The retail sector seems to be priming the economic pump. As per latest data released by the Pakistan Bureau of Statistics, the overall output of the large-scale manufacturing (LSM) index grew by 5.69 percent in Jul-May FY17. (For more on LSM going forward, please read “L-S-M!” published August 2).
Among the top-three growth industries in the FY17 LSM index is ‘electronics’ – the other two being ‘iron and steel products’ and ‘automobiles’. Having a roughly 2 percent weight in the LSM index, the electronics industry grew by a recent high of 16.18 percent year-on-year in 11MFY17.
The key electronics items illustrated in the graph have all grown between FY11 and FY16. However, the growth in refrigerators and air-conditioners has been the most prominent. In the more recent period, there is double-digit growth all around, except for the TV sets. During 11MFY17, production of deep freezers grew by 28 percent, refrigerators 24 percent; electric fans 21 percent, and air-conditioners 10 percent, on a year-on-year basis.
In tandem with growth in domestic retail, the production of major electronics items is expected to continue its recent growth run. The middle-class, both its existing members and aspirants, tend to drive the purchases of white goods and electronics. If the economic growth gathers pace, the resulting higher per capita income will push the sales of both lifestyle and convenience products. Already, there is an apparent proliferation of housing schemes in both major and small cities – a sign of upward mobility – that is also a driving factor in appliance sales.
While folks want comfortable lifestyles, not many households currently have that. As per Euro monitor, in 2016, mere 55 percent of households had a washing machine, 43 percent had a refrigerator, 20 percent had a microwave oven, and 16 percent had a deep freezer. There is obviously potential there, more so in rural areas where ownership of household durables is markedly lower than urban areas. Continued flows of remittances and growth in farming incomes are going to be driving forces for electronics sales. But who will feed all that demand? While almost all of the demand for electric fans and refrigerators is being met through local production, the same is not the case for air conditioners, LED TV sets, deep freezers, and washing machines. The domestic players are conscious of the need to invest in product design, functionality, and quality of service. But the price-conscious mass market doesn’t encourage them to really go the extra mile, thus hampering their ability to compete with the imported products.
Pakistan’s domestic electronics production generally sees one good year followed by a slow year. Let’s see if FY18 also keeps the momentum going. Pakistan is on course to become a middle-income country in about five years. Manufacturers must invest more in high-quality electronics at this stage. Better availability of electricity and growth in dual-income, nuclear households may further drive demand. Then there is the prospect of CPEC, which may help Pakistan become competitive in this space.
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