The implications of economic indicators for businesses

CEO and President Engro Corporation Limited Asad Umar.

KARACHI: An accurate understanding of where the economy is headed is essential for companies, according to CEO and President Engro Corporation Limited Asad Umar, who believes that economic indicators carry vital information for marketers about the kind of customers they should expect to target.

“Let’s talk about numbers,” said Umar while addressing members of the Marketing Association of Pakistan (MAP) at an executive seminar titled ‘Economic Outlook of Pakistan’. “The winning strategy for companies, especially multinationals, has been to capture those moving out of the low-income category,” explained Umar.

Unfortunately, poverty remains a massive issue in Pakistan – depending on the benchmark used for measurement, it is estimated that between a third and two-thirds of the population can be categorised as poor. Coupled with the revised economic growth figure of 2.5 per cent recently made public by the State Bank of Pakistan (SBP), this paints a gloomy picture for businesses in the country.

Silver lining

Nonetheless, the man in charge of the company, which boasts the largest urea producing facility in the world, is optimistic that there still lie tremendous opportunities for local companies, which are actually in a better position to cater to the local market than multinationals. “Every challenge creates an opportunity,” commented Umar.

Emphasising the importance of coming up with revised business strategies, Umar said that even though the low-income segment of the population may not boast considerable purchasing power on an individual level, collectively it is a market that has immense potential.

Citing the success story of Engro Foods, he pointed out that the reluctance of foreign firms to invest in the country could work in the favour of home-grown organisations, which have the ability to reach the untapped market quicker.

Inflation

Much of the CEO’s talk focused on how excessive government borrowing had crowded out credit for the private sector. The government has borrowed Rs186 billion from the central bank in the first four months (July-October) of the current fiscal year alone.

Umar explained that borrowing by the government increased the supply of money in the economy, which, if unaccompanied by a matching increase in goods and services available, inevitably leads to inflation.

Interestingly, contrary to the typical stance taken by most businesses, he did not blame the central bank for repeatedly increasing the discount rate. “SBP realises that an increase in interest rates will not stop government borrowing but if private borrowing was at similar levels then inflation would have skyrocketed.”

Published in The Express Tribune, November 25^th, 2010.