The economy of Pakistan has been under scrutiny by all in the wake of the difficulties that the country is facing on many counts. Any analysis worth its name, however, needs to have the tenacity to clear through all the rubble of negative sentiment and hype, and ply at the problems that remain at the core and will have a vital impact on business and industry.
The OICCI has stepped up to the plate and has spearheaded a Business Confidence survey that addresses the key issues on ground. The strategic aim of the Business Confidence Survey: to identify/analyse key elements that affect business sentiment, confidence levels and highlights factors that limit expansion, growth and ultimately, productivity.
The survey fits in well with the main playing arena of the OICCI - to "facilitate the transfer of global best practices"; using structured and oftentimes open-ended questions, the survey streamlines and pinpoints the elements that the business community in Pakistan deems essential - and even critical for growth.
The survey is structured such that it captures the sentiment of respondents around the following areas, in both past and future settings:
-- Global business situation
-- Business situation in Pakistan
-- Local business environment in the city
-- Business situation in your industry
-- Business situation of your own company
In terms of sampling, the major sectors included in the survey are Manufacturing, Services and Retail; these are further divided into sub-sectors, and to ensure that the findings are relevant, the survey ensures that the sub-sectors included account for at least 80% of the GDP contribution.
The results from the 3rd wave (3rd quarter results) were compiled in quarter 4, 2010: overall, the results show that BCS (Business Confidence Survey) has remained more or less steady when compared with wave 2 in an analysis of the 6 months preceding the latest survey. However, BCS has shown a drastic decline compared to Wave 1 figures (from 6% to -27%); the major contributing sectors were the Retail Sector followed by the Service Sector. It is important to mention here that the OICCI members actually show a positive trend, whereas the non-OICCI members have negatively impacted the overall numbers. Compared to Wave 2 indicators though, the BCS is steadfast with an increase of 1%, brought about by an increased confidence level in the Retail sector.
-- Much of this trend is explained by the fact that 80 per cent of the total economy is plagued by inflationary trends prevalent in the market. As the survey findings illustrate, Government policies like the attempt to enforce RGST without consulting the business community, rising cost of conducting business, prevailing law and order situation in Pakistan are seen as the core reasons that contribute towards a negative trend and declining business confidence. This also has a far-reaching impact on the view that the business community is taking on regional attitudes pertaining to the cities within which these businesses operate. Of particular significance here are Islamabad and Rawalpindi which show the most negative sentiment in the wave 3 results. However, Faisalabad led this sentiment in the first quarter results.
BCI - past performance A deeper analysis of the five elements shows that not much has changed in the over-riding sentiment of our business community quarter on quarter. The Global Business Situation is certainly negative, but the key concern has always been the Business Situation in Pakistan. As mentioned earlier, there are concerns about localised problems in cities, due in part to the safety and security issues. Interestingly, while the overall economic environment dampens the eventual outcome, the outlook for the industry and the companies within its fold appears to be improving ever so slightly.
BCI - future expectation Not surprisingly, the outlook for the next six months is not encouraging; the biggest problems still remain the prevailing business situation in Pakistan overall and the regional environment in cities of business. In the final analysis, factors such as government policies, inflation, prevailing security situation are contributing consistently, if not increasingly, to this malaise. Paradoxically, despite these factors, there are some indications in the manufacturing sector that incremental capital investment may well materialise.
Overriding elements of the survey
-- Business confidence is impacted most by the fiscal, political and economic conditions in the country; an encouraging outlook would have healthy impact on the BCS.
-- The impact is felt not only at a bird's eye view, but has trickled down to the specific industries and not surprisingly, to specific cities as well. Again, this has had an impact on what the business community feels about individual businesses; it becomes a question of sustainability in the long run in the face of continuing negativity, notwithstanding the internal capabilities of companies.
-- Across-the-board, initial feelings of an upturn in the economy have declined; there is still a small segment of people that do expect a turnaround but the numbers are shrinking. The regional outlook for the cities also reflects much the same pattern, with growing numbers of people not expecting any significant improvements.
-- More people are expecting unemployment within their industries to increase; with sentiment on business expansion also showing a negative trend, there is an expectation that very little investment will be made in the development of employees (ie training and leadership development).
-- The manufacturing sector has indicated that the past six months have shown an improving trend in the business environment, in direct contrast with the service and retail sectors.
-- The manufacturing sector, according to the results of W3 survey, has shown a minor increase in plans to make capital investments in the next six months. While a negligible number, it speaks of a trend and a willingness to respond to improving market conditions. This is probably because the sector is also showing expectations of sales growth, when compared to W1 results. However, increased profitability is not expected - possibly linked to the increased costs of production.
-- The manufacturing sector also shows a positive inclination to the possibility of obtaining credit from the market, which ties in well with the positivity towards capital expenditure. However, debilitating interest rates might dampen this sentiment.
-- Within sub-sectors, real estate and the textile sector seem to be the worst hit segments of the economy indicating towards lower profit margins as well as decreasing employment levels.
-- The food industry has plans to increase employment in the coming months. Capital investment is also planned. The same has been indicated by the petroleum industry for the coming six months.
The BCI also throws up an interesting analysis between the results of OICCI members and non-member. Analysis indicates that members of OICCI have shown more resilience to the volatile business environment as compared to the rest of the economy. As the graph indicates, BCI stands at five percent for the current quarter. In sync with the overall results, OICCI member companies also saw a dip till the economy stabilised.
The survey for the fourth quarter has been completed, and the data is currently being compiled. These findings will provide the report with a more holistic approach. It will help identify trends and pinpoint the factors that have persistently contributed towards the overall dip in confidence levels. Although the OICCI Business Confidence Survey (BCS) is still in its first year, it has been very well-received by all key stakeholders in the economy and can assist in better understanding the overall business climate in the country.