Are we ready for another cycle of disruption?

Updated February 24, 2020

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An official of Pakistan-based Chinese company (R) uses a thermo gun to check the temperature of the company's drivers, in Islamabad on January 30, after instructions from Pakistani authorities to take preventive measures against the coronavirus.  — AFP/File
An official of Pakistan-based Chinese company (R) uses a thermo gun to check the temperature of the company's drivers, in Islamabad on January 30, after instructions from Pakistani authorities to take preventive measures against the coronavirus. — AFP/File

Pakistan is clearly ill-prepared to deal with the possible impact of the epidemic crisis in China that may take time to subside. It can lead to supply chain disruptions, amplify the inflation and suppress consumer and business confidence, rattling the fragile economy and dragging the low GDP growth rate further down.

There is an uneasy calm in business circles. Private companies are exploring alternatives to source their raw material and merchandise, despite the price differential as reports of growing global anxieties over the epidemic trickle through media. All efforts are directed to minimising the chances of panic in the retail market, securing the market share and keeping manufacturing units operational.

Prime Minister Imran Khan has offered to assist China in the fight against the virus but back home his government has yet to absorb the gravity of the risk to the struggling economy. There is a halfhearted effort to assess the impact but the requisite strategy is not even in the works.

The Planning Commission has yet to initiate an exercise to quantify the possible impact on trade, manufacturing, the China-Pakistan Economic Corridor and GDP growth. The focus in the finance ministry is on the expected savings in the oil import bill with the price dip and using it to improve the fiscal balance. If that deprives the people and businesses of the price benefits, so be it.

Imran Khan has offered help to China in the fight against coronavirus but back home his government has yet to absorb the gravity of the risk to the struggling economy

The market watchers believe that if the government fails to put its house in order and pool resources to prepare diligently to manage the unfolding situation then there is danger of panic in the consumer market by mid-March as inventories have started depleting and products arriving from other sources will be priced 10 per cent higher, at the least. How will this act with the galloping inflation? Your guess is as good as mine.

“If the crisis subsides quickly there is a possibility that inventories built to cover the New Year holidays in China provide the buffer and the market in Pakistan broadly stays immune to the business stress. However, if the issue prolongs there is no chance for Pakistan to dodge the negative fallout completely. It’s not just the trade and the manufacturing sectors that will be affected, its toll will be felt by the entire economy”, commented a leading businessman with strong Chinese links, anonymously.

“The government seems too self-consumed to monitor, assess and strategise to deal with the possible fallout. Instead of taking preemptive measures they tend to wait till the problem assume crisis proportions and then react in haste, missing out on better more sustainable options. People and businesses, in the end, pay the price for the administrative failures,” he added hinting at the commodity and power sector issues.

Anjum Nisar, president of the Federation of Pakistan Chamber of Commerce and Industry, said the private sector is already making alternate arrangements though it costs them more. “China is too big a player. When the world rises with the Chinese tide how can it be impervious if the tide recedes? Pakistan sources about 30pc ($16.5 billion) imports from China and exports close to $1.5bn worth of merchandise there. The manufacturing and shipment adjustments in China will certainly affect us. The private sector can’t afford to wait for the government. Our members are in contact with their Chinese partners but evaluating other import options simultaneously”, he said over the phone from Lahore.

Dawn’s investigation reaffirmed that no structured exercise to identify the most vulnerable sectors/segments or quantify the possible impact on trade, manufacturing and growth has officially been undertaken so far. Most officers in the Ministry of Planning, industry, Federal Board of Revenue and customs were caught unaware when Dawn approached them.

When quizzed, sources in customs agreed to share the data of the arrival of containerised cargo. This year in January 33,395 TEU (twenty-foot equivalent unit) of cargo from China was unloaded at ports compared to 33,515 TEU in 2019. In the first three weeks of February 17,565 TEU arrived compared to 20,970 TEU in 2019. They attributed the fall, however, to a more protective import policy and expected the impact of the Chinese crisis to hit cargo traffic in March. “These ships must already be seaborne when the crisis struck China”, a source said referring to cargo ships that arrived over the past month and a half.

Customs received instructions to alert the health staff at the ports to not clear cargo arriving from affected areas without fumigation and closely monitor and adhere strictly to safety standards in January. Later, an advisory note of Port Health Establishment specified second-hand clothing/used shoes and other worn articles as cargos that can’t be cleared without fumigation. They also received travel advisory to not permit entry to any person on board the ships without clearance of health authorities.

Through a note in the first week of February, the additional requirement of fumigation in cargo ships was withdrawn but the complete ban on the import of animals and birds still holds. The copies of these advisories are with Dawn.

A senior officer in the Ministry of Commerce told Dawn that it is not their mandate to carry out a macroeconomic assessment as they are tasked only to implement the trade policy. The officers in the planning ministry said they monitor growth and its drivers and have not been tracking the issue. They assumed that the impact would be limited to trade.

However, top guns in the government accepted that the evolving situation in China could pose serious challenges for Pakistan. They contested the perception though that the government is not alive to the issue. In a response to Dawn queries the office of the advisor to the prime minister Razzak Dawood mailed a reply. The comment states: “Pakistan has significant reliance on China as it sources the bulk of its raw material, intermediate and capital goods from there”.

The note informed that a meeting to assess the situation was held last Thursday to take stock of the situation. It had participation from all relevant departments including Trading Development Authority of Pakistan (TDAP) and the Commercial Counselor in Beijing (via a video link). The note says, “they deliberated on the possible effects on domestic production and exports by taking into account recent global and bilateral trade trends, possible bottlenecks in supply chains, availability of stocks and supply of raw materials and intermediate goods. “The Commercial Counselor, Beijing, apprised that on slight delays in shipments, however, except for Hubei Province, normal trading activities are expected to resume in the next 10 days. Secretary TDAP informed that the intermediate goods’ stock was sufficient for six to eight weeks. Besides this, a monitoring and evaluation mechanism is being put in place”.

Some multinationals, including fast-moving consumer goods companies, are understood to be reassessing their supply chains to reduce their production footprints in China. When approached, the embassies of the United Kingdom, the United States and Japan (countries with a strong corporate presence in Pakistan) declined a formal comment. Either they have not been approached by their companies or did not wish to share their concerns for diplomatic reasons at this stage.

Published in Dawn, The Business and Finance Weekly, February 24th, 2020