Ramazan economy

Published July 21, 2014

THE Ramazan economy of Pakistan in 2014 is reckoned to be worth Rs500 billion, if not more. The trend of higher spending is universal across social classes and rural-urban divide.

But who are the major beneficiaries of this market expansion and who finance the additional spending?

This writer’s investigations revealed that deeper consumer pockets generate overall positive market sentiments. While all boats rise with the tide, food, beverages and related services top the list of beneficiaries that also includes media, telephony, retail and transport sectors.

According to market reports, there has been as much as 25-30pc uptick in the sale of soft drinks, juices, syrups and squashes; the consumption of chicken has increased by 15-20pc, as did the sale of mutton and beef. The consumption of edible oil and ghee has doubled, while sale of milk and milk products has risen by 70pc; sugar intake has jumped 80pc. Besides, sweat merchants are making a killing, and fruit vendors are earning about three times the normal level.


The collective productivity of the nation falls, but family spending peaks during Ramazan


Besides consumer durables the consumption of flour, lentils other than channa (gram), packaged food and confectionery items falls during the month.

The spending is higher across all social classes. However, the composition of additional expenditure depends on their respective financial standing. A middle class family spends 50pc on the kitchen budget. The country’s elite eats the best all year round, but spends significantly more on feeding others during Ramazan.

More eyes remain glued to TV as channels adjust their programmes to suit the public mood. Advertising flow to the electronic media hikes. According to an insider, companies spend as much as 30pc of their annual advertisement budgets in this holy month. In the retail sector, size matters, and the bigger are better off in the bargain.

To quantify the rise and identify the source of liquidity injection in the month, in absence of official data, a little exercise had to be done to piece together information collected in bits and pieces from varied sources.

Currency traders indicated $2.5bn in additional remittance flows during the month, above the monthly average of $1.3bn. As much as two-thirds of the extra arrival is consumed during Ramazan. Bankers confirmed above-normal withdrawals worth at least 2pc of industry deposits currently at about Rs8trn. The expanding credit card market expects Rs21.4bn in advances in the month to be leveraged by card holders, up to their maximum credit limit.

It is observed that many companies (80pc) — irrespective of their size and orientation — time their bonuses and other cash benefits (over the regular salaries) for Ramazan. It serves them to build an image and gain goodwill among workers desperate for money. Zubair Motiwala, a former president of the Karachi Chamber of Commerce and Industry, agrees, adding: “We practice it in our company and everyone else tries to do it as well”.

Simple maths: Rs170bn (two-third of Rs250bn remittances) + Rs160bn (2pc cash withdrawal of total bank deposits of Rs8trn) + Rs25bn (credit card advance limit) + Rs15bn (bonus + provident fund loans flushed out by the corporate sector) + Rs130bn (undeclared funds in private possession that surface) leads to the Rs500bn figure.

Dr Miftah Ismail, an economist-turned-businessman who joined the Nawaz Sharif government to head the Board of Investment, says the guess of Rs500bn is believable. In a written response reacting to the projected size, he said “It translates to about 2pc of GDP, so it doesn’t seem unreasonable”.

“There is ample evidence to confirm that the collective productivity of the nation falls, but family spending peaks during Ramazan. Besides, the government pitches in to the size of the Ramazan economy through additional subsidies at state-run Utility Stores and fair price markets,” commented an expert.

Ramazan is otherwise a lean period for the economy, as official working hours are reduced from eight to five hours, but, for all practical purposes, the staff gets off for prayer break in the afternoon. “In this month, Pakistanis indulge their body and soul. They consume better and distribute more,” he said.

“It is hard to justify the sudden drop in business and production to principals in Tokyo, Berlin, Paris etc., who have little understanding of the religious and cultural moorings of the people of Pakistan. If working hours are shortened by the government, we have to comply. Besides, who in his right mind can dare to reprimand the staff for extending their prayer break beyond the designated time? As it is, sleep-deprived people coping up without electricity in the sweltering summer are on the edge anyways,” the CEO of a multinational company shared his concerns.

Anis Majeed, chairman of the Karachi Wholesalers and Grocers Association, concurs with the view about spending, but contested the impression of high inflation. “Prices of many items are currently lower than what they were two years back,” he said, while blaming retailers for profiteering.

Farid Qureshi, general secretary of the Karachi Retail Grocers Group, told his tale of woes. “The wholesalers understate and quote wrong rates. They give out what they charge for bulk. An average retailer cannot afford to buy in bulk so he has to pay higher. We have our necks sticking out. We have to maintain relationship with the city hierarchy, pay bhatta regularly and bear higher overhead charges. Besides, the big chains of super stores and bachat [fair price] bazaars are expanding at our cost.”

Hafiz Nisar Gaddi of the Karachi Milk Retailers Association said the countrywide data of production and sale of milk is not credible. “Whatever we gain from the hike in domestic demand is lost to the slump in the commercial sector.”

Published in Dawn, Economic & Business, July 21st, 2014

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