Playing the game with your skin in it
Shahid Sattar and Hira Tanveer
“Business Recorder”
October 24, 2018
Who should you let decide your future and wellbeing? Clearly not someone who does not share the stakes in the outcome. Nassim Nicholas Taleeb, a contemporary author who himself spent 2 decades as a risk taker before becoming a full-time essayist, illustrates this concept for success in his book “Skin in the Game”. What is Skin in the Game? “One cannot take risks and decisions that might bring benefit from harm to others without being subjected to them oneself”.
The logic behind this concept is that when decision makers have skin in the game, when they share in the costs and benefits of their decisions that might affect others, they are more likely to make prudent decisions than in cases where decision-makers can impose costs on others and escape any retribution. Whereas, Taleeb sees skin in the game as not just a useful policy concept but also a moral imperative. Further, the phrase is often mistaken for one-sided incentives: the promise of a bonus will make someone work harder for you. No, this says that people should also be penalized if something for which they are responsible goes wrong and hurts others: he or she who wants a share of the benefits needs to also share some of the risks.
Looking at the dynamics of decision making in Pakistan, one will spot clear disregard to our policy makers having stakes in the outcome of their decisions. On the macroeconomic level the Pakistani nation has multiple times seen that politicians load the system with debt and finance the economy with loans to “improve growth and GDP numbers”, and let the successor government deal with the delayed results of their skewed policies.
The current menace that our economy is going through can be easily attributed to a person seeking medical holidays in London, not ready to take any responsibility for taking historic loans, pegging dollar to Rs 100 to boost national ego, not increasing gas prices for last five years to keep their voters and themselves happy.
We now hear the new government venting about previous risks and the game that was played without any skin in it. This phenomenon can be seen moving on to the next level at bureaucracy. Bureaucrats are transferred between different departments and ministries in utter disregard to their professional experience or area of expertise leading to no accountability of their decision-making and without their career growth and promotion at stake.
Board of Directors of all important institutions like ex-Wapda power distribution companies Discos, Sui Northern Gas Pipelines Limited, Sui Southern Gas Company Limited, Pakistan Steel Mills and Pakistan International Airline, etc., are selected on the basis of kinship, PR and the more powerful pseudo-scholar that Taleeb calls IYI (Intellectuals Yet Idiots) you look. They are given lofty amounts for their meetings and they share no burden in the outcome of their decisions, the companies work on rate of return formula having no stake what so ever even if the institution goes bankrupt in the process.
However, the sense is that the captain who goes down with a ship no longer has a ship, reckless pilots end up in ocean beds and relentless risk traders if they trade with their own money are often seen becoming taxi drivers. Then why are these white collar scholars and fancy designated persons not
made liable for the risks they take and penalized for the harm they cause to the millions of population of the country? Back in 1754 BC in the code of Hammurabi, a well-preserved Babylonian code of law of ancient Mesopotamia. The ruler Hammurabi knew this simple logic of putting the skin in the game for people whose choices impact others. Code of Hammurabi had one law pertinent to discussion about the architects. If a house was built and it collapsed resulting in the death of the owner then the architect who designed the house also had to die. The law may sound harsh upfront but this made the architect careful in constructing the building, using the best possible material and building techniques to build the best possible house that would last for a long time. The builder literally has his own skin in the success & longevity of the building. The above mentioned law is a ray of hope for the future, still people and institutions can be made liable for their omissions and commissions of tasks. This can be done by decentralizing the system and not centralize it as we have been doing. Bureaucracy is a construction by which a person is conveniently separated from the consequences of his or her actions. The career path and promotion of the bureaucrats has to be reflective of the outcome of their decisions. In this age of specialization the concept of the generalist bureaucracies has to be changed, so that decision makers stay responsible for their actions and inactions. The principle of “Skin in the Game” is also reflected in the core Islamic Financing Ideology, i-e you get a return based on the profitability of the venture and share in the downside should the venture not succeed. Pakistan is in need of reforms that rewards and penalizes every cog in the wheel in accordance with the decisions and their outcomes.
(https://fp.brecorder.com/2018/10/20181024418237/)

Shahid Sattar and Hira Tanveer
“Business Recorder”
October 14, 2018
By 2023, Chinese province Xinjiang is about to become not only China’s largest cotton textile and apparel market but also that of Central Asia and Europe, just over four years from now. The Chinese government is investing heavily and providing vast subsidies to industries in the province of Xinjiang located right next to Pakistan. According to the ten-year plan designed to industrialize poverty struck Xinjiang, by 2023, China will build its largest cotton textile production and garment export processing base there. In order to achieve the above-mentioned objectives, China’s Xinjiang Uygur Autonomous Region has announced the following incentives for Industry especially textiles:
 Rent-free factories in industrial parks and Xinjiang’s less-developed southern area of Hotan, Aksu, Kashgar and Kizilsu Kirgiz prefectures.
 Interest-free loan deals to boost the local textile industry
 Creation of 110,000 jobs.
 Fund for textile and garment companies to help them increase exports.
 Cheap electricity at US 6 cents per Kwh.
 Transportation subsidies.
 Maximum tax rate of 15%.
The main driver of these initiatives is to build a complete cotton supply chain which is heavily subsidized. Some estimates indicate when all subsidies are added in total, the cost of cotton production is reduced to almost zero.
As a result of these incentives and subsidies provided by the Chinese government, by the end of current year 2018, it is estimated that there will be more than 15 million spindles dedicated to cotton in Xinjiang producing 9 million bales which is greater than production of Vietnam or Bangladesh. As of 2017, the number of textile companies registered in Xinjiang was more than 2,700. These companies have provided jobs to more than 350,000 local residents just in a short span of 4 years. The world’s largest textile mill for spinning colored yarn was launched 3 months back in northwest China’s Xinjiang Uygur Autonomous Region. Further, China has decided to improve its export tax rebate policy to reduce the business burden and bolster foreign trade. They have reduced seven tax brackets to five and have increased rebate rates. On top of that, tax refund procedures will also be simplified, with the year-end goal of shortening the average time needed from 13 workdays to 10.
Pakistan’s struggling textile industry is facing new threats of losing its market share to China, which is heavily investing in textile manufacturing facilities in its province bordering Pakistan. The anticipated glut of textile and garment from the Xinjiang textile park in the export as well as domestic markets of Pakistan poses a serious threat to Pakistan’s textile sector already struggling to remain afloat. Setting up of the textile park at Xinjiang will deal a heavy blow to Pakistani textile exports.
According to a study by Jerigan Global, even today China is the second largest supplier of home textiles with 25.22% market share, 1 out of every 4 cotton towels is from China. The matter of concern that requires our attention is that China’s penetration of the US home textiles market is at the expense
of India and Pakistan. Imports of cotton towels into the US from the top suppliers in India are down by 14.19% through July and down 8.47% from Pakistan, the third largest supplier.
China’s Xinjiang Uygur Autonomous Regions multiple incentives for industry especially textiles are in order to take full advantage of China-Pakistan Economic Corridor projects. This takes away the comparative advantage of Pakistan in textiles exports. The role of a well-coordinated Textile Policy cannot be under-estimated under this scenario. Refund and rebate claims of Pakistani exporters remain pending for years with FBR and State Bank squeezing liquidity of textile sector of Pakistan. Furthermore, the dumping of Chinese textile products in Pakistan through CPEC in near future along with fully advanced and modernized textile hub next to Pakistan’s border requires immediate policy steps and incentives similar to that of Chinese for local industry to invest in their production setups.
Pakistan’s home textiles and spinning sector has remained the backbone of our exports but now with huge production setups and investment like these just across the border in the aftermath of more connectivity through CPEC routes necessitates progressive policies and similar production capacity enhancement incentives to our own local spinning sector and textile value chain on the whole.
(https://epaper.brecorder.com/2018/10/14/14-page/744072-news.html)

Shahid Sattar and Asad Abbas
“Business Recorder”
October 11, 2018
The production and distribution of cotton plays a key role in the economy of Pakistan. It is not only an essential segment of economic strategy but has social dimensions as even the farmers’ schedules of social activities which are dependent on expected cash flows from value chain.
Cotton as the basic raw material for the Pakistan textile industry accounts for almost 70% of the basic cost of production in the textile industry and any movements in price or quantity have significant impacts.
Pakistan is the 3rd largest consumer and 4th largest producer of cotton crop in the world. For the last five years, the country is facing a huge cotton shortage close to 40 percent of demand. This year Pakistan has missed the cotton sowing targets, largely in Sindh, due to acute water shortage, leaf curl disease and climate change. The overall sowing area in Pakistan is 2.71 million hectares against the target of 2.95 million hectares which signposts an 8% decrease in yield. The production estimates showed an estimate of 10.82 million bales, indicating a shortfall of almost 4 to 5 million bales.
Over the last five years, decrease in production of cotton crop has caused almost Rs 1 trillion loss to the economy. In the past several years, the quantity and especially quality of the cotton declined drastically. In 2012, country had produced more than the targeted level – 14.8 million bales against the target of 14.1 million. Since then, cotton crop suffered from encroachment of land (sugarcane encroached best cotton growing area), viruses and water shortage issues. Currently, shortfall is expected around 25% majorly due to farm inputs, including poor quality seed, cotton leaf curl virus (CLCV), pest management issue, lack of plant resistant seeds, depleted technology, late sowing and severe shortage of water. According to reports, the occurrences of CLCV were told about 29.28 percent this year against 21 percent recorded last year which affected the yield.
On water paradox, Pakistan has the world’s fourth highest rate of water usage per unit of output as it is bigger threat than the terrorism in Pakistan. This decrease in our water resources over last year, was recorded at 2.3%, forecast for the current year is even worse. This issue has curtailed estimates of the production of cotton crop especially in Sindh where there is lack of reservoirsand a poor water management system.
There are 1300 ginning industries working in Pakistan. In the same way, the share of intermediaries (ginners) is also worsening the production as in New York the share of intermediaries is almost 12% and in Pakistan, it’s currently about 45%.
Environmental hazards and high cost of production challenge sustainability and farmer’s income in Pakistan. The average farm gate price of phutti is Rs 3700 per 40 kg and ginning cost is roughly Rs 700 per bale plus 7% wastage. Whereas the sale price of cotton is almost Rs 8300 per 40 kg. This difference in marketing and risk margin is kept by ginners. Ginning units have to go for better technology to eliminate inefficiencies and the material in the ginned cotton. This higher gap between the farm gate and the market price generates inefficiency and inadequate return to the farmers. Ginning quality in Pakistan leave much to be desired as Pakistani ginned bales contains up to 10% trash and are usually underweight and contains high levels of moisture, sand, dust, threads of nylon bags and leaves of cotton plant. These impurities make the cotton expensive for textile mills.
To increase yield and ginning quality efforts are being made to resolve the problem in Punjab, which accounts for almost 80 percent of the yield. Punjab may suffer from a decline of 19% in output despite increase in the area of production. Similarly, Sindh is going to suffer from almost 38 percent decline in the production. This deficiency will again create panic for entire value chain as government has already imposed duties on import of cotton. This duty will further increase the cost of raw cotton. This severe shortage and duties will adversely affect the export sector. The production shortfall will force the entire value chain to rely on imported cotton this year as well, to meet the shortfall and to get export-quality cotton.
Increase in cotton production is not possible without introducing new cotton seeds as Pakistan Central Cotton Committee (PCCC) has totally failed to launch new seeds qualities due to lack of research. Our average cotton yield is 17 maunds whereas progressive farmers are getting 40 maunds yield in Pakistan. Government needs to take measures on emergency basis in cotton research areas, i.e., variety besides high productivity and desirable fibre traits.
Promotion of cotton means promotion of exports while failure of cotton crop translates into heavy damage to country’s economy. It is said that one million bales of cotton has 0.5 percent impact on GDP. It would be difficult for textile industry to compete with textile giants like China, India, Bangladesh, Vietnam and Sri Lanka when we have to import a larger amount of expensive cotton to meet the shortfall of our cotton requirements.
PCCC is required to ensure availability of cotton to the industry at reasonable prices through-out the year and develop such varieties of cotton seeds that are resistant to diseases and enhance per acre cotton yield. The industry requirement is increasing with each passing year but indigenous production of cotton is further decreasing. Most importantly, the government is required to revisit its decision of duties on import of raw cotton immediately.
(https://fp.brecorder.com/2018/10/20181011414236/)