International News What there is to learn from the Soviet economic model Pakistan s government is fixing a power shortage

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1 DSEX 6, Gold (Ounce) $1, Dollar (Buy) 82.95(Sell) REPO Rate(09/11/2017) 3.55% CSCX 11, Oil(Barrel) $56.83 Euro (Buy) 98.85(Sell) REPO Rate (08/11/2017) 4.13% Source: DSE and CSE Source: Yahoo Finance Source: One Bank Limited Source: Bangladesh Bank (W AV) National News Banks lack remedial strategy while NPL rises worryingly BMBA urges Muhith to exempt investments by MF sponsors Western Marine to spend Tk 500cr on expansion Farmers Bank continues to worry BB Exports to EU states but Germany post encouraging growth International News What there is to learn from the Soviet economic model Pakistan s government is fixing a power shortage National News Banks lack remedial strategy while NPL rises worryingly Some of Bangladesh's banks don't have 'in-depth' look into the problem of spiraling non-performing loans (NPL) while many others try to frame remedial strategies perfunctorily. Such observations came out from studies on banking as well as financial sector at large as the NPL surge worries many quarters. One finding shows that around 11 per cent of the country's banks did not have an 'in-depth' look into the issue of NPLs in the past year, despite a growing concern over the problem in the financial arena. The recent industry-wide survey also revealed that around 3.0 per cent of the country's banks had not assessed their past NPL-reduction strategies at all while 36 per cent did so only on an ad-hoc basis. The findings came out from the survey of the Chief Risk Officers at the banks on issues concerning NPL strategy in their institutions. Leading banking research and training institution Bangladesh Institute of Bank Management (BIBM) conducted the study. The research findings come at a time when the ballooning NPLs is becoming a major issue with the country's banking industry and also triggering concerns and criticisms. As per the central bank data, the volume of NPLs had increased by more than 21 per cent to Tk billion by the end of 2016, swelling from Tk billion a year before. "The findings are genuinely surprising as we are struggling to find a bank for which NPL is not an issue in some capacity," said Sazib Azad, Senior Advisor of BIBM, who led the research initiative. "Furthermore, if the bank itself is immune to the impact of NPL, even then they need to consider whether they are immune from structural or market-level impacts as well," he told the FE. However, relevant survey results show the potential lack of such considerations as only 1.0 per cent of bank CROs taking part in the survey said that their banks are addressing potential dependence on "market assessment and strategy".

2 What is more surprising is that the NPL strategies of around 62 per cent of the banks are not signed off by the boards, the survey found. "This is quite striking because given the severity of the non-performing-loan issue, the NPL strategy should be signed off by the boards," Mr Azad said, adding: "Boards are not only accountable for the health of the banks but are also in position to release resources to get to grips with the issue." In addition, the survey result also revealed 31 per cent of the banks not communicating their NPL strategy across the bank. "NPL, as an issue, needs to be addressed from ground up. But the results show that this is not happening at our banks," said an expert who was involved with research. Meanwhile, 25 per cent of the CROs said they were not tracking the implementation and effectiveness of NPL strategy in their banks- something which, according to experts, is a 'cause of concern'. "Given how critical an issue NPL exposure is, we would expect every CRO to track how the NPL strategy is being implemented, its effectiveness and how to improve matters to the Board Risk Committee and the Board," the banking experts said. Meanwhile, the survey results also found that although 94 per cent of the banks had stress-tested their balance sheet in terms of NPL drag, this figure drops to 56 per cent while considering the impact to and from the wider economy, market and structural aspects. It seems that 33 per cent of the banks do not formally consider this aspect, with a further 11 per cent not looking at this dimension at all, the researchers said. Experts also noted that with Basel 3 farther putting capital under pressure, sensible banks should dynamically model the impact of key risks to their capital. However, the survey results show 17 per cent of the banks are not doing so while 31 per cent doing it in a limited manner. Asked whether their banks' risk-appetite-statement metrics reflected their NPL strategy, 36 per cent of the respondents said they do so in a limited capacity while a further 8.0 per cent are not doing that at all. It was also found that 25 per cent of the C-Suites have specific NPL-strategy-related targets while 31 per cent of the CROs have the same. Meanwhile, when asked whether they consider their NPL strategy to be embedded, just over half of them or 52 per cent of the survey participants said 'Yes'. This, according to experts, is clearly not fit for purpose given the severity of the NPL issue facing the banking sector. "The first step in looking into the NPL issue is to assess internal capabilities to effectively manage NPLs. Next, external conditions or operating environment needs to be considered. Finally, the capital implications of the NPL strategy need to be analyzed," said Sajib Azad. The findings of the survey will be shared with the stakeholders during the next CRO forum of BIBM expected to take place next month where the issue of 'Risk Culture' will also figure high. "The biggest reason for the swelling of NPL in our banking sector is a lack of good governance. To check the ballooning of NPL, the internal governance of the banks has to be strengthened above all," Director- General of BIBM Toufic Ahmad Choudhury said. Meanwhile, the survey also found banks tending to consider time-horizon, portfolio/ segment and exposure-level-based targets to be broadly equally important to their NPL strategy. In terms of options preferred for reducing NPL, banks consider "change of exposure type" to be most effective (36 per cent), followed by active portfolio reductions (33 per cent) and hold/ forbearance (31 pe rcent). Source: BMBA urges Muhith to exempt investments by MF sponsors

3 Bangladesh Merchant Bankers Association (BMBA) has urged the finance minister to exclude some components, including sponsors' investments in mutual funds (MFs), from the banks' exposure to the capital market. It made the request for ensuring an environment conducive to gradual development of the capital market, according to a proposal submitted to Finance Minister AMA Muhith last week. The BMBA said the 'long-term or strategic' investments needed to be excluded while calculating the exposure as these investments were not intended for frequent trading. "Non-convertible preference shares and non-listed securities also need to be excluded from the capital market exposure as it will never influence the capital market volatility," it said in a letter to the minister. According to the letter, the MFs are passive investments where investors themselves are not involved in investment decision making and such fund portfolios are mostly of long-term nature than frequent trading. On the other hand, the sponsors of the MFs need to hold 10 per cent of the investment until liquidation of the fund. "So, considering the fact, the sponsors' portions in MFs need to be excluded from the banks' capital exposure," said the BMBA proposal. As per the Banking Act 1991, it said, reporting requirement is on solo basis, but the central bank has introduced consolidated calculation, which is of dual effect/double counting in the market exposure. "This kind of restrictive measure creates panic situation in the market and may hinder the potentials and prospects of the capital market as a whole," the BMBA said. It also said that this kind of practice needed to be stopped as such requirements and reporting practice would further squeeze the market and that the investors would lose their interest. The BMBA said some organisations have invested on strategic purpose and were holding positions in the board and their exposure increased with rising the market price of MF units. "On the other hand, in compliance with the securities rules, they are unable to sell shares to reduce exposure," the BMBA said, terming the situation complicated. In its letter, the BMBA said that the capital market exposure of some banks and financial institutions increased without fresh investments following the upward trend of the market price as the exposure is calculated on the basis of market price. "If the banks need to go for selling off their excess exposure, this will create unnecessary selling pressure on the market," said the BMBA. The association requested the finance minister to consider their proposal to facilitate the growth of the capital market by its own strength and prospect. Source: Western Marine to spend Tk 500cr on expansion Western Marine Shipyard, the leading shipbuilder of Bangladesh, has decided to invest Tk 500 crore in expansion.

4 The board of directors of the company approved the shipbuilder's expansion plan to build special types of vessels, according to a disclosure posted on the Dhaka Stock Exchange website yesterday. Md Sakhawat Hossain, managing director of the shipbuilder, told The Daily Star that the company would issue rights shares to raise a portion of the funds to be invested. The remaining funds will come from the company's own sources and new loans from banks and financial institutions, he said. We prefer the stockmarket to raise funds as the shipbuilding industry requires long-term investment, he said. This will allow the company to generate an additional revenue of Tk 150 crore per annum, enabling it to make 11 percent additional profit, according to the disclosure. Western Marine is now making 38 ships for four countries, according to the company. It exported 14 vessels to three countries in the last one year. Bangladesh's shipbuilders exported 43 vessels in the last eight years, of which 33 were from Western Marine. Western Marine owes about Tk 700 crore to various banks, according to its company profile. It rescheduled its default loans with two banks earlier this year and started to repay instalment regularly as the shipbuilding industry overcame the global recession in the last four years, said Hossain. The board also decided to offer 1.25 rights shares for 1 existing share at Tk 20 each, including Tk 10 premium for the expansion of the shipyard's capacity, according to the post. Hossain said the importance of water transport in the local market is growing to carry raw materials needed to set up infrastructure projects such as power plants and bridges. As a result, the income of the shipbuilding industry will get a boost soon, he hoped. Western Marine raked in Tk crore in revenues in the first nine months of fiscal year , up 2 percent from Tk crore recorded in the same period a year ago, according to the company's statement. Yesterday, the board recommended 3 percent cash and 12 percent stock dividend for the year ended on June 30, The share of the company improved to 'A' category status from 'Z' category on November 1 after it disbursed 10 percent stock dividend for and 12 percent for The company had taken a stay order from the High Court in 2015 over dividend declaration as it could not complete its financial statement, according to Hossain. The crisis arose after the company's export orders to Germany were cancelled in 2013 because of the fallout of the global recession, he said. The company held two years' annual general meetings in one session in October this year with permission from the High Court after finalising the financial statement. Earnings per share of the company increased to Tk 2.14 at the end of June this year against Tk 2.01 in the same month last year. The company topped the turnover list yesterday with its shares worth Tk crore changing hands. It, however, lost Tk 2.4 or 5.85 percent to close at Tk Source: Farmers Bank continues to worry BB

5 Bangladesh Bank has asked Farmers Bank to explain why it continues to disburse fresh loans despite having a bar on lending since January. Earlier in January, the central bank slapped some restrictions on fresh loan disbursement and opening of new branches, with a view to protecting depositors' money given the precarious financial health of the newly established bank. But the bank has frequently breached the central bank's restrictions and disbursed fresh loans, said a senior BB official. So much that the bank's credit-deposit ratio stood at percent in June -- higher than the limit of 85 percent set by the central bank. Subsequently on Thursday, the central bank issued a show-cause letter to the bank's Managing Director AKM Shameem about the fresh loan disbursement and asked him to respond within seven days. AKM Shameem, managing director of Farmers Bank, acknowledged the receipt of the letter from the BB. He said the central bank wanted to know why the bank suffers from liquidity crisis. The BB also sought to know why we are disbursing fresh loans despite facing liquidity crisis, Shameem added. Established in the second half of 2013, the bank's financial health started deteriorating not long after, and in January last year the central bank appointed an observer in Farmers' board with the view to bringing in loan discipline and improving risk management and internal control. Between September and November in 2015, the BB conducted special inspections at Farmers Bank's three branches and found gross violation of banking rules in disbursing loans of about Tk 400 crore. In a meeting held on October 29, the parliamentary standing committee on the finance ministry voiced deep concern over the deteriorating condition of Farmers Bank and NRB Commercial Bank, another fourth-generation bank. The BB provided the committee with reports on the two banks. At Farmers, 13 counts of irregularities were found, which include disbursement of loans to non-existent companies. The bank also gave loans to its own directors as well as those of other banks, violating the credit discipline. Farmers Bank does not have the capacity to pay back the depositors' money and refund the credit taken from other banks, the BB said in the report. The bank has been facing an acute liquidity crunch over the last one year. It is now surviving through mobilisation of funds from general people and other banks, offering interest rates higher than the market rate, the report said. The bank has failed to maintain the cash reserve ratio with the central bank between October last year and September this year and has subsequently been penalised with Tk crore. For a few days between January and June, the bank also could not maintain the statutory liquidity ratio with the BB due to its liquidity crisis. A bank has to keep 19 percent of its depositors' money in the form of SLR and CRR with the BB to protect the depositors' interest. Besides, the bank disbursed loans to defaulting clients against forged Credit Information Bureau reports and took the burden of a number of bad loans from other banks, flouting banking rules. Awami League lawmaker Muhiuddin Khan Alamgir, also a former home minister, is the chairman of the Farmers Bank board. He is also the chairman of the parliamentary standing committee on public accounts. As of June, Farmers' non-performing loans amounted to Tk crore, which is 6.35 percent of its total disbursed loans. This is much higher than many older private banks. Source: Exports to EU states but Germany post encouraging growth

6 Bangladesh s export earnings from European countries except Germany registered a significant growth in the July-October period of this financial year , riding on an excellent performance of readymade garment products. According to the Export Promotion Bureau data, exports to major European countries registered double digit growth in the four months of FY18 while the RMG export to Germany fell in the period compared with that in the same period of last fiscal year. The EPB data showed that Bangladesh suffered a negative export growth in two promising markets Japan and China in the July-October period of FY18. Exporters said that earnings growth in the EU markets increased in recent months as the euro appreciated against the dollar. They also said that buyers and brands cut import orders from Bangladesh for their Chinese stores that caused the negative growth. Export earnings from the UK, the second largest export destination for Bangladesh in the EU, grew by per cent to $1.34 billion in the four months of FY18 from $1.11 billion in the same period of FY17. Earnings from apparel products fetched $1.25 billion with per cent growth in the period. Export earnings from Spain in July-October in FY18 grew by per cent to $ million from $ million in the same period of FY17. Export earnings from the Netherlands rose by per cent to $ million in the four months of FY18. Bangladesh earned $ million from France with 2.70 per cent growth and $ million from Italy with per cent growth. Exports to Germany, the second largest export destination for Bangladesh, in the July-October period of FY18 stood at $1.86 billion, the same amount earned in the July-October period of FY17. Anwar-ul-Alam Chowdhury Parvez, former president of the Bangladesh Garment Manufacturers and Exporters Association, said exports depend on season and the earnings from Germany would increase

7 from November. RMG export earnings fell by 0.39 per cent to $1.73 billion from $1.74 billion in the market, data showed. We have to wait to identify the reasons for the stagnancy of growth in the German market. Hopefully the export would rebound in the market in the coming months, Md Fazlul Haqe, former president of the Bangladesh Knitwear Manufacturers and Exporters Association, told New Age on Saturday. Export earnings from the US, the largest destination for Bangladesh s exports, in the July-October period of FY18 grew by 2.28 per cent to $1.87 billion from $1.83 billion in the same period of FY17. Apparel export to the market grew by 2.44 per cent to $1.68 billion from $1.64 billion. The EPB data showed that the country s export earnings from Japan in the July-October period of FY18 fell by 3.94 per cent to $ million from $ million in the same period of FY17. Export earnings from China in the four months of the FY18 decreased by per cent to $ million from $ million in the corresponding period of last fiscal year. Parvez said that the domestic consumption in China slightly decreased in recent times and global retailers also cut import orders from Bangladesh for their Chinese stores due to congestions in the Chittagong port. We are losing many orders from global brands as we have been failing to meet lead time due to the problem in the port, he said. প শ কশশল প র শ রশ কল প র ক ষত ব ড় ল প শ ব ই চ য় ড ঙ গ র স ম ব গ ক জ করছ ন গ জ প ছরর -কন মনটওয়য র ম ম ছটছড (ফ য ক টমর-২) র ত ছন ব ম ন অপ ছরটর ম ছসছ র র ব র ন ছয়ছ স ছ ৬ জ র ট ক র ছ এই ব র ন প ওয় র আছগ ক রখ ন র ব র ছরই স ম ছক প রম ক ষছ অ মনছর য় মর ন স সক আটট ব ছক ম ছক চ রট পর তন ত চছ প রম ক ষ প রম ক ষছ র আছগ স ম র ক ছজর বক ছন অম জ ঞর ন কছ ও প রম ক ষছ র স য় ব র ন বপছয়ছ ন ৫ জ র ৩০০ ট ক এক ছরর একট ব ম স য় ধছর ক জ করছ ন স ম স ম স অনয শ রম কছ র সছঙ গ ক ছ জ ন বগ, মর ন স প রম ক ষ ব ষ ছ ও শ রম কছ র নজর মরর আওর য় র খ য় ক ষর ব খ ছর প রছ ব ম ন অপ ছরটর ম ছসছ শ রম কছ র ব র ন ব ছ ৭ জ র ২০০ ট ক পর তন ত ছর প ছর প রশ ন আসছর প ছর, স ম ছক প রম ক ষ ম ছয় ক রখ ন র ট ক ছ? এই প রছশ নর উত তর ম ছ ন ব ছর মনট অয ন ড ড ই ম স ম ম ছটছডর অধ ছন পমরচ ম র এই ক রখ ন র য সৎ পন র সছঙ গ জম র প রমর মনমধর ব ছর র য সৎ পক (অয ডম ন, এইচআর ও ক প ল ছয়ন স) আমর ক ইস ছ ন, শ ধ স ম নন, প রম ক ষছ অ বনওয় শ রম কছ র ম ছয় এই মর ন স ক রখ ন র বক ছন ছ ন ক রখ ন র ব র ছর প রম ক ষ ছকন দ র পমরচ ন র খরচ, ক রখ ন য় প রম ক ষছ র জনয জ য়গ ট ক ও ব ছ ম ছর ছ প রম ক ষ প ওয় র পর অছনছকই অনয ক রখ ন য় চছ র ছ ন মকন ত বর অ যই আছ একজন ক ষ শ রম ছকর ক ব ছক বর ক জ প ওয় র য়, র অ ক ষ শ রম ছকর ক ব ছক প ওয় র ক মচন ত ই কর র য় ন শ রম ক অনয ক রখ ন য় চছ বগছ ও ছ এই ম ছ রই গর ২ নছ ম বর গ জ প ছরর স ন য় অ মসৎর -কন মনটওয়য ছর মগছয় স ম র সছঙ গ ক য় র র কছ আত মম শ ব স এই বপ য় আস র ফ ছ আম এখন স ব ধ ন স ব র ক ছ বক ছন মক র জনয আর র প র ছর য় ন স স রট আর একট গ ম ছয় সন ত ন বনছ ন ছ ও জ ন ছ ন -কছনর প রম ক ষ ছকছন দ র প রম ক ষ মনছর আস ক ম ল ল র ইয় সম ন জ ন ছ ন, মর মন ক রখ ন র বগছট এছসম ছ ন ক ছজর জনয র রপর প রম ক ষছ র স ছর গ প ন ব র ন প ছ ন ৫ জ র ৩০০ ট ক -কছনর ক তকর ত র জ ন ন, এ পর তন ত ১০ য ছচ -কছনর ৪২৯ জন শ রম ক ক ষর ম র প রম ক ষ মনছয়ছ ন প রম ক ষ ব ছষ -কছন মর ব র ছন ক জ করছ ন ৩২৮ জন -কনস ব ছ র বপ কম ছ র ১০ট ক রখ ন র র ক ছ র জনয ক রখ ন র ব র ছর প রম ক ষ ছকন দ র পমরচ ন করছ প রম ক ষ খ ছর ক রখ ন র মনজস ব ম মনছয় ছগর প প ম বসন ট র অ এম ছ ন স ফ র ছ অয প ছর ইন ড ম (মস ই) ক ছ র প রম ক ষছ প রম ক ষকছ র প রম ক ষ ম ছয় স য়র করছ ২০১৪ স ছ মস ই ইনম টউট ম ছসছ প রমর ম র য়, র র উছব ধন কছরন প রধ ন ন ত র ব খ মসন আন তজত মর ক শ র স সৎ (আইএ ও), স ইমড সরক র এ আন তজত মর ক বপ ক ম প নক র প রমর ন ব নছনস অয ন ড ওমরৎছসর (এইচঅয ন ডএ ) স ছর মগর য় ছ গ ছ তন টস য ন ফ য কচ র সত অয ন ড এ ছপ টত সত অয ছস মসছয় ছনর (ম মজএ ইএ) ধযছ পমরচ ম র ছ এই ইনম টউট র ছ চ মর ছসই মস ইছয়র ক র তক রছ র ব য় ব ষ ওয় র ক মস ইছয়র একট ক র তক র ছ এন ট রপ র ইজ ব ইজড বরমন ইম ট ক র তক র টর আওর য় ক রখ ন র ব র ছর প রম ক ষ পমরচ ন কর ছ ইম ট বসন ট রগ ছ সরক ছরর ক মরগমর ম ক ষ ব ছডত র অধ ছন মন ম র প রম ক ষ প রমর ন এ এগ ছ ছর জ র য় ম ক ষ র ন ণ ড অন র য় প রম ক ষ পমরচ ন কর ছ গর ২ নছ ম বর আইএ ও কছয়কজন গ ধয ক ছক গ জ প র ও স ছরর আশ ম য় য় মস ইছয়র ক র ত য় পমর তন কর র স ছর গ কছর ব য় মস ইছয়র ক র ত ছয় মগছয় ব খ র য়, এখ ছনও বপ কম ছ ক জ কর র জনয শ রম কছ র প রম ক ষ ব ওয় ছ এখ ন ব ছক প রম ক ষ প ওয় শ রম ছকর ক রখ ন য় মগছয় সর সমর ব ম ন অপ ছরটর ম ছসছ ক ছজ বর গ ব ছ ন এই ক ছ র ব প র ম ছসছ আর ক জ শ র করছর ছ ন এই ইনম টউট বপ ক ক রখ ন র উন নয়ন ও ক ছজর গ গর ন ম র জনয জ র য় ক ষর ন মর ২০১১-এর আওর য় স ব ক র প রম ক ষছ র য সৎ করছ, র ছর শ রম কছ র ক তস সৎ ছনর স ছর গ ও জ মর ম প য় প রম ক ষ স অনয নয ক র তক র স য়ছন নয ন বটকমনকয অয ন ড ছক ন বক য় ম মফ ছক ন ব ওয় কত (এনটম মকউএফ ) কছ র ছ অন সর কর য় প রম ক ষছ র পর য য়ন পছ ত প স কর র পর এই ক র ছর প ন ক ষর র সরক মর সন, র ম ছয় র র ব ছ ও ব ছ র ইছর মগছয় ক জ কর র স ছর গ প ন

8 জ ন বগছ, এখন পর তন ত মস ইছয়র অধ ছন (১০ট ক রখ ন র শ রম ক) প রম ক ষ ব ষ কছর প র য় ৫ জ র ৭৬৩ জন শ রম ক ম ম ন ন বপ ক ক রখ ন য় ম ম ন ন পছ ক জ করছ ন স প র ইজ র পর ত ছয়র ৬৩ জন ক তকর ত ও এই প রম ক ষ মনছয়ছ ন মস ইছয়র মসইও ম ছগমডয় র বজন ছর (অ সরপ র প ত) আফ র উদ দ ন আ ছ ন, র ত ছন ছ ছ বপ কম ক রখ ন য় ক ষ শ রম ছকর অ আছ মস ই ক গছজ-ক ছ ২০১৪ স ছ প রমর ম র ছ ও প ছর প মর ক র তক র শ র য় গর ছরর জ ই ছস এ ইনম টউট প রম ক ষছ র একট ন ণ ড তর মর কর র বচষ ট করছ মস ইছয়র আওর য় ঢ ক ম শ বম য য়ম মত তক একট গছ ষ ও উন নয়ন খ রছয়ছ অন ত ত ম ক য স বক, ক রখ ন সৎ ন ন তছরর বক, তর মর বপ ক খ ছর ক ষ দ র ও ঝ মর ম ছ র উন নয়ন, ন র র ক ষ র য়ন, ক তছক ষছ র উন নয়ন, উৎপ ন র ম স মক ম ষয় গছ ষ র জনয মচম র কর ছ ও গছ ষ ক র তক র বস ছ শ র য়মন ছ জ ন ন আফ র উদ দ ন আ ম ম ন ন ক রখ ন য় ক তরর শ রম কছ রও মস ই ক র ত ছয় প রম ক ষছ র জনয প ছন ছ অপ ছরটর ম ছসছ ক তরর ম ন ব ছসন জ ন ছ ন, ক রখ ন ব ছকই র ছক এখ ছন প ছন ছয়ছ, র ছ ব র ন ব ছক ক রখ ন ৫ জ র ট ক বকছট র খছ Source: International News What there is to learn from the Soviet economic model IN 1955 Jawaharlal Nehru, the prime minister of India, embarked on a 16-day tour of the Soviet Union. He was like a kid in a candy store, according to one editor of his letters. Besides the Bolshoi ballet and the embalmed corpse of Stalin, he visited a Stalingrad tractor works, a machinery-maker in Yekaterinburg and an iron-and-steel plant in Magnitogorsk. In a letter, he wondered if the Soviet Union s economic approach, shorn of violence and coercion, could help the world achieve peace and prosperity. The answer, of course, was no. But Nehru concluded otherwise, incorporating Soviet ideas into India s five-year plans and welcoming Soviet aid, equipment and expertise. In the year of his visit, the Russians set up a steel factory in what is now the Indian state of Chhattisgarh. It became India s main supplier of rails. Nehru was not alone. The Soviet model impressed many leaders in the poorer parts of the world. Even today, according to Charles Robertson of Renaissance Capital, an investment bank, more than a few suggest that a Stalin might be needed to kick-start industrialisation in poor countries. The Soviet approach rested on a variety of arguments, notes Robert Allen of Oxford University, such as the need for a big push in industry, the abundance of rural labour and the superiority of collective farming. The Soviets believed that industrialisation would succeed en masse or not at all. Those steel plants, tractor factories and machinery-makers needed to operate on a big enough scale to justify the heavy upfront cost of building them. And the success of any one industrial venture depended on complementary investments in others. Upstream suppliers need downstream buyers and vice versa. Yevgeni Preobrazhensky, a Bolshevik economist, argued that a broad advance was needed across the whole industrial front, not an unco-ordinated advance by the method of capitalist guerrilla warfare. The workers for this industrial advance could be found in abundance on the farms, the Soviets believed. Agriculture was so overmanned it could lose millions of field-hands without much damage to the harvest. That was just as well, because the remaining peasantry would have to feed the factory workers as well as themselves. One way or another, resources would have to be transferred from the countryside to the cities. By organising the peasantry into collective farms, the Soviets hoped to make them more productive and easier to tax. A collective farm was, they believed, easier to collect from. The Soviet approach succeeded in industrialising the economy. Between 1928 and 1940 its manufacturing output grew by over 170% (see left-hand chart), even as the rest of the world wallowed in the Depression. By the second world war, it was well on its way to becoming the industrial candy-store so admired by Nehru. This brute industrial expansion did not, however, validate the theories underlying the Soviet approach. To increase manufacturing output by 170%, the Bolsheviks had to increase inputs by even greater percentages: the non-agricultural workforce had to grow by almost 190% and the amount of

9 capital in that sector by a phenomenal 336%, according to figures reported by Anton Cheremukhin of the Federal Reserve Bank of Dallas and co-authors. The Soviets, in other words, could move resources into the factories, but they could not maintain the efficiency with which they were used. More importantly, the peasantry did not surrender surplus workers and grain without immense economic damage, bitter resistance and widespread suffering. Stalin expropriated, expelled or exterminated many of the most prosperous and sophisticated farmers (the kulaks ), requisitioned grain at low prices and tried to nationalise draught-animals. In response, aggrieved farmers simply slaughtered their horses and oxen or stopped feeding them. These efforts to extract resources from agriculture by force were a disastrous blunder as well as a crime. At its worst, agricultural output declined by over a quarter compared with 1928, leaving the planners with less to redistribute to the urban workforce. Could this violence and coercion be shorn from the Soviet approach as Nehru hoped? Mr Allen believes so: The collectivisation of agriculture was not necessary for rapid growth, he argues. Even Stalin eventually had to relent, requisitioning less grain, legalising private agricultural markets and permitting individual ownership of small plots of land. Indeed, some economists believe that the broad outlines of the Soviet approach, minus the atrocities and the autarky, bear some resemblance to East Asia s economic model. Paul Krugman, an American economist, made that comparison in 1994, arguing that the growth of the Asian tigers resulted from rapid accumulation of various kinds of capital, and not from the more efficient use of these resources. More recently, he has also argued that China s high investment can be sustained only by the flow of surplus workers from overmanned farms. Now that China is running out of peasants, he warns, investment may collapse. Mr Cheremukhin and his co-authors are more optimistic. Examining both China and the Soviet Union within the same analytical framework, they find notable differences. Most of China s growth from 1978 to 2012 was because of increases in non-agricultural productivity, they find. And the migration of labour from field to factory was less important than the migration of resources from state-owned enterprises to private firms. China may have exhausted its surplus peasantry, but the scope for reforming and retrenching its stateowned enterprises remains vast. The same is true of India. The Chhattisgarh steel plant set up with Russian help in 1955 is, for example, still going part of India s giant, publicly owned Steel Authority of India. But it is not a great advertisement for the Soviet approach. It has failed to meet Indian Railways requirement for new track. And its parent has lost money for nine quarters in a row. Source: Pakistan s government is fixing a power shortage Hoving into view behind a row of eucalyptus trees, the twin cooling towers of the Sahiwal power plant, a 1,320-megawatt facility in central Pakistan, are so large they seem other-worldly. Yet it is not only size that makes an impression. Labourers built the entire plant in a record 22 months, a year faster than is typical. Even at home we don t work this hard, says the chief engineer of the Chinese power company that operates Sahiwal, describing how floodlights were hung from cranes so construction could continue through the night. Pakistan s government is hungry for power. Last month the chief minister of Punjab, Shahbaz Sharif, announced that his party, the Pakistan Muslim League-Nawaz (PML-N), which also runs the national government, will shortly fulfil its campaign promise to end blackouts. Fridges and fans still cut out without warning, but far less often, and for less time: in August the gap between supply and peak demand fell to about 12% of output according to Arif Habib, a research firm, the lowest in years. That is thanks chiefly to a construction blitz. By elections due next year, the PML-N

10 will have installed some 9,000 megawatts of generation capacity, increasing the total by half. We will remove the darkness from Pakistan, proclaims Mr Sharif, under a glittering chandelier in his offices in the capital. All this makes a change from 15 years in which successive governments failed to respond as population growth far outstripped the power supply. By 2012 outages lasted for as long as 20 hours a day, fuelling a sense of national despair. People were reduced to cooling off in filthy canals. Much of the new power comes from private coal-fired plants like Sahiwal, built by Chinese firms as part of a $38bn investment in the power sector under a joint development scheme called the China-Pakistan Economic Corridor (CPEC). Coal-fired power previously accounted for less than 1% of generation in Pakistan, compared with over 70% in neighbouring China and India. Much of Pakistan s electricity comes from huge hydropower projects, but their output is as variable as the rainfall that feeds them. Solar power, another potential alternative, presents similar problems. Meanwhile, Pakistan is beginning to exploit large indigenous reserves of coal. But even if coal is a rational choice in principle, the power the new plants produce is expensive. Under the PML-N, the average electricity tariff for industry has risen to $0.13 per kilowatt-hour, higher than in India ($0.12) and Bangladesh ($0.09). In the cavernous gloom of a closed textile mill in Faisalabad, a manufacturing hub, a layer of dust covers a graveyard of heavy machinery. Now we have electricity and gas, but because of the price we can t compete with India and Bangladesh, sighs the boss of the biggest textile firm in the city. Part of the problem is that Sahiwal is 1,000km inland. Bringing imported coal (local mines do not yet produce much) from the coast to the plant costs more than the prior journey by ship from Indonesia. Hafiz Pasha, a former head of an official economic advisory body, argues that the PML-N has undermined the benefits of the new plants by obliging industry to subsidise other power consumers through a series of surcharges and taxes. Like many analysts, he doubts that the new capacity will revive Pakistan s moribund export industries, or provide the two-percentage-point boost to GDP growth he predicted in a study published in A shortage of generation was just one of the electricity market s woes. They didn t fix the distribution system, says Mohsin Khalid of Ittehad Steel, a big conglomerate. Yet inefficiency and theft lead to the loss of about 18% of the power generated one of the reasons why industry ends up paying such high tariffs. The state of the grid is another problem: so rickety is the network that former officials expect it will not be able to handle all the new generation. That means that blackouts may still take place even after Pakistan begins to generate surplus power. The government has at least stopped selling power at half the price recommended by NEPRA, an independent regulator, slowing the growth of the $8bn of debt weighing down state-owned power firms. But the expense of importing coal and liquefied natural gas is helping to sap Pakistan s dwindling foreign reserves. If, as many suspect, the government is eventually forced to devalue the rupee, the cost of imported fuel will rise, further pushing up power bills. Earlier this year the energy minister was moved to another job after cautioning against building too many power plants that rely on imported fuel. Meanwhile, the construction of Diamer Basha Dam, a 4,500-megawatt hydropower project, has proceeded frustratingly slowly. In other words, increased generation is no panacea for Pakistan s economy. But with the lights back on, the other problems are at least plain to see. Source: