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Political instability has its toll on economy

It has been proved time and again that political stability plays a highly important role in the process of economic development of any country. That political instability widely affects economic potential is also a fact. However, many at the helm of affairs just do not get it. The economic surveys and ground realities say it all.

The Overseas Investment Chamber of Commerce and Industry (OICCI) this week published its ‘Business Confidence (BCI) survey — Wave 22 ‘ which presents business sentiments as of October/November 2022. Such surveys are periodically conducted by OICCI and the last one ‘BCI Wave 2021’ was conducted in March/April 2022.

Overall, Pakistan’s Business Confidence has decreased to negative 4 percent versus positive 17 percent in the previous ‘Wave’. The net decline during the six months is 21 percent.

The decline in six months is quite glaring and should be an eye opener for those entrusted with the responsibility to set things right for such a dramatic slide. Much of it is attributed to their own actions or lack thereof and the rest on mother nature and global instability.

The substantial fall in the overall Business Confidence is largely on account of a highly volatile political and economic environment during the past six months in the country and partly due to uncertainty in the region as a result of the ongoing Ukraine war and unprecedented torrential rains and floods in Sindh and other parts of the country. Also, a very high rate of inflation, increase in fuel prices and electricity tariffs and massive currency depreciation have dampened economic activity and business sentiment alike.

The main driving force behind the negative business confidence is the political instability in the country during the last six months that has had its impact in all parts of the country and on all business segments. Accordingly, the OICCI survey 2022 has rated the decline as follows:

Pakistan Business

situation: negative 37%

City Business

situation: negative 51%

Industry Business

situation: negative 44%

Company Business

situation: negative 34%

The industry in general and the company in particular are hit and stressed due to currency devaluation, increase in fuel prices and electricity tariffs and flawed trade policies. There is a significant drop in new orders, investments and job indices.

The OICCI survey reflects the ground realities. It has been reported that the ownership of the country’s second-largest cellular service provider may soon change hands as Telenor Pakistan looks to exit the country amid growing cost of doing business and shrinking prospects. The source said that the company had started suffering losses due to the swift appreciation of the US dollar. The company’s operational costs have touched $55 million, the source said, pointing out that the largest chunk of this was consumed by electricity prices. The company is reported to have paid around $17 million in power bills alone to keep its infrastructure running

As per those privy to the development, Telenor Pakistan is said to be in talks with a potential buyer to sell its operations.

The Business Confidence Survey (BCI) conducted by OICCI is based on comprehensive feedback from the frontline business stakeholders on the environment and opportunities impacting their respective business operations. The feedback covers business environment at the global, regional, national, sectoral, and own business entity levels in the past six months (P6M), as well as the anticipated business and investment environment in the next six months (N6M). The BCI survey is done face to face, across the country, covering 80% of the GDP, with higher weightage given to key business centers like Karachi, Lahore, Islamabad and Faisalabad.

The ‘BCI Wave 22’ survey sample consisted of 42 percent respondents from the Manufacturing sector, 33 percent from the Services sector and 25 percent from the retail/wholesale trade. All the three business segments registered decline over the last ‘Wave’ with the highest drop in confidence recorded in the “services sector” (24 percent), followed by retail and wholesale trade (22 percent), and Manufacturing sector (20 percent).

For the state policy makers there cannot be a better wake-up call than the methodically and realistically prepared Business Confidence Survey October/ November 2022 by OICCI. Most crucial to the country’s economy at this point in time is its shrinking revenue generation and Business Confidence that is the key to the revenue crisis.

Farhat Ali, "Political instability has its toll on economy," Business recorder. 2022-12-10.
Keywords: Economics , Economic surveys , Electricity tariffs , Economic activity , Economy , Pakistan , Ukraine , OICCI , BCI

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