Why is the retail sector in Pakistan booming?

Published: July 11, 2012

More women are entering the workforce, raising household incomes and allowing more consumer spending. DESIGN: MAHA HAIDER

KARACHI: 

It is the paradox that puzzles everybody: the headline numbers indicate an economy in an abysmal state, but everywhere one looks, there are people shopping like there is no tomorrow. How is this possible? An analysis conducted by The Express Tribune reveals a surprising answer: women.

While the headline GDP numbers suggest sluggish economic growth, not all sectors are underperforming. A closer look suggests that the economic slowdown has been far from uniform, with some sectors booming, while others are in a deep slump. The retail and wholesale sector in Pakistan was worth about $40 billion in fiscal year 2012, and has been growing at 5.3% in real (inflation-adjusted) terms for the past five years, much faster than overall economic growth during that period.

And the benefits of this growth have been visible throughout the country. While large shopping malls opening up has become common place in cities like Lahore and Karachi, national newspapers now carry advertisements for shopping malls in smaller cities like Dera Ghazi Khan, Sukkur, Sargodha, etc as well. The average Pakistani household is very clearly more able and more willing to shop than ever before.

The reasons for this newfound consumerism are complex. Despite all the complaints about inflation, household incomes for Pakistanis in urban areas rose faster than inflation by an average of about 1.5% per year between 2006 and 2011, a period of extraordinarily high inflation rates. (Rural Pakistan did not fair quite as well.) The average household size also fell during that period, further raising per capita gains.

But the real change appears to have taken place at the top quintile of urban Pakistani households: these households went from negative savings to savings that now equal approximately 14% of their incomes. This allows them considerable leeway in spending, which has resulted in a large, sustained, and very visible boom in retail and consumer goods over the past five years.

Food and consumer goods companies listed on the Karachi Stock Exchange have seen their revenues rise by over 20% per year between 2005 and 2010, the latest year for which aggregate figures are available. This figure is much faster than the 15.2% average revenue growth experienced by listed companies overall during that period.

Why household incomes have risen in this manner is not a subject that has been explored in much depth by economists or analysts. Yet a closer look at the labour force statistics reveals a rather interesting trend: the percentage of women who participate in the formal labour force has gone up from 16.3% in fiscal year 2000 to just over 24.4% in 2011.

Women, especially in urban areas, are increasingly contributing to their household income by taking on employment or starting home-based businesses where they are paid per unit of output.

This increasing economic contribution of women to the average Pakistani household has also led to an increase in the variety of products marketed to women. A decade ago, feminine hygiene products would hardly ever advertise. Now there are massive billboards advertising them in cities across the country. The lawn boom attracts headlines for its high-end designers selling to wealthy women, but the real money spinner in the lawn business is the medium to low-priced product being sold to the average middle class woman working in a white-collar service sector position who needs affordable clothing to wear to work.

Even banks have begun targeting women: Bank AL Habib advertises its savings account products to women through television and print publications.

The reasons for why women have entered the workforce are manifold. Education levels have been rising rapidly across the board. Fertility rates have dropped from 7.1 in 1980 to just over 3.1 in 2011, causing household sizes to decline. Women with fewer children have more freedom to pursue careers outside the home.

And persistently high inflation may also have forced many families to consider being more open to women working outside the house: a second income can clearly go a long way in changing the fortunes of a household. It has clearly already helped the economy through a particularly difficult time.

Published in The Express Tribune, July 11th, 2012.

on Twitter, become a fan on Facebook

Reader Comments (13)

  • Jul 11, 2012 - 5:42AM

    Rising sales of consumer durables like cars and TV sets as well as fast moving consumer goods (FMCG) represent a clear sign of the return of the middle class consumers who had pulled back since 2008. This improvement has been been aided by rising incomes in the rural areas stimulated by higher food and commodity prices. Fast moving consumer goods (FMCG) – or Consumer Packaged Goods (CPG) – are products that are sold quickly and at relatively low cost. Examples include non-durable goods such as milk, juices, sodas, toiletries, and packaged grocery items.

    http://www.riazhaq.com/2011/08/pakistani-middle-class-pushes-car-sales.html

    Recommend

  • Jul 11, 2012 - 7:11AM

    Thats dribble-down economics. That boom in retail is reflected in the Foreign Reserves statement ‘s Balance of Payment section on SBP’s site. Not even a zero-sum gave once you adjust numbers for subsidies!

    Recommend

  • sarwat
    Jul 11, 2012 - 10:03AM

    “The reasons for why women have entered the workforce are manifold. Education levels have been rising rapidly across the board. Fertility rates have dropped from 7.1 in 1980 to just over 3.1 in 2011, causing household sizes to decline. Women with fewer children have more freedom to pursue careers outside the home”…..This is all becuase of man’s mentality today they want wife not to take care of their children and home but they want a paertner to share their finance related burden. No women want to put her life in trouble by taking dual responsibilty.

    Recommend

  • sajid
    Jul 11, 2012 - 12:05PM

    I would say Retail therapy. Since there is really no other way of enjoyment in Pakistan for middle income families; they go for shopping or eating out to small restaurants.

    But it’s good news for the economy. To get output we need input.

    Recommend

  • Munir Ahmed Khawaja
    Jul 11, 2012 - 12:33PM

    @sarwat:

    i just want to submit that the statistics of fertility is not correct , Fertility rate in Pakistan never ever goes to 7.1but the actual position is that the highest figure was 3.5 which is now dropped to below 2%

    Recommend

  • Faysal
    Jul 11, 2012 - 2:31PM

    This is the first article that I have seen in the last five years which says that something good is also happening in Pakistan.

    Recommend

  • anum
    Jul 11, 2012 - 3:03PM

    (Rural Pakistan did not fair quite as well.)

    Fare or fair?

    Recommend

  • saleem
    Jul 11, 2012 - 3:34PM

    This is very encouraging

    Recommend

  • huees
    Jul 11, 2012 - 5:28PM

    what about agriculture sector? The largest and hidden from tax-books sector where people has made most money.

    Recommend

  • AQ
    Jul 11, 2012 - 7:54PM

    this article is brillitant because it poses some hope for the economic system of Pakistan. We need a government system that is by the people for the people. We need to reform government sectors to meet the needs of people and basically “organize” our system in a logical sense to understand what in the world is going on with our money! Only then can we see the cash flows of our country and the GDP and the weak points in industries that be targeted for improvement. Lets just pray that Imran gets into power soon and does something for the sake of humanity and the dividing class of people of Pakistan.

    Despite all the speculation, our economy might be prospering because apparently we have been holding everything together by some miracle ( some would call it the consumer). If it were the case that our economy was bust, we wouldent have any money to shop in the first place. Our country needs to sort out its mess, get rid of the male dominated mentality and it can open windows of opportunties and bring Paksitan our of the “3rd world country” title.Women should be empowered and shouldent fear stepping outside of their house.

    And also, God bless women for their spending habits. Their need for designer shoes has really proved to be beneficial society ( even if most men would think otherwise)

    Recommend

  • ayesha_khan@yaho.com
    Jul 11, 2012 - 8:38PM

    @Munir Ahmed Khawaja: “@sarwat:

    i just want to submit that the statistics of fertility is not correct , Fertility rate in Pakistan never ever goes to 7.1but the actual position is that the highest figure was 3.5 which is now dropped to below 2

    You areconfusing fertility rate ( average number of kids per womn in reproductive age) with population growth percentage.

    Recommend

  • Malik
    Jul 12, 2012 - 9:54PM

    The report makes many unsubstantiated claims without mentioning the sources of data. Most arguments explaining the so-called ‘boom’ are overstretched. We need data-backed scholarly inquiry into this supposed conundrum.

    Recommend

  • FF
    Aug 1, 2012 - 4:51PM

    I second Malik. What are the sources of this article ?

    Recommend

More in Business