ranging from 14 to 16 percent, are highly unviable in a recessionary economy, mode. Pakistan's interest rates are one of the highest in the world, and we feel that they should be brought down to single digits.
Besides affordable credit, the SMEs' biggest issue is the availability of electricity and gas, and most of them are in a really tight corner.
BRR: There is a lot of buzz around enhancement of Indo-Pak bilateral trade and the reciprocation of MFN status to India. Are you upbeat about the prospects for local businesses and traders?
YSB: I have serious doubts on these notions and claims that Pakistani business would be better off by opening up to India. The domestic economy is crippled due to structural and governance issues and the resolution of the energy crisis is nowhere in sight. The official figures of the Indo-Pak bilateral trade make it crystal clear that it is India that is the net beneficiary of trading with Pakistan, and not us.
Moreover, India's is not an open economy like ours, and their non-tariff barriers will keep holding Pakistani exporters back. Indian manufacturers produce goods for population of over a billion people, but the Pakistani manufacturers do not have such scale. India has big, global brands, which our local brands will not be able to compete with.
It is the government's prerogative to open up the economy, but the policy has to be such that 1) it takes all the stakeholders on board, 2) outlines which sectors are good enough to compete, and 3) provides incentives to incubating sectors. We need to first set our own house in order, make the industries viable, and then open up.