Recent heavy rains in Sindh have destroyed many acres of agricultural land and displaced thousands of people. The prime minister and the president have appealed to the international community through the United Nations, and philanthropists at home and abroad, to step forward and help rehabilitate victims.
In response to their appeal, the United Nations has called for $357 million from its donors to help the government of Pakistan provide life-saving assistance. The United Nations Rapid Response Plan (RRP) for 2011 aims to provide food, water, sanitation, health, and emergency shelter to the worst hit families for six months as stated in a press release issued by the organisation.
Assessment of damages:
Naveed Tehsin and Muzzammil Aslam at JS believe the magnitude of the damage caused due to rains this year is huge but not quite comparable to last year’s floods. In all, 78 districts and 17m acres of crop land throughout the country were affected last year. This time around, no industrial damage of any sort has been reported. However, most road networks have been destroyed in interior parts of the province, which may result in temporary food-supply shortages – causing a short term price surge in food prices.
Furthermore, infrastructure damage may hamper the internal and external trade activity of the country. Moreover, in our view, they add, recent rainfall has more to do with social than economic loss as millions of people have been displaced and 1.5m houses have been damaged throughout the province.
What is the economic impact?
Sindh contributes about 16 per cent (as per ministry of food and agriculture) of total crop area of the country. If National Disaster Management Authority (NDMA) figures are taken into account, that is 27 per cent of total crop area in Sindh is damaged, then the affected area comes to around four per cent of Pakistan’s total crop area. The government had set the cotton production target for FY12 of 12.8m bales, but it was expected that the country might be able to produce 14-15m bales. Sindh contributes about 19 per cent of the total cotton production of the country.
If we assume that 25 per cent of Sindh’s production is fully destroyed in the torrential rains, the country would still be able to produce 12.2m bales of cotton (keeping original target in view), which will still be 2.5 per cent higher from last year’s actual production, they added.
As per our crude estimate, GDP growth is likely to be shaved by merely 25-50bps due to damages. Moreover, the cotton price has now climbed 46 per cent since hitting a low of Rs5,000 per maund in July 2011. The international cotton prices are also on the rise and can result in better farmer income going forward. Moreover, rising cotton prices are likely to help keep textile exports sustain last year’s level.
How will the KSE respond?
As discussed earlier, no damages have been reported to the industries, and we do not see corporate earnings negatively impacted due to torrential rains. This is also evident from a four per cent improvement at the local bourse since September 05, 2011. We believe going forward the market will largely ignore the negativity of the torrential rains, they reasoned.
According to the National Disaster Management Authority (NDMA), 23 per cent of Sindh province has been affected by monsoon rains, displacing more than seven million people, while more than 300 people having lost their lives. This has left 27 per cent of total crop area in the province either damaged or destroyed in the process. The districts of Badin, Sanghar, Mirpurkhas, Thatta and S.Benazirabad are amongst the most affected areas.
Background on Sindh
Geographically, Sindh is the third largest province of Pakistan. It covers an area of 140915 square kilometers (34.8m acres), constituting 17 per cent of the total geographical area of Pakistan. Whereas the total cropped area of Pakistan stood at 58.49m acres in FY10 with Sindh contributing 16.2 per cent (9.47mn acres). The recent floods have affected 2.086m acres of total cropped area in Sindh.
