WELL-RUN hospitals in Karachi seem to be doing a flourishing business with the deteriorating health standards of the city dwellers because of growing environmental pollution, tensions within a moderising family and at workplaces, joblessness and under-employment.
While their lives are being made more miserable by critical energy shortages and eroding purchasing power of a depreciating rupee.
A senior executive of a leading hospital in Karachi admits that over the past decade business volumes have gone up significantly but with sharp decline in margins because of rising cost of inputs and the deteriorating security environment. The cost of doing business is eating up the margins despite a series of increases in hospital charges over the same period.
Elaborating, he revealed that his organisation’s annual turnover has climbed up from Rs130-140 million in 1999 to Rs600 million in 2011 but margins have gradually dropped from 30-35 per cent to around 4.5 per cent per annum. Gas charges have doubled.
There is the high cost of depreciating rupee, more so, when the prevailing exchange rate on the date of payment differs, oftensharply, from the running rate at the time import orders are placed.
The salary bill has gone up from nearly three million to Rs10 million despite cut in strength of the hospital staff from 3500 to 450 .
In 1999 the hospital was run with the money generated internally and with no bank borrowings. Now it avails almost the entire credit ceiling of Rs130 million from one of the five major banks though its gets on terms generally available to the best performing corporations.
The executive claims that during 1999-2008, the hospital had no financial charges on its balance-sheet.
While the hospital operates on 75-80 per cent occupancy as in the past—— but now with wide fluctuations——, there is a bigdrop in the number of patients when security situation in the city deteriorates.
The executive points out that over 1999-2008 period, the hospital charges were not increased but between 2008-2011 the rates were raised about eight or nine times. Still, he laments that the margins have dropped.
And yet another business executive, who relates a similar story, says how business volumes have shot up and gross margins of his company have fallen despite no bank borrowing from 38 per cent to 26 per cent over a similar period.
Quoting news reports of a record jump in non-performing loans of banks that have reached Rs653 billion, he added his marginswould have been nearly wiped out if his company would have taken bank loans.
These two anecdotal evidences may or may not fully capture the general trend but are fairly representative of what is happening.
The trend draws support from the fact that many corporations listed on the stock exchange prefer to invest in government papers rather than in productive pursuits.
If the margins in businesses turn out to be lower than the return on Treasury bills or Pakistan Investment Bonds why should one like to go through hassles the trade and industry faces today in making investment in the real economy.
That also explains the persistent business demand for reducing the State Bank policy rate to a single digit.
There is growing anecdotal evidence that many companies prefer to do business with their own retained earnings or through inter-corporate borrowings rather than seek credit from banks at fluctuating and high interest rates.
The tight monetary policy over the past few years has failed to reign in inflation while stifling investment, employment generation and growth.
The monetary policy also needs an upgrade in the current phase of organic development of the capital/financial market because it is no longer simply an issue of too much money chasing too few goods, fuelling inflation, that has to be tackled.
It is a question of how much money/bank credit is financing aggregate demand/supply and how much is being increasingly locked in capital market and government papers and central bank reserves.
The private sector borrowings are at a dismally low level. Corporate earnings and savings are increasingly going into government papers. They are sitting on huge cash.
The banks are investing disproportionately in government securities , destabilising their core function of intermediation.
How much of their money is invested in shares market? Non-bank financial institutions are borrowing from banks, again to invest in government treasury or Pakistan Investment Bonds.
Small investors prefer to lock their money in National Savings Schemes rather than take risks in investing in the shares market which is now reporting very thin trading.
The companies listed on the stock exchange, financial institutions and investment funds hoard good shares to avoid sharing dividends/capital gains with the small shareholders. Stock exchanges are turning into exclusive club, there are no longer widening industrial ownership or prosperity There is so much concentration of capital and money in few hands.
So, how much money is chasing goods and services? Since prices are determined by supply and demand , and much less on the cost of production, they provide fuel to inflation when supplies are constrained.
While manufacturing is growing at a snail’s pace, prices are galloping. The supply of goods and services should increase to stabilise prices. And an upgraded monetary policy can help.