AS profits of firms in Pakistan rise following the economic revival and growing demand for goods and services, company chiefs are declaring far larger profits and handing out large bonus shares too to their shareholders. This is a simplistic managerial approach to a complex problem as it fails to take into account the interest of millions of consumers, who should eventually be gainers by the economic revival instead of losers as they are now due the steady rise in prices.
At a time when officially admitted consumer price index has registered a rise of 10 per cent within a year, and the Sensitive Price Index at 11.5 per cent, should not the hapless consumers figure in the thoughts of the industrialists and business houses?
In such circumstances the company chiefs have three options: increase the dividends of the shareholders sharply; lower their prices and reduce the high profits distribution. They should seek a balance between the two and be fair to all and retain enough profits to reinvest and expand the production capacity.
But the decision of company chiefs including multinational heads has invariably been in favour of the shareholders to give them large dividends and generous bonus shares. The consumer who paid for the company’s financial success, often following an increase in prices, simply bore more of the burden of the 10 per cent inflation, as per official figures, and far more in reality.
For what we have got in Pakistan is a free market without competition, a free market which works more like a cartel in a small country with few business centres which act in concert when it comes to pricing.
The tendency to declare high dividends has increased following the boom in the stock market. The sharp rise in their share prices with the KSE 100 index ultimately crossing 10,000 before its meltdown and the chaos, led to official intervention. The company chiefs want to declare a higher dividend as they want their share to have a good P/E (price-earnings) ratio. It pushes up the prices of their shares.
The best example is the Unilever, the country’s top consumer products company, which has declared a total dividend of 270 per cent for 2004 last week-final dividend 160 per cent following the interim dividend of 110 per cent paid earlier.
Compared to that, the Wyeth laboratorie, a pharma outfit, whose share prices underwent inexplicable violent fluctuations last month, has announced a dividend for 2004 of 50 per cent while the Singer Company has announced a dividend for 2004 of 12.5 per cent.
Much of the dividend of the Unilever, an Anglo-Dutch conglomerate, will be sent abroad as its majority share holders are living abroad. That means loss of foreign exchange, which the country, can, at the moment, afford because of its ample exchange resources.
In view of the large market share the Unilever commands in Pakistan, it does not feel the compulsion to reduce prices and lower the dividend distribution. It has absorbed several rivals.
Not that Pakistan manufacturers and distributors are any more considerate to the Pakistani consumers. In fact, many of them are unfair to their minority or small share holders, and distribute very little of their real profit. That way they are unfair both to their consumers and their minority share holders.
In this, many of the multinational companies are trend-setters for good Pakistan companies.
Oil companies like PSO and Shell (Pakistan) have made large profits, and PSO has come up with a dividend distribution of 170 per cent. They should now be ready to give up a part of their extra large profits to reduce the pressure of the very high POL prices on the economy.
The banks are also making large profits and announcing generous dividends. Last week the Bank of the Punjab, National Bank and Askari Bank announced attractive dividends. The army-backed Askari Bank announced a dividend of 20 per cent and bonus shares of 20 pre cent for 2004 following 20 per cent dividend and 10 per cent bonus in 2003. They make such large profits by hardly giving any interest to the depositors and instead penalizing them for keeping small deposits and charging management fee, while charging borrowers normal interest and charging higher rates of interest on consumer banking. They do not want to reduce very large intermediation cost between borrowing and lending rates.
The official policy is that the foreign investors are free to make as much profit as they can and repatriate an unlimited amount as well. President Musharraf has spoken approvingly of foreign investors making 20 to 50 per cent profit and some times even 100 per cent.
In the West, major companies have been merging and becoming enormous conglomerates to reduce the cost of production and sale. Recently Proctor and Gamble in the US took over the Gillette company for $57 billion to make the largest consumer products company in the world. P and G. Chief A. G. Lafley says that Wall-Mart, world’s number 1 distributor, wants to lower consumer prices of his company to promote any product.
Consumers in the West have become more and more conscious of their rights and power for collective action. Manufacturers and distributors have to keep them satisfied and meet their genuine demands. They also assert their legal rights which the courts often uphold.
We in Pakistan have a free market in which traders and even small and medium industrialists calculate their profits not on the capital employed but on the turn-over. Many of them expect a gross profit of 50 per cent on the turn-over. In such, an environment the consumer cannot have a fair deal nor can he assert himself unless he is united in large numbers for collective action and stays that way for long.
Collective consumer power has to assert itself against naked monetary power, and sometimes the physical force of manufacturers and distributors.
A cover page article in the “Economist” of London proclaims: “Power at last” - How the internet means the consumer is king and the queen. It says a man best friend is now not his dog but his mobile phone.”
Internet has come to Pakistan too - not to help the consumer but the manufacturers and major distributors.
All modern inventions and technology seem to pass by the ordinary Pakistanis, a hapless crowd without help with one third of its people having bread as their major daily diet.
The government is really not interested in the consumers, except when there is violent outbursts by them. The government is far more interested in investors, producers and big tax payers. And these groups are aware of that very well.
Political parties led mostly by feudal lords and tribal chiefs are not really interested in the consumes, except for raising occasional slogans in their favour when inflation is too high.
And civil society is too weak and disorganized. Consumer resistance is too feeble as they pay any price to buy what they need.
