MNCs to transform strategy in line with changing policies

PM aide asks them to help produce raw material locally, engage in recycling business

Salman Siddiqui February 25, 2019
Their dominant role earned them up to 345% average return on equity in 2017 compared to 243% in 2016. They are getting a comparatively higher return on equity in Pakistan compared to their sister concerns and parent companies in the global market. PHOTO: FILE

KARACHI: As the world is changing fast, the time is ripe for every sector of Pakistan’s economy to transform business as the current government is also taking broader policy initiatives to shore up a slowing economy.

The Pakistan Tehreek-e-Insaf (PTI) government is introducing structural reforms with prime focus on giving a boost to exports and reining in imports to ease the pressure on foreign currency reserves and achieve sustainable economic growth.

To ensure the desired shift takes place, the government is offering incentives and welcoming new investment in export-focused and import-substituting industries.

The same was highlighted in a huddle with foreign direct investors, better known as multinational companies (MNCs), which make heavy import of raw material to produce goods for domestic markets.

Last week, Adviser to Prime Minister on Commerce and Industry Abdul Razak Dawood invited high officials of several MNCs to his office. He praised them for their historic role by pouring huge investment into Pakistan’s economy over decades, contributing to the national exchequer in shape of taxes and serving the underserved people, even in remote areas, through branded and packaged products.

Indeed, the role of MNCs, particularly those working in the area of fast moving consumer goods (FMCG) like packaged milk, home and personal care products such as soaps, shampoos, detergents and pharmaceutical products, has grown remarkably in the domestic economy.

Many of them have turned into industry giants in their respective areas and are now dominating different sectors by providing key products to a large part of the population and at the same time giving jobs to a huge number of workers and making handsome profits as well.

For instance, about 80% of the packaged milk market is in the hands of MNCs. Similarly, they have around 75% share in the branded home and personal care product market and are also holding a majority share in ice cream and beverages markets.

Their dominant role earned them up to 345% average return on equity in 2017 compared to 243% in 2016. They are getting a comparatively higher return on equity in Pakistan compared to their sister concerns and parent companies in the global market.

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Sales of most of the MNCs in Pakistan have beaten their turnover in global markets by three to 10 times because of a fast growing middle class and outreach to underserved people in rural areas.

Dawood urged CEOs of the MNCs to work in collaboration with domestic companies in order to produce and utilise local raw material for manufacturing finished products. Foreign companies import vegetable oil worth $4 billion a year for use in home and personal care products. However, the edible oil can be produced in Pakistan in association with domestic oil processing companies.

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They were also asked to consider goods export as they had worldwide presence and had been doing that in many markets like that of India.

They were told to consider investing in the collection and recycling of packaging material as the increased use of them was impacting the environment.

Turning point

“Good news is that they (MNCs) have agreed to do the needful at this turning point in the economy, become part of sustainable economic development and continue their journey in Pakistan,” a source said while talking to The Express Tribune.

MNCs will again meet the PM adviser after three months where they will share new plans and strategy.

“Paul Polman, until recently the CEO of Unilever Plc, moved Unilever away from short-term profit considerations to long-term sustainability of communities and the environment. Time has come to extend this idea further to include sustainability of the external account by minimising imports and maximising exports,” the source said.

Talking to The Express Tribune, Pakistan Business Council CEO Ehsan Malik said: “Profitability and returns of MNCs are a result of consistent investment in good and tough times in Pakistan. They have over decades built strong brands, which delight the consumers and give them pricing power and high margins.

“Commitment to sustainable and responsible growth should, in view of the acutely stressed external account of the country, see heightened focus on exports and import substitution. It is also reasonable to expect those engaged in selling packaged goods to help recycle the packaging material. I am sure that as responsible corporate citizens, they will rise to these opportunities,” he said.

Pakistan’s foreign direct investment (FDI) policy offers 100% foreign ownership and profit repatriation with hardly any sector differentiation.

MNCs in the FMCG sector have reaped demographic dividends but are well within the framework set for them and have helped improve quality standards and practices.

“The country needs more investment and the policy should differentiate positively in favour of investment into sectors that maximise exports and create import substitution. Such areas include agribusiness, tourism, fisheries, livestock and mining as well as capital and risk-intensive infrastructure and oil and gas exploration,” Malik said.

“We should also encourage joint ventures and stock exchange listings to maximise local participation. None of this should result in alienating the existing FDI. Indeed, its global network and knowledge can be deployed to create an even more positive impact on the economy.”

the writer is a staff correspondent

Published in The Express Tribune, February 25th, 2019.

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