Karachi: Businesses across Pakistan have communicated a minor (1%) decline in business confidence at the start of the year 2014 mainly due to rising cost of doing business, energy crisis and deteriorating security environment.
The OICCI Business Confidence Index (BCI) declined to 1% in March 2014 compared to 2% in August2013. This was revealed in the Wave 8, Business Confidence Index (BCI) survey announced in a press conference on March 25 by the Overseas Investors Chamber of Commerce and Industry (OICCI), the chamber responsible for conducting this important survey since the year 2010.
OICCI President, Asad S. Jafar quoting the survey findings mentioned that Business Confidence Index remains in positive territory for the second consecutive survey with more businesses hinting at expanding capacity and planning new investments as well as seeking to increase the work force. However, the businesses have also pointed out critical issues that need to be addressed. According to Asad S. Jafar, confidence had picked up strongly in 2013 on the back of smooth political transition and the expected reforms program of the new PML(N) government.
Talking about the performance of sub-sectors in this survey, Asad S. Jafar informed that manufacturing sector posted stronger confidence than retail and services sector. Manufacturing surged to 12% in March 2014 vs 4% in August2013. This is in line with the strong 6.4% year on year growth posted by the manufacturing sector during July to December 2013.
The services sector confidence index dipped to negative3% in March 2014 vs5% in August 2013. The retail sector has lagged behind and posted the sharpest decline as confidence index was down to negative 15% in March 2014 vs-6% in August 2013.
Talking about the possible reasons for a dip in business confidence Asad S. Jafar said that the minor decline in BCI March 2014 was due to rising cost of doing business, persistent energy crisis and deteriorating security environment. Frequent power cuts and gas shortage was listed as the biggest single reason for lower confidence (49% in March 2014 vs 47% in August 2013). Despite steps taken by government including paying out circular debt to improve supply of electricity and hike in power tariffs to reduce subsidy – energy crisis, it seems, has not eased for a vast majority of business entities.
Deteriorating law and order environment led as the second biggest deterrent of business confidence (47% in March 2014 vs 42% in August 2013). In particular street crimes, kidnapping and terrorism incidents have increased alarmingly over the last few years negatively impacting business and investments.
The most surprising part of the survey has to be the fact that these obstacles to doing business have become a much bigger issue in 2014 with 39% of firms listing it as the top problem faced by their business – a sharp increase from 26%in August 2013. This is quite surprising as expectations were high that the new federal and provincial governments would improve governance and transparency. The rent seeking behaviour of different government departments, including in the provinces and regulatory bodies seem to be a major cause of concern, for day to day normal running of businesses.
Speaking on the occasion Secretary General, OICCI, M. Abdul Aleem said that Business confidence is positive but borderline, hence offers great opportunity to provincial and federal governments to capitalize on the positive vibes by ensuring improved business environment in the country.
He added that in general the street crimes, kidnappings for ransom and threats are fuelling further fear in business community. On the energy front, government should shift gas supplies to efficient users, rationalize power/gas tariffs, ensure due payment of energy bills by state enterprises and control the line losses to bring meaningful savings.
“OICCI has submitted comprehensive taxation proposals to the government that includes recommendations such as settlement of all sales and income tax refunds within 30 days, streamlining minimum tax on turnover and to reduce corporate tax rate and document the economy to broaden the tax base amongst others,” said Aleem.
He said a better implementation of existing policies and removal of all kind of irritants in smooth functioning of businesses is crucial. He urged government to improve governance, policies and processes in line with today’s business challenges, introduce strict accountability measures at highest level, ensure regular engagement with business chambers and private sector, control the cost of doing business and work seriously on capacity building in SOEs and government departments.
OICCI BCI survey is largely attitudinal and is carried out bi-annually to evaluate business sentiments. The survey reflects feedback from a cross section of business people representing approximately 80 % of the GDP and operating in major cities of Karachi, Lahore, Faisalabad, Multan, Peshawar, Quetta and Islamabad-Rawalpindi. The respondents profile was the CEO or the owner belonging to three key economic sectors of Manufacturing, services and trade.