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Performance of corporate sector 2012

Published on 31st dec, 2012, Edition 01, 2013

 

Pakistan faces new challenges and opportunities every day. Reduced availability of financing for capital investment, unsafe working environment, law and order situation, continuous devaluation of rupee against other currencies, lack of gas and electricity and constant pressure for reviving the economy are just a few. Corporate sector vulnerabilities and poor governance in general are frequently being identified as important contributors to the Pakistan’s current financial crisis. Despite all this, Pakistan’s corporate sector has performed fairly well in 2012.

Pakistan’s corporate sector consists of three entirely different segments, one is public; other is private and third is semi-public or semi-private sector. Each segment has its own structural imbalances, which directly impacts their financial and technical performances. However, there is no two opinions that overall economic performance of Pakistan is relatively poor and the fact is reflected in almost every indicator. There is also ample evidence indicating the dismal performance of state sector enterprises in Pakistan e.g. PIA, Pakistan Steel, Railways, NTDC, DISCOs’ etc.

Pakistan ranked on 83rd number in deteriorated business environment in 2011. In just 12 months, country slipped from 75th to 83rd number in the list of good business countries. The World Bank has also published the Doing Business 2013 data for Pakistan and on overall basis country is ranked at 107 out of 185 economies for 2013, which is 3 points lower than 2012. Respective ranking on individual category is given hereunder; starting business (98), dealing with construction permits (105), getting electricity (171), registering property (126), getting credit (70), protecting investors (32), paying taxes (162), trading across borders (85), enforcing contracts (155) and resolving insolvency (78). From 2012, the raking has dropped in all except two, in this situation when Pakistan is ranked at 171 in getting electricity, how business environment can be improved and how business can be done.

However, it is the duty of the government to provide better business environment, economy of Pakistan is facing multiple challenges including energy crisis, hefty decline in investment, low tax revenue, law and order problems and outflow of capital yet since July 2012, more than 1000 companies have registered with SECP. The growth reflects expansion of documented, formal and structured corporate sector, which results into more business opportunities and development of the economy.

Country might have seen shortage of gas in 2012 but the performance of oil and gas exploration companies mostly semi-public was excellent where sector has seen healthy growth in profits and earnings though results of exploration of new gas and oil reservoirs were not too encouraging. In a recent development, three state-owned oil and gas companies PPL, PSO and OGDC decided to acquire shares in a planned liquefied natural gas (LNG terminal) in an attempt to give fresh impetus to the import of LNG. Moreover, PPL also decided to buy out the assets of Ireland based private group Tullow Oil located in Pakistan and Bangladesh. Earlier, PPL has also bid to acquire Pakistani assets of British Petroleum (BP), which was eventually rejected, as well as bidding to acquire the assets of MND Exploration and Production in Pakistan and Yemen. Oil and Gas exploration companies are expanding their operations domestically and globally and have won contract in Iraq. Federal government has also postponed the launch of OGDCL exchangeable bonds with a transaction size of $500 million in the international capital markets due to political uncertainty in the country otherwise it would be a big boost to the energy sector of Pakistan.

Local companies especially companies in the oil and gas sector have performed well during last two years and have crossed revenue target of $1 billion. PSO was the only company few years back which crossed the revenue target of $1 billion and was once included in the big 500 companies of Asia but things are changing. Now there are a number of corporate entities that have expanded tremendously and were seen as global corporate entities in 2012. Such rapid and consistent growth will continue to impact significantly on the economy of Pakistan.

 

On overall basis, Pakistan’s textile sector has performed well during 2012, which contributes roughly 60 per cent of total exports of the country. Due to sever energy crisis, textile is also suffering badly but other factors mainly reduction in KIBOR and deprecation of Pak rupee has helped the textile exporters a lot. The performance of textile sector could have been even better if some of the existing policies and practices were revised earlier. However, 2012 recorded a decent ratio of textile exports to many of the European, American and Middle Eastern markets. Not only the raw material, Pakistan also managed to export hundreds and thousands of finished products to these global markets, showing the real potential lying in our textiles and garments sectors.

Performance of banking sector in Pakistan remained satisfactory during 2012. Banking sector is experiencing a declining spread since the cumulative cut of 400bps in discount rate over the last two years. The declining policy rates have resulted in decline in lending rates while SBP decision to increase minimum return on PLS savings accounts have kept the deposit rates relatively stable, adding further pressure on banking spreads. After seeing mammoth NPLs in the last few years, the banks have now turned conservative and increased their holding of government investments. Government lending remained preferred investment of banks in 2012. Due to this, lending to the private sector has dropped, which is not an encouraging development for the private corporate sector. One of the leading multinational banks in Pakistan, HSBC, decided to exit the country which is viewed as a setback for the banking sector in Pakistan. This was HSBC’s second exit from Pakistan in last 15 years. Citi Bank also sold its consumer banking division in 2012. Islamic banks in Pakistan are all set for expansion as they are competing increasingly with conventional lenders in attracting mainstream customers. Pakistan has ranked 17th out of the 57 Organisation of Islamic Cooperation (OIC) Islamic finance markets in terms of assets.

Cement sector is one of the few sectors in Pakistan which has performed really very well in 2012. Profitability grew by nearly 8 per cent whereas the impact was not limited to the bigger players of the industry only. 2012 being the last year of the current governments in center and in all four provinces, hence all the five governments are trying to complete their infrastructure projects before election, which is one of the reasons for the significant growth of cement sector in the country. Besides, Pakistan has also started exporting cement to India and Afghanistan. The profitability can be seen from the fact that Lucky Cement group decided to buy the soda ash, polyester fiber, life sciences and chemicals business from AkzoNoble , which is also setting up a cement plant in Kango.

While summing up, 2012 was not too bad for the corporate sector of Pakistan despite all challenges. Business community is asking for more government support, better monetary policies, and better law and order so as to strengthen the private sector and to attract local and foreign investment in various potential sectors of the country. There is a need to develop and implement comprehensive long-term economic policies, which is to be based on country’s huge wealth of natural resources. It is equally important to make a comprehensive long-term plan for electricity generation through hydel, coal and renewable energy sources. In order to make high investment by the corporate sector, Pakistan requires bringing together the right incentives, a good governing structure and providing a level playing field. In coming days, corporate sector will play a bigger role in the development of the country.

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