Aletho News

ΑΛΗΘΩΣ

Soaring Energy Prices Force Pakistani Industrialists to Close Businesses

By Aneela Rashid – Samizdat – 20.09.2022

Pakistan has a young and growing entrepreneurial population, with English as the main language for business, but inflation, as well as the recent political turmoil and devastating floods, are making it difficult for industries to flourish.

Tension among Pakistan’s business community is on the rise following unprecedented inflation caused by multiple factors, including COVID-19, monsoon floods and political instability.

Despite recent improvements in the business environment, many problems remain an issue for companies operating in Pakistan. Pakistan had previously climbed 28 places to 108 out of 190 countries ranked on the ease of doing business by the World Bank’s 2020 Doing Business report.

Considering that the country has a young population, with English as the main language for business, there are plenty of opportunities due to the expanding middle class which has a keen eye for imported goods and services.

Foreign retail and franchise outlets are also spreading rapidly in urbanized cities and the country has a natural endowment in agriculture and minerals.

The country’s most developed industries – cotton textile production and apparel manufacturing – account for about 66% of exports and almost 40% of the employed labor force, as stated in the report Pakistan Market Insights 2021.

Other major industries include cement, fertilizer, edible oil, sugar, steel, tobacco, chemicals, machinery, and food processing.

As such, the economic outlook of Pakistan presents many opportunities, but also many challenges, particularly in the long-term, which are harming the country’s industries and business opportunities.

Annual inflation in the country increased to 27.3% in August, the highest since May 1975, according to a report by Trading Economics. Inflation is causing panic amongst both urban and rural dwellers.

Transport prices recorded the biggest increase of nearly 65%, due to high fuel prices that have seen a 94.4% increase in urban areas and almost 100% in rural areas. Meanwhile, housing and utilities have seen a 27.6% rise, with electricity charges rising a whopping 123.4%. Food and non-alcoholic beverages also jumped in price by a record level of 29.5%.

The Pakistan rupee is expected to trade at 242.06 to the US$ by the end of this quarter, according to Trading Economics global macro models and analysts’ expectations. As Pakistan experiences economic disorder with fast-depleting foreign reserves, historic depreciation of the rupee against the US dollar and soaring inflation, the country’s industries and business community are taking a big hit.

Some 40,000 industries in the port city of Karachi alone are unable to continue production, according to a report by Bloomberg. Karachi’s power utility, K-Electric Ltd., warned that it may start widespread power cuts in the city of 20 million, which could include prolonged rationing to industrial zones for the first time in 11 years.

“These current conditions are severely hindering KE’s ability to procure fuel, causing a permanent curtailment of power generation that translates to as much as 10 hours of planned blackouts for some parts of the city,” Sadia Dada, a spokesperson for K-Electric was reported as saying by Bloomberg.

Speaking at a press conference on Monday, Lahore Chamber of Commerce and Industry (LCCI) President Mian Nauman Kabir said that the National Electric Power Regulatory Authority (Nepra) is doing great harm to the economy of Pakistan. “I am receiving messages from the industrialists every day, who say they are shutting their industrial units due to high electricity bills,” he said.

However, many of the country’s leading industrialists refrain from expressing their frustrations to the media, anxious not to land on the wrong side of current or future political leaders. However, there are some who are not afraid to voice their concerns.

An unnamed businessman told the Dawn newspaper, “If politicians fail to resist the temptation to take their conflict out of parliament it can make the country drift towards anarchy. Yes, we are worried for our businesses, but we are more concerned about the safety and security of our family and the future of this country.”

Similarly, businessman Musadaq Zulqarnain said that Pakistan needs a sustained growth of 7-8 per cent for several years. According to him, this continued growth needs to be powered by an increase in exports, if the country is to come out of its economic troubles.

A few other business leaders also expressed their frustration with the lack of clarity in politics and were critical of “mismatched priorities of successive governments.”

Meanwhile, a prominent member of Pakistan’s business community, Mian Muhammad Mansha, believes that the country needs to tell the untold story of its rich, untapped business opportunities, and change the world’s perception about itself. In an interview with Dawn, the billionaire industrialist said that it is vital to convince foreign investors to attract foreign direct investment (FDI) to shore up foreign currency reserves and boost economic growth.

“Our problems will be solved only when foreign investors start to invest here. You can’t build foreign reserves with exports alone. India has accumulated reserves of $650 billion mainly by attracting FDI,” stated Mansha.

His advice to the government was to borrow the needed money to stabilize the economy and then move towards rapid growth. “Once the economy starts growing, it will yield a lot bigger tax revenue than you can hope to collect by boosting the tax rates. The deficit will not matter any longer. We mustn’t just look at the budgets; these are just a small part of the economy. The bigger economy exists outside the budget and the public sector; we should grow that and tap the hitherto untapped potential of the country and opportunities it offers,” he further said.

On August 29, the IMF’s executive board approved almost $1.2 billion for Pakistan. Antoinette Sayeh, IMF deputy managing director and acting chair, criticized Pakistan’s government policies that caused “uneven and unbalanced growth,” saying that the country must implement “corrective policies and reforms” to regain economic stability, and sustainable growth.

In a recent interview with Reuters, Pakistan’s Finance Minister Miftah Ismail noted that the country was awaiting $4 billion for budgetary and other financial support from the Asian Development Bank (ADB), Asian Infrastructure Investment Bank, and the World Bank. He said that around $1.5 billion was expected to be disbursed to Islamabad next month from the ADB as a “countercyclical support facility”.

However, some reports suggest that this funding may not be enough to pull Pakistan out of its deep economic crisis. The floods alone are estimated to have caused more than $10 billion in damages, and these are just preliminary estimates. With Pakistan’s agricultural output brought to a standstill and 80% of the country’s crops destroyed, the food shortages will only exacerbate.

The concerns voiced by the business community echo the pleas of common Pakistanis, who are desperately waiting for the debilitating economic stress to ease off in the nearest future.

September 20, 2022 - Posted by | Economics |

No comments yet.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

This site uses Akismet to reduce spam. Learn how your comment data is processed.