Economy stumbling but regaining confidence gradually: OICCI survey

Business confidence is gradually showing signs of improvement as the economy is struggling to come out of the abyss it has been caught in the past nine months. This was sated by Naved A Khan, President of OICCI.
He said: "Although still lingering on negatives, the overall mood of the business community seems to be reeling as confidence levels are moving upwards from -27percent and -26 percent in the earlier quarters to the current -24 percent. This sense of optimism, albeit limited, in the current economic scenario, is a ray of hope and a step towards achieving our economy's potential".
The findings came as a result of the fourth quarter Business Confidence Index (BCI) undertaken by the Overseas Investors Chamber of Commerce and Industry (OICCI) and clearly indicates that while business sentiment was relatively higher at the beginning of 2010 (6 percent) when organisations were laying out plans for the upcoming months, it fell short of expectations in the second quarter. Additionally, the second quarter survey was conducted immediately after the budget, which may have contributed in lowering confidence levels. Likewise, the devastating floods may have dampened spirits in the third quarter.
The index has also tried to delve into the reasons for this slow recovery. As per the BCI, which is based on responses from heads of multinationals to owners of small businesses in busy city districts, governance is the major obstacle in the healing process. While inflation was the predominant factor for the previous three quarters, there seems to be an increasing concern about the poor governance mechanism that is predominant in the economic and business domain. There seems to be a divide among the business community regarding other key issues as inflation, corruption and the power crisis were all rated at 15 percent.
With the Budget around the corner, the survey asked for suggestions for improving the taxation system in Pakistan. Respondents suggested that the government should facilitate the segment that is already paying taxes (14 percent) along with tax impositions for the privileged segments (13 percent). Broadening the tax base and proper policy implementation were also recommended. The results strongly hint at the growing resentment in the business community as a result of being over-burdened by taxes, especially when certain well-to-do sectors enjoy tax amnesty.
Major findings of the OICCI Business Confidence Survey Quarter 4:
--- Overall, the economy shows some signs of expansion (8 percent).
--- The manufacturing sector has shown the most recovery (2 percent) as compared to 1 percent each for retail and services for the current quarter.
--- There is a sense of limited optimism as businesses are expecting the situation to improve overall. However, this trend is not reflected with respect to their own companies/businesses.
--- The services sector is the least pessimistic among the sub sectors with plans for capital expansion (7 percent) and business expansion (25 percent). There is hope for a limited albeit increase in sales (1 percent).
--- Retailers continue to be depressed, and business potential is shrinking for them in terms of both expansion and sales/profit.
--- Finance is the least pessimistic industry, followed by the automobile sector, whereas the oil and gas industry is prominently pessimistic.
--- Decrease in employment is expected in all sectors in the next 6 months, with the exception of automobiles and finance/commerce where numbers illustrate boost in employment
--- Among the cities, business confidence in Islamabad and Rawalpindi was found to be most depressed.
An overall business confidence comparison of quarter 4 vs quarter 3 indicated that the BCI of OICCI members was up by another 2 percent and moved to 10 percent. Non-OICCI members have also registered a slight improvement. However, the business sentiment remains mostly negative. It is evident from Figure 2 that the slight improvement in the overall BCI is due to better confidence level among OICCI members, and clearly manifests that it has the potential to take the economy forward. At the same time, the non-OICCI-member community continues to hide in the shadows and requires focus to return to being productive contributors of the economy. It must, however, also be considered that both categories are equally crucial and have to work together and in harmony to propel the economy forward.
OICCI is the first and only organisation in Pakistan conducting these surveys on quarterly basis. "Business Confidence Index" is an indicator to measure the sentiment prevailing in the market. The undeniable role of the survey as a tool to gauge the business and investment environment is a well established fact among the developed and developing economies. The survey helps in identifying the economic direction of the country and highlights factors that continue to affect the confidence levels of the business community.
OICCI represents over 180 foreign companies doing business in Pakistan, many of whom began operations in Pakistan over 60 years ago. OICCI is the oldest chamber in the country and region, having been established 150 years ago. OICCI members collectively contribute over 29 percent towards Pakistan's total GNP, 22 percent of total tax receipts, provide direct employment to approximately 150,000 people and spend Rs 1 billion a year on CSR. OICCI also plays an active role in terms of representation and advocacy to the government, various regulatory bodies, and policy makers. For further information on the activities of the Chamber, please log on to www.oicci.org.-PR