NationalVOLUME 15 ISSUE # 13

Business looks to the future with confidence

As we all know, these are difficult times for the economy and business in general. However, findings from a recent business survey suggest that while businesses are generally pessimistic about the overall direction of the country, there are some people who feel that the next year is going to be good for their business.

Gallup Pakistan has recently released a new Business Confidence Index to measure the business community’s reactions. This is the first part of the survey, conducted with owners and managers of 433 businesses between October and December 2019, in sectors such as manufacturing, construction, financial services, wholesale and retail trade. The survey overwhelmingly represents the Punjab (73% of respondents) and does not include Balochistan.

Since there is no benchmark available for the survey, it isn’t possible to evaluate the change in business sentiments over a period of time. Still, some of the findings are instructive. For instance, 60 percent of the surveyed businesses indicated that Pakistan was heading to the wrong direction. What is not clear is which factors the respondents kept in the mind while expressing the sentiment.

Over 60 percent of respondents each in the Punjab, Sindh and the federal capital indicated that Pakistan was heading to the wrong direction, but 78 percent of the respondents from Khyber Pakhtunkhwa said the country was heading to the right direction. It may be added here that in KP, the PTI was re-elected with a strong majority, with the Punjab turning a divided electorate in the 2018 elections. It means that there is something that the PTI is doing right in KP, especially when it comes to keeping the business community involved in policymaking.

However, in the midst of gloom, some 43 percent of the respondents noted that the coming year would be “better” for their business, whereas 36 percent said the next year would be “worse” and 16 percent expected no change in their business fortunes. The overall net optimism score of 7 percent is a conundrum: why some respondents expect their businesses to do better in the future even as a majority sees the country going to the wrong direction?

KP’S optimism level is 56%, followed by Sindh (17%) and the Punjab (4%), whereas Islamabad was the most pessimistic among the lot (-25%). Net optimism was higher for businesses dealing in local market (9%) than businesses dealing in import/export (net optimism: 2%). This is rather pradoxical, as LSM data show that export-oriented industries are doing somewhat better than industries that cater mainly to local consumption. Importers, however, are feeling the heat more than others as inward shipments have gone down due to import reduction policies.

We must remember that this is the first part of Gallup Pakistan’s survey which means that the picture will be clearer when findings of the next part are published, especially relating to the two broad categories of “industrial” and “services”. This will ensure that findings can be used alongside other such surveys. Also, it would help if sentiments relating to production, sales, employment, investment, credit, etc. are included in subsequent survey reports.

It is interesting to note that Gallup’s findings are in line with the current negative sentiment and expected positive sentiment as reported in the State Bank of Pakistan’s recent Business Confidence Survey. Within the SBP’s index, the current business confidence index came in at 40 for October 2019, up from 37 in August 2019. This reading seems to correlate with the overall findings in the Gallup survey where the country is deemed by most business owners and managers to be heading to the wrong direction.

Significantly, SBP’s expected business confidence index reading of 56, up from 54 in August 2019, is reflected in Gallup survey’s favorable net optimism score. However, this business sentiment is at odds with declining consumer confidence. Data from SBP’s recent consumer confidence survey (November 2019) shows that consumer sentiment is bogged down by heavy inflationary expectations, as individuals were more depressed about their purchasing power in the coming days.

In view of the weakness of the recent macroeconomic recovery, it will take some time to create suitable monetary and fiscal conditions for economic expansion which, in turn, will cause the consumers to stand up for higher demand growth. The upshot is that the government should try to improve the business sentiment by involving the industrialists and traders more in the policy-making and budget-making process. The key to economic growth and consolidation is to make things easier for businesspeople, who at the moment are frustrated.