The second Eid under the long shadow of this pandemic, having hitherto claimed 32.5 million lives globally, is expected to be quiet and simple in Pakistan.
The middle class lacks affordability. The free-spending elite are targeted for dissuasion by the reintroduced limitations on avenues of socialisation in the wake of regional resurgence of Covid-19.
Factors such as the curtailment of shopping time, fear, curbs on socialisation, uncertainty, falling family incomes and inflation have converged to further scale down the volume of Eid business this year by a projected 20 per cent to Rs448 billion from Rs560bn in 2020. Online shopping has picked up pace but the 25pc spike is on a relatively narrow base in the country.
In view of the last year’s post-Eid spike, and citing a mounting number of cases during the current deadlier third wave, the government on April 14 decided to tighten restrictions to contain the spread of the coronavirus. Besides general directions to leave home only when necessary, it decided to enforce safety protocols stringently, banned indoor and outdoor social, cultural, political and sports activities, declared Saturdays and Sundays closed days, restricted market timings until 6pm and imposed inter-city travel restrictions.
‘With inventories piling, brands are forced to resort to heavy and frequent markdowns, which is hitting the bottom line’
The rising death toll in the country has meant that those who are lucky enough not to endure a personal loss have known someone who has. Besides the circulation of images and videos from neighbouring India on social media depicting a crumbling health infrastructure under Covid-19 pressure instilled fear and busted myths about the virus in Pakistan.
The pandemic’s blow to Pakistan’s economy was hard. GDP contracted by 0.4pc in 2019-20. The government’s massive relief package for businesses in 2020-21 arrested the slide. The subsequent recovery, however, is both fragile and jobless. This explains the drop in family incomes. Persistently higher inflation compounded the economic pressure on households. The substantial drop in real income squeezed family Eid budgets.
The slow pace of vaccination and administrative reshuffle in a quick succession under the current government did not inspire public confidence. This mounted public anxiety restraining the spending temptations.
In 2018 when the economy posted 5pc growth at 4pc inflation, the Eid spend in Pakistan crossed the trillion-rupee mark, according to Dawn’s estimates. In the absence of real-time credible data of all economic transactions (owing to cash-based activity and a huge informal sector), the input of trade representatives, issuance of new currency notes by the State Bank of Pakistan (SBP), withdrawals from banks and the spike in the inflow of remittances before Eid were taken into account to arrive at an indicative figure reflecting the volume of the Eid spend.
Like last year, the SBP decided against the issuance of new currency notes this year. The average monthly inflow of remittances is already higher at $2.7bn in the current fiscal year. Normally, it doubles in the month preceding Eid. This year, it might have increased but the actual data will pool in after a lag. The figures of bank withdrawals are also not readily available. Bankers privately said that withdrawals are at a smaller scale than pre–Covid-19 times.
Dr Shahid Kardar, an imminent economist and former governor SBP made interesting observation commenting on Eid economy. “In the major cities, footfall (affecting volumes) is down by more than 30pc_ two days per week of closure and loss of opportunities for sales during what have tended to be our traditional peak hours (6-9 pm). Then what would consumers be dressing for with fewer places to go to! And accounting for disposable incomes being unable to keep pace with inflation, profit margins have been further squeezed, with buyers going for relatively cheaper options generating smaller margins. So, compared with the Pre-Covid situation the bottom line of the retail sector must have been hit by by at least 40pc”.
Dr Nadeem Javed, former chief economist of the Planning Commission, endorsed the view that the market has shrunk but he thought the impact might be less pronounced in smaller cities. He mentioned sales drives by big brands before Eid as indicative of depressed demand. He also noted low growth in agriculture eroding the buying capacity of the rural population.
Leaders of the trading community in major cities, except Quetta, reported piling inventories in retail markets as the footfall dropped to a fraction of expectations. Electronics, cosmetics, accessories and furniture items took a major hit. Demand for clothing and footwear (that makes about 60pc of the Eid market) also remained subdued.
Naeem Meer, a vocal representative of the trading community, pointed out the expected fallout of a slow Eid market on his community that struggled hard to revive business that was just starting to pick up after the lockdown last year. “A majority of shopkeepers get merchandise on credit with payments due after Eid. The current slow pace of business will perish small traders. I personally know people who went out of business last year,” he said while cursing the government.
Rahim Kakar, a leader of traders, however, reported booming Eid business in the capital city of Balochistan. “We cater to Eid shopping needs of the entire province. The market here is up by 20pc over last year. The spike in activity defies the common perception about the province and its people.” He was referring to crippling poverty and political unrest associated with Balochistan.
“Eyeing the current trend, I expect traders of Quetta to make up for Covid-19–induced losses and make good on their merchandise,” he said over the phone.
Explaining the deviation, a renowned economist who wished not to be identified, attributed stronger consumer sentiments in Balochistan to the weaker writ of the government and improvement in job avenues in the province.
“I believe that higher revenue transfers under the seventh NFC award over the past decade and the multiplier effects of CPEC projects are at play there. The implementation of Covid-19–related containment measures must be less stringent in Quetta. Who doesn’t know that the FBR tax collection capacity is also compromised in the province? The free availability of smuggled items in the local bazaars helped keep prices in check. Yes, there is danger of a spike in Covid-19 cases but the people have been deprived of a chance to shop for too long.”
Muhammad Asif, CFO of Sapphire Retail Ltd, was worried. “While the brick-and-mortar segment of retail was struggling owing to higher taxes on apparel and footwear even before the pandemic, the reduction in operational timings and repeated warnings against visiting markets by the government have deeply affected the consumption pattern of customers.
“Economic pressures and uncertainty are nudging consumers to defer shopping plans. With inventories piling due to suppressed demand in limited timings, brands are forced to resort to heavy and frequent markdowns, which is hitting not just the bottom line but also eroding equity in the longer run. Small-to-medium-sized retailers are fatigued. The bigger ones are trying to sustain through price points.
“The redeeming factor is the ecommerce segment and all businesses irrespective of size are switching to capitalise on changing consumer behaviour. This has partially offset the impact of a fall in physical shopping as ecommerce is a still a tiny fraction of the pie. The inclusion of Pakistan by Amazon (the biggest online marketplace) in their seller list will open up the world for local suppliers.”
Yousuf Jamshed, Director of LXY Global, emailed his response: “The pandemic has faded the colours of the Eid festival. A 50pc reduction in shopping time made customers go astray and piled pressure on retailers to finish inventories. Falling incomes forced families to focus on necessities and save to cover future contingencies.”
Published in Dawn, The Business and Finance Weekly, May 10th, 2021