The State Of Commerce In Pakistan: International & Domestic
PREFACE
Some history
Ever since my short stint at the Ministry of Commerce (MoC) in 2005, I have been trying to get the MoC and the thought community to take the growth of domestic commerce—services and construction—seriously as a policy objective given that it had become the largest sector of the economy. Although the idea gained credence very quickly, little has been achieved yet. My insight was that in our pursuit of mercantilist policies, this sector was neglected.[1] Yet this sector was extremely valuable in any value chain analysis.[2]
Policymakers, especially the international consultant whom we look up to, continue to regard this sector of the economy with suspicion with epithets of “illegal”, “informal”, and “black”. No effort is made to understand their issues, their contribution to the economy and employment, and the large number of problems they face.
Since then, we have seen that this is the fastest-growing sector in the economy.
At that time, I had proposed that the MoC should prepare a State of Commerce report annually to provide an assessment and analysis of commerce—both domestic and international. The Ministry of Finance prepares the Economic Survey as a broad review of the macroeconomy. The state of commercial transactions remains relatively beyond any serious review.
After nearly 2 decades, PIDE has taken the initiative and put together a “State of Commerce” report. We hope that the MoC will review it carefully and take ownership of it and, with or without the collaboration of PIDE, make it an annual event and provide information on the state of Commerce to investors and other market participants in Pakistan.
The subject
The State of Commerce in Pakistan report is approached with the Smithian (Adam Smith) view that the GDP is the sum of all transactions at any given time or during any period. Transactions are facilitated in markets where information and contracts are speedily processed with full disclosure efficiently. The key to growing the economy lies in facilitating the maximum number of such speedy and efficient transactions. The state of markets, the transactions regime and technology, and the underlying policy regime are, therefore, important to keep under review for both the government and market agents.
Predatory government and poor policymaking are stifling commerce
The report covers all aspects of internal and external trade in Pakistan to understand markets, market players and regulations in the economy. We find that the sector, though vibrant is plagued with government interventions and suspicious. Several entities in these sectors are growing but remain unable to scale up or go international thanks to poor and excessive regulation as well as a volatile policy environment.
PIDE has over the last 3 years estimated the “footprint of the government” at over 70% of the economy. In all areas of trade as well as in most markets, the government has a heavy-handed role which is stifling growth.[3]
PIDE has also calculated the cost of regulation to be over 60% of the GDP. Much of this pertains mostly to this segment—larger than 50% of GDP. Regulation agencies are a growth industry in Pakistan.[4],[5]
Several entities in construction, retail, chain stores, food, franchises, and transport are growing despite this hostile policy environment. With better thought-out policymaking, we could expect large enterprises to reach out beyond a national footprint. Such enterprises could lay the basis for a growing and solvent Pakistan.
We have studied conglomerates and large companies to find that family-run business remains the dominant model largely because of a lack of competitive markets and the government’s misguided protection and subsidy policies. In a related report on the engineering industries in the industrial triangle of Gujranwala, Gujrat, and Wazirabad, have seen that family businesses lack innovative capability as well as a professional growth culture.[6]
PIDE has presented proposals to the government for deregulation, making markets such as the much-needed real estate market as well as improving tax documentation for creating large multinational businesses. Sadly, the government remains preoccupied with borrowing and letting the lenders decide policy.[7],[8]
PIDE has some research on the much-neglected R&D market and how it is dumped upon by the international consultant who is supported by international aid and lenders. This dumping on the local thought industry is seldom talked about or discussed.[9]
Looking forward
Keeping in view the importance of the state of commerce, especially domestic commerce, the Pakistan Institute of Development Economics, in collaboration with the Ministry of Commerce MoC, has initiated the State of Commerce in Pakistan project. This present report is the first in a planned series of reports. The current volume provides valuable insights into international trade and domestic commerce. This volume presents an in-depth analysis of the state of commerce in Pakistan, with a particular focus on the twin cities. An analysis of the state of commerce in other major cities of Pakistan – Quetta, Peshawar, Karachi, Lahore, and Faisalabad – is in the completion stage and will be published soon.
It is hoped that this report will provide valuable insights into markets and policy while also providing information on the state of transaction technology, competition and market development. The detailed information in the report will assist businessmen and investors alike in making informed decisions regarding their plans and investment activities. The report is also a concise factbook and reference source on commerce in the Pakistan economy for the Ministry’s Emerging Pakistan initiative.
PIDE is grateful to various stakeholders who spared their invaluable time to contribute to the report. Special thanks are due to Mr Saqib Rafiq, President of the Rawalpindi Chamber of Commerce and Industry, Mr Asfandyar Farrukh of Hub Leather, Mr Tariq Naeem of Tanti Optics, and several other members of Islamabad and Rawalpindi chambers for facilitating in completing this report.
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[1] Haque, N.U. (2006). Beyond Planning and Mercantilism: An Evaluation of Pakistan’s Growth Strategy. Pakistan Development Review 45(1): 3–48.
[2] Haque, N.U. (2006). Awake the Sleeper Within: Releasing the Energy of Stifled Domestic Commerce! PIDE Working Papers No. 2006:11. Islamabad: Pakistan Institute of Development Economics.
[3] Haque, N.U. & Ullah, R.R. (2021). Estimating the Footprint of Government on the Economy. PIDE Working Papers No. 2020:26. Islamabad: Pakistan Institute of Development Economics.
[4] Haque, N.U., Qasim, A.W., & Khawaja, I (2022). PIDE Sludge Audit Volume I. Islamabad: Pakistan Institute of Development Economics.
[5] Haque, N.U., Qasim, A.W., & Khan, F.J (2023). PIDE Sludge Audit Volume II. Islamabad: Pakistan Institute of Development Economics.
[6] Haque, N.U. et al. (2023). Engineering Horizons: Unraveling the State of Industry in Pakistan. Islamabad: Pakistan Institute of Development Economics.
[7] Nasir, M., Faraz, N., & Anwar, S. (2020). Doing Taxes Better: Simplify, Open and Grow Economy. PIDE Policy Viewpoint No. 17:2020. Islamabad: Pakistan Institute of Development Economics.
[8] Haque, N.U., & Qasim, A.W. (2022). Regulatory Bodies: Hurting Growth Huring Growth and Investment. PIDE Monograph. Islamabad: Pakistan Institute of Development Economics.
[9] Haque, N.U. (2020). Macroeconomic Research and Policy Making: Processes and Agenda. PIDE Working Papers 2020:172. Islamabad: Pakistan Institute of Development Economics.
EXECUTIVE SUMMARY
CROSS-CUTTING THEMES
- Pakistan lags in high-tech, value-adding, and capital goods production and exports.
- There is an across-the-board failure to diversify be it manufacturing, exports, or domestic markets.
- Pakistan continues to follow the Haq/HAG model of the 1950s, which emphasizes import substitution and manufacturing for exports. However, the import substitution policy has failed. A recent example of the failure of the import substitution policy is the Mobile Phone Manufacturing Policy 2020: all the targets set in the Policy have not been achieved.
- The development of domestic commerce and domestic markets has been neglected in policymaking even though it is a significant source of formal and informal employment and contributes substantially to the GDP. The first-ever domestic commerce policy was formulated in 2021.
- The large size of the informal economy in Pakistan is primarily due to:
- Too many regulations;
- complicated documentation and registration processes;
- complexity and multiplicity of taxes;
- high cost of compliance;
- the distinction between filers and non-filers;
- adverse action by the relevant authorities;
- fear of penalties;
- difficult access to formal finance.
- In Pakistan, businesses do not grow and go global because the businesses, even in the formal sector, continue to use traditional methods for inventory and demand management, they do not use market intelligence and forecasting, and they concentrate on traditional products.
- In Pakistan, urban design, zoning regulations, and city planning have adversely affected businesses. There is a disproportionate focus on real estate and construction for housing, a lack of mixed-used buildings, and limited space for commercial activities. As a result, commercial areas are small, and businesses, especially domestic commerce, find it hard to find suitable commercial areas at reasonable rents.
- Pakistani businessmen are characterized by the “Seth” mentality. Most of the businesses are family-owned because the owners want to keep a stranglehold on the management. Even those companies that are listed on the stock exchange are controlled by the owners directly by keeping the bulk of shares. Pakistan’s stock market is dominated by 31 families.
- Pakistani businesses have very little global presence. There are at least two reasons for that. First, Pakistani businesses focus on traditional items and have no brand equity. Second, Pakistani businesses mainly invest in those sectors that offer incentives in different forms, such as subsidies and protection in the form of high tariffs on imports. It is a form of rent-seeking.
INTERNATIONAL TRADE
Exports
Pakistan is second, after Egypt, among the top 20 countries in terms of import duty cascading. Despite the tariff rationalization in recent years, high tariff cascading in Pakistan is a major obstacle to export growth. It makes it more expensive for businesses to produce for exports, and it makes it more difficult for them to compete in international markets.
Vietnam and India have surged ahead of Pakistan in exporting capital goods. Pakistan continues to export consumer goods and industrial supplies with a very small share of the export of capital goods.
From 2003 to 2021, the share of scientific equipment and instruments, which are considered a higher value-added category – has increased marginally from 1.2% to 1.5%.
Pakistan has made little progress in moving up the export product value chain. Pakistan’s bottom 10 exports, which consist of high-value-added products, have shown little variation since 2003.
Whatever little diversification that Pakistan has achieved has not contributed to substantial income growth. The 26 products that Pakistan has added to its export basket since 2005 have contributed only USD 4 in income per capita in 2020.
In Pakistan, there is little dynamism and little growth over time. Pakistan’s regional comparators – Bangladesh, India, China, and Vietnam – have witnessed an increase in the concentration of export products due to the rising levels of specialization in these economies.
Pakistan still exports 65% of its products to its traditional export partners. Pakistan has made marginal progress in terms of destination diversification.
Under the Circular Debt Management Plan 2023 the rise in energy tariffs will negatively impact Pakistani firms’ employment, investment, and sales revenues. The impact will be more pronounced for export-oriented firms in Punjab. A 1% increase in electricity tariffs will decrease textile exports by 0.5% and other manufactured exports by 0.4%.
Imports
Despite pursuing the import substitution policy for decades, there has been little to no import substitution industrialization. On the contrary, the dependence on imported raw materials has increased over time as the ratio of imported intermediate inputs to total intermediate imports increased from 2000 to 2020.
The effective protection rate – due to high tariffs on imported raw materials and cascading tariff rates – is the highest in the manufacturing sector in Pakistan. The high ERP results in expensive imported raw materials. The ERP is very low in the agriculture sector, while it is negative in the services sector.
Within the manufacturing sector, the automobile sector is the most protected industry. Cooking oil production is also highly protected. Unsurprisingly, it results in high cooking oil prices for consumers.
Eliminating tariffs on the top 10 import items would turn the trade deficit into a surplus by 2032. The trade surplus will increase both investment and GDP, peaking in 2032 at 2.29% and 1.32%, respectively. An across-the-board reduction in tariffs on other items may also have spillover effects on the other areas of the economy, which may result in an even greater increase in economic activity.
DOMESTIC COMMERCE
Dometic Commerce as Engine of Growth
Pakistan continues to follow the Haq/HAG mode of the 1950s at the expense of domestic commerce and domestic market development. The Haq/HAG model emphasizes industrial production, creating foreign exchange surplus through export promotion, and a large government footprint.
Despite being a fundamental and major part of the economy, domestic commerce has been a neglected sector in Pakistan compared to exports-oriented manufacturing: the first-ever domestic commerce policy was proposed in 2021.
As an economy develops, the markets become more complex. However, Pakistan’s market, including the wholesale & retail market, shows very few signs of developing into a more complex market. For example, graduation from having supermarkets and shopping clusters (stage 2) to department stores (stage 3) requires distribution, wholesale, warehouse activity, and professional management. Although there are signs of the presence of stage 3 in Pakistan, its markets are still characterized by stage 2.
Generally, domestic commerce in Pakistan serves consumers without any convenience and with little consumer protection. The evolution of markets to higher stages requires a change in the policy framework that allows markets and different upstream industries to develop and evolve without a heavy government footprint. Although in Pakistan, chain stores and some brands have emerged, the upstream infrastructure and legal needs do not support the transition of domestic markets to higher stages.
Pakistan’s domestic commerce is also hampered by urban planning, city development, and zoning regulations. The current zoning regulations and urban planning have hampered domestic commerce in Pakistan. As a result, space for domestic commerce, especially the WRT, is severely limited.
Domestic Commerce in Pakistan and Twin Cities
Employment and Output
Domestic commerce employs 36.02% of the labor force and contributes 52.55% to the GDP. However, despite its significance, there is sporadic and little information about what kind of domestic commerce is happening in Pakistan is available. Moreover, there is insufficient knowledge about how various policies and regulations affect this sector and market development.
Informality in the Wholesale & Retail Segment
A major chunk of Pakistan’s domestic commerce, especially the WRT sector, is considered to be informal in the sense of offering. For example, small-scale retail stores (such as kiryana stores), general stores, paan shops, and other establishments, which are widely dispersed, are mostly informal. These establishments employ a bulk of informal sector workers: 34.19% of the total informal workforce is employed in the WRT.
The formal establishments are a very small percentage of the WRT sector. These mostly comprise supermarkets in the urban centers of major cities, major retail stores, large wholesalers, departmental stores, outlets in major shopping malls, chain stores, franchises, and major brands.
The informality in the WRT sector persists partly because of the small establishments, which lack knowledge about registration; the involvement of too many departments and authorities – there are more than 120 regulatory authorities in the federal government alone; the multiplicity of taxes and the high cost of compliance; treatment of some products as both goods and services;[10] tiered taxation system that keeps a large segment of the sector in the informal sector; fear of penalties, adverse action by FBR officers; the distinction between a filer and a non-filer encourages non-filers to remain out of the tax net; the state’s inability to perform its fiscal responsibilities causes distrust in the state; accessing formal sector finance is not easy because of collateral requirements; the unavailability of sector-specific financial products, and the high cost of borrowing; and a lack of space availability in commercial areas, forcing most of the WRT sector to operate on the fringes.
Size of WRT Sector in Pakistan and Twin Cities
Since the major proportion of the WRT is informal, estimating the number of establishments in this sector is a challenging task. Nevertheless, according to the estimates of this report, there are 2.66 million WRT establishments in Pakistan. This translates into an annual average growth rate of 4.14% since 1988. The sector’s output has grown at 6.50%. These estimates imply that the WRT sector is efficient and productive.
The share of NTN holders as a percentage of total WRT establishments is only 17.22% and of these only 5.89% file tax returns. Although one cannot completely absolve the sector from low tax compliance, the authorities must also equally share the responsibility.
In the twin cities, i.e., Islamabad and Rawalpindi, there are 49,873 WRT outlets. Garments and clothing, automobiles, and food outlets constitute around 39% of the WRT activities.
Size of Establishments
More than 50% of the WRT establishments in the twin cities are small, while less than 10% in both cities. As for age, more than 60% of the establishments are less than 10 years old. However, the size and age are related: the analysis shows that as the age of an establishment increases, its size also increases.
Ownership
The majority of the establishments are in rented spaces, while 35% of the establishments are operating in owned spaces.
The WRT establishment owners operate on a sole proprietorship basis as nearly 80% of domestic commerce in the twin cities is based on sole proprietorship. While there are certain advantages of operating on a sole proprietorship basis (fewer legal requirements, lower tax rates or even tax evasion, maintaining informality to avoid regulations and complete control over the operations), the disadvantages of a sole proprietorship include limited availability of capital to expand the business, dealing with suppliers and wholesalers alone, maintaining records and inventory, and shutting down shops to visit suppliers.
Going solo is one of the reasons that the businesses in the WRT sector do not grow. After reaching a certain size, it becomes difficult to invest capital to expand the business. Entrepreneurs avoid partnership-based businesses because of weak contract enforcement. The majority of businesses, or individuals, for that matter, avoid going into litigation due to high time and pecuniary costs.
Taxes
A staggering 70% of the respondents said that they do not pay any tax. Only 13% of the surveyed establishments said that they pay income tax.
Credit
To substitute for the lack of formal credit due to several reasons,[11] an integral part of the WRT sector is rotating saving and credit association (ROSCA) schemes, commonly known as the “committee system.” The average daily contribution, as reported by respondents, is around PKR 1,500. However, in some cases, the pot is as high as PKR 20 million. Around 55% of the business owners participate in ROSCA schemes.
Business Management
Most of the WRT establishments do not have any system of inventory management. Similarly, the WRT establishment owners procure the products themselves rather than relying on online sources or company distributors. These factors are impediments to the growth of establishments.
Payments to suppliers and wholesalers are done in cash rather than online or other digital means because of various reasons, such as the distinction between filers and non-filers.
Running a WRT establishment is very complex as the majority of establishments think that they do not need any permission or registration, license, certificates and other permits (RLCOs) from any regulatory body because they are not aware of the number of regulators involved.
Business Growth
Financial constraint is the leading constraint stopping the WRT businesses from growing beyond a certain size. To be sure, the majority of WRT business owners want to expand their business.
While there are regulatory and structural impediments to the growth of WRT businesses, the WRT business owners are also responsible for not growing beyond a certain size. A majority of formal sector industry players, still use dated methods for inventory management and forecasting future trends, demand, and sales. Only recently after the pandemic businesses have started using more aggressive measures to collect data from different resources (such as Google Analytics, etc.) to make informed decisions about the future.
Moreover, the unpredictability of supply and slow inventory restocking cycles result in regular stockouts. Traditional retailers in Pakistan cannot get competitive prices because of being attached to one supplier. They do not even search for alternate suppliers or products. An average retailer spends a considerable time per week on procurement alone.
The financial constraint in growth is perhaps due to the working capital restrictions that result from investing regularly in keeping inventory. To avoid being out of stock, retailers invest more working capital into their stores.
The WRT businesses do not engage with formal financial institutions because of stringent documentation requirements and the fear of being approached by the tax authorities once registered with formal banking institutions. Moreover, various actors along the supply chain insist on maintaining undocumented and informal relations.
Since transporting goods across Pakistan is costly, most of the wholesalers restrict themselves to certain geographical locations, which results in a limited customer base. Here, the role of logistics is important, which is one of the key areas of focus in the National Domestic Commerce Policy 2022-24. Rail logistics need to be improved in Pakistan
Pakistani big retail players and brands do not use market intelligence to the extent that the rest of the world uses such tools. Chain stores, big retail companies, supermarkets, etc. do not grow and build international brands because of no access to reliable data for forecasting.
Those who are in the informal sector want to graduate to the formal sector because of the growth opportunities that the formal sector offers but they do not do so because government departments create fear in the business community. Government departments, such as the FBR and the EOBI, create unnecessary problems for traders, which wastes time and resources.
Almost every week, a government official visits the business – 89% in the case of Islamabad. Moreover, many traders are not even aware of the departments that are concerned with retail and wholesale.
Rents
In large commercial areas, a sizable portion – 48% – believe the rents to be high. One of the reasons for the increase in rents is the 2016 Supreme Court ruling disallowing commercial activities in residential areas. This shows that urban design, zoning regulations, and small areas dedicated to commercial development in mushrooming housing societies stifle domestic commerce and market development in Pakistan.
Finance and Banking
Stock Market
The PSX may be characterized as a silent market: low volumes, few, if any, IPOs in any year, and few individual investors. The Pakistani stock market is relatively small and illiquid compared to other emerging markets.
The market capitalization-to-GDP ratio was 10.19% in 2022, which came down from 22.11% in 2018. The declining capitalization-to-GDP ratio is a signal that the PSX has not been an effective or preferred means of raising finances for businesses. Rather, it is mostly used for speculative purposes.
At the PSX, mostly family-owned businesses are listed. The top 10 owners account for 37% of the market capitalization of the KSE-100, which reduces liquidity and trade volumes, lowering market efficiency.
31 families dominate with family ownership and control.
Family-owned or founder-owned companies have a low free float because the company’s shares are held by the founding family or their close associates, leaving fewer shares to be traded. Most of the blue chip companies’ free float shares ranged between 4.2% and 55% in 2021.
The single largest shareholder in the PSX is the government accounting for over 12% of market capitalization and controlling substantial shareholding in the KSE-100.
Government and institutional ownership work in favor of family-owned businesses. PSX’s few new listings show that the stock exchange is not used to generate finances, showing Pakistani companies’ desire to keep the business within the family.
Given that most firms are family-owned businesses, it is not surprising that boards of directors are a small club of friends. USAID created the Pakistan Institute of Corporate Governance, which regulates boards to place entry barriers and ensure that board members rotate between companies.
Few companies pay dividends regularly.
The PSX is dominated by few big investors due to very low free-float shares compared to international practices, which creates one of the major problems of speculation.
Although debt is used for expansion and gaining a competitive edge, in the PSX, the debt-to-equity ratio is low. However, the capital-intensive industries have low debt-to-equity ratios showing a lack of reliance on debt for expansion.
Banking
Banks primarily lend to the government because the government debt management system is positioned in that direction.
Banks focus predominantly on the corporate sector at the expense of SMEs, agriculture, and housing.
Chain Stores
Over the past few years, Pakistan’s retail sector has seen domestic brands penetrate the domestic commerce market. Many of these brands operate through the chain store retail model.
At present, there are an estimated 134 retail chain store brands in Pakistan. Out of these 134 chain store brands, 73 (54%) belong to the clothing category.
Chain store brands are mainly concentrated in larger urban centers – Lahore, Karachi, and Islamabad/Rawalpindi. The chain store model is yet to make inroads into smaller areas as only 34% of the stores operated by chain brands are spread across the rest of the country.
The size of chain store brands in terms of the average number of stores in Pakistan is still small. On average, the estimated 134 chain stores brands have 15 stores. The largest chain store brand has 466 stores across Pakistan.
Despite growth in the domestic market, Pakistani brands, have not been able to build their international profiles and penetrate the international markets. Only a few clothing and apparel brands have established stores in international locations, but they still only cater to Pakistani and South Asian Diasporas and have ethnic product ranges.
Only 25% of the chain store brands are registered with the Securities Exchange Commission of Pakistan as per the stipulations of the Companies Act, 2017.
Withholding tax continues to haunt businesses in Pakistan as withholding agents and the chain store sector is no different.
Chain stores face significant costs when it comes to withholding taxes from their suppliers and other parties on behalf of the FBR. They have to hire technically proficient personnel to perform this function. And in case of any procedural or accidental mistake, they are subjected to intense scrutiny by tax authorities.
Because of the limited supply of commercial spaces in cities, it is difficult to find a suitable place at affordable rates for chain store brands to open new outlets. Thus, problems in the availability of suitable commercial space also haunt the chain store segment.
Even though shopping malls have proliferated in Pakistan, these malls are in the majority of cases not operated professionally. The owners/operators do not understand the professional nature of modern and branded retail chain store business. More often than not, services such as maintenance, security, cleaning, and integration of technology are not available in most malls.
Franchising
Pakistan was the first country in South Asia to welcome the franchising of Western companies as a modern business practice. The first franchise of Pizza Hut in South Asia was set up in Pakistan in 1993.
Though several international brands have entered Pakistan in the last two decades, the national brands have failed to go global because business conglomerates opt to invest in traditional businesses that are mostly inward-looking; the scope of marketing is limited to maximizing sales in the domestic market and profit maximization; and a lack of brand equity and no quality/value addition in products.
International brands in the domestic market trump national brands because of superior branding strategies, marketing skills, and product standardization.
More than 200 global brands in Pakistan have a collective revenue of USD 4 billion a year and collect an annual royalty of USD 0.9 billion. On the other hand, Pakistani brands have an insignificant global presence.
Pakistanis spend between USD 6 and USD 9 billion annually on food (Pakistan Food Association), which signals a potential for Pakistani food brands to make their presence felt first in the domestic market, develop products that sell in the global market, and eventually go global.
Business Conglomerates
The combined worth of the 42 largest business conglomerates, in Pakistan, which own 421 companies, was approximately USD 48.23 billion in 2020. In comparison, the Tata Group – the second-largest business group in India – owns 30 companies and is worth USD 311 billion. Pakistan’s largest conglomerate has a total worth of USD 6 billion.
Pakistani businesses are characterized by the “Seth Culture,” with a tight grip on business management. Out of 421 companies owned by 42 business conglomerates, only 24% are listed on the Pakistan Stock Exchange. It indicates a scarcity of Initial Public Offerings (IPOs) and limited stock trading activities in Pakistan.
Pakistan’s businesses are known to thrive on rent-seeking. For this reason, Pakistan conglomerates invest primarily in conventional sectors – textiles, real estate, financial services, power and energy – because of guaranteed returns: they seek government support in the form of subsidies, tax breaks, subsidized energy tariffs, and high tariffs, among other things. This behavior discourages new entrants and prevents competition.
The export figures of the 42 conglomerates show that these businesses’ main interest is in chasing incentives. The data of the conglomerates’ listed companies show that the combined exports of 39 companies of the 42 business conglomerates are USD 2.07 billion (PKR 594.35 billion). To put things into perspective, India’s Reliance Industries Limited, a company owned by India’s largest conglomerate, exported products worth USD 22.91 billion in 2017.
Pakistani conglomerates’ exports are mostly concentrated in traditional sectors. The value of exports of high value-addition sectors is small. For example, the exports of the engineering sector are only USD 24.09 million. Similarly, the exports of the chemical sector are only USD 18.38 million.
Mobile Phones
The Mobile Phone Manufacturing Policy 2020 announced to boost the local production of mobile phones has failed to achieve most of the localization targets.
- No localization of parts so far;
- the sharp decline in the import of CBUs is substituted with a sharp hike in imports of CKDs and SKDs;
- against the target of 0.2 million jobs, only 20,000 jobs have been created;
- against the target of USD 200 million FDI, so far only USD 23.38 million FDI;
- only 16,000 low-end feature phones were exported to the UAE in 2019-20 according to the PTA, while no phones have been exported to the markets identified in the Policy: Africa, Central Asian Republic, etc.
There is no evidence of R&D. Thus, mobile phone manufacturing is another industry that is being used by businesses in Pakistan to chase incentives and maximize revenues.
In the twin cities, retailers and wholesalers of mobile phones contribute significantly to domestic commerce. The estimated sales of mobile phones in the twin cities are USD 72.1 million per annum.
Real Estate and Construction
Plotistan – that is what Pakistan has become: the real estate market of twin cities is dominated by plots as 50 % of total real estate available on the market is in the form of plots, i.e., undeveloped land.
Poor urban planning and regulation have encouraged suburban development, leading to the abundance of housing societies and plots.
Commercial real estate, which is considered the backbone of domestic commerce and the domestic market, has a very low share in overall real estate.
Perhaps the real estate market is used for speculation: the real estate market is dominated by sale and purchase and the share of rental activity is very low.
The construction activity in the twin cities is concentrated on small projects with a fixation on housing societies. A very small proportion of constructors – 8% in Islamabad and 4% in Rawalpindi – are registered to undertake construction projects valued at over PKR 1 billion. An even lower proportion – only 4% of the constructors in Islamabad and 1% in Rawalpindi – are allowed to handle projects exceeding PKR 4 billion.
Contrary to popular belief, real returns from real estate show a decreasing trend. This is despite the rising prices of real estate in twin cities.
There is a significant wholesale and retail activity related to real estate and construction in twin cities: PKR 4.9 billion in annual sales in sanitary, almost the same in hardware, PKR 4.7 billion in annual sales in electric stores, and PKR 41 billion annual sales in construction-related material, especially cement, in Islamabad only.
19-21 tower cranes in the twin cities versus 1,345 tower cranes in Dubai: tower cranes indicate large construction projects but in twin cities, a low number of tower cranes indicates low large-scale construction activity, particularly in high-rise mixed-use buildings.
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[10] It makes it confusing whether the product is taxed by provincial authorities or federal authorities. Goods are taxed by the federal tax authorities, while services are taxed by provincial tax authorities.
[11] The establishments do not use formal credit mainly because of wanting to avoid registration. However, the high rate of borrowing and the lack of specialized products for the WRT sector are also among the reasons.
