A roller coaster year of two halves

Wrapping up 2023 may have left many disappointed, dazed and disoriented despite Pakistan managing to avert a sovereign default and navigating through even more challenging conditions. However, for most businesses, the year concluded on a bitter note.

Vulnerable segments grappled with the escalating cost of living and diminishing real incomes. The class that had historically adeptly navigated not only survival but also multiplied wealth and assets during challenging economic periods in Pakistan has, for the most part, lost its foothold.

Their resilience to shocks dissipated, and many businesses pointed fingers at the government, accusing it of depleting them through excessive taxes and inadequate service provisions as they struggled to adjust to the new realities of local and export markets.

Prudently outlining their stance while advocating for universalisation of their interests, they highlighted various factors constraining the potential for new investment and essential expansion to thrive in both local and global markets.

Business leaders share views of the challenges that have cast a prolonged shadow on business development

Throughout the year, elevated bank credit costs, volatile and costly gas and electricity supplies, import restrictions in industries heavily reliant on imports, political instability, weakened law and order and demand suppression collectively cast a prolonged shadow on business development.

The fundamental sectors of the country’s industrial base, spanning textiles, automotive, pharmaceuticals, consumer durables, home appliances, electronics, and more, encountered considerable distress. Fast-moving consumer goods suppliers and value-added food industry experienced relatively mild losses.

Sectors like sugar, fertiliser, cement and other building materials, along with IT service providers, performed more robustly. Agriculture performed relatively better than industry and services. According to market sources, the year turned out to be highly rewarding for the banking industry and brokers towards the end.

“Entrepreneurship demands resilience, but the last few years have tested even the most steadfast individuals. The challenges of dealing with the pandemic, floods, the change of government in Afghanistan (with the US exit), the Ukraine war and its repercussions on fuel and commodity prices, and now, topping it all, the distressing Israeli aggression in Gaza — it’s truly overwhelming to process and cope with,” expressed a fatigued businessman.

In a comprehensive response, Saquib Hussain Shirazi, CEO of Atlas Honda and Director at Atlas Group of Companies, analysed the concluding year in two distinct halves. He characterised the first six months of 2023 as particularly challenging, describing an economy ensnared in a negative spiral marked by uncertainty, indecision, a deepening balance of payment crisis, a deteriorating relationship with international financial institutions, and a shortage of foreign exchange.

The year turned out to be highly rewarding for the banking industry and brokers towards the end

Consequently, the industry nearly ground to a halt, with the restricted opening of letters of Credit (LC), the currency depreciating to over Rs300 to a dollar, a sharp decline in consumer and producer confidence, disillusionment, and limited opportunities in Pakistan further reinforcing the brain drain trend, depriving the country of its most valuable irreplaceable assets — trained professionals and skilled labour.

Certain aspects began to align in the later half of the year, albeit challenges persisted. Inflation remained a major concern, eroding the purchasing power of families, while unemployment rates saw an increase. Additionally, there was a continued tightening of monetary policy.

However, this resulted in notable improvement in the relationship with donors, and credit rollovers brought much-needed foreign exchange inflows. The stabilisation policies, including energy price hikes and an increased petroleum levy, contributed to a further rise in the inflation rate.

Despite this, there was relative stability in the external sector, leading to banks allowing the opening of LCs. As signs of economic recovery emerged, consumer and business confidence improved.

He described the year as “extremely challenging” for the automotive industry, citing import restrictions and demand suppression that significantly contracted the car market. Despite absorbing the impact, he expressed optimism that the industry’s resilience is rooted in the anticipation of long-term gains stemming from the envisioned economic restructuring to foster stability in the country.

“Several challenges that we witnessed last year not only persisted but also intensified in 2023. Costs have consistently risen, confidence remained low, and managing it all has been more than a full-time commitment,” commented a leading tycoon anonymously.

Discussing the value-added textile sector, Majyd Aziz Balagamwala highlighted its substantial challenges in the preceding year, a sentiment shared by other textile makers. He attributed the increased cost to a sharp surge in gas and electricity rates, coupled with a sluggish inflow of account receivables.

Identifying poverty, elevated utility rates and public discontent as key economic challenges for the policymakers,

Mr Balagamwala pointed out textiles and the auto industry as major losers in the past year.

On a positive note, he acknowledged the success of banking, the capital market, sugar, cement and IT companies in 2023.

Sheikh Kaiser Waheed, CEO of Medisure Laboratories and a prominent figure in the pharma sector, expressed deep concern about what he termed a hostile environment facing the drug industry. In a telephonic conversation, he emphasised that import restrictions and stringent price controls have eroded

profit margins, pushing the sector to the brink of collapse in the past year. This has not only compromised the sector’s growth but also hindered its exports, posing a threat to the pharma industry.

Yousuf Jamshed, CEO, LXY Global, acknowledged a contraction in the retail sector. He noted that while the precise data might not be readily available, anecdotal evidence suggests stagnation in retail. Due to fragmentation and reliance on cash transactions, substantiating the perception of a drastic slowdown is challenging.

However, he shared insider knowledge of several expansion plans that were deferred. With the exception of a few, such as Imtiaz and Carrefour, most megastores experienced business levels below expectations in the past year.

Aizaz Mansoor Sheikh, CEO, Kohat Cement, said the year was fairly good for the sector.

Chaudhry Muhammad Saeed, former president of the Federation of Pakistan Chamber of Commerce and Industry, with investments in multiple sectors, observed a widespread impact on industries reliant on imported raw materials.

“The challenging situation presented an opportunity to develop a local vendor industry, a prospect that remained untapped for decades.

“The real estate market attracted a significant portion of domestic savings and investment, driven by a blanket amnesty and influential players like Bahria and DHA exerting influence in policymaking. This led to overgrowth of real estate, adversely affecting other sectors,” he noted.