CORPORATE WINDOW: Business in limbo

While improving macroeconomic indicators in Pakistan offer some comfort, they have yet to meaningfully invigorate the private sector, the key driver of economic growth. Commercial activity has picked up, supported by the easing of import restrictions, and the capital market is performing beyond expectations. Nevertheless, business sentiment reportedly remains subdued.

“Businesses in Pakistan must embrace new strategic thinking, leveraging technology and innovation to avoid unsustainable losses,” remarked a senior economist, speaking anonymously. “Such an approach demands realism and a clear understanding of interests, risks, and opportunities.

“While the turbulent domestic and global environment poses new challenges, it also offers opportunities. Rather than seeking patronage, businesses must focus on fostering productivity. If the market is becoming more competitive, then competition is precisely what the businesses are all about,” he added.

The renegotiation of IPP contracts has been viewed by some as being in the same league as freezing foreign currency accounts in the 1990s and the nationalisation drive of the 1970s

Among the business elite in Pakistan, there is a prevailing sense that success is often met with penalties rather than rewards in this place. Beyond bureaucratic hurdles, many corporate leaders lament that during financial crises in the country, they are disproportionately burdened with additional taxes.

This year’s renegotiation process of independent power plant (IPP) deals has further eroded confidence, not only among those directly impacted but across the broader business community. Privately, it is viewed by some as a major blow to trust in the government and its policies, drawing parallels to the freezing of foreign currency accounts in the 1990s and the nationalisation drive of the 1970s.

“Despite my unwavering support for the ruling party, its patrons, and decades of service to this country, it was utterly humiliating to be summoned and compelled to sign on the dotted line for the new IPP deal that was shared after I had already endorsed it,” a prominent business magnet privately told an economist.

Some experts attribute the demoralisation within the business community to uncertainty over the evolving power balance, the government’s diminishing capacity to support their interests, and the challenges tied to their perceived proximity to influential quarters. While this association with powerful elements may have benefitted them in the past, it risks becoming a liability for their market reputation in the future.

Others argue that the old extractive framework, which also favoured the business elite, has run its course and is now undergoing reinvention to remain viable. Such transformations are rarely easy and become even more painful when delayed. The tension within powerful circles revolves around the allocation of this burden. Businesses, in particular, feel unfairly targeted, believing they are being asked to bear more than their fair share of pain.

“Change won’t happen overnight, but the objective realities, including demands of donors and global partners, are compelling both the government and private sector to adapt,” observed an analyst.

“Digitisation has limited the scope of underhand dealings, while the transformed information and communication ecosystem has ushered in greater transparency. Together, these factors are dismantling cronyism, which thrives only in secrecy.”

Fearing unforeseen consequences, the corporate sector appears to have adopted a low-profile approach, choosing to observe until the situation clarifies before taking decisive positions. This could explain why even outspoken, media-savvy business leaders are reluctant to share their minds on the current affairs, collective challenges, and potential solutions.

“We are not oblivious to politics, but it’s not our domain,” a tycoon commented privately when asked why his community isn’t urging the government to resolve issues with the opposition for political stability. “Instead of engaging in pointless debates, businesses are analysing markets and focusing on improving operations to compete more effectively in both local and export markets. Our goal is to enhance compliance with global standards in areas like management, climate footprint, labour conditions, and gender participation.”

“In a charged environment like this, anything we say on the situation risks being misinterpreted as for or against a political party,” remarked a leading businessman, speaking off the record. “Our greatest fear is having our company’s name dragged into political debates. Politics is inherently divisive and, therefore, detrimental to business. For us, our customer base matters, regardless of their political affiliations. That’s why it’s better to stay focused on what we do best: business.”

In 2024, political risk and violence ranked as the eighth-largest concern for companies worldwide, rising from 10th place in 2023 and 13th in 2022, according to a global survey of risk management experts available online.

“The last it was ranked this high was in 2017, during the uncertainty surrounding the Brexit vote in the UK and Donald Trump’s election as US president,” the report highlights.

The cautious stance of businesses in Pakistan amid the current volatile political climate is understandable, particularly when even individuals are hesitating to make decisions about their assets and savings. However, unlike private individuals, the business community wields significantly more weight and influence. It cannot afford to retreat from difficult situations, as its actions have a profound and immediate impact on the country’s economic trajectory.

Published in Dawn, The Business and Finance Weekly, December 9th, 2024