Business confidence improves, but still negative

OICCI cites positive changes in political, economic situation for improvement

KARACHI:

The Overseas Investors Chamber of Commerce and Industry (OICCI) on Tuesday reported that business confidence in Pakistan improved seven percentage points but it still remained negative 18% in October-November 2023.

Results of the Business Confidence Index Survey (BCI) - Wave 24 suggested that business sentiment had bottomed out at negative 25% in May 2023 compared to positive 17% in May 2022.

“This improvement is attributed to positive changes in the political and economic situation in the past few months. Stable macroeconomic indicators, such as forex (rupee-dollar exchange) rate and inflation, combined with positive performance of the Pakistan Stock Exchange, have notably contributed to fostering business confidence among the respondents,” the OICCI said.

On the flip side, however, more than three-quarters of respondents pointed out that the current economic situation would adversely affect their businesses, with high inflation being the biggest concern.

Increased production and operation costs will eat into profits, and limited transfer of price burden will compound the impact on businesses.

Going forward, the respondents identified key threats to their businesses which included rising inflation, high taxation, rupee devaluation, inconsistent government policies, load-shedding, corruption and bribery.

Sharing results of its latest BCI – Wave 24, conducted throughout Pakistan between October and November, the OICCI said the outlook on new investment, business expansion and job creation had improved.

Businesses are wary of expansion as new orders remain in negative territory. However, this wariness has decreased as the confidence index covering expansion plans of businesses for the next six months has improved by 2% (negative 6% compared to negative 8% in W23).

Sectorial expansion plans showed an increasing trend, where manufacturing (12%) and services (9%) sectors remained the most optimistic, recording improvement of around 15%. Retail sector (-9%) also showed an increase of 6% but remained in negative for the next six months.

Employment opportunities are expected to decrease by 9% for the next six months, whereas in the previous wave they were expected to fall by 11%. “This indicates that businesses expect the environment to improve.” 

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Capital investment plans are one of the biggest contributors to the increase in overall business confidence with an improvement of 22% for the next six months, reaching negative 4% compared to negative 26% in the last wave.

Manufacturing sector sentiment recovered by one-third whereas services and retail sectors recorded increase of 14% and 11%, respectively, for the next six months.

In the prior six months, the manufacturing sector confidence improved by nine percentage points to negative 10% compared to negative 19% six months ago. Similarly, the business confidence in services sector increased by eight percentage points to negative 18% compared to negative 26% earlier.

Business confidence of retail and wholesale sectors ticked up four percentage points, but largely remained negative at 31% in the current survey compared to negative 35% in the previous survey.

Conducted face-to-face across the country, the survey included participants representing almost 80% of gross domestic product (GDP), with a higher weightage given to business stakeholders in the key centres of Karachi, Lahore, Islamabad and Faisalabad, the trade body said.

The BCI of four key metro cities (Karachi, Lahore, Islamabad and Faisalabad) collectively recorded a notable enhancement of 6% during Wave 24, moving to negative 15% compared to negative 21% in the last wave.

This upswing is driven by an optimistic outlook for the next six months, particularly concerning the business climate and the industry. Positive trajectory is further fueled by anticipated gains in return on investment and a concurrent increase in capital investments.

The BCI of non-metro cities (Peshawar, Quetta, Rawalpindi, Multan, Sialkot and Sukkur) was negative 29% during Wave 24, marking an improvement of 10% since Wave 23.

According to the OICCI, almost all attributes increased, collectively pulling confidence. Prominent reasons include increased confidence to make capital investment due to significant improvements in the stock market and overall business situation.

Published in The Express Tribune, November 29^th, 2023.

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