Textiles from Swat valley: A strategy to make ROZ’s work

The idea of Reconstruction Opportunity Zones (ROZ's) was proposed by Mr. Obama in March 2009 to provide duty-free access for Pakistani textiles and apparel produced in certain remote areas bordering Afghanistan. At that time Pakistan's textile industry strongly opposed this idea because of the security situation and also because major export products were not included. No work has been done on ROZ's so far but now with the success of army operation in Swat, there is a good chance to bring about employment opportunities to the poor people who are most affected by terrorism.

Here is how it can be done:

Textile is a labor intensive business and by setting up small scale stitching units in Swat will help employ the poorest of the people especially the women. Yet another way to make this work is linking these stitching units with local schools where vocational training is provided to the children. In this way, the stitching units will be ensured a trained labor force. Also, by providing one time meals at schools, the female workforce will have an additional incentive to send their children to school.

Role of USAID:

USAID can play a very important role of facilitator, implementer and monitor in setting of ROZ's in Pakistan. As a facilitator, it can encourage joint ventures between US textile importers and Pakistani's textile manufacturers. As an implementer, USAID can offer ready-made projects to the joint venture companies. Also, by ensuring a registered workforce will speed up setting up of ROZ's. As a monitor, USAID can monitor and verify exports from ROZ's and also ensure that ROZ's are working according to the laws of International Labor Organization (ILO).

Marketing strategy:

Swat valley is now world famous as it was here that the march of Taliban was halted. Now a brand can be developed by the name "Textiles from Swat valley" and a marketing campaign can be devised for consumers who will buy these products knowing that their money will go to the people who are directly affected by terrorism.

This strategy can very well enhance ties between America and Pakistan and if successful, it can also be replicated in Afghanistan.

Time value of money: mother of all evils?

Time value of money is one of the most fundamental concepts in finance. Simply put, this concept states that “a dollar today is worth more than a dollar tomorrow." According to this concept money in hand today is worth more than money that is expected to be received in the future. Text books on finance tell us that rationale behind this concept is straightforward: A dollar that you receive today can be invested such that you will have more than a dollar at some future time.

To clarify further, suppose you have won $10,000 and are given two options, a) receive the money now or, b) receive the money after three years. Which option would you choose? If you're like most people, you would choose to receive the $10,000 now because you can do much more with the money if you have it now because over time you can earn more interest on your money. Now suppose that the going interest rate is 4.5%, then you should receive $11,411.66 after 3 years, if you decide to take the second option. Therefore, $10,000 of today is worth $11,411.66 after three years given the interest rate at 4.5%.

Time value of money results from the concept of interest and serves as the foundation for all other notions in finance. It impacts business finance, consumer finance and government finance.
As a student of finance I have read this concept many times and many times I have wondered is it a flawed concept because it only takes into consideration justification and utility for existence of the key financial institutions; the banks. Suppose if $100 of today is worth the same tomorrow then the banks would certainly be out of the picture as they will have no other utility then besides being just a custodian of depositors money.

There is much more to the concept of time value than meets the eye, because it takes us to the heart of the problem: greed. Just because a dollar today is worth more than the future, we want more and more returns on our future money as we can get. Just because the banks are offering 4.5% interest on our money we try our best to invest somewhere where we can get more than the going interest rate or otherwise our money will fall prey to inflation.

Economists have always argued that a little inflation is always good because it makes economies grow. On the other hand, in order to remain over and above the inflation rate, a person has to struggle all his life otherwise his money will simply won’t grow.

If we do consider a world where value of tomorrow’s dollar is same as today’s, wouldn’t we be better-off being out of that rat race for more money? Here we should also consider whether it is really worth the struggle just to keep the financial sector up and running? With 89 banks failing in the US alone, can the financial pundits really be trusted to give us right concepts about finance or are they just making us run around in circles?