New firm data: Reading the pulse of economy

Congratulations! Green shoots are visible in the economy. After a sloppy performance between the years FY10 and FY13, new companies being registered at the Securities Exchange Commission of Pakistan (SECP) have been on the rise of late. The first half FY17 has been no different. Assuming there is no slowdown in other forms of legal entities (such as AoP and partnerships, of which data is not publicly available), this trend shows that the economy is picking up.

1HFY17 alone saw 3411 new incorporations as against 2747 new incorporations in the same period last year, and 6200 new incorporations in the whole of FY16. The next question is: which sectors have the greenest of shoots in terms of new incorporations. The answer is usual suspects: infrastructure (which includes steel, power, and construction), and businesses directly pegged to the rising middle class thesis: health, education, transport, and broadcasting.

Also, while food & beverages sector didnt make it to the top-12 table here, total firms in that sector grew to 2497 in FY16, a year-on-year growth of 7 percent as against merely 2 percent growth in the preceding two years. FY17 can also be expected to witness decent growth in food & beverages sector, as the first half has seen already 82 new incorporations in the sector compared to 180 in the whole of FY16.

By comparison, the conventional export oriented sectors do not boast solid growth, as is visible from its share in new incorporations. And of course, no points for guessing that Chinese firms are gaining footprint in the country; their share in total foreign companies incorporated in Pakistan rose to 10 percent by FY16 from a share of 4 percent in FY11. This share can only be expected to grow in the ensuing years.

The periodic release of incorporation data is a good step on the part of the SECP, since it does not only serve as a good proxy to analyse the green shoots or brown leaves in an economy but also important to understand the underlying sectoral shifts.

However, the commission needs to start releasing new incorporation data (via data portal) in a manner that facilitates historical comparison across different sectors and across different provinces; it also needs to release bi-variate data (by sector; by country/province) data for better reading of the pulse of economy. Equally important is the need to clean overall firm data in terms of active versus non-active firms. Hopefully, those at the helm of affairs are listening.