CETERIS PARIBUS. Bigger, Better, National! March 2015

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1 CETERIS PARIBUS Official Newsletter of the IBA Economics Club March 205 Inside this issue: The Editorial Board Book of the Month Free Pizza? 2 IBA DLS 3 The Challenges to Prosperity 4 INFER By the Editor Hi all! Soon, we have INFER 205 coming up and I will take this space to urge you all to register. Get a holistic experience of finance and economics. Who knows? You might even win! Godspeed! Midhat Waris Assistant Editor We are loving that people look forward to our issues. This is what keeps us going! Looking forward to your valuable feedback. Zahra Sohail Bigger, Better, National! See last page for details

2 Free Pizza? Written by: Hiba Batool What if Bill Gates had never dropped out of Harvard? What if Eminem had never pursued his rap career? What if Julia Child hadn't begun cooking? The cost of all those decisions would have had disastrous effects! This is what life is all about, Choices. How and what you choose may affect you for the rest of your life. One of the most important questions you may face in life is: what are you willing to lose in order to gain something else? The idea is that it is impossible for a man to get something for nothing - whatever goods and services provided, must be paid for. Every choice you make has a next, best alternative that you could have chosen but didn't. That foregone opportunity is known as opportunity cost i.e. opportunity lost is opportunity cost. Even when someone takes you out for dinner and pays for your meal, you still have incurred costs. You gave your time and energy to be there. You chose that dinner over other activities. The dinner had a cost, even if the cost was lessened. It implies sacrificing something you could have had for what you chose. We need to understand that we don t just pay for the things that have price tag on them, we pay for everything. A person who spends 45 minutes in line for free pizza is simply fooling himself. The cost of that pizza was time. Opportunity cost is all around us. To eat a pizza or drink a cup of coffee? To run your own business or to get a job? But most importantly it is present in our finances. It can go unnoticed because the average person doesn't understand the effect small decisions can have on where one eventually ends up. Look at it this way: you have a choice of eating out and buying lunch worth $7. The other choice is to save and invest your $7. Occasionally, going out for lunch is fine but if you do it every day for 20 years, aside from losing your health, you are losing approximately $59000 that you can get with 5% return rate. By not investing when you have the chance, the foregone wealth is staggering. Since all of our choices bear costs, awareness of these types of costs is necessary. It helps us get through a world where choices are thrown at us constantly. Once you understand this concept, however, it becomes sorely obvious that every choice you make will go a long way and might end up playing a huge part in your life and the things you think of as cheap or free may end up costing you greatly in future. While it may sound like a nuisance to have to think about opportunity costs every time you want to buy ice-cream or go on vacation, it plays an important role in making the best use of your money. You are now free to make an economic decision. One of the most important questions you may face in life is: what are you willing to lose in order to gain something else? 2

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4 The Challenges to Prosperity Written by: Aakash Kumar Life s challenges are not supposed to paralyze you, they are supposed to help you discover who you are. Bernice Johnson Reagon It s been 67 years and we are still wondering: I wish I was not a Pakistani. Why do we hate our homeland the land that has given us shelter, food to eat and clothing to wear? No country is idealistic! Every country faces different socio-economic problems; it is the intensity of problems that differ. In Pakistan, the socio-economic problems have risen to extreme levels. Our economy is facing excessive challenges that have made us lag behind in the world of advanced technologies. Politicians promise to help Pakistan move forward as a developed country but the consequences are the opposite. So, where do we lack? There are multiple reasons behind this. Firstly, our expenditures are greater than our savings. We are left with lower domestic investments and our consumption figures are 5.5 times our savings. When compared to our neighbors, China s savings remain 50% and India had increased its savings to 35%. We rely on foreign loans which are packaged with high interest rates and several other strict conditions. Moreover, we experience a deficit balance of trade since our imports exceed exports. Despite of having the capability to produce our own goods, we rely on other countries to do so for us. This dependence worsens the confidence of competent producers of the country. Similarly, Pakistan experiences fiscal deficits during almost every government tenure. The revenue generated comprises of 5% of the real Gross Domestic Product (GDP) and this is less the expenses incurred, i.e. 20%. Tax evasion is easier in Pakistan since the elite class don t even pay a penny as taxes and out of a rupee of the income earned, an individual pays 0 paisa for the tax. This in turn results in demand for foreign loans that ultimately leads to inflation as government tends to increase unwanted taxes to give back the interestoriented loans. Added to this, our per-capita national income is not sufficient because of the lower literacy rate. A country with more experienced and educated human capital succeeds, for e.g. US, Japan, UK & China. Since many years, Pakistan has been facing energy and power crises. Although, naturally we are well equipped with many minerals to produce plenty of electricity that can sustain us for coming years, but due to bad governance the wish becomes utopia. Several industries have been declining in terms of performance because of power shortages and some closed their operations in Pakistan. Several regulatory bodies are working to eliminate electricity theft, but to no avail. Last but not the least, corruption, political instability and terrorism have affected Pakistan s economy adversely. These elements blur the positive image of the country to the extent that foreigners (investors and tourists) feel hesitant to step in to Pakistan; In contrast to this, Pakistan was among the favorites for investing community back in The recent government has spent a lot of money in the fight against terrorism to restore Pakistan s security. Are we game to face such challenges? According to an international report, Pakistan has enough potential to become the world s super power in next 5 years and this is because it has 30+ minerals at its hand and 60% of its population is young. Therefore, it s not only the job of government to achieve economic prosperity but every Pakistani is also responsible for this. 4

5 IBA Economics Club and IBA Finance Club proudly present their joint mega-event of the year, INFER: IBA National Finance and Economic Reformation. INFER was founded in 20 and is one of its kind. It is a three-day competition requiring participants to take part in activities like buzzer rounds, stock exchange simulations and case-study competitions. Youth empowerment is much needed in our society. Under the unfortunate circumstances that our country is in, it has become a duty for each of us to promote wide scale learning opportunities for students in order to see a better and greater Pakistan in future. That, we believe, comes only through thorough education. But again, reading books in classrooms under guidance of instructors does not suffice. We believe that what Pakistan s education system lacks is practical application of theory during the course of study. INFER is an attempt to fill in this gap. Exposure to simulated market conditions and problem solving under time constraint and pressure are salient features of this event. Teams of three to five students from universities and educational institutes around the country constitute the participant body. Guests and Judges include high-level government officials, researchers in the industry, university professors, and pioneers of financial markets. During the three days of the competition, teams compete and every participant gets to learn at least something from the experience. Hence, the event ends in a win-win situation where everyone wins something. It s back. It s bigger. It s better. It's national. It is time to pull up your socks and clear up your schedule, because this May, we bring you INFER 205. Think you have what it takes? Visit: 5