Industrial Report-Dec 2022
Impact of Economic Conditions on Businesses of Pakistan in 2022
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Dec 2022
Source: Insights by Data Darbar
Prepared by: Enterprise Risk Management – Risk Management Group
Preamble
The year 2022 for Pakistan has been tumultuous for the country with a lot
happening. The change in political powers in the first half was a defining point
whereas the dangerous flooding that affected many are a few of such events.
However, all these developments pale in comparison to the recent high rise of
inflation and the sharp monetary contraction that has caused a major dent to
the consumers and businesses. All of this was only made worse by the dilly-
dallying resumption of the International Monetary Fund (IMF) programme and
the constant talk of default.
The year 2022 resulted in 2.36 to 3.6 million jobs that were lost and/or
disrupted as a result of the worst ever floods in the history of Pakistan that
devastated more than 84 districts of Pakistan.
Organizations and Startups closing doors in 2022
For tech startups though, it was the changing global macros more than
anything that spoiled the party. After a solid 2021 on the back of a capital
frenzy that swept away markets the world over, and record investment of
$366 million in Pakistan, there was naturally a lot of optimism for the
ecosystem in 2022. And it started on a high note too: local startups raised
over $174m in the first quarter. But the US Federal Reserve’s contractionary
policy amid high inflation soon caught up and slowed down the venture
capital activity.
The cracks first began to appear in the second quarter of 2022, when startups
started scaling back their operations and laying off people. That included
Airlift, which pulled out of all cities other than Karachi, Lahore and Islamabad
and let go of 31 per cent of the workforce. Soon after, Swvl and Truck It in
followed suit in downsizing their workforce. However, the fundraising held up
to $104m, still higher compared to the same period last year.
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 Industrial Report-Dec 2022
Come the third quarter and it was almost carnage. Investment
plunged 47pc QoQ and 68pc YoY to $55.4, the lowest since Q1-2021. More
Organizations and Startups that than that, the period saw the biggest casualty of the new fundraising
halted operations in 2022 environment: Airlift, the most funded Pakistani startup, announced it was
shutting all operations after its investors backed out. This was the same
1. SWVL company that had first unlocked meaningful capital for the country.
2. VAVA cars
3. Airlift
4. Careem (food delivery) 150+ Textile mills shut down in the last 5 months
5. Kohinoor Spinning Mills
6. Fauji Fertilizers (DAP plant)
The textile industry is experiencing a severe crisis as a result of soaring
7. Pak Suzuki (Auto and
energy costs, as approximately 150 textile factories have closed in the
Motorcycle plants)
fourth quarter of 2022. According to the information, 150 textile spinning
8. Indus Motors (Production
and weaving factories in the country have closed in the previous five
Plant)
months as a result of Pakistan’s worsening energy crisis, resulting in the
9. KSB Pakistan
unemployment of at least 2 million people.
10. Nishat Chunian

While criticizing the economic approach of the current administration, mill

owners stated, “Under the current administration, production costs have
“TEXTILE SECTOR ON increased by 100 percent.” The proprietors complained about the increase
in energy costs, stating, “During the previous government, electricity rates
ITS KNEES AFTER RISING were 18 rupees; they are now 36 rupees, and the price of a liter of
gasoline has risen from 150 rupees to 245 rupees.” The mill owners
ENERGY PRICES” ~ARY NEWS reported that gas is unavailable to industries and import letters of credit
16TH DEC’22 (LCs) are not being issued, resulting in a lack of raw materials for the
textile industry. If the government does not take urgent action, further
textile mills will be forced to close.

Moreover, according to recent reports Kohinoor Spinning Mills has

temporarily shut down due to prevailing global and economic downturn,
overdue plant maintenance, high cost of production and low price and
demand. The company believes it is not feasible to operate the production
facility under recent conditions. Therefore, the management of the
Company has decided to temporarily close/stop the production activities
of the Company with immediate effect.

Investments in Pakistan

Whether it was for these high-profile shutdowns, the global macros or our
own weakening fundamentals, the pullback was hard to miss. The number
of unique investors participating in Pakistani startup deals fell to just 52,
the lowest since Q1-2021. And it makes up for a dismal picture.

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Prepared by: Enterprise Risk Management – Risk Management Group
 Industrial Report-Dec 2022
Only seven investments (excluding M&A) worth $13.9m have been
disclosed in 2022. If it continues this way, it would be the worst quarter in
terms of amount since Q1-2022 and joint lowest by deal count since Q2-
2020.

Pakistan Needs $ 155 Billion Investment in Energy Sector to Meet

Energy Crisis

The Asian Development Bank’s Central Asia Economic Cooperation and

Energy Outlook Report states that Pakistan has transmission and
distribution problems in the energy sector. The energy sector in Pakistan is
dependent on imported fuel due to a lack of exploration.  
Pakistan has the capacity to produce 3.0 tera watts of electricity from
alternative energy sources. Since 2015, the production of electricity from
alternative energy sources has been decreasing in Pakistan. In 2019, local
oil production in Pakistan was 40 million tons.

The Asian Development Bank report said that a gradual decrease in annual
gas reserves is being seen in Pakistan. It is importing tons of coal. There are
about 3 billion tons of coal reserves in Pakistan.

Effects of flooding in Pakistan

The catastrophic floods in Pakistan have caused economic damages to the

tune of around USD 18 billion to the country's teetering economy, wiping
out more than 8 million acres of crops and displacing more than 33 million.
Record monsoon rains and melting glaciers in northern mountains
brought floods that have killed at least 1,736, according to the Centre of
Disaster Philanthropy.

The rapid assessment cost on projected economic losses following

Pakistan’s worst food floods as calculated by the government and
endorsed by the provinces has gone up further to the tune of around USD
18 billion.

The devastating floods have inundated a third of the country. The losses
further swelled because agricultural crops have been destroyed across
8.25 million acres as compared to an initial assessment of 4.2 million acres.

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 Industrial Report-Dec 2022
LC restrictions crippling industries

The recent non-issuance of letters of credit (LCs) is crippling industrial

activities, leading to massive unemployment as companies are unable to
import the raw material necessary to keep their manufacturing wheel
LC restrictions running. The emerging situation has terribly affected industrial activities as
well as exports, which would have a devastating impact on the already ailing
crippling industries economy and the lives of millions of poor people due to massive layoffs.
Express Tribune, December 17, 2022
The industries of Pakistan fear that if raw material, parts/machinery and
other required imported items are not cleared by the government and timely
payments are not made for the imported goods, there will be severe
shortage of basic goods and critical items in the coming days.

The State Bank of Pakistan’s (SBP) foreign exchange reserves have fallen to a
nine-year low at $6.7 billion due to the unavailability of sufficient external
funds. The SBP could take additional measures to further curtail imports
through broadening the import restrictions and limiting the approval of LCs,
he continued.

Auto parts makers extend production shutdown amid drops in sales

A slowdown in economic activity continued to bite Pakistan's industrial

sector, as Baluchistan Wheels Limited (BWHL) and many other auto and
allied manufacturers, announced closure of production activities.

“The company is facing a drop in sales orders from the OEMs,” said BWHL’s
representative, which is engaged in manufacturing and marketing
automotive wheel rims for trucks, buses, tractors, cars and mini commercial
vehicles.

Experts attributed the development to high auto prices, which has crashed
demand, leaving companies under pressure. They warned more companies
are expected to take a similar route, as global orders are declining, which
would dent exports.

The country’s auto industry, highly dependent on imports, has been caught in
the midst of an exchange-rate crisis, as the SBP, after unabated rupee
depreciation, imposed restrictions on opening of Letters of Credit (LCs).
The overall automobile sales plunged by 39% year-on-year in the first five
months of the current fiscal year.

Total auto sales in the first five months of 2022 stood at 66,458 units
compared to 108,635 units in the corresponding period last year.

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 Industrial Report-Dec 2022

Salient Features of the Finance Supplementary Bill 2023 – Mini

Budget

On 15th February 2023, at the meeting in the National Assembly the Finance
Minister Ishaq Dar presented the Finance Supplementary Bill or Mini budget
for 2023. The finance supplementary bill is aimed at implementing the
additional taxation measures that were agreed upon with the IMF. Moreover,
this bill would have a significant impact on industries in the following year.
Some key takeaways from the assemble were:

 Sales tax on general items has been increased to 18 per cent

from 17 per cent. This could impact on many FMCGs and further
industries.
 Sales tax on mobile phones with a value exceeding $500 will be
set at 25 per cent, against 17 per cent earlier.
 Sales tax on locally produced coal increased to 18 per cent or
PkR700/ton, whichever is higher (previously higher of 17 per
cent or PkR700/ton).
 FED (Federal Excise Duty) on Sugary drinks introduced at 10 per
cent of retail price.
 FED increased on cement to PkR2.0/kg (previously PkRl.5/kg).
 FED increased on locally produced cigarettes. Locally produced
cigarettes if their on-pack printed retail price exceeds PkR9,000
(from PkR6,660) per 1000 cigarettes to PkR16,500 (from
PkR6,500). Whereas, if their on-pack printed retail price does not
exceed PkR9,000 (from PkR6,660) per 1000 cigarettes to
PkR5,050 (from PkR2,050).

IS PAKISTAN Future Outlook

GOING TO The past year the country had to deal with many serious economic events
DEFAULT IN 2023? such as the rising inflation, high debt, dangerous flooding and many more.
Express Tribune, January 2nd 2023 Expensive imports and a softening in global demand for exports as well as
China’s slowdown will add further pressure on Pakistan and the region. With
the occurrence of these events the global economic situation looks grim.
Moreover, experts believe that the negative economic indicators point
towards a looming recession in Pakistan.

Moving forward the government must understand the dynamics of a global

slowdown and its potential impact on Pakistan’s macroeconomic fault lines.
There hasn’t been any relaxation in the IMF program or a sympathetic
response to cover the damages from the devastating floods. Pakistan is left
with no choice but to complete the Fund program that will end in June 2023.
It is very likely that Pakistan will need another IMF program to complete the
adjustment process during the next three years. The GDP growth forecast for
2023 has already been slashed downwards to 2-3pc and it will continue to
remain low in the adjustment period as the IMF will push for monetary
tightening and demand compression till the easing of inflationary pressure.
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Prepared by: Enterprise Risk Management – Risk Management Group