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July 8, 2020

On a wing and a prayer

Business

July 8, 2020

LAHORE: Improvement, if any, in the economy has got nothing to do with the government policies, bluntly speaking, the businesses are somehow surviving the most depressing circumstances without any hope of transparency or rule-based governance, only because they are compelled to.

Trade and Industry seems prepared to operate in new normal. This new normal has got nothing to do with what was caused by COVID-19 but it does relate to a situation, where you operate under an incompetent regime and move out of businesses that have become unviable due to flawed policies.

This government is making efforts with regards to ease of doing business but is doing nothing to reduce the cost of doing business. If registration of businesses is streamlined it would definitely attract new entrepreneurs. But some entrepreneurs get a big shock when they find that investing in any industrial sector is not viable. You can establish a stitching unit with great ease, but you would find selling the apparel impossible in global markets because of high costs. They cannot avail the duty tax remission for export (DTRE) scheme for small and new businesses because of numerous complexities involved and speed money needed for approval and then at the audit of the use of goods imported under DTRE.

The entrepreneurs are reluctant to invest in the automobile sector because of the absence of a guaranteed long-term policy. Those that invested on the basis of announced long-term policy are ruing their decision as the auto policy has been tinkered many times in the past 23 months. The impact of COVID-19 on car production was witnessed in March 2020, but the sales were already down by average 40 percent even in the earlier eight months of last fiscal. There is in fact no stable and guaranteed long-term industrial policy for any sector in this country.

We have an overly optimistic adviser on commerce and trade that takes minor improvements in exports as a sign of long-term improvement. He conveniently ignores the fact that there have been numerous ups and downs in export performance during past 23 months. He should not give any hope until there is a sustained gain in exports for straight three months.

Exporters are facing a torrid time after the pandemic. They are operating on very thin margins and will not be able to sustain these low margins for a long time. Pakistan needs a marketing strategy that protects its exporters from exploitation of foreign buyers. The Bangladeshi and Indian governments are in constant contact with the governments of developed economies to ensure the safety of the payments of their exporters. We have left our exporters at the mercy of foreign buyers.

The economy was in gloom before the pandemic because its macro side was not under the control of this government. After COVID-19, nothing is under its control. Rupee is oscillating in range of 165-168, depending on the speed of borrowed foreign inflows. One wonders for how long these inflows would continue to come. The hot money thankfully has left the Pakistani market as the interest rates are likely to remain low. The inflation has receded after COVID-19 but the way things are being mismanaged by this government the inflation is bound to go up.

The rupee devaluation will have inflationary pressure. The increase in petroleum product rates (another likely next month) would be inflationary. The power and gas rates have to be enhanced under IMF directives, which would create inflation. Moreover, the cost of production would also go up. The five exporting sectors might get power and energy at subsidised rates, but all other industries would come under pressure and may lose markets to imported products.

As the things stand now, it looks that only the government feels itself in comfort zone. It is a temporary illusion because of huge foreign inflows that we will have to pay back. The industries are looking for cover, which they do not find anywhere. The general public is having nightmares. Nothing is going their way. Their incomes are declining, and the rate of every item is going up.

After COVID-19 we will see more economic activities in the informal sector, while the formal sector would shrink. Larger textile houses would weather the storm but those operating spinning or weaving only would have to struggle to survive. When the economy is directionless only the most efficient survive. In fact, some gain efficiency in adversity. But in modern times technology upgrade is must for survival. Most of our entrepreneurs are operating against the currents, by trying to survive with obsolete technology.