Pakistan has already reached a point of political turmoil and is on the brink of an economic fallout. Catastrophic floods, rising inflation, certain policy measures, and the shutdown of several companies have made matters worse for Pakistan.
According to the report by Ismail Iqbal entitled, “Pakistan Outlook 2023 No Easy Way Out”, Pakistan’s GDP growth rate is expected to be at a negative 1% in FY23. The agriculture sector will also bear the brunt partly because of economic conditions and devastating floods.
Indus Motors Company (IMC), the pioneers of Toyota, announced a temporary shutdown on 19th December 2022 for the next 10 days. They claimed that the central bank’s recent decision about obtaining prior approval for the import of “completely knocked-down (CKD) kits and components of passenger cars (HS Code 8703 Category)” was one of the reasons for the closure.
They further added that delays in approval for their firm and vendors had impeded imports and clearance of consignments thus resulting in inadequate inventory and disrupting supply chains and other production activities. This decision by the State Bank of Pakistan has not only harmed the local industry but has also shattered the confidence of foreign investors. It is primarily because the restrictions have delayed foreign payments.
Another automobile company, Baluchistan Wheels Limited (BWHL), closed its operations in December last year because of poor economic conditions. In an official statement to Pakistan Stock Exchange (PSX), BWHL stated, “In furtherance to our earlier disclosure dated December 09, 2022, regarding the temporary closure of production activities due to drop in our sales order from the OEMs [Original Equipment Manufacturers] owing to depressed demand of photos. It is hereby informed that closure of production activities of the company shall continue till Friday December 30, 2022.”
Pakistan Suzuki Motor Company also halted its operations from 2nd to 6th January 2023, due to inventory shortage and high auto prices that have crashed demand and squeezed revenues. The shutdown of major companies in Pakistan clearly reflects the gloomy situation of the sector. During the first five months of the previous fiscal year, auto sales fell by 39%, and experts say that until import restrictions are eased and energy shortages are dealt with, the situation would only deteriorate.
With a fruitful 2021 and a record investment of $366 million in Pakistan, there was a natural optimism for 2022. The year started with vigor and enthusiasm as local start-ups managed to raise $174 million in the first quarter, but it dropped in the next quarter. Leading startup companies started to lay off their employees and scale back their operations.
Among some of the big start-up companies, Airlift is at the top to shutdown and cease its operations in Pakistan. Despite raising the largest funding of $85 million in the country’s history and restructuring its business model, the company could not survive. A statement by Airlift says that “While the global recession and recent downturn in capital markets has affected economic activity across the board, it has had a devastating impact on Airlift and rendered its shutdown inevitable. On July 12, Airlift’s operations will shut down permanently.”
SWVL, an Egyptian transportation company, that started its operation in July 2019 from Lahore and later expanded its operations to Islamabad and Karachi was nothing less than a blessing for those who wanted to avail cheap local commute options. However, with the outbreak of COVID-19 and a rise in petroleum prices, the company experienced a loss in revenue and was forced to stop its operations in Pakistan.
VavaCars, another start-up that was supported by a Dutch energy and commodity trading company called Vitol, started its operations in January 2020, but after two years, completely closed down its operations. The reasons for its closure were not disclosed by the company. VavaCars was a car transaction platform that facilitated buying and selling of cars.
CarFirst, a start-up with an identical business model, also stopped its operations. The start-up was launched in 2016 and acted as a middleman, buying cars from consumers and selling them to dealers through online auctions. Careem also put an end to its food delivery services. They claim that through this decision, they will be able to deliver their non-food service efficiently.
The textile industry is the largest contributor to Pakistan’s export, but it is still suffering from economic woes. The country’s textile sector exports witnessed a decline of 15.23% in October 2022 on a year-on-year basis and the All Pakistan Textile Mills Association (APTMA) has already alerted that the country’s textile exports could fall below $1 billion.
Textile giant, Nishat Chunian Limited (NCL), has recently announced to limit its operations because of several challenges, including rising debt, low foreign exchange reserves, and an energy shortage. Additionally, the company made a statement saying “The company has an installed capacity of 219,528 spindles and 2,880 rotors in its spinning division. The company has decided to temporarily close 51,360 spindles after one month, due to current market conditions.”
Another leading manufacturer and exporter of textiles, Kohinoor Spinning Mills Limited (KOSM), informed Pakistan Stock Exchange in December 2022 to temporarily close its production activities due to global and economic turbulence in the market. Suraj Cotton Mills Limited (SURC) also started this year by curtailing its production activities by 40%. They have notified Pakistan Stock Exchange by saying, “We would like to inform you that due to the worldwide economic recession and low demand, it is not feasible to continue with full production in our plants.”
In times of economic downturns and political instability, industrial closures have made matters worse. The unemployment rate was already high and with this, it has skyrocketed. The textile sector alone has laid off 7 million employees. Similarly, Airlift laid off 31% of its workforce when it closed down. This had created havoc in the market and has compelled numerous young and mid-career professionals to leave Pakistan and explore worldwide opportunities.
According to documents available with Express Tribune, 765,000 people left Pakistan for abroad in 2022, nearly triple the 225,000 departures in 2021 and 288,000 emigrants in 2020. According to the Bureau of Emigration, a large fraction of individuals went to Saudi Arabia and U.A.E, while others flew to China, Iraq, Japan, Oman, Qatar, and others.
Pakistan’s politicians are in a state of complete denial. According to financial experts, Pakistan needs an inclusive and comprehensive economic system that is independent of political affiliations. Next, Pakistan needs to capitalize on its IT sector as it has immense potential to curtail rising unemployment and increase FDI.
Pakistan should also heavily invest in modern agricultural practices to boost its crop yield and eventually its exports. In the long run, Pakistan’s economy requires sustainable economic solutions that shall boost the confidence of consumers and investors. Political leadership should also put their differences aside, sit together and devise solutions for the development of the country.
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