Swings in business sentiments

Published February 24, 2014
- Illustration by Abro
- Illustration by Abro

The realisation of the high-level of risks associated with the state’s handling of the security situation means Pakistan’s economy remains vulnerable to ‘abrupt changes in market sentiments’.

“From favourable to adverse, the pendulum of business sentiments hits extremes within a short span of weeks. Anyone who knows the country, its complexities, the gap between performance and potential and the wedge between governance and aspirations, will understand the cause of spikes in the behavioral chart of businessmen,” says a seasoned analyst.

The recent gas suspension has led to underutilisation of installed industrial capacity. It has further depressed the business community, which complains about the stress of meeting deadlines for export orders.

“We are not speculating. The government is telling the nation that rogue elements will target cities. Those who can manage are moving out. But I cannot afford to pack my bags and leave. I’ve invested here. Can you blame me for my nervousness,” a jittery business leader in Karachi said over phone.

“Industrial plants cannot be operated at maximum capacity because of gas and power shortage. Who in his right mind would even consider expansion or investment in a new project,” Zubair Motiwala — who headed the Sindh Board of Investment, besides representing the private sector on several advisory forums — told this writer.

But the relevant economic data is in conflict with the sentiments expressed here. The numbers indicate a turnaround in business activity during the current fiscal, despite all that is wrong with the country and its economy.

The figures of private sector credit off-take from different sources, including the State Bank of Pakistan and the Pakistan Bureau of Statistics, project a similar trend. Banks’ lending to the private sector between July to December 2013 increased by over 200 per cent over the same period in the prior year, from Rs104.5 billion to Rs321 billion.

Large-scale manufacturing recorded an impressive growth of 13.17 per cent in December 2013, against 3.79 per cent a year ago.

The perception of investment gradually picking up in the country is also reinforced by trade data. Import of machinery shot up by 38.2 per cent during the first seven months of FY2014, from $267 million to $369 million.

The successful launch of big ticket housing projects that pundits believe raked in a huge chunk of capital is also treated as an indicator of inflow of capital of Pakistanis parked outside.

Analysts at mutual funds and investor advisory service companies, who deal in selling optimism to prospective investors, brush aside apprehensions and project rising inflows as a signal of better times ahead.

“I hope and believe that tomorrow will be much better than today. Yes, the disturbing law and order situation sometimes drags business spirits down. But through all this confusion, I can see a bright future for the country going forward,” commented Mohammed Sohail, the talented CEO of Topline Securities.

Sayem Ali, Standard Chartered Bank Pakistan’s Chief Economist, endorsed this view. “For businesses, the first five months of the current fiscal might have been disappointing, but we are expecting significant improvement going forward. It would help if the government defines the future path clearly.”

A top gun who has been in and out of the government’s economic hierarchy and who commands immense respect in business circles, expressed frustration with the current team of business managers, which, he thinks, has been distracted by the cronies who surround it.

“Yes, the current government has enjoyed greater goodwill of the business community, but unfortunately it is not able to resist the temptation to gain control of everything under the sun. The concentration of power in the hands of few is a tested recipe for disaster,” he says.

“The economic problems are too grave and too many for Mr Dar to handle all by himself. Besides, the politicisation of economic decision making always backfires,” he cautions.

While commenting on positive business data, he says, “I am happy, but if the government fails to mend its ways, it might not be able to sustain the trend.”

Falak Sher, Board of Investment (BOI) DG, underplayed adverse comments and said data was pointing to a pick up in the business activity in the country.

Falak told this writer that BOI has initiated studies to identify profitable avenues of investment for potential investors. He said various power projects are at different stages of completion. “There is a time lag, but as these projects become operational the industrial sector will get a major boost”.

Some senior official sources in Islamabad inform that the government is finalising a proposal to form an economic advisory body that will report directly to the prime minister.

“From what I know, a high powered 20-member body of economic experts will be notified shortly, which will monitor the performance of programmes and ministries and report directly to Prime Minister Nawaz Sharif to put the economy back on track,” an official, who did want to be identified, told Dawn.

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