The latest annual report of the Securities and Exchange Commission of Pakistan (SECP) shows some interesting trends in the economy. At the one end, box standard manufacturing and service sectors are witnessing a decline, whereas relatively smaller or unconventional sectors are witnessing an increase in corporations.
We know that finance and banking, as well as communication sectors had started saturating in yesteryears and therefore no one was expecting sharp increases in total corporations within that sector. Likewise with cost of production on the rise, amid disease of doing business, sectors like engineering, leather and textile have seen negative to slow growth in the last few years.
One noticeable trend is weak growth in food and beverages sector, where total firms have grown at a meagre 1 percent in the last three years as against an average growth of 5 percent in the preceding four years.
That somewhat debunks the thesis that food is a great business to be in, considering Pakistan’s growing middle class economy. However, it is possible that growth in food businesses is in the informal unregistered sector, whereas conventional FMCGs are witnessing a slow growth plausibly due to slowdown in rural economy.
One would have imagined that pharmaceutical sector would have also witnessed slow or negative growth in the number of firms, thanks to the government’s counterproductive pricing policies. However, the sector has been witnessing some decent growth in total firms in the last six years.
Industry sources say that the drug pricing policy amid weak quality control standards has kept pharma MNCs uncompetitive, leaving room for local mom-and-pop pharma firms who can price their products almost close to that of MNCs products without adhering to international quality standards which their MNC counterparts have to report to their regional offices. Hence, there is still enough incentive to set up pharma firms in the economy as they can keep their costs low by not following quality standards.
Among other major growing sectors, there are some usual suspects such as power generation, and fuel and energy. But it is also heartening to note that corporate farming and informational technology sectors have witnessed some sharp growth in total corporations off late.
At the same time, it is rather intriguing and firms in broadcasting and telecasting sectors continue to grow by leaps and bounds, despite that many are not making profits, to the extent that they often pay their employees salaries at a lag of three months.
Looking at things from foreign companies’ perspective, it is pretty clear that the dragon has entered the economy. Total foreign firms grew 4 percent in FY15 as against an average of 2 percent in the last five years. As is evident from FDI numbers, it is pretty obvious that foreign firms of Chinese origin are growing sharply, whereas those from the US and UK are witnessing tepid growth.
By the end of June 2013, there were 158 US firms, 119 UK, and 38 Chinese firms; as of June 2015, the number for US was at 156, 120 for UK and 62 for Chinese. The SECP would do well to release more information pertaining to foreign firms, such as sector-wise foreign firm’s data, as well as their capitalisation break-down.
The regulator is also advised to clean overall firm data in terms of active versus non-active firms, and accordingly share it with the stakeholders (via a data portal) in a manner that showcases itself as a transparent as a regulator than one which is not. The world is heading towards open data, and yet the SECPs transparency in terms of data sharing is as bad as that of FBR and other government bodies.
