With businessmen attaching fewer expectations from the government authorities the business sentiments in the crises-hit Pakistan have slid to new lows during the recent months.
Also, businessmen in Pakistan foresee energy crises, price hike, security issues and poor governance as major challenges they would be facing in the coming months. While leading challenges faced by the Pakistani business entities during the last six months were load shedding, corruption and increase in inflation.
Further, most of the business sector entities in Pakistan believe that Islamabad’s conferment of the Most Favored Nation (MFN) status to India and a liberal Afghan transit trade regime would impact the local businesses adversely. A very high proportion of retail business entities, 48 percent, consider MFN status to India would have a negative impact on their business. Only 7 percent of the respondents consider that MFN status to India would result in a positive impact on business.
This was revealed by a recent survey conducted by the Overseas Investors Chamber of Commerce and Industry (OICCI) between June and August 2012.
FURTHER DETERIORATION: According to the survey, the confidence of the businessmen in the troubled Pakistan further deteriorated during the review period and dropped by 9 percent from negative 25 to negative 34 percent.
The OICCI’s sixth Wave Business Confidence Index (BCI) survey, which is conducted bi-annually, showed that Pakistan had been moving deeper in the negative territory on its Business Confidence Index Chart since April 2010 when the business sentiments in the country were in the positive zone.
Major attributable factors for the low business confidence are well known and include energy crises, law and order, high inflation, poor government policies and the high cost of running businesses. The contribution of the above negatives on the index was, respectively, 48 percent, 36 percent, 35 percent, 14 percent and 5 percent.
“Despite general perception of growth in turnover and profitability, as suggested by recent corporate results, business sentiment dipped by 9 percent over the past six months due to growing concerns related to energy shortages, worsening security and inflation,” said the OICCI survey.
RETAIL APPREHENSION: It said the sharp drop in business confidence was led mainly by poor sentiments of the retail sector where the BCI score went down from negative 29 to negative 48 percent and of the manufacturing sector which also declined significantly from negative 23 to negative 37 percent.
This decline was partially offset by the relatively positive outlook of the service sector where BCI improved by seven percent from negative 24 to negative 17 percent. Apart from increase in negativity, the sixth wave also recorded a shift in opinion of respondents from positive to neutral zone, reflected in the decline of the overall business confidence score. Interpreting the feedback, it appeared that business people have now lowered their expectations from the authorities.
In the past six months, energy crisis (load shedding) had been cited as the main factor causing restlessness among the business community, followed by continuing deterioration in the law & order situation, high inflation, governance issues and high cost of doing business.
NOT-SO-GREAT EXPECTATIONS: The above factors have resulted in a decline in expectations of business expansion from 34 percent in November 2011 to 19 percent in August 2012. However, in respect of plans for the next six months, 16 percent of respondents expect to expand business and have a positive outlook in increase in sales, profits and return on investment.
Of these, the service sector had the highest positive outlook at 33 percent for business expansion, within which finance was the most optimistic sub-sector. In the manufacturing sub-sectors, the auto industry was the most optimistic. A notable feature of the survey was that the perception on government policies had improved by 12 percent from the previous survey.
BCI’S NEGATIVITY: The business community was of the opinion that overall global economic situation improved in the current survey period. However, this does not seem to be reflected in the response with respect to business situation in Pakistan, where the BCI showed further negativity, both in the respondents’ specific industry as well as their own organization.
Although the latest survey showed a decline in the number of respondents with positive outlook for the economy, there was significant variation in the opinion pattern between various cities. The reduction in positive outlook and increase in negativity was much more pronounced in Peshawar and Quetta, followed by twin cities (Rawalpindi-Islamabad) and Faisalabad, as compared to the declining sentiments in Karachi, Lahore and Multan.
BLEAKNESS LIES AHEAD: Decline had been noted in capital investment plans for the next six months, which fell from 69 percent in the previous survey to 55 percent in the current survey. The respondents also indicated no plan to increase employment levels in their business during next six months.
Upon being queried more specifically, approximately 10 percent of respondents indicated planned capital expenditure for capacity and/or productivity expansion. A small percentage of this capital expenditure was being considered for new facility, renovation and improvement in quality.
INFLATION IN THE STARS: The biggest factor impacting business in next six months was expected to be inflation. This was followed by fuel prices, uncertain security environment, government policies and rupee devaluation.
Volatile law and order situation had been cited as the main reason for fast-declining local and Foreign Direct Investment (FDI) in Pakistan.
Overall, business entities of Karachi followed by Islamabad and Lahore were the main victims of law and order issues. These include street crimes, extortion, kidnapping for ransom, threats and expatriate security. Some 60 to 67 percent of respondents considered Federal Budget 2012-13 not having any positive impact on their business or the overall economy, whereas only 6 percent felt there was a positive impact.
STAMPING DUTY: Strong opposition had been expressed by majority of business sector entities about stamp duty being demanded in recent months on various procurement instruments, the levy of Sindh Development and Maintenance Infrastructure, gradual devaluation of rupee and increasing level of extortion money demanded from the trade.
The OICCI conducts the largely attitudinal BCI survey every six months, through a leading independent research firm, to measure the sentiments and confidence levels of key stakeholders on different business related matters including the current state of Pakistan’s economy and their own businesses.
