Prime Minister Yousuf Raza Gilani may sound optimistic about economic revival of the militancy-stricken economy of the Frontier province, but his relief package announced on January 7 has failed to generate business confidence.

The businessmen have been demanding since last year that the Frontier may be declared war-affected zone because of the unprecedented losses to its economy caused by prevailing war on terror which has by now spilled over to almost 90 per cent of the province from the adjoining tribal belt.

"Losses to businesses are unimaginable," said Numan Wazir, a former President Industrialists Association Peshawar (IAP), adding, "The package proved too little and too late."

"We expected relief in taxes, power outages, but the prime minister's announcement was nothing more than repetition of previous announcements aiming at 'obliging' a particular segment," he opined.

Exemption from sales tax, federal excise duty and income tax, waver of loans and utility bills in Malakand division and reducing the mark-up rate on SME financing up to 7.5 per cent are some of the new incentives in the Prime Minister's Package. While, remission of agriculture loans and launching of credit guarantee scheme are old announcements repeated in the package.

The main catch in the package is categorisation of the area in three parts, apparently in terms of level of damage caused by the militancy. The most-affected areas include all the seven agencies of Fata, Malakand division, Hangu, Bannu, Tank and Kohat districts, while Peshawar, Charsadda, DI Khan, Battagram, Lakki Marwat, Swabi and Mardan have been placed in the 'moderately affected' category. The 'less-affected' areas include Nowshera, Haripur, Abbottabad, Mansehra and Kohistan districts.

Peshawar, being the economic hub which bore the brunt of first proxy war fought in Afghanistan and now in NWFP, however, has been included in the list of the 'moderately affected areas'.

During 2009, a total of 16 suicide bomb attacks took place in Peshawar, killing hundreds of people, which is the highest in any city of Pakistan, even compared to Swat where the number of suicide bombing in year 2008 was 11. Subversive activities have a direct impact on businesses because it creates fear and nobody wants to invest or spends, said Sharafat Ali Mubarik, a traders' leader. He termed the package completely disappointing; saying most of the initiatives have already been announced during last couple of months. The only new thing was reducing the mark-up rates on SME loans up to 7.5 per cent, which would help the business sector, he said.

He said, there was no major incentive for the trading community, which was the direct victim of subversive acts across the province. In his view, exemptions given to the commercial electricity consumers in sales would benefit only registered businesses, as most of shopkeepers are not registered as firms.

Wholesale and retail trade sector is the second largest contributor to the provincial economy as its overall contribution stands around 20 per cent, almost double of the contribution of manufacturing sector.

This sector will not be benefited from the package except for acquiring cheap loans carrying mark-up rate of 7.5 per cent because most of the enterprises are not documented, opined Mr Mubarik.

Trading sector has workers five times higher than those in the manufacturing sector who will be the main beneficiary of the package, he believes. "Not a single shopkeeper affected in Meena Bazzar bomb blast has been compensated for the losses," laments Mr Mubarik.

The NWFP economy is mainly informal; whether agriculture, wholesale or retail, as according to the Labour Force Survey 2001-02, of the total labour force only 16.4 per cent are doing jobs in small and medium enterprises including industries. Likewise, 83.4 per cent of the labour force is in rural area, involved in self-employment, family businesses.

Khalid Aziz, the advisor on finance, argued that the package may provide some sort of relief to industrialists, but it does not aim at the revival of the economy of the province which is mainly rural based.

Most of the rural workforce is involved in agriculture which contributes 20 per cent in the provincial GDP and percentage of employment in this sector is around 55 per cent. For this sector, the package means only launching of loan refinancing and guarantee scheme of Rs3 billion to be disbursed on mark-up rate of eight per cent to farmers.

'With this money, revival of rural economy is next to impossible," opined Mr Aziz who claimed that farm sector loan disbursement has traditionally been lower than Punjab and Sindh. The State Bank of Pakistan data suggested that overall loan disbursement in the province stood at only Rs7 billion against Rs130 billion and Rs20 billion of Punjab and Sindh for the fiscal year 2008, respectively.

While announcing loans disbursement, the federal government should have addressed structural issues in the agriculture sector, opined Mr Aziz.

Interestingly enough, the tax exemptions as announced by the prime minister would be around just Rs1.4 billion on the federal kitty and that means only peanuts have been offered to the business community, said Mr Wazir.

Militancy has caused damage of Rs86 billion to public and private properties in Malakand division alone, as estimated during Damage Need Assessment, an exercise carried out by World Bank and Asian Development Bank. A similar study conducted for assessing losses of war in NWFP and Fata last year put the losses at Rs500 billion, an official at Planning and Development Department said. Estimates of total loss of economic activities because of militancy even in Malakand have not been calculated, as it will be measured in Post Conflict Need Assessment, another survey that will be launched shortly, he informed.