Category: Business

Independent power producers and business owners in the pharmaceutical industry worriedly watched the developments of the World Bank meetings on Sunday. This is because, during the IMF and World Bank meetings, Finance Minister Muhammad Aurangzeb stressed the importance of trade links with India.

Pakistan is a net importer of power and pharmaceutical products, which ensures that businesses operating in these fields face little local competition. But if Islamabad lifts the red tape on trade with New Delhi, the Wagha-Attari border is bound to see major truck movement. This is because India is a net exporter of power and pharmaceuticals – which Pakistan could buy.

If trade is to open up, importers in Pakistan might become inclined to purchase medicines from India as opposed to the United States – which is extremely far away compared to India. This is likely to reduce shipping times from 44 days down to under a day in optimal conditions. Due to reduced travel times and costs, there might be an increase in the import value of pharmaceutical products – a figure that stood at $1.38 billion in 2022.

The Pakistani pharmaceutical industry saw a 15.3 per cent growth in 2023, with more growth projected for the near future. However, if trade restrictions are reduced, the current growth levels of the pharmaceutical sector could take a serious hit. This will be due to the world-class quality of the medicines of the well-established Indian pharmaceutical industry.

Fewer restrictions on trade with India are likely to spell bad news for local pharmaceutical companies as the introduction of extra competition flooding the market with low-price medicine will reduce both growth rates and profit margins.

Additionally, with Pakistan importing over $13 million in electricity in 2023, the possibility of importing Indian electricity is an attractive one. This is because India could offer more competitive rates on their electricity than our current trading partner, Iran.

Moreover, if India is to sign power deals with Pakistan at beneficial rates, independent power producers might sense danger, too. This is due to the fact that earlier this month, five of them were let go as Islamabad terminated their contracts.

However, if trade is to open up, it will significantly contribute towards a welfare increase for citizens. This is because consumers will have a wider variety of goods to choose from in addition to lower prices.

Local businesses, however, will also have to reduce their prices accordingly if they want to ensure that a steady stream of customers purchase their products.

A few local industries might be able to capitalize on normalizing trade relations with India. These could be the sports and cement industries. With Indian cement exports falling over 65 per cent from 2015-2022 to meet domestic demand, Pakistan’s cement industry could step in and capitalize on Indian demand.

Most importantly, on a macro level, the normalization of trade and restoration of Pak-India relations will likely result in a great deal of prosperity for Pakistan. This is because the economic binding and strengthening of trade links between the two nations will reduce the political tensions – and the resources that are expended on said tensions.

With Aurangzeb’s mindset on achieving economic prosperity, the main question on everyone’s minds is whether this plan will ever come to fruition. The answer can only be found with time.

Textile exporters expressed great displeasure over the government’s decision to stop the supply of natural gas to their power plants. Islamabad’s decision puts the USD 18 billion textile export industry at risk by leaving it to function on the national power grid.

While the motivations are not entirely clear, experts believe that by cutting the gas supply to these independent power plants, the government is trying to increase its power supply revenues. This is because these power producers operate outside of the national grid, which makes it a tough activity to tax and regulate.

For business owners in the textile sector, reverting to the national grid is a huge setback. This is due to the unreliability of the distribution companies that are infamous for power outages and fluctuations. While fluctuations might not be an alarming issue in residential areas, for the textile industry, they can render expensive machinery useless.

This is primarily the reason why many textile manufacturers banded together to set up these independent power plants, as they were a stable source of power. However, with the government’s metaphorical axe coming down on these power plants, textile business owners will have no choice but to comply.

Moreover, as per the Pakistan Textile Exporters Association (PTEA), the national grid will result in higher production costs due to transmission and distribution losses – inefficiencies the grid is known for.

For exporters, this spells bad news as a rise in production costs will result in a loss in the competitive edge that Pakistan’s textiles have in international markets. This is because Pakistani textiles will not be as attractive to competitors due to the higher price tag when compared to other countries offering the same product for less.

With Pakistani textile company Keywin Trading Ltd and other local players signing USD 40 million worth of agreements with Chinese firms at TEXPO 2024 (Textile Expo), the decision to cut gas supply to independent power plants comes at a bad time.

This is primarily because, aside from switching to the costlier national grid, textile manufacturers have no real alternative to turn to anymore. Exporters who lose out on international contracts due to higher prices might have to shut their factories down and lay off thousands of workers.

Is the crusade against these power plants even worth it if it means that the textile sector gets caught in the crossfire? Before anyone jumps to answer this question, perhaps it is best to note that the textile sector is singlehandedly responsible for 60% of the country’s exports.

BYD, a leading electric vehicle (EV) company, has introduced its new models, the Seal and Atto 3, in Pakistan, according to PakWheels.

In Pakistan, the BYD Seal’s Dynamic model is priced at Rs14.79 million (ex-showroom), while the BYD Atto 3 Advance model is available at Rs8.9 million.

The BYD Seal comes with a powerful 82.56 kWh battery, providing an impressive range of up to 650 km. The car also uses BYD’s signature Blade Battery, which powers the four-wheel-drive version to go from 0 to 100 km/h in just 5.9 seconds.

For added convenience, the Seal’s high-speed charging allows it to go from 30 per cent to 80 per cent charge in about 30 minutes. The performance variant of the Seal can accelerate from 0 to 100 km/h in just 3.8 seconds, according to BYD’s official website.

The BYD Atto 3 comes with a 49.92 kWh battery and has a range of 410 km. It can accelerate from 0 to 100 km/h in 7.9 seconds and also includes the Blade Battery, allowing it to charge from 30 per cent to 80 per cent in half an hour.

Last year, BYD sold over 412,000 units of the Yuan Plus EV – known as the Atto 3 in global markets – with around 100,000 of these being exported. This means the Atto 3 made up 42 per cent of BYD’s total car exports last year.

Business owners in Punjab are preparing for tough times ahead as the provincial government of Punjab missed the budget surplus goal set by the International Monetary Fund (IMF) for this quarter by a staggering 182 billion rupees. Not meeting the IMF stipulated objectives might foster bad will as international lenders will be weary of extending loans to Pakistan in the future.

Suppose lawmakers in Islamabad direct Punjab’s provincial government to meet the budget surplus goal at any cost. In that case, it will likely spell bad news for the businesses and people that call it home. This is because a budget surplus can be increased via either reducing government expenditure or levying higher taxes: Neither of which are optimal.

While customs duties and corporate taxes remain under Islamabad’s control, the provincial government in Punjab has the authority to raise service and property taxes. This is likely to happen as the surplus goal for this quarter was missed by a margin of an uneasy 53%.

According to Punjab’s Housing, Urban Development, and Public Health Engineering Department (HUDPHED), there were 1,680 approved construction companies in 2022, with many more operating unofficially without approval. If property taxes rise, the construction companies are expected to suffer as their clients will be stuck paying the higher taxes leaving less money for the owners of the companies.

Moreover, an increase in services tax will cause businesses to lose out on either profits or customers. This is because businesses will have to make the tough decision of either absorbing the higher sales tax while holding prices constant or passing on the tax to their customers in the form of higher prices – which might turn customers away.

If the government of Punjab decides to raise the surplus by decreasing its expenditures on projects, this will be bad news, too.

This is because businesses that rely on public contracts will suddenly not be able to secure new contracts. And with the provincial government tightening its metaphorical belt, the employees of these businesses will be pushed to do the same too.

This is because the loss of contracts might cause businesses to lay their employees off. The result of this decision can only be negative as laid-off workers will think twice before spending money, which will translate into a loss of sales for local businesses.

While experts believe that following the conditions of the IMF is necessary, this discipline might stir up some issues for businesses. For now, all eyes are on the government of Punjab, and only time will tell what is to happen next.

Business owners look towards the State Bank of Pakistan (SBP) to cut interest rates yet again as the inflation rate reached a low of 6.9 per cent in September 2024. The interest rate is expected to fall around two per cent to 15.5 per cent – the lowest in around four years.

The SBP, like other national central banks, uses the interest rate as a tool to control the inflation rate. With annual inflation rates touching 29.18 per cent in 2023, the SBP set an interest rate of 22 per cent to maintain skyrocketing price levels.

With inflation rates touching a 44-month low, however, economic experts believe that the state bank will reduce the policy rate.

Recently, inflation rates have been dropping steadily and September’s sharp decline of 28 per cent in the monthly inflation rate is proof of just that. This is certainly good news for businesses that have been affected by high inflation rates.

This is because they had been suffering from having to pay extortionate “menu costs”. Menu cost refers to the expense a business has to pay to order new price tags, put up new billboards, and as the name suggests, print new menus.

Aside from these costs, the previous year saw a slowdown in sales as customers experienced a “sticker shock” factor every time they found out that prices had increased. However, with inflation rates expected to fall to as low as six per cent in October, businesses are expected to recover even faster than last year’s surge in inflation.

This expected drop in interest rates is likely to spell great news for businesses. This is because investors who had their money parked in savings accounts in banks will find it more profitable to invest in actual businesses.

This will create a huge shift in funds from savings accounts to business projects.

For reference, the average return to the sugar industry, considered to be extremely profitable, in 2023 was 18 per cent while interest rates sat at over 20%. A rational businessman would not forgo a risk-free return in favour of a risky investment that has a lower return.

With interest rates projected to drop to 15.5 per cent, however, a shift in funds will likely be seen from banks to businesses.

Moreover, the PSX (Pakistan Stock Exchange) has seen an incredible year, sitting at just under 89,000 points. Increased investor confidence is likely to continue with dropping interest rates as more money will pour into the stock exchange from banks.

Aside from the increase in projected investment levels by external investors, business owners will probably be more inclined to finance projects using debt if interest rates drop. This is because they will know that they now have to pay much lower interest payments if they borrow money.

Likewise, consumers might also take up these cheaper loans to buy items from businesses – increasing the sales of business owners. If SBP slashes interest rates, businesses are set to profit enormously.

Pakistan’s foreign exchange reserves have witnessed a slight increase of $18 million in one week.

The latest data released by the State Bank of Pakistan (SBP) shows that this increase was witnessed in the week ending on October 18, which has pushed the central bank-held reserves to 11.04 billion.

Total reserves held by the country dropped by more than $94 million to $16.02 billion on a weekly basis.

The reason behind this reduction can be attributed to the commercial bank holdings, which dropped 2.20 per cent, or $112.2 million, to $4.98 billion in the week under review.

This fiscal year, the reserves held by the SBP have increased approximately 34 per cent, or $2.82 billion.

During the same period, the Pakistani rupee has remained largely unchanged against the US dollar, apart from minor gains and losses of a few paisas. 

As of today, the PKR stands at Rs277.84 per US dollar, while one British Pound holds a value of Rs360 against the Pakistani currency.